The operator introduces the SBA Third Quarter Results Conference Call and reminds participants that the call is being recorded. Mark DeRussy, Vice President of Finance, welcomes everyone and introduces Jeff Stoops, President and CEO, and Brendan Cavanagh, CFO. They discuss forward-looking statements and non-GAAP financial measures, and then Brendan presents the company's third quarter results, which exceeded expectations. Based on these results, the company has increased its outlook for various financial metrics for the full year of 2023.

In the third quarter, GAAP site leasing revenues were $637.5 million and cash site leasing revenues were $630.4 million. Same-tower recurring cash leasing revenue growth was 4.7% on a constant currency basis, with a gross growth of 8.8%. Domestic same-tower recurring cash leasing revenue growth was 8.6% on a gross basis and 4.7% on a net basis. Operational leasing activity increased due to the AT&T master lease agreement, but overall agreement execution levels have been slower. The higher cost of capital has caused a focus on cash management and expense control by customers, leading to a slower pace of 5G-related network investments. However, with the growing demand for wireless data and limited spectrum availability, there is potential for continued domestic organic leasing growth in the future.

During the third quarter, domestic churn was slightly lower than expected due to slower decommissioning of legacy Sprint leases. Sprint related churn for 2023 is expected to be $28 million and $30 million for 2024. Non-Sprint related domestic churn was in line with projections. Internationally, same-tower cash leasing revenue grew by 4.5% on a constant currency basis, with strong leasing activity and pockets of network investment. Wireless data growth in international markets is higher than in the U.S. Inflation-based escalators also contributed to revenue growth. In Brazil, organic growth rate was 2.6% with a decline in the inflationary index. The net growth rate was also impacted by the TIM agreement. The 2023 outlook does not include any churn assumptions related to the Oi consolidation, except for the TIM agreement.

In the third quarter, the company continued to discuss potential arrangements with other carriers related to the Oi consolidation, which may affect their international churn. The majority of their revenue was denominated in U.S. dollars, with a small portion from Brazil. Tower cash flow and margins remained strong, with a significant portion of adjusted EBITDA coming from tower leasing. The services business had a solid quarter, but due to slower industry activity, the full year outlook for site development has been lowered. However, the company is still managing costs and expects 2023 to be the second largest year for services revenue.

In the third quarter, adjusted funds from operations (AFFO) for SBA Communications increased by 7.7%, with AFFO per share reaching $3.34. The company continued to invest in its portfolio, acquiring 45 communication sites and building 86 new sites. They also invested in the land underneath their sites, spending $15.1 million on land and easements. The company welcomed a new CFO, Marc Montagner, and recognized the departure of their current CEO, Jeff Stoops. The company ended the quarter with $12.4 billion of net debt.

The company's net debt-to-annualized adjusted EBITDA leverage ratio decreased to the lowest level in decades. They repaid amounts under their revolving credit facility and have a remaining balance of $285 million. The weighted average interest rate on their debt is 3.1% and 95% of their outstanding debt is fixed. The company also repurchased shares of their common stock and declared a cash dividend. The CEO, Jeff Stoops, praised the company's financial results and their partnership with carrier customers.

Despite a slower pace in equipment additions for 5G, the company has seen steady growth in revenues and tower cash flow. Wireless carriers continue to invest in expanding and enhancing their networks, and the demand for wireless data is expected to increase in the coming years. International markets also showed strong leasing activity, particularly in Brazil, where the big three carriers are working on coverage expansion and integration of a legacy network. Central American markets also saw higher than expected lease up, indicating the growing demand for wireless data in those regions.

The company had a successful quarter with strong AFFO, allowing for dividend coverage and discretionary allocation of cash. They used capital for dividends, new site additions, share repurchases, and paying down debt. This has resulted in a low net debt to adjusted EBITDA leverage ratio, and the company may have the option to achieve an investment grade rating in the future. They plan to continue growing their dividend while maintaining a low AFFO payout ratio.

The speaker discusses the company's plans to use excess cash flow for debt repayment and potential portfolio opportunities and stock buybacks. They also mention their strong balance sheet and access to capital. The speaker then announces their retirement as CEO and expresses gratitude to team members and customers. The call then opens for questions, and the first question is about the company's changes over the years, including shared wireless backhaul, data centers, and outdoor DAS.

Jeff Stoops, the CEO of a tower company, discusses the future of the wireless infrastructure sector as he prepares to leave the company. He notes that there is a steady connection between wireless demand and necessary infrastructure, and this will likely continue in the future. While there may be ups and downs, the macro site remains the backbone of wireless communications. The company's customers also prioritize fiscal prudence over quickly deploying new spectrum. The analyst, Jon Atkin, asks about the operating trends and demand drivers, and Brendan Cavanagh responds that things may be lower in the early part of next year as the spectrum is further deployed and the 5G journey continues for mobile operators.

The speaker expects to see an increase in demand for spectrum deployment based on customer needs and deadlines. They also mention a focus on financial constraints and cost control in the current moment, but anticipate a shift towards network needs as mobile and wireless data consumption increases. The speaker predicts that the demand for spectrum deployment will start to move up in the middle of next year. A question is asked about the company's dividend policy, and the speaker responds that the company is fortunate to have sizable NOLs, giving them flexibility in determining the payout ratio.

The company uses a mix of NOLs and dividends to maintain REIT compliance and has been able to grow the dividend at a high pace. They will continue to do so until they exhaust the NOLs, at which point they will pay the necessary dividend to comply with REIT requirements. The company has a long way to go before exhausting the NOLs and can continue to increase dividends at a faster pace while also keeping a lower payout ratio. The company's current payout ratio is in the mid-6% range, which is possibly the lowest in decades or ever publicly.

The company's leverage levels have been influenced by the current interest rate environment, causing them to pay off some of their debt. They will continue to be opportunistic in investing their capital, as seen through their recent stock buyback. While they have not targeted becoming investment grade, their leverage levels have been decreasing.

The speaker discusses the positive aspects of their business, including growth in EBITDA and the ability to delever quickly and potentially move towards investment grade. They also mention maintaining flexibility and considering other investment options. The expected Sprint share for 2024 has increased to $30 million, but the total remains the same. The speaker also mentions the challenges of predicting year-to-year numbers with precision. The next question comes from Simon Flannery with Morgan Stanley.

Jeff Stoops, CEO of a company, is being missed by his colleagues on conference calls and they want his insights on the industry. He is asked about the subdued demand in the market due to financial conditions and whether issues like spectrum authority and dual-band radios might be holding back spending. Stoops believes these issues will be resolved soon and contribute to next year's leasing. He also mentions that there is still a lot of spectrum left to be deployed on their towers. The company did some M&A in the quarter and Brendan Cavanagh will handle the question about the M&A environment.

The M&A environment remains competitive with high valuations, particularly in the US. There has been a slowdown in leasing growth, but it is in line with expectations. The AT&T MLA may potentially be replicated with other carriers due to existing master agreements in place.

The speaker discusses the varying forms of agreements with carriers and their openness to making more agreements in the future. They also mention that the deployment of 5G equipment on towers is still low, with only 50% of towers using 5G-related spectrum. The caller asks about potential changes to the structure of international operations, and the speaker emphasizes the importance of scale in these markets.

The company is exploring opportunities to add incremental services that generate additional revenue and strengthen relationships. There is no specific target for growth, but the company expects mid-single digit growth in the U.S. Factors such as cost of capital may affect the timing of customer spending, making it difficult to set specific targets.

Nick Del Deo from MoffettNathanson asks Jeff Stoops about the carriers' capacity runway in relation to their investment in 5G spectrum. Jeff believes there is a lot of spectrum available, which is why carriers are now deploying fixed wireless. He also mentions that the connection between wireless data growth and the need for physical infrastructure will continue, but the spectrum is rapidly getting used up. Nick also asks about the site development revenue forecast, which has been lowered, but the bottom line contribution remains unchanged, indicating a potential increase in margin.

Brendan Cavanagh discusses the high-margin work that the company is currently doing and its sustainability. He also mentions the retirement of CEO Jeff and how the company is preparing for debt maturities in 2025, stating that they have access to capital and are evaluating their options for refinancing.

The company's allocation of capital is focused on finding the best return on investment and creating shareholder value. They have been paying down debt rather than investing in new assets, but they may shift towards investment grade in the future. The company expects to end 2024 with lower or similar leverage levels compared to 2023. Domestic churn has been around $30 million annually, excluding Sprint churn, and has remained consistent over the past few years.

Brendan Cavanagh discusses the potential for lowering churn levels in the future and mentions that a large portion of the current churn is due to smaller customers. He also mentions that with agreements with larger customers, churn is expected to decrease. Another analyst, Brendan Lynch, asks about the international market and the drivers behind the higher than expected demand and profitability. Cavanagh clarifies that the above expectations comment was specifically related to new leasing revenue from new leases and amendments, and that they were able to sign up more business than originally expected.

Brendan Cavanagh, CEO of a company, discusses the growth and expansion in their markets driven by the significant needs of customers for 4G and 5G coverage. Inflation has also played a role in keeping growth rates elevated. The company's build-to-suit program has seen more activity internationally, with opportunities for new builds due to coverage needs in these markets. However, the company is being selective in their investments and focusing on sites that will provide a good return, usually with the addition of a second tenant.

Brendan Cavanagh was asked about his comment on U.S. tower validation staying high and he provided more insight on the reasons behind it, including the demand from parties looking to invest in digital infrastructure and limited supply. He also mentioned that the company may access the secured market to refinance debt next year, with borrowing costs likely in the mid- to high 6s.

During the quarter, there has been a decrease in activity and backlog of unsigned lease applications compared to the same time last year. This is likely due to slower investment levels from carriers. It will be interesting to see how this trend changes in the upcoming year. The speakers thank the participants and the outgoing CEO, Jeff Stoops, signs off.

This summary was generated with AI and may contain some inaccuracies.