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SBA Communications Q2 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Mark DeRussy
    Vice President of Finance
  • Brendan Cavanagh
    Executive Vice President and Chief Financial Officer
  • Jeffrey A. Stoops
    President and Chief Executive Officer

Analysts

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the SBA Second Quarter Earnings Results Conference Call. [Operator Instructions]

And I would now like to turn the conference over to our host, Vice President of Finance, Mark DeRussy. Please go ahead.

Mark DeRussy
Vice President of Finance at SBA Communications

Good evening, and thank you for joining us for SBA's second quarter 2023 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 forward-looking, including, but not limited to, any guidance for 2023 and beyond. In today's press release and in our SEC filings, we detailed material risks that may cause our future results to differ from our expectations. Our statements are as of today, July 31st. We have no obligation to update any forward-looking statements we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.

With that, I will now turn it over to Brendan to discuss our second quarter results.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Thank you, Mark. Good evening. We had another steady quarter in Q2, with solid financial results that were slightly ahead of our expectations. Based on these results and our updated expectations for the balance of the year, we have increased our full-year 2023 outlook for site leasing revenue, tower cash flow, adjusted EBITDA, AFFO and AFFO per share.

Total GAAP site leasing revenues for the second quarter were $626.1 million and cash site leasing revenues were $618.7 million. Foreign exchange rates represented a benefit of approximately $1.9 million when compared with our previously forecasted FX rate estimates for the quarter and a headwind of $4.2 million when compared to the second quarter of 2022. Same-tower recurring cash leasing revenue growth for the second quarter, which is calculated on a constant-currency basis, was 4.3% net over the second quarter of 2022, including the impact of 3.9% of churn. On a gross basis, same-tower recurring cash leasing revenue growth was 8.2%. Domestic same-tower recurring cash leasing revenue growth over the second quarter of last year was 7.8% on a gross basis and 4.2% on a net basis, including 3.6% of churn.

Domestic operational leasing activity or bookings, representing new revenue placed under contract during the second quarter, declined from the first quarter. While all major carriers remained active with their networks, agreement execution levels in the second quarter from several of our customers were below our prior expectation. Longer term, we continue to see significant runway for new 5G-related leasing activity based on the number of our sites that remain to be upgraded with mid-band spectrum deployments by the major mobile network operators.

In addition, today, we announced that we've entered into a new long-term master lease agreement with AT&T. This comprehensive agreement will streamline AT&T deployment of 5G solutions across our tower portfolio, while providing us with committed future leasing growth from AT&T for years to come. Based on this MLA, we have increased our projected contribution to 2023 leasing revenue from domestic organic new leases and amendments by $6 million from the full-year projections we provided last quarter.

During the second quarter, amendment activity represented 42% of our domestic bookings and new leases represented 58%. The big four carriers of AT&T, T-Mobile, Verizon and DISH represented approximately 89% of total incremental domestic leasing revenue that was signed-up during the quarter. Domestically, churn was slightly elevated during the quarter, primarily due to faster decommissionings of legacy Sprint leases that we had projected, which is the opposite of our experience last year. Based on our current analysis, we expect Sprint-related churn for 2023 to be at the high-end of our previously-stated range for this year of $25 million to $30 million, resulting in a change to our full-year domestic churn outlook of $4 million.

Our views around the ultimate multiyear cumulative impact of Sprint merger-related churn have not changed. Although we continue to update our outlook around timing as more information becomes available. We now project 2024 Sprint-related churn to be in a range of $20 million to $30 million; 2025 to be between $35 million and $45 million; 2026 to be $45 million to $55 million; and 2027 to be $10 million to $20 million. Just as last year ended-up being well below our initial churn expectations, in 2023, we'll likely be a little above our initial expectations. We anticipate that the exact timing will continue to be somewhat fluid, but in line with our provided projections. Non-Sprint-related domestic churn was in line with our prior projections.

Moving now to international results. On a constant-currency basis, same-tower cash leasing revenue growth was 4.8% net, including 4.9% of churn or 9.7% on a gross basis. International leasing activity was strong in the second quarter and ahead of our internal expectations. These positive results and our solid backlogs have allowed us to increase our projected contribution to 2023 leasing revenue from international organic new leases and amendments by $1 million. Inflation-based escalators also continued to make steady contributions to our organic growth. However, decreases in actual and projected Brazilian CPI rates have caused us to moderate our outlook for international installation contributions for the full-year by approximately $1 million.

Overall, Brazil, our largest international market had another very good quarter. The same-tower organic growth rate in Brazil was 5.7% on a constant-currency basis, including the impact of 5.6% of churn, which amount was significantly impacted by our previously discussed TIM agreement. While international churn remains elevated. It continues to be in line with expectations and our previously provided outlook. As a reminder, our 2023 outlook does not include any churn assumptions related to the Oi consolidation, other than that associated with the TIM agreement. However, if during the year, we were to enter into any further agreements with other carriers related to the Oi consolidation, that would be expect -- that would be expected to have an impact on our current year, we would adjust our outlook accordingly at that time.

During the second quarter, 77.5% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenue was from Brazil, with Brazil representing 16.2% of consolidated cash site leasing revenues during the quarter, and 13.1% of cash site leasing revenue if excluding revenues from pass-through expenses. Tower cash flow for the second quarter was $503.5 million. Tower cash flow in the quarter benefited by approximately $7.3 million in accounting driven cost reclassifications. Our tower cash flow margins remained very strong, with the second quarter domestic tower cash flow margin of 85.5% and an international tower cash flow margin of 70.3% or 92.3% excluding the impact of pass-through reimbursable expenses.

Adjusted EBITDA in the second quarter was $471.7 million. The adjusted EBITDA margin was 70.3% in the quarter. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 75.9%. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter. During the second quarter, our services business had another strong quarter, with $52.4 million in revenue and $13.1 million of segment operating profit. While off year-ago activity levels, our carrier customers remain busy deploying new 5G-related equipment during the quarter, and we have retained our full-year outlook for our site development business, due in part to the strength of our first-half results.

Adjusted funds from operations or AFFO in the second quarter was $352.7 million. AFFO per share was $3.24, an increase of 6.2% over the second quarter of 2022 on a constant-currency basis. During the second quarter, we continued to invest in additions to our portfolio, acquiring nine communication sites for total cash consideration of $7.2 million and building 64 new sites. Subsequent to quarter-end, we have purchased or are under agreement to purchase 134 sites, all in our existing markets for an aggregate price of $72.9 million. We anticipate closing on these sites under contract by the end of the year. In addition to new towers, we also continued to invest in the land under our sites. And during the quarter, we spent an aggregate of $10.1 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 70% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years.

With that, I will now turn things over to Mark, who will provide an update on our balance sheet.

Mark DeRussy
Vice President of Finance at SBA Communications

Thanks, Brendan. We ended the quarter with $12.7 billion of total debt and $12.4 billion of net debt. Our net debt-to-annualized adjusted EBITDA leverage ratio was 6.6 times, below the low end of our target range and the lowest level in decades. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was a strong 4.9 times. During and subsequent to quarter-end, we repaid amounts under our revolving credit facility. And as of to date, we have $360 million outstanding under our $1.5 billion revolver. The current weighted average interest rate of our total outstanding debt is 3.1%, with a weighted average maturity of approximately 3.5 years. The current rate on our outstanding revolver balance is 6.3%. The interest rate on 95% of our current outstanding debt is fixed.

During the quarter, we did not purchase any shares of our common stock, choosing instead to reduce revolver balances. We currently have $505 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The Company's shares outstanding at June 30, 2023, were$108.4 million. In addition, during the quarter, we declared and paid a cash dividend of $92.1 million or $0.85 per share. And today, we announced that our Board of Directors declared a third quarter dividend of $0.85 per share, payable on September 20, 2023 to shareholders of record as of the close of business on August 24, 2023. This dividend represents an increase of approximately 20% over the dividend we paid in the year ago period and only 26% of our projected full-year AFFO.

With that, I will now turn the call over to Jeff.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Thanks, Mark, and good evening, everyone. The second quarter was another very solid one for SBA. We produced good financial results across all areas of our business and we continue to deliver high-quality service and operating results for our customers. Each of our largest U.S. customers remain active with their networks. Our customers continue to add equipment to sites in support of 5G through the deployment of new spectrum bands as well as to expand coverage through brand-new co-locations.

We did however see the same slowdown in activity that many others have discussed. While we had always anticipated domestic leasing growth to moderate as we move through 2023, organic leasing activity levels were lower than we anticipated in Q2 from some of our customers. Some of this was duly believe to slower activity from AT&T in anticipation of our new MLA as we would be expected. We believe that these variations in activity are part of the normal cycle of carrier network investment that we have seen over time. A large initial burst of coverage activity as the next-generation of technology starts to be deployed, followed by many years of coverage completion and capacity building, we are confident that there will be additional material network investment over the next several years.

We believe this for a number of reasons. Most importantly, wireless demand continues to grow at a fast clip, consuming more and more current network capacity. We have a large remaining number of sites that have not been upgraded yet to accommodate the mid-band spectrum holdings acquired by our customers over the last couple of years. Some of which spectrum is not even available for deployment yet. DISH has our next phase of regulatory coverage requirements to meet in 2025 and we have our newly signed MLA with AT&T. We believe all of these items and others are supportive of multiyear continued development activity. While there will always be ebbs and flows in leasing activity levels based on a variety of factors, we believe that there will remain a need for continuous network investment, just as we have seen throughout our history in this business.

With regard to our announced master lease agreement with AT&T, we're very excited about this next chapter in our long-standing successful relationship. This new agreement highlights the long-term importance of SBA sites to AT&T's future network deployment plans. The agreement will improve operating efficiencies between our organizations and enhance stability with regard to future leasing growth. We look forward to working closely with AT&T for years to come under this mutually beneficial framework.

In the second quarter, our services business remain busy, helping our carrier customers meet deployment objectives in an efficient and an effective manner. While our services business is down on a year-over-year basis, 2023 will still represent the second-biggest services year in our Company's history. Behind only 2022, we believe our legacy and reputation in the services business keeps us well-positioned to be a go to provider for our customers to meet their network rollout goals.

Internationally, we also had another solid quarter, with greater organic leasing activity than we had anticipated. During the quarter, 62% of new international business signed-up in the quarter came from amendments to existing leases and 38% came through new leases with strong contributions broadly for many of our markets, including Central America, Brazil and South Africa. Brazil, our largest market outside of the U.S., was ahead of our internal expectations, with contributions from each of the big three barriers in that market. I continue to be pleased with our operational performance, cost management and customer relationships in Brazil, which has made us a leader in the market.

And we have recently seen positive movements in the currency exchange rate, providing some financial benefit and increased U.S. dollars for repatriation, as well as contributing to our increased full-year outlook. We remain excited about our opportunities in Brazil. During the quarter, we again generated solid AFFO, providing significant cash for discretionary allocation. While our strong financial position allows us to retain flexibility for future further opportunistic investment in portfolio growth and stock repurchases, we dedicated the majority of our available cash in the quarter to paying down the outstanding balance on our revolver. We immediately benefit from this by reducing our floating rate cash interest obligations, which today represent among the highest cost debt in our capital structure. With the continuing high cost and limited availability of private market tower acquisition opportunities, we believe this is currently our best use of discretionary spending.

Our quarter-ending net debt-to-adjusted EBITDA leverage ratio was 6.6%, which I believe to be the lowest in our history at least as a public company. As always, we will continue to be opportunistic around investments, but for the near term, likely direct future cash flows into the repayment of debt as the most accretive short-term and certainly a long-term beneficial use of capital. Our balance sheet is in great shape, with no debt maturities until October 2024. And since that maturity could easily be refinanced under our revolver, we are comfortable now to remain opportunistic around timing of future financings. We are a preferred issuer in the debt markets we routinely used and retained very good access to capital.

We finished the quarter with 95% of our debt fixed, and thus, we are only modestly exposed for now to significant interest rate fluctuations. Our exposure to floating rate debt is also expected to decline further as we continue paying down our outstanding revolver balance throughout the year. We feel very good about our current capital position. We feel fortunate to be in a sound and stable business with tremendous fundamentals and significant long-term opportunity ahead. Our customers continue to have significant network needs and we will be there to support them in meeting those needs. I want to thank our team members and our customers for their contributions through our shared success.

And with that, Eric, we are now ready for questions.

Questions and Answers

Operator

[Operator Instructions] And first, we will hear from Rick Prentiss with Raymond James. Please go ahead.

Richard H. Prentiss
Analyst at Raymond James & Associates

Yes. Good afternoon, everybody.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Hey, Ric.

Richard H. Prentiss
Analyst at Raymond James & Associates

Hey, obviously, had some questions on AT&T MLA, big news item there. I appreciate, I think, you said $6 million of the increase in lease activity was really driven by AT&T MLA...

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Hey, Ric, can you speak up? We're having trouble hearing you. Ric?

Richard H. Prentiss
Analyst at Raymond James & Associates

How about now? Can you hear me better now?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

That's much better. Thank you.

Richard H. Prentiss
Analyst at Raymond James & Associates

You bet. I'm sorry about that. Had another phone coming, so I was like, nope, doing something busy. I appreciate some of the color on the MLA with AT&T. Couple of questions around it. Why now and any others that you're working on? And then also, suggesting that $6 million increase in guidance came from that, it looks like we should be thinking maybe of, kind of, flattish new lease activity over the next couple of quarters. And as we exit 2023, is that the way we should be thinking about it?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. So, on the MLA, first of all, on the numbers, the $6 million increase is basically due to the MLA. Obviously, that was our -- the $72 million is what we reported last time, we increased it to $78 million and activity was a little bit slower in the second quarter. So, we expect that the MLA will kick-in right away based on the terms of it and will be a contributor going forward.

In terms of the cadence, it would be fairly flat. I would expect actually that we'll see an uptick in terms of the contribution to the third quarter as a result of the MLA, and then you'll see it be a little bit lower into the fourth quarter. And that lower trajectory has nothing to do with the MLA, that's really based on slowing activity from other carriers. If you recall correctly, we had kind of a trajectory expected that was downward leaning throughout the year, and I would expect that will continue as it relates to other contributors.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

In terms of why, Ric, this agreement with AT&T has been in the works for well over a year and it's a deal that we believe is beneficial to both organizations. We've been working on it for that period of time and trying to signal and be transparent to our openness for this type of agreement, knowing that we were likely to enter into this agreement, which we have.

We really don't want to comment too much on what's going on with other customers. But just as we have always said, we are not hung-up so much on structure as we are on finding mutually beneficial agreements with our customers.

Richard H. Prentiss
Analyst at Raymond James & Associates

Okay. And one other one for me on the paying down the revolver. When does the calculus move back towards stock buyback? Because it sounds like there's still not a lot of M&A out there, which will be probably your first choice. But how do we think about when the lever moves since you're down to 6.6 leverage to more stock buybacks? Is that like a next year item, is that further out?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah, I think, if rates stay the same and stock prices stay the same, it will continue to be more accretive, and obviously, good for the overall capital position to continue to pay-down the revolver to zero. So, when we get to that point, Ric, we should -- you should ask that question again.

Richard H. Prentiss
Analyst at Raymond James & Associates

I'll be here to ask it. Great. Thanks a lot and stay well.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah.

Operator

And next, we'll hear from Michael Rollins with Citi.

Michael Rollins
Analyst at Smith Barney Citigroup

Thanks and good afternoon. Just curious, just to follow-up on the comprehensive deal with AT&T, can you share some of the multi-year component of this deal? Is there going to be a straight-line element that sometimes comes up with these types of multi-year or comprehensive opportunities? And does it change the way investors should think about leasing overall for SBA in 2024 in the domestic side?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah, Mike, so it will certainly smooth the way that we operate with AT&T. So, I think, from that perspective, perhaps, it impacts our reported growth numbers in terms of ebbs and flows, there may be a little bit less than that, at least as it relates to this particular agreement.

From a straight-line impact, we would expect that over the course of the agreement that we will have some straight-line impacts, but there are no straight-line or very minimal straight-line impacts in the short-term.

Michael Rollins
Analyst at Smith Barney Citigroup

And just wanted the commentary on leasing. So, the site development revenues are unchanged from the prior guidance. But you did note that there were some slower activity levels. Was this just something that you were maybe more prepared for earlier in the year or is there anything different about your site development business that maybe gave your expectation a little more durability in-spite of some of the changes that you observed?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah I think we know our site development business very well, what primarily centers around work -- almost entirely work on our towers. So, we have a very good feel for it. And there's just enough to work out there, Mike, that was already booked earlier in the year, and actually, some of it probably spilling over from last year, that's now working itself through our services backlog that gives us the comfort to continue with the guidance that we have.

So, a lot of it is more of a reflection of activity levels that occurred Q1, Q4 of last year.

Michael Rollins
Analyst at Smith Barney Citigroup

Thanks very much.

Operator

And next, we'll hear from Simon Flannery with Morgan Stanley.

Simon Flannery
Analyst at Morgan Stanley

Great. Thank you very much. I was just wondering on the leverage point, have you had any more consideration of targeting investment-grade status, or is that -- is this going to be just a temporary change in your overall leverage targets?

And then, if you could just talk -- yeah.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. Right now, I think, you should assume it's temporary, so that we can continue to watch interest rates and see where they go. If interest rates stay high, it may not be temporary. We haven't made that decision yet. Actually, we're paying down the revolver, because it's the most economic and best use of our cash today. It just so happens that as we continue to do that, we further decrease leverage, which makes the path of going to investment-grade if we were to so choose that path easier to obtain.

But I really don't think you should look at it, Simon, as a conscious effort to get to investment-grade as much as it is just the best financial use of our discretionary cash.

Simon Flannery
Analyst at Morgan Stanley

Great. Yeah. And just one follow-up, you mentioned earlier that you still got a lot of sites that have not been upgraded to 5G. Do you think as, given some of the rural skew of your portfolio, do you think that would advantage your portfolio in the next several years versus to about initial build-out?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I think if history is any guide, yes. That's exactly how it works, starts out in the NFL cities, it goes from there.

Simon Flannery
Analyst at Morgan Stanley

Great. Thank you.

Operator

And next, we'll hear from Phil Cusick with JPMorgan.

Phil Cusick
Analyst at JP Morgan Cazenove

Hi, guys. Thank you. Two, if I can. How should we think about the exit run rate in activity this year versus going into next year? AT&T, it sounds like a steady in 3Q and 4Q and then from there, and others are decelerating through this year. Should we think of the fourth quarter as a decent run rate for next year or maybe a little bit lower than that?

And then second, Jeff, I didn't understand your comments just a second ago on the service revenue now for activity earlier in the year. And it sounds like services are still running well ahead of historical levels. Do you expect them to come in? It sounds like you expect them, you're to make the guide this year, but next year, it sounds like things are going to be probably well below. Does that makes sense? Thank you.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Go ahead, Brendan.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

All right. Yeah. So, on the first question, we do -- we expect that the fourth quarter run rate, and you're talking specifically, just to be clear, about domestic organic...

Phil Cusick
Analyst at JP Morgan Cazenove

Yes, thank you.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Leasing contributions. Yeah. To be around approximately $17.0 million to $17.5 million. But I would definitely caution you as to using that as a indicator of next year. As I mentioned earlier, the trajectory based on activity levels is declining. And as a result, we would expect those numbers to step down as we move into next year. We're obviously not ready to give 2024 guidance yet at this point. But just kind of broadly when you think about it, the way we've always explained it and just the way that it actually happens, is that you get a lot of growth, for instance, the 2023 growth is based heavily on the leasing activity that took place at the end of last year 2022, and next year's numbers will be based heavily on the leasing activity that's taking place this year.

So, the number is a little bit higher than what we said before, because of the impacts of the MLA for the fourth quarter, but I don't believe will be indicative of the numbers for next year.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. And as far as the services revenue, Phil, the first-half of what we report in 2024 will be largely dictated by what we do now operationally with leasing. We have two different components of that. We have the site acquisition component, which is the planning, staff. And then we have the construction, which is where a lot of the current activity is taking place, because that's the last part of the cycle.

So, we'll see. We'll see where we come out with the 2024 guidance on services. But it will be, obviously, heavily impacted by how we finish out the rest of the year.

Phil Cusick
Analyst at JP Morgan Cazenove

Thanks very much, guys.

Operator

And next, we'll hear from Jonathan Atkin with RBC.

Jonathan Atkin
Analyst at RBC Capital Markets

Thanks very much. So, I was interested in doing just to contextualize the AT&T MLA. How much of your revenues for kind of this year, next year, the following year can we -- you considered to be fairly locked-in as opposed to usage-based? Thanks.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Segmental revenue.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. Just -- you mean just the percentage of the AT&T revenue or overall revenue?

Jonathan Atkin
Analyst at RBC Capital Markets

Overall revenue. For the whole Company, how do we kind of think it out how much is kind of a lock versus more of a [Speech Overlap]?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Right. John, we can't give specific numbers out. And obviously, a number of our agreements with other customers are fluid and where those amounts end-up are -- is obviously unknown. So, as a percentage, it's hard to say as well. So, we can't be very specific about it. But we do have some portion of our revenue base that is locked-in now under this agreement that wasn't before.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

And a greater portion of the AT&T then probably exists under other agreements, although we still have some of that. And I mean I don't think that's not a number that we have focused on. So, the best we can answer, Jonathan, as it's a much greater extent under the AT&T revenue.

Jonathan Atkin
Analyst at RBC Capital Markets

And you're comparing that to your agreements with other carriers as opposed to other Cowen & Co's agreements with AT&T I'm assuming?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Correct.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah.

Jonathan Atkin
Analyst at RBC Capital Markets

Got it. Understood. And then maybe just give us some directional guidance or the trajectory around building new towers and ground lease and easements activity?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I mean, we continue to look for good financially smart new build opportunities. We're doing those mostly outside the United States, primarily Brazil and South Africa, our two largest markets outside the United States. And we've a steady focus on ground lease purchases and extensions, which hasn't changed at all. It's moved a little bit more international in terms of the mix just because we've been at it so long in the United States. But nothing has really changed there. We would put more capital into particularly the land purchases and extensions of the opportunities arose.

Jonathan Atkin
Analyst at RBC Capital Markets

And then in terms of purchasing other portfolios, maybe, thinking about Africa and your operating history there and maybe some tuck-in opportunities even in that geography or elsewhere, what are your thoughts on increasing your scale in existing markets versus expanding the footprint?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I mean, the answer to that question is pretty much the same as it has been for years. For the right deal, we will do it. We have no strategic hole that we feel needs to be filled. End market growth, because of the existing base is going to be preferred over new market growth, but we would still go into a new market, if we found the right deal, and I would point back to the Tanzania Investment as a good example of that.

Because it's all financially driven, it makes our decision to use discretionary cash to pay down the revolver that much more straightforward.

Jonathan Atkin
Analyst at RBC Capital Markets

Lastly, I might have missed this, but the duration of the AT&T MLA?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

It's five years, Jonathan.

Jonathan Atkin
Analyst at RBC Capital Markets

Thanks very much.

Operator

And next, we'll hear from David Barden with Bank of America.

David Barden
Analyst at Bank of America/Merrill Lynch

Hi, guys. Thanks so much for taking the questions. So, I guess, maybe two. The first one, Jeff, just with respect to some of the actions that your competitors are taking, pros and cons for being in the construction business for towers at all? Is there maybe an opportunity to redirect resources in more optimal ways or is there an opportunity if people are willing to give up business for you guys to lean in at the margin as we think about the go-ahead business?

And then second maybe for Mark, as we think about the 25 term-loan and its maturity, what should the Street be doing in terms of expectations in the model with respect to how we address that cost? Fixed long-term role it -- what is the plan? Thank you.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

I'm going to defer that to our expert here, Brendan.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Services question, David, we've had a lot of history. Actually, you recall, that's how SBA started. So, we have a very flexible cost structure that allows us to ramp-up, ramp-down, we use a lot of subcontracted tower crews. We have our own, but we also use subcontracted tower crews.

And one of the things that has really served us well and our customers, gave us high praise for this is by using our services people for work on our towers for them, they are greatly benefited in terms of speed-to-market and efficiencies. So, I don't think that changes. So, I guess, if I had to choose one of your two options, lean out or lean in, we'll look to lean in and not be afraid to do that because of our confidence in how we manage that business.

Mark DeRussy
Vice President of Finance at SBA Communications

And Dave on the term loan, your question of modeling, if I could only see into the future. But we -- yeah. I mean, the best thing I think for people to do when looking at it is probably to assume a similar like-for-like refinancing. And I would expect that spreads will be similar to up slightly from where they are today, but we'll have to see how that plays out.

And then it's just a matter of using the forward curve in terms of the the benchmark. So for rate. But that doesn't mean that that is necessarily how it will play-out. We will probably have who will be evaluating multiple different options, there may be a mix of different instruments that we use some maybe fixed and some may be floating. But all things are on the table for us right now and we look at that, frankly, everyday. But if you just simply modeling out long-term, I think the best thing to do is just assume a like-for-like instrument.

David Barden
Analyst at Bank of America/Merrill Lynch

All right. Great. Thank you guys.

Operator

And next, we'll hear from Walter Piecyk with like LightShed. Please go ahead.

Walter Piecyk
Analyst at LightShed Partners

Thanks. Can you hear me?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yes.

Walter Piecyk
Analyst at LightShed Partners

All right, perfect. Sorry. The if you didn't have the AT&T MLA, would the $72 million to still stick or would that fall-off accelerating faster than you thought in terms of the second-half of the year?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

I can't really answer that question, Walt, because there's so many elements that go into it. We're -- what would the activity, be with AT&T otherwise, those types of things. So, I can't really say for sure what it would be, given that we were working a quite while. [Technical Issues] I'd like to discuss the individual customers, but obviously, this has just gotten through a major deadline that they had. There's a little bit of a slow down or a pause if you will, related to that and we would expect that will eventually pick-up, but given the delay between signings and revenue recognition. I would expect that will weigh year-over-year on next year. And T-Mobile was frankly very, very busy as well. And you have somewhat of a similar dynamic there.

But that's what we're doing into for next year, but longer-term is still a lot to do there. So, we...

Walter Piecyk
Analyst at LightShed Partners

So, if there was something incremental like qualitatively, what do you think those issues are?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

If there was something incremental, in what sense? I mean we're...

Walter Piecyk
Analyst at LightShed Partners

Just you were -- just in your -- in the response you just gave, meaning in Q2 is a little bit less and you're saying you're expecting that to continue into the third and fourth quarter, because again I think you guys did a good job historically already talking about a slowdown in the second half of the year, and also maybe how that we're carrying into 2024? And I'm just trying to get a sense of is there something new or worse?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. I don't think there is something particularly new. I think it's been a little bit slower than what we had anticipated before, but directionally, it's still the same. So, what does that mean for next year, does that mean $5 million difference or $10 million, I can't tell you yet, we're not ready to give there and we still have half the year to go. But it's marginally worse than what we thought in terms of the balance of the other carriers.

Walter Piecyk
Analyst at LightShed Partners

Understood. And just one...

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

And I mean, the...

Walter Piecyk
Analyst at LightShed Partners

Yeah, go ahead.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

The qualitative benefits or the positive to look-forward to, Walter, I mean DISH has to get started, whether it's late Q4 early Q1 on their 2025 bill, which is going to be large. T-Mobile hasn't even got the C-band and the 3.45 spectrum yet, you've got the -- you got some folks waiting on availability of dual-band equipment. So, there is all kinds of things to look forward to as we move through the year and into next.

Walter Piecyk
Analyst at LightShed Partners

Are you seeing anything from cable, Jeff?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

A little bit, but not enough to give anyone the impression it's going to move the needle.

Walter Piecyk
Analyst at LightShed Partners

Got it. Thank you.

Operator

And next, we'll hear from Batya Levi with UBS.

Batya Levi
Analyst at UBS Group

Great. Thank you. Just a quick follow-up on the AT&T MLA. Does it cover all the towers that AT&T has equipment on your side? And should we assume that the escalator in there is similar to the 3%, 3.5% that you have?

And another one, I believe you said 42-58 mix for amendments on new leases. Can you give us a sense of how that will look like if we just exclude DISH? Thank you.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah, so -- I'm sorry, what was the first part of the question?

Batya Levi
Analyst at UBS Group

AT&T MLA, if it includes all the sites they have you and the escalator.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Right. So, it does. There may be a few exceptions, because of specific issues around individual sites, but the vast majority of our sites are covered by the MLA.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

That have AT&T on it.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah, that have AT&T on it, of course. And then on the escalator piece, I can't really get into the specifics around what the escalator is. But our historical escalator with AT&T has been north of 3% and we would expect that to continue.

Batya Levi
Analyst at UBS Group

Great. And the amendments without DISH, is that much higher than the 42%?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

It would be. If you took DISH out of the max, you would have a much higher percentage of amendments of the total.

Batya Levi
Analyst at UBS Group

Okay. Maybe just a quick one, as you -- can you give us a sense on what the guidance assumes for DISH as we exit the year?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

No, we can't give you that kind of specificity now.

Batya Levi
Analyst at UBS Group

Okay.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

But much of it was -- but it's much less than it was exiting last year.

Batya Levi
Analyst at UBS Group

Got it. Thank you.

Operator

And next, we'll hear from Nick Del Deo with MoffettNathanson.

Nicholas Del Deo
Analyst at MoffettNathanson

Hey, thanks for taking my questions. First, regarding the AT&T deal, should we think of that is pulling forward some revenue that you otherwise would have expected in the latter years into the near future? And do you feel that the totality of the revenue that you'll get from AT&T over the course of the contract is similar to what it otherwise would have been?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

The answer to the last part of your question is yes, Nick. The answer to the first part, I don't think it's a pull forward.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. I mean it's hard to say because, obviously, previously, it was -- it would be very specific to the timing of when they were signing things, we don't know exactly what that timing would be, so could be pulling forward, could be pushing it out.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

The answer to your question will be only known in hindsight by the levels of AT&T's activity.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah.

Nicholas Del Deo
Analyst at MoffettNathanson

Okay. So, we should think of it more, call it, smoothing a bit, but not necessarily sort of a mass reallocation of what the revenue would have been. Is that fair?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yes.

Nicholas Del Deo
Analyst at MoffettNathanson

Yeah. Okay. Great. And then kind of two clarifications for Brendan. It looks like your forecast for international -- other international revenue went up by about $9 million versus last quarter's guidance. What was that? And was it in this quarter's results?

And then second, can you elaborate a bit on the $7 million in cost reclassifications that you noted in your prepared remarks? What was reclassified to and from, what was behind it, which segment?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. So, the other international was -- roughly half of that was in the second quarter. There is some -- that is in the balance of the year and it's frankly a mix of things, it's not one thing in particular. There was some increased cash basis revenue recoveries that we did not necessarily forecast. And some that we've actually even seen subsequent to quarter-end. And then also some termination fees and just other, frankly, cats and dogs nick. But they did add-up. And we actually have higher expectations for the balance of the year. So, that's that piece of it.

On the accounting reclassification, it basically has to do with the decommissioning of some carrier related equipment, basically Sprint-oriented equipment at some of our tower sites that we previously had expected or had been recording as a cost of revenue, a direct cost of revenue, but after discussion with our accountants, it was determined that the best classification for that was impairment and decommissioning costs. So, basically, it's just a move of those costs out of cost of revenue and into impairment and decommission costs.

Nicholas Del Deo
Analyst at MoffettNathanson

Okay. So, sort of, a one-time true-up?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

There were some one-times true-up in there, but that's the way it will also be going forward and that's, assumed within the guidance that we've given around tower cash flow.

Nicholas Del Deo
Analyst at MoffettNathanson

Okay. Can you share anything about how much of the change was attributable to that beyond the $7 million recognized in the quarter, what it would be for the full year?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah, it's another roughly $4 million.

Nicholas Del Deo
Analyst at MoffettNathanson

Okay. Terrific. All right. Thank you, both.

Operator

And next, we'll hear from Brett Feldman with Goldman Sachs.

Brett Feldman
Analyst at The Goldman Sachs Group

Thanks. Two questions, if you don't mind. When some of your peers announced their own versions of MLAs, or holistic agreements or whatever they call it. It's not uncommon when they announce it for them to come out and say, oh, by the way, we're raising our guidance for straight-line revenue. I know you've got a question about this earlier. But it's typically because there are some incremental commitment that was made in that agreement maybe with escalators or some other amount of leasing, and you didn't do that with this agreement. So, I can imagine a question we're gonna get is ultimately what do you feel like you accomplished through the MLA? Because you've been very selective in entry into these larger agreements. And I know there's been some questions on it, but I'm trying to think about the right way of framing that.

And then the second question is the portfolio growth has been a focus for SBA for a very long-time. I remember the analyst meeting, 15 plus years ago, when you first started talking about these long-term targets and it's understandable why paying down your revolver right now is probably the economically most accretive thing to do. But whenever we get past this moment, do you think portfolio growth is going to be the same priority and same opportunity or are you starting to suspect that maybe the tower portfolio that you don't own in the markets you're in or might want to be in are not nearly as attractive as the types of portfolios you could just develop on your own, particularly outside the U.S. Thanks.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I will take the last one first. I believe portfolio growth will always be our most desirable and highest potential allocation of capital. Where it falls today -- I mean, keep in mind, we grew the portfolio of 15% last year. Where it falls today is purely a function of cost of debt and availability and pricing of asset.

But as long as all that works out, Brett, to achieve a investment re that result we want. I don't see the preference and prioritization of portfolio growth changing.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. And Brett, on the question around the straight-line for the MLA, there actually was, you couldn't see it, but there is actually some small impact to straight-line, that was actually offset by a decrease in straight-line associated with some of the accelerated Sprint churn that we mentioned earlier. So, there is a small impact.

But in terms of what it looks like going forward. Obviously, what our peers have done and what we've done, probably not exactly the same agreements, I'm sure there are terms that are different. I can't speak to their specifically. But really it's a function of timing in terms of when certain commitments take place. And in the future, I would expect that there will be some straight-line impact as a result of this deal, but it's a little more activity driven than it is upfront.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. you will see straight-line benefits over time, over the course of the five years, Brett, based on various triggers and activity levels as opposed to upon signing.

Brett Feldman
Analyst at The Goldman Sachs Group

All right. Thank you.

Operator

And next, we'll hear from Jonathan Chaplin with New Street.

Jonathan Chaplin
Analyst at New Street Research

Thanks. One, just very basic question. The -- how do you assess that, paying down the revolver is the most accretive use of free cash flow? How do you sort of put that up against the accretion you get from share repurchases? Is it as simple as what the yield of the debt is relative to your AFFO yield? And are you taking the direction of rates into consideration when you make that determination, or is it just sort of a moment by moment decision that drives whether you are in the market buying back stock or paying down the revolver?

And then just a follow-up question on DISH, is there anything assumed in new leasing activity for the second-half of this year from DISH in your guidance? Thank you.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

So, the accretive -- the accretion analysis takes into account a number of things. Certainly, the basic straightforward piece that you mentioned, which is what's the yield of buying back our stock today versus what can we save by paying down the revolver or any debt. And right now, that actually is more accretive to pay-down the revolver today. But we also look at long-term and we look at our expectations for growth, for growth in cash flow, as well as what we think our future financing or refinancing costs will be and that positioning relative to our balance sheet as a whole is also relevant to that. So...

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah, and that bodes towards stock repurchases, Jonathan, with one major exception today, which is we don't know that interest rates have stopped going up. And when interest rates go up, it immediately affects the cost on the revolver. We can always buy our stock back and that, we take comfort in that. But when you have a increasing interest rate environment, where we don't know when it's over, we just think both from a business perspective and certainly a balance sheet perspective and from an accretion perspective, the pay-down the revolver balance, while we have one, is the way to go.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

And, DISH in terms of the impact for the second half of the year, as we mentioned, it's obviously been slower in terms of new business being signed-up with them. There is still a significant contributor to the second-half numbers, because of all the business that they did with us over the last year. But we expect that we'll continue to see at least for this year, less executions with them. But ultimately, they have a ton to do as we talked about to meet their '25 goal and we would expect that that will turn-around sometime at the end of the year, into next year.

Jonathan Chaplin
Analyst at New Street Research

Got it. Thanks, guys.

Operator

And next, we'll hear from Eric Luebchow with Wells Fargo.

Eric Luebchow
Analyst at Wells Fargo & Company

Great. Thanks for taking the question. Just going back to the question on investment-grade. I know that's clearly not part of the plan right now. But theoretically, if you did make that decision, what type of leverage do you think you'd have to target to get there and how quickly do you think you can get there based on where your leverage is that today?

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Based on the thresholds that are thereby the agencies or at least by one of the agencies, right now, we're getting very close to being there, certainly, within a half a turn of leverage of being there. But it would be more about the commitment to staying there than it would be about getting the leverage.

Eric Luebchow
Analyst at Wells Fargo & Company

Yeah. Understood. And then just another question on the comprehensive MLA. I mean does this, if at all, indicate that you guys would still be open to enter into similar arrangements with some of the other carriers, maybe to smooth out some of the leasing volatility or is it really just a case-by-case basis what you think would be NPV positive for your business?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I mean it's really the latter, but I mean we've always said we will be open to a variety of structures. I mean this I think evidences the openness. So, for the right deal, Eric, we would we would do any number of structures with our customers.

Eric Luebchow
Analyst at Wells Fargo & Company

Okay. Good. Thank you, both.

Operator

And next, we'll hear from Brendan Lynch with Barclays.

Brendan Lynch
Analyst at Barclays

Great, thanks for taking my questions. At the risk of belaboring the point, I have a few on the MLA. Maybe just high-level given the MLA with TIM and now with AT&T, has the market changed, have customers changed or has your perspective changed? And then maybe if you could give us any specifics on long the number of sites, minimum payment schedule? You mentioned it was five years. But I'd imagine the leases are for much longer. Any details around that would be helpful.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. I think in terms of the details, we need to keep -- stay away from most of those, there is a lot of specific things that you asked about there that obviously are somewhat important for us to keep confidential for both us and our customers. But it is a five-year agreement and there'll be a lot of ramifications that I would expect to extend beyond the five years.

So, in terms of the MLA in general, I think, Jeff kind of mentioned -- answered this earlier, it's -- we've always been open to different structures obviously at different points in time in our history, we haven't necessarily bound terms that we found to be beneficial to us or they didn't work for our customers, wherever the case may be. So, we've done less for those. But we've done MLAs over the years in various structures. We have an MLA today with Verizon, we've had MLAs with T-Mobile and DISH. So, we've done these agreements before, but each one is dependent upon the specifics around that carrier and their needs at the time and what works for both parties. So, I don't know that anything has holistically changed out in the market broadly.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. I mean, we are trying to be responsive to our customers, while at the same time being responsible to ourselves and our shareholders. And that will continue to be kind of the big-picture as to how we approach these things and it could lead to more, or this could be the only one.

Brendan Lynch
Analyst at Barclays

Maybe just to clarify a point. I think you described some of your past MLAs as being pricing menus. Is that how you would characterize this arrangement with AT&T or is there a better way to think about it?

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Yeah. This would be a little different than that. This would be payments in exchange for AT&T having certain rights to use our towers.

Brendan Lynch
Analyst at Barclays

Okay, Very good. Thank you.

Operator

And now, we'll hear from Greg Williams with TD Cowen.

Gregory Williams
Analyst at TD Cowen

Great. Thanks. Just first question on any further developments with Oi beyond TIM, with the other carriers, any ongoing discussions that you're having with them? And are you hopeful you can get anything done by year-end?

And then just second on the site development, it sounds like it'll hang out in the low-50s next few quarters. Anything to think about in terms of service margins from here? Thanks.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah. On the Oi question, you're talking specifically about deals with the other carriers that took over Oi Wireless, I believe. We...

Gregory Williams
Analyst at TD Cowen

That's what...

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

We -- yeah, we are having conversations with those other carriers and it's possible that there would be some other arrangement struck with them, but it's premature for us to say. And obviously, if we do reach one, we'll let you know at that time.

And then on the site development question, I would expect that the margins will stay pretty similar on a percentage basis to what you've seen during the first-half of this year, the volume maybe a higher or lower but pretty pre-flat, your estimate of around 50 or so quarters is probably about right.

Gregory Williams
Analyst at TD Cowen

Got it. Thank you.

Brendan Cavanagh
Executive Vice President and Chief Financial Officer at SBA Communications

Yeah.

Operator

And we have no further questions at this time.

Jeffrey A. Stoops
President and Chief Executive Officer at SBA Communications

Great. Well. I want to thank everyone for joining us this evening and we look-forward to getting back together in late October for our third quarter. Report. Thank you.

Operator

[Operator Closing Remarks]

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