All right. If everybody can go ahead and please take their seats, we're gonna go ahead and get started with our next session. For those of you who don't know me, I'm Matt Niknam, I cover communications infrastructure here at Deutsche Bank. We're very pleased to welcome back SBA Communications CEO, Jeff Stoops. Jeff, welcome back.
Thank you, Matt. Nice to be here.
Jeff, you just reported fourth quarter results. You gave an outlook for 2023. Maybe just to get started, if you can share some of your key highlights from your outlook and what's top of mind for SBA as we think about the year.
Yeah, we're expecting another, you know, very strong year. U.S. customers are very busy. Our international activity, which was really through the roof last year, we expect to be busy again. So we wanna execute very well against what we think are gonna be some great opportunities. You know, execution margins have always been a very strong suit for us. You know, take advantage of opportunity, revenue producing opportunities where we can and use a fairly vast amount of capital that we have available to us to, you know, pick and choose investments and allocations that are gonna create value for our shareholders. And it's kind of interesting situation that we're in because, you know, we have some money outstanding on the revolver.
We kind of have a default guarantee, no risk return of 6% by just paying down the revolver. We have that kind of as the, kind of the worst we can do, and then, you know, we'll look to do better than that as we look around the globe opportunistically.
Got it. Got it. It's interesting, if we sort of think about where we're at right now, we're entering a period where we're hearing a lot from carriers, particularly even the last two days at this conference, wireless CapEx likely to decline off its recent peak, interest rates you referenced elevated, macro backdrop likely worsening. Can you talk about the visibility you have around SBA's growth potential over the next several years from both a top and bottom line perspective?
Yeah. Well, let me start with AFFO per share, because that's really our first and foremost priority. If you look at this year, 2023 over 2022, and you stripped out the delta in interest expense, and everything else is going along well, it would be a year of high single digit AFFO per share growth. We have talked about, for many years, a goal of over time, you know, compounding at 10% AFFO per share on a CAGR basis. We did better than that, 2022 over 2021, and I think maybe even 2021 over 2020. This year won't be quite that because of the interest expense. We'll see where we end up in services. We're off to a good start.
That's really, you know, how we think about the business. I think the way we not only execute, I think the macro demand that will be out there and the way that we long term will continue to seek a levered approach will, I mean, that's gonna allow us to continue those goals over time.
As you sort of think about that, what are the sort of leverage assumptions that are embedded in that outlook? Maybe how do you think about optimal leverage for the business from here in the current environment?
Well, I think in the current environment, you know, If we assume that that was going to remain forever, you know, we probably would look to reduce our target range, which is 7-7.5x . We don't believe that. We believe that over time, the Fed will do what it says it's going to do, and bring about a decline in inflation, which should bring rates down as well. For now, we look at where we are. We look at what we can generate by, you know, paying down debt, building leverage capacity, biding our time, and being in a position where, you know, we may allocate capital.
We actually intend to seek out portfolio growth opportunities similar to what we found last year in Tanzania and GTS and some other things where we got some very good assets at what we thought were very good prices. That will continue to be our primary goal. And leverage. None of that, of course, was in our outlook because we don't put in deals that we anticipate but aren't actually contracted. That outlook that we put forth for 2023 without working through acquisitions or stock repurchases, that would have leverage at year-end in the mid-sixties, which is, you know, very, very low number for us.
If we don't find better uses for capital against that guaranteed 6% return, even though, you know, that is our goal, that's where we'll end up. Longer term, we are very comfortable given the strength of the business, the cash flows, that when rates, you know, moderate and come back down to something a little bit less than where they are today, we will lever back up and use that capital to grow the company, buy back stock or, you know, other value-creating things.
Maybe if I'm summarizing appropriately, this year, in terms of the guide, you're assuming incremental cash flow at post dividend goes towards paying down short-term debt. You end at 6.5. To the extent that we think maybe the opportunities beyond that or, you know, as we think about 2024, 2025, the 7-7.5 is still an appropriate leverage range.
Mm-hmm. Yes.
Okay.
Yeah. Now, of course, we're very opportunistic in facts and circumstances kind of management team. We will, you know, this is not a time today where, unless it was a really good opportunity, similar again to what we did in Tanzania or GTS, where you'd wanna go out and necessarily take on new fixed rate debt today when you didn't have to. As I mentioned earlier, I think that's gonna change. We're gonna have, you know, some more rational debt markets in years to come, and that's gonna be an opportunity for us to relever and use that capital in a very value-creating way.
Let's talk a little bit about the U.S. business. If we can maybe hit on your expectations for this year, just in terms of growth and net organic growth, what's embedded there in terms of activity levels from some of your top customers?
Well, we guided to a increase in revenue in 2023 of $72 million. That's our biggest number in quite some time. I don't know if we beat that in back in the 2014 period, but probably not. It's probably our biggest number. There's a lot of activity out there. It varies based on, you know, the carrier. I think it's widely known as to which carriers are further ahead on their mid-band spectrum build-outs and their 5G build-outs than others. Our experiences reflect that. Everybody's doing something. We expect it's gonna be another very strong year. For last year, we're expecting what would be a record services year for us. It's pretty busy.
We're, you know, we got a lot to do, and I think a lot of opportunities to, you know, move numbers as we move through the year. I mean, one of your first questions was, what are your priorities? I mean, our priority is always to find ways to do better than we have told people we were gonna do.
Well, maybe if we think about last year, I think in aggregate, you did around $67-ish million, if I remember correctly.
Yes.
In terms of new leasing. 72 for the guide this year. We're obviously starting off, it sounds like very strong in terms of some of the bookings activity that you ended last year with. Can you maybe help us think about the cadence of growth over the next several quarters in terms of how we start and how we may end the second half?
Yeah. I mean, if you look at the numbers, we ended the fourth quarter with $21 million added revenue. If you were to annualize that is a higher number than, you know, the $72 that we had guided to. By just looking at the math and where consensus was and where we ended the year, you would see, you know, some, at some point a decline off of that $21 million run rate. The way we put that together, Matt, is, you know, there's about 6 months of good visibility in the business, and then it's less visible. You really have to rely much more so not on your backlogs, but what your customers are saying and doing.
They've taken a very conservative approach this year in terms of their commentary about CapEx, so we're not gonna get ahead of them. That you know, we took all that into account. We took what we knew, what our backlogs were, and then for the outer parts of the year where we had less of a visibility into backlog, we took carrier commentary, and we mixed all that together and that's where we got to the $72 million. Could we do better? Sure. At the end of the day, our customers, I mean, for those numbers to move, our customers have to spend money. I remain very optimistic that they will because, you know, we know where they are in terms of their build outs of the mid-band spectrum.
There is tremendous amounts of work left to do. You know, when they choose to do that and, you know, what is the catalyst for them to continue to build out? You know, I think we all wanna see a 5G demand at the consumer level that makes us all run out and must have a 5G device. I'm not sure that exists today, and our customers are very well aware of that. I think there's a lot of belief on their side that it's coming, but it may not need to come this year.
Got it. Got it. As we think about just the mix of new leases signed, how have those been trending between co-locations and amendments?
Well, because of the large amount of work that we do for Dish, it's actually been about 50/50, with most of the new leases being Dish. Although there's an increasing amount of new colos coming from the other three as they start to begin what I think is gonna be a very long process of densification. I'd say that's about 50/50, which is, you know, prior to Dish starting their network development, it was always much more skewed to amendments.
Yeah. Yeah. We hit on some of the gross new leasing escalators. We'll kind of take it 3%. That's kind of like the run rate. I just want to hit on churn real quick. How should investors think about the timing and impact for when some of the remaining Sprint churn flows through the business?
We have seen a phenomena where the equipment is on the towers for, you know, much longer periods of time than we originally anticipated when we first put out our numbers. Now, we're not prepared yet to say that that's a, that's a permanent change. What we're looking at it as is really a deferral. So, you know, last year, I think we only had, we ended up only having like $18 million of Sprint churn when I think we were initially guiding to 20-30, was it Mark? Yep, 20-25. So we have taken the tact that that's gonna continue to get pushed back. This year, you know, we're guiding to 25-30.
Next year, $15 million-$20 million. Our big years will be 2025 and 2026 with $50 million anticipated each. These numbers have been pretty much exactly spot on from what, you know, the first time we answered this question. What has happened is, the churn has taken longer to realize as the equipment has stayed on the tower, and we think that will continue. Probably some of what we have talked about in 2023 gets pushed into 2024, and so on and so on.
Yeah. Okay. Then sort of normal course churn, ex Sprint 1%-2%, still sort of.
Mm-hmm. Yep.
Okay.
Yep.
Got it. All right. If we think about sort of the puts and takes here, and think about the U.S. on a multi-year longer term growth, vision here, is there a multi-year target for U.S. net organic billings growth we should be considering?
You know, I don't know if I'd use the word target, but I think, if you you know, exclude the Sprint churn, you should be looking at net mid-single digit, you know, growth.
Yeah. As we think of out on. You just provided 2023 guidance, I don't wanna play the game of getting any commentary on 2024, I'm sure the question has come up and it's on people's minds. Is there any near-term implication in terms of the lower exit rate from 2023? Is there any way to maybe predict how growth could trend in 2024 with maybe a lower exit rate and some of the moderating CapEx?
Yeah. I think I'd like to stay away from that until we get there, particularly given what I said about, you know, the second half of the year. It could prove to be, you know, much more robust and active than at this point, you know, our guidance would imply.
Got it. One more on the U.S. As we think about, you know, we're past that initial phase of 5G, you know, I think there's a little bit of a debate between is the next phase gonna be more active around cell splitting, macro cell splitting? Are we gonna see more in the way of small cell activity? I think I know where your answer is gonna shake out, but I'm just curious in terms of how you would frame the relative outlooks here.
Well, the macros are always the best bang for our customers' buck in terms of, you know, providing service and network and systems. You know, what I would say, it gets back a little bit to what I was talking about before. What would be really good for the entire wireless ecosystem would be that killer 5G app, the one that we all have to have and the one that we're all prepared to pay for and pay some extra for and that we can't live our lives without. That doesn't exist yet today, but it could exist in a very short period of time. When that happens, that is gonna give rise to, you know, an entire new level of demand and spend.
I mean, the one thing that hasn't changed in my career at SBA is the physical connection between the amount of data that flows through the networks and the amount of equipment and densification that's needed. I mean, there's no way around that. There's no silver bullets to get around those demand requirements for physical infrastructure. That's what that's really gonna be the catalyst is when we all wake up and say, "I gotta be on 5G.
Any guesses on what the killer app could be sitting here today?
You know, there's a lot of different things being worked on. You know, I think some type of gaming and virtual reality, perhaps autonomous cars and driving. I think more the very heavy data usage that you're gonna get out of, virtual or AI are gonna drive those things.
Okay. Let's pivot to international. Maybe if you could just talk about your outlook for the international business this year, and then maybe some of the commentary and color you're seeing across your top markets.
Yeah. We're expecting another very strong year internationally. you know, our big three markets are Brazil, South Africa and Tanzania, all very active, a lot of growth ahead. Brazil had a huge year last year, and actually showed very well because not only did we have a huge operational year, which we've had, you know, many times in the past, but we actually had, you know, some favorable effects from FX currency translations. This year with Brazil, we think we're gonna be working with our customers a little bit on the Oi wireless transaction rationalizations. You might have heard on our call that we have reached an agreement with one of our larger customers, TIM, down there to work through their consolidation plans, and we're very pleased with how that turned out.
I think, you know, we will, I'm sure we'll be involved at one point or another with both Vivo and Claro on similar issues. Their focus really is, they've all said that their focus for 2023 is, you know, rationalization and integration, before they get back to, you know, growth. Now what happened last year, which still is ahead of us, they auctioned a lot of 5G spectrum in Brazil. That's really yet to. A lot of mid-band spectrum, so that is yet to be deployed, and we're, you know, we're positioned extremely well for that, which. That was one of the drivers why we bought that portfolio of towers from GTS.
We think South Africa continues to grow extremely well, and Tanzania is off to a very good start. We're just celebrating our one-year anniversary of moving into that market.
I mean, it sounds like pretty robust and resilient growth activity across the regions. Any semblance or indication that a choppier macro or cost inflation headwinds are maybe weighing on carriers' deployment plans at all?
You know, it's market by market. We're in 15 countries now outside the U.S. They're not all, you know, gonna be blazing guns. I mean, some of the markets in Central America are, we think, gonna be a little more challenged than some others. When you look at the big markets for us, and again, Brazil, South Africa and Tanzania, they kind of dwarf the rest of the countries by revenue. Those are the markets that we think are gonna continue to be very active.
Got it. Maybe just on churn, you referenced Oi. I know that I think you saw some elevated churn in 2022 on the international side. Can we maybe pick apart some of the Oi churn, what's left? Also just think about other sort of M&A-related or market exit churn you may be experiencing in the international business.
The Oi churn, over time, check me, Mark, I believe it's gonna be a multi-year process, we've talked about $25 million-$30 million. We just took $10 million of that, or now we've seen clear the path to $10 million of that with TIM. The rest of it, we think, will take its course, you know, as we said, over the next several years. In terms of some of the other markets, you know, Digicel pulled out of Panama. That was a big customer in the Panamanian market. You had, you know, Telefónica pulling out of Guatemala and El Salvador. Those transactions, those are the ones that we're working through.
We've had some new market entrants come in, so we've set some, you know, new master agreements where they've reset kind of where things start, but in exchange for longer guaranteed terms and other committed growth, which is, you know, typical for a new relationship. We think last year and this year will be the ex Oi will be the big years for those types of churn events in South America, and that 2024 will be less of a year than 2023.
Got it. As we just think about long-term churn for international, any reason why that would vary from the typical 1%-2% you see in the U.S.?
No.
No. All right. I'm gonna pause. If anybody has any questions, feel free to raise your hands. We've got people with mics who can bring the mic over to you. All right, let's pivot now to capital allocation. There's lots to talk about within the cap allocation discussion, but maybe from a high level, if you can maybe help us think about SBA framework in terms of cap allocation and use of excess cash.
Well, you know, we have, we have our dividend now, which we've grown quite materially over the last several years. Obviously, that's first and foremost, and there'll always, you know, be that's the first use of capital. Putting that aside, the for a true discretionary decision, we still prize portfolio growth over everything else. It has to make sense. You know, you've heard us talk and others have talked many times about over the last several years that the public and private price disparity has not only emerged but grown. You know, that continues to this day, although I will tell you it feels like the gap has narrowed a bit.
I think, as long, if rates continue to stay higher for longer, that gap will continue to close because I'm pretty sure the private guys are subject to the same laws of economics that, you know, and DCFs that the rest of us are. That's our first desire. You know, second would be stock repurchases to buy stock when we feel like it's below its intrinsic value and to stay appropriately levered as a company. I mean, that's always been a part of, I think, our superior value creation proposition is where we've levered the company. That has not changed. That will vary, as we talked about earlier, based on where interest rates are and where we think they're headed.
We've been very comfortable over the last decade plus at the 7.5x leverage levels.
That gap you mentioned between public and private market portfolios, I think, you know, as I sort of follow the commentary from yourself and some others, it's been maybe stubbornly wide or maybe it's taken a little bit longer. You know, I think one of your peers referenced sort of hairline fractures in private market valuations, but nothing really tightening. Do you sense that all else equal, it's just a matter of time before that converges, or is there a sense that just with the amount of money on the private side chasing returns, chasing digital infrastructure, that maybe we see this sort of more permanent gap between valuations on the public and private side?
Well, at some point, I think the latter is gonna continue. There is a tremendous amount of money out there, but what hasn't really happened yet is successive exits, where those funds or investors have actually had to post returns. You know, that's coming, and it will remain to be seen whether folks are happy with the way those turn out or not, based on some of the prices that have been paid for some of these assets by those types of investors. Again, I think they are subject to the same laws of returns and economics that we are, and I can assure you that they're not any better at operating than we are. We'll see. We'll see. I mean that has been the challenge.
you would have in a more, capital constrained environment, the rise in interest rates would've had a much more immediate and direct impact on prices. Digital infrastructure is a very popular place these days. There's a lot of money out there, and there's a lot of people who are paid to spend money and raise money and, you know, different business models. It's not necessarily an operating company model that, you know, is valued based on AFFO per share.
Is your focus as you think about portfolio growth, is the focus in markets you're already in, or is there maybe an opportunity to further expand the platform into newer regions?
There's both. You know, we will get the most efficiency by continuing to grow in markets where we have existing scale and infrastructure, back office infrastructure. You know, just as we did last year moving into Tanzania, we're very much open to the right new opportunities.
Okay.
for new markets.
Got it. Got it. You know, an interesting deal you did a couple of years ago, the PG&E acquisition, maybe nontraditional in the sense of not a macro tower necessarily, but you still get the same level of exclusivity, I think-
Mm-hmm.
that you get with your traditional towers. Are there similar deals with high degree of exclusivity you're looking at or that you would look at? Are these structures mainly with utilities or are there other entities we should be thinking about?
You know, there's a variety of sources where you might find unique assets. You know, utilities, other types of regulated entities, railroads, different places that you might think. You know, we really love the PG&E deal, and it's really working out very well for us, and we had hoped that there would be a lot of other utilities that would be interested in that type of transaction. You know, as time has progressed, we've realized that the PG&E deal was somewhat unique given their circumstances. You know, they were emerging from bankruptcy, so they had much more flexibility to deal with those. The typical utility has its distribution transmission towers in what's called the rate base.
If you were to sell that, sell those assets out of the rate base, generate a profit, you know, that gets recycled back into the amounts that you could charge for electricity. It gets very complicated for, you know, healthy, ongoing utilities. Actually, I don't think there's been a utility transaction. You know, I might be missing one, but I can't think of one that's been done since our PG&E deal.
Yeah. I know you've been much more cautious in terms of U.S. fiber ownership in the past. I'm just wondering, is that also the case internationally or is there more strategic value to fiber ownership overseas?
Well, there's probably less competition, and more ability to, you know, make it part and parcel of a new build, and you get that worked into the overall relationship with the customer. I mean, It's a fine business. It's just, it does not have the same exclusivity that, you know, we're used to seeing and having it in the tower assets. There's a lot of fiber competition, and I think it's gonna be interesting to watch what happens when all the federal money starts flowing, which is a lot of that money is gonna go to fiber. I know our customers are looking at a lot of that.
Good business, but you need to be ready to have somebody, you know, lay another run of fiber right next to you.
Yeah. Yeah. You mentioned dividend per share growth. I'm just wondering in terms of how you're thinking about that growth profile for the dividend as the industry matures, and presumably there may be less in the way of sizable M&A targets out there.
Yeah. I think we will always err on the side of fast-growing but low Aggregate payout percentages, you know, for the foreseeable future. I think it's the right mix for us, I think, to preserve capital for other opportunistic uses, whether they be portfolio growth or stock repurchases. I just think we're gonna be able to create more value that way.
Is there sort of a terminal or longer-term AFFO payout target you'd like to get to over time?
No. I think we'll actually look to manage high annual growth in the dividend by keeping the payout ratio on the lower side or as low as we can. Over time, you're gonna end up with higher payout ratios for sure, because while we still have a healthy NOL balance, you know, that will over time, at some point dissipate, which will cause us to pay out more on a percentage of AFFO basis, but we're in no rush to get there.
Understood. Let's maybe pivot back. I wanna go to the U.S. and maybe delve in a little bit if we have, we have a little bit of time. I just wanna talk a little bit about 4-Q bookings. You talked about maybe, I think, a little bit of moderation relative to 3-Q, but still fairly strong. Any updated color you can share in terms of how the cadence of demand has trended into the year so far?
No.
Okay. Had to ask. We'll wait. We'll wait. We'll wait till.
Oh, you just have to be patient.
All good. All good. You know, we actually heard T-Mo this morning, Verizon also this morning, we talked a lot about fixed wireless and the growth that they're seeing in terms of this newer business model. Is the rise of that business meaningful at all for SBA? Has there been any sort of noticeable increases in activity from them to accommodate the business? Right now, is it just maybe eating into some excess capacity they've already had?
Yeah. T-Mobile, I don't think it's any surprise for us, I believe the industry was last year's most active customer by far. They will tell you, I think when you really parse the numbers, you will conclude that to do a macro deployment, which is really what this is all based on still, for fixed wireless, doesn't make, you know, a lot of sense in and of itself. As a byproduct of building out an extremely robust 5G network with the 2.5 GHz spectrum, they have this excess capacity, it was a wonderful thing to be able to offer. I'm sure there must be some incremental benefit that we've all enjoyed as a result of fixed wireless, I think we're all better off as a result.
I don't know that any of us are thinking about specific new CapEx that is only designed to further and provide fixed wireless.
Mm.
It's a great, I mean, and it's an interesting dynamic that I'm sure is a source of a lot of discussions amongst our customers, given what T-Mobile is able to do now, given how far ahead they are with mid-band spectrum capacity.
Yeah.
versus, you know, Verizon and AT&T. obviously they have different views on the benefits of fixed wireless. T-Mobile likes it because they have a lot of ability to put it out there.
Is their upcoming C-band deployment, I think they're getting a slug of C-band that hasn't cleared yet. There's also some 3.45 GHz. Is that a meaningful driver of incremental business for SBA?
I think it will be. I mean, it remains to be seen how material that becomes, but, you know, you're looking at different spectrum bands, which will require some additional radios, and depending on how the antenna architecture ultimately sorts.
We actually, we heard from AT&T yesterday, and they talked a lot about fairly elevated spend last year, this year, bigger drop-off coming next year. We've also heard maybe a little bit more of a pivot or moderation, we'll say, in terms of the cadence of their fiber deployment. Has that translated at all in terms of maybe incremental activity on the wireless side for SBA?
Yeah. I mean, they're steady. I don't know that I can tell you that things have moved here recently up or down based on fiber. I mean, I think that just gets back to the commentary I made earlier about the consumers are not yet requiring and demanding a killer 5G app. I mean, you know, very basically, you can't really have 5G wireless unless you have fiber all through the system. What those comments are telling me is that they don't yet feel they have to spend that money to close the gap with T-Mobile.
Yeah. you know, we talked a little bit about Verizon, but I wanna make sure I hit on Dish just because they are a newer entrant. What's maybe the latest you're seeing from them today? How should we think about their contribution to bookings and site leasing revenue today, and where that may be able to go over time?
You know, they're very active. They're very dedicated and determined and on track to hit their 2023 build-out requirements. Next one they have would be 2025. They will, we assume, and we've already started some discussions about, you know, helping them with those obligations. You know, we will see once they begin service and begin selling product. They don't really have any low-band spectrum. By way of comparison, if you look at what a nationwide network looks like that has a mix of all different kinds of spectrum, I mean, you know, their competitors, T-Mobile, AT&T, Verizon. Those are. You're talking 60, 70 or 1,000 or more sites.
Tremendous possibilities, all of which, of course, are gonna be, you know, somewhat to entirely dependent upon their long-term business success.
Just last question. Any sort of conversations, inquiries you're having from the non-traditional players that oftentimes get brought up, cable, tech?
Yeah. We talk to all of them and have different things going with a number of them, but they all are relatively immaterial compared to the owners of spectrum, which of course are the big four that we've talked about, AT&T, T-Mobile, Verizon, and Dish.
Got it. All right. I think it's a great place to end it. Jeff, on behalf of myself and everybody, thank you for joining. It's bittersweet. I think it's the last time we're gonna have you here, but it's been great, and we appreciate it.
I may be back as a audience member.
We'd love to have you. Looking forward to it.
Thank you.