SBA Communications Corporation (SBAC) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals a positive outlook with increased full-year guidance, a new share repurchase plan, and dividend increase. The Q&A highlights growth drivers like AI and services expansion, despite some uncertainties in AI impact and domestic leasing. The strategic focus on scalable markets and positive carrier feedback on Millicom acquisition further support a positive sentiment. The sale of Canadian assets and investment-grade rating also strengthen financial health. Overall, the positive factors outweigh the negatives, suggesting a positive stock price reaction in the short term.

Key Financial Performance

Second quarter domestic organic leasing revenue growth 5% on a gross basis, 1% on a net basis, including 4% of churn. $11 million of the second quarter churn was related to Sprint consolidation.

International organic leasing revenue growth 0.8% net, including 7.5% of churn or 8.3% on a gross basis. Total international churn remained elevated due to ongoing carrier consolidation and Oi wireless churn in Brazil.

Acquisition of sites 4,329 sites acquired for $563 million, mostly related to Millicom in Guatemala and Panama.

Weighted average interest rate 3.7% across total outstanding debt.

Net debt to adjusted EBITDA 6.3x, near historical lows.

Cash net interest coverage ratio 4.3x adjusted EBITDA to net cash interest expense.

Stock repurchase 799,000 shares purchased for $172 million at an average price of $215.33 per share.

Quarterly dividend $1.11 per share, representing a 13% increase over the third quarter of 2024 and 35% of the midpoint of the full year AFFO outlook.

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Operating Highlights

Fixed Wireless Access Growth: Growth in fixed wireless access subscribers for all MNO customers, expanding AI-intensive applications, and 5G advanced use cases are driving long-term growth.

New Spectrum Deployment: 800 MHz of spectrum identified for auction, requiring new equipment at cell towers, particularly for higher bands.

U.S. Market Expansion: Sustained network investment in rural U.S. areas and increased construction services revenue by 20% due to carrier installations.

International Market Expansion: Added 4,300 sites in Central America through Millicom transaction, making SBA the leading tower operator in the region. Signed new leases and expanded portfolio internationally.

Operational Efficiencies in U.S.: Increased services revenue guidance by 20% due to construction services. Healthy backlog supports growth into 2026.

Debt Management: Weighted average interest rate of 3.7% on outstanding debt, with 97% fixed-rate debt. Next maturity in January 2026.

Portfolio Optimization: Exited Canadian market by selling tower business, representing CAD 27 million in annual leasing revenue. Focused on scaling in key markets.

Capital Allocation Strategy: Deployed capital towards share repurchases and debt reduction. Purchased 799,000 shares for $172 million and declared a quarterly dividend of $1.11 per share.

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Risk or Challenges

International Market Challenges: Elevated levels of churn in certain international markets, particularly with the carrier customer Oi in Brazil, which has filed an amendment to their judicial reorganization plan citing unforeseen financial difficulties. This has led to increased churn and bad debt allowances.

Sprint Consolidation Churn: Ongoing churn related to Sprint consolidation, with $11 million in Q2 2025 and an anticipated $50-$52 million for the full year. Additional churn of $50 million is expected in 2026 and $20 million thereafter.

Regulatory and Closing Risks: The Millicom transaction's remaining 2,500 sites are subject to regulatory approval and other requirements, which could delay the expected September 1 closing date.

Canada Market Exit: The decision to exit the Canadian market due to an inability to meaningfully grow the portfolio, resulting in the sale of all towers and related operations.

Debt Maturity and Leverage: Upcoming $750 million ABS security debt maturity in January 2026 and a leverage ratio of 6.3x net debt to adjusted EBITDA, which, while near historical lows, still represents a significant financial obligation.

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Guidance & Outlook

Full Year Guidance Increase: The company has increased its full-year guidance across all key metrics, including site leasing revenue, tower cash flow, adjusted EBITDA, AFFO, and AFFO per share, driven by outperformance in Q2, higher straight-line revenue, early acquisition of Millicom towers, improved services outlook, favorable foreign currency movement, and share buybacks.

U.S. Market Trends: Positive momentum in U.S. activity levels continues, with sustained network investments by carriers. Growth is driven by fixed wireless access expansion, rural network expansion, and densification of existing footprints. Domestic organic growth opportunities are expected to remain strong over the next 1-2 years.

Spectrum Auctions and Network Investments: The reinstatement of the FCC's spectrum auction authority and the identification of 800 MHz of new spectrum are expected to boost network capacity and require new equipment installations at cell towers. Bonus depreciation reinstatement is anticipated to improve liquidity for customers, enabling greater network investments.

International Business Outlook: International markets are performing well with investments in 5G upgrades and densification. New leases and strategic tower builds are expanding the portfolio. However, challenges include elevated churn in certain markets and financial difficulties with the Brazilian carrier Oi, leading to increased churn guidance by $5 million.

Millicom Transaction: The company has acquired 4,300 sites from Millicom in Central America, with the remaining 2,500 sites expected to close by September 1, 2025. This acquisition enhances SBA's strategic positioning in the region and includes a 15-year MLA with tenant contracts denominated in U.S. dollars.

Canada Market Exit: SBA is exiting the Canadian market, selling its tower business to a global infrastructure fund. The deal is expected to close in Q4 2025 and be immediately accretive to AFFO per share upon closing.

Capital Allocation Strategy: The company plans to continue deploying capital towards share repurchases, debt reduction, and investments in value-creating assets, maintaining a balanced approach to capital allocation.

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Shareholder Return Plan

Dividend Declaration: During the second quarter, SBA Communications declared and paid a cash dividend of $119.4 million, or $1.11 per share.

Dividend Increase: The Board of Directors declared a quarterly dividend of $1.11 per share, payable on September 18, 2025, representing an increase of approximately 13% over the dividend paid in the third quarter of 2024.

Dividend Payout Ratio: The dividend represents approximately 35% of the midpoint of the company's full-year AFFO outlook.

Share Repurchase Activity: During the second and third quarters, SBA Communications repurchased 799,000 shares of its common stock for $172 million, at an average price of $215.33 per share.

Remaining Authorization: The company has $1.45 billion of repurchase authorization remaining under its $1.5 billion stock repurchase plan.

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Key Q&A

Q:What is the durability of demand drivers like FWA, densification, and coverage through 2025 and 2026?

A:Management feels positive about the durability of demand drivers like fixed wireless access (FWA), densification, and coverage. They highlighted significant growth in FWA subscribers, new spectrum bands being auctioned, and the increasing broadband traffic driven by AI-enabled products. These factors are expected to require continued network investment for many years.

Q:What are the drivers of churn or rent reduction initiatives by customers?

A:Management stated there are no specific initiatives underway to lower rents materially. They emphasized working with customers to achieve network goals at fair prices, maintaining a balance that benefits both parties.

Q:Why has colocation activity not translated into revenue yet?

A:Management explained that the shift towards more new colocations versus amendments delays revenue commencement. New leases take longer to install and generate revenue compared to amendments. However, they maintained their full-year outlook for contributions from new leases and amendments.

Q:What is driving the growth in the services business?

A:The growth in services is driven by increased leasing activity, more deployments in rural areas, and SBA's expansion into providing services on other companies' sites. This has strengthened relationships with carrier customers and supported leasing gains.

Q:Is the slight slowdown in domestic activity in 2Q significant?

A:Management attributed the slowdown to rounding differences and stated it is not indicative of any particular trend. They noted that activity levels have increased slightly compared to the previous quarter, which was also strong.

Q:What is the impact of AI application growth on the business?

A:Management noted that AI application growth is a thematic driver based on customer conversations and traffic trends. They believe AI-enabled devices will drive increased activity and infrastructure needs, though they lack specific data on its impact.

Q:Why did SBA sell its Canadian assets, and what does this mean for other markets?

A:SBA sold its Canadian assets due to challenges in scaling the portfolio in a market where carriers own their sites. The sale allowed SBA to realize a higher valuation and focus on scalable markets. Management stated that decisions in other markets will depend on their growth potential and ability to achieve scale.

Q:Has fixed wireless activity broadened beyond the initial lead customer?

A:Yes, fixed wireless activity has expanded among SBA's major customers. While one customer remains more active, the gap is narrowing, and all major customers are expected to remain active in this area.

Q:What is the exposure to U.S. Cellular and DISH, and are there any planned churn impacts?

A:SBA's revenue exposure to U.S. Cellular is $20 million annually, with potential churn expected to be small and spread over several years. DISH represents $55 million annually, and while the relationship continues, the future impact remains uncertain.

Q:What is the initial feedback on Millicom towers from other carriers?

A:Initial feedback has been positive, with other carriers seeing opportunities to grow and close competitive gaps by accessing Millicom's sites. Management is optimistic about the lease-up potential of these assets.

Q:What is the use of proceeds from the Canadian asset sale?

A:The proceeds, approximately USD 325 million, are fungible and may be used for debt reduction, share buybacks, dividends, or funding other investments like the Millicom acquisition.

Q:What is the status of Sprint churn and its financial impact?

A:Sprint churn is expected to result in $50 million in 2026 and a total of $20 million thereafter, mostly in 2027. Management clarified that the $20 million is a grand total, not an annual figure.

Q:What is the impact of new spectrum auctions on SBA's business?

A:New spectrum auctions are expected to drive macro tower deployments. Management believes macro sites will remain the primary solution for deploying new spectrum, with auctions starting mid-2026 and some bands potentially taking years to clear.

Q:What is the potential impact of satellite networks on SBA's business?

A:Management views satellite networks as complementary rather than competitive, providing connectivity in rural areas where macro towers are less economical. They believe macro towers will remain the primary solution for most network needs.

Q:What is the outlook for domestic leasing activity in 2026?

A:Management stated it is too early to provide specific guidance for 2026 but noted that current trends and backlogs are positive. They expect the run rate at the end of 2025 to be higher than the current year's contribution.

Q:What is the impact of bonus depreciation on carrier investments?

A:Management believes bonus depreciation will provide carriers with excess cash to invest in both fiber and wireless network initiatives, benefiting SBA indirectly.

Q:What is the expected AFFO per share growth rate, and what are the headwinds?

A:Normalized AFFO per share growth is expected to be mid- to high-single digits annually. Headwinds include rising interest rates and the impact of low-cost debt maturing over the next several years.

Q:What is the status of SBA's investment-grade rating and its impact on debt costs?

A:SBA's corporate rating was recently upgraded to investment grade by S&P. Management believes the impact on debt costs would be modest, as they already achieve near-investment-grade rates in the ABS market.

Q:Review of Unclear Management Responses

A:Management avoided providing specific data or clarity on the impact of AI application growth, stating it is based on thematic trends and customer conversations. They also did not provide a detailed outlook for domestic leasing activity in 2026, citing it as too early to predict.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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