Sba Communications Corp (SBAC) September 29, 2026 Conference Transcript

I'm John Atkin. I cover the communications infrastructure space here at RBC, and I'm pleased to have the Executive Vice President and Chief Financial Officer of SBA Communications, Mark Montagnier. Welcome.

Thanks for having me.

So I think let's start a little bit about kind of the core U.S. market and any kind of trends that you would like to kind of call out in terms of U.S. leasing. There's a bit of a trough going on with leasing in 2026, and who knows what 2027 will bring. But what makes you excited about some of the incremental drivers for same-store growth on your U.S. portfolio?

Yeah, so I think I've been in that industry for 30 years, and it's a very cyclical industry. The cycle repeats itself. Whereas operators will receive a new spectrum band, their revenue generation technology, and then harvest that technology until the next one comes along. So I think if you go back 20 years, CapEx has a percentage of revenue for the big three operators at the peak of the cycle, right after they receive the spectrum and deploys about 25% of revenue. And in a harvest model, it drops to about 15% of revenue. So in 2022, 2023, we were at a 25% mark. Last year and this year, we were at about a 15% mark. So I think the beauty for our company is that even at the trap in the cycle, we are still going, so this year it's going to be $35 million. 2022, I think it was $78 million. So I think that's That's kind of the range. 6G spectrum is going to be auctioned in the first half of next year. It's about 18 months clearing. So it makes it like late 28, early 29. I think the cycle will repeat itself. So I'm pretty excited about 6G. I also think that the FCC is auctioning 160 megawatts of spectrum, which is interesting because 6G is probably going to build in a 40 megahertz band so they may be expecting more than three birds for this maybe four or five so I'm hoping that we'll see some satellite operator there and accrual more demand so that's really on a pure leasing side from the wireless operators and then I'm excited about the new use case so I think obviously it's still and clear of what the satellite operators are going to do. Right, if you think of a base station, it's probably as a capacity of a hundred satellite. There are about 200,000 base stations in the US. So I just don't think you ever replicate that capacity in space, be too expensive and too, take too long to build this. I think the other thing is if you're in an office, It's a conference room and a true downtown Chicago, Manhattan. You have an obstructed view to the sky, so they're going to need some terrestrial component in order to provide services. And we have hedge data centers. A lot of talk about hedge data centers. We have probably 50% of our site could accommodate a small new data center, 200 or 300 megawatts of power. We've seen companies that have a significant amount of capital to one of those mini data centers at the edge of the tower, the bottom of the tower, and basically sell compute power directly to companies providing AI agent apps on a mobile device. The big advantage there is that from their mind, you have no zone requirement because you are in a close place, you have this one concrete slab, you have power at the site, you have fiber to the site, and you have low latency because you're right sitting at the bottom of the tower. So I'm pretty excited about those cases in 6G, so I feel good in the future.

On the edge compute, any kind of demand signals worth commenting on, or is this kind of more of a belief at this point that it's likely to happen as opposed to exploratory discussions?

The company has raised capital, and on negotiating, it's the lease agreement. I want to ask them, have you signed any, basically, retail customer or people are going to use that compute i get very fuzzy answers so i don't know that they're paying close to their vest but people are really looking to basically sign leases for the space and get access to the tower and the bandwidth so i assume that that demand will will show up in the next year or so um and kind of sticking on edge compute what what is it that you foresee offering is it still going to be largely a passive infrastructure model in terms of just the ground lease or do you get up in terms of things like uh power space shell uh thoughts on on how much of the value chain you would be willing to go passive real estate company we sell vertical space on the tower and release vertical space on the tower and release horizontal spaces on the ground for this particular edge data center we may provide power as well to the extent they want it because their power demand are fairly limited um and then maybe we can pivot to to latam and uh what are you seeing there that's 15 of revenue 15 of tcf i feel very the country has a net balance of building over five billion dollars a month large of grain, commodity, minerals, energy, very long population, fast-growing, and the population is probably 25% of the density we have in the U.S. The inflation was under control, the central bank has done a great job, and I think Brazil is going to be well. So just like in the U.S. response was considered by T-Mobile, all wireless in Brazil and was carved out to the other three wireless operators. So we're facing consolidation churn, hitting us in 26, it's going to stay elevated in 27, it's going to go away after that. But long-term, 5G in Brazil is less than 50%. The CIOs have 5G deployment requirements. They have coverage requirements. This is really pushing the operators to deploy. We have two very well-capitalized operators, Clero, part of Mr. Slim's enterprise. You have Telefonica, Vivo, and then you have team and telecom italia so they're well capitalized and then to build capacity and coverage so i feel pretty good about those in long term it's like 26 and 27 headwind but will go away over time and then with central america we bought 7 000 sites from medicom last year 11 times multiple 50-year contract in u.s dollars escalator this u.s cpi on them for 2500 bts over the future we're acting a lot to a single digit growth rate so cells are very attractive to clear to clear so i feel pretty good at central america and then we We still have three very small market that are totally immaterial.

So on some of the smaller markets, does it make sense to just sort of consolidate your portfolio and perhaps seek buyers for some of the non-core contributors? Yes, it does. And then just maybe still on Brazil, then, there is a fragmented universe of some mom-and-pop developers, The M&A multiples in that market are different than what we would find in the U.S. in the private market. So the path forward there would be primarily build a suit, or could you see some inorganic growth ahead?

We have 12,000 towers. We have significant scale in Brazil. I think we have top two or three operators in Brazil. American tower is bigger than us. But we have significant scale. but I don't see us expanding in Brazil's M&A.

And then on DISH, maybe kind of any thoughts on settlement discussions with some of their debtors, essentially, and outcomes for the tower industry and for SBA in particular, as well as the plans for DISH equipment that is still on towers that are being operated.

That's a good question. We get that a lot. First, I mean, our exposure to Doge is $56 million this year from Doge, so that's churn. We had short-term lease with Doge was about $100 million. are so uh from bush is it was around a hundred million dollar mark we have a claim in the bank i have no idea the recovery is going to be uh every week you have a new and with speculation i think for us we have a claim it's a small number if we get it it's great but it's not the material as far as your equipment was a story explaining that the equipment a dish left on the tower is deemed abandoned and we could reclaim that equipment so you see the demand from some from the lucky areas right now to use the space so if we were for that space we take down the equipment and release the space otherwise we just leave the equipment up there until we were able to release the space, but I think that's where we are.

Happy to take any audience questions if there are any. Contract structures in Brazil and in U.S., MLA's usage base, you've got kind of a different escalator structure in Brazil than in the U.S., but as you kind of prepare yourself to optimize growth beyond next year, let's say, What are your kind of thoughts philosophically around your M&O relationships and contracts?

We signed a 10 new deal with Verizon. It's going extremely well. Verizon is very busy with us. We have M&A in place with AT&T until April of 2028. and uh uh so it's going very very steady uh verizon is very busy hnt is steady and t-mobile i think with a new management team and uh the the focus on free cash flow is uh is slowing down a little bit this year but we don't know what next year is gonna be so uh at some point everybody's gonna have to be busy again on sushi so we'll uh So our goal is to be a good quality of service, make it easy for our customers to roll out. And I think MLO makes sense for everybody. It's predictable for them. It's predictable for us. And it makes it easier to deploy.

AI, you know, we had a discussion with some other tower companies earlier about what that means in terms of traffic patterns. And just as traffic patterns perhaps change with mobile use of AI, uplink traffic, and so forth, any implications for your business that you can see that would be material?

As we said, we're going to be a passive infrastructure provider with less space. It's going to depend on the 6G equipment, the manufacturer, the Ericsson, Nokia, Alcatel, Luce, and Samsung. We're going to have to engineer the equipment, the network to deal with a more 50-50 spread between uploading and downing versus the current 80-20. So I think it's going to be part of the massive MIMO equipment that's going to be deployed as part of the 6G rollout and so forth. It means no equipment. So it means more leases, more management, more touch to the tower. So it's good, but I'm not enjoying business. So it's really up to the carriers to design the network to take care of this.

Are we ever going to get to a point or any time soon where satellite phone service is going to start causing less towers to be needed?

Or satellites a threat?

I think satellite is a compliment and I think SpaceX said that at some of their investor meeting. If you really look at suburban environment, it's going to be very difficult to have direct line of sight to a satellite, and they're never going to have enough capacity to basically cannibalize wireless. I'll give you an example. XM Serious, which is a satellite logo, the company has thousands of IPOs in urban and suburban environments just because if you're driving around downtown Chicago, downtown New York under a tree, you just lose coverage. So they just repeat the signal. I assume they're going to have to do the same thing if they really want to go and provide basically coverage. As far as the total environment, I think, frankly, those sites are built, they're running, they're cheap to operate. Most of them have three tenants on them. If you are one of the big three, would you take it down and give that traffic to a competitor like SpaceX? I think it's probably easier to just keep the site, maybe add a backhaul by satellite, which is going to be cheaper than the fiber backhaul or any other backhaul. So I think even the rural sites are probably very few of them are going to be at risk. Actually, there are different things. One of the operators now has an agreement with SpaceX, and they could see basically a call to their network using satellite because they don't have tower, and they could pick them to the map where they have coverage holes where they should actually go to tower because there's satellite traffic coming out of very particular spots.

Let me ask you the opposite question. So my dad lives in the suburbs here. I never thought I'd see this. He got a letter from AT&T saying that they're no longer going to be offering landline service. And they gave him a choice of having some sort of cellular module that connects his home line where you can go to Comcast and board. Do you see growth coming, you know, any significant growth coming from companies getting rid of their pots? Plano telephone service?

So why was displacement of legacy wireless opportunity?

It's been gone for 20 years. I mean, I still have never canceled my wireline phones. and we have three places and zero one and uh phone i mean it's all cellular now because the quality is good enough and even the security system runs on wires now uh so i don't you don't even telephone for security system so yeah i think the copper wire is going away it's just that infrastructure is over 100 years old. I won't see it coming back.

So 90 seconds, maybe just quickly kind of put a bow on capital allocation, building towers, buying back land, balance sheet actions, what are kind of the top priorities, and then the AFFO algorithm and maybe total shareholder return given AFFO growth trajectory, dividend yield, perhaps share buybacks. Maybe you can kind of quickly summarize.

Summary, I think you can look at us. It's a number of numbers of public. 1.5 of EBITDA, 2.50 of maintenance capex, gross capex, 7 million of cash taxes, 5.30 of dividend, 500 million of cash interest expenses. You're left with 600 million of extra capital everywhere. 23 will pay down about 7 million of debt. But last year, we bought shares for half a billion dollars, and it depends on where the share price is, where the M&A opportunities are, and interest rates are. So we just want to be flexible. The algorithm is for us to create share revenue for the long term. Right now, we have a four-point share at $12. Those who are stuck is struggling in 6.5% plus yield on buying back shares. We just do the raise capital, raise that at 5.25%. So buyback is more creative than paying out debt. We're just flexible, but right now we're indexing towards share buyback.

Good summary. Thanks so much.

Thank you. Thanks for having me.