We begin. Disclosures are available at the registration desk. For those of you I haven't met, I'm Mike Rollins, and I cover Communication Services and Infrastructure for Citi. We're pleased to welcome Marc Montagner, Chief Financial Officer of SBA Communications. Marc, it's great to see you. Thank you so much for being with us today.
Thanks for having us.
So maybe jumping in, when you think about the opportunities for SBA, what are the initiatives that are the most critical to enhancing your financial performance and shareholder value? Not just as you look at the balance of this year, but as you think of the multi-year opportunity for your company.
Right. That's a good question. I think we look at creating value for our shareholders for the long term. There are a number of levers we use. One is growth. I think we are very focused on generating long-term growth.
Mmh.
By either basically selling more services on our existing portfolio of towers or doing accretive M&A.
The second lever really is capital allocation. In terms of growth, we obviously have a great reputation for providing superior quality of service to our customers. I think our operating team does a great job in operating those towers, maintaining those towers. We have a very, I think, active leasing team to generate more revenue on those towers. In terms of avenues of growth, we are down to three carriers, three customers in the U.S., all investment grade. We have long-term MLA agreements with them, which I think makes it easier for them to deploy and easier for us to support them. There are new, I think, use case for our towers going forward. Obviously, the LEO operators, the satellite operators, if you just look at the physics of it, you probably need 100 satellites to get the same capacity as one base station.
There were about 200,000 base stations in the U.S. I think at some point they are going to have to deploy some form of a wireless terrestrial network in the U.S. Don't ask me when or how many sites they will need. I don't know what their plans are. But if you look at Amazon, really, I think being aggressive on the LEO side, SpaceX, if you look at the physics of operating LEO, providing coverage by satellite in a metro, if you're in an office building, in a conference room, the view of the sky is basically obstructed by a tall building. You're in a suburban environment under a tree, you're not going to have coverage, and you're not going to have the capacity. I think some form of wireless terrestrial network is going to be required.
Maybe since you brought it up-
Sure.
Double- click on this for a moment. Because I feel like there's two questions in what you're describing with satellites. One is, if a satellite company, a LEO, a Starlink, for example, if they're just going to do direct- to- device, like complementary to mobile, so they're not looking necessarily. In this scenario, we'll move aside mobile for a moment as a direct competitor. So they're direct- to- device. They have a broadband business as well that's been a growing, expanding business. Is that the piece, just before we even get into mobile, that you think might need some terrestrial coverage and help over time? Or when you think about the opportunity set from LEOs, is it the idea that they do want a slice of the core mobile pie and that's what they need to invest in towers and terrestrial infrastructure?
I think it's really difficult to do a direct- to- device without having a device with a dual- mode chipset.
In order to have a dual- mode chipset, you need to use probably a different spectrum band. Therefore, you need terrestrial wireless spectrum. SpaceX bought spectrum, or you need an MVNO with a wireless operator.
I cannot speculate it yet. I don't know which way the industry is going to evolve. But it seems to me wireless is a very competitive industry.
And having a better device, if you market a device that this device is going to work on a wireless terrestrial network in the U.S., and you could travel anywhere in the world or in remote areas in the U.S. on a boat, you're going to be able to make a call or send a text or access mobile data through satellite. You suddenly have a much better product to market to your customers. So if you are one of the big three, you may have an incentive to do an MVNO. If you are afraid of being cannibalized, you don't give them an MVNO, but then they're going to feel the pressure to build it themselves. So I don't know which way the industry is going to evolve, but the next two years I think are going to be very interesting.
But in any case, I really think that someone is going to have to use our wireless, the digital infrastructure, our tower to bring more spectrum to market and provide a solution that has a direct-to- device capability. In any case, I think we would benefit from this, and I cannot tell you when or how big the opportunity is, but I feel very strongly that the opportunity is there.
One thing I just try to think a lot about for towers, and we're getting into this with the possibility of expanding customers, is just TAM expansion, right? Just whether it's the adjacencies, the opportunity to create a larger wireless pie for you to take a slice of.
That's right.
What are those opportunities? How much of it is, whether it's cable, LEOs, utilities for private networks, how much of it is just trying to expand the customer set for your services versus the edge or other things? How do you think about this?
Well, we spend a lot of time thinking about it, obviously, because we have a wireless infrastructure that is very difficult to replicate.
Given the cost of building towers, the zoning laws, and how long it takes to build a tower. I think that new use cases: Europe is using towers for drone detection technology.
It's probably faster and cheaper than doing it through satellite, and that's probably an area that is going to come to the U.S. or to some other emerging market where we operate. Edge data center, edge computing, I think is definitely an opportunity. There are a number of startup companies that have been funded and are looking to basically deploy mini computing centers at the base of the tower, and their business model is to provide computing power to companies providing AI agent services.
The idea is that, first of all, it's easier to deploy because you could just use a concrete slab at the base of the tower. You have direct access to wireless connectivity, basically . You have power, it's safe, and you don't have a zoning issue in terms of deploying that computing capacity. These companies are out there, basically looking at deploying a mini neocloud, if you want, at the base of the tower. That's real. If you look at Waymo cars, for self-driving cars, I know, for example, that a Waymo car goes back to the warehouse twice a day. It gets cleaned up, the battery gets recharged, but also someone takes out the hard drive from the back of the car, downloads the data on the hard disk, and puts it back. At some point, that is probably going to go wireless.
There are more and more robotaxis, self-driving cars. I think that is going to generate additional demand on the wireless network. I think 6G, remember, when you go from 1G to 2G to 3G to 4G, the big benefit to the carriers is extra capacity.
Also, a dramatic decrease in the cost per bit that is being delivered.
10x to 25x. You look at the wireless operators have had a 45% EBITDA margin for the last 25 years.
They used to sell you a minute of voice for $0.25 a minute, a text for $0.10 a minute, and a gigabyte of data for $45 a month. Now it is one bundle, $45 a month.
Yep.
Unlimited usage is still growing at mid-teens every year, but the EBITDA margin is still 45%.
Why is this? It's just because the cost per bit that is being delivered keeps decreasing exponentially from 4G to 5G to 6G. The FCC is going to auction 6G spectrum next year, 160 MHz. The OEMs have 6G technology in the lab and in beta test, and I think it's just a question of time before 6G comes to market. If you are an MNO, I think look at the power of the bundle. I travel a lot to Europe for personal reasons, and between cable TV plus broadband, video, and wireless, the bundle has come to the U.S. Look how successful the cable TV operators have been in selling wireless. If you're an MNO today, you need to have a bundle. AT&T and Verizon are spending a significant amount of CapEx by building fiber to the home.
It's going to take longer than anyone anticipates, and if you're T-Mobile, you don't have that portfolio of fiber to the home. Bundling fixed wireless access with your wireless product is going to give you basically a much stickier product. Churn is an important factor in driving value. I think 6G, personally, I think that 6G is going to be a huge accelerator in terms of lease- up for the tower company just because of the new use cases and the potential for a new entrant like a LEO operator in the band.
Great. Maybe that is a good segue just to get into leasing. How is leasing pacing for SBA, and how are you thinking about it for the remainder of the year in terms of the activity you are seeing?
Yeah. I think our midpoint of our guidance is about $35 million for this year. Excluding DISH last year, we did $35 million, so it is steady.
I think it is still too early to look at 2027. I think we feel comfortable with about $35 million of lease-up this year, which is consistent with last year. I do not think the operators have worked on their budget for 2027, so we have very later visibility on 2027 yet.
For 2026, $35 million, that puts you normalized at about 4% when you exclude DISH and.
Yeah, about 4.5%. I think if you look long term, we always talk about revenue growth in the U.S. 3% from the escalator.
About 2.5% to 3% on a normalized basis in terms of lease-up.
About 1% churn, including DISH and Sprint. This year, last year of heavy churn in the U.S.: $56 million from Sprint, $56 million for DISH, and then churn in the U.S. is going to normalize at a much lower number.
When you think about 2027, you mentioned the auction that's upon us for next year. In your experience, and you've seen it from multiple angles, the carrier angle as well as the tower angle, do the wireless companies slow down their CapEx, their network investments, ahead of an auction because they don't know what they're going to spend? Of course, if they get spectrum, that's a source of capacity for them. Is that something that we all should be mindful of for 2027?
I'm not worried about it just because mobile traffic keeps increasing at mid-teens.
They face capacity constraints in order to support their customers. I think I am not concerned about it. In addition, I think you should ask them the question, but I think that more so the way they look at spending money on spectrum; it's basically CapEx as opposed to an OpEx cost. They spend a few tens of billions of dollars buying spectrum. It's not going to impact their P&L or their EBITDA number.
You think it's kind of a normal course: invest for demand, invest for the customers, invest for the capabilities. In terms of the activity that you're seeing this year and because of the visibility of your model, I imagine there's leasing you're doing today that will start to hit in 2027. Are you seeing any changes in the types of activity, like a pickup in massive MIMO upgrades or a pickup in densification now that we're in this second half of the 5G cycle? What are you seeing from the activity itself?
Well, there's a lot of densification.
One of our customers is deploying massive MIMO. 6G is going to require new equipment, probably massive MIMO as well. All this bodes well for the future. Remember, the industry is very cyclical.
We're kind of in a trough right now in the U.S. operators' CapEx spending. In 2022 and 2023, they rolled out 5G. CapEx as a percentage of revenue went to about 25%.
In 2024, 2025, 2026, we are hovering around the 15%.
Of revenue is being spent on CapEx. Even in that environment, our lease-up is still positive. We're still growing at the trough of the cycle. We feel good about, I think, 2028, 2029.
You feel good about 2028, 2029. 2026 is running in line.
2026 is steady with 2025. 2027, I do not know. I do not think the wireless operators know exactly what the CapEx spend is going to be next year, and we are probably going to start getting more clarity on this late this year or early next year.
Just when you think about massive MIMO, for example, as an opportunity, you said one of your customers is deploying it. Are they the last to deploy it? Or do you see more opportunities of other carriers deploying massive MIMO on your sites?
I do not know the answer. I think that we are passive wireless infrastructure.
We release vertical space and horizontal space at the base of the tower, and the operators, I think, basically are driving the dialogue. I think our goal is really to support them, make it easier to deploy. And provide them with high- quality of service.
In the past, and I think maybe you even referenced it earlier, there has been a restraint on supply. Is that still the case where it is just really hard to create alternatives or new towers? And what does that mean in terms of maybe the opportunity of you finding build- to- suit in the U.S.?
Yeah, that's a good question. It is difficult to build towers due to zoning laws. The cost of building towers has gone up since the pandemic. We're going to build less than 30 towers in the U.S. this year. We're very active in Central America.
Yeah.
And Africa. But in the U.S., the economics that we're providing to us by the carriers didn't make it very attractive to build BTS in the U.S.
As the industry has matured around these three large customers in the United States that you have, and their networks are maturing. What's the possibility? You mentioned 1% churn is a baseline right now. What's the potential for that to stay, X the merger churn, and DISH churn? What's the opportunity for that to stay well below 1% just because the networks are just so much more mature now?
I agree with you. I think it's very difficult to predict the future, but I think 1% is probably a good number. There's a lot of false precision there. It could be lower, or it could hover at the 1% level. But we feel good that churn in the U.S. is going to, I think, stabilize at a very low number.
Okay. Internationally, you referenced some of the investments that you're making there. How are you seeing leasing across the international markets? You've been working through a lot of industry structure and consolidation churn. What inning are we into on just getting that through and behind us?
Right. Every market is different.
Yeah.
Tanzania is a high- growth market. The government is really pushing the carrier for expanding coverage.
Wire is probably the only infrastructure that they have, and we are building very aggressively, almost 200 sites in Tanzania this year. It is growing at mid-teens or slightly above.
Very pleased with the growth there. Still, it is a small base, but a very attractive market. Central America, it is a stable market. Two operators: Claro and Millicom. We bought 7,000 sites from Millicom in the region, at about 11x multiple. We have a 15-year agreement with Millicom tied to CPI, and they have a 2,500- tower BTS commitment to us, build- to- suit. That region is going to grow to mid- to high- single- digit contracts only in U.S. dollars. Very pleased about Central America, the five markets we operate in Central America. Brazil, Oi, the fourth carrier, is being basically absorbed by the other three operators, and we had high exposure to Oi. We are 2026 and 2027, we are still going to see high churn in Brazil.
I think the midpoint of our guidance for international churn this year is about $38 million. It is a little bit frustrating because it is $20 million of escalator and $20 million of lease- up internationally and $38 million of churn. This is temporary. By the end of 2027, I think the churn will be behind us, and it is mostly Brazil churn. Oi is being consolidated. Oi wireline is basically going out of business, and Oi wireless is carved out to the other three operators. Brazil 5G is less than 50% deployed. There is more spectrum auction in Brazil.
The industry is very stable with three operators. It is a young , growing population . The number of towers as a percentage of the population is probably 25% of what it is in the U.S. There is significant growth potential. I think, in addition, the country is doing very well.
Brazil is a large exporter of agricultural products, minerals, energy. Balance of payments is positive by over $4 billion a month, and the currency has done very well for the last two years. Long term, we feel very bullish about Brazil. Short term, there is going to be churn pain in 2026, 2027.
Just to articulate that just a little bit more so we appreciate the trend. Is it that it is really flattish, so there is really minimal growth to no growth through the end of 2027? Or could 2027 start to show a little bit better churn, so things start to maybe gradually get better through 2027 and into 2028?
I think 2027 churn should come. I think Wall Street has $25 million to $30 million of churn for next year.
That is what is in our numbers today versus $38 million this year.
Okay, so there is a little improvement.
There's a little improvement.
Yeah.
But it's going to remain elevated in 2027.
Got it. When you look at the monetization model in your international markets versus domestic, and you mentioned 6G as an opportunity that's underbuilt, is it the same formula? Not only do you get paid for co-location, but in all these international markets, you get paid on amendments as well?
That's correct, yeah.
Same model.
Same opportunity.
Right.
Different dollars, maybe different markets.
Yeah, but every contract is different. Every market is different.
Mm-hmm. You've had the benefit maybe of coming in and looking at how SBA has done things with an independent perspective. How do you see the international strategy? Do you still see it as strategic to own these assets over time? Or is there an argument to be made that there's a value that could be created if you had a set of investors for international different maybe than the set of investors for domestic?
Right. That's a good question. If you really look at our portfolio, 80% of revenue, U.S. denominated, 80% of EBITDA. I think there's room for high- growth assets in our portfolio, especially look at Central America. When Brendan became CEO, in his first earnings call in February of 2024, he announced a strategic review of our portfolio. The rationale was to look at every single market and either divest the market where we were subscale or where there are risk of further consolidation, or expand in markets that are attractive, that have been consolidated, where we could generate above average long-term growth. We sold the Philippines, over 30 tower operators. We had a few hundred subscale sites . We're able to get out of the good valuation. Canada is a fantastic market.
Three operators, unfortunately, were subscale, just a few hundred towers. We're able to sell to a PE firm at a very attractive multiple.
Argentina and Colombia we're subscales, and we sold those markets. Central America, we had been operating in the region for a long time, and those markets are fully consolidated between Millicom and Claro. We had the opportunity to buy the Millicom assets, sign a 15-year long term contract with Millicom, all U.S. dollars. We believe that it is going to create long-term shareholder value for our company. Every opportunity is very different. But I think there's room for high growth, high- quality tower assets in our company. We know how to operate towers. We are, I think, are good operators. We have very high margins and low G&A, and we apply the lessons that we learn in the U.S. to our international operation. I think there's potential to create value outside of the U.S.
I was looking at a slide the other day, and it was your leverage over the last three years, I think it was, and it showed it now within this new target range of 6x-7x for you guys, net debt to EBITDA. I was just thinking, as you look forward, how do you think about where you want to be in that range at any given time? When you look at the share price where it is, do you have an ambition to say, "You know what? Let's take some of this leverage capacity and put more of it into repurchasing shares?" Or maybe there's opportunity for M&A wherever it is, let's just keep our powder a little dry over here. How do you look at this capital allocation process?
Right. First of all, we have been in a 6x-7x turns of leverage for the past three years.
This is our new target, official target range. I think S&P, about a year ago, changed the methodology to rate our company, given the long-term contract we have with our operators and the fact that all our customers below 7x turns of leverage would qualify us for investment grade. It came to us, we used the opportunity to basically issue bonds in investment- grade markets.
We took out our Term Loan B, our revolver, and we are going to refinance upcoming maturity, high-yield debt, and ABS tower securities in our investment- grade market. In terms of capital allocation, it's about $1.95 billion of EBITDA. Those numbers of public have used them in the past. It's about $250 million of CapEx, maintenance and growth CapEx, $530 million of dividends.
$70 million of cash taxes, and about $500 million of cash interest expenses. You have about $700 million of extra cash to allocate every year. We believe that capital allocation is a key driver to create long-term shareholder value. Last year we spent $500 million buying back shares at an average stock price of $200.
We're trading to below $190 today, so you can assume that we like buying shares at that level. We didn't do it in the first half of the year because our revolver was at $1.1 billion drawn on it. When we issued our new bonds in the investment- grade market in September, we paid down our revolver completely. We had almost half a billion dollars of cash on the balance sheet at the last earnings call. We have plenty of liquidity, and it's very accretive, given $12 of FFO per share for this year at the midpoint of the guidance. It's very accretive to basically buy back shares at this level. But we have plenty of flexibility. For the right opportunity, as you've seen with Millicom in 2024. We spent $1 billion buying an asset for 11x turns. We think that that deal created value.
We're going to be opportunistic, but I think that a leverage ratio of 6x-7x gives us plenty of flexibility to either pay down debt, buy back shares, or do M&A.
So we are going to try to hit four, maybe quick rapid fires. The first one is internally at SBA for years, there was a drumbeat about 5%-10% expansion of the portfolio through investments, build- to- suit, M&A. Is that still the philosophy that sort of pushes you internally, or is that now just kind of it is more opportunistic than that?
I think we want to be opportunistic. Buying towers in the U.S. is very expensive.
The scarcity of good assets and a lot of competition from PE for those assets. We want to be disciplined, but we still buy towers, onesies , twosies .
Interest expense. How far along are we in that journey to just kind of get through what was fantastic, right? Low rates that you had this debt at. But that has been a headwind to AFFO per share growth. So like, how close are we to that finish line of-
Well, 2027 is the last year. We have $1.2 billion of ABS with a 100 in November. We have $900 million of ABS with a 100 maturing in April, and $1.5 billion of high yield maturing in February with a 3 7/8% coupon. This is really the last wall of refinancing, so 2027 is the last year where cash interest expenses are going to pressure AFFO.
Any quick update on the DISH litigation or any predictions there?
I can't predict this. You need to talk to a bankruptcy lawyer. Our exposure is very low, less than $200 million between decommissioning costs and leasing costs, leasing commitment. It's immaterial to us, and we'll see what we get. It's not a big exposure.
You're optimistic about 2028, you mentioned earlier. 2027 is the last maturity wall for the interest expense headwind. Latin America churn or the international churn should be largely behind you, and there's nothing really incrementally you're concerned about for 2028.
I am very positive about 2028. I think 6G is coming.
Okay. So maybe help take all of that. Is there a way that investors should think about the growth opportunity of where you can get back to, whether it is top line or AFFO per share in 2028?
No, I think the way you look at it, between share buybacks, we pay a dividend yield of about 2.5%. We are going to keep increasing the dividend at low double digits for the next foreseeable future. Our payout ratio is a low 40%, so we have room to expand the dividend. So you get paid through share buyback, dividend growth until you pick up the upswing in the next couple of years.
Marc, always great to see you. Thanks very much.
Thank you, Michael.