SBA Communications Corp at JPMorgan Tech, Media and Telecom Conference
May 22, 2017 AM EDT
SBAC.OQ - SBA Communications Corp
SBA Communications Corp at JPMorgan Tech, Media and Telecom Conference
May 22, 2017 / 01:20PM GMT
==============================
Corporate Participants
==============================
* Jeffrey A. Stoops
SBA Communications Corporation - CEO, President and Director
==============================
Conference Call Participants
==============================
* Philip A. Cusick
JP Morgan Chase & Co, Research Division - MD and Senior Analyst
==============================
Presentation
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [1]
------------------------------
My name is Phil Cusick. I cover Telecom and Cable here at JPMorgan. I want to welcome Jeff Stoops, President and CEO of SBA Communications. Thank you Jeff for coming with us.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [2]
------------------------------
Happy to be here. Good morning.
==============================
Questions and Answers
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [1]
------------------------------
So we just finished up with Jim and I won't (inaudible). But in the U.S., it feels likes there was an inflection point over the last few months, and we've been waiting for carriers to pick up spending for a couple of years now. Where do you feel like carriers are? Are you actually seeing activity? Or it is more like a prepping period?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [2]
------------------------------
Yes, I think it's more today on the prepping side, but the signs are increasingly stronger that increased activity is ahead, particularly with the AT&T FirstNet news, that's probably the single largest catalyst in terms of increasing activity. Still don't know that it's a 2017 event, probably more 2018 and beyond event, but a lot of activity there. The closing of the 600 megahertz. Some of T-Mobile's comments around that, all very, very positive. Again, don't know if it's going to be a 2017 issue. Could be, but more likely a 2018 and beyond issue. Then of course, you have the DISH speculation, which depending on what you want to believe obviously, could be a very large catalyst. And we really don't -- and as I think everyone knows, Sprint has been very, no, I won't say, nonexistent, but certainly, much, much lower on the CapEx spend, really has nowhere to go, but up. So when you mix all that together, we feel very good about the future, but again whether it's a 2017 issue or we need to wait till 2018, I think that still is yet to be seen.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [3]
------------------------------
Okay. And on the services side, we've been hearing about crews getting booked up and a lot of, again, pending activity. Are you seeing the same thing for your services business?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [4]
------------------------------
We are, we are. Services is stronger than it was a year ago, and we think with the opportunity for some additional business, as some of the things I just talked about, come to fruition. It'll be a time again where there'll be full employment in the tower climbing space, I think.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [5]
------------------------------
Yes, chasing crews down. And so in the first quarter, while it does feel like a lot of that activity is pending, you have seen a little bit of a pickup in gross activity already.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [6]
------------------------------
We did.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [7]
------------------------------
So what's driving that?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [8]
------------------------------
I think just more spending, and I think budgets have gotten a little freer. Over the last couple years, there have been a number of other things that our customers have spent money on, obviously, the AWS-3 spectrum auction was a big one. I mean, the other big companies, I think, they have also the same budgetary and cash allocation decisions to make that the rest of us make, and I just think they freed up a little bit more capital for wireless recently. And I think, as we talked about earlier, you're going to see a lot more of that as we move to the end of the year and into 2018.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [9]
------------------------------
No reason to think that's changed in the second quarter for any reason?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [10]
------------------------------
I think, we're going to stick with our last commentary.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [11]
------------------------------
Right.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [12]
------------------------------
Yes. We're going to basically tell you about it after we booked it.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [13]
------------------------------
And from a churn standpoint, we've been watching churn sort of tick down slowly here. How should we watch this year versus last and next year versus this?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [14]
------------------------------
I think, you'll see Q1 and Q2 being the high point of our U.S. domestic churn as it particularly relates to the, what we call, consolidation churn, Metro/Leap, Clearwire. That will begin to tail off Q3 and then continue to tail off as we move to the end of the year and into 2018. The part of this that I think is exciting for those of you who kind of look at things year-over-year, I mean without any pickup in organic revenue growth, and we think there's some good opportunities for that as we've discussed, you're going to see material increases in our net numbers, because the churn that's going to drop off and not be lapped, when we get to 2018, is pretty substantial, and the other churn, the regular kind of ordinary course of business churn, has been running less than 1%.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [15]
------------------------------
As you think about FirstNet which you mentioned, have you started conversations that indicate that there is sort of a known of what they need? Or is it early for that still?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [16]
------------------------------
It's early. But conversations have started.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [17]
------------------------------
Yes.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [18]
------------------------------
Yes.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [19]
------------------------------
And is there an expectation?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [20]
------------------------------
We don't -- I will say, we don't know the final spec yet, and I'm not sure that there will be one final spec. I think, it will be site specific based on the equipment loads that AT&T is already occupying that particular spot.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [21]
------------------------------
Do you think that part of that final spec is determined by what the tower leases look like versus [data]?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [22]
------------------------------
It could be, it could be. We haven't heard that. I think, a lot of it is still due to basic engineering and equipment procurement. I think another thing that everyone should keep in mind is, there is a lot of variability, I think, in what AT&T will do based on whether particular states opt-in or not, and that's -- that decision is not due until almost the end of the summer. So that's when I think all the variables will be known, and you'll really then be able to forward and see when the deployments are going to occur, what they look like and what the specs are going to be.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [23]
------------------------------
Okay. We've also been hearing carriers talk a lot about 5G. And early on, 5G sounded like a very high band, not impacting a lot of the macro towers but more and more Sprint 2.5, T-Mobile at 600. How are you starting to think about how the tower impact on 5G could look like?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [24]
------------------------------
Well, I mean, thankfully the dialogue is coming around to what we always thought to be the case, which is that, once you get out of the dense urban markets where a lot of the conversation has centered, which is, of course, where we are, outside of those dense urban markets. You will see more traditional deployments, more traditional architecture, more existing spectrum used. And in every case -- and I don't believe that, 5G will be only a product that is offered in the dense urban markets, it will be a nationwide product, and to get that out into the world of mobility, you're going to definitely need the macro sites, and you're definitely going to need to change out radios and antennas, so we're pretty excited about it. I don't know that, we will see that as quickly as you will see some of the deployments in the dense urban markets, but we will -- just as we've always progressed in our business, the customers deploy this stuff on a nationwide basis and when the right time is there we get our fair share.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [25]
------------------------------
And you mentioned swapping out equipment, swapping out antennas, remind us of your specific rights and what carriers have a contract for? Is it the space? Or is it a particular piece of equipment?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [26]
------------------------------
It's a piece of equipment. So all of our contracts are equipment specific. We don't have any blanket entitlements. We don't have certain amounts of wind load or weight that we contract for, it's all equipment specific. So any time a change in the equipment occurs, our customers need to come back to us, and we need to have a conversation about what we do going forward. Now in many cases, where that swap is -- does not create additional load either on a weight or a wind load basis, we let our customers do it for free, because they're not taking up any additional capacity from us. But we have the ability and the legal rights under the contracts to kind of look at every equipment change. But -- and I think this gets to the broader issue, which I think you're going to touch on later, which is the relationship between us and our customers. We do everything we can to help our customers succeed. Where they're not using more of our finite equipment or our space rather, we're happy to let them trade that out for no addition, because it's really doesn't -- it's not using up any more of our many assets. Now that occurs in a minority of the cases, because the architecture has traditionally involved bigger antennas, heavier weights, more radios. But in cases where there's no additional physical load on our sites, we're happy to facilitate our customers changing that out and that actually was a lot of the 2G refarming to 3G and 4G.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [27]
------------------------------
And is that a very small minority? Or is it a substantial?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [28]
------------------------------
No. It's not a substantial majority. I think, we've talked about total amendments in the 10% to 15% range result and no additional increase in rents to us.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [29]
------------------------------
And I think it's the equipment swap-out that makes some carriers particularly [batty]. As you look at your business, do you feel like, you know what? Maybe there is a reason to back off on some of these or give them -- move that 10% to 15% up in order to sort of sustain the long-term relationship?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [30]
------------------------------
Well, I'm not sure I would understand their reaction if in fact they're taking up a materially greater load on the tower, because that's all there is. So I mean, if -- it's like, if you were renting space in this building and you wanted to then take this room and the room next door, I mean, you'd automatically think that, that will cost you more money. And that's really the very basic approach we take to the business. If there is an increase in the load or the weight or the wind load and you're using up a finite resource, because there's only so much capacity that a tower has, you should get some monetary remuneration for that. But where you're not doing that and the swaps do not increase materially any of the weight or the wind load, we absolutely facilitate that for no additional charge.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [31]
------------------------------
And carriers talk to us about this a lot, and I'm never sure how much of that is reality versus sort of posturing. Do they have the same conversation with you? And is it a difficult conversation?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [32]
------------------------------
Well, they always want to -- they always would like to spend less money.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [33]
------------------------------
Yes.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [34]
------------------------------
I mean, that's their job. So the issue of our customers wanting more for less goes back to the dawn of the tower industry. I mean that really hasn't changed at all. So they're really not new conversations, but of course, we talk about this stuff all the time.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [35]
------------------------------
Sure. Okay.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [36]
------------------------------
I mean, if we get $250 per amendment, they want it for $150.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [37]
------------------------------
Of course.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [38]
------------------------------
And that's what you would expect them to ask for, that's -- they need to do that for their business.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [39]
------------------------------
Understood. And as we think about the smaller -- the small cell business, there's -- you've been pretty consistent, that, that's not an interesting business, you sold your stake in ExteNet a few years ago. As you've watched that industry evolve, how have your thoughts changed in the last few years?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [40]
------------------------------
Well, they haven't changed. They've actually been confirmed. I think it has now been proven out that the outdoor small cell business, which is what we thought would happen, and it has come to pass is basically a fiber business. And it's a different business. It's not the same overhead. While it's the same customers, it's different engineering, it's different SG&A, it's different in terms of its exclusive nature versus the ability to be overbuilt in some cases in fiber. It -- and it's just different. I mean, we've had many, many, many conversations with our shareholders about this issue and they don't -- they do not want us to be a fiber company and we don't, and we agree that's entirely the right decision.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [41]
------------------------------
We've heard from Sprint and T-Mobile quite a bit lately, and we're going to have both of them here today. How do you think about your exposure there, both in terms of rather simplistic sort of immediate tower overlap and maybe other long-term risk if they come together?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [42]
------------------------------
Yes. We put out some statistics, an 8-K. A quarter or 2 ago, I think we were at 4% or 5% of the revenue base being direct overlap. And I think, over time should those companies come together, they will not need cell sites on one particular tower. What they will need though is, I think, a tremendously -- a tremendous amount of additional points of presence or cell sites particularly as they move to use 2.5G spectrum, which I think will be the crux of, should they get together, one of the primary reasons why. So we will see likely a -- should this happen, a period of -- a burst of activity where there needs to be additional cell sites that will allow the integration of the customer bases, because right now their phones will not be able to talk to each other. Then there will be a period where there will be some decommissioning. And then that will be followed, I think, by a very long period of enhanced investment. And I think unlike prior transactions you probably have to go back to and this isn't even that representative, because it was the same technologies, but AT&T Cingular. I mean at that point, you had 2 companies that were both investing. Here you really only have 1 company that's investing. So it's hard for me to imagine any scenario where a combined company doesn't actually produce more gross dollars of investment for our industry over time.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [43]
------------------------------
Yes. Okay. Remind us how you think about new spectrum bands? So with an existing carrier, there is a few new bands that are going out. What's the -- that math on adding a spectrum band [typically look like]?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [44]
------------------------------
Well, we don't charge for spectrum bands. We charge when those spectrum bands result as they always do, new radios and in some cases, new antennas. So we -- and I talked a little bit earlier about our philosophy on how we price and sell our assets. And it's really a very traditional real estate approach. If you are using more space or taking more capacity, that's something that we want to talk to you about as potential additional compensation to us. Spectrum though without additional equipment, we don't have spectrum specific leases. We have equipment specific leases that list spectrum. But we don't -- we would -- without any other change and this is, of course theoretical because I've never seen a spectrum deployment that didn't require at least new radios and in most cases, new antennas, but without that we don't charge just for spectrum itself.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [45]
------------------------------
Right. And so there was a question in Jim's presentation...
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [46]
------------------------------
And actually, I would say, that's been the industry norm for a long, long, long time.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [47]
------------------------------
There was a question in Jim's presentation about whether your revenue is indexed to usage. But talk about how you're sort of quasi-indexed to usage? And how you tie those pieces together?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [48]
------------------------------
Well, we're not indexed in a classic sense of a revenue based links like a retailer would have. We are indexed in the sense that you really can't have more traffic that flows through the networks even with some additional spectrum without adding equipment. So as traffic grows, but -- and this has been kind of a steady calculus for the last 20 years, you just see more and more and more equipment. So it's the tie between traffic and equipment needs that is our indexing and not necessarily the amount of money that our customers are making off the sale of wireless services.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [49]
------------------------------
Right. Okay. I'm going to open it up for the questions in a few minutes. But maybe I'll ask you what I asked Jim at the last. How do you think about domestic M&A, before we turn to international, the potential to either be buying or selling parts of your assets. Is there a market out there? And do you see pieces that patriate any time soon?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [50]
------------------------------
Yes. There is more available out there than, I think, you would see just from tracking the public company acquisition news. We passed on a number of domestic opportunity -- and they're not large, they are 25, 50, 100, 200 towers. We passed on them simply because we thought the price was not right, particularly compared to our ability to buy back our stock. I think, there's still that same number of opportunities out there. So -- and the -- then the key issue will be not availability, but price, as to whether or not we hit our 5% to 10% portfolio growth goals, which whether we hit them or not, and we have not hit them our last 2 years, that is what we would like to do. That is how we would like to most ideally allocate capital. But we're not going to do it at a price which we don't think makes sense on either an absolute or a relative basis relative to our stock repurchases. So there's going to be opportunities out there. I think they will continue to be pricey, so we'll continue to be careful. We will definitely be buying some towers in the United States this year, but we'll see how many and to what extent.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [51]
------------------------------
And you mentioned that 5% to 10% growth, do you see visibility right now in the pipeline to get you to that -- the low end of that 5% right now?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [52]
------------------------------
I do, I do. But it's not contract. But I see opportunities for sure.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [53]
------------------------------
And let's go for those mic.
------------------------------
Unidentified Analyst, [54]
------------------------------
Can you talk about any preliminary discussions you're having with DISH or trials you're seeing from them? And then maybe on the nature of the network you envision them building?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [55]
------------------------------
Yes. I can't talk specifically about the engineering or the type of network, but I can say, we have had the conversations and have an ongoing dialogue with their wireless team.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [56]
------------------------------
Let me switch it to international for a few minutes. Well, actually -- so let's talk about that for a second. Not DISH necessarily, but were there to be a new sort of IoT driven network, how do you think that might be different from the existing macro networks? And how might SBA be able to help?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [57]
------------------------------
It will all depend on how dense that network needs to be. And I think certainly outside of the urban markets it's going to be a macro focused architecture, because that's to our understanding, the only thing that can make sense economically. So given the spectrum that DISH now has, which is a fairly wide range, it could end up looking a lot like, I would guess, so T-Mobile probably has now with the both of them having 600 the most similar ranges of spectrum. And you see what T-Mobile's done, what they continue to do. Again, depending on how dense they want it and how robust it could be, it could be a very nice addition to the industry.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [58]
------------------------------
Okay. And typically when carriers have wanted to do rapid builds in the past, some carriers have done master lease agreements and some have not. What's your general attitude on that?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [59]
------------------------------
If we can agree to equipment specificity for a particular rent, we're happy to enter into an MLA. We actually have done that twice in the past, once with Sprint and once with T-Mobile.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [60]
------------------------------
Okay. And what's the trade-off between speed and time, and certainty of revenue for you? How do you think about that?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [61]
------------------------------
Depending on the terms, it could cause us to lean one way or the other. I mean, that will be very, very fact specific.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [62]
------------------------------
Okay.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [63]
------------------------------
I mean, in the past, we have not chosen to do an MLA but it was really because of the basic belief that our relationship should be equipment specific. That has been the primary driver in our choices to do or not do MLAs over the years as opposed to hedging or speed-to-market. We're in this business for a very long time. We wouldn't want to accelerate revenue over short period of time, if it meant some material loss of revenue longer term. But depending on the facts of the case, sure, we could do an MLA, we have done them.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [64]
------------------------------
Okay. If there are more questions, let me know. But otherwise, international now is almost 20% of gross revenue with Brazil most of it. How should we think about Brazil these days given the political disruption and everything else going on with carriers?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [65]
------------------------------
I think last week's news was unfortunate. It obviously hit the real. It dropped some of the momentum in public sentiment for the reforms that appear to be getting some good traction down there. We continue though long-term to think Brazil's going to be a very good market. The demographics are good, the state of the wireless networks are at best, where the U.S. was 10 or 15 years ago. The economy needs to improve for us to realize our fullest potential down there. But even in some very difficult economic times, we've been growing our revenue down there at a pace ahead of our initial expectations. Now some of that has been based on the CPI escalators, which will come down a little bit as inflation moderates in Brazil. But the inflation of moderation should also help bring the economy to a more healthy state. I mean, one thing we know for sure is that, as the consumer gets healthier in Brazil, they will spend money on wireless, which will in turn enure to our benefit because of all the equipment and additional deployment that needs to be done. So Brazil is a long-term territory -- as everything we do. We approach everything on a very long-term basis, and we're very confident that Brazil will be very successful going forward. And actually, today, if you look at things on a -- even a U.S. dollar, not a constant currency basis, but converting everything into U.S. dollars, we're just slightly above a 10x or slightly below a 10% tower cash flow to investment yield in Brazil, which is only going to get better and reduce as we move forward. We're pretty pleased with Brazil.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [66]
------------------------------
Remind us of your exposure to Oi and what the latest is there and anything to momentum and changing that situation?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [67]
------------------------------
Yes. We're -- current revenue is probably 7% to 8%, Oi. That's dropping given the -- our growth in other -- from other customers. Oi is a regular payer. We have no issues since they filed for judicial reorganization. They actually are growing in some areas where they weren't before. The big issue with Oi is the timing of the judicial reorganization. The laws down there are a little different than they are in United States. They give more power to the management and existing shareholder base, but over time, the creditors will only agree to what they're willing to agree to, and Anatel, the telecom regulator in Brazil, has the power to change out the Board of Directors if they feel the license and the business is at risk. They haven't got there yet. They've said, they don't intend to do that unless it's absolutely necessary, but that may be the ultimate catalyst that gets this all done. We've been encouraged by the amount of money that is circling Oi and the number of folks that are willing to participate in the judicial reorganization. I think it's going to happen. We definitely believe it's going to happen. The question is when.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [68]
------------------------------
And does the political -- new political disruption maybe derail that for a little while?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [69]
------------------------------
I don't think so. I don't think so. I think, Oi process is going to run independent of that.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [70]
------------------------------
We talked about buying other assets in the U.S. Are there other assets in Brazil or Latin America in general that you are looking at?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [71]
------------------------------
Yes. We're looking at assets through both Central and South America, both in existing countries and possibly in some new countries.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [72]
------------------------------
Anything you can tell us about?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [73]
------------------------------
Well, I think we've publicly talked about Argentina where we've got some people that we moved to Argentina and are working there now. We're looking at a variety of opportunities. So we do hope to have something more definitive to talk about. We don't have any assets yet, but that's something that we're working on. And then, there would be 1 or 2 potentially other countries in South America that we would be interested in.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [74]
------------------------------
And still sticking with U.S. and the Americas?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [75]
------------------------------
Western Hemisphere.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [76]
------------------------------
Yes.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [77]
------------------------------
Yes. Western Hemisphere, it's really worked out well for us. I mean, as a company based in South Florida, we can get to these markets very easily. We have in South Florida a captive employee base, many of which are native to these countries that we're now doing business in. So our ability to hire people who understand the cultures and languages, all of which matter, because the basic business is the same in these countries. So tower businesses, they hang antennas and string cables the same way. The nuances are, of course, the language, the culture, the taxes, the regulation and it's nice to have a workforce around our headquarters where we can pull in those resources.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [78]
------------------------------
What's your comfort with currency at this point? We've had a couple of years of pretty extreme volatility coming back now, but...
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [79]
------------------------------
Well, it's better. Because for the first couple years, I thought, it would just go down.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [80]
------------------------------
Yes.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [81]
------------------------------
So now that we've seen that there are cycles, which, of course, there are cycles, we just happened to hit one when we entered Brazil in 2012 that had 2 years of decline. It is cyclical and if you balance it out, and you take the right long-term view, and you have the right capital structure, it will ultimately enure to your benefit. But I will say that because we continue to be focused as a capital -- leverage capital appreciation prospect for our shareholders, and I do believe that our best source of funding has been and will continue to be in the United States. We have to be careful, and we have to be limited on the amount of non-U. S. dollars that we actually run through the system. So you've heard us talk about a tentative or limit of 25% to 30% of our revenue would be the most that we'd be comfortable with having -- or being denominated other than in U.S. dollars. Now we're obviously very, very far away from that and I don't necessarily see us getting even close to that for many, many years. But we do think about that and we -- as long as we are a U.S. debt funded leverage capital appreciation story, we're going to not have -- we're going to be limited, have some limits on our appetite for expansion where we get paid other than in U.S. dollars. Now you talk about our international business being 20%, but actually 7-ish percent of that is in Central America, all of which is denominated in U.S. dollars, and that's been wonderful. That's been some of the best stuff that we've ever done.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [82]
------------------------------
Okay. And you talked about leverage. Your buyback sort of back half of '16, you got pretty fast, 1Q was a little bit slow. How should we think about that going forward?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [83]
------------------------------
Yes. I think, we try to be very clear over the years that we're not going to be a steady formulaic buyer, but more of an opportunistic buyer, and we're going to match our opportunities against our desired leverage targets. And in the first quarter, we were looking at a number of portfolio opportunities that would have allowed us, had they or will they come to fruition, deploy capital in that direction. Now we didn't have any to announce, and we didn't do any stock repurchases so people thought, well, is something changing? No, nothing's changing. We continue to be focused on being -- staying fully invested, given where we see the business and where we see interest rates at 7 to 7.5 turns, probably at the high end of that. And over time, we will either spend that money on portfolio growth or we will spend it on stock repurchases. And I will tell you that, you'll see more stock repurchases this year.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [84]
------------------------------
Okay. Last question and as I asked last year, do you think that SBA's growth can continue at a similar or accelerating pace on a gross basis for the next few years? And as you see churn fall away, can we all comfortably expect that net growth will be picking up over the next few years?
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [85]
------------------------------
Yes, particularly because of the last point.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [86]
------------------------------
Right, the churn falling off.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [87]
------------------------------
Yes.
------------------------------
Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [88]
------------------------------
Good. Thanks very much.
------------------------------
Jeffrey A. Stoops, SBA Communications Corporation - CEO, President and Director [89]
------------------------------
Great. Thanks, everyone.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------