SBA COMMUNICATIONS CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• U.S. Performance: Mobile network operator customers continued growing network investment. New domestic leasing business was strong, and leasing backlog grew. Services business had strong results with growing backlog.
• International Performance: Positive start to the year in leasing activity, with CPI rates in some markets offering potential for better lease escalations.
• Portfolio Management and Capital Allocation: Completed exit from Philippines, finalized exit from Colombia, closed small portion of Central American sites purchase from Millicom. Repurchased shares, Board approved new $1.5 billion share repurchase plan. Strong balance sheet with ample liquidity.
• Focus Areas: Operational execution, driving efficiencies via new technologies/systems, enhancing relationships with large customers, balanced capital allocation.

Segment Performance

• U.S. Mobile Network Operator Customers: Had best quarter in several years for new domestic leasing business signed up. Leasing backlog grew from December 31, with a higher percentage of new U.S. leasing business coming from new lease colocations versus amendments. Domestic organic leasing revenue growth in first quarter was 5.2% gross, 1% net (including 4.2% churn).
• U.S.-based Services: Had a great quarter with activity levels and results ahead of expectations, and new business backlog grew, leading to an increased full year outlook for Services.
• International Markets: Positive start to the year with solid leasing activity. Elevated CPI rates in some markets present potential for better existing lease escalations. International organizing leasing revenue growth for first quarter was 1.6% net (including 5.6% churn) on a constant-currency basis.

Guidance

• Increased full year outlook for Site leasing Revenue, Tower cash Flow, Adjusted EBITDA, AFFO, and AFFO Per Share. Drivers include in-line first quarter results, early closing of part of Millicom acquisition, improved Services outlook, higher straight-line revenue from lease extensions, and share count reduction from buybacks.
• First quarter domestic organic leasing revenue growth: 5.2% gross, 1% net (including 4.2% churn). Sprint-related churn expected to be $50M-$52M in 2025, $50M in 2026, $20M thereafter. Non-Sprint related domestic annual churn 1%-1.5%. International organizing leasing revenue growth 1.6% net (including 5.6% churn) on constant-currency basis.

Risks

• Uncertain macroeconomic environment and market volatility could impact results.
• Regulatory and diligence steps remaining for Millicom acquisition could affect timing.
• International markets may face elevated churn due to carrier consolidations, impacting organic growth.

Question and Answer

Q: Comment on the overall carrier environment, fixed wireless access, and capital allocation A: Positive carrier environment in the U.S. Fixed wireless access drives network investment. Capital allocation includes share repurchases, asset investments, debt repayments, and dividends with flexibility due to strong leverage position.

Q: Thoughts on U.S. leasing run rate and bilateral contracting relationships A: Expect U.S. leasing to end higher than first quarter. No holistic MLAs typically, except the AT&T deal.

Q: Services growth, U.S. churn, and Canada M&A A: Services growth due to faster customer network investment. U.S. churn within expected range. Approach M&A opportunities in Canada by evaluating value and competitiveness.

Q: DISH, cable companies, and CBRS A: Limited conversation with cable companies. Limited materiality with DISH; no specific leasing conversations yet.

Q: International organic growth, churn, and straight-line revenue A: International organic growth and churn vary by market. Central American markets improving; Brazil impacted by consolidation. Straight-line revenue moving towards breakeven as business matures.

Q: Macro front and colo vs amendment mix A: No impact on sales discussions yet. 75% of new U.S. leasing business from colocations vs amendments.

Q: Efficiencies and tower decommissioning A: Focus on new technologies and systems for efficiencies. Tower decommissioning in Brazil due to consolidation, majority from Colombia and Philippines divestitures.

Q: Spectrum deployment and M&A multiples A: FCC interest in new spectrum. Private M&A multiples high in the U.S., rationalization needed internationally.

Q: Domestic leasing visibility and Millicom contribution A: Positive visibility into domestic leasing. Millicom contribution outlook unchanged except early closings.

Q: Services increase and capacity A: Services increase from first quarter performance and backlog growth. No capacity constraints.

Q: Spectrum deployment and transaction bid-ask spread A: FCC interest in new spectrum. Bid-ask spread issue in international transactions. SBA's cash flow reliable amidst economic uncertainty.

Q: Domestic leasing acceleration and backlog to revenue A: Difficult to predict multi-year acceleration. Backlog to revenue lag leads to benefit in future periods.