美國電塔 (AMT) 2002 Q2 法說會逐字稿

Stand by for spectrasite holdings spectrasite second quarter earnings conference call. Good afternoon. My name is Sha Rhett and I'll be your conference facilitatedder today. I would like to welcome everyone to the spectrasite conference call to discuss the 2002 earnings conference call. All lines are on mute to prime minister background noise. After the remarks there will be a question and answer period. If you would like to ask a question, press star and the number 1 on the telephone key pad. To withdraw a question, press two. Thank you. Miss Zane, you may begin.

Thank you. Welcome to spectrasite conference call to discuss the results. Steve Clark, Chief Executive Officer. Tim Blitz, Chief Operating Officer and David Tomick.

We will make forward-looking statements during the conference call, particularly those regarding future operating ruts for the second quarter and full year. Our results may differ from the priptions we make today. Additional factors appear in the earnings release distributed prior to this call and the company's filings with the FCC. We based these forward-looking statements on information available. I will now turn the call over to Dave Tomick to review the second quarter results.

Thanks, Tabitha. Total revenue for the second quarter was $11.6 million essentially flat from a year ago. Revenue increased 31% to $69.6 million while network services revenue decreased 29% to $42 million. Cash flow grew to a record 42.9 million a 39% increase from a year ago and up 6% sequentially. Our cash flow margin expanded to 61.6% up 340 basis points from the second quarter of 2001 and up slightly from last quarter. Revenues on the 6,975 towers we owned at the end of June 2001 grew 19% and cash flow grew 38%.

We continue to see improve from our towers. The towers we built from 1999 now boast a cash flow margin of 68%. Our tower cash flow margins for the towers in 2000 and 2001 increased by 150 and 230 basis points respectively from the first quarter. Our tower count at the end of the second quarter was 7,994 including 7923 wireless towers, and 71 broadcast towers. We added four towers and decommissioned 25 towers. Our average full load monthly lease rate remains strong at $1,166 as carriers continue to pay top dollars to colocate towers located in metropolitan markets. Relocation and reconfigureation revenue from existing tenants continues to increase. On an absolute basis revenue from reconfigureation basis doubled from a year ago to over $2 million or 21% of revenue added to our existing base. Particularly active were Singular and AT&T.

Our primary customers continue to be the big six national wireless carriers and account for approximately 90% of the revenue in our wireless towers. We ended the quarter with an average 1.74 tax per tower. That is approximately 1.96 tenants per tower. Annualized revenue per tower increased 11% from a year ago to $35,365.

Network services continues to suffer with lower revenue and significantly weaker operating margins. Cash flow of 2.8 million was down 77% from a year ago and down 66% from the first quarter. Petroleum expenses remain a high property and we continue to look for areas to reduce costs. . Efforts are paying off as shown in the SG&A down $4.4 million or 19% from a year ago. EBITDA increased 35% to $27.2 million and the EBITDA margin expanded 640 basis points to 24.4%. Our core leasing business provided 100% of our EBITDA this quarter. We took a restructuring charge of $26.5 million in the quarter, approximately $6 million of which was cash, primarily related to the dissloution of our tower development division. This charge included writeoffs of $16.4 million of work in progress, $4.1 million relating to the closing and consolidation of offices and $6 million for severance.

Other expenses of $10 million were primarily related to the costs incurred to the debt tender offers. Capital expenditures in the second quarter were $19.6 million. June 30, 2002, the Company had $45.3 million of catch on hand and net debt was $2.4 billion. There was $515 million remaining under our senior credit facility and we remain in full compliance with our bank covenant. At the end of the second quarter our bank borrowing revenue was 5.4 times versus a covenant of 6. Steve?

Thanks, Dave. As most of you know we terminate the tender offers on July 12th. Subsequently we made the decision to go with Goldman Sachs to go with the alternatives to recover the Company's debt. We are early in this process and no details to provide at this time. Because the tender offers were not consummated, they were Signular and the Fccs did not take place. As a result we shut down the tower development division. As Dave stated this resulted in a restructuring charge of $26.5 million.

Going forward we have no contractual obligations to build towers for any other carriers. We made the decision to explore the sale of our wireless network services division we announced last week. Preliminary discussions with a number of companies interested in the-base are taking place. While network services has been a important part of SpectraSite for many years, the environment for services has changed. It is no longer strategically answer to instance our relationships with the national wireless characters. Following a sale of this business, we anticipate reductions in SG&A of close to $12 million annually as we reduce the size of our corporate infrastructure to support a smaller organization.

Internally we have initiated a number of senior management changes to strengthen our group. We have combined our in-building, rooftop and tower leasing divisions and put them under Darryl Carry under the leasing division. Before joining SpectraSite two years ago, Dale was the Vice President and General Manager of Van Guard's mid-atlantic region. This region had 300,000 subscribers and generated $150 million of revenue. Dale was responsible for direct and retail sales, marketing, operations, human resources and customer service and managed a team of 500 employees. Dale's primary emphasis at SpectraSite is sales and customer service and restructuring the group to reflect these priorities.

I'd like to close with a few comments on our core business. It's healthy and continues to grow at a solid rate. We have close to two tenants per tower across the portfolio. The approving revenue supports the tower model thesis of increasing revenue per tower and expanding cash flow margins. Our revenue gains come from a mixture of capacity and coverage sites as well as network upgrades as carriers and markets enhance our existing networks and implement overlays. Carriers are willing to pay a healthy rate for space on our towers as averaged of 16.6 per month and we believe location continues to be a key factor. Our core customer base is the big six national carriers who account for the lion's share of usage.

There's no doubt we are operating the capital industry. Wireless carriers are responding by reducing Cap Ex. On the operating side, the base and minutes of use continue to grow. This brings increasing strain at networks we know are at or near capacity. Over time the only way carriers can solve these issue is to add capacity. While they may forgo capital investments in the near term, they need to add capacity to manage the growing usage of their network. We will open the call to questions.

At this time, I would like to remind everyone if you would like to ask a question please press 1 on the telephone key pad. We'll take just a moment. Your first question is from Rick Prentice of Raymond James.

A couple of questions for you. Visibility question first. When do you guys acknowledge a tenant ads far as DBEs goes. Is it when you sign the lease or install the equipment and I assume the revenue is recognized when they install the equipment. Second question regards to visibility is how far out can you see your tower rental business? Do you have a view of third quarter and have you had any change of mind since the last quarter call as far as providing guidance for, say, the year?

Rick, this is Tim. On your first question, we recognize the lease for BBE calculations for execution but do not recognize revenue until the lease is commenced upon installation of your equipment. You are correct. On the second issue on visibility, pipeline for the third quarter is -- go ahead.

Rick, I neglected, I meant as part of the early part of the call, we have decided given that we have made the decision to sell the services business to provide an outlook for the rest of 2002 for sight leasing and EBITDA and probably a more meaningful visibility question or answer. Results from the network services are excluded for these estimates. We expect site leasing revenues to be 69-71 million and EBITDA between $28-30 million. Site leasing revenues are between $70-72 million with EBITDA between $30-32 million. Cap Ex for the rest of the year should be half of what it was and over $31 million combined for Q3 and Q4. The termination for our build to suit agreement has saved $200 million in additional cap ex over the next years and as I said our contractual commitments to build towers is at this point in time zero. Hopefully that's more meaningful guidance.

That's good. I think Tim would echo you feel comfortable given there's work going on out there in the field. Next question is on consolidation. Talk goes on all the time about consolidation on the carrier side. Can you give us your current take where that might stand on discussions with customers and how that might impact you and your take on consolidation in the tower industry?

Rick, in answer to the first question, we don't have any particular insight that's not available generally. I don't think we have a specific thought about the form or shape or timing of consolidation with the carriers. Like everyone else, we expect some consolidation to occur. You know, the dance partners are, I think, from our perspective anyone's guess at this point. I don't think we have a specific expectation as to how that scoldation will occur and impossible to -- consolidation and impossible how that might impact us. With respect to consolidation to the tower operators, again, most people that conventional wisdom is that if you assume there's significant carrier consolidation, it's likely to assume there probably should be or certainly could be and probably should be consolidation among the tower operators. I think if we look at where we are and what most people seem to be saying about the timing associated with carrier consolidation, nothing in the very near term, we are talking about subsequent event that is may be a couple of years ago.

Okay. Thanks, guys.

Next question comes from Ian Zaffino from CSFB.

Good afternoon. On the term for this quarter, I see it looks over 10% here. What is the source of that and what is that going forward?

Ian, the biggest portion of churn, more than half of it came from xm radio. They overbuilt their terrestial network and overbuild lease terminations which was the biggest item of churn and accounted for more than half of it.

And to terminate those leases, what type of recourse did you have or what did -- how was it terminated?

Ian, they agreed to a termination fee which we brought in and increased our revenue reserves, bad debt.

Would you be give us, not asking for an exact figure but a magnitude of the termination fee.

There was no discount. They paid the full amount.

They did. Okay. Thanks.

Your next question comes from Nevine Salma of Deutsche Banc.

Do you plan on drying down the facility at the end of this month?

We currently have an amendment out in the marketplace. If the amendment is successful, we would forgo that draw.

Okay, thanks.

Your next question comes from Joe Galzerano from CIBC World Markets.

Yes, a couple of things I want to go over and confirm. First, I'm not sure what the relationship was with Cingular and why that could not proceed when the auction was terminated. That's one. Two, on the service side, 100% EBITDA came from leasing which would imply that the service was flat, the service EBITDA was flat. Then you said, I thought, $12 million annually at SG&A. That's it? $3 million of expense in, you know, in the overhead for service, I want to confirm that. And the last, the way, I want to confirm this, too, the way the release read was that there was zero sability on that facility right now.

Let me try and go through the questions. The first question, the arrangement with Cingular where they were purchasing back towers was contingent on the tender offer being successful.

I know, you know, if they needed those towers, I don't see what the relationship was.

I guess you'd have to call them. Since it was their contingency. In the second question, I'm not quite sure what you are confused about. The network services business had very low gross margins in the second quarter. We have assumed going forward in our own projections and our guidance that we will be successful in our efforts to sell the network services business. As we project the forward look for the Company and take out the divisional SG&A costs associated with network services and those incremental services cost corporate, if you will, SG&A related to or associated with network services, those two sets of SG&A costs combined are about $12 million annually.

Okay.

The third question was relating to the bank availability. What was your -- I'm not sure I understand the question.

The way the press release read it looked like you had $12 million cash or zero availability?

Based on the covenance at the end of the quarter, it's $84 million available in the facility.

Operator: Next question comes from Steve Flynn of Morgan Stanley.

Good morning. Just a couple of questions. A classification goes to the last caller's SG&A question. The EBITDA guidance that you provided 28-30 and 30-32 for the fourth quarter, that assumes network service also be sold or moved into discontinued operations?

That is correct.

So it won't be showing up. Great. The second question I have was the Cingular, the purchase tower contract, you didn't purchase towers in the quarter, I assume. Could you take talk to us about where that stands and what you are doing to renegotiate that contract?

The contract with SBC as it stands has a requirement to purchase a maximum of 894 additional towers. 187 of those towers are located in the California-Nevada territory that are associated with the 565 towers at Cingular may purchase back. 45, sorry. In the event the Cingular transaction takes place, we would not expect to purchase those 187 leaving us with a purchase of 707 towers, that purchase commitment from a cash standpoint or closing standpoint takes place over a one-year period effective beginning at the end of Q1-03 and the close of Q1-04. So you're correct that we are not purchasing towers.

Okay. And a follow-up to the SPC contract. The way that you guys wrote this contract that you were leasing the right to lease out space on the towers and that there was a payment, I believe it was around 25 years out or so that you make to purchase the towers. When you did the deal, you provided a net present value of what that option would cost you. Can you give us an update on what that cost is to you on an nvp basis and also a follow-up question. If you were going into bankruptcy. What would happen with that right to buy those towers out at the end of the contract? Would they be able to back those towers or what would happen in the contract if potentially you were to go into a bankruptcy scenario?

In answer to your first question, I don't know, don't have it on my fingertips the calculation for the end of June or whatever of this 13-year or 25-year or some multiple year, I don't know, Steve. Secondly, we have not, I'm not a bankruptcy attorney and don't know what the position would be with respect to our rights or spcs rights. I can't answer that question, either, at this point.

Thank you.

Sure.

Next question comes from Greg of Luke Capital Markets.

Thanks for taking the call. The $31 million in Cap Ex for the month, I'm assuming that's maintenance since there are no contractual obligations and you are trying to conserve cash, is that a safe assumption?

That's essentially correct. There's a small amount of that roughly $31 million associated with completion of broadcast towers which have been in development for some time, much longer cycle time. And there's money set aside in that protection for improvement to existing towers to accommodate additional tenants. Most of it is ordinary continuing Cap Ex numbers.

A run rate of $15 million per quarter, does that sound about right?

Probably close, Greg.

Okay, super. Thanks, guys.

Next question comes from Patrick Vitrel.

A question, you commented the AT&T wireless and Cingular were active in their overbuilds, can you comment on the other four of the big six and what you are seeing out of them?

Sure. Sprint and Verizon have accomplished the software upgrade, the same overlay to get to the cdma technology. Nextel has a planned upgrade, capacity upgrade scheduled to be implemented based on new motorola software next year. Voicestream is already GSM, so that's it.

Thank you very much.

Sure.

Next question comes from Romeo of Jeffrey's Company.

Trying to figure out if you guys have done a credit analysis of a customer base and to that end, I'm trying to figure out what percentage of your revenues, you think are at risk from some of your customers going chapter 11 specifically relating to the Sprint affiliates, how much exposure in terms of revenues you have to them as well as some of the rural carriers and maybe even some of the satellite radio companies. Thanks.

I don't have a break down right with me at the moment, Romeo. Yes, we have a large percentage coming out of the big six and the affiliates.

How much is coming from big six right now?

90%. That has the affiliates in it. 70. Roughly 75 coming from the big six themselves. The remainder coming from the affiliates because of the nature of our portfolio, you'd have very, very little coming from rural cellular carriers. The rest would be from -- I'm trying to think in terms of the towers. We did some towers and probably South Carolina.

South, I think it's about 15-20% of our leasing revenues probably coming from nonbig six corporate customers.

Partners. We build towers for partners. I can tell you in the past where we had done various, partners was the Nextel and some work for Ubiquetel, those are the largest.

In temples of the has part of your question, the satellite radio guys and anybody else in the category, we lump all of them into a category called "emerging technologies" which is half a percent of the lease revenue.

That doesn't sound like much. What about aging?

Aging is 1.7.

And a last quick question. Are you guys in the market looking for veteran possession financing?

No.

Thanks a lot.

Your next question comes from Bill of BNY Capital.

Two questions. First question do you have any bids out there for the services business?

We just started the process. We are talking to the companies interested but haven't started the bid process.

And on the bank covenants, are you seeking to ease the covenants or alter the amortization schedule.

Primarily the covenants and basket changes. No, we are not trying to articulator the amortization schedule.

What would you expect that process to be complete on the amendment side or when would we know one way or the other?

August 22nd.

And if you don't get the amendments on the bank covenants?

Yeah, I think we will see where we are at that point.

Okay. Thank you.

Your next question comes from Bob of CFSB.

Two quick questions. First of all, I want to know if I did the math right, $60 million of Cap Ex is 7,500 per tower. Could you give us any more breakdown where that maintenance Cap Ex type of number is going. Share of a percentage basis and also on a second note, on the amount of money that was spent on the failed exchange, did any of that get paid to Welsh Carson directly?

The second question, first. Yes, a little over $2 million, $2.5 million paid to Welsh Carson. The other was to services to accomplish a tender offer.

Bob, this is Tim. $15 million a quarter, it's not all what's called maintenance capital or improvements to the current sites. With that $15 million we will continue to select malls, in-building and broadcast towers. Half will go into broadcast and buildings, the other half would go into running the day-to-day corporate business as well as modifying towers to accommodate new tenants.

Thank you.

Your next question comes from Daniel Louis of Solomon Smith Barney.

Thanks for taking my call. I want to get more clarity on the bank covenants. Which particular covenants are you tripping this year and also I want to get more clarity as to what you are asking from the bank. Is it, remove all the remaining availability in exchange for covenant leniency or new money over the deal or what exactly are you trying to get a waiver for?

I think you're asking for a level of detail that given where we are in the early stages of sorting out the right restructuring process for this company, doesn't make sense as you can appreciate to develop a restructuring strategy or a bank negotiation strategy in the context of a public conference call.

But you said you had an amendment out on the market, I'm curious to know what that is.

When the amendment is successful, we'll be anticipate happy to talk about it in great detail. It's not appropriate when we are trying to get that amendment through the marketplace and respond to the banks and negotiate with the bank group to kind of have the detailed conversation that you're asking us to have on the call.

That's fine. Okay. I guess you kind of drifted out when you were talking about the pipeline for the leasing business. Did you say -- I guess what did you say with respect to the outlook for the leasing business in terms of July and August and any material change in the trend of the business?

What we did, we didn't answer the specific question about the leasing pipeline. What we said is we are now prepared to give guidance for the outlook of the quarter which we did. Those numbers imply that the leasing pipeline, we don't expect it to change significantly.

Great. Thank you.

Once again I would like to remind everyone if you would like to ask a question, press star and the number 1 on the key pad. We'll pause for a moment to compile the Q&A roster. At this time, there are no further questions.

Okay. Thank you all for joining us and talk to you next quarter.

Thank you for participating in today's conference call. You may now disconnect.