RADIUS GLOBAL INFRASTRUCTURE, INC. The following management's discussion and analysis of financial condition and
results of operations describes the principal factors affecting the results of
our operations, financial condition, and changes in financial condition for the
year ended
This section generally discusses 2022 and 2021 items and year-to-year
comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year
comparisons between 2021 and 2020 that are not included in this Annual Report on
Form 10-K and can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of our Annual Report on
Form 10-K for the year ended
Overview
We are a holding company with no material assets other than our limited
liability company interests in
On
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and therefore would not provide
Pending Acquisition by EQT and PSP
On
On the terms and subject to the conditions set forth in the Merger Agreement, at the Company Merger Effective Time, (a) each share of Class A Common Stock issued and outstanding immediately prior to the Company Merger Effective Time, except as otherwise specified in the Merger Agreement, will be converted into the right to receive the Merger Consideration, (b) each share of Class B Common Stock, issued and outstanding immediately prior to the Company Merger Effective Time will be canceled for no consideration, (c) each share of Series A Founder Preferred Stock, issued and outstanding immediately prior to the Company Merger Effective Time will be converted into the right to receive the Merger Consideration and (d) each share of Series B Founder Preferred Stock, issued and outstanding immediately prior to the Company Merger Effective Time will be canceled for no consideration.
In addition, on the terms and subject to the conditions set forth in the Merger
Agreement, at the OpCo Merger Effective Time, (a) each Class A Common Unit,
issued and outstanding immediately prior to the OpCo Merger Effective Time will
be converted into one unit of limited liability company interests in the
If the Merger Agreement is terminated under certain specified circumstances, the
Company or Parent will be required to pay a termination fee. The Company will be
required to pay Parent a termination fee of
The consummation of the Mergers is subject to certain conditions, including,
among others, (a) the approval and adoption of the Merger Agreement by our
stockholders, (b) the absence of a law or order prohibiting the transactions
contemplated by the Merger Agreement or imposing a Burdensome Condition (as
defined in the Merger Agreement), (c) the termination or expiration of any
waiting periods and receipt of approvals under applicable antitrust and foreign
investment laws without the imposition of a Burdensome Condition (as defined in
the Merger Agreement), (d) compliance by the Company, APW OpCo and the Parent
Parties in all material respects with our and their respective obligations under
the Merger Agreement, (e) subject to specified exceptions and qualifications for
materiality, the accuracy of representations and warranties made by the Company,
APW OpCo and the Parent Parties, respectively, as of the closing date, (f) no
Debt Default (as defined in the Merger Agreement) having occurred and been
continuing immediately prior and immediately after giving effect to the Mergers,
(g) the Company having a minimum cash balance of
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than
Key Performance Indicators
Leases
Leases is an operating metric that represents each lease we acquire. Each site
acquired by us consists of at least one revenue producing lease stream, and many
of these sites contain multiple lease streams. We had 9,188 and 8,186 leases as
of
Sites
Sites is an operating metric that represents each individual physical location
where we have acquired a real property interest or a contractual right that
generates revenue. We had 7,024 and 6,211 different communications sites as of
Key Factors Affecting Financial Condition and Results of Operations
We operate in a complex environment with several factors affecting our operations in addition to those described above. The following discussion describes key factors and events that may affect our financial condition and results of operations.
Foreign Currency Translation
Our business operates in twelve different functional currencies. Our reporting
currency is the
Excluding operations in which the functional currency is the
Additionally, we have debt facilities denominated in Euros and Pound Sterling,
with
Interest Rate Fluctuations
Changes in global interest rates, such as the recent significant increases in interest rates in the countries in which we operate, may have an impact on the acquisition price of real property interests. Changes to the acquisition price can
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impact our ability to deploy capital at targeted returns. Historically, we have limited interest rate risk on debt instruments primarily through long-term debt with fixed interest rates.
Competition
We face varying levels of competition in the acquisition of assets in each operating country. Some competitors are larger and include public companies with greater access to capital and scale of operations than we do. Competition can drive up the acquisition price of real property interests, which would have an impact on the amount of revenue acquired on an annual basis.
Network Consolidation
Most of our Tenant Leases associated with our acquired assets permit the tenant to cancel the lease at any time with limited prior notice. Generally, such lease terminations are permitted with only 30 to 180 days' notice from the tenant. The risk of termination is greater upon network sharing or a network consolidation and merger between two MNOs.
Key Statement of Operations Items
Revenue
We generate revenue by acquiring the right to receive future rental payments at operating wireless and other digital infrastructure communications sites generated pursuant to existing Tenant Leases between a property owner and companies that own and operate cellular communication towers and other telecommunications infrastructure. Revenue is generated on in-place existing Tenant Leases, amendments and extensions on in-place existing Tenant Leases, and additional Tenant Leases at the site.
Revenue is recorded as earned over the period in which the lessee is given control over the use of the communication site and recorded over the term of the lease. Rent received in advance is recorded when we receive advance rental payments from the in-place tenants. Contractually owed lease prepayments are typically paid one month to one year in advance. Additionally, Tenant Leases contain contractual rent increase clauses, or "rent escalators", that are tied to a local consumer price index, subject to open market valuation or at a fixed rate of increase, typically at approximately 3%.
Selling, general and administrative expense
Selling, general and administrative expense predominantly relates to activities associated with the acquisition of real property interest assets and consists primarily of sales and related compensation expense, marketing expense, data accumulation cost, underwriting costs, legal and professional fees, travel and facilities costs.
Share-based compensation expense
Share-based compensation expense is recorded for equity awards granted to employees and nonemployees over the requisite service period associated with the award, based on the grant-date fair value of the award.
Realized and unrealized gain (loss) on foreign currency debt
Our debt facilities are denominated in Euros, Pound Sterling and
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Interest expense, net
Interest expense primarily includes interest due under our debt agreements and amortization of deferred financing costs and debt discounts or premiums.
Non-GAAP Financial Measures
We use certain additional financial measures not defined by GAAP that provide supplemental information we believe is useful to analysts and investors to evaluate our financial performance and ongoing results of operations, when considered alongside other GAAP measures such as revenue, gross profit, operating income and net cash provided by operating activities. These non-GAAP measures exclude the financial impact of items management does not consider in assessing our ongoing operating performance, and thereby facilitate review of our operating performance on a period-to-period basis.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP measures. EBITDA is defined as net income (loss) before net interest expense, income tax expense (benefit), and depreciation and amortization. Adjusted EBITDA is calculated by taking EBITDA and further adjusting for non-cash impairment-decommissions expense, realized and unrealized gains and losses on foreign currency debt, realized and unrealized foreign exchange gains/losses associated with non-debt transactions and balances denominated in a currency other than the functional currency, share-based compensation expense and transaction-related costs recorded in selling, general and administrative expenses incurred for incremental business acquisition pursuits (successful and unsuccessful) and related financing and integration activities. Management believes the presentation of EBITDA and Adjusted EBITDA provides valuable additional information for users of the financial statements in assessing our financial condition and results of operations. Each of EBITDA and Adjusted EBITDA has important limitations as analytical tools because they exclude some, but not all, items that affect net income, therefore the calculation of these financial measures may be different from the calculations used by other companies and comparability may therefore be limited. You should not consider EBITDA, Adjusted EBITDA or any of our other non-GAAP financial measures as an alternative or substitute for our results.
The following are reconciliations of EBITDA and Adjusted EBITDA to net income (loss), the most comparable GAAP measure:
Year Ended Year Ended
December 31, December 31,
(in thousands) 2022 2021
(unaudited)
Net loss $ (64,028 ) $ (69,652 )
Amortization and depreciation 79,321 64,440
Interest expense, net 67,167 47,365
Income tax benefit (3,948 ) (327 )
EBITDA 78,512 41,826
Impairment - decommissions 3,950 2,998Realized/unrealized gain on foreign currency debt (66,140 ) (33,656 ) Share-based compensation expense
20,989 15,802
Non-cash foreign currency adjustments 4,569 2,430
Transaction-related costs 7,365 1,836
Adjusted EBITDA $ 49,245 $ 31,236
Acquisition Capex
Acquisition Capex is a non-GAAP financial measure. Our payments for acquisitions of real property interests consist of either a one-time payment upon the acquisition or up-front payments with contractually committed payments made over a period of time, pursuant to each real property interest agreement. In all cases, we contractually acquire all rights associated with the underlying revenue-producing assets upon entering into the agreement to purchase the real property interest and records the related assets in the period of acquisition. Acquisition Capex therefore represents the total cash spent and committed to be spent for the acquisitions of revenue-producing assets during the period measured.
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Management believes the presentation of Acquisition Capex provides valuable additional information for users of the financial statements in assessing our financial performance and growth, as it is a comprehensive measure of our investments in the revenue-producing assets that we acquire in a given period. Acquisition Capex has important limitations as an analytical tool, because it excludes certain fixed and variable costs related to our selling, marketing, data accumulation, legal and underwriting activities included in selling, general and administrative expenses in the consolidated statements of operations, including corporate overhead expenses. Further, this financial measure may be different from calculations used by other companies and comparability may therefore be limited. You should not consider Acquisition Capex or any of the other non-GAAP measures we utilize as an alternative or substitute for our results.
The following is a reconciliation of Acquisition Capex to the amounts included as an investing cash flow in the consolidated statements of cash flows for investments in real property interests and related intangible assets, the most comparable GAAP measure, which generally represents up-front payments made in connection with the acquisition of these assets during the period. The primary adjustment to the comparable GAAP measure is "committed contractual payments for investments in real property interests and intangible assets", which represents the total amount of future payments that we were contractually committed to make in connection with our acquisitions of real property interests and intangible assets that occurred during the period. Additionally, foreign exchange translation adjustments impact the determination of Acquisition Capex.
Year Ended Year Ended
December 31, December 31,
(in thousands) 2022 2021
(unaudited)
Investments in real property interests and related intangible assets
$ 520,681 $ 469,725 Committed contractual payments for investments in real property interests and intangible assets 17,277 21,162 Foreign exchange translation impacts and other (6,878 ) (16,899 ) Acquisition Capex$ 531,080 $ 473,988 Annualized In-Place Rents
Annualized in-place rents is a non-GAAP measure that measures performance based on annualized contractual revenue from the rents expected to be collected on leases owned and acquired ("in-place") as of the measurement date. Annualized in-place rents is calculated using the implied monthly revenue from all revenue producing leases that are in place as of the measurement date multiplied by twelve. Implied monthly revenue for each lease is calculated based on the most recent rental payment under such lease. Management believes the presentation of annualized in-place rents provides valuable additional information for users of the financial statements in assessing our financial performance and growth. In particular, management believes the presentation of annualized in-place rents provides a measurement at the applicable point of time as opposed to revenue, which is recorded in the applicable period on revenue-producing assets in place as they are acquired. Annualized in-place rents has important limitations as an analytical tool because it is calculated at a particular moment in time, the measurement date, but implies an annualized amount of contractual revenue. As a result, following the measurement date, among other things, the underlying leases used in calculating the annualized in-place rents financial measure may be terminated, new leases may be acquired, or the contractual rents payable under such leases may not be collected. In these respects, among others, annualized in-place rents differs from "revenue", which is the closest comparable GAAP measure and which represents all revenues (contractual or otherwise) earned over the applicable period. Revenue is recorded as earned over the period in which the lessee is given control over the use of the wireless communication sites or other digital infrastructure and recorded over the term of the lease. You should not consider annualized in-place rents or any of the other non-GAAP measures we utilize as an alternative or substitute for our results. The following is a comparison of annualized in-place rents to revenue, the most comparable GAAP measure:
Year Ended Year Ended
December 31, December 31,
(in thousands) 2022 2021
Revenue for year ended December 31 $ 135,456 $ 103,609 Annualized in-place rents as of
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Results of Operations
Comparison of the results of operations for the year ended
Our selected financial information for the years ended
Year Ended Year Ended
December 31, December 31,
(in thousands) 2022 2021
Consolidated Statements of Operations Data
Revenue $ 135,456 $ 103,609
Cost of service 6,949 2,493
Gross profit 128,507 101,116
Selling, general and administrative 96,572 73,154
Share-based compensation 20,989 15,802
Amortization and depreciation 79,321 64,440
Impairment-decommissions 3,950 2,998
Operating loss (72,325 ) (55,278 )
Realized and unrealized gain on foreign currency debt 66,140 33,656
Interest expense, net (67,167 ) (47,365 )
Other income (expense), net 4,445 (992 )
Gain on extinguishment of debt 931 -
Loss before income tax benefit (67,976 ) (69,979 )
Income tax benefit (3,948 ) (327 )
Net loss $ (64,028 ) $ (69,652 )
Revenue
Revenue was
Cost of service
Cost of service was
Selling, general and administrative expense
Selling, general and administrative expense was
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compensation costs of approximately
Share-based compensation
Share-based compensation expense was
Amortization and depreciation
Amortization and depreciation expense was
Impairment-decommissions
Impairment-decommissions was
Realized and unrealized gain (loss) on foreign currency debt
Realized and unrealized gain (loss) on foreign currency debt was a gain of
Interest expense, net
Interest expense, net was
Other income (expense), net
Other income (expense), net was income of
Income tax expense (benefit)
Income tax expense (benefit) was a benefit of
Liquidity and Capital Resources
Our future liquidity will depend primarily on: (i) the operating cash flows of
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We primarily require cash to pay our operating expenses, service the cash
requirements associated with our contractual obligations and acquire additional
real property interests and rental streams underlying wireless and other digital
infrastructure sites. Our principal sources of liquidity, both short-term and
long-term, include revenue generated from our Tenant Leases, our cash and cash
equivalents, short-term investments, restricted cash and borrowings available
under our credit arrangements. As of
The summary below presents the significant financing activities that occurred in 2022:
• In January 2022 , AP WIP ArcCo Investments, LLC ("ArcCo Investments"), a
subsidiary of AP Wireless , borrowed €225 million ($257.5 USD equivalent)
of the amount available under a subscription agreement (the "ArcCo
Subscription Agreement") that provides for loans up to €750 million to
ArcCo Investments, as the sole borrower thereunder. In connection with the
borrowing under the ArcCo Subscription Agreement, $5.0 million was funded
to a debt service reserve account. The initial borrowing accrues interest
at a fixed annual rate of approximately 3.2%, which is payable quarterly
and is scheduled to mature in January 2030 .
• In April 2022 , AP WIP Holdings, LLC , ("DWIP"), a subsidiary of AP
Wireless , entered into a subscription agreement (the "DWIP Subscription
Agreement") providing for the issuance of promissory certificates of up to
$165.0 million . The monthly fixed rate coupon under the DWIP Subscription
Agreement is approximately 3.6% per annum. In connection with entering
into the DWIP Subscription Agreement, DWIP borrowed $165.0 million , using
$102.6 million to repay all of its outstanding obligations under the DWIP
Loan Agreement, dated as of August 12, 2014 , as amended (the "DWIP Loan
Agreement") plus the prepayment premium of 1.0% due thereunder. Borrowings
under the DWIP Subscription Agreement are scheduled to mature in April
2027 .
In addition to the available uncommitted borrowing capacity of approximately
Although we believe that our cash on hand, available restricted cash, short-term
investments and future cash from operations of
Cash Flows
The tables below summarize our cash flows from operating, investing and financing activities for the periods indicated and the cash and cash equivalents, short-term investments and restricted cash as of the applicable period end.
Year Ended Year Ended
December 31, December 31,
(in thousands) 2022 2021
Cash used in operating activities
(572,616 ) (470,712 )
Cash provided by financing activities 287,583 902,793
(in thousands) As of December 31, 2022 As of December 31, 2021
Cash and cash equivalents $ 224,258 $ 456,146
Restricted cash 90,025 176,047
Short-term investments 39,205 -
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Cash used in operating activities
Net cash used in operating activities for the years ended
Cash used in investing activities
Net cash used in investing activities for the years ended
Cash provided by financing activities
Net cash provided by financing activities for the years ended
Material Cash Requirements
Below is a summary of our material cash requirements from contractual
obligations as of
Convertible Notes
In
The Convertible Notes bear interest at a fixed rate of 2.5% per year, payable
semi-annually in arrears on
Facility Agreement
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Subscription Agreement
DWIP Loan Agreement
Under the DWIP Subscription Agreement, borrowings totaling
DWIP II Loan Agreement
Covenants under Borrowing Agreements
We are subject to certain financial condition and testing covenants (e.g.,
interest coverage, leverage limits) under each of our borrowing arrangements,
which are disclosed in Note 9 to the consolidated financial statements.
Limitations on the amount of leverage we may maintain as of any testing period
end are included in each of our borrowing arrangements. Summarized in the table
below are the leverage limitations for each debt agreement, expressed as
multiple of the borrowing in relation to the then current annual rents in place
or revenue of the borrower as defined under the applicable borrowing arrangement
and excludes any other adjustments required or allowable under the borrowing
agreement:
Leverage
Limitation of
Applicable
Eligible Cash
Flows
DWIP Subscription Agreement 9.75x
ArcCo Subscription Agreement 9.5x
Facility Agreement 9.0x
Subscription Agreement 12.0x
DWIP II Loan Agreement 14.75x
Lease and Installment Obligations
As disclosed in Note 4 to the consolidated financial statements, under certain
circumstances, we are committed to make future payments under our real property
interest arrangements, either as payments under unsecured arrangements
determined to be finance leases or as noninterest bearing installments for
arrangements that do not qualify as leases. As of
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Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
While our significant accounting policies are described in greater detail in the notes to our consolidated financial statements appearing elsewhere in this Form 10-K, we believe that the following accounting policies involve critical judgments and estimates that are used in the preparation of our consolidated financial statements.
Real Property Interests
Our core business is to contract for the purchase of telecom real property interests and contractual rights, typically as leasehold interests or fee simple interests, either through an up-front payment or on an installment basis from property owners who have leased their property to companies that own digital telecommunications infrastructure assets. The costs of acquiring a real property interest are recorded either as a right-of-use asset, if the arrangement is determined to be a lease at the inception of the agreement under ASC Topic 842, Leases ("ASC 842"), or as a telecom real property interest asset in the consolidated balance sheet, if the acquisition meets the definition of an asset acquisition. Telecom real property interests are stated at cost less accumulated amortization.
ASC 842 requires us to recognize a right-of-use asset and a lease liability arising from a lease arrangement, which also must be classified as either a financing or an operating lease. This classification determines whether the lease expense associated with future lease payments is recognized based on an effective interest method or on a straight-line basis over the term of the lease. We consider an arrangement to be a lease if it conveys the right to control the use of the asset for a specific period of time in exchange for consideration. The determination of the classification of a lease as financing typically depends on whether or not the term of the arrangement covers a major portion of the remaining economic life of the underlying asset, though other factors may apply.
For each arrangement determined to be a lease, we record a lease liability at the present value of the remaining contractually required payments and right-of-use asset in the same amount plus any upfront payments made under the arrangement and any initial direct costs. The incremental borrowing rate used depends on the country and currency in which the arrangement was consummated and approximates an interest rate we would pay under borrowings to purchase such assets on a collateralized basis over similar payment terms.
Finance lease right-of-use assets are amortized over the lesser of the lease term or the estimated useful life of the underlying asset associated with the leasing arrangement, which is estimated to be twenty-five years. To determine the lease term, we consider all renewal periods that are reasonably certain to be exercised, taking into consideration all economic factors, including the wireless or digital infrastructure asset's estimated economic life. The Company continually reassesses the estimated useful lives used in determining amortization of its real property interests.
Long-Lived Assets, Including Definite-Lived Intangible Assets
Our primary long-lived assets include real property interests and in-place tenant lease intangible assets. The carrying amount of any long-lived asset group is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. If the carrying amount of the long-lived asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
Share-based Compensation Expense
Share-based compensation expense is recorded for equity awards granted to employees and nonemployees over the requisite service period associated with the award, based on the grant-date fair value of the award. Calculating the fair value of share-based awards requires that we make highly subjective assumptions, as well as making judgments regarding the most acceptable valuation methodology to use in each circumstance. Generally, we use Monte Carlo simulation and Black-Scholes option pricing models. Use of either valuation technique requires that we make assumptions regarding the inputs to such models as to the expected volatility of our Class A Common Stock, the
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expected term associated with the award and the risk-free interest rate for a
period that approximates the expected term, each of which can impact the fair
value of each award. For example, a 25% increase in the assumed volatility
percentage used in the determination of fair value under the Black-Scholes
option pricing model for all options awarded in 2022 would have resulted in an
increase in the aggregate fair value of these awards of
Income Taxes
The carrying amount of deferred tax assets is reduced by a valuation allowance if, based on the available positive and negative evidence, it is more likely than not that such assets will not be realized. This assessment requires judgment and considers, among other matters, the nature and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, and tax planning alternatives. If a history of cumulative losses is incurred for a tax jurisdiction, forecasts of future profitability are not used as positive evidence related to the realization of the deferred tax assets in the assessment.
Additionally, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained. The recognition or measurement of unrecognized income tax benefit obligations and changes therein requires significant judgement and estimation in each period that related positions are assessed.
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