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Edited Transcript of SBAC.OQ earnings conference call or presentation 29-Apr-19 9:00pm GMT

Q1 2019 SBA Communications Corp Earnings Call

BOCA RATON May 21, 2019 (Thomson StreetEvents) -- Edited Transcript of SBA Communications Corp earnings conference call or presentation Monday, April 29, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brendan Thomas Cavanagh

SBA Communications Corporation - Executive VP & CFO

* Jeffrey A. Stoops

SBA Communications Corporation - President, CEO & Director

* Mark DeRussy

SBA Communications Corporation - VP of Finance

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Conference Call Participants

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* Amy Yong

Macquarie Research - Analyst

* Batya Levi

UBS Investment Bank, Research Division - Executive Director and Research Analyst

* Brett Joseph Feldman

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Colby Alexander Synesael

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* David William Barden

BofA Merrill Lynch, Research Division - MD

* Jonathan Atkin

RBC Capital Markets, LLC, Research Division - MD and Senior Analyst

* Matthew Niknam

Deutsche Bank AG, Research Division - Director

* Michael Rollins

Citigroup Inc, Research Division - MD and U.S. Telecoms Analyst

* Nicholas Ralph Del Deo

MoffettNathanson LLC - Analyst

* Philip A. Cusick

JP Morgan Chase & Co, Research Division - MD and Senior Analyst

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research

* Robert Ari Gutman

Guggenheim Securities, LLC, Research Division - Senior Analyst

* Simon William Flannery

Morgan Stanley, Research Division - MD

* Spencer Harris Kurn

New Street Research LLP - Analyst of Towers and Infrastructure

* Walter Paul Piecyk

BTIG, LLC, Research Division - Co-Head of Research and MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the SBA First Quarter Results Conference Call. (Operator Instructions) As a reminder, the conference is being recorded. And I'll now turn the meeting over to our host, Vice President of Finance, Mark DeRussy. Please go ahead, sir.

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Mark DeRussy, SBA Communications Corporation - VP of Finance [2]

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Good evening, and thank you for joining us for SBA's First Quarter 2019 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 2019 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 statement 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 turn it over to Brendan to comment on our first quarter results.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [3]

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Thanks, Mark. Good evening. We had a very solid start to the year with strong operating and financial results in both our leasing and services businesses.

Total GAAP site leasing revenues for the first quarter were $452.1 million, and cash site leasing revenues were $449.5 million. Foreign exchange rates were generally in line with our estimates for the first quarter, which we previously provided with our fourth quarter earnings release, only modestly impacting our results. They were, however, still a headwind on the year-ago comparisons.

Same-tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant-currency basis, was 5.9% over the first quarter of 2018, including the impact of 2.1% of churn. On a gross basis, same-tower growth was 8%.

Domestic same-tower recurring cash leasing revenue growth over the first quarter of last year was 7.5% on a gross basis and 5.1% on a net basis, including 2.4% of churn, a large portion of which continues to be related to Metro, Leap, Clearwire and iDEN terminations. Domestic same-tower recurring cash leasing revenue growth on a gross basis continues to increase, climbing to its highest point in 2.5 years, reflecting our strong operational domestic leasing activity over the last year.

Domestic operational leasing activity, representing new revenue signed up during the quarter, was again very solid in the first quarter. This quarter, we saw a bit of a shift back in favor of amendments with newly signed up domestic leasing revenue coming about 68% from amendments and 32% from new leases. We continue to see contributions from each of the Big Four carriers. The Big Four carriers represented 82% of total incremental domestic leasing revenue that was signed up during the quarter. We also again had a nice contribution to our domestic operational leasing activity from DISH, who continues to be active executing new lease agreements.

While we executed a lot of new business in the quarter, our domestic backlog continues to restock itself as our customers remain active, giving us confidence for the remainder of the year.

Internationally, on a constant-currency basis, same-tower cash leasing revenue growth was 9.8%, including 0.5% of churn or 10.3% on a gross basis. Gross same-tower organic growth in Brazil was 12.2% on a constant-currency basis. We had another solid leasing quarter internationally with Brazil again being one of the largest contributors. In Brazil, we continue to have solid contributions from Claro, Vivo, Oi and TIM.

During the first quarter, 86.1% 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 12.3% of all cash site leasing revenues during the quarter and 8.9% of cash site leasing revenue excluding revenues from pass-through expenses.

With regard to first quarter churn, we continue to see churn from leases with Metro, Leap and Clearwire consistent with our expectations. As of quarter end, we have approximately $9 million of annual recurring run rate revenue from leases with Metro, Leap and Clearwire that we ultimately expect to churn off over the next 2 years. Also, as mentioned on our last earnings call, in the fourth quarter, we incurred approximately $6 million of annualized churn from certain legacy iDEN-related leases, the impact of which will affect our reported same-tower churn results for the first 3 quarters of 2019.

Domestic churn in the first quarter from all other tenants on an annual same-tower basis was 1.3%. Tower cash flow for the first quarter was $362.9 million. Our industry-leading domestic tower cash flow margin increased to 83.5% in the quarter. International tower cash flow margin increased to 69.2% and was 90% excluding the impact of pass-through reimbursable expenses.

Adjusted EBITDA in the first quarter was $345.6 million. Our adjusted EBITDA results in the quarter were again driven by strong performances in both our leasing and services businesses.

Services revenues in the first quarter were $41.1 million, up 48.1% over the first quarter of 2018, driving almost twice as much services gross profit as the year-ago period. Our adjusted EBITDA margin was 70.4% in the quarter, the same as the year-earlier period, notwithstanding a larger contribution from our services business. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 74.9%. Approximately 97% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.

AFFO in the first quarter was $236.1 million. AFFO per share was $2.07, an increase of 11.9% over the first quarter of 2018 or 14.6% on a constant-currency basis.

During the first quarter, in accordance with the Oi reorganization plan approved by the Brazilian courts, we received a payment of BRL 11.2 million, which represents a partial recovery of prepetition obligations owed to SBA from Oi. Net of costs we incurred in connection with this bankruptcy process, the U.S. dollar recovery during the quarter was $2.3 million, which resulted in a partial recovery of our allowance for doubtful accounts. We recorded this amount as an offset to bad debt expense within selling, general and administrative expenses. As a result, this recovery positively impacted adjusted EBITDA and AFFO by $2.3 million and AFFO per share by $0.03.

The reorganization plan calls for additional payments of prepetition receivables to be made by Oi over the next 3 years. We will record these payments in a similar manner as they are received. No additional payments are due under this plan during 2019.

During the first quarter, we continued to invest in expanding our tower portfolio, acquiring 54 communication sites for $36.1 million and building 72 sites. Most of the added sites were located internationally. As of today, we have under contract for acquisition and anticipate closing by the end of the third quarter on 256 additional sites at an aggregate price of $123.9 million.

We also continued to invest in the land under our sites, which provides both strategic and financial benefits. During the quarter, we spent an aggregate of $15.4 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 71% of our towers. And the average remaining life under our ground leases, including renewal options under our control, is approximately 36 years.

In today's earnings press release, we included our updated outlook for full year 2019. We have increased our outlook across the board. We anticipate increases in site leasing due both to organic and inorganic growth. Increases in organic growth are primarily due to earlier average timing of rental commencements, in large part as a result of a higher concentration of leasing activity coming from amendments versus new leases. The increase in our anticipated leasing results is being partially offset by incremental negative changes in our foreign currency rate assumptions for the remainder of the year, primarily in Brazil. The changes in these currency assumptions negatively impacted our outlook for site leasing revenue by $4.5 million, tower cash flow by $3 million and adjusted EBITDA and AFFO by $2.7 million.

We also anticipate incremental contributions to our results from our services business due to our strong Q1 performance and our healthy backlogs. However, our full year 2019 services guidance still contemplates a slowdown in the second half of the year due to the Sprint/T-Mobile transaction.

The balance of our outlook for AFFO has also been improved for anticipated better results in net cash interest expense and nondiscretionary CapEx, offset by slightly higher tax expectations.

Finally, our outlook for AFFO per share has also been negatively impacted by about $0.04 due to a change in our assumed weighted average number of diluted common shares for the year of 114.9 million, which assumption is influenced in part by increases in our current and estimated future share prices.

We are very pleased with how the year has started and are optimistic about the rest of 2019. I'll now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

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Mark DeRussy, SBA Communications Corporation - VP of Finance [4]

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Thank you, Brendan. SBA ended the first quarter with $9.7 billion of net debt, and our net debt to annualized adjusted EBITDA leverage ratio was 7x, at the low end of our targeted range of 7 to 7.5x. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.6x. The weighted average coupon of our outstanding debt is 3.9%, and our weighted average maturity is approximately 4 years. As of today, we have $50 million outstanding under our $1.25 billion committed revolver.

As mentioned on our last earnings call, during the first quarter, we entered into a 4-year $1.2 billion interest rate swap, effectively fixing the interest expense at 4.49% on approximately half our outstanding 2018 Term Loan B. As a result of this transaction, approximately 88% of our nonrevolver debt outstanding is fixed.

The company did not repurchase any shares of our common stock in the 2 months since our last earnings call. Stock repurchases, however, are still an integral part of our strategy. As of today, we have $204.5 million of authorization remaining under our $1 billion stock repurchase plan. The company's shares outstanding at March 31, 2019, are $113.2 million, which is down 2.8% from $116.5 million at March 31, 2018.

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

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [5]

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Thanks, Mark, and good evening, everyone. Our first quarter was about as simple, straightforward and solid as we could have hoped for. We exceeded our expectations across all financial metrics. We continued to see healthy operational leasing activity, and our services business again had another very strong quarter. While it has only been 2 months since our last earnings call, we feel like a lot has happened, particularly around improved clarity for the remainder of 2019. As a result, we are able to increase our full year outlook.

Domestically, the strong operational leasing activity we saw in the second half of 2018 continued into the first quarter of 2019. All 4 major U.S. wireless carriers were active during the quarter to varying degrees with particular increases in new technology and capacity-related upgrades, pushing our amendment business to the highest quarterly contribution in over a year. We also saw continued contributions from DISH, who remains busy with their Phase 1 network build-out. Our leasing application backlogs remain very strong, giving us confidence in continued steady lease-up results in Q2 and beyond.

Internationally, we also had another solid leasing quarter with steady contributions across all of our markets, led once again by Brazil. The contractual revenue signed up during this quarter in our international markets came about 48% from new leases and 52% from amendments, though it continues to be very balanced between coverage builds and technology upgrades. Similar to last quarter, we had solid contributions from all 4 major wireless carriers in Brazil. Although the currency has continued to weaken a little bit, operationally, we remain on target for strong growth in Brazil once again this year, or as Brendan mentioned earlier, but for the weakening of the currency, our 2019 outlook would have been increased even more. We continue to be optimistic about the opportunities that exist throughout all of our international markets.

During the first quarter, we spent limited amounts of discretionary capital on new asset additions and no capital on share repurchases in the 2 months since our last earnings call. As a result, we saw our leverage quickly drop to the low end of our target leverage range at 7.0x. This drop in leverage in 1 quarter demonstrates how quickly we can organically delever and the flexibility that exists within our capital structure.

We do expect investment to increase through the remainder of 2019. We are still committed to growing our portfolio 5% to 10% this year through disciplined acquisitions and new builds. We, of course, focus on growing our portfolio throughout our existing markets, but we also regularly explore opportunities in other markets. Our focus has always been and continues to be on finding accretive tower opportunities to create shareholder value and frankly, avoiding those that do not. We believe we are very good at this, and we will continue to maintain it as a key component of our strategy.

In addition, stock repurchases will also remain an important part of our value proposition. We have always been opportunistic around repurchases and did not have any of the market dislocations we typically look for in stock repurchases so we did not repurchase any shares in the last 2 months. But our desire to repurchase shares under the right circumstances hasn't changed. I'm confident that we will have a nice mix of both quality portfolio additions and share repurchases throughout 2019.

Our capital structure continues to be one of our greatest assets. We have significant liquidity and tremendous access to sizable incremental capital across a diverse set of financing markets. Our capital structure and industry-leading AFFO per share affords us great flexibility to use our resources to drive shareholder value in a variety of ways. In addition to tower investments and share repurchases, we continue to explore and pursue new business initiatives related to our existing businesses. These initiatives are not material today, but we are excited about the potential for the opportunities we are currently exploring.

We're off to a good start in 2019 and are operationally performing at a very high level. This year, we celebrate 2 anniversaries: 30 years in business and 20 years as a public company. We are within striking distance of 2 important milestones: 30,000 sites and $2 billion in revenue. I'm very excited about what the future holds for SBA. I'd like to thank our employees and our customers for their contributions to our success.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question from the line of Simon Flannery with Morgan Stanley.

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Simon William Flannery, Morgan Stanley, Research Division - MD [2]

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Thanks for the commentary on the balance sheet and the buybacks. Where do you draw the line on your leverage? If you didn't have an opportunity to do buybacks or a lot more M&A, would you be prepared to let the leverage drop down into the high-6s? Or would you want to keep it in that 7 to 7.5 range? And then if you could just provide a little bit more color on the services strength. Very strong, you're talking about it potentially slowing down there, but what was behind that strength this quarter?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [3]

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Well, ideally, we do want to keep it in the 7 to 7.5x range, Simon, but we don't want to spend money just for the sake of spending money either. And what we have not yet implemented is kind of a mechanical stock repurchase program that would be implemented just for the sake of maintaining leverage. We're hesitant to do that because we haven't had to do that frankly. We've always had the opportunity to be opportunistic around stock repurchases, and we'd like to continue to believe that, that will be afforded to us by the market.

In terms of the services business, we do work for all the carriers, but one of the -- including a fair amount of work for Sprint. And as we noted in the press release and as Brendan said in his comments, we had to take the position on the Sprint/T-Mobile transaction. So while we expect to continue to do a lot of work right up through the end of the second quarter, at least with respect to Sprint on the services side, we're taking the position that the deal ends -- or the deal gets approved, rather, and that there is no more Sprint as of June 30. Now whether that happens or not, we, of course, don't really know, but we had to take a position for purposes of guidance. But the services business is very, very busy right now. And that has rolled into the second quarter and then, of course, the combination of what we did in the first quarter and where we see things today in the second quarter was the reason we were able to move the full year outlook up.

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Simon William Flannery, Morgan Stanley, Research Division - MD [4]

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I mean is this related to 5G rollout or what's the kind of...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [5]

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Well, I mean, not all the customers that we're doing business for are really on the 5G trail, so it's really a mix of everything. It's just a high level of activity, which is really what's also behind our leasing business.

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Operator [6]

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And we'll go to Jon Atkin with RBC.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [7]

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Yes. So a couple questions. One, I was wondering as you look at the international business, how do you think about kind of the longer-term growth rates. And are there any potential needle movers to call out ex Brazil? And then secondly, was interested in kind of any update on edge computing, any opportunity that you see there perhaps that's tied in with small cells or not. But what are your current thoughts on that?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [8]

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Yes. Some of the international markets, Jon, are ahead of Brazil slightly. Now some are lagging. But the issue really is that Brazil is so much bigger than frankly any of our other markets. The thing that gives us confidence around all of the markets is they are well behind the U.S. in terms of their technology upgrades. There's still a lot of 3G work being done in some of these markets, let alone 4G and in some cases, no 5G whatsoever. So we do think that there will be a lot of work in the future coming out of these markets. Obviously, there has to be an economy and an ecosystem to pay for all that and just by carrier expenditures, but we do think that just as in the U.S., that will be the case.

In terms of the mobile edge computing, we continue to take the steps to prepare ourselves for the day when there will be material revenue opportunities that come from that. We continue to believe that that day will come. I can't tell you when that day will be. We've had some good traction with the one deployment that we've been working on with Packet [outside] of Gillette Stadium, the number of folks who have come through Packet to deploy in that facility. A lot of discussions going on, but in terms of actual material revenue production, I think we're still a bit a ways away. It's certainly not going to come in 2019.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [9]

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Okay. And then you mentioned the Phase 1 build-out and the leasing that you continue to see there. Is equipment actually going up?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [10]

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Absolutely.

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Jonathan Atkin, RBC Capital Markets, LLC, Research Division - MD and Senior Analyst [11]

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And then lastly, the ground buyback activity. Is there any way -- I don't think there is, but I just thought I'd check. Is there any way to kind of ramp that if you wanted to around the ground lease repurchases?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [12]

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No. We have plenty of capital to spend in that. That business has always really been governed more by the particular situation of the seller. These are all individuals who might say no 3 different times and then say yes on the fourth time. So it's -- we've tried to do that. It's really not -- it's not an operational issue as much as it is a seller desire issue, Jon. That may sound a little crazy, but after 15 years of pulling all the different levers, that's kind of how it goes.

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Operator [13]

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And we'll go to Phil Cusick with JPMorgan.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [14]

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Guys, a couple of follow-ups and a new one. First on the DISH contribution. Should we think of that as a bigger part of the services business today? And is that ramping through the year?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [15]

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It's a part of the services business. I don't know if it's a bigger part of the services business.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [16]

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Yes. It's kind of small part of our services business. It may increase as the year goes on as a percentage of services, but I don't think it's so big that it makes a huge difference.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [17]

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Yes. It's not the reason it went from the fourth quarter number to the first quarter number.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [18]

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Right.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [19]

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Okay. And then on the leverage side, nobody has mentioned the dividend yet, but you've talked about doing that within the next couple of years. If the shares stay at this level or somewhere around here, does it make sense to pull that forward as a way to maintain leverage rather than buying back stock?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [20]

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I mean it could. It would be something to add to the list of things to look at.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [21]

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Right. If buybacks aren't as accretive as they used to be, maybe the dividend instead. Or is that -- does the dividend timing -- is that driven more by the size of NOL that you want to maintain over time? Or could that be...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [22]

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We've always only talked about the dividend in terms of when we first had to start paying it.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [23]

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Right, which is '21 you've talked about.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [24]

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Correct.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [25]

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So pulling that forward, especially if the share price isn't as accretive?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [26]

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That is a possibility that is available to us.

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Philip A. Cusick, JP Morgan Chase & Co, Research Division - MD and Senior Analyst [27]

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Got it. And then last one. You've talked in the past about a little bit of competitive churn. I know AT&T and T-Mobile both have guys who are working on some new builds for them to overbuild you and your peers. Any shift in the pace of that, positive or negative?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [28]

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No, no. No changes really there.

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Operator [29]

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And we'll go to Michael Rollins with Citi.

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Michael Rollins, Citigroup Inc, Research Division - MD and U.S. Telecoms Analyst [30]

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First one, if I could. On one of the slides, you provided an update on churn on invested capital, which is about 10.3% at the end of the first quarter. How does that compare between the domestic business and the international business? And how do you think about current valuations for assets relative to your return objectives?

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [31]

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Yes. It's higher domestically, mostly due to just obviously the maturity of that. We've had those assets for so long, and we haven't decided to give those numbers out because it's a little bit immature from an international standpoint. But that's something we'll consider breaking down in the future, but higher domestically just because the international stuff is less mature.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [32]

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Although in some countries, it's higher.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [33]

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There are individual countries...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [34]

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Countries where it has the highest return on invested capital. Yes. You got to do clearly think about those things, Mike, in terms of current pricing versus -- price matters, absolutely.

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Michael Rollins, Citigroup Inc, Research Division - MD and U.S. Telecoms Analyst [35]

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And in terms of what you're seeing out there, is it just getting tougher? Or is it getting easier in terms of the opportunities for asset purchases?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [36]

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Well, I wouldn't say it's getting easier. I mean it's -- there's a lot of capital and it is price competitive. You have to be very patient and you have to look hard. And you have to be knowledgeable about the wheat and the chaff.

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Operator [37]

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We'll go to Ric Prentiss, Raymond James.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [38]

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I'm going to follow up on a couple of previous questions. Simon was asking on the leverage side, and you've talked about the portfolio. It looks like the portfolio growth in the first quarter was probably less than 1%. And even if we add in the price under contract through the end of the third quarter, it's still kind of in the 1 plus percent range. So are you seeing some bigger transactions out there that could get you into the target zone of 5% to 10% portfolios given that the answer to Mike there was that prices are getting tougher?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [39]

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We think that there will be some opportunities along those lines, yes.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [40]

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And you kind of alluded to that maybe some new markets might be popping under the screen?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [41]

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No, I don't think I said that. I think we say we like to stay in our existing markets, but we'll look everywhere that makes sense to look.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [42]

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Okay. Okay. That's good. And then with Phil's question on the leverage and the dividend, have you thought about kind of what that payout ratio of AFFO might look like? Crown when they converted and started paying dividend kind of went to full payment. American Tower has kind of been in that we're going to grow it for a long time. Which way should we think about you guys looking at the -- when a dividend day does come what the path might look like?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [43]

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The latter.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [44]

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So more like American Tower's, kind of keep it growing?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [45]

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Yes.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [46]

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Okay. And then the last one for me on the leverage. As we think about '19 and '20 and '21, where does leverage need to go as you start looking to pay a dividend?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [47]

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Doesn't have to go much lower than it is right now. We've talked about something with a 6 handle on it.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [48]

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I did have one more. I apologize. Amendment versus colo, you talked about how amendments have gone to about 68% of new revenue and colos are 32%. If you get a customer who comes in who's already a customer on your tower and they want to put more equipment on the tower but a different RAD center, is that a new colocation? Or is that an amendment?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [49]

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Depends on whether they bring it under their existing contract, in which event it would be an amendment; or a brand-new contract, in which event it would be a lease.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [50]

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And just hypothetically say a first net type project with AT&T, is that going to be seen more as an amendment activity? I'm just trying to think of how we're gauging what's the base of business coming in.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [51]

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If it's under the existing contract, it's an amendment. If it's a new contract, it's a lease.

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Operator [52]

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And we'll go to Walter Piecyk with BTIG.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [53]

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Domestically, your amendment to colo growth has accelerated for the last 5 quarters, I guess, or so. Yes, it looks like 5. Jeff, is that going to happen throughout 2019, the sequential accelerations in that annual growth rate for the amendment to colos and escalations, I guess, just your gross growth, the 7.5 number you reported this quarter? I don't know what you call it.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [54]

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Are you talking about the growth rate or the rate of amendments to colos?

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [55]

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I'm sorry, the 7.5%, which I call growth rate. Every company calls it, I think, something different so...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [56]

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Yes. The answer is yes because our -- if you look at the revenue bridge for the domestic, it implies, obviously, a higher full year number. And given where we are, it has to increase throughout the year. So we would expect it to increase each quarter.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [57]

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And then Jeff, you had mentioned that your guidance assumes that the Sprint/T-Mobile deal is approved. So if it's not approved, does that mean those numbers are higher or lower?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [58]

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Well, we don't know. I mean we'll have to see what comes. I mean it's hard to -- we don't really know what the plan B is if there is one.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [59]

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Got you. So it's possible it could be lower then if plan B is...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [60]

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No, no, no. I don't think so because right now our guidance assumes that basically, there's nothing else from Sprint.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [61]

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I mean it's really 2 -- if you look at the 2 pieces, it's services where there's an impact, we assume that that's lower in the second half of the year because there's really nothing from Sprint. I don't think that could be lower. The question is whether it really would be higher if the deal didn't happen, and we're not sure about that. And on the leasing side, there's probably very little impact because any slowdown that might occur or increase that might occur if the deal doesn't happen, in either case, it's not going to impact this year's numbers too much.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [62]

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Got it. And last question. I mean I don't know if you're planning on putting up like an 8% dividend yield, but I guess generally speaking, if you're not willing to buy stock, why should investors be buying your stock right now?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [63]

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Well, it's only been 2 months since our last call.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [64]

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I understand that, but the message...

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [65]

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I didn't say we're not willing to buy our stock. I said as we move through the year, I'm confident we're going to invest our capital in towers and stock.

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Walter Paul Piecyk, BTIG, LLC, Research Division - Co-Head of Research and MD [66]

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Got you. It just seemed like the response to Phil's question was like you think the stock -- you're not getting accretion. I mean those were Phil's words, not yours. But whatever, the stock is at a level that dividends are preferential. But I mean I'm just not sure what message that is sending to investors.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [67]

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Those are Phil's worlds. Do you want -- you have Phil's phone number. Give him a call.

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Operator [68]

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And we'll go to Nick Del Deo with MoffettNathanson.

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Nicholas Ralph Del Deo, MoffettNathanson LLC - Analyst [69]

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Would you consider a onetime dividend to [rejigger] your leverage in between now and when your NOLs run out? Or would you only pay a dividend if it was the start of a recurring one?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [70]

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I don't see the wisdom of a onetimer, Nick, but if I'm missing something, help us figure it out. But I don't see any benefit in that.

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Nicholas Ralph Del Deo, MoffettNathanson LLC - Analyst [71]

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No, that's totally fair. Yes, going back to the issue of land, how much higher do think you can push it from the current 71%? Where does that top out? And what's the split between land that you own or control under perpetual easement versus the long-term lease?

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [72]

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Yes. We own roughly 30%, 35% of the land, either in the form of a long-term or perpetual easement or outright ownership. In terms of it going higher, the interesting thing about that, it can certainly continue to move higher, and we have moved it higher over the years. But as you bring in some of the international stuff, sometimes it comes in with lower numbers, so it kind of resets it. And that statistic is controlling for at least 20 years, so the funny thing is you always have those that are on the border of that. Every year that goes by, it's a year less for some of those. So they -- some of them fall below it. So you're constantly having to kind of extend your way out of it. So that's a long way of saying it can go a little bit higher, but it's hard to move that number materially when you've got 30,000 sites.

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Nicholas Ralph Del Deo, MoffettNathanson LLC - Analyst [73]

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Do you find -- look, do you find land repurchases overseas to be interesting? I know in Brazil, you typically have the pass-through land dynamic. I don't know if that makes it less appealing.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [74]

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We do. Whether it's a purchase or an extension or an easement or some other type of longer-term entitlement, the concept still applies. And we do find it interesting and beneficial. It's a little more difficult because the real estate laws are not in every case as clear as they are in the U.S.

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Operator [75]

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And we'll go next to David Barden with Bank of America.

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David William Barden, BofA Merrill Lynch, Research Division - MD [76]

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The -- 2 questions. One was the kind of core domestic churn, non-iDEN, non-Metro/Leap and Clear is about 1.3%. It's almost double over the last year. I know you talked about this a little bit, Brendan, I think last quarter, but it's up another 20 bps. And I wonder if you can kind of just speak to like where is this going, the shape of it, the drivers of it. And does it kind of normalize at some point in time? And then the second question was if I'm reading it right, it looks like the -- I'm sorry to ask such a detailed question, but the guide appears to have like a $10 million improvement in other costs, which is helping kind of drive the income line at the margin. I was wondering if you can just kind of speak to that, please.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [77]

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On the first one, which is the churn, it has increased a little bit. Some of that is non-Big Four related. We have certain customers that we've had churn off. It's also a trailing 12 months number. My expectation is that it probably will be slightly higher later in the year, but I think it'll probably come down, then, slightly thereafter. But our range, as we've talked about historically, is 1% to 1.5% for that kind of base churn. And I think longer term, that's the right range for that number. We're sort of right in the middle of it right now.

On the second question, David, I'm afraid I'm a little bit -- I'm not 100% sure which $10 million of other cost you're referring to, so I'm sorry.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [78]

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If you want, I mean we're happy to get on the phone with you afterwards so we can get -- if there's a specific number we can...

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David William Barden, BofA Merrill Lynch, Research Division - MD [79]

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It just went from 10 to 15 to 1 to 6 million, and that was the question, but we can talk to it offline. Appreciate it.

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Operator [80]

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We'll go to Spencer Kurn with New Street Research.

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Spencer Harris Kurn, New Street Research LLP - Analyst of Towers and Infrastructure [81]

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So I just wanted to follow-up on the question around organic growth and domestically accelerating for the rest of the year as implied in your guidance. Can you just provide a little bit more color on the cadence? I know you've got -- you posted really high growth in the fourth quarter of 2018, but it also sounds like you expected growth to increase every quarter throughout the year. So any color you can provide on that would be really helpful.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [82]

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Yes. I mean I can't say exactly what the number will be each quarter obviously because there's certain uncertainties as you move through the year. But based on the backlog, what we've signed up to date and what we expect to sign up, we make certain assumptions around timing, and most of the stuff that's been signed up we already know the timing. So we're pretty confident when we look out at what's scheduled to commence that we'll have an increase in those numbers as we move through the year. And as you noted, the full year number that's on the bridge sort of suggests that the number at the end of the year -- or for the full year, I should say, is 7.9%. So if we're 7.5% here in the first quarter, to get to close to 7.9% as an average obviously, it's got to step up 20, 30 basis points each quarter roughly.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [83]

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On average.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [84]

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On average.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [85]

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Not necessarily each one, right.

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Spencer Harris Kurn, New Street Research LLP - Analyst of Towers and Infrastructure [86]

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That's sort of my question. Are you -- will -- are we like thinking by the end of the year, you'll exit at a higher rate than the average? Or is there some sort of a bell curve overall like trend that we should expect?

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [87]

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Yes, I would expect we'll be above the average by the end of the year.

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Spencer Harris Kurn, New Street Research LLP - Analyst of Towers and Infrastructure [88]

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Awesome. And then just one quick follow-up, if I may. FirstNet is over 50% done, and the company is expecting to be -- they're expecting to be around 60% by the third quarter. Are you seeing a similar progress of work being done on your sites? Or is there sort of a lag or any difference from your perspective of what you're seeing?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [89]

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That's hard to answer, Spencer, because not every amendment that comes out of AT&T is FirstNet. They're doing a variety of -- all kinds of different work involving all kinds of different pieces of their spectrum and in some cases doing FirstNet work and then coming back and doing other work. So I mean that sounds about right. It could be a little bit less. I would doubt it's any more than that.

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Operator [90]

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We'll go to Brett Feldman with Goldman Sachs.

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Brett Joseph Feldman, Goldman Sachs Group Inc., Research Division - Equity Analyst [91]

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Yes. Two questions. The first one is pretty quick. The Oi recovery you received in the quarter, was that factored into your original outlook? Or is that among the reasons why you increased your outlook for the year? And then more interesting, and maybe I didn't hear it right, but I think you said 82% of your domestic leasing activity was Big Four. So I guess that would mean 18% was non-Big Four, which seems like a big number. And I'm curious if that -- if I heard it correctly. Was that predominantly DISH-driven? Or is there a more interesting story in there?

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [92]

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Yes. On the first one, the Oi recovery was not in our original outlook. So that was -- that's a part of the increase specifically to EBITDA and AFFO. It didn't affect the lines above that. And the 82%, yes, a big -- the biggest component of the non-Big Four piece was DISH.

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Brett Joseph Feldman, Goldman Sachs Group Inc., Research Division - Equity Analyst [93]

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Is there anything else in there of the non-DISH part that's ramping? I know you've gotten asked in the past about nontraditional. Or is it sort of the same eclectic mix you've normally had?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [94]

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Same eclectic mix, and that story was the same as last quarter.

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Operator [95]

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We have a question from Colby Synesael with Cowen and Company.

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [96]

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Two, if I may. When you think of the Big Four U.S. carriers, I think the view has been that the predominant amount of growth has been coming not just for SBA but for the sector from both T-Mobile as part of the 600 build-out and then also AT&T with FirstNet and that Verizon has slowed its pacing although still material in terms of contributing to growth and that Sprint really has, for the most part, gone away. I'm just curious if you agree with how I just characterized it. And then secondly, I guess more of a modeling question for Brendan. You raised your AFFO guidance by, what is it, $0.07 on the low end and $0.03 on the high end. I guess just what is it on the high end that didn't allow you to take it up by the same amount? I thought I heard on the call you mentioned something about the price of the stock being higher and that having an impact and I'm just curious how we might try to think about that.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [97]

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On the second one, that's really more about taxes. It's just about where we range the taxes. The share count piece affects both ends of the range the same because we're using the same number of shares as our assumption. It's just negatively impacted the overall number because we assumed a higher diluted share count. But it's really we kind of moved our own thoughts about where our taxes will be more on the low end. So that's the only difference.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [98]

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Yes. And on the activity levels, I mean, there's activity from all Big Four, Colby. So I don't think we agree with that description, particularly as it relates to Sprint not doing anything right now. I mean that's just not true as it relates to us on both the leasing and the services side.

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Operator [99]

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And next, we go to Matthew Niknam with Deutsche Bank.

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Matthew Niknam, Deutsche Bank AG, Research Division - Director [100]

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Brendan, I think there was a mention of the guidance increase for this year being tied to more amendments relative to colo and maybe an earlier sort of commencement. Was that the entirety of the guidance increase? Or is there sort of a broader core increase underlying that beyond just sort of timing? And then just on the amendments, any color you can provide in terms of the pricing on these amendments.

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [101]

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On the guidance, the leasing revenue increased the organic piece of it. And the best way to kind of look at it, Matt, is to look at the bridge that's in the supplemental package, and you can look at the changes relative to the last time that we provided it. You'll see that the lease-up number went up about $3 million. Most of that was due to faster timing, which is due to a little bit heavier concentration of amendments. There were other reasons that our revenue guidance went up though. Those included some nonorganic contributions as we put some additional sites under contract that will help contribute in a couple of other minor changes. Those are the 2 biggest pieces. I'm sorry, what was the second one? Amendment pricing?

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Matthew Niknam, Deutsche Bank AG, Research Division - Director [102]

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Just in terms of pricing on amendment, yes.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [103]

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Amendment pricing continues to hold in very, very firmly. We're certainly not seeing any weakening there.

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Operator [104]

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We'll go next to Batya Levi with UBS.

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Batya Levi, UBS Investment Bank, Research Division - Executive Director and Research Analyst [105]

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Was the increase in discretionary CapEx all related to the acquisitions you have announced? Or are you finding more opportunities to build incremental sites? And also, as the carriers start to gradually build some of their sites on their own, what do you think is driving that? And can you move some of that activity back to your portfolio?

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Brendan Thomas Cavanagh, SBA Communications Corporation - Executive VP & CFO [106]

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On the CapEx, it's basically all M&A related. There's a couple of minor little things, but it's not -- there's really been no change in the overall expectations around new builds for the year.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [107]

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Yes. On the carrier building sites on their own, we have seen that in some very limited circumstances. I think some of that is for sites that the carriers view as very strategic as opposed to capital-driven because there's plenty of capital chase in that. And I don't know, Batya, if we'll ever, ever be able to move that back given what we see as some very uneconomic new build terms, which actually is the explanation why we just don't build as many towers in the U.S. as we used to.

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Operator [108]

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And a question from Amy Yong with Macquarie.

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Amy Yong, Macquarie Research - Analyst [109]

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I was wondering if you can update us on the customer activity in Brazil. And with the spectrum auctions happening, I think, in the back half of this year 2020, should we anticipate an increased activity or an acceleration in the region?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [110]

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Well, the customers are -- it would be similar story to the U.S. They're all active but to varying degrees. And certainly with new spectrum, there will come new opportunities for us in the form certainly of amendments and hopefully new colocations as well. So we always welcome new spectrum. It's not millimeter wave spectrum, which, of course, has a much different use. This will be macro tower-oriented spectrum. So we hope it goes through as planned, and we would expect certainly to benefit from that.

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Operator [111]

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(Operator Instructions) We'll go to Robert Gutman with Guggenheim.

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Robert Ari Gutman, Guggenheim Securities, LLC, Research Division - Senior Analyst [112]

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Looking at sort of a bigger picture view, the drivers that are underlying the current acceleration in leasing activity, how far out do you think these carry in terms of not only for next year's guidance? But does the current strong pace of activity sort of dry it out looking -- next year? Is there a reason to believe that it's still early in terms of where the carriers are in terms of what they're doing?

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [113]

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Well, it seems early in the sense that there's still a lot to do in terms of building out the 4G. And then if you believe the pundits and the technicians, for everyone to have a truly vibrant 5G product, they're all going to need to deploy some kind of massive MIMO architecture, and that hasn't even really started yet. So I think we've got a long way to go.

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Operator [114]

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We have no additional questions at this time, so please continue.

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Jeffrey A. Stoops, SBA Communications Corporation - President, CEO & Director [115]

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I want to thank everyone for listening into our call, and we look forward to our next one when we release the second quarter results. Thank you.

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Operator [116]

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Thank you. And ladies and gentlemen, this conference call will be made available for replay, and that replay begins today, April 29 at 8 p.m. Eastern Time. The replay will run for 2 weeks until May 13 at midnight Eastern. You can access the AT&T teleconference replay system by dialing 1 (800) 475-6701 and entering access code 465875.

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