Q3 2023 SBA Communications Corp Earnings Call
Momentarily please continue to hold.
[music].
Yeah.
Okay.
Okay.
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the SBA third quarter 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 as a reminder, this conference is being recorded.
I would now like to turn the conference over to our host Mark their ROTC Vice President of Finance. Please go ahead.
Good evening and thank you for joining us for Sba's third quarter 2023 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 expectations. Our statements are as of today November 2nd 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.
Key operating metrics the reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on a landing page of our Investor Relations website with that I will now turn it over to Brendan to discuss our third quarter results.
Mark Good evening.
We had another very solid quarter in Q3 with financial results that were ahead of our expectations.
Based on these results and our updated expectations for the fourth quarter. We have increased our full year 2023 outlook for site leasing revenue tower cash flow adjusted EBITDA, <unk> and <unk> per share notwithstanding weaker forecasted foreign currency exchange rates than we had previously expected.
Total GAAP site leasing revenues for the third quarter were $637 $5 million in cash site leasing revenues were $630 4 million.
Foreign exchange rates represented a headwind of approximately $1 $4 million when compared with our previously forecasted FX rate estimates for the quarter and a benefit of $4 8 million when compared to the third quarter of 2022.
Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis was four 7% net over the third quarter of 2022, including the impact of four 1% of churn.
On a gross basis same tower recurring cash leasing revenue growth was eight 8% domestic.
Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was eight 6% on a gross basis and four 7% on a net basis, including three 9% of churn.
Domestic operational leasing activity or bookings, representing new revenue placed under contract during the third quarter was up materially from the second quarter, primarily as a result of the AT&T Master lease agreement signed in July <unk>.
Excluding the impact of the AT&T MLA third quarter activity levels were similar to the second quarter.
All major carriers remain active with their networks, however agreement execution levels continue to be slower than a year ago.
The higher cost of capital naturally has caused a focus on cash management and expense control by our customers.
This dynamic extends the timing over which <unk> related network investments are being made.
There's still a long way to go for <unk> network investments based on the number of our sites that remain to be upgraded with mid band spectrum deployments by the major mobile network operators.
Wireless data usage continues to grow materially and that fact combined with the limited spectrum availability will require additional infrastructure over time to maintain and certainly to enhance service quality.
This gives us great confidence in continued domestic organic leasing growth for many years to come.
During the third quarter domestic churn was slightly below our prior projections due to a slower pace of decommissioning legacy sprint leases than we had projected.
Our overall expectations for sprint related churn remain the same but there will likely continue to be small variations in timing of realizing this churn over the next several years.
We currently expect Brent related churn for 2023 to be $28 million 2020 for sprint related churn is currently estimated to be approximately $30 million.
Non sprint related domestic churn was in line with our prior projections and continues to range between 1% and 2% of our domestic leasing revenue.
Internationally on a constant currency basis third quarter same tower cash leasing revenue growth was four 5% net including four 9% of churn or nine 4% on a gross basis.
International leasing activity remained strong in the third quarter and was again ahead of our internal expectations.
While global macroeconomic conditions present challenges to our carrier customers. We've continued to see pockets of dedicated network investment across a number of our markets.
The desire and need for enhanced wireless coverage and quality of service continues to be elevated internationally and we expect we will continue to drive leasing opportunities across our portfolio.
Wireless data growth in our international markets is even greater than the U S.
We also continue to see steady contributions from inflation based escalators in many of our markets.
In Brazil, our largest international market. The same tower organic growth rate was two 6% on a constant currency basis, including the impact of six 3% of churn which growth rate reflects a decline in the Brazilian inflationary index.
The net growth rate was also again significantly impacted by our previously discussed Tim agreement.
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.
However, we continue to discuss potential arrangements with other carriers related to the Oi consolidation it could have an impact on our current year international churn.
During the third quarter 77, 8% 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% of consolidated cash site leasing revenues during the quarter and 12, 9% of cash site leasing revenue excluding revenues from pass through expenses.
Tower cash flow for the third quarter was $511 $7 million.
Our tower cash flow margins remained very strong with a third quarter domestic tower cash flow margin of 85, 3% and an international tower cash flow margin of 70% or 91, 5%, excluding the impact of pass through Reimbursable expenses.
Adjusted EBITDA in the third quarter was $482 $1 million. The adjusted EBITDA margin was 71, 4% in the quarter, excluding the impact of revenues from pass through expenses adjusted EBITDA margin was 76, 9%.
Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter.
During the third quarter, our services business had another another solid quarter with $45 $1 million in revenue and $13 $6 million of segment operating profit.
While off last year's all time high activity levels, we continued to execute on our backlog of high quality high margin work and deliver for our carrier customers.
However, given the slower pace of carrier network related activity across the industry, we have lowered our full year outlook for our site development business by $15 million at the midpoint.
Notwithstanding this adjustment we continue to manage our costs and focus on high margin work and thus we have not lowered our expected margin contributions to 2023, adjusted EBITDA and <unk> from our services business.
We still expect 2023 to be the second largest services revenue year in our history trailing only 2022.
Adjusted funds from operations or <unk> in the third quarter was $364 $1 million.
<unk> per share was $3 34.
An increase of seven 7% over the third quarter of 2022.
During the third quarter, we continued to invest in additions to our portfolio acquiring 45 communication sites for total cash consideration of $48 million and building 86, new sites.
Subsequent to quarter end, we have purchased or under agreement to purchase 215 sites.
All of which are in our existing markets for an aggregate price of $74 million.
We anticipate closing on these sites under contract by the end of the second quarter of 2024.
In addition to new towers, we also continue to invest in the land under our sites during the quarter. We spent an aggregate of $15 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.
Before I turn things over to Mark I'd like to take a quick moment to welcome Mark Montagnais, who joined our team in mid October and will be taking over as our new CFO on January one.
Mark brings with him an extensive background in telecommunications and finance and we are very excited to have him as part of the team.
I also would be remiss, if I did not take a moment to recognize that this call is Jeff's final earnings call as CEO of SBA.
I have big shoes to fill and I am grateful for the professional guidance and the friendship. He has extended to me over the last 25 years and with that I will now turn things over to Mark who will provide an update on our balance sheet. Thank you Brandon we ended the quarter with $12 6 billion of total debt and $12 4 billion of net debt, our net debt to annualized <unk>.
That EBITDA leverage ratio was six four times, two turns lower than last quarter and the lowest level of decades.
Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense increased to five one times.
During and subsequent to quarter end, we repaid amounts under our revolving credit facility.
And as of today, we have a $285 million outstanding balance under our one 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 two years.
The current rate on our outstanding revolver balance is six 5%.
Including our interest rate hedging position the interest rate on 95% of our current outstanding debt is fixed.
During and subsequent to the quarter, we repurchased a half a million shares of our common stock for $100 million at an average price per share of $197 89.
Currently have $404 $7 million of repurchase authorization remaining under our $1 billion stock repurchase plan.
The company shares outstanding at September 32023 for $108 1 million.
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 fourth quarter dividend of 85 per share payable on December 14th 2023 to our shareholders of record as of the close of business on November 16th.
2023, this dividend represents an increase of approximately 20% over the dividend paid in the year ago period.
And only represents 26% 26% of our projected full year <unk> with that I'll now turn the call over to Jeff.
Thanks, Mark and good evening, everyone. We continued to execute well in the third quarter. We produced financial results ahead of external and internal expectations and we continue to be a valued partner to our carrier customers and helping them to meet their network objectives. Each of our largest U S customers continue to add equipment to sites in support of five G.
Through the deployment of new spectrum bands as well as to expand coverage for brand new co locations. Although current activity levels are below the pace of the last couple of years. We have continued to steadily organically grow our revenues and tower cash flow even in a slower than typical demand environment wireless carriers still have a constant need to invest.
First in expanding and enhancing their networks.
Yeah.
By leveraging our high quality assets and providing them quality services support we have been able to continue growing our business relationship with each of our major customers. In addition, we are confident there will be additional material network investment over the next several years as wireless data usage continues to grow materially the growth in wireless demand is not slowing.
Now our networks will continue to be strained our customers still have significant mid band spectrum holdings that need to be deployed with little bit of additional spectrum plan for released anytime soon.
Macro tower sites are still the most efficient and effective way to deliver wireless connectivity and our focus on high quality portfolio will make us a key participant in network growth for many years to come.
Internationally, we also had another solid quarter with greater organic leasing activity than we had anticipated.
We again experienced strong contributions broadly for many of our markets, including Central America, Brazil, and South Africa, Brazil, our largest market outside of the U S was again ahead of our internal expectations in each of the big three carriers in that market remain busy with coverage expansion densification and integration of the leg.
<unk> wireless network lease up across many of our Central American markets was also ahead of expectations and evidenced as the need of our customers to meet the constantly growing demand of wireless customers for wireless data in those markets I'm pleased with our operational execution international and I'm optimistic for the future based.
On significant network needs across many of our markets.
During the third quarter, we again generated very healthy <unk>, providing strong dividend coverage and significant cash for discretionary allocation.
During the quarter, we allocated capital to the dividend and new site additions through both acquisitions and new tower builds selectively adding high quality sites that we believe will be additive to our organic growth in future years. We also spent $100 million on share repurchases at prices, we believe represent a very good value.
We will produce a nice return over time.
We also continue paying down the outstanding balance on our revolver.
We immediately benefit from this by reducing some of our highest rate cash interest obligations. The reduction in our outstanding debt along with our continued solid growth in adjusted EBITDA produced a quarter ending net debt to adjusted EBITDA leverage ratio of six four times, which I believe is the lowest level ever.
And our public company history.
Even with continued portfolio growth stock repurchases and growing dividends, we have reduced our leverage by almost one full turn in the last 18 months demonstrating the deleveraging power of our business at this leverage level. We believe we have the near term optionality to achieve an investment grade rating. However.
However for the time being we are maintaining flexibility in order to comfortably assess all capital allocation options.
Going forward, we expect to continue growing our dividend at a rate higher than the rate of growth of our <unk> over the next several years, while maintaining a low <unk> payout ratio.
For the time being excess future cash flows will likely be directed into the repayment of debt as it is the most accretive short term is also beneficial long term, but we will of course also stay opportunistic around portfolio opportunities and additional stock buybacks, our balance sheet remains in great shape with no debt maturities until locked.
2024, and we have the capacity to satisfy that repayment entirely with cash flow from operations or availability under our revolver. We continue to have very good access to capital and thus are comfortable will be opportunistic around the timing of future financings overall, we feel very good about our current capital position.
As Brendan mentioned earlier. This represents my final earnings call as CEO of SBA.
Participating in approximately 100 of these calls over the years.
I'm honored to be the leader of this organization for the past 22 years and appreciative of the time I have spent with many of you on this call. Thank you for your support and goodwill throughout this very enjoyable rod.
I will retire with the comfort and satisfaction of knowing SBA is a great company in great shape and with a management team that I know will lead to new Heights.
To conclude by thanking our team members and our customers for their contributions to our shared success.
And with that Eric we are ready for questions.
If you would like to ask a question today. Please press. One then zero you may remove yourself from queue at any time by pressing one then zero again.
If you're on a speaker phone please pick up the handset before pressing the numbers once again to ask a question. Please press one than zero and one moment. Please for our first question.
Yeah.
And our first question goes to Jon Atkin with RBC capital markets. Please go ahead.
Thanks, very much and Jeff I want to wish you all the best.
And maybe a question for you given given your tenure in the industry Your company and many of your peers have seen kind of a lot of changes I think your company at one point was doing shared wireless backhaul you've gone into data centers use.
Evaluated things like outdoor das, but anything about sector as you see it on your way out of the company.
It is an active observer I imagine, but any any kind of broad brush structural changes that you see affecting the tower model or anything ancillary to that.
We should be looking for as investors. Thanks.
I would say over my 25 26 years, Sean there there's been a steady.
Connection between.
The growth in wireless demand in necessary infrastructure.
And I think that you know really has its roots in the laws of physics in a way.
Radio spectrum works.
We've seen cycles that have repeated themselves over time.
The current cycle feels like it's going to be a bit more elongated than perhaps some of the prior cycles as I as I think our customers are demonstrating not that they didn't demonstrate.
Fiscal prudence over the years, but it seems to be a particularly.
Uh huh.
Higher priority than.
Racing to to deploy spectrum, which they will own.
And deploy it when you know that.
They need it.
But the basics haven't really changed that much we haven't seen any.
Technology that really will obsolete the basic tower business model.
I watch satellites and things like that and we.
We watch small cells and the macro site really continues to be the backbone of wireless communications and the conversations we have with our customers.
Tell us that they they expect macro sites to continue to be the backbone.
I don't think I think there's always ups and downs and twists and turns but directionally.
Directionally it remains.
Pretty much the way it was many years ago.
Great.
Great perspective.
And then thinking forward.
For the next year or so.
I guess it would be directed towards you, but kind of the operating trends and the demand drivers.
Any.
Any sense as to kind of the cadence that one might see as they deploy spectrum gets further deployed in the kind of the <unk> journey continues on behalf of the meadows.
Yeah, I think John will see.
In the early part of of heading into next year that things will probably.
B lower than they've been but I would expect to see that increase over time and it really base that answer mostly on the needs that our customers have there's still quite a bit of spectrum that has to be deployed on our sites.
There are some deadlines out there for certain of our customers that they need to meet and just based on conversations that we have with them suggests that there's still a ton of work to be done, but I think as Jeff kind of alluded to it in the current moment in time, there is a little bit more of a focus on financial constraints and cost control, but I think that.
Naturally, we'll start to give way to network needs as mobile and wireless data consumption increases.
So I would expect that we will see it start to move up as we get into the middle of next year.
Thanks, very much and all the best Jeff.
Thanks, John.
Our next question goes to Rick Prentiss with Raymond James. Please go ahead.
Hey, good afternoon everybody.
Right.
Hey, Jeff I think I've been on 96 of those 100 earnings calls with you. So I'll Echo Jonathan's comments and have fun with the grandkids and your charity work that I know, you're so active with.
Well. Thank you Rick had good run together.
Wanted to come to a couple of items on the dividend policy appreciate the comments on that dividend over the growth rate and so on.
Some of the others in this space or looking at the dividend policy should be tied more towards the qualified REIT subsidiary kind of.
The minimum that you have to do versus total ankle. So how should we think about you. All are looking at all of the dividend versus qualified REIT subsidiary versus total anti flow and as you think about the payout ratio over time.
Yeah, well, we're fortunate to be in the position that we're in where we actually still have fairly sizable Nols, which gives us some flexibility there Rick.
But as you kind of look at it as you produce a certain amount of taxable income and we satisfy it through a mix of using the Nols and paying out dividends and in order to maintain our REIT compliance and so by starting when we did it has allowed us to continue to grow our dividend.
At a pace that I think is fairly high across most Reits and will allow us to continue to do that to some degree it's certainly at a pace greater than the episodes per share growth.
Until we reach a point at which we will have exhausted those nols and at that point I would expect we will pay a dividend that is whatever is necessary to comply with our REIT requirements. So that's kind of the way we look at it what that means based on our projections is that we'll continue to have nice growth in our dividend over the.
Coming years, and we'll be able to keep our payout ratio as a percentage of basket. So.
Fairly low which gives us a lot of flexibility on other discretionary uses for that capital.
Yeah, I think Rick the reason, we haven't broken out.
Total assets versus just <unk> from REIT qualifying income that dividend is calculus is we're not close to two to any of those levels.
I think our philosophy will never change which is.
Now, we're only going to pay out.
What we what we have to on that calculation and it also kind of confuses people. If we introduced another metric is just I think easier for people to understand and think about when we're when we're using a F F L.
But we have a long way to go.
Before we get to the point, where we've exhausted our Nols and that gives us the.
<unk> ability to increase dividends faster than perhaps others.
But at the same time, we're watching.
The total payout as a percentage of Bay SFO, and we're gonna be able to do both keep lower relative payout ratio and increase the dividend.
At a faster pace for the next several years.
Makes sense.
You mentioned that you think possibly the levels you're at lowest decade this won't ever publicly.
In the mid six range.
How should we think about what investment grade means to you if you were to pursue it.
What kind of level, we've always been kind of a levered capital appreciation story, but obviously the interest rate environment. We're in has caused people to always look through things.
But how should we think about your view on leverage and interest rates and then the calculus that allowed you to do stock buyback this quarter.
Yeah. So.
As you alluded to obviously the broader.
Environment in terms of rates and cost of capital.
There's certainly influencing.
The trajectory of our of our leverage levels lately and really it's a combination of a couple of things. It's it's the overall cost, but it's also the relationship to the opportunities in front of us in terms of investing capital in what we see as the potential return on those items and we haven't seen it.
And appropriate adjustment I guess and the price points for some of that investment relative to the shift in the cost of capital and so as a result, the best use of the cost of capital.
Most of the time is.
To pay off some of our debt and as you know we had balances outstanding on our revolver and so it's easy for us to just pay that down.
The use of capital and given that it's floating rate at some of our highest cost debt. So we will continue to do that but at the same time, we're going to look to be opportunistic around opportunities to invest that capital and stock buybacks are representative of that.
We started to see our stock trading down to levels, where we just felt that.
It was an appropriate time to jump in and it would be certainly.
Certainly accretive to us.
In the short term and over the long term we would expect.
To invest.
Little bit of capital into the buyback. So I think as we think forward longer term.
We haven't necessarily targeted being investment grade, but the leverage has continued to drop and that's one of the great things about this business you continue to grow EBITDA and it naturally as we produce a lot of free cash flow naturally start to delever quickly and so we're approaching those levels now where we certainly could move towards investment grade but.
As we mentioned in our scripted comments we are.
Going to maintain that flexibility for the time being and see how things go and if we decide that that's a better way to go in terms of improving our cost of capital than we have that optionality to do it and if not and there's other places to invest that we think are going to produce greater returns for our shareholders will go that direction.
Great one quick one in mind thank.
Thank you mentioned sprint share now expected to be $30 million and 24.
<unk> previously been thought it was going to be kind of in the <unk>.
Does it maybe $10 million to $15 million in Sydney.
Okay, So what you're thinking 'twenty five 'twenty six 'twenty seven spin insurance.
Yeah, I think I think last quarter. We gave you a range that was around $20 million to $30 million and so by saying 30 million now we're seeing it a little bit lower here as we end this year, but it does the total is still the same.
When we originally were giving guidance, we expected to see a little bit more than 25, and 26 and now were thinking 25 is probably a little bit lower.
So again the total number is going to be basically the same Rick. It's just trying to pinpoint exactly the timing from year to year is it's hard it's been a little bit challenging to do with that kind of precision, but I think we've been pretty close.
Right, Okay, again, best wishes, Jeff and Mark look forward here, we're going to see look forward to hearing from you next quarter.
Thanks, Rick.
Our next question comes from Simon Flannery with Morgan Stanley. Please go ahead.
Thank you very much and chapels for my best we'll Miss you on these calls and your insights on the industry. A couple of things you talked a lot about the demand being subdued given the financial.
Conditions in the market to what extent are things like the FCC not having the spectrum authorities to at least some spectrum. The dual band radio issue do you think any of those might get solved here in the in the nearer term that might be holding back some spending or even just to turn up the calendar from yearend twenty-three into 'twenty four.
And then you did some M&A in the quarter, but Greg just to get some broader thoughts on the M&A environment I think we've heard in the past just a big difference between public and private multiples pretty great to get any color on what you were able to find in the market and what you see out there today. Thanks.
Yeah, I think the FCC spectrum authority issue.
Has to be resolved here soon.
You know it.
The same time, the FCC has lost their spectrum authority of the White house and other governmental agencies are trying to plot and figure out long term spectrum availability. So I mean, everybody knows that it needs to get done.
And it will and I believe by the time it.
Has been done or will be done.
Simon the.
Band three.
Dot four or five and C band equipment will be we'll be ready to go so that's absolutely.
Something that we think will contribute to next year's.
Leasing.
But the.
There's a lot of spectrum still.
Think about things as a percentage of.
Completion or deployment of certain spectrum bands on our towers, there's just a lot a lot left to go and.
I think it just shows that our customer.
Customers are being fiscally prudent and and waiting and looking for the right return.
Results before they deploy but but ultimately they have to deploy unless the connection between.
Growth in wireless data and the need for physical infrastructure somehow changed and that hasn't changed since the beginning of wireless.
I'll, let Brendan handle your your M&A question, Yeah, so on the M&A environment.
You need to see.
You know a very competitive environment.
Notwithstanding where public valuations have gone.
Valuations continue to remain elevated and to the comments that I made earlier, that's obviously influence where we directed some of our capital.
So in the U S in particular.
<unk> state and are staying high and even internationally, we're seeing that to some degree although I would say internationally there's perhaps.
Then less.
In the market, there's still a ton out there of potential supply, but I think that sellers are being a little more cautious in their timing of bringing things to market.
Great. Thank you.
Yeah.
And our next question goes to our backyard Levy with UBS. Please go ahead.
Great. Thank you so much and jokes I wish you all the best as well.
I had a question on the leasing gross activity you mentioned that it has been slowing down can you provide some sense. If it has slowed down even more than what you had expected a few months ago and the AT&T MLA as providing some visibility when when the activity is coming down.
Can you provide some color maybe if your if there is appetite from their other tenants to replicate similar deals and how you would approach them. Thank you.
The leasing growth.
I wouldn't say that it's really all that different than what we thought three months ago. When we talked about it it's perhaps slower than what we thought at the beginning of the year. When we were originally thinking how this year would play out but what we described last quarter.
Saying pretty much in line with that expectation.
The expectation that we laid out and you can see that even in the guidance that we gave when we didn't make any changes there.
On the AT&T MLA in and it's the potential for that with others. We have master agreements in place with other carriers. The form of those agreements can vary among the carriers, but it's really dependent upon the needs of that specific customer and what works best for them and for us and creates the best.
When situation given what they're trying to accomplish in that particular negotiation. So I would say that we are certainly open to agreements with others over time as they're needed and we have those conversations all the time exactly how theyre structured may very well very though depending on the carriers needs.
Okay. One quick follow up I think you mentioned that there the activity Hum putting factory equipment on towers is still pretty low roughly what percent of your towers have seen that appointment.
Using the.
The five G related spectrum, it's approximately 50%.
Got it okay. Thank you.
And our next question comes from Michael Rollins with Citi. Please go ahead.
Thanks, Jeff I also want to extend my thanks, and best wishes as you moved onto your next chapter.
Just curious thanks, Mike.
And I'm, just curious as we shift over to.
Maybe the international side for a few more minutes.
Have you thought about.
Alternative ways to structure those operations.
Or is there a need.
Some level.
To adjust the market structure of what you have over time to create greater scale.
Or you'll find some ancillary opportunities for growth in those markets, where they may not be structured similar to the U S.
Yeah, I don't I don't know, if it's necessarily structure I would agree.
With your reference to scale that in markets where.
Where we have scale, we've seen the benefits of that and our relationships with the carrier customers in those markets and our ability to be more impactful.
In their projects for build outs that they have so.
Scale is something that we're definitely paying attention to within these markets and then in terms of other things.
Things that we might add in.
In some of these places there are opportunities to provide incremental services that are somehow related or associated with what we currently do that add sort of an extra level of value that we're able to provide it generates additional revenue streams, but it also kind of strengthens that relationship for a longer period of time. So we're we're exploring.
That we're doing some things around C ran hubs some things around power some things around security and certain of our markets and we will continue to explore those.
Those all those opportunities.
And just one other question.
You know past moments, where there's been some uncertainty whether it's in the operating environment our financial environment.
The company has provided a north star in terms of a metric or a guy or an aspiration that you were targeting and just given.
Some of the questions on leasing activity and what it might mean for growth rates over the next few years.
Is there a range or an average.
Stick organic growth rate.
<unk>.
SBA is targeting aspiring to that would be helpful for investors to be mindful of.
No theres not a specific target I think excluding sprint.
Sure and I would expect that we'll be able to produce you know mid single digits growth rate in the U S.
But at this point, we're not comfortable to lay out our long term target.
And some of that Mike just to be clear you know, it's it's there are a lot of factors that really arent about wireless needs. If it was just about what do our customers need to do in terms of their network deployment.
Perhaps would be able to do that a little bit more comfortably I think some of these factors around cost of capital and other things that may affect timing of when our customers are spending.
Fluids that so so that just leads us to be a little bit more cautious in kind of may.
Maybe specific targets.
Thanks.
Sure.
And our next question comes from Nick del Deo with Moffett Nathan. Please go ahead.
Hey.
Jeff first of all I, just want to echo his other echo others' comments and thank you for all the time you spent with us and all the insights you can share with us over the years, so really appreciate that.
Thanks, Dave.
Thank you.
Jeff you emphasized in your in your comments.
That the carriers will need to invest to support traffic growth overtime, just like they always have.
I don't think many people dispute that I guess is there any reason to think that they have more capacity runway today.
And then they have typically had.
The year is given the amount of five G spectrum, they've rolled out we do not believe that's the case.
I do believe that there's a lot of spectrum out there.
Which is why now all.
Of the three largest carriers have now all are either have or are beginning to deploy fixed wireless.
Don't know that you know had that technology been available in the last iteration. It. It would have worked out but I mean, just on that point from some things that I've read the fixed wireless subscriber.
Takes up 20 to 30 times, the wireless spectrum capacity.
So I mean at statistics like that Nick that that give us great confidence that overtime.
Overtime the connection that has existed forever as long as ive been around.
The connection between wireless data growth and the need for additional physical infrastructure is going to continue.
But yeah, I mean, there's a lot of spectrum out there now, but it's it's rapidly getting used up and it's going to continue to rapidly get used up.
The more successful.
Access that customers have with fixed wireless.
Okay, Okay and then.
I also thought it was interesting that you lowered your your site development revenue forecast, but you'll have to bottomline contribution unchanged, which implies a pretty a not insignificant bump in your expected margin.
Can you talk about what's behind that dynamic and how sustainable it might be as we look into the coming year.
Yeah, I don't I think Nick.
Does speak to the higher margin type work that we're doing I'm not sure that it's sustainable at that same level that we are experiencing right at the moment. Some of that is is really tied to an estimate of costs as we go.
These jobs on the books, and we're ending up actually finding ways to operate more efficiently and come in at lower cost levels and then as you kind of true up those jobs since they are accounted for on a percentage of completion basis, you know that.
That helps but.
I think it just is evidence of our intent to focus on high quality high margin work and we will continue to do that but I don't know that.
30% margins or are the story for the long term.
Okay got it thank you guys.
And next we'll hear from Eric Loop child with Wells Fargo. Please go ahead.
Alright.
Thank you I just wanted to echo best wishes for Jeff in retirement.
You know Brendan I just wanted to get your latest thoughts on how you kind of prepare the balance sheet for the debt maturity stack, that's coming due in a more material way in 2025, I know you don't have to make a decision on that today.
Whether youll pursue investment grade, but just how much that impact your capital allocation policy.
Into 2024, as you kind of look at the puts and takes of buybacks M&A or further deleveraging with excess cash.
Yeah, well first of all I think that we have.
<unk> access to capital so from a refinancing perspective, I'm not concerned about that.
Actively evaluating all of our options there and I'm confident that there are numerous markets available to us obviously the costs are higher than they've been in the past but.
In terms of access to capital so that that part of it doesn't concern me I think when.
When we think about allocation of capital, though it really is just a matter of.
What is the best return on investment what is going to create the most shareholder value so that sounds simplistic, but ultimately that's what we're looking at and so if we can use our capital and maybe our leverage goes a little bit higher which has been in the past certainly.
Because we see opportunities to invest that capital into either buybacks or.
Or a new asset.
We will do that we'd like to do that but recently we found that.
Paying down debt has been the better way to go and at some point.
I'll be at a level, where it's just going to be a natural shift if that doesn't change we'll be at a natural shift to investment grade.
And then it's just a matter of finding the right instruments that fit our.
Our capital structure to allow us to retain flexibility, but but also get the best cost possible.
Yeah, I think said differently. If we continue to operate the way we have the last couple of quarters, we naturally will have the optionality.
Of being an investment grade issuer that really for us is not so much more matter of material.
Leverage reduction as it is commitments and policy changes and things like that.
We would of course.
Before we materially increase leverage for our allocation of capital, we would think long and hard about whether that was the right thing to do in advance of 2025, but it kind of is on a path and Eric we think as.
As we look around the world looked at portfolio pricing and things like that.
It's very likely that.
We end 2020.
Four at a lower leverage level.
We're certainly not a higher leverage level than where we ended 2023.
Okay I appreciate that color.
Just one follow up question.
Just quickly on domestic churn I think excluding the sprint churn you'll be at about $30 million. This year, maybe around 2% of your revenues and it's been in that ballpark for the last couple of years as you look further out over the next few years are there opportunities to bring that run rate churn level lower we've heard from some peers about some of their run rate tower churn moving closer.
To 1% of revenue.
Yeah, I do think Eric there's definitely opportunities to bring it lower for one.
A big chunk of that is due to <unk>.
Smaller customers that.
Frankly, as you start to have less and less of them or there are less of a percentage of our of our business obviously.
Obviously, there's less opportunity or supply for that churn and then with our agreements.
Agreements with some of our bigger customers I would expect that any churn thats come from them will be significantly reduced as well.
Okay, great to hear thank you guys.
Yeah.
And next we'll hear from Brendan Lynch with Barclays.
Great. Thanks for taking my question and Jeff I want to Echo everyone's.
Congratulations as well.
Maybe we could just start with the international markets, you kind of describe demand being above your internal expectations.
A component of that I believe you mentioned was the.
The escalators, but if I understand correctly those are more backward looking so I would imagine that you have pretty good visibility on that for the year I'm, assuming you could just get into some of the other drivers that are driving the international exposure and international profitability higher than what you had been expecting.
Yeah, the the above expectations comment was specifically associated with our.
New leasing revenue signed up through new leases and amendments.
And that was you know, we kind of obviously target based on backlogs and.
And what's our market intelligence is telling us what we think those numbers are going to look like in each market and on average across our international business. We were successful in signing up more new business than.
From a dollar standpoint than we originally expected. So that's that's that comment and I think it's driven really just by the significant needs that certain of our customers have across our markets for.
For all the basic things that we talked about before continued expansion of both <unk> and even a little bit of five G coverage the coverage that exist in these markets.
Markets is not nearly where it is in the U S. So there's much greater needs in some cases and so we're seeing that play out in a number of our markets.
The escalator pieces, not really a part of that that that varies and just moves based on where inflation is and in certain of our markets inflation was.
It's been a little bit higher so that has helped the.
The growth rates stay elevated.
Great. That's helpful and maybe just one on the build to suit program you had some more activity there in the quarter, maybe just give us an update on where you see those opportunities over the next couple of quarters.
Yeah, I think there's.
Most of that is being done internationally first of all I'm sure you see that in our release.
And that will probably continue to be the case, there there's definitely opportunities for new builds for the same reasons I just mentioned in response to the previous question. There's just a lot of coverage needs that are <unk>.
Exist in these markets you know the real question for US is just making sure that we're doing.
Making worthwhile investments given the cost of capital that's increased that we're building sites that were confident.
Are going to make a nice return and that usually requires the addition of a second tenant at some point.
Over the next several years after you build the site. So we're we're pretty diligent and kind of watching those sites I think opportunities exist, but we're gonna be selective about where we built sites.
Great. Thanks for the color.
And our next question comes from David <unk> with Green Street. Please go ahead.
Hey, Thanks, Brandon I think that's what it'll be for you on the comment you made about U S tower validation Stan Hi could you provide some more color on why you think that is.
Just because I guess I'm surprised given we've had a pretty meaningful rise in interest rates over the last few months while at the same time, we've had some concerns about lower macro tower agree outside of them or so.
Any additional color would be great.
Yeah, I think you've got.
A lot of different parties out there that have.
Demands or or.
Sure.
Their mission is to invest in digital infrastructure and they have capital that's already been raised that needs to get deployed and so I think that has that plays a role in it the supply frankly in the U S is somewhat limited so there's still some competitive.
Tension that exists there among many different parties that are investing so so that's really a driver.
And so if you've got different return expectations and you've got different views on what the growth profile of the assets look like you may be able to make a decision that's different than we're seeing the.
The public companies, including SBA Mike.
Okay. That's helpful. And then second one maybe sticking with you I'm guessing next year you guys are gonna be accessing the secured market to refinance some debt and I know that a.
A few quarters away, but could you maybe give us an idea of where secured borrowing costs sit today for tower assets.
Yeah, I mean, it depends on what market you're in if you're talking about the ABS market, which has been our primary source of secured financing today you'd be somewhere in the mid mid to high sixes would likely be where we would play out.
Great I appreciate it.
Sure.
And our next question comes from Brandon <unk> with Keybanc capital markets. Please go ahead.
Okay, Great just one from me.
Hopefully I have been asked but just hoping you could talk about what you're seeing during the quarter more specifically from an activity perspective, specifically I was hoping you could help us understand where you are from a year over year perspective from a backlog of signed lease applications and how that trended versus last quarter. Thanks.
Yeah.
Yeah, Brandon we are.
Our backlogs are a little bit lower than they've been in the past that.
I, probably shouldn't be a surprise given the carrier's investment levels have been a little bit slower as we've talked about and obviously executions had been down.
The backlogs have trended in the same general direction.
It'll be interesting to see how that plays out as we get into next year as the carriers have new budgets in place and so forth. So.
For now, though it's it's definitely trended down.
Thanks.
And we have no further questions at this time.
Well I, usually sign off but I'm going to let Brendan.
Well.
Thank you all for joining us we appreciate it and thank you again for for all of your years preceding.
Been an honor and a privilege and I.
I am not able to say as I have in my last 100 that we that I look forward in boxing where are you in next quarter right, but if you're in good hands. Thanks, everyone.
Yeah.
That does conclude our conference for today. Thank you for your participation you may now disconnect.
Yes.
We're sorry your conferences ending now please hang up.