Q4 2022 SBA Communications Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the SBA fourth quarter results Conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question session constructions will be given at that time. If you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mark The ROTC Vice President of Finance. Please go ahead.
Good evening and thank you for joining us for Sba's fourth 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 2023 and beyond.
In today's press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today February 21, 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 there.
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.
I will now turn the call over to Brendan.
Thank you Mark good evening.
We finished off an outstanding 2022 with another very strong quarter. Our fourth quarter results were ahead of our expectations and allowed us to finish at or near the high end of our full year 2022 outlook for most metrics.
Total GAAP site leasing revenues for the fourth quarter were $609 $6 million in cash site leasing revenues were $605 million.
Foreign exchange rates represented a benefit of approximately $800000 when compared with our previously forecasted FX rate estimates for the quarter and a benefit of $2 2 million when compared to the fourth quarter of 2021.
Same tower recurring cash leasing revenue growth for the fourth quarter, which is calculated on a constant currency basis was five 1% net over the fourth quarter of 2021, including the impact of four 2% of churn.
On a gross basis same tower recurring cash leasing revenue growth was nine 3%.
Domestic same tower recurring cash leasing revenue growth over the fourth quarter of last year was eight 5% on a gross basis and 5% on a net basis, including three 5% of churn.
Domestic operational leasing activity or bookings, representing new revenue placed under contract during the fourth quarter was not as strong as the third quarter, but still solid we saw meaningful and balanced contributions from each of our largest customers.
Full year organic leasing contributions to domestic site leasing revenue ended up in line with our outlook provided on our prior earnings call.
During the fourth quarter amendment activity and new leases each represented 50% of our domestic bookings.
Big four carriers of AT&T T mobile Verizon and dish represented approximately 95% of total incremental domestic leasing revenue signed up during the quarter.
Domestically, we again experienced less churn than we have projected due to timing of merger related decommissioning being later than we had previously estimated.
We still expect to incur this churn and have incorporated our reduced 2022 domestic churn amounts into our outlook for 2023.
Internationally on a constant currency basis same tower cash leasing revenue growth was five 4% net including seven 6% of churn or 13% on a gross basis.
International leasing activity was very good again with similar results to our strong third quarter.
2022 was one of the strongest years in the company's history for international gross leasing activity or booking.
In addition to strong customer activity levels across many of our markets. We continued to see healthy contributions from inflation based escalators.
In Brazil, our largest international market, we had another very strong quarter.
Same tower organic growth in Brazil was 13, 2% on a constant currency basis.
Similar to the third quarter and as anticipated international churn remained elevated in the fourth quarter due primarily carrier consolidations and Digicel as previously announced the exit from Panama.
During the fourth quarter 78, 5% of consolidated cash site leasing revenue was denominated in U S dollars the.
The majority of non U S. Dollar denominated revenue was from Brazil, with Brazil, representing 15, 1% of consolidated cash site leasing revenues during the quarter and 12, 1% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the fourth quarter was $485 9 million.
Our tower cash flow margin remained very strong as well with a fourth quarter domestic tower cash flow margin of 85% and an international tower cash flow margin of 69, 4% or 99%, excluding the impact of pass through Reimbursable expenses.
Adjusted EBITDA in the fourth quarter was $467 million.
The adjusted EBITDA margin was 68, 1% in the quarter again impacted slightly by outside services revenue.
Excluding the impact of revenues from pass through expenses adjusted EBITDA margin was 73, 1%.
Approximately 96% of our total adjusted EBITDA was attributable to our tower leasing business in the fourth quarter.
During the fourth quarter our.
Our services business had another very strong quarter with $76 $5 million in revenue and $19 $3 million of segment operating profit.
We finished 2022 with our most successful services year in company history as measured by both revenue and profit by a very wide margin.
Services backlog remained very healthy at year end, although off the record high hit earlier in 2022.
Our fourth quarter services results were again, primarily driven by T mobile and Verizon.
Adjusted funds from operations or <unk> in the fourth quarter with $347 million.
<unk> per share was $3 12 and.
An increase of 11% over the fourth quarter of 2021.
<unk> results finished ahead of our prior outlook, but were still negatively impacted relative to our outlook assumptions by our early refinancing of $640 million of secured tower revenue securities in November at a higher interest rate than the retired debt.
During the fourth quarter, we meaningfully expanded our portfolio acquiring 2642 communication sites for total cash consideration of $736 $7 million, which includes 2632 sites acquired from Grupo <unk> in Brazil for approximately seven.
<unk> hundred $25 million.
During the quarter, we also built 162 new sites.
Subsequent to quarter end, we have purchased or under agreement to purchase 31 sites all in our existing market for an aggregate price of $23 2 million we.
We anticipate closing on these sites under contract by the end of the second quarter.
In addition to new towers, we also continued to invest in the land under our sites during the quarter. We spent an aggregate of $15 9 million to buy land and easements and to extend ground lease terms at the end of the year, we owned or controlled for more than 20 years, the land underneath approximately 70% 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 initial outlook for full year 2023.
Our outlook reflects continued year over year growth across our leasing business, including an increase in organic leasing revenue contributions from new leases and amendments largely due to the strong new leasing activity we experienced during 2022.
We also forecast significant revenue growth contributions from Nonorganic conditions, primarily as a result of having the assets acquired from GTS in Brazil, and our results for a full year in 2023.
In addition, our leasing revenue outlook contemplates increased impacts from customer churn in 2023.
Domestically the increase was mainly in connection with anticipated sprint related decommissioning some of which we had previously expected in 2022.
Due to the timing shifts with some of these decommissioning, including during the fourth quarter. We are now, including an estimate of $25 million to $30 million, Brent related churn and our full year outlook.
Our previously provided estimates of aggregate sprint related churn over the next several years remains unchanged.
Internationally, our outlook includes increased churn as well, including carryover impacts from Digicel in Panama and carrier consolidations in Central America.
In addition, our international churn includes approximately $10 million associated with an agreement we have entered into with Tim Brazil to address their consolidation of a portion of Oi wireless.
Agreement has accelerated certain fern impacts with us in exchange for longer term business commitments from 10, and we believe positions us well for a long mutually beneficial relationship with him.
Our 2023 outlook does not include any other churn assumptions related to the Oi consolidation, but if during the year, we were to enter into any further agreements with other carriers related to this that have an impact on the current year, we would adjust our outlook accordingly at that time.
With regard to our services business, our full year 2023 outlook reflects a year over year decline in revenues and adjusted EBITDA contribution.
It's ahead of where our 2022 outlook started.
If not for the phenomenal 2022 services results our outlook for 2023 would represent the best year for services in our company's history.
As I mentioned, a moment ago, we continue to have very healthy services backlog and as a result, we expect another very strong year for this business.
The outlook does not assume any further acquisitions beyond those under contract today and also does not assume any share repurchases.
However, we are likely to invest in additional assets or share repurchases or both during the year.
Our outlook for net cash interest expense and for <unk> does not contemplate any further financing activity in 2023, but it does assume we deploy excess cash into repayments of our outstanding revolver balance.
Under this assumption, we would end the year with leverage in the mid six times area, but we project that we would still incur approximately $36 million of increased net cash interest expense compared to 2022.
Finally, our outlook for <unk> per share is based on an assumed weighted average number of diluted common shares of $109 6 million, which assumption is influenced in part by estimated future share prices.
We are excited about 2023, our customers remain active and we expect to produce very strong results as we help them to achieve their network build alcohol.
Before turning the call over to Mark I would like to take just a moment to discuss the succession plan announced this afternoon.
I am truly honored to have been entrusted with the leadership of this tremendous company.
I've had the privilege of spending the last 25 years that SBA and spending all of those years working closely with Jeff as the company has grown significantly under his leadership.
Jeff has been a great friend and mentor to me.
Look forward to continuing to have his counsel as chairman of the board.
I am very excited about the future of SBS, we have an amazing business that is part of a great and still growing industry.
Our financial strength, and very talented leadership team position us well to be a critical support to our customers and to capitalize on many future opportunities.
Greatly look forward to working with the rest of the SBA team to continue rewarding shareholders and building upon the company's great legacy.
With that I'll turn things over to Mark who will provide an update on our balance sheet. Thanks, Brendan we ended the quarter with $13 billion of total debt and $12 8 billion of net debt our net debt to annualized adjusted EBITDA leverage ratio was six nine times, which is below the low end of our target range notwithstanding our significant Brazil.
GTS acquisition during the fourth quarter.
Fourth quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a very strong four seven times.
During the fourth quarter the company through an existing trust issued $850 million of secured tower revenue securities, which have an anticipated repayment date of January 11th 2028, and a final maturity date of November nine 2052, the fixed interest rate on these securities is six point.
99%. The net proceeds of this offering were used to repay the entire $640 million principal amount of our 2018 <unk> tower Securities, which had an anticipated repayment date of March 2023, as well as the pay certain amounts outstanding under the company's revolving credit.
<unk> and for general corporate purposes subsequent to quarter end, we continue to use cash on hand to repay amounts outstanding under the revolver and as of today, we have $585 million outstanding under our $1 5 billion revolver.
The current weighted average interest of our total outstanding debt is three 1% with a weighted average maturity of approximately four years. The current rate on our outstanding revolver balance is six zero percent.
The interest rate on 93% of our current outstanding debt is fixed.
During the quarter, we did not repurchase any shares of our common stock as we allocated capital to repay amounts outstanding under our revolver as a result of the GTS acquisition.
We currently have $504 million.
Repurchase authorization remaining under our $1 billion stock repurchase plan.
The company shares outstanding at December 31, 2022 were $108 million compared to $109 million at December 31, 2021, a reduction of <unk>, 9%. In addition, during the fourth quarter, we declared and paid a cash dividend of $76 7 million or <unk> 71 per share.
And today, we announced that our board of directors declared a first quarter dividend of <unk> 85 per share payable on March 24, 2023 to shareholders of record as of the close of business on March 10, 2023. This dividend represents an increase of approximately 20% over the dividend paid in the fourth quarter and with that I'll now turn the.
Call over to Jeff.
Thanks, Mark and good evening, everyone. The fourth quarter was a strong end to one of the best operational years in our history.
For the full year 2022, we beat the midpoint of our original full year guidance for revenue by almost 8% per <unk> per share by 5%. We grew our tower portfolio by over 15%, including entering into a new market in Tanzania, which has gone very well, we had a very strong year for lease up including one of the.
First ever internationally, our services business had its best year ever beating the midpoint of our original outlook for services revenue by 46% and.
And we grew and expanded our relationships with our largest customers worldwide setting us up for a bright future during the fourth quarter. Our domestic same tower leasing revenue growth was the highest of the year.
All of our largest U S customers remained busy during the quarter with relatively balanced contributions from each of them as they continue to adding equipment to sites in support of the deployment of new spectrum bands.
Evidenced by our full year 2023 outlook, we expect the contribution to revenue growth from domestic leases and amendments to be good again this year.
And we expect all of our largest customers to stay relatively busy with additional network deployment during 2023, although perhaps at levels slightly below the peak periods of activity, we experienced in 2022 each.
Each of the largest U S carriers still have significant remaining network needs. So we are confident we will see solid activity on our domestic our portfolio for years to come.
Yes.
Internationally, we ended the year with another very strong organic leasing quarter during the fourth quarter, 60% of new business signed up in the quarter came from amendments to existing leases and 40%. Thanks to renewed leases international leasing activity was ahead of our internal expectations and led by strong contributions from Brazil.
South Africa in Tanzania, our largest markets in 2022, Brazil in.
In particular, a very strong year lease up in Brazil for the year was well ahead of internal expectations and we also had a larger than anticipated contribution from CPI based escalators.
We realized material portfolio growth in Brazil, primarily as a result of the GTS acquisition for which the integration is going very smoothly.
The foreign exchange rate fluctuations have stabilized over the last year and we're actually a slight tailwind to our 2022 results as Brendan mentioned, we recently entered into an agreement with one of the three major carriers in Brazil to address <unk> consolidation issues that our broader long term relationship and we may do something similar.
With our other major customers in that market. We believe there are great opportunities for future growth in Brazil, particularly with recent <unk> spectrum auctions as the driver.
One item we are watching in Brazil is always recent filing for injunctive relief from some of their debt payments. We currently expect that Audi Mazda and will continue to pay their operational vendors, including rents power providers and to date, we've had no collection issues, our financial exposure to the oil is much reduced given the recent sale of most of their <unk>.
Wireless operations to the other three mobile carriers in Brazil, with Oi, representing approximately three 5% of our total international revenue.
Our sites are critical to the operation avoid network and we have very long term leases as a result, we will likely see little impact from this latest filings. However, we will of course continue to monitor the situation closely.
Moving on now to our balance sheet, we remain in a very strong position during the fourth quarter in order to address the nearing maturity date, we completed a new five year ABS offering.
And while the interest rate was higher than we would've liked we were very pleased with the significant level of demand for our offerings. We continue to be a preferred issuer with extremely good access to capital.
While we have good access to additional debt capital, we will be very thoughtful this year when considering issuing incremental debt in the current rate environment, which would only be done for a compelling use of capital similar to our tangible and GTS acquisitions in 2022.
Completion of this refinancing we now do not have any debt maturities until October of 2024.
We finished the year with 93% of our debt fixed keeping us largely insulated for the time being from significant interest rate fluctuations.
Even with the GTS acquisition, we ended the year with a net debt to annualized adjusted EBITDA leverage ratio of six nine times below our target range, the strength of our operations and balance sheet and the steady growth in our cash flow allowed us to once again announce an increase of nearly 20% in our quarterly dividend.
This increased dividend still represents only approximately 27% of our projected <unk> on our 2020 outlook, leaving us substantial capital for additional investment and portfolio growth.
Repurchases and revolver payments the strength of our business and capital structure was recently recognized by the rating agency standard <unk> Poor's since our third quarter earnings release, S&P increased our corporate rating to double B plus.
Only one notch below investment grade.
A good development, we do not however, add the specific goal of being an investment grade company.
Should we continue to use <unk> to pay down our revolver and reduce leverage that would be a tactical choices to generate a guaranteed return the higher interest rate environment compared to other uses of capital.
A change in our long term views on the use of leverage.
We would be building capacity and biting our time for the next opportunity to issue incremental debt at more attractive rates, we believe the stability and financial strength, we offer provides shareholders strong opportunities for additional value creation.
Okay.
I want to end on our success you lose the board and I have been working on succession planning for several years, we appropriately considered the pros and cons of an external search versus the appointment of an internal candidate as our next CEO .
Brendan has for many years been grown does the leading internal candidate to be our next CEO with increasing internal and external responsibilities.
We are confident we have made the right call.
Brendan is an extremely talented executive equally adept with internal or external matter strategy and shareholder value creation.
His knowledge of SBA and our industry are without equal.
He is well known and respected in the investment community.
SBA has an extremely bright future in his hands and I get to remain very involved and invested in that.
As the future chairman of the board.
So a little bit about my decision.
Very difficult as you can imagine given my love for involvement with SBA for more than 25 years.
<unk> is a very simple I turned 65 this year.
I've reached a point in life, where I wanted to do some things while I still can.
Do while running the SBA fulltime things like spending more time with family with a growing number of branches travel spending more time at our home in South Carolina and charity work.
Very basic reasons that I believe we all consider at various times in our life.
With these things buying for my time and attention. It became clear that now is the right time to turn it over leadership with Brendan on the next generation of our exceptional leaders.
As you can see from our fourth quarter results and full year 2023 outlook.
I am retiring at a time when Sba's financial health and prospects are extremely strong.
I want to thank all of you on this call or otherwise that have played a role in SBA success over the years, we have accomplished a lot, but it certainly has taken the work of many.
I consider myself extremely fortunate to have had the opportunity to lead such a talented group of individuals as we have at SBA and to have been able to interact and build relationships with a much larger group of customers constituents friends.
<unk> partners and others, who have all contributed to our success.
And with that Eric we are now ready for questions.
And ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if you're using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you May press one zero at this time and our first question.
Comes from the line of Ric Prentiss with Raymond James. Please go ahead.
Thanks, Good afternoon everybody.
Correct.
Okay.
First Jeff Congrats grandbabies or plant I know youre going to have fun with them as I am and blend and looking forward to working with your new role.
Thank you Rick Thanks, Rick.
Two questions if I could first.
As you think about carrier spending for wireless obviously, they need to make sure there is revenue and demand out there.
What are you all.
Are the most exciting <unk> applications that are coming and worthy customers actually start to get with <unk>. So that's the first question.
Yes, I think that is the seminal question Rick.
And I think too.
To be honest with you I can't name <unk> application that exist today that is kind of in the guy to have category and I think thats what.
The whole ecosystem of wireless is waiting on.
And when that happens.
I believe it's a question of when not if.
Youre going to see a heightened sense of needing to invest.
Invest and.
Make sure that the competition doesn't get too far ahead, but until that.
Comes along I think it's sensible for our customers, particularly ones that.
They have some.
It promises to the street on free cash flow and things like that I think too.
To moderate and.
Based on all the commentary and what we heard from Ericsson yesterday, I mean, thats whats going on.
And then a little more boring question for the second one how should we think about the.
Site leasing revenue growth pacing into the year as COVID-19.
The front end loaded versus were unloaded and it looked like there was a couple of major.
Revenues Theres items for other well known in the U S and 8 million for international So maybe unpack that a little bit about what those are.
Yes, Rick.
<unk> seen.
This year, we would expect will be higher growth in the first half of the year with a slight step down in the second half of the year.
That obviously is dependent somewhat on our leasing activity goes in terms of signing up new business here in the first half of the year, but.
The first half is pretty much locked in for the most part based on the success of the leasing activity. We saw at the end of last year.
Your second part you were breaking up just a little bit I think you were asking about the other on international is that.
And so it was like $12 million 8 million International what should we think those are.
Yeah. So it's.
A variety of things in the case of.
International there are some increases to pass through expenses.
Which is the main driver and then in the U S. It's a mixed bag there is some other.
What we kind of call cash basis revenue that we've assumed will come in in the first half. So it's things like that that's really just our estimate of the year over year change as opposed to an absolute change as the business gets a little bit bigger of those things tend to grow.
And again, congrats Jeff and enjoy it at the time the degree of babies.
Thanks, Rick.
Yeah.
And our next question comes from the line of Phil Cusick with J P. Morgan. Please go ahead.
Hey, guys congratulations to both of you, Jeff and Brendan well deserved.
Thanks, Bill Thank you Phil.
I Wonder if we could just talk about the sort of pace that you assume.
Either acceleration or deceleration among your carrier customers this year.
It seems like through last year, you were sort of looking for somebody to pick up and maybe they havent yet while others to set an expectation will be slowing down this year, what kind of visibility do you have today.
Well, we've got decent visibility as I, just mentioned to Rick <unk>.
Generally we expect things to be declining in terms of the growth rate from the first half of the year into the second half of the year. The mix varies by carriers. We had a couple of carriers that were extremely busy last year, we expect them to still be busy this year, but perhaps not at the same pace. So I think that's probably the main driver.
Those that are picking up that will really just be dependent on the timing.
When we see that accelerating so I think if you look at last year and you look at the pace at which it increase throughout the year, it's probably a little bit more of a modest decline this year than it was an increase last year.
And I'm just curious we still have several.
Our more than one, let's say picking up and really it's just the delta between.
You know, what what decelerate versus what accelerates.
But they're not all moving.
As you know, they're not all equal in terms of their build outs and what they've accomplished.
So the ones that are furthest ahead.
You know are likely to have.
More on the deceleration sides and the ones that still have a long way to go will be accelerated.
Jeff we've been three years in the past, where you've been pretty cautious to to build in that acceleration in your guidance until you see the orders coming through is it fair to say that you are fairly cautious on that acceleration in the current guide.
Yeah.
In the aggregate, yes with respect to certain.
Individual U S carriers, I mean, we know that there will be.
Some acceleration in 2023.
Okay, but again and then.
The Guy the guide as to the aggregate not to an individual carrier.
Thank you and then if I can one more just how do you think about the math on buybacks now right last quarter, you made clear that borrowing money at the current rates.
And buying stock where it was then just didn't make a lot of sense in terms of accretion.
I thought your comment today about sort of waiting.
Four.
Better opportunities was interesting do you think that either the.
Private markets are going to start coming around given where rates are or do you anticipate that sort of ratio between the current stock price and the current borrowing rates will change.
Well with the revolver you have a guaranteed return 6% right to pay that to pay that back and the.
The corollary to that is is the 16 times at least on today's <unk> accretion of 16 times.
Acquisition or stock repurchase.
We're always going to be stock repurchases, so and it's really a question of picking the right time against the right.
Cost of debt capital and that May there may be very well opportunities to do that this year and we will do that.
In terms of acquisitions I do think the market is.
<unk>.
Narrow the gap a little bit, but there's still a gap.
And if we see opportunities like we did Tanzania GTS.
We'll take a hard look but.
You know, we're very financially driven and something.
Something will have to look.
Better.
Short long medium term.
And then repaying our corporate revolver.
We do think that interest rates will come down over time.
We are going to be betting on the side of the fed that they reduce inflation to 2%.
Over time, and we know what effect that will have on interest rates and when that plays itself out we will have.
Put ourself in a great position to access incremental debt at prices that will be much more.
Creatives to what we're doing and we're.
We're happy to do that and wait for that time.
Great.
Okay. Thank you congratulations again.
Thanks.
Okay.
And the next question comes from the line of Simon Flannery with Morgan Stanley . Please go ahead.
Thank you good evening and congrats to you Jeff Brendan.
On leverage I think you've noted a couple of times six nine below the.
Target leverage level, so it sounds like even though you referenced perhaps getting to mid sixes theres really no change despite the rate environment and your long term target of 7% to seven on the half just wanted to clarify that and then one of your peers noted on the earnings call in January that.
They are only seeing the big three carriers, adding midcon spectrum to about half of the towers in their portfolio. It would be great. If you could just comment on what youre seeing with your.
Your activity from those companies.
Yes.
<unk>.
What you said about how we're thinking about leverage is absolutely correct. Simon This is Chris.
This is a period of time that we're.
We're tactically ste.
Steering.
And we may not we may see an acquisition tomorrow that looks.
Much better than paying down the revolver at 6% and if we do that's what we will do.
But if we don't the natural.
Result of the cash flows that we generate will be deleveraging, but it would only be temporary until such time as we believe.
The incremental bad at the prices that are available will create additional value.
That's what we will do.
Yeah and then.
On the.
Carriers, adding mid band is only half the sites.
I can't speak to what the others were talking about I think it's our belief and expectation that they will add it to the vast majority of their sites.
Comment may have been related to where they are today, which for each priority priorities.
And there's still a long way to go I think is is the overarching message here.
A lot of our sites have not been touched yet but.
Based on backlogs and communications with our customers, we expect that that will will come over the coming years.
And accurately if youre if youre speaking.
Today Simon.
We actually think that we're a little bit less than that on the aggregate for all three so theres a lot of work left to be done, but it ties into the question. Ricky is first that what is the.
What is going to cause the carriers too.
Really spend everything this year to get there.
And I think we have to see the killer free up that that is going to provide the impetus to do that.
Sure.
Just to clarify I said three G at five.
Alright.
This is probably not a year, where you necessarily will hit that 5% to 10% portfolio growth you were strong last year, but if the opportunity is there you will do it but you are not going to just do it to keep up.
That sort of target.
No no and if you look at what we've done over the last 10 years on that metric of portfolio growth I think we're well north of 10% so.
It's not every year necessarily this may not be the year that we do that but we did 15% last year.
So I think overall, our views around portfolio growth and leverage have not changed.
Great. Thanks, a lot.
Yeah.
And the next question comes from the line of Greg Williams with Cowen. Please go ahead.
Great. Thanks for taking my questions and just echoing the congrats to Jeff and Brendan just wanted to revisit the M&A landscape question I mean, there seems to be two camps on where multiples are headed and the private assets one is <unk>.
Some believe private capital is going to that's on the sidelines eventually going to dry up in private multiples could come down a bit the other camp notes a scarcity of assets across the U S assets and the tower multiple should stay elevated it sounds like youre waiting for rates to come down. So the multiples will stay higher I'm just curious to hear your thoughts on those views.
Second question is just on.
Service margins I mean, your service revenues coming down understandably from our record levels, but how should we think about the type of service activity and the margins year over year. Thanks.
Well I mean rates versus multiples if you look at.
Any kind of traditional economic analysis, there should be a relationship between one and the other.
We didn't see a lot of that over the last couple of years.
As rates have gone up multiples really did not.
Drop the way they should have at least.
Using our math.
That's starting to change a little bit and and we'll have to see we'll have to see whether.
<unk>.
The amount of private capital on the sidelines.
Well long term push returns down in the acquisition market.
Across the board, we're not prepared to invest with those returns we've got we've got higher higher goals.
And we.
Pick and choose and so far I think we've been pretty pleased with the.
The capital that we've invested versus the return that we're seeking.
But I think it remains to be seen.
And then Greg on your services margin question.
Our outlook.
Assumes a slightly lower margin for services.
Work this year and that's based on primarily just a slight shift mix sorry shift in the mix of whether it's construction or <unk> type of work. So the construction stuff is usually a little bit lower.
Margin also a mix on the types of work and who are doing the work for has some impact but from a big picture standpoint, it's a fairly small.
Drop from what we had last year and we'll see how it shakes out if it ends up being the same.
We'll have slightly better results than we projected.
Got it thank you.
And the next question comes from the line of Michael Rollins with Citi. Please go ahead.
Yeah.
Okay.
For the first question and I'll preface this by saying that I realize it hasnt even been two hours since you've given the full year 2023 guidance, but our COO.
A question that keeps coming up.
If the second half of 2023 in the U S business Decelerates.
What does that mean for growth in 2024.
Jeff I realized you made some comments both in the release and on today's call about some of those prospects, but just wondering if you could put more color on how you'd like investors to feel about this multiyear transition and leasing opportunity. If you could put some guardrails around it and then just second.
Lee.
If you can give us an update on what the build to suit opportunities might look like more broadly over the next few years and is there a way to accelerate that program to get greater portfolio growth.
Yes, I think the way we think about leasing.
Michael is there is a lot.
Of work left to be done on our assets domestically and internationally to deploy <unk>.
Multiple years' worth of work.
But ultimately whether how far that goes and at what pace will depend on how much and how fast.
Carriers want to spend money.
So.
It's going to we're confident it's going to occur.
It's just a question of.
When when and at what pace, but the physical work that is yet to be done is there's tremendous theres just a lot a lot left to be done now.
I guess you could take that because if you were a nice there you could take the position that well they are just never going to deploy all of that.
For them that they spent all that money on but that seems to be a bit foolish.
No.
Those are the guardrails that we're looking at.
And right now and this could certainly change based on.
Pick ups in activity.
That we're going to have a very strong 2023.
Whereas the first half is weighted more heavily in the back half.
And in terms of build to suits.
You know were.
We're pushing that.
That business line, both in the U S and internationally.
We continue to be so.
They actually driven and the investments that we make in that area.
So not every build to suit is necessarily at least in our view.
An appropriate return on capital.
But where.
We're going to seek out and try and take all of the ones that we think do fit those goals.
And just a curiosity, where our year one returns for the build to suit program.
Well, we're looking for you know 910, 11% cash on cash returns and that's.
That's not every opportunity that's out there.
Yeah.
Multi year year, one will obviously vary depending on specific situations and frankly that is.
The analysis around Newbuild opportunities is not it's not that different than it is for M&A.
A lot of these opportunities are competitively bid like the M&A deals are there just competitively bid with typically with carriers handing out those opportunities. So we do our best when we're able to find strategic opportunities to build but but the volume. There is obviously less on the build to suit opportunities.
We're making a financial decision. So we would certainly like to continue to boost our portfolio numbers, but it's all about the financial returns and so we'll be selective there just like we are on the M&A market.
Thanks.
And next we'll go to Brett Feldman with Goldman Sachs. Please go ahead.
Thanks, and I'll, just echo everyone else's, congrats both Jeff and Brendan.
Two questions one the SG&A looked a little higher than we thought I wasn't sure if that's.
Step up related to some of the assets you acquired in the quarter or if maybe there was any inflationary pressures that are flowing through the P&L that we need to be thoughtful about as we model out next year or this year and then you pointed out that the dividend payout is still a very low percentage of your <unk> I'm. Just wondering where are you in terms of the payout relative to your your taxable income.
And do you anticipate that the payout is going to be able to remain at a relatively low portion of your <unk> or if it's something on the tax component of that changed quickly over the next few years. Thanks.
Yes.
So on the I'll do the dividend one first.
Have pretty significant NOL still.
Believe the number is somewhere around $585 million of Nols as of the end of the year. So that gives us a decent runway.
And we should be able to keep our our percentage of assets, though at a manageable level and although it will grow certainly each year. If we continue to grow our dividend at the same pace we have been.
I still think we've got many many years left based on how we model it out.
On the SG&A side.
Going forward.
We did include certain bigger increases in our outlook that are largely around inflationary type costs. Most of our SG&A is people related costs and on average, we're giving bigger increases.
People this year than we have in past years.
Cost of living is increasing and also be competitive in the marketplaces that we're in so it's mostly that theres nothing in particular I think to call out on.
Otherwise, yeah, but I would echo you ought not assume that that's going to be the same pace of increase over a multiyear period breath right.
Thank you.
And the next question comes from the line of Nick deal with SVP Moffett Nathan. Please go ahead.
Hey, Thanks for taking my questions and Jeff and Brendan again, I also want to Echo others' comments and congratulate both of you on the upcoming changes.
Yeah, I guess first you noted in your prepared remarks that revenue placed under contract in Q4 wasn't quite as strong as in Q3 and your backlogs it ticked down a bit are.
Are these changes have a magnitude you'd consider.
Kind of typical in the course of business and to be expected and can you share anything about what <unk> seen year to date in 'twenty three along those lines.
I mean, there are clearly part of the cycle of wireless deployments over the last 20 years mix, we actually were.
We're looking at it.
<unk> internal charts today about you know the.
The pace of activities on a quarterly basis.
In this period of time.
Really with some one of the longest that we've seen.
Back to before the <unk> upgrades, so it's not.
It's not unusual and.
Deep down.
There's two things that our customers.
Really care about are they are they losing ground because there's some kind of great competitive.
Pressure coming from somewhere and.
What's their free cash flow and what are the what are they promised the investment community and what I think is going on now is simply a balance of that.
But I I would steer people to the comments, we made earlier about this being a temporal thing because of the physical amount of work yet to be done to bring five G.
At least to our assets.
Still a lot left.
Okay. Okay, and then I also wanted to drill down a little bit into the agreement you reached with Tim I think you said there would be about $10 million in churn from that in 2023 does that take care of all of your expected boy churn from Tim.
Are there any benefits to SBA aside from the term extension.
And just think about or more generally I think in the past you. You said you expected about $20 million to $30 million in total churn.
With this deal done should we assume you'll call it $10 million to $20 million from the from the other acquirers are you now able to tighten that up some.
Yeah first yes.
Yes. This would account for all of the order consolidation related churn with him there should not be anymore based on the agreement struck.
The total remaining.
Be in the ballpark I would say that it's a little bit higher because of the GTS acquisition. If you recall, so I would call it.
Three to 33.
Sorry, that's a total of 23% to 33.
Minus 10, so yeah.
Yeah, I mean, I think I think we are.
We'll see where things go with the other carriers down there as we have conversations so those are to be seen but for Tim this should be a.
Okay.
Okay.
Okay.
Oh, yes, sorry, and then.
Aside from the term extension nothing else.
Yeah, I mean that there there are some other things there are some other business commitments that are part of the agreement as well.
And there's a variety of smaller things, but then the main just a this is some accelerated discount to their leases.
Long term commitments across the entire portfolio, including non oil related agreements and some future business commitments.
Okay. Okay. Thank you.
Yes.
Yeah.
Yes.
And our next question comes from the line of David Barden with Bank of America. Please go ahead.
Hi, everyone. This is Alex on for Dave first off just wanted to send our congratulations to you both Jeff and Brendan maybe.
Maybe just first on the international new leasing just flat year over year.
Just the expected cadence for that should that should we see that kind of ramp up through.
Through the year and exiting 2023, and then I know, you're just kind of touched on some of the carrier dynamics in Brazil could you could you maybe just touch on the spectrum auction as well as the recent presidential election last year. Thanks.
Yeah, the Internet the international leasing revenue cadence should be fairly balanced throughout the year. Unlike in the U S. When we talked about it a decline that's really U S related internationally, we would expect it to be pretty steady throughout the year.
Yeah.
And then on the other I'm sorry, the other carriers in the <unk>.
Auctions auctions.
I mean were they.
Those auctions have put spectrum into the hands of these carriers with the consolidation now of Oi.
It's going to we believe it's going to actually be positive long term once they kind of get beyond the synergies theres. Some work to be done here in this first year or two post.
Merger, but I think as they get beyond that in order to compete as we believe they will now much more on network quality and <unk> services.
We expect that to be a big driver of leasing growth going forward and just as it happens here in the U S and in other markets the need to put that spectrum to work is the only way to get that investment to pay off so.
We believe theres a lot of opportunity longer term now in Brazil as a result.
And in terms of the political landscape Lula.
Obviously took the presidency, but.
<unk> bolstered narrow group.
So the rest of Congress. So you have what you have similar to the United States, which is a split Congress.
And.
When that typically happens it's the same that occurs here, which is it's very hard to get anything done there materially and that ultimately.
I think in order to the benefit of existing businesses. So we built in the current landscape, where you have that kind of a split representations.
We don't anticipate anything material coming out.
Thank you.
And our next question comes from the line of Brendan Lynch with Barclays. Please go ahead.
Great. Thank you and congrats to Jeff Brendan on the new developments.
There was a lot of questions on M&A.
Maybe you could just discuss potential new markets and give us an update on the Philippines, and Tanzania, and then secondly, Brendan if I heard you correctly.
Any collections issues related to Oi.
But accounts receivable did pick up about 67 million quarter over quarter maybe.
Maybe you could provide some color what's behind that thanks.
Yeah on the last one that the tick up is really actually just a timing issue in terms of collections because of the year and it's as simple as where the holidays fall and where payments were made plus there was some some services related they are.
That we expect will actually come down over time.
Yeah in terms of M&A I mean, we continue to take an opportunistic approach.
Two new markets, we will go into a new market based on our demographic and operational analysis as well as country stability risk taxation currency.
So.
You know with with.
But certainly some exceptions that we would never look to go into under current circumstances any country that we're not in today.
It's a potential.
Opportunity.
Tanzania is doing very well Tanzania is ahead of our internal projections and the modeling that we did at the time of the acquisition.
It is a dynamic country that is growing and we're very optimistic about the future of intangibles.
Great. Thank you next.
Next question.
Next question comes from the line of.
Yeah, Levi with Europe , I'm, sorry, with UBS. Please go ahead.
Great. Thank you congrats to boats.
Couple of questions first on the domestic churn.
Been pushing it out throughout the last year or so is it truly just timing or do you think that some of that decommissioning activity that the carrier anticipated is actually not going to pan out or is it a mixture of both and to the extent that you see activity from carriers.
They support fixed wireless service.
Have you started to see some incremental amendment activity in that region or is it too early to tell them. Thank you.
On the domestic churn the timing, which is all sprint T. Mobile merger related is truly just timing, we expect that the total amount that we will incur will be the same as what we've kind of guided to in the past. We just we just think it takes a little bit longer.
To get some of that done but we.
We don't expect any changes.
Yeah and in terms of the fixed wireless.
You know, we believe what our customers say that that is basically is a product that results from excess capacity that currently exists in the network after.
At least where they have deployed a lot of mid band spectrum.
That really just works off the existing macro site, yet so we haven't seen anything that we would clearly and particularly identify as incremental although there have been some reports.
We're microwave millimeter wave spectrum would be.
Broadcast off the <unk>.
Macro sites to help with the fixed wireless initiative.
We hope that comes to pass obviously, but we havent seen <unk> seen.
Seeing that happen just yet.
Alright, thank you.
And our next question comes from Brandon <unk> with Keybanc. Please go ahead.
Hey, thanks for taking the questions.
<unk> question for you the guidance for at least I'm afraid I'm going to ask Theres, just a different way than everybody else asked it but the guidance for leasing for $72 million.
Exhibited at about $21 million this quarter on my numbers. So it seems to imply an exit rate in 'twenty $315 million to $16 million I guess is that right.
And then as we think about building our forecasted 24, if you're exiting around that level.
Historically, you guys have grown new leasing by $40 million to $50 million cap what would be the swing factors.
In terms of keeping that $15 million to $16 million exit rate holding steady in 24 versus maybe trended more thanks.
Yeah.
That's in the right ballpark Brandon in terms of where we would think that we'll exit that sort of what's assumed in our $72 million number is that it's in that range.
What would swing it in terms of what happens after that is really dependent on what happens in terms of new bookings signed up during the second half of this year.
The pace of that if it's.
Head of our pace, it's not going to have much impact on our assumed pace, it's not going to have much impact on 2023, but obviously it will drive what happens in 2024 so.
It's a little early to be able to talk about that obviously, but the biggest impact is going to be based on what's happening in terms of new business, we're signing up the second half of this year.
I guess, just a follow up on that too.
Two of your larger customers sort of guided us to lower capital spending in 'twenty three 'twenty four.
So I'm curious what would drive that.
Leasing number to ever be better than $72 million do we need to see another spectrum auction, they're going to be another sort of massive ground a densification of existing inspection spectrum bands is it a new customer is going to be a new <unk> use cases, just trying to get a sense of sort of your thoughts around <unk> more holistically in that regard.
Yes, I think that it's really a function of how many of our customers are hitting on all cylinders at the same time, it's usually just concentration more than it is anything else our biggest lease up periods throughout our history of come when all of our customers have been busy at the same time.
Usually that's the biggest driver if if you have them do it over time, it just basically spreads it out more but it doesn't necessarily change the total so.
That's probably the biggest answer I mean, obviously there are other things that are out there that are more specific I mean dish has certain obligations in 2025 that of course could be a driver to activity levels with them T. Mobile's Scott C band spectrum, that's clearing at the end of this year as well as $3 45, they havent really deployed any of that so there's a variety.
We have specific things that you can point to by carrier that could be drivers of accelerated activity at a given point in time, but that's really to.
To be seen in terms of the timing ultimately, though we expect all of those things to drive incremental business to our site and it's just a question of when that happens and I would just add and this comment goes throughout all the comments.
We've been careful with our with our guidance with our commentary not to get ahead of our customers.
Ultimately the answer to your question is how much money, they decided that they're going to spin.
Yeah.
Yes.
Thanks.
We're not going to change the amount of money, they're going to spend and they're going to they're going to spend what they decide they need to spend under the current competitive capital and other dynamic.
Thank you.
And our last question comes from the line of David Guarino with Green Street. Please go ahead.
Hey, Thanks, two questions on your guidance I'll ask them both upfront first one on the escalation guidance for your international markets. I was wondering if you could just comment on why given the higher CPI last year, why we see it we're seeing flat.
And that number year over year, and then on your discretionary Capex guidance I'm, assuming there's no acquisitions included in there, but it looks like it's going to be up pretty significantly versus last year is that some data center investments or is there any other.
Type of Capex, that's driving that higher in 'twenty three.
Yeah, so on the international Escalations, the dollar amount its flat to <unk>.
<unk> was certainly elevated during 2022, we are projecting it to be lower in Brazil, which is our by far our largest international market in 2023.
But it's while it's lower next year, the timing of Windows Escalations take place has an impact so some of the higher escalations in 'twenty two some of that benefit carries over into 2023, and our assumed lower rate. Obviously, then offset some of that benefit plus we have a little bit bigger base of business of course with the GTS.
Acquisition in particular, so when you put it all together we ended up with basically about the same dollar amount of growth impact, but we are assuming that the CPI rates come down year over year. So that's offsetting what you might otherwise see is an increase in on the discretionary capex. There is a small amount of contracted M&A in there, which we actually disclose.
How much is under contract and our COO.
Press release, but but the balance of that is made up of assumptions. We've made around new builds around data center upgrades around some das networks that we're investing in basically everything else. The only thing that we don't include in there as an assumption around M&A, because it's obviously lumpier and hard to identify what that.
It's going to be sitting here today, but the rest of our discretionary investment plans.
The guidance kind of reflects those assumptions.
Great. Thank you.
Okay.
Okay.
And we have no other questions in queue I'll turn the conference back over to you.
Alright, Thank you Eric and thank you everyone for joining us we look forward to.
Advising you on our progress in 2023, as we move through the year.
Yeah.
Yeah.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation for using AT&T conferencing service you may now disconnect.
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