Q1 2026 Earnings Call Transcript

Welcome, and thank you for joining the SBA First Quarter 2026 Results. [Operator Instructions] With that, I'll turn the call over to Louis Friend, Vice President of Finance and Capital Markets. Please go ahead.

Good evening and thank you for joining us for SBA's First Quarter 2026 Earnings Conference Call. Here with me today are Brendan Cavanagh, our President and Chief Executive Officer; and Marc Montagner, 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 2026 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations.

Our statements are as of today, April 29, and 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 Marc to comment on the first quarter results and 2026 outlook.

Thank you, Louis. Given the solid start of the year, we are increasing our full year outlook for all key metrics, including site leasing revenue, our cash flow, adjusted EBITDA, AFFO and AFFO per share as compared to our initial 2026 guidance. The primary drivers of these increases include outperformance during our first quarter, high straight-line revenue and favorable foreign currency rates. In the first quarter, we continue to operate efficiently, controlling direct costs and achieving company-wide tower cash flow margins of approximately 80%.

In the U.S. we added approximately $10 million of quarterly new lease and amendment billings year-over-year. The bulk of the activity continues to come from new colocations as carrier both densify and expanded network footprint. With respect to churn, our prior outlook for both Sprint and EchoStar-related churn for the year remains unchanged. With regard to EchoStar, we continue to litigate the matter in federal court and believe strongly in our contractual rights.

Internationally, we continue to see healthy demand for our infrastructure and we added approximately $4 million of quarterly new lease and amendment billings year-over-year. International churn continues to be elevated due to carrier consolidation, bankruptcy, restructurings and wireless operator's network rationalizations. We believe 2026 will be the peak year for international churn and expect improvement in our churn rate over the next several years. Moving to our balance sheet.

In January, we paid off $750 million of ABS debt with our revolving credit facility, and our outlook assumes that we will use our free cash flow to pay down the current outstanding amount on our credit facility over time. Consistent with our prior outlook, we continue to assume that a $1.2 billion November ABS maturity will be refinanced in November at 5.25%. We also continue to be committed to becoming an investment-grade issuer and anticipate making our inaugural investment-grade bond issuance at some point in 2026, dependent market conditions. We ended the quarter with approximately $13 billion of total debt.

Our current leverage of 6.6x net debt to adjusted EBITDA remains near historical lows and within our target range of 6 to 7x. During the first quarter, we declared and paid cash dividend of $135.2 million or $1.25 per share. And today, we announced that our Board of Directors declared our first quarter dividend of $1.25 per share, payable on June 17, 2026, to shareholders of record as of the close of business on May 22, 2026. This dividend represents an increase of approximately 13% over the dividend paid in the first quarter of 2025 and an annualized rate of approximately 41% of the midpoint of our full year AFFO guidance.

I will now turn the call over to Brendan.

Thanks, Marc. The first quarter was another quarter of solid financial and operational results, leading both in industry AFFO per share and year-over-year growth in our dividend. Our customers around the globe remained busy deploying cutting-edge technology, expanding the footprint and deepening existing capacity to meet strong customer demand. In the U.S., our customers continue to invest in their networks, expanding 5G coverage with new spectrum, including C-band, technology upgrades such as massive MIMO antennas and growth in fixed wireless access, which continues to add strain to carrier networks.

The majority of leasing activity in the quarter came from new leases as carriers focus on coverage gaps and capacity needs. Our backlogs also continued to steadily increase during the quarter, and we expect to see steady activity levels throughout the remainder of 2026. Looking farther out, we expect the drivers of organic growth to include the upper C-band auction expected in mid-2027. 6G network architecture moving towards a more balanced uplink, downlink mix and new spectrum bands currently being studied for future auction. All of these items will require new hardware at the tower sites. Today, we are starting to see the early signs of 6G with higher capacity radios and denser and more intelligent antenna configurations to send and receive growing volumes of data.

Beyond towers, we continue to make progress and are very excited about the opportunities to leverage our existing portfolio to play a more meaningful role in mobile edge computing as edge workloads move closer to the end user. Macro tower compounds offer a cost-effective solution for edge compute needs, benefiting from strategically located sites with existing power, backhaul infrastructure and zoning protections. We are excited about the potential of this incremental revenue driver. Internationally, we had a solid quarter as well.

We've made tremendous progress integrating the Millicom assets and are seeing healthy colocation demand for these sites, exceeding our initial lease-up projections. We are also just starting to ramp up the number of new tower builds, building just over 60 towers in Central America in the first quarter, with expectations to do much more over the coming quarters and years. Between building towers and buying the land underneath, we intend to put capital to work in Central America at risk-adjusted returns that are expected to be well above our cost of capital. We expect that our leading position in Central America will enhance our overall international portfolio, reducing relative FX exposure, diversifying our customer base and extending lease terms, all with the overarching goal of improving the durability of cash flow over the long term.

Turning to capital allocation. Our dividend as a percentage of AFFO remains relatively low. This means the continuation of our shareholder-friendly remuneration policy while also preserving the flexibility to opportunistically invest in new assets in our existing markets. While we did not repurchase meaningful shares in the first quarter as we prioritize paying down our revolving credit facility with excess free cash flow, we expect share buybacks to remain an important part of our capital allocation strategy in 2026. In the first quarter, leverage remained within our recently revised target levels even with the removal of all EchoStar revenue as of January 1, and we are well positioned to be an investment-grade issuer during this year.

We expect that this shift to IG will reduce our relative overall cost of debt over time while providing access to the deepest and most liquid market in the world, improving our already solid balance sheet. SBA is a truly remarkable company. We have solid financials, high-quality assets, an established track record, the best people in the industry and perhaps most importantly, a drive and culture that continually pushes us forward to maximize outcomes for all of our stakeholders. The future potential for this company remains very exciting.

Before opening it up for questions, I'd like to thank our team members and customers for their trust in SBA. The company's ability to achieve our vision to be our customers' first choice provider and the industry leader in quality infrastructure solutions is only possible because of the incredible team members we have with SBA. With that, operator, we are now ready for questions.

[Operator Instructions] Let's go to our first caller.

It's Ric Prentiss, Raymond James. Can you hear me?

Yes, we can.

I want to ask a couple of philosophical questions. When you -- can you help us understand what are the advantages and disadvantages of being a public company versus a private company as you look at competing for assets and tenants and capital? Just kind of help us lay it out long-term view, short-term view leverage levels. Help us understand kind of how you think about public versus private.

Well, I mean, Ric, I think for us, it's not really about public versus private. We focus on quality of assets that we have and providing the best service possible to our customers and the best -- meet their needs where they have them. And I think whether we're a public company or a private company, that will continue to be the case. There's, of course, differences in public and private companies in the way that they're capitalized and things that they have to talk about publicly, but otherwise, the business is the same.

Okay. The other philosophical question is you guys sold the Canadian tower portfolio. As you review that Canadian sale, how do you stack up the priorities or criteria or the factors of price versus ability to close versus financing? When we look at Canada, how do you kind of think of going through the potential list of buyers and what's important?

Well, Ric, I mean the approach with Canada was specific to Canada. We had come to the conclusion after being there for many, many years that our ability to get to a scale that would position us in the best place possible to continue to grow that business and meet customer needs there was not going to be achievable. And so we decided to explore monetizing those assets as a better -- potential outcome for our shareholders. And based on that process that we ran, we were able to achieve a price that we felt was attractive and appropriate and so we sold the assets.

And that's really no different than the way we've approached all of our markets. We've talked for the last couple of years about portfolio review that we're doing, trying to make sure that we're positioned in the best place possible in each of the markets where we operate in terms of our relative scale as well as our relative positioning to the leading carriers in those markets. And the Canada situation was no different than any other.

Okay. And then one operational question. Obviously, not meaningful stock buyback this quarter, but you said you want -- still plans to do some in '26. How should we think about leverage level, buyback, M&A opportunities and how you're kind of balancing those use of your flexibility?

Yes. So our leverage target, we revised late last year to 6 to 7 turns of net debt to adjusted EBITDA, and we're obviously operating right in the middle of that range. And so we start with the leverage first. We make sure that we kind of maintain leverage in that target range and then prioritize what we think provides us the best opportunity at a given point in time among buybacks.

Obviously, dividends are paid out and growing on a pretty steady basis and then new asset investments, mostly new tower builds and acquisitions. And that's not really that different than the way we've approached things historically. I think from quarter-to-quarter, different opportunities come up and we spend time on those opportunities. And depending on what we're looking at, that may cause us to slow down on buybacks or possibly increase them because we don't have enough other options to invest that capital, but it's our goal to stay levered at the same level that we've targeted.

And as a result, that provides us a lot of excess cash flow to invest every year. And we look at all the options available and compare them to each other at a given time. But ultimately, I expect we're going to spend money on all of those categories over time just as we've done in the past.

Let's move on to our next caller. Please go ahead. State your name, organization, then question.

Mike Rollins from Citi. Two topics, if I could, please. The first on the leasing environment. The release referred to, I believe it was a larger backlog in domestic leasing.

Just curious if you could talk about the significance of that change in backlog versus maybe other historical first quarters and put that into perspective in terms of the type of leasing growth that you're expecting to deliver this year or in future years? And the second question, maybe just taking a step back, as you talked at some conferences, the subject of your value versus private markets has come up. I'm curious, as you talk with investors about it, what you learned about how investors are valuing you in the public market? And what are the ways that SBA is trying to respond to questions about whether it's the business or the financial outlook in a way to improve that visibility and transparency for your future financial opportunities?

Yes. So first, the leasing environment. Our backlog did increase from December 31 levels to March 31 levels. So that was a good sign.

And I'm talking about U.S. backlog specifically. I think that's what you're questioning. And that increase, I would categorize as moderate. It wasn't extreme necessarily, but it definitely was an increase where we have more applications coming in than new business that we are executing.

So it's actually replenishing faster and at a higher rate than it's being used. So that's a good sign in terms of the rest of the year and how the year should shape up in terms of leasing activity. I think from a historical standpoint, it's not necessarily an extreme outlier. And I would expect that this year's leasing activity in the U.S. will be relatively steady based on where we sit today.

Obviously, things can change throughout the course of the year. But at this moment in time, based on our interactions with our customers and the way that the backlogs have grown, I would expect to see fairly steady activity levels. In terms of how we position SBA, it's a little bit of a cryptic question, Mike. But I think our focus is on trying to be as clear as we can with our public investors about all of the tremendous attributes of our business and sharing that information clearly in terms of the quality of our assets, the quality of our growth prospects and the quality of the cash flow that we produce on a very steady, consistent basis than we have, frankly, for decades.

And so the more that I think we can share that message and evangelize it and then ultimately demonstrate our ability to execute, I think we'll be just fine. I can't speak to how every individual party might look at valuing this company if they're outside of the public shareholder base at this point.

All right. Let's move on to our next caller, Batya Levi UBS.

Great. Just a follow-up on the domestic activity. With the backlog -- the moderate increase in the backlog that you're seeing, is that across the board or specific to a company? I think one of your tenants had been slowing down significantly.

Do you see some uptick in their activity to maybe offset some of the slowdown you were expecting in the second half? And a question on the mobile edge compute that you think could provide a new incremental revenue opportunity. What kind of investment do you think it would require to refit your sites? And when do you think that will start to flow into the P&L both from an expense and a revenue perspective?

Okay. So on the domestic activity, and I don't like to necessarily share specifically what each customer of ours is doing, I will say that it was not necessarily completely even among our biggest customers in terms of backlog increases. We obviously have 1 customer where we've signed a recent agreement. And so we're starting to see an increase in activity associated with that.

So that definitely has influenced it. But overall, that ebbs and flows generally over time anyway. That's what we've always seen historically. So in a given quarter, 1 quarter does not necessarily tell the story.

So I would expect that we'll see all 3 of the primary customers we have in the U.S. be active at various points during the year. On the edge compute side, we are kind of excited about the potential opportunity there. It's definitely emerged as something that I think there's going to be a lot of interest in specifically for AI inference and low-latency environments that are going to be critical as AI just continues to infiltrate all of the applications that end users will eventually be using over these wireless networks. We are, ourselves, engaged actively with multiple companies exploring how we might deploy some of these edge data centers at our tower sites.

And we're in the early stages of that, Batya. I would say we have some that we've already done, a very small number. And so some of that is almost trial in nature. We expect some of those to come online shortly.

So we've incurred some dollars as it relates to that. I think I need to just punt a little bit on the timing for impact to the financials in any material way, but that's something that I'm sure we will be coming back to you with in future quarters because it's definitely starting to gain traction, and I think it will be a contributor down the road.

[Operator Instructions] Let's move on to our next caller from Brendan Lynch from Barclays.

Just a follow-up on the edge sites. Brendan, can you hear me?

Yes.

Just to follow up on the edge sites. Brendan, can you give any concrete examples of how AI being deployed at a tower site is advantageous relative to in a traditional data center? Just -- I asked this because it's largely been theoretical over the past several years. So maybe it sounds like there's some momentum and things are changing there. So any additional color you can give would be helpful.

Yes. I mean it's hard to give you exact. I mean, really, what we're talking about and what we're seeing is some of these applications that have a much greater amount of uplink versus downlink, which affects, by the way, the general architecture of the wireless network itself is requiring in order to be effective an even lower level of latency to make those solutions as effective as possible. And as a result, the closer that you can move the compute power to the edge of the network and closer, frankly, to the user, we're finding that folks think that that's going to make a real difference to the success of some of these applications.

And as a result, there's a push to move that out. I also think there's a practical issue in that, in some ways, it may be easier to have this more distributed compute sort of network through these micro data centers versus just having the bigger facilities that are more centralized in terms of just power usage and other resources that are necessary to make these things effective that to some degree, when you distribute it out on a further basis, that's actually easier to achieve in some cases. So we'll see, Brendan, but I think as long as latency is a real issue, then edge compute is going to become more and more important.

Okay. Great. That's helpful. And then maybe just another question on the land purchase in Guatemala. Can you just kind of walk through some of those details and what the cap rate was that you paid?

Yes. So that -- we actually talked about that, I think, on the last call because we closed on that early in the year. We were able to buy out land under most of the towers in Guatemala that we acquired as part of the Millicom acquisition. I believe the multiple we paid was in the 7-ish range.

I'm looking for confirmation. I think it was about 7 turns was about what we paid for that. So pretty attractive and accretive in terms of valuation, but also helpful to us in terms of our relative positioning from a risk standpoint on all those properties and that we can control that land a lot better than, obviously, we could have before.

Our next caller is Nick Del Deo from MoffettNathanson.

So Brendan, you noted in your prepared remarks that the demand you're seeing for the Millicom towers has exceeded your expectations. I guess based on your conversation with those customers, is it your sense that this is like an initial burst that's happening, the sites have become available that may subside? Or does it strike you something that's more sustainable?

Yes. I think there's definitely an initial interest because these sites were obviously in carrier-controlled hands before. And so now that they're kind of opened up more directly for colocation business than they probably were before, that's caused some inbound interest that I think is what you would normally expect when assets like this become available. But I do think that there is an opportunity to sustain the growth for an extended period of time because for one thing, there's a lot of sites.

Two, we're just at the very beginning stages of having conversations with those other customers, and it's primarily 1 customer in many of these markets about the site. So based on the pent-up demand that we see and what they've expressed to us, I think we're going to see very attractive lease-up for an extended period of time.

Okay. Okay. Great. And then maybe one about the U.S. market. One of your peers has commented that the big carriers might be more interested in working with the larger public tower companies to undertake more new construction opportunities. I was wondering if you've observed anything similar.

Yes. I think there is some of that. I mean, definitely, the dialogue that we've had with the MNOs as of late has been much more constructive towards new build opportunities here in the U.S. than it has been in the past. I mean, really, if you kind of go back in history, and this isn't just SBA, but the other big tower companies as well, were primary suppliers of new builds for many, many years.

And then that obviously changed dramatically. You had a lot of smaller new companies coming up and the financial terms that were being offered were not really something we found attractive, and I imagine most of our peers -- our bigger peers did not as well. And so that's why you saw the level of what we're doing dry up. But in this current environment, as we sign some of these master agreements, and we have broader reaching relationships that get established as well as the cost of capital increasing and the stability of the end provider that the carriers are dealing with, it's becoming more and more important to them that they're with somebody that they know that they can rely on to be there for the long term.

And I think as a result, you're going to see more opportunity for companies like us to do more new tower builds here in the U.S.

Moving on to our next caller, David Barden from New Street Research.

So I guess, Brendan, I just have to ask, like, do you -- the story that -- there were a couple of questions already about this, which is that there are multiple PE firms circling, wanting to buy SBA, take it private. TMT Finance reported that they would do with a $250 a share. And I'd question whether you and Jeff, who is still the Chairman would really want to sell. So could you kind of walk us through what would it take for this to actually happen?

That would be kind of question number one. And then -- well, that's it. That's my question.

All right. Yes. I mean, listen, of course, I've seen, of course, these articles that have been out there for the last few weeks, and you won't be surprised to hear me say that as a matter of policy, which is our policy, we don't comment on speculation or rumors that get put out there in the press. I mean what I can say just more generally is that I've been with SBA for over 28 years.

And during that entire time, we have always focused on evaluating all options and all possible routes we can take around various different things in order to act in the best interest of our shareholders. And we do that still today, and I expect we will do that in the future. And so of course, we will always evaluate any opportunity that presents itself to us. But beyond that, I mean, I can't really comment on what somebody decides to put in an article without any real basis.

Would it be fair, Brendan, to say that if there was ever a moment in the last, say, 3, 4, 5 years while this constant evaluation has been happening, where you bought back stock, that you would never sell the company for a number that's less than the number that you bought that stock at?

Well, I mean, I can't -- David, I can't really tell you what we would do or what we would not do in some hypothetical case. What we would do is always make a decision that we thought was best for the shareholders, whatever that was at that moment in time, and that's the decision we would make.

[Operator Instructions] All right. And that looks like that's all the questions we have for today.

Okay. All right. Well, thank you, Marilyn, and thank you, everybody, for dialing in, and we look forward to reporting our second quarter results to you next quarter. Thanks.

Thank you to our speakers and to everyone in the audience for joining us today. The call has concluded. You may now disconnect.