All right. Good morning, everybody. I'm Ric Prentiss, head of TMT Research at Raymond James. My definition of TMT is towers. We've got Marc Montagner from SBAC here with us today. Media, we just literally jumped off the Warner Bros. Paramount call. Brent was able to ask the question for me 'cause I had to run up here. Then telecom and satellite services, 47 years of Raymond James Institutional Investor Conference, my 30th conference. Glad to see everybody here. As I've always said, it's never dull. I'm still standing. Boy, is it never dull. Marc, thanks for joining us.
Ric, thanks for having me, and congratulations on an amazing run.
Yeah. Yeah. It's been.
Hope you keep going for another 20 years.
Yeah. As we think about the tower industry, I think on the earnings call last week, gosh, it was just Thursday, I guess, you mentioned that we're close to the carrier consolidation churn probably being done in the United States. I know it's an awkward topic, why don't you just update people in the room and on the webcast, where are we at with SBAC and DISH, just so we know, kind of to set the stage?
Right. DISH
Who reported this morning on top of everything else.
Okay. Yeah. I didn't, I didn't follow that. DISH basically for us is about $55 million of revenue every year. Last year was only $2 million of lease-up. Ongoing commitment, we have short-term contract with DISH. Ongoing commitment, you total all their commitment, it's slightly over $100 million. It's a very limited exposure. They stopped paying late last year, so we basically have a lawsuit ongoing, so I won't comment on the lawsuit. It's public. People could just read it. Basically for us, the exposure is minimum, about $100 million through the end of 2028.
Yeah. It was removed from the guidance.
We removed the about $56 million of revenue from our guidance for 2026 since they stopped paying basically.
Any settlement, negotiation, litigation would be upside to that from a standpoint of somewhere on the income statement and balance sheet.
It would just be cash coming in. That's correct.
We also look at the remaining big three. We've got a stable operation in the U.S. , three carriers, well-capitalized carriers that can spend money. There's been some debate trying to understand Verizon, who you have an MLA with now, what they've publicly said about their CapEx. How do you kind of take a look at what activity you're expecting from Verizon versus CapEx? I know it's not a perfect indicator. CapEx is not a perfect indicator to tower leasing.
For us, we signed a MLA agreement with Verizon last year. It's a 10-year agreement. We're very pleased with the agreement. I think we make it easier and faster for Verizon to deploy. Basically, they have minimum commitment with us. Verizon is going to be our biggest, I think contributor to new revenue in 2026, and we're very pleased with the relationship. I think for the next 10 years, I think we have very good visibility with Verizon.
It feels like increasing activity from Verizon this year versus what you've seen over the last one or two years.
I think that's correct.
One of the other carriers that was more rural-focused, maybe reducing efforts a little bit in the short term. If we think of the big three and broaden out the scope beyond just 2026 guidance, philosophically, how should we think about escalators, new lease activity, and churn over the long term in the U.S. ?
Yeah, sure. Let me just go back through 2026, right? 2027, new colocations and amendment were about $37 million of new revenues. DISH was about $2 million of this. The midpoint of our guidance for 2026 is $35 million. It's flat YoY, so it's steady. I think the mix changing, T-Mobile basically at the coverage requirement as part of their agreement to buy Sprint, so they are getting to the end of the rural coverage there, and densification is getting close to the end as well. Verizon is picking up the slack, so overall it's steady. It's just the mix is changing, more exposure to Verizon, less to T-Mobile on the new leases.
Long term, if you just go back, I've been in that industry for over 30 years, just like you. We've seen the cycle repeat itself. Carriers buy new spectrum, they roll out a new technology, they get a 10x increase in terms of capacity. They then harvest that capacity, and eventually, they need to do more co-lo densification, and eventually they get a new band of spectrum and roll out a new technology and the cycle repeats itself. In the peak of the CapEx cycle, CapEx as a percentage of revenue runs anywhere from 22%-25% of revenue. In the harvest mode, it's about 15%. Last year was slightly less than 15. If you go back 20 years, it's one of the lowest ever.
It's gonna be around the 15% mark this year. 6G is coming. The upper C-band auction is probably gonna take place sometime in 2027. 18 months clearing period, we could see a 6G rollout by 2028, 2029, and that means new equipment. I think in a normalized environment, I think escalator on the lease agreement is about 3%. New lease activity in a normalized environment is 2%-3% top line growth rate. Non-Sprint, non-DISH trade is about 1%. You solve for about 4%-5% top line growth rate in a normalized environment.
Yeah. When you think about transferring that conversion rate from revenue to gross margins to EBITDA and free cash flow, more importantly for a re-adjusted funds from operations, how do we think about the bottom line kind of growth rates that 4%-5% long-term normalized revenue growth rate might equate to?
Right. Remember, this is a high fixed cost, low variable industry with very high margin, 85% gross margin, 7% EBITDA margin. That 4%-5%, top line growth rate should, if you exclude refinancing headwinds, should be a single-digit growth rate.
Per share might be even better then, 'cause you look at what you do with the excess cash. Walk us through one of the beauties of the tower business is you make a lot of money. And then I'd always tell people a top thing for executives is capital allocation of what do I do with that money?
Right. I think you're right, Ric. The way to create value for the long term is really capital allocation. We need to be disciplined there. If you look at our business, and those are public numbers, it's about $1.9 billion of EBITDA, $250 million of growth CapEx and maintenance CapEx, about guided about $500 million, $490 million of cash interest expenses, $525 million of dividend, $70 million of cash taxes, you're left with about $600 million or $700 million of extra cash every year. What did we do with that extra cash? In 2024, we bought back shares $200 million. We did about $200 million M&A, we paid down debt.
Last year, we I think, given the way, our stock has traded, we thought that there's real value at that level. We spent half a billion dollar, buying, our shares at, an average of about $200. In 2024, we signed a deal to buy Millicom, towers in Central America, 7,000 towers for about $1 billion. We increased that a little bit, but I think we like our leverage at about 6.5 times now. Going forward, I think, into, looking at 2026, I think, share buyback has to be an important component of use of excess cash, basically.
The remaining program, if I remember right, was it $1.6 billion is left on the program?
I think there's $1.1 billion.
$ 1.1 b illion . That's right. $ 1.1 billion, 'cause you did spend some of this, right?
That's right.
As we think about potential acquisitions, it sure seems like private multiples are staying well above public multiples. How's your ability to compete for or even want to win at those kind of prices?
I think the issue in the U.S. domestic market is a scarcity of large tower portfolio available for sale. Then we compete with private capital. There's a lot of private capital chasing that industry because of the economics of it. It's a very attractive business. They have the ability to put 12 turns of leverage in the ABS market. The way they run their model, probably assume an exit at 25, 30 times in seven years. For us, as a publicly traded company, levered 6.5 times, it's very difficult to compete. We have developers that we have been working with for years. We buy a smaller portfolio, three towers, half a thousand tower, 2,000 towers.
The large portfolio or I think or the math just doesn't work for us.
Yeah. You mentioned 5G going to 6G. When we think about 5G, fixed wireless has certainly been a good application. It seems like, I know I think you guys on the call talked about mobile data usage. I like to call it just wireless network usage 'cause we have both fixed and mobile. As you think about what's happening at the networks, where are we at in the 5G cycle? We'll come back to 6G.
Right. I mean, we can only look at the deployment of the big three on our portfolio, and I think T-Mobile is pretty much done on their 5G rollout, or about 85% rollout in a 2.5 GHz band. They haven't rolled out in a C-band at all. Verizon is probably at around 80% mark, and AT&T, 50%- 55%. There's still room for Verizon and AT&T to deploy. 6G, I think, as we said, the Upper C-block is probably going to be auctioned in 2027 and be deployed before the end of the decade.
Yeah. Of course, T-Mobile done with the Sprint stuff, but the C-band, haven't seen a lot yet, but maybe it's coming.
Well, I can only speculate. They haven't, as far as we know, they haven't rolled out in the C-band. Maybe they are just waiting for the auction of the upper C-band and just worldwide equipment to cover the existing C-band and the new one they may get in the auction. I don't know. I'm just speculating, but we haven't seen any C-block rollout by T-Mobile yet.
Yeah. I mean, a lot of carriers like to do the one climb, one touch type thing, more efficient. We were talking with John Saw, CTO of T-Mobile the other day before their investor day, John said he's already working on 6G, you know, from his side as the CTO. When we asked what he was thinking of, he said, we got drones, we have robotics, we have wearables, we have AI, we have edge. You guys obviously meet with consultants and try and think of where we're headed. What are you seeing from 6G that would get you excited from activity at the tower level?
Right. I really think that the if you just go back to all this generation, I label 1G, 2G, 3G, 4G, 5G. To me, remember, ARPU in the wireless industry has always been around $55-$60. You used to pay $0.25 a minute for a voice call, and then $0.10 for SMS text, and then $40 for 1 gig of data. Now it's basically all you could eat. During that time, EBITDA margins for the wireless operator has still been at around 45%. Why is this? It's because each time they roll out a new technology, they get an exponential reduction in the cost per bit that they deliver.
I think to me, 6G is just gonna give them a 10x-20x basically reduction in the cost per bit that they're gonna be able to deliver to their users. Just give them more data, more speed, less latencies, and be able to keep increasing mobile traffic at double-digit rates and still maintain a 45% EBITDA margin. To me, it's all about the cost per bit. If you look at the application, AI eventually is gonna be at the handset. We assume there would be live application to make real time decision and latency, low latency is gonna be a critical factor there. That means that you need to have probably data center or servers at the edge on the network.
I don't know if they're gonna be in metro area close to the users, if they have to be at the base of the base station. It's too early to say, but, you could just see the trends going forward with the cost per bit being taken down another 10 or 20x, more capacity coming, less latency, more power in the handset or the iPad. I really think that you're gonna see an uptick in mobile wireless data usage again.
Yeah. At the, at the Park City Summer Summit, the fiber data center tower carriers, everybody there felt that kind of this AI impact on wireless, mobile, and towers probably by 2030 was kind of the consensus saying, "Okay, it's not 2026, 2027, but it's coming.
I think that's right. I could see it and people always think in terms of capacity. You have to think in terms of latency too. Latency is very, very important. You don't wanna basically need to make a real-life decision and wait one second for an answer. You need to get it right away. That means like more capacity closer to the base station.
It's been the debate of when will AI come to towers, and people have kind of forgot about it, whereas data centers, AI is front and center. It's for the people in the audience and on the webcasting, it's coming. It definitely feels more real, whereas a couple years ago we weren't sure when it was coming. Now it feels like it's kind of gelling around that concept.
I think that's right.
We also hear a lot, and Brent did a video one the other day using Sora for us. It feels also like there might be more upload coming rather than just download, and that might affect the networks. Are you seeing the same thing or hearing?
That's what we're hearing. I think today, if you look at the download-upload ratio, it's probably 80% download, 20% upload. I think what we're seeing now is that traffic going forward is gonna be more mixed 50/50. That means probably I think you need more antennas on the to, on the receiving end. I think different type of equipment, more equipment. 6G basically means new equipment at the tower. That's positive for the tower industry.
One of the things, and Brent and I, we were in Paris back September 15th when EchoStar had the big event that led to the headwinds. A lot of people in September and October particularly were talking to us about, "Gosh, Ric, aren't satellites gonna replace wireless? Aren't satellites gonna replace tower?" I don't wanna prejudice you, but how do y'all look at that question from a generalist side?
To us, or to me at least, and there's still a lot of unknown, but satellite is probably going to be a complement for the tower industry because I think in the rural area, some people are probably gonna use it for broadband, just replace the fixed broadband that they have, also for coverage. Latency is always important, and if you wanna minimize latency, I think Starlink today's latency is probably 45 ms. If you wanna take it down to 20, 25, you probably need to need more downlink in order to get that traffic connected to IP internet backbone, and that means equipment on the site to receive that traffic. I probably see it as a complement at this stage.
I don't really see, there's no way you could replicate the capacity and the latency that you have on the terrestrial network. I think satellite is probably gonna be a complement and a positive to the tower industry.
It also feels to us like it's more going after the white space, that in the U.S. we think, "Oh, our phones work," but maybe a third of the U.S. landmass, continental U.S. landmass, is not covered, and it's economically not right to cover it with terrestrial. That seems like a natural spot for satellite.
I think that's right. The day you could have a dual-mode handset with the right form factor, the right battery life, the right cost, entry level, I think you're gonna see more dual-mode handset. I just think it's a complement. In an urban environment, suburban environment, you're always gonna have a tree, an overpass, a tall building blocking access. The terrestrial network is always gonna be your primary, I think, access network.
I remember the day when satellite radio was a big incremental tenant on the towers 'cause satellite radio wouldn't work in your car if you were in an urban environment 'cause they look like canyons.
That's right. When you think about it, SiriusXM has thousands of repeater on the ground. Sites basically where they rebroadcast their satellite signal into your car, into your garage, into your under the overpass. I think I don't know what Starlink's plans are, but if you spend the type of money they have buying spectrum, if you wanna utilize that spectrum eventually, probably makes sense to get more capacity and coverage in urban and suburban environment by deploying in that spectrum.
One other thing is a lot of people use their mobile devices inside. Inside buildings, inside homes, and satellite doesn't penetrate very well into structures either.
Yeah, that's right. It won't penetrate and if you have another 20 floors on top of you, there's no way you're gonna get the satellite signal there.
Let's go international for a second. You guys have expanded dramatically with the Millicom transaction, but it's U.S. dollar, right? You know, help us understand risk adjustment, how you look at investing globally, and let's look at Millicom.
Yeah, that's a good question because if you really look, I think we have about 14, 15 market internationally. When Brendan became CEO in January 2024, in the first earnings call, he announced a portfolio review. I think we look at an international portfolio and look at return on invested capital and look at market where we've done very well and market that really needed some improvement. We realized that in order to be successful, first of all, you need to be in an economy that's doing well. If the economy is doing well, businesses are doing well, people have jobs, they spend money on the wireless network, businesses need a mobile application, the economy is growing. I think that's number one.
Two, it's important not step in front of wireless consolidation. We've seen in the U.S. with Sprint, we've seen it in Brazil with Oi. Once you have consolidation, it just means churn. You go from four to three, and it's not like it's a one-year event. It takes four, five, six years for the churn to work its way through because when you buy an operator, you have ongoing tower basically leases, and you cancel them, you don't renew them. It's like a three, four, five, six year basically paying for the tower company. Not stepping in front of a wireless consolidation is important. Every scale is important because if you have scale, when an operator needs to roll out a new technology, you're on the dialogue.
They need to talk to you because they need to roll out fast and wanna sign basically MLA with a tower operator with a good presence. Going through this, we realized that some market with subscale. We sold the Philippines, we sold Argentina, we sold Colombia, and we sold Canada. Canada is a fantastic market, but we only had a few hundred sites. We didn't have any scales. We're not in the flow, and we sold for a very attractive multiple to a PE firm. Central America, we had a 15-year agreement in U.S. dollars with Millicom. Those markets are very stable. You have two dominant operator now, Claro and Millicom. Very well-capitalized company. We have a 15-year agreement in U.S. dollars with Millicom.
They gave us a commitment, and we're building 2,500 BTS new sites for them in the region. We locked in a high single-digit return in U.S. dollars, so we're very pleased. The team down there are very busy integrating the asset, getting basically the zoning rights to build, securing the land, and we're very pleased. I'm very pleased with how well the team has delivered so far, and they're very busy.
Other regions or other markets that might be interesting?
Well, I'm very bullish on Brazil. Everybody in the office knows me as the bull on Brazil. I've been involved in Brazil for over 30 years, from Nextel back in the nineties, 2000 to my prior job. We had a huge operation in Brazil. Brazil is a very large economy, high GDP per capita for an emerging market. I think it's five times GDP per capita of India. It's a large exporter of food, minerals, energy. I think the exports were above imports in January by over $4 billion. The country is doing very well, mostly exporting to China. The Central Bank has done a phenomenal job getting inflation under control. The currency has done very well. The only issue for us is Oi consolidation.
We indexed towards Oi, but that's I think we have another $14 million of Oi wireline churn this year, but I think we've reached peak churn in Brazil. Going forward, 5G is less than 50% deployed, and we have three operators, TIM, Claro, and Vivo. It's a stable environment. We have scale. We have 12,000 towers. I feel pretty good about Brazil going forward.
You mentioned, a while back about interest refinancing, and you also mentioned, I think, one of the large private tower companies recently did an ABS with, I think, 12.5x net debt to EBITDA, slightly below 5%. Help us look at your balance sheet. What are you thinking as far as refinancing costs, and when do you get to where that headwind from refinancing kind of tapers down?
I mean, we had an ABS mature in January, $750 million. Another $1.25 billion mature in November. Those are ABS with one handle on them. We are going, and we said publicly that we have been upgraded to investment grade with 6.5 terms of leverage. I think we made a commitment to stay below seven. The rating agencies, S&P, last summer changed their methodology on tower companies, given the fact that our customers are investment grade. We have MLA long-term contract, given the stability of the free cash flow of that business. I think S&P at below 7.25 terms of leverage, you could be investment grade. Fitch is below seven. We're at 6.5 and making the commitment to becoming investment grade issuer.
In order to do that, we need to take our ratio of secured debt to unsecured to below 50%. We will look sometime this year to refinance our Term Loan B and also the ABS maturing in November in basically in investment grade market. We should be able to refinance in investment grade market slightly inside what we'll get in the ABS market.
The advantage of the investment grade market, you could issue longer term securities. That market is always open. Even if there's a financial crisis, there's always a price point at which you could finance in that market. The leverage finance market I think is a very attractive market. It's a little bit tougher sometimes.
Yeah. Duration of long-term debt as an investment grade, are we thinking seven, 10? What type of duration?
It's gonna be a mix. It's gonna depend on market conditions. All of this will be decided later on this year.
As far as rough price, I mean, interest rates, anybody that knows interest rates perfectly already owns their Caribbean island. You know, what are you thinking as far as interest rate kind of goalpost that you're thinking of?
You mean for SBA?
Rates, yeah.
I think in the investment grade market, depending on basically the maturity will go out, it's gonna be between 5% and 5.25%, in that range.
Yeah. you touched on stock buybacks. Let's talk dividends too. We didn't touch on that earlier. you raised your dividend almost 13%. Payout ratio I think is like 41%. Walk us through kind of what that shareholder return aspect of dividends look like for you guys over the long term.
Yeah. Given the growth going forward in the FFO per share and a payout ratio at 41%, we see a dividend increase in the double digit for the next few years.
Where would payout ratio kinda stabilize? Where would you wanna take it up to? In the seventies, eighties?
I don't know yet. I think by raising dividend in a double-digit for the next few years, you probably get to 50, mid-50s payout ratio. We have a lot of room.
Plenty of room.
Plenty of room to grow the dividend, yeah.
We got about a minute left. You guys bought back a lot of stock in fourth quarter, which then meant big buyback in calendar 2025. What do you think investors are missing, in one minute, in your story?
Listen, it's a fantastic industry, and we are in a trough in the industry in terms of CapEx as a percentage of revenue. It's a cyclical business, I mean, probably trending more towards a 4% top line growth rate. Once 6G comes, AI application come to market, maybe more, I think data center closer to the base station or the base of the base station. I think you're gonna see a pickup in the top line growth rate, and at 85% gross margin, that flows straight to the bottom line, and I think I feel comfortable about upper single digit FFO per share growth going forward. If you take a long-term view, that industry is gonna do very well.
It's impossible to replicate that industry, that infrastructure. Look how difficult it is to build in an urban, suburban environment given zoning law. Carriers have generator, batteries, fiber going to the base of the base station. It's always easier for them to put more equipment on an existing base station than search for a new site.
It's a great thought there. I was reminded talking to Tom Bartlett the other day, retired CFO, then CEO of American Tower. One year at NAREIT, the real estate conference, somebody asked the question, "What would cause your revenues to go down?" In a true cyclical nature, some industries can go up 10% or down 10% in revenues. What you're saying is your cyclicality is how much revenue you grow.
I think that's right. I think that's right. It's hard to see, especially in a consortium industry with three carriers, it's really hard to see negative growth. It's with an escalator at 3% and demand, you're always gonna be in,
Growth
... probably around mid-single digit growth.
Great. We'll wrap it there. Thanks, everybody. Have a good day.
Thank you, Ric.