SBA Communications Corporation (SBAC) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Solid Q2 Performance: The quarter was solid with good execution operationally and financial results in line with expectations.
• Increased Demand Prospects: Looking forward, there's excitement about increased demand due to mobile network consumption growth and the offering of fixed wireless access.
• Services Business Growth: The services business saw a 15% revenue increase from the first quarter, with gross profit contribution ahead of expectations.
• International Market Performance: Internationally, results were in line with expectations, with a pick-up in new leasing activity contributing to full-year revenue.
• Capital Allocation Strategy: The company continued a balanced approach to capital allocation, focusing on debt reduction, with outstanding revolver balance reduced to $30 million.

Pessimistic Highlights

• Lowered Full-Year Outlook: Due to recent weakening in foreign exchange rates, the full-year outlook for most financial measures has been modestly lowered.
• Services Revenue Outlook Lowered: Full-year outlook for services revenue was lowered by $10 million at the midpoint due to a lower anticipated level of construction work.
• Challenges in International Markets: Some international markets face challenging macroeconomic factors and market share imbalances, leading to consolidations and increased network rationalizations.

Company Outlook

• Slight Increase in Full-Year Projections: Excluding the impact of weak foreign currency assumptions, the full outlook for site leasing revenue, tower cash flow, adjusted EBITDA, AFFO, and FFO per shares has been slightly increased.
• Debt Refinancing Plans: The company plans to refinance upcoming debt maturities, with a focus on debt reduction and liquidity until then.
• Dividend Increase: A second quarter dividend of $0.98 per share was declared, representing an increase of approximately 15% from the second quarter of 2023.

Q & A Highlights

• Q: Can you comment on the evolution of the financing market and the rates being presented? (David Barden, Bank of America)

  A: The financing market has been improving, with a greater expectation in terms of rates. The company expects to refinance ABS debt with a like instrument, priced as a spread to treasuries. The FX forecasting typically uses forward market projections, but the Brazilian real has weakened more than expected. (Brendan Cavanagh)

• Q: On M&A, has something changed that you're looking more closely at that now? And how are you thinking about geographies? (Simon Flannery, Morgan Stanley)

  A: The approach to M&A hasn't changed, but with lower leverage, there's flexibility for material value-enhancing investment opportunities. The focus is mostly on markets where the company is present, but opportunities in new markets are also considered. (Brendan Cavanagh)

• Q: How are you thinking about the various international markets where you have a presence? (Jim Schneider, Goldman Sachs)

  A: The company is reviewing its international markets to ensure good scale and relevance to leading carriers. There may be opportunities to expand or exit certain markets to enhance long-term strength and stability. (Brendan Cavanagh)

• Q: Can you give us your thoughts on the European tower market and domestic new leasing for 2025? (Michael Elias, TD Cowen)

  A: Europe is stable but slow growth with some churn risks. The company's approach to expansion will be opportunity-specific. It's too early to provide a leasing outlook for 2025, as it will depend heavily on carrier spending in the second half of 2024. (Brendan Cavanagh)

• Q: How low could leverage go in the foreseeable future? (Richard Choe, JPMorgan)

  A: The company's current priority is debt reduction, but leverage could tick back up if value-enhancing investment opportunities arise. The approach to leverage will depend on the alternative uses of capital. (Brendan Cavanagh)

• Q: Can you comment on the build-to-suit opportunity and anything attributable to FWA in your leasing pipeline? (Jon Atkin, RBC)

  A: The company aims to be more aggressive in domestic builds-to-suit but faces competition. Fixed wireless access is expected to strain networks further, which is good for the company, although it's hard to draw a direct line to the leasing pipeline yet. (Brendan Cavanagh)

• Q: With respect to domestic carrier conversations, are these related to typical a la carte business or getting closer to signing additional comprehensive MLAs? (Michael Rollins, Citi)

  A: Conversations with carriers cover a wide variety of topics, including potential for larger, broader deals. The company operates under existing agreements and is open to MLAs if they serve broader carrier initiatives. (Brendan Cavanagh)

• Q: Can you talk about some of your recent investments like in Tanzania and the Philippines? How they fare compared to your initial underwriting? (David Guarino, Green Street)

  A: Tanzania has worked out extremely well with strong organic growth. The Philippines, being a newer market with brand new builds, is still early stage but has shown strong leasing. (Brendan Cavanagh)