美國電塔 (AMT) 2006 Q1 法說會逐字稿

Good morning. I will be your conference operator. At this time, I would like to welcome everyone to the first quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS]

Mr. Michael Power -- Powell, Director of Investor Relations, you may begin your conference.

Thank you. Good morning and thank you for joining American Tower's conference call regarding our first quarter 2006 results. We will begin with comments from Brad Singer, our Chief Financial Officer, and Jim Taiclet, our Chairman and Chief Executive Officer. Before we begin, I'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 second quarter 2006 and our full year 2006 outlook, our stock repurchase program, statements regarding goals, believes, strategies, objectives, plans or current expectations, and any 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-K for the year ended December 31, 2005, and our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call, including these forward-looking statements, to reflect subsequently occurring events or circumstances. Our earnings release, which includes information required by Regulation G, was furnished this morning to the SEC on a Form 8-K, and is also posted on our website.

And now I'd like to turn things over to Brad Singer.

Thanks, Michael. American Tower delivered strong operating performance, while substantially completing the integration of SpectraSite during the first quarter. We produced significant top-line revenue growth and maintained our disciplined cost and capital spending control, exceeding the high level of expectations that we had set for ourselves. As of today, we have successfully completed the integration of all front and back-office elements, with only the divestiture of the [inaudible] headquarters and some minor items to be completed by the end of the second quarter. As the integration process comes to a close, we remain focused and continue to refine the combined Company's processes, improving our overall level of customer service and operating efficiencies.

Our first quarter total revenues increased 74% to over $320 million, and adjusted EBITDA increased at a faster pace, with an 83% rise to over $216 million. Our first quarter performance including over $108 million of revenue and $69 million of adjusted EBITDA from SpectraSite. When compared to pro forma results for the first quarter of 2005, the combined Company increased total revenues 14% and adjusted EBITDA 29%. Substantially, all of American Tower's performance on a pro forma basis was derived from organic revenue growth and cost control. With the merger integration substantially complete, we have successfully returned to our premerger industry-leading adjusted EBITDA margin of 67% during the first quarter.

In our core rental and management division, our revenues and gross margins increased 74% and 76% to $316 million and $240 million, respectively. And tower operating profits, which deducts SG&A related to the tower segment ,increased 80% to $225 million from the first quarter in 2005. Please note, we have consolidated all of our overhead expenses into one SG&A line item, in order to provide asset-level cash flows defined as tower gross margins. We will continue to provide the SG&A component, in order -- to enable the calculation of tower operating profit in our supplemental disclosure schedule. On a pro forma basis, our first quarter tower revenues, gross margins and operating profit increased 13%, 19% and 22%, respectively.

Our performance for the quarter exceeded the high-end of our expectations due to several items: Most notably, the continuation of a higher-than-anticipated level of new business, which ran at analyzed rates of over $85 million during the quarter; lower levels of customer churn, which ran around 1% annualized; and over $4 million of non-recurring revenue that was not included in our outlook, related to the back billing of certain expenses and collection of previously reserved receivables. In addition, we successfully set up all of our contracts of one of the national carriers for ten years, resulting in approximately $1 billion in noncancellable revenue over a ten-year period, and increase in non-cash, straight-line revenue of slightly less than $3 million during the quarter.

Since we completed the acquisition of SpectraSite, we have worked hard with our customers to successfully extend our contractual relationships with three of the four national wireless carriers; and increased our noncancellable contracted revenue to approximately $7.5 billion. Based on our current level of tower revenues, the $7.5 billion of noncancellable contracted revenue represents approximately six years of annual revenues. In the first quarter, our capital expenditures totaled slightly over $28 million, with $7 million related to SpectraSite. During the quarter, we successful completed the construction of 54 towers, primarily in Mexico and Brazil, and 13 in-building installations. The average unlevered return on new towers and in-building projects was 15%, with strong prospects for additional tenants, further increasing our future results on invested capital. We continue to anticipate completing approximately 275 towers and 40 in-building sites in 2006.

With our strong revenue growth and disciplined capital spending cost control, we produced $123 million of free cash flow in the first quarter, an increase of over 60% over the same period in 2005. Excluding our investment in new towers and in-building projects, our free cash flow's approximately $135 million for the first quarter. We define free cash flow as cash provided by operations less all capital expenditures. We completed the first quarter with a net loss of $3 million. I would note that we would have been net income positive for the first time in our history in the first quarter without the $22 million pretax loss from retiring a 12.25 senior subordinating notes and a 3.25 convert inducement charge.

We are refining our 2006 outlook. We are raising our expectations for tower revenue due to several factors: Primarily, our higher-than-anticipated level of new business and lower churn during the first quarter: the continued favorable wireless capital spending environment; and an increase in over $10 million of non-cash straight-line revenue recognition, as a result of the extension of several thousands of leases to ten years during the quarter. The first quarter operating performance also benefited from seasonally lower level of tower operating expenses, and our second quarter outlook incorporate a sequential ops expense increase of approximately $5 million, primarily related to repairs and maintenance activities. Overall our expense outlook is slightly better than our previous guidance. In total, our anticipated pro forma revenue and adjusted EBITDA growth for 200,6 based on the midpoint of outlook, is 10% and 20%, respectively.

Our financial position continued to improve, due to the strength of our operations. Our leverage has moved towards the low end of our target leverage a range, with a net the debt of approximately 4.1 times first quarter analyzed adjusted EBITDA. The flexibility of our balance sheet has enabled to us repurchase approximately ten million shares for -- of around 293 million to date, resulting in average cost of approximately $29.60 per share. Given the success of our operations and our lower-than-anticipated leverage position, we have recently increased the rate of our repurchase activity, and anticipate augmenting our free cash flow with incremental leverage, as we complete our initial $750 million share purchase plan during the second half of 2006. Assuming the continued strength of our business, solid financial position and assuming similar market conditions that required corporate approvals, we would also continuing to utilize the sizeable free cash flow we generate, augmented by incremental leverage, to maintain at least similar levels of share repurchase activity at the completion of our initial $750 million plan.

In summary, we believe our results continue to demonstrate the strength of the combined Company and the quality of our portfolio of assets, as we continue to deliver strong performance. With the Red Sox comfortably in first place and the Yankees struggling to stay above 500, I'll hand things over to Jim Taiclet, American Tower's CEO and Chairman.

Alright, thanks, Brad. American Tower is off to a great start in 2006. Especially notable was our Company's pro forma revenue growth of 14% and adjusted EBITDA growth of 29% in the first quarter. We are confident that the underlying factors that supported this first quarter performance will enable to us deliver the double-digit pro forma revenue growth and a 20% adjusted EBITDA growth, indicated by the midpoint of our elevated 2006 full-year guidance. Our high level of confidence is based on our continued leadership and strategic focus on the tower leasing business, the strong wireless industry environment, and our proven ability to deliver differentiated results to our emphasis on operational execution.

It's been nearly a year now since we announced the American Tower, SpectraSite merger, which positioned our Company as the premiere owner and operator of communications sites. The driving force behind that merger was the shared believe in both legacy companies that a pure strategic focus on tower leasing, with a distinctively large scale position, would provide the best long-term results for our shareholders. Today, less than nine months after the closing of the merger, our original expectations have been exceeded. The revenue growth of the combined tower portfolio has been greater than our initial budgets, which has, in turn, led to our increased guidance for 2006. In addition, we have successful enhanced our business relationships with a number of key customers, including the extension of initial lease terms with three national carriers. As a result, our backlog of noncancellable contracts has grown over 33% to approximately the $7.5 billion that Brad mentioned earlier.

On a cost side, we have achieved the high-end of our synergy target, with most of the attendant savings already in our run rate. In addition, our day-to-day cost management of our sites continues to improve. These two factors, along with the better-than-expected revenue growth, led to our 29% improvement in pro forma EBITDA in the first quarter over the prior year. Our position of industry leadership of approximately 20,000 towers in the U.S. alone will enable us to capture further benefit from the sustained strong wireless industry environment.

The vibrancy of the industry was in full view in the CTIA Industry conference earlier this month. Our meetings with customers at this event reconfirmed a number of trends that we believe will continue to support strong demand for tower space. First, among the national carriers that we saw, the key competitive dynamics still include voice subscriber growth and network quality, complemented by a drive towards extensive broadband data capabilities. The industry's quest for subscriber growth still has traction, with early estimates of between four and five million net new subscribers added in the U.S. during the first quarter. In addition, we discussed with our major customers expansion plans with a number of regional carriers that expect to roll-out additional markets and services, with either spectrum that they've already secured or that they intend to bid on during the upcoming auctions.

Also at CTIA, new branded services, technologies and devices were on display that should support the expansion of both the subscriber base and average revenues per subscriber. Whether you're a sports fan, kid, music lover, TV buff or road warrior, there are new wireless devices and services on the way to cater to your need for mobility. American Tower's scale and diversity of site locations allows us to serve all these customers in a very meaningful way. For example, our top ten domestic new business customers in the first quarter included, of course, the four national carriers, regionals such as all you can talk providers LEAP and Metro PCS, wireless date pioneer, Clearwire, and Qualcomm's media flow unit, which took advantage of our leading broadcast portfolio.

It's also important to note that many of these same trends are in force in our international markets, Mexico and Brazil. For example, Nextel International is expanding into new markets with spectrum it acquired at auction last year in Mexico. And growing carriers, such as Unifone in Mexico, and [Vivo] in Brazil, continue to support our tower build program in these markets. Given the strong environment and our diverse portfolio, we are literally hitting on all cylinders, with new business being generated among the four U.S. nationals, with both new sites and augmentations, with growing regional players and broadcast and international, too.

Another of our goals at American Tower is to continually make progress toward becoming a great operating Company, one that our end customers can respect and want to truly partner with over time. Our foundation to achieve this goal includes our three core operating processes; goal deployment and measurement, talent management review, and quarterly operational reviews. Very briefly our goal deployment process cascades a comprehensive scorecard of yearly objectives from me to my direct report team to every level of management in the Company. Our talent management review process evaluates management teams and individuals in the Company, with the goal of identifying and advancing high performers and assuring that we have proactive development and succession plans for each key position.

And our quarterly operational review is led in each operating area by senior management throughout the course of the year, and ensures that we are both meeting our local targets and making ongoing improvements. These efforts are augmented by our Company-wide Six Sigma-based continuous improvement effort. As a result of these disciplined processes and commensurate attention to detail, American Tower has consistently led the industry in operating margins, achieving a 67% level in the first quarter. We are among the best in the business at converting revenue to operating profit on behalf of our shareholders, and this is a competitive advantage that we intend to keep.

Our merger with SpectraSite provided additional opportunity to improve our execution and efficiency. For example, we combined the best sales and lease processing practices of the two companies, as well as great talent from both legacy organizations. From a merger integration standpoint, we designated a management structure and team and we unified the sales force immediately after closing. In addition, we completed the integration of our core lease processing, property management, and financial systems, in time to launch 2006 with a fully-integrated, customer-focused process and consolidated IT systems. Our integration team, led by U.S. Tower Division President, Steven Moskowitz, deserves a lot of credit for this accomplishment. We're also enthusiastic for the potential for the in-building system business, originally developed at SpectraSite, and have so far completed 13 of the 40 planned new projects for 2006.

Across the organization we are focused currently on a number of initiatives designed to further advance the benefit of the American Tower-SpectraSite merger. First, we're working closely with every customer to explore how our enhanced scale and resources can elevate our business relationship. Included in these discussions are consolidating existing agreements to our mutual benefit and achieving larger volumes of business over time and longer contract terms. Another is the expanded use of our fast-track, site-selection software tool, as well as initial creation of such joint process improvement projects with our customers, using the Six Sigma methodology. On the cost control front, we have developing and implementing an automated field operations, job dispatch system that further enhances the effectiveness of our field teams. And in addition, we continue to seek opportunities to grow the Company, using our thorough and disciplined approach to evaluating tower assets assets.

With respect to our financing strategy, our share repurchase program is tracking nicely and we now anticipate completing the announced $750 million milestone prior to year-end 2006. In addition, we're evaluating the optimal capital structure for the Company and are confident that we will continue to make additional progress on our strategic financial objectives of reducing interest rates, varying and extending maturities, and maintaining strategic and finance flexibility. In sum, the wireless industry continues its [inextrible] trend of growth and voice service and its advancing up the S curve of mobile broadband data deployment. Our management team believes that American Tower is well-positioned strategically, operationally, organizationally and financially to get the very best results out of our high-quality tower assets. We are also having a good time doing it.

Thanks for joining our call today, and I would like to invite the operator to open it up for questions now.

[OPERATOR INSTRUCTIONS] Your first quarter comes from Lale Topcuoglu with Goldman Sachs.

Good morning, guys. Looking at the performance of AMT portfolio versus SpectraSite, you've done a very good job on improving on the SpectraSite on tower cash flow. How long do you think it would take to you consistently improve the margins, such that maybe we can see SpectraSite come really close to where AMT margins are? Is there anything else that you can really scale down on the cost side on SpectraSite.

Lale, It's Brad. The issue with SpectraSite -- or the difference structurally between American Tower's asset and SpectraSite's is amount of land that was owned for American Tower. So, while the direc -- the level of revenues are about the same for tower on the wireless towers and the direct operating expenses are relatively the same, the amount of -- other than lease costs -- the ground lease cost -- since more land is owned for American Tower, you're always going to have some difference there. And that's -- unless you go out and buy land, you will not reduce that difference in tower gross margins between the two.

Okay. Thank you.

Your next question comes from Jonathan Atkin with RBC Capital Markets.

Yes, a couple of questions. One, you mentioned the extension of leases with some of your major carrier customers in the U.S. What led these carriers to want to extend the lease terms, if you could maybe elaborate on that a bit? And on the favorable variance -- the favorable variance that we saw in both tower revenues, tower cash flow and EBITDA, even after the one-timers on a recurring basis, relatively how much of the upside came from international versus domestic?

Let me do the first one, Jonathan, it's Jim. We have a comprehensive discuss -- had our discussions with our customers on contract structure and the lease extension's a piece of that and the other pieces are -- again, with the larger number of towers and the fact that we're already running 20% of the average big five carriers network on our sites is that we want to have a relationship that is predictable and growing on both sides of the table. And so, one of the things that's important to the customer is to have surety on upgrades, so one of the elements that we work through with these discussions is what's the rate card, if you will, look like for augmentations, lines, antennas, grounds space going forward, so that the customer can then budget for a fifth of its network, as it looks into the future. So for them it's budget surety. For us, leases extensions are helpful. The customers by and large think they are going to be on the towers for a long time, anyway, and don't see that expense, necessarily, as a big cost to them.

Hey, Jon, with regard to domestic versus international contribution of the good performance, it was fairly even between the two. Both -- domestically we did better than we had thought from a sales perspective and cost perspective. Internationally, same thing. And so, there was not one that was disproportionately more favorable than the other.

Okay. And then, finally, on network integration --Sprint, Nextel, Cingular, AT&T wireless -- any kind of update there as to what impacts you are seeing from site lease terminations or site decommissioning?

Yes, I think the headline with, at least, the Cingular merger, and probably the Sprint-Nextel merger, is network quality, Jonathan. So Cingular has been, since the merger was announced, our largest new business customer. I think it's potentially one of our very best relationships, and they're one of the customers that were actually doing joint Sigma -- Six Sigma projects, as Spectra was. So we had terrific new business flow from Cingular. As I've said on in a couple of conferences, lately, there's been less than ten or a dozen site leases that came off of sites that both legacy carriers were on. There's also been renewals on sites that both legacy carriers were already on. So it hasn't been a big impact. With Sprint-Nextel we haven't had any of those situations occur yet. We are going to be talking with them, as we do, again, with all the carriers about how we elevate our relationship with the combined Company.

Thank you very much.

Sure.

Your next question comes from Clay Moran with Stanford Group.

Good morning. Two questions. Can you just talk a little bit about your opportunity to acquire towers, what you are seeing in regards to multiples being paid, and would you consider buying a larger tower portfolio? And secondly, can you talk about the stock buy back plan? I think you said you were planning to accelerate it. What have been the limitations to date? Essentially, how come you haven't been more aggressive to date in that regard? Thanks.

Yes, hey, Clay. It's Jim. On the acquisition front, we are eagerly reviewing every opportunity that comes down the road, large or small, as you can imagine. We have not been on the winning end of the some of the larger-scale auctions, of late. and that's a function of our. what I'd like to consider disciplined approach to reviewing asset values. So multiples that others are paying, we're not, for those types of assets, and that's the story. But we look at every single opportunity that comes down the road. Our strategy, the first point of it still is that we would like to maintain and expand our scale position in the tower industry. So, absolutely, we'd like to pull together a bigger portfolio, but it's going to have to meet our quality and price metrics to make that happen.

Hey, Clay, with regard to your question on share repurchases and structure timing and how we go about that, when we first announced it last November, we set out a plan to do $750 million. That was going to be an incremental approach, which would be executed through 10B5, which just means that you can -- we would be able to by through all periods, especially quiet periods, where we would be eliminated from at a period where, typically, you can't by stock. They set up these plans and you go into the market and by under a structure. Given where we are and how our performance has been, we had initially thought we'd get to the 750 sometime -- you know, our public statements were by the end of 2006. It looks like, because we would like to keep our leverage within our target ranges and more towards the mid rather than the low part, that we would be assuming all conditions being similar, as well as we have to go back to our board and discuss it. We would be looking at increasing that over time before the end of the year, if we get through the $750 million early. We reset the buybacks periodically on the pacing, and in the first quarter we reset it and we increased it. You should anticipate if we continue to perform well, we will increase the pace of the buy backs. And it's really that straight forward. We have always taken an incrementalist approach to how we do things.

Yes, and I think the summary, Clay, is that the Company's out-performed operationally and, therefore, the leverage is slightly lower than we thought it would be, and so we'll respond to that.

Okay. Thanks.

Your next question comes from Jim Ballan with Bear Stearns.

Thanks a lot. I also have a couple of questions. One is the increase in the financial guidance for the year, how much of that increase is related to an increase in your view of lease-up in the next three quarters, as opposed to just the increase in your run rate and some of the one time items? And my second question is just on the in-building opportunity, if you could just give us a little bit of a refresher on the types of sites that you're building out and what the number of tenants you have day one, and sort of the pace that you are seeing of incremental lease-up on the in-building versus what you are seeing on towers, in general general.

Hey, Jim, it's Brad. I will answer the first and I'll turn the second question over to Jim. With regard to our guidance, we raised guidance. I think $23 million was the midpoint if you take midpoint-to-midpoint. Of that, approximately $10 million was the non-cash increase. You add another $4 million that was related to the one-time items that we had this quarter. So, the remaining amounts would be due to how we view the world working out in the future, and the favorable environment that we're in, both on a revenue side as well as an expense side. That's how I would portray the increase in the guidance.

On the in-building side, the types of locations, Jim, that we're deploying to are large casino hotel-type operations and many of your CTI A. And, actually, we're on our network in many of the locations in town. But more predominantly in numbers are large shopping malls. And so, those two type venues, where you have a lot of flow-through of transient people that don't have an office, don't have a phone line, and are using their cellphones as their only means of communication and are moving through the building or are temporarily staying there, those are the kinds of places that make the most sense. We've had, I would characterize as higher lease-up on the in-building systems. Usually start with one to two tenants. There's some that we have on -- in the plan with three already signed up. The lease-ups faster, but it's off a smaller base, obviously. Our projects are right around the 10 to 15% returns that we look for out of the gate, and they are doing pretty well right now.

That's great. Thanks a lot, gentlemen.

[OPERATOR INSTRUCTIONS] Your next question comes from Vince Edelson.

Thanks a lot. Could you comment on the back home market from the towers? You know, we're hearing from carriers that it's of growing concern. Is it something that the carriers are bringing up when they look at your towers, the adequacy of the backhaul? And along the same lines , what type of interest are you seeing from wireless backhaul providers that want to install their equipment on your towers, and maybe you can give us an update on your FiberTower venture? Thanks.

Sure, Vince, it's Jim. Backhaul's usually adequate. It's the amount that you have to pay for to the LEC,, which is the real concern to most carriers. So, they can get the bandwidth, as they are going to require more and more for the data programs that they're putting out. They're going to need that bandwidth, and it's a matter of cost. So, balancing that cost with other options is what FiberTower, for example, is attempting to do. The deployment schedule for FiberTower's in the hundreds of sites this year. It's on track. They're on a lot of our towers. And so, it's a part of the equation, relatively small part because FiberTower's fairly new and it's in the thousandish location type of area now, as far as how many sites they have. But they are growing, and so they'll be part of the equation going forward and I think it will be a concern for carriers is what's the cost trade-off on backhaul. I also don't think it's going to limit their ability to go on our towers, whether they use land-line based or wireless based.

Are there other wireless backhaul providers that are also expressing interest in getting on the towers?

There are a couple, but they're later starting than FiberTower and less sites.

Okay. Thanks, Jim.

Your next question comes from Michael Rollins with Citigroup.

Good morning. Just wanted to ask you about a little bit more on international. If you could talk about maybe new market opportunities for expansion and maybe give us a sense of if you would consider those opportunities, over what time frame should we expect to hear more details on that? Thanks.

Hi, Mike. On the international, first of all just to put it in context, Mexico and Brazil together about 13% of our revenue right now, so that's the context. And as with domestic tower opportunities there are deals that become available, we are actively seeking international markets that would give us the same kinds of risk adjusted returns. Now we've been working hard at this, actually, for the last few years, and we haven't announced anything since Brazil four or five years ago. The reason that that's a tough thing to make happen is that you've got to really get through three hurdles to get to an investment decision. The first hurdle, obviously, is the country risk itself, the political situation, economic stability, currency, et cetera. Those fundamentals have to be favorable.

Second hurdle you've got to get through is that the wireless industry in that country seems to be sort of its mid phase of the cycle, which means that it's so new that there's one or two carriers. It's not enough customers for us, but it's so advanced that, really, there's not much growth left in the tower industry, if there is one, or the tower set up of the structure of the industry is already established, so there's no opportunity. So it needs to be in that mid phase. If you get those two things right, then you've got to have a couple of launch customers in that country that would like our kinds of financing and, again, we're looking at mid-teens risk adjusted returns in Mexico, so you can go up from there. That cost of financing has to be something acceptable to the carriers. But on the other hand, a carrier's got to be credit worthy, too, so we feel comfortable, if you will, lending to them or financing them. So, those are the three hurdles. They're tough to get through, but we actively seek it. And we don't have any eminent announcements right now, Mike.

Great. Thank you.

I think that was our last question. I want to thank everyone for participating on the call.

All right. Have a great day, everybody.

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