Brandon Nispel

Brandon Nispel from KeyBanc expressed concern that Super Micro's guidance implies a 0% contribution margin and asked for clarification on what the business looks like from a free cash flow contribution standpoint as it scales, emphasizing that the company cannot continue with lower gross margins. He also inquired if any one-time costs related to design wins and upgrade push-outs were absorbed into the current quarter's gross margin guidance.

Answer

David Weigand, CFO, reiterated Super Micro's strategy of being a first-to-market provider of reliable and optimized solutions, which has historically rewarded the company with market share and customized solutions yielding good margins and returns. He stated that the company is staying the course, believing current market cycles and new platforms will pay off. Charles Liang, Founder, President, and CEO, assured that the company will maintain its bottom line, aiming to make more total profit every quarter and year, while also growing market share when opportunities arise. Mr. Weigand confirmed that the December quarter's gross margin guidance includes significant additional engineering, expedite, and overtime costs associated with delivering twice the normal revenue run rate and scaling new technology for what is effectively Super Micro's first 'Gigawatt project,' which he believes will prepare the company for future quarters.

Brandon Nispel expressed concern about the implied 0% contribution margin from the guidance and questioned the long-term free cash flow contribution of the business as it scales, emphasizing the unsustainability of continuously lower gross margins. He also asked if any one-time costs related to design wins and push-outs were absorbed in the current quarter's gross margin guidance.

Answer

David Weigand, CFO, reiterated the company's strategy of being first-to-market with reliable, optimized solutions, which has historically led to quicker growth and customized solutions with good margins. He affirmed they are staying the course, believing current market cycles will pay off. Charles Liang, Founder, President, and CEO, assured that the company will maintain its bottom line, aiming for more total profit every quarter and year, while also growing market share. David Weigand confirmed that the December quarter's gross margin guidance includes significant additional engineering, expedite, and overtime costs due to doubling revenue and scaling new technology for a 'first Gigawatt project.'

Brandon Nispel asked for an analysis of the quarterly gross margin, specifically regarding the impact of inventory reserves in Q4 and the outlook for Q1, including any potential effects from tariffs.

Answer

CFO David Weigand confirmed that inventory reserve impacts occurred as expected in Q4 but are anticipated to stabilize and not be a significant factor going forward. Regarding tariffs, he stated the situation is dynamic and being monitored. CEO Charles Liang added that the DCBBS strategy should improve inventory control and reduce future write-downs.

Brandon Nispel (KeyBanc Capital Markets) asked how the minimum commitment in the new Verizon MLA compares to SBA's historical new leasing revenue from Verizon. He also inquired about any further portfolio pruning or review activities, specifically regarding potential cash proceeds and their intended use.

Answer

Brendan Cavanagh, President and CEO of SBA, stated the Verizon MLA's minimum commitment is expected to produce at least as much as historical standalone leasing, providing confidence. On portfolio review, he clarified it's about improving market positioning (e.g., Central American acquisition) rather than generating huge cash proceeds, with the Canada sale being an opportunistic exception due to high valuation. Mr. Cavanagh noted no specific divestitures are on the horizon, and any future moves would aim to improve market focus.

Brandon Nispel sought a historical comparison for the level of new bookings seen in the quarter and asked for context on the current book-to-bill ratio and the typical time from signing to revenue recognition for new leases.

Answer

President and CEO Brendan Cavanagh described the current level of new applications as the best in over two years, comparable to the busy 2022-2023 period. He noted the conversion time for new colocations, which now dominate the mix, is typically in the 3 to 9-month range, slightly shorter than the historical 6 to 9-month average.

Brandon Nispel sought to quantify the growth in the lease application backlog of signed but not yet commenced leases and asked if the implied Q4 domestic new leasing revenue of approximately $9 million represents a bottom for that metric.

Answer

President and CEO Brendan Cavanagh confirmed the application backlog reflects the shift towards new co-locations. He agreed that the Q4 new leasing level is likely at or near the bottom, but noted that the timing of revenue recognition could be affected by the mix shift, as new leases take longer to commence than amendments. However, he expressed confidence in the overall upward trend of leasing activity.

Brandon Nispel of KeyBanc Capital Markets Inc. asked about the recent increase in fiber competitive overlap to 53%, inquiring about the performance difference in net adds between fiber and non-fiber markets and whether losses were primarily due to fiber or fixed wireless. He also followed up on the outlook for promotional roll-offs and the company's customer retention strategies.

Answer

CEO & President Julie Laulis clarified that the fiber overlap increased from 50% to 53% and stated that customer losses are mainly from a lack of new connects, which are likely being captured by 'cell phone Internet' (fixed wireless). She explained that elevated churn was driven by internal actions like targeted pricing changes, a doubled volume of promotional roll-offs, and the completion of the autopay program rollout. Laulis noted that the promotional cohort is retaining at a higher rate than the base and that retention tactics are actively being deployed.

Brandon Nispel asked about the intake ARPU for the new FlexConnect and Lift products and requested an update on the percentage of the footprint overbuilt by fiber and competing with fixed wireless.

Answer

CEO Julia Laulis stated that FlexConnect, aimed at value-conscious customers, will have $45 and $75 price points in its mass rollout, with learnings from the trial influencing the final offering. She noted Lift is for an incremental, eligibility-based customer segment. CFO Todd Koetje added that fiber overbuild remains consistent at just over 50% of the footprint, while fixed wireless competition is present in nearly all of their markets.

Brandon Nispel asked about the factors driving churn during the quarter and requested details on the current penetration of the advanced WiFi and security products to better understand the ARPU growth opportunity.

Answer

CFO Todd Koetje clarified that churn actually improved, with Q4 2024 being the second-lowest churn quarter in the last three years. CEO Julia Laulis identified unique Q4 headwinds affecting overall performance, including the ACP wind-down and major platform migrations. For product penetration, Laulis revealed that 35% of customers leasing equipment now have Intelligent WiFi, while the SecurePlus product is a brand-new offering that has just begun its rollout.

Brandon Nispel sought to understand the level of new tower leasing *bookings* signed during the quarter, as opposed to the recognized billed revenue, and whether they were up year-over-year or sequentially.

Answer

Interim CEO Daniel Schlanger reiterated that the company sees activity levels in 2025 as being relatively consistent throughout the year. He did not provide specific booking numbers but stated that the current levels are very good and support the company's 4.5% growth outlook, and there's no new information that would change that expectation.

Brandon Nispel asked about specific operational initiatives planned for the tower business and the long-term potential for EBITDA margin improvement.

Answer

CEO Steven Moskowitz declined to provide a specific margin target but stated the goal is to increase them. He highlighted initiatives including purchasing land under towers, driving R&M efficiencies, streamlining the application-to-installation process, and leveraging technology like drones and AI to accelerate revenue and improve efficiency.

Brandon Nispel asked for clarification on the nonrecurring professional fees impacting adjusted EBITDA and sought guidance on the full-year outlook for High-Speed Data (HSD) net additions.

Answer

CFO John Rego explained that the integration and restructuring costs, which are defined in their debt agreement, include expenses for the Sprint settlement, M&A activities, and the video platform transition. He expects these costs to decrease through 2025. CEO Teresa Elder addressed the net adds outlook, expressing optimism for the year with hurricane and ACP impacts in the past, while emphasizing a balanced focus on both subscriber growth and ARPU improvement.

Inquired about how to model the business using the financial projections released with the recent financing transaction, and asked for details on the adjusted EBITDA trajectory for legacy markets and the profitability progression of Greenfield markets.

Answer

The CFO advised using the projections from the financing as a baseline, noting they didn't account for the new capital raise, and promised more clarity on 2025 in the next call. He stated that legacy markets remain profitable and cash-flow positive, while Greenfield is currently a cash draw but is building significant value, and it's too early to report on them separately.

Brandon Nispel asked for guidance on modeling the business in light of the financial projections released with the recent financing transaction, and requested details on the adjusted EBITDA trajectory for legacy versus Greenfield markets.

Answer

CFO John Rego advised that the model released during the debt transaction is a good baseline, but it needs to be adjusted for the successful capital raise. He noted that the legacy business remains highly profitable and cash-generative, while the Greenfield segment is currently a cash-negative investment building long-term value. He stated it is not yet sensible to report on them separately but promised more clarity on the 2025 outlook during the next earnings call.

Brandon Nispel requested specific figures, including the number of waves groomed from the sales funnel, details on onetime network expenses, and a quantification of purposeful customer disconnects.

Answer

CEO David Schaeffer specified that about 1,500 wave opportunities were groomed from the funnel. He also confirmed there was approximately $5 million in non-capitalized COGS related to clearing data center facilities. He declined to provide a single number for grooming-related churn, explaining it's a complex mix of migrating customers, disconnecting low-capacity circuits, and discontinuing non-core services.

Brandon Nispel of KeyBanc Capital Markets asked about the expected core FFO contribution from the JV portfolio in 2025 and the specific impact of the recently closed Blackstone Phase 2 joint venture.

Answer

CFO Matt Mercier stated that the broader disposition and JV capital activities are not expected to have a material impact on 2025 core FFO due to timing and size. However, he noted that fee income is picking up, as seen in Q4, driven by the Blackstone Phase 2 closing and an acquisition in their SREIT. He expects additional fee income in 2025 as these JV assets stabilize and transition from development fees to recurring management fees.

Brandon Nispel sought clarification on why contracted growth under Master Lease Agreements (MLAs) is expected to step down next year and whether the mid-4% U.S. organic billings growth assumption for 2025 includes sub-1% churn, excluding Sprint.

Answer

Steven Vondran, President and CEO, explained that the MLA revenue step-down is a structural feature designed to align with activity levels and preserve the time value of money, not because an agreement is ending. He also confirmed the expectation is for non-Sprint churn to remain at the lower end of the historical 1-2% range, though he did not provide a specific figure.