Q1 2022 SBA Communications Corp Earnings Call
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Ladies and gentlemen, thank you very much for standing by and welcome to the S. P. A first quarter results for 2022 conference.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time and if you should require any assistance during the call. Please press Star then zero on your phone as a reminder, this conference is being recorded.
Courted and I would now like to turn the conference over to our host Margaret de Rossi Vice President of Finance. Please go ahead Sir.
Good evening, everyone and thank you for joining us for Sba's first quarter 2022 earnings Conference call here with me today are Jeff Stoops, our President and Chief Executive Officer, and Brendan Cavanagh, Our Chief Financial Officer. Some of the information we will discuss on this call is forward looking including but not limited to any guidance for 2022.
And beyond in today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today April 25th and we have no obligation to update any forward looking statement that we may make.
In addition, our comments will include non-GAAP financial measures and other key operating metrics. The 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 it over to Brendan to discuss our first quarter results.
Thanks, Marc good evening.
<unk> started the year off with a very strong quarter with many of the results ahead of our internal expectations and we continue to anticipate a solid performance throughout 2022.
Total GAAP site leasing revenues for the first quarter were $559 $4 million in cash site leasing revenues were $551 4 million.
Foreign exchange rates were slightly ahead of our previously forecasted FX rate estimates for the quarter positively impacting revenues by approximately $2 3 million they.
They were also a tailwind on comparisons to the first quarter of 2021 positively impacting revenues by $2 3 million on a year over year basis.
Same tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis was four 3% over the first quarter of 2021, including the impact of three 1% of churn.
On a gross basis same tower growth was seven 4%.
Domestic same tower recurring cash leasing revenue growth over the first quarter of last year was six 4% on a gross basis and three 7% on a net basis, including two 7% of churn.
Domestic operational leasing activity or bookings, representing new revenue placed under contract. During the first quarter was very strong again and materially higher than the first quarter of last year.
And we continued to replenish our domestic new lease a new amendment application backlog, which remained very healthy at quarter end.
These backlog support our expectations for continued strong domestic operational leasing activity throughout the rest of 2022.
During the first quarter amendment activity represented 55% of our domestic bookings with 45% coming from new leases.
The big four carriers of AT&T T mobile Verizon and dish represented 95% of total incremental domestic leasing revenue signed up during the quarter.
Internationally on a constant currency basis same tower cash leasing revenue growth was 7% net including four 8% of churn or 11, 8% on a gross basis.
International leasing activity was very good again, and we continue to see increasing customer activity levels in many of our markets.
International growth continued to climb higher in part due to increased inflation.
I'm sorry in part due to increased inflation based escalators.
In Brazil, our largest international market. We also had another solid quarter of leasing activity.
Gross same tower organic growth in Brazil was 13, 3% on a constant currency basis.
During the first quarter 82, 1% of consolidated cash site leasing revenue was denominated in U S dollars.
The majority of non U S. Dollar denominated revenue was from Brazil, with Brazil, representing 12% of consolidated cash site leasing revenues during the quarter and eight 8% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the first quarter was $445 $3 million, our tower cash flow margins remain very strong for the first quarter domestic tower cash flow margin of 84, 6% and an international tower cash flow margin of 68% or 93%.
Excluding the impact of pass through Reimbursable expenses.
International Tower margins were modestly impacted by our new less mature Tanzania assets.
Adjusted EBITDA in the first quarter was $423 $8 million. The adjusted EBITDA margin was 69, 3% in the quarter, excluding the impact of revenues from pass through expenses adjusted EBITDA margin was 74, 2%.
Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.
During the first quarter, our services business produced record results for the fourth quarter in a row with with $63 million in revenue and $14 $6 million of segment operating profit.
We also continued to replenish and build even higher our services backlogs, finishing the quarter at the highest level in our company's history.
Based on this backlog and the continuing high activity levels by our customers. We have raised our outlook for increased contributions from our services business throughout the balance of 2022.
<unk> in the first quarter was $324 $3 million.
<unk> per share was $2 96 and.
An increase of 14, 7% over the first quarter of 2021.
During the first quarter, we continued to expand our portfolio acquiring 1807 communication sites for total cash consideration of $215 $4 million, which includes <unk> hundred 45 sites for $176 $1 million closed on January 4th.
In our previously disclosed acquisition from Airtel Tanzania.
We also built 86 new sites in the quarter.
Subsequent to quarter end, we have purchased or are under agreement to purchase 358 sites in our existing markets for an aggregate price of $127 9 million.
We anticipate closing on these sites under contract by the end of the year.
In addition, subsequent to quarter end, we closed on the acquisition of a Standalone data center in Sao Paulo, Brazil for cash consideration of approximately $49 million.
The data center currently produces approximately $8 $3 million U S and annual revenue and $3 $5 million U S and annual adjusted EBITDA.
This acquisition was done in support of our continuing evaluation and efforts around the potential expansion of mobile edge computing to our tower sites.
In addition to new tower and other assets. We also continued to invest in the land under our sites.
During the quarter, we spent an aggregate of $8 7 million to buy land and easements and to extend ground lease terms at.
At the end of the quarter, we owned or controlled for more than 20 years, the land underneath approximately 71% of our towers.
And the average remaining life under our ground leases, including renewal options under our control is approximately 36 years.
Looking ahead now this afternoons earnings press release includes our updated outlook for full year 2022.
We have increased our outlook for most of our key metrics from the outlook. We previously provided with our prior quarter earnings release.
These increases are partially due to revised expectations for better foreign currency exchange rates than previously assumed.
These FX changes have contributed an increase to our revenue outlook of approximately $21 million and our adjusted EBITDA outlook of approximately $13 million.
In addition, we have increased the midpoint of our outlook for site leasing revenue by $17 million on a constant currency basis.
This increase is due to several factors, including lower domestic churn impact during 2022 as a result of longer decommissioning cycles as compared to SBA is initial estimates.
Higher international CPI based escalators higher reimbursable and miscellaneous onetime revenue items and contributions from acquisitions completed during and after the quarter.
All of which was partially offset by increased churn in Panama.
On April six digits Digicel, Panama, one of our primary customers in Panama announced that they intend to apply for voluntary liquidation and withdraw from the telecommunications market in Panama.
While there are likely many developments in steps to take place over the coming months, we have increased our projected 2022 churn impact by approximately $6 million to account for the loss of all leasing revenue from Digicel, Panama for the balance of the year.
Notwithstanding this one churn issue as noted there were a number of very positive developments in our business over the last two months that have resulted in a significant increase in our full year revenue outlook.
In addition to the leasing benefits I just mentioned, we also raised the midpoint of our services revenue outlook by $27 million or over 13% due to our very strong first quarter results and the continuing strength of our backlogs.
The strength of both our leasing and services business has allowed us to raise the midpoint of our full year outlook for <unk> per share by 24.
Our full year 2022 outlook does not assume any further acquisitions beyond those under contract today and the outlook also does not assume any share repurchases other than those completed as of today.
However, we are likely to invest in additional assets or share repurchases or both during the rest of the year.
Our outlook for net cash interest expense and for <unk> do not contemplate any further financing activity. In 2022. However, we will continue to look for opportunities to continue to opt in to optimize our balance sheet.
With that I will now turn things over to Mark who will provide who will provide an update on our liquidity position and balance sheet. Thanks, Brendan we ended the quarter with $12 7 billion of total debt and $12 4 billion of net debt our net debt to annualized adjusted EBITDA leverage ratio was seven three times well within our target notwithstanding.
<unk>, a substantial amount of capital allocated in the first quarter.
Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was five three times the highest in the company's history.
As of the end of the quarter the weighted average interest rate on our outstanding debt was two 6% with a weighted average maturity of approximately four six years and.
In the interest rate on 92% of our outstanding debt is fixed.
As of today, we have $590 million outstanding under our $1 5 billion revolver.
During the quarter, we repurchased approximately one 3 million shares of our common stock for $431 6 million at an average price per share of $332.
Included in these amounts subsequent to our previous disclosure of share buybacks and our fourth quarter earnings release is the repurchasing of 253000 shares for $81 6 million.
At an average price per share of $322.10.
All the shares repurchased were retired we currently have $504 7 million of repurchase authorization remaining under our $1 billion stock repurchase plan.
The company shares outstanding at March 31, 2022 were 107 8 million compared to $109 3 million at March 31, 2021, a reduction of one 4% and.
In addition, during the first quarter, we declared and paid a cash dividend of $76 9 million or <unk> 71 per share and today, we announced that our board of directors declared a second quarter dividend of <unk> 71 per share.
Which is an increase of 22, 4% over the second quarter of last year. It's payable on June 14th 2022 to shareholders of record as of the close of business on May 19th 2022, and with that I'll now turn the call over to Jeff.
Thanks Mark.
Good evening everyone.
As you've heard we had a very strong start to the year with strong operating and financial results again generating double digit percentage growth in <unk> per share our better than expected results combined with continued elevated activity levels with our customers have set us up well for the balance of this year we have.
<unk> increased our outlook for full year revenues by $65 million and <unk> per share by <unk> 24.
These upward revisions or indicate indicative of the positive environment. We're currently in.
The U S market remains particularly strong each of our U S carrier customers remained busy during the quarter, signing up new leases and amendments and generally investing in the build out of their networks through the deployment of new spectrum bands T. Mobile continued their nationwide deployment of two five gigahertz and 600 megahertz spur.
Verizon and AT&T increased their <unk> related signings with us with particular focus on C band oriented deployments and dish continued signing up new lease agreements actively in support of their nationwide <unk> network Buildout. These carrier activity levels also drove meaningful use services results where we.
<unk> record services revenue and margin results for the fourth quarter in a row. Our backlogs also continue to replenish and support our confidence in continued strong performance.
Internationally, we had another strong quarter, finishing ahead of our internal expectations for organic tower leasing and new build activity in most of our markets. During the first quarter, we signed up 49% of new international revenue through new leases and 51% through amendments to existing leases coupled with.
Increased escalators due to higher consumer price indexes and many of our markets. This leasing activity drove some of our strongest organic international leasing revenue growth in years. We are also off to a good start integrating our new Tanzanian operations, and we continued to build new sites and tower backlog.
In the Philippines.
In addition, we recently acquired a new data center in Sao Paulo that we believe will allow us to more fully explore the potential for tower edge mobile computing in Brazil. We believe this data center can act as a hub for tower edge data centers and C ran deployments based on discussions with some of our carrier customers in Brazil over.
We're all internationally, we have a lot of very exciting things happening and we continue to believe that 2022 will be a very good year.
In addition to our strong operational performance during the first quarter. We also continued to execute well with regard to our balance sheet and capital allocation, we meaningfully increased our dividend and invested in significant asset additions as well as significant stock repurchases, we were able to make these investments while maintaining our net debt.
To adjusted EBITDA leverage of seven three.
Times right in the middle of our target range of seven to seven five times and our weighted average cost of debt remains largely fixed and at our all time low of two 6%, we believe our ability to manage its leverage while continuing to invest in our business is critical during this current time of more broadly increasing interest rates.
We are well positioned to continue to grow our business, but also to weather any kind of challenging macro environment.
We are very pleased with our start to 2022 I'm going to keep my comments brief as I believe our results and increased outlook tell the story very well I believe the rest of the year will be similar to the first quarter excellent blocking and tackling on our part against a very strong demand environment. We are in a great industry during a time of increasing.
Organic growth and we are more financially healthy than at anytime in our history, we have great confidence in the balance of the year and look forward to helping our customers achieve their ambitious network goals I want to finish by again thanking our team members for their commitment and contributions to our success.
And with that Colin we are now ready for questions.
Thank you, Sir ladies and gentlemen, if you wish to ask a question. Please press one then zero on your Touchtone phone you.
You may remove yourself from two at any time by pressing the one zero again and if you are using a speaker phone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one then zero at this time one moment. Please for our first question.
And we'll go to the line of Phil Cusick with J P. Morgan.
Hi, This is EMEA for bill too if I may So you guys mentioned lower expectations for churn.
The timing of the sprint and T mobile merger.
<unk> falling off can you just give us an update on.
Maybe how your expectations for long term return with them have changed and then secondly.
Is the data center acquisition within guidance.
This kind of indicate SBA is lead leaning more into the mobile edge compute opportunity. Thank you.
Amir on the churn question.
We don't have any real changes to our long term expectations.
What youre seeing is a slight shift in timing, so a little bit less of an expectation in this year, but but ultimately those incremental dollars would just move to next year. So what we've given out in the past in terms of expectations. Each year is generally the same as it has been before.
Yeah on the data Center question I think it's really no change in our.
Activity trajectory and direction around mobile edge that we've been talking about now for I guess at least a year.
Would look at this as a extension of what we're doing in the U S to our largest international market, Brazil, and we think it will continue our learning and and inter react interactions with our customers.
And I you know I would say so far that the results are encouraging and we continue to believe that we will be benefited in that the mobile edge will in fact.
Have value created or create value at our tower sites and we think these these data center.
Investments.
Albeit modest are going to help us get there.
And it is in guidance to the data center.
Okay great.
One more if I could.
How prepared do you think you are versus like in A&P that has core site asset or do you. How do you kind of view that.
Well prepared for what.
I mean, I think it all were to enable home remains it all remains to be seen how.
Robust the edge at the tower site business and that's what we're focused on.
So from that from that perspective, I think our measured approach is the right one for us.
Great. Thanks.
And next we'll go to the line of Simon Flannery with Morgan Stanley .
Great.
Afternoon, Jeff Thanks for all the comments great to hear the momentum in the business I Wonder if you could talk about the sustainability of this we've heard from both Verizon and T mobile that Capex peaks. This year, and then falls fairly sharply and how do you think about your medium term outlook given some of those commentary and perhaps relatedly.
Seen very strong fixed wireless results, how do you think that might impact some of their bill some of their densification over the coming years. Thanks.
I think.
It is going to be a multi year endeavor Simon.
Particularly keeping in mind that the C band clears in phases over years, so theres really going to be multiple years.
Still ahead, where where C band deployments are going to have to take place.
You know I take our customers comments at face value.
I can tell you, though that theres a lot of work to be done.
And at.
At least on the C band deployment side of things, they're just in their infancy. It can only be it can only be a multi year endeavor.
So I'm not sure how that will be impacted if at all by the fixed wireless.
Initiative and the spend there it's really.
Obviously, one is a.
Primarily a mobility.
<unk> and the other is a location driven product.
But I don't we've not seen any signs that.
The success in the fixed wireless area is going to impact the mobility spend.
And next well go to the line of Ric Prentiss with Raymond James.
Thanks, Good afternoon everybody.
Great.
Hey.
Follow up on some of the comments about the international churn you mentioned and called out.
Digicel Panama.
Much of that.
We should roll into next year, though if you say that's the impact for the rest of this year how much should we think about that kind of tail. In this next year and an update us as far as what's going on with oil we've seen obviously a lot of press releases it looks like some.
Transactions are finally coming to passengers over the world.
Yeah, so the $6 million of incremental churn for Digicel represents about three quarters. So there'd be another couple of million dollars into next year, There's probably also a little bit of additional Rick because we were already assuming some digicel churn previously not associated with this liquidation just as they were shutting down certain.
Sites, because they were obviously already having some issues.
<unk>.
An extra million dollars or so in.
In addition that would flow into next year.
Okay, Yeah on the Oi.
Situation, Rick the the sale has closed.
Boy mobility wireless has been sold in parts to Claro, Tim and vivo.
They've all got some cell sites, they've all got some subscribers.
Only Tim in vivo got spectrum, however, because claro was already out there.
Regulatory prescribed limits and where it all stands right now is that each of the recipients or winter winning bidders are the three remaining need to prepare and file with the regulators some various plans and answers to some.
Conditions and restrictions that were put on the approvals.
That has not happened yet we will be watching them with.
With great interest what those filings will be but also keep in mind now we have the the five G auctions done in Brazil, and the spectrum ready to be released and with some.
Time limits on deployment at least around the major capital cities.
Okay.
And.
You also obviously CPI is benefiting escalators, how should we think about how often they get updated what's where are we at in the process that you guys are maybe also just update us on where you're seeing CPI in Brazil, and South Africa, but just help us understand the timeline as far as where the benefit and escalators is that currently where it might head and also is there anything.
On the cost side.
Yeah, the CPI in Brazil, right now.
For us for our average for the year went to about 9%. The actual rate is higher than that it's close it's closer to 11 I believe right now.
And the timing is really tied to when the leases individually escalate there are some.
Larger concentrations because of some of the acquisitions that we did those tend to be in the fourth quarter in the second quarter, but really it's just a function of the time that the anniversary date of each individual lease and what the CPI. It looks like on a year over year basis at that point in time so.
Keep in mind on the expense side Rick.
The ground leases, which are the single largest component in Brazil are a pass through item. So we have that protection.
Protection, where we are likely to see the impact is of course on the labor side, and we will we will see that because of the.
The way the Brazilian employment laws are written.
But again I would point out that given the operating leverage in the business as a percentage of.
Employee costs against revenue was extremely small so we have some great elasticity to be able to.
Absorb any employee related CPI increases.
Makes sense, thanks for that or they have a good day.
And next we'll go to the line of David Barden with Bank of America.
Hey, guys. Thanks, so much for taking the questions I guess first one maybe for you Brendan or Mark with respect to the guidance expectations for rate movements.
For the rest of the year and the impact on the net change in the in the updated 22 guide could you kind of give us a sense as to what you were originally baking in and what maybe is net.
Incremental probably a headwind presumably on the 8% remaining variable rate debt and then the second piece would be just on the service revenue kind of outlook, obviously pretty healthy activity across the board we've talked in the past about the margin mix, whether it's earlier stage, it's more human capital higher margin later stage, it's more.
Or labor related.
And lower margins.
Where are we in that curve and where do you see margins in that business doing thank you.
Yeah on the rate impacts the impact is primarily due to one an assumed increase in CPI.
Right and to slightly more.
Of our revolver being drawn during the course of the year associated with some of the incremental spend that we've just incurred or have under contract. So if you look at our our capex guidance, it's up a little bit so that that requires that along with the share repurchases that we did that weren't assumed before that we have a little bit more capital drawn and because it's.
Floating rate and the CPI is increasing that's really driving the increase in our net cash interest expense guidance that we gave otherwise there's really no no changes.
To that on the services Dave.
Yeah.
The biggest issue is not so much the margin inside each of our two services segments, it's really the mix of the two.
Site.
<unk>.
Has historically been the higher margin business.
Construction has been a lower margin business I will tell you, though that the margins that were currently experiencing in both segments relative to our history are very good.
Maybe pushing all time highs.
But really the biggest driver of where margins come out it's the mix between site acquisition and construction services. Although again, we're very very happy with with where each of those segments are performing.
One of the ramifications of a big services quarter, though given the fact that it is a lower margin business as its impact on our.
Our adjusted EBITDA margin. So for those of you who are wondering why that is where it is this quarter, it's really because of the large amount of services revenue that we booked this quarter.
Okay. That's helpful. Thanks, Jeff.
Yeah.
And next we'll go to the line of Nick go deal with Moffett Nathan Your line is open.
Hey, Thanks for taking my questions.
You know first kind of turn it back to Brazil, and the Oi situation can you talk at all about the conversations you've had with customers and anything they've said about their plans to invest behind the assets. We're acquiring and are any of the initial goals that they've laid out for site decommissioning.
I think at least Tim has talked about that or have those been consistent with your expectations.
Yeah, I think we're still of the of the same mind in terms of the aggregate exposure, which mark jump in here and make sure I say, the right numbers of $20 million to $30 million over the life is what we think our exposures yeah. So nothing's really changed there.
You know is what we have.
Seen in the U S that to actually migrate customers and truly decommission sites is a little more complex and takes a little more time and people think.
That's really a timing.
Comment we don't we think the ultimate numbers will be what.
Brendan just said.
But we really don't have any specific.
Instructions from them as of this point out we do expect that as the year progresses. We will we will begin to get more clarity on the timing and final amount that we will be looking at.
But they are you know on the on.
On the other side the three the three now nationwide carriers are all active to varying degrees with the new spectrum deployments.
Okay. Okay, that's great and then maybe turning to you.
The data center topic.
I think to date, you've described what Youre doing is.
Fine assets to learn about the business learn about the edge opportunity.
Do you feel like you currently own a sufficient number of data centers in the U S.
To fulfill that goal or should we expect you to pick up some more in.
In the future and maybe in different geographies or different different size or something like that.
Yes, I think.
I think.
As our experimentation and learning process continues to move in a positive direction.
It would not be.
No.
Impossible to see us.
By a couple of more data centers, but I don't think we would ever get to the point, where you would see.
I mean, it won't it will.
Don't ever get close to 1% of enterprise value I don't believe.
Yeah.
Okay. That's helpful. Thank you Jeff.
Yes.
And next we'll go to the line of Michael Rollins with Citi.
Thanks, and good afternoon.
Last question for me was I was curious if you could unpack the merger churn in the U S.
Sprint and T mobile that was within the first quarter results as well as what's in the guidance or 2022.
Yeah, what's in the guidance for 2022 is now approximately $27 million I think we had previously told you 30, obviously, we lowered our.
Our full year number by $3 million.
First quarter piece of that I don't know.
Let me check that and get back to you.
Oh I'll mention on the call if we.
Are done with you before then.
Sure and then.
You're thinking about the year domestically just curious.
How youre thinking about that three 7% net growth that you did in.
In one queue relative to the full year guide if I'm calculating the numbers right on slide four I think it is.
It also looks like the full year organically.
Youre looking for about that amount, but you know what.
Churn, possibly ramping higher.
The contribution so just kind of curious how you're thinking about the gross moving through the year and the net and.
What the contributions that may be later dania for dish and AT&T as you're just thinking about that full year growth expectation for 2022.
Well I I know Brendan you could get to the net but I know that the gross number Mike we expect to grow sequentially as we move through the year, Yes, we do expect the growth to move up sequentially. We also expect the churn though to move up sequentially during the year.
Obviously as indicated by the first quarter shift here.
Some.
Some potential that our expectations around timing or off on the churn but.
Our expectation and what's in our guidance shows that it is increasing so the net will be a modest increase maybe flat to modest increase quarter over quarter going through the year in terms of the mix.
You know I don't think we want to get into the individual carriers that make up the mix I think we've been.
Pretty clear in the past that on a lot of the last few quarters a lot of the lease up one of the significant contributors there was dish in terms of their new agreements.
So obviously they would be.
A nice component of that that growth, but all of the carriers have contributed to the lease up activity. So they're all they're all in the mix.
And how does the when we think about the longer term leverage.
Targets for the business you have a rule of thumb in terms of.
Great to a certain level, then leverage to be a certain level or is your view of leverage left.
<unk> on the rate environment.
No we didn't and 19 completed.
Well clearly there would be a rate.
Level, which would kick.
And I don't really want to get pinned down on what that is but clearly there would be a rate at which we would.
Look at.
Different leverage levels, but it would be on that Mike what we're what we're looking at is.
You know our dividend our dividend payout ratio how much.
Our EBITDA growth looks to be so I mean, we really do.
Try and be very thoughtful and take into account everything that should be.
Taken into account.
<unk>.
I mean on an absolute basis of course would be some interest rate debt.
We thought it was going to be maintained and sustained for long periods of time, if it were materially higher than where we are today it will cause us to revisit our leverage targets.
And Mike before you go let me follow back up on your question about how much spread in the first quarter was approximately $4 million of impact in the quarter. So a little over 1% of the roughly two 7%.
Thanks very much.
And next we'll go to the line of Sami Badri with credit excuse me credit Suisse.
Great. Thank you.
Just wanted to get a little bit of an update.
On the MLA is and I think what we'd all kind of can really use it maybe a little bit more color on how much activity is falling into those msas versus out of those msas with the same customer that actually sign them.
Just give us a little bit of color or more color than normal.
On what the mix of <unk> versus out of MLR looks like.
Well I think it's 100% for every customer that we have an MLA with is somehow touched by the MLR. So that's dish <unk>.
Verizon and T mobile.
And then we don't have one with AT&T.
It's not really a situation where some of its covered in some of its not per carrier.
Got it and just to just to be clear is R.
Our MLA as though are still based on specific activity from those customers and equipment specificity there not just a broad open ended.
<unk>.
Got it.
The other thing is last.
Last quarter, you stated that the three five gigahertz spectrum will require incremental radios to C band you still hold that view.
We do although I know that they are working on an integrated one as well.
Which will come out at some point.
Got it and then just to be clear right, just b and they do work on an integrated radio.
That does still have scope for amendment, because theyre riding on two separate different spectrum bands or was there a different type of negotiation that takes place that they came out with that.
Well it will be primarily driven by what the equipment looks like and how.
Howard.
Stacks up compared to if a if anything's coming off that's a swap if it's not then we would look at the equipment and.
And price it accordingly based on height weight wind load.
Got it.
Got it thank you for the color.
And next we'll go to the line of Greg Williams with Cowen.
You know what multiples look like given the rising rate environment.
<unk> multiples.
And the geopolitical landscape by region generally second question just on the record service revenues are you seeing any labor or logistic bottlenecks in the current environment and keeping up with this record activity. Thanks.
Craig I think we missed your first question you didn't you work for.
Part of it got cut off.
The M&A landscape, what multiples are looking like through the regions.
Yeah. They are they are not increasing.
So that's we're thankful for that.
Now there are some signs that the.
The current interest rate environment is going to have a depressive effect on prices.
As you know Greg.
Takes a while for current market conditions to factor through the private market sellers.
However, it is headed in that direction, where.
Obviously rates should and I think will impact price overtime.
On the supply side of equipment and labor.
I don't want to jinx things, but as of today, we are not seeing any material impact on either the supply chain side or the labor side for our business.
Got it thank you.
Mhm.
And next we'll go to the line of Brett Feldman with Goldman Sachs.
Great. Thanks for taking the question Jeff for the vast majority of SBA histories, and U S tower, operator, youre fixed escalators, which are generally I think in the low 3% range.
Exceeded inflation and that's obviously not the circumstances, where today and who knows what the long term view is going to be but I'm wondering if.
We've been in an inflationary long enough environment long enough for you to see any impact to your business or Navy to change how you think about it. So just as an example, I'm wondering is there any increased mutual interest between you and your carrier customers, maybe finally moving to a CPI based escalator model in your leases you know if you are doing.
The suits in this environment are you actually still doing them at the historical escalator or is that changing and maybe just bigger picture. If we're not likely to see a change in in the escalation model and we do remain in an inflationary environment could that suggest that you may have a preference for continuing to invest increasingly outside the U S where you can actually developed in it.
Quiet towers.
I can't escalate in line with CPI.
Yeah, I think I'd characterize the state of the escalator issue with our customers Brad is one where.
I think certainty and a fixed number benefits both sides, even though clearly in a year like this you know with a fixed escalator one one party wins the other loses but that's that's a very temporary kind of condition and over time. The fed has a mandate to reduce inflation back to two.
2% or less so I really don't know that theres, a lot of appetite on either side too.
To change that around really because.
If you have a very very big inflation year.
Person on the CPI and of that whether its us on ground leases or our customers on the tenant leases.
They're not going to be happy so I I think I think we're pretty satisfied with state of the world as it currently exists and I don't think.
We consciously are making international decisions relative to U S decisions with any kind of belief that this better because we get CPI escalators.
The traditional economic theory is if there's higher inflation in those markets. The currency is going to trade off. So we don't really think that that is a reason why two to favor international over the U S. The reason we go internationally is because we have.
Our capital allocation and a target leverage which we think is one of our principal creators of shareholder value and we have been able to find enough to do in the U S. And we found some very very good things to do internationally and I think that will continue to be the primary motivation.
If I could ask just one quick follow up question I believe in the U S. What we've typically elite in the U S is that the escalation clauses on your ground rent was reasonably similar to what you see on the tower side, so kind of a fixed 3% escalator is that is that the right understanding or could we see a mismatch at any point over the coming now.
No we've we've generally matched off.
I'd actually generally I mean.
We've substantially every single U S T.
Tower that is ground lease has a as a fixed escalator and they typically averaged less than our average tenant escalators. So we feel and it of course, you know that's our single largest source of.
Expense and getting to the tower cash flow line as the ground leases, so we feel pretty well protected there Brett.
Okay. Thank you.
And next we'll go to the lineup Walter Piecyk with light shed.
Hey, Jeff.
First question I'm going to send over to Brendan you said to a prior question that sprint churn was $4 million.
Maybe if he were rounding up there that implies I think a churn rate for the rest of your domestic business.
Couldn't find that low unless I went back I guess for a quarter or two.
In 2018, when it was like 1715 first second quarter.
Is this a sustainable number because that's just much lower than we've seen for several years.
No I don't I mean, I think it's so that what's left is about one and a half.
One 6% if you exclude the <unk> piece and.
And I don't think that's lower I mean, we've actually been we have been much lower than that if you go back a couple of years ago, where we were below 1%.
Historically been somewhere in that usually between 1% to 2%, sometimes lower so I don't think its.
Abnormal.
The absolute dollars the numerator in that calculation has been flat for a couple of quarters now.
Which not which is why as a percentage is going down.
Yeah got it.
I think there are different I think there's a different reason I think what you are looking at is the.
Is kind of the gross churn that historically includes has always included some kind of consolidation sure yeah, maybe that.
Obviously, we've had metro leap and Clearwire, we had iden related churn so I'm, saying like if you look at all these years path or as you've always had something.
And there may be your like actual core core stuff, but you don't really report was that low but as far as reportable churn numbers.
Never been that low.
But I can say.
Because you don't break it out.
Now <unk>.
Post apples you have to include the sprint Yeah, I mean, that's a charter.
Yeah right.
So that was my second question, which is $4 million is fine, but if you look at $30 million for the year are you still have to step that sprint component up pretty at some point like is it.
Was part of this just the delay in turning off the CDMA like which quarter do you think you're really going to see I mean, obviously it I think last year, you were doing like two a quarter or somewhere in that ballpark. So four is not like it's no step up but.
Are you expecting a larger step up in Q2 or Q3 do you think.
We're expecting a larger step to step up as we move throughout the year. So I mean, just incrementally I think stepping up because it just builds over time, but it's really dependent on when windows those leases turned down.
Emanation dates and everything else so.
And it's quite possible that you see it increase each succeeding quarter.
Okay.
And then just same basic question for.
Amendments and Colo.
Do you think the target is whatever 60 something for the year of 65 I think.
That would imply a much bigger step up sequentially than maybe what we saw in first quarter.
Any sense on kind of when youre going to see a more material step up from quarter to quarter.
Or do you think it'll be somewhat linear from here yeah, no it's going to step up but I think mostly in the second half of the year there'll be a modest step up as our expectation next quarter and then more material into the third and then even further into the fourth quarter.
Got it thank you.
And next we'll go to the line of David Guarino with Green Street. Your line is open.
Thanks, Hey, just going back to the M&A conversation, you mentioned multiples arent, increasing but I think it's fair to say that they are rich today and we've seen some deal terms on a few recent transactions that really appear to benefit the M. N O salary. So I was just wondering if you could help us understand how are you guys competing for deals now that your kids are bidding more.
<unk> is that causing you to adjust your underwriting at all.
No we don't adjust.
Adjust our underwriting we may do fewer deals David.
But if you look at that.
The history of what we've done.
We like what we've done and we will continue to.
Exercise the same discipline and I think when you if you really understand what we're about it's about creating value for our shareholders. There are.
Particularly great as we see them as strategic benefits of just being big in a bunch of different countries.
We are much more interested in the financial characteristics of investment goals of each and every transaction.
And we lose a lot but.
But we get enough to generally.
Satisfy our 5% to 10% portfolio growth goals.
And we're going to continue to operate that way.
Okay. That's helpful and maybe switching gears on the on the 20 <unk> Guide I was wondering is there any conservatism in your exchange rate forecasting for the Brazilian reality.
Looks like your full year guidance is below where the current exchange rate is and they've got eight months left in the year. So I just wanted to know how do you guys think about forecasting exchange rates.
We typically will use whatever the forwards are that you would generally Paul from Bloomberg or some sort of average of a number of institutions that published projections. The one thing I can assure you of David is that we will be wrong on what we assume I don't know whether it will be wrong to the positive or the negative but it is very hard to nail.
Down so we use what what the experts are saying at any given time, but you know even since we we kind of put our numbers together, which is at the end of last week.
And the last two days, we've seen the currency.
We can.
Relative to the dollar so it's a little bit closer so basically if you look at Brazil, our average for the balance of the year that we've assumed is essentially five to one and I think today. It ended up 488 or something like that so it's fairly close to what the spot rate is.
Okay I appreciate that thanks for that.
And next we'll go to the line of Eric Loop Chow with Wells Fargo.
Hi, Thanks for squeezing me in so I'm wondering if you could talk about what youre seeing from dish I mean, they've publicly said they think theyre about six months behind where they originally expected to be so just wondering if either.
The actual site construction when they hang equipment or the date certain under your contract with them would have much of an impact on your assumed leasing outlook for the year and then just more broadly are you seeing there leasing concentrated in just a few markets or is it pretty broadly distributed.
Across your portfolio today. Thanks.
I can tell you that the activity level is pretty broadly distributed.
And we do have a.
Construct with dish, where once the leases signed.
Revenue recognition for us begins that either a construction milestone.
Or a date certain.
And it's really the.
To actually look at all that and and synthesize that and turned it into guidance is a bit of an art.
So there'll be some possibilities that things move around there, but for the most part.
You know as we move through the year.
Things are known with a greater degree of certainty. So theres some theres some opportunities for some for some movement.
But for the most part we feel pretty pretty good about dishes contribution in terms of your comment about them being <unk>.
Behind by six I mean that.
Maybe maybe that's their own internal goals and projections.
But I would repeat what we've said now for I think.
The better part of a year, which is they're very active actually.
Actually busier with US then than we thought they would be for a rolling 12 month period and they continue to be very very busy and driving hard towards you know satisfying their June 2023 regulatory obligations.
Okay I appreciate the color.
And next we'll go to the line of Brandon <unk> with Keybanc capital markets.
Okay, great. Thank you for taking the question maybe two.
One follow up though could you share what the backlog of applications was what was that up this quarter and if we just held that flat looking at the Comparables in the second and third quarter, what would that growth rate look like and secondly, following up on Bob's question. It looks like you're at about $12 6 million.
U S organic growth this quarter.
On that six 4% do you still think you can get to a low $20 million number exiting this year and then is that a reasonable number to run rate into 2023.
Yes.
Okay.
On the backlog question.
Just just to be clear on how we evaluate.
To evaluate backlog for our leasing business, we're looking at the number of applications for new leases and amendments obviously the pricing may vary depending on exactly what they do and sometimes that pricing has to be negotiated so it's not necessarily dollar based so I think I can't.
The number of applications is up when so when we say it's up that's what we're referring to.
So I can't really give you a what would the lease up be if it were the same for the last few quarters on.
On the leasing dollars question in the fourth quarter. We do think we can get to the low twenty's by the end of the year as to whether that would be a run rate going forward is partially dependent on activity levels for the balance of this year.
Which we think will remain fairly strong but as of today I can't comment on what next year's number will be.
Okay. Thank you for taking the questions.
And next we'll go to the line of Matt Nick nickname Excuse me with Deutsche Bank. Your line is open.
Just two quick ones if I could first on M&A I know you mentioned I think 358 sites acquired or under contract.
As of the end of the quarter any color you can share in terms of where they're located.
And when they are expected to close and then secondly on the dividend payout ratio I know you mentioned in the release that you are still under 25% I know you've talked about 20% annual growth. The next several years any sort of update in terms of where you'd like to get that payout ratio to over time. Thanks.
Well.
We like it low because it gives us plenty of opportunities, including stock repurchases, which we think I think the I think the execution and the allocation that we have including setting the dividend really has.
Served our shareholders well so.
But at the same time that we want to continue to be an industry leader in terms of our dividend growth rates, which is why we set things to start at a low at a low level. So really it's kind of the balance of those two which will ultimately drive where we set the dividend going forward, but I.
I think you would agree at 25 less than 25% payout ratio, we have a lot of room to increase the dividend materially in the years ahead.
<unk>.
What was your first question M&A Contra under contract mix is largely international.
There is some domestic and some international.
Was there more to that question.
Any any color you can share in terms of country or region if possible.
They're all existing markets.
Okay. Okay, alright, thank you guys.
Thanks.
And ladies and gentlemen, if there are any additional questions. At this time. It is one followed by zero on your phone.
And we do have a question from the line of Jon Atkin with RBC.
Was interested in talking a little bit about <unk>.
Other types of infrastructure you did the PGA deal.
Theres rooftops, but thoughts on kind of non conventional macro towers and opportunities you see.
Within our within that segment.
Yes.
We continue to pursue.
A variety.
Different things, John we have a growing.
Indoor Das business, we have a growing connected venues business, where we get in and actually kind of build out the telecommunications infrastructure and.
New developments.
We have added some rooftop sites for sure.
And you know we have picked up now three data centers.
None of that stuff tubs.
<unk> is close to being anywhere near material compared to the basic macro tower business and and while we are seeing good return on invested capital in all of these areas and we will continue to.
Look at them and believe that we're picking areas that will scale over time.
We are.
For all intents and purposes for the foreseeable future, where a macro tower company.
So all the terminals are quite the way like rooftop.
Transmission lines.
We are we're buying rooftops.
We're developing rooftops, where we're playing in pretty much all the areas other than you know.
Fiber.
<unk>.
Outdoor small cells on a big basis and undersea cable.
But none of it none of it is.
Gets to the point, where it's going to occupy a material portion of our financial results in the foreseeable future.
So and the question then I guess should be well why are you doing it.
And the answer is well because of where we are who we are and what we've done over the years, we do get a lot of opportunity ancillary opportunities and these are good assets exclusive assets that are going to produce for us a good.
Return on invested capital and are generally pursued and occupied by folks who are otherwise engaged in the macro tower business.
Yeah.
Thanks very much.
Yes.
And we have no further lines in queue at this time.
Great well I want to thank everyone for joining.
Joining us for <unk>.
What you heard was a great first quarter and we look forward to.
Reporting continued success as we move through this year. Thank you.
And ladies and gentlemen that does conclude our teleconference call for today again. Thank you very much for your participation and for using AT&T teleconference Service you may now disconnect.
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