Yahoo Finance SBA Communications Corporation (NASDAQ:SBAC) Q1 2024 Earnings Call Transcript
SBA Communications Corporation (NASDAQ:SBAC) Q1 2024 Earnings Call Transcript April 29, 2024
SBA Communications Corporation misses on earnings expectations. Reported EPS is $1.42 EPS, expectations were $3.3. SBA Communications Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the SBA First Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And I now like to turn the conference over to our host, Vice President of Finance, Mr. Mark DeRussy. Please go ahead.
Mark DeRussy: Good evening, and thank you for joining us for SBA’s First Quarter 2024 Earnings Conference Call. Here with me today are Brendan Cavanagh, our President and Chief Executive Officer; and Marc Montagner, our Chief Financial Officer. Some of the information we will discuss on this call is forward-looking, including, but not limited to, any guidance for 2024 and beyond. In today’s press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, April 29, and we have no obligation to update any forward-looking statements we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics.
The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website. With that, I will now turn the call over to Marc.
Marc Montagner: Thank you Marc. Our first quarter results were in line with our expectations. Excluding the impact of weakening foreign currency assumptions, we increased our full-year outlook for Tower cash flow, adjusted EBITDA, and AFFO per share as compared to our initial 2024 outlook. The primary drivers of these increases are direct cost-saving associated with towers to be decommissioned, and a reduction in our estimated full-year share count from completed share buybacks. Due to the current strength of the U.S. dollars versus local currency in some of our international markets our overall outlook for site leasing revenue, total revenues, Tower cash flow, and adjusted EBITDA are slightly down versus our initial guidance.
First quarter Domestic same tower recurring cash leasing revenue growth over the first quarter of last year was 5.9% on the growth basis, 2.3% on the net basis, including 3.6% of churn. $7.5 million of the first quarter churn was related to sprint consolidation churn, which we anticipate to be approximately $30 million for the full year 2024. As expected, domestic operational leasing activity or bookings representing new revenue placed under contract during the first quarter was consistent with the levels of activity we saw in 2023. Non-Sprint related domestic annual churn continues to be between 1% and 2% of our domestic site leasing revenue. Our previously provided estimates of aggregate sprint will return over the next several years remain unchanged.
We anticipate a range of $40 million to $45 million in 2025, $45 million to $55 million in 2026, and $10 million to $20 million in 2027. International same tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis with 3.3% net, including 4.8% of churn or 8.1% on the gross basis. In Brazil, our largest international market, same tower growth -- organic growth was 6.8% on the constant currency basis. As compared to the previous quarter in full year 2023, our reported international growth rates continue to be impacted by a declining local CPI link escalator in Brazil. Total international churn remain elevated in the first quarter, mostly to carrier consolidation. During the first quarter, 78% of consolidated cash site leasing revenue was denominated in U.S. dollars.
The majority of non-U.S. dollar denominated revenue was from Brazil, with Brazil representing 15.8% of consolidated cash site leasing revenue during the quarter. As a reminder, our 2024 outlook does not include any churn and surcharge related to the oil wireless consolidation, other than the amount associated with the previously announced agreement that we executed with Vivo. If during 2024, we were to enter into further agreements with other carriers related to the oil wireless consolidation that may have an impact on 2024, we will adjust our outlook in future earning calls. Additionally, the new judicial reorganization plan for oil wireline was recently approved by a majority of creditors. As a result of this plan we have increased our full year churn outlook for oil wireline by $2 million to a total of approximately $4 million.
This adjustment is including an updated full year site leasing revenue outlook. As a result, oil wireline now represent approximately $20 million total annual site leasing revenue in 2024. During the first quarter of 2024, we acquired 11 communication sites for total cash consideration of $9.2 million. We also built 76 new sites mostly outside of the U.S. Subsequent to quarter-end we have purchased or under agreement to purchase 271 sites in our existing market for an aggregate price of $84.5 million. We anticipate closing on these sites under contract by the end of the third quarter. Our outlook does not assume any further acquisition beyond those under contract today. We also do not assume any share buyback beyond what was already completed so far this year.
However, it is possible that we invest in additional assets or share repurchase or both during the year. Our outlook for net cash interest expenses and for FFO and FFO per share continues to include a July 1st refinancing of our $620 million ABS Tower Securities scheduled to mature in October 2024. We assume a refinancing at a fixed rate of 6% per year. Actual rates and timing may vary from these assumptions. Our balance sheet remains strong and with ample liquidity. If not for the recent share buyback, our $2 billion revolver would have been fully paid down. Our current leverage of 6.5 times net debt to EBITDA remains near historical low and will be a steady target of 7 to 7.5 times. Our balance sheet is very strong with a current weighted average interest rate of 3.1% across our total outstanding debt.
Our weighted average maturity is approximately four years, including the impact of our current interest rate hedge, the interest rate on 96% of our current outstanding debt is fixed. And now I’m going to turn the call over to Mark.
Mark DeRussy: Thank you, Marc. We ended the quarter with $12.4 billion of total debt and $12.2 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 6.5 times, below the low end of our target range. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was very strong at 5.2 times. We continue to use cash on hand to repay amounts outstanding under the revolver. And as of today, we have $195 million outstanding under our $2 billion revolver. During the first and second quarter, we repurchased 935,000 shares of our common stock for $200 million at an average price per share of $213.85. We currently have $205 million of repurchase authorization remaining under our $1 billion stock repurchase plan.
The company’s shares outstanding at March 31, 2024, were $107.9 million. In addition during the first quarter, we declared and paid a cash dividend of $108.1 million or $0.98 per share. And as of today we announced that our Board of Directors has declared a second quarter dividend of $0.98 per share, payable on June 19, 2024 to shareholders of record as of the close on May 23, 2024. This dividend represents an increase of approximately 15% over the dividend paid in the second quarter of 2023. And with that, I’ll now turn the call over to Brendan.
Brendan Cavanagh: Thank you, Mark. Good afternoon. The first quarter marked a good start to 2024. We executed well operationally and produced financial results in line with our expectations. As a result, we have made very few adjustments to our full year outlook on a constant currency basis. In many of our markets, macroeconomic challenges have continued and as a result, incremental network investments by our customers have remained measured and largely in line with activity levels that we saw last year. In the U.S., leasing activity from an execution standpoint was only slightly higher than the fourth quarter. However, during the first quarter we saw increases in applications for both new leases and amendments as well as an increase in our services backlog.
Our customers continue to have significant network needs. A large percentage of our sites still require 5G-related upgrades and data-heavy use cases, including fixed wireless access, will compel continued investment by our customers over the next several years. I am personally of the belief that the current high cost of capital environment is perhaps the biggest overhang on this spending and is driving the more elongated spending cycle. Nonetheless, the needs are great. Consumers are demanding and competitive pressures will continue. Our infrastructure will be a critical component of the delivery chain for our customers to meet these challenges, and I believe we are well positioned to support them in their efforts. In addition, the current cost of capital may persist longer than anticipated just a few months ago, but I believe it will ultimately come down in time, which will encourage increased network investment.
It is all really just a matter of timing. Internationally, results were also in line with expectations. Although each market has its own specific dynamics on average, we are in a period of slower growth internationally compared to our historical levels. Lower inflationary escalators are a contributor, but the primary reason is consolidation-related churn and its associated impacts on carrier focus. Internationally, we have found that during these consolidations, the surviving carriers direct most of their attention to rationalizing their existing networks, causing much of their incremental network expansion. However, new spectrum and new technology generation deployments remain important and we believe will result in an acceleration in organic growth rates over time.
As discussed on our last call, chart remains elevated due primarily to these consolidations, but we believe that the steps we have taken and are taking to reach mutually beneficial contractual amendments with these customers will enhance the long-term strength and stability of our cash flows. Turning now to our balance sheet and capital allocation priorities, we have not shifted our previously stated overall approach, but we do very much make adjustments along the way in response to broader market dynamics and opportunities. We prioritize our dividend and have again announced a quarterly dividend 15% higher than the prior year period. This dividend level remains less than 30% of our guided full year AFFO, leaving meaningful capital available for allocation.
During the first quarter, we added a relatively small number of towers to our portfolio. And as a result of carrier consolidation, we decommissioned almost as many sites as we added. We remain selective about the quality of the sites that we add to our portfolio, but we really remain particular about the price at which we add them, which these days has been the main gating issue. That’s okay as our focus continues to be on return on investment, not growth just for growth’s sake. Opportunities will come along. In fact, they come along all the time. So we are comfortable being patient appropriately considering the new cost of capital environment we are operating in, and going after those opportunities that we believe we can best drive strong returns on.
The sites we are decommissioning are related to consolidation activity among our customers. We will be more proactive in the coming years in evaluating naked sites for cost-saving opportunities and potentially decommissioning. As I mentioned earlier, cost of capital and specifically cost of debt remains high and is now broadly expected to remain elevated for longer. This dynamic beyond any other has had the most significant impact on public tower company valuations. During the first quarter and beginning of the second quarter, we responded to some of this decline in valuation by spending $200 million to repurchase 935,000 shares of our stock. I believe that when there is ultimately a downward shift in rates, repurchases at this level will be even more accretive to future shareholder value.
Nonetheless, rates remain elevated today, and we recognize the impact of potential future higher interest costs on AFFO. So a portion of our capital allocation will continue to be appropriately dedicated to reducing debt. We are not formally changing our leverage targets as we believe retaining flexibility for the right investment opportunities is valuable, but operating with lower leverage in the current environment is clearly prudent. Our balance sheet and liquidity position remain in great shape. If not for the share repurchases, our revolver would have been fully paid down as of today. Our average cost of debt remains very low at 3.1%. However, over the next 12 months, we have approximately $1.8 billion that will need to be refinanced. The cost of that debt will certainly be higher than what we are paying today, but our ability to manage the amount of debt needed and the time we are locked into higher rates will be important factors in the approach we take.
Capital is widely available to us. It’s really just a matter of cost. We are evaluating a variety of options and we’ll provide further updates during the year as incremental steps are taken. Finally, I would like to revisit some of my comments from our prior earnings call with regard to the portfolio review we have undertaken. On the last call, I mentioned that we had begun an effort to analyze all of our operations and our potential operations through a lens of stabilizing results, growing our core business and shifting our mix more and more to high-quality assets and operations. I do not see this goal as having a finite deadline as it is more definitional around the key decisions we make. However, there are some very specific steps being taken and looking at each of our key operations, each of our business lines in each of our international markets.
We are setting baselines as to where we think these operations end up on a status quo basis 1 year from now, 5 years from now and even 10 years from now. Then based on potential opportunities we see in each case, we are developing alternative results profiles based on different paths we might take with the ultimate goal being improving the outcome relative to the base case. We are making good progress in gaining good insights through the effort, but this is not an overnight initiative. Many of the potential steps identified to enhance our positioning in given markets or operations will take time, sometimes possibly years to effectuate. After our prior call, a lot of attention was paid to the possibility of divestitures of businesses or markets.
While that may be an outcome in some cases, it is far from the priority or preferred path. I would much rather find ways to improve our position in the market through the addition of quality assets, enhance customer relationships and agreements and other creative solutions. In fact, I was recently visiting our team in Brazil, and learned a number of creative solutions we are introducing to enhance the customer experience at our sites and thereby improve the longevity of our customer relationships at those sites. I am encouraged by the seriousness with which our teams are approaching this initiative. In the end though, as I stated previously, financial results always matter, and we will make the best decisions we can to protect or create shareholder value as our top priority.
We have a great business and great assets. It is our job as the management team to maximize the value we can realize from those assets, and that is where our focus squarely is. I’d like to wrap up by thanking our team members and our customers for their contributions to our solid first quarter, and we look forward to continuing to share our progress throughout the year. With that, Jeffrey we are ready for questions.
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