SBA COMMUNICATIONS CORP Q3 FY2024 earnings call

• Operationally, Q3 rolled out largely as expected with leasing in-line and services ahead of outlook. Foreign exchange rates and domestic new carrier activity were factors.
• Services business had strong Q3 with revenue up over 23% QoQ and gross profit up over 33%, leading to increased full-year outlook.
• Managed balance sheet well with three positive capital markets transactions, low leverage, and $2 billion revolver fully undrawn.
• Announced acquisition of over 7,000 sites in Central America from Millicom, which will make SBA the largest tower company in the region, with potential AFFO accretion and lease-up opportunities.
• Begun process to exit Philippines market due to lack of scale.
• Recognized teams' efforts in managing hurricanes and getting networks up quickly.

In the US, leasing results were in-line with outlook, and services revenue was up over 23% from the second quarter with gross profit up over 33%. Domestic same tower revenue growth in Q3 was 5.3% gross and 2% net including 3.3% churn. Internationally, leasing results were in-line with expectations, though the broader market faced challenges with customer consolidations and network rationalization. The acquisition of over 7,000 sites in Central America from Millicom is expected to contribute approximately $129 million in site leasing revenue and $89 million in tower cash flow during the first full year of operations after closing, with significant cash flow denominated in US dollars. Revenue contribution percentages weren't explicitly stated but the focus was on the performance of domestic and international segments.

• Increased full-year 2024 outlook across key financial metrics including site leasing revenue, tower cash flow, adjusted EBITDA, AFFO, and FFO per share.
• Services revenue outlook revised upward due to strong Q3 results.
• Balance sheet in excellent shape with leverage near historical lows, $2 billion revolver fully undrawn, and one debt maturity over next two years.
• Entered into new forward-starting interest rate swaps to fix rates, making 98% of non-revolver debt fixed, reducing interest rate fluctuation impact.

• International market challenges including customer consolidations and network rationalization.
• Potential market exits in some regions where lack of scale is an issue (e.g., Philippines).
• General market risks that could cause future results to differ from expectations as mentioned in SEC filings.

Q: Domestically, can you size the mix of carrier activity shift to more co-location versus amendment and thoughts on 2025 leasing vs 2024? And on Millicom deal, color on AFFO accretion and lease-up potential?

A: On carrier activity mix, saw increase in new business signed up with more from new co-locations vs amendments, with some delay in revenue commencing but shifting in right direction. On Millicom deal, AFFO accretion is premature to give exact figure but will be accretive once closed, and current tenancy ratio on sites is low with lease-up potential.

Q: Relative to Millicom deal, any commentary on foreclosing larger out-of-footprint deals in Europe or elsewhere?

A: The focus was on strengthening position in existing markets, not a commentary on expansion into other places.

Q: Quantify lease application backlog and timing of bottom for leasing metrics?

A: Application backlog has similar mix shift, 4Q implied leasing is close to estimate, and timing of bottom is around current period with some impact from mix shift on timing.

Q: Thoughts on Millicom build-to-suit agreement, underwriting return on investment, and leverage outlook?

A: Build-to-suit agreement is high returner with potential for second tenancies, leverage at 6.4 times near historical lows, and flexibility to use excess capital for value-enhancing opportunities.

Q: Changes in 3Q US activity, DISH impact, and colo vs amendment mix?

A: 3Q US activity was broad-based, DISH news is positive long-term, and colo mix in US was roughly over 60% from new leases.