SBA Communications Corp (SBAC) — Q2 2023 Earnings Call Transcript

Good evening and thank you for joining us for SBA's second quarter 2023 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, 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 detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, July 31. 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 of our Investor Relations website. With that, I will now turn it over to Brendan to discuss our second quarter results.

Thank you, Mark. Good evening. We had another steady quarter in Q2 with solid financial results that were slightly ahead of our expectations. Based on these results and our updated expectations for the balance of the year, we have increased our full-year 2023 outlook for site leasing revenue, tower cash flow, adjusted EBITDA, AFFO and AFFO per share. Total GAAP site leasing revenues for the second quarter were $626.1 million and cash site leasing revenues were $618.7 million. Foreign exchange rates represented a benefit of approximately $1.9 million when compared with our previously forecasted FX rate estimates for the quarter and a headwind of $4.2 million when compared to the second quarter of 2022. Same-tower recurring cash leasing revenue growth for the second quarter, which is calculated on a constant currency basis, was 4.3% net over the second quarter of 2022 and included the impact of 3.9% of churn. On a gross basis, same-tower recurring cash leasing revenue growth was 8.2%. The Domestic same-tower recurring cash leasing revenue growth over the second quarter of last year was 7.8% on a gross basis and 4.2% on a net basis, including 3.6% of churn. Domestic operational leasing activity or bookings representing new revenue placed under contract during the second quarter declined from the first quarter. While all major carriers remained active with their networks, agreement execution levels in the second quarter from several of our customers were below our prior expectations. Longer term, we continue to see significant runway for new 5G-related leasing activity based on the number of our sites that remain to be upgraded with mid-band spectrum deployments by the major mobile network operators. In addition, today, we announced that we have entered into a new long-term master lease agreement with AT&T. This comprehensive agreement will streamline AT&T's deployment of 5G solutions across our tower portfolio while providing us with committed future leasing growth from AT&T for years to come. Based on this MLA, we have increased our projected contribution to 2023 leasing revenue from domestic organic new leases and amendments by $6 million from the full-year projections we provided last quarter. During the second quarter, amendment activity represented 42% of our domestic bookings and new leases represented 58%. The big 4 carriers of AT&T, T-Mobile, Verizon and DISH represented approximately 89% of total incremental domestic leasing revenue that was signed up during the quarter. Domestically, churn was slightly elevated during the quarter, primarily due to faster decommissioning of legacy Sprint leases than we had projected, which is the opposite of our experience last year. Based on our current analysis, we expect Sprint-related churn for 2023 will be at the high end of our previously stated range for this year of $25 million to $30 million, resulting in a change to our full-year domestic churn outlook of $4 million. Our views around the ultimate multiyear cumulative impact of Sprint merger-related churn have not changed. Although we continue to update our outlook around timing as more information becomes available. We now project 2024 Sprint-related churn to be in a range of $20 million to $30 million, 2025 to be between $35 million and $45 million, 2026 to be $45 million to $55 million and 2027 to be $10 million to $20 million. Just as last year ended up being well below our initial churn expectations, 2023 will likely be a little above our initial expectations, we anticipate that the exact timing will continue to be somewhat fluid but in line with our provided projections. Non-Sprint-related domestic churn was in line with our prior projections. Moving now to international results. On a constant currency basis, same-tower cash leasing revenue growth was 4.8% net, including 4.9% of churn or 9.7% on a gross basis. International leasing activity was strong in the second quarter and ahead of our internal expectations. These positive results and our solid backlogs have allowed us to increase our projected contribution to 2023 leasing revenue from international organic new leases and amendments by $1 million. Inflation-based escalators also continued to make steady contributions to our organic growth. However, decreases in actual and projected Brazilian CPI rates have caused us to moderate our outlook for international escalation contributions for the full year by approximately $1 million. Overall, Brazil, our largest international market, had another very good quarter. The same tower organic growth rate in Brazil was 5.7% on a constant currency basis, including the impact of 5.6% of churn which amount was significantly impacted by our previously discussed TIM agreement. While international churn remains elevated, it continues to be in line with expectations and our previously provided outlook. As a reminder, our 2023 outlook does not include any churn assumptions related to the OI consolidation other than that associated with the TAM agreement. However, if during the year, we were to enter into any further agreements with other carriers related to the OI consolidation that would be expected to have an impact on our current year, we would adjust our outlook accordingly at that time. During the second quarter, 77.5% 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 16.2% of consolidated cash site leasing revenues during the quarter and 13.1% of cash site leasing revenue, excluding revenues from pass-through expenses. Tower cash flow for the second quarter was $503.5 million, benefitting by approximately $7.3 million in accounting-driven cost reclassifications. Our tower cash flow margins remain very strong, with second quarter domestic tower cash flow margin of 85.5% and an international tower cash flow margin of 70.3% or 92.3%, excluding the impact of pass-through reimbursable expenses. Adjusted EBITDA in the second quarter was $471.7 million. The adjusted EBITDA margin was 70.3% in the quarter. Excluding the impact of revenues from pass-through expenses, the adjusted EBITDA margin was 75.9%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter. During the second quarter, our services business had another strong quarter with $52.4 million in revenue and $13.1 million of segment operating profit. While off year ago activity levels, our carrier customers remained busy deploying new 5G-related equipment during the quarter and we have retained our full-year outlook for our site development business due in part to the strength of our first half results. Adjusted funds from operations or AFFO in the second quarter was $352.7 million. AFFO per share was $3.24, an increase of 6.2% over the second quarter of 2022 on a constant currency basis. During the second quarter, we continued to invest in additions to our portfolio, acquiring 9 communication sites for total cash consideration of $7.2 million and building 64 new sites. Subsequent to quarter end, we have purchased or are under agreement to purchase 134 sites, all in our existing markets, for an aggregate price of $72.9 million. We anticipate closing on these sites under contract by the end of the year. In addition to new towers, we also continue to invest in the land under our sites and during the quarter, we spent an aggregate of $10.1 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.

Thanks, Brendan. We ended the quarter with $12.7 billion of total debt and $12.4 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 6.6x, below the low end of our target range and the lowest level in decades. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a strong 4.9x. During the subsequent quarter end, we repaid amounts under our revolving credit facility. And as of today, we have $360 million outstanding under our $1.5 billion revolver. The current weighted average interest rate of our total outstanding debt is 3.1%, with a weighted average maturity of approximately 3.5 years. The current rate on our outstanding revolver balance was 6.3%. The interest rate of 95% of our current outstanding debt is fixed. During the quarter, we did not purchase any shares of our common stock, choosing instead to reduce revolver balances. We currently have $505 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company shares outstanding at June 30, 2023, were $108.4 million. In addition, during the quarter, we declared and paid a cash dividend of $92.1 million or $0.85 per share. And today, we announced that our Board of Directors declared a third-quarter dividend of $0.85 per share payable on September 20, 2023, to shareholders of record as of the close of business on August 24, 2023. This dividend represents an increase of approximately 20% over the dividend we paid in the year-ago period and only 26% of our projected full-year AFFO. With that, I'll now turn the call over to Jeff.

Thanks, Mark, and good evening, everyone. The second quarter was another very solid one for SBA. We produced good financial results across all areas of our business and we continue to deliver high-quality service and operating results for our customers. Each of our largest U.S. customers remained active with their networks. Our customers continue to add equipment to sites in support of 5G through the deployment of new spectrum bands as well as to expand coverage through brand new colocations. We did, however, see the same slowdown in activity that many others have discussed. While we had always anticipated domestic leasing growth to moderate as we move through 2023 and organic leasing activity levels were lower than we anticipated in Q2 from some of our customers. Some of this was due, we believe, to slower activity from AT&T in anticipation of our new MLA as would be expected. We believe that these variations in activity are part of the normal cycle of carrier network investment that we have seen over time, a large initial burst of coverage activity as the next generation of technology starts to be deployed, followed by many years of coverage completion and capacity building. We are confident that there will be additional material network investment over the next several years. We believe this for a number of reasons. Most importantly, wireless demand continues to grow at a fast clip, consuming more and more of current network capacity. We have a large remaining number of sites that have not been upgraded yet to accommodate the mid-band spectrum holdings acquired by our customers over the last couple of years, some of which spectrum is not even available for deployment yet. DISH has their next phase of regulatory coverage requirements to meet in 2025 and we have our newly signed MLA with AT&T. We believe all of these items and others are supportive of multiyear continued development activity. While there will always be ebbs and flows in leasing activity levels based on a variety of factors, we believe that there will remain a need for continuous network investment just as we have seen throughout our history in this business. With regard to our announced master lease agreement with AT&T, we're very excited about this next chapter in our long-standing successful relationship. This new agreement highlights the long-term importance of SBA sites to AT&T's future network deployment plans. The agreement will improve operating efficiencies between our organizations and enhance stability with regard to future leasing growth. We look forward to working closely with AT&T for years to come under this mutually beneficial framework. In the second quarter, our services business remained busy helping our carrier customers meet deployment objectives in an efficient and effective manner. While our services business is down on a year-over-year basis, 2023 will still represent the second biggest service year in our company's history behind only 2022. We believe our legacy and reputation in the Services business keeps us well positioned to be a go-to provider for our customers to meet their network rollout goals. Internationally, we also had another solid quarter with greater organic leasing activity than we had anticipated. During the quarter, 62% of new international business signed up in the quarter came from amendments to existing leases and 38% came through new leases with strong contributions broadly for many of our markets, including Central America, Brazil and South Africa. Brazil, our largest market outside of the U.S. was ahead of our internal expectations with contributions from each of the big 3 carriers in that market. I continue to be pleased with our operational performance, cost management and customer relationships in Brazil, which has made us a leader in the market. And we have recently seen positive movements in the currency exchange rate, providing some financial benefit and increased U.S. dollars for repatriation as well as contributing to our increased full-year outlook. We remain excited about our opportunities in Brazil. During the quarter, we again generated solid AFFO, providing significant cash for discretionary allocation. While our strong financial position allows us to retain flexibility for further opportunistic investment in portfolio growth and stock repurchases, we dedicated the majority of our available cash in the quarter to paying down the outstanding balance on our revolver. We immediately benefit from this by reducing our floating rate cash interest obligations which today represent among the highest cost of debt in our capital structure. With the continuing high cost and limited availability of private market tower acquisition opportunities, we believe this is currently our best use of discretionary spending. Our quarter-ending net debt to adjusted EBITDA leverage ratio was 6.6%, which I believe to be the lowest in our history, at least as a public company. As always, we will continue to be opportunistic around investments, but for the near term, we will likely direct future cash flows into the repayment of debt as the most accretive short-term and certainly a long-term beneficial use of capital. Our balance sheet is in great shape with no debt maturities until October 2024. And since that maturity could easily be refinanced under our revolver, we are comfortable now to remain opportunistic around timing of future financings. We are a preferred issuer in the debt markets we routinely use and retain very good access to capital. We finished the quarter with 95% of our debt fixed and thus, we are only modestly exposed for now to significant interest rate fluctuations. Our exposure to floating rate debt is also expected to decline further as we continue paying down our outstanding revolver balance throughout the year. We feel very good about our current capital position. We feel fortunate to be in a sound, stable business with tremendous fundamentals and significant long-term opportunity ahead. Our customers continue to have significant network needs and we will be there to support them in meeting those needs. I want to thank our team members and our customers for their contributions to our shared success. And with that, Eric, we are now ready for questions.

Good afternoon, everyone. I have some questions regarding the AT&T MLA, which is a major news item. I appreciate that you mentioned $6 million of the increased lease activity was primarily driven by the AT&T MLA.

Rick, can you speak up? We're having trouble hearing you right?

Can you hear me better now?

That's much better. Thank you.

You bet. Yes, I'm sorry about that. I had another phone call come in. It's like doing something busy. Yes, I appreciate some of the color on the MLA with AT&T. A couple of questions around it. Why now? And any others that you're working on? And then also suggesting that $6 million increase in guidance came from that it looks like we should be thinking maybe of kind of flattish new lease activity over the next couple of quarters. And as we exit '23, is that the way we should be thinking about it.

Yes. Regarding the MLA, the $6 million increase is attributed to it. Previously, we reported a 72% contribution, which we have now raised to 78%, although activity was somewhat slower in the second quarter. We anticipate that the MLA will start contributing immediately based on its terms. In terms of contribution cadence, I expect it to remain fairly flat, with a noticeable increase in the third quarter, followed by a slight decline in the fourth quarter. This decrease is not related to the MLA but is due to reduced activity from other carriers. We had initially expected a downward trend throughout the year, and I believe that will persist concerning other contributors. Regarding the agreement with AT&T, it has been in development for over a year and is seen as mutually advantageous for both parties. We've been transparent about our interest in such agreements and, while we prefer not to comment on other customers, we prioritize forming agreements that benefit both sides.

When do you anticipate that the focus will shift back to stock buybacks after paying down the revolver? It seems there isn't much M&A activity currently, which would typically be your priority. How should we view the timing of moving toward stock buybacks now that you've reduced your leverage to 6.6? Is this something we're looking at for next year or further in the future?

Yes. I think if rates stay the same and stock prices stay the same, it will continue to be more accretive. And obviously, it’s good for the overall capital position to continue to pay down the revolver to zero. So when we get to that point, Rick, you should ask that question again.

Just curious, just a follow-up on the comprehensive deal with AT&T. Can you share some of the multiyear components of this deal, is there going to be a straight-line element that sometimes comes up with these types of multiyear or comprehensive opportunities? And does it change the way investors should think about leasing overall for SBA in 2024 in the domestic side?

Yes, Mike. This agreement will definitely make our operations with AT&T smoother. From that angle, it might affect our reported growth figures due to fluctuations, but there should be less variability related to this specific agreement. Over the lifespan of the agreement, we do anticipate some straight-line impacts, but in the short term, those impacts will be very minimal.

And just on the commentary on leasing. So the site development revenues are unchanged from the prior guidance. But you did note that there was some slower activity levels. Was this just something that you were maybe more prepared for earlier in the year? Or is there anything different about your development business that maybe gave your expectation a little more durability in spite of some of the changes that you observed?

Yes. I think we know our site development business very well. You know it primarily centers around work almost entirely on our towers. So we have a very good feel for it. And there's just enough work out there Mike, that was already booked earlier in the year and actually some of it probably spilling over from last year, that's now working itself through our services backlog t hat gives us the comfort to continue with the guidance that we have. So a lot of it is more a reflection of activity levels that occurred Q1, Q4 of last year.

Great. I was just wondering about the leverage point. Have you considered targeting investment-grade status, or is this just a temporary change in your overall leverage targets? Please feel free to share your thoughts.

Yes. Right now, I think you should assume it's temporary so that we can continue to watch interest rates and see where they go. If interest rates stay high, it may not be temporary. We haven't made that decision yet. Actually, we're paying down the revolver because it's the most economic and best use of our cash today. It just so happens that as we continue to do that, we further decrease leverage which makes the path of going to investment grade, if we were to so choose that path, easier to obtain. But I really don't think you should look at it, Simon, as a conscious effort to get to investment grade as much as it is just the best financial use of our discretionary cash.

Great. Yes. And just one follow-up. You mentioned earlier that you still got a lot of sites that have not been upgraded to 5G. Do you think, given some of the rural SKU of your portfolio, do you think that would advantage to your portfolio in the next several years versus to that initial build out?

Yes. I think if history is any guide, I guess, that's exactly how it works. It starts out in the NFL cities, it goes from there.

How should we view the exit run rate for activity this year compared to next year? AT&T appears to be stable in the third and fourth quarters, while others are slowing down throughout the year. Should we consider the fourth quarter as a good benchmark for next year, or should we expect it to be slightly lower? Also, Jeff, I didn't quite catch your previous comment about service revenue for earlier activities this year. It seems that services are performing significantly better than historical trends. Do you anticipate that you will meet your projections this year, but for next year, things might likely fall below expectations? Does that make sense?

Go ahead, Brendan.

Yes. Regarding your first question, we expect the fourth quarter run rate for domestic organic leasing contribution to be around $17 million to $17.5 million. However, I want to caution against using this as an indicator for next year. The trajectory based on activity levels is declining, and as a result, we expect those numbers to decrease as we head into next year. We are not ready to provide guidance for 2024 yet, but generally, the growth we see is influenced by the leasing activity from previous years. The 2023 growth is significantly influenced by leasing activities from the end of 2022, and next year's figures will rely heavily on this year's leasing activities. The current number is somewhat higher than previously mentioned due to the effects of the MLA for the fourth quarter, but I don't believe it will be representative of next year's numbers.

Yes. And as far as the services revenue, Phil, the first half of what we report in 2024 will be largely dictated by what we do now operationally with leasing. We have 2 different components of that. We have the site acquisition component, which is the planning stuff, and then we have the construction which is where a lot of the current activity is taking place because that's the last part of the cycle. So we'll see. We'll see where we come out with the guidance on services, but it will be obviously heavily impacted by how we finish out the rest of the year.

I wanted to understand how much of your revenues for this year, next year, and the following year can be considered fairly locked in as opposed to being based on usage.

Yes, you mean just the percentage of the AT&T revenue or overall revenue?

Overall revenue base for the whole company, how do we kind of think about how much is kind of a lock versus more the.

Right. John, we can't give specific numbers out. And obviously, a number of our agreements with other customers are fluid and where those amounts end up are obviously unknown. So as a percentage, it's hard to say as well. So we can't be very specific about it but we do have some portion of our revenue base that is locked in now under this agreement that wasn't before.

And a greater portion of the AT&T than probably exists under other agreements, although we still have some of that. And I mean, I don't think that's not a number that we have focused on that. So the best we can answer, Jonathan, is that it's a much greater extent under the AT&T revenue.

Then and you're comparing that to your agreements with other carriers as opposed to other towercos agreements with AT&T, I'm assuming?

Correct. Yes, correct.

Got it. Yes, understood. And then maybe just give us some directional guidance around the trajectory around building new towers and ground lease and Eastman's activity.

Yes. I mean, we continue to look for good financially smart new build opportunities. We're doing those mostly outside the United States, primarily Brazil and South Africa, our 2 largest markets outside the United States. And we have a steady focus on ground lease purchases and extensions which hasn't changed at all. It's moved a little bit more international in terms of the mix just because we've been at it so long in the United States. But nothing's really changed there. We would put more capital into particularly the land purchases and extensions if the opportunities arose.

In terms of acquiring other portfolios, particularly considering Africa and your experience there, as well as potential small opportunities in that region or elsewhere, what are your views on enhancing your presence in existing markets compared to expanding into new areas?

Yes. I mean, the answer to that question is pretty much the same as it has been for years: for the right deal, we will do it. We have no strategic hole that we feel needs to be filled. In-market growth because of the existing base is going to be preferred over new market growth but we would still go into a new market if we found the right deal and I would point back to the Tanzania investment as a good example of that. But because it's all financially driven, it makes our decision to use discretionary cash to pay down the revolver that much more straightforward.

Lastly, I might have missed this but the duration of the AT&T MLA?

It's 5 years, Jonathan.

So I guess maybe 2. The first one, Jeff, just with respect to some of the actions that your competitors are taking frozen cons for being in the construction business for towers at all? Is there maybe an opportunity to redirect resources in more optimal ways? Or is there an opportunity if people are willing to give up business for you guys to lean in at the margin as we think about the go-ahead business? And then second, maybe for Mark, as we think about the 25 term loan and its maturity, what should the Street be doing in terms of expectations in the model with respect to how we address that cost fixed, long-term roll it? What is the plan?

Dave, I'm going to defer that to our expert here, Brendan.

On the services question, David, we've had a lot of history. Actually, you recall, that's how SBA started. So we have a very flexible cost structure that allows us to ramp up, ramp down. We use a lot of subcontracted tower crews. We have our own, but we also use subcontracted tower crews. And one of the things that has really served us well and our customers give us high praise for this is by using our services people for work on our towers for them. They are greatly benefited in terms of speed to market and efficiencies. So I don't think that changes. So I guess if I had to choose one of your 2 options lean out or lean in, we'll look to lean in and not be afraid to do that because of our confidence in how we manage that business.

Regarding the term loan, in terms of modeling, I can only speak to the future to a certain extent. Yes, I think the best approach for people is to assume a similar refinancing structure. I expect that spreads will be comparable to, or slightly higher than, current levels, but we will have to see how that develops. It's essential to consider the forward curve in relation to the benchmark, the SOFR rate. However, that doesn't guarantee how things will unfold. We will likely be assessing various options, which may include a combination of different instruments, some fixed and some floating. We are keeping all possibilities open and evaluate this regularly. For those modeling long-term, the most prudent approach would be to assume a like-for-like instrument.

If you didn't have the AT&T MLA, would the 72 still apply, or would it decline more quickly than you anticipated in the second half of the year?

I can't really answer that question, Walt, because there are many factors involved. What would the activity be with AT&T? I can't say for sure what it would be, given the time we've spent on this. First, we prefer not to discuss individual customers, but DISH has just met a major deadline, which has caused a bit of a slowdown or pause. We expect that to pick up eventually. However, due to the delay between signings and revenue recognition, I anticipate it will impact next year compared to this year. T-Mobile has also been very busy and has a somewhat similar situation. That's what we are facing for the upcoming year. Long term, there is still a lot to accomplish.

So if there was something incremental like qualitatively? What do you think those issues are?

Yes. I don't think there's something particularly new. I think it's been a little bit slower than what we had anticipated before. But directionally, it's still the same. So what does that mean for next year? Does that mean $5 million difference or $10 million? I can't tell you yet. We're not ready to get there and we still have half the year to go. But it's marginally worse than what we thought in terms of the balance of the other carriers.

The qualitative benefits to look forward to are significant, as DISH is expected to begin its operations, potentially in late Q4 or early Q1, with its substantial 2025 bill. T-Mobile has yet to acquire the C-band and 3.5 spectrum. There are also individuals waiting on the rollout of dual-band equipment. There are many developments to anticipate as we progress through the year and into the next.

Great. A quick follow-up on the AT&T MLA. Does it cover all the towers that AT&T has equipment on your sites? And should we assume that the escalator in there is similar to the 3%, 3.5% that you have? And another one, I believe you said 42-58 mix for amendments and new leases. Can you give us a sense of how that will look like if we just exclude DISH?

Yes. So I'm sorry, what was the first part of the question?

AT&T MLA, if it includes all the sites they have with you and the escalator.

There may be a few exceptions due to specific issues related to individual sites, but the vast majority of our sites are indeed covered by the MLA.

That have AT&T on.

Yes, that have AT&T on of course. And then on the escalator piece, I can't really get into the specifics around what the escalator is, but our historical escalator with AT&T has been north of 3%, and we would expect that to continue.

Great. And the amendments without DISH, is that much higher than the 42%?

It would be. It would be if you took DISH out of the mix, you would have a much higher percentage of amendments of the total.

Okay. Maybe just a quick one. Can you give us a sense on what the guidance assumes for DISH as we exit the year?

No, we can't give you that kind of specificity now. Much less it was but it's much less than it was exiting last year.

First, regarding the AT&T deal, should we think of that as pulling forward some revenue that you otherwise would have expected in the latter years into the near future? And do you feel that the totality of the revenue that you'll get from AT&T over the course of the contract is similar to what it otherwise would have been?

The answer to the last part of your question is yes. The answer to the first part, I don't think it's a pull forward.

I mean, it's hard to say because, obviously, previously, it would be very specific to the timing of when they were signing things. We don't know exactly what that timing would be. So could be pulling forward, could be pushing.

Okay. So we should think of it more, call it, smoothing a bit but not necessarily sort of a mass reallocation of what the revenue would have been. Is that fair?

Yes.

Yes.

Yes, that sounds good. I have two questions for Brendan. First, it appears that your forecast for other international revenue increased by about $9 million compared to last quarter's guidance. Can you explain what led to that change and whether it is reflected in this quarter's results? Secondly, could you provide more details about the $7 million in cost reclassifications you mentioned in your prepared remarks? Specifically, what was reclassified and what was the reason behind it, as well as which segment it pertains to?

Yes. About half of the other international revenue was in the second quarter, with some contributions expected for the rest of the year. This is due to a variety of factors rather than a single cause. We experienced some unexpected recovery in cash basis revenue, and we've even seen additional revenue after the quarter ended. There were also some termination fees and other miscellaneous items that collectively contributed to a higher outlook for the remainder of the year. Regarding the accounting reclassification, this relates to the decommissioning of certain carrier-related equipment, specifically Sprint-oriented equipment at some of our tower sites. Initially, these costs were recorded as direct costs of revenue. However, after discussions with our accountants, we determined that it was more appropriate to classify these as impairment and decommissioning costs, thus shifting those expenses out of cost of revenue.

Okay. So sort of a one-time true-up?

There was some one-time true-up in there but that's the way to also be going forward and that's assumed within the guidance that we've given around tower cash flow.

Okay. Can you share anything about how much of the change was attributable to that beyond the $7 million recognized in the quarter, what it would be for the full year?

Yes. It's another roughly $4 million.

Two questions, if you don't mind. When some of your peers announced their own versions of MLAs or holistic agreements or whatever they call it, it's not uncommon when they announce it for them, they come out and say, "Oh, by the way, we're raising our guidance for straight-line revenue. I know you got a question about this earlier but it's typically because there's some incremental commitment that was made in that agreement, maybe use escalators or some other amount of leasing. And you didn't do that with this agreement. So I can imagine a question we're going to get is, ultimately, what do you feel like you accomplished through the MLA because you've been very selective in entering into these larger agreements? And I know there's been some questions on it but I'm trying to think about the right way of framing that. And then the second question is portfolio growth has been a focus for SBA for a very long time. I remember the analyst meeting, I don't know, 15-plus years ago when you first started talking about those long-term targets. And it's understandable why paying down your revolver right now is probably the economically most accretive thing to do. But whenever we get past this moment, do you think portfolio growth is going to be the same priority and same opportunity? Or are you starting to suspect that maybe the tower portfolios that you don't own in the markets you're in or might want to be and are not nearly as attractive as the types of portfolios you could just develop on your own, particularly outside the U.S.

I will take the last one first. I believe portfolio growth will always be our most desirable and highest potential allocation of capital. Where it falls today. I mean, keep in mind, we grew the portfolio 15% last year. Where it falls today is purely a function of cost of debt and availability and pricing of assets. But as long as all that works out, Brett, to achieve an investment result that we want, I don't see the preference and prioritization of portfolio growth changing.

Yes. And Brett, on the question around the straight line for the MLA, there actually was you couldn't see it but there is actually some small impact to straight line that was actually offset by a decrease in straight line associated with some of the accelerated Sprint churn that we mentioned earlier. So there is a small impact. But in terms of what it looks like going forward, obviously, what our peers have done and what we've done, they're probably not exactly the same agreements. I'm sure there are terms that are different. I can't speak to there specifically, but really, it's a function of timing in terms of when certain commitments take place. And in the future, I would expect that there will be some straight-line impact as a result of this deal, but it's a little more activity driven than it is upfront.

You will see steady benefits over time over the course of the 5 years, based on various triggers and activity levels instead of just upon signing.

One just very basic question. How do you assess that paying down the revolver is the most accretive use of free cash flow? How do you sort of put that up against the accretion you get from share repurchase? Is it as simple as what the yield of the debt is relative to your AFFO yield? And are you taking the direction of rates into consideration when you make that determination? Or is it just sort of a moment-by-moment decision that drives whether you're in the market buying back stock or paying down the revolver? And then just a follow-up question on DISH. Is there anything assumed in new leasing activity for the second half of this year from DISH in your guidance?

The accretion analysis takes into account a number of things. There's certainly the basic straightforward piece that you mentioned, which is what's the yield of buying back our stock today versus what can we save by paying down the revolver or any debt. And right now, that actually is more accretive to pay down the revolver today. But we also look at it long term and we look at our expectations for growth, for growth and cash flow as well as what we think our future financing or refinancing costs will be and that positioning relative to our balance sheet as a whole is also relevant to it.

Yes. This suggests a focus on stock repurchases, except for one significant factor: we are uncertain if interest rates have stabilized. When interest rates rise, it directly impacts the cost of our revolving credit. We can always repurchase our stock, which gives us confidence. However, in a rising interest rate environment where the end is unclear, we believe that from a business standpoint, as well as from a balance sheet and accretion perspective, it makes more sense to reduce the revolver balance while we can.

And DISH in terms of the impact for the second half of the year, as we mentioned, it's obviously been slower in terms of new business being signed up with them. There's still a significant contributor to the second half numbers because of all the business that they did with us over the last year. But we expect that we'll continue to see, at least for this year, less executions with them. But ultimately, they have a ton to do, as we talked about to meet their 25% goal and we would expect that, that will turn around sometime at the end of the year or into next year.

Just going back to the question on investment grade. I know that's clearly not part of the plan right now. But theoretically, if you did make that decision, what type of leverage do you think you'd have to target to get there? And how quickly do you think you could get there based on where your leverage is at today?

Well, based on the thresholds that are there by the agencies or at least by one of the agencies right now, we're getting very close to being there, certainly within a half-turn of leverage of being there, but it would be more about the commitment to staying there than it would be about hitting the leverage tier.

Yes. Understood. And then just another question on the comprehensive MLA. I mean does this at all indicate that you guys would still be open to entering into simpler arrangements with some of the other carriers to maybe smooth out some of the leasing volatility? Or is it really just a case-by-case basis what you think would be NPV positive for your business?

Yes. I mean, it's really the latter. But I mean, we've always said we would be open to a variety of structures. I mean this, I think, evidence is that openness. So for the right deal, Eric, we would do any number of structures with our customers.

Belaboring the point, I have a few on the maybe just high level, given the MLA with Tim and now with AT&T, has the market changed? Have customers changed? Or has your perspective changed? And then maybe if you could give us any specifics along the number of sites, minimum payment schedule. You mentioned it was sort of 5 years but I'd imagine the leases are for much longer. Any details around that would be helpful.

Yes. In terms of the details, we need to avoid discussing most of those. There are specific elements you mentioned that are important for us to keep confidential for both our company and our customers. However, it is a 5-year agreement, and I anticipate there will be significant implications that extend beyond those five years. Regarding mergers and acquisitions in general, I believe Jeff addressed this earlier. We have always been open to various structures at different times in our history. However, we haven't found terms that were beneficial to us or that worked for our customers, which is why we have engaged in fewer such agreements. Nonetheless, we have entered into Master Lease Agreements over the years in various formats; currently, we have an MLA with Verizon, and we have had MLAs with T-Mobile and DISH as well. Each agreement is tailored to the specific circumstances of that carrier and their needs at the time, as well as what is suitable for both parties. Therefore, I do not believe that there has been any broad or fundamental change in the market.

Yes. I mean, we are trying to be responsive to our customers, while at the same time being responsible to ourselves and our shareholders. And that will continue to be kind of the big picture as to how we approach these things and it could lead to more or if this could be the only one.

Maybe just to clarify a point. I think you've described some of your past MLAs as being pricing menus. Is that how you would characterize this arrangement with AT&T or is there a better way to think about it?

Yes. This would be a little different than that. This would be payments in exchange for AT&T having certain rights to use our towers.

Just first question on any further developments with beyond TIM with the other carriers, any ongoing discussions are you having them? And are you hopeful you can get anything done by year-end? And then just second, on the site development, it sounds like it'll hang out in the low 50s for the next few quarters. Anything to think about in terms of service margins from here?

Yes. On the OI question, you're talking specifically about deals with the other carriers that took over OI wireless, I believe? Yes, we are having conversations with those other carriers. And it's possible that there would be some other arrangements struck with them, but it's premature for us to say. And obviously, if we do reach one, we'll let you know at that time. And then on the site development question, I would expect that the margins will stay pretty similar on a percentage basis to what you've seen during the first half of this year. The volume may be a hair lower but pretty flat. Your estimate of around 50 or so quarters is probably about right.

Great. Well, I want to thank everyone for joining us this evening and we look forward to getting back together in late October for our third-quarter report. Thank you.