SBA Communications Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the SBA third 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. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mark DeRussy, Vice President of Finance. Please go ahead.

Good evening. Thank you for joining us for SBA's third quarter 2023 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, and Brendan 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 2023 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 expectations. Our statements are as of today, November 2nd, 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 beta package which is located on a landing page of our investor relations website. With that, I will now turn it over to Brendan to discuss our third quarter results.

Thank you, Mark. Good evening. We had another very solid quarter in Q3 with financial results that were ahead of our expectations. Based on these results and our updated expectations for the fourth quarter, we have increased our full year 2023 outlook for site leasing revenue, tower cash flow, adjusted EBITDA, AFFO, and AFFO per share, notwithstanding weaker forecasted foreign currency exchange rates than we had previously expected. Total GAAP site leasing revenues for the third quarter were $637.5 million, and cash site leasing revenues were $630.4 million. Foreign exchange rates represented a headwind of approximately $1.4 million when compared with our previously forecasted FX rate estimates for the quarter, and a benefit of $4.8 million when compared to the third quarter of 2022. Same tower recurring cash leasing revenue growth for the third quarter, which is calculated on a constant currency basis, was 4.7% net over the third quarter of 2022, including the impact of 4.1% of churn. On a gross basis, same tower recurring cash leasing revenue growth was 8.8%. Domestic same-power recurring cash leasing revenue growth over the third quarter of last year was 8.6% on a gross basis and 4.7% on a net basis, including 3.9% of churn. Domestic operational leasing activity, or bookings, representing new revenue placed under contract during the third quarter, was up materially from the second quarter, primarily as a result of the AT&T Master Lease Agreement signed in July. Excluding the impact of the AT&T MLA, third quarter activity levels were similar to the second quarter. All major carriers remain active with their networks. However, agreement execution levels continue to be slower than a year ago. The higher cost of capital naturally has caused a focus on cash management and expense control by our customers. This dynamic extends the timing over which 5G related network investments are being made. There is still a long way to go for 5G network investments based on the number of our sites that remain to be upgraded with mid-band spectrum deployments by the major mobile network operators. Wireless data use continues to grow materially, and that fact, combined with the limited spectrum availability, will require additional infrastructure over time to maintain and certainly to enhance service quality. This gives us great confidence in continued domestic organic leasing growth for many years to come. During the third quarter, domestic churn was slightly below our prior projections due to a slower pace of decommissioning of legacy Sprint leases than we had projected. Our overall expectations for Sprint-related churn remain the same, but there will likely continue to be small variations in timing of realizing this churn over the next several years. We currently expect Sprint-related churn for 2023 to be $28 million. 2024 Sprint-related churn is currently estimated to be approximately $30 million. Non-Sprint-related domestic churn was in line with our prior projections and continues to range between 1 and 2 percent of our domestic leasing revenue. Internationally, on a constant currency basis, third quarter same-tower cash leasing revenue growth was 4.5 percent net, including 4.9 percent of churn, or 9.4 percent on a gross basis. International leasing activity remained strong in the third quarter and was again ahead of our internal expectations. While global macroeconomic conditions present challenges to our carrier customers, we have continued to see pockets of dedicated network investment across a number of our markets. The desire and need for enhanced wireless coverage and quality of service continues to be elevated internationally, and we expect we'll continue to drive leasing opportunities across our portfolio. Wireless data growth in our international markets is even greater than the U.S. We also continue to see steady contributions from inflation-based escalators in many of our markets. In Brazil, our largest international market, the same-tower organic growth rate was 2.6% on a constant currency basis, including the impact of 6.3% of churn, which growth rate reflects a decline in the Brazilian inflationary index. The net growth rate was also again significantly impacted by our previously discussed TEM agreement. As a reminder, our 2023 outlook does not include any churn assumptions related to the OY consolidation other than that associated with the TEM agreement. However, we continue to discuss potential arrangements with other carriers related to the OY consolidation that could have an impact on our current year international churn. During the third quarter, 77.8% 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 16% of consolidated cash site leasing revenues during the quarter and 12.9% of cash site leasing revenue excluding revenues from pass-through expenses. Tower cash flow for the third quarter was $511.7 million. Our tower cash flow margins remain very strong with a third quarter domestic tower cash flow margin of 85.3% and an international tower cash flow margin of 70% or 91.5% excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the third quarter was $482.1 million. the adjusted EBITDA margin was 71.4% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 76.9%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the third quarter. During the third quarter, our services business had another solid quarter with $45.1 million in revenue and $13.6 million of segment operating profits. While off last year's all-time high activity levels, we continued to execute on our backlog of high quality, high margin work and deliver for our carrier customers. However, given the slower pace of carrier network-related activity across the industry, we have lowered our full-year outlook for our site development business by $15 million at the midpoint. Notwithstanding this adjustment, we continue to manage our costs and focus on high margin work. And thus, we have not lowered our expected margin contributions to 2023 adjusted EBITDA and AFFO from our services business. We still expect 2023 to be the second largest services revenue year in our history, trailing only 2022. Adjusted funds from operations or AFFO in the third quarter was $364.1 million. AFFO per share was $3.34. an increase of 7.7% over the third quarter of 2022. During the third quarter, we continued to invest in additions to our portfolio, acquiring 45 communication sites for total cash consideration of $40.8 million and building 86 new sites. Subsequent to quarter end, we have purchased or are under agreement to purchase 215 sites, all of which are in our existing markets, for an aggregate price of $74 million. We anticipate closing on these sites under contract by the end of the second quarter of 2024. In addition to new towers, we also continue to invest in the land under our sites. During the quarter, we spent an aggregate of $15.1 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 70% of our towers and the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years. Before I turn things over to Mark, I'd like to take a quick moment to welcome Mark Montagnier, who joined our team in mid-October and will be taking over as our new CFO on January 1st. Mark brings with him an extensive background in telecommunications and finance, and we are very excited to have him as part of the team. I also would be remiss if I did not take a moment to recognize that this call is Jeff's final earnings call as CEO of SBA. I have big shoes to fill, and I am grateful for the professional guidance and the friendship he has extended to me over the last 25 years. And with that, I will now turn things over to Mark, who will provide an update on our balance sheet.