美國電塔 (AMT) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Miss Anne Alter, Vice President of Finance and Investor Relations. Please go ahead.

Thank you. Good morning and thank you for joining American Tower's conference call regarding our second quarter earnings. We'll begin with comments from Brad Singer our Chief Financial Officer, Jim Taiclet, President and Chief Operating Officer and Steve Dodge, Chairman and Chief Executive Officer. We'd like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include discussions about our quarterly and full-year 2003 outlook, statements regarding our goals, beliefs, strategies, objectives, plans or current expectations and other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future, and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press release and those set forth in our form 10-Q for the quarter ended March 31st 2003, filed with the SEC and other SEC filings. We urge to you consider these factors and remind you that we undertake no obligation to update this information contained in this call, including forward-looking statements to reflect subsequently occurring events or circumstances.

Our earnings release which includes information required by regulation G with furnished this morning to the SEC on form 8K and is posted to our website. Now I'd like to turn things over to Brad Singer.

Thanks, Anne. Our second quarter was characterized by continued strong Tower operating performance. In terms of sequential revenue growth and margin expansion, increasing free cash flow generation and incremental improvement in our financial position. Our strategy to focus almost entirely on our core tower operations has enabled us to continue to deliver on the expectations we set at the beginning of the year. Our second quarter total revenues increased to 178.2 million or 7.5% from the same period in 2002. While the revenue increase was solid, the composition of the revenues was more impressive with our high margin Tower division contributing over 85% of the total revenues. Correspondingly our adjusted EBITDA increased to over 96 million, as the strength of our Tower operations more than offset the decreases in our service operations. Our adjusted EBITDA margins increased to 54%, reflecting the improved sales mix. Please note that our second quarter 2003 and [Inaudible] financial statements reflect the reclassification of one of our service companies, [Inaudible] iron and steel, into discontinued operations. Our Tower revenues increased to 151.9 million or 15%, and our Tower writing operating profit increased to 101.2 million or 29% from the second quarter in 2002.

The substantial operating leverage inherent in the Tower model enabled our operating profit to grow at twice the rate of our Tower revenues. Our Tower expenses declined by over 2 million, despite decreasing -- despite increasing revenues by almost 20 million between the second quarter of 2003 and the second quarter of 2002. As a result, we improved Tower operating margins to 66.6% from 59.4%. We expect to modestly increase our Tower operating expenses as we complete the acquisition of NII holdings, and experience the seasonal increase in Tower level expenses in the third quarter. As a result of our perform absence, our tower revenues were at the midpoint of the outlook and operating was at the high end. Tower revenues grew sequentially almost 5.5 million from the first quarter of 2003, while the total Tower expenses decreased slightly between the quarters producing a sequential cash flow increase of. 6 million. The sequential growth reflects the stronger second quarter growth rate toward the 2002 performance and includes the impact of the NII Holding towers acquired. We continued to convert over 100% of our incremental revenue added to our towers into cash flow. Our rental revenue and cash flow grew on the same tower basis 12% and 19% respectively for the 13,534 towers owned at the beginning of the second quarter of 2002, representing 98% of total owned tower in our portfolio. Third quarter and remainder of 2003 Tower guidance reflects our second quarter revenue run rate and lower than anticipated new level of new tower construction in the first part of the year and the phase of closing NII holding acquisition. Our 2003 Tower guidance maintains our previously forecasted sequential organic revenue growth of 10-14%. As a result of these modifications we've tightened our revenue guidance to 617 -- to 622 million and our Tower operating profit outlook to 409 to 415 million.

The services division reported revenues of 26.3 million and operating profit of slightly less than 2 million for the second quarter. As I noted earlier, the second quarter 2003 and 2002 service division results have been adjusted to reflect Klein's discontinued operations. Klein had revenues of 10.7 million and operating profit of 200,000 in the second quarter of 2003. We recorded a $14 million impairment charge for our clients in the current period which is included in discontinued operations. Service revenues increased over 40% sequentially reflecting seasonally stronger second quarter activity, while the increase in sales resulted in a large sequential percentage increase in operating profit, we did not experience significant operating leverage increases due to the continued pressure on pricing. Adjusting for the revenues and operating profit attributed Klines that were reclassified to discontinued operations, our offer revenue was in line and operating profit was at the low end of our second quarter guidance. While our third quarter service backlog appears solid, we have been and continue to remain cautious with our service outlook. We are tightening our revenue and cash flow expectation for the third and fourth quarters. We anticipate our service revenues to range from 22-30 million and our service operating profit to range from 2-4 million in each of the third and fourth quarters. Our revised guidance also reflects the treatment of Klein as discontinued operations. Capital expenditures continue to be below our expectations, running flat on a sequential basis at $11 million incurred in the second quarter of 2003. We incurred lower than anticipated CapEx-in the quarter due to the construction of only 14 towers compared to our expectation of around 30 towers and lower than anticipated improvements in augmentation CapEx. We've provided a breakout of cap ex spending as supplemental information in our press release.

Payments for purchase of property and equipment on our statement of cash flows includes 11 million of reduction in accrued construction costs for the first six months of 2003. We have reduced our expectation to build approximately 100 high quality towers in 2003 from our beginning of the year 100-150 tower estimate. We are reducing full year 2003 incurred capital spending to between 48-56 million, including 5 million related to Verestar. As a result of the continued strength of our core tower operation operations and tight controls, we have generated. 16 million in free cash flow in the second quarter. We defined free cash flow as adjusted EBITDA less interest expense and incurred CapEx. Second quarter net loss per share was towards the lower end of the outlook as a result of approximately 10 million of additional non-cash charges related to debt per equity conversion t and asset impairment charges. From a strategic perspective, we closed 22 million of asset sales during the second quarter, consistent with our strategy, we redeployed approximately 10.5 million in acquiring NII holdings towers. We anticipate closing the remaining 32.9 million of towers throughout the rest of the year.

Given our desire to continue to drive efficiency in our Balance sheet we thought an income tax refund claim with the IRS related to operating losses generated by the company in 1998, 1999 and 2001 at the end of the second quarter. We plan to file a similar claim in September 2003 with respect to the net operating losses generated in 2002. The company anticipates receiving approximately $90 million as a result of the claims. Company estimates receipt of the amount with in one to three years the date the claims were filed with the IRS. As we have worked hard on improving our operating performance and our share prices the last year, we are mindful of not adversely impacting the prices of our securities while continuing to strengthen our financial position. Our financing goals have been and are straightforward. We plan to continue to increase our financial flexibility and improve our liquidity. We have consistently remained focused on reducing our overall leverage and driving down out total cost of capital as well as our interest costs and we always seek to reward all stake holders in our entire Balance sheet.

Consistent with our financing philosophy, we've carefully exchanged approximately 22 million of principal value of our 2 1/4 convertible notes for approximately 1.2 million shares of our class A common and 6.4 million in cash this quarter. Excluding the 71.5 million in previously announced transactions. As a result of these additional exchanges, the second quarter includes 6.8 million of non-cash charges, in addition to the previously announced 29 million non-cash charges in the second quarter. Under the terms of our March, 2003, bank amendment, if we issue shares to buy in the 2 1/4 convertible notes we have the ability to use the remaining restricted cash to repurchase our other debt securities until July, 2004. As of the end of the second quarter we had. 193 million remaining in restricted cash to fully redeem 140 million of 2 1/4 convertible notes, should that be put to us in October. We continue to be thoughtful in executing any future exchanges as we Balance the returns to our shareholders with the improvement in our financial flexibility and liquidity. We also reduced the total of 300 million of debt during the second quarter consisting of 14 million in scheduled bank amortization and 16 million of secured debt as a result of the sale of our Westwood building. We ended the quarter with approximately 30 million in cash and cash equivalents, including 192 million of restricted cash and investments.

As of June 30th, 2003, the company has the ability to draw 237.8 million of its revolving loan which respect the un-drawn and available portion of that loan. Combined with the cash on hand as of June 30th, 2003, the company had a total of 538.3 million in total liquidity, including the 192 million of restricted cash and investments. With that, I'll turn it over to Jim Taiclet, our President and COO.

Thanks, Brad. Based on our Q2 operating results, discussions with carriers, and industry trends, we expect continuing solid demand for tower space. Actual new business activity on our towers in Q2 offered very clear evidence of healthy demand. Our second quarter tower revenue growth of 15% over the prior year and new business generations were right in line with our expectations. The major national and regional wireless carriers continue to invest in their networks and drive leases up in the second quarter. Over half our new business in Q2 was generated by the big seven wireless carriers, ALLTEL, AT&T wireless, Cingular, Nextel, Sprint PCS, T-Mobile USA and Verizon. Slightly less than an additional 10% of our new business in Q2 was from other U.S. wireless carriers including regional customers such as U.S. Cellular and affiliates such as Nextel contract partners. About a fifth came from our international wireless customer base and there was a significant amount of activity on our portfolio broadcast towers in the U.S. About 15% of our new business was on these towers in the second quarter.

Our new second quarter business was split 80% to new collocation sites versus 20% for existing site augmentation, similar to the ratio in Q1. The augmentations in Q2 were driven by two factors -- first, major U.S. carriers insulation of additional equipment in a wide band of towers stretching from Virginia to Texas, and in the Pacific Northwest and Northern California. The second factor was Cingular's continuing GSM overlay project. There were also a number of drivers of second quarter new site growth. One was a significant level of new site activity in corridors connecting not only major metropolitan areas but mid-sized cities as well. Another was an increase in site deployments by multiple carriers in the southeast U.S. and in the Midwest, especially in the Ohio and Michigan markets. Internationally, [telephonica] continued its substantial network build in Mexico and we saw a trend toward using more collocation sites as opposed to new power builds by Tellcell. Our discussions with a carriers over a past couple months also yielded current and continuing themes regarding network deployment. This themes further support the expectation of robust, new site, and upgrade demand into the foreseeable future.

The first of these themes is the consistent coverage within the carrier's RF footprints is becoming increasingly important and in keeping their subscriber satisfaction high and minimizing return. Another theme is that this consistency relates both to the basic signal strength and to the availability of new service features and technologies. In other words, this as carriers roll out new technologically advanced services, the network has to support the robust delivery of those services, because uneven availability or quality just isn't acceptable when you're marketing new advanced services to subscribers. The third theme we heard from customers is that a number of the carriers are also committed to expanding their current RF footprints to cover un-served areas, broaden the reach of those new service features, or increase roaming expense. One of the carriers has recently publicly indicated that reducing roaming charges was its number one cause for reduction priority. The carriers are also increasingly emphasizing network and service quality in their market campaigns.

A majority of the big seven carriers now highlight network quality, availability or features as the cornerstones of their advertising message. The advent of wireless number portability will make these claims a strong networks and great service even more appealing to customers. Even today, turn rates are closely related to network quality. The number one carrier in terms of network quality is reported in the latest "consumer reports" survey has consistently enjoyed the lowest turn rates among major carriers and the rankings correlate with the turn rates down the list. In addition to the drive toward network quality being pursued, discussed and advertised by the carriers, empirical industry data supports continued strong demand for tower space. Subscriber and minutes of use growth are still strong, and they're putting increasing stress on the carrier’s networks. According to Wall Street research, U.S. wireless subscribers grew by 12 million from March of 2002 to March, 2003, a 9% increase. Total U.S. minutes of use grew by over 30% in the same period. Given the strong net subscriber ads, increase in RFU and high revenue of data projects described by the U.S. carriers that have already reported their second quarter 2003 results, we expect that there were similar, if not greater increases in rate of change in these metrics from April through June of this year. The Mexican wireless market is also exhibited similar trends with a 12% increase in subscribers from March of 2002 to March of 2003.

Due to the increasing number of subscribers, minutes of use in the U.S. and in Mexico at the peak hour of 5 00 to 6 00 p.m., which is the main driver of network capacity constraints, is also increased compared to the prior year. In addition, a second busy hour is emerging around 9 00 p.m., as subscribers take advantage of unlimited usage offered by many calling plans and the free long distance that's also included in these plans. Moreover, the second busy hour is shifting away from highways towards residential areas, which will then need better coverage and capacity. Furthermore, average fall length in the U.S. increased by 5% during the last six months of 2002. Longer call lengths also put strain on the network as the call must be successfully handed off between more cell sites, increasing the potential for a dropped call. Carrier budgets also reflect the importance of a strong RF signal throughout their covered footprint. While overall carrier CapEx is expected to decline from 2002 to 2003, the number of cell sites deployed is expected to increase.

The reduction in average base station costs as support of this trend toward more cell sites as well. In summary, we believe that new business bookings, discussions with carriers, and industry trends all support our view that we will continue to achieve solid revenue growth. We've also demonstrated over the last six quarters that our expenses in CapEx are well under control. As a result, American Tower will continue to generate increasing free cash flow and de-leverage the Balance sheet. I'd now like to turn it over to Steve.

Thanks. I'll be brief. When we step back and look at the landscape we pretty much like what we see. Our customers are healthier. Revenue growth continued at a solid pace. Our team is executing. The model is working. Rapid delivering continues. Our competitors are also healthier, which in this industry at this hour is a good thing. The capital markets are tuned in and interested. And finally should be noted that the red Sox haven't folded yet. So what keeps us up at night? Very little actually, but there is still work to do. The levering should continue and it will. Our industry is still very young and our people need more training. We've been on this for some time and we will stay on it. While we are executing well, we can execute better and we will. Good people properly supported will be the key, as always. We will be fine without further consolidation in our industry, but we will be better with it, and that will remain an objective, but we won't move in this direction unless we know we are improving ourselves. We need to do a better job getting our customers to recognize and understand that as understand that as a shared infrastructure provider what we really do is provide low cost financing in a world in which capital is precious. This is not a bad thing, actually, in the healthier we are, the more low cost financing we can provide.

So we need to be more effective as a company and as an industry in getting this message across to customers who are understandably focused on efficiency. All of us need to keep selling our stories realistically, matter-of-factly, without hype, as the capital markets may not fully appreciate the free cash flow potential of our industry. These are some of the important matters that remain as we see them. You should know that we appreciate your renewed interest and support. We really do. Let's move on to questions.

We'll now take questions, operator.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one on your touchtone phone. You'll hear a tone indicating you've been placed in queue. You may remove yourself from the queue at any time by pressing the pound key. We have a question from the line of Ric Prentiss with Raymond James. Please go ahead.

Good morning, guys. A couple of questions from you. Jim, you did a great job talking about the demand for your assets from the carriers. So on the quantity side, I think people are getting comfortable that the demand is there and probably increasing like you mentioned as far as the number of cell sites needed. Can you talk about the price side of the equation? What are you seeing as far as pricing trends in the marketplace for cell site rentals?

Sure, Ric. I mean, pricing has been one of our focus areas as we deal with the customers. We've spent many months negotiating with a number of our customers to get a win/win solution for them that includes volume, pricing that maintains our business model, and other terms. So if you look at the trend over the last year or two, it's plus or minus 5%, depending on the situation, the deal, the volume, but it's been really overall pretty stable.

Okay, and one for Brad on the CapEx side. Obviously it came in lighter again. Where do you think this can go? The maintenance CapEx I think was about 5 million in the quarter. Is that a reasonable level to kind of anticipate for the long run, kind of part of this business, and wireless tower construction was only, I guess 4 million in the quarter. What kind of trends do you see in that, even beyond just the next two quarters, and Verestar, a million there in the quarter, written it down to zero, should we expect at some point that that will go to zero, in fact, on the CapEx side?

Let me -- I will talk about the CapEx and turn Verestar over to Steve. Can he update with regard to that. With regard to our augmentation improvement CapEx, 5 million will be the way we would run. Plus or minus one, should not be much higher. With regard to new growth, we under built what we planned to do in the first half. We expect to fulfill kind of a decent pace in the third and fourth quarter of about 30 towers, plus or minus five each of those quarters. So that will step back up a little bit in our guidance, it does reflect CapEx moving back up to 13-17 million as we are investing in some new builds. So that's kind of how we look at the CapEx. In some way, if you wanted to look at it for a year, the maintenance augmentation/improve cap ex would be. $20 million.

Okay.

Ric, the significant elements of Verestar have been sold and the proceeds have been realized. The resolution of the remainder of the company is not yet complete, but should be in the near term. As we said before, we don't believe that the final resolution will move a needle much either way, in and any event, we would expect that CapEx, you know, after Q3 would be minimal to nonexistent and not great in Q3 already, probably similar to Q2.

Final question, the word leverage came up several times. I think it's a great focus to keep de-levering. Can you give us an idea farce what you're looking at year-end '03, how many more turns should we be expecting? As you look out into '04 and '05, how many turns would be bringing down in your views.

Ric, we were at 12.5 times leverage six or five quarters ago. Right now we're around eight and a half times leverage, slightly below that on an annualized EBITDA basis. We see ourselves that we'll be below eight times based on our guidance at the end of this year if you take the fourth quarter midpoint it's more like 7.5 times annual adjusted EBITDA. We have not guided yet for 2004 and 2005, but you can take a range of assumptions in terms of revenue growth. We should be moving down from the seven and a half times to kind of the low sixes to maybe even sub six depending on the growth rates over the next, let's call it 12-18 months. I think that's kind of the natural progression where we would be at the six range, somewhere in the 18 month to 24-month period.

Thanks. Good luck on that.

Thanks, Ric.

Thank you. We have a question from the line of Jonathan Atkin from RBC Capital Markets, please go ahead.

Thanks a lot. I've got a big picture question. The midpoint of your tower revenue guidance declined a bit and yet your tower goes profit guidance increased. Can you comment on the dynamics taking place there? Looking act the tower revenue ramp during the second half T looks like your guidance called for a mild increase, even the lower end calls for a mild increase in the second half. What's going on with the carriers that would drive this, and does this have any impact on the mix of collocation related revenues versus site augmentation revenues.

John, in terms of our guidance, we have not changed the organic growth presumption of 10-14%. We've been consistent all year in the first two quarters and we see that for the third and fourth quarter. I'll let Jim talk about how he sees the second half of the year. From the quantitative point of view, the reason the top end of the guidance comes down, it's a compounding effect. If you do not hit the top end in the second quarter, we have to revise the third quarter down just to make our run rates work. That takes about a million off the top end in the third quarter and a little bit more than that in the fourth quarter. So I think -- so that's part of it. The other part is that we did build less towers than we expected and we do have a slower pace of closing on our acquisitions. So our growth rates organically are where we expected them to be and our guidance is still very much the same as it was. I just want to be clear on that. From an expense control point of view, we have done a better job than an anticipated in terms of controlling our expenses. It hasn't been dramatically better but it's been better by a million or so a quarter. We do expect a seasonal up-tick in expenses in the third quarter but we're comfortable enough with where we're running that we can maintain the margin guidance and operating profit where it is. When you look at our guidance for the third and fourth quarter moving forward, the numbers, when we say tightening, we brought the low up a little bit and the high end down a little bit and it is a tight. With that I'll turn it over to Jim if he wants to talk about any up-tick in the third and fourth quarter.

We're very comfortable, Jonathan, with the mid points as Brad's described them and guidance for revenue and the operating income. I think the mix that you'll see in the back half of the year will be slightly different, probably more along the lines of 8515 as far as new builds versus augmentations mainly because Cingular will be playing out its upgrade over that period of time and then secondly, I think among the customers, we'll hit our midpoints, and they'll just be a couple of changes literally in the mix. I think it's well aware by this group that Nextel and Sprint have already announced build programs. We expect to see some more from them, and sort of our mid tier group of T-Mobile and Cingular we think we'll see more from than we did the first half of the year and we expect AT&T Wireless and Verizon and ALLTEL which are traditionally strong with us to be strong in the second half. It's a good mix of customers. Some will be spending more traditionally than they have and we feel good about that.

Finally, how much of your rental and management revenues were recurring this quarter. Did you have anything going on in terms of early termination lease, application fees or whatnot?

We did not, John.

100% of the tower revenues were recurring?

It's 98 to 99. You also have a little bit of back going that happens every quarter.

Great. Thank you very much.

Sure.

Thank you. We have a question from a line of Jim Ballan with Bear Stearns. Go ahead.

Thanks a lot. A lot of the topics I wanted to talk about have already been covered. Can you talk a little bit about the services side of the business, assuming that you have the Klein iron and steel deal done, can you talk about what's remaining in the services business, and if there's any opportunity for additional asset sales on that side, and just any thoughts on continuing to use your stock to get to the 2 1/4s?

Jim, this is Jim Taiclet. I'll take the services piece and pass it over to Brad for the 2 1/4s. Our basically strategy's been the same for almost 18 months, to have a very clear line of site from the customer and us and what we do for them in the company and it all has to do primarily with collocations and builds of wireless towers. You've seen us retain construction, site acquisitions, zoning type services because they have direct impact on that end to end process. The things that don't have an impact on that process are MTS, Klein, elements of Verestar with the rest to come. Those are all being moved out of the company. So strategically, very straightforward and consistent. There may be one additional move but nothing to announce yet in services and we'll pretty much be wrapped up after Klein. That's where we see it going.

So assuming that you're building a smaller number of towers, you know, going forward, do you think there still could be reductions on the cost side related to those businesses?

As far as the service businesses, not necessarily, because the mix of what the construction group and even the site zoning team does these days is mostly towards collocation. It's installation of equipment on existing sites. It's also getting those sites zoned and permitted to have additional customers and equipment on them. So the cost base we think is about right and the challenge in services has been revenue and pricing, and we feel more stable there than we have in the first half of the year for the second half.

Okay.

And Jim, to address your three and nine question, we've been consistent in our desire to incrementally improve our Balance sheet and financial position, and so, you know, we've been cautious about it and making sure that it is incremental in how we have done it and we think we've done it thoughtfully with how it impacts all of our security prices. While we don't guide to additional 389 exchanges, we do leave the door open that we may still do some.

Okay, thanks a lot, gentlemen.

To be clear on the service divestiture question, each time we do divest in one of these companies, it has a positive effect on the overall margin of the company, which may get to your expense question. Typically the service companies, depending on which one, you know operate from, you know, very low single digit to at the highest 15-20% on an EBITDA basis, and the revenue component of them has not been inconsequential. So while there's not that much more to do, there is some and as that occurs, you'll see an acceleration in the overall margin expansion of the total company. In essence, and let's be clear about this, the company will have transitioned from being about half service revenue in, you know 20%, 25% service profit to almost all Tower revenue, some service with virtually all the cash flow coming from towers. The service elements that remain remain for the reasons that Jim articulated. This is primarily a customer-driven outcome and it has very nice financial benefits as well. So let's be clear. We have already become virtually a pure tower company and we have some tiny steps to finish in that process and with that, you'll see more margin improvement.

Great, thanks a lot, gentlemen.

Okay.

Thank you. We have a question from the line of John Fusyk (ph) with Goldman Sachs.

Good morning. You indicated I believe the percentage much your new business coming from your big seven operators to be about 50%. Can you comment on where you see that going over the next few quarters?

Yes, John, it's over 50% in the second quarter by a few points actually, and we expect that level to probably increase, frankly. We had a big quote on broadcast which was great. Those are terrific credits and good customers with long contracts. It's as big a proportion the back half of the year in broadcast. International was a little busier, too, and the big seven is going to come on strong in the second half. It will be at least as much as it was in the second quarter, probably significantly greater.

Okay, that's great, thanks, and separately, can you give us a little bit more color on the $90 million tax refund you applied for, what it was related to, and I know it's probably hard to handicap the timing of this, but when you might get it.

Sure, the tax refund is related to the taxes we paid on the American Tower spin-off from American Radio. We paid over $300 million in taxes back in 1998. A portion of those taxes we can carry our net operating losses that we incurred at American Tower back towards the taxes we had paid on the spin-off. We're taking loss that we have incurred over 1998, 1999, 2001, 2002 and future losses. We've got nothing to be proud of.. We've got plenty of losses to carry back and this is the maximum, this will be the total amount that we expect to get is the $90 million refund. The timing of that, given the size of the refund, is very difficult to handicap. We do not expect it to be under a year, and we don't expect it hopefully to be over three years but it has to go through to a joint committee and they do come back and they do analyze it very closely. So that's as much color as I can give you on that. Does that help you, John?

Yeah, that's fair enough. Thanks.

Thank you. We have a question from the line of Roy Ashercon (ph) of Camden Asset Management. Please go ahead.

Thanks, guys. I was wondering, now that the 2 1/4s are taken care of, pretty much, I was wondering what your longer term battle plan was for delivering, whether it's mostly going to come from increased cash flows or were they also planning on reducing debt through maybe equity or equity linked products or something like that?

Roy, when I spoke earlier, I tried to outline our framework for how we look at financings and what our goals are financially. So I think while we do, one of our goals is to reduce our leverage as well as to reduce our cost of capital ultimately, I think we weigh all of those factors into what the impact on our security price is and also what it does to our liquidity or financial flexibility. I think we are consistently reviewing opportunities and what the market has and presents to us and I think we're going to take a common sense approach to it, and that is really, it's very straightforward from there. I mean, does that answer your question?

So it's a matter of pricing?

Part of it is pricing. Part of it is what is going on in the individual securities markets, because they're not all tightly correlated but they do have some correlation.

Right, that makes sense. Thanks, Brad.

Thanks.

We have a question from the line of Rich Ferreiri (ph) with Glenview Capital.

How are you doing Steve, you've been one of the bigger proponents of consolidation in the industry. I take from your comments it sounds like if anything, you're slightly less optimistic. A, is that the right read, and B if so, is there anything going on, you know, either in everybody feels a little more comfortable now that stock prices are higher, or, you know, people don't share your view of the benefits? I mean, is there anything going on there?

I wouldn't say it's any more or less likely. I think that, you know, as always with consolidation, prognostication, timing is difficult to assess. There's so many things that play into it. I'm not sure that the change in the tone of all of our securities has much of an effect on at least our view, I'm not sure about everyone else's view of the strategic relevance of combining companies so that we can take out redundant overheads and achieve more cash flows against the same amount of revenues. I think there are obvious benefits there and we continue to see that potential, but we're going to have a very good business with or without that outcome, and I want to make that clear, but we think that a properly structured combination of series of them could produce better, a better overall company with better overall access to capital markets in a more compelling overall portfolio of towers, but I don't think anybody's got such a sense of urgency they'd agree to provisions that don't make sense or would move down the path unless it was beneficial to all stake holders and that's always the challenge. But I continue to believe that this will happen. I just, I think it's been hard for everybody, particularly on the, looking at the customer side of our lives to accurately forecast when certain consolidation events might occur but the strategic mandates here are so obvious that I think inevitably these things will happen.

What about anything in terms of interim steps through tower swaps, where, you know, maybe we could reduce overhead in a particular region where, you know, we don't have as many towers as other regions and things of that nature, does that make sense to, you know, I know you've talked about it in the past and I'm sure you've had conversations. Is that going to be an interim step or are we still thinking about trying to do something macro first, and then we'll deal with that later if the macro doesn't work?

Well, you're smoking out the answer I gave you before. I think that we would be inclined to do minor steps, and we have done some, that are not necessarily visible, the small transactions that might help us in a particular market, but I think that any major steps on swaps should wait logically until we see how the other, the larger asset collections line up in total, unless you know your final hand, it could be premature to engage heavily in swaps. So I still see the sequencing logically that way. We have continued and will continue to do what we would call portfolio pruning. These are, you know, we have inevitably the towers here and there that don't make that much sense to us, and there is still a vigorous market for the acquisition of such towers by smaller companies that are trying to get going, and from time to time, we take, you know, we take that, look at that and take steps and I think you'll see us continue to do that. But the larger macro things, I would see the sequencing as follows, that we'd, and probably some others, would ultimately find the right formula to combine and after that, you'll see more velocity in the exchanging of assets.

Great, I appreciate it.

Okay.

Thank you. We have a question from the line of Gregory Daneker (ph) with CIBC. Please go add happen.

My primary question was the one that was just asked. My secondary one was, can you give a breakdown between, I know you give the 80/20 as far as augmentation versus new lease ups but can you provide a more detailed breakdown between what's coming on from true, you know, new leases, the augmentation, and then what is also happening from, say other types of either broadband applications or anything else on that front, and then the other one was, are you guys doing anything along the lines of doing anything in the back hall side of the business? Has that gone anywhere or are you looking at sharing generators that type of other network opportunities that can be done at the cell side?

Go ahead, I'll take the first question and turn it over to Steve for the back hull piece. Our new business as was mentioned, 80% comes in the form of brand new collocations on the tower. 20% are new equipment typically or additional ground space for the customers got an existing contract at that site. Of that 20, two to three percent comes through an audit program that we have to make sure what's in our records matching up physically with what's on the tower. It's real revenue and real profit that comes through those audits, but there is a small portion of the 20 that is brought to light based on just record reviews. That's really 100% of revenue on the towers. s that's where it comes from. Steve?

We continue to think it's important to assess and evaluate some of what we would call related infrastructure sharing opportunities that our customers might find relevant currently or in the future, and those would include both back haul and distributed antennas. We're active and measured in a specific on the both fronts, and we have, a small investment in backhaul, but I think you'll see us take an appropriate approach to this, which is to make sure that we know what the demand side really is, that we are confident on the execution side, and that it makes financial sense relative to other opportunities that the company might have. But at this point in time, these initiatives are very small scale relative to the entire company. I do think it's important that we keep, you know, very alert to these, and we listen very carefully to what our customers are thinking about, and that we ultimately have a product mix, which is compelling to them.

Okay, and just one final one. Any change in the regulatory landscape over the last six months or so? Obviously, it's always been tough to get new cell sites, new towers developed, but anything new to share on that front?

I'd say there's nothing new. I'd also say we probably got the best zoning team in the country, and we work with our customers closely. It really all levels to get important sites through the zoning process. It's going to get tougher rather than easier, and we're making sure that we keep our expertise in that function, first of all. Secondly, we are exploring other alternative technology that we can go with customers to those types of towns and cities and get the RF signal where we need it. Those are the two initiatives we're taking to deal with increasingly difficult zoning, which, by the way, on the other hand, makes your existing towers often more valuable.

Right.

That's a benefit to us.

Yes, great, thanks.

Yep.

We have a follow-up question from the line of Jonathan Atkin from RBC Capital Markets. Please go ahead.

One follow-up to the previous question and another one as well. You talk about backhaul. When you're adding a microwave dish, that would be considered just part of the 80% that makes up collocation revenue. Is that correct?

That's correct, yes.

And Jim, in his prepared comments, talked a little bit about that second busy hour at 9 00 p.m., and it seems like more of the carriers are starting to push bundling between wireless and wire line, and wouldn't that alleviate some of the evening busy hour traffic and what would be the impact as we start to look into next year as far as demand for cell sites and so forth?

I think it's hard to model what the output of wireless and wire line combination packages will be. One thing is for sure, when those packages get rolled out, there are going to be a lot of people with a wireless phone in their hand that didn't have one before. So, while it may attenuate a little bit that second busy hour capacity demand, you're going to have a lot more users out there that are going to walk out of the house, get in their car or on the train with the phone and we think that's a good thing.

Thanks a lot.

Thank you.

Thanks, everybody.

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