SBA Communications Corporation

Ladies and gentlemen, thank you for standing by and welcome to the SBA fourth quarter results. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question over the phone lines, please press 1 then 0 at any time during today's call. If you need assistance from an operator, please press star then 0. And as a reminder, today's conference is being recorded. I'd now like to turn the conference over to Vice President of Finance, Mark DeRussie. Please go ahead.

Good evening, and thank you for joining us for SBA's fourth quarter 2020 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, and Brendan Kavanaugh, our Chief Financial Officer. Some of the information we will discuss on this call is forward-looking, including but not limited to any guides for 2021 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, February 22nd, and we have no obligation to update any forward-looking statement we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics. 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 for our investor relations website. With that, I'll now turn it over to Brendan. Thank you, Mark. Good evening. SBA had a very strong end to the year with fourth quarter results near the high end of our outlook for all key financial metrics. Total GAAP site leasing revenues for the fourth quarter were $493 million, and cash site leasing revenues were $492.8 million. Foreign exchange rates were a $3.5 million tailwind to revenues when compared with our previously forecasted FX rate estimates for the fourth quarter. They were again, however, a significant headwind on comparisons to the fourth quarter of 2019, negatively impacting revenues by $17.7 million on a year-over-year basis. Same-tower recurring cash leasing revenue growth for the fourth quarter, which is calculated on a constant currency basis, was 4 percent over the fourth quarter of 2019, including the impact of 2 percent of churn. On a gross basis, same-tower growth was 6 percent. Domestic same-tower recurring cash leasing revenue growth over the fourth quarter of last year was 5.7 percent on a gross basis and 3.4 percent on a net basis, including 2.3 percent of churn. Domestic operational leasing activity or bookings, representing new revenue placed under contract during the fourth quarter, was at the highest levels of the year. We saw continued increased activity levels with T-Mobile during the quarter, and our domestic application backlog continues to grow. During the fourth quarter, amendment activity represented 88% of our domestic bookings, with 12% coming from new leases. The big three carriers represented 94% of total incremental domestic leasing revenues signed up during the quarter. Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 6.5%, including 0.6% of churn or 7.1% on a gross basis. Our international leasing activity was similar to the third quarter, still up slightly over the first half of 2020. International leasing activity remains impacted by COVID-related spending slowdowns in some of our markets. In Brazil, our largest international market, we continued to see steady leasing activity. Gross same-tower organic growth in Brazil was 7.3% on a constant currency basis. During the fourth quarter, 85.4% 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 11.2% of all cash site leasing revenues during the quarter and 8.2% of cash site leasing revenue excluding revenues from pass-through expenses. Tower cash flow for the fourth quarter was $402.2 million. Our tower cash flow margins continue to be very strong, with a fourth quarter domestic tower cash flow margin of 84.2% and an international tower cash flow margin of 71.5% or 91.1%, excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the fourth quarter was $380.6 million. Our industry-leading adjusted EBITDA margin was 71% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 75.4%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the fourth quarter. AFFO in the fourth quarter was $280.1 million. AFFO per share was $2.49, an increase of 14.2% over the fourth quarter of 2019, and an 18.8 percent increase on a constant currency basis. During the fourth quarter, we also continued to expand our portfolio, acquiring 104 communication sites for total cash consideration of $133.5 million and building 106 sites in the quarter. Subsequent to quarter end, we have purchased 25 communication sites for an aggregate price of $8.4 million. Last week, we also closed on the majority of our previously announced acquisition from Pacific Gas and Electric. The PG&E transaction adds almost 900 existing wireless tenant licenses on over 700 utility transmission and distribution structures to our portfolio. We are entitled to 100% of all additional revenues generated from these tenant licenses through future contracted rental escalations and any amendments to the existing license agreement. In addition, we have the right to market these structures to additional tenants with a substantial majority of any additional rents retained by SBA and the balance shared with PG&E. As part of this transaction, SBA has also been granted the exclusive right to market over 28,000 additional PG&E structures with any resulting rents to be shared by SBA and PG&E under a predetermined revenue sharing arrangement. When the full transaction is closed, the anticipated cumulative purchase price is approximately $973 million, and we expect the assets to generate approximately $39.5 million in tower cash flow during the first 12 months in our portfolio. Our first quarter net debt to adjusted EBITDA leverage ratio is expected to be above our target range as a result of this transaction. but we anticipate organically reducing our leverage ratio comfortably back within our target range by year-end. We are very pleased with this acquisition, and we look forward to a long relationship with PG&E to the enhanced benefit of the wireless carrier industry, PG&E, and SBA. In addition to the assets we have purchased subsequent to year-end, we have also agreed to purchase 299 additional sites in our existing markets, for an aggregate price of $72.7 million. And we anticipate closing on the majority of these sites by the end of the second quarter. In addition to new tower assets, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $16.4 million to buy land and easements and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 71% of our towers. and the average remaining life under our ground leases, including renewal options under our control, is approximately 35 years. Looking ahead now, this afternoon's earnings press release includes our initial outlook for full year 2021. Our outlook reflects another year of solid growth in our leasing business. Although the slower pace of new leasing activity we experienced in 2020 weighs on the organic contribution to our anticipated reported leasing revenue for 2021. We expect a higher level of domestic operational leasing activity in 2021 than we experienced in 2020. However, much of the increased activity is anticipated to occur in the latter half of the year due to ramping 5G-related investment and the timing of C-band activity from some of our largest customers and initial leasing contributions from DISH under our newly executed master lease agreements. This projected increase in leasing revenue in the second half of the year is expected to provide minor contributions to our 2021 leasing revenue, but set us up well for the next several years. Our domestic outlook does contemplate increased revenue churn levels due largely to projected sprint network rationalization by T-Mobile. Internationally, we are projecting a similar level of organic leasing activity in 2021 as we saw in 2020. as we continue to see impacts to carrier spending in these markets from COVID-19. We have also incorporated a projected increased level of international churn, which represents both the impact of carrier consolidation in Guatemala and a network reorganization and reduction by one of our customers in one specific Central American country, who we have been working closely with to address their operational needs. These items, along with normal projected churn, are estimated to negatively impact total 2021 leasing revenue by approximately $10 million. With regard to our services business, we have seen increased activity levels in the latter part of 2020, and we expect this increased activity to continue into 2021 and be sustained by the increasing domestic leasing activity we project for the second half of this year, which will be ahead of the positive leasing revenue financial statement impact from such activity. As a result, we are guiding to about a 17% increase in services revenue volumes over last year. Our full year 2021 outlook includes the projected impact of the PG&E acquisition, but it does not assume any further acquisitions beyond those under contract today. The outlook also does not assume any share repurchases other than those completed as of today. However, we are likely to invest in additional assets or share repurchases or both during the year. Our outlook for net cash interest expense and for ASFO include the impact of our recently completed unsecured notes offering, but do not contemplate any further financing activity in 2021. Finally, our outlook for ASFO per share is based on an assumed weighted average number of diluted common shares of 111.7 million. which assumption is influenced in part by estimated future share prices. With that, I will now turn things over to Mark, who will provide an update on our liquidity position and balance sheet. Thanks, Brendan. We ended the year with $11.2 billion of total debt and $10.8 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.1 times. Our fourth quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 4.4 times. After year end on January 29th, 2021, the company issued 1.5 billion of unsecured senior notes due February 1st, 2029. These notes accrued interest at a rate of 3.125% per year and interest is due semi-annually on February 1st and August 1st of each year, beginning on August 1st, 2021. The net proceeds from this offering were used to fully redeem all of the outstanding 4% senior notes, to pay all premiums and costs associated with such redemption, to repay the amounts outstanding at the time under our revolving credit facility, and for general corporate purposes. As of today, we have $630 million outstanding under our revolver, and pro forma for the January unsecured notes issuance, the weighted average interest rate on our outstanding debt is 3.1%. with a weighted average maturity of approximately 4.7 years. During the fourth quarter, we repurchased 1.7 million shares of our common stock for $480 million, or an average price of $290.89 per share. Subsequent to year end, we have repurchased 549,000 shares for $144 million, or an average price of $262.16 per share. All the shares repurchased were retired, As of today, we have $500 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company shares outstanding at December 31st, 2020, were $109.8 million, compared to $111.8 million at December 31st, 2019, a reduction of 1.8%. That is our greatest percentage share account reduction in seven quarters. In addition, during the fourth quarter, we declared and paid a cash dividend of $51.5 million, or $0.465 per share. And today, we announced that our Board of Directors declared a first quarter dividend of $0.58 per share, or an increase of 24.7% over last quarter, payable on March 26, 2021, to the shareholders of record as the close of business on March 10, 2021. And with that, I'll now turn the call over to Jeff. Thanks, Mark, and good evening, everyone. We had a strong finish to 2020 with solid financial and operating results. The fourth quarter was our best quarter of the year in terms of organic leasing activity and services results, and we added a number of high-quality assets to our portfolio. We produced $2.49 of AFFO per share, one penny short of an annualized rate of $10 per share. Our FFO per share for the quarter represented material growth over the prior year period and demonstrates the value creation capability of this business. We also continue to invest in our company through material share repurchases, buying back 1.7 million shares in the fourth quarter, and we did not slow down as we moved into 2021. Since year end, we have signed up and closed on our large and exciting transaction with PG&E, repurchased an additional half million shares of our stock, and signed up a master lease agreement with DISH. All of these activities will have long-lasting positive implications for SBA. We've demonstrated our ability over the years to find specific targeted opportunities where we can add assets at accretive prices and bring our expertise to bear in extracting and maximizing value. We're particularly pleased with the PG&E transaction, We've added a large number of high-quality exclusive locations in Northern California to our portfolio at what we believe is an attractive price. We believe our experience and operational expertise will allow us to maximize the potential for wireless use of these assets for the benefit of both our wireless carrier customers and PG&E. With regard to our domestic leasing business, our customers are all turning their attention toward their 5G network investment plans. The significant investment in the current C-band auction is evidence of the critical role that mid-band spectrum will play in the deployment of next-generation networks and, as a result, the importance of macro tower sites in the next wave of network investment. We believe it has been well settled that a primary use of C-band spectrum will be on macro sites outside of urban markets. Activity levels have been increasing with T-Mobile as they accelerate the integration and upgrade of their network to meet their 5G coverage goals, upgrading their sites with either 2.5 GHz spectrum or 600 MHz spectrum. It has been widely speculated that Verizon, AT&T, and to some degree T-Mobile are material participants in the C-band option, which we believe will drive increased organic leasing activity levels with each of those carriers beginning later this year. and we're very pleased to announce today our entry into a new long-term master lease agreement with DISH. Our new agreement with DISH includes standardization of processes in certain terms in order to improve DISH's ability to efficiently access SBA sites in order to meet their network deployment commitments. It also provides for commitments to SBA services business and a substantial new minimum lease commitment over the next several years, securing SBA as a major infrastructure provider for DISH's new Greenfield nationwide 5G network. We're pleased to further our longstanding partnership with DISH. Internationally, our leasing activity remains steady. In the fourth quarter, we signed up 48% of new international revenue through new leases and 52% through amendments to existing leases. Notwithstanding the steady activity levels, we continue to see some impact in our Latin American and South African markets from the COVID-19 crisis. impacting our return to greater historical organic growth levels in these markets. However, wireless usage remains high and critical across all these markets, and economic conditions are improving. Eventual recovery from COVID-19, paired with a number of upcoming spectrum auctions across our international markets, should result in a return to more normalized investment by our customers, and we believe will bode well for our long-term international organic revenue growth. From a balance sheet and capital allocation perspective, we remain in a very strong position. The current low interest rate environment has provided us with opportunities to continue to reduce our weighted average cost of capital. A recently completed unsecured bond offering is evidence of our ability to take advantage of these opportunities as we were able to lock in the lowest cost unsecured debt pricing in our company's history. Markets remain very strong today, and we have a number of available financing sources As a result, we intend to stay fully invested in our business, continuing to target leverage of 7.0 to 7.5 times net debt to adjusted EBITDA. While we will be actually above our target range temporarily as a result of the PG&E deal, we expect to easily deliver back into our range later this year given our AFFO generation capability, even after our materially increased dividends. As noted earlier, we have been active in both portfolio investment and share repurchases. Even with these activities, we still have capacity for incremental investment throughout 2021 while achieving our leverage target. Our strong balance sheet and optimism about the future has allowed us to again announce a significant increase to our dividends, growing at approximately 25 percent over the per share rate we paid in 2020. On an annualized basis, this new dividend represents less than 23% of the midpoint of our 2021 AFFO outlook per share, leaving us substantial capital for additional investment opportunities. So before I wrap up, I would like to also briefly mention one other topic. At the end of the year, we issued our inaugural corporate sustainability report. which illustrates our commitment to sustainable and responsible business practices and enhances our communication of our efforts to our stakeholders. I'm very pleased with this report because it highlights our corporate-wide focus on sustainability issues that are most material to our business shareholders and the communities in which we operate. While our assets have a relatively small geographic footprint, we're continuously seeking ways to address climate-related risks and reduce our greenhouse gas emissions across our markets. Our environmental initiatives span all of our assets from towers to the rest of our wireless infrastructure, to data centers, all of our offices, and commercial vehicle fleet. Our policies and culture also ensure we conduct business according to the highest ethical standards and socially responsible business practices, and that we actively promote diversity in both our workforce and supply chain. Our longstanding philanthropic and advocacy efforts reflect our continued commitment and engagement with our local communities. And we look forward to communicating with you about our growth and continuing improvement in these areas for years to come. Notwithstanding the challenges posed by the COVID-19 pandemic, we had a solid year in 2020, growing AFFO per share 11.2% over 2019. I want to again thank our team members and our customers for their diligence and commitment during these difficult times and our contributions to our success. We look forward to another solid year in 2021 and sharing our results with you as we move through the year. And with that, Ryan, we are ready for questions.

Okay, ladies and gentlemen, if you do wish to ask a question, please press 1 then 0 on your touchtone phone. Let's begin at 1 then 0. Our first question is going to come from the line of Rick Prentice with Raymond James. Please go ahead. Your line is open. Great. Thanks.