美國電塔 (AMT) 2005 Q1 法說會逐字稿

Good morning. My name is Crystal. I will be your conference facilitator today. At this time I would like to welcome everyone to the SpectraSite first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A period. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this conference is being recorded today, Tuesday, May 10th, 2005. Thank you.

I would now like to introduce Mr. Steven Lilly, Senior Vice President of Finance and Treasurer for SpectraSite. Mr. Lilly, you may begin your conference.

Thank you, Crystal. Good morning, everyone. And welcome to SpectraSite's first quarter conference call.

Before we begin, I'd like to introduce other members of the management team present on the call today. Steve Clark, our Chief Executive Officer, Tim Biltz, Chief Operating Officer, and Mark Slaven, Chief Financial Officer.

Please be reminded that during the course of this call, we may make forward-looking statements regarding future events and future financial performance of the Company. These statements are subject to risks and uncertainties including those detailed in the Company's filings with the SEC.

Actual results or developments may differ materially from those in our forward-looking statements as a result of various factors. We have based these forward-looking statements on information currently available and would like to remind you that we undertake no obligation to update or revise any forward-looking statement made as part of this conference call.

Today's call will also include discussion of certain non-GAAP financial measures, including adjusted EBITDA and free cash flow. Tables reconciling such non-GAAP financial measures to GAAP financial measures are available as part of the Company's press release issued prior to this call, the Company's Form 8-K and Form 10-Q filed with the SEC, and under the Investor Relations section of the Company's website www.spectrasite.com.

Now I'd like to turn the call over to Steve Clark.

Thanks, Steven. Good morning, everyone. Thanks for being with us today. After the excitement surrounding the merger announcement between SpectraSite and American Tower last week, I recognize our quarterly earnings call may appear a bit routine however, as we've been saying on these calls for several years now, one of the tower industries greatest attributes is the routine nature of quarterly earnings.

For SpectraSite, the first quarter of 2005 was another routine quarter of higher revenues and EBITDA. While I don't want to steal Mark's thunder in terms of our specifics of operating results, I will take just a minute to provide a few high level statistics. Total revenues for the quarter grew 11% on a year-over-year basis, and our recurring EBITDA, net of nonrecurring professional fees was 48.9 million. We continue to be extremely pleased with the consistent performance of our tower portfolio, and as Tim will discuss a bit later in the call, the outlook for the balance of 2005 appears to be strong.

With, that I'd like to turn the call over to Mark to provide some color on our financial results.

Thanks, Steve. During the first quarter, we had total revenue of 93.8 million, as compared to total revenue of 84.7 million during the first quarter of 2004, and revenue of 91.1 million during the fourth quarter of 2004. Our first quarter revenue represents a year-over-year growth rate of 11% from the prior year's first quarter and a sequential increase of 3%. Our same tower year-over-year revenue growth was 7%.

As Steve mentioned at the outset of the call, adjusted EBITDA for the first quarter was 48.9 million as compared to 42.3 million during the first quarter of 2004, representing a 16% growth rate. Free cash flow defined as net cash provided by operating activities less purchases of property and equipment was 26.2 million during the first quarter, as compared to 21.5 million during the prior year's first quarter. The increase in free cash flow was primarily a result of increased cash from operations, due to higher lease revenues, partially offset by higher CapEx and normal fluctuations in working capital.

First quarter SG&A net of 1.7 million of nonrecurring consulting and professional fees was 13.4 million, as compared to first quarter 2004 SG&A of 12 million. From a liquidity standpoint at March 31st, we had 70 million of cash on hand, and the total of 749 million in long-term debt, comprised of 549 million of bank debt and 200 million of high yield debt. Our net debt to annualized adjusted EBITDA before the accounting adjustment was 3.2 times at the end of the first quarter.

As we discussed in our press release issued prior to this call, we have updating our 2005 guidance for the following items. We are updating our revenue guidance range to take into account the increased level of activity we have seen from our major customers. Given the strength of our current pipeline of new lease applications we anticipate our 2005 revenues to be between 384 and 388 million, as compared to our prior guidance of 372 to 382 million. We expect our direct tower operating expense to be approximately 128 million, which represents the higher end of our previously provided range of 125 to 128 million, and includes approximately 17 million of additional noncash expenses, associated with straight line ground rent adjustments.

As we discussed in our last earnings call in March, our SG&A outlook of 56 million includes approximately 3 million of nonrecurring consulting and professional fees. As we mentioned in our press release, these nonrecurring consulting and professional fees do not include certain expenses that will be incurred, relating to our previously announced merger transaction with American Tower Corporation.

While we are still maintaining our CapEx outlook of 50 million for 2005, I would like to remind you of the views I discussed on our fourth quarter earnings call. That is to the extent we are able to find additional in-building or ground rights investments that meet our return hurdles, we will make those investments. As a result, you should not be surprised if during the balance of the year, we revise our CapEx guidance to reflect these additional opportunities if they arise.

Now I'd like to hand the call over to Tim to provide some forward-looking comments before we open the call to questions.

Thanks, Mark. When we held our fourth quarter call from the CTIA conference in March, I outlined our expectation that 2005 would be a traditional back-end loaded year from a demand standpoint. We still believe that will be the case in the terms of how our revenues and cash flows are reported. We now have a meaningful amount of clarity on how the next three quarters are likely to unfold from a network deployment standpoint. One of the most impressive qualities of the tower sector is long-term revenue and cash flow visibility.

However, we also have to acknowledge that because our revenue growth comes primarily from the big five wireless carriers, demand levels can change relatively quickly. Which is exactly what has happened over the past three months. Wireless carriers had a wonderful first quarter in terms of subscriber and revenue growth, which reinforced their confidence -- and their intent to deploy their 2005 capital plans.

Our current pipeline of new leases has increased dramatically from its level at the beginning of the year, a trend we first mentioned during our earnings call in March. I think the expectation that wireless carrier consolidation would result in even greater emphasis on network quality is beginning to play itself out, as carriers are adding both capacity and new coverage sites, as well as making meaningful investments in new data technologies. Indeed, one of the many benefits we see with our proposed merger with American Tower, is that our combined company will be even in a better position to play a meaningful role in helping the major wireless carriers achieve their network goals.

As you can see from our financial results, 2005 is clearly off to a great start with robust activity expected from the carriers during the remainder of the year, we are pleased to be able to increase our guidance in a meaningful way, and we look forward to providing you with our next update on our second quarter earnings call, which as Steve said at the onset of this call, we hope again will be very routine, in terms of revenue and cash flow growth.

With, that operator, I would like to open the call to questions. But before we do, I would like to remind everyone that there may be certain questions regarding our merger with American Tower, that we will not be able to answer at this time due to disclosure issues. Thank you.

[OPERATOR INSTRUCTIONS] Your first question comes from Vance Edelson, Morgan Stanley.

Thanks a lot and good quarter, guys. When you think about the revenue outlook for 2005 with revenues in the 384 to 388 range, can you elaborate at all on the sources of growth over 2004 levels, you alluded to capacity and expansion on the part of the carriers. Can you tell us what relative amounts are coming from capacity, from new co-locations, or from 3G?

Well, what I can say is about a third of our 30% plus or minus of our growth has come from what we call relocations, or augmentations on existing towers. So I think that would be the driver of what you would refer to as 3G or data services. We've also had a meaningful growth in our in-building segment year-over-year. I think we disclosed our same tower sales were in the 7 to 8% range. So the majority -- a fair percent of our growth is coming -- in our growth businesses, as well.

Okay. Great. And another question. Are you changing any capital deployment plans as a result of the pending merger, such as distributed antenna systems or new tower builds? Are there any adjustments there?

No. The guidance we had put out previously was 50 million for the year in CapEx with the caveat that to the extent we can find some additional opportunities in in-building expansion or ground rights purchases that we'd like to take advantage of those, and we have the flexibility to do that. And that guidance and that plan has not changed. And let me just elaborate how we look at this. Because I've had a couple of questions from investors offline.

As we look at the ground rights purchase program, we have averaged paying about 8 to 8.5 times trailing cash flow to buy up those ground, so that yields about 12, 12.5% immediate cash-on-cash return, to the extent that we can continue to do that, we would like to continue to do that.

On the in-building side, I think we said in the past we typically average about two tenants per building. On those where we've had the network deployed for at least a year, we're averaging closer to 3. With two tenants on a property, we generate roughly 15% cash-on-cash returns. And those are the types of returns that we look to achieve in any further in-building expansion.

So under both scenarios, attractive opportunities, attractive return profiles. And to the extent we can further take advantage of that, we'll continue to do so.

Okay. Great. And one last really quick question, can you give any idea as to the magnitude of the anticipated expenses related to the American Tower merger? Is it just a couple million or something in that ballpark?

We haven't broken that out discretely. I think last week's presentation showed a combined company figure of 70 million all-in costs, to not only get the deal closed, but to also achieve the synergies that were laid out, as well, for both sides combined. So we haven't broken it out further. But you've got banking fees, legal, accounting, -- other fees that will kick in as we get close to the deal. So we'll provide those and break those out for you, Vance, as we go but we're not at a point now to give you a breakdown of that 70 million.

Okay. Great. Thanks a lot.

Your next question comes from Jim Ballan, Bear Stearns.

Thanks a lot. In light of the -- in light of the merger, can you comment at all about what your plans are regarding the stock repurchase program? Are you going to continue to buy back stock, or are you going to hold off on that, and if you do buy back stock, is there any impact on the price that we pay?

Jim, under the terms of the merger agreement, we have some constraints with what we can do, as far as share buy backs. So anything that we would even consider along that route we would have to discuss with American. So given the limitations that we have, you should assume that we're not going to be buying back stock between now and deal close.

Okay. That's great. Thanks a lot.

Your next question comes from David Barden, Banc of America Securities .

Hey, guys. Thanks. I just want to follow up on maybe two points. First, you know, one of the concerns out there has been obviously not just consolidation but ultimately the maturity of the wireless networks out there, specifically the analog TDMA network that Cingular and AT&T was talking about. Can you give us a sense to what degree or what level of exposure you think you have -- to that kind of analog network situation and how, if at all, it's a special case in the leases, or whether it's going to just have to track to the overall lease expiration over time.

And then the second question would be just any kind of quick reaction that you've had from your customers to this point to the announcement of the merger. Are they, you know, pleased, concerned, any kind of color you've gotten from them about the pending transaction. Thanks a lot.

I'll take the first question on the network overlaps. Clearly, Cingular, AT&T, that merger was effective last fall, and they've been working on their plans. We have to date not yet encountered any cancellations or termination of leases as a result of that network combination, primarily alluding more to the TDMA network.

But we would expect some over the course of the next year. Our teams are working with them to understand what their plans are. Our overlap today is about 500 -- 500 overlap, which have remaining terms on them. It's too -- I couldn't give you a more specific answer, because we don't know. We've always said that we would have some turn that would result from that merger but we don't have any better insight today than we did on the last call.

If I could just follow up on that real quick, just in terms of maybe not the overlap, per se, but, you know, their intention would be to start tearing down the analog network in sort of the '08 timeframe, do you have any kind of sense as to what exposure, how many tower leases, what percentage you have today are analog related versus digital?

I don't think we have that detail for us in the sense that our -- the vast -- vast majority of our sites with Cingular and AT&T were digital. I can't think of -- most of our sites, obviously, are located in the urban areas. So, no, I don't have any clarity of what as an analog-only site. As a matter of fact, I would be surprised if there were any that were analog-only in our network. There might be a few.

We did turn off last spring, which I think we indicated on Nextel, about 68 analog sites. But that was the only analog site that we knew, that was dedicated only to analog in our network. And there may be a few others I'm just not aware of but it's certainly not a meaningful amount.

Okay. Great.

This is Steve in terms of customer reaction, I think we discussed on the merger call last week that, you know, customer -- I'm sorry -- the wireless carriers are customers because of their consolidation and their increased size. We believe actually want simplification on the supply side, just to make their own lives easier. I can't tell you that there's a specific reaction that we've gotten.

I think our field people have certainly, you know, over the last week or so been dealing as they do every day with carriers. We've not gotten back any negative feedback that I'm aware of, but I would also tell you I'm not specifically aware of any high level conversations that have taken place, that have indicated anything other than business as usual.

Would your view be that your customers would probably support this through the regulatory process going forward?

I haven't really thought about it. I'm not sure why they would have any reason to try to object to it. I mean I think it -- I do believe if you look at, for example, AT&T/Cingular where you've got a completed transaction, and we've seen what they've done in terms of how they've integrated two companies and how they're operating, it seems clear to us that they are very interested in trying to deal with a smaller number of larger suppliers, so that they can work more closely together, and be more efficient -- in their operations. So I think that's a genuine need on their part to object to try to something that is trying to get to that end, it seems to me would make no sense.

Okay. Very good. Thanks.

[OPERATOR INSTRUCTIONS] Your next question comes from Dave [Poleman], RBC Capital Markets.

Good morning. I just had a couple questions. I am just trying to find out the amount of one-time revenues during the quarter, as well as the seasonality for carrier of CapEx spend, if you're still expecting that to be more second half weighted in '05? Then just a third question, just an update on the ground lease program, whether you purchased any ground leases, and what percentage of the underlying sites or land underneath the sites that you currently own? Thanks.

Hey, Dave. It's Steven. On the -- on your first question, and I'll let Tim maybe chime in after this. But there's no real one-time items in the quarter that we reported in our Q3 revenues of 2.9 million for the quarter, as compared to 2.2 million in the fourth quarter. But no -- no significant one-time items. It was a very clean -- I would say very good quarter for us.

This is Tim. As it relates to the '05, the capital deployment from the carriers, I think after hearing the first quarter calls, they clearly indicated that it would be a traditional year, nearly 60% of the capital deployed in the second half of the year. I've seen a couple of reports that have come out to -- to verify that, as well. And clearly, our conversations with our carriers would indicate that it will be a strong back half of the year, with most of the capital being deployed.

As it relates to ground rights, I think our CapEx for the quarter was slightly under $10 million, 9.5 total, I think. We had ground purchases which represent a small percentage of that of maybe 3 to $4 million. So a nice program, pretty much on line with our original guidance. And maybe some up side, as Mark alluded to in the second half of the year, the investment hurdles.

Dave, just to connect the dots, you know, previously, we've broken down the 50 million expected CapEx spend for this year, and said of the 50 million, 15 million, one, five, was targeted toward ground repurchases. So if you -- if you do the math, you know, assuming we spend 8 to 8.5 times trailing annual cash flows, you can figure out how many sites we're targeting to buy this year.

And what percentage of sites do you have currently on the underlying land?

About 8%.

8?

Yes.

Thank you. Your next question comes from Mark DeRussy, Raymond James.

Good morning. Can you talk a little bit about -- in terms of your growth expectations this year, how much of that is coming from the -- from the core tower rental business versus the -- the in-building business? You mentioned some pretty strong growth in in-building in the first quarter. In other words, what are you looking for for same tower revenues in '05?

I would expect in that 7 to 8% range with what we -- based on what we did in the first quarter. And the -- the balance of that coming from our growth initiatives.

Okay. Thanks.

Your next question comes from Anthony Klarman from Deutsche Bank.

Hi. Just one question I haven't had answered. If you could talk a little bit about Nextel and what -- your talks with them have been like, as they look at their network migration path with combined Sprint/Nextel and, you know, how long they may support the IDEN platform, I think they've given some guidance to the market surrounding a 2008 timeframe, but what that might mean in terms of the impact to the legacy IDEN sites that are on your towers, and how that might transition to the next generation platform that the combined Sprint/Nextel rolls out?

This is Tim. Well, I can now even have greater empathy with Sprint/Nextel about not being able to give specific discussions about what their future plans are going to be, while they're not yet merged. I can -- I can't really tell you that we know any specific knowledge about what technologies will go where and when, other than what they have made publicly.

What I can tell you is that we have a very high level of confidence that based on our conversations, negotiations with Nextel, that the sites -- and the contracts that we have with Nextel, that the the Nextel sites that we now support -- will be with us for many, many years. And time will tell exactly what additional equipment they put on those, and how they migrate their technologies. But what we are very confident of, is that we'll have a very long runway with the existing Nextel leases.

So the reality is the sites -- the Nextel sites that you own through the acquisition are really part of the core network, and whether it's the legacy IDEN network, or whether it's their next path of technology that they choose, these are still going to be the sites that they likely build the network development around?

Yes. About 4,000 sites. We have a very high level confidence they will be building their network around.

Great. Thank you very much.

Thank you.

Your next question comes from David Marsh, FBR.

Hi. This is Brooks Moore filling in for David Marsh. What was your noncash ground lease expense in the quarter?

This is Mark. It was about 4.3 million.

And where would I find that on the statement of cash flows?

Well, it's going to be buried in the statement of cash flows. There is a separate line item on the balance sheet though, which shows the change from period to period, and it's called straight line ground rent.

It's also detailed in the discussion of the -- of the quarter, in the footnotes and MD&A.

Okay. Great. I appreciate it.

Operator, if there are no other questions, we'll thank everybody for their time today, and look forward to speaking with you on our next call.

This concludes today's conference call. You may all disconnect.