SBA Communications Corporation — 2024 Q1

Yes, Mike, I think it's a little bit premature to say that. My comments about the increased applications are obviously positive in general, as increases, obviously, would be. But I think it's a little bit early. It's only been 2 months since our last report. And we haven't seen a material change. We've just seen a minor step-up directionally in those items. So at this point, I think it's too early to comment on where 2025 will come out.

No. I would say it's fairly broad-based. And different geographies, different carriers are perhaps a little bit busier than others. But I think you're aware of some of the initiatives that some of our customers have going on. But I would say, it's generally broad-based across the big 3 carriers.

Yes. We don't really have a goal. In fact, we're actually not explicitly changing our targets, although we're obviously operating well below them today. And the reason we're not changing the targets is that opportunities come along and sometimes being flexible and levering back up to take advantage of a particular opportunity may be the best choice, and so I don't want to kind of present it like we have to be the lower number.

Yes. On the new build opportunities, well, first of all, we're looking in every market that we're in for specific opportunities that meet our requirements because we already have a presence in that market and an operation scalability there. So ideally, we'd like to build sites wherever we can. But specifically, certain markets, in our African markets in particular, we're seeing more opportunities and certain select markets in South America as well.

Yes. On the Oi wireless side, it varies by carrier. Obviously, they were absorbed into 3 different carriers. I don't know if I could give you an exact percentage, but they're probably 40-ish percent or so of the way through that effort would be my guess, on average. We're definitely seeing the activity there. But as we see here in the U.S., it's an elongated process and it takes some time. So I'd expect this to go on for a number of years.

Sure. Yes. I would say in terms of evolution of our thinking, we announced this portfolio review publicly last quarter. And it hasn't been that much time, so we're kind of in the midst and throes of that. The one thing that has shifted a little bit, though, in that window of time is that rates are not only staying higher but are expected to continue to stay higher for longer, and that's something that we have to be sensitive to. And so my comments earlier in the prepared remarks are really about that, about the fact that we have to watch that. And in some cases, paying down debt may actually be more accretive than we would have thought even a couple of months ago. And so it's certainly on the table, perhaps more than it was before. And you're right, in that you see less M&A activity and more towards buybacks, for instance, because we see a better return there. So it is still very much financially driven.

Yes. We didn't change any of our outlook for the year, so that still stands as of today that we would expect a similar number to what we talked about last time exiting the year. So right now, we haven't seen enough shift in carrier activity to change those projections.

Yes. I mean the type of activity, I would say, is a mix. There's still plenty of mid-band spectrum deployments that need to be done, particularly by AT&T and Verizon. And so we're seeing plenty of that. That's the primary driver of amendment activity. But we are seeing more new leases than perhaps we've seen in the past from the big carriers. It's a mix of both coverage and densification, but it's taking a normal transition, I think, that we've seen in previous generations of technology deployment.

Yes. I mean we're still signing some leases with DISH. Obviously, it's at a much lower level than it was when they were busier. And we're here to support them with all their needs, but I don't really have much else I can offer you.

Yes. I think it's somewhere in our report, or maybe it's not, but it will be in our 10-Q anyway. I believe roughly half, just over half, was in March and the balance was in the beginning of April.

Yes. It's not so much the leverage ratio. In fact, the ratio was up but the absolute amount of debt was pretty similar to what it was at year-end. It's a little bit higher because of the buybacks, but not much. It was actually higher on a leverage ratio basis because the EBITDA was down a little bit, mainly because of services. So I'm a little less focused there because we have so much room in our ratio and it's more of a focus on the absolute amount of debt that we're carrying, and specifically because we have these maturities that are coming up in the next 8 months or so. And so as I kind of eye that, our ability to kind of reduce the amount of absolute debt as we approach those maturity dates is really what we'll be targeting as opposed to worrying about where the leverage ratio is.

Yes. That would be my expectation.

Sure.

Yes, I think it's really more the latter. You've got, obviously, on the Sprint/T-Mo related consolidations here. But internationally, with the Oi consolidation in particular, I mean, those are really the big ones. There's some others here and there, but those are the biggest ones. It's a lot of sites. And so as we kind of look at what can we do in this window of time where carrier spending is a little bit slower and we have some of these headwinds, what can we do to maximize our bottom line results. Costs become a little more material potentially to that story of improvement. So it's really more the volume than it is anything else. But that increased volume requires a little bit more of a concerted direct focused effort on it.

Yes. Well, I'm going to sidestep that a little bit because there are some specific things we're doing that are creative, that actually are adding value for our customers down there. Things that relate to power, that relate to other centralized hosting of wireless coverage solutions and even security-related items. As you add some of these types of things in terms of the service package that you provide, you make your site that much better. And when somebody has the choice to make the choice, you want to have your options be preferred. But it's not just that, it also comes with the ability to enter into longer-term agreements that secure that relationship for an extended period of time. And that's really what we're focusing on.

You got Alex Waters on for Dave. Maybe just first, maybe just when I think about the international churn, obviously elevated this year. I mean, Brendan, could you maybe just walk through the way we should be thinking about it for next year and the couple of years after? And then just in terms of M&A, I think we discussed a little bit about options you might have in existing markets. But can you just talk about your appetite for those that SBA does not have a presence in yet?

Sure, Alex. Yes, on the international churn front, I would expect that it will be elevated for the next couple of years, maybe not quite as high as it is this year, but it will be elevated by historical standards. We used to have almost 0 churn basically. But we've reached a point where you have a lot more consolidation that's taken place across many of our markets. That's driving a lot of it. And so as we just kind of look at when leases are scheduled to roll off and where there's been consolidations and what we think our exposures we might have, plus, frankly, the Oi wireline bankruptcy, those things will, I believe, cause it to stay elevated for the next several years, although, again, hopefully not quite as high as it's been this year.

Sure. On the services business, yes, it's down a little bit. But as you saw, we did not change our full year outlook, and we do expect that the second half of the year will be slightly higher than the first half of the year. I mentioned in my comments that we saw an increase in our services backlog from the end of the year to the end of the first quarter. That is supportive of that. And all those little things around applications being up, services backlog being higher, support that I think we will see a little bit more services activity in the second half of the year. But I think we'll be able to give you more clarity on that on the next call.

I can't tell you that for sure, Richard. But that would not be an unreasonable assumption, but I can't tell you that for sure.

Well, our goal is to achieve those savings as quickly as we can. And you're right that there will be many cases where we're able to do that ahead of the decommissioning. In fact, in some cases, it would be our desire to not do the decommissioning and simply put those costs on hold to allow enough time to see what happens. So I think it will be a mix. But where we're able to do that, obviously, it accelerates our ability to generate the cost savings. So that's our first priority.

Your second question, the answer is yes. That is the primary driver. I mean it's small dollars, obviously. You're talking about $4 million for the year, but yes, that's the driver.

Yes, it's actually been very good in the sense that I think it's kind of loosen the gears up, if you will, between the 2 companies. They have a lot of work to do, and we're a big supplier of theirs in terms of tower space. So the ability to have a much easier, free flowing kind of understood process by which we they make requests and we help satisfy those requests has been a positive. And so I think that, in and of itself, is something that we love to have with all of our customers. And I think we generally do. But with AT&T perhaps, it was the one that given that we have never really had any kind of master agreement with them, there was a little more low-hanging fruit there to address.

Yes, I think it's both. You have less smaller guys just in general. And so therefore, there's just less of a pool of potential leases to churn with the kind of more narrowband type of tenants that we have, so that is a contributor. And with the bigger guys, I think as you have these master agreements, you have less of these, as you said, over builders that are out there and others that are trying to find ways to take existing tenants. While not particularly successful in the past, there were some amount of that. I think that's sort of gone its way and you'll see less and less of that happening in general. So I believe all of those factors will play into it.

Yes. I'm not sure if there's just a moment in time when things change. We bought back stock in late March and basically the first few days of April. And I think that, that still is a good return on investment. The reality, Walt, is it's hard to be that precise and exact-timing all of these things. And I think as we go forward, it doesn't mean that we won't buy stock back at all. I'm just telling you that directionally, as I look at it today, that I think paydowns of debt is slightly more accretive than buying back stock where it is right now. But that doesn't mean there won't be opportunities to do both, and I expect we will do both going forward. But we're going to see what other options we have available to us as we move through the balance of the year, and that will influence how it plays out.

Well, I will add one thing here and that is to say buybacks have a certain mechanic to them where when we were in a blackout period, we typically put a plan in place. And those plans typically prevent us from actually making decisions. So the decisions are made ahead of time, and I think that may help explain the timing of this relative to your comments.

Yes. No, that's true. There is a certain amount of cash that's available under the current structure that we've got. We're producing a certain amount of AFFO and the proportion allocated to the dividend, and there's the rest, right? And the rest will go to one of these buckets or a mix of these buckets. So what you're saying is right. But things may adjust. Frankly, we may end up with an acquisition opportunity that we think is actually better than all, and that would put both of these things to the side. So I'm retaining some flexibility. But yes, if we're going to pay down a meaningful amount of debt, obviously, we have to stop spending on everything else.

Nothing material. No, nothing really.

Brandon, I'm sorry to interrupt you, but we're having a little bit of a hard time hearing you, you're a little garbled. You may have to repeat that first.

Yes, that's much better. Thanks.

On the second question, AFFO per share growth. I think, Brandon, I mean, the real trick in answering that is that interest rates and interest expense play such a big role in it. So if it weren't for that, if I could tell you exactly what it was going to cost to refinance debt and what the timing was going to be, I could answer that question with a little more precision. Obviously, we make certain assumptions internally here, but I'd rather not speculate on that. If you kind of took that away, I think, a mid-single-digit percentage growth rate for AFFO per share would be what we would achieve even with the churn, but the interest headwinds are going to be a challenge to that.

Yes. So domestically, Sprint was more than half of the tower churn in the U.S. Internationally, I would say that the majority was in Oi for this first quarter, but Oi is going to pick up in Brazil. So I think we said overall the Oi churn in Brazil would be about $15 million for the year.

Yes. I mean that's one option that's obviously on the table. The advantage to it, of course, is that it would allow you to retire it quickly over time or as you could over time without having to lock into a longer-term maturity date. But the negative is that it's some of the most expensive debt that we have right now. It would be more expensive than obviously whenever we would refinance it with in a different market. So it's an option.

Yes. Well, we saw a decent amount of deployment of dual-band radios. That certainly was a driver last year and maybe even before that. But at this stage, it seems like most of the focus is on just deploying the mid-band spectrum that they have on hand and just incremental new leases, as we talked about before, for coverage and densification. I wouldn't say that there's anything more technical than that.

Great. Thank you all for dialing in. We appreciate your time tonight and look forward to reporting to you next quarter.