Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SBA Communications Corp (SBAC, Financial) reported solid operational and financial results in line with expectations for Q2 2024.
- Increased inquiries from U.S. customers indicate potential for future growth in new business executions.
- Revenue from the services business was up 15% from Q1, with gross profit contributions ahead of internal expectations.
- International markets showed a pickup in new leasing activity, contributing positively to full-year revenue projections.
- The company has reduced its outstanding revolver balance to $30 million and continues to prioritize debt reduction and liquidity.
Negative Points
- Full-year financial outlook has been modestly lowered due to weakening foreign exchange rates.
- Lower anticipated level of construction work has led to a $10 million reduction in the full-year services revenue outlook.
- International same tower recurring cash leasing revenue growth was impacted by high churn rates and macroeconomic challenges.
- The devaluation of the Brazilian real is estimated to negatively impact site leasing revenue by approximately $19 million in 2024.
- The company faces challenges in some international markets due to carrier consolidations and increased network rationalizations.
Q & A Highlights
Q: Can you comment on the evolution of the financing market and how the rates you're being presented look relative to a month ago?
A: Brendan Cavanagh, President, Chief Executive Officer: The market has been improving with a greater expectation in terms of rates. The next refinancing involves ABS debt, typically priced as a spread to treasuries. Improved sentiment around forward rates affects treasuries, which is helpful. There's high demand for our type of paper, and we expect continued improvement. Regarding FX forecasting, we use forward market projections, primarily for Brazil, but the currency has weakened more than expected. We now use a rate close to spot for the balance of the year.
Q: On M&A, are you looking more closely at opportunities now, and how are you thinking about geographies?
A: Brendan Cavanagh, President, Chief Executive Officer: Our approach hasn't changed, but with lower leverage, we have more flexibility for material acquisitions. We're focused on markets we're in but also look globally. The gap between private and public multiples is narrowing, especially internationally. Domestically, it's less so due to limited supply.
Q: How are you thinking about the attractiveness of staying in markets where you are subscale versus getting bigger in ones where you already have a meaningful presence?
A: Brendan Cavanagh, President, Chief Executive Officer: We aim to have greater scale and relevance to our customers. If we can't achieve that through expansion, we may exit certain markets. We're reviewing all our business lines and will update on specifics when ready.
Q: Can you comment on the downtick in site development expectations for the year and its implications for domestic carrier activity?
A: Brendan Cavanagh, President, Chief Executive Officer: The mix of work is more consulting-oriented rather than construction, leading to lower top-line volume but higher margins. We expect higher volume in the second half of the year. It's not a sign of muted activity but rather a mix of work.
Q: What are your thoughts on the European tower market, and do you believe domestic new leasing in 2025 will be up versus 2024 levels?
A: Brendan Cavanagh, President, Chief Executive Officer: Europe offers stability but slow growth and churn risks due to carrier consolidations. Any expansion will be opportunity-specific. For 2025 leasing, it's too early to provide an outlook, and much depends on second-half 2024 activity.
Q: How low could leverage go over the foreseeable future, and do you expect M&A opportunities to pick up in the second half of the year?
A: Brendan Cavanagh, President, Chief Executive Officer: Leverage will depend on alternative uses of capital. If we see value-enhancing investments, leverage may tick up; otherwise, it may decline. M&A opportunities are not slow; our team is busy, and we are exploring various portfolios.
Q: How do you reconcile the impact of FX rate changes with your long-term strategy, and where are international markets on mid-band or 5G spectrum deployment?
A: Brendan Cavanagh, President, Chief Executive Officer: FX volatility influences our asset mix strategy. We aim for stability and may reduce exposure to volatile currencies. International mid-band 5G deployment is around 25% or less on average, varying by market.
Q: Can you comment on the build-to-suit opportunity and the impact of fixed wireless access on your leasing pipeline?
A: Brendan Cavanagh, President, Chief Executive Officer: We aim to secure high-quality locations and be more aggressive on build-to-suit. Fixed wireless access is using mid-band spectrum, and while it's hard to draw a direct line, network congestion from this product is a positive sign for us.
Q: What are your thoughts on selling a piece of your domestic business given the disparity between public and private multiples?
A: Brendan Cavanagh, President, Chief Executive Officer: Selling assets is on the table if valuations are attractive, but it's not a priority. We have financing structures and agreements to consider. The gap between public and private multiples may close, affecting our decision.
Q: Can you provide more context on carrier inquiries and their potential to materialize into better leasing?
A: Brendan Cavanagh, President, Chief Executive Officer: Conversations with carriers cover various topics, including larger deals. Increased inquiries and applications are positive signs, but it's too early to predict their impact on next year's leasing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
