Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the S be a third quarter earnings results call. At this time all participants are in listen only mode. And later you will have an opportunity to ask questions instructions will be given at that time. If you should require assistance. During the call you May press star zero and that's it.
Reminder, this conference is being recorded.
I would now like to turn the conference over to our host Chief Financial Officer Brendan Capital. Please go ahead.
Good evening and thank you for joining us for SBH third quarter 2019 earnings conference call.
Here with me today is Jeff Stoops, our president and Chief Executive Officer.
Mark Derussy arch, Vice President Finance is a little under the weather today and those will not be on this afternoons call. However, mark will be available subsequent to the call to address any follow up questions. You may have.
So the information we will discuss on this call is forward looking including but not limited to any guidance for 2019 and beyond.
In today's press release and in our FCC filings, we detail material risks that may cause our future results to differ from our expectation.
Our statements are as of today October 28, and we have no obligation to update any forward looking statement, we may make.
In addition, our comments will include non-GAAP financial measures and other key operating metrics.
A reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.
With that I'll now turn to our third quarter results.
We had another solid quarter in the third quarter with strong operating and financial results in both our leasing and services businesses.
Total GAAP site leasing revenues for the third quarter were $468.6 million and cash site leasing revenues were 464.8 million.
Foreign exchange rates were weaker on average than our estimates for the third quarter, which we previously provided with our second quarter earnings release negatively impacting leasing revenues by $2.7 million.
FX rates were also a slight headwind on year ago comparisons.
Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis was 6.5% over the third quarter 2018, including the impact of 2.4% of churn.
On a gross basis same tower growth was 8.9%.
Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was 8.6% on a gross basis and 5.9% on a net basis, including 2.7% of churn a large portion of which continues to be related to metro leap Clearwire and iden console.
Today's and termination.
Domestic same tower recurring cash leasing revenue growth increased again quarter over quarter due to our strong operational domestic leasing activity during the last 12 months.
Domestic operational leasing activity, representing new revenue placed under contract during the quarter was again very solid in the third quarter, although down sequentially from the second quarter due to delays in the resolution of the sprint T mobile merger.
Amendment activity was again very high with newly signed up domestically seen revenue coming 84% from amendments and 16% from new leases.
We saw contributions from each of the big four carriers with the big four carriers, representing 84% of total incremental domestic leasing revenue signed up during the quarter.
Our domestic application backlog continues to be strong as well, indicating a significant amount of future investment into our customers Fourg and Fiveg networks.
Internationally on a constant currency basis same tower cash leasing revenue growth was 9.4%, including 0.6% of churn or 10% on a gross basis.
We had another solid leasing quarter internationally with Brazil, the largest contributor.
Gross same tower organic growth in Brazil was 12.7% on a constant currency basis, and we continue to have contributions from all four major carriers there.
During the third quarter, 85.7% of consolidated cash site leasing revenue was denominated U.S. dollars.
The majority of non U.S. dollar denominated revenue was from Brazil, with Brazil, representing 12.1% of all cash site leasing revenues during the quarter and 8.7% of cash site leasing revenue excluding revenues from pass through expenses.
Moving now to third quarter churn, we continued to see churn from leases with Metro leap and clearwire consistent with our expectations.
As of quarter end, we had approximately $5 million of annual recurring run rate revenue from leases with Metro leap and Clearwire that we expect to ultimately churn all over roughly the next two years.
Also our same tower churn numbers continue to include the impact of approximately $6 million of annualized churn incurred in the fourth quarter of 2018 from certain legacy iden related leases.
This is the last quarter that this iden churn will affect our reported same tower churn results.
Domestic churn in the third quarter from all other tenants on an annual same tower basis was 1.5% the same as last quarter.
Tower cash flow for the third quarter was $376.3 million.
Our industry, leading domestic tower cash flow margin was 83.9% in the quarter.
International Tower cash flow margin was 69.3% and was 90% excluding the impact of pass through Reimbursable expenses.
Adjusted EBITDA in the third quarter was $355.4 million.
Our adjusted EBITDA results in the quarter, where again driven by strong performances in both our leasing and services businesses.
Services revenues in the third quarter were $39 million up 21.9% over the third quarter of 2018, driving about $1 million more services gross profit than a year ago period.
Our adjusted EBITDA margin was 70.6% in the quarter.
Alan slightly year over year, partially due to the larger contribution from our services business.
Excluding the impact of revenues from pass through expenses adjusted EBITDA margin was 75%.
Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter.
Hey, AFFO in the third quarter was $247.4 million.
AFFO per share was $2.15, an increase of 12% over the third quarter of 2018.
During the third quarter, we continue to invest in expanding our tower portfolio.
On August Thirtyth, we closed on our option to acquire all but 6% of Atlas Tower, South Africa, a previously unconsolidated joint venture.
At closing Atlas had 889 towers in operation with many more in development, including 12 built sites completed in the quarter post closing for a total of 901 site in South Africa at September Thirtyth.
In addition, we acquired 78 other communication sites during the quarter for $27.8 million and we built a total of 86 sites in the quarter, excluding those built in South Africa.
Most of the added sites were located internationally.
Subsequent to the ended the quarter, we acquired six additional sites for $6.7 million.
As of today, we have under contract for acquisition and anticipate closing by the end of the first quarter of 2020 on 107 additional sites at an aggregate price of $32.7 million.
We also continue to invest in the land under our sites, which provides both strategic and financial benefits.
During the quarter, we spent an aggregate of $15.9 million to buy land in easements and to extend ground lease terms.
At the ended the quarter, we owned or controlled for more than 20 years, the land underneath approximately 72% of our towers and the average remaining life under our ground leases, including renewal options under our control is approximately 35 years.
In today's earnings press release, we included our updated outlook for full year 2019.
We have left the midpoints of our guidance range is largely the same with minor improvements to our outlook for services revenue net cash interest expense as AFFO and AFFO per share.
Our outlook has been negatively impacted by weaker than previously anticipated foreign exchange rates, particularly in Brazil.
Variances in the actual third quarter FX rates versus our prior assumptions as well as changes in our FX assumptions for the fourth quarter have negatively impacted our 2019 full year outlook by approximately $7.7 million for site leasing revenue $5 million per tower cash flow and $4.6 million.
For adjusted EBITDA, and FFO, meaning that our strong third quarter performance would have otherwise resulted in solid full year guidance increases across the board.
We did in fact increase our outlook for domestic site leasing revenue by $4 million.
Our outlook does though imply a moderation in the fourth quarter for our services business.
As has been widely reported there's been some slowdown since the first half of the year and the activity of T mobile sprint and dish as they await certainty around the outcome of the T mobile sprint merger and their future pads.
This is logical and to be expected given the circumstances.
We expect an immediate escalation in activity once the outcome of the merger becomes clear and long term network decisions can be made with certainty.
Moving now to our liquidity position and balance sheet. We ended the third quarter with $9.9 billion total debt and $9.8 billion of net debt.
Our net debt to annualized adjusted EBITDA leverage ratio was 6.9 times.
Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.7 times.
On September 13th we issued $1.165 billion of secured tower revenue securities, which have an anticipated repayment date of January 2025, and final maturity date of January 2050.
The fixed interest rate on these securities is 2.836% per annum.
The net proceeds of this offering were used to repay in fall our $920 million of 2014 Dash Onesy tower securities as well as accrued and unpaid interest and all amounts outstanding under our revolving credit facility.
Pro forma for this issuance the weighted average coupon of our outstanding debt is 3.8% and our weighted average maturity is approximately four years.
As of today, we have no amounts outstanding under our 1.25 billion dollar committed revolver.
During the third quarter, we repurchased just over 700000 shares of our common stock for $175.7 million or an average price of $249.04 per share.
All shares purchased we're retired.
As of today, we have $824.3 million of repurchase authorization remaining under our $1 billion stock repurchase plan.
The company shares outstanding at September Thirtyth, 2019 are 112.6 million down 1.4% from September 32018.
In addition, during the third quarter, we declared and paid our first cash dividend of $41.9 million or 37 cents per share.
Last week, we announced that our board of directors declared another dividend of 37 cents per share payable on December 19th 2019 to shareholders of record as of the close of business on November 21st 2019.
With that with that I will now turn the call over to Jeff.
Thanks, Brendan [noise].
Good evening, everyone. The third quarter was another very good one for SBK, we delivered strong financial results in both our leasing and services segments, but as a result continued to look to deliver very healthy growth at a AFFO per share we allocated capital into new assets share repurchases at our first cash dividend.
We took advantage of the low interest rate environment with a successful new financing and we continue to work closely with our customers on their network investment plans.
In the U.S., we are continuing to see the majority of spending around Fourg Densification all four major U.S. wireless carriers were active during quarter with the bulk of investment coming from amendments. These amendments represent upgrades to our customers existing networks through technological improvements the deployment of new spectrum.
Bands and the addition of capacity.
We anticipate this type of activity to continue for at least the next several years. In addition, initial fiveg investment is underway and we believe we are at the very beginning of along Fiveg deployment cycle.
In the future Fiveg networks will involve the deployment or redeployment of low and mid band spectrum further solidifying the important importance of macro sites to our customers network plants as they are primarily macro focused company.
We remain well positioned to capitalize on the organic growth opportunities. This future network investment will create.
We continue to take important and meaningful steps to position SP, a well for the upcoming five GE World time, and energy spent by all participants in the Fiveg ecosystem continue to build.
As Brendan mentioned earlier once there's clarity around the resolution of the sprint T. Mobile merger, we believe activity explodes as all impacted parties continue active planning discussions and both T mobile and dish have committed to concrete and aggressive fiveg coverage requirements.
We think the availability of of Fiveg iPhone, just as it has with prior generational upgrades will prove to be a decisive catalyst.
Cable companies and facilities based wireless carriers are actively engage with CB Rs analysis and trials and we believe the upcoming auctions of CBR rest will unleash a new era of demand for both macro and building deployments.
As one of the first recipients of a test pbrs license from the FCC, we have been trailing a number of new uses and initiatives that we think we'll open up a whole host of new properties, particularly in building. The previously found traditional solutions such as das on economic.
We've been growing our portfolio of in building properties under contract quite materially in anticipation of these opportunities and now manage close to 14000 properties. In addition to the sites we own.
To further our expertise and reach in this area in the third quarter, we made a minority investment in Federated wireless the nation's premier development company related to the using commercialization of Crs.
Anticipation and excitement around the auction of C band spectrum continues to build.
And the focus placed on moving the spectrum into the hands of the traditional wireless community by the FCC is clear evidence of its importance to our fiveg future.
It is also increasingly clear that this spectrum will be deployed in large part on macro sites.
Finally to further our readiness and expertise to best capitalize on mobile edge computing on the over 30000 sites, we own globally, we purchased in the third quarter, a standalone data center in West Chicago, together with a fiber loop.
Electing to downtown Chicago that will provide us with a perfect platform to test various business models, so that when mobile edge computing becomes a reality, we will be ready to best maximize SBS opportunities.
There are truly exciting times ahead.
Internationally. We also had another solid leasing quarter was steady contributions across all of our markets. The contractual revenue signed up during this quarter in our international markets came 57% from new leases and 43% from amendments Brazil was once again, our largest contributor internationally and we continue.
You'd have solid contributions from all four major wireless carriers in Brazil, including oil who has been investing in upgrading their sites to fourg.
The recent congressional approval of the bill of loss 79, which removes many of the concession restrictions on the country's wireline providers oil nvvault should have a positive impact on those companies and the overall telecom situation in Brazil, improving those companies ability to further invest in their wireless.
Operations, our core operations in Brazil continue to go well on a constant currency basis at or ahead of plan.
Our other big news internationally during quarter was that we closed on the purchase of additional equity interest in the South African joint venture, bringing our total ownership interest in 94%. The closing went very smoothly and we at around 900 high quality sites in South Africa, and a first class operational team.
We're very excited about the opportunities for organic and portfolio growth in this new market.
With the closing and consolidation of our investment in South Africa.
We expect we once again, we'll achieve our annual growth of 5% or greater portfolio growth.
During the third quarter. In addition to portfolio growth. We also continue to increase shareholder value through enhancing our capital structure and allocating capital of both share repurchases and cash dividends.
On the capital structure front, we completed our largest single traunch ABS deal in the company's history.
Raising 1.165 billion at a fixed interest rate of approximately 2.8% that outcome that we're very pleased with.
We will continue to actively evaluate our existing capital structure and look for opportunities to take advantage of the current low interest rate environment in order to improve our cost of debt.
During the third quarter, we were able to use some of our incremental capital to return value directly to our shareholders through both our first ever cash dividend and also through share repurchases.
We distribute approximately 42 million in dividends and we spent approximately $175 million on share repurchases combined with our investments in power acquisitions, Newbuilds, we were able to effectively allocate capital into all three of our primary areas of shareholder value creation during the quarter.
We were also pleased to be able announced plans to pay our second quarterly dividend during the fourth quarter next quarter. When we develop our full year guidance. We will also consider an increase to our dividend, which we will evaluate on an annual basis.
We expect to continue with the balance balanced capital allocation approach into the next year, but we believe will help us continue to meaningfully grow.
FFO per share.
We ended the quarter at 6.9 times leverage and we are comfortable operating at that level or perhaps even slightly higher for the next year.
Lastly, I'd like to thank our team members that our customers for their contributions to our success without each of them, we would not be able to successfully do what we do connecting people.
We have had a great 2019, thus far and we're excited for a strong finish to the year.
With that Carolyn we are ready to take some questions.
Thank you and ladies and gentlemen, if you wish to ask a question on the call you May press, one and then zero on your phone. If you are using a speakerphone. Please pick up the handset before passing the numbers. Once again, if you wish to ask a question press one and then zero at this time.
And we do have the a question.
From the line of Spencer Kurn, Kern from New Street research.
Please go ahead.
Hey, guys. Thanks for taking my question, so I'm trying to get a little bit better understanding of the levels of activity you're seeing you previously talked about an expectation for a slowdown in network services.
Following your agreement with sprint, but you don't really seem to have that.
So.
Oh, you know what's it the case that you did see a slowdown sprint T mobile as you've called out about the actually was replaced by others.
Or did that for that just never actually occur.
Well I think we have suggested that there has been a slow down by any at all of sprint T mobile and bullish.
As a result of the uncertainty that is pending because of the.
So in decisions around the uncertainty around the merger.
Okay got it I was just I was a little bit confuse that it didn't really seem to manifest in the services.
Yes, yes third quarter results during the first half of the quarter continued to be at a similar pace to what we've seen in the first half of the year was only towards the end of the corridor. We started to see some of the slowdown Jeff just referred to.
Got it thanks, and then if you could just help us on the organic growth guide for the U.S.
You know to get to your guide of 63 million for the year are you assuming essentially a similar quarter in Q4 that you saw in Q3.
Yeah, we would expect the incremental year over year growth to probably be slightly less than it was in Q3.
But in terms of activity levels and contributions not that different.
Awesome. Thank you.
Yes, we have a question from the line of Batya Levi from you BS. Please go ahead.
Thank you.
Sorry to plan for next year can you help us understand how you think about the base case for sprint T. Mobile if you would expect that new leasing activity to ramp from the current levels, if the deal closes and any.
Churn that we should think about next year. Thank you.
Yes, I don't think we're going to get into next year's guidance, because we'll be giving that.
Next quarter and I do think with the pending lawsuit from the state's attorney General's that I believe is scheduled to start in December we fully expect by the time, we will be given our report in late February that there will be clarity in resolution that will allow us to speak to that issue.
With the degree of certainty bought yet, but I can tell you that today, both sprint and T mobile or pretty much neck and neck in terms of sites, where they are both tenants.
Spread as 6.4% of.
Cash leasing revenue and T mobile is 6.5%.
And the sprint leases have a remaining term of 4.6 years of T mobile leases ever remaining term 4.3 years.
Got it and maybe just one follow up T. Mobile just increased guidance, saying that they're ramping 600 coverage sooner than they had anticipated are you seeing any pickup in their activity as we exit the quarter into.
And to the yearend.
Our comments were as to the.
Combined magnitude of sprint T mobile and dish and I don't really want to call out variances as amongst anyone or the other.
Okay. Thank you.
Okay.
Because we have a question from the line of Simon Flannery from Morgan Stanley . Please go ahead.
Thank you this is Landon park on for Simon.
Just wondering if you can shed any light on if you're saying anything out of the cable companies or how maybe your discussions are progressing on that front.
If there's anything you can talk about on the M&A front, either domestically or internationally.
How you see some of that shaping up as we head into next year.
Is that that's two separate questions right, yes, two separate questions.
Well there there's a number of discussions around CBRN. So I do think theres some active interest there.
Tests and uses of existing available CBR asks them.
Which may or may not lead to.
Further interest than what ultimately gets a fits auctions.
And as far out so that's a positive sign as to potential.
Additional activity for our our sector in terms of M&A activity, there's always something out there and.
There are a number of of opportunities that we're we're currently looking outward.
We're always looking at so we continue to believe that we will.
Once again have a goal for next year of at least 5% portfolio growth and.
We are optimistic that will will hit at once again.
Thank you and just one follow up on your earlier comments related to have a leasing activity and how that trended in the quarter, having to put a specific numbers around sequential decrease or maybe what the year over year looks like.
Well I think we gave you the year over year for the quarter.
Yeah, I mean, we can't really get into the specifics in terms of individual dollars. The quarter was in terms of operational leasing activity. Many new business signed up I'm talking just domestically here was a little bit lower in the third quarter than it was in the second quarter, but it's not something that we would get into parsing the specifics on.
Great. Thank you very much.
Next we have a question from the line of Jonathan Atkins from RBC. Please go ahead.
Thanks, very much on I wanted to drill down a little bit on the topic of mobile edge compute and you talked about the.
The new continuum acquisition that you made in west Chicago and going forward.
Do you anticipate that your macro towers are going to be kind of the core of your participation in that in that segment or do you think that buying.
Smaller sites data centers, not necessarily tied directly to.
Mobile infrastructure might be a.
In activity that you would get more into following on your initial investment in new continuum.
No John I at this point, we're thinking about it as the former that the the focus would be on.
Maximizing the opportunities presented by the existing investment we have around our macro sites and the related real estate and that the new continuum investment gives us really a.
Research and development opportunity to understand the variety of business models that may come to pass at the sell side.
Okay. So it sounds like nothing nothing of that nature in the near term additional what you've already done and then.
In Africa.
South Africa or advocate more broadly just any kind of further thoughts on the opportunity set for further M&A.
We will look but as we've discussed as we've discussed South Africa opportunity. The rest of Africa is very different we have the operational expertise and capabilities to handle it.
Should we find a opportunity that we like from a.
From a price.
Future opportunities perspective, but.
Nothing imminent.
Thanks much.
Next we have a question from the line of Nick del Deo from Moffettnathanson. Please go ahead.
Hi, Thanks for taking my questions.
No first there've been some M&A rumblings regarding oil both from established players in the market and potentially new entrance can you update us on your remaining lease terms as oil and oil word and merge with an existing carrier or be carved up somehow how should we think about the puts and takes for your business.
Well from a big picture perspective, Nick as we've discussed many many times.
Wouldnt be necessarily bad.
For players went to three in Brazil, we because we think that the overall health of the Brazilian wireless telecommunications sector would be improved by that.
Depending on.
How.
Things would get carved up.
There are amongst existing players there would be some.
Consolidation.
Decommissioning.
Issues, which would have to be towers specific and and participants specific.
And we'd have to look at that and see how that played out obviously, if there were new players coming in from outside of Brazil.
That.
Could definitely be a positive thing.
So it it's all very fact specific.
But even if there were a short term.
And for intra on free.
Event, where there was foregoing to three we think over the long haul that's ultimately very positive for the health of the Brazilian wireless sector and.
We think long term, we would be a great beneficiary of that.
Yes, Nick on the average lease terms well have to get back to you after the call with the exact number but it's pretty extensive because most of the leases we have with them came as part of sale leasebacks are on varying schedules, but we had very long term commitments from them that were double digit years. So let me get the exact number.
Based on how much time gone by and we'll get that T offline.
Okay sure and then.
Jeff I think you noted 14000 managed properties read the rights to install in building systems and you said that had grown material materially I guess first can you say what that number was a year or two ago as we get a sense for how aggressive you bet in terms of snapping up these rights and second can you tell us how many generate revenue today or if we take out a few years no way.
At a reasonable.
Percentage might be for it for the share that might generate revenue.
Yeah, It was probably half that a year ago.
Maybe 10% of those generate revenue.
And I wouldn't say.
We have unfettered rights to do whatever we want with those properties have been thats part of.
Part of.
Why there is it more.
A higher percentage of participation.
Revenue participation on them and why we're more excited about CBR asked because really what we found that the.
In building area over time as unless it's like a like a premier venue like a casino or.
Stadium.
You get to venues, where there's just a really economic issue as to who pays and where where's the value proposition.
And we believe Crs is going to be less so much better economics solution than Das said, it's got to open up just so many more venues so that it really gets to the heart of the optimism around that.
Okay sounds great. Thanks, guys.
And ladies and gentlemen, if you would like to ask a question on the call you May press, one and then zero on your phone.
And we do have a question from the line of Michael Rollins from Citi. Please go ahead.
Hi, Thanks.
So curious as you look at the end Penneast structures that are on your domestic towers.
Are you able to tell based on your inspections and.
The work done ahead of time from your carrier customers in terms of what they're putting on a year your structures.
Where again pensions are.
Logically in terms of.
Slide eight line, though vas nine though type of antennas and from all that information are you able to deduce that.
Percentage.
As intended that might be upgraded over a 1.3 or five year period based on their age capability, New technology has its become available and just kind of curious how you look at that cycle.
In Kenya updates and upgrades from your carrier customers. Thanks.
We are able to do that fight and.
If you're driving at where are you in terms of.
Five G.
And if you believe that outside of the dense urban.
Markets, you need the massive mimo type and Ted as which will be.
Primarily necessary in mid band spectrum to effectively.
Offer Fiveg service, which we are of that.
General belief.
The only.
Carrier that has done any of that today.
To a.
I will say small degree, but certainly not to a.
Large degree.
Sprint.
With the two and a half G spectrum.
So if you're trying to gauge the remaining opportunity set there is very large.
And are you starting see some of those applications for amended structures come into the pipeline or is it too early for that.
For a while we were seeing you know.
A fair amount of that from.
Sprint and I think we will continue to see that from spread.
And we will see an even greater.
Much greater.
Dramatically greater amount of that once there's clarity around.
Deal and others are going to follow.
And one other question based on your experience with Federated Pbrs do you expect that spectrum to be deployed for outdoor applications and appear.
On your macro towers or do you think that's going to end up being more of that indoor.
Spectrum debt.
Right now it looks like it's going to be more indoor because there are powered limitations on its used but there are.
Petitions foot that would change the hour.
Regulations around that spectrum that could make it a more.
A viable outdoor use.
Thanks.
<unk>.
Next we have a question from the line of Ric Prentiss from Raymond James. Please go ahead.
Thanks, Good afternoon guys.
Eric.
Hey.
Mark feeling better.
Question on the.
On the services business in the guidance I think you mentioned.
The total a T mobile's British you've seen a little slow down in the services business.
I know, you're not giving 2020 guidance, yet obviously, but should we assume that could have a pacing issue as we look into leasing activity into the first half of 2020 that if you've seen kind of a slowdown in the services business going into fourth quarter, maybe you don't get a decision until maybe sometime in February 20, just trying to think pacing.
Well I mean you.
Dishes kind of gotten a free pass right sure. They they don't have to do anything nor fewer Charlie Ergen why would you do anything.
Until you have clarity page since you don't know, whether you're deploying a narrow band or a broadband network.
So.
I think when you kind of think through the logic of where.
The the.
The vast differences the roads that some of these folks are on yes, or no merger up or down I think that answers your question Rick.
That's good thanks, Jeff.
And then as we say through.
The what if the answer is a no in the merger if it was it yes, we could see an explosion of applications come in to help the pacing, but what if it's a know what do you think might happen or how we're going to your go to see a ton of stuff happened because.
One road one road is really good the other rose really good for activity. The problem is to don't really overlap.
Just made a decision so they know which way they don't.
This is the Best example, you can't spend money on a narrow band and have at work, our broadband and vice versa.
Okay.
To Michael's question on Crs and it does sound like does it seems more into our now for CVR as unless those petitions comes through what would the role you play an indoor CBRN type situation look like would it be providing capital providing neutral host systems, but what would the role of S. back the.
And how the economics compare to say macro towers versus small cells.
We will be a capital provider a network.
Owner, we would basically take.
The burden off of the bit we would basically be appealing to the building owners.
To upgrade and and offer them.
A a solution.
That they would find attractive.
Got a price point that made sense for everybody.
And then there will be a recurring revenue.
Model for us.
And again trying for probably significant co location to tell the owner of the building will get everybody I hear you don't ever by Pestering you individually.
But yeah. That's one although there are also models where.
They just pay one fee.
And if they want to if that's the way they want to provide their people whether it be a residential complex or commercial complex Internet for example, or a private LTV.
System.
They.
There might not need to be any co location for to be attractive proposition.
Okay last one for me is.
None of us or FX that exports I know when the passive hazard a guess on with the elections or other things happening in Brazil, or the economy in Brazil, How do you look at the Brazilian FX rate, where you think it might be headed.
We look at that being a fairly sizable amount of your.
Your revenues at least from a from a.
Look leasing standpoint.
Yes, I mean directly we look at what.
The I'll say quote unquote experts say I mean, all the various.
Banks and financial institutions, and economists that study that sort of thing. Unfortunately, nobody has been quite right over the last few years.
But.
Expectations are that there will be some modest improvement from where we are today, we've actually seen some improvement just over the last week or so.
But I thank them more that pension reform is now kind of getting the dressed and some of the other big question marks that are sort of overhangs in Brazil get settled.
We will provide some stability.
That will hopefully.
Go through to the exchange rates as well I mean from our perspective, we have what we have down there we try to address it.
Bye.
Being wise in terms of the timing of when we repatriate money.
To the extent that we can put expenses that we have a choice between us dollar based and and BRL based we tried to offset our revenues with expenses in local currency, although we found financing options down there to not be particularly attractive in terms of pricing. So at this stage, it's a little bit.
It limited in terms of our options to to mitigate it but we watch it closely and we try to manage the timing on on repatriation of funds and when funds go down yeah.
Brendan in his comments raises the good point, we haven't put at a fresh us dollars into Brazil, probably close to two years now so everything that is really being considered as the timing of money.
Coming out of Brazil, as a source of cash SCADA not a use of cash.
So what you're seeing.
And what's frustrating from a reporting perspective, it's just that I'd say, it's a reporting issue as opposed to a real.
Realized economic gain or loss.
Yeah. It's also a relative issue I mean as the.
Lot of good things are happening in Brazil, but if the U.S. dollar continues to strengthen relative to other currencies around the world that's.
You have a relativity issue as well there.
Right.
Although you guys, probably some benefit on the escalator side, then as you go through.
What's happening you do.
You do that that's on a much more absolute basis.
As area there is some real.
A logical tie to the way the Brazilian currency tracks its own.
Inflator, but.
Not a lot of tied to how it how the inflator.
Necessarily tracks relative strength with the U.S. dollar I mean, that's that's more of the wildcard yes, okay. Thanks for the extra color.
Yep.
Next we have a question from the line of Walter Piecyk from Light said. Please go ahead.
Thanks.
Jeff I'm going to mix it up on his time and go after the dividend. This time as opposed to the share repurchase you've had a couple of quarters.
You talked about growth rate, we're having a growth rate there being appealing to investors. How are you thinking about that in 2020, that's going to be kind of you put up four quarters of the same dividend and an increase it have you considered.
Maybe increasing that on a sequential basis, that's something I think has worked well for for cogent in terms of investing or finding some new investors just just thoughts on.
On the dividend.
Good question, Walt we actually have talked to a number of investors about that very concept because.
We know cogent has done it and we don't American has done it and actually.
No no offense to both those companies, who buy respect quite a bit.
But the investors Didnt really.
Seem to.
Move one way or the other about it. So we have decided that I tried to make this clear my comments that we will look this once a year.
So for four times at one number then look for a nice jump.
Okay got it or more and more or in the case of starting halfway through the year like we did this year I'm a little bit will will basically be looking to.
Revisit the dividend every.
Time, we look at and give out guidance, which just so happens to be our next release.
Understood also has there been any inquiries by some of the major telecom operators about.
Kind of new plan for 2020, I'm, just trying to get a sense of like look at T. Mobile was planning on spending on two dot five and that was going to hit your towers, maybe in the first half of 2020 and now things are delayed there's a law whatever but have they gone so far to say well you know maybe if this deal doesn't happen here or some other bands and.
Looking at other towers or is it really you don't know until you literally get the orders Mel say, okay. Now we're putting on these towers in the so the spectrum are using.
No there is a merger plan and there's a non merger plan.
Other than on larger pilot got it.
Good luck and as I've always been that always been the case or is the non merger plan something new that it's kind of emerge in the last couple of weeks months whatever.
No I don't I don't know any details about what that is what that is I I go I don't know that.
But I know that.
The there that's a practical.
Discussion at at that these companies and they'd like to know which way they're going.
Got it understood alright, thanks, Jeff.
Next we have a question from the line of David Barden from Bank of America. Please go ahead.
Hey, guys, it's Josh and for Dave. Thanks for taking the question Im just following up on your comments on Brazil, and the pension reform.
Outside of the strengthening reality, which we've seen in the past week like you mentioned do you think theres any change in the business on organic basis based on that.
On what kind of it could happen in the fall out potentially positive and then secondly, it looks like Amazon kind of launch their sidewalk program product.
Any discussions with them and if so could you share. Thanks.
Yeah on the Brazil side, I think it's more of a.
The agenda general.
Pension reform some of the other austerity moves there I think well in the long term b healthier for the economy, which should result in a better situation for our customers the carriers, which historically in our business, it's been a virtuous cycle or circle, where you've seen that.
Lead to increased spending on the networks I think the bigger question that we'll have more of an impact is really around the stuff. The Jeff discussed earlier, which is what happens with the carriers down there is there. Some combination just the change that we mentioned around the concession rules I think we'll be very positive that's more likely to have a direct.
Impact on our business and a positive way.
Amazon.
Yes, I am sorry to say I'm not familiar with the Amazon sidewalk project.
Okay. It looks like it's using 900 megahertz spectrum, just not sure kind of if.
Even in times of them, but okay fair enough. Thanks for taking the question guys.
Ladies and gentlemen, if you would like to ask a question you May press, one and then zero on your phone.
And again, if you'd like to ask a question press, one and then zero.
We do have a question from the line of Brendan This is Paul from Keybanc.
Please go ahead.
Thanks for taking the question I may have missed this but Jeff could you comment just on the level of backlog of signed but not commenced leases from a year over year and quarter over quarter perspective, then maybe also.
If you could just comment on more broadly on the labor market.
Tower climbers that'd be great. Thanks.
The backlogs are relatively a similar.
As to where they were a year ago.
And probably.
A quarter.
Well go.
Materially similar.
And you know the back the back to the tower climber situation I think is okay for the time being but.
It may.
Crew.
Tight.
Once.
There is resolution on the merger and everybody gets really cook and like I think will be the case when that happens.
But we will say theres a lot of focus on that lot of people are getting trained and there are a lot of initiatives underway to make sure that there are enough resources.
When they're needed.
I guess basketball, but on a separate topic you guys commented on Crs now you think that that's going to be in building solution. Verizon has done some tests.
Using dual band I.
Hi, guys to abandon Crs with some of their existing spectrum have you add any discussions with any your customers on using Crs in sort of a dual band with a couple spectrum bands and carrier aggregation.
We may have in the in the leasing group and worked it into some.
Overall antenna and and.
You know amendment config, but not.
Not that I'm uniquely aware of.
Sounds good thank you.
Next we have a question from the line of Cobiz telephone from Cowen. Please go ahead.
Great two questions if I may there's been some discussion.
By the cable companies of late that they might look to build out networks.
On a market by market basis.
Actually reduce their alliance on roaming from their wireless partners and I'm, just curious if thats something you're starting to have conversations with some of those cable companies about and then secondly.
This morning, 18 key guided to 20 billion in Capex from 23 billion.
In 2019 now they did acknowledge that part of that is.
Reduced investment in fiber.
But I'm curious if you're seeing anything on the.
Your side of that business that would suggest that you're also seeing them pull back.
We are expecting to pull back on their investment as they start to think about leasing for 2020. Thank you.
Yeah I'll take the last for the first let me know all of our.
Comments about timing and pacing are purely temporal and specifically merger related and should be construed that this is very temporal has nothing.
So that is secular or even cyclical versus this is.
As soon as this uncertainty is done.
This is.
This is going to really pop.
That's what we believe and the conversations that are ongoing amongst everyone involved are.
Evidenced the that we're right in the middle of all that so the answer as.
It pertains to date CNG call because no.
And as far as the.
Cable companies are concerned.
Yes, we have had.
Some of those conversations there obviously.
Company specific and if you have certain agreements with certain of those roaming partners you have.
A lot less.
Flexibility than others.
But I can't really get into any more specifics.
Do you think it'll be just kind of anecdotal in nature and not something we would see from the outside looking in in terms of having an impact on your numbers at least for the foreseeable future or is it in your opinion, possibly can happen more rapidly than that and you from now we could actually be talking more meaningful manner.
But the cable companies.
Yes.
No I think you I think right I have to wait and see how they do with these upcoming auctions and then then I think you have to ask that question in a year.
Okay. Thank you.
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Great well, we appreciate everyone joining us for the call today, and we look forward to our next.
Call, which will be our fourth quarter and full year guidance call. Thank you.
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