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SBA Communications raised full-year guidance on strong leasing and development momentum, despite an EPS miss and ongoing margin pressures.

# SBA Communications Q2 FY2025: Robust Leasing Drives Guidance Hike Despite EPS Miss

---

## Executive Summary

- **SBA Communications (SBAC) reported Q2 FY2025 EPS of $2.09, missing consensus by $0.44**, but delivered strong operational results, particularly in site development, which surged **97.5% year-over-year**.
- **Adjusted EBITDA margin compressed to 68.1% (from 71.3%)**, and tower cash flow margins held steady at 81.0%, reflecting some cost headwinds despite higher net income and revenue.
- **Management struck a bullish tone**, highlighting strong U.S. and international leasing, the accelerated Millicom acquisition, and a strategic exit from Canada. Notably, **full-year guidance for site leasing revenue, adjusted EBITDA, and AFFO per share was raised**.
- **Risks include ongoing margin compression, international churn (notably in Brazil), and potential bad debt exposure**, while upside stems from a $1.45B buyback authorization and strategic asset sales.
- **Catalyst watch:** Market likely to react positively in the near term, given the raised guidance and operational momentum, but investors should monitor margin trends and international performance closely.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise   | YoY Change   |
|-----------------------|------------|-----------|------------|--------------|
| EPS                   | $2.09      | $2.53     | -$0.44     | N/A          |
| Site Leasing Revenue  | $631.8M    | N/A       | N/A        | N/A          |
| Site Development Rev. | $67.2M     | N/A       | N/A        | +97.5%       |
| Adjusted EBITDA Margin| 68.1%      | N/A       | -3.2pp     | -3.2pp       |
| Tower Cash Flow Margin| 81.0%      | N/A       | Flat       | Flat         |
| AFFO per Share        | N/A        | N/A       | N/A        | -2.1%        |

---

## Earnings Quality

- **Revenue mix was healthy**, with site leasing providing a stable base and site development nearly doubling YoY, indicating strong underlying demand.
- **Margin compression was evident**, as adjusted EBITDA margin fell to 68.1% (from 71.3%), driven by higher interest expenses and increased share count.
- **AFFO per share declined 2.1% YoY**, despite higher net income and revenue, suggesting that cost pressures and financing costs are offsetting top-line gains.
- **Cost structure is under pressure**, with operating expenses and international churn (notably in Brazil) requiring close monitoring.

---

## Management Commentary & Guidance

- **Management maintained a confident, proactive tone**, emphasizing robust leasing activity, operational execution, and strategic moves (Millicom acquisition, Canada exit).
- **Full-year guidance was raised** for site leasing revenue, adjusted EBITDA, and AFFO per share, reflecting management’s confidence in continued growth.
- **Assumptions behind guidance** are grounded in strong leasing trends and anticipated benefits from portfolio optimization, though they appear moderately aggressive given current margin trends.

---

## Key Risks

- **Margin compression** from rising interest and operating costs.
- **International churn**, especially in Brazil, and potential bad debt issues.
- **Regulatory and demand-side risks** in international markets.

---

## Expected Market Reaction

- **Analysts and investors are likely to focus on the raised guidance and operational momentum**, potentially driving a positive near-term reaction despite the EPS miss.
- **Historical precedent** suggests the market may look past the EPS shortfall in favor of long-term growth signals and strategic clarity.

---

## Final Takeaway

- **Q2 FY2025 was a solid operational quarter for SBA Communications**, with strong leasing and development activity offsetting an EPS miss and margin compression.
- **The market may be underestimating cost and margin risks**, focusing instead on portfolio growth and capital returns.
- **Upcoming catalysts:** Watch for updates on the Millicom integration, further asset sales, and progress on the $1.45B buyback program.

---

SBAC: Guidance Raised Amid Margin Headwinds

SBA Communications (SBAC) is seeing strong site development growth and integration benefits, with potential margin upside from efficiency upgrades, though elevated capex poses near-term free cash flow risk.

# SBA Communications Corporation: Accelerating Site Development and Integration Set the Stage for a Dynamic Quarter

## Executive Summary

We maintain a **Neutral-to-Bullish** outlook for SBA Communications Corporation (SBAC) heading into the upcoming quarter. **Revenue growth is expected to be driven by a robust 62.4% YoY surge in site development and early benefits from the Millicom integration**, while site leasing remains stable despite FX headwinds. **Operating margins remain strong at 50.4%**, but recent capex acceleration (+90.6% YoY) introduces near-term free cash flow risk. The market may be underestimating the **potential for margin expansion from internal efficiency upgrades** (ERP and AI-driven systems), which could offset some integration and FX pressures if realized ahead of schedule.

## Recent Trends Signal What’s Next

Recent quarters highlight a **stable core leasing business** and **accelerating site development**, with margin resilience despite cost pressures. The last four quarters show:

| Quarter   | Revenue ($M) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS   |
|-----------|--------------|------------------|----------------------|---------------|-------|
| Q2 2023   | 662.1        | 77.5             | 51.2                 | 22.1          | 2.48  |
| Q3 2023   | 663.7        | 77.2             | 50.8                 | 21.8          | 2.50  |
| Q4 2023   | 665.5        | 77.0             | 50.6                 | 21.5          | 2.52  |
| Q1 2024   | 664.2        | 77.0             | 50.4                 | 21.2          | 2.53  |

**Key trend:** While total revenue is flat, **site development revenue jumped 62.4% YoY in Q1 2024**, offsetting a modest 1.9% YoY decline in site leasing (primarily FX-driven). Margins are slightly compressed but remain robust, suggesting pricing power and cost discipline.

## Management’s Forward Tone and Positioning

Management’s recent commentary is **cautiously optimistic**, with a clear focus on integration execution and demand normalization. Notable quotes from the Q1 2024 call include:

- “We’re seeing a good start to the year and a healthy level of growth in our U.S. business.”
- “Expect improvement as markets stabilize and integration efforts mature.”
- “We remain confident in our ability to deliver on our raised full-year outlook.”

Compared to prior quarters, the tone has shifted from defensive (FX and churn concerns) to **proactive and opportunity-focused**, especially regarding U.S. demand and operational upgrades.

## KPI Trends & Upcoming Quarter Drivers

The following KPIs are most relevant for next quarter’s results:

| KPI                        | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| U.S. Leasing Backlog ($M)  | 120     | 135     | 142     | +18%       | +5%        |
| Site Development Revenue   | 29.6    | 41.2    | 48.0    | +62.4%     | +16.5%     |
| Site Count (Total)         | 39,950  | 39,820  | 39,709  | -0.6%      | -0.3%      |
| Short Interest (%)         | 3.12    | 2.45    | 2.21    | -29%       | -10%       |

- **Backlog growth** (+18% YoY) signals a strong pipeline for recurring revenue.
- **Site development momentum** (+62.4% YoY) is a key driver for incremental revenue.
- **Site count stability** (minor net decline) reflects churn offset by new acquisitions, notably Millicom.
- **Falling short interest** suggests improving sentiment and lower downside risk.

These trends point to **steady revenue with upside potential** if integration and development execution remain on track.

## Missed by the Street

Two subtle but material signals:

1. **Efficiency Upgrades:** Recent filings highlight “investment in smarter systems” (ERP, AI), which could drive margin expansion sooner than expected. This is not yet reflected in consensus models.
2. **Capex Quality:** While capex is up 90.6% YoY, management notes that “integration synergies are tracking ahead of plan,” suggesting that near-term FCF pressure may be offset by faster-than-expected cost takeout.

## Scenarios for the Upcoming Quarter

| Scenario | Total Revenue | EPS   | Operating Margin | Key Assumptions                                         |
|----------|--------------|-------|------------------|---------------------------------------------------------|
| Bull     | $680M        | $2.65 | 52%              | Millicom integration accelerates, FX headwinds ease      |
| Base     | $670M        | $2.53 | 50%              | Steady backlog conversion, mild FX pressure, stable churn|
| Bear     | $660M        | $2.40 | 48%              | Persistent FX drag, delayed synergy realization          |

**Base case is most likely** given current backlog, site development momentum, and management’s raised guidance. Upside exists if efficiency gains materialize faster or FX stabilizes.

## Appendix – Data Tables & Management Quotes

### Quarterly Financial Trends

| Quarter   | Revenue ($M) | EPS   | Gross Margin (%) | Operating Margin (%) |
|-----------|--------------|-------|------------------|----------------------|
| Q2 2023   | 662.1        | 2.48  | 77.5             | 51.2                 |
| Q3 2023   | 663.7        | 2.50  | 77.2             | 50.8                 |
| Q4 2023   | 665.5        | 2.52  | 77.0             | 50.6                 |
| Q1 2024   | 664.2        | 2.53  | 77.0             | 50.4                 |

### KPI Movement Table

| KPI                        | Q1 2023 | Q4 2023 | Q1 2024 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| U.S. Leasing Backlog ($M)  | 120     | 135     | 142     | +18%       | +5%        |
| Site Development Revenue   | 29.6    | 41.2    | 48.0    | +62.4%     | +16.5%     |
| Site Count (Total)         | 39,950  | 39,820  | 39,709  | -0.6%      | -0.3%      |
| Short Interest (%)         | 3.12    | 2.45    | 2.21    | -29%       | -10%       |

### Key Management Quotes

1. **“We’re seeing a good start to the year and a healthy level of growth in our U.S. business.”**  
   - Q1 2024 Earnings Call  
   - Indicates strong domestic demand momentum.

2. **“Expect improvement as markets stabilize and integration efforts mature.”**  
   - Q1 2024 Earnings Call  
   - Suggests confidence in overcoming FX and integration headwinds.

3. **“We remain confident in our ability to deliver on our raised full-year outlook.”**  
   - Q1 2024 Earnings Call  
   - Reinforces management’s positive stance on guidance.

4. **“Investment in smarter systems will drive operational efficiency.”**  
   - Q1 2024 10-Q Filing  
   - Points to potential margin upside from technology upgrades.

5. **“Integration synergies are tracking ahead of plan.”**  
   - Q1 2024 Earnings Call  
   - Implies faster realization of cost savings.

6. **“Capex is elevated as we execute on international expansion and acquisition integration.”**  
   - Q1 2024 Earnings Call  
   - Highlights near-term FCF risk but long-term growth focus.

7. **“We are seeing early signs of normalization in demand across key markets.”**  
   - Q1 2024 Earnings Call  
   - Suggests stabilization after recent volatility.

---

**Bottom Line:** SBA Communications is positioned for a solid quarter, with site development and integration execution as key swing factors. Margin resilience and internal efficiency upgrades could provide upside, while FX and capex execution remain the primary risks to monitor.

SBAC: Site Development Surge, Margin Upside Potential