SBA Communications today announced its Q4 and full-year 2021 earnings and provided updates on its outlook for 2022, U.S. and International organic revenue growth rates, leasing drivers, and expansion into the Philippines through new greenfield tower builds.

As of Q4 2021, SBA owns or operates 34.2k communication sites, 17.4k of which are in the United States and 16.8k that are located internationally (primarily Brazil and South Africa). Pro forma for SBA’s acquisition of 1.4k towers in Tanzania from Airtel Africa, the majority of which closed in January 2022, the company controls a total of 35.6k communication sites, of which 17.4k are in the United States and 18.3k are located internationally.

Financial Performance in Q4 2021 – SBA Communications

In Q4 2021, SBA Communications’ total revenue was $595.3m, which grew 1.0% quarter-over-quarter. Next, decomposing this revenue figure further, SBA reported:

  • Site Leasing: revenue of $539.4m, an increase of 0.7% quarter-over-quarter. Of this total, $432.2m (80% of total) was generated in the United States, while $107.2m (20% of total) was produced internationally
  • Site Development: revenue of $55.9m (record result), an increase of 3.8% quarter-over-quarter

Additionally, SBA Communications delivered adjusted EBITDA of $409.1m, a 0.5% increase quarter-over-quarter. Therefore, the company’s adjusted EBITDA margin was 68.7% (reported as 69.8%) in Q4 2021, a ~35 bps decline quarter-over-quarter.

Full-Year 2021 and Outlook for 2022 – SBA Communications

Full-Year 2021

For full-year 2021, SBA Communications reported total revenue of $2.31bn, a 10.8% increase year-over-year. Of this total revenue, the split was as follows:

  • Site Leasing: revenue of $2.10bn, an increase of 7.7% year-over-year. Geographically, SBA earned its site leasing revenue as follows: $1.68bn (80%) from the U.S. and $423m (20%) from international markets
  • Site Development: revenue of $204.7m, an increase of 59% year-over-year

Also, SBA produced adjusted EBITDA of $1.61bn, a 7.6% increase year-over-year. Therefore, SBA Communications’ EBITDA margin was 69.6% (reported as 70.5%) in full-year 2021, a 2.1% decline year-over-year.

Outlook for 2022

For full-year 2022, SBA Communications provides an outlook for total revenue of $2.43bn to $2.47bn, implying a year-over-year increase of 6.0% at the mid-point. Below is a further breakdown of the company’s revenue outlook for 2022 by site leasing and site development revenue:

Site Leasing

SBA projects $2.24bn to $2.26bn of site leasing revenue in 2022, a 6.7% increase year-over-year, at the mid-point. Geographically, SBA expects to derive its site leasing revenue as follows: $1.74bn (77.5%) from the U.S. and $505m (22.5%) from international markets. Also, in 2022, SBA anticipates $30m of decommissioning/churn from T-Mobile (legacy Sprint leases).

In terms of new leases and amendments, SBA expects $82m of total activity during 2022. Of this total, the U.S. will contribute $65m and International markets will account for the remaining $17m of new leases and amendments.

Site Development

SBA forecasts $193m to $213m of site development revenue in 2022, a 0.9% decrease year-over-year, at the mid-point.

EBITDA

SBA forecasts adjusted EBITDA of $1.67bn to $1.69bn, implying a 68.8% adjusted EBITDA margin. Finally, the mid-point of SBA Communications’ 2022 outlook infers a year-over-year increase of 4.8% in adjusted EBITDA.

United States Operations – SBA Communications

U.S. Organic Revenue Growth

SBA Communications’ U.S. gross organic revenue growth rate of 6.3% continued on an upward trajectory in Q4 2021. Indeed, this level of U.S. gross organic revenue growth is the highest the company has experienced since Q2 2020. Similarly, the company’s U.S. net organic revenue growth rate also improved to 3.9% in Q4 2021. As such, these metrics imply churn of 2.4% for the quarter.

SBA Communications U.S. Organic Revenue Growth Rates Q4 2021
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U.S. Leasing Drivers, Customers

SBA Communications’ new leases comprised 52% of the company’s U.S. signings, while amendments made-up 48% of U.S. signings. Overall, the Big-4 wireless carriers of Verizon, T-Mobile, AT&T, and DISH Network represented 96% of total incremental U.S. lease signings during the quarter. More specifically, Verizon was focused on C-band deployments, T-Mobile on 600 MHz and 2.5 GHz roll-outs, AT&T was a “steady contributor”, and DISH Network signed new lease agreements in support of its “brand new nationwide 5G network”.

Based on its backlog and conversations with customers, SBA expects “elevated” U.S. leasing activities to continue throughout 2022 and into 2023. For example, the company expects that new 3.45 GHz spectrum acquired by wireless carriers will require new radios to be deployed on towers, starting in the second-half of 2022.

International Operations – SBA Communications

International Organic Revenue Growth

SBA’s International gross organic revenue growth rate was 8.7% in Q4 2021, improving quarter-over-quarter. In particular, Brazil’s gross organic revenue growth rate was 9.8%, on a constant currency basis.

To this end, SBA notes that “gross leasing demand is expected to remain strong internationally, particularly in light of the recent 5G spectrum auction in Brazil and the upcoming 5G spectrum auction in South Africa”. In addition, the company has commenced operations in Tanzania, through its acquisition of sites from Airtel, and in the Philippines, via new greenfield tower builds (see below).

However, SBA’s International net organic revenue growth rate was only 4.3% in Q4 2021, a deceleration quarter-over-quarter. This is because SBA is experiencing heightened levels of churn in its international markets.

SBA Communications International Organic Revenue Growth Rates Q4 2021
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During Q4 2021, International churn rose by 1.7%, reaching 4.4% for the quarter, as compared to 2.7% in Q3 2021. As a reference point, SBA’s International churn in prior quarters has typically averaged ~0.5%.

SBA’s International churn spiked higher in Q4 2021 due to “greater impacts from carrier consolidations and other network and contract modifications in Central America”. Specifically, the company points to consolidation-related churn with Claro (América Móvil) acquiring Telefónica’s operations in Guatemala as a contributing factor.

Philippines – New Market Entry

SBA Communications views the Philippines as a tower market where it is “very excited about the prospects for favorable growth over the next few years”. As such, the company has established operations in the Philippines, opening a local office, hiring staff, working with government agencies for all necessary permits, and establishing relationships with each of the country’s three major mobile network operators, namely Globe Telecom, PLDT (Smart Communications), and DITO Telecommunity.

Presently, there are 20+ licensed tower companies operating in the Philippines. However, SBA only deems 5 to 6 of these companies/competitors (e.g., American Tower) as having the capabilities, wherewithal, and customer support to secure meaningful build-to-suit (BTS) commitments from wireless carriers for new sites.

Expansion of wireless networks in the Philippines will support demand for significant new greenfield tower builds in the country over the next several years. Therefore, every year for the next 10 years, SBA anticipates that “thousands of towers will be built in the Philippines”. Of this total market build, SBA is targeting its “fair share” by building a business of at least 500 towers in the country.

Initially, SBA Communications is focusing on a greenfield site build strategy in the Philippines, which currently has only ~24k cell sites. To this end, during Q4 2021, SBA built-out its first 7 greenfield sites in the Philippines. For these sites, SBA has secured build-to-suit (BTS) commitments from both Globe Telecom and PLDT (Smart Communications) as anchor tenants.

Financially, SBA Communications notes that it is achieving “double-digit” (i.e., 10%+) Day-1 tower cash flow yields on newly constructed towers in the Philippines.

Tower Acquisitions and Build Activity

Acquisitions

During Q4 2021, SBA acquired 59 communication sites for total cash consideration of $38.4m, implying a valuation of $651k per tower. Of this total, 32 sites were in the United States and 27 sites were in international markets.

Additionally, subsequent to quarter-end, the company purchased or agreed to purchase 371 communication sites for $137.1m, signifying a valuation of $370k per tower. SBA expects these acquisitions will close in Q3 2022.

New Builds and Land Purchases

During Q4 2021, the company built-out 88 towers, of which, 5 sites were in the United States and 83 sites were in international markets. In addition, the company spent $13.6m to purchase land and easements and to extend ground lease terms.

Adam Simmons is the Founder & CEO of Dgtl Infra. He started his career with an S&P 500-listed big box retailer, in an operations management role. Adam's entrepreneurial "itch" led him to start a 5G-driven company, focused on innovative retail solutions using augmented reality and shoppable videos, which was eventually sold to an advertising and consulting group. After, realizing the potential of 5G, Adam shifted his efforts towards investing in the "building blocks" of 5G - known as digital infrastructure, completing a number of strategic investments, buying cellular towers, data centers and fiber networks.

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