美國電塔 (AMT) 2013 Q1 法說會逐字稿

Good morning, my name is Derek, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Tower first-quarter 2013 earnings 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)

Thank you. I would now like to turn the call over to Ms. Leah Stearns, Vice President of Investor Relations and Capital Markets. You may begin.

Thank you, Derek. Good morning, and thank you for joining American Tower's first-quarter 2013 earnings conference call. We have posted a presentation, which we will refer to throughout our prepared remarks, under the investors tab on our website, www.AmericanTower.com.

Our agenda for this morning's call will be as follows. First, I will provide a brief overview of our first-quarter results. Then, Tom Bartlett, our Executive Vice President, Chief Financial Officer and Treasurer, will review our financial and operational performance for the quarter, as well as our updated outlook for 2013. And finally, Jim Taiclet, our Chairman, President and Chief Executive Officer, will provide closing remarks. After these comments, we will open up the call for your questions.

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 those regarding -- our 2013 outlook and future operating performance, including AFFO growth and dividend per share growth; our capital allocation strategies, including our stock repurchase program and redistributions; 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, those set forth in our form 10-K for the year ended December 31, 2012, and in 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 to reflect subsequent events or circumstances.

And with that, please turn to slide 4 of the presentation, which provides a summary of our first-quarter 2013 results. During the quarter, our rental and management business accounted for approximately 97% of our total revenues, which were generated from leasing income-producing real estate, primarily to investment-grade corporate tenants. This revenue grew 13.7% to approximately $777 million from the first quarter of 2012.

In addition, our adjusted EBITDA increased 13.4% to approximately $524 million. Operating income increased 9.2% to approximately $300 million, and net income attributable to American Tower Corporation was approximately $171 million, or $0.43 per basic and diluted common share.

During the quarter, in connection with the refinancing of our $1.75 billion securitization, we recorded a $35 million loss and retirement of long-term obligations, which includes the write-off of deferred financing fees and an early prepayment consideration.

In addition, during the quarter, we recorded unrealized non-cash gains of approximately $22 million due primarily to the impact of foreign currency exchange-rate fluctuations related to our inter-company loan, denominated in currencies other than their local currency. For accounting purposes, at the end of each quarter, these loans are remeasured based on the actual FX rate on the last day of the quarter end. As the result of a weaker US dollar, as of March 31, 2013 compared to December 31, 2012, the remeasurement of these loans generated non-cash gains for accounting purposes.

And with that, I would like to turn the call over to Tom, who will discuss our results in more detail.

Thanks, Leah. Good morning, everyone. As you can see from the results we released this morning, 2013 is off to a strong start, with solid growth across all our key metrics, supported by continuing favorable demand trends across our entire global footprint. As expected, it was another very strong quarter in commenced new business in the US, as carriers continue to invest heavily in initial 4G deployments.

We also experienced very positive leasing trends in our international operations, as new spectrum is deployed, and more advanced wireless services are extended to more and more people globally. While we continued our operational momentum, we nonetheless maintained our focus on enhancing the Company's investment-grade capital structure, as we completed the refinancing of our $1.75 billion securitization in March. This refinancing decreased the weighted average cost of our secured debt by nearly 300 basis points.

If you'll please turn to slide 6, you'll see that for the first quarter our total rental and management revenue increased by nearly 14% to $777 million. On a core basis, which we will reference throughout this presentation as reported results excluding the impacts of foreign currency exchange-rate fluctuations, non-cash straight-line lease accounting and significant one-time items, our consolidated, rental and management revenue growth was over 20%. Of this core growth, nearly 10% was organic, with the balance attributable to growth from new sites.

Our organic growth in the US continued to be driven primarily by amendment activity resulting from all four of the major carriers aggressively deploying 4G, indicative of their phase one network deployment initiatives. In fact, while we have seen a substantial portion of our new-business activity driven by amendments, we have also seen the average rate per amendment more than double from a year-ago period, as our customers begin to add more than just initial 4G capabilities to their networks. As a result of this trend, our signed new business in the US increased more than 60% from the year-ago period.

Meanwhile, our international segment continues to provide compelling complementary growth. And during the quarter, our international segment contributed over 60% of our consolidated core growth. Our focus internationally continues to be around partnering with well-capitalized global wireless service providers.

Turning to slide 7, during the first quarter, our domestic rental and management segment's revenue growth was driven primarily by an increase in recurring cash leasing revenue from our legacy properties, partially offset by a $4 million year-over-year straight-line revenue decline. Reported domestic revenue grew by nearly 6% to approximately $516 million. This growth comparison with the prior-year period was impacted by two non-recurring revenue-generating items that occurred in Q1 of last year, totaling nearly $16 million. However, domestic core revenue growth, which adjusts for these items, as well as straight-line revenue, was about 11% or nearly $50 million.

Our domestic rental and management segment core organic revenue growth was approximately 8% in the quarter. This growth continues to be generated by revenues primarily from existing lease upgrades or amendments from the big four carriers, as they continue to overlay 4G technology across their existing networks. For example, we saw T-Mobile's new-business activity increase nearly five-fold over the prior-year period, as they ramped up their challenger network modernization strategy.

Beyond these strong new-business commitments I alluded to earlier, signed new business in the quarter remained at elevated levels, increasing over 60% versus the same period last year. And we would expect most of these contracts to commence over the next year. Given our application pipeline, we expect these favorable leasing trends to continue for the rest of the year and into 2014. At this point, about 65% of the domestic new business included in our outlook is already in that pipeline. The remainder of our core growth, about 3%, was generated from the more than 1,000 new communication sites we have acquired or constructed in the US since the beginning of the first quarter of 2012, predominantly from the mid-sized acquisitions we closed at the end of last year.

Also for the quarter, our domestic rental and management segment gross margin increased approximately $30 million or nearly 8%, representing a year-over-year conversion rate of over 100%. This conversion rate includes the benefits of our strong ongoing property-level cost-management program, particularly with respect to our land rent expenses. We continue to manage our land cost by proactively acquiring and extending leases. And during the quarter, we purchased over 100 parcels, and extended more than 300 ground leases by an average of 26 years. Over the last few years, our acquisitions of land under our sites have reduced operating expense growth by several percentage points a year. And we expect to remain active in purchasing land.

Lower straight-line rent expense, and repairs and maintenance, also contributed to the higher conversion rate. So, going forward, we would expect recurring gross margin conversion rates more in the 80% to 85% range. As you can see, our US operating profit increased about 7% to over $400 million. The margin was 78%.

Moving on to slide 8, during the quarter, our international rental and management segment reported revenue increased 33% to $262 million. International core revenue growth was over 40%, and international core organic growth was nearly 15%, which continued to be driven primarily by strong new lease commencement activity from tenants such as Telefonica, Nextel International and American Mobile in Latin America, Vodafone and MTN in South Africa, as well as Bharti and Idea Cellular in India. Commencement activity was particularly strong in Latin America during the quarter, where we exceeded our internal plan by nearly 15%. We also had a solid quarter of signed new-business activity in our international operations, particularly in South Africa where we saw year-over-year increase of over 200%. Consistent with the last few quarters, about 90% of our signed new business internationally was in the form of new leases rather than amendments, as carriers augmented their networks and added new sites.

I do just want to note that we don't expect core organic growth in our international segment to remain at the 15% level going into next quarter, particularly since we recorded about $5 million non-run-rate items in Q2 of 2012 due to a revenue reserve reversal for one of our customers in Mexico. However, we do still continue to expect to see international core organic growth rates of 200 to 300 basis points above that of the domestic segment for the full year.

During the quarter, we constructed about 400 sites, and acquired nearly 900 more, continuing on our path to meaningfully increase the size of our portfolio. We have added over 9,100 communication sites to our international portfolio since the beginning of the first quarter of 2012, contributing 27% to our international core growth, and driving our international revenue to about 34% of our total consolidated rental and management revenues. As we add new sites to our international portfolio, our pass-through revenue continues to increase, as we are able to share a portion of our operating costs with our tenants. During the first quarter, our international pass-through revenue was nearly $70 million, which is up about 43% from the prior-year period.

From a reported gross margin perspective, our international rental and management segment increased by about 28% year over year to $166 million, reflecting a 56% gross-margin conversion rate. Excluding the impact of pass-through revenue, our gross margin and gross-margin conversion rate would have been over 86% and 82%, respectively. Our international segment operating profit increased almost 29% to roughly $137 million. Our international segment operating profit margin was 52%, and excluding the impact of pass-through revenue, exceeded 71%.

Turning to slide 9, our reported adjusted EBITDA growth, relative to the first quarter of 2012, was over 13%, with our adjusted EBITDA core growth for the quarter at nearly 20%. Over 90% of our adjusted EBITDA core growth was attributable to our rental and management segment, which generally represents recurring run-rate contributions to EBITDA, as opposed to the non-run-rate nature of EBITDA generated by our services business. Reported adjusted EBITDA increased by approximately $62 million in the quarter. Of the approximately $31 million increase in direct expenses that impacted this growth, $21 million was related to international pass-through costs.

SG&A increased about $14 million from the prior-year period, driven primarily by our international expansion initiatives, as well as select investments we have made in our domestic business. For the quarter, our adjusted EBITDA margin was 65%, as compared to approximately 66% in the prior-year period. Excluding the impact of international pass-through revenue, our adjusted EBITDA margin for the quarter was about 72%. And our adjusted EBITDA conversion rate was nearly 73%.

Despite adding over 33,000 sites in the last five years, many with single tenants on day one, we have been able to maintain EBITDA margins in the 65% range, which we believe is at a leadership level for the industry. This is a reflection of both the disciplined cost controls we have implemented across the business, and the strong organic growth that we have seen worldwide, as both our legacy US portfolio and newer international sites have experienced significant lease-up.

The strong EBITDA performance we saw in the quarter also translated into solid growth in adjusted funds from operations, or AFFO, which increased by approximately $32 million, or almost 10% relative to AFFO in Q1 of 2012. The AFFO increase was driven by the $62-million increase in adjusted EBITDA, offset by increased cash interest and cash taxes. Core AFFO grew nearly 21%, and excludes the impact of foreign currency exchange-rate fluctuations, one-time EBITDA contributions from customer settlements in the first quarter of 2012, and a tax refund received during the first quarter of 2012.

However, here, I want to clarify the basis of our AFFO comparisons. We have adjusted our AFFO metric to exclude acquisition or new market launch start-up capital expenditures in both periods. This quarter, start-up CapEx was about $7 million, as compared to about $2 million in the prior-year period. We continue to target mid-teen core AFFO growth going forward, as our Business continues to generate strong recurring cash-based returns.

Moving on to slide 10, as we have highlighted in the past, we are extremely focused on deploying capital, while simultaneously increasing AFFO and return on invested capital. As you can see in the chart, we believe that our investment discipline has created meaningful value for our shareholders. Since 2007, we have invested over $12 billion in capital expenditures, acquisitions, stock repurchases and dividends, adding more than 33,000 new sites, and expanding into eight additional markets on three continents. Concurrently, we have consistently increased both our AFFO and AFFO per share on a mid-teen compounded annual basis.

In addition, based on the investments we have made to date, we expect to have increased our return on invested capital by nearly 170 basis points to 10.7% by the end of the year. We feel that we are uniquely positioned to continue to deliver these types of sustained long-term returns, utilizing the same disciplined capital allocation strategy we have used in the past. In addition to returning significant cash to our shareholders via our regular dividend distributions, we seek to maximize our returns as we deploy capital for new builds and acquisitions worldwide. With experienced development and operational teams in place, we remain focused on strengthening and expanding our existing operations, while also seeking new investment opportunities. We believe that the strong AFFO growth and ROIC expansion resulting from these efforts, coupled with a meaningful dividend, will continue to provide a compelling return for our shareholders.

Turning to slide 11, we deployed about $124 million in capital expenditures in the first quarter, including $57 million on discretionary capital projects associated with the completion of the construction of over 450 sites globally. Of these new builds, about 50 were in the US, with the remainder throughout our international markets. The majority of our international new-tower builds were in India, where we continue to build sites predominantly for large incumbent carriers like Bharti and Idea. We continued our discretionary land purchase program in the US to secure additional interest under our existing tower sites. In the first quarter, we invested about $15 million to purchase land under our existing sites, and as of the end of the quarter, we owned or held long-term capital leases under 29% of our domestic sites. Our first-quarter 2013 spending on redevelopment capital expenditures, which we incur to accommodate additional tenants on our properties, was $22 million. Finally, our capital improvements and corporate capital expenditures for the quarter came in at about $23 million.

In addition to these discretionary capital-spending items, as I mentioned, we are introducing a new category of discretionary capital expenditures called Start-Up Capital Projects to provide further transparency into our capital expenditure activity. This capital specifically relates to costs associated with either an acquisition or a new market launch. We see this spending concentrated around initial 12 to 18 months after we launch a new market or close an acquisition. And primarily consisting of capital projects such as opening a new market office, upgrading certain security and monitoring systems, or structural capacity enhancements at newly acquired sites to meet our global standard requirements.

During the first quarter of 2013, spending on Start-Up Capital Projects was about $17 million. As we said on our Q4 earnings call, for the year, we expect spending on Start-Up Capital Projects to be about $20 million. From a total capital allocation perspective, we deployed nearly $500 million during the first quarter, including declaring a dividend of $0.26 per share or approximately $103 million, about $124 million on capital expenditures, and about $245 million for acquisitions.

During the first quarter, we added 22 communication sites through acquisitions in the US, and nearly 900 communication sites internationally. Finally, during the quarter, we spent over $12 million to repurchase about 160,000 shares of our common stock pursuant to our stock repurchase program. We continue to expect that we will manage the pacing of our stock repurchases based on market conditions and other relevant factors.

Moving on to slide 12, we are reaffirming the full-year 2013 outlook for rental and management segment revenue that we issued just two months ago on our fourth-quarter earnings call. In the US, we continue to expect core organic revenue growth of over 7% for the year, with our international operations expected to generate core organic growth of about 11%. Consistent with historical practice, we have not included any contributions from pending acquisitions in the outlook we are issuing today. Should these transactions close during the year, we will update our outlook accordingly. Conversely, should these transactions not come to fruition, consistent with prior periods, we would expect to increase the pacing of our buyback activity.

We are also reaffirming our prior outlook for adjusted EBITDA due to the expected leasing trends I just spoke about, as well as our continuing focus on property-level cost controls. We continue to leverage the colocation model to drive strong flow-through from the top line to the EBITDA level, and expect our rental and management segment to drive essentially 100% of adjusted EBITDA growth for the full-year.

Finally, we are raising our full-year AFFO outlook at the midpoint by $60 million to account for the recurring impact of reduced interest expense we will incur as a result of the refinancing of our securitization in March at a weighted average interest rate of about 2.65%. This transaction reduced the cost of our secured debt by nearly 300 basis points, and illustrates our ability to continue to access the capital markets at favorable rates to fund our global growth initiatives. Additionally, we have excluded the previously mentioned $20 million in start-up capital expenditures we expect to incur during the year from our AFFO metric.

Turning to slide 13, the securitization refinancing that I just mentioned, as well as our issuance of $1 billion in senior unsecured notes in January and other recent debt market transactions, have enabled us to significantly extend our debt maturity profile, while reducing our cost of debt to further improve our best-in-class industry balance sheet. As of the end of the quarter, we had extended our average remaining term of our debt to nearly seven years, while simultaneously decreasing our average effective interest rate to approximately 4.4%. We continue to manage our leverage around the midpoint of our range of 3 to 5 times net debt to adjusted EBITDA, and as of the end of the quarter, we're at about 4 times. With liquidity of over $2 billion, and our proven ability to opportunistically access the capital markets at favorable rates, we feel we are very well-positioned to continue to fund our global expansion initiatives.

And now on slide 14, and in summary, so far this year we have been able to sustain our strong growth trajectory in our served markets, while materially improving our already investment-grade balance sheet, both in terms of tenor and cost. We continue to remain focused on capitalizing on the secular trends we are seeing in the global wireless space, and believe we are in an excellent position to continue to expand our portfolio and operations, while simultaneously growing recurring cash flows in support of our goal to double our AFFO per share over the next five years.

We remain very encouraged by the demand trends we are seeing across our global footprint, and continue to expect carriers in 2013 to be more active than they were in 2012. Furthermore, given what we are seeing in terms of our application pipeline, as well as the trends in wireless data, we continue to expect the current demand environment to continue well beyond 2013, as carriers continue to prioritize network quality as a differentiating factor in their offerings. We believe that our diverse portfolio of nearly 56,000 sites provides us with a unique ability to leverage these trends, and drive meaningful incremental revenue and recurring cash flow for many years to come.

And with that, I'll turn the call over to Jim.

Thanks, Tom, and good morning to everyone on the call. American Tower's solid financial performance in the first quarter reflects the gathering strength of advanced mobile network deployment in the US and around the world. As Tom pointed out, our Company strategy is to leverage these domestic and global trends to both maximize the performance of our assets today, and to position our Company for an enhanced growth profile over a very long time horizon.

In our most advanced mobile communications market, the US, our major tenants are all currently in the midst of initial fourth-generation technology deployments, resulting in the addition of equipment to tens of thousands of transmission locations. This technology, known as 4G LTE, provides for a very high broadband transmission rate to support rapidly growing wireless data and entertainment applications, such as streaming video.

Moreover, while adding incremental equipment and new cell sites to support broadband data and entertainment, our customers are now beginning to look towards the deployment of voice over LTE, also known as VoLTE. Based on recent independent technical assessments that we have commissioned, we now believe that VoLTE will result in significant network densification, or cell splitting, for coverage in suburban, highway and rural areas. I'll elaborate on these findings a little later in my remarks.

But first I want to take a few moments to lay out American Tower's overall global strategy to provide the context for our technical analysis of the long-term impact of LTE data and VoLTE on mobile infrastructure. Our strategic positioning in 11 countries on five continents enables us to benefit from three successive stages of wireless technology deployment around the world. In the forefront are the advanced wireless markets, such as the US and Germany, where consumers have had access to 3G mobile technology for a number of years now, and where carriers are experiencing significant data usage on their networks already, including mobile eCommerce and bandwidth-intensive streaming video. Mobile carriers in these countries are now in the process of deploying 4G to meet increasing demand and to grow their revenues.

A few years behind are the rapidly evolving wireless markets, such as Mexico, Brazil and South Africa, where carriers are in earlier stages of wireless data network deployments, while an ever-increasing number of subscribers become engaged in intermediate mobile applications, such as e-mail and basic web browsing on their handsets. In most of these countries, 3G is still being deployed, and planning is in process for initial introduction of 4G soon. A few more years behind the front edge of the technology deployment curve are emerging wireless markets, like India and Ghana, where reliable voice coverage is not yet universally available, and wireless carriers are selectively beginning to make investments in third-generation data networks at the moment.

This morning, I will focus primarily on what we currently see evolving in our core market, the US, which we think provides a further window into the future of mobile communications worldwide. Ultimately, we believe that the dramatic expansion in data usage that we are currently seeing in the US, and the corresponding demand for tower space, will be replicated across our other markets. Consequently, we expect to significantly elongate our Company's growth profile by disciplined investing in these geographies and, thereby, establishing a leading position for independent commercial tower leasing in each of them.

In the US, we're in the midst of a wireless data explosion, and as we touched on in our fourth-quarter call, the projections for wireless data growth here over the next five years are through the roof, with Cisco expecting mobile data traffic to increase 10-fold over the next five years in the US. Today we are seeing carriers attempt to meet the initial stages of this demand by deploying overlays of 4G LTE equipment across their existing networks to introduce a relatively thin level of 4G coverage. The four national mobile operators in the US are in the process of this initial phase of their LTE build programs. Currently, Verizon and AT&T have stated their expectations of completing this initial phase one of nationwide LTE over the next 6 to 12 months. Meanwhile, Sprint and T-Mobile are aggressively ramping up there LTE deployments, and it is anticipated that they will complete phase one in 18 to 24 months.

Our experience in both 3G and 4G phase one deployments in the US has been a roughly 80 to 20 proportion of amendments to colocation new leasing revenue. Therefore, phase one LTE amendments have driven the strong organic growth we have reported in the US over the last several quarters. However, given that LTE handset penetration is currently below 10% in the United States, phase one networks will simply not be able to keep pace with the volume of data that will be generated as more consumers switch to high-bandwidth 4G handsets and tablets.

As this LTE device penetration increases, and data usage exponentially also increases, we believe that the carriers will shift from their initial coverage investments into phase two, which will focus on both increasing network capacity and improving signal quality at the outer ranges of existing cell sites. Based on our recent technical analyses, and review of third-party research and carrier public statements, we expect that phase two will involve significant cell splitting and network densification. And that this activity will begin to ramp up over the next 12 months.

A major catalyst for phase two mobile operator network planning, we believe, will be the introduction of voice over LTE, or VoLTE, which I mentioned earlier. We believe VoLTE is likely to necessitate further network densification, even beyond data, as we move forward, and we think it presents significant opportunities for tower leasing as VoLTE is deployed. Recent statements from our customers, such as Verizon, indicate that the first commercial deployments are scheduled to occur within the next year.

So, what exactly is VoLTE, and why does it appear to make sense for the carriers to deploy it, given the incremental network density we think it will require? First and foremost, the difference between traditional voice and VoLTE lies in the fact that rather than being circuit switched, as traditional voice is, VoLTE delivers voice in data packets that move through the internet, similar to the way that existing networks deliver wireless data. By utilizing VoLTE, carriers can achieve increased efficiency regarding their wireless spectrum, and also eventually reassign some of the spectrum to 4G data and entertainment services. In addition, VoLTE has the potential for improving handset battery life. And finally, for CDMA providers like Verizon, VoLTE will allow simultaneous voice and data sessions on phones with a single chipset, thereby improving the user experience while reducing device costs.

As a result of these benefits, VoLTE seems to be a compelling investment for the carriers to free up some much-needed spectrum, and deliver a better experience to customers. The question is then -- how does the migration from dedicated voice circuits to VoLTE impact towers? The answer lies within the fact that the packet switch nature of VoLTE is far more vulnerable to signal degradation than a pure data session using LTE or a voice session that utilizes the old circuit switch technology. In a typical data session over LTE, as a subscriber gets farther away from a cell site, and closer to the cell edge, he or she can usually handle some degree of signal degradation and the lower quality of service that you will experience.

At this weakened signal area on the cell edge, an Internet browsing or social networking session, for example, may be slowed down or paused, as indicated by the little spinning icon that we all stare and frown at on our phones. But the session usually does continue. Conversely, with a voice session over LTE, the listener must continuously be able to comprehend what the person on the other line is saying, in order for the session to be successful. Only getting every other sentence or every other phrase just won't cut it for voice. Therefore, the quality of service requirement is elevated, especially at the outer ranges of cell sites.

As a result, to avoid garbled or dropped voice calls on VoLTE, our independent estimate is that the effective radius of a given cell site could be reduced by 10% to 20%. Consequently, in order for carriers to effectively roll out VoLTE, cell sites may well need to be closer together than they are in a network designed for data-only LTE. The exact amount of further cell-site densification to deliver high-quality VoLTE service depends on a number of factors, including existing network layout and spectrum characteristics. But our initial estimates indicate that networks may ultimately have to be up to 20% to 30% more dense in an already densified data-only LTE equivalent network. As a result, we anticipate that the implementation of VoLTE is likely to drive meaningful incremental leasing revenue opportunities due to the strengthened signal coverage requirement at the cell edge. This would be in addition to cell splitting required to handle the elevated capacity needs of pervasive 4G data.

Moreover, while 4G capacity requirements are likely to first be experienced in more densely populated urban environments, and then move outward into suburban and rural environments, VoLTE-driven densification will span all types of geographies immediately, such as urban environments, but also including suburban, highway and rural areas, where cell sites are further apart and towers predominate. With VoLTE deployments coming into play concurrent with the carriers' plans for data-driven capacity builds, we continue to expect our core domestic business to show significant growth for a number of years to come. This strong domestic growth outlook provides a solid foundation for our Company, as we do generate about two-thirds of our revenues from our 22,600 US towers.

But we're also energized about the unique opportunities we have in our international markets, where we now have over 33,000 towers. As I mentioned earlier, we anticipate that over time the trends that we're seeing in the US, including 4G data and LTE voice, will be replicated overseas. First in rapidly evolving wireless markets, such as South Africa and Brazil, and then in the several emerging markets in which we operate. As we move toward the end of the current decade, carriers in emerging markets are likely to be in phase one of the deployment of their own 4G network build-outs, which extends our visible growth trajectory based on known technology roadmaps far into the future. And that is what our international strategy is all about.

Finally, I wanted to take a moment to thank our investors and business partners for their messages of concern and support following the terrorist attack at the Boston Marathon. Though our offices are just a block away from the scene, we were very fortunate that none of our employees, nor their family members, were harmed. We are thankful for that, but also our thoughts go to those who suffered losses, and we're grateful to all those who helped others in need from that difficult day.

Turning back to the matters at hand, thanks to everyone for joining us on the call today. And at this point, we will ask the operator to open up the lines for your questions.

(Operator Instructions)

Simon Flannery with Morgan Stanley.

Great things for much and Jim thank you very much for the VoLTE discussion. That was very thoughtful. Question for Tom. You've got some nice improvement in the AFFO this year. Your leverage is coming down, you have done some modest buybacks. Can you just help us think about how you're thinking about that incremental dollar? And in particular around dividend policy?

You have obviously put out that long-term growth policy for dividends. Is there the ability, perhaps, to raise that growth rate and perhaps you would update us on where the NOL balances and how you expect that to play out over the next couple of years. Thanks.

I think we are very focused on the 20% compounded annual growth rates in dividends. We think that provides a nice compelling accelerating growth over the next several years. With regards to our NOLs, I think I mentioned in the last call we ended the year with about $900 million of NOLs and we expect to use somewhere between $200 million and $300 million of NOLs this year.

I think that with regards to our capital structure, as I mentioned, we do have a number of things, investments that we're looking at in the pipeline, but as you well know, those may not come to fruition and to the extent that they don't, than we would increase, as we did last year towards the end of the year, the pacing of our buyback program. We think that's a good use of cash and we can keep some predictability to the growing dividend stream going forward.

Thank you.

Rick Prentiss with Raymond James.

Thanks, guys, and our thoughts were definitely with you in Boston. Glad you were okay. First question, if I may, in your guidance, which you left operational guidance unchanged, can you talk a little bit about what you are seeing from Clearwire and have you started seeing anybody going over their MLA so far in the US?

With regards to Clearwire, it has been exactly kind of what we expected. It's not a significant amount of activity going on there. But again that is really what we expected.

And with regards to the amount of business over and above the MLAs, as you put it, we are seeing activity on all of those carriers, as you would expect and I think it is largely due to some of the things that Jim talked about, not just in their initial 4G rollout for data, but now we will start to see it with the rollout of VoLTE.

I think we will continue to see what we call additions to pay or revenue over and above those MLAs that we put in place. So, yes, all the carriers are being very aggressive and I think that's consistent with the increase in commence revenue that we're seeing in the Q1 and the sizable application pipeline.

Just to add to that, Rick, it is Jim. There is no clear significant Clearwire future new business for this year in the guidance at all, either. And to the point of exceeding MLA limits, when we speak of holistic or comprehensive master lease agreements, you should all know that those are very tightly negotiated as far as what the equipment limits are, how many sites you can be on at certain points in time.

Even spectrum constraints that some of these deals have included in them. So, we worked with the carriers to help support their initial expectations of build-out and as you can hear from some of the commentary, really across all the sector calls that you have heard over the last week or so, we're seeing additional needs by the carriers based on their success in bringing 4G handsets into the population.

So, that is where the over and above comes from. It is that joint success between the carriers raising their revenues and operating profits through advanced data and our partnerships with them to support those network rollouts.

On the leverage question, obviously, you are at 4 times the middle of your range. If there was a large portfolio, there's been obviously every couple of months speculation on a large US portfolio maybe coming out, what are you're thoughts about taking leverage above your target range or issuing equity for a particularly large transaction?

The good news with some of those types of, all of those types of transactions, they come along with a sizable amount of cash flow. Right? So, over a period of time after the acquisition you have the natural evolution back to a more appropriate levels of relative to your net debt to EBITDA.

But to the extent that the transaction, as we have said in the past, Rick, is strategic, we will go above the 5 times, but we know that the cash flow will be able to bring it down naturally over the next six to 12 month period after that. To the extent that it goes up sizable over the 5 times and we think it is very strategic and very accretive to our business, we think that our shareholders would also think that and we would use a form of equity.

Make sense, thanks Tom, thanks, Jim.

Jonathan with Evercore Partners. Jonathan Schildkraut, your line is open.

Operator, let's take the next question.

Tim Horan with Oppenheimer.

Can you talk a little bit about pricing trends in the market, both here and more importantly internationally. With the strong demand do you think you could maybe start to get higher pricing that you've got in the past? And secondly, Tom, can you talk about the multiples in the private market.

Have they changed much from where they were in the last few years? I think they've been running in the 20, 21 times EBITDA range. Have you seen much change there? And I know that is post synergy type numbers. Thanks.

Tim, I will take the first one, this is Jim. Pricing is relatively stable for new colos build to suit and amendments. For the reason that we cited in the past, which is the factors of production for the next best alternative to leasing a tower is building your own if you are a carrier. Those factors of production don't change that much.

For a given unit of capacity, whether it is weight or wind load on the tower or ground space, we have got pretty stable pricing and again the good news is the volume of those incremental units has been moving upward based on the success of 4G data deployments in the US and 3G and 2G in other markets.

Tim, just with regards to some of the transactions. As you know we look at transactions on a ten-year DCF basis and risk adjusted depending upon where it might be done. But generally speaking, in the international markets down in Latin America, they continue to be at the 11 to 13 times range.

In the US market, yes, they are in the high teens, 20, 21%, or 21 times, rather. And again it's a function of where they are, what kind of lease-up we see potentially going forward after we have acquired the towers and as you will know, we have turned down a number of transactions over the last 12 months where we didn't see the kind of value that others thought that could be created.

So, it sounds like price has been fairly stable in that market.

Yes, I think it has.

Thank you.

Colby Synesael with Cowen and Company.

I just wanted to talk about cell splitting. If we think about some of your competitors this quarter they talked about how some of the new properties they have acquired in 2012 have been a source of self splitting already. So, obviously, the T-Mobile assets for Crown and the Mobility and Tower co-assets for SBA.

And you have not really made that many meaningful acquisitions in the US market over the last, at least, 12 maybe 24 months and I'm just curious if you see as big of an opportunity for cell splitting, particularly as it relates to your current portfolio? Or do you think that when you think about cell splitting going forward, you are going to actually have to build a lot more towers to get that opportunity. Thanks.

We feel, this is, Jim. We feel that our 22,600 towers that we bought and built mainly from original legacy 800 carriers are extremely well-positioned for colocation and for future growth. The issue around US M&A is not the growth profile, which I think all the tower companies would agree is strong. It is on your investment decision-making process and the availability of investment opportunities beyond the US market.

What we do regarding US mergers and acquisitions is we are very focused on US market first of all. As I said it is two-thirds of our revenues. We did the first industry consolidation in the US of Spectra site almost a decade ago. But we also need to make sure that we meet our investment criteria. And for US assets, frankly, we look at the current performance profile, which we think we understand very well of our existing asset base.

We compare that to the characteristics of what may be on offer and if the price point for sale makes that whole equation work based on our investment criteria, then we are going to go ahead and go through with the transaction. When you see us not go through with such transactions, that means that we think that we're better off, frankly, buying stock at those acquisition prices than going through with the deal.

So, we do an apples to apples comparison of our tower-base, which is substantial, versus what, again, may be for sale. And the purchase price of that, if the math does not work, we will keep the money, spend it in other markets or, as Tom said, we purchase our own stock.

Okay, thanks.

Jonathan Atkin with RBC Capital Markets.

Early on you made a comment about amendment rates increasing. I don't know if that was a reference to on a unit basis or not. Can you clarify why that would be the case if LTE has been a source of amendment activities for the last several quarters? And then on Tom's comments about start-up capital, I'm wondering how those various projects translate into an end stage G&A expense level across your various regions. Where do we end up on a G&A expense side? Thanks.

Jonathan, it is Tom. I think with regards to the amendment what we're seeing now is that we are past for so many of the carriers some of that initial coverage rollout the carriers were doing with regards to LTE. And now we are starting to see more equipment being added to the towers, the existing platforms to be able to handle some of the additional capacity requirements that they are now seeing as more handsets get out into the market.

So, I think that is largely what is probably driving the increase in the amendment pricing per unit, if you will. The second question was relative to some of the start-up CapEx. As I mentioned, we have about $20 million of start-up CapEx this year. It is largely in our new markets, obviously, down in Columbia and over in Africa.

And like our SG&A, which we need to incur out of the gate to be able to support these markets. Our strategy is to get denser and deeper into each of those existing markets. While our SG&A as a percentage of revenue was hovering around 10% this quarter, we would expect that to come down over the next two to three years as we have been able to work into, if you will, those types of some cost.

We would expect over the next three years or so to get back down into that 9% range, if you will. And again, it's a function of us just getting deeper into the markets and driving the densification on our towers.

Finally, is there any update on progress toward reclassifying some of your international properties into more of a weak qualified income?

As we mentioned last quarter, I believe, we are going to be bringing Mexico into the REIT. It will be effective in the first quarter. That is the only one that we have planned bringing into the REIT at this point in time. We will continue to look at some of the other properties. That was largely driven by our ability to generate some cash tax savings in the local market.

Thank you.

Michael Rollins with Citi investment.

Two questions. First, was hoping you would talk a little bit about the opportunities for further refinancing and maybe where you think the average cost of debt could get to over the next couple of years, assuming the rate environment would be unchanged from its current form.

And then secondly, if you could talk a little bit about the DAS market in a little more detail in terms of the opportunities there, whether you think it is time to get more aggressive on the outdoor side. Do you see any change in carrier behavior toward that? Just be curious for your feelings on the front? Thanks.

On the debt front, we still have two tranches of debt, less than $1 billion, I think, in total that were put in place prior to our becoming investment grade. And the May calls on those are pretty expensive. Right now I just got some indicative pricing yesterday, I think, still for a ten-year unsecured note we're still in that 3.5% range. We have driven down materially, I think, the cost of borrowing, so I think our capital markets group has done an outstanding job in terms of driving that cost down.

And we will continue to be opportunistic going forward in determining what kinds of products and what kinds of tenors we would look at, but as you have seen, our strategy is to continually look at longer tenors driving down the average cost of debt, which better matches our fundamental master lease agreement lengths. And I think we have done a nice job over the past. It is very difficult to say going forward what that rate environment might look like.

Mike, it is Jim. Regarding the DAS or distributed antenna system's, we are actually, I think, still the leader in numbers of indoor and outdoor DAS venues combined. It is about 300 with about 250 in the US and the balance outside the US, actually. We're actually globalizing that kind of business. But again, entry pricing is really important to us. We have decided, based on the characteristics of DAS asset performance over time, that a build strategy is more appropriate for us versus a large acquisition strategy for a number of these existing venues.

We actually have a partnership going in a couple of markets with major carriers to work together on these things, as launch customers, which then gives us a head start on leasing others up later because of the good locations that we can collaborate with our carriers on to get started. We are very interested and always have been in the DAS business, but we invest in it in the context of a very successful and will understood macro site business, which is the core of the Company.

Thanks very much.

Phil Cusick with JPMorgan.

Hi, this is Richard for Phil. Given the strong start to the first quarter in both domestic and international, it's hard to not move to the high end of guidance. Is there some headwinds that we should be thinking about for the year or are you just being conservative, especially given the VoLTE comments, which should probably help the back half of the year?

Richard, this is Tom. We just released our guidance 60 days ago and we did increase guidance by the way, FFO by $60 million. So, I think where we are we will look at it in the second quarter and to the extent that there is a need for a change we will make it then.

And there are strong underlying trends, as you point out, and midyear we will look at everything, including where currencies are landing, and give you all an update.

And can you give us a little more color on the generator business? That seemed to have picked up and what are you seeing there and what are the plans for that?

Shared generators are a nice adjacent business for us, by less than 1% of revenue as we speak today. But given the track record of storms and other issues that have been experienced in the US, which is where we have that business predominately, we're seeing increased demand for it.

So, we are, again I think, the early industry leader in shared generators systems. We have an extremely good relationship with one of the leading carriers and essentially seed us with opportunities, we build those opportunities and go lease them up. So, I think it will be, again, a nice adjacent business line for us as we move forward.

Great, thank you.

Jason Armstrong with Goldman Sachs.

Couple questions. First, can you talk through what percent of your sites are on LTE at this point, maybe what the pacing has been on that. And then second, just of bigger picture and, I guess, sort of philosophical question, but what is the better credit environment for you to do deals?

Low rate environment seems like the obvious answer, but a low rate environment also means you have got a lot of competition for deals. I'm wondering would a steeper rate curve actually benefit you guys enough that it may benefit you to wait for a larger deal because it may mean less competition and lower multiples? Thanks.

On the first question, I would say probably 30% to 40% of our sites have some form of LTE technology sitting on them today. And it varies by carrier, as you would expect. I think with regards to the rate environment, it will vary by market. What we're trying to do now is really to leverage the position that we have in each one of those markets and I think that gives us a very compelling positioning, if you will, in that market.

And there are certain transactions that I've been told that we were not even the high bidder on, but it was as a result of the people that we had in the market, the capability and the skills of people that we had in the market that really positioned us to be able to close those particular transactions.

And I think from a carrier's perspective, particularly from a CTO's perspective, they want to make sure that the assets are being put in the hands of people that can manage them, maintain them and grow with them and support their further growth in wireless broadband. So, it's very difficult to say in terms of looking at the interest rate environment and how that may play out, as I said, I think it's critical for us to be as disciplined as we have been on all of these transactions.

And being able to look at all of these investments on a risk-adjusted basis. I think that from a capital structure perspective we are uniquely positioned in terms of looking at our tenor and cost and so we could be in a better position than others, but at the end of the day it's going to be a function of where we think the value is and what kind of value we think we can create from these transactions. Hopefully that's helpful.

Thanks Tom.

Brett Feldman with Deutsche Bank.

Jim, thanks for the discussion about how you are seeing that we are poised to move from a period of mostly network overlays to densification. I wanted to ask two followup questions on that. The first is that when we start to see an increase in the deployment of new cell sites and I think we have already started to see a little bit of that in the industry, that typically is beyond the scope of your MLAs. Could you just help us understand what that means for your business from a revenue standpoint?

Meaning, is it exclusively an enhancement to the organic revenue growth rate or do the MLAs actually have some step downs in them or decelerators in them once the upgrade periods have been completed. And then the second question is some of this densification will be accomplished through small cells. Do you think you could maybe increase your investment there? For example, do see any interesting opportunities in rooftops or Wi-Fi?

Okay, Brett, let me start with generally how our major master lease agreements work. By and large, with some modest exceptions, they don't include new colocations or build to suits across these comprehensive agreements in general. Again, with a few small exceptions. And there is absolutely no decelerator based on the trend inside of each carrier of amendments versus colocations. These are fixed escalators plus use rights over a period of X numbers of years that we have negotiated.

And within those use rights, again, for the existing base of contracts, there is some flexibility in there, which we are getting paid for via the use right. No decelerators whatsoever. Getting back to small cells, we are again very aggressive on traditional DAS. The only difference between the newer small cell offerings and traditional DAS is that it's a mini base station instead of being fiber backed to a central base station all of your antennas. That still leaves a couple of issues for either DAS or small cells.

First of all, from a carrier perspective, while your initial equipment cost may be similar, so a macro site runs about $250,000 for OEM agreement today. Small cells or DAS nodes could be $25,000. So, if you do a 6 to 10 cell small cell instead of a big macro cell, your equipment cost is about the same.

That's not the problem. The problem is soft cost up front, much more expensive for either the tower company or the carrier itself to get the project zoned constructed, building permits put in place, legal costs and longer duration of actually getting these things approved. And then the carrier faces higher operating costs afterwards.

And again, not so much from the leasing side necessarily, as I think the industry's pricing DAS leases probably 100 or 200 basis points above the tower lease, so it's actually a reasonable lease cost. But the issues around DAS that I would suggest are for the carrier more on back haul. Fiber connections or better to each of those ten cells versus one fiber connection to a tower. And they've also got added utility cost.

There are more locations to do truck rolls to if anything goes wrong. The switching costs are higher, the storage costs in the back of the network are higher, and the handoffs are tougher to engineer. From a carrier's perspective the macro site tends to be, again, more the priority. And we are focused on that, but we are also focused on the complementary aspect of small cells.

And in the middle, as you pointed out, are rooftops. We have got about 3000 rooftops on offer today. We are adding to those and getting some easements in place in other sites we don't even have access to today. We're active on all fronts I would say. But we are mindful that the carriers' ongoing operating costs are higher with small cells and that they will be introduced at an appropriate rate in the appropriate geographies which tend to be pretty densely populated.

Just to be clear as with regards to the first question, if we were to see a continuation of new site deployments, particularly into next year, that is incremental. In other words, we don't have to ratchet down anything in the run rate from the MLAs?

Correct.

Great, thank you.

We have reached the allotted time for questions. Are there any closing remarks?

No, just want to thank everybody for joining us on the call and to the extent you have any questions or follow-ups, please give us a holler. Thank you.

Thank you for your participation in today's conference call. You may now disconnect.