International highlights from SBA Communications’ Q2 2016 earnings call

On July 28, SBA Communications held its earnings call for Q2 2016. Representing the towerco were Jeff Stoops, President and CEO, Brendan Cavanagh, CFO and Mark DeRussy, VP of Finance.

Key financial data

SBA reported solid quarterly results above the company’s high end for site leasing revenue, tower cash flow, adjusted EBITDA and AFFO. GAAP site leasing revenue reached US$381.8mn (+4.8% from Q1 2016 with currency adjustment) and total cash site leasing revenue was US$373.1mn (+4.4% from Q1 2016 with currency adjustment).

While SBA reported domestic tower cash flow (TCF) of US$255.4mn (+4.6% from Q1 2016), its international TCF was US$40.9mn (+2.7% from Q2 2015 or 12% if you remove the impact of forex). International TCF margins shifted from 69.9% in Q1 2016 to 67.9% in Q2, as a result of increased pass-through revenue.

SBA’s international cash site leasing revenue reached US$60.3mn (+5.7% from Q1 2016), which reflects a 16% growth once forex impact is removed, thanks to both organic growth and acquisitions. Gross organic growth in Brazil was 12.3%. International cash site leasing revenue represented 11.5% of SBA’s total cash site leasing revenue, of which10.8% was from Brazil.

EBITDA reached US$278.1mn (+1.4% or 2.7% adjusting forex impact), while Cavanagh clarified that the loss of iDEN revenue in 2015 will have a negative effect on YoY growth up until the end of Q3 2016. Therefore, by removing iDEN churn, EBITDA growth for Q2 2016 is up to 5.5%.

During Q2, SBA acquired 42 towers and built 90 new towers both domestically and internationally. The company keeps investing to acquire land and spent US$19.8mn in Q2 for this purpose and to extend ground lease terms. By the end of Q2, SBA has gained ownership or control (for more than 20 years) of the land underneath 74% of its towers.

Brazil 

Stoops opened on Brazil by noting that carriers “paint a stable to improving picture for the second half of the year.” And with regards to the Oi reserve, he stressed that SBA plans to pursue a total of US$16.5mn in the upcoming reorganisation plan and believes that this sum should be “more than offset over time” thanks to their being a stronger Oi once the restructuring is complete.

The CEO added that Oi has already initiated new leasing activity with SBA and that beyond its legal obligations to respect payment terms, Oi has “strongly expressed its commitment and operational need to honour our agreements, reflecting the necessity to a successful reorganisation of Oi’s continued access to the towers hosting its equipment.”

Organic growth and potential M&As

In terms of organic growth, SBA expects to build around 450 sites, two thirds of which will be in international markets. Additionally, while the company identified a number of Sale and Leaseback (SLB) opportunities in CALA, Stoops stressed that the valuation has to make financial sense to the buyer and while there are expectations for more deals in the future, they aren’t likely to happen in Q3 2016.

With regards to SLB in international markets, Stoops stressed that SBA is open to new opportunities that are likely to come from carriers looking at monetising their assets, other than Claro and Telefónica, in light of the formation of Telesites and Telxius.

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