美國電塔 (AMT) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Alexandria and I will be your conference operator. At this time I would like to welcome everyone to the American Tower 2009 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 session. (Operator Instructions).

I would now like to turn the conference over to our host, Mr. Michael Powell, Vice President of Investor Relations. Mr. Powell, please go ahead.

Thank you, Alexandria. Good morning, everyone, and thank you for joining American Tower's conference call regarding our first quarter 2009 financial results. Please note that we have posted a brief presentation to accompany this morning's call on the company's website, which is www.americantower.com. If you haven't done so already, you may want to download this presentation as we will refer to it at various times during our prepared remarks.

The agenda for this morning's call will be as follows. First I will provide a brief introduction and highlight certain key metrics for our first quarter 2009 financial results. Following this, Tom Bartlett, our Chief Financial Officer, will go over our first quarter results in more detail and provide additional color on our 2009 outlook. And Jim Taiclet, our Chairman, President, and Chief Executive Officer, will give closing remarks including his current thoughts on key business strengths. After these comments, we will of course open up the call to your questions.

However, before I begin, I would like to remind you that this call will contain forward-looking statements that involve a number of risks and uncertainties. Examples of these statements include statements regarding our 2009 outlook, our stock repurchase program, foreign currency exchange rate, credit markets, 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 31st, 2008 and our other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update this information contained in the call to reflect subsequently occurring events or circumstances. And with that, I would like to begin the call.

Please turn to slide 4 of the presentation for a summary of our first quarter 2009 results compared against the first quarter of 2008. American Tower reported strong operating results for the first quarter of 2009, despite unfavorable foreign currency exchange rates and a challenging economic environment. Our rental and management segment reported revenues of approximately $396 million, reflecting a 6% growth rate from the year-ago period. Please note that the first quarter growth was negatively impacted by the strength of the US dollar against the Mexican peso and the Brazilian [real] along with the negative impact of straight line revenue recognition. Tom will provide further details regarding the impacts of these factors on our reported results.

The company's adjusted EBITDA for the quarter was approximately $281 million, which is a 7% increase from the year-ago period. Additionally, our operating income for the quarter increased 4% to approximately $150 million. Please note that this profitability measure was negatively impacted by a $6.6 million nonrecurring charge to stock based compensation expense, which was related to the modification of certain stock option awards for a member of senior management who terminated his employment agreement during the quarter. Moreover, we reported strong growth in net income from continuing operations of approximately 32%, which was actually a 40% increase on a per diluted share basis. Tom, I'd now like to turn the call over to you for further detail.

Thanks, Michael and good morning, everyone. I'm very pleased to be with all of you this morning.

Now, having been here for just a month, I'm even more excited about the prospects for American Tower and its ability to generate significant value for our shareholders. The fundamental business model at American Tower is clearly unique within the telecom sector, which include recurring long term cash flow streams with built-in contractual revenue installations, the lion's share of the cash flow being generated from strong institutional telecom carriers with a service model developed by American Tower in the US that can be deployed anywhere in the globe, and with the sales and support staff who are incredibly energetic and have built a culture to produce an outstanding customer experience. As a CFO, I plan to build upon this model and continue to focus on creating shareholder value. I know that you expect us to lead the market not only in value creation, but also in financial discipline and transparency. My goal is to exceed your expectations and I look forward to spending time with you in the months ahead.

Before I get started in reviewing our results, I also wanted to thank Jean Bua, who has worn several hats for us at American Tower over the last several months. Jean has clearly helped the company in advancing its leadership role within the industry and has brought tremendous financial discipline across the entire operation. I plan to continue to build upon this legacy and look forward to working with Jean in her current role as Treasurer.

In summary, I'm extremely happy to be part of the American Tower team and believe that we can leverage the business model and our uniquely attractive asset base, proven operational execution, and strong balance sheet to further drive shareholder value. In fact, I think our first quarter results prove this point as American Tower continued its track record of consistently delivering strong revenue, adjusted EBITDA, and free cash flow growth.

Now if you would please turn to slide 5 to review some of the highlights. Our core growth rates for Tower revenue and adjusted EBITDA which exclude the impacts of foreign currency exchange rate fluctuations and straight line lease accounting, were approximately 10% and 11% respectively relative to the first quarter of 2008, with strong free cash flow generation in the quarter. In fact, it was over $150 million after interest, taxes, and CapEx. We remain focused and disciplined as we evaluate growth opportunities. We built 200 sites in the quarter, which puts us on a track toward achieving our guidance of 700 to 800 new towers for the full year. Additionally, we announced an acquisition in our newest market, India, which would increase the size of our portfolio in that country by approximately 1,700 sites. And finally, we exited the quarter with a strong liquidity position of nearly $800 million, which included over $300 million of cash and cash equivalents and nearly $500 million of availability under our revolving credit facility.

Turning to slide 6, you can see from the chart in the upper left-hand side that our top line growth trends remain intact. In fact, our growth versus the year-ago period would have been over 10% on a currency neutral basis and excluding the impacts of straight line lease accounting. Put simply, the core top line growth of our business would have been approximately $15 million higher than our reported results. Additionally, I'd like to highlight that the vast majority of our growth is from our legacy assets. Although we built a required 1,200 sites since the beginning of 2008 through the end of the first quarter of 2009, these new assets drove only 1.6% of our year-over-year reported tower revenue growth. However, we are quite pleased to supplement our same tower growth rates with these new assets, as their day one unleveraged returns have averaged over 12% and should obviously continue to drive additional shareholder value as we add additional tenants to those sites over time, further increasing the returns on these investments.

If you turn to slide 7, you can see the same trends in adjusted EBITDA. Our reported adjusted EBITDA for the first quarter 2009 was also unfavorably impacted by a strong dollar and straight line lease accounting. Excluding those impacts, our core adjusted EBITDA growth would have been over 11%, or approximately $10 million higher than our reported growth. To summarize, the core growth of our business is very strong, even in the current economic environment. Furthermore, our adjusted EBITDA margin continues to expand as we add incremental tenants to our existing assets. Over the past three years, we have increased our margin by nearly 300 basis points.

On slide 8, you can see the trends in our CapEx. Our redevelopment CapEx was lower in the first quarter of 2009 compared to the levels we experienced in 2008. We expect the redevelopment spending for the remainder of 2009 to also be at levels that are below our 2008 spending, as the higher spending in 2008 was driven by an agreement with one of our international customers, which is now winding down. Conversely, our discretionary capital expenditures have trended higher. This is purposeful, as we have focused our development teams on finding high return projects to reinvest and grow the business. During the first quarter, we spent approximately $23 million on new site development, completing the construction of 200 new sites. In addition, we spent approximately $9 million on land purchases. Separately, we acquired four sites for a total of approximately $1 million. The day one returns of the 204 sites that we either built or acquired in the first quarter are expected to be about 10%, with strong prospects for growth as we add additional tenants to those sites.

Turning to slide 9, we have highlighted the trends in both cash provided by operating activities and our free cash flow. During the first quarter of 2009, we generated over $150 million of free cash flow after interest, taxes, and CapEx, excluding payments for acquisitions, representing an increase of 13% from the year-ago period.

Furthermore, if you turn to slide 10, you can see that our free cash flow generation, coupled with a strong balance sheet, provides American Tower with significant amount of liquidity. Additionally, since we have no material debt maturities for the next three years, we should have the ability to continue to invest our free cash flow into high return projects to grow the business throughout the planning period as well as return cash to shareholders via our share repurchase program. We ended the quarter with net leverage of approximately 3.6 times our annualized adjusted EBITDA. Given the current macro environment, credit conditions, and our desire to maintain a robust level of financial capacity, we expect to keep our net leverage below the historical four to six times adjusted EBITDA level we had previously discussed.

Finally, on slide 11 we have highlighted our 2009 outlook, which, for the most part, we have left unchanged versus our prior outlook. These outlook ranges do not reflect the impact of our potential acquisition in India, as we do not include acquisitions in our outlook until they have closed. However, we have increased the range for stock based compensation to reflect the nonrecurring expense that we booked in first quarter of 2009 and we have reduced the range for interest expense to reflect LIBOR rates.

As we have indicated in our press release, volatility and foreign exchange rates could cause actual results to differ materially from the estimated outlook ranges. The average foreign currency exchange rates for the first quarter did vary materially from the assumed rates for the full year 2009 and did negatively impact our first quarter results. However, we have chosen to leave our outlook unchanged at this time. As of just a couple of days ago, the foreign currency exchange rates approach MXN14 to the dollar and BRL2.2 to the US dollar. If the average foreign currency exchange rates for the remainder of 2009 at these levels, then the company estimates that actual rental and management segment revenue and adjusted EBITDA for the full year 2009 would be negatively impacted by approximately $21 million and $10 million respectively from what's included in the company's full-year 2009 outlook.

Please note that the impact of the foreign currency exchange rates on our reported results in Mexico and Brazil is essentially an accounting translation impact, as those businesses continue to grow and we continue to reinvest the majority of their cash flows back into those businesses through tower builds and acquisitions. In fact, excluding the impact of foreign currency fluctuations and straight line lease accounting, our total company core revenue and adjusted EBITDA growth for the full year of 2009 is expected to be approximately 9% and 10% respectively.

In summary, we continue to believe that the fundamentals of our business are strong as illustrated by the double-digit core growth in the quarter. These business fundamentals are complemented by the flexibility of our capital structure and availability under our revolving credit facility, which provide us with a solid foundation to fund our future growth initiatives. Furthermore, as we seek to invest our excess capital and drive our long-term growth, our legacy practice of patience and disciplined valuation should further enhance our future returns on invested capital. Now with that, Jim, your thoughts?

Thanks, Tom, and good morning, everyone. I'd first like to say how pleased and proud I am of our employees in the US, Latin America, and Asia that worked together to deliver double-digit core revenue growth in our served markets in Q1. I'm always energized when I see how our front line teams work together and with our customers to achieve our growth objectives. As Michael and Tom just outlined for you, these teams delivered another quarter of great results and I know that they are all out there as we speak working just as hard to keep delivering those kind of results. This morning I'd like to spend a few minutes with you on how American Tower intends to harness the energy and the expertise of our employees and management team as we look toward the future.

Today our company is in the fortunate position of having a great franchise in an industry with a unique and compelling business model. The straightforward three prong strategy that we implemented in late 2001 through early 2002 has brought us to this advantageous position. The three prong strategy we believe will also serve as a great framework to achieve our aspirations for the next five to 10 year time horizon as well, and for American Tower to be widely viewed as one of the leading companies in the telecommunications industry.

The first element of our strategy was and is to focus on the tower leasing business model. Therefore, as we seek to expand our business and our asset base, we will continue to focus on shared telecommunications infrastructure assets designed to primarily serve wireless carriers. Today 87% of American Tower's revenue is generated in the US. Given that we are actively building new tower and distributed antenna system networks and seeking asset acquisitions and larger M&A opportunities in both the US and select international markets, we anticipate that the substantial majority of the company's revenues will continue to be generated in the US in the future.

Given that economies of scale apply to the tower business and that our company has the financial wherewithal to reinvest in the business, we do seek actively to add assets to our portfolio. However, the cost paid for a tower asset is the most important factor in the future return on investment performance of that asset. Therefore, we continue to apply a rigorous and highly disciplined approach to valuing investments in the business.

This process begins with our three regional presidents, in the US, Latin America/Europe, and Asia Pacific pursuing and evaluating opportunities for build to suit projects, carrier tower portfolio acquisitions, new market entry, and M&A targets. The assets or opportunities are fully evaluated as the current performance, growth potential, and asset cost by the regional business development team that knows the local market and the customer base best, and they are supported by the company's functional experts here. Then if merited, our formal investment committee, which includes our CFO, our Chief Administrative Officer/General Counsel, and the Regional President determine whether to recommend the opportunity to me -- and if of sufficient size, to our board --for approval. So on one hand we have institutionalized an active effort to further invest in the business with regionally deployed teams and senior management leadership. But on the other hand the process is disciplined and thorough and very focused on paying only appropriate entry prices for new assets or new market opportunities.

Our investment decisions are ultimately based on return on investment criteria, adjusted for market risk for international opportunities. Currently the company's run rate cash return on the capital we have historically invested is 10.7%. Our targeted returns for new investments after a two to three year integration period are approximately 10% for domestic US investments and mid to high teens for international investments, depending on the specific market. Consequently, we believe that our new investments will help to increase the company's overall return on invested capital, even on a risk adjusted basis. So to summarize the first element of our three prong strategy for the future, American Tower's goal is to grow an asset base both in the US and internationally, but only in cases where we firmly believe we can achieve our risk adjusted hurdle rates.

Our 2009 guidance projects $858 million of cash from operations at the midpoint. Our first priority for the use of this cash is capital investment in the existing markets we have. For 2009, our CapEx guidance at midpoint is $215 million, which includes the construction of 700 to 900 new communication sites in the US, Mexico, Brazil, and India. Subsequently, our remaining $600 million plus of cash from operations is available for the types of reinvestment in the business that I described earlier.

We have announced the first of these opportunities that has completed our investment committee process this year -- the pending acquisition of XCEL Telecom in India. XCEL shares our philosophy of building select towers for high quality anchor tenants that have substantial co-location opportunity in India. As a result, the combination of XCEL's 1,700 towers with the 200 that we have built in India provides an excellent platform for future growth under that consistent philosophy. We are also looking forward to bringing our respective management teams and employees together in India and we are impressed with the talent we have seen within the XCEL organization.

Our investment committee process remains active and we are hopeful that additional opportunities that we have identified will progress. Moreover, the current disruption in capital markets in the global economy could make this an opportune time to identify sellers of tower assets that might be more likely to agree to the asset pricing parameters that are derived through our investment committee process. While there's no assurance that this will occur, we are retaining as much financial investment capacity as we can for the time being.

Consequently, we have moderated our share repurchase rate substantially downward, and over the next few quarters we will continuously evaluate our cash requirements for approved asset investments, those for prospective asset investments, and the access and cost to debt capital for our company. And then based on all of these factors, we will reevaluate the pace of our share repurchase program over time. Our priorities for the uses of cash remain the same as they have over the past 7.5 years of my tenure at the company -- to first reinvest in the tower leasing business using a disciplined approach and then to return any excess cash ultimately to shareholders.

American Tower also remains committed to the second of its original elements of our strategy, to aspire to operational excellence in all aspects of the tower leasing business. Tom earlier described the kind of results that this dedication to the operational aspect of our business can deliver, especially when matched with high quality assets like ours. Over the past few years, as many of you know, we have incorporated a number of proven management systems from some more mature companies, and these have benefited American Tower, including our Six Sigma based process improvement program that we have.

But I think even more important for our success has been our dedication to training, talent development, and recruitment throughout our organization. The quality of our people is represented in part by our executive team. This group brings together a richness and diversity of experience that I believe can take the company to an even higher level of performance and successfully grow and manage a larger asset base should we find success in our expansion efforts.

I'd like to briefly mention just a few of our leaders to give you a sense of the strength of this team. Hal Hess is our longest serving executive, running our Latin America and Europe regions. Hal helped found our Mexico and Brazil markets back in the 2000 to 2001 timeframe, and he's been instrumental in building up the business since then. Steve Marshall now runs our US operations and previously was CEO of National Grid Wireless, then Europe's largest wireless tower operator. Amit Sharma leads our Asia Pacific region, having formerly had a similar roll at Motorola. Amit's local expertise and customer relationships have been critical in launching our India market. Ed DiSanto is our Chief Administrative Officer and General Counsel and brings over two decades of successful global business development and legal experience from United Technologies Corporation, where we had previously worked together.

Jean Bua is our Treasurer and has been our Controller in addition to serving as interim CFO over the past year, building further on her prior experience at Iron Mountain. I want to join Tom in thanking Jean for her terrific work in that role and I know she will add to her accomplishments as Treasurer, working with our new CFO, Tom Bartlett. Tom's extensive and distinguished career at Verizon makes him incredibly well suited to pick up our business quickly, as you've already seen, and to make a substantial positive impact on our company in both the near term and the long term. Finally, I want to thank Steven Moskowitz, who has run our US operation for many years, leading that organization to the level of achievement that it enjoys today. Steven is a valued alumnus of the company and continues to assist us in a strategic advisory role as he begins to explore new horizons.

In sum, our management team provides a unique mix of tower industry expertise, experience gained in some of the most well respected companies in the world, and broad international knowledge. It's going to be great for me to continue to work with this team towards getting even better operationally and hopefully expanding the asset base in a meaningful way.

Lastly, as we pursue these goals, American Tower will also continue to follow the principles of the third prong of our strategy, financial strength. We will strive to maintain our ability to weather all phases of the business cycle successfully. That calls for reasonable and supportable leverage ratios in a range of potential financial market circumstances. It also calls for us to continue to work towards extending the maturities of our debt for utilizing a diverse range of financial instruments and for seeking ways to manage down our financing rates.

Hopefully you, our investors, share our enthusiasm about the future prospects for this company, and today my goal is to highlight for you how our team intends to continue to pursue the strategy that's worked so well for our company to date. We intend to keep our focus on the tower business model and actively and prudently seek opportunities to expand our asset base. We intend to leverage and grow our talent to further improve operational performance and to prepare for possible asset expansion, and in the process we intend to preserve and enhance our financial strength. It's through this proven three prong strategy that we hope to earn your recognition as a true leader in the telecom industry, worthy of your consideration as a long term investment. We're also looking forward to the Yankees' next visit to Fenway, where they will perhaps get to experience yet another sweep by the Red Sox.

Operator, with that, you can now open the call for questions and comments.

Certainly, sir. (Operator Instructions). We will pause for just a moment to compile the Q&A roster. Our first question is from David Barden with Bank of America.

Good morning, guys. Thanks for taking the question and welcome aboard, Tom.

Thanks, Dave.

If I could, maybe two questions. Just the first, Jim -- thanks for the color on the international IRR targets. Is it possible maybe to just walk through maybe the basic mathematics of how you guys are seeing the Indian tower market looking? Based on their revenue permitted, it's very, very low -- the expectation is that the site rental revenues are lower per lease, but that the tower construction or purchase costs are lower. But there's not a lot of granularity on that from here. It would be great if you could give us some more numbers to put around the Indian business as we start to think about it and model it out. And the second would be we saw a relatively strong slowdown in the pacing of CapEx spend from the wireless carriers AT&T, Verizon, for instance, this quarter. Could you talk about how you're seeing tower lease-up demand pacing developing over the course of the year? Thanks.

Sure, David. I'll go ahead and start off on both and talk to -- definitely had something on the second piece. First of all, on the economics of the India tower market, you really did hit the high points. Tower costs are substantially lower to build in India, and I think it's fair for us to give you a range there that whereas it may cost upwards of $220,000 to $250,000 to build a tower in the US in a typical area, the costs in India are down around $75,000 to $85,000. And those are for ground based towers, rooftop based towers that are even less expensive. And as you correctly noted, as a result of low cost, we can do very well in an environment where there's lower ARPU and therefore a cost oriented approach by the carrier. And you're right, monthly lease costs are lower in the US, but also ground rents are quite a large deal lower than they are in the US over there. So you've got some matching ongoing cost that's much lower that help support a lower revenue base. Other costs such as insurance, et cetera, taxes are also lower. So we have got a very low build cost, lower run rate costs in general to match a lower revenue stream.

And then the growth rate, which is the real interesting reason why I think companies like us ought to be looking hard at India, is the real differentiator, frankly. India is the fastest growing wireless market in the world. It doesn't have any data service yet. There's over 1 billion people in the country. It's maybe 20% penetrated at this point. There's a huge growth upside there. It's going to take years and years for that to be fully enriched, and we want to be there for that. So what we are going to do in India, David, is, as I said in the call here, we are not necessarily going to be the largest tower company -- but we are going to have the company, I would bet at the end of the day pound for pound the most high performing towers that you can have in that country.

On the second area, CapEx slowdown among the major carriers, I think broadly, yes, AT&T and Verizon lowered CapEx and they preprogrammed that earlier this year, but that was for their entire companies. On the wireless side, the public statements of the carriers indicate that that's where the focus of their CapEx will be throughout the year. So, yes, Q1 was off to a slow start. We recognize that. We said that on our earlier call about two months ago. But we also feel that the remainder of this year is going to be robust, and we are seeing the levels of activity that we would expect to see in the normal course of run rate for our business now. So Tom could add color.

And I think, David, if you look on -- put on a couple hundred sites which is consistent with the guidance that we have gotten through the year, and the 700 to 900 site range, and I would expect that the carriers as they traditionally will do will pick up their CapEx in the balance of the year. First quarter is usually the slowest coming at the strength of the fourth quarter, and I think even one of the carriers says that it was as Jim said preprogrammed to start out the year, see what the economy is looking like. And my sense given the new technology, and they had strong growth in the first quarter, these two carriers that reported. So my sense it will pick up throughout the balance of the year.

All right, guys. Thanks much.

You're welcome.

Our next question is from Brett Feldman from Barclays.

Thanks for taking the question. Just two quick ones. The first one -- I actually noticed some new language in your press release in the guidance section. You actually had sort of a cautionary statement indicating that based on the state of the credit market, it's possible that customers may not pay you on a timely basis. I'm wondering, is that just good housekeeping in light of what's going on? Or have you actually had a customer to reach out to you and indicate they may not pay you on time?

Okay. Bret, was there a second question or was that it?

Let's start with that one first.

Okay. I think if you take a look at the -- obviously our overall receivables, our ADSL is 15 to 16 days. We had solid revenue to cash receipt balances, I think you would agree. But I also think that from a housekeeping perspective, we do need to be realistic in the current times. There could be some slower pay customers that exist out in the marketplace, and Jean and I watch this on a daily basis, so we track this very carefully by carrier. We do have one larger Latin American account who are renegotiating some loan agreements that you're all well aware of. We have seen this before. We fully believe we will have a full receipt of their billings, but clearly we thought that it was prudent to include the kind of cautionary language in our press release in our Q.

Okay. Thanks for that. And then just a second one on the fundamental side, the CTIA conference there was a lot of talk about what's going on with 4G. Could you give us a little color about what's actually happening at the site level? And are there significant differences in the progress we are seeing with the WiMAX operators versus some of the LTE operators?

Sure, Brett, it's Jim. There is some -- there are, I should say, some announced trials by Verizon specifically for LTE. We are working with their local teams in a couple of markets to scope that out, plan for some site augmentations to accommodate those and we are working on broader agreements for the full roll-out of LTE with at least one customer right now.

On the Clearwire side, which is the WiMAX technology to 4G, we have been working with Clearwire for years on their previous technology release. We will continue to work with them now on the mobile release with the joint venture between Clearwire and Sprint now fully consummated and funded. That planning is in full swing. We are working closely with teams across the country on an initial launch markets for the new clear product and we are well on our way towards collaborating with them for quite a number of applications this year.

Having said that, we have still not changed our guidance based on Clearwire potential business specifically at this time, because most of this is going to happen in the second half of the year, and as I said before, we want to get actual commencement dates and site locations and all of that relative to our forecasting processes to see if we need to make any adjustments. We don't have enough data to do that yet. So I think on the LTE and the WiMAX side, 4G is starting to get traction, real traction in the field, if you will, but it will be 2010 and 2011 before it really impacts the tower industry, I think, in a material way.

Are you at the point where you know what an LTE configuration would look like at the site, whether it's going to require almost an entirely full new lease or if it's mostly going to be augmentation to existing leases?

We don't have the specs yet because our customers are certainly on the LTE side of it trialing different setups, antenna arrangements, sizes, et cetera. My expectation, Brett, will be an augmentation to start out with, just like most technology upgrades start out, and then as the bandwidth and requirements of capacity increase because of the newer, faster, more exciting data product, then you're going to have cell splits as time goes on. So again we don't have the specific specifications quite yet from the carriers on the LTE side, but I expect in general that's how the roll-outs will go like we have seen them before with UMTS and other technologies. For the WiMAX setups, they are lighter antennas, they are lighter cabling and fewer antennas to start with as these are launching businesses in new markets, but we anticipate as time goes on that those arrays are going to be nearly as robust as full [up] wireless carrier arrays today, and it will just evolve to that over time.

Great. Thanks for taking the questions.

You bet.

Our next question is from Jason Armstrong with Goldman Sachs.

Hey, thanks. Good morning and congrats to Tom. Look forward to working with you more. Maybe a couple of questions first on the FX impact and the results. You've been sitting at this $395 million level for site rental revenues for three quarters now, which presumably FX is weighing down the underlying trends in the business. As we look forward here, it seems like looking forward, the FX pressure starts to ease into 2Q and actually be a tailwind for you. As we step back we, the 2Q performance, could we actually see finally a pretty decent sequential uptick in revenues? Is that what you would expect here given what you've talked about?

And then maybe second question on the -- on the balance sheet for Tom, you said near term below the four to six times targets. As you approach the business, a new CFO obviously you can start from fresh here -- your world at Verizon was investment grade, you've got a path here towards investment grade if you want it. Is that a relevant discussion? And maybe you can introduce maybe a broader balance sheet framework as you would look at it in the discussion. Thanks.

Thanks, Jason, nice to hear from you. First of all with regard to the FX it's interesting -- when you take a look at the business model of American Tower, you know, a boat load of the revenues are really in place on January 1. So when you start to take a look at some of the FX exposure that you may have throughout the year, it's really around the edges, and some of the FX we have talked about, we have stayed at current levels. It could be the $20 million and we have a range of revenues that are out there. But I think even if you looked at the first quarter and if you had assumed that -- or if we had realized the actual peso and Brazil currency rates that we had in our outlook, it would have been like a couple million dollar delta. So I don't expect the FX to be significantly moving around our forecasts or our second quarter results simply because it's -- we have such a big piece that's already coming in the year. And relatively speaking, our international business represents a relatively small piece of the total pie. Even in Mexico, much of our business down there is dollar denominated, about 50% of it. That would minimize the impact further. Regarding -- yes, Jim.

I got to add one thing to that, Jason, and that is again if you're looking at what we are calling the core business growth, the 10% top line we are seeing, I think you've correctly identified that there's a masking effect with these FX changes quarter to quarter. And I would just suggest go back to those core numbers that we started to provide I think two quarters ago, just so you all could see the consistent growth in the actual business over time as these accounting effects wash in and wash out. And then you can go ahead and predict based on your own assumption of foreign exchange how that's going to either continue to burden or maybe turbo charge the reported numbers in each of the next coming couple of quarters.

And, Jason, on the second question, on the balance sheet, we are taking a hard look candidly at the balance sheet. I mean, candidly right now, we trade at really investment grade levels, if you look at where our bonds are floating, if you look at the covenant packages in our most recently notes out there -- they really are investment grade types of notes. So my sense is that we are not far away from being investment grade. Jim and I are looking very closely at this in terms of what we need to do or how we should be thinking about that. So time will tell on that one, but I would say that candidly right now, I would consider our trading levels at investment grade levels.

And, Tom, if you just step back, how relevant is it to you to target investment grade or is this, hey, if the right opportunity surfaces with the old framework of four to six is still absolutely what we adhere to?

As we continue to differentiate ourself in the entire sector, telecom sector, investment grade is something I hold very near and dear, candidly, and so I'm encouraged by where we are trading, how we look, how close we are, the liquidity we already have in the balance sheet. I think the management team here has done an outstanding job in terms of getting in the position we are at now. You look at the assets we are investing in. Out of the gate we are already exceeding our [WAC], which is really a nice position to be in. So given the cash flow that we are generating, I don't think we are far away from that, if at all.

Okay. Thanks, guys.

Our next question is from Jonathan Schildkraut with Jefferies.

This is [Otto Bonman] for Jonathan. Just had a couple of questions about the international markets. In terms of XCEL Telecom, what key relationships do they have with the major carriers? Do they have relationships with all the major carriers in India or are there special relationships with a couple of the bigger carriers? And then in terms of looking down into Latin American markets, we have seen some commentary from those carriers about some softness in the Mexican market, but strength in the Brazilian market. Are those in line with the trends you're seeing, and at what point do you start thinking about leveraging those carrier relationships to be expanding into new nations down in South America? Thank you.

Sure. On the XCEL side, one of the things we really liked about the company was they have master lease agreements and ongoing business relationships with all the major carriers that were existing in India and now even some of the new entrants as well. So the contract and the relationship base of XCEL is extensive and it's something that we think is valuable to us. In Latin America, I think those characterizations are fair that the Mexican wireless market will probably be a little bit soft this year. There is a 3G spectrum auction that has been delayed a couple of times. When that auction really hits the street and the carriers know what access to the spectrum they will have and what the costs will be, things should get very busy in Mexico -- both in the wireless market itself, because new carriers are going to be able to enter with better and faster products and compete. In addition to that, they can open up new territories with some of that spectrum. And for the tower business of course that will be great times. So we are looking forward to the spectrum auction in Mexico. Between now and then it will probably be a tad slow, but we are still gaining business down there.

In Brazil, opposite story, as you said, the spectrum auctions did occur. There were expansions in a couple of regions by some key carriers including Sao Paulo, and in the northeast where we have a significant presence. So we benefited from that and we're building lots of towers in Brazil to support it and getting lots of colocations. So I think your characterization on Brazil is also right. As far as our additional opportunities down there, you could literally map out where is America Movil, where is NII, where is Telefonica. Those are logical places for us to build adjacent markets to our core markets that we already have, Mexico and Brazil.

Great. Thank you.

Our next question is from Jonathan Atkin with RBC Capital Markets.

Yes, good morning. A couple of questions. One on WiMAX. Is it still correct that these leases are usually accompanied by microwave backhaul as well, so when you take the total contribution of a new tenant, it gets up close to a BBE? And then you gave a total cost for India and for the US on average. What would that look like in Mexico and Brazil on a unit basis? And then finally, on LTE in the US, would you characterize the activity that's taking place as a handful of select markets or is this happening or being signed on a broader scope at this point? Thank you.

We will try to hit everything there, Jonathan. WiMAX leases may or may not include a microwave dish. I think one of the LT carriers is actually looking hard at, if not all sites having a wireless microwave setup, that some or most will have. Same with Clearwire. It's not necessarily a foregone conclusion that every Clearwire location is going to have microwave backhaul. But when they do, of course you're right, there's an additional augmentation cost to that and the lease increase that goes with it. And then on the unit costs, I think you were asking about unit costs in Mexico and Brazil for new tower construction. Was that the question, Jonathan?

Correct.

Okay. In Mexico you're looking at $100,000 to $110,000. In Brazil, I would probably lower that to $90,000 to $100,000 for a new tower. And the big difference in construction costs are labor and timeline and white collar support you need to get through zoning, building, permitting, and other administrative issues like environmental reviews in the US that take more time and energy.

Okay.

On LTE in the US, it is so far in specific markets. Clear has actually I think publicly announced the set of markets that they plan to do in 2009 and then another tranche will occur in 2010, and then again with Verizon, it's literally two or three trial markets -- they hope to get commercial I think by up to four or five by the end of the year. But it will be market by market specific I think in both cases. But the roll-out should be complete by 2010 to 2011. I think that was the Verizon public statement also.

And then on the outdoor DAS, just curious about the emphasis that you're putting on that. Has that ticked up a bit or are you still looking to expand that incrementally? And are we getting to the point where there's multiple outdoor DAS providers for markets? That would be my question.

Well, again to frame it, outdoor DAS we think is like indoor DAS, a niche solution that carriers will move to when the traditional macro site tower based solution may not be available, and we want to participate in that. So we have secured three -- I think actually four now projects that we are building on our own and doing with our internal teams. Then we will also have -- begin to look at this in some of our forward markets also. It is going to be a niche product, a niche solution. About 1% of our revenue is indoor DAS Could we build a business organically that matches that for outdoor DAS? That's one of our objectives, and then grow the indoor at the same time. I would say expanding incrementally is probably the best way to characterize it, but in a year or two we hope it's meaningful.

Are you finding in the markets where you're building out that you're the only provider or is there usually one or two others building out elsewhere within the -- ?

There are more than one -- there are multiple DAS providers. They tend to be capital constrained on one hand these days in some cases, in others they are quite small and very local. So it's going to vary market by market. There may be no one available to build besides us. There may be one or two that could. Some of the situations are competitive and some are prenegotiated with municipality or with the major customer. So it varies.

Thank you very much.

Sure.

Our next question is from Ric Prentiss with Raymond James.

Thanks. Morning guys, and welcome, Tom. Two questions. First, a unique opportunity to ask Tom -- your first impressions. We don't get new guys into the space a lot. A lot of us have been watching the space for a long time. What are your first thoughts coming to the other side of the fence? What have you noticed that's surprised you, what have you noticed that's made you happy?

I think everything has made me happy. I've been watching American Tower and the tower industry coming from the wireless business for a dozen years, so I'm always intrigued by the model, and was just incredibly intrigued by the margins, coming from the traditional carrier sector. So the model itself I think is even more sound, looking at how much revenue is coming in the door. I guess one of the things that was even more interesting to me and exciting to me was how the business is run, and how much energy and youth is actually in the business and how it's managed. I mean, it's managed candidly quite leanly, but with the focus in on all of the right issues. There's no bureaucracy, no long meetings, there's -- it's just all get right down to business and get it done. And that candidly is really exciting to me and it's a little bit eye opening, I guess.

Okay. And then piggybacking on some of Jonathan's comments on Latin America, if Mexico and Brazil are between US costs and Indian costs, I know looking back at some of Nextel international's 10-Ks and yours, you guys have bought about 600 towers over the last several years, that was 678 combined at about $120,000 a tower. Any thoughts that a larger transaction with them might make some sense as you go through your process that you walked us through, Jim, given particularly the value arbitrage differential between their trading and your trading? Could a win-win transaction be there or would that make Latin America too big maybe in your scheme?

We are in what I would consider to be a pretty close partnership with Nextel International. We do run a lot of their infrastructure network for them and we had an ongoing dialogue as to whether another tranche would make sense or not. We actually accomplished that about a year ago with them for, I think, a couple hundred towers, so it's an ongoing conversation that we have between partners, and when it makes sense for both from a financial point of view, you may see something. We'd like grow in Latin America, and in fact the challenge I gave Hal Hess a couple of years ago was to do that in a fairly robust fashion. And he's actually delivering to the timeline that we talked about. So we'd be pleased to add towers from companies like NII or other of our customers down there.

Great, and then final probably quick question. Tom, you were talking about investment grade, how it's near and dear to your heart. How would that translate into cost of debt for you guys versus the other tower guys and maybe broadly versus other telecom companies out there? Where do you think you can get your cost of debt down and are you seeing anything from the bankers currently as far as where of cost of debt is in the marketplace for your type of low levered or under four times levered company?

That's a fair question, Ric, and clearly we have had an awful lot of bankers in over the last few weeks talking to us about this. Our average cost of debt I think in the first quarter was 5.7%, thereabouts. Things are trading quite well. The market even in the high yield as you've seen has been quite open over the last several weeks, which I think is a really positive reflection on the tower industry and hopefully on the market overall. So my sense is that given where things are trading, that potentially we could even drive down that cost of borrowing, cost of debt. And, obviously, to the extent that we even lower leverage if that's in fact where we went to, we would have less debt to actually pay interest on. So I think there are a couple of interesting elements there.

There has been models put in front of me by the bankers in terms of -- where is, where do we maximize the WAC and all the traditional ways of looking at where we can maximize the value of the firm. And candidly we are getting quite close I think from a capital structure perspective in terms of where we would be -- where we would do that. But overall, where the bonds are trading and things like that, yes, I do think there's an opportunity for us to take down the cost of borrowing and I do think that's a way for us to have more money to be able to invest back into the business.

Cash is a good thing. Welcome.

Cash is a good thing.

Our next question is from Clay Moran with Benchmark. Clay, go ahead with your question.

Good morning. Along those same lines, you've referred to the credit situation as the reason for the pullback in the stock buyback. But as you're saying, the high yield markets have improved, your debt is trading close to par. What are you looking for in terms of the capital markets to possibly restart the stock buyback?

Hey Clay, it's Jim. I think if you followed the remarks, I've tried to lay it out pretty clearly which is, yes, we are cognizant of credit markets. They got quite [a floor]. They're starting to improve and we're well aware of where those are headed, and as Tom said we get plenty of briefings and pitches for people who would like to loan us money.

The key point is do we need it and what do we need it for? As I said earlier today, our first priority as it has been for the last eight years is to grow the asset base. There may be opportunities to do that now with the current environment that we are in where sellers may, we are not sure, but some may get to the point where they fall within our asset pricing parameters that we come up with. And when we find that match, we want to be able to act on it and grow the company and grow the business. So we are holding back on share repurchase now for really both reasons, and I would put the one I just described as the first reason, we want to preserve our financial strength to add assets at hopefully a favorable moment in time here. And that moment may last a year or two. That doesn't mean we will keep the share repurchase exactly where it is for that long, but we will moderate the share repurchase based on what we have got that we have approved through our process and that we have negotiated with a counterparty what we think will get done and then reflect that onto cost of capital and availabilities Tom was talking about. So we'd like to have the flexibility to actively grow the business and that's really why we dialed down the share repurchase the way we have.

Thanks. One other question. Are you going to give any more details on XCEL India? You talked about lower rent per tenant, but lower costs. What about the margins? Are they similar to what you'd see in other markets? And then also can you tell us things like what the average tenants are per tower on that portfolio or the length of contracts similar to the other markets, are there escalators? Can you give us any more detail?

Clay, we haven't closed that transaction yet. We have fortunate to have recently received formal government approval but it will probably be May hopefully or even June before this gets closed. Once that happens, we will pull everything together and then we will decide how we are going to disclose the parameters of that business based on its size and contribution to the company. Again, it's going to be a couple thousand towers on a base of -- I think at that point it will be 26,000, and so we don't even segment out Brazil and Mexico today with that level of detail. And we will figure out how we are going to do that going forward once we close this.

Okay. Thanks.

I think we have time for one more question.

Certainly, sir. Our final question comes from Michael Rollins with Citi investment research.

Good morning. Just had a couple of questions just to follow up. I realize this is a smaller part of your business, but if you can give us an update on the broadcast tower side, what's going on trendwise with the conversion to HD and how you see that piece of your business moving over the next couple of years? And then, Jim, just going back to the question of M&A and priorities of cash flow, for a few years now American Tower has retained a relatively conservative posture on leverage versus its peers, and I think one of your goals over that period of time was to pursue some incremental or transformative M&A to get some excess returns. And to date there really hasn't been anything of size -- with SpectraSite. Can you talk about where your optimism lies in terms of finding those opportunities? And maybe you can give us just some more color as to your feel in terms of maybe some things that could be loosening up in the environment, whether it's here in the US or in Latin America or other markets like in India? Thanks.

Sure, Mike. The broadcast business is in this part of our company's use suggests it's 5% to 6% of revenue, diversified customer base from the core which is helpful and good. But it's going to be a moderately growing part of the company going forward. There are some puts and takes, yes, there are some digital stations and some additional transmitters I think that will be put out for both TV and radio as time goes on. But then there's going to be some analog churn off of the traditional TV channels as well. So I think there will be a mix of some churn and some upside, and at the end of the day the growth will be moderate, not quite as high as wireless, but still helpful to the company going forward.

On the M&A front, I would characterize our leverage position as prudent versus conservative. We have -- since 2001, the management team here tried to make sure that we never got ourselves in a box like we experienced back then, and we are going to continue to avoid that box in the future. So I think it's prudent and supportable leverage as we have talked about. And over time, we just hope to perform well, generate lots of cash, find incremental acquisition opportunities that are accretive like Tom was suggesting, and we will have a great company. And then in the process of building that great company, if there is an opportunity for a larger transaction along the lines of the impact that SpectraSite had that was so positive for us, we are going to of course review that. But we can't bank on something of that nature. So we are banking on things that are more manageable, predictable and controllable as we move towards taking the company to the next level.And if there is something transformational that we can uncover that comes to us, we have got the best M&A team in the world, I think, as far as valuing tower assets, and we will put them right on it.

And then just in terms of the four to six times leverage goal that you've had in the past, is that still what investors should be thinking about over time for American Tower?

Mike, the statement we have out there today and what we can reiterate here on this call is that we have had a historical leverage target of four to six times and the capital markets of that time, which was the mid 2000s decade. We are going to have to find out where the capital markets settle in the upcoming five to 10 year time horizon and then we will rethink what the long range target ought to be. But we haven't changed it. We have run below it for the reasons Tom and I have talked about. And we are going to look at it really hard with some of our advisors and see if there's merit in leaving it or merit in adjusting it.

Thanks very much.

You bet, Mike.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the call back over to management for any final remarks.

This is Jim. I would just like to again welcome Tom, thank Jean for all the great work she has been doing, our IR team as well that have put together hopefully a nice, new format for you with Tom's leadership here for our calls, and we thank you for joining us and again appreciate your confidence in the company. Have a great week, everybody.

Ladies and gentlemen, thank you for your participation in today's American Tower first quarter 2009 earnings conference call. This conference will be available for replay beginning on today, April 29, 2009 at 11:30 AM Eastern time through May 12, 2009 at midnight. The dial-in numbers to access the replay are 800-642-1687 domestically or 706-645-9291 internationally. You will need to enter the conference ID number 94670401 in order to access the replay. This concludes today's call. You may now disconnect.