SBA Communications Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the SBA fourth quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a quick session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mark DeRussi, Vice President of Finance. Please go ahead.

good evening and thank you for joining us for sba's fourth quarter 2022 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 guidance for 2023 and beyond in 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, February 21st, 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.

Thank you, Mark. Good evening. We finished up an outstanding 2022 with another very strong quarter. Our fourth quarter results were ahead of our expectations and allowed us to finish at or near the high end of our full year 2022 outlook for most metrics. Total GAAP site leasing revenues for the fourth quarter were $609.6 million and cash site leasing revenues were $600.5 million. Foreign exchange rates represented a benefit of approximately $800,000 when compared with our previously forecasted FX rate estimates for the quarter, and a benefit of $2.2 million when compared to the fourth quarter of 2021. Same tower recurring cash leasing revenue growth for the fourth quarter, which is calculated on a constant currency basis, was 5.1% net over the fourth quarter of 2021, including the impact of 4.2% of current. On a gross basis, same tower recurring cash leasing revenue growth was 9.3%. Domestic same-tower recurring cash leasing revenue growth over the fourth quarter of last year was 8.5% on a gross basis and 5% on a net basis, including 3.5% of terms. Domestic operational leasing activity, or bookings, representing new revenue placed under contract during the fourth quarter was not as strong as the third quarter but still solid. we saw meaningful and balanced contributions from each of our largest customers. Full-year organic leasing contributions to domestic site leasing revenue ended up in line with our outlook provided on our prior earnings call. During the fourth quarter, amendment activity and new leases each represented 50% of our domestic bookings. The big four carriers of AT&T, T-Mobile, Verizon, and DISH represented approximately 95% of total incremental domestic leasing revenue signed up during the quarter. Domestically, we again experienced less churn than we had projected due to timing of merger-related decommissioning being later than we had previously estimated. We still expect to incur this churn and have incorporated our reduced 2022 domestic churn amounts into our outlook for 2023. Internationally, on a constant currency basis, Same Tower cash leasing revenue growth was 5.4% net, including 7.6% of churn, or 13% on a gross basis. International leasing activity was very good again, with similar results to our strong third quarter. 2022 was one of the strongest years in the company's history for international gross leasing activity, or bookings. In addition to strong customer activity levels across many of our markets, we continued to see healthy contributions from inflation-based escalators. In Brazil, our largest international market, we had another very strong quarter. Same-tower organic growth in Brazil was 13.2% on a constant currency basis. Similar to the third quarter, and as anticipated, international churn remained elevated in the fourth quarter due primarily to carrier consolidations and Digicel's previously announced exit from Panama. During the fourth quarter, 78.5% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenue was from Brazil, with Brazil representing 15.1% of consolidated cash site leasing revenues during the quarter and 12.1% of cash site leasing revenue, excluding revenues from pass-through expenses. Tower cash flow for the fourth quarter was $485.9 million, Our tower cash flow margins remain very strong as well, with a fourth quarter domestic tower cash flow margin of 85%, and an international tower cash flow margin of 69.4%, or 90.9%, excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the fourth quarter was $460.7 million. The adjusted EBITDA margin was 68.1% in the quarter, Again, impacted slightly by outsized services revenue. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 73.1%. Approximately 96% of our total adjusted EBITDA was attributable to our tower leasing business in the fourth quarter. During the fourth quarter, our services business had another very strong quarter with $76.5 million in revenue and $19.3 million of segment operating profit. We finished 2022 with our most successful services year in company history, as measured by both revenue and profit by a very wide margin. Services backlogs remain very healthy at year end, although off the record highs hit earlier in 2022. Our fourth quarter services results were again primarily driven by T-Mobile and Verizon. Adjusted funds from operations, or AFFO, in the fourth quarter was $340.7 million. AFFO per share was $3.12, an increase of 11% over the fourth quarter of 2021. AFFO results finished ahead of our prior outlook, but were still negatively impacted relative to our outlook assumptions by our early refinancing of $640 million of secured tower revenue securities in November, at a higher interest rate than the retired debt. During the fourth quarter, we meaningfully expanded our portfolio, acquiring 2,642 communication sites for total cash consideration of $736.7 million, which includes 2,632 sites acquired from Grupo Torre Sur in Brazil for approximately $725 million. During the quarter, we also built 162 new sites, Subsequent to quarter end, we have purchased or are under agreement to purchase 31 sites, all in our existing market, for an aggregate price of $23.2 million. We anticipate closing on these sites under contract by the end of the second quarter. In addition to new towers, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $15.9 million to buy land and easements and to extend ground lease terms. At the end of the year, we owned or controlled for more than 20 years the land underneath approximately 70% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years. Looking ahead now, this afternoon's earnings press release includes our initial outlook for full year 2023. Our outlook reflects continued year-over-year growth across our leasing business, including an increase in organic leasing revenue contributions from new leases and amendments, largely due to the strong new leasing activity we experienced during 2022. We also forecast significant revenue growth contributions from non-organic additions, primarily as a result of having the assets acquired from GTS in Brazil in our results for a full year in 2023. In addition, our leasing revenue outlook contemplates increased impacts from customer churn in 2023. Domestically, the increase is mainly in connection with anticipated sprint-related decommissioning, some of which we had previously expected in 2022. Due to the timing shifts of some of these decommissionings, including during the fourth quarter, we are now including an estimate of $25 to $30 million in sprint-related churn in our full-year outlook. Our previously provided estimates of aggregate sprint-related churn over the next several years remain unchanged. Internationally, our outlook includes increased churn as well, including carryover impacts from Digicel in Panama and carrier consolidations in Central America. In addition, our international churn includes approximately $10 million associated with an agreement we have entered into with TIM Brazil to address their consolidation of a portion of OI Wireless. This agreement has accelerated certain turn impacts with us in exchange for longer-term business commitments from Tim, and we believe positions us well for a long, mutually beneficial relationship with Tim. Our 2023 outlook does not include any other turn assumptions related to the OA consolidation, but if, during the year, we were to enter into any further agreements with other carriers related to this that have an impact on the current year, we would adjust our outlook accordingly at that time. With regard to our services business, our full year 2023 outlook reflects a year-over-year decline in revenues and adjusted EBITDA contribution, but starts ahead of where our 2022 outlook started. If not for the phenomenal 2022 services results, our outlook for 2023 would represent the best year for services in our company's history. As I mentioned a moment ago, we continue to have very healthy services backlogs. And as a result, we expect another very strong year for this business. The outlook does not assume any further acquisitions beyond those under contract today and also does not assume any share repurchases. 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 does not contemplate any further financing activity in 2023. but it does assume we deploy excess cash into repayments of our outstanding revolver balance. Under this assumption, we would end the year with leverage in the mid six times area, but we project that we would still incur approximately $36 million of increased net cash interest expense compared to 2022. Finally, our outlook for AFFO per share is based on an assumed weighted average number of diluted common shares of 109.6 million. which assumption is influenced in part by estimated future share prices. We are excited about 2023. Our customers remain active, and we expect to produce very strong results as we help them to achieve their network build-out goals. Before turning the call over to Mark, I would like to take just a moment to discuss the succession plan announced this afternoon. I'm truly honored to have been entrusted with the leadership of this tremendous company. I've had the privilege of spending the last 25 years at SBA and spending all of those years working closely with Jeff as the company has grown significantly under his leadership. Jeff has been a great friend and mentor to me. I look forward to continuing to have his counsel as chairman of the board. I'm very excited about the future of SBA. We have an amazing business that is part of a great and still growing industry. Our financial strength and very talented leadership team position us well to be a critical support to our customers and to capitalize on many future opportunities. I greatly look forward to working with the rest of the SBA team to continue rewarding shareholders and building upon the company's great legacy. With that, I'll turn things over to Mark, who will provide an update on the balance sheet.