SBA Communications Corp (SBAC) — Q1 2026 Earnings Call Transcript

Good evening and thank you for joining us for SBA's First Quarter 2026 Earnings Conference Call. Here with me today are Brendan Cavanagh, our President and Chief Executive Officer; and Marc Montagner, 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 2026 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 29, 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 it over to Marc to comment on the first quarter results and 2026 outlook.

Thank you, Louis. Given the solid start of the year, we are increasing our full year outlook for all key metrics, including site leasing revenue, our cash flow, adjusted EBITDA, AFFO and AFFO per share as compared to our initial 2026 guidance. The primary drivers of these increases include outperformance during our first quarter, high straight-line revenue and favorable foreign currency rates. In the first quarter, we continue to operate efficiently, controlling direct costs and achieving company-wide tower cash flow margins of approximately 80%. In the U.S. we added approximately $10 million of quarterly new lease and amendment billings year-over-year. The bulk of the activity continues to come from new colocations as carriers both densify and expand network footprint. With respect to churn, our prior outlook for both Sprint and EchoStar-related churn for the year remains unchanged. With regard to EchoStar, we continue to litigate the matter in federal court and believe strongly in our contractual rights. Internationally, we continue to see healthy demand for our infrastructure and we added approximately $4 million of quarterly new lease and amendment billings year-over-year. International churn continues to be elevated due to carrier consolidation, bankruptcy, restructurings and wireless operators' network rationalizations. We believe 2026 will be the peak year for international churn and expect improvement in our churn rate over the next several years. Moving to our balance sheet. In January, we paid off $750 million of ABS debt with our revolving credit facility, and our outlook assumes that we will use our free cash flow to pay down the current outstanding amount on our credit facility over time. Consistent with our prior outlook, we continue to assume that a $1.2 billion November ABS maturity will be refinanced in November at 5.25%. We also continue to be committed to becoming an investment-grade issuer and anticipate making our inaugural investment-grade bond issuance at some point in 2026, dependent on market conditions. We ended the quarter with approximately $13 billion of total debt. Our current leverage of 6.6x net debt to adjusted EBITDA remains near historical lows and within our target range of 6 to 7x. During the first quarter, we declared and paid a cash dividend of $135.2 million or $1.25 per share. And today, we announced that our Board of Directors declared our first quarter dividend of $1.25 per share, payable on June 17, 2026, to shareholders of record as of the close of business on May 22, 2026. This dividend represents an increase of approximately 13% over the dividend paid in the first quarter of 2025 and an annualized rate of approximately 41% of the midpoint of our full year AFFO guidance. I will now turn the call over to Brendan.

Thanks, Marc. The first quarter was another quarter of solid financial and operational results, leading both in industry AFFO per share and year-over-year growth in our dividend. Our customers around the globe remained busy deploying cutting-edge technology, expanding the footprint and deepening existing capacity to meet strong customer demand. In the U.S., our customers continue to invest in their networks, expanding 5G coverage with new spectrum, including C-band, technology upgrades such as massive MIMO antennas and growth in fixed wireless access, which continues to add strain to carrier networks. The majority of leasing activity in the quarter came from new leases as carriers focus on coverage gaps and capacity needs. Our backlogs also continued to steadily increase during the quarter, and we expect to see steady activity levels throughout the remainder of 2026. Looking farther out, we expect the drivers of organic growth to include the upper C-band auction expected in mid-2027, 6G network architecture moving towards a more balanced uplink, downlink mix and new spectrum bands currently being studied for future auction. All of these items will require new hardware at the tower sites. Today, we are starting to see the early signs of 6G with higher capacity radios and denser and more intelligent antenna configurations to send and receive growing volumes of data. Beyond towers, we continue to make progress and are very excited about the opportunities to leverage our existing portfolio to play a more meaningful role in mobile edge computing as edge workloads move closer to the end user. Macro tower compounds offer a cost-effective solution for edge compute needs, benefiting from strategically located sites with existing power, backhaul infrastructure and zoning protections. We are excited about the potential of this incremental revenue driver. Internationally, we had a solid quarter as well. We've made tremendous progress integrating the Millicom assets and are seeing healthy colocation demand for these sites, exceeding our initial lease-up projections. We are also just starting to ramp up the number of new tower builds, building just over 60 towers in Central America in the first quarter, with expectations to do much more over the coming quarters and years. Between building towers and buying the land underneath, we intend to put capital to work in Central America at risk-adjusted returns that are expected to be well above our cost of capital. We expect that our leading position in Central America will enhance our overall international portfolio, reducing relative FX exposure, diversifying our customer base and extending lease terms, all with the overarching goal of improving the durability of cash flow over the long term. Turning to capital allocation. Our dividend as a percentage of AFFO remains relatively low. This means the continuation of our shareholder-friendly remuneration policy while also preserving the flexibility to opportunistically invest in new assets in our existing markets. While we did not repurchase meaningful shares in the first quarter as we prioritized paying down our revolving credit facility with excess free cash flow, we expect share buybacks to remain an important part of our capital allocation strategy in 2026. In the first quarter, leverage remained within our recently revised target levels even with the removal of all EchoStar revenue as of January 1, and we are well positioned to be an investment-grade issuer during this year. We expect that this shift to investment grade will reduce our relative overall cost of debt over time while providing access to the deepest and most liquid market in the world, improving our already solid balance sheet. SBA is a truly remarkable company. We have solid financials, high-quality assets, an established track record, the best people in the industry and perhaps most importantly, a drive and culture that continually pushes us forward to maximize outcomes for all of our stakeholders. The future potential for this company remains very exciting. Before opening it up for questions, I'd like to thank our team members and customers for their trust in SBA. The company's ability to achieve our vision to be our customers' first choice provider and the industry leader in quality infrastructure solutions is only possible because of the incredible team members we have with SBA. With that, operator, we are now ready for questions.

It's Ric Prentiss, Raymond James. Can you hear me? I want to ask a couple of philosophical questions. When you can help us understand what are the advantages and disadvantages of being a public company versus a private company as you look at competing for assets and tenants and capital? Help us lay it out long-term view, short-term view, leverage levels. Help us understand how you think about public versus private. The other philosophical question is you guys sold the Canadian tower portfolio. As you review that Canadian sale, how do you stack up the priorities or criteria or the factors of price versus ability to close versus financing? When we look at Canada, how do you think of going through the potential list of buyers and what's important? And then one operational question. Obviously, not meaningful stock buyback this quarter, but you said you still plan to do some in '26. How should we think about leverage level, buyback, M&A opportunities and how you're balancing those uses of your flexibility?

For us, it's not really about public versus private. We focus on quality of assets that we have and providing the best service possible to our customers and meeting their needs where they have them. Whether we're a public company or a private company, that will continue to be the case. There are, of course, differences in public and private companies in the way that they're capitalized and things that they have to talk about publicly, but otherwise, the business is the same. Regarding Canada, the approach was specific to Canada. We had come to the conclusion after being there for many years that our ability to get to a scale that would position us in the best place possible to continue to grow that business and meet customer needs there was not going to be achievable. So we decided to explore monetizing those assets as a potential better outcome for our shareholders. Based on that process, we were able to achieve a price that we felt was attractive and appropriate and so we sold the assets. That is consistent with the way we've approached all of our markets. We've talked for the last couple of years about the portfolio review that we're doing, trying to make sure that we're positioned in the best place possible in each of the markets where we operate in terms of our relative scale as well as our relative positioning to the leading carriers in those markets. On leverage, our leverage target, which we revised late last year, is 6 to 7 turns of net debt to adjusted EBITDA, and we're operating right in the middle of that range. We start with leverage first. We make sure that we maintain leverage in that target range and then prioritize what we think provides us the best opportunity at a given point in time among buybacks, dividends and new asset investments, mostly new tower builds and acquisitions. From quarter to quarter, different opportunities come up and we spend time on those opportunities. Depending on what we're looking at, that may cause us to slow down on buybacks or possibly increase them because we do not have enough other options to invest that capital. Our goal is to stay levered at the level we've targeted. That provides us a lot of excess cash flow to invest every year. We look at all the options available and compare them at a given time. Ultimately, I expect we will spend money on all of those categories over time just as we've done in the past.

Mike Rollins from Citi. Two topics, please. First on the leasing environment. The release referred to a larger backlog in domestic leasing. Can you talk about the significance of that change in backlog versus other historical first quarters and put that into perspective in terms of the type of leasing growth you're expecting to deliver this year or in future years? Second, as you have talked at some conferences, the subject of your value versus private markets has come up. I'm curious, as you talk with investors about it, what you learned about how investors are valuing you in the public market? What are the ways that SBA is trying to respond to questions about whether it's the business or the financial outlook in a way to improve visibility and transparency for your future financial opportunities?

On the leasing environment, our backlog did increase from December 31 levels to March 31 levels, specifically in the U.S. That increase was moderate. We have more applications coming in than new business that we are executing; the backlog is being replenished faster than it is being used. That is a good sign for the rest of the year and how the year should shape up in terms of leasing activity. From a historical standpoint, it is not necessarily an extreme outlier. I would expect this year's leasing activity in the U.S. to be relatively steady based on where we sit today. Of course, things can change over the course of the year. On how we position SBA, our focus is on trying to be as clear as we can with our public investors about the attributes of our business and sharing that information clearly in terms of the quality of our assets, the quality of our growth prospects and the quality of the cash flow that we produce on a very steady, consistent basis. The more we can share that message and demonstrate our ability to execute, the better. I cannot speak to how every individual party might look at valuing this company outside of the public shareholder base.

A follow-up on domestic activity. With the moderate increase in backlog, is that across the board or specific to a company? I think one of your tenants had been slowing down significantly. Do you see some uptick in their activity to offset some of the slowdown you were expecting in the second half? And a question on mobile edge compute, which you think could provide a new incremental revenue opportunity. What kind of investment do you think it would require to refit your sites? When do you think that will start to flow into the P&L both from an expense and a revenue perspective?

On domestic activity, I do not like to share specifically what each customer of ours is doing, but the backlog increase was not completely even among our biggest customers. We have one customer where we've signed a recent agreement, and we are starting to see an increase in activity associated with that. Overall, that ebbs and flows over time. One quarter does not necessarily tell the full story. I would expect to see all three of the primary customers we have in the U.S. be active at various points during the year. On edge compute, we are excited about the potential opportunity. It has emerged as something that will attract a lot of interest, specifically for AI inference and low-latency environments that will be critical as AI continues to be used across many applications over wireless networks. We are actively engaged with multiple companies exploring how we might deploy some of these edge data centers at our tower sites. We are in the early stages. We have a very small number already done, almost trial in nature, and we expect some of those to come online shortly. We have incurred some dollars related to that. I need to be cautious on timing for material impact to the financials, but this is starting to gain traction and I expect it will be a contributor over time.

Just to follow up on the edge sites, can you give any concrete examples of how AI being deployed at a tower site is advantageous relative to in a traditional data center? This has been largely theoretical for several years, so any additional color you can give would be helpful.

What we are seeing is that some applications have a much greater amount of uplink versus downlink, and that affects the general architecture of the wireless network. To be effective, many of those solutions require a lower level of latency. The closer you move compute power to the edge of the network and closer to the user, the more effective some of these applications become. There is also a practical issue: it may be easier to have a more distributed compute network through micro data centers versus larger centralized facilities in terms of power usage and other resources. When you distribute compute further out, it can sometimes be easier to achieve in certain cases. As long as latency is a real issue, edge compute will become more important.

Okay. That's helpful. And then maybe another question on the land purchase in Guatemala. Can you walk through some of those details and what multiple you paid?

We closed that early in the year. We were able to buy out land under most of the towers in Guatemala that we acquired as part of the Millicom acquisition. I believe the multiple we paid was in the 7-ish range; about 7 turns was approximately what we paid for that. It was attractive and accretive in terms of valuation and helpful to us from a risk standpoint because we now control that land a lot better than we could before.

Brendan, you noted in your prepared remarks that the demand you're seeing for the Millicom towers has exceeded your expectations. Based on your conversations with those customers, is this an initial burst that may subside, or does it strike you as something more sustainable?

There is definitely initial interest because these sites were previously in carrier-controlled hands. Now that they are opened up more directly for colocation business, that has caused inbound interest, which you would normally expect when assets like this become available. I do think there is an opportunity to sustain growth for an extended period because there are a lot of sites and we are at the beginning stages of conversations with other customers. In many of these markets, it has primarily been one customer about the site. Based on pent-up demand and what they've expressed to us, I think we will see attractive lease-up for an extended period.

One of your peers has commented that the big carriers might be more interested in working with the larger public tower companies to undertake more new construction opportunities. Have you observed anything similar?

There is some of that. The dialogue we've had with the MNOs lately has been more constructive towards new build opportunities in the U.S. than in the past. Historically, the big tower companies were primary suppliers of new builds for many years, and then a lot of smaller companies emerged with financial terms that were unattractive. That reduced the level of activity. In the current environment, as we sign master agreements and broaden relationships, and with increases in the cost of capital and carriers' desire for stability and long-term relationships, it is becoming more important for carriers to work with partners they know will be there for the long term. As a result, you will see more opportunity for companies like us to do more new tower builds in the U.S.

Brendan, there are reports that multiple private equity firms are circling to buy SBA and take it private. Some reports have cited $250 per share. I would question whether you and the Chairman would really want to sell. Could you walk us through what it would take for this to actually happen?

I have seen articles over the last few weeks, and as a matter of policy we do not comment on speculation or rumors that appear in the press. More generally, I have been with SBA for over 28 years. During that time we have always focused on evaluating all options and possible routes to act in the best interest of our shareholders. We do that today and expect to do so in the future. Of course, we will always evaluate any opportunity that presents itself to us, but beyond that I cannot comment on what somebody decides to put in an article without basis.

Would it be fair to say that if there was ever a moment in the last three to five years while this constant evaluation has been happening, where you bought back stock, that you would never sell the company for a number that's less than the number that you bought that stock at?

I cannot tell you what we would do or would not do in a hypothetical case. What we would do is always make a decision that we thought was best for the shareholders at that moment in time, and that is the decision we would make.

All right. Well, thank you, and thank you everybody for dialing in, and we look forward to reporting our second quarter results to you next quarter. Thanks.