SBA Communications Corporation

Thank you for your patience and holding, and welcome to the SBA First Corridor Results Call. At this time, all participants' phone lines are in a listen-only mode, and later it will be an opportunity for a question. If you'd like to queue up today, please press 1 followed by 0 at any time. Just a brief reminder, today's conference is being recorded. Now happy to turn it over to VP of Finance, Mark DeLucey.

Good evening, and thank you for joining us for SBA's first quarter 2021 earnings conference call. Here with me today are Jeff Stoops, our president and chief executive officer, and Brandon Cavanaugh, our chief financial officer. Some of the information we'll discuss on this call is forward-looking, including but not limited to any guidance 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, April 26th, and we have no obligation to update any forward-looking statements 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 of our investor relations website. With that, I will now turn the call over to Brendan to discuss our first quarter results. Thank you, Mark. Good evening. SBA had a strong start to the year, with first quarter results ahead of internal expectations for most of our key financial metrics. Total GAAP site leasing revenues for the first quarter were $505.1 million, and cash site leasing revenues were $504.5 million. Foreign exchange rates were generally in line with our previously forecasted FX rates estimates for the first quarter. They were, however, a significant headwind on comparison to the first quarter of 2020, negatively impacting revenues by $12.6 million on a year-over-year basis. Same-tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis, was 3.6% over the first quarter of 2020, including the impact of 2.4% of churns. On a gross basis, same-tower growth was 6%. Domestic same-tower recurring cash leasing revenue growth over the first quarter of last year was 5.6% on a gross basis and 3.1% on a net basis, including 2.5% of churn. Domestic operational leasing activity, or bookings, representing new revenue placed under contract during the first quarter, was modestly lower sequentially than the prior quarter. But on the heels of our newly signed agreements with Verizon Wireless and DISH, we have seen substantial increases in our domestic new lease and new amendment application backlogs. These backlog increases are supportive of significant increases in domestic operational leasing activity throughout the balance of this year. During the first quarter, amendment activity represented 77% of our domestic bookings, with 23% coming from new leases. The big three carriers represented 86% of total incremental domestic leasing revenues signed up during the quarter. Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 6.1%, including 1.3% of churn, or 7.4% on a gross basis. International leasing activity remained steady during the first quarter. In Brazil, our largest international market, we had another solid quarter of leasing activity. Gross same-tower organic growth in Brazil was 8.5% on a constant currency basis. During the first quarter, 85.3% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenues was from Brazil, with Brazil representing 11.1% of all cash site leasing revenues during the quarter, and 8.1% of cash site leasing revenue excluding revenues and pass-through expenses. Tower cash flow for the first quarter was $411.8 million. Our tower cash flow margins continue to be very strong with a first quarter domestic tower cash flow margin of 84.4% and an international tower cash flow margin of 70.8% or 91% excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the first quarter was $390.1 million. Our industry-leading adjusted EBITDA margin was 71.2% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 75.6%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter. Our services business had a very strong first quarter with $43.6 million in revenue and a higher contribution to adjusted EBITDA than any quarter in 2020. Activity levels have picked up materially. The increasing activity levels with our carrier customers have led to increases in our services backlog and a resulting increase in our full-year outlook for site development revenue. ASFO in the first quarter was $286.3 million. ASFO per share was $2.58, an increase of 13.2% over the first quarter of 2020, and a 16.2% increase on a constant currency basis. During the first quarter, we also continued to expand our portfolio acquiring 731 communication sites, including wireless tenant licenses on 697 utility transmission structures from the previously announced PG&E transaction for total cash consideration for all sites of $975.5 million. We also built 62 new sites in the quarter. Subsequent to quarter end, we have purchased or agreed to purchase 413 additional sites in our existing markets for an aggregate price of $110.2 million. And we anticipate closing on the majority of the sites under contract by the end of the third 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 $6.5 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 updated outlook for full year 2021. We have increased our outlook for most of our key metrics from the outlook previously provided with our prior quarter earnings release. In addition to our increased outlook for site development revenue, which I mentioned a moment ago, we have also increased our outlook for full-year site leasing revenue. The majority of this increased leasing revenue outlook is due to our recently signed global amendment and agreement with Verizon Wireless. One component of this agreement involved the extension of the current lease terms across our existing lease agreements with Verizon, resulting in average non-cancellable terms of approximately eight years. These term extensions increased our outlook for straight-line revenue for 2021 by approximately $22.5 million. While we anticipate higher levels of operational leasing activity throughout the year as a result of the Verizon agreement that will contribute to improved organic leasing revenue growth in future years, we do not expect it to materially impact our previously provided 2021 outlook for tower cash flow and adjusted EBITDA. With regard to site leasing revenue, in addition to the Verizon straight line impact, we also increased our outlook for better leasing revenue projected and for other increases in straight-line revenue associated with term extensions separate from the Verizon agreement. We anticipate our domestic same-tower revenue growth will begin to increase in the second half of the year and that we will exit 2021 at the highest rate of the year. Our updated outlook for adjusted EBITDA and ASFO incorporate increased expectations for contributions from our services business, And ASFO is also projected to benefit from slightly better non-discretionary capital expenditures and cash taxes than we previously anticipated. Our customers' ramping efforts around 5G give us great confidence in our projected growth. As is always the case, our full-year 2021 outlook does not assume any further acquisitions beyond those under contract today. And 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 rest of the year. Our outlook for net cash interest expense does 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 $111.4 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 quarter with $12.1 billion of total debt and $11.9 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.6 times. This leverage ratio is elevated slightly above our target range of 7.0 to 7.5 times due to the PG&E acquisition during the first quarter. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 4.4 times. On January 29th, 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 the outstanding 4% senior notes, to pay all premiums and costs associated with such redemption, and to repay the amounts outstanding at the time under the revolving credit facility and for general corporate purposes. As of today, we have $530 million outstanding under our revolver, and the weighted average interest rate of our outstanding debt is 3%, with the weighted average maturity of approximately 4.3 years. During the first quarter, we repurchased 654,000 shares of Econostop for $168.9 million, or an average price of $258.33 per share. All shares repurchased were retired. As of today, we have $475.1 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company shares outstanding at March 30, 2021 were $109.3 million, compared to $111.6 million at March 31, 2020, a reduction of 2%. In addition, during the quarter, we declared and paid a cash dividend of $63.4 million, or $0.58 per share. And today, we announced that our board of directors declared a second quarter dividend of $0.58 per share, payable on June 15, 2021, to shareholders of record as of the close of business on May 20, 2021. With that, I'll now turn the call over to Jeff. Thanks, Mark, and good evening, everyone. As you have heard, we had a strong start to the year with solid financial and operating results. Activities in the first quarter provide a solid foundation for the rest of 2021 and for the next couple of years. During the quarter, each of our largest domestic customers provided public disclosures expanding upon their 5G deployment plans, making it clear that upgrades to their existing macro networks will be a key component of their network investment strategies over the next several years. We've begun to see direct evidence of this with significant growth in our leasing application backlogs and increasing volumes in our services business. In fact, our services business had its biggest quarter in nearly seven years. And notwithstanding that strong first quarter performance, our services backlogs have continued to grow substantially, setting us up to have our best services year in a very long time. Increased services volume and backlog are due to growing network planning and deployment efforts by our largest customers and are supportive of our anticipated growth in domestic organic leasing activity over the coming quarters. Our growing leasing application backlogs further support our expectations around future new leasing activity. Since our last earnings call, the results of the C-band auction were disclosed. Verizon, AT&T, and T-Mobile were all meaningful participants in the auction. Verizon and AT&T both paid premium prices for A-block Spectrum, a clear indication that the ability to move quickly in building out the top markets is a priority for them. On April 1st, we signed a new global agreement with Verizon to facilitate their 5G network build-out, including the deployment of their newly acquired C-band spectrum. This new agreement addresses several items, including the extension of committed terms under our existing agreements with Verizon, establishing equipment-specific pricing, terms and conditions for upgrades to Verizon's existing leases, and establishing parameters and volume incentives for new site leases. We are excited to expand our existing strong partnership with Verizon, and we believe both Verizon and SBA will benefit from years of incremental new business between our organizations. The agreement with Verizon, as well as the substantial minimum lease commitment under our new master lease agreement with DISH, and our existing activity levels and building backlogs with both T-Mobile and AT&T are all part of the foundation for a strong couple of years of heightened activity. Our domestic leasing backlogs are as high as they have been in quite some time. We have not incorporated any material amount of revenue from these climbing backlogs in our 2021 outlook because of the timing uncertainty and lines between application execution and the future is certainly bright in this regard. In addition to the exciting events around our domestic leasing and services businesses, our international leasing activity also was solid during the first quarter. During the quarter, we signed up 50% of new international revenue through new leases and another 50% through amendments to existing leases. We had strong leasing results in Brazil and South Africa. our two largest international markets, notwithstanding continuing challenges in these markets from the COVID-19 pandemic. We believe the underlying fundamentals for wireless network growth are strong in these markets. And once we see a return to normalcy due to increased vaccine availability and other steps to reduce the COVID impact in these markets, we will be well positioned for increased network investment and organic leasing growth. In addition to our first quarter operational successes, we also made advances through positive capital allocation and opportunistic financing activities. As discussed on our prior call, we added a large number of high-quality assets to our portfolio through the PGA transaction during the quarter. And while it's only been about two months since we closed on the majority of this transaction, we're very pleased with what we're seeing so far. We have received significant interest from our customers around these sites, and we have established a very positive working relationship with PG&E, which should allow us to maximize these opportunities through providing efficient access to these assets for our customers. In addition to the PG&E transaction, we have closed and placed under contract a number of new, high-quality assets that should be supported of incremental future organic growth. We also continue to deploy capital into share repurchases during the quarter, successfully deploying almost $170 million to opportunistically take advantage of dislocations in our stock price while also effectively managing our leverage ratio. I'm particularly pleased that we were able to finish the quarter with a net debt to adjust the EBITDA leverage ratio of 7.6 times, just above our target range of 77.5 times. We knew that we would be above our target range temporarily due to the PG&E transactions, but we are ahead of schedule in de-levering back into our target range due to our strong first quarter results. In fact, on a pro-corner basis, for a full quarter's contribution to PG&E, to EBITDA for PG&E, we would have reported leverage of 7.5 times for the first quarter. This result demonstrates the tremendous ability of our company to quickly organically de-lever even after substantial capital investments. During the first quarter, we also completed a $1.5 billion unsecured bond offering at the lowest price for unsecured debt in our history. This combination of steadily growing EBITDA and access to low-cost debt gives us great confidence in our longstanding approach to leverage and capital allocation as a key component to growing AFFO per share and creating incremental shareholding value. Our access to low-cost debt continues today, I'm confident we will have other opportunities to improve our cost of debt financing during this year. In the first quarter, we produced $2.58 of AFFO per share, over 16% higher than the first quarter of last year on a constant currency basis. We also increased our first quarter dividend by 25% over the prior year, while still achieving a very low AFFO per share payout ratio of 22.5%. Our ability to manage our balance sheet, optimize our operations, and opportunistically allocate capital will allow us to continue to generate long-term returns for our shareholders that capitalize on the quality and foundation of the strong underlying network of our business. So I want to close with some comments about our performance through the pandemic. We're currently operating our Boca Raton headquarters representing about 33% of our global workforce at 50% capacity with plans to fully return to the offices at 100% by early July. Our other offices are at varying attendance percentages with U.S. offices generally at higher levels of attendance than our international offices. I can thankfully say that the pandemic has had no material impact on our U.S. business and internationally I believe we have navigated the pandemic as well as anyone. In every case, we have worked carefully with local healthcare experts and our team members to prioritize safety first. I could not be more proud of the way we have navigated this pandemic to achieve focused safety of our team members and meeting the needs of our customers and communities. I want to thank our team members and our customers for their commitment, collaboration during these challenging times, and their contributions to our success. We look forward to an exciting rest of the year and sharing our results with you next quarter. And with that, Justin, we are now ready for questions. Thank you.

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