Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                     

Commission file number: 001-16853



SBA COMMUNICATIONS CORPORATION

(Exact name of Registrant as specified in its charter)





 

Florida

65-0716501

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)







 

8051 Congress Avenue

 

Boca Raton, Florida

33487

(Address of principal executive offices)

(Zip Code)



Registrant’s telephone number, including area code (561) 995-7670



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No   



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.





 

 

 

Large accelerated filer

Accelerated filer



 

 

 

Non-Accelerated filer

Smaller reporting company



 

 

 



 

Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No   



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value per share

SBAC

The NASDAQ Stock Market LLC



 

(NASDAQ Global Select Market)

Indicate the number of shares outstanding of each issuer’s classes of common stock, as of the latest practicable date: 113,251,125 shares of Class A common stock as of April 30, 2019.




 

Table of Contents

Table of Contents 





 

 



 

 

 

 

Page

PART I – FINANCIAL INFORMATION 



 

 

Item 1.

Financial Statements



Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018



Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2019 and 2018



Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2019 and 2018



Consolidated Statement of Shareholders’ Deficit (unaudited) for the three months ended March 31, 2019 and 2018



Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2019 and 2018



Condensed Notes to Consolidated Financial Statements (unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39 

Item 4.

Controls and Procedures

42 



PART II – OTHER INFORMATION

Item 6.

Exhibits

42 





 

SIGNATURES 

43 











 


 

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (in thousands, except par values)





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018

ASSETS

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

117,613 

 

$

143,444 

Restricted cash

 

 

23,883 

 

 

32,464 

Accounts receivable, net

 

 

113,017 

 

 

111,035 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

23,482 

 

 

23,785 

Prepaid expenses and other current assets (1)

 

 

22,574 

 

 

63,126 

Total current assets

 

 

300,569 

 

 

373,854 

Property and equipment, net (1)

 

 

2,761,325 

 

 

2,786,355 

Intangible assets, net

 

 

3,258,952 

 

 

3,331,465 

Right-of-use assets, net (1)

 

 

2,552,304 

 

 

 —

Other assets (1)

 

 

439,609 

 

 

722,033 

Total assets

 

$

9,312,759 

 

$

7,213,707 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

34,545 

 

$

34,308 

Accrued expenses

 

 

53,534 

 

 

63,665 

Current maturities of long-term debt

 

 

942,442 

 

 

941,728 

Deferred revenue

 

 

98,970 

 

 

108,054 

Accrued interest

 

 

35,059 

 

 

48,722 

Current lease liabilities (1)

 

 

228,776 

 

 

 —

Other current liabilities (1)

 

 

11,328 

 

 

9,802 

Total current liabilities

 

 

1,404,654 

 

 

1,206,279 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

8,780,606 

 

 

8,996,825 

Long-term lease liabilities (1)

 

 

2,282,803 

 

 

 —

Other long-term liabilities (1)

 

 

147,477 

 

 

387,426 

Total long-term liabilities

 

 

11,210,886 

 

 

9,384,251 

Shareholders' deficit:

 

 

 

 

 

 

Preferred stock - par value $.01, 30,000 shares authorized, no shares issued or outstanding

 

 

 —

 

 

 —

Common stock - Class A, par value $.01, 400,000 shares authorized, 113,205

 

 

 

 

 

 

shares and 112,433 shares issued and outstanding at March 31, 2019

 

 

 

 

 

 

and December 31, 2018, respectively

 

 

1,132 

 

 

1,124 

Additional paid-in capital

 

 

2,359,195 

 

 

2,270,326 

Accumulated deficit

 

 

(5,131,347)

 

 

(5,136,368)

Accumulated other comprehensive loss, net

 

 

(531,761)

 

 

(511,905)

Total shareholders' deficit

 

 

(3,302,781)

 

 

(3,376,823)

Total liabilities and shareholders' deficit

 

$

9,312,759 

 

$

7,213,707 



(1)

On January 1, 2019, the Company adopted ASU 2016-02 which requires lessees to recognize a right-of-use asset and a lease liability. Upon adoption, certain assets and liabilities were reclassified to Right-of-use assets, net and lease liabilities in accordance with provisions of ASU 2016-02. See Note 1 for further discussion.

The accompanying condensed notes are an integral part of these consolidated financial statements. 

1


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

(unaudited) (in thousands, except per share amounts)



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

2019

 

2018

Revenues:

 

(unaudited)

 

(unaudited)

Site leasing

 

$

452,183 

 

$

430,542 

Site development

 

 

41,110 

 

 

27,760 

Total revenues

 

 

493,293 

 

 

458,302 

Operating expenses:

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, accretion,

 

 

 

 

 

 

and amortization shown below):

 

 

 

 

 

 

Cost of site leasing

 

 

92,714 

 

 

92,817 

Cost of site development

 

 

31,101 

 

 

22,520 

Selling, general, and administrative (1)(2)

 

 

50,959 

 

 

36,049 

Acquisition and new business initiatives related adjustments and expenses

 

 

2,437 

 

 

3,044 

Asset impairment and decommission costs

 

 

5,771 

 

 

8,506 

Depreciation, accretion, and amortization

 

 

171,038 

 

 

165,398 

Total operating expenses

 

 

354,020 

 

 

328,334 

Operating income

 

 

139,273 

 

 

129,968 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,800 

 

 

1,295 

Interest expense

 

 

(98,667)

 

 

(88,923)

Non-cash interest expense

 

 

(641)

 

 

(733)

Amortization of deferred financing fees

 

 

(5,061)

 

 

(5,388)

Loss from extinguishment of debt, net

 

 

 —

 

 

(645)

Other income (expense), net

 

 

(508)

 

 

4,553 

Total other expense, net

 

 

(103,077)

 

 

(89,841)

Income before income taxes

 

 

36,196 

 

 

40,127 

Provision for income taxes

 

 

(10,207)

 

 

(8,582)

Net income

 

$

25,989 

 

$

31,545 

Net income per common share

 

 

 

 

 

 

Basic

 

$

0.23 

 

$

0.27 

Diluted

 

$

0.23 

 

$

0.27 

Weighted average number of common shares

 

 

 

 

 

 

Basic

 

 

112,708 

 

 

116,494 

Diluted

 

 

114,344 

 

 

118,293 



(1)

Includes non-cash compensation of $22,605 and $9,893 for the three months ended March 31, 2019 and 2018, respectively.

(2)

Includes the impact of a partial recovery of $2.3 million of Oi prepetition obligations received during the three months ended March 31, 2019.

The accompanying condensed notes are an integral part of these consolidated financial statements.

2


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited) (in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

 

 

 

 

 



 

2019

 

2018

Net income

 

$

25,989 

 

$

31,545 

Change in fair value of cash flow hedge

 

 

(15,312)

 

 

 —

Foreign currency translation adjustments

 

 

(4,544)

 

 

351 

Comprehensive income

 

$

6,133 

 

$

31,896 



The accompanying condensed notes are an integral part of these consolidated financial statements.



3


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(unaudited) (in thousands)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

Class A

 

Additional

 

 

 

 

Other

 

 

 



 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

 

 



 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss, Net

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2018

 

112,433 

 

$

1,124 

 

$

2,270,326 

 

$

(5,136,368)

 

$

(511,905)

 

$

(3,376,823)

Net income

 

 —

 

 

 —

 

 

 —

 

 

25,989 

 

 

 —

 

 

25,989 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

762 

 

 

 

 

63,467 

 

 

 —

 

 

 —

 

 

63,475 

Non-cash stock compensation

 

 —

 

 

 —

 

 

23,722 

 

 

 —

 

 

 —

 

 

23,722 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquisitions

 

10 

 

 

 —

 

 

1,680 

 

 

 —

 

 

 —

 

 

1,680 

Change in fair value of cash flow hedge

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(15,312)

 

 

(15,312)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,544)

 

 

(4,544)

Impact of adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

related to leases

 

 —

 

 

 —

 

 

 —

 

 

(20,968)

 

 

 —

 

 

(20,968)

BALANCE, March 31, 2019

 

113,205 

 

$

1,132 

 

$

2,359,195 

 

$

(5,131,347)

 

$

(531,761)

 

$

(3,302,781)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

Class A

 

Additional

 

 

 

 

Other

 

 

 



 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

 

 



 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2017

 

116,446 

 

$

1,164 

 

$

2,167,470 

 

$

(4,388,288)

 

$

(379,460)

 

$

(2,599,114)

Net income

 

 —

 

 

 —

 

 

 —

 

 

31,545 

 

 

 —

 

 

31,545 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

264 

 

 

 

 

6,883 

 

 

 —

 

 

 —

 

 

6,886 

Non-cash stock compensation

 

 —

 

 

 —

 

 

10,636 

 

 

 —

 

 

 —

 

 

10,636 

Repurchase and retirement of common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock

 

(238)

 

 

(2)

 

 

 —

 

 

(38,543)

 

 

 —

 

 

(38,545)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

351 

 

 

351 

BALANCE, March 31, 2018

 

116,472 

 

$

1,165 

 

$

2,184,989 

 

$

(4,395,286)

 

$

(379,109)

 

$

(2,588,241)



The accompanying condensed notes are an integral part of these consolidated financial statements.



4


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in thousands)



 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months ended March 31,



 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

25,989 

 

$

31,545 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization

 

 

171,038 

 

 

165,398 

Non-cash asset impairment and decommission costs

 

 

5,451 

 

 

8,446 

Non-cash compensation expense

 

 

23,414 

 

 

10,410 

Deferred income tax expense

 

 

3,470 

 

 

2,277 

Other non-cash items reflected in the Statements of Operations

 

 

4,647 

 

 

2,784 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

AR and costs and est. earnings in excess of billings on uncompleted contracts, net

 

 

1,931 

 

 

(5,198)

Prepaid expenses and other assets

 

 

(130)

 

 

(9,277)

Operating lease right-of-use assets, net

 

 

24,116 

 

 

 —

Accounts payable and accrued expenses

 

 

(5,050)

 

 

(14,336)

Accrued interest

 

 

(13,663)

 

 

(15,137)

Long-term lease liabilities

 

 

(19,652)

 

 

 —

Other liabilities

 

 

1,104 

 

 

1,665 

Net cash provided by operating activities

 

 

222,665 

 

 

178,577 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisitions

 

 

(55,287)

 

 

(117,622)

Capital expenditures

 

 

(36,374)

 

 

(31,096)

Purchase of investments

 

 

(150,053)

 

 

(686)

Proceeds from sale of investments

 

 

150,557 

 

 

 —

Other investing activities

 

 

6,181 

 

 

(2,193)

Net cash used in investing activities

 

 

(84,976)

 

 

(151,597)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

 

 —

 

 

265,000 

Repayments under Revolving Credit Facility

 

 

(215,000)

 

 

(70,000)

Repayment of Tower Securities

 

 

 —

 

 

(755,000)

Proceeds from issuance of Tower Securities, net of fees

 

 

 —

 

 

631,848 

Repurchase and retirement of common stock

 

 

 —

 

 

(38,545)

Proceeds from employee stock purchase/stock option plans

 

 

63,475 

 

 

6,901 

Other financing activities

 

 

(6,522)

 

 

(6,155)

Net cash (used in) provided by financing activities

 

 

(158,047)

 

 

34,049 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(14,071)

 

 

(504)

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

(34,429)

 

 

60,525 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

 

 

 

 

 

 

Beginning of period

 

 

178,300 

 

 

104,295 

End of period

 

$

143,871 

 

$

164,820 



The accompanying condensed notes are an integral part of these consolidated financial statements.

5


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)







 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months ended March 31,



 

2019

 

2018



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

112,378 

 

$

104,011 

Income taxes

 

$

5,593 

 

$

2,148 



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

28,881 

 

$

 —

Operating lease modifications and reassessments

 

$

21,063 

 

$

 —

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

865 

 

$

260 

Common stock issued in connection with acquisitions

 

$

1,680 

 

$

 —



The accompanying condensed notes are an integral part of these consolidated financial statements.



6


 

Table of Contents

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



1.BASIS OF PRESENTATION

The accompanying consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for SBA Communications Corporation and its subsidiaries (the “Company”). These financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. The results of operations for an interim period may not give a true indication of the results for the year. Certain reclassifications have been made to prior year amounts or balances to conform to the presentation adopted in the current year.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements and accompanying notes, the actual amounts, when known, may vary from these estimates.

Foreign Currency Translation

All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its functional currency are translated at period-end rates of exchange, while revenues and expenses are translated at monthly average rates of exchange prevailing during the period. Unrealized remeasurement gains and losses are reported as foreign currency translation adjustments through Accumulated Other Comprehensive Loss in the Consolidated Statement of Shareholders’ Deficit.

For foreign subsidiaries where the U.S. dollar is the functional currency, monetary assets and liabilities of such subsidiaries, which are not denominated in U.S. dollars, are remeasured at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at monthly average rates prevailing during the year. Unrealized translation gains and losses are reported as other income (expense), net in the Consolidated Statements of Operations.

Intercompany Loans Subject to Remeasurement

In accordance with Accounting Standards Codification (ASC) 830, the Company remeasures foreign denominated intercompany loans with the corresponding change in the balance being recorded in Other income (expense), net in the Consolidated Statements of Operations as settlement is anticipated or planned in the foreseeable future. The Company recorded a $2.1 million loss and a $1.6 million gain on the remeasurement of intercompany loans for the three months ended March 31, 2019 and 2018, respectively, due to changes in foreign exchange rates. As of March 31, 2019 and December 31, 2018, the aggregate amount outstanding under the two intercompany loan agreements with the Company’s Brazilian subsidiary was $471.3 million and $536.9 million, respectively.

Leases

The Company adopted ASU No. 2016-02, Leases (Topic 842) using the modified retrospective adoption method with an effective date of January 1, 2019. The consolidated financial statements for 2019 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. The Company has elected not to separate nonlease components from the associated lease component for all underlying classes of assets.

The adoption of the new lease standard had a significant impact on the Company’s  Consolidated Balance Sheets resulting in the recognition of $2.6 billion of right-of-use assets, net,  $226.0 million of current lease liabilities, and $2.3 billion of long-term lease liabilities. The right-of-use assets included $266.3 million of rent prepayments and financing lease right-of-use assets, net which were previously reported in Prepaid expenses and other current assets, Other assets, and Property, Plant and Equipment, net on the Consolidated Balance Sheets. In addition, the Company recognized a $21.0 million cumulative effect adjustment, net of tax, to Accumulated deficit on the Consolidated Balance Sheet related to the unamortized deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842.

7


 

Table of Contents

The adoption of Topic 842 did not have a significant impact on the Companys lease classification or a material impact on its Consolidated Statements of Operations and liquidity. Additionally, the adoption of Topic 842 did not have a material impact on the Company’s debt covenant compliance under its current agreements.

The components of the right-of-use assets and lease liabilities as of March 31, 2019 are as follows (in thousands):





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

 

 

 

 

 

$

2,549,143 

Financing lease right-of-use assets, net

 

 

 

 

 

 

 

 

3,161 

Right-of-use assets, net

 

 

 

 

 

 

 

$

2,552,304 



 

 

 

 

 

 

 

 

 

Current operating lease liabilities

 

 

 

 

 

 

 

$

227,819 

Current financing lease liabilities

 

 

 

 

 

 

 

 

957 

Current lease liabilities

 

 

 

 

 

 

 

$

228,776 



 

 

 

 

 

 

 

 

 

Long-term operating lease liabilities

 

 

 

 

 

 

 

$

2,281,561 

Long-term financing lease liabilities

 

 

 

 

 

 

 

 

1,242 

Long-term lease liabilities

 

 

 

 

 

 

 

$

2,282,803 

Operating Leases

Ground leases. The Company enters into long-term lease contracts for land that underlies its tower structures. Ground lease agreements generally include renewal options which can be exercised exclusively at the Company’s election. In making the determination of the period for which the Company is reasonably certain to remain on the site, the Company will assume optional renewals are reasonably certain of being exercised for the greater of: (1) a period sufficient to cover all tenants under their current committed term where the Company has provided rights to the tower not to exceed the contractual ground lease terms including renewals, and (2) a period sufficient to recover the investment of significant leasehold improvements located on the site.

Substantially all leases provide for rent rate escalations. The most common provisions provide for fixed rent escalators which typically average 2-3% annually. The Company also has ground leases that include consumer price index escalators, particularly in its South American operations. Increases or decreases in lease payments that result from subsequent changes in the index or rate are accounted for as variable lease payments.

Office leases. The Company’s office leases consist of long-term leases for international, regional, and certain site development office locations. Office leases include a single lease component, lease of the office space and sometimes nonlease components such as common area maintenance expenses. The lease term for office leases are generally considered to be the contractually committed term.

Finance Leases

Vehicle leases. The Company leases vehicles that are used in its site development business. These leases are accounted for as financing leases and have lease terms that are contractually committed and do not include optional renewal terms.

Discount Rate

When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, the Companys  ground leases generally do not provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company uses publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates.

Lease Cost

Variable lease payments include escalations based on standard cost of living indexes and are initially recognized using the prevailing index at the date of initial measurement or upon reassessment of the lease term. Subsequent changes in standard cost of living increases are recognized as variable lease costs. Variable lease payments also include contingent rent provisions.

8


 

Table of Contents

The components of lease cost, lease term, and discount rate as of March 31, 2019 are as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

(in thousands)

Amortization of right-of-use assets

 

$

337 

Interest on finance lease liabilities

 

 

28 

Total finance lease cost

 

 

365 

Operating lease cost (1)

 

 

68,299 

Variable lease cost (1)

 

 

7,742 

Total lease cost

 

$

76,406 



 

 

 

 

 

 

Weighted Average Remaining Lease Term:

 

 

 

 

 

 

Operating leases

 

 

 

 

 

18.4 years

Finance leases

 

 

 

 

 

2.9 years



 

 

 

 

 

 

Weighted Average Discount Rate:

 

 

 

 

 

 

Operating leases

 

 

 

 

 

6.1% 

Finance leases

 

 

 

 

 

3.8% 



 

 

 

 

 

 

Other information:

 

 

 

 

 

 

Cash paid for amounts included in measurement of lease liabilities:

 

 

 

Cash flows from operating leases

 

$

59,458 

Cash flows from finance leases

 

$

337 

(1)

For the three months ended March 31, 2018, operating lease cost and variable lease cost were $69.6 million and $6.8 million, respectively.

Tenant (Operating) Leases

The Company enters into long-term lease contracts with wireless service providers to lease antenna space on towers that it owns or operates. Each tenant lease relates to the lease or use of space at an individual site. Tenant leases are generally for an initial term of five to ten years with multiple 5-year renewal periods at the option of the tenant. Tenant leases typically contain specific rent escalators, which can be fixed or escalate in accordance with a standard cost of living index, including the renewal option periods.

Tenant lease agreements generally include renewal options which can be exercised exclusively at the tenant’s election. The only common exception is if the Company no longer has a right to the ground underlying the site, the lease agreements permit the Company to terminate the lease. Despite high frequency of renewal of options to extend the lease by its tenants, the Company has concluded that the exercise of a renewal option by a tenant is not reasonably certain of occurrence; therefore, only the current committed term is included in the determination of the lease term.

Certain tenant leases provide for a reimbursement of costs incurred by the Company. The Company pays these costs directly and is not relieved of the primary obligation for the expenses. These reimbursements are recorded as revenue on the Statements of Operations.

Deferred Lease Costs

Prior to the adoption of ASU 2016-02, the Company deferred certain initial direct costs associated with the origination of tenant leases and lease amendments and amortized these costs over the remaining lease term. These costs included an allocation of a portion of the employees’ total compensation and payroll related benefits related to time spent performing those activities. Such deferred costs were approximately $2.8 million for the three months ended March 31, 2018. Amortization expense related to these

9


 

Table of Contents

deferred costs was $3.1 million for the three months ended March 31, 2018 and is included in cost of site leasing on the Consolidated Statements of Operations. As of December 31, 2018, unamortized deferred lease costs were $27.0 million.

ASU 2016-02, defines initial direct costs as incremental costs that would not have been incurred if the lease had not been obtained. These costs, including commissions paid related to the origination of specific tenant leases, will continue to be deferred and amortized over the remaining lease term. Upon adoption, the Company recognized a $21.0 million cumulative effect adjustment, net of tax, to Accumulated deficit on the Consolidated Balance Sheets. This adjustment reflects the recognition of unamortized deferred lease costs incurred in prior periods which do not meet the definition of initial direct costs under Topic 842.

Initial direct costs were approximately $0.6 million for the three months ended March 31, 2019. Amortization expense related to these deferred costs was $0.4 million for the three months ended March 31, 2019. As of March 31, 2019, unamortized deferred lease costs were $4.1 million and were included in other assets on the Consolidated Balance Sheets.



2.FAIR VALUE MEASUREMENTS

Items Measured at Fair Value on a Recurring Basis— The Company’s earnout liabilities related to business combinations are measured at fair value on a recurring basis using Level 3 inputs and are recorded in Accrued expenses in the Consolidated Balance Sheets. Changes in estimates are recorded in Acquisition and new business initiatives related adjustments and expenses in the Consolidated Statements of Operations. The Company determines the fair value of earnouts (contingent consideration) and any subsequent changes in fair value using a discounted probability-weighted approach using Level 3 inputs. Level 3 valuations rely on unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The fair value of the earnouts is reviewed quarterly and is based on the payments the Company expects to make based on historical internal observations related to the anticipated performance of the underlying assets. The Company’s estimate of the fair value of its obligation contained in acquisitions prior to January 1, 2017 (adoption of ASU 2017-01) was $0.4 million and $0.5 million as of March 31, 2019 and December 31, 2018, respectively. The maximum potential obligation related to the performance targets for these acquisitions was $0.6 million and $0.7 million as of March 31, 2019 and December 31, 2018, respectively. The maximum potential obligation related to the performance targets for acquisitions after January 1, 2017, which have not been recorded on the Company’s Consolidated Balance Sheet, were $10.3 million and $13.3 million as of March 31, 2019 and December 31, 2018, respectively.

On February 1, 2019, the Company, through its wholly owned subsidiary, SBA Senior Finance II, LLC, entered into a four-year interest rate swap on a portion of its 2018 Term Loan in order to reduce the Company’s exposure to fluctuations in interest rates. The interest rate swap has a $1.2 billion notional value receiving interest at one month LIBOR plus 200 basis points and paying a fixed rate of 4.495% per annum settled monthly. The Company designated this swap as a cash flow hedge. On a quarterly basis, the Company evaluates whether the swap remains highly effective in offsetting changes in cash flows. As of March 31, 2019, the Company believes that the hedge remains highly effective and changes in the fair value were recorded in Accumulated other comprehensive loss, net on the Consolidated Balance Sheets. As of March 31, 2019, the fair value of the swap using Level 2 inputs was a liability of $15.3 million and was included within Other long-term liabilities on the Consolidated Balance Sheets. Changes in the fair value of the swap are reflected within Accumulated other comprehensive loss, net. The Company is exposed to counterparty credit risk to the extent that a counterparty fails to meet the terms of a contract. The Company’s exposure is limited to the current value of the contract at the time the counterparty fails to perform.

The Company’s asset retirement obligations are measured at fair value on a recurring basis using Level 3 inputs and are recorded in Other long-term liabilities in the Consolidated Balance Sheets. The fair value of the asset retirement obligations is calculated using a discounted cash flow model.

Items Measured at Fair Value on a Nonrecurring Basis— The Company’s long-lived and intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs. The Company considers many factors and makes certain assumptions when making this assessment, including but not limited to: general market and economic conditions, historical operating results, geographic location, lease-up potential and expected timing of lease-up. The fair value of the long-lived and intangible assets is calculated using a discounted cash flow model.

10


 

Table of Contents

Asset impairment and decommission costs for all periods presented and the related impaired assets primarily relate to the Company’s site leasing operating segment. The following summarizes the activity of asset impairment and decommission costs (in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

2019

 

2018



 

 

 

 

Asset impairment (1)

 

$

3,303 

 

$

5,855 

Write-off of carrying value of decommissioned towers

 

 

2,157 

 

 

2,001 

Other (including third party decommission costs)

 

 

311 

 

 

650 

Total asset impairment and decommission costs

 

$

5,771 

 

$

8,506 



(1)

Represents impairment charges resulting from the Company’s regular analysis of whether the future cash flows from certain towers are adequate to recover the carrying value of the investment in those towers.

Fair Value of Financial Instruments— The carrying values of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, and short-term investments approximate their estimated fair values due to the short maturity of these instruments. Short-term investments consisted of $0.2 million in Treasury securities as of March 31, 2019 and December 31, 2018. The Company’s estimate of the fair value of its held-to-maturity investments in treasury and corporate bonds, including current portion, are based primarily upon Level 1 reported market values. As of March 31, 2019 and December 31, 2018, the carrying value and fair value of the held-to-maturity investments, including current portion, were $0.2 million. The current portion is recorded in Prepaid and other current assets in the Consolidated Balance Sheets, while held-to-maturity investments are recorded in Other assets. For the three months ended March 31, 2019, the Company purchased and sold $150.0 million of short-term investments.

The Company determines fair value of its debt instruments utilizing various Level 2 sources including quoted prices and indicative quotes (non-binding quotes) from brokers that require judgment to interpret market information including implied credit spreads for similar borrowings on recent trades or bid/ask prices. The fair value of the Revolving Credit Facility is considered to approximate the carrying value because the interest payments are based on Eurodollar rates that reset monthly or more frequently. The Company does not believe its credit risk has changed materially from the date the applicable Eurodollar Rate was set for the Revolving Credit Facility (112.5 to 175.0 basis points). Refer to Note 10 for the fair values, principal balances, and carrying values of the Company’s debt instruments.

3.RESTRICTED CASH

The cash, cash equivalents, and restricted cash balances on the Consolidated Statements of Cash Flows consists of the following:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of

 

As of

 

 



 

March 31, 2019

 

December 31, 2018

 

Included on Balance Sheet



 

 

 

 

 

 

 

 



 

 

(in thousands)

 

 

Cash and cash equivalents

 

$

117,613 

 

$

143,444 

 

 

Securitization escrow accounts

 

 

23,682 

 

 

32,261 

 

Restricted cash - current asset

Payment and performance bonds

 

 

201 

 

 

203 

 

Restricted cash - current asset

Surety bonds and workers compensation

 

 

2,375 

 

 

2,392 

 

Other assets - noncurrent

Total cash, cash equivalents, and restricted cash

 

$

143,871 

 

$

178,300 

 

 



Pursuant to the terms of the Tower Securities (see Note 10), the Company is required to establish a securitization escrow account, held by the indenture trustee, into which all rents and other sums due on the towers that secure the Tower Securities are directly deposited by the lessees. These restricted cash amounts are used to fund reserve accounts for the payment of (1) debt service costs, (2) ground rents, real estate and personal property taxes and insurance premiums related to towers, (3) trustee and servicing expenses, and (4) management fees. The restricted cash in the securitization escrow account in excess of required reserve balances is subsequently released to the Borrowers (as defined in Note 10) monthly, provided that the Borrowers are in compliance with their debt service coverage ratio and that no event of default has occurred. All monies held by the indenture trustee are classified as restricted cash on the Company’s Consolidated Balance Sheets.

11


 

Table of Contents

Payment and performance bonds relate primarily to collateral requirements for tower construction currently in process by the Company. Cash is pledged as collateral related to surety bonds issued for the benefit of the Company or its affiliates in the ordinary course of business and primarily related to the Company’s tower removal obligations. As of March 31, 2019 and December 31, 2018, the Company had $40.6 million and $40.5 million in surety, payment and performance bonds, respectively, for which no collateral was required to be posted. The Company periodically evaluates the collateral posted for its bonds to ensure that it meets the minimum requirements. As of March 31, 2019 and December 31, 2018, the Company had also pledged $2.3 million and $2.2 million, respectively, as collateral related to its workers compensation policy.















4.COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The Company’s costs and estimated earnings on uncompleted contracts are comprised of the following:



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018



 

 

 

 

 

 



 

(in thousands)

Costs incurred on uncompleted contracts

 

$

44,842 

 

$

38,464 

Estimated earnings

 

 

18,678 

 

 

16,655 

Billings to date

 

 

(42,058)

 

 

(31,952)



 

$

21,462 

 

$

23,167 



These amounts are included in the Consolidated Balance Sheets under the following captions:



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018



 

 

 

 

 

 



 

(in thousands)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

23,482 

 

$

23,785 

Billings in excess of costs and estimated earnings on

 

 

 

 

 

 

uncompleted contracts (included in Other current liabilities)

 

 

(2,020)

 

 

(618)



 

$

21,462 

 

$

23,167 

At March 31, 2019 and December 31, 2018,  eight customers comprised 97.7% and 96.3% of the contract assets, net of contract liabilities.



5.ACQUISITIONS

The following table summarizes the Company’s acquisition activity:





 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

2019

 

2018



 

 

 

 

 

 



 

(in thousands)

Acquisitions of towers and related intangible assets (1)

 

$

42,148 

 

$

108,355 

Land buyouts and other assets (2)

 

 

13,139 

 

 

9,267 

Total cash acquisition capital expenditures

 

$

55,287 

 

$

117,622 



(1)

The three months ended March 31, 2019 excludes $1.7 million of acquisition costs funded through the issuance of 10,000 shares of Class A common stock.

(2)

In addition, the Company paid $3.8 million and $6.6 million for ground lease extensions and term easements on land underlying the Company’s towers during the three months ended March 31, 2019 and 2018, respectively. The Company recorded these amounts in prepaid rent on its Consolidated Balance Sheets.

During the three months ended March 31, 2019, the Company acquired 54 completed towers and related assets and liabilities consisting of $6.6 million of property and equipment, $33.6 million of intangible assets, and $1.9 million of other net asset balances.

12


 

Table of Contents

All acquisitions in the quarter ended March 31, 2019 were accounted for as asset acquisitions except for one acquisition, purchased for $3.0 million in cash and $1.7 million in the Company’s Class A common stock, which was accounted for as a  business combination.  



6.PREPAID EXPENSES AND OTHER CURRENT ASSETS AND OTHER ASSETS

The Company’s prepaid expenses and other current assets are comprised of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent (1)

 

$

1,649 

 

$

34,276 

Loan receivables

 

 

 —

 

 

11,178 

Other

 

 

20,925 

 

 

17,672 

Total prepaid expenses and other current assets

 

$

22,574 

 

$

63,126 



(1)

Decrease is due to the adoption of ASU 2016-02. Prepaid ground rent was reclassified to Right-of-use assets, net on the Consolidated Balance Sheets in the first quarter of 2019.

The Company’s other assets are comprised of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent (1)

 

$

 —

 

$

263,694 

Straight-line rent receivable

 

 

323,708 

 

 

322,073 

Loan receivables

 

 

54,490 

 

 

49,255 

Deferred lease costs, net (1)

 

 

4,054 

 

 

27,020 

Deferred tax asset - long term

 

 

15,830 

 

 

18,330 

Other

 

 

41,527 

 

 

41,661 

Total other assets

 

$

439,609 

 

$

722,033 



(1)

Decrease is due to the adoption of ASU 2016-02. Prepaid ground rent was reclassified from Other assets to Right-of-use assets, net on the Consolidated Balance Sheets in the first quarter of 2019. Deferred lease costs of $23.3 million were written off to Accumulated deficit on the Consolidated Balance Sheets in the first quarter of 2019.



7.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018



 

 

 

 

 

 



 

(in thousands)

Towers and related components

 

$

4,986,046 

 

$

4,951,321 

Construction-in-process

 

 

33,943 

 

 

35,756 

Furniture, equipment, and vehicles (1)

 

 

46,450 

 

 

54,814 

Land, buildings, and improvements

 

 

679,823 

 

 

668,459 

Total property and equipment

 

 

5,746,262 

 

 

5,710,350 

Less: accumulated depreciation (1)

 

 

(2,984,937)

 

 

(2,923,995)

Property and equipment, net

 

$

2,761,325 

 

$

2,786,355 



13


 

Table of Contents

(1)

Financing lease right-of-use assets are included in the prior period but are included  in Right-of-use assets, net on the Consolidated Balance Sheets for the current period.

Construction-in-process represents costs incurred related to towers that are under development and will be used in the Company’s site leasing operations. Depreciation expense was $69.2 million and $65.0 million for the three months ended March 31, 2019 and 2018, respectively.  At March 31, 2019 and December 31, 2018, unpaid capital expenditures that are included in accounts payable and accrued expenses were $8.4 million and $12.4 million, respectively.

8.INTANGIBLE ASSETS, NET

The following table provides the gross and net carrying amounts for each major class of intangible assets:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of March 31, 2019

 

As of December 31, 2018



 

Gross carrying

 

Accumulated

 

Net book

 

Gross carrying

 

Accumulated

 

Net book



 

amount

 

amortization

 

value

 

amount

 

amortization

 

value



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

Current contract intangibles

 

$

4,417,240 

 

$

(1,998,596)

 

$

2,418,644 

 

$

4,394,416 

 

$

(1,928,030)

 

$

2,466,386 

Network location intangibles

 

 

1,672,530 

 

 

(832,222)

 

 

840,308 

 

 

1,669,859 

 

 

(804,780)

 

 

865,079 

Intangible assets, net

 

$

6,089,770 

 

$

(2,830,818)

 

$

3,258,952 

 

$

6,064,275 

 

$

(2,732,810)

 

$

3,331,465 



All intangible assets noted above are included in the Company’s site leasing segment. Amortization expense relating to the intangible assets above was $101.8 million and $100.3 million for the three months ended March 31, 2019 and 2018, respectively.

9.ACCRUED EXPENSES

The Company’s accrued expenses are comprised of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2019

 

December 31, 2018