Sba Communications Corp (SBAC) September 10, 2026 Conference Transcript

Good morning, everyone. Mike Funk from Bank of America. I lead the North American Telecom Data Center and Tower Equity Research Team. Really pleased to have Mark Montagnier here again from SBAC. I'm sure you all know Mark. So we'll go ahead and get kicked right off. Mark, thank you again for coming.

Michael, thanks for having me.

And do you have any safe harbor to review?

We can go right into Q&A then. Let's go straight to Q&A.

Great, great. So I want to start high level, Mark. So growth has been relatively constrained for domestic tower operators for a number of reasons. But if you're looking out for the next couple of years, what be the indicators are you watching for acceleration in domestic tower leasing?

So I think it's been in the wireless industry for 30 years now. The old analog, the GSM, CDMA, 2G, 3G, 4G, 5G, and it's just a big cycle. MNOs either buy or receive a new spectrum band. They roll out a new technology. I got a 10x increase in capacity, a massive drop in the cost per bit that is being delivered. and then they'll harvest that basically that capacity is being put to use. And if you look at CapEx as a percentage of revenue for wireless operators, when they deploy a new technology, it runs at about 25% of revenue. Again, massive capacity increase. They basically start selling aggressively and harvesting that new capacity, and they cut CapEx because they don't really need it because they got the coverage and the capacity with the initial rollout. And so we look at 2022, 2023, when 5G was rolled out by the three MNOs in the U.S., CapEx as a percentage of revenue was running at about 25%, and spent over $40 billion per year building the 5G network. And in 2025, 2026, I think we are in harvest mode. CapEx as a percentage of revenue is probably at all-time low, below 15%. But even in this environment, we are still seeing lease-up on our portfolio. Last year, excluding DASH, lease-up was about $35 million. This year, the midpoint of our guidance is about $35 million a year. and it's steady at some point uh uh 6g will come and the capex cycle will start again so i i feel pretty good about the the next few years the fcc is auctioning 160 megahertz of upper sea blend spectrum uh by june of 2027 probably take 18 months to clear but i think by 2029 or maybe late 28, 6G rollout may start. The OEM from Lucerne, Ericsson, Samsung will have basically 6G equipment in beta test and they'll be ready to roll out that new technology. And that's going to, basically, it's going to be more spectrum efficient. It is going to deliver more bits per hertz than 5G. and also it's going to dramatically cut the cost per bit that is being delivered to the end users. So I think it's just going to help the MNOs to provide new services and support new applications from AI agent to fix-wise access, self-driving car, and so on. So we feel pretty good about the next few years. And in the current environment, I think the MNOs are still spending money, still expanding coverage, doing densification, co-location. So I think our role is we need to support their bill, support their network. We try to provide a high-quality network, be very responsive to their need, and be there for when they roll out section. cheap.

And Mark, so can you bridge me from 2026 to 2029, right? Because you mentioned the C-band auction. I mean, that's the next big event, right, for carrier wireless spending. You already mentioned, you know, probably 2029, 2030, before that spectrum is cleared. You know, 4G standards of technology also will probably be, you know, deployed in lockstep. what what is the bridge from 26 to 29 that could be an incremental catalyst for growth right so a couple things come to my mind and add more please if i'm mentioning anything so you have the 600 megahertz spectrum that at&t acquired that they could not deploy the simple software upgrade that they could for 3.45 right so that that'll be deployed that's number one so love to hear i guess how meaningful that could be to SBAC. Second, you mentioned DISH briefly, and we all know that DISH basically just stopped making payments to vendors last year. I'm not going to talk about litigation, but they were a contributor to revenue for SBAC. I'd love to have you around us how much. And then one of your competitors mentioned that they felt that Starlink, if one of that terrestrial component could potentially just take over some of the old dish equipment, right, and resume those payments. So that's number two, as I'm thinking about potential drivers of revenue growth. And then third, in my mind, at least, would be carriers that are deploying FWA for their broadband strategy, potentially needing to densify ad capacity as they are overselling existing capacity in certain areas. So Those are the three things in my mind between 26 and 29. Can you walk through each one maybe and add any that I missed?

And there are some other use cases I'd like to point out. So let's address DASH first for us. It's $56 million a year. We're taking a turn in 2026, and there's no ongoing assumption as far as revenue is concerned. We have a litigation against DASH. Our total claim is less than $200 million between unpaid lease services.

The smallest of the tower carriers.

It's much smaller. It's less than $200 million between decommissioning costs and unpaid lease payment. Don't know what the recovery will be, but in the scheme of them, it is not that material to us. As far as, let's just talk about them one by one. 600 megahertz from AT&T. We have an MLA agreement with AT&T. So is we going to depend that that is in place until June of 2028? So how much we are going to benefit from the AT deployment in a 600-megawatt band really depends on what type of equipment and the timing of it. So it's still a little bit unclear at this stage. And let's talk about SpaceX. I think I give you the analogy of XM series, for example, it's a satellite radio service. But in order to make sure that when you drive down, you know, narrow streets surrounded by tall buildings in New York City, or if you're in a suburban environment with trees, you still get the signal. They have thousands of repeaters in the U.S. that receive the signal by the satellite and then get rebroadcasted terrestrially. And if you look at SpaceX, if you are starting, if you really want to provide a direct-to-handset service, first of all, a base station has a capacity of about 100 satellites. There are about 200,000 base stations in the U.S. So just imagine how many birds you would need in the sky just to replicate that capacity. Satellite is great for coverage, it's not that great for capacity. In addition, if you're in a city like New York or a tall building, in an office, in a conference room, in an hotel room, and a tree, you're not going to have direct line of sight to the satellite. So in order to have coverage and capacity in urban and suburban environment, I think the physics would tell me that they will need some form of terrestrial network in order to reach those dual-mode handsets. And that would call for some form of terrestrial deployment. So I don't know what the timing will be. I don't know if that's what the plan is. I don't know what type of scale they may or may not build in the future. And you have at least two very well-funded potential Leo operators between Amazon, Blue Origin, and Starlink that are trying to get into this space at scale. So I feel that there would be a lease of potential from us, from either Amazon or Starling, just because of their ambition. I think it would be very difficult for them to fulfill their ambitions without having some form of a terrestrial network.

And just on that, on a trustable portion quickly, we hosted some expert calls a week or two ago, one with Dr. Saul from T-Mobile. Another one with Crown Castle, just to address Elon Musk's comments in the 2Q call about deploying femtocells for the terrestrial network. If you have just a quick comment on your thoughts on the ability of femtocell to replicate the reliability and coverage you need in a wireless network, I'd love to hear that.

Well, I think it's going to be very difficult to get the scale, get the capacity, and roll out rapidly using femtocells. So I think they will walk back those comments since the second quarter from what I heard. I don't see that as being a good alternative, but I don't know what their plans are. We shall see. Okay. But I feel pretty good about, I think, SpaceX and Blue Origin eventually getting into the space, and that would create a new customer for us. And we have plenty of space on our towers. will be more than happy to accommodate them.

Let's assume timing that, you know, you kind of get spectrum into handsets and you get V3s launching 27, 28, so their timing is like a 28, 29 for when you deploy a wireless service, a direct-to-consumer wireless service. How, for an advance of that launch, would you start having conversations with a potential customer? Would it be a year or two in advance to start deploying equipment? What's the lead time?

It's probably year or two in advance.

You'd be having conversations end of this year, beginning of next year, if their aspiration is to launch service in 2029.

I think at some point in those conversations, we need to take place. Obviously, we are monitoring the situation. We are very excited about the opportunity, but it's too early to say, Michael. I just don't know. I understand. I can't speculate. I just don't know. It's too early to say. But I feel better in terms of short-term opportunity, there are a number of edge data center companies that have been funded and that are looking to basically lease space at the bottom of the tower, horizontal space, in order to put a cabinet and install basically computing power for AI. So it's like a mini neocloud where they would basically build it and they will come, just build infrastructure. And when you think about it, it makes a ton of sense because you don't have zoning issues. You're in a closed space. You have fiber going to tower facilities. You have space, horizontal space at the bottom of the tower. You have power and you don't have a zoning issue. And you would distribute the power across thousands of base stations, distribute the computing, the electricity would be distributed, the computing power would be distributed, and you could sell a computing power to companies selling AI agent, AI application with basically a very low latency, which could be attractive. And then other markets have started deploying drone detection technology. We have not seen that in the U.S., but you think about it, it's cheaper and with less latency than doing it by satellite. So it's happening in Europe, it's happening in some countries in Asia. I don't know if it's going to happen in the U.S. or not, but that's another potential future use case. The infrastructure is in place.

And self-driving car.

I mean, I was told like a Waymo car, for example, goes back to a warehouse twice a day to get the battery recharged. The car is cleaned up and someone takes the hard disk out of the trunk, download the data and put it back in the trunk. There's no reason why this couldn't be done wirelessly at some point in the future. once you have 6G or more capacity on the wireless system. So I think the infrastructure is in place. It's almost impossible to replicate it given the inflation and how much it costs to build a tower now. The zoning law really makes it very difficult to replicate that infrastructure in urban and suburban environments. And if you're a satellite operator, you're wireless carriers, you are an edge AI company, it's so much easier to go to an existing facility than trying to build something from scratch. You piggyback on basically the power and the fiber that has been already put in place.

You mentioned edge data centers, and this is not a new idea, right? We were talking about it in 2016-17, and then I think that the use cases failed to appear. The idea back then was that, you know, I think it was going to mostly be for autonomous cars, right? So let's assume, though, the use case is developed now. How large of a market opportunity are the Edge data centers? I mean, I'm assuming these are tenants. They're paying you rent per month for space and, you know, whatever else, power and access to the transport. So how large is an opportunity? How many tower sites have you identified that could be attractive for edge for edge data centers we don't know what the demand is going to be but we probably have a few thousand sites that could basically a few thousand sites and what would the rent be i i don't know yet i i can't speculate yet but okay i think it could be a real opportunity going forward okay perfect um so i i want to shift gears and talk about you know international where you know i think we are seeing stronger growth opportunity and can you identify the markets where you see the strongest growth potential internationally and then the drivers of that growth?

So let's start with the one closest to home, Central America. We bought 7,000 sites from Medicom about a year ago. We like Central America. It is a consolidated market to wireless operators, Claro and Medicom. There's no more further consolidation risk. The contracts on U.S. dollars with a CPI escalator affecting your contract and we have a bts commitment from medicom to build 2500 sites over the next few years we're probably going to build 400 bts in central america this year approximately and we probably locked in a mid to high single digit growth rate the governments are pushing hard for expanded coverage medicom is very aggressive in terms of growing the top line and capturing market share. And any tower we build could potentially accommodate co-locations from Clero. So we feel really good about Central America. The largest market is Brazil. It's probably 15% of revenue, 15% of EBITDA. Brazil is being consolidated from 4 into 3. So all the ForthWise operators we carve out to Claro, Vivo, and Tim. We have been facing elevated churn in Brazil for the last few years. Ori Wireline is going out of business, so it's $14 million churn this year. And we are going to have elevated churn in Brazil this year. I think we have about the midpoint of our guidance is $38 million of international churn. Three-quarter of it will be Brazil this year. we are probably going to see elevated churn again in brazil in 2027 and then it should be a much more stable market once the oil churn is behind us but we like brazil as a country the population is young uh the number of base station population uh is still density is still very low, about 25% of what it is in the U.S. 5G is less than 50% deployed. The operators have coverage requirement. There's more 5G auction spectrum coming to market. The country is doing very well. Bounce of payment is positive, $4 to $5 billion a month, large exporter of mineral, agricultural product energy so we feel pretty good about brazil in the long term and once it is concerned with three operators and the oil churn is behind us so that should be probably a made to high single digit market long term it's kind of flannish today because of the churn then tanzania it's still small but growing at double mid teens for us probably going to be close to 200 sites in Tanzania this year. The government is pushing the operators to expand coverage. It's probably the only telecom infrastructure in most of the country is wireless. People use ORS and Wires app for payment and all sorts of applications. So we feel very good about Tanzania. And then we have three very small markets in Latin America, Chile, Peru, Argentina, We don't have scale in those markets. We're harvesting those markets, running them for cash, basically, and not growing.

Okay, makes sense. So I want to turn to an important component of growth in the next couple of years, and that's just the balance sheet and debt refinance. I know investment grade was a priority of yours for a long time, Mark, so congratulations. Once again, I'm getting to investment grade. But you, as other tower operators, have had debt maturing the next year or two that carries relatively low coupons, right? Can you just walk us through what is maturing remainder 26, 2027, and your thoughts about potential for refi rates versus the expiry?

Yeah, that's a good question. I think we had a number of low-cost debt that is being refi in 2026, 2027, that's creating higher cash interest expenses for us in 2026, 2027, and is putting pressure on FFO and FFO for share. So we just did a $3.5 billion investment-grade transaction on July 14 of this year. Very attractive pricing. I think we hit the market perfectly. We got lucky in terms of timing. We paid down, we had a billion one drawdown on the revolver. We fully paid down the revolver. We paid down our turn on B, $2.3 billion, and we steal about half a billion of cash in the balance sheet following that transaction. Coming up is a billion two ABS in November of this year. That was a one handle on it. There's a 1.5 high yield maturing mid-February with a 3.58% coupon, and there's another $900 million ABS in April with a 100 on it. We intend to refinance these securities in the investment grade market, assuming low 5% coupon. So, this is going to create pressure on FF1 and FF4 per share in 2027. But past this last wall of refile, I think by 2028, we will not see increased cash interest expenses. We'll be in a more stable environment. We'll have in place, basically, a long-term investment grid that is in place and full access to capital. $2.5 billion revolvers and tops who have plenty of liquidity.

You know, we've talked throughout 2026 just about your guidance for the year and the number of pressure points in the Latin American churn. You know, refi is a bit of a pressure in 26, and then the care act for being slower domestically. As well, you know, as I'm thinking about 27, 27 of the conversation we've had so far, right, about bridging to the growth further out. It feels as if carry activity is probably relatively stable, maybe even down, right? We don't know. You know, more pressure from refi. You're working through most of the Latim churn, I guess, but still some, you know, residual Brazil churn in 27. So it feels to me, thinking about the growth outlook, that 27 could look a lot like 2026, and then 28 is when we start ramping into, well, less headwind from refi and then potentially more carrier activity. Am I framing that all correctly just back to the envelope from thinking about growth? growth?

I would agree with you, Michael. I really think that 27 is a transition year. It will elevate churn internationally. At least 56 million of churns from Sweden and 56 million of spring from Daesh will be out of the way, in 26. International churn should be elevated but start to come down. Lisa, it's still unclear what 2027 is going to be. I don't think the network teams as the three MNOs have received their budget for 2027 yet. I'm sure that work is being done in the fall, so we'll probably get more visibility by December or January of what the cap expense is going to be for the MNOs in 2027. So the pressure really, 2027, is going to be just like 26, international return, higher cash insurance expenses, But we'll set up the company very well for a pickup in growth in 2028 going forward. But meanwhile, I mean, we have dividend yield is 2.5%. Last year, we intend to keep increasing the dividend at a low double digit for the foreseeable future. Our payout ratio is low 40%, about 41%, and we have room to increase the dividend for the next few years.

And last year, we bought half a billion dollar share at an average price of $200.

I think we believe that share buyback at the current valuation is accretive to FF1 and FFO per share and creates value for shareholders in the long term. So we were not shy in terms of buying back shares in last year. We didn't do it in the first half of the year because we had a billion-one drawdown on the revolver. We had to do our refinancing first. So the revolver is paid on. We have a new $2.5 billion revolver that's end-top, access to an investment-grade market, and we have plenty of liquidity. And we think that buying back share at this level is a creative value for sure.

The best use of capital at this moment. So I wanted to talk about one potential positive, I guess, drive or remainder of 26 and 27 and love to hear your feedback. This past quarter, you know, we heard from tower companies and then also, you know, some of the builders like DICOM and Maztech that one or more of the carriers maybe had slowed or paused their activity in 2Q. You know, some attributed it to some headcount reductions at one or more of the carriers might have impacted that, with the thought being that the aggregate spending wouldn't change, just maybe the activity got pushed out later in the 26, early 27. You know, do you agree with that hypothesis, that we could see maybe some rampant carrier activity from one or more in the back half of the year, or are you not seeing that? I really think that, I mean, the lease-up has been steady.

The breakdown of the spend among carriers has shifted a little bit. We have a new MLA with Verizon. Verizon is very busy with us right now. But we think that all carriers are still active, and it's still early to see where 2027 is going to lead us to.

That's very clear. and how are you you know you mentioned um you know a bit ago about some of the smaller latin american territories that really are not contributing to growth it's de minimis not material um so how are you thinking about m&a right either potential acquisition to to add scale to markets where maybe they're not material or even divesting markets where you've decided maybe that it did not play out the way that you and management had expected and now is the time to monetize those assets.

So I just go back to when Brandon Kavanaugh became our CEO, having been CFO before for 15 years, the first earning call in February of 2024, he announced a portfolio review. And we basically look at our market and realize that in order to grow and extract value, create value and generally high margins, it was important to operate in a market that was consolidated because churn, whenever carriers is being carved out to the other operators, it's a three to five year period of churn because the new owner waits for the lease to expire and does not renew it. So you basically see churn going on for three to five years. This is what we've seen in the U.S. with Dish, or in Brazil. So we want to be in market with either two or three operators that are stable. We also think it's important to have scale, because if you have scale, if you're one of the leading tower companies in the market, you're the first one to get the call from the operators because they want to roll out a new technology or expand coverage of capacity rapidly. So you're part of the dialogue. If you're one of 30 tower companies, it's really difficult to create value. And so if we don't have scale, either you divest or you find an opportunity to grow through M&A. And through the last three years, we sold Colombia and Argentina. We had a very small operation there. We sold the Philippines. We only had a few hundred towers. We were one of 30 tower companies in the Philippines, and we exited that market. Canada was a fantastic market, but we only had a few hundred towers. We didn't see a path to create a portfolio with a few thousand towers. So we sold in a very attractive multiple to a PE firm. And we have three markets in Latin America, Chile, Peru, and Ecuador. are. Those markets are being run for they're in harvest mode so I think we're very pleased with the margins and the free cash flow is cracking from those markets. If someone were to pay us a number that is above our DCF value they would be happy to sell otherwise we have staying power. They are generating free cash flow but I don't see us at this stage going into new markets, and I don't see any massive new international M&A at the current moment in emerging markets.

Okay, so it seems like priority for use of capital is going to remain consistent for at least the intermediate term. Discipline and consistent. Discipline is important.

We would strongly believe that, I mean, in order to create value, Yes, you have to support your customer, be fully behind your customer, make sure you respond to all their needs. But capital allocation is really a key driver of value creation. So either a creative M&A, like the American transaction in Latin America, high single-digit growth rate in U.S. dollars for 11 times multiple, share buyback. Like in 2023, in a rising rate environment, we pay down, I believe, $700 million of debt. So I think we have all these leverers. And if you just step back a little bit, right, where is that cash coming from for either buyback or paying out debt or M&A? Guidance is about one point. I'm running the numbers. I've used those numbers before the Republic. It's about $1.95 billion of EBITDA. About $250 of gross capex and maintenance capex, minus about $500 million of cash interest expenses, about $70 million of cash taxes, about $530 in dividend, and you're left with $700 million of extra cash every year. So you could easily do buyback without changing the leverage. You could pay down debt. You could do small M&A. We have a target leverage of six to seven times. We're currently levered at about six, five. And we have plenty of flexibility within that range to either keep buying back shares or doing small M&A, talking M&A, or paying out that if interest rates increase too much.

So I want to go back higher level for the final question, Mark. So, look, I agree with, I guess, your statement about buying back stock being the best use of capital and SBA stock price. I think the tower stocks in general are trading incredibly cheap, right, on a historic basis, also relative to the broader REIT universe based on what I think is longer term projected growth. But is the best way to recognize that value in the public markets, working through the next couple of years of some of the growth headwinds, or is it better to be private and work with that owner or partner maybe that has a longer term horizon than the public equity markets? And, you know, and it's not why, you know, maybe recognize greater value going private rather than being public and trying to convince public investors that sort out to 2020 non-growth.

Well, listen, I mean, we are very shareholder friendly. A board has fiduciary duties to all stakeholders. And I think if someone were to approach this with an attractive offer, I'm sure a board will engage. But that's all I'm going to say. I think it's true that if you look at private valuation today in the transaction that are taking place in the U.S. tower business, the multiple of being paid are greatly above the publicly traded value of our stock or our public multiple. And it just speaks of the value of our company. And we think it's undervalued at this level. And we are patient. We are coming to work every day trying to allocate capital to create value for the long term. And our team, I think, from the service business to people operating in the U.S., operating in the regions, internationally, our sales team, everybody is aggressive out there trying to cover our customers to the best we can, grab market share, and create value for the long term. I think we are operators, and if someone is going to come to our board, I think our board will engage. But that's all I'm going to say. We are operators, and we care greatly about shareholders. We want to create long-term value for our shareholders.

And another reason I think that Tower of Stocks are trading at a discount, and SBA in particular, is we have a transition of growth, right? Because the things you laid out earlier, the churn rate, moving it into 5G builds, waiting for 6G, Dish, Echostar. And I think the market's had a difficult time resetting the evaluation to an appropriate level. So can you walk us through what the right long-term growth rate is for SBAC? Are we back to a mid-single-digit type FFO growth, longer term, thinking about escalators, new tower, bail contribution, other factors? What is the right level of growth?

I think the way we look at it is on the top line, escalator is about 3%. Lease-up, normalized lease-up is going to be 2.5% to 3% of revenue. And churn is probably stabilized at around 1%. So you're looking at probably 4.5% to 5% top line growth rate. And remember, any new equipment you put on the tower is almost like a 100% free cash flow conversion because of high fixed cost, low variable cost business. So through operating leverage, we think we could probably grow EBITDA at mid to high single digit FFO, excluding refinancing risk post-2027 at mid to high single digit. So you basically have a made-to-high single-digit FFO, FFO per share growth, and you collect a dividend at 2.5%. That is basically growing at double-digit, low double-digit, and on top of it, you get accretion from share buyback. So I think you can get to a high single-digit total return TSO.

And just to put that all in context for the investors not familiar with the broader REIT universe, I think you're trading at a four or five-turn discount to the average REIT. The average REIT maybe grows low to mid-single digits on FFO per share. So you're talking about higher durable long-term growth once you get past some of these short-term headwinds with a stock trading at a four or five-turn discount versus the average REIT with arguably a more durable and defensible business model in the tower business. Does that frame it all pretty well?

We like the economics. It's 85% gross margins, TCF margins. It's made single-digit top-line growth rate with an infrastructure that is almost impossible to replicate. I just don't see how you could build those towers in some suburban or highly populated areas. You drive around Florida, you drive around Connecticut, you drive around Long Island, California, Arizona, and you see those massive micro towers, and you just look at it.

You can't get the zoning. You couldn't replicate it. You couldn't replicate it today. The pushback, I mean, talk about NIMBYism for data centers. Imagine trying to build onto new macro cell sites. Maybe in the last minute, why isn't there a threat for less or slower rural semi-suburban, you know, densification additions from carriers if there is a SpaceX direct-to-device, direct-to-consumer threat? Because that's probably the market where they can best serve because you have a lower population density. So why isn't there a risk of maybe less build, less activity in rural semi-suburban areas?

Well, if you're a carrier, right, if you have a cell site today, first of all, that cell site costs much less to build. You could probably do backup by satellite using Starlink or microwave. It's cheaper backup than fiber. And that site is built. It's probably really low cost to keep it going. I think we're probably going to be low in urban area, that's suburban and urban when it's less constrained and you're going to capture the traffic going through that area. Why give up that traffic to Starlink? They're all just going to cannibalize your customers. I think if I'm a carrier, I may just decide to keep that site and capture whatever traffic I can as opposed to offloading this to Starlink.

Perfect. Mark, about out of time. Thank you so much. I really appreciate it. Thank you. It's good to see you, Mark.