Ladies and gentlemen, thank you very much for standing by. And welcome to the SBA First Quarter Results for 2022 Conference. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. And I would now like to turn the conference over to our host, Mark DeRussy, Vice President of Finance. Please go ahead, sir.

Good evening, everyone. And thank you for joining us for SBA's First Quarter 2022 Earnings Conference Call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer. Some of the information we will discuss on this call is forward-looking, including, but not limited to, any guidance for 2022 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, April 25, and we have no obligation to update any forward-looking statements that we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website. With that, I will now turn it over to Brendan to discuss our first quarter results.

Thanks, Mark. Good evening. SBA started the year off with a very strong quarter with many of the results ahead of our internal expectations, and we continue to anticipate a solid performance throughout 2022. Total GAAP site leasing revenues for the first quarter were $559.4 million, and cash site leasing revenues were $551.4 million. Foreign exchange rates were slightly ahead of our previously forecasted FX rate estimates for the quarter, positively impacting revenues by approximately $2.3 million. They were also a tailwind on comparisons to the first quarter of 2021, positively impacting revenues by $2.3 million on a year-over-year basis. Same-tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis, was 4.3% over the first quarter of 2021, including the impact of 3.1% of churn. On a gross basis, same-tower growth was 7.4%. Domestic same-tower recurring cash leasing revenue growth over the first quarter of last year was 6.4% on a gross basis and 3.7% on a net basis, including 2.7% of churn. Domestic operational leasing activity or bookings, representing new revenue placed under contract during the first quarter, was very strong again and materially higher than the first quarter of last year. And we continue to replenish our domestic new lease and new amendment application backlog, which remained very healthy at quarter end. These backlogs support our expectations for continued strong domestic operational leasing activity throughout the rest of 2022. During the first quarter, amendment activity represented 55% of our domestic bookings, with 45% coming from new leases. The big four carriers, AT&T, T-Mobile, Verizon, and DISH, represented 95% of total incremental domestic leasing revenue signed up during the quarter. Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 7% net, including 4.8% of churn or 11.8% on a gross basis. International leasing activity was very good again. And we continue to see increasing customer activity levels in many of our markets. International growth continued to climb higher, in part due to increased inflation-based escalators. In Brazil, our largest international market, we also had another solid quarter of leasing activity. Gross same-tower organic growth in Brazil was 13.3% on a constant currency basis. During the first quarter, 82.1% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar-denominated revenue was from Brazil, with Brazil representing 12% of consolidated cash site leasing revenues during the quarter and 8.8% of cash site leasing revenue, excluding revenues from pass-through expenses. Tower cash flow for the first quarter was $445.3 million. Our tower cash flow margins remain very strong with a first quarter domestic tower cash flow margin of 84.6% and an international tower cash flow margin of 68% or 90.3% excluding the impact of pass-through reimbursable expenses. International tower margins were modestly impacted by our new, less mature Tanzania assets. Adjusted EBITDA in the first quarter was $423.8 million. The adjusted EBITDA margin was 69.3% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74.2%. Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter. During the first quarter, our services business produced record results for the fourth quarter in a row with $60.3 million in revenue and $14.6 million of segment operating profit. We also continue to replenish and build even higher our services backlog, finishing the quarter at the highest level in our company's history. Based on this backlog and the continuing high activity levels by our customers, we have raised our outlook for increased contributions from our services business throughout the balance of 2022. AFFO in the first quarter was $324.3 million. AFFO per share was $2.96, an increase of 14.7% over the first quarter of 2021. During the first quarter, we continued to expand our portfolio, acquiring 1,807 communication sites for total cash consideration of $215.4 million, which includes 1,445 sites for $176.1 million closed on January 4 and our previously disclosed acquisition from Airtel Tanzania. We also built 86 new sites in the quarter. Subsequent to quarter end, we have purchased or are under agreement to purchase 358 sites in our existing markets for an aggregate price of $127.9 million. We anticipate closing on these sites under contract by the end of the year. In addition, subsequent to quarter end, we closed on the acquisition of a stand-alone datacenter in Sao Paulo, Brazil for cash consideration of approximately $49 million. The datacenter currently produces approximately $8.3 million in annual revenue and $3.5 million in annual adjusted EBITDA. This acquisition was done in support of our continuing evaluation and efforts around the potential expansion of mobile edge computing to our tower sites. In addition to new tower and other assets, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $8.7 million to buy land and easements and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 71% of our towers. And the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years. Looking ahead now, this afternoon's earnings press release includes our updated outlook for full year 2022. We have increased our outlook for most of our key metrics from the outlook we previously provided with our prior quarter earnings release. These increases are partially due to revised expectations for better foreign currency exchange rates than previously assumed. These FX changes have contributed an increase to our revenue outlook of approximately $21 million and our adjusted EBITDA outlook of approximately $13 million. In addition, we have increased the midpoint of our outlook for site leasing revenue by $17 million on a constant currency basis. This increase is due to several factors, including lower domestic churn impact during 2022 as a result of longer decommissioning cycles compared to SBA's initial estimates, higher international CPI-based escalators, higher reimbursable and miscellaneous one-time revenue items, and contributions from acquisitions completed during and after the quarter, all of which was partially offset by increased churn in Panama. On April 6, Digicel Panama, one of our primary customers in Panama, announced that they intend to apply for voluntary liquidation and withdraw from the telecommunications market in Panama. While there are likely many developments and steps to take place over the coming months, we have increased our projected 2022 churn impact by approximately $6 million to account for the loss of all leasing revenue from Digicel Panama for the balance of the year. Notwithstanding this one churn issue, as noted, there were a number of very positive developments in our business over the last two months that have resulted in a significant increase in our full-year revenue outlook. In addition to the leasing benefits I just mentioned, we also raised the midpoint of our services revenue outlook by $27 million or over 13% due to our very strong first quarter results and the continuing strength of our backlogs. The strength of both our leasing and services business has allowed us to raise the midpoint of our full year outlook for AFFO per share by $0.24. Our full-year 2022 outlook does not assume any further acquisitions beyond those under contract today, and the outlook also does not assume any share repurchases other than those completed as of today. However, we are likely to invest in additional assets or share repurchases or both during the rest of the year. Our outlook for net cash interest expense and for AFFO do not contemplate any further financing activity in 2022. However, we will continue to look for opportunities to continue to optimize our balance sheet.

Thanks, Brendan. We ended the quarter with $12.7 billion of total debt and $12.4 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times, well within our target, notwithstanding a substantial amount of capital allocated in the first quarter. Our first-quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 5.3 times, the highest in the company's history. As of the end of the quarter, the weighted average interest rate of our outstanding debt was 2.6% with a weighted average maturity of approximately 4.6 years, and the interest rate on 92% of our outstanding debt is fixed. As of today, we have $590 million outstanding under our $1.5 billion revolver. During the quarter, we repurchased approximately 1.3 million shares of our common stock for $431.6 million at an average price per share of $332. Included in these amounts, subsequent to our previous disclosure of share buybacks in our fourth-quarter earnings release, is the repurchasing of 253,000 shares for $81.6 million at an average price per share of $322.10. All the shares repurchased were retired. We currently have $504.7 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company's shares outstanding at March 31, 2022, were 107.8 million, compared to 109.3 million at March 31, 2021, a reduction of 1.4%. In addition, during the first quarter, we declared and paid a cash dividend of $76.9 million or $0.71 per share. And today, we announced that our Board of Directors declared a second-quarter dividend of $0.71 per share, which is an increase of 22.4% over the second quarter of last year. It's payable on June 14, 2022, to shareholders of record as of the close of business on May 19, 2022. And with that, I'll now turn the call over to Jeff.

Thanks, Mark. And good evening, everyone. As you have heard, we had a very strong start to the year with strong operating and financial results, again generating double-digit percentage growth in AFFO per share. Our better-than-expected results combined with continued elevated activity levels with our customers have set us up well for the balance of this year. We have increased our outlook for full-year revenues by $65 million and AFFO per share by $0.24. These upward revisions are indicative of the positive environment we are currently in. The U.S. market remains particularly strong. Each of our U.S. carrier customers remained busy during the quarter, signing up new leases and amendments and generally investing in the build-out of their networks through the deployment of new spectrum bands. T-Mobile continued their nationwide deployment of 2.5 gigahertz and 600 megahertz spectrum. Verizon and AT&T increased their 5G-related signings with us, with particular focus on C-band-oriented deployments. And DISH continued signing up new lease agreements actively in support of their nationwide 5G network build-out. These carrier activity levels also drove meaningful U.S. services results where we produced record services revenue and margin results for the fourth quarter in a row. Our backlogs also continue to replenish and support our confidence in continued strong performance. Internationally, we had another strong quarter, finishing ahead of our internal expectations for organic tower leasing and new build activity in most of our markets. During the first quarter, we signed up 49% of new international revenue through new leases and 51% through amendments to existing leases. Coupled with increased escalators due to higher consumer price indexes in many of our markets, this leasing activity drove some of our strongest organic international leasing revenue growth in years. We are also off to a good start integrating our new Tanzanian operations, and we continue to build new sites and tower backlogs in the Philippines. In addition, we recently acquired a new datacenter in Sao Paulo that we believe will allow us to more fully explore the potential for tower edge mobile computing in Brazil. We believe this datacenter can act as a hub for tower edge datacenters and C-RAN deployments based on discussions with some of our carrier customers in Brazil. Overall, internationally, we have a lot of very exciting things happening, and we continue to believe that 2022 will be a very good year. In addition to our strong operational performance during the first quarter, we also continued to execute well with regard to our balance sheet and capital allocation. We meaningfully increased our dividend and invested in significant asset additions as well as significant stock repurchases. We were able to make these investments while maintaining our net debt to adjusted EBITDA leverage at 7.3 times, right in the middle of our target range of 7 to 7.5 times, and our weighted average cost of debt remains largely fixed and at our all-time low of 2.6%. We believe our ability to manage leverage while continuing to invest in our business is critical during this current time of more broadly increasing interest rates. We are well positioned to continue to grow our business, but also to weather any kind of challenging macro environment. We are very pleased with our start to 2022. I'm going to keep my comments brief as I believe our results and increased outlook tell the story very well. I believe the rest of the year will be similar to the first quarter, excellent blocking and tackling on our part against a very strong demand environment. We are in a great industry during a time of increasing organic growth, and we are more financially healthy than at any time in our history. We have great confidence in the balance of the year and look forward to helping our customers achieve their ambitious network goals. I want to finish by again thanking our team members for their commitment and contributions to our success. And with that, Colin, we are now ready for questions.

Hi. This is Amir for Phil. Two questions, if I may. So you guys mentioned lower expectations for churn this year. You reconsidered the timing of the Sprint and T-Mobile merger revenues falling off. Can you give us an update on maybe how your expectations for long-term churn with them have changed? And then secondly, is the datacenter acquisition within guidance? And does this kind of indicate SBAC is leaning more into the mobile edge compute opportunity? Thank you.

Just, Amir, on the churn question, we don't have any real change to our long-term expectations. What you're seeing is a slight shift in timing. So a little bit less of an expectation this year, but ultimately, those incremental dollars would just move to next year. So what we've given out in the past in terms of expectations each year is generally the same as it's been before.

Yeah. On the datacenter question, I think it's really no change in our activity, trajectory and direction around mobile edge that we've been talking about now for, I guess, at least a year. I would look at this as an extension of what we're doing in the U.S. to our largest international market, Brazil. And we think it will continue our learning and interactions with our customers. And I would say so far that the results are encouraging, and we continue to believe that we will be benefited and that the mobile edge will in fact have value created or create value at our tower sites. And we think these datacenter investments, albeit modest, are going to help us get there.

And it is within guidance too, the datacenter.

Okay, great. And one more question. How prepared do you think you are compared to AMT, which has the CoreSite asset? How do you view that?

Well, prepared for what? I mean, I think it all remains to be seen how robust the edge at the tower site business is. And that's what we're focused on. From that perspective, I believe our measured approach is the right one for us.

Great. Thank you.

And next, we'll go to the line of Simon Flannery with Morgan Stanley.

Great. Good afternoon. Jeff, thanks for all the comments. Great to hear the momentum in the business. I wonder if you could talk about the sustainability of this. We've heard from both Verizon and T-Mobile that CapEx peaks this year and then falls fairly sharply. And how do you think about your medium-term outlook given some of those commentary? And perhaps relatedly, we've seen very strong fixed wireless results. How do you think that might impact some of their builds, some of their densification over the coming years? Thanks.

I believe this will be a multi-year effort, especially considering that the C-band will be cleared in phases over several years. There are still multiple years ahead for C-band deployments to occur. I take our customers' comments seriously, but I can assure you that there is significant work to be done. The C-band deployment is still in its early stages, so it will definitely be a long-term project. I'm uncertain how this will be affected, if at all, by the fixed wireless initiative and the associated spending. It’s important to note that one is primarily focused on mobility while the other targets location-driven services. However, we have not observed any indications that success in the fixed wireless sector will influence mobility spending.

And next, we'll go to the line of Rick Prentiss with Raymond James.

Thanks. Good afternoon, everybody. Hey, I want to follow up on some of the comments about the international churn. You mentioned you called out the Digicel Panama. How much of that should roll into next year, though, if you say that's the impact for the rest of this year? How much should we think about that kind of tail hitting us next year? And update us as far as what's going on with Oi. We've seen obviously a lot of press releases. It looks like some transactions are finally coming to pass in Brazil.

Yeah. So the $6 million of incremental churn for Digital represents about three quarters. So there'll be another couple of million dollars into next year. There's probably also a little bit of additional, Rick, because we were already assuming some digital churn previously, not associated with this liquidation, just as they were shutting down certain sites because they were obviously already having some issues. So there's probably an extra $1 million or so in addition that would flow into next year.

Yeah. On the Oi situation, Rick, the sale has closed. Oi Mobility. Wireless has been sold in parts to Claro, TIM and Vivo. They've all got some cell sites. They've all got some subscribers. Only Tim and Vivo got spectrum, however, because Claro was already at their regulatory prescribed limits. And where it all stands right now is that each of the recipients or winning bidders, or the three remaining need to prepare and file with the regulators various plans and answers to some conditions and restrictions that were put on the approvals. That has not happened yet. We'll be watching with great interest what those filings will be. But also keep in mind now we have the 5G auctions done in Brazil and the spectrum ready to be released and with some time limits on deployment at least around the major capital cities.

Okay. CPI is benefiting escalators. How often do they get updated? What is the current status for you? Additionally, could you provide an update on CPI in Brazil and South Africa? Please help us understand the timeline regarding the benefits and escalators as well as any implications on costs.

The CPI in Brazil right now for us is around 9% on average for the year. The actual rate is higher, closer to 11% at the moment. The timing is linked to when the individual leases escalate. There are larger concentrations due to some acquisitions we made, with those adjustments typically happening in the fourth and second quarters. Ultimately, it depends on the anniversary date of each lease and the year-over-year CPI at that time.

Keep in mind on the expense side, Rick, the ground leases, which are the single largest component in Brazil, are a pass-through item. So we have that protection. Where we are likely to see the impact is, of course, on the labor side. And we will see that because of the way the Brazilian employment laws are written. But again, I would point out that, given the operating leverage in the business, the percentage of employee costs against revenue is extremely small. So we have some great elasticity to be able to absorb any employee-related CPI increases.

Makes sense. Thanks for that. Have a good day.

And next, we'll go to the line of David Barden with Bank of America.

Hey, guys. Thanks for taking questions. I guess first one maybe for you, Brendan or Mark. With respect to the guidance expectations for rate movements, for the rest of the year and the impact on the net change in the updated '22 guide, could you kind of give us a sense as to what you were originally baking in and what maybe is net incremental probably a headwind presumably on the 8% remaining variable rate debt? And then the second piece would be just on the service revenue kind of outlook. Obviously, pretty healthy activity across the board. We've talked in the past about the margin mix, whether it's earlier stage, it's more human capital, higher margin, later stage is more labor-related and lower margin. Where are we in that curve? And where do you see margins in that business going?

Yeah. On the rate impacts, the impact is primarily due to: one, an assumed increase in CPI rates; and two, slightly more of our revolver being drawn during the course of the year associated with some of the incremental spend that we've just incurred or have under contract. So if you look at our CapEx guidance, it's up a little bit so that, that requires that along with the share repurchases that we did that weren't assumed before that we have a little bit more capital drawn and because it's floating rate and the CPI is increasing. That's really driving the increase in our net cash interest expense guidance that we gave. Otherwise, there's really no changes to that.

On the services front, the primary concern is not the margin within each of our service segments, but rather the mix of the two. Site acquisition has traditionally generated higher margins, while construction has lower margins. However, the current margins in both segments are quite strong, possibly reaching all-time highs. The key factor influencing our margins is the balance between site acquisition and construction services, but we are pleased with the performance of both segments. One consequence of a strong services quarter, given it is a lower-margin business, is its effect on our adjusted EBITDA margin. So for those curious about the current EBITDA margin, it is mainly due to the significant amount of services revenue recorded this quarter.

Okay. That's helpful. Thanks, Jeff.

And next, we'll go to the line of Nick Del Deo with MoffettNathanson. Your line is open.

Hey. Thanks for taking my questions. First, kind of turning back to Brazil and the Oi situation, can you talk at all about the conversations you've had with customers? And anything they've said about their plans to invest behind the assets they're acquiring? And are any of the initial goals that they've laid out for site decommissionings, I think at least TIM has talked about that, have those been consistent with your expectations?

I believe we still have the same assessment regarding our overall exposure, which is estimated to be between $20 million and $30 million over the duration.

Yes.

So nothing has really changed there, Nick. As we have observed in the U.S., migrating customers and truly decommissioning sites is a bit more complex and takes more time than people anticipate. This is primarily a comment on timing. We believe the ultimate numbers will align with what Brendan mentioned. However, we do not have any specific guidance from them at this time. As the year goes on, we expect to gain more clarity regarding the timing and final figures we will be looking at. On the positive side, the three nationwide carriers are all actively engaged to varying degrees with the new spectrum deployments.

Okay, okay. That's great. And then maybe turning to the datacenter topic. I think, to date, you've described what you're doing as buying assets to learn about the business, learn about the edge opportunity. Do you feel like you currently own a sufficient number of datacenters in the U.S. to fulfill that goal? Or should we expect you to pick up some more in the future, maybe in different geographies or different size or something like that?

I believe that as we continue to experiment and learn, it’s possible we might acquire a few more datacenters. However, I don't anticipate that this would come close to representing 1% of our enterprise value.

Okay, that’s helpful. Thank you, Jeff.

And next, we'll go to the line of Michael Rollins with Citi.

Thanks and good afternoon. First question for me was, curious if you could unpack the merger churn in the U.S. from Sprint and T-Mobile that was within the first quarter results as well as what's in the guidance for 2022.

The guidance for 2022 is now approximately $27 million, down from the previously mentioned $30 million, which reflects a reduction of $3 million for the full year. I will check the specifics for the first quarter and provide you with that information on the call if we finish the discussion before then.

Sure. And then just as you're thinking about the year domestically. Just curious how you're thinking about that 3.7% net growth that you did in 1Q relative to the full year guide. If I'm calculating the numbers right on Slide 4, I think it is, it also looks like for the full year organically you're looking for about that amount, but with churn possibly ramping higher as a contribution. So just kind of curious how you're thinking about the growth moving through the year and the net and what the contribution that may be layered in for DISH and AT&T as you're just thinking about that full-year growth expectation for 2022.

Well, I know, Brendan, you could get to the net, but I know that the gross number, Mike, we expect to grow sequentially as we move through the year.

We anticipate that growth will increase sequentially. We also expect churn to rise gradually over the year. There's a possibility that our timing expectations regarding churn may be inaccurate, as suggested by the shift in the first quarter, but we believe it will still show an upward trend in our guidance. Therefore, we expect a modest or flat increase quarter-over-quarter throughout the year. Regarding the mix, we prefer not to discuss specific carriers contributing to it. However, we have mentioned in previous quarters that DISH has played a significant role in our lease-up activity through their new agreements. All carriers have contributed to this lease-up, so they are all part of the overall picture.

When considering the long-term leverage targets for the business, do you have a general guideline regarding rates and what level of leverage is appropriate? Or is your perspective on leverage less influenced by the rate environment?

Well, clearly, there would be a rate level that we would consider, but I don't want to get too specific about what that is. There is a certain rate at which we would evaluate different leverage levels. Additionally, Mike, we're focused on our dividend, our dividend payout ratio, and the growth of our EBITDA. We strive to be very thoughtful and consider all relevant factors. However, on an absolute basis, there would certainly be an interest rate, if maintained and sustained for long periods, that is materially higher than where we are today, which would lead us to reconsider our leverage targets.

And Mike, before you go, let me follow back up on your question about how much Sprint in the first quarter. It was approximately $4 million of impact in the quarter, so a little over 1% of the roughly 2.7%.

Thanks very much.

And next, we go to the line of Sami Badri with Credit Suisse.

Great. Thank you. I just wanted to get a little bit of an update on the MLAs. And I think what we'd all kind of could really use maybe a little bit more color on how much activity is falling into those MLAs versus out of those MLAs with the same customers that actually sign them. Can you just give us a little bit of color or more color than normal on what the mix of in versus out of MLA looks like?

Well, I think it's 100% for every customer that we have an MLA with is somehow touched by the MLA. So that's DISH, Verizon, and T-Mobile. And then we don't have one with AT&T. It's not really a situation where some of it's covered and some of it's not per carrier.

Understood.

And just to be clear, our MLAs, though, are still based on specific activity from those customers and equipment specificity. They're not just a broad open-ended thing.

Got it. The other thing is, last quarter, you stated that the 3.45 gigahertz spectrum would require incremental radios to C-band. Do you still hold that view?

We do. Although I know that they're working on an integrated one as well, which will come out at some point.

Got it. Just to clarify, if they develop an integrated radio, will there still be room for changes since they are using two different spectrum bands? Or is there a different process for negotiation if that occurs?

Well, it will be primarily driven by what the equipment looks like and how it stacks up compared to: a, if anything is coming off, that's a swap. If it's not, then we would look at the equipment and price it accordingly based on height, weight, wind load.

Got it. Thank you for the color.

And next, we'll go to the line of Greg Williams with Cowen.

What multiples look like, given the rising rate environment, private multiples and the geopolitical landscape by region generally? Second question just on the record service revenues. Are you seeing any labor or logistic bottlenecks in the current environment and keeping up with this record activity?

Greg, I believe we missed your initial question as part of it was cut off.

Yeah, they're not increasing, and we're thankful for that. There are some signs that the current interest rate environment may negatively affect prices. It takes a while for current market conditions to reflect on private market sellers. However, it is moving in that direction where, clearly, rates should and I believe will impact price over time. On the supply side of equipment and labor, I don't want to jinx things, but as of today, we are not seeing any significant impact on either the supply chain or the labor side for our business.

Thank you.

And next, we'll go to the line of Brett Feldman with Goldman Sachs.

Great. Thanks for the questions. Jeff, for the vast majority of SBA's history is a U.S. tower operator. Your fixed escalators, which are generally, I think, in the low 3% range have exceeded inflation. And that's obviously not the circumstances we're today and who knows what the long-term view is going to be. But I'm wondering if we've been in an inflationary environment long enough for you to see any impact on your business or maybe to change how you think about it. So just as an example, I'm wondering, is there any increased mutual interest between you and your carrier customers maybe finally moving to a CPI-based escalator model in your leases? If you are doing build-to-suits in this environment, are you actually still doing that at the historical escalator? Or is that changing? And maybe just bigger picture, if we're not likely to see a change in the escalation model and we do remain in an inflationary environment, could that suggest that you may have a preference for continuing to invest increasingly outside the U.S. where you can actually develop and acquire towers that can escalate in line with CPI? Thank you.

I believe the escalator issue with our customers is currently one where having certainty and a fixed number benefits both parties. In a year like this, with a fixed escalator, one side may benefit while the other suffers, but that's only a short-term scenario. Over time, the Federal Reserve aims to reduce inflation to 2% or lower. I don’t see much interest from either side in changing the current arrangement, since a significant inflation year would likely leave both parties unhappy, whether it’s us with ground leases or our customers with tenant leases. We are fairly comfortable with the current situation. I don’t believe we are making international decisions based on the assumption that CPI escalators will be more advantageous. Traditional economic theory suggests that if inflation rises in those markets, the currency will depreciate, so we don’t view that as a reason to prefer international over U.S. investments. Our rationale for going international is based on our capital allocation and target leverage, which we believe significantly contribute to shareholder value. We have found sufficient opportunities in the U.S. and have also discovered excellent prospects internationally, and I expect this will remain our main motivation.

If I could ask just 1 quick follow-up question. I believe in the U.S., what we've typically believed in the U.S. is that the escalation clauses on your ground rent was reasonably similar to what you see on the tower side, so kind of a fixed low 3% escalator. Is that the right understanding? Or could we see a mismatch at any point over the coming quarters?

No, we have generally matched off. Substantially, every single U.S. tower that is ground leased has a fixed escalator, and they typically average less than our average tenant escalator. We feel well protected there, Brett, as ground leases are our single largest source of expense in reaching the tower cash flow line.

Thanks.

And next, we'll go to the line of Walter Piecyk with LightShed.

Hey, Jeff, this first question, I'm going to send over to Brendan. You said to a prior question that Sprint churn was $4 million. Maybe if you were rounding up there, that implies, I think, a churn rate for the rest of your domestic business that I couldn't find that low, unless I went back, I guess, for a quarter or two in 2018 when it was like 1.7-1.5 for second quarter. Is this a sustainable number? Because that's just much lower than we've seen for several years.

I don't believe that's lower, considering what's left is about 1.5 to 1.6% if you exclude Sprint. We've actually been much lower in the past, dropping below 1% a couple of years ago. Historically, we've usually been between 1% and 2%, sometimes even lower. I don't find this abnormal.

Well, it's Mark. The total amount in that calculation has remained flat for a couple of quarters now, which means that as a percentage it is decreasing.

Got you. But I don't think that's lower. I mean we've actually been much lower than that. If you go back a couple of years ago where we were below 1%, but we've historically been somewhere in that usually between 1% and 2%, sometimes lower. So I don't think it's abnormal. The absolute dollars, the numerator in that calculation has been flat for a couple of quarters now, which is as a percentage is going down.

I believe there is another explanation. What you are observing, Walt, is the gross churn which has traditionally included some level of consolidation churn.

Yeah. We've experienced churn related to Metro Leap and Clearwire as well as iDEN.

If you look at the years that have passed, you've always had something significant in there. Perhaps the core elements that you don’t usually report were lower, but the reportable churn numbers have never been that low to my knowledge, since you haven’t separated them out.

Apples to apples, you have to include the Sprint.

Okay. And then just same basic question for amendments in colo. You think the target is whatever 60 something for the year, 65%, I think. That would imply a much bigger step-up sequentially than maybe what we saw in first quarter. Any sense on kind of when you're going to see a more material step-up from quarter to quarter? Or do you think it's going to be somewhat linear from here?

Yeah. No, it's going to step up, but I think mostly in the second half of the year. There'll be a modest step-up is our expectation next quarter and then more material into the third and then even further into the fourth quarter.

And next, we'll go to the line of David Guarino with Green Street.

Hey, Jeff, going back to the M&A conversation, you mentioned multiples aren't increasing, but I think it's fair to say that they're rich today. And we've seen some deal terms on a few recent transactions that really appear to benefit the MNO sellers. So I was just wondering if you could help us understand how are you guys competing for deals now that your peers are bidding more aggressively. And has that caused you to adjust your underwriting at all?

No, we don't change our underwriting. We might pursue fewer deals, David. However, if you review our past actions, we are pleased with our approach and will maintain the same discipline. Our primary focus is creating value for our shareholders. We don't see significant strategic advantages in being large across various countries. Instead, we prioritize the financial attributes and investment objectives of each transaction. While we may incur losses, we achieve enough to generally meet our portfolio growth targets of 5% to 10%. We will continue operating in this manner.

Okay. That's helpful. Maybe switching gears on the '22 guide. I was wondering if there any conservatism in your exchange rate forecasting for the Brazilian real? It looks like your full-year guidance is below where the current exchange rate is, and we've got eight months left in the year. So I just wanted to know, how do you guys think about forecasting exchange rates?

We usually refer to the forward rates that can be found on Bloomberg, averaging estimates from various institutions that provide projections. I can assure you, David, that our assumptions may not be accurate. It's uncertain whether we will be off in a positive or negative direction, making it challenging to pinpoint exact numbers. We rely on expert insights available at the time. However, since we compiled our numbers at the end of last week, we've noticed the currency has weakened against the dollar in the past two days. For Brazil, our average estimate for the remainder of the year is about 5:1, but the current rate is approximately 4.88. So, it's relatively close to the spot rate.

Okay. I appreciate the email, and thanks for that.

And next, we'll go to the line of Eric Luebchow with Wells Fargo.

Hi. Thanks for squeezing me in. So wondering if you could talk about what you're seeing from DISH. I mean they publicly said they think they're about six months behind where they originally expected it to be. So just wondering if either the actual site construction when they hang equipment or the date certain under your contract with them would have much of an impact on your assumed leasing outlook for the year. And then just more broadly, are you seeing their leasing concentrated in just a few markets? Or is it pretty broadly distributed across your portfolio today? Thanks.

The activity level is quite broadly distributed. We have a structure with DISH where once the lease is signed, we start recognizing revenue either at a construction milestone or at a specific date. Analyzing all of this and turning it into guidance is somewhat subjective. There may be some fluctuations, but generally, as the year progresses, things become clearer. While there might be some opportunities for movement, we feel confident about DISH's contribution. Regarding your point about them being behind by six months, that may reflect their internal goals and projections. However, I want to reiterate what we've been saying for much of the year: they are very active, busier with us than we anticipated for the past 12 months. They continue to work hard to meet their June 2023 regulatory obligations.

Great. Appreciate the color.

And next, we'll go to the line of Brandon Nispel with KeyBanc Capital Markets.

Okay. Great. Thank you for taking questions. Maybe two, one follow-up though. Could you share what the backlog of lease applications was? What was that up this quarter? And if we just held that flat looking at the comparables in sort of the second and third quarter, what would that growth rate look like? Then secondly, following up on Walt's question, it looks like you had about $12.6 million in U.S. organic growth this quarter on that 6.4%. Do you still think you can get to a low $20 million number exiting this year? And then is that a reasonable number to run rate into 2023? Thanks.

Regarding the backlog for our leasing business, we evaluate it based on the number of applications for new leases and amendments. The pricing can vary based on the specifics, and sometimes negotiations are involved, so it’s not solely based on dollar amounts. The number of applications has increased, and that is what we mean by saying it's up. I can't provide a specific number for lease-ups compared to previous quarters. For leasing dollars in the fourth quarter, we believe we can reach the low-20s by year-end. Whether that will continue as a run rate going forward depends partly on activity levels for the rest of this year, which we expect to remain strong. However, I can't comment on next year's figures at this time.

Okay. Thanks for taking the questions.

And next, we'll go to the line of Matt Niknam with Deutsche Bank. Your line is open.

Just two quick ones, if I could. First, on M&A. I know you mentioned, I think, 358 sites acquired are under contract as of the end of the quarter. Any color you can share in terms of where they're located and when they're expected to close? And then secondly, on the dividend payout ratio, I know you mentioned in the release that you're still under 25%. And I know you've talked about 20% annual growth the next several years. Any sort of update in terms of where you'd like to get that payout ratio to over time? Thanks.

We prefer to keep it low because it provides us with numerous opportunities, such as stock repurchases, which we believe are well executed and allocated. This approach, including the dividend setting, has benefited our shareholders. However, we also aim to lead the industry in dividend growth rates, which is why we start at a lower level. Therefore, balancing these factors will ultimately determine how we set the dividend in the future. At a payout ratio of less than 25%, we have significant potential to increase the dividend substantially in the coming years. What was your first question?

M&A under contract mix. It's largely international. There is some domestic and some international. Was there more to the question?

Any color you can share in terms of country or region, if possible?

They're all existing markets.

And we do have a question from the line of Jon Atkin with RBC.

Was interested in talking a little bit about other types of infrastructure. You did the PG&E deal. There's rooftops, but on kind of non-conventional macro towers and opportunities you see within that segment? Thanks.

Yeah. We continue to pursue a variety of different things, Jon. We have a growing indoor DAS business. We have a growing connected venues business where we get in and actually kind of build out the telecommunications infrastructure in new developments. We have added some rooftop sites for sure. And we have picked up now three datacenters. None of that stuff comes close to being anywhere near material compared to the basic macro tower business. And while we are seeing good return on invested capital in all these areas, and we will continue to look at them and believe that we're picking areas that will scale over time. I mean we are, for all intents and purposes, for the foreseeable future we are a macro tower company.

So alternatives like rooftops, transmission lines, utility?

We are acquiring and developing rooftops, and we are involved in most areas except for fiber, large outdoor small cells, and undersea cable. However, none of these initiatives are expected to significantly impact our financial results in the near future. The question then arises, why are we pursuing this? The answer lies in our position, our identity, and our history. We have access to many ancillary opportunities, and these are valuable, exclusive assets that will yield a good return on our invested capital. These pursuits are generally handled by those already engaged in the macro tower business.

Thanks very much.

Yeah.

And we have no further lines in queue at this time.

Great. Well, I want to thank everyone for joining us for what you heard was a great first quarter. And we look forward to reporting continued success as we move through this year. Thank you.

And ladies and gentlemen, that does conclude our teleconference call for today. Again, thank you very much for your participation and for using the AT&T Teleconference service. You may now disconnect.