Q3 2016 SBA Communications Corp Earnings Call
Nov 01, 2016 AM EDT
SBAC.OQ - SBA Communications Corp
Q3 2016 SBA Communications Corp Earnings Call
Nov 01, 2016 / 09:00PM GMT
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Corporate Participants
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* Mark DeRussy
SBA Communications Corporation - VP of Finance
* Brendan Cavanagh
SBA Communications Corporation - EVP & CFO
* Jeffrey Stoops
SBA Communications Corporation - President & CEO
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Conference Call Participants
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* Amir Rozwadowski
Barclays Capital - Analyst
* Unidentified Participant
- Analyst
* Simon Flannery
Morgan Stanley - Analyst
* Ric Prentiss
Raymond James - Analyst
* Spencer Kurn
New Street Research - Analyst
* Nick Del Deo
MoffettNathanson - Analyst
* Colby Synesael
Cowen and Company - Analyst
* Matthew Heinz
Stifel Nicolaus - Analyst
* Michael Bowen
KeyBanc Capital Markets - Analyst
* David Barden
BofA Merrill Lynch - Analyst
* Jonathan Atkin
RBC Capital Markets - Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, thank you for standing by, and welcome to the SBA 2016 third-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instruction will be given at that time.
(Operator Instructions).
Also a reminder, today's teleconference is be recorded. At this time, I will turn the conference over to your host, Vice President of Finance, Mr. Mark DeRussy. Please go ahead, sir.
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Mark DeRussy, SBA Communications Corporation - VP of Finance [2]
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Good evening, and thank you for joining us for SBAs third-quarter 2016 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 flat forward-looking, including but not limited to any guidance for 2016 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in today's press release and our SCC filings, which documents are publicly available. These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statements we may make.
Our statements are as of today, November 1, and we have no obligation to update any forward-looking statements we may make. Our comments will include non-GAAP financial measures as defined in Regulation G and other key operating metrics. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G, can be found in our supplemental financial data package. In addition to the Regulation G information, this package also contains other current and historic financial data. This is located on our Investor Relations landing page at www.IR. SBAsite.com. With that, I will now turn the call over to Brendan to comment on our third-quarter results.
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [3]
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Thank you, Mark. Good evening. The third quarter was another strong one for SBA. We were near the high end of our guidance for both Site Leasing Revenue and AFFO, and above the high end of our guidance range for Tower Cash Flow and adjusted EBITDA. Our solid performance was driven by both favorable moves in foreign currency, and by operational out-performance on the leasing side of our business.
Total GAAP Site Leasing Revenues for the third quarter were approximately $1.7 million above the midpoint of guidance we provided last quarter. GAAP leasing revenues were negatively impacted in the quarter by a one-time negative adjustment to straight-line revenue of approximately $1.7 million. As a result, cash Site Leasing Revenues were approximately $3.4 million above our outlook.
Leasing activity during the quarter was as expected and in-line with activities seen during the first half the year. The primary contributors to the out-performance during the third quarter were a stronger Brazilian Real than we had projected when providing guidance, which contributed approximately $2 million of incremental cash leasing revenue. As well as some higher nonrecurring miscellaneous items, some of which were originally anticipated for the fourth quarter and some of which were incremental to our total expectations.
Same tower recurring cash leasing revenue growth for the third quarter was 4% over the third quarter of 2015. On a gross basis, the same tower growth was 8%. The net same tower growth calculation was negatively impacted by 2.2% of IDen related churn, and 1.8% of other churn. This will be the last quarter that the IDen related churn materially impacts our same tower growth numbers.
Domestic same tower recurring cash leasing revenue growth over the third quarter of last year was 7.6% on a gross basis, and 3.1% on a net basis, excluding 2.5% of IDen related churn and 2% of other churn. A little over half of which was related to Metro, Leap and Clearwire decommissioning. Internationally, on a constant currency basis, gross same Tower Cash Leasing revenue growth was 11.1%. Exclusive of 50 basis points of churn, most of which was from one narrow band customer in Canada. Gross organic growth in Brazil was 12%.
As mentioned, leasing activity in the quarter remained steady and as expected. Approximately 70% of incremental domestic leasing revenue added came from amendments, and the big four carriers represented 92% of total incremental domestic leasing revenue added during quarter. International leasing activity was up a little bit during the quarter over Q2, with solid contributions from all of our markets. During the third quarter, Cash Site Leasing Revenue denominated in currencies other than US dollars was 12.1% of total Cash Site Leasing Revenue. The substantial majority of which was from Brazil. With Brazil representing 11.3% of all Cash Site Leasing Revenues during the quarter, and 7.9% of Cash Site Leasing Revenue, excluding pass-through revenues.
Tower Cash Flow for the third quarter was approximately $3.8 million above the midpoint of guidance we provided last quarter. Better than expected foreign exchange rates benefited Tower Cash Flow by approximately $1.3 million, relative to guidance. The balance of the out-performance came primarily from the higher cash leasing revenue I mentioned earlier, as well as some savings achieved by controlling the direct costs associated with our towers. The quality of our assets, our excellence and execution, and our lease agreements allows us to continue to have the strongest operating margins in the industry. Domestic Tower Cash Flow margin was 81.7% in the quarter, and international Tower Cash low margins was 68.6%.
Adjusted EBITDA in the third quarter was approximately $2.7 million above the midpoint of our provided guidance range. This beat was a result of the out-performance in Tower Cash Flow, offset by slightly higher SG&A and a weaker services contribution than anticipated. Adjusted EBITDA margin was 70.1% in the quarter compared to 69% in the year earlier period. Approximately 99% of our total adjusted EBITDA was attributable to our Tower Leasing Business in the third quarter.
AFFO in the third quarter was approximately $2.5 million above the midpoint of the guidance range we provided last quarter. The incremental adjusted EBITDA just discussed was the primary contributor to this beat, with higher cash taxes being offset by lower than expected non-discretionary CapEx. AFFO per share increased 7% to $1.53, excluding the impact of both IDen churn and the positive changes in foreign currency exchange rates, AFFO per share increased 9.8% over the year earlier period. When further adjusted to exclude the year-over-year declines of $4.3 million in services margin, and $2.1 million in augmentation reimbursement amortization, AFFO per share increased 13.3% over the year earlier period.
We continue to selectively deploy capital towards portfolio growth. In the third quarter, we acquired 157 communication sites for $30.9 million in cash. We also built 93 sites during the third quarter. These additional sites are located in both domestic and international markets. We continue to invest in the land under our sites, as this is both strategically beneficial and almost always immediately accretive.
During the quarter, we spent an aggregate of $11.5 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 73% of our towers. And the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years.
Looking forward, our earnings press release includes our Outlook for the fourth quarter, and the resulting updated Outlook for full-year 2016. We have increased our full-year 2016 Site Leasing Revenue guidance, primarily to reflect improved assumptions around foreign currency translations. Our core expectation for fourth-quarter organic leasing growth assumes steady amounts of incremental revenue added for the balance of the year. Indicative of the stable leasing environment we have been in all year, and now includes approximately an additional $1 million of Metro, Leap, and Clearwire consolidation churn.
With regard to future consolidation churn, we are currently producing approximately $50 million of annual recurring run rate revenue, or approximately 3% of current total leasing revenue, from leases with Metro, Leap, and Clearwire that we ultimately expect to churn off in the next three years. Based on termination requests received year-to-date, we anticipate the impact of consolidation churn from these customers to be greater in 2017 than we have experienced in 2016. Regardless of the timing, this consolidation churn has been expected and is not anticipated to impact our long-term goal of producing $10 or more of AFFO per share in 2020.
In addition to positive FX-related changes, our full-year guidance for adjusted EBITDA and AFFO have been updated to reflect our expectation that the level of services activity in the fourth quarter remain suppressed. And to incorporate higher SG&A costs in the fourth quarter related to our previously announced re-conversions and the associated S4 filings, as well as advisory costs related to the Oi bankruptcy. Incremental re-conversion related costs are expected to be $2 million to $3 million in fourth quarter. AFFO has also been adjusted to incorporate the interest savings achieved through our successful third-quarter refinancings and lower expected non-discretionary CapEx for the year.
We expect the fourth quarter to be another positive one, and to continue to show steady growth in AFFO per share. With that, I will turn things over to Mark, who will provide an update on our liquidity position and balance sheet.
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Mark DeRussy, SBA Communications Corporation - VP of Finance [4]
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Thanks, Brendan. SBA ended the quarter with $8.4 billion of net debt, and our net debt to annualized adjusted EBITDA leverage ratio was 7.4 times, back within our targeted range of 7 to 7.5 times. Our third-quarter net cash interest coverage ratio of adjusted EBITDA, the net cash interest expense, was a healthy 3.5 times. During the quarter and subsequent to quarter end we cumulatively spent $77.4 million to repurchase 0.7 million shares of common stock at an average price per share of $108.67. We currently have $472.6 million of authorization remaining under our stock repurchase program. Quarter-end shares outstanding were $124.3 million.
During the quarter, on July 7, we issued $700 million of secured Tower Revenue Securities out of our existing Tower Trust. These notes have a coupon of 2.877% in an anticipated repayment date of July 2021. A portion of the net proceeds of this offering were used to prepay the full $550 million outstanding of our 5.101% secured Tower Revenue Securities.
Also during the quarter, on August 15, we issued 1.1 billion of 4.875% senior notes due 2024. The net proceeds of this issuance, along with cash on hand and revolver borrowings, were used to redeem in full, both our 5.75% notes and our 5.625% notes, and pay the associated call premiums. The 5.75% notes were redeemed during the quarter and the 5.625% notes were redeemed subsequent to the quarter-end, on October 1. We ended the quarter with $150 million outstanding under our $1 billion revolver, and we have $100 million outstanding as of today. At quarter-end, the weighted average coupon of our outstanding debt is 3.5% and our weighted average maturity is approximately five years.
We are very pleased with our capital structure and believe it maximizes our ability to drive growth in AFFO per share. Our primary capital allocation focus continues to be portfolio growth that meets our investment return requirements, which will likely continue to be augmented with share repurchases at prices that we believe are below intrinsic value, consistent with what we have done over the past several quarters. With that, I will now turn the call over to Jeff.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [5]
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Thanks, Mark, and good evening, everyone. As you heard from Brendan earlier, we had another solid quarter. Our Site Leasing Business demonstrated continued steady demand in all of our markets, which our operational excellence was able to translate into continued strong margins and EBITDA growth. We allocated capital to a mix of stock repurchases and portfolio growth, reducing leverage slightly and back within our target range. AFFO is growing and share count is shrinking. Through the combination of these factors, we are able to continue to grow AFFO per share and our results and actions in the third quarter positively contribute to achieving our goal of over $10 per share of AFFO in 2020.
In the US, customer activity has remained steady now for five straight quarters in terms of type of activity, contract volume, and revenue added. The type of work we are seeing continues to be primarily around the re-farming of 2G and 3G spectrum to LTE, as well as AWS-1 and 700 MHz deployments. We still have not yet seen much in the way of AWS-3, WCS or 2.5 GHz spectrum deployments, all of which remain opportunities ahead of us.
By application and executed contract volume, the activity remains substantially amendments. Three of the four nationwide US carriers were responsible for substantially all of our domestic activity. This study level of activity underscores the current and future importance of macro sites in our customers' network plans. We expect the investments in macro sites by our US customers will remain heavily weighted towards amendments for the remainder of this year, and into 2017. Our backlogs remain solid in our view of domestic leasing activity for the fourth quarter remains unchanged and materially the same as the first three quarters of the year.
Our services results were at the low end of our expectations for the quarter, reflecting the very competitive environment for work that has existed all year, and our choice to pass on unprofitable or less profitable business. Fourth-quarter services results are expected to be similar.
Internationally, leasing activity was up slightly in the quarter, but generally in line with our expectations. Activity was more balanced between new amendments and new leases compared to the US. Brazil was once again one of our best markets in terms of staying power revenue growth. Oi has been current with all post-petition payments and continues to work towards a judicial reorganization. We are actively engaged in the process and expect more clarity on the final outcome in early 2017, and we continue to expect all of our Oi leases to be reaffirmed.
We continue to grow our portfolio internationally. We crossed the 10,000 sites owned threshold in the third quarter in our international markets. We entered Chile, where we purchased approximately 100 towers with the right to purchase several hundred more. We like Chile a lot; it is a stable market, a leading Latin American economy, four nationwide wireless carrier customers, a growing demographic and a need for improved wireless networks, but with a very disciplined citing regulations. We will look to both build and buy additional sites in Chile.
We expect to be able to operate in Chile very efficiently by leveraging our very substantial existing Latin American resources. We intend to continue to grow internationally with continued primarily focus on the Western Hemisphere, but keeping an eye out for opportunities worldwide. We expect all future investments to provide a strong return on invested capital, further contributing to our current Company-wide ROIC of 10.1%, as detailed in our package of supplemental financial data. This return is well above our cost of capital and demonstrates we are creating value every day.
The high-yield deal we priced in August was done in some of the most attractive terms we have seen in a number of years and had the effect of lowering our weighted average coupon, and at the same time, increasing our weighted average maturity. We have plenty of liquidity, and over the next 12 months we expect our liquidity to remain over $1.5 billion including the cash we generate.
Hopefully, everyone have saw our announcement of our Board's decision to elect to be taxed as a Real Estate Investment Trust [REIT] starting with the 2016 calendar tax year. We been operating as a REIT since sometime last year, so we were ready for this, and of course, it is something we been contemplating for a long time. Our window for the election, before we generated positive earnings and profits, was either the 2016 or 2017 tax years. We decided to elect this year simply to get ahead of any changes that may arise from the results of the November elections. At this time, we are proposing no changes to our capital allocation strategy and intend to use our net operating loss carry-forward positions for tax purposes to eliminate any distribution requirements, which we think will be the case at least through the end of 2020.
Looking forward, we see many years of continued solid activity from our customers, which was generate additional revenue opportunities for SBA. In the US, the AWS-3, WCS and 2.5 GHz spectrum deployments I mentioned earlier will come, and deployments will occur of the Dish spectrum, the FirstNet spectrum and the 600 MHz spectrum. More spectrum is anticipated to be made available in connection with 5G, which we also expect to provide opportunities for us. Even without new spectrum, 5G will require new equipment on the tower. All of these items, and I am confident others, will keep macro sites a critically important part of our customers' networks. We see similar dynamics and prospects in our international markets. The deployment of the 700 MHz spectrum in Brazil is an example of a large spectrum deployment yet to come.
With our high-quality asset portfolio that we have spent close to 20 years carefully assembling, we are very well-positioned to participate in this activity, which over time, we expect to be very material. We are very optimistic about the future and take a long-term approach to the business. Speaking of our long-term approach, we continue to focus our attention and energies on our long-term goal of producing more than $10 per share of AFFO in 2020. We had very steady third quarter and expect to stable and similar fourth quarter. We accomplished a number of things this quarter that directly and clearly help us achieve our goal of more than $10 per share of AFFO in 2020, and we look forward to reporting and measuring future results with that perspective in mind. Tony, at this time, we are ready for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
Amir Rozwadowski, Barclays Capital.
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Amir Rozwadowski, Barclays Capital - Analyst [2]
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Thank you very much. Jeff, you talked about some of the new spectrum deployments that could potentially take place. I was wondering what your thought process is around timing. It does sound like we have some suggestions that some of that spectrum deployment is sooner, rather than later, but that is something that we had heard in the past. I would love to hear your thoughts around that.
And then one of the other major issues that has impacted the broader specter over the last couple of years has certainly been the focus of the carriers when it comes to the allocation of their capital, be it for purchasing new spectrum or some of it obviously being involved in very large M&A. What are you hearing from a carrier perspective here, and how should we frame that in terms of your growth opportunity over the next 12 to 24 months? Thanks very much.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [3]
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I think, Amir, and thanks for the question, on the spectrum, particularly, the bands where multiple people won at the AWS-3, I think you are going to see some differences in the timing of deployments. I do not want to get too specific based on what our customers have told us, but I do believe, for example, AT&T has publicly said they are really not going to get cranked up around that until sometime next year. Some of the others may be a bit sooner. And I think the same would hold true for the WCS spectrum. We are seeing some increasing, although at least for us, still not material signs of 2.5 GHz activity. So a little more visibility, a little more clarity as we move through each quarter, and it definitely feels like 2017 should see some spectrum deployments that we did not see it in 2016.
In terms of allocation of capital, these are big organizations. Our customers that are public, and have return on investment goals, and a variety of calls on their capital. I think the one thing we know for sure is that over time, great wireless service, particularly when you're talking video, which a lot of investment has recently gone into the content side to pump over the wireless networks. You are going to need a lot of equipment for that.
But by the same token, just as any organization, I think, would see it this way, money is not unlimited, and every budget cycle goes through the allocation of capital and the prioritization. There has been a number of different things that our customers have spent their money on, and for those that are dividend payers, that, certainly, is extremely important that they be able to continue to pay their dividends. So I don't think capital is unlimited in our industry. I think all of that really means for us is that an elongated and stretched out period of time for which investment will occur, because the one thing that doesn't change is the law of physics. And as you pump more and more traffic, and more and more video through the mobile networks, you simply must have additional equipment.
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Amir Rozwadowski, Barclays Capital - Analyst [4]
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Great, thanks so much for the incremental color.
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Operator [5]
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Philip Cusick, JPMorgan.
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Unidentified Participant, - Analyst [6]
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Hello, this is Richard for Phil. On the churn commentary, can you give us a little more color on how we should think about it with normal churn, consolidated churn and iDEN churn going way or ending? How should we think about it as we move to the end of the year and into next year?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [7]
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Sure, Richard. First of all, the iDEN churn, which in this quarter, represented on a domestic basis, about 2.5% of a drag on our same tower growth rates, most of that churn, or really, all of that churn, took place in the fourth quarter of last year. So as we now move into the fourth quarter of 2016, on our next reported year-over-year analysis, you will no longer have that. So you will see pick up in the net growth numbers because the iDEN churn will be behind us.
As a related to the non-iDEN churn, we have seen that pick up a little bit recently, as indicated in our comments. We expect 2017 to be higher than 2016 on a full year-over-year basis. We have gotten some additional notices recently; this is primarily -- or it's entirely consolidation churn. So you are talking Metro, Clearwire and Leap Wireless-related churn, it's not unexpected at all. I think when we provide our 2017 guidance for the fourth-quarter results, we will be able to give you our most current view at that time. But within the right context, I think, the point is that we have expected to see this churn happening in either case. The timing still remains to be seen a little bit, but it does not really have any impact on our long-term ability to hit our $10 [AFFO] goal by 2020.
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Unidentified Participant, - Analyst [8]
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Great, and in terms of the international business -- I guess entering Chile, should we expect more acquisitions in new countries? In Latin America or around the world, or do you think -- is Brazil stabilized enough where you would be interested in starting do more acquisitions there again?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [9]
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Yes, I think for the right price, we definitely would continue to grow in Brazil. In fact, some of the acquisitions that we completed in the third quarter, and some that we have on our books to complete going forward are in Brazil, so we are continuing to invest in Brazil. And it is really all a function of the price. We continue to believe that long-term, Brazil will be a very, very good market, so we are doing a little bit of both.
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Unidentified Participant, - Analyst [10]
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Great, thank you.
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Operator [11]
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Simon Flannery, Morgan Stanley.
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Simon Flannery, Morgan Stanley - Analyst [12]
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Thanks, Mark. Good evening. Jeff, you talked about the 5G opportunity. I think there has been a lot of talk about using microwave spectrum with a small cell architecture, so can you just be a little bit more specific about what you see as the opportunity? Is it more about using low band spectrum, as well, or do you think you can get involved with the microwave stuff? And then just a quick follow up, the REIT costs in Q4, is that really a one-time, or will there be ongoing additional REIT costs in 2017?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [13]
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Yes, Brendan will hit the second one, but on the 5G, Simon, we have been spending a lot of time with folks who are spending all of their time figuring out what this will look like. I think when it finally gets here in our markets, it will be a combination of low band and all the way up to the high band frequencies. So I do think we are going to see, at a minimum, a lot of equipment changes to support the 5G. And in fact, my understanding is that even -- because of the oscillation and the cycles of the frequencies, even reusing the same spectrum to produce 5G is going to require all new equipment. So I do think there is going to be a lot of touches to the towers, and I do think we are going to have a chance to benefit from that.
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [14]
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Simon, on the REIT costs, those incremental costs in the fourth quarter that are in SG&A are one-time. The vast majority of that is related to the filing fee associated with the S4, which is based on market cap, in addition to some legal costs and other advisory costs associated with going through the conversion process that we announced earlier this month.
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Simon Flannery, Morgan Stanley - Analyst [15]
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Thank you.
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Operator [16]
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Ric Prentiss, Raymond James.
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Ric Prentiss, Raymond James - Analyst [17]
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Guys, good afternoon. A couple of quick ones. First, just to make sure, on the churn thoughts, next year churn versus 2016, that is on the core churn, right? Not including that iDEN drops off, so it is like your non-iDEN churn would be up year-over-year, is that what you were saying?
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [18]
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That is correct.
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Ric Prentiss, Raymond James - Analyst [19]
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And then Jeff, you talked about re-farming 2G activities have been going on. What exactly happens when they refarm 2G spectrum? Do you expect there to be more work as 2G networks get turned off, or will there be a pause as they get that spectrum freed up to use for non-2G services?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [20]
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I don't think there will be a pause just because traffic continues to grow. Not all the new spectrum is yet being deployed. I think it is more efficient for them to re-farm. And what we are typically seeing is swap-outs of equipment where you kind of get like-for-like numbers of antennas. You may lose some base stations on the ground, you may pick up some radio heads at the top of the tower, which is typically the architecture that everyone is using for LTE today. But we are pretty busy, Ric, with all the amendment work. Actually, there is a lot of -- a very high percentage of our sites are being touched.
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Ric Prentiss, Raymond James - Analyst [21]
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Okay, and the final question is the stock buyback pace was a little bit lighter than 2Q and what we were expecting. Talk to us a little bit about the pacing of the buyback, and you mentioned a couple times that you are back into your target range of 7% to 7.5%. Should we assume that you do not want to above the 7.5% anymore?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [22]
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No, I do not think you should assume that. I do not think you should expect us to get up to something with an eight-handle on it, but I think given what we did in the prior couple quarters, where maybe we took advantage of some opportunities and bounced around a 7.6% or 7.7%, then delever back and stay around there. I mean that would not be out of question.
In terms of the amount, it is very simple. We set price targets, periodically. We either hit the target or we do not. We are not yet -- and I do not know if we ever will be, we are not just spending a certain amount of money. We are buying stock at the best prices we can.
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Ric Prentiss, Raymond James - Analyst [23]
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Makes sense. Thanks for the color.
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Operator [24]
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Spencer Kurn, New Street Research.
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Spencer Kurn, New Street Research - Analyst [25]
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Good afternoon, guys. I know you have been pretty clear about not planning to pay a dividend until 2020. But I was wondering if you could just talk about your thoughts on the trajectory of the dividend going forward after that. So some of your peers have opted to smooth out dividend growth, whereas others have gone straight to a full maximum AFFO payout. Thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [26]
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Yes, without getting into numbers, Spencer, I think our bias today -- we will have four years to refine this -- is for a measured and growing approach so that there is ample capital for all things. Dividends, acquisitions, portfolio growth and maybe some continued stock repurchases, as well.
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Spencer Kurn, New Street Research - Analyst [27]
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Got it, thanks. One more, if I may. I think this looks to be the first year in ages where you might fall short of your 5% to 10% portfolio growth target. Could you just talk about the new build environment that you are seeing both domestically and internationally? And do you see any opportunities to increase international builds next year?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [28]
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Yes, we do see opportunities. We think some of the shortfall in our initial new build projections for this year are just delays, and not changes in ultimately what gets built. And I think we will probably end up just a tad short of 5% this year. Something with a four handle on it. And what it really comes down to, and whether it is new builds, Spencer, or acquisitions, it is all about the terms that we can originate assets on, versus looking at our own stock and focusing on maximizing out that return on invested capital. So it is all a capital allocation decision. It is not about volume; there are plenty of opportunities out there. It is all about thinking or trying to do our best to spend the money as wisely as we can.
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Spencer Kurn, New Street Research - Analyst [29]
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Great, thanks so much.
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Operator [30]
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Nick Del Deo, MoffettNathanson.
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Nick Del Deo, MoffettNathanson - Analyst [31]
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Hello, thanks for taking my questions. First regarding the churn outlook, when PCS, Leap and Clearwire are gone, is it reasonable to think that your domestic churn will be towards the lower end of the 1% to 1.5% rate that you have experienced historically? I would imagine there is not that much else in the base that would move the needle unless Sprint and T-Mobile eventually get together.
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [32]
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Yes, that is right, Nick. The vast majority of our non-iDEN churn has been consolidation related, so as we move through that, we would expect it to be towards the low-end, and maybe even below our historical low-end.
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Nick Del Deo, MoffettNathanson - Analyst [33]
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Okay, and maybe one longer-term question. There is an increasing belief that cable is eventually going to get into the wireless industry with some sort of facility-based offering. The benefits for you guys would be pretty straightforward with a new customer. But on the flip side, there is also a risk that a new competitor could [land] the financial health of the incumbents, and their ability to invest, especially those that have a lot of debt and dividend commitments. How do you think the pros and cons of that would shake out?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [34]
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Well, we have always said, Nick, since we got into this business, that the ultimate determinant of how well we do as a Company is largely driven by the financial health of our customers because we know the operational needs will be never-ending. So obviously, your question involves balancing; it's nice to have a new well-capitalized entrant. But if it tilts the spectrum too far into bad business results for our customers, that is -- I do not think that would be the desirable result for the tower industry.
Just the mere fact that -- and we are seeing this in -- Brazil is a very good example, and I am not suggesting that there will ever be any transition in the US to the way Brazil is today. But everybody knows that we need a ton of new equipment and new network in Brazil, but the customers are just choosing to slow roll that out based on their financial conditions.
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Nick Del Deo, MoffettNathanson - Analyst [35]
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Okay, that's helpful. Thanks, guys.
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Operator [36]
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Colby Synesael, Cowen and Company.
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Colby Synesael, Cowen and Company - Analyst [37]
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Great, thank you. Two questions. One is just going back to the churn on Leap, Clearwire and PCS. What is the aggregate dollar amount of churn from those three that you are anticipating in 2016 compared to the $50 million that you are expecting to attrite in aggregate over the next three years? I think you said that is 3% of revenues. Would you expect that to roll off in 2017, 2018, and 2019 at a fairly linear pace, and suggest that that is up relative to 2016? Just a little color on that.
And then also, I think in your prepared remarks, you said you expect to maintain greater than $1.5 billion in liquidity through 2017. Can you just -- when we think about buybacks, which I think you guys have stressed they are a key component of the way in which you plan to get that $10 in AFFO. How that -- might that constrain the ultimate amount to which you could potentially be spending on buybacks in 2017? Thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [38]
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Let me take the last one first. I hope the remarks for that -- we have $1.5 billion, and not necessarily that we will maintain that. The driving stake in the sand, Colby, that we looked at is the leverage and our access to capital is great. So depending on where leverage is, that may allow us to move into that liquidity, somewhat. We do not -- we certainly do not need to maintain that kind of liquidity, given our access to capital, so we will have that much, and we will see where we are at the end of the year.
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Colby Synesael, Cowen and Company - Analyst [39]
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Just to follow-up on that then, Jeff, I do not know if you have seen some of the sell side models that are out there, but it does seem like there is a decent assumption for a meaningful ramp in buybacks in 2017 versus 2016. And I think part of that is based on that commentary around getting to $10, and how you guys anticipate getting there. I mean, do you think that this is more back-end loaded to an 2018, 2019, 2020 assumption, or would you assume that if buybacks are a big part of how you get there, that that should be ramping up pretty nicely starting as early as 2017?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [40]
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Yes, we do not ever really guide to buybacks, but we have talked about buybacks being a material part of getting to the $10 by 2020. So I would think over time, and I am just not going to get into whether 2017 is going to be bigger than 2016, it is going to be more.
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Colby Synesael, Cowen and Company - Analyst [41]
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Okay.
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [42]
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Colby, on your first question about the churn. In 2016, our non-iDEN churn or at least, through the first -- through September 30 -- our non-iDEN churn represented of our consolidated same general growth was about 1.8%. The Metro, Leap, Clearwire component of that is a little over half of that, so close to 1% of that is due to those guys. We expect that next year will be higher than this year and that is based primarily on an increase in the number of notifications that we have gotten from those guys recently. So that is pushing up our expectations, and we are not giving 2017 guidance yet. We will give you a clearer view on this when we do on our next release. But I think it is fair to say that we will see an uptick in that percentage as we move into the first part of next year.
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Colby Synesael, Cowen and Company - Analyst [43]
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Okay, thank you.
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Operator [44]
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Matthew Heinz, Stifel.
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Matthew Heinz, Stifel Nicolaus - Analyst [45]
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Hello, thanks. Good evening. You highlighted the uptick in the proportion of amendments relative to colocation in terms of new business activity, but I am just curious whether that suggests an increase in the overall [dollar] volume of amendments this year, or more of just a share shift from colos. I would also like to hear what your are seeing in terms of the breadth of activity of those amendments across the Big Four, whether that is balanced out a little bit more as the year has progressed.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [46]
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Yes, I do not think we said, Matt, that the shift -- the mix has changed. It has been pretty steady all year long. Mostly two-thirds to 70% amendments of the remainder colos, and that is a revenue basis. So if you actually did it on a per-contract basis, it would be a lot more.
It would be like 85 to 90 amendments, and the rest colos, and there has not been a material change in the mix all year long. And we are seeing in that activity from all of them. Well, as I mentioned earlier, most all of our activity all year long has come from -- in the US, three of the four nationwide carriers, and it has been remarkably steady and consistent for close to five quarters now.
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Matthew Heinz, Stifel Nicolaus - Analyst [47]
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Okay, thanks for that. And then as a follow-up on the services segment, there seems to be a recurring theme of some softness in that area across your publicly traded peers. I am just wondering what you are seeing out there in the competitive environment? Is it coming from smaller, private companies? We have also heard a lot of talk about drone usage for site surveillance, and I am wondering if that is at all cannibalizing the maintenance work out there on towers?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [48]
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I do not think it is the drones. I think it is really a function of if you go back to 2014, and you see all of the work that was done, all of those people are still around looking for work. And the amount of work that is being done today in the services side compared to what it was in the peak periods of 2013 and 2014 is a fraction of that. So it is a classic -- supply got built up to meet demand, and then demand dropped off and the supply is still there.
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Matthew Heinz, Stifel Nicolaus - Analyst [49]
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Okay, good to know that the drones have not taken over yet. Thanks.
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Operator [50]
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Michael Bowen, KeyBanc.
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Michael Bowen, KeyBanc Capital Markets - Analyst [51]
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Okay, thanks. I just wanted to follow up on a comment you made with regard to passing on some of the less profitable business, and that you expected to see some more of that in the fourth quarter. And I have a quick follow-up, thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [52]
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That is on the service side; that has nothing to do with the ownership of towers. There are some folks out there that are doing business at prices that we, based on our Company, and how we would calculate things are actually losing money. We do not want that business.
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Michael Bowen, KeyBanc Capital Markets - Analyst [53]
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All right, thanks for that clarification. And I have had a lot of questions from investors, also, with regard to -- obviously, the big acquisition AT&T proposed last weekend. Can you give us some of your thoughts on how that may or may not have any impact on not only your business, but the tower sector? Thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [54]
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Well, long-term, I think it is great because the comments and the strategy and the rationale behind the transaction are to provide content for mobile. Mobile video. And you have got have a great network for that to pay off. We will see when they actually get into the transaction, what it may do to their short-term spend, but if it has any impact at all of short-term spend, I would expect it to be very temporal. Because of, again, the long-term view is you are going to need to -- if you want to monetize and maximize that content, you are going to want the best network that you could possibly have.
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Michael Bowen, KeyBanc Capital Markets - Analyst [55]
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Great. Sorry, one last one; I lied here. With regard to CCI today with FiberNet, there is definitely more than one player doing back haul in Florida -- sorry, not a lot of competition in Florida. So wanted to find out if that impacts you guys at all. Whether you are a customer of them or if there is any relationship there?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [56]
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It does not impact us at all.
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Michael Bowen, KeyBanc Capital Markets - Analyst [57]
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Okay, thank you.
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Operator [58]
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David Barden, Bank of America.
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David Barden, BofA Merrill Lynch - Analyst [59]
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Thanks for fitting me in. Two questions, if I could. Jeff, you maybe alluded to this, but on the 2.5 GHz deployment potential for 2017, obviously, we have got a particular owner of that who is suggesting permitting processes are coming to fruition, and maybe guiding for the possibility of higher CapEx down the road. In your services business, are you seeing a materialization of that permitting process coming to fruition in some of your deployments that you are doing for the carriers?
And then the second issue or question would be the companies -- the carriers themselves are kind of advertising how their networks are all quite similar now, in terms of capability, imperceptibly different in a lot of ways. I know that the tower companies frequently have drive tests, and you guys are canvassing the territory looking for where weak spots might exist and the opportunity to market to the carriers presents itself. I was wondering if you have any way to validate how the networks have evolved in terms of their capability on a national basis, and if you still see very narrowing differences, or still very wide gaps in places? Thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [60]
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David, to answer your first question, is we have seen some, but not much activity on the services side. And the second question is, yes, we do have some visibility into that, and we are not sure that all of the networks on a nationwide basis are quite as similar in terms of capacity as what you stated. And we kind of have some views on that, which are actually more geographically regionalized than nationwide. But I am not going to get into our views as to who's better where.
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David Barden, BofA Merrill Lynch - Analyst [61]
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Maybe I could just follow up on that, Jeff. Just relative to history, do the gaps that you see today mirror in magnitude some of the gaps that have existed and have been the reasons why we see the investments being made we have over time. Or are they much narrower, and maybe question marks about what incremental investment is required could be made?
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [62]
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I think whenever -- historically, whenever you see a coverage build, and then a total technology upgrade like we saw 3G to 4G, those are going to be your peak points of activity. But what we are seeing, and what our amendment activity in particular is bearing out, is that capacity holes develop constantly. And as you continue to look to pump more and more through the networks, and particularly, as you are adding video, we see -- you may not see a 2013, 2014 period again, David, but I think you are going to see years and years and years of steady demand for what we do.
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David Barden, BofA Merrill Lynch - Analyst [63]
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Got it. Thanks, guys.
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Operator [64]
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Jonathan Atkin, RCB.
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Jonathan Atkin, RBC Capital Markets - Analyst [65]
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Thanks, it is RBC. I was interested in -- just the EBITDA guide down entirely reflects or solely reflects weak [submersion] costs, is that correct?
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [66]
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It primarily is reflecting that. There is also slightly weaker contributions from services than what we had projected previously.
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Jonathan Atkin, RBC Capital Markets - Analyst [67]
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Okay, and then two questions. One, any kind of update on small cells? I know you have been examining some of the opportunities, and for outdoor DAS or outdoor small cells, do you view the opportunity typically, if you were to get right-of-way exclusivity, versus not? And then on the tower build guidance, I noticed that that increased, and wondered in which geographies and what were some of the factors behind the increase in the build guidance? Thanks.
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Jeffrey Stoops, SBA Communications Corporation - President & CEO [68]
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On the small cell side, Jonathan, we have a couple, maybe a handful of projects that we are currently working on that were generated through our managed site business, and the fact -- and where we have exclusive relationships. Those are primarily in building opportunities, which I think, is where we will continue to focus. So I do not think our views have changed around the small cell opportunity at all, for over a year now. And I think we are having the chance to continue to see more and more different aspects of it, and it really just confirms and reaffirms where we have been on that. Brendan, do you want to --
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [69]
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On the new builds, we did not guide to an increase, so -- in fact, we actually expect it will be a little bit lower than we what we previously said. We are expecting we will probably finish the year with about 400 new builds, as opposed to -- I think we were somewhere around 450 last quarter, when we mentioned the full-year expectation.
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Jonathan Atkin, RBC Capital Markets - Analyst [70]
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Is that because demand has subsided, or that independents are just taking a greater share of the pie?
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Brendan Cavanagh, SBA Communications Corporation - EVP & CFO [71]
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No, Jeff mentioned earlier, much of the reduction is due to timing. We still have an expectation that a number of these sites will be completed next year instead of this year. But there is also some competition around the sites, and we are just making what we think are wise capital allocation decisions to not participate in some of those opportunities, due to either poor economic or other terms.
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Jonathan Atkin, RBC Capital Markets - Analyst [72]
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Thank you.
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Operator [73]
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Thank you very much. At this time, there is no additional questions in the queue. Please continue.
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Mark DeRussy, SBA Communications Corporation - VP of Finance [74]
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Great, well, I want to thank everyone for joining us this evening, and we look forward to reporting our fourth-quarter results. Thank you.
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Operator [75]
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Thank you. Ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&Ts Executive Teleconference. You may now disconnect.
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