Conference Transcript - SBAC 2026-09-09

Michael Rollins, Analyst — Citi

As we begin, disclosures are available at the registration desk. And for those of you I haven't met, I'm Mike Rollins, and I cover communications services and infrastructure for Citi. We're pleased to welcome Mark Montanay, Chief Financial Officer of SBA Communications. Mark, 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? And not just as you look at the balance of this year, but as you think of the multi-year opportunity for your company.

Marc Montagner, CFO

Right, that's a good question. I think we really look at creating value for our shareholders for the long term. And there are a number of levers we use. One is growth. I think we are very focused on generating long-term growth by either basically selling more services on an existing portfolio of towers or doing a creative M&A. And the second level is capital allocation. So in terms of growth, we obviously have a great reputation for providing superior quality of service to our customers. We do, I think, our team's operating team does a great job in operating those towers, maintaining those towers. and we have a very active leasing team to generate more revenue on those towers in terms of avenues of growth I mean we are down to three carriers three customers in the US we're investment grade we have long term MLA agreement with them which I think makes it easier for them to deploy and easier for us to support them They are new, I think, use case for Taurus going forward. I mean, obviously, the LEO operators, the satellite operators. Just look at the physics of that. You probably need 100 satellites to get the same capacity as one base station. There are about 200,000 base stations in the U.S. So 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. and you look at the physics of operating or 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 and a tree you're not going to have coverage and you're not going to have the capacity so I think some form of wireless terrestrial network is going to be always far.

Michael Rollins, Analyst — Citi

Maybe since you brought it up, double-click on this for a moment. Because I feel like there's two questions in what you're describing with satellites. So 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 Leo's, 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.

Marc Montagner, CFO

I think it's really difficult to do a direct device without having a device with a dual-mode chipset. And in order to have a dual-mode chipset, you need to use probably a different spectrum band. And therefore, you need terrestrial wireless spectrum, so SpaceX both spectrum. or you need a V&O 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, I think, device. If you market a device, 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 the digital infrastructure tower to bring more spectrum to market and provide a solution that has a direct device capability. So 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.

Michael Rollins, Analyst — Citi

So one thing I just try to think a lot about for towers, and we're getting into this with the customer, you know, 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?

Marc Montagner, CFO

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 law, and how long it takes to build a tower. So 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 US 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 basically connectivity, you have power it's a safe and you don't have a zoning issue in terms of deploying that computing capacity and so these companies are out there uh basically looking at deploying a mini neo cloud if you're on at the base of the tower that's that's real uh if you look at way more cars for self-driving car i know for example that a way more 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, download the data on the hard disk and put it back, at some point that is probably going to go wireless. And more and more robotaxis, self-driving car, I think that is going to generate additional demand on the wireless network. So I think 6G remember when you go from 1G to 2G to 3G to 4G, the big benefit to the carriers is extra capacity and also a dramatic decrease in the cost per bit that is being delivered, 10X to 25X. So you look at the wireless operators at 45% EBITDA margin for the last 25 years. They used to sell you a minute of voice for 25 cents a minute and a text for 10 cents a minute and a gigabyte of data for 45 dollars a month and now it's one bundle 45 dollars a month unlimited usage is still growing at mid teens every year but the EBITDA margin is still 45 percent and 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 here 160 megahertz the oem 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 mno uh i think look at the power of the bundle uh i travel a lot to europe for personal reasons and uh between cable tv plus broadband video and wireless and the bundle is has come to the u.s look how successful the the cable tv operators have been and selling wireless so if you're mno's today you need to have a bundle at&t and verizon are spending significant amount of capex by building fiber to the home it's going to take longer than anyone anticipate and if you're TMO you don't have that portfolio of fiber to the home so bundling fixed wireless access with your wireless product is going to give you basically a much stickier product and churn is an important factor in drawing value so 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 new entrants like a legal operator in the bank.

Michael Rollins, Analyst — Citi

Great. Maybe that's a good segue just to get into leasing. So 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're seeing?

Marc Montagner, CFO

So I think our main point of our guidance is about 35 million dollars for this year excluding dish last year we did 35 so it's it's steady uh and uh i think it's still too early to look at 2027 so i think we feel comfortable with about 35 million dollars this year which is consistent with last year and i don't think the operators have worked on their budget for 2027 so we have very little visibility on 2027 yet So for 26, $35 million, that puts you normalized at about 4% when you exclude DISH? Yeah, about 4.5%. I think if you look long term, we always talk about revenue growth in the U.S., 3% from escalator, about 2.5% to 3% on a normalized basis in terms of lease up, and about 1% churn including Dish and Sprint. So this year, last year of heavy churn in the U.S., $56 million for Sprint, $56 million for Dish. And then churn in the U.S. is going to normalize a much lower number.

Michael Rollins, Analyst — Citi

So when you think about 27, 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. And is that something that we all should be mindful of for 2027?

Marc Montagner, CFO

I'm not worried about it just because mobile traffic keeps increasing at mid-teens and they face capacity constraints. They need to support their customers. So I think I am not concerned about it. 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 a 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.

Michael Rollins, Analyst — Citi

So, you know, 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, you know, I imagine there's leasing you're doing today that will start to hit in 27. Are you seeing any changes in, like, the types of activity, like a pickup in massive MIMO upgrades or a pickup in densification now that we're in this, like, second half of the 5G cycle? What are you kind of seeing from, like, the activity itself?

Marc Montagner, CFO

Well, it's a lot of densification. And at least one of our customers is deploying massive MIMOs. I think 6G is going to require new equipment, probably massive MIMO as well. All is well for the future. Remember, the industry is very cyclical. And we're kind of in a trough right now in the U.S. operators' CAPEX spending. In 22 and 23, they rolled out 5G. CAPEX as a percentage of revenue went to about 25%. And 24 and 25, 26, we are hovering around the 15% of revenue is being spent on CapEx. But even in that environment, our lease up is still positive. We're still growing at the trough of the cycle. So we are just, we feel good about, I think, 28, 29. So you feel good about 28-29, 26 running in line. 27 is steady with 20-25, and 27, I don't know. I don't think the wise operators know exactly what the CapEx plan is going to be next year, and we're probably going to start getting more carer on this late this year, early next year.

Michael Rollins, Analyst — Citi

And just when you think about Massive MIMO, for example, as an opportunity, and 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?

Marc Montagner, CFO

I don't know the answer. I think that we all passive-wise infrastructure, we release vertical space and horizontal space at the base of the tower, and the operators, I think, are basically 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.

Michael Rollins, Analyst — Citi

In the past, you know, I think maybe you even referenced it earlier, there's been a restraint on supply.

Marc Montagner, CFO

Is that still the case where it's just really hard to create alternatives or new towers and what does that mean in terms of maybe the opportunity of you finding build a suit in the u.s that's a good question is difficult to build towers due to zoning law the cost of building towers has gone up since the pandemic and we built i mean we're going to build less and 30 towers in the U.S. this year. We're very active in Central America, in 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.

Michael Rollins, Analyst — Citi

As just 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 one percent churn is kind of a baseline right now what's the potential for that to stay x the merger churn um and dis churn like what's the opportunity for it to stay well below one percent just because like the networks are just so much more mature now i i agree with you i think it's very difficult to predict the future but i think one percent is probably a good number there's a lot of false precision there it could be lower it could hover at the one percent level but we feel good that churn in the u.s is gonna i think stabilize at a very long number okay internationally you referenced some of the investments that you're making there how are you seeing leasing across the international markets and you've been working through a lot of like industry structure and consolidation churn uh you know what inning are we you know into on just getting that through and behind us right so every market is different yeah uh tanzania is a high growth market the government is we pushing the carrier for

Marc Montagner, CFO

expanding coverage, the only infrastructure that they have and we're building very aggressively over to almost 200 sites in Tanzania this year is going at mid-teens or slightly above so very pleased with the growth there still it's a small base but a very attractive market. Central America it's a stable market, two operators, Clairo and Melecom. We bought 7,000 sites from Melecom in the region at about 11 times multiple. We have a 15-year agreement with Melecom tied to CPI and they have a 2,500 tower BTS commitment to us, so that region is going to grow to mid to high single digit contracts only in US dollars, so very pleased about Central America, the five markets we operate in Central America. Brazil, the fourth carriers is being basically absorbed by the other three operators, we had high exposure to oil, so we are 26 and 27, 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. So it's a little bit frustrating because it's $20 million of escalator and $20 million of lease-up internationally and $38 million of churn. But this is temporary. By the end of 27, I think, the churn will be behind us. It's mostly Brazil churn, oil being consolidated. The oil wire line is basically going out of business, and oil wireless is carved out to the other three operators. But Brazil, 5G is less than 50% deployed. There's more spectrum action in Brazil. The industry is very stable with three operators, and it's a young population growing. The number of towers, a percentage of the population is probably 25% of what it is in the U.S. There's significant growth potential. And I think in addition, the country is doing very well. Brazil is a large explorer of agricultural products, mineral, energy. Balance of payment is positive by over $4 billion a month. And the currency has done very well for the last two years. So long-term, we feel very bullish about Brazil. Short-term, there's going to be churn pain in 26, 27.

Michael Rollins, Analyst — Citi

And so just to articulate that just a little bit more so we appreciate the trend, is it that it's really flattish? So there's really like minimal growth to no growth through the end of 27? Or could 27 start to show a little bit better churn so like things start to maybe gradually get better through 27 and into 28?

Marc Montagner, CFO

I think 27 trends should come. I think the street has a $25 to $30 million trend for next year. So that's what's in our number today versus 38 this year. Okay, so there's a little improvement. There's a little improvement, but it's going to remain elevated in 2027.

Michael Rollins, Analyst — Citi

Got it, got it. And when you look at the monetization model in your international markets versus domestic, And you mentioned 6G is an opportunity that's under-built. Is it the same formula? So 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. So same model, same opportunity, different dollars maybe, different markets.

Marc Montagner, CFO

Yeah, but every contract is different. Every market is different.

Michael Rollins, Analyst — Citi

Mm-hmm. So 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 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?

Marc Montagner, CFO

Right. That's a good question. If you really look at our portfolio, 80% of revenue in the U.S., denominated 80% of EBITDA, I think there's room for high-growth assets in our portfolio, especially look at Central America. So when Brandon became CEO on his first earning call in February of 2024, he announced a strategic review of our portfolio. And the rationale was to look at every single market and either divest the market where we were subscale or where there are risks of further consolidation or expense in markets that are attractive, that have been consolidated, where we could generate above average long-term growth. So we sold the Philippines over 30 tower operators. We had a few hundred sites, subscale. We were able to get out of the good valuation. Canada is a fantastic market, three operators. Unfortunately, we subscale just a few hundred towers. We were able to sell to a PE firm at a very attractive multiple. Argentina and Colombia were subscales, and we sold those markets. Central America, we had been operating in the region for a long time, and those markets were fully consolidated between Malicom and Claro, and we had the opportunity to buy the Malicom assets, sign a 15-year long-term contract with Malicom, all US dollars, and we believe that it is going to create long-term shareholder value for our So every opportunity is very different, but I think there's room for high-growth, high-quality tower asset in our company, and we know how to operate towers. We are, I think, good operators. We have very high margins and low GNA, and we apply the lessons that we learned in the U.S. to our international operation. So I think there's a real potential to create value outside of the U.S.

Michael Rollins, Analyst — Citi

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 six to seven for you guys, net debt to EBITDA. And I was just thinking, like, as you look forward, like, how do you think about where you want to be in that range at any given time? And when you look at the share price, where it is, like, do you have an ambition to say, you know what, let's take some of this leverage capacity and put more of it, you know, into repurchasing shares? Or maybe, you know, there's opportunity for M&A wherever it is.

Marc Montagner, CFO

Let's just keep our powder a little dry over here. like how do you you look at this capital allocation process right so uh first of all we have been in six to seven terms of leverage for the past three years uh this new target official target range uh i think snp 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 in below seven terms of leverage with qualifiers for investment grade. So he came to us, we used the opportunity to basically issue bonds in investment grade markets. We took out our terminal 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 dividend, $70 million of cash taxes, and about $500 million of cash interest expenses. So you have about $700 million of extra cash to allocate every year. And we believe that capital allocation is a key driver to create long-term shareholder value. So last year we spent half a billion dollars buying back shares and 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 a billion one drawn on it. when we issue our new bonds in the investment-grade market in September. We pay down our revolver completely. We almost have a billion dollars of cash on the balance sheet at the last earning call. So we have plenty of liquidity, and it's very accretive. Given $12 of FFO per share for this year, the midpoint of the guidance, it's very creative to basically buy back share at this level. But we have plenty of flexibility and for the right opportunity as you've seen with Melecom in 2024, we spent a billion dollar buying asset for 11 turns US dollars, we think that deal created value. So we are going to be opportunistic but I think that leverage ratio six to seven times gave us plenty of flexibility to either pay down debt, buy back shares, or do M&A.

Michael Rollins, Analyst — Citi

So we're going to try to hit four maybe quick rapid fires. So the first one is internally at SBA for years, there was a drumbeat about 5% to 10% expansion of the portfolio through investments, Build-A-Suit, M&A, is that still the philosophy that sort of pushes you internally? Or is that now just kind of like it's more opportunistic than that? I think we want to be opportunistic.

Marc Montagner, CFO

Buying towers in the U.S. is very expensive. It's a good asset and a lot of competition from PE for those assets. So we want to be disciplined, but we still buy towers one season, two season.

Michael Rollins, Analyst — Citi

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's been a headwind to AFFO per share growth. So, like, how close are we to that finish line of?

Marc Montagner, CFO

Well, 2027 is the last year. We have a billion two of ABS with a one handle in November. We have 900 of ABS with a one handle maturing in April. and a billion five of high yield mature in february with three and seven eight coupon this is really the last wall of refinancing so 27 is the last year where cash interest expenses are going to pressure ffo um any update quickly on the dish litigation or any predictions there uh i can't predict this uh you need to talk to a bankruptcy lawyer our exposure is very low less and $200 million between decommissioning costs and leasing costs, leasing commitments. So it's immaterial to us, and we'll see what we get, but it's not a big exposure.

Michael Rollins, Analyst — Citi

So you're optimistic about 28, you mentioned earlier. 27 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 28. I'm very positive about 28. 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's top-line or AFFO per share in 2028?

Marc Montagner, CFO

I think the way you look at it, between share buyback, we pay a dividend yield about 2.5%. We're going to keep increasing the dividend at low double-digit for the next foreseeable future. Our payout ratio is low 40%, so we have room to expand the dividend. So you get paid through share buyback, dividend, 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.