Conference Transcript - SBAC 2026-03-03

Ben Swinburne, Analyst — Morgan Stanley

Okay, let's get started. Cameron McVeigh, the Communications Infrastructure Analyst here at Morgan Stanley. Ben Swinburne, the Communications Infrastructure Media Telecom Cable Analyst. And Mark Montagnier, the CFO of SBA Communications. Welcome, Mark.

Marc Montagner, CFO

Thank you.

Ben Swinburne, Analyst — Morgan Stanley

Before we get started, let me read this. For important disclosures, please see the Morgan Stanley Research Disclosure website. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, we will get started. So, Mark, to start, I want to get your thoughts on the growth outlook, the broader tower industry, and what you consider the main growth drivers for the industry today.

Marc Montagner, CFO

Well, I think if you really look at our business, specifically in the U.S., you have colocation for densification or extra coverage and amendment for the existing equipment. So that's really driving the growth in terms of revenue growth. But let's just step back a little bit, right? the catalyst in this industry I've been in this industry for 30 years carriers buy spectrum and they roll out next generation technology they get about a 10x increase on the capacity versus the prior generation and an exponential cut in terms of the cost per bit in terms of delivering a cost over the airway if you just cram more bits per earth and that's really been the driver for the industry for the past 30 years. I mean, 30 years ago, EBITDA margins for the wireless carriers were about 45% on a mature network and it's still 45% today, but they were charging $0.25 a minute for voice or $0.10 for SMS, $40 for a gig of data, and now it's $55 or $60 all you could eat. traffic is still growing at double digit every year and the EBITDA margins for the carriers is still 45% just because they have been able to take down the cost per bit tremendously. So the next catalyst I think for our industry and then you look at CapEx as a percentage of revenue, they roll out a new technology, they get a 10x increase and they go to harvest mode for a few years so the carriers uh goes between spending 15 15 of revenue or on capex to 25 when they're deploying new technology 2022 2023 they were running uh close to 25 percent 24 and 25 they were running below 15 of revenue so we are at the trough now and they're in harvest mode. The next catalyst for our industry really is going to be 6G and the FCC is probably going to auction up a C-block in 2027. It's probably 18 months clearing period. The manufacturers, Samsung, Ericsson, Nokia, already have equipment for 6G. They're marketing this aggressively. So you could see a rollout of 6G in the 29, 2030 timeframe, and it's going to be a catalyst for growth again. In 2023, we did $78 million of lease-up, and this year our guidance made $0.35 million. So you could really see the delta. At the trough, we're still growing, but not growing as rapidly. and at the peak you could see an increase in in the top-line growth rate right so it's a long answer for short question I'll take it and I wanted to

Ben Swinburne, Analyst — Morgan Stanley

ask you know specifically in in 26 on the earnings call last week it was you know 26 is characterized as the right at the bottom in terms of domestic growth at two percent that's below what we've seen in the two to three percent lease up expectation you know I guess what gives you confidence that this is truly the trough or for the year and what do you think needs to happen to see growth re-accelerate in the short term yeah so I think we if you really look at

Marc Montagner, CFO

especially in the US we always say four to five percent goes three percent will come from the accelerator on the existing leases and 2% to 3% growth from amendment and colocation. And as I said, CapEx has a percentage of revenue right now. It's really at the trough, less than 15%. We see the majority of the new revenue is not coming from amendment, it's coming from colocation, densification, coverage. So it just means that the network is still, the carriers still have double-digit growth in terms of traffic and they need to meet that demand. So we still feel pretty good at 4% to 5% growth rate, probably closer to 5% on the normalized environment, closer to 4% at the trough.

Ben Swinburne, Analyst — Morgan Stanley

Great. That's helpful. I want to ask about fixed wireless. It now accounts for 15 million subs and more than half of the overall network capacity. How directly are you seeing FWA translate into the leasing activity for the towers? And do you expect this to be a meaningful driver into 2026?

Marc Montagner, CFO

So I think I've seen research reports showing that 50% of traffic on wireless network today comes from fixed wireless access. You have hundreds of millions of handsets and 15 million fixed wireless access customers. You could just imagine how much tonnage is going on those customers. So it's definitely driving colocation for densification. For us, we have a passive infrastructure. We leave space to the carriers. We know they have visibility and the equipment for fixed wireless access or connectivity to a device is the same thing. A bit is a bit is a bit. on the RAN network. So we don't have that type of visibility, but it's clear that fixed-wise access is going to drive more co-location.

Cameron McVeigh, Analyst — Morgan Stanley

Mark, you mentioned the shift to co-location. Is there any difference in how we think about the timing between when those leases are signed and when they actually hit the P&L when we compare the colo to amendments?

Marc Montagner, CFO

Yes, so the cycle, book-to-bill cycle on amendment is closer to three months. on a co-location is closer to six to nine months.

Cameron McVeigh, Analyst — Morgan Stanley

You guys also mentioned on the earnings call, and we had Verizon yesterday here at the conference in AT&T this morning, that you've got a lot of contracted activity with Verizon in 2026. Talk a little bit about the growth outlook there and why you think that MLA is a sort of strategic positive for SBA.

Marc Montagner, CFO

You know, I think if you look at the industry, the wireless industry is an oligopoly, three major carriers, three large publicly traded companies, a power company. I think the carriers have long-term network needs. They're growing the top line at mid-single digit. They clearly don't need to control their cost over the long term. For us, we have three customers, and we want to lock in a minimum growth rate. So there's a healthy dialogue there where I think it makes sense for all of us to agree and try to have a predictable outcome for the next 10 years. So we signed an agreement with Verizon. We're very pleased with the agreement. It's a 10-year agreement with escalator minimum volume commitment. And in exchange, they have certainty on the pricing. And I think it's going very well. And we're very pleased with the way they are. We're working together. At the end of the day, we want to support our customers. We want to make it easy for them to deploy. T-Mobile was, I think, the largest generator of new revenue last year. They had a build-out requirement as part of the acquisition of Sprint. They needed to meet 95% coverage of POP, and they have some densification need. Now they have kind of deployed 5G on over 85% of their SBA towers, so they're pretty much slowing down in 2026. Verizon is picking up the slack. Verizon is going to generate, is going to be our most active customers in 2026 in terms of new revenues.

Cameron McVeigh, Analyst — Morgan Stanley

Sticking with the big three, I think you guys also said that AT&T would probably be a bit of a first half versus second half story. Let me just talk a little bit more about what's driving the trend line with that customer in 2026 versus 25.

Marc Montagner, CFO

Well, AT&T, I think, is steady. We have a five-year agreement with them. We signed that in mid-2023 to structure agreement, helping them really roll out, deploy 5G, make it easy for them to deploy. So it's basically following the term of the agreement.

Ben Swinburne, Analyst — Morgan Stanley

I wanted to ask about, you know, Echostar has been in the news. Every day. Perhaps could you explain to the audience how we got to the situation where we are today and maybe potential next steps on the legal process and path to recovery.

Marc Montagner, CFO

So we, I mean, DISH was starting fourth carrier in the U.S. They needed basically towers to deploy their equipment. We signed agreements with them, lease agreement. It's about $56 million of annual revenues. Last year, we did $37 million of lease-up, $2 million with Dash, almost nothing in the second half, and they stopped paying. So we have basically a $56 million revenue contracted with Dash in 2026. We assume it's going to be 100% churn for 2026. We have short-term contract with Dash, So the total exposure under the term of the leases that we have is slightly above $100 million. They run out at the end of 27 and 28. So our total exposure is about $100 million, and we file a lawsuit basically in order to protect our legal rights. So there's not much I could comment beyond the fact that we file a lawsuit then we're going to pursue all legal revenues trying to basically collect as much as we can under the contract.

Ben Swinburne, Analyst — Morgan Stanley

On the topic of churn, I wanted to ask about Sprint. You mentioned on the last call that the expectation for Sprint churn in 26 is raised a bit. Can you help us think through potential timing of Sprint churn over the next couple of years?

Marc Montagner, CFO

So it's $56 million this year, and And going forward, it's going to be less than $20 million over the next few years, basically.

Ben Swinburne, Analyst — Morgan Stanley

Let's switch a bit to the international markets. Brazil represents almost, I think, 15% of your site leasing revenue, 12,000-plus towers. But there's some near-term headwinds with the oil consolidation and FX volatility. I'm not telling you anything you don't already know. So, you know, what needs to happen for Brazil to transition more to a growth story? What do you think is the realistic timeline?

Marc Montagner, CFO

Well, I think Brazil is a very interesting country. We have over 30 years of experience in Brazil from multiple companies. And I'm always very bullish in Brazil. 200 million people, large exporters of food, commodity, minerals, oil and gas. Balance of payment is positive. I think they exported more than imported by $4 billion in January alone. The population is young. 5G is less than 50% deployed. And the country is now an oligopoly. You have three carriers, Vivo, Claro, and Tem. And the traffic keeps growing. So I think we're indexed towards oil, which has been basically carved out into the other three. And the oil wireline is going out of business. We have a $14 million churn from oil wireline. That company is going to disappear, basically. And then we have a little bit more churns coming from oil wireless going forward. But it's really the peak years in terms of churn in Brazil. The central bank has done a phenomenal job in terms of controlling inflation. and the carriers, really very few towers have been built in the last two years just because short-term interest rate. We're collecting 15% interest on our checking account in Brazil today. The cost of capital is clearly high teens, 20%. And that's when we look at a new BTS, a new tower that an operator wants us to build, that's kind of a high teens hurdle rate we look at. So we really have cut down the build in Brazil tremendously. And so have the other carriers. And certainly I think it's a much healthier market for the tower company because the wires operators have to keep deploying in terms of Coro, in terms of new towers. And 5G is less than 50% deployed. And the churn is basically where the tail end of the churn.

Ben Swinburne, Analyst — Morgan Stanley

So I feel pretty good about Brazil over the next few years. I also wanted to ask about some of your African markets, which it seems like they have some of the highest returns on invested capital. Do you expect to continue to expand your footprint in these markets or deepen some of the existing positions?

Marc Montagner, CFO

So we're in two markets in Africa, South Africa, and Tanzania. I think we're going early at the right evaluation. We have done extremely more. It's the two countries with the highest return on invested capital went into the double digits. And Tanzania is still growing. The government is really pushing coverage. Wireless is probably the only physical telecom infrastructure that's working well. Africa was a high-growth market for many years, and it's kind of slowing down a little bit now. But I think we like our position in Africa. I don't see us expanding into a new African market at this stage. I think I like where we are right now.

Ben Swinburne, Analyst — Morgan Stanley

Just on that topic, in terms of portfolio rationalization, it's been a focus recently. How should we think about some of the markets in which you have less scale versus others. Maybe just take us through a dynamic where it would lead you to become more of a skilled player.

Marc Montagner, CFO

Right. So I think when Brendan became CEO and when I joined, he announced, I think on his first earning call in February 24, a portfolio review. And we look at the 15 markets where we operate and we realize that the markets where we're doing well, where the market, where we're at scale, So when an operator has to roll out a new technology, they come to you because, you know, you could help them deploy fast and at scale. Also, it gets you better margins because your SG&A are pretty much fixed costs. And you need to be in the market where the economy is healthy. If the economy is healthy, corporate or hiring people, they need wireless connectivity, people have jobs, they spend money on their wireless device, so you need a healthy economy. And you need to be in an economy where you don't basically invest in front of churns. We've seen like Brazil going from 4 to 3, the U.S. with spring being consolidated away, you need to be in a market with an oligopathy. And scale is important. So on that basis, we exited the Philippines, we exited Colombia, we saw our operation in Argentina, and we saw our operation in Canada. We loved the market, but we only had a few hundred towers in a very large country. and it didn't make any sense. We sold to a P firm at an attractive multipore. And then we look at the markets where we operate in Central America, pretty much consolidated to two operators, Melecom and Claro, very healthy operators, investing in the network, committed to 5G. 5G was under-deployed. And when Melecom decided to sell 7,000 towers, we struck a deal with Melecom. So with 50 new contracts, in U.S. dollars, with escalator, a new build commitment, we're looking up a single-digit growth rate. And it's a low-risk, healthy market growing very rapidly. So the bulk of the towers we will build in 2026 will be built in Central America. And we had operations in the region, so with people in the ground. this is a business with we don't need that many more people to operate more sites

Cameron McVeigh, Analyst — Morgan Stanley

You touched on 6G a little bit earlier I wanted to kind of bring 6G and AI together and just hear you discuss how you think those standards are coming together, how AI plays into the opportunity and help us, I know it's early but how does how does the 6G opportunity compare to what you've seen in previous generation cycles for the tower business

Marc Montagner, CFO

Right, so I think it's still early to say, but I think if you think about it, I was listening to the CEO of AMD this morning at 7 a.m. was talking about AI, and she already sees demand for AI chip for inference data center closer to the urban center where the applications are going to resign. I think if you want to make real-time decisions using an AI app, latency is going to be very critical, And for that, you need to be close to the user. If the user is going to use a mobile device, you need to be close to the site. So people are saying it's a small data center, inference data center coming to the base of the sites, the wireless sites. I don't know, but a lot of people are talking about it. I think the other thing, AI is just going to generate much more, I think traffic on the network probably more uplink and 6G is going to mean just mean more new equipment at the site heavier equipment at the site and it's going to be positive for the operators and then you look at some other countries now are using wireless sites to help for drone delivery services in terms of security more precision I think it could be helpful in and clear where autonomous vehicle are they gonna need some local signal today most of the processing is doing is being done in the car but is that gonna change or not are they gonna need more connectivity to the cars some countries are using wireless sites for drone detection. It's cheaper and more precise than doing it the way we're doing in the US using radars. Is that going to come to the US? I don't know, but I can see that wireless infrastructure that's really difficult to replicate because it took 35 years to build. You have zoning laws, now you have power at the site, you have fiber going to the side you have generator you have batteries it will pull your bus side they are protected and you could see how you could support a number of new use and applications going forward yeah that's interesting in addition to AI

Cameron McVeigh, Analyst — Morgan Stanley

another big topic this week has been direct to sell satellite connectivity I'm sure you probably are aware you know probably starting last August I think Eccostar was talking about their plans and and they introduced the idea of you You know, carriers using satellite instead of tower capacity, at least in rural markets. I know this is not a new question you've got, but it would be great to get your updated view on how satellite fits in to the overall, especially U.S. market, and how you think that impacts your business, if at all.

Marc Montagner, CFO

So I think satellite is great for coverage, not great for capacity. So I think it's really a complement to the terrestrial wireless network. If you really look at the wireless network in the U.S., it covers about 95% of the population, but only two-thirds of the landmass. A third of the landmass is not covered by wireless networks. So if you have a dual-motor handset with the right form factor, dual chip, dual radio, communication with a satellite, and a terrestrial network, I think it's basically the killer app. And then if we look at Starlink, so they bought spectrum from DISH, but also they got the MSS spectrum, which is 40 megahertz of a global band. And knowing Elon, he thinks big. So he's probably thinking of a global play and not just the U.S.

Cameron McVeigh, Analyst — Morgan Stanley

It's your planetary play.

Marc Montagner, CFO

That's right. So I think it's going to be a great complement to the wireless network. Just look in terms of capacity. You probably need 10 satellites to have the capacity of one base station. We probably have 150 to 200 sites in the U.S. alone. So you can't put a million satellites in a Leo orbit to replicate that. It's just not cost effective. And it's interesting because I've been having that question from investors for six months. And today at the World Mobile Congress in Barcelona, I think one of the SVP for starting basically confirmed and now we won't map the capacity It's good complement to the terrestrial wireless network But it's not something that is going to cannibalize it. It's more a compliment because can never get the capacity in the scale

Ben Swinburne, Analyst — Morgan Stanley

Thank you Mark, it seems like the private tower Market valuations are much higher than the public valuation And it seems like this disconnect has limited some of the M&A activity recently. If the gap persists, how should we think about capital allocation priorities and buybacks, acquisitions, and debt reduction?

Marc Montagner, CFO

So there's a disconnect because it's just a scarcity of large tower portfolio for sale in the U.S. And two, there are multiple large proprietary infrastructure funds chasing those opportunities. So they could basically fund the acquisition in the ABS market, putting 12 terms of leverage and attractive rates. And the way they go to committee is probably saying, I could buy this for 35, 40 times today and market it to another PE firm in five or seven years at 25 to 30 times and justify a multiple. And that math has worked for the last 35 years. So I'm not saying the math is wrong. It's just something that's worked really well for the last 35 years just makes it very difficult for us to compete. So if you look at our capital allocation strategy and also public numbers, it's about $1.9 billion of EBITDA, $5.25 for the dividend, about $4.90 for cash interest expenses, $70 million for cash taxes, and then you have another $225,000, maybe $250,000 for growth capex and maintenance capex. That leaves you about $650,000 of extra cash to allocate. And then this is, as a management team and our board, this is how we could create value by being disciplined on how we allocate that capital. So in 2024, we spent $250 million on M&A, $200 million of buyback, buyback, and we pay down debt in a rising interest rates environment. Last year, we did a billion dollar deal with Melecom, a creative at 11 times EBITDA, and we bought half a billion dollar of stock at an average price of $200. Going forward, I think buyback is, at this level, makes sense. and I don't see ourselves buying a large portfolio in the U.S. given the valuation and I don't see us entering new emerging markets. So I think we're probably going to index towards buyback.

Ben Swinburne, Analyst — Morgan Stanley

Great. We have a couple minutes left. I want to see if there's any audience Q&A about it. Mark, the tower industry has faced a persistent valuation, multiple compression recently SVAX trading at a mid-teens forward AFFO versus a 10-year average in the low 20s what do you believe the markets may be missing or what catalyst might drive more multiple expansion

Marc Montagner, CFO

I think as I said CAPEX as a percentage of revenue for our customers oscillate between 15% and 25%. We are at the trough, 25, 26, we're running below 50%, although historical low. But the traffic keeps growing at double-digit. Fixed-wise access is using 50% of the capacity. The industry is going to add another 10 million sub this year. The 15 million that they have is already using half of the capacity. You're adding another 10. just imagine the demand on the network. So I think CapEx as a percentage of revenue is going to grow. 6G is around the corner. AI I think drone detection, autonomous vehicle so many I think applications the world is going wireless wireless growth is never going to go away and I feel really good about industry, and then you look at the tower industry, it's really difficult to think how you could replicate that infrastructure. Recently visited a tower down close to headquarter that was built in the 90s. The concrete slab is probably a round slab of concrete the size of this room going 60 feet into the ground, you have those steel rods going 40 feet down, and you have a 200-feet tower on top of it with tons and tons of equipment, generators, fuel tanks, batteries for the operators, fiber coming in. It's in a very dense environment where the zoning law would never let you basically replicate that infrastructure. So look at the geography where you all live in California, Connecticut, Westchester County, the coast of Florida, Long Island. It's almost impossible to build there. And if you're wise operators, you need to bring more and more traffic to this community. So the only way to do it, it's cheaper to just pay your tower operator to put another piece of equipment on that tower than trying to find a way to build a new tower. So I think that infrastructure has been there for 35 years. It's going to be there 35 years from now in an industry that's growing traffic at double digit. So I feel pretty good about our industry going forward. I feel pretty good about the barriers to entry. and the exclusivity that it provides, just de facto given the zoning laws and the cost to replicate that industry. So I think people always look at it as, okay, you're only growing at 5%, only growing at 4%, but that's a trough, and it's very stable, it's contractual, and I feel pretty good about our prospects going forward. Seems like a good place to end. Mark, thank you so much. Thanks for having me.