Q2 2023 SBA Communications Corp Earnings Call
Continue to hold.
[music].
Okay.
Yeah.
Okay.
Okay.
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the SBA second quarter earnings results Conference call.
At this time all participants are in a listen only mode.
And later, we will conduct a question and answer session and instructions will be given at that time.
If you should require assistance during the call. Please press Star then zero.
And I would now like to turn the conference over to our host Vice President of Finance Mark de Rossi. Please go ahead.
Good evening and thank you for joining us for Sba's second quarter 2023 earnings Conference call.
We 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 today's press releases and our SEC filings, we detailed material risks that may cause our future results to differ from our expectation.
Our statements are as of today July 31, we have no obligation to update any forward looking statement. We may make in addition, our comments will include non-GAAP financial measures and other key operating metrics a reconciliation of and other information regarding these items can be found in our supplemental financial data package.
Which is located on the landing page at our Investor Relations website with that I will now turn it over to Brendan to discuss our second quarter results.
Thank you Mark good evening, we had another steady quarter in Q2 with solid financial results that were slightly ahead of our expectations base.
Based on these results and our updated expectations for the balance of the year. We have increased our full year 2023 outlook for site leasing revenue tower cash flow adjusted EBITDA and <unk> per share.
Total GAAP site leasing revenues for the second quarter were $626 $1 million in cash site leasing revenues were $618 7 million.
Foreign exchange rates represented a benefit of approximately $1 $9 million when compared with our previously forecasted FX rate estimates for the quarter and a headwind of $4 $2 million when compared to the second quarter of 2022.
Same tower recurring cash leasing revenue growth for the second quarter, which is calculated on a constant currency basis was four 3% net over the second quarter of 2022, including the impact of three 9% of churn on.
On a gross basis same tower recurring cash leasing revenue growth was eight 2%.
Domestic same tower recurring cash leasing revenue growth over the second quarter of last year was seven 8% on a gross basis and four 2% on a net basis, including three 6% of churn.
Domestic operational leasing activity or bookings, representing new revenue placed under contract during the second quarter declined from the first quarter.
All all major carriers remained active with their networks agreement execution levels in the second quarter from several of our customers were below our prior expectations.
Longer term, we continue to see significant runway for new <unk> related leasing activity based on the number of our sites that remain to be upgraded with mid band spectrum deployments by the major mobile network operators.
In addition, today, we announced that we've entered into a new long term master lease agreement with AT&T.
This comprehensive agreement will streamline at&t's deployment of <unk> solutions across our tower portfolio, while providing us with committed future leasing growth from AT&T for years to come.
Based on this MLA, we have increased our projected contribution to 2023 leasing revenue from domestic organic new leases and amendments by $6 million from the full year projections, we provided last quarter.
During the second quarter Amendment activity represented 42% of our domestic bookings and new leases represented 58%.
The big four carriers of AT&T T mobile Verizon and dish represented approximately 89% of total incremental domestic leasing revenue that was signed up during the quarter.
Domestically churn was slightly elevated during the quarter, primarily due to faster decommissioning of legacy sprint leases than we had projected which is the opposite of our experienced last year.
Based on our current analysis, we expect sprint related churn for 2023 be at the high end of our previously stated range for this year of $25 million to $30 million.
Resulting in a change to our full year domestic churn outlook of $4 million.
Our views around the ultimate multi year accumulative impact of sprint merger related churn have not changed although we continue to update our outlook around timing as more information becomes available.
We now project 2020 for sprint related churn to be in a range of $20 million to $30 million 2025 to be between 35 and $45 million to.
2026 to be $45 million to $55 million in 2027% to be $10 million to $20 million.
Just as last year ended up being well below our initial churn expectations in 2023 will likely be a little above our initial expectations. We anticipate that the exact timing will continue to be somewhat somewhat fluid, but in line with our provided projections non.
Non sprint related domestic churn was in line with our prior projections.
Moving now to international results on a constant currency basis same tower cash leasing revenue growth was four 8% net including four 9% of churn or nine 7% on a gross basis.
International leasing activity was strong in the second quarter and ahead of our internal expectations. These.
These positive results and our solid backlogs have allowed us to increase our projected contribution to 2023 leasing revenue from international organic new leases and amendments by $1 million.
Inflation based escalators also continued to make steady contributions to our organic growth.
However, decreases in actual and projected Brazilian CPI rate.
Cause that to moderate our outlook for international escalation contributions for the full year by approximately $1 million.
Overall, Brazil, our largest international market had another very good quarter.
The same tower organic growth rate in Brazil was five 7% on a constant currency basis, including the impact of five 6% of churn, which amount was significantly impacted by our previously discussed Tim agreements.
While international churn remains elevated it continues to be in line with expectations and our previously provided outlook.
As a reminder, our 2023 outlook does not include any churn assumptions related to the oil consolidation other than that associated with the term agreement.
However, if during the year, we were to enter into any further agreements with other carriers related to the oil consolidation that would be expect that would be expected to have an impact on our current year, we would adjust our outlook accordingly at that time.
During the second quarter 77, 5% 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 16, 2% of consolidated cash site leasing revenues during the quarter and 13, 1% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the second quarter was $503 $5 million.
Our cash flow in the quarter benefited by approximately $7 $3 million, an accounting driven cost reclassifications.
Our tower cash flow margins remained very strong with second quarter domestic tower cash flow margin of 85, 5% and an international tower cash flow margin of 7% of.
73% or 92, 3%, excluding the impact of pass through Reimbursable expenses.
Adjusted EBITDA in the second quarter was $471 $7 million.
The adjusted EBITDA margin was 73% in the quarter excluding.
The impact of revenues from pass through expenses adjusted EBITDA margin was 75, 9%.
Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter.
During the second quarter, our services business had another strong quarter with $52 $4 million in revenue and $13 $1 million of segment operating profit.
While off year ago activity levels, our carrier customers remained busy deploying new five <unk> related equipment during the quarter and we have retained our full year outlook for our site development business due in part to the strength of our first half results.
Adjusted funds from operations or <unk> in the second quarter was $352 $7 million.
<unk> per share was $3 24 and.
An increase of six 2% over the second quarter of 2022.
Constant currency basis.
During the second quarter, we continued to invest in additions to our portfolio acquiring nine communication sites for total cash consideration of $7 $2 million and building 64, new sites subsequent to quarter end, we have purchased or under agreement to purchase 134 sites all in our existing markets for an aggregate price of <unk>.
$72 $9 million.
We anticipate closing on these sites under contract by the end of the year.
In addition to new towers, we also continue to invest in the land under our sites during the quarter. We spent an aggregate of $10 1 million to buy land and easements and to extend ground lease terms.
At the end of the quarter, 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.
With that I will now turn things over to Mark who will provide an update on our 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 six six times below the low end of our target range and the lowest level of decades.
Second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a strong four nine times during and subsequent to quarter end, we repaid amounts under our revolving credit facility.
And as of today, we have $360 million outstanding under our $1 5 billion revolver. The current weighted average interest rate of our total outstanding debt was three 1% with a weighted average maturity of approximately three five years.
Current rate on our outstanding revolver balance was six 3% the interest rate on 95% of our current outstanding debt is fixed.
During the quarter, we did not purchase any shares of our common stock choosing instead to reduce revolver balances. We currently have $505 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company shares outstanding at June 32023 were $108 four.
In addition, during the quarter, we declared and paid a cash dividend of $92 1 million or <unk> 85 per share and today, we announced that our board of directors declared a third quarter dividend of <unk> 85 per share payable on September 22023 to shareholders of record as of the close of business on August 20.
For 2023.
Dividend represents an increase of approximately 20% over the dividend we paid in the year ago period, and only 26% of our projected full year a S. F L with that I'll now turn the call over to Jeff.
Thanks, Mark and good evening, everyone. The second quarter was another very solid one for SBA. We produced good financial results across all areas of our business and we continued to deliver high quality service and operating results for our customers each of our largest U S customers remained active with their networks, our customers continued to add equipment.
Sites in support of five G through the deployment of new spectrum bands as well as to expand coverage through brand new co locations.
We did however, see the same slowdown in activity that many others have discussed.
While we had always anticipated domestic leasing growth to moderate as we move through 2023 organic leasing activity levels were lower than we anticipated in Q2 from some of our customers.
Some of this was due we believe to slower activity from AT&T in anticipation of our new MLA as would be expected.
We believe that these variations and activity are part of the normal cycle of carrier network investment that we have seen over time, a large initial burst of coverage activity as the next generation of technology starts to be deployed followed by many years of coverage completion and capacity building. We are confident that there will be additional material network.
Investment over the next several years.
We believe this for a number of reasons. Most importantly wireless demand continues to grow at a fast clip consuming more and more current network capacity. We have a large remaining number of sites that have not been upgraded yet to accommodate the mid band spectrum holdings acquired by our customers over the last couple of years.
Some of which spectrum is not even available for deployment yet.
This has our next phase of regulatory coverage requirements to meet in 2025, and we have our newly signed MLA with AT&T.
We believe all of these items and others are supportive of multiyear continued development activity, while there will always be ebbs and flows in leasing activity levels based on a variety of factors. We believe that there will remain a need for continuous network investment just as we have seen throughout our history in this business.
Yeah.
With regard to our announced master lease agreement with AT&T. We're very excited about this next chapter in our long standing successful relationship. This new agreement highlights the long term importance of SBA sites to At&t's future network deployment plans the agreement will improve operating efficiencies between our organizations and enhanced stability.
With regard to future leasing growth.
We look forward to working closely with AT&T for years to come under this mutually beneficial framework.
In the second quarter, our services business remained busy helping our carrier customers make deployment objectives in an efficient and effective manner, while our services business is down on a year over year basis, 2023 will still represent the second biggest services here in our company's history.
Behind only 2022, we believe our legacy and reputation in the services business keeps us well positioned to be a go to provider for our customers to meet their network rollout goes.
Internationally, we also had another solid quarter with greater organic leasing activity than we had anticipated during the quarter, 62% of new international business signed up in the quarter came from amendments to existing leases and 38% came through new leases with strong contributions broadly for many of our mark.
That's including Central America, Brazil, and South Africa.
Brazil, our largest market outside of the U S.
Ahead of our internal expectations with contributions from each of the big three carriers in that market I continue to be pleased with our operational performance cost management and customer relationships in Brazil, which has made us a leader in the market.
And we have recently seen positive movements in the currency exchange rate, providing some financial benefit and increased U S dollars for repatriation as well as contributing to our increased full year outlook. We remain excited about our opportunities in Brazil.
During the quarter, we again generated solid <unk>, providing significant cash for discretionary allocation, while our strong financial position allows us to retain flexibility for future further opportunistic investment and portfolio growth and stock repurchases. We dedicated the majority of our available cash in the quarter.
To paying down the outstanding balance on our revolver, we immediately benefit from this by reducing our floating rate cash interest obligations.
Which today represent among the highest cost debt in our capital structure with the continuing high cost and limited availability of private market tower acquisition opportunities. We believe this is currently our best use of discretionary spending.
Our quarter ending net debt to adjusted EBITDA leverage ratio was six 6%.
Which I believe to be the lowest in our history at least as a public company.
As always we will continue to be opportunistic around investments, but for the near term likely direct future cash flows into the repayment of debt as the most accretive short term and certainly long term beneficial use of capital.
Our balance sheet is in great shape with no debt maturities until October 2024, and since that maturity could easily be refinanced under our revolver. We are comfortable now to remain opportunistic around timing of future financings. We are a preferred issuer in the debt markets, we routinely used and retain very good access to capital.
We finished the quarter with 95% of our debt fixed and thus we are only modestly exposed for now to significant interest rate fluctuations our exposure to floating rate debt is also expected to decline further as we continue paying down our outstanding revolver balance throughout the year, we feel very good about our current capital position.
We feel fortunate to be in a sound and stable business with tremendous fundamentals at significant long term opportunity ahead, our customers continue to have significant network needs and we will be there to support them in meeting those needs.
Thank our team members and our customers for their contributions to our shared success and with that Eric We are now ready for questions.
If you wish to ask a question you can do so by pressing one then zero you may remove yourself from queue at any time by pressing one zero again, if you're on speakerphone. Please pick up the handset before pressing the numbers.
Once again to ask a question please press one.
Zero.
And first we will hear from Rick Prentiss with Raymond James. Please go ahead.
Good afternoon everybody.
Hi, Rick.
Hey.
Obviously, we'll have.
Some questions on the AT&T MLA Big news item there.
Appreciate it.
You said $6 million of the increase lease activity was really driven by AT&T.
Brett can you can you speak up we're having trouble hearing you.
Right.
Hello can.
Can you hear me better now.
That's much better. Thank you you bet, yeah, I'm, sorry about that had another phone call come in as like Dope doing something busy.
I appreciate.
Some of the color on the MLA with AT&T.
Questions around it.
Why now and any others that you're working on and then also suggesting.
Suggesting that 6 million increase in guidance.
And from that it looks like we should be thinking maybe I was kind of flattish.
New lease activity over the next couple of quarters and as we exit 'twenty three is that the way we should be thinking about it.
Yeah. So on the MLA first of all on the numbers.
$6 million increase is basically due to the MLA, obviously that was our.
The 72 is what we reported last time, we increased to 78 and activity was a little bit slower in the second quarter. So.
We expect that the MLR will kick in right away based on the terms of it and it will be a contributor going forward in terms of the cadence.
Would be fairly flat.
Would expect actually that we'll see an uptick in terms of the contribution to the third quarter as a result of the MLA and then youll see it would be a little bit lower into the fourth quarter and that lower trajectory. It has nothing to do with the MLA, that's really based on slowing activity from other carriers.
If you'll recall correctly, we had kind of a trajectory expected that was downward leaning throughout the year and I would expect that will continue as it relates to other contributors.
In terms of why Rick.
Our agreement with AT&T has been in the works for well over a year and it's a it's a deal that we believe is beneficial to both organizations.
We've been working on it for that period of time in trying to signal and be transparent to our openness for this type of agreement knowing that.
We were likely to enter into this agreement, which we have.
We really don't want to comment too much on what's going on with other other customers but.
Just as we have always said we are not hung up so much on structure as we are on finding.
Mutually beneficial agreements with our customers.
Yeah.
Okay.
Another one for me on the.
Paying down the.
Revolver when does the calculus move back towards stock buyback because it sounds like we're still not a lot of M&A out there, which would be probably your first choice, but how do we think about when the level since youre down to 6.6 leverage.
More stock buybacks is that like a next year item is that further out.
Yeah I think.
If rates stay the same.
Our stock price to stay the same it's it will continue to be.
More accretive and obviously.
Good for the overall capital position to continue to pay down the revolver to zero. So when we get to that point Rick.
We should you should ask that question again.
I'll be here to ask it great. Thanks, everyone stay well yeah.
And next we'll hear from Michael Rollins with Citi.
Thanks, and good afternoon, just curious just to follow up on the comprehensive deal with AT&T can you share some of the multi year component of this.
Neil is there going to be a straight line element that sometimes comes up with these type shows.
Multiyear or comprehensive opportunities.
And does it change the way investors should think about leasing overall for SBA in 2024, and the domestic side.
Yeah.
Yeah, Mike so.
It will certainly smooth the way that we operate with AT&T. So I think from that perspective, perhaps it impacts our reported growth numbers in terms of ebbs and flows there may be a little bit less of that at least as it relates to this particular agreement.
From a straight line impact we would expect that over the course of the agreement that we will have some straight line impacts, but there are no straight line or very minimal straight line impacts.
In the short term.
Yeah.
And just on the commentary on leasing.
Site development revenues are unchanged from the prior guidance.
But you did note that there were some slower activity levels.
Was this just something that you were maybe more prepared for earlier in the year or is there anything different about your site development business that may be gave your expectation a little more durability in spite of some of the changes that you've observed.
Yeah.
I think we know our site development business very well you know what primarily centers around work almost entirely work on our on our towers. So we have a very good feel for it and you know there's there's.
Just enough work out there.
Mike that was already booked earlier in the year and actually you know some.
Some of it probably spilling over from last year, that's now working itself through our services backlog.
That gives us the comfort to continue with the guidance that we have.
So a lot of it.
It's more a reflection of activity levels that occurred.
<unk> Q4.
Of last year.
Thanks very much.
And next we'll hear from Simon Flannery with Morgan Stanley .
Great. Thank you very much.
I was just wondering on the the leverage point.
Have you had any more consideration of targeting investment grade status.
Or is that is this going to be just a temporary.
And your overall leverage targets.
And then.
If you could just talk about them.
Yeah, right now I think you should assume that's temporary.
Bob.
So that we can continue to watch interest rates and see where they go.
Interest rates stay high.
It may not be temporary we haven't made that decision yet.
Actually we're paying down the revolver because it's the most economic and best use of our cash today. It just so happens that as we continue to do that.
We further decrease leverage which makes the path of going to investment grade. If we work is so choose that path easier to obtain but I really don't think you should look at it Simon as a conscious effort to get to investment grade as much as it is just the best financial use.
Our discretionary cash.
Great and.
And just one follow up you mentioned earlier that you still got a lot of sites that have not been upgraded to <unk>. Do you think is given some of the rural skew of your portfolio do you think that would advantage to your portfolio in the next several years versus two about initial buildout.
Yeah I think.
If history is any guide I guess.
That's exactly how it works it starts out in the NFL cities. It goes from there.
Great. Thank you.
And next we'll hear from Phil Cusick with J P. Morgan.
Yeah.
Hi, guys. Thank you two if I can how should we think about the exit run rate and activity this year versus going into next year AT&T. It sounds like it's steady and <unk> and <unk>.
And then from there and others are decelerating through this year should we think of the fourth quarter as a decent run rate for next year or maybe a little bit lower than that.
And then second Jeff I didn't understand your your comment just a second ago on the service revenue now for activity earlier in the year.
And it sounds like services are still running well ahead of historical levels do you expect them to come in and how long do you expect you're going to make the guide this year, but next year. It sounds like things are going to be probably well below does that makes sense. Thank you.
Go ahead, Brian right, yes. So on the first question, we do we expect that the fourth quarter run rate Youre talking specifically just to be clear about domestic organic yes. Thank you at least some contribution yeah.
To be around approximately 17% to $17 $5 million, but I would definitely caution you as to using that as a indicator of next year as I mentioned earlier the trajectory based on activity levels is declining and as a result.
Expect those numbers to step down as we move into next year, we're obviously not ready to give 2024 guidance yet at this point, but just kind of broadly when you think about it the way we've always explained it in just the way that it actually happens is that you get a lot of our growth.
Growth for instance, the 2023 growth is based heavily on the leasing activity that took place at the end of last year 2022, and next year's numbers will be based heavily on our leasing activity is taking place this year. So.
The number is is a little bit higher than we said before because of the impacts of the MLA for the fourth quarter, but I don't I don't believe will be indicative of the numbers for next year, yes, and as far as the services.
Revenue.
Phil.
The first half of what we report in 2024 will be largely dictated by what we do know operationally with leasing you know we have two different components of that we have the site acquisition component, which is the planning stuff and then we have the the construction which is where.
Lot of the current activity is taking place because that's the last.
Part of the cycle, So we'll see.
We'll see where we come out with the <unk>.
24 guidance on services, but it will be obviously heavily impacted by how we finish out the rest of the year.
Thanks, very much guys.
And next we'll hear from Jonathan Atkin with RBC.
Thanks, very much so I was interested in doing it just to contextualize the AT&T MLA.
How much.
Of your revenues for this.
This year next year. The following year can we consider to be fairly locked in as opposed to usage based.
Hey, guys a bunch already.
Yeah, Jeff you mean, just the percentage of the AT&T revenue or overall revenue.
Overall revenue for the whole company, how do we kind of think about how much is kind of a lock versus.
Baltimore.
Did the FDA.
Alright, John we can't give specific numbers out and obviously <unk>.
A number of our agreements with other customers are fluid and where those amounts end up or is obviously unknown. So as a percentage, it's hard to say as well.
So we can't be very specific about it but we do have some portion of our revenue base that is locked in now under this agreement that wasn't before.
And at a greater portion of the AT&T, then probably exists under other agreements, although we still we still have some of that.
I mean, I don't think that's that's not a number that we have we have focused on.
No.
Two of the best we could answer Jonathan is it's a much greater extent under the AT&T revenue.
Yeah.
And you're comparing that to your agreements with other carriers as opposed to other telcos agreements with AT&T I'm, assuming correct, yes, correct just got it.
Yeah understood and then maybe just give us some some.
Directional guidance.
Sectary around building, new towers and ground leasing easements activity.
Yeah, I mean, we continue to look for.
Good financially smart.
Newbuild opportunities, we're doing those mostly outside the United States.
Primarily Brazil, and South Africa, our two largest markets outside the United States and you know we have a steady focus on a ground lease purchases and extensions, which.
Hasn't changed at all it's moved a little bit more international in terms of the mix just because we've been at it so long in the United States.
But nothing's really changed there we would we would.
Put more capital into.
Particularly the land purchases and extensions of the opportunities arose.
Yeah.
And then in terms of purchasing other portfolios.
Maybe thinking about <unk>.
Africa, and your operating history, there and maybe some some tuck in opportunities either geography or elsewhere.
What are your thoughts on increasing their scale.
Existing markets versus expanding the footprint.
Yes, I mean, the answer to that question is pretty much the same as it has been for years for the right deal. We will do it we have no strategic hole that we feel needs to be filled.
End market.
Growth because of the existing base is going to be preferred over new market growth, but we would still go into a new market. If we found the right deal and I would point back to the Tanzania.
Our investment is a good example of that.
But but.
Because it's all financially driven.
It makes.
You know our decision to use discretionary cash to pay down the revolver that much more straightforward.
Lastly, I might've missed this but the duration.
The AT&T MLA.
It's five years Jonathan.
Thanks very much.
Yeah.
And next we'll hear from David Barden with Bank of America.
Hey, guys. Thanks, so much for taking the questions. So I guess.
Maybe to.
The first one.
Jeff just with respect to some of the actions that your competitors are taking pros and cons for being in the.
The construction business for towers at all is there maybe an opportunity to.
To redirect resources in more optimal ways or is there an opportunity if people are willing to give up business for you guys to lean in.
At the margin as we think about the go ahead business and then second maybe for.
Mark.
As we think about the 25 term loan.
And you know its maturity.
What should the street be doing in terms of expectations you know.
In the model with respect to how we address that cost.
Fixed long term roll it.
What is the plan. Thank you.
I'm going to defer that to our expert here Brendan.
On the services question David.
We've had a lot of history actually recall that shall SBA started so we have a very flexible cost structure that allows us to ramp up ramp down we use a lot of sub contracted.
Tower crews, we have our own but we also knew subcontractor tower crews and one of the things that has really served us well and our customers give us high praise for this is.
By using our services people for work on our towers for them. They are greatly benefited in terms of speed to market and efficiencies.
So I don't think that changes so I guess it.
I had to choose one or two options, you know lean out or lean in.
We'll look to lean in and not be afraid to do that because of our confidence in how we manage that business.
And David on the term loan.
Question of modeling if I could only see into the future you know, but we [laughter] yeah. I mean, the best thing I think for people to do when looking at it is probably to assume a similar like for like refinancing.
And I would expect that spa.
Spreads will be similar to up slightly from where they are today, but we'll have to see how that plays out.
And then it's just a matter of using the.
The forward curve in terms of the benchmark sofa rate, but that doesn't mean that that's necessarily how it will play out.
We will probably have we will be evaluating multiple different options. There may be a mix of different instruments that we use some maybe fixed and some maybe floating.
But all things are on the table for US right now and we look at that frankly every day, but if you just simply modeling out long term I think the best thing to do is to assume a like for like instrument.
Alright, great. Thank you guys.
And next we'll hear from Walter Paycheck with light Chien. Please go ahead.
Thanks Mary.
Yes, yes, alright, perfect sorry.
B E.
If you didn't have the AT&T MLA with 72 still stick or was that falloff.
Accelerating faster than you thought in terms of the second half of the year.
I can't really answer that question, Walt because theres. So many elements that go into it.
What would the activity be with AT&T, otherwise those types of things. So I can't really say for sure what it would be given that we were working on this for quite a while.
I mean, you guys have done I think a pretty good job I think better than your peers in terms of forecasting kind of the slowdown or the expected slowdown from fees. Other operators that were going to come in the second half of the year and then also I think even into next year, even though maybe you haven't quantified it yet for 2024 at least qualitatively.
So and I think that's been highly reflective and at least what I've seen in consensus for that new leasing activity in 2024. So I guess my question is given what the quarter and I know you didn't answer the last question, but.
Is there anything that you're seeing now that gives you.
Any type of change in your view in terms of how that would impact that new leasing activity in 2020 for me that was slowing faster than maybe what you thought three or six months ago.
Yeah, I think we started actually in our scripted comments that that the lease up in the second quarter was slower.
In terms of new stuff being signed up than we would've expected coming into the quarter and given that and what may be the case during the balance of the year.
We I would not be surprised to see a continued decline in the contribution of organic lease up in the U S.
Into next year, obviously that is somewhat mitigated by the MLA that we signed with AT&T, but.
The ultra if you kind of just think about it in terms of customers, we don't like to discuss the individual customers, but obviously dish has just gotten through a major deadline that they had Ah theres a little bit of a slowdown or pause if you will related to that.
And we would expect that will eventually pick up but given the delay between signings and revenue recognition I would expect that way year over year on next year and T. Mobile was frankly, very very busy as well and you have somewhat of a similar dynamic there, but you know that.
That's what we're going into for next year, but longer term, there's still lots to do there. So you know we tend to end up.
So if there was something incremental.
Qualitatively, what what do you think those issues are.
If there was something incremental in what sense.
You were just just in your response, you just gave meaning in Q2 was a little bit less and you're saying you're expecting that to continue into the third and fourth quarter. Because again I think you guys did a good job historically it already talking about a slowdown in the second half of the year and also maybe how that would carry into 2024 and I'm just trying to get a sense of.
Is there something new or worse.
Yeah, I don't I don't think Theres something.
Particularly new I think it's been a little bit slower than what we had anticipated before but directionally. It's still the same so what does that mean for next year does that mean $5 million difference of $10 million I can't tell you yet we're not ready to get there and we still have half of the year to go but it's.
It's marginally worse than what we thought in terms of the balance of the other carriers.
And then maybe just one quick one.
The qualitative.
Benefits are the positives to look forward to Walter I mean dish has to get started.
You know, whether it's late Q4 or early.
Q1 on their 2025, bill which is going to be large.
T mobile hasn't even got the C band and the $3 four or five spectrum yet.
Got the.
You've got some folks waiting on availability of dual band equipment. So there's there's all kinds of.
Things to look forward to as we move through the year and into next.
Are you seeing anything from cable Jeff.
A little bit, but not not enough to you know give anyone the impression it's going to move the needle.
Got it thank you.
And next we'll hear from Berkshire Levy with U B S.
Great. Thank you.
Quick follow up on the AT&T MLA does it cover all the towers that AT&T has equipment on your sites and should we assume that the escalator in there is similar to the three 3.5% that you have.
And another one I believe you said 40 to 58 makes for amendment on new leases can you give us a sense of how that would look like if we just exclude dish. Thank you.
Yeah. So I'm sorry, what was the first part of the question.
AT&T MLA if it includes all the all the sites they have with you and the escalator.
Right. So it does it does there may be a few exceptions.
Cause of specific issues around individual sites, but the vast majority of our sites are covered by the MLA that have AT&T, yeah that have AT&T on them and of course and then.
On the escalator piece.
Really get into the specifics around around what the escalator is but our historical escalator with AT&T has been north of 3% and we would expect that to continue.
Great and the amendments without dish is that much higher than the 42%.
It would be it would be if you took dish out of the mix you would have a much higher percentage of the amendments of the total.
Maybe just a quick one as you can you give us a sense on what the guidance assumes for dish as we exit the year.
No we can't give you that kind of specificity now.
As much.
But it's much less than it was exiting last year.
Thank you.
And next well hear from Nick del Deo with Moffett Nathanson.
Hi, Thanks for taking my questions.
First regarding the AT&T deal should we think of that as pulling forward. Some revenue that you otherwise would have expected in the latter years into into the near future.
<unk> and do you feel that the totality of the revenue that youll get from AT&T over the course of the contract is similar to what it otherwise would've been.
The answer to the last part of your question is yes.
The answer to the first part I don't think it's a pull forward.
I mean, it's hard to say because obviously previously it was it would be very specific to the timing of when they were signing things. We don't know exactly what that timing would be so.
It could be pulling forward could be pushing it out the answer to your question will be only known in hindsight by the levels of At&t's activity.
Okay. Okay. So we should think of it more call it smoothing of it but not necessarily sort of a mass reallocation of of what the revenue would have been is that fair.
Yes.
Yeah, Okay, great and then.
Two clarifications.
For Brendan.
The one it looks like your forecast for international other international revenue went up by about $9 million versus last quarter's guidance.
What was that and was it in this quarter's results and then second can you elaborate a bit on the $7 million cost Reclassifications that you noted in your prepared remarks.
What was it reclassified to and from what was behind it which segment.
Yeah, Yeah. So the other international was roughly half of that was in the second quarter. There is some that is in the balance of the year and it's frankly, a mix of things. It's not one thing in particular, there was some increased cash basis.
Revenue recoveries that we did not necessarily forecast.
Some that we've actually even seen subsequent to quarter end and then also some termination fees and just other frac.
Frankly, cats and dogs, Nick but they did add up and we actually have higher expectations for the balance of the year. So that's that piece of it on the accounting reclassification. It basically has to do with the decommissioning of some carrier related equipment basically sprint oriented equipment at some of our tower sites that we pre.
<unk> had expected or had been recording as a cost of revenue of direct cost of revenue, but after discussion with our accountants.
We've determined that the best.
Classification for that was impairment and decommissioning costs. So basically it's just a move of those costs out of cost of revenue and into impair.
Impairment and decommissioning costs.
Okay, so sort of a sort of a onetime true up.
There were some one time true up in there, but that's the way to also be going forward and that's.
Within the guidance that we've given around tower cash flow.
Okay can you share anything about how much of the change was attributable to.
To that beyond the 7 million recognized in the quarter, what it would be for the full year.
Yeah, it's another roughly $4 million.
Okay.
Sure thing alright, Thank you both.
Sure.
And next we'll hear from Brett Feldman with Goldman Sachs.
Thanks, two questions if you don't mind.
When some of your peers announced their own versions of N L as our holistic agreements or whatever they call. It.
It's not uncommon when they announce it but then they come out and say Oh by the way, we're raising our guidance for straight line revenue I know you've got a question about this earlier, but it's typically because there is some incremental commitment that was made in that agreement, maybe with escalators or some other amount of leasing and you didn't do that with disagreements. So I can imagine a question we're going to get is ultimately what do you feel like you.
<unk> through the MLA, because you've been very selective and entry into these larger agreements and I know there's been some questions on it but I'm trying to think about the right way of framing that and then the second question is.
The portfolio growth has been a focus for SBA for a very long time I remember the analyst meeting I have about 15 plus years ago. When you first started talking about those long term targets and it's understandable why pain.
Paying down your revolver right now probably the economically most accretive thing to do but whenever we get past. This moment do you think portfolio growth is going to be the same priority and same opportunity or are you starting to suspect that maybe the tower portfolio is that you don't own in the markets you're in or might want to be and are not nearly as attractive as the.
The portfolios you could just develop on your own particularly outside the U S. Thanks.
Yeah.
I will take the last one first I believe portfolio growth will always be our most desirable at highest.
Potential allocation of capital.
Where it falls today, I mean and keep in mind, we grew the portfolio, 15% last year.
Where it falls today is purely a function of cost of debt and available.
Availability and pricing of assets.
But as long as all that works out.
Brett too to achieve a investment resolved that we.
We want pork I don't see that.
Preferenced and prioritization of portfolio growth changing.
Yeah, and Brett on the question around the straight line for the MLA.
They're actually was you couldn't see it but there is actually some small impact to straight line that was actually offset by a decrease in straight line associated with some of the.
Accelerated sprint churn that we mentioned earlier so there is a small impact but in terms of what it looks like going forward, obviously, what our peers have done and what we've done there probably not exactly the same agreements I'm sure. There are terms that are different I can't speak to their specific Lee.
But really it's a function of timing in terms of when certain commitments take place and in the future I would expect that there will be some straight line impact as a result of this deal, but it's it's a little more.
Activity driven than it is upfront.
It will you will see straight line benefits.
Over time over the course of the five years, Brett based on various triggers.
Triggers and activity levels as opposed to.
As opposed to upon signing.
Alright, thank you.
And next we'll hear from Jonathan Chaplin with New Street.
Thanks.
One just very basic question Dee, how do you assess that paying down the revolver is the most accretive use of free cash flow. How do you sort of put that up against the accretion you get from share repurchases does it is it as simple as what the yield of the debt is relative to you.
Sure.
Yield.
You're taking the direction of rates into consideration when you make that determination or is it just.
Moment by moment.
Decision.
That drives whether youre in the market buying back stock or paying down the revolver and then just a follow up question on <unk>.
On base is there anything assumed in new leasing activity for the second half of this year from dish and your guidance. Thank you.
So the accretive to the accretion analysis takes into account a number of things there certainly the basic straightforward piece that you mentioned, which is you know what's what's the yield of buying back our stock today versus what can we save by paying down the revolver or any debt and right now.
That actually is more accretive to pay down the revolver today, but we also look at it long term and we look at our expectations for growth for growth and cash flow as well as what we think our future.
Ensign refinancing costs will be and that positioning relative to our balance sheet as a whole is also relevant to it so yeah in that and that bodes towards stock repurchases, Jonathan with one major exception today, which is we don't know.
That interest rates have stopped going up.
And when interest rates go up it immediately affects the cost on the revolver.
We can always buy our stock back.
But we take comfort in that.
But when you have a increasing interest rate environment, where we don't know when it's over.
<unk>.
We just think both from a business perspective, it's certainly a balance sheet perspective and from an accretion perspective.
The pay down the revolver balance.
While we have won us the way to go.
Then dish in terms of the impact for the second half of the year as we mentioned, it's obviously been slower in terms of.
New business being signed up with them, there's still a significant contributor to the second half numbers because of all the business that they did with us over the last year, but we expect that we'll continue to see at least for this year are less executions with them.
But ultimately they have a ton to do as we talked about to meet their 25 goal and we would expect that that will turn around sometime at the end of the year or into next year.
Got it thanks guys.
And next we'll hear from Eric Lube child with Wells Fargo.
Great. Thanks for taking the question.
Going back to the question on investment grade I know, that's clearly not part of the plan right now, but you know theoretically if you didn't make that decision and what type of leverage do you think you'd have to target to get there and how how quickly do you think you could get there based on where your leverage is at today.
Well based on the.
Thresholds that are there by the agencies or at least by one of the agencies right now where we're getting very close to being there certainly within a half a turn of leverage of being there.
But it would be more about the commitment to staying there than it would be about hitting the leverage.
Yes understood.
And then just.
Another question on the on the comprehensive MLA I mean does this at all indicate that you guys would still be open to entering into similar arrangements with some of the other carriers, maybe smooth out some of the leasing volatility or is it really just a case by case basis. What you think would be NPV positive for your business.
Yeah, I mean, it's it's really the latter but.
We've always said, we would be open to to a variety of structures. I mean, this I think evidence is that openness.
For the right deal, Eric we would we would.
Do any number of structures with.
With our customers.
Understood. Thank you Bob.
And next we'll hear from Brendan Lynch with Barclays.
Great. Thanks for taking my questions.
Maybe just high level, given the MLA with Tim and now with AT&T has the market changed had customers change or has your perspective changed and then maybe if you could give us any spin.
Specific cause along the number of sites minimum payment schedule.
You mentioned it was there five years, but I'd imagine the leases are for much longer any details around that would be helpful.
Yeah I think.
In terms of the details we need to keep.
Stay away from most of those there's a lot of the specific things that you asked about there that obviously are somewhat important for us to keep.
Confidential for both us and our customers, but it.
It is a five year agreements and there'll be a lot of ramifications that I would expect would extend beyond the five years or so.
In terms of the MLA in general I think Geoff kind of mentioned answered this earlier.
We've always been open to different structures, obviously at different points in time in our history. We haven't necessarily found terms that we found to be beneficial to us or they didn't work for our customers wherever the case may be so we've done less of those but we've done over the years in various structures, we have an MLA today with Verizon.
We've had MLA with T mobile and with this so we've done these agreements before but each one is dependent upon the specifics around that carrier and their needs at the time and what works for both parties. So I don't know that anything is holistically changed out in the market broadly.
Yeah, I mean, we are trying to be responsive to.
To our customers.
All at the same time being responsible to ourselves and our shareholders and that will continue to be kind of the the big picture as to how we approach these things and it could lead to more.
Or this could be the only one.
Maybe just to clarify a point I think you've described some of your past mlps as being pricing menus is that how you would characterize this.
Our arrangement with AT&T or is there a better way to think about it.
Yeah. This would be a little different than that this would be payments in exchange for.
AT&T, having certain rights to use our towers.
Okay very good thank you.
And now we'll hear from Greg Williams with TD Cowen.
Great. Thanks, just first question on any further developments with or beyond but the other carriers and ongoing discussions that you're having them and are you hopeful you can get anything done by year end and then just second on on the site development. It sounds like it all hang out in the low $50 next few quarters.
The thing to think about in terms of service margins from here. Thanks.
Yeah on the Oi question Youre talking specifically about deals with the other carriers it took over a white wireless I believe.
Oh I'm sorry, we yeah, we we are having conversations.
With those other carriers and it's possible that there would be some other arrangement struck with them, but it's premature for us to to say and obviously, if we do reach one we'll we'll let you know at that time.
And then on the site development question I would expect that the margins will stay pretty similar on a percentage basis to what you've seen during the first half of this year.
The volume may be a hair, lower but pretty pretty flat your estimate of around 50, or so quarters is probably about right.
Got it thank you.
Yep.
And we have no further questions at this time.
Great well I want to thank everyone for joining us this evening and we look forward to getting back together in late October for our third quarter.
Thank you.
And that does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing you may now disconnect.
Yeah.
Yeah.
Okay.
Okay.
We're sorry your conferences ending now please hang up.