Hi. Welcome. My name is Richard Cho. I cover communications infrastructure for JPMorgan. I'd like to introduce Marc Montagner from SBA Communications. Marc, you were appointed CFO at the beginning of last year. Just wanted to go over kind of what your priorities were since you were appointed CFO and what your priorities are for this year.
Thank you, Richard, for having me. Good to be here. I think the priorities, as far as I'm concerned, are really capital allocation. I think SBA, as the tower business, is a fantastic business: 85% gross margin, 70% EBITDA margins. We are massively free of cash flow positive, and you need to make sure you allocate capital to create value for the long term. I think capital allocation is the number one priority. I'm going to give you a few numbers just to anchor you on the business, and those numbers are all public from the guidance or other conference. Basically, it's about $1.9 billion of EBITDA midpoint of the guidance, rough numbers. And numbers will not dissimilar in 2024. Maintenance capex is about $15 million. Gross CapEx is about $250 million. Cash interest expense is about $430 million this year.
The dividend is about $500 million, and you have about $40 million of cash taxes. That leaves you with about $650 million of capital to allocate in 2025. Last year, it was closer to $700 million because the dividend was only $425 million. Look at what the company has done in the last three years. 2023, in a rising rate environment, we paid down $600 million of debt. We did a $100 million share buyback. 2024, we did a $200 million share buyback, about $200 million of M&A, and we paid down debt. So far this year, I think we just finished a $125 million share buyback, and we announced a new $1.5 billion share buyback because the old one was basically pretty much all completed. We also announced last year the acquisition of towers from Millicom in Central America for $975 million.
We had about over $600 million of cash on the balance sheet at the end of March, plus an on top $2 billion revolver that's going to help us fund the Millicom acquisition. In our outlook, it's supposed to close September 1 of this year. The capital is called for 2025. Going forward, I think we have ample liquidity, a $2 billion on top revolver, and plenty of cash. The first maturity is really a $750 million ABS maturing in January of next year. That could be either refinancing the ABS market if the rates are attractive. Otherwise, we just use cash on hand and the revolver to pay it down.
I think capital allocation is how we think we're going to create value in the long term, and we want to be very disciplined in terms of allocating to these three buckets: paying down debt in case the refinancing market is not attractive, share buyback if there's disruption or if we like the value of our stock, and M&A to the extent that they create value for the long term. Millicom, I'll talk about it later, was a good example of a transaction that was accretive to the long-term value of our company.
Yeah, no, something we might talk a little bit more about later, but SBA has always been very opportunistic with its capital. I think you took advantage of the April kind of disruption. As you said, you have the M&A call for. I guess part of being able to take advantage of this is that, as you first mentioned, the U.S. tower business is very stable. I think people forget it does go in some cycles. Can you talk a little bit about where you feel like the U.S. tower business is in this current 5G cycle?
Yeah, sure. Let's just look at the, I've been in the telecom industry, the wireless industry in and out for 30 years now. So I've seen many cycles: 2G, 3G, 4G, 5G. Usually, carriers get a new band of spectrum. They roll out a new technology, a new generation. The cycle usually lasts about 10 years. It's really a step function. You get the new band of spectrum. You roll out a new technology. You cram more bits per hertz. You get a capacity increase of about 10x. It's like a capex step. You stop capex or you just minimum capex for a few years where you fill up this capacity. Eventually, you need to do density fitting, extra coverage in order to take it to the next step. It takes, usually it's a 10-year cycle.
If you look back at wireless CapEx as a percentage of revenue, Europe, U.S., other market, it runs between 15% of revenue to 25% of revenue. In 2022, 2023, it was running close to 25%. The big three spent $40 billion-plus of CapEx every year. They got a massive increase in capacity. In 2024, it was like less than 15%, 14%. It is probably the lowest level I have ever seen. The carriers, I think, just strengthened their balance sheet and basically started filling that capacity. What we are seeing now is more the level of application from the carriers is growing at double digit. It has been growing at double digit for a few quarters now. Given the book-to-bill cycle, it takes six to nine months for that to be reflected in the numbers. The fourth quarter of 2024 was a trough.
It was the lowest level in terms of new revenue from new leases. I think the beauty is that the first quarter of 2025 had an inflection point. Finally, the billings have started to pick up again. The level of applications are still coming in, still increasing. I think it means that the run rate coming out of 2025 should be higher than the run rate we are seeing in the first quarter of 2024. If you ask me where are we in the cycle, we are definitely before the midpoint, before the mid.
It seems like we have a pretty long way to go. It's nice that you're seeing these applications kind of ahead of the revenue coming in. It gives you good visibility. As you said, early in the cycle, it's that coverage and kind of amendment period. It seems like you're seeing more colocations now. Can you talk a little bit about that mix that you're seeing?
Yeah, I think we said publicly that 75% of our new lease revenue in the first quarter was tied to colocation, new leases. So it's pretty broad-based. It's coverage, densification. I think it's a good sign, I think, for the industry and for the tower industry and the wireless industry.
AMT spoke earlier, and they have MLAs with carriers that I think are structured a little differently than yours. Can you talk about SBA's approach to your carrier customers and what kind of contracts are with them right now?
You know, so I think we have an MLA with AT&T, which gives them a lot of flexibility in terms of rolling out 5G quickly. It is really a case-by-case basis. We have a rate card, but we are open to MLA. As long as it is NPV positive, we are willing to enter into long-term MLAs. It is really on a case-by-case basis.
Got it. And just to touch on the AT&T a little bit, it's the rollout 5G, but anything in terms of densification or other stuff, that wouldn't be part of it?
Amendment would be part of the MLA. Densification, new leases quota would be excluded.
I guess in terms of each of the carriers, I think T-Mobile is kind of furthest along, Verizon's about halfway, and AT&T is kind of back. Is that kind of the similar case for their rollout on your towers?
We do not have full visibility on their network. We can only see what they are doing on our towers. I think on the SBA network, I think T-Mobile is probably at 85% deployment of 5G on the 2.5 spectrum. We have not seen any deployment on the C block. Verizon is probably at the 70% level today, roughly, and AT&T less than 50%, between 45% and 50%. AT&T is playing catch-up right now.
Given what you said about the new applications and how this year is going to play out, it seems like going into next year, while you still have some Sprint-related churn, that a lot of, if the trends hold, that next year could be a better year than this year. Hard to say where exactly, but.
It's hard to say where. We do not give values for 2026 until February of next year. I think the Sprint churn, it is contracted. I think we have pretty good visibility. We guided towards $51 million midpoint of Sprint churn this year, about another $50 million in 2026, and then $20 million remaining 2027 and forward. I think it is really 2025 and 2026, all the two years where you are still going to see significant Sprint churn. I think the good news is that outside of Sprint, the non-Sprint churn in the U.S. is trending lower and lower every year and is getting closer to 1% of revenue, which is a good sign.
No, that's great because it's been anywhere from 1% to 2%. Having it being closer to the 1% is great. One of the things that I guess you mentioned is capital allocation. Sticking to the U.S., do you see any kind of build-to-suit or smaller opportunities in the U.S., or is the private market still kind of too highly priced?
I mean, on the M&A side in the U.S., I think you have a scarcity of M&A opportunities, and you have a lot of private equity capital looking to deploy capital in the space. When they do M&A, they could lever that up 10-12x. It is very difficult for us to compete on the M&A front. On the build-to-suit, we still build tower, but new sites. It is very minimum on our side. We are very disciplined in terms of the return we are trying to seek. We do not see a lot of new build opportunities in the U.S. market. That being said, outside of the U.S., our guidance called for 800 new sites being built overall across our network.
I guess moving to the international part, you have assets in Canada and Latin America, and you are the pending Millicom acquisition. How should investors look at your international business, and where do you see kind of maybe the most opportunity as this merger kind of closes?
Right. I think internationally, about 15% of our revenues come from Brazil. That is our largest market outside of the US. About 80% of our revenue are US denominated. Same thing for EBITDA. Brazil, we have 12,000 sites. We are number two behind American Tower with 18,000 sites. Long term, I think Brazil is the largest economy in Latin America, high GDP per capita, exporter of agricultural product, oil, minerals. I think Brazil is going to do very well in the long term. We face headwind in 2024 and 2025. The market is going through consolidation from four to three. Oi, which is the company we index to, has been carved to the other three operators, Claro, Vivo, and TIM. We are going to face an elevated level of churn in Brazil for the next few years.
Last year, unfortunately, Brazil, the Brazilian real was the worst performing currency of all foreign currency. It was down 23%. We started the year at 4.98 to the dollar, ended up at 6.28 to the dollar. I think government deficit was running at 9% of GDP. The central bank has raised rates. Short-term rates were at 14%. Currency has appreciated this year, so we may see a little bit of upside from there. I think our guidance says the real at 5.75. It is probably at 5.65 today. The currency is doing better. We have a good relationship with TIM, Vivo, and Claro, which just we have to work our way through the Oi churn. You have Central America. We agreed to buy 7,000 sites from Millicom. We paid about 11.5x EBITDA.
We have a 50-year contract with Millicom in US dollars with a CPI-linked escalator. Also, they have a commitment to give us 2,500 BTS. What we like about Central America, we have a presence there already. We are just consolidating our presence there. We are the dominant tower company in Central America. Those markets have been consolidated at the wireless operator level. You have two operators, Millicom and Claro, which is part of the América Móvil empire. We like the economics of those markets. It is US dollar, an escalator, very attractive valuation. That should close before September 1. We are pretty excited about it. Africa is a growing market for us, a good presence in South Africa. Also, we are going to build about probably 500 sites in or between 400 and 500 sites in Central America this year.
The number two market where we are going to add a large number of sites is Tanzania. This is heavily supported by the Tanzanian government. Wireless is a real critical infrastructure there, trying to expand coverage. Our operations are growing at double digits there. South Africa has been a very good market for us too, historically. We have a smaller market in Chile, Ecuador, and Peru.
Going back to Brazil a little bit, in terms of once you're through the consolidation there, do you see that as a kind of mid or high single-digit growing market long term? Obviously, not near term because of the churn, but given their economy and the way trade is kind of shifting towards there.
I believe so. Brazil is a growth economy. It's an emerging market. 5G is probably at a 20%-25% rollout mark. I think at some point, there will be growth again. It's just a question of working out the churn and waiting for that market to recover, that economy to recover a little bit.
Makes sense. You talked a little bit about getting back to a 70% EBITDA margin. You're running a little bit under that. Is that mainly just because of the Sprint churn now? Once the US churn kind of falls away, you expect to be back there?
It's two things. One is churn. And then as part of the Millicom transaction, we have some extra G&A in the region because we're doing a lot of zoning application to build those sites. So we're starting to incur G&A costs before the transaction closes. But I think it's going to normalize again to a 70% mark going forward.
Great. I guess one of the things is that SBA has been kind of comfortable with a higher level of leverage than some of your peers. How are you thinking about if rates kind of stay relatively steady, but who knows? Right now, you're at like 6.4x . What should we kind of expect over the next few years?
I think leverage is more an output than an input. I think the input is really cash interest expenses. If interest rates were to come down, I think we'd be comfortable with more leverage, buying back share, doing more M&A. I think if interest rates keep increasing, there's benefit in paying down debt in order to minimize your cash interest expenses. It really depends where interest rates are going to go. Just look at our first $750 million maturity in January of 2026. If interest rates are elevated, we're just going to pay it down. If interest rates are low, we're happy to just refinance and use the extra cash to either share buyback or look at attractive M&A opportunities. At the end of the day, capital allocation, we have these three levers: share buyback, paying down debt, and M&A.
It really depends on the opportunities. We want to be flexible.
That makes sense. I guess given the Millicom transaction, is it kind of a little bit less likely that you'll be looking at other transactions until this one's digested a little bit, or it just really depends on what opportunities are available and the overall positioning of the company?
It really depends on what's available. To be candid with you, right now, in the U.S. and Canada, valuations in the private market are very stretched given the large availability of capital, private capital chasing those opportunities. The opportunity they have to put 10 or 20 times of leverage on their acquisition. Outside of the U.S., I don't see us expanding in new emerging markets. I think Brendan Cavanagh, our CEO, at his first earnings call announced that we're doing a portfolio review. That was February of 2024. I think the idea is that in markets where we are the dominant tower operator, number one or number two, you have a better dialogue with the wireless operator. You have more of an opportunity to capture more growth and be in the flow. If you have a smaller market share, they don't really need to talk to you.
They just go around you. That's a reason we sold in the last 12 months. We sold the Philippines. We sold Argentina. We sold Colombia. I don't see us expanding into new emerging markets now. Emerging markets, I think right now, are, I think, their economies are not doing that well. Cost of capital is fairly high. I don't see us expanding into new emerging markets at this stage.
You talked about the, I guess, near-term kind of build-to-suit opportunities in your international business. Once those are done, do you expect a similar level kind of going forward? I guess it seems like the growth opportunities in the markets you're in, where you have a leading position, kind of can continue to go forward.
Yeah, I think the build-to-suit program with Millicom is a multi-year program. It's 2,500 BTS over a number of years. We see that Tanzania, for example, is going to need more coverage over time. I think the idea is to keep building and expanding the footprint and building more assets.
Great. I guess once the acquisition is closed and I guess the margin, EBITDA margin gets back to 70%, how should we think about the long-term AFFO growth and the potential for dividend growth in the future years?
Yeah, that's a good question. I mean, last year, we increased our dividend by 15%. This year, we increased the dividend by 13%. Our payout ratio is about 36% today. I think for the next few years, we're probably going to keep increasing the dividend at double digit. We need to burn through more NOLs. At some point, I think the rate of growth in the dividend should mirror the rate of growth in AFFO and AFFO per share.
Got it. I guess in the past and just recently, you've been or SBA has been very kind of, I guess, price-dependent on the share buyback. If M&A opportunities don't come down, you kind of have your build-to-suit covered. Will the share repurchase continue to be kind of price-dependent, or does that shift depending on the next best use of your excess cash flow?
I think we want to be flexible. We do not know the answer to your question. It really depends on so many variables. I think returning capital to shareholders is important to us. It creates value for the long term.
Got it. In terms of, I guess, something that kind of came out late yesterday, and I do not think anyone has an answer to it, but the FCC is looking into DISH and their network build. Can you just talk about what your exposure is relative to DISH and not trying to get a sense of what will actually happen, but more what could happen, I guess?
I'm not going to speculate because I'd be wrong anyway. I think DISH today is less than $50 million of revenue, less than 5.0. We did not pencil much in terms of new lease activity from DISH this year, low single digit. I think they receive regulatory relief until sometime in 2026 in terms of coverage build-out. We want to support them. I think we have a good dialogue with them. I just wish them that they find the capital to deploy the network.
Yeah. I guess the services business has been doing pretty well. Can you remind us of what is driving that? Is it something that gives you, that you have a lot of visibility into for this year and how that ties to your leasing?
Right. Our leasing, our service business is heavily indexed towards one client today. I think the fact that we increased guidance for that line of business for the year after one quarter is a good sign. The level of activity is really good. The pipeline is strong. It is a really good sign that our customers are using us for planning for the future. I think it is just a good sign for the leasing business.
Got it. I guess in the past, the carriers at times have complained about tower leases and the escalator and stuff like that. Do you feel your relationship with the carriers right now is in a good spot? Is it one that has changed at all recently, or?
I think we're in a good spot, to be honest with you. I think we like the quality of execution that we provide, the quality of service, the response time. I think the relationship is actually very good right now.
Got it. You mentioned a little bit about adding on some SG&A because of in front of the merger.
We're not talking huge numbers.
Not big numbers, but is there any level of optimization that you can see in the organization, whether it's in the international or domestic business, or?
You know, G&A is running at close to 6% of revenue. We're pretty lean, pretty efficient. I think we are rolling out, I think Brendan mentioned that on the last earnings call, a new ARP, just because the current system is going to be phased out by the end of the decade. We want to do it right as opposed to do it fast. The primary objective is really to have more functionality, more features, being more flexible, more than taking out cost. I think we like, I think, the way we are nimble, efficient. It's just a question of upgrading a little bit our system because the world evolves. We need to evolve as well.
No, that makes sense. Do you think that this level of mix towards colocation and away from amendments will stay at this level, or do you see it equalizing at some point?
It's hard to say. Carriers do not really spend their long-term plan with us. It makes sense that you roll out a new generation technology. It's really broad. Then suddenly, you have pockets where people use more Fixed Wireless Access, or you have a corridor with a highway with small traffic, and you need to do fill-ins. I think you get a national level of coverage with a national level of capacity. If you're a carrier, you constantly need to look at your choke points and spend more capacity, more densification. I think it's going to keep going. It has to keep going because that's where the demands are on the network.
Do you get any sense on where the densification is focused on? Is it in high kind of Fixed Wireless Access markets? Is it in more suburban urban markets, or is it kind of all over?
It's broad-based. We don't have granularity on the usage. I mean, a bed is a bed is a bed. The carriers may know if it's a bed being used on a Fixed Wireless Access terminal or handset, but we don't. We just rent a passive infrastructure. We rent horizontal space at the bottom of the tower for cabinets, generators, fuel tanks, and vertical space on the tower for the radios. It's really a passive infrastructure.
Got it. I think one of the questions that we talked a little bit about, but seems to have always persisted, is this disconnect in the M&A environment from the private market to public market. What do you see as potentially changing that dynamic? It seems like the public markets are starting to get a little bit better, but nowhere near what you're seeing in the private markets. This kind of disconnect has lasted through kind of very different cycles in the financial markets. Do you see anything changing this?
Eventually, it should converge. I just do not know when. I give you one example, right? A year ago, Shentel sold their wireless towers, right? I mean, we looked at it, and a number of other companies looked at it. They were fantastic towers: West Virginia, Virginia, Pennsylvania, Ohio. Very difficult to replicate that infrastructure. A lot of state park there. Very difficult to build. Fantastic towers. You look at it, and you say, how much should you bid for it? You build a long-term model. What assumptions do you build? First of all, Shentel was a Sprint affiliate. T-Mobile and Sprint, you know you are going to have churn. You have to take a guess how many of those sites or these leases do not get canceled. You underwrite a 4-carrier market or a 3-carrier market.
When is DISH going to deploy in that part of the country? You say, well, there's not a lot of fiber there. Is Fixed Wireless Access going to be the real killer app in those markets or not? What is the penetration going to be? You know that you're probably not going to be overbuilt because it's so difficult and expensive to build there. The biggest swag is what discount rate are you going to use? Are you going to use the current 10 year rate, or are you going to say, you know what? Interest rates are going to be lower in the long term, and I'm going to model use a lower WACC. You run a model, you bid on it, and you lose.
You look at how much the buyers pay for it, and you say, I do not need to tweak my model by very much to get to that number, especially if I could put 10 turns of debt if I am a private buyer for this. As a public company, you could not put 10 or 12 turns of debt. I think as long as the credit market is going to be willing to put 10 or 12 turns of leverage on those private tower deals, and as long as you are going to have so much private equity chasing those opportunities, I think you may have a delta between public and private market. I am not saying the private is wrong. My guess is probably the assets are probably undervalued at this stage if you use the same assumptions.
Yeah, no, if you apply those assumptions onto your, which you would argue that your assets are actually of scale and better overall, there's no real difference that they should be made.
I mean, those arbitrage opportunities could persist for a very long time. I don't have a crystal ball.
Yeah. Unfortunately, it has lasted longer than most people thought. With that said, I do hear that some of these assets have been kind of shopped around, go away, come back out, and no one bites. It will be interesting to see how long they'll be willing to do that. I guess to finish up, the rate volatility is weighing a lot on the stocks. When rates do kind of settle down, it looks like the kind of organic growth opportunity over the next few years, excluding the one-time churn, is pretty solid. Is that the right way to look at the business right now?
Yeah, I think the way we look at it is like the 3 plus 3 minus 1, or escalator gives you a 3% growth rate by contract. A new lease up in a normalized environment, new lease activities should give you another 3%. And churn ex Sprint is going to be - 1. So you could see a mid-single digit growth in the US.
Right. We'll leave it at that.
Okay.
Thank you.
Thank you, Richard, for having me.