Q1 2024 SBA Communications Corp Earnings Call
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Ladies and gentlemen, thank you for standby and welcome to the SBA first quarter results conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. However should you require assistance during the call. You May Press Star then zero and an operator will assist you offline.
As a reminder, this conference is being recorded and I would now like to turn the conference over to our host Vice President of Finance Mr. Mark Dressy. Please go ahead.
Good evening. Thank you for joining us for Sba's first quarter 2024 earnings conference call here with me today are Brendan Cabot, all our president and Chief Executive Officer, and Mark Martin, 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 2024 and beyond today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations are.
Our statements are as of today April 29.
No obligation to update any forward looking statement, we may make.
In addition, our comments will include non-GAAP financial measures and other key operating metrics a reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.
With that I'll now turn the call over to Mark.
Thank you Mark our first quarter results were in line with our expectations, excluding the impact of weakening foreign currency assumptions, we increased our full year outlook for tower cash flow adjusted EBITDA and after four per share as compared to our initial 2020 for outlook.
Primary drivers of these increases all direct cost saving associated with towers could be decommission.
A reduction in the estimate for your share count from competing share buybacks.
Due to the current strength of the U S doors versus local currency and some of our international market.
The overall outlook for site leasing revenue total revenues, however, the cash flow and adjusted EBITDA or flex down versus our initial guidance.
First quarter domestic same tower recurring cash leasing revenue growth over the first quarter of last year was five 9% on a gross basis.
3% on a net basis, including three 6% on June seven.
$7 5 million of the first quarter churn was related to sprint consolidation churn, which we anticipate to be approximately $30 million for the full year of 2024.
Expected domestic operational leasing activity or bookings, representing new revenue placed under contract during the first quarter was consistent with the levels of activity we saw in 2023.
No one screen related domestic annual churn continues to be between one and 2% of our domestic site leasing revenue.
Our previously provided estimates of aggregate spring related churn over the next several years remains unchanged.
Anticipate a range of 40 to 45 million in 2025 $45 million to $55 million 26, and 10 to 20 million during 2027.
International same tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis was three 3% net including four 8% of churn or eight 1% on a gross basis.
In Brazil, our largest international market same tower gross organic growth was six 8% on a constant currency basis.
Compared to the previous quarter and full year 2023, our reported international growth, which continued to be impacted by the declining.
Declining local CPI linked escalators in Brazil.
Total international churn remain elevated in the first quarter due mostly to carry come from ambition.
During the first quarter, 78% 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 15, 8% of cash site leasing revenue during the quarter.
As a remainder our 2024 outlook does not include any children.
Related to the oil wireless consolidation.
Rather than your amount associated with the previously announced agreement executed with legal.
During 2024, we were to enter into further agreements with other carriers related to the <unk> wireless consolidation in EMEA have an impact on 2024, we will adjust our outlook in future earning calls.
Additionally.
You do just short reorganization plan for or wireline was recently approved by a majority of creditors.
As a result of this plan we have increased our full year churn outlook, all your wireline by $2 million to a total of approximately.
Approximately $4 million.
This adjustment is including the updated full year site leasing revenue all group.
As a result, all water now and now represent approximately $20 million total annual site leasing revenue in 2024.
During the first quarter of 2024, we acquired 11 communication sites with toward cash consideration of $92 million.
We also built 76, new sites, mostly outside of the U S.
Subsequent to quarter end, we approach is under agreement to purchase 271 sites in our existing markets for an aggregate price of $84 $5 million.
We anticipate closing on these sites under contract by the end of the third quarter.
All group does not assume any further acquisition beyond those under contract today.
We also do not assume any share buybacks beyond what was already completed so far this year.
However, it is possible that we invest in additional assets.
Share repurchase or both during the year.
Auckland for net cash interest expenses in <unk> and <unk> per share continues to include the July 1st with financing of our two 620 million or EPS tower securities scheduled to mature in October 2024.
Our current leverage of six five times net debt to EBITDA.
Near historical low and Worldview, a stated target of 7% to seven five times.
Our balance sheet is very strong with a current weighted average interest rate of three 1% across our total outstanding debt.
Our weighted average maturity is approximately four years, including the impact of our current interest we hedge the interest rate on 96% of our current outstanding debt is fixed.
And now.
Turn the call over to Mark.
Thank you Mark we ended the quarter with $12 4 billion of total debt and $12 2 billion of net debt our net debt to annualized adjusted EBITDA leverage ratio was six five times.
Below the low end of our target range or.
Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was very strong at five two times.
We continue to use cash on hand to repay amounts outstanding under the revolver and as of today, we have $195 million outstanding under our $2 billion of all of them.
During the first and second quarter, we repurchased 935000 shares of our common stock for $200 million at an average price per share of $213 85.
We currently have $205 million of repurchase authorization remaining under our $1 billion stock repurchase plan.
The company's shares outstanding at March 31, 2020 for $107 9 million.
In addition, during the first quarter, we declared and paid a cash dividend of 181.
<unk> $108 1 million or <unk> 98 per share.
And as of today, we announced that our board of directors has declared a second quarter dividend of <unk> 98 per share payable on June 19, 2024th to shareholders of record as of the close on May 23 2024.
This dividend represents an increase of approximately 15% over the dividend paid in the second quarter of 2023 and with that I'll now turn the call over to Brian.
Thank you Mark good afternoon.
The first quarter marked a good start to 2024, we executed well operationally and produced financial results in line with our expectations. As a result, we have made very few adjustments to our full year outlook on a constant currency basis.
And many of our markets macroeconomic challenges have continued and as a result incremental network investments by our customers have remained measured and largely in line with activity levels that we saw last year.
In the U S leasing activity from an execution standpoint was only slightly higher than the fourth quarter.
However, during the first quarter, we saw increases in applications for both new leases and amendments as well as an increase in our services backlog.
Our customers continue to have significant network needs a large percentage of our sites still require <unk> related upgrades and data heavy use cases, including fixed wireless access will compel continued investment by our customers over the next several years.
I am personally of the belief that the current high cost of capital environment is perhaps the biggest overhang on this spending and is driving a more elongated spending cycle.
Nonetheless, the needs are great consumers are demanding and competitive pressures will continue.
<unk> infrastructure will be a critical component of the delivery chain for our customers to meet these challenges and I believe we are well positioned to support them in their efforts.
In addition, the current cost of capital may persist longer than anticipated just a few months ago, but I believe it will ultimately come down in time, which will encourage increased network investment it.
It is all really just a matter of timing.
Internationally results were also in line with expectations.
Although each market has its own specific dynamics on average we are in a period of slower growth internationally compared to our historical levels.
Lower inflationary escalators are a contributor but the primary reason is consolidation related churn and its associated impacts on carrier focus.
Internationally, we have found that during these consolidations the surviving carriers direct most of their attention to rationalizing their existing networks, causing much of their incremental network expansion. However.
However, new spectrum and new technology generation deployments remain important and we believe will result in an acceleration in organic growth rates over time.
As discussed on our last call charter remains elevated due primarily to these consolidations, but we believe that the steps we have taken and are taking to reach mutually beneficial contractual amendments with these customers will enhance the long term strength and stability of our cash flows.
Turning now to our balance sheet and capital allocation priorities, we have not shifted our previously stated overall approach, but we do very much make adjustments along the way in response to broader market dynamics and opportunities we.
We prioritize our dividend and have again announced a quarterly dividend, 15% higher than the prior year period.
This dividend level remains less than 30% of our guided full year, <unk>, leaving meaningful capital available for allocation.
During the first quarter, we added a relatively small number of towers to our portfolio and as a result of carrier consolidation, we decommissioned almost as many sites as we added.
We remained selective about the quality of the sites that we add to our portfolio, but we really remain particular about the price at which we add them, which these days has been the main gating issue.
That's okay as our focus continues to be on return on investment not growth just for growth's sake.
Opportunities will come along in fact, they come along all the time, so we're comfortable being patient appropriately considering the new cost of capital environment. We are operating in and going after those opportunities that we believe we can best drive strong returns on.
The sites, we are decommissioning are related to consolidation activity among our customers, we will be more proactive in the coming years and evaluating naked sites for cost saving opportunities and potentially decommissioning.
As I mentioned earlier, our cost of capital and specifically cost of debt remains high and is now broadly expected to remain elevated for longer.
This dine out dynamic beyond any other has had the most significant impact on public tower company valuations during.
During the first quarter and beginning of the second quarter. We responded to some of this decline in valuations by spending $200 million to repurchase 935000 shares of our stock.
I believe that when there is ultimately a downward shift in rates repurchases at this level will be even more accretive to future shareholder value.
Nonetheless rates remain elevated today, and we recognize the impact of potential future higher interest costs on <unk>.
So a portion of our capital allocation will continue to be appropriately dedicated to reducing debt.
We're not formally changing our leverage targets as we believe retaining flexibility for the right investment opportunities is valuable, but operating with lower leverage in the current environment is clearly prudent.
Our balance sheet and liquidity position remain in great shape.
If not for the share repurchases, our revolver would have been fully paid down as of today.
Our average cost of debt remains very low at three 1%.
However over the next 12 months, we have approximately $1 8 billion that will need to be refinanced the.
The cost of that debt, we will certainly be higher than what we're paying today, but our ability to manage the amount of debt needed and the time, we are locked into higher rates will be important factors in the approach we take.
Capital is widely available to us it's really just a matter of course we.
We are evaluating a variety of options and we'll provide further updates during the year as incremental steps are taken.
Finally, I would like to revisit some of my comments from our prior earnings call with regard to the portfolio review we have undertaken.
On the last call I mentioned that we had begun an effort to analyze all of our operations and our potential operations through a lens of stabilizing results growing our core business and shifting our mix more and more to high quality assets and operations.
I do not see this goal is having a finite deadline as it is more definition around the key decisions. We make however, there are some very specific steps being taken and looking at each of our key operations each of our business lines in each of our international markets.
We are setting baselines as to where we think these operations and up on a status quo basis, one year from now five years from now and even 10 years from now.
And based on potential opportunities, we see in each case, we are developing alternative results profiles based on different paths, we might take with the ultimate goal being improving the outcome relative to the base case we.
We are making good progress in gaining good insights through the effort, but this is not an overnight initiatives. Many of the potential steps we have identified to enhance our positioning in given markets. Our operations will take time, sometimes possibly years to effectuate.
After our prior call a lot of attention was paid to the possibility of divestitures of businesses or markets.
While that may be an outcome in some cases it is far from the priority our preferred path I would much rather find ways to improve our position in the market through the addition of quality assets enhanced customer relationships and agreements and other creative solutions.
In fact, I was recently visiting our team in Brazil, and learned learned of a number of creative solutions, we are introducing to enhance the customer experience at our site and thereby improve the longevity of our customer relationships at those sites.
Im encouraged by the seriousness with which our teams are approaching this initiative.
In the end, though as I stated previously financial results always matter and we will make the best decisions, we can to protect or create shareholder value is our top priority.
We have a great business and great assets. It is our job as the management team to maximize the value. We can realize from those assets and that is where our focus squarely as.
I'd like to wrap up by thanking our team members and our customers for their contributions to our solid first quarter and we look forward to continuing to share our progress throughout the year.
With that Jeffrey we are ready for questions.
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Our first question comes from Michael Rollins. Please go ahead.
Thanks, and good afternoon, I'm curious if you could discuss a bit more about some of the pre conditions you are seeing for better domestic leasing activity.
Applications that you've described for new leases and amendments and does this give you encouragement that 2025.
Can see better leasing activity in 2024.
Yes, Mike I think it's.
A little bit premature to say that.
My comments about the increased applications are obviously positive in general.
As increases obviously would be but I think it's a little bit early its only been two months since our last report and we haven't seen a material change we've just seen a minor step up directionally.
Those items. So at this point I think it's too early to comment on where 2025 will come out.
And in terms of.
Just the where the activity is coming from is it coalesced around certain geographies or certain carriers.
No I would say, it's fairly broad based and.
In different geographies different carriers are perhaps a little bit busier than others.
I think you are aware of some of the initiatives.
Some of our customers have going on.
But it's I would say its generally broad based.
Across the big three carriers.
And just one other question you mentioned about.
Wanting to.
Manage leverage lower in this environment do you have a goal as to where you'd like to see our net debt leverage exit the year.
Yes, we don't really have a goal in fact, we're actually not explicitly changing our targets.
Although we're obviously operating well below them today and the reason we're not changing the targets is that opportunities come along and sometimes being flexible and levering back up to take advantage of a particular opportunity may be the best choice and so I don't want to kind of present it like we have to be at a lower number I think in absence of.
Investment opportunities that we see as particularly value additive.
The current high interest rate environment, the best option.
Some cases will be to actually pay down absolute debt. So there's not a particular target, but I think.
Outside of some meaningful opportunity for new assets coming along you should expect that we would look to reduce our absolute debt levels.
Thanks very much.
Yes.
Our next question comes from Jonathan Atkin. Please go ahead.
Thanks that was interested in where you see.
The most interesting build to suit opportunities across.
Across your markets.
And then as we kind of think about M&A.
Within existing markets or elsewhere can you just remind us in terms of what.
What guidelines are and where you might be.
<unk> opportunities. Thank you.
Yeah.
On the Newbuild opportunities.
We are.
Well first of all we're looking in every market that we're in four specific opportunities that meet our requirements because we already have a presence in that market and in operation operating scale.
Scalability, there so ideally we'd like to build sites wherever we can but specifically certain markets in our African markets in particular, we're seeing more opportunities and certain select markets in South America as well.
On the M&A front I would say the same premise supplies in the sense that if we can find high quality opportunities in any of our existing markets is something that we prioritize but at the end of the day. It really is a financial analysis around.
The price pricing of those assets and what we think we can do in terms of returns based on growth that we think we can achieve over a period typically of about five years or so.
Our approach Hasnt really changed although our return thresholds have moved up with the cost of capital.
And then Brazil.
Remind us broadly where oi is in terms of the equipment being decommissioned also towers for their mobile network and then prospectively for the wireline you gave a little bit of color on the prepared remarks, but.
Where are they in terms of physical decommissioning.
As opposed to you haven't already maybe recognized it.
And you're reporting thanks.
Yes on the Oi wireless side it varies by carrier obviously, they were absorbed into three different carriers.
I would say.
I don't know if I could give you an exact percentage, but theyre, probably 40 ish percent or so of the way through that effort would be my guess on average we're definitely seeing the activity there, but there is as.
As we see here in the U S. It's an elongated process and it takes some time, so I would expect us to go on for for a number of years on the wireline side.
You've seen some decommissioning that were really in advance of the efforts that they are undertaking here, but.
That one actually has the most runway still to go they just just had their reorganization plan.
<unk>, just a week or so ago. So it's very early days, there, but I would expect over the next couple of years, we'll start to get a better sense of that and in fact, they are under the plan, they're expecting to reorganize and continue to operate that network at least for the next several years. So.
We'll see how that progresses in terms of how many sites actually get turned down.
Thank you.
Yes.
Our next question comes from Michael <unk>. Please go ahead.
Great. Thanks for taking the questions.
Just wanted to go back on the portfolio review.
It seems like when Youre talking about the M&A environment valuation is the hold up I think just interpretation is thats part of the reason why we're seeing a shift more capital allocation to the buyback just curious how your how your thoughts there have evolved.
I'd be the first thing and then second is there any color that you can share in terms of the 271 sites that you announced that you are acquiring where theyre located that'd be helpful. Thank you.
Sure Yeah, I would say in terms of evolution of our thinking we announced this portfolio review publicly last quarter.
And you know it hasn't been that much time, so we're kind of in the midst and throws of that the one thing that has shifted a little bit though in that window of time is that.
Rates.
Not only saying higher but are expected to continue to stay higher for longer and that's something that we have to be sensitive to and so my comments earlier in the prepared remarks were really about that about the fact that we.
We have to watch that and in some cases.
Paying down debt may actually be more accretive than we would've thought even a couple of months ago and so it's certainly on the table, perhaps more than it was before and you are right in that you see less M&A activity.
And more towards buybacks for instance, because we see better return there. So it is very still very much financially driven.
In terms of the sites that are under contract it's pretty much the same sites that were under contract with a very few exceptions.
At our last earnings call.
There are mix of market somewhere here in the U S. But most are located internationally.
South America is the primary place, where we have to have those types of contracts.
Perfect and one on one.
Other question, if I could last quarter earnings call there was commentary about.
Carrier activity in the U S persisted.
Current levels that you could see though <unk> 24 exit run rate be below $40 million, just curious how youre thinking about being kind of a run rate exiting the year based on the activity that Youre currently seeing thank you.
Yes, we didn't change any of our outlook for the year. So that still stands as of today that we would expect a similar number to what we talked about last time exiting the year. So right now we.
Speaker Change: We haven't seen enough shift in carrier activity to change those projections.
Thanks, so much.
Our next question comes from Simon Flannery. Please go ahead.
Great. Thank you very much good evening, Brendan I Wonder if you could just characterize some of the big three activity are you seeing them complete or move further on adding mid band to existing sites or are you seeing them move to Densification and then any kind of parallels you control with the LTE <unk> kind of facing from that.
Initial coverage phase to that next phase how does this compare ours was slower as you noted because of the.
Rising rates and perhaps you could just remind US you talked about an uptick in applications. How should we think about timing from applications to actually executed leases on revenues.
New generation.
Yeah, I mean, the type of activity I would say is a mix, which theres still plenty of mid band spectrum deployments that needed to be done, particularly by AT&T and Verizon.
So we're seeing plenty of that that's the primary driver of amendment activity, but we are seeing more new leases than perhaps we'd seen in the past from the big carriers, It's a mix of both coverage and densification, but it's.
Taking a normal transition I think that we've seen in previous.
Generations of technology deployment.
Difference really Simon and you touched on it.
Picked up on what I said, which is it's really just timing.
Seeing this kind of go at a much slower pace, perhaps than what we've seen before that can of course change rapidly, but I really do believe that just the cost of money has an effect on that end.
It makes total sense why our customers would be a little more disciplined in their capital spending so that that's really what what we're seeing.
And then in terms of the time frame from from.
From signing agreements are getting applications in and executing them to ultimately revenue generation, it's pretty consistent with what it's been in the past. It's really just the absolute volume is a little bit lower.
Great and any color you can provide on dish.
When they were bid.
Busier and we're here to support them with all there.
Their needs, but I don't really have much else I can offer you.
Okay. Thank you.
Yeah.
Okay.
Our next question comes from Ric Prentiss.
Prentiss. Please go ahead.
Good afternoon everybody.
Hey, Eric.
Couple of questions. One can you can you unpack for us how much of the stock buyback you did within March and how much you did subsequent to the quarter.
Yes, I think it was I think it's somewhere in our report or maybe it's not but it will be in our 10-Q anyway I believe roughly half just over half was in March and the balance was in the beginning of April I'm sure. Okay that helps.
When we think about the leverage the leverage went up to about six and a half of the quarter.
Should we think about stock buybacks versus.
Allocating towards that route.
Reductions as we look out through the rest of this year is $6 five kind of a new normal in this operating margin just wanted to go down closer to six I'm just trying to think through how buybacks are fitting in would be good.
Debt reduction absolute levels.
Yeah.
It's not so much.
The leverage ratio in fact, the ratio was up but the absolute amount of debt was pretty similar to what it was at year end is a little bit higher because of the buybacks, but not not much.
It was actually higher on a leverage ratio basis, because the EBITDA was down a little bit.
Mainly because of services so.
You know that I'm a <unk>.
A little less focused there because we have so much room in our ratio.
And it's more of a focus on the absolute amount of debt that we're carrying and specifically because we have these two.
Maturities that are coming up in the next eight months or so and so as I kind of I that our ability to kind of reduce the amount of absolute debt as we approach. Those those maturity dates is really what we'd be targeting as opposed to worrying about what leverage ratio is and I think on the buyback front.
We obviously did a couple of hundred million here and we would be open to doing more with generally been opportunistic about it but in the short term we have these maturities and so.
To some degree that takes priority.
Okay, and then on an operational front.
I think Mark M was talking about.
The sprint churn confirming those kind of numbers legacy churn non carrier consolidation in the U S, 1% to 2% as we look out over the next 123 years. It seems like we might be heading into the lower lower end of that 1% to 2% historical level, because a lot's already been maybe sucked up is that.
I'm thinking that we might think of as maybe heading more towards the lower end of the one or two as we look out over the next few years.
Yes that would be my expectation.
Okay.
Great very helpful and I appreciate your clarity on the strategic review that helps.
Sure.
Okay.
Our next.
Question comes from Nick.
Dale Please go ahead.
Hi, Thanks for taking my questions.
First Brendan and Mark you both commented on tower decommissioning as a source of cost savings and something that might pick up with the consolidation related churn in the coming periods.
Nick: Does this entail doing anything different than what you had made done historically.
Turn like having a lower tolerance for hanging onto naked sites or is it just the magnitude of the sites that may be different today versus the past.
Yes, I think it's really more of the latter.
You've got <unk>.
So you had the sprint T Mo related consolidations here, but internationally with the Oi consolidation in particular I mean, those are really the big ones. There's some others here and there but those are the biggest ones.
It's a lot of sites and so as we kind of look at what can we do in this window of time, where carrier spending is a little bit slower and we have some of these headwinds what can we do to maximize our bottom line results.
Cost become a little more material.
Potentially to that story.
Improvement so its really more to volume than it is anything else, but that increased volume requires a little bit more of a concerted direct focused effort on it.
Okay, Okay that makes sense.
And then Brian one more for you in your in your prepared remarks, you noted that your team in Brazil is taking steps to enhance I think you said the customer experience at your sites, which can be value accretive over time can you expand on that a bit and maybe share. An example, or two of what you know what those solutions may have been I mean, it just struck me as interesting because at least those of us on the outside.
So certainly think of tower leasing is something where you tend to see a lot of innovation like that so.
Any description you can share would be interesting.
Yeah, well I'm going to I'm going to sidestep that a little bit because.
There are some specific things that we're doing that are creative that actually are adding value for our customers down there.
Things that are relate to power that relate to.
Other centralized hosting of wireless coverage.
<unk>.
And even secure.
Security related items as you add some of these types of things in terms of the service package that you provide you make your site that much better and when somebody has the choice to make.
To make a choice.
Nick: Want to have your options be preferred but it's not just that it also comes with the ability to enter into longer term agreements that secure that relationship for an extended period of time and that's really what we're focusing on the reason of sidestepping it a little bit not getting too specific with you is that it's a little early and for competitive reasons I prefer not to me.
That specific on it but as it becomes something that's more material.
I'll be happy to share at that point.
Okay, great. Thanks Brendan.
Yeah.
Our next question comes from David.
Barden. Please go ahead.
Hey, good afternoon, you've got Alex waters on for Dave. Thanks, So much for taking my question maybe just.
First let me just when I think about international churn, obviously elevated this year and then Brendan could you maybe.
Walk through or the way, we should be thinking about it for next year and a couple of years after.
And then just in terms of M&A I think you I think we discussed a little bit about.
Options you might have in existing markets, but can you just talk about your appetite for those that SBA does not have a presence in yet thanks.
Sure Alex.
Yeah on the international churn front.
I would expect that it will be elevated for the next.
Couple of years.
Maybe not quite as high as it is this year, but it will be elevated by historical standards. We used to have almost zero churn basically, but we've reached a point where you have a lot more consolidation that's taken place across many of our markets that's driving a lot of it.
And so as we just got to look at when leases are scheduled to roll off and where theres been consolidations and what we think our exposures we might have plus frankly the oi.
Wireline bankruptcy.
Those things.
I believe cause it to stay elevated.
Elevated for the next several years.
Although again, hopefully not quite as high as it's been.
This year.
On the M&A front.
Yes, I mean, new markets are certainly on the table for US we are.
We're very financially focused when evaluating the opportunities I believe.
That our experience over the last decade or more of expanding into international markets is giving us the comfort and the confidence that we can do that as well as anybody that we know the things that we need to understand before we enter a market how to operate.
Set up operations in a new market. So I'm confident that we can do it from an operational standpoint, it really just comes down to the opportunity that's on the table.
And the price point at which we can secure it so that it is value additive ultimately for the company as a whole and for our shareholders. That's the guiding issue and if it's okay.
It's harder and harder these days broadly, whether it's new markets or existing markets. Because there are a number of situations, where I don't think seller expectations have aligned with.
With where the market has gone, but that could change over time, and our willingness to expand in our existing markets or in new markets.
Would remain the same we would be open to it.
Perfect. Thank you.
Our next question comes from <unk> Levy. Please go ahead.
Great. Thank you a couple of follow ups.
On the network services side can you talk a little bit about the slowdown you saw in the quarter and I think you're tracking below your annual guidance should we expect this quarter to be the trough and continue to improve from here and maybe on the towers side.
Can you give an update on what percent of your sites have been upgraded with factory equipment now. Thank you.
Sure.
On the services business.
Yes. It is.
It's down a little bit but.
As you saw we did not change our full year outlook and we do expect that.
At the second half of the year will be slightly higher than the first half of the year.
I mentioned in my comments that we saw an increase in our services backlogs from the end of the year to the end of the first quarter that is supportive of that.
And <unk>.
All those little things around applications being up services backlog being higher.
Support that I think we will see a little bit more <unk>.
Services activity in the second half of the year, but I think we'll be able to give you more clarity on that on the next call.
On the tower side five percentage.
We're a little more than half now I think we've said we are around half in the past.
While we've seen some increase obviously through the first quarter.
With volumes being a little bit lower it's only a little more than half. So the actual percentage it's left to be upgraded is still significant.
Got it thank you.
Yeah.
Our next question comes from Richard Choe. Please go ahead.
Hi, I have two follow ups also I'm not sure. If you can tell but with the new lease densification applications are they mainly in markets, where there's a significant amount of fixed wireless.
I can't tell you that for sure Richard.
But that would not be an unreasonable assumption, but I can't tell you that for sure.
Got it and then all the decommissioning cost savings is there a significant delay from when the decommissioning happen and when you do.
Due to the cost savings given maybe the ground leases underlying or can you kind of get ahead of it and kind of.
Those that timing gap.
Well our goal is to achieve those savings as quickly as we can and youre right that in.
There will be many cases, where we're able to do that ahead of the decommissioning in fact.
In some cases, it would be our desire to not do the decommissioning and simply.
But those costs on hold so to allow enough time to see what happens. So I think it'll be a mix, but where we're able to do that and obviously it accelerates our ability to generate the cost savings. So that's our first priority.
Great. Thank you.
Yes.
Our next question comes from Matt nickname. Please go ahead.
Hey, guys. Thanks for getting me on the call just two if I could first on the debt.
Maturity I think you've talked about evaluating a variety of options in relation to that is there any more color you can share in terms of what's being evaluated in terms of alternative sources of capital and is there the potential for caf recycling with where multiples and valuations are in the private markets and then just secondarily on the.
The tower decommissioning is that more of a housekeeping item is that what's driving the booths to tower cash flow ex FX relative to the slight reduction in site leasing tied to the oil check. Thanks.
Your second question. The answer is yes that is the primary.
Driver.
I mean, it's small dollars, obviously, you're talking about a $4 million for the year, but but yes. That's the driver on the first question.
I'm, mostly when I talk about different options were mostly referring to different markets that types of debt that we might issue.
To refinance it.
On the question about Caf recycling type of solution you know at this point I think I would differ on that but the bottom line is we're open to looking at all the different options that are available to us trying to find the most creative and cost effective solutions that we can and.
We'll let you know as we secure something.
Great. Thank you.
Sure.
Yeah.
Our next question comes from Eric <unk>.
<unk>. Please go ahead.
Great.
Thanks for taking the question.
Brendan maybe you could talk a little bit about.
The comprehensive MLA, you signed with AT&T last year any kind of early learnings on weather.
That's helped generate more activity on your sites with a customer and whether there may be appetite for similar agreements with some of your other customers I know I believe that T mobile had an agreement.
That expired relatively recently.
Yeah, it's been it's actually been very good in the sense that we have.
I think it's kind of loosen the gears up if you will between the two companies. They have a lot of work to do and where we're big.
Supplier of theirs in terms of tower.
Tower space, so the ability to have you know.
Much easier free flowing kind of understood process by which we.
They make requests and we help satisfy those requests has been a positive and so I think that ended up itself is something that we love to have with all of our customers and I think we generally do.
With AT&T, perhaps it was the one that you know given that we have never really had any kind of master agreement with them.
There was a little more low hanging fruit there to address.
In terms of the others every agreement I think is very specific to the relationship with that customer and what their needs are and their existing relationship with us. So we're certainly open to master agreements, we've had them in the past with the others in the case of the T Mobile agreement we actually.
You mentioned that had expired thats true, but we actually did extend it for a period of time, while we kind of look at the longer term needs for them and how we might structure something that's favorable for both companies into the future. So.
I think that evidence is the fact that we work together well with our customers and.
Are able to find solutions that are beneficial for both parties.
Great and just one follow up from a one of the earlier questions I think you talked about getting to.
The 1% U S tower churn excluding spread in the next few years. So just the glide path to get there is that is that coming more from some of your smaller customers or are you also seeing some churn opportunities with the big three or four customers.
Does it have anything to do with less competitive activity from tower over builders or anything you can cite to kind of get down to those levels.
Yes, I think it's both.
Have less smaller guys just in general and so therefore, theres just less of a pool of.
Potential leases to churn with the kind of more narrow band type of tenants that we have so that that is a contributor and with the bigger guys. I think as you have these master agreements you have less.
As you said over builders that are out there and others that are trying to find ways.
To take existing tenants, while not particularly successful in the past there was some amount of that I think that's sort of gone its way and you'll see less and less of that happening in general. So I believe all of those factors will play into it.
Alright, Thanks, Brian.
Sure.
Our next question comes from Walter Piecyk <unk>. Please go ahead.
Thanks, and thank you to the operator that was the perfect pronunciation of my name for the first time ever.
I just wanted to go back to.
The math on the debt reduction and.
And the share repurchase.
Because I think basically the way you described it is you noticed what was going on.
Longer and higher.
But then you should continue to buy.
Doc back into April which.
I guess, if you could comment on that because I don't I'm not sure how those two things fit but then if you look at kind of the reduction on an empirical basis and.
23, when you reduce it $600 million.
Obviously youre not on the pace of that yet this year.
For any reduction, but then you again, Peter I know three or four people ask this question but.
You kind of referenced the $800 million of debt maturities.
So if we look at you using another 100 already in the June quarter, and then just the free cash flow.
And so if those maturities.
It would seem to me that you're basically you have to turn that spigot off for any share repurchase for the remainder of the quarter and into Q3 in order if you're specifically targeting.
Those maturities I get it I get it that you are looking for other ways to I guess refi or whatever but.
So if you could just comment on why you were buying stock back when things change.
We expect more than 600, given the comments that you made and how can you do share repurchase if you've got these maturities that you want to address.
Yeah, I'm not I'm not sure if theres just a moment in time when things change.
We bought back stock in late March and basically the first few days of April so.
And I think that Thats still.
There's a good return on investment.
The reality is it's hard to be that precise and exact timing on all of these things and I think as we go forward. It doesn't mean that we won't buy stock back at all just telling you that directionally as I look at it today that I think paydowns of debt is slightly more accretive than buying back stock where it is right now.
But that doesn't mean, there won't be opportunities to do both and I expect we will do both going forward, but we're going to we're going to see what other options. We have available to us as we move through the balance of the year and that will that will influence how it plays out well I will add one thing here and that's debt buybacks have certainly.
<unk> to them.
Where when we are in a blackout period, we typically put a plan in place.
And those plans typically prevented us from actually making decisions. The decisions are made ahead of time.
And I think that May help explain the timing of those relative to your comments.
That's fine I appreciate that.
Just one follow up though again just based on math right. This is a very predictable business right. We can see what the free cash flow is.
I don't like if you're if you think it's more if you think share repurchase is more important to these reasons that you've outlined which I don't disagree with right and assuming that that that that view doesn't change all of a sudden the fed doesn't start if I can dropping rates left and right and the upcoming in near future again unlikely.
I just don't see like.
That doesn't mean that you have to.
Mostly.
Turn off the share repurchase spigot.
At least through the end of the year.
It's just it's just the math of the free cash flow and what's available in terms of at least trying to top $600 million reduction that you did last year.
Yeah, No. That's that's true there's a certain amount of cash that is available under the current structure that we've got we're producing a certain amount of episodes.
And the portion allocated to the dividend and there is the rest right and the rest will go to one of these buckets are a mix of these buckets. So what.
What youre, saying is right.
You know things.
Things may adjust frankly, we may end up with an acquisition opportunity that we think is actually better than all in that would put both of these things to the side. So.
Retaining some flexibility, but yes, if we're going to buy if we're going to pay down a meaningful amount of debt, obviously, we'd have to start spending on everything else.
Just one just one last operational question.
I guess I'll phrase. It this way have you seen outside of the big three operators and dish have you seen any one demonstrating interest in or submitting applications for CBR spectrum to deploy on your towers.
Nothing material no nothing really got it.
Speaker Change: Thank you.
Yeah.
Our next question comes from Brandon Municipal Please go ahead.
Great. Thanks for taking my question quick one for Mark could you just quantified.
The impact of customer consolidation churn versus normal course churn in the quarter, both domestically and international and local Brendan.
Yeah.
Looking at the leasing a little churn numbers brand Brandon I'm, sorry, Brandon I'm, sorry to interrupt you, but we're having a little bit of a hard time hearing you youre a little garbled.
You may have to rank versus.
Can you hear me better now yes.
Yes, that's much better thanks, Okay I'll just start over so quick question for Mark could you just quantify the impact of customer consolidation driven churn domestically and international versus normal course churn in the quarter and then Brendan for you with with where you're sitting today from a leasing standpoint in turn standpoint.
And Ashley and domestically and what you know about your maturities coming up what do you think the reasonable level of <unk> per share growth looking out to 'twenty five 'twenty six when your heaviest maturities that are coming due.
Yes.
Speaker Change: Okay.
On the second question <unk> per share growth I think.
Brandon.
The real trick in answering that is that interest rates.
And interest expense play such a big role in it.
So.
If it weren't for that if I could tell you exactly what it was going to cost to refinance debt and what the timing was going to be I could answer that question with a little more precision obviously, we make certain assumptions internally here, but I'd, rather not speculate on that.
If you kind of took that away I think a mid single digit percentage growth rate for <unk> per share would be what we would achieve even with the churn, but the interest headwinds are going to be.
<unk> to that.
And then the first question was the customer consolidation churn percentage.
Yes, so in the domestically.
<unk> was more than half of the tool churn in the U S.
Internationally.
I would say that the majority was known.
For this first quarter, but the ore is going to pick up.
In Brazil.
We said overall, the noise or churn outside of Brazil.
Brazil would be about $15 million.
Great. Thank you.
Hum.
Speaker Change: And our next question comes from Eric <unk> Lynch. Please go ahead.
Brendan James Lynch: Yes, Brendan much thanks for taking the question.
Maybe just on the refinancings coming up this year.
Then are you comfortable.
Using the revolver to refinance that debt if not longer term at least Sidney.
In the short term.
Okay.
Yeah, I mean, that's.
One option, that's obviously on the table.
The advantage to it of course is that it would allow you to it.
Retire it quickly over time or as you could over time without having to lock into a longer term maturity date, but.
The negative is that its some of the most expensive debt that we have right now would be more expensive than obviously, whatever we would refinance it with in a different market. So.
It's an option.
Okay. Thank you and maybe just one on the technology front.
A few quarters back you're discussing.
Dual band radios as a potential driver of incremental demand, maybe just give us an update on where that stands and any other technology initiatives that your customers might be looking at that could contribute.
Contribute to incremental demand going forward.
Yeah, I mean, we saw a decent amount of deployment of dual band radios that certainly was a driver.
Last year, and maybe even before that but.
But.
At this stage it seems like most of the focus is on just deploying the mid band spectrum that they have them on hand, and just incremental new leases as we talked about before for coverage and densification.
I wouldn't say, there's anything more technical than that.
Very good thank you.
Yes.
Okay.
There's currently no other questions in the queue at this time.
All right well great. Thank you offered for dialing in and we appreciate your time Tonight and look forward to reporting to you next quarter.
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