美國電塔 (AMT) 2005 Q2 法說會逐字稿

Good morning. My name is Tamara and I will be your conference facilitator today. At this time, I would like to everyone to the SpectraSite second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. (Operator Instructions). As a reminder ladies and gentlemen, this conference is being recorded today July 28, 2005. Thank you. I would now like to introduce Mr. Steven Lilly, Senior Vice President of Finance and Treasurer of SpectraSite. Mr. Lilly, you may begin.

Thank you to Tamara and good morning everyone. Welcome to SpectraSite's second quarter earnings conference call. Before we begin, I would like to introduce other members of the SpectraSite team present on the call today -- Steve Clark, Chief Executive Officer; Mark Slaven, Chief Financial Officer Tim Biltz, Chief Operating Officer.

Please be reminded that during the course of this conference 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 forward-looking statements as a result of various factors. We have based our forward-looking statements on information currently available and would like to remind you that we undertake no obligation update or revise any forward-looking statement made as part of this conference call. Now I would like to turn the call over to Steve Clark.

Thanks, Stephen, good morning, everyone and thanks for being with us today. As you probably have already seen from our press release and 8-K filing, the second quarter was another extremely solid quarter for SpectraSite across all key operation operational and financial metrics.

In addition, 2005 is playing out like without it would last November when we provided our first outlook for the year. Wireless carrier spending is manifesting itself in a very traditional fashion this year. This spending pattern is clearly visible in our lease pipeline, which is one of the most robust in SpectraSite's history.

Through the first half of the year, we've seen strength across all of the nationwide carriers. In terms of new lease executions on a year-to-date basis, we've seen the most activity from Cingular, Nextel and Verizon, followed closely by Sprint and T-Mobile.

In addition to the nationwide carriers, we have also seen very healthy demand from carriers such as Clear Wire, Metro PCS, U.S. Cellular and Nextel Partners. While we clearly expect that Cingular will begin to rationalize redundant sites at some point on their network, to date, we have not seen such activity.

In summary, the tower business is operating in exactly the manner we like it to -- methodical, predictable results, high margins and significant free cash flow generation. With that, I'd like to turn the call over to Mark to walk you through our financial results.

Thanks, Stephen, good morning everyone. During the second quarter, we had total revenue of 97.7 million as compared to total revenue of 87.6 million during the second quarter of 2004 and revenue of 93.8 million during the first quarter of 2005. This strong performance represents a year-over-year growth rate of approximately 12% and a sequential increase of 4%. Our same tower year-over-year revenue growth was 10%.

Adjusted EBITDA for the second quarter was 51.9 million as compared to 43.8 million during the second quarter of 2004 for a year-over-year growth of over 18%. Free cash flow, defined as net cash provided by operating activities plus purchases of property and equipment, was 24.4 million during the second quarter as compared to 32.9 million during the prior year's second quarter. The decline of free cash flow was primarily a result of merger-related costs in the amount of 4.5 million and normal working capital fluctuation.

Second quarter SG&A net of non-cash compensation charges was 14.4 million as compared to second quarter 2004 SG&A net of non-cash compensation charges of 13.3 million. The increase in SG&A is primarily attributable to increased compensation expenses and increased consulting, accounting and legal expenses. Capital expenditures for the quarter were approximately 11.5 million. The major components of the expenditures are as follows -- 4.8 million for ground rights purchases, 2.6 million for new in-building systems and approximately 3 million for tower improvements with the balance being maintenance CapEx.

As you may have seen, we recently completed a tender offer for our 200 million high-yield issue. By tendering for our high yield, we have been able to eliminate high-cost debt in our capital structure and also eliminate a restrictive covenant which constrained us from being in a position to return substantial value to shareholders in the form of stock buybacks and dividends. After giving effect to the high-yield tender as of June 30, 2005 we had total bank debt of 698 million and approximately 22 million of cash on hand.

In addition to tendering for our high-yield debt, we also recently amended our bank facility to among other things permit us to close the proposed merger with American Tower and to increase leverage under our bank facility to 5.5 times from the existing covenant of 4.5 times. These actions, along with the strength of the existing balance sheet, position the Company to further enhance shareholder value.

As Steve said at the outset of the call, the second quarter was a very strong quarter. Based on our current pipeline of leases, we have every reason to expect that the balance of 2005 and the first half of 2006 will also be robust carriers for the tower industry in general and SpectraSite's assets in particular. Before opening the call to questions, I know Steve has a few other comments he would like to make.

Thanks, Mark. In all likelihood, this will be SpectraSite's last public earnings call and I simply wanted to take this opportunity to first of all say thank you to the investors and analysts, many of them who are on this call, that have faithfully followed the Company. It's been an interesting ride in this sector, good times, bad times and good times again, but we certainly have appreciated from the investor standpoint, your commitment and support and from the analyst's standpoints, the hard work that you've all done to understand this industry and represent to potential investors and existing investors your analysis.

In that same vein, I would like to take the opportunity to thank the customers. I know we don't have customers for the most part on these calls, but the reality is much of what we have accomplished at SpectraSite we believe has been as a result of the close relationships we've developed and the trust that we've developed, the mutual trust, with customers. Without those customers and without those relationships, we believe it would've been impossible to have achieved the results that we've achieved.

And lastly in again in the same vein, we'd simply like to thank the employees of this Company who have been incredible in their commitment, their dedication and the hard work they've put out to make all of these results happen. So with that, we will open the call to questions.

(Operator Instructions). Jim Ballan, Bear Stearns.

Thanks a lot, guys. Two real quick questions. One is, Mark, could you talk a little bit about the goals that you had in tendering for the bonds and making the changes to the credit agreement at this time, just what your goals were related to that? And also, I assume there were no share repurchases in the quarter. Could you just update us on what the share count is right now?

Sure, Jim. With respect to the high-yield, two motivations really, and this was something that was in our pipeline to do irrespective of the merger. One is, by tendering for the high yield, this is a significantly NPV positive event to maturity, but more importantly we wanted to get rid of this restrictive covenant that did put a ceiling on our ability to buy back stock. So that issue is now out of the way for the new company going forward, and I think that was very important.

With respect to the credit agreement, of foremost importance was to get the amendment to allow us to enter into the merger with American Tower to begin with. So that has been accomplished. And at the same time, in order to give the Company additional flexibility going forward in terms of creating value for shareholders, we asked for and received an increase in the permitted leverage level from 4.5 to 5.5 times at the bank level. With respect to share buybacks, there were no share buybacks during the quarter. As of June 30, we had about 47.2 million shares outstanding.

Terrific. Thanks a lot and gentlemen, it has been a pleasure.

Thanks Jim.

Ric Prentiss, Raymond James.

Good morning everyone. I will echo Jim's comments. It has been quite a ride and I'm getting way too many of these calls where people say thanks for the memories and goodbye. I have to (indiscernible) my coverage universe here. But good job guys. Got a couple of questions for you. Were there anyone onetime items in the quarter?

Not that impacted EBITDA the way you would look at it, Jim. We had $4.5 million of other expenses related to the merger, but I think you're mainly interested in revenue and EBITDA and from that standpoint, there were no onetime items.

Second thing, I would assume you did, like you mentioned, no buybacks in the quarter. I would assume no buybacks expected until the closing. Is that kind of the thought?

I think that's a fair assumption now.

Okay. The ground purchases -- looks like that ramped up somewhat in the quarter as far as CapEx. And if you could update us as far as your thoughts on the in-building -- was that for distributing antenna systems then?

Yes. That's the in-building distributed antenna systems. We continued to exploit attractive investment opportunities there as well, expect to continue to expand that initiative for the balance of the year, or at least up through the close of the transaction. And I believe American is interested in carrying forward with it as well.

How many systems do you have now? That 2.6 million got you up to how many systems?

I think we're roughly at about 80 systems right now.

And the ground purchasing -- did that move the needle much as far as what your percent that you owned?

No, it really didn't move the needle much there, but one way to think about it -- I will keep the math simple. We have been paying about 8 to 10 times trailing cash flow on those ground rights purchases. So if we spent 4.8 million in CapEx, you could infer that going forward, we would save about 10% of that -- keeping the math simple again -- 480,000 a year in cost.

Great. Good luck, guys.

Michael Rollins, Citigroup Smith Barney.

Good morning. Just want to ask a couple of quick questions. First, just on pricing, if you can just give us a sense of how you are looking at pricing as carriers are looking to upgrade their networks. In particular, you signed an amended agreement with Nextel, I believe, and if you can give us some more color on the implications of that. Thank you.

Sure, this is Steve. Let me -- I know there have been some questions following Nextel's call. The original lease agreement that was negotiated as part of the acquisition of towers or our acquisition of Nextel towers in 1999 was beg (ph) and cumbersome with respect to amendments to existing leases, particularly for adding additional antennas or adding additional coax. And it ultimately resulted in sort of an engineering and an engineering interpretation and detailed unique pricing each time Nextel wanted to do any kind of amendment or addition to a site.

That was first of all cumbersome for both Nextel and SpectraSite, and secondly, in some worst-case scenarios, resulted in a handful at least of extraordinarily high prices for those amendments. So Nextel as they always have was highly desirous of having more certainty as to what costs would be, increased rental costs, for certain types of future additions. And as a result, when we changed the MSA pricing, we changed it into, if you will buckets, which gave them certainty based on various levels of additions to sites.

So it really wasn't -- I think people interpreted it somehow as a change in pricing. It really wasn't a change in pricing, except as it related to amendments or additions to future sites or existing sites.

Thank you.

(Operator Instructions) David Barden, Banc of America Securities.

Hey, guys. Good morning. If I could, just the beginning I think of the call, you were mentioning the lease pipeline is the most robust you have seen in history. I was wondering if you would be able to maybe put some numbers around that or quantify it some way, either in terms of percentage growth or search ring (ph) velocity or something in that neighborhood.

Maybe a second question would be just something following up. We asked American Tower earlier today, was just on the pre-leasing and any impact that it's having on -- or any changes that you've been seeing in behavior from the carriers as they're merging together and kind of jockeying for position in key cell sites. And so you haven't been seeing any impact on the results or timing of realization of revenues from that kind of previous behavior. Thanks a lot.

A couple of things, David. On the second point, you're talking about Cingular in particular I guess. We, in ongoing discussions with Cingular, but as Steve said in his opening comments, we have yet to see any decommissioning happen. So to the extent that it begins to happen which we've of expected it would all along and have said we expect it at some point, we will do with that.

Excuse me -- is that what you meant?

No. Actually, I meant -- and I appreciate that follow-up comment -- it was really more on the advanced leasing of cell site space on towers to secure space in advance of actual --.

Okay, early reservation space. We don't do a lot of that. I don't know what American said on their call and I'm not sure what their practice is, but we have not historically seen a lot of reservation-based commitments. Carriers would like to be able to reserve sites ahead of time, but they don't want to pay anything for it. So specifically, that doesn't seem to make a lot of sense to us.

In terms of, I think he answered we don't do a lot. The first -- I'm confused by now. The first question you asked?

Let me also try to take the first question. We won't now quantify the pipeline, David, but it's the biggest pipeline we have had in several years. I think you're seeing that manifest itself in the great results which we have had for the past couple of quarters and it's the basis for my comment that the balance of '05 and well through the first half of '06, we expect to be very robust, given that pipeline.

If I could just do one last follow-up and my apologies if I missed during your opening comments, but based on that pipeline and based on the results of this quarter, it otherwise looks like you guys would have had to come back to the guidance numbers, which you did not do. My guess is that you're kind of waiting for the post close to kind of come back and revisit that pro forma combined outlook -- is that a fair statement?

I think that's very fair, David.

Perfect. Thanks guys, and congrats.

Jonathan Atkin, RBC Capital Markets.

I have a question about ground leases. Just wandering over the last couple of quarters in cases where you've built new towers and had to enter into a new ground lease, what is the average lease -- what does the average rent look like compared to the average rent in your existing base of towers?

We're not building any new towers, so we have not entered into any new ground leases as a result of new tower construction.

Okay, thank you.

Evan Marwell, Criterion.

Good morning guys. Two questions. First, could you talk a little bit more about what you are seeing in the whole area of data and some of the new possible networks that might be being built out there? And second, can you talk about what your conversion of incremental revenue to EBITDA or free cash flow is running these days?

I think in terms of new networks, pretty much the name that anybody would respond with is Clearwire. They have been the most public and the most aggressive in terms of plans. So it seems pretty obvious at this point that they're intent on building out a primarily data network in as many places as they can get access to spectrum, and I think the long run plan is for that to in fact be nationwide. So certainly in terms of talking about reality for things that are in the market today, Clearwire is the biggest and best example.

As far as conversion of revenue into EBITDA, we target at least 80% pass-through and that's exactly what it was when you compare second quarter year-over-year performance.

And just a follow-up on the data question. Do you guys see that the carriers are getting more serious about their data buildup now that they are starting to see incremental revenue from those deployments really starting to come in, or is it sort of more of the same as it has been for the last year or so?

I would say that they're serious about it. Having said that, they have all announced that they pushed back their overall data deployments, but Verizon has consistently built, Cingular is clearly in the process of building and Sprint, Nextel will build post merger. So no, I think the data services are here. It is clear that their results may not be easy to identify exactly what they're putting on the networks, but they are building them and we think it will be a big part of second half of this year and really a big part of '06.

Okay, great. Thanks guys and good job.

(Operator Instructions). Mark DeRussy, Raymond James.

I just want to just revisit the pipeline, if we could. Understanding you weren't going to necessarily quantify it, but could you qualify it a little bit in terms of -- is it coming from the traditional carriers, or is it coming from more of the non-traditional carriers? And then the second question, getting back to ground leases, what trends are you seeing in terms of the increases -- if there are any -- on the ground leases when you're renewing the leases underneath your existing towers?

I will take the first question. Without going into all the detail, but to give you a flavor, one thing we said at the beginning of the year was that it would be a traditional year, 40% of the leasing activity in the first half, 60% of the major what we would consider wireless carriers; we're certainly seeing that. So by the very nature, the pipeline is building to adjust for that 40/60 split.

We're also seeing some pretty robust activity from the re-auctioned licenses coming into the market from Metro PCS, which is very nice to see. And not only Metro PCS, but others that are getting access to new spectrum. So those are new market build. They're not your traditional carriers, but they are voice carriers that have had success. And then I would say lastly as Steve was pointing out, Clearwire is moving into several markets. So without going into exact details, those other categories are a building part of the pipeline.

Understood.

On your second question of ground leases, and this is a very important point here. The average remaining life of our ground raises is approximately 19 years. We only have about 4% of our ground leases that are coming up for renewal within the next five years. So we are blessed by that and as a result, don't have enough data to tell you what we're seeing as far as new ground ramps on new leases.

Understood, thanks a lot.

At this time, there are no further questions. Mr. Lilly, do you have any closing remarks?

We do not, operator. Thank you very much and everyone have a good day.

This concludes today's conference call. You may disconnect at this time.