Q2 2024 SBA Communications Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the SBA second 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 that as a reminder, this conference is being recorded I would now like to turn the conference over to our host VP of Finance Mark Diblasi. Please go ahead.
Good evening and thank you for joining us for SBA second quarter 2024 earnings Conference call.
Brendan Thomas Cavanagh: Today are Brendan Cavanagh, our Chief Executive Officer, and Mark <unk>, Our Chief Financial Officer, So that with the information we will discuss on this call is forward looking.
Clothing, but not limited to any guidance for 2024 and beyond.
Today's press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today July 29, and we have no obligation.
To update any forward looking statement.
They make in addition, some of our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.
With that I'll now turn it over to Brendan to comment on the second quarter.
Thank you Mark and good afternoon.
The second quarter was another solid one with good execution operationally and financial results in line with our expectations.
Accounting for recent weakening in foreign exchange rates, we have modestly lowered our full year outlook for most financial measures. However on a constant currency basis, we have slightly increased our projected full year results.
The year has largely unfolded as we had expected steady carrier activity across our markets, but no material inflection in new leasing amendment execution, thus far into the year.
In the U S. We have continued to receive increased inquiries from our customers, which is a good sign but to date, we have only seen a modest increase in new business executions.
Looking out over the next several years. So we're very excited about the prospects for further increase demand.
Mobile network consumption continues to grow at a very healthy pace, adding strain to existing networks.
The offering of fixed wireless access by all three of our major customers will only add to this network stream.
I've mentioned, it before but I believe it bears repeating the average fixed wireless access user consumes 15 to 25 times the data that a typical mobile wireless user consumes.
As a result, the equivalent mobile subscriber additions to our customers' networks is significantly higher than it has been in the past.
This phenomenon will require continued network investment by our customers to keep pace with the demand.
And all had publicly discussed plans to continue to grow fixed wireless access subscribers over the next several years.
We also expect that the eventual incorporation of new generative AI capabilities into handset will further increase network consumption.
In addition, the percentage of our existing leases with the big three carriers that have been upgraded with mid band <unk> spectrum still remains at just over 50%.
Leaving a significant growth opportunity ahead of us.
Varying rates of <unk> progress among our largest customers creates competitive pressures that we believe will also be a driver of future network investment just as it has been in past cycles.
Incidentally mid band <unk> spectrum upgrades in our international markets are at even lower percentages of completion and in the U S.
Beyond all of these demand oriented drivers, we expect increased network spending driven by five G coverage commitments made in connection with past regulatory approvals.
Some of these commitments not only require coverage of pumps, but also minimum downlink speeds.
This means the denser build out and expansion into areas not previously prioritize, particularly rural areas will become more important as deadlines approach.
We believe we are well situated to assist our customers in meeting their objectives with both our assets and our services support solutions.
We are in the business of long term assets and long term customer relationships things don't change materially overnight, but the signs of numerous demand drivers are all there and we are confident in our long term organic growth prospects.
And our services business, we had another good quarter as well revenue was up 15% from the first quarter and our gross profit contribution was ahead of our internal expectations.
We have lowered our full year outlook for services revenue by $10 million at the midpoint due to a lower anticipated level of construction work, although we still expect to increase.
That number in the second half of the year over first half levels.
Notwithstanding this lowered revenue outlook, we have not reduced our expected gross profit contributions to our full year adjusted EBITDA outlook as we continue to secure higher margin work.
Our services teams continue to perform very well for our customers, helping them to significantly reduce their deployment cycle times.
Internationally results were also in line with expectations and the prior quarter, Although we did see a pickup in new leasing activity during the quarter, increasing the contribution to full year revenue from new leases and amendments.
Brendan Thomas Cavanagh: Each of our markets has opportunities for increased organic growth as new spectrum and new generations of wireless technology are rolled out.
Challenging macroeconomic factors and imbalanced market share among mobile network operators and some of our markets has led to consolidations and increased network rationalizations, presenting some near term challenges, but ultimately bolstering the strength and sustainability of our customers' prospects.
We continue to work toward enhancing our own market positioning and our alignment with the leading carriers in each of our markets.
We believe our efforts will ultimately enhance the long term strength and stability of our cash flows and increase our opportunities to capture incremental organic leasing revenue growth.
During the second quarter. We also continued our balanced approach to capital allocation with a mix of portfolio expansion stock repurchases dividends and debt reduction I anticipate that we will continue to balance our capital allocation for the remainder of the year.
Since our last earnings call, we have largely focused on debt reduction and have reduced our outstanding revolver balance to just $30 million as of today.
We have some upcoming debt maturities that we anticipate refinancing in the near future, but until that time, we will likely continue to prioritize debt reduction and liquidity.
The debt markets are wide open to US and has also improved over the last few months as we have seen some tightening of rates are.
Our quarter end net debt to adjusted EBITDA leverage ratio was six four times.
So while our current priority is debt reduction, we preserve the flexibility to take advantage of material value enhancing investment opportunities if they arise.
We continue to explore and stay educated about the numerous asset portfolios available throughout our markets, but we will retain an informed financial discipline in our approach to these opportunities.
Our approach has really not changed but our increased cost of capital has certainly underscored the emphasis we place on precise valuation and strategic rationale.
I still believe we are the best in the business at valuing integrating and operating tower assets. So I believe we can continue to create value through asset acquisitions.
Brendan Thomas Cavanagh: We have a great long term steady cash flow low risk business, the underlying strength of wireless dependent products and services will continue to drive increased needs for enhanced infrastructure solutions and we have positioned ourselves as a key partner for our customers and meeting the challenges of addressing those needs.
Before turning it over to Mark to share some more specifics on our second quarter results I'd like to thank our team members and our customers for their contributions to our success.
With that I'll now turn things over to Mark who will provide additional details. Thank.
Thank you Brendan.
Current quarter results were in line with our expectation.
Second quarter domestic same tower revenue growth over the second quarter of last year was plus five 9% on a gross basis.
Two 3% on a net basis, including <unk>.
6% of children.
$8 2 million of the second quarter churn was related to screen consolidation churn.
International same tower recurring cash leasing revenue growth for the second quarter, which is calculated on a constant currency basis was two 7%, including five 3% of churn or 8% on a gross basis.
In Brazil, our largest international market same tower growth organic growth was six 4% on a constant currency basis as.
As compared to the previous quarter and full year 2023.
<unk> international growth rate continued to be impacted by declining local CPI escalator in Brazil with.
We've continued to see strong organic lease up in our international markets.
Total international returns remain elevated in the second quarter due mostly to previously announced carrier consolidation.
During the second quarter, 79% of consolidated cash site leasing revenue was nominated in U S dollars.
The majority of nonhuman started than many revenue was from Brazil, with Brazil, representing 51% of consolidated cash site leasing revenues during the quarter.
Let me now cover our revised outlook for 2024.
Excluding the impact of.
Foreign currency assumptions, we slightly increased our full year outlook for site leasing revenue tower cash flow adjusted EBITDA.
<unk> <unk> per share as compared to our prior outlook.
The devaluation of the Brazilian real versus the U S. Dollar is estimated to have a negative impact will start producing revenue of approximately $19 million in 2024 versus our prior forecast.
With regard to site development revenue, we are forecasting lower construction volume for the full year, and therefore, Aurora full year outlook by $10 million.
However, we have noted would use expectation for gross profit contribution for this business.
As we continue to execute well and secure higher margin work.
Please also note that the outlook doesn't assume any further acquisition beyond those as of today that already under contract and expected to close by year end. We also do not assume any share repurchases beyond what was already completed so far this year.
However, it is possible to invest in additional assets or share repurchase or both during the year.
Outlook for net cash interest expenses in <unk> and <unk> per share and I assume that's September 1st we financing of the 620 million or ABS power security scheduled to mature in October 2024.
We assume a refinancing of a fixed rate of 6% per year.
Actual read and timing may vary from these assumptions.
Brendan Thomas Cavanagh: As a result of these revised financial disruption and projected lower cash taxes, our full year <unk> per share our crew cost increased by nine.
Excluding the impact of FX changes.
Let me now to Nucor over to Marc Thank.
Thank you Mark our balance sheet remains strong and we have ample liquidity.
It Leverages <unk> six four times net debt to adjusted EBITDA remains near historical lows, our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense remains very strong at five two times our weighted average maturity is approximately four years with an average interest rate of 3% across our total outstanding.
Debt.
Including the impact of our current interest rate hedge the interest rate of 97% of our current outstanding debt is fixed we continue to use cash on hand to repay amounts outstanding under the revolver and as of today, we have a $30 million balance under our $2 billion revolver.
In addition, during the quarter, we declared and paid a cash dividend of $105 3 million or <unk> 98 per share and today, we announced that our board of directors declared a second quarter dividend of <unk> 98 per share payable on September 18, 2024 to shareholders of record as of the close of business on August 22nd.
Brendan Thomas Cavanagh: 2020 for this dividend represents an increase of approximately 15% of the dividend paid in the second quarter of 2023.
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And our first question will come from David Barden with Bank of America. Please go ahead.
Hey, guys. Thanks, so much for taking my questions.
Speaker Change: I guess the.
First question if I could.
Maybe either for I don't know who this question goes to.
Talking a little bit about the evolution of the financing market theres been a lot of movement in the last few weeks.
You guys.
Took some steps to try to maybe pre financed the term loan coming due in 2025.
I'm wondering if you could kind of comment a little bit about what the landscape looks like and how.
The rates that you are being presented look relative to what they might have looked like a month ago and then if I could the second one is just for our just as a reminder.
Mark or Brendan.
When we think about how you guys choose to budget.
FX into your guidance.
With the re al blowing out to like $5 60.
Are you looking at forward rates are you looking at spot rates.
How are you deciding what youre going to baked into guidance, which seems to be the biggest moving part in what happened this quarter. Thanks.
Yes.
Jump in first David and Mark can add anything that.
Do you think Sony too that I missed on the financing market.
The market.
Certainly has been improving obviously there is there is a greater expectation in terms of rates.
Speaker Change: The next financings or refinancings that we have to do our of ABS debt Thats outstanding.
And we expect to do that with a like instruments in those instruments are typically priced as a spread to treasuries. So the improved general sentiment around forward rates affects the treasuries and that obviously is helpful to the potential pricing.
Of those those financings that we have ahead, but just beyond that.
There's a high demand for the type of paper that we issue and.
And I think there is opportunity to see that continue to improve moving forward as it relates to the term loan that we did before it's floating rate so really that didnt change much and we had a hedge in place.
So obviously, an improving rate environment will directly.
Help that particular instrument, particularly when the hedge falls away next year. So.
On the second question.
Regarding the FX forecasting.
We typically will use as we go into the year a forward.
Market like we'll look at what are the general consensus of projections for that year, primarily around Brazil around all of our foreign currencies, but Brazil is the biggest one.
And we will usually peg it to that unfortunately, those projections are not turned out to be great. Thus far this year and the currency has weakened much more than was originally expected and the rate that we're using now for the balance of the year is pretty close to spot, which is also in line generally with projections, but.
Obviously, it's an inexact science so.
We would prefer to try and nail it right on and not have to change it but that's a that's a hard task.
Okay, great. Thank you for the color Brendan.
Sure.
And our next question comes from Simon Flannery with Morgan Stanley. Please go ahead.
Great. Thank you very much good afternoon.
First on M&A you put this comment in there about taking advantage of material value enhancing investment opportunities if they arise.
Has something changed that you are looking more closely at that now maybe giving you get through some of this financing or is it just consistent with where you've been before.
And then any thoughts around how you're thinking about geography, I know you talked before about Europe being interesting, but is it mostly developed market or the U S and Europe or would you look at expanding an existing or new developing markets. Thanks.
Sure Yeah.
The comment about material value enhancing obviously, that's not different than what we've done in the past I think.
The key difference now is that with our leverage having come down to a much lower place actually the lowest place it's been in our history. It allows for flexibility that if we saw something of material size that we thought it would be value enhancing to you know to be able to transact that.
Maybe easier than it would've been in the past.
But our approach is not that different obviously cost of capital is higher and so that that effects.
What we can pay or where where we see value in terms of the opportunities that are out there, but it's our goal and intention to hopefully find opportunities that are accretive and add other value even strategic value in terms of positioning to the extent it's in international markets for instance.
For example.
Speaker Change: I think you should expect that that we're constantly looking and that hopefully we will we will find those opportunities just as we've done in the past.
In terms of the where it really depends I mean, mostly were focused on the markets that we're in but we we kind of scour the globe and we look at everything that's available we look at opportunities that are in markets. We're not in.
Because sometimes we see things that.
Speaker Change: We think will fit very well and will be long term value, creating so theres not a specific target, but but to the extent that we can add in markets, where we already are theres, obviously, some synergies associated with the operations around that.
And do you think we're getting to a better place between private and public multiples. So it seemed like there's been quite a spread there for awhile.
Yes, I think.
It's moving more in the right direction than it has in the past.
A few years.
Specifically internationally I would say we're seeing that.
Constrained.
<unk> in terms of the difference between the two.
Domestically, it's probably less so and I think that's mostly a function of just limited supply in the U S and.
And obviously, it's kind of the prime.
Tower market, but but even in the U S. I'm starting to see some indications that maybe that gap will narrow a little bit.
Great. Thanks, a lot.
Sure.
And our next question comes from Jim Schneider with Goldman Goldman Sachs. Please go ahead.
Good afternoon. Thanks for taking my question first of all could you maybe tell us how youre thinking about the various international markets, where you have a presence already today and the attractiveness of staying in markets, where you arguably are subscale relative to getting bigger and ones, where you already have a meaningful presence.
Sure Yes.
Speaker Change: We've mentioned it.
At the beginning of the year on our first.
Call of the year about our approach and that we're doing a review kind of all of our not only our international markets all of our business lines, but specifically as it relates to our international markets.
We've determined as we kind of look through it as it definitely is an advantage to be.
Greater scale to be more relevant.
To your customers and the markets that you're in and in some places we are in that position in other places we are not and so to the extent that we can solve that issue through.
Expansion in some of those markets, we would like to do that if we do not see a reasonable way to do that then we may look to move on from certain markets as we've done at least with one in.
In the past so we're continuing through that exercise and.
And even though there is no real update on that at the moment, it's not because theres not progress being made there is in fact, a lot of progress being made but we're not at a point to be able to discuss specifics yet, but we will be down the road. So ideally we'll look to be.
Good scale in each of the markets that we're in and we will also look to be aligned with the stronger carriers that are operating in those markets as well.
That's helpful. Thank you and then maybe it's a follow up relative to the downtick in site development expectations for the year I know that's not impacting the gross profit line, because youre, taking more profitable business, but you know.
Can you maybe just comment on what that signifies in terms of.
Domestic carrier activity broadly speaking and whether that has any kind of leading indicator of a more of a year environment or is that just you being selective in the business you were taking from them.
Yes, I don't it's not really.
Signify much it is the mix of work that we're doing is a little bit different it's a little more oriented towards consulting.
Consulting or site development services type of business as opposed to construction so that the <unk>.
Topline volume ends up being lower but the margin ends up being higher on that and our outlook. Although it is lowered in total for the year and Thats really based on the first half of the year honestly, we expect the second half of the year and it's implied in the number to be higher in terms of the volume in the first half of the year. So.
I Wouldnt say that its necessarily a sign of it being more muted I think it's just the mix of work as much as anything.
Thank you.
Sure.
And our next question comes from Michael Elias with TD Cowen. Please go ahead.
Great. Thanks for taking the questions two if I may.
There are a few assets on the market in Europe right now I'm just curious at a high level could you give us your thoughts philosophically on the European power market, maybe if you could compare and contrast, the opportunities and headwinds.
For that market and then my second question would be just based on everything Youre seeing domestically at the moment do you believe we can see domestic new leasing in 2025 be up versus 2024 levels.
If not when is the drop dead for us to see a pickup in activity.
Speaker Change: It's really be reflected in 2025. Thank you.
Speaker Change: Sure.
I'll do the second question first.
We're obviously not in a position today to give outlook on 2025, so I don't really want to get into that too much and so much of what 25 will look like is it going to be based.
Heavily on what we see happen in the second half of 'twenty four so I would say just just hold tight and we'll see how that goes if we if we don't see any real uptick in carrier spending in the second half of 'twenty. Four then it likely would not be up but theres still a lot of that.
Story to be written and so we'll see where it goes.
And your first question on Europe, We obviously don't have any operations in Europe. So my views and opinions are based on just looking at it from the outside in.
We've explored opportunities as they come up in Europe, and I think.
The positives there are obviously, you've got a very stable type of market in terms of.
Currency in terms of.
Rule of law and regulations.
It's very established.
But it's also.
Slow growth and I think there are some some churn risks that exist there, particularly as you see carriers consolidating their network operations and so.
Any decision to expand into Europe will be opportunity specific and dependent upon.
The valuation is much as anything and what we see as the specifics around that particular portfolio. If we decide to go that route so.
Yeah, we look at everything that comes available as I said earlier and if we see something.
We will explore it and if we don't then we're perfectly content, where we're at where we're at.
Great. Thanks for the color.
Okay.
And our next question comes from Richard Choe with Jpmorgan. Please go ahead.
Just wanted to ask on the leverage is continuing to go down and it seems like it will continue to trend that way.
Given theres nothing out on them the environment, how low can we see that leverage go to over there.
Brazil will feature.
Sure.
It's not our intention to necessarily see it continue to go lower and that's really going to be a function of the alternative uses of capital. So.
I can't give you an exact number I think depending on the opportunities that come along for investment into the business into assets.
That will be the main driver of where leverage goes if we see an opportunity to expand in a way that we think will be.
Value additive to US long term then you may see leverage tick back up if we don't see that then leverage will probably continue to decline and eventually we will have to explore what that means in terms of investment grade, but I don't think we're quite there yet.
Speaker Change: It seems like the opportunities have been a little bit slow in the first half of this year do you think things will pick up in the second half and as we go into next year.
You mean opportunities for asset acquisitions, yes.
Yes, I would not say that they are slow I would say that.
Nothing has been secured.
Certainly signed up or closed as of yet.
Major scale, but there are a lot of different portfolios and opportunities out there. So.
My M&A team would not agree with that it slow because they've been very busy but.
What that ends up resulting in Wil will depend on whether we can find something we like at terms we find attractive.
Great. Thank you.
Sure.
Our next question comes from Ric Prentiss with Raymond James. Please go ahead.
Hey, good afternoon everybody.
Eric.
Yes.
When you get corridors like most recently with the FX rate.
Speaker Change: Does it cause you to pause a little bit and think why are we so heavily involved in some of these international countries or how should we think about what moments like this when you have to pull down the road.
Guidance because of FX to davids questions or.
Just kind of square that with what we want to see the company go longer term.
Yeah, I think Rick it's.
Obviously, we have what we have we have a big embedded business, particularly in Brazil, and it's got that risk and we've seen it in past cycles to of course.
It's disappointing to us to have perhaps a lower outlook based solely on that particular issue.
I think it does impact or influence the way that we think about the mix of our asset base and our revenue base to.
Speaker Change: To have something Thats, a little more stable I think at the beginning of the year. When we were talking about our overall goals in a way that we look at things stability was kind of a key point in that and obviously this particular item introduces an element of instability, that's I would prefer not to have however.
However, we have a very good business down there there's a lot of good things that are going on in Brazil.
And so trying to navigate through the right way too.
<unk> reduced that exposure probably comes through increased exposure in other places that perhaps have more stable.
Currencies so we'll.
We'll see if we can do that.
Speaker Change: But I would say that at least influences us to not get.
Two over extended to some of these currencies that have greater volatility.
Makes sense and you had a comment earlier.
The U S is still about 50%.
On the mid band deployment varies by carrier significantly, possibly in international as well, but can you give us kind of a spot number where are the international markets on kind of that mid band <unk> spectrum deployment.
Yes, I do have.
That it does vary by market and I think maybe it's something we can share with you offline because I don't have it right in front of me, it's kind of a mix, but I would say as a.
This is me ballpark into based on what I've seen for each country that we have got youre looking at somewhere in the probably 25% or less on average across all of the existing international markets that we're in.
Okay, and then Simon asked a question about public versus private multiples.
A little bit further and what are the pros and cons of maybe selling a piece of your domestic business if private multiples stay above.
Public multiples by American Tower did it with the Telsey us European with core data centers. So it's kind of a way to bring capital and could be used to address the balance sheet, but kind of your thoughts pros and cons on kind of the disparity between public and private and that maybe you could.
So.
The high sell low kind of find a place to say what can we get the mark to market.
Yeah I think.
That's never been a big part of our goal is to shrink through selling off assets.
Certainly partnerships that bring in partners.
Is a possibility that we would consider but in terms of selling assets.
I would say it's on the table Rick if in fact, the valuations are just at a level that we believe is clearly well above the credit that we're getting for those assets, but theres a lot of logistics that we would have to work through as.
As well, we obviously have financing structures, we have MLA agreements, we have a number of different things that.
Would impact our ability to kind of hive off assets here in the U S but.
I wouldn't rule it out altogether I, just say that it's not at the top of the list ideally.
It's complicated, but we should be at least studied.
Yes.
Maybe just one other thought on that is I'm thinking about it you know we always talk about the disconnect and I think the inference is always that the disconnect is that the private multiples are too high.
Might flip that around suggest that the public multiples, perhaps are too low so it's not now when.
When it closes which way it closes we will obviously have an impact on how you feel about that sort of.
And exit.
Exactly we agree with that sometimes a mark to market with some public up to what the real value is I appreciate it guys. Thanks.
Okay. Thanks.
Our next question comes from Jon Atkin with RBC. Please go ahead.
Speaker Change: Thanks.
Two questions one.
Anything about the build to suit opportunities.
Speaker Change: Given your recent run rate of domestic build to suit.
And anything that you see that might cause you to want to get a little more aggressive on that.
And then on the leasing side.
I heard you say increased interest.
Some of it due to mandated kind of world Buildout.
Attributable to SWA, you mentioned that in your remarks, but anything yet apparent.
Our leasing pipeline that you would attribute to.
It's wireless access and then I've got a follow up thanks.
Okay.
Yes.
Bts I think you said if I heard you correctly, you were talking specifically about domestic builds John.
Yes, yes.
Yeah Yeah.
I mean, we would like to do more of those certainly I mean, obviously, you've seen our numbers over the last few years, they haven't been particularly heroic and a lot of that is because.
The carriers have.
Tended to go to low cost providers, because that's a choice that they have because there's so much capital out there supporting.
This particular industry so.
We would like to do more we found a way to do that though is.
To secure high quality.
Locations to get out ahead of where coverage needs are and secure those opportunities in more of a strategic manner.
As opposed to pure build to suit, although we do some of those bill.
Yeah, I'd like to be more aggressive on it for sure I just don't know if we're going to get to the numbers that really move the needle too much.
In terms of our backlog and in the fixed wireless access.
Influence on it.
It's hard for us to say exactly because.
Fixed wireless access is typically using.
The five <unk> oriented mid band spectrum that is being deployed more broadly and so I think to date most of these fixed wireless subscribers have been supported through excess.
Mid band spectrum, that's been deployed capacity on that spectrum, that's been deployed already.
But it's starting to get closer to a point, where that's going to be harder to do because of the amount of consumption for that particular product. So I can't draw a direct line to it yet, but we see signs that the customers' networks are going to become more and more congested as a result of that product and that ultimately is very good for us.
And then amex.
Kind of increase.
As a percentage of your international leasing.
Anything around their activity level or is it <unk>.
Matter of other operators, maybe moderating their activity any color there.
Yes.
It's actually.
Two things it's one they have been very active they've probably been our most active leasing customer.
Speaker Change: Across our international markets, but too.
With the FX decline in Brazil.
Obviously, a tenant there but they haven't.
Presence in a number of our other markets so they're not as affected as some of the other carriers on that that list that we share so their percentage just by default comes up.
Speaker Change: As a result of the FX shifts.
And then lastly, I've got a question on the balance sheet.
Is it would it make any sense to utilize your revolver to pay it out in the ABS debt.
And then.
What kind of what happened in terms of fed cuts later in the year and wait to issue ABS after that.
I mean.
Good although it's you're really taking a little bit of a bad because if youre using the ABS market to refinance the existing ABS debt you are using a benchmark rate that implies a certain expectation around the rate it's not it's not directly.
Affected by when the fed cuts.
If they cut so.
If you were to say well hold off and take my chances and do it down the road the revolver will.
We will be priced at a higher rate so for the time being we will be paying a much higher rate than yours.
You otherwise would.
And so it does it does it makes sense plus we have other financings.
Speaker Change: During one big one in January and then others in January 26. So you can only do that for a limited period of time, so I'm kind of inclined not.
To think about it that way, but the good news is we have tremendous liquidity and.
We can be flexible if necessary.
Thank you.
Speaker Change: Sure.
And our next question comes from Michael Rollins with Citi. Please go ahead.
Thanks, and good afternoon, I had two questions first with respect to the domestic carrier conversation that you referenced can you share. If those are related to the typical ala carte business that you've seen from your carrier customers or these discussions, possibly getting you closer to signing additional.
Comprehensive MLA with additional national wireless carriers and second is there any change in timing or magnitude of the anticipated multiyear churn from mergers and industry rationalization for both the domestic and international segments. Thanks.
Sure.
Yes, I mean, the conversations we're in regular conversations on a daily basis at all different levels with our.
Carrier customers and so conversations.
Cover a wide variety of topics and those certainly include the potential for larger broader deals.
But I wouldn't say that that is the sole focus for the time being we're operating under the existing agreements that we have in place we do have existing MLA in place some of those involve ala carte type of arrangements, but they define those pretty well so.
We continue with business as usual on that front and <unk>.
Try to figure out where our customers could use our help the most in terms of their broader bigger picture initiatives in it.
Best served through an MLA, we're open to that.
As a possibility.
On.
The timing and the magnitude of the churn from the consolidations hasn't really changed too much I think we've tweaked our.
<unk> outlook in the U S up just slightly and that had to do basically with some timing of some of the sprint churn.
Being slightly earlier, but these are really fairly small.
Changes in terms of the overall expectation for instance around sprint it hasnt changed from what we've given out in the past and I think it was reiterated by Mark.
Comments earlier today and internationally, that's generally the case as well.
The one thing that could change that is if we were to reach some sort of agreement specifically with claro around their oil.
Wireless overlap in Brazil.
That that pulled forward or change the timing for some of that that could obviously have an impact but as of today.
It continues along the same path as we've previously laid out.
Yeah.
Speaker Change: Thanks.
Sure.
Our next question comes from Brandon.
I apologize. Our next question comes from Nick del Deo with Moffat Nathanson. Please go ahead.
Oh, thanks for taking my questions.
First regarding the pickup in new leasing activity overseas that you cited can you drill down on that a little bit is it coming from a particular market or markets.
Does it feel like a blip for the start of something more sustained.
Any color there would be great.
Yeah.
I would say that it was.
Cross a number of our different markets.
I mentioned earlier that <unk> was busy there were a big driver of that.
And yeah.
I can't say for sure whether it's to be sustained but our backlogs continue to be pretty strong and so.
I hope that in fact, it will be I think theres a lot to do as we look at the needs of these carriers have it's really more of a financial question I think than anything else. So.
I think.
It's a good sign to see it ahead of the pace that we expect it to be at at this point and.
At this point I think that that will continue throughout the balance of the year and we'll let you know where we are as we get into next year.
Okay, Okay and then.
To follow up on some of the M&A question.
Speaker Change: Yes, there might be a couple of good sized portfolios for sale in the U S.
Given your current size.
Speaker Change: 75000 towers do you think there are still meaningful strategic or cost efficiency are there benefits to having greater scale in the U S or do you feel like given your scale for all practical purposes, there arent scale.
Speaker Change: Scale, driven benefits to be had from potential deals of those sizes.
I think from an operational standpoint, the scale benefits are very limited because we're pretty.
Streamlined at this point.
I think there are some certainly but I think it's relatively small part of any large scale deal that we would do here in the U S.
Speaker Change: But there probably are some benefit in terms of.
Just being able to help our customers achieve some of their broader reaching.
Goals, if we have a bigger portfolio.
But that does make a little bit of a difference I think.
I don't think its a major factor I think ultimately.
They will need the sites that they need and we have a lot of great sites and a lot of great locations that.
Our our frankly.
Once that cant be duplicated so.
It's something that we would we would think would be marginally beneficial from a strategic standpoint.
But marginally being the keyword.
Okay I appreciate that thanks Brendan.
And our next question comes from Brandon <unk> with Keybanc. Please go ahead.
Great.
Taking the question Brendan you mentioned.
Speaker Change: Yeah.
No.
Okay.
Hey, Brandon.
Yeah, Brian I'm, sorry, you were muffled there I couldn't really hear what you said.
Hi, guys can you hear me okay, yes.
Yes, that's better.
So Brian you had mentioned increased inquiries and modest increase in new business execution in the U S. Can you say the same for your backlog of lease applications is it up or down versus this time last year and then as we look at the guidance for the rest of the year. It looks like from a new leasing standpoint in the U S. It does imply lower.
In the second half versus the first half you got the point, where you can say with confidence that leasing has trough or is it. So that we can see leasing below this $42 million level for next year based on the application pipeline that you have thanks.
Yes, I can't I can't give you next year's numbers at this point.
I would tell you that from an application standpoint, we have seen increases each of the last couple of quarters quarter over quarter continues to go up so that's a good sign.
But an application doesn't necessarily tell the whole story, because you have to see how that plays through and what's the level of of equipment that they are installing and so forth.
I do think.
With the increases that we're seeing in terms of interest in applications that we'll see an opportunity to have greater executions.
We move through the year and particularly into next year, but.
There's so much that still has to be.
It has to play out for us to know what that does to next year's number.
Premature for me to say.
Got it and can I follow up on the services guidance cut last year, and historically T. Mobile's been north of 70% of that business can you say that.
The decline in services guide was broad.
Meaning more than one customer or was it concentrated in one customer. Thanks.
Yes, I would say that it was broad in the sense that.
It was across the customers that make up that revenue base, although we do have certain concentrations. So obviously it's.
A greater absolute dollar amount from certain carriers.
But there's nothing that stands out about that.
It's really more as I said earlier, it's really more about the mix of work being a little more.
Speaker Change: <unk> related instead of construction related.
Got it thanks for taking the questions.
Sure.
And our next question comes from Matt nickname, but with Deutsche Bank. Please go ahead.
Hey, guys. Thank you for taking the questions just two follow ups first I guess to the concept.
Topic of carrier activity any changes in activity or uptick in conversations with dish.
And then secondly on the operational review of the business I know, there's a bigger topic last call and I know it sounds like there's more going on behind the scenes, but theres any initial findings or when we can anticipate more meaningful updates on that front. Thank you.
Sure.
On dish Theres been.
We continue to have conversations they actually do continue to sign leases with us.
But there hasn't been any material inflection in that end.
We're waiting to see.
How their plans involved if they evolve I'm sure there are.
Conversations ongoing in terms of their.
The deadlines around their commitments for coverage for next year.
Financing and a number of other things, but we're just here trying to be the best.
Partner, we can be to them on their needs and they continue to sign leases in places where they need it but it's obviously at a lower level than it was a couple of years ago.
So nothing really new there.
On the strategic or operational review, yes.
There's only so much I can say at this point because we've done a lot of work but.
Until we're ready to share with you specific.
Takeaway specific actions that are being taken it would be premature for me to talk about that right now, but I do think certainly by the end of the year I would expect that there will be.
A number of things that we can share.
Thank you.
Sure.
Our next question comes from Brendan Lynch with Barclays. Please go ahead.
Great. Thank you for taking my question.
It seems on a number of frontier and sort of derisking mode, reducing leverage considering going investment grade exiting some non core markets. How should we think about your risk tolerance going forward over the next few years relative to what its been over the past few.
Hum.
It will be an informed amount of risk.
Theres always some degree of risk, particularly when you're making decisions to invest capital and expand.
By buying or building new assets.
I believe that.
All of the learnings that we have over the years and what we've seen in each of the markets, where we operate make us better informed to understand the risk that we're taking on and two to manage and frankly price that in and a decision decisions that we make so.
I don't know that it's changed a lot I think the knowledge that we have changes every day and that informs it but our overall risk tolerance is probably not that different than just our education is a little different.
Maybe just to dig and dig in on that a little bit more obviously, there's been changes in the cost of capital and the opportunity set.
But maybe you could talk about those dynamics also in the context of just the maturity of the market and.
How much riskier willing to take to pursue the next the next level of growth that might be available.
Yes, I mean, so much of the decisions around investments in the new assets is impacted by your view of the future of those assets in the markets and what are the.
<unk> is in those particular market is going to be doing and what are their needs going forward.
And I think almost in every case.
When one tower company buys a portfolio instead of another it probably comes down typically to their view of the future and one has a maybe a slightly more favorable view than another and therefore, they are able to see their way clear to pay a little bit more and I don't think things are any different than that.
Day, obviously, the cost of capital being higher it makes a difference, but it's higher for everybody and I think that's what started to normalize it started to make its way through the system, whereas before you had certain folks who are using capital that was priced at a much lower point and that was allowing them to continue on buying stuff at prices that were suddenly because.
Coming not as attractive to some of us that we're in.
<unk> more quickly by the changing cost of capital. So I don't think it's any different I think it's just as a matter of everybody adjusting to the cost of capital and then how you see your way clear to to.
Obtaining the growth necessary on the assets that you're buying.
Great. Thank you for the color.
Sure.
Our next question comes from Ari Klein with BMO capital markets. Please go ahead.
Hi, Thank you, maybe just going back to the carrier inquiries.
Alluded to is there any additional context, you can provide as to how they have changed and how typical or atypical as it pertains conversation.
Serialized.
Are we seeing.
Yeah.
Well.
Sure.
They changed in the sense that.
Given point in time in a given market or carrier has more or less initiatives certain specific needs they either have them or they don't given.
Window of time, but that's not really different than the history of it is just a cyclical in different places so.
I don't think that the conversations are necessarily that different I think when they changed more meaningfully is when theres, a big initiative, a big project, a new spectrum bands of rollout.
Or a particular initially.
Initiative that is carrier specific and that will lead perhaps too maybe a bigger scale agreement that sort of thing, but but the conversations inform our view on where theyre going and allow us to better position ourselves in order to capture a greater percentage of the business, it's going to come as a result of those initiative.
<unk>.
Thank you.
Sure.
Our next question comes from Jonathan Safety and with New Street. Please go ahead.
Thanks, guys, it's Jonathan Chaplin.
Two questions if I may.
You mentioned earlier that if you didnt secure.
Attractive assets that your leverage might continue to tick down.
Of course, you could repurchase shares and I think you also said earlier that you thought the.
Speaker Change: Public multiples to tailor your stock is undervalued.
The reason that leverage would tick down but for asset acquisitions that don't include your own assets.
It sort of indicates that you think it's probable that you.
We're going to pick up a decent sized portfolio.
In the relatively near future otherwise you'd be buying back stock.
Well, Robert buying back stock and keeping leverage constant.
Well, yeah, I didn't say that we are definitely buying a material portfolio I'd say that we are looking at all kinds of things that are available and some of those include material portfolios, but whether those happen or not.
To be seen so sometimes you have to be.
Patient in terms of how you use your capital you can't.
We've in the past had people say well you must not like your stock is you didnt buy this quarter well.
Not necessarily true it depends on other things that are going on to take a lot longer than one or two months.
To determine how they're going to play out so.
I think what you should expect us going forward, we will over time have a mix of all of these things we will do buybacks, we will do that Paydowns and we will also.
Hopefully by assets.
Got it.
And then on a completely different tack.
Which markets do you feel like you're subscale in what was so different about the thesis when you entered that market versus how it's paid out in terms of did you expect.
Two there will be more organic growth in those markets or more portfolios to come up for sale or the portfolio as it did come up for sale came at prices that you weren't willing to compete for.
Yes, I think in the past when we first were entering certain of these markets. Our view on scale was that scale is.
Reaching a point that you cover your overhead and you produce positive EBITDA.
And I think we're our view has evolved is that scale is more than that it's your relevance to the leading carriers in the market and.
If you don't have that and in particular international more than this is the case in the U S. Internationally. If you don't have that.
The way that worked is handed out the way that carriers engage with.
<unk>.
Providers tower providers in this case.
Is influenced by the relative importance to their network that you represent and so we have some places where we simply have small portfolios in there are much bigger.
Layers and so we either need to figure out how to become a player a bigger player that's more relevant to our customers or we shouldnt be there.
Got it thanks, Ken and I appreciate that.
Sure.
Our next question comes from Berkshire Levy with UBS. Please go ahead.
Thanks, a couple of follow ups first on the domestic side normal churn is still running at the high end of 1% to 2% you've laid out do you see some opportunity to lower that to the low end I think some of your peers are suggesting it and a reminder, on the exposure to U S seller would be good and how long do you have left on that <unk>.
Tracked and lastly, SG&A step down sequentially.
Can you talk about at that level is sustainable going forward. Thank you.
Sure.
The opportunity for lower domestic churn yes.
I do think that excluding of course sprint or any other material consolidation that might take place that.
We would see that number trend down over time, a lot of that.
Was made up of stuff that.
With smaller companies and that kind of thing so I expect to see less and less of that.
But we'll see as we get into next year and the years beyond.
U S. Cellular we have a fairly immaterial exposure of less than $20 million a year in revenue from U S cellular and even.
Obviously, a smaller percentage of that that overlaps with T. Mobile so I don't think it'll be overly material whatever happens there.
And on the SG&A front, it did step down quarter over quarter, but typically the first quarter is our highest quarter.
Because of payroll taxes in a number of other specific things. So I think we're at a fairly normal level, but over time that will probably move up with the typical cost of living type of.
Creases that you would expect.
For for overhead of our time.
Got it thank you.
Sure.
And our next question comes from David Guarino with Green Street. Please go ahead.
We don't often get to hear about your track record on deals, but I was wondering if you could talk a little bit about some of your recent investments like in Tanzania, and the Philippines.
There would be great just to hear about actual performance in those markets versus your initial underwriting, especially as we kind of consider capital allocation track record, we have as you pursue external growth going forward.
Yeah, I mean, it's hard to get too specific on all of that but.
Just to touch on the ones that you mentioned, Tanzania. Thus far has worked out extremely well we've had tremendous growth there that we've been very pleased with from a organic leasing standpoint, obviously the entry price. So he came in was it was attractive and so the.
The return on invested capital thus far has been tremendous in that market.
Speaker Change: In the case of the Philippines, there was a little bit of a totally different animal there wasn't an acquisition there that was.
Almost all brand new builds and it's really at a fairly early stage, so I would say thus.
Thus far it has gone well the leasing has been strong, but we have a very small portfolio and it's their brand new sites. So we got to give that a little bit more time to see how it plays out.
Okay, and then sticking with that topic on acquisitions that you might have mentioned this in the past, but just to clarify are you more focused on macro tower assets. There given your experience you guys have made investments in das networks and data centers is that on the table and then I guess, you're kind of carrying that over to active equipment, we hear that some of that in Europe.
Speaker Change: And then some fiber assets as well just wondering how far you'd want to stretch out that and macro towers.
Yes, I mean, we're a macro tower company. So that's obviously, where we spend the vast majority of our time. The other things were specific items that had ancillary strategic.
Rationale that we were looking at but it's not the core of what we we look at.
Great. Thank you.
Sure.
Thank you all for joining the call and we look forward to reporting our results next quarter.
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