SBA Communications Corp (SBAC) 2011 Q2 法說會逐字稿

Welcome to the SBA second-quarter results conference call. At this time, all participants are in a listen-only mode. You will have an opportunity to ask questions after the presentation. Instructions will be given at that time.

(Operator Instructions)

As a reminder this call is being recorded. I would now like to turn the call over to our host, Director of Finance, Mr. Mark DeRussy. Please go ahead.

Good morning, everyone and thank you for joining us today for SBA's second-quarter 2001 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer, as well as, Brendan Cavanagh, our Chief Financial Officer. Some of the information we will discuss in this call is forward looking, including but not limited to any guidance for 2011 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, which documents are publicly available. These factors and others have affected historical results, may affect future results, and may cause future results to differ materially from those expressed in any forward-looking statement we may make.

Our statements are as of today August 2, 2011, and we have no obligations to update any forward-looking statement we may make. Our comments today will include non-GAAP financial measures, as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and other information required by Regulation G has been posted on our website, sbasite.com. With that out of the way, I will turn the call over to Brendan to comment on our second-quarter results.

Thanks, Mark. Good morning. As you saw from our press release last night, our second-quarter financial and operational results were very strong. We exceeded the high end of our guidance for site leasing revenues, tower cash flow, and adjusted EBITDA, and increase those elements of our full-year 2011 outlook. Total revenues were $171.1 million, up 10.7% over the year earlier period.

Site leasing revenues for the second quarter were $150.2 million, or a 14% increase over the second quarter of 2010. Our leasing revenue growth was driven by both organic and portfolio growth. The vast majority of our site leasing revenue comes from the US and its territories, with approximately 3% of total leasing revenue coming from international operations. We had an FX benefit of only $32,000 in the quarter. Site leasing segment operating profit was $118.1 million, or an increase of 16% over the second quarter of 2010. Site leasing contributed 97.6% of our total segment operating profits.

Tower cash flow for the second quarter of 2011 was $118.6 million, or a 14.3% increase over the year earlier period. Tower cash flow margin was 80.1%, compared to 79.5% in the year earlier period. We have now posted 2 consecutive quarters of tower cash flow margins of 80%, notwithstanding the higher number of less mature new build towers we have put into operations. This success reflects both the strength of our organic revenue growth as well as cost control, including the results of our ground lease purchase efforts.

Operational, we are experiencing strong leasing demand, both domestically and internationally. We had one of the most active quarters ever in terms of leasing activity. Our incremental organic leasing revenue added per tower during the quarter accelerated from both the year earlier period and the first quarter of this year. Amendments, which were predominantly from AT&T and Verizon, continue to show strength and contributed over 50% of total incremental leasing revenue added in the quarter. It is primarily the high level of newly signed leases and amendments in the second quarter that drives the increase to our full year site leasing revenue outlook. Our leasing backlog right now is good. And we expect as the third quarter will be another solid one in terms of customer activity and we expect high levels of activity to continue throughout 2011.

Our services revenues were $20.9 million, compared to $22.8 million in the year earlier period. Services segment operating profit was $2.9 million in the second quarter of 2011, compared to $2.8 million in the second quarter of 2010. Services segment operating profit margin was 13.9%, compared to 12.4% in the year earlier period, a 150 basis point improvement. In the second quarter, we had a few projects pushed back several months on the services side, most of which have now commenced. We are expecting a larger second half for services and we are maintaining our full year 2011 guidance for services revenue.

SG&A expenses for the second quarter were $16.8 million, including non cash compensation charges of $3.1 million and acquisition-related expenses of $1 million. SG&A expenses were $15.7 million in the year earlier period, including non cash compensation charges of $2.7 million and $1.4 million of acquisition-related expenses. Adjusted EBITDA was $109.5 million, or a 14.6% increase over the year earlier period. Adjusted EBITDA margin continued to grow and was as 64.8% in the second quarter of 2011, up from 62.3% in the year earlier period, a 250 basis point increase.

Equity free cash flow for the second quarter of 2011 was $63.7 million, compared to $54.2 million in the year earlier period, an increase of 17.6%. Equity free cash flow per share for second quarter of 2011 was $0.57, compared to $0.47 in the year earlier period, an increase of 21.3%. Our strong growth in equity free cash flow per share is a result of solid adjusted EBITDA growth, combined with a declining share count.

Net loss attributable to SBA Communications Corporation during the second quarter was $29.8 million, compared to a net loss of $83.7 million in the year earlier period. Net loss per share for the second quarter was $0.27, compared to a net loss per share of $0.72 in the year earlier period. Weighted average shares outstanding for the quarter were 112.3 million down from 115.7 million a year ago due to stock repurchase activity. Quarter end shares outstanding were down to 111.4 million.

In the second quarter, we acquired 140 towers and built 151 towers, ending the quarter with 9,574 towers owned and the rights to manage approximately 4,400 additional communication sites. As of June 30, we owned 8,988 towers in the US and its territories and 586 in international markets. Total cash capital expenditures for the second quarter of 2011 were $111.3 million, consisting of $4.6 million of non discretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $106.7 million of discretionary cash capital expenditures.

Non discretionary CapEx included about $500,000 of storm related damage above estimated insurance recoveries from tornadoes, floods and mudslides that impacted a number of our markets in the second quarter. Discretionary cash CapEx for the second quarter includes $68.6 million incurred in connection with acquisitions, exclusive of any working capital adjustments, $27 million in new tower construction including construction in progress, and $3.9 million for gross augmentations and tower upgrades. The augmentation figure does not reflect approximately $2.6 million, or 67% of cash reimbursements paid by our customers.

With respect to the land underneath our towers, we spent an aggregate of $9.8 million to buy land and easements, and to extend ground lease terms. Our investments in land are both strategically beneficial and almost always immediately accretive. As of June 30, 2011, approximately 33.4% of our tower sites were located on land that we own or control for more than 50 years. That number jumped 130 basis points in 1 quarter alone. Approximately 70% of our tower sites were located on land that we own or control for more than 20 years. The average remaining life under our ground leases, including renewal options under our control, has been extended to 32 years. At this point, I'm going to turn things over to Mark who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. We were very active in the capital markets during the second quarter. The repurchased approximately 1.9 million shares of our common stock for $75 million, or an average price of $38.59. We currently have 225 million remaining under our existing $300 million authorization. Stock repurchases continue to be an important component within our overall capital allocation process to maximize shareholder value. We continue to view them as a tool to be utilized opportunistically, rather than systematically. As of the end of the quarter, we had cumulatively repurchased 7 million shares at an average price of $37.19 since we began our open market repurchase activities in late 2009.

Additionally, we took several steps to improve our overall liquidity position and to further improve our debt maturity profile. First, we extended the maturity of our existing $500 million revolving credit facility from February 2015 out to June 2016. We also increased permitted total secured leverage on the asset securing the facility from 5 times to 6 times. As of the end of the second quarter, the total amount available to us under this facility was the full $500 million.

Secondly, we obtained a new $500 million, 7 year senior secured term loan B. The term loan was issued at 99.75% of par and will bare interest at either the base rate plus 1.755% with a 2% base rate floor, or LIBOR plus 2.75% for the 1% LIBOR floor. The term loan will mature in June 2018, a year in which we previously had no debt maturing. The proceeds from the term loan were used to pay down the existing balance on the revolver and the remainder can be used for general corporate purposes, including stock repurchases. Additional information about the term loan and changes to our revolver can be found in the 8K, which we filed on July 7, 2011.

We ended the quarter with $3.5 billion of total debt. We had cash, cash equivalents, short-term restricted cash, and short-term investments of $305 million, resulting in net debt of $3.2 billion. Our net debt to annualized adjusted EBITDA leverage ratio was 7.3 times. The same approximate level it has been for the last 7 quarters. Our net secured debt to annualized adjusted EBITDA leverage ratio was 3.3 times. Our second quarter net cash interest coverage ratio to adjusted EBITDA to net cash interest expense was a very strong 2.8 times. As of the end of the second quarter, our debt had a weighted average annual cash coupon of 4.7% and a weighted average remaining maturity of approximately 5 years. 86% of our total debt was fixed rate.

We believe our balance sheet is in excellent shape, as we have no material debt maturities prior to 2013. And we believe we have ample liquidity to meet our business plan and growth objectives. The $500 million we had available to us under our revolver combined with our cash, cash equivalents, short-term shipment and short-term restricted cash of $305 million gave us total liquidity of approximately $805 million as of the end of the quarter. Including anticipated equity free cash flow over the next 12 months, we have over $1 billion of committed and available liquidity. With that, I will now turn the call over to Jeff.

Thanks, Mark and good morning, everyone. As you have heard, we did have a great quarter. In the quarter, we beat estimates, signed up enough new organic business to meaningful raise our full year 2011 outlook and secure $1 billion of liquidity during the next 12 months. I feel we ended the quarter in one of, if not the strongest positions in our history. Embedded in all of that continues to be a great macro environment for additional customer spending both domestically and internationally. It would be hard to imagine that AT&T or Verizon could be any busier on network development. Combined, they're contributed to our leasing growth in the first half of 2011. We expect materially the same levels of activity from these 2 customers as we finish the year and throughout 2012. On top of that, it appears Sprint is moving closer to launching the implementation of Network Vision, which we expect will be a material source of additional business for us. Our international business is doing well and when you add it all up you get a strong expected finish for SBA in 2011 and a very strong 2012.

I want to hit on a number of topics that I know are of interest to investors before we open it up for questions. First topic is Sprint. We are in the process of negotiating a master agreement with Sprint regarding the implementation of Network Vision and potential network-sharing. We're optimistic that an agreement will be reached, but it has not happened to date and it may never happen. Our increased 2011 outlook does not include any impact for Network Vision or network-sharing.

With respect to the increases in our 2011 outlook the vast majority of the increase is attributable to organic leasing business signed in the second quarter, which will begin to accrue revenue sometime in the second half. A small piece of the increase for 2011 is due to additional acquisitions. More of the benefit from these acquisitions will be enjoyed in 2012. We intend to provide our initial 2012 outlook when we release our third quarter results as we have the last couple of years.

With respect to acquisitions and portfolio growth, the number of opportunities that are available to us has grown materially since our last call. Just as importantly, things have settled down somewhat with respect to the ramifications of an AT&T/T-Mobile merger. There's an evaluation conversation and sellers expect it. It is the logical response I thought would happen, and now I'm pleased to say we are seeing it in the market.

I'm confident that our company will continue to grow materially through portfolio growth on terms that continue to meet or exceed our unlevered internal rate of return targets. We posted an increase in acquisition activity in the second quarter and we are working on a much larger pool of opportunity, some of which we expect to place under contract before year-end. While this acquisition activity will likely have little impact to our 2011 financial results because of timing, full impact would be enjoyed in 2012 and beyond.

We continue to pursue portfolio growth opportunities, both domestically and internationally. We are very pleased with our international results so far. In our more developed markets, Canada and Panama, we are on track to produce high teens or better unlevered internal rates of return. I fully expect to be able to say the same thing about Costa Rica in 2 years, which is a market that for us will consist entirely of newly built towers.

While we've enjoyed good success so far internationally, it is hard work. You have to be very committed as to both time and resources. You have to become part of the local community and gain the trust of your customers. In most new international markets, carriers have no familiarity with independent tower ownership and operation. Most importantly, you have to be very selective about the markets you enter. We are very pleased with the markets we have chosen, but we have passed on many more international opportunities than we have pursued. We hope to expand our international business into additional markets, but only with the same selectivity as we have in the past.

Portfolio growth will be materially and positively impacted this year by new tower builds. We had a great second quarter, building 151 towers in the US and internationally. That is the most we have built in a quarter in over 10 years. We expect triple digit new build production to continue in the third and fourth quarters.

We had another quarter of material stock repurchase activity. Through stock repurchases we have reduced our share count meaningfully in the last 18 months. We evaluate and execute stock repurchases opportunistically, based on the absolute price of our stock and relative to acquisition opportunities. In the second quarter that analysis favored stock repurchases. Going forward, we will conduct similar evaluations quarterly. Assuming the evaluation shows similar long-term financial impact from a potential acquisition, or stock repurchase, our bias remains towards portfolio growth.

Whether portfolio growth or stock repurchases, we have plenty of liquidity for investment. We are very pleased with results of our $500 million institutional loan issue. We achieved tight pricing and execution. We carefully considered our choice of market. And chose the floating rate market primarily to diversify our funding sources, but also because the floating rate market was quicker, cheaper, more stable and more certain than the securitization market. We believe we achieved an annual interest rate that is approximately 100 basis points lower than a comparable 7 year issue would have been in the securitized market. Based on all of our analysis around future potential movements in LIBOR, we believe that we will pay no more and likely less in aggregate interest under our new $500 million institutional loan than had we issued in the securitization market. More importantly, this is very low cost capital that we fully expect to be able to invest accretively and in value creating ways for our shareholders. Given the current state of capital markets affairs we feel very good to have this much liquidity readily available.

Before we open it up for questions, I do want to recognize the contributions of our employees and customers to our success. Our employees work really hard to achieve the goals of our customers. Our employees do a great job. Our customers recognize that, and as a result, we are a preferred provider for our customers network needs. Our customers are, and we think will remain, extremely busy improving and expanding their wireless networks. We look forward to continued success in 2011 and beyond. And Mary, at this time, we'll open it up for questions.

(Operator Instructions) Suhail Chandy, Wedbush.

Thank you for taking the questions. Congrats on the quarter. You've mentioned that you are open to now a master leasing agreement. Any color you could provide would be very helpful. And my specific question is one, in the past, when I had (inaudible) on this and I kind of looked at the economics, my understanding is that side-by-side negotiations have superior economics. Your risk is changing, to go towards a master lease agreement. Can you possibly give us some of the criteria that you would evaluate this on?

Yes. I think the reason that we may likely enter into a master agreement with Sprint, where we have not done that previously, is that the number of issues that are being addressed, vis a vis the Sprint negotiation, are such that it essentially requires that it be done in a master type format. And our prior course of action really has nothing to do with the fundamental view of master versus lease specific. It really is all driven by economics to us. And the same will be true as we hope to move forward and see if we can get something done with Sprint. But really, the master concept versus lease-specific is much more due to the number of issues that are being discussed with Sprint.

Great, thanks. Just one housekeeping question before I go back into the queue. The relevant comment that you have on net debt to annualize adjusted EBITDA. Is that still 8.9?

No, that is now 9.5.

Great, thanks a lot.

Operator. Simon Flannery, Morgan Stanley. Please go ahead.

Thank you very much. Good morning. Jeff, you talked about the good leasing activity that you're seeing. I think one of the things that was striking about the PCS call earlier today was that they're talking about the strong demand of data usage. It's obviously not a surprise but clearly driving higher CapEx. They also noted that they would be deploying microwave back hall. I was wondering if you could give us more color about what you're seeing your customers doing in general in terms of trying to deal with the high usage demands from smartphones? Are you seeing a lot of cell splitting going on? Are you seeing more use of microwave back haul? Any color you can give us about how the growth in data traffic is really benefiting SBA.

We're seeing all of that, Simon, but what we're seeing in particular varies by carrier. Verizon still is mostly, but not entirely, focused on overlaying its existing network to be able to offer 4G service. AT&T is also now fully engaged in that, but also still self splitting and building out some additional capacity. And then as you move into different folks, such as a Metro. Metro, given their particular spectrum position and the choice of offering 4G service through the same spectrum that they're offering 3G service, is kind of more by definition a cell-splitting type of deployment. It really varies across the board based on carrier, their spectrum positions, and the technologies they're using. But everyone's relatively pretty busy.

Just a follow-up on the Sprint stuff. If you sign an MLA in the next month or so, is that-- are you going to be able to get much in the way of revenues in say Q4? Is it going to bleed over into 2012? How quickly can they move on this?

There would be potentially a couple of different aspects to that. We need to keep things extremely general because we don't have an agreement yet. But there could be a non cash pick up that might be faster and more substantive. And then there could also be a cash pick up that would be driven by actually how much work Sprint really gets done this year.

Thank you.

Ric Prentiss, Raymond James. Please go ahead.

Thanks. I want to piggyback on some of Simon's comments. Jeff, I appreciate the color you've given us on the Sprint process and that in fact your 2011 increase does not include Sprint Vision or Sharing. Can you talk a little bit about MetroPCS. Because like Simon is mentioning, Metro just ended their conference call and said they were going to be increasing the CapEx guidance in 2011 and increasing microwave usage. You have noticed the applications yet from MetroPCS? And when someone does a microwave, what is typically the amendment revenue that you see?

We are seeing Metro be active. I wouldn't put them in the same, nor would I think anyone would expect them to be the same category of contribution as an AT&T or Verizon, but they are out there doing things. And the microwave pricing, Ric, depends primarily on two things; whether the size of the microwave dish; and whether it is a one hop, or a piggyback hop, where it comes in and goes back out with a second dish. And that's a pretty wide spectrum of pricing when you consider all of those things. I'm going to give you broad range. They go from $300 a month for a single small dish, to well over $1,000 for bigger double installations.

The second question is on the M&A side. Good to see the pipeline flowing again and people's expectations on prices. Can you tell us a little bit about where you're seeing M&A pricing domestic and international? And then on your tower builds, what kind of returns are you looking for on a day one tower build, cash-on-cash and where do you think you can grow it?

Yes. The US pricing is probably in the 17-ish times, maybe 18 times range, for what I would call average high growth assets going forward. The kind of stuff that we focused on. Internationally, the same assets, at least the stuff that we're interested in pursuing, is running hundreds of basis points lower than that on a TCF basis. So we continue to be attracted to that again for the right asset, where our risk-adjusted returns internationally will well exceed our returns on a US basis.

On the new builds, the key for us continues to be building towers where over time, on a portfolio basis, you'll average 1.5 to 2 tenants or better. All of the towers that we build are 1 tenant on day one. But they generally will need to see some additional growth before our goals are fully met. And you get a fairly wide range between US and international on day one cash-on-cash. But it would be mid to high single digit day one returns, which obviously would grow materially with the addition of a second tenant.

And Ric, does that answer your question?

Yes. It does. Thank you.

Jason Armstrong, Goldman Sachs.

Good morning. May be just one follow-up on that separate question. As you said last year you weren't philosophically opposed to lease modifications others were signing, it was just a different view on the economics. I'm wondering, it doesn't seem like this is the case, but is there any philosophical hang-up that you have around allowing spectrum flexibility and/or allowing non control amenities onto an incumbent network? And then, second question to follow-up on Ric's, on new builds. Obviously, very strong activity in the quarter and going forward. Has anything changed around the anchor tenant profile that you're requiring in these new builds? Thanks.

You know, the first question, Jason, we're not opposed to network sharing. I think that's what you were getting at with the question. As long as it looks like the right economic deal for us. And obviously it has to be mutually acceptable to both parties. We're not fundamentally opposed to that. And that is in fact one of the aspects that is being discussed with Sprint.

There's really no change on the new builds in terms of the anchor tenants. Most of the new builds that we did in the quarter, actually more than the majority, were in Costa Rica, where our anchor tenant was either Telefonica or Claro. So, pretty good credit quality there. And that continues to be the case in the US as well.

Great. Thanks, Jeff.

Jonathan Schildkraut, Evercore. Please go ahead.

Great, thank you for taking the questions. Two questions, please. First, I noticed that gross margins on the site-leasing side continue to tick up. We're just wondering if that is a function of higher tenancy, just continued execution, or if there's something else there? And if I can ask another question about Sprint and your MLA negotiations. I know you highlighted some of the complexities that go into figuring out the right structure for that contract. One of the things that we've heard from other tower operators is that their negotiations do include some components of identity commissioning, which in some cases are capping the downside from that process, which will take place obviously over several years. Is that one of the complexities that's impacting the time frame around coming to a conclusion on that agreement?

Yes. One of the points, the major points, the elements of the discussions with Sprint includes the timing of -- their desired timing of decommissioning item. So that is one of the elements that is at play here. Brendan, do you want to take the margin question?

Sure. Jonathan, the margins do continue to climb every quarter. And it's a functions of a couple of things. Obviously as we add revenue growth to organic lease up, we're adding that at close to 100% margin in many cases. That helps to continue to see our margins pushing up. In addition, we've done some things on the cost side to keep costs relatively flat even though we've been growing the portfolio. The primary item there is the ground-lease purchase program and how we've retired a lot of our ground leases and reduced that expense which is our largest expense.

All right. Thank you.

Jonathan Atkin, RBC capital. Please go ahead.

Yes. I had a question about international. I'm wondering if you're seeing competition from other players entering the markets that you recently entered? And then, with respect to the portion of revenues, the 3%, that was mentioned, could that trend towards double digits anytime in the few years?

We are seeing competition and the revenue trend will continue to grow. It won't be double digits, certainly this year, Jonathan. Maybe on a run rate basis close by the end of next year, but maybe not as well. Broadly speaking, though, yes. We could get to 10% within say a couple of years.

And the competition, that doesn't effect your economics on new builds does it?

No, not in the markets where we're building heavily because we've got certain deals struck with these folks. But competition would impact any type of new activity outside what's been contracted for. It's very similar to the way it works in the US.

And then apart from Telefonica and Claro, is there a third or fourth carrier worth mentioning at this point that might start to move a little.

Well in Costa Rica, there is the existing incumbent which will also, we believe be a customer, which is ICE. They're also in the midst of an upgrade to 3G technology. So there will be, when existing build-out is done, 3 fully developed operating carriers down there. Plus, we're seeing some new market entrants in the form of internet-type players and other types of I would say smaller wireless providers. So, it's actually an exciting market for us and one we have a great deal of optimism for.

Thanks and then turning to the US, you didn't sign an MLA last year and another carrier, although your 2 peers did. And yet, that doesn't seem to be slowing down your momentum. My question then for this year is regardless of an MLA, or lack of MLA, are you seeing momentum in the second half related to Network Vision even though it's not in your guidance? Or is that not likely to kick in until next year?

Specifically Network Vision, right?

Yes.

Yes. I mean it could happen in the fourth quarter. We'd have to see more activity though than we're seeing now. It's not in our outlook. And I wouldn't want to even suggest to folks that it does end up in our actual 2011 results this year. It could. But it's not anything that we're guiding anyone to.

Good. Thank you very much.

Clay Moran, Benchmark. Please go ahead.

Thanks. Good morning. On the increased M&A opportunities, I'm assuming that's primarily in the US but wanted to ask. Is that US, or what percentage is US versus international? And then, also, on the foreign markets, it seems you're pretty focused on your current markets. Is that the case or is finding new market also a priority?

Most of the portfolio opportunities we're seeing play are in the US but not entirely. But, well more than 50%. And in terms of our international focus this year, we're very open and actually looking for 1 additional market in which to enter. But we've got a lot of work to do right now, particularly in Costa Rica, to meet the build-out goals and the launch goals of Claro and Telefonica. We have our hands full. It's working well, but we're also devoting some time to looking for a new country as well.

And that would also be, I assume, in Central or South America?

That's our primary focus. It continues to be at this point in the western hemisphere.

Okay. Thank you.

Phil Cusick, JP Morgan.

Hi, this is Richard Shao for Phil. Just a clarification on the Sprint, potential Sprint MLA, would you view a network-sharing agreement carrier as an amendment, or more like a new tenant, or something in between? And then, do you expect to see any kind of follow on network service revenue? And is any of that in guidance?

That's a good question on the first one. I'm not sure we've thought that through in terms of classification. I think it's probably more of an amendment. But we'll obviously cross that bridge more definitively when we get to it. And there is no -- yes, we do expect or we would anticipate a large increase in the future of services-related business, none of which is in our 2011 outlook.

And I guess, one follow-up. You are saying that the M&A environment has changed for the better and people are realizing the difference with the AT&T/T-Mobile merger. Does that change your outlook on buybacks or do you expect them to stay at a high level and shift to M&A a little bit? Or do you have enough money in generating enough cash to do both?

We certainly have enough liquidity. Our primary governor will be where we want to maintain target leverage. And right now, we're comfortable with target leverage being where it is, particularly given what we see are great opportunities in both the portfolio, growth areas and stock repurchases. So, in other words, if we do a lot of portfolio growth we probably will be doing less stock repurchases and vice-versa. In any given quarter.

Great. Thank you.

James Ratcliffe, Barclays. Please go ahead.

Good morning. Thanks for taking the question. If you could on a couple potential other sources of revenue, we've talked quite a bit about Sprint, but if you could talk about thoughts at this point on of public safety network? What you're seeing out of Clearwire? And also, if any of the growth we're seeing in the WiFi deployments by cable operators are a potential source of growth for you.

Those are all potential sources of growth, James. The public safety idea gets a lot of discussion, but in terms of actual implementation, we haven't seen any signs of that just yet. Clearwire seems to be more holding kind of steady, in terms of its network, and not doing a whole lot, at least with us right now. I suspect that has something to do with where that all comes out with respect for them in the Sprint Network Vision scenario. And we are seeing a number of additional types of local WiFi, WiMAX internet providers. We're seeing an increase in wireless back haul providers. We're seeing an increase in interest and activity from fiber providers, who want to install hubs in our compounds. And we haven't yet seen anything specific from the cable providers, and particularly, the cable consortium, but they have a lot of valuable spectrum there that I would anticipate over time something gets done with it.

Great. Thank you.

Gray Powell, Wells Fargo. Please go ahead.

Thank you for taking the questions. I just had a couple of them. A little detailed focused. I understand that the increase to your rental revenue guidance is mostly organic but the language in the press release around the 9% organic growth commentary was unchanged. Is that sort of a rounding error? Like maybe before you were looking for 8.9% growth, now you are looking for 9.4% growth.

Yes.

Got it. And then, can you give us a break grown of the leasing activity related to new cell sites versus amendments in Q2 and what your longer term expectations are for the demand drivers?

Yes. The number of amendments versus new cell sites was probably 3 or 4 to 1. I mean the level of amendment activity is truly staggering right now. In terms of revenue, it's maybe 55/45, 60/40. Longer term, I think ultimately you're going to see more of a movement back to brand new cell sites, but maybe not for at least a year, particularly the work that Verizon and AT&T are doing around 4G, all of which will for the most part take the form of an amendment.

Okay. That's very helpful. And I apologize if you have already answered this one, but on the tower expansion plans, it looks like guidance includes roughly a little over 410 acquisitions and another 410 new builds. Can you give us the breakout of US versus international towers for each category?

We can. Can you call Mark back on that?

Yes. No problem at all. Thanks a lot.

David Barden, Bank of America. Please go ahead.

Hey, guys, thanks for taking the questions. Just two if I could. We talked about the strong margin that you guys have seen year-to-date. Just looking at the guidance with respect to the magnitude of the revenue increase for the full year relative to the kind of moving of the mid point of the EBITDA number by trimming the low end, it seems to suggest that maybe there's some change in the margin mix coming. I was wondering if that was related to the new tower builds and the lower margins you have on those at the outset. If you could speak to that real quick.

And then, second, Jeff, just kind of continuing to probe on this topic. I guess Sprint has kind of teed up this analyst day that they're going to have in early October. And they've been negotiating this quote-unquote fourth leg to their 4G strategy beyond the vision, the light squared, and the Clearwire. It's created a lot of speculation about is it a spectrum company? Is it Charlie Ergen and Dish and maybe taking out Clearwire altogether. If you had an educated guess on where you thought that might shake out by October that would be interesting to hear. Thanks.

David, I'm just skipping. I probably said way more than I probably should about the Sprint negotiations. I'm not going to touch that last one. In terms of the margin, we don't really see any real changes. We have made a conservative swack at SG&A.

I think what you said is true though. In that there are a lot of sites that we are building that are new builds that as Jeff mentioned earlier, that day one have one tenant on it, so the margins aren't as great as those get blended in. You'll see revenue bump as you add those tenants to the sites with less margin. But for the most part, I think it is just conservatism around expenses and other things.

We don't see anything in the second half that's material or even smaller than material kind of change in the mix and margins, particularly as they roll in over time.

And I apologize if I could just, and I know, Jeff you said more that than you want to say and I thank you for those answers. But just the last thing on the back and forth with the Sprint conversations is, are you at all concerned that if you don't come up with an MLA that's beneficial for both parties that Sprint would be more inclined to put new business and amendments with other tower companies and be pulling down item sites sooner on the SBA network? And are they using that stick in terms of their negotiations with you guys?

No. I mean we appreciate given the complexities of what Sprint is trying to accomplish why this type of form of a MLA. I really haven't thought about it from that prospective because we're headed down a path where we're likely to end up with something that's mutually agreeable to both parties.

Michael Rollins, City Investment Research. Please go ahead.

Thanks. Thanks for taking the questions. Jeff, just had a follow-up on some of the disclosures that you do. As American tower is pushing towards the REIT conversion, have you given more thought to disclosing metrics on a REIT basis, some of the metrics that REIT investors care about, as well as the ones that you care about? Recognizing that for you that decision point might be off into the future by at least a few years. But maybe providing investors with more information as people may start comparing tower companies to a larger universe of real estate investments.

Yes. It is something, Mike, that we've kicked around here internally. We haven't come to any decision yet. It's a little bit farther off for us than the other guys as you've well said. But it is an issue that we're continuing to consider whether we get well ahead of a potential reconversion by ourselves by providing the REIT type data. So stay tuned. We don't have any decisions yet.

Thanks.

Ric Prentiss, Raymond James. Please go ahead.

It's been a busy day but I do have a couple of quick follow-ups. You mentioned maintenance CapEx was up a little bit because of storm damages. Just wondering what else might be involved there in splitting US versus international? And another minor item, cash taxes were up a little bit. Is that also being driven by international?

Hey, Ric, it's Brendan. On the CapEx side, it's almost all due to some of the storm-related damage we obviously had. Some higher non discretionary CapEx during the second quarter that was due entirely to some of the damage we incurred from the tornadoes and other significant storms during the quarter. And some of the costs that we'll incur, the cash expenditures that we'll incur related to that will actually carry over into Q3 which is why there's also some additional increase for the balance of the year. There is some international maintenance expense, too, with some of the sites that we bought down there that's included in that guidance.

On the cash taxes side it's really not about the international markets. We've had a few areas in particular in Puerto Rico and the US Virgin Islands where we've seen our NOLs lapse a little bit faster. And we've had timing shifts with certain states where estimated payments are made this year instead of being delayed to next year. That kind of thing. Some of it is timing and some it is recurring increase, about half and half in terms of the bump up.

And on the maintenance CapEx for the storm damage, is any of that reimbursable from the tenants? Or is it all borne by you guys?

It's not from the tenants. We do have insurance, though, that allows us to recover a portion of it, but the increase that we've made in our guidance is beyond the insurance recoveries.

Thanks.

And at this time we have no more questions in queue.

Great. Well, thank you, everyone, for joining us today. And we look forward to joining you again with our third quarter results. Thanks.

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