SBA Communications Corp (SBAC) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA second-quarter results conference call.

(Operator Instructions)

As a reminder, today's call is being recorded. Now, I'd like to turn it over to your host, Mark DeRussy, Vice President of Finance. Please go ahead.

Thanks, Sean. Good morning, everyone. Thank you for joining us for SBA's second-quarter 2014 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer.

Some of the information we will discuss on this call is forward-looking including, but not limited to, any guidance for 2014 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, July 25, 2014, and we have no obligation to update any forward-looking statement we may make. Our comments 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 the other information required by Regulation G, has been posted on our website, sbasite.com.

With that out-of-the-way I'll turn it over to Brendan to comment on our second-quarter results.

Thank you, Mark. Good morning, everyone. As you saw from our press release last night we had another very strong quarter in all areas. We exceeded the high-end of our guidance for leasing revenue, tower cash flow, adjusted EBITDA, and AFFO.

GAAP site leasing revenues for the second quarter were $340.5 million, or a 21.8% increase over the second quarter of 2013. Domestic cash site leasing revenue increased 13% to $276.6 million, and international cash site leasing revenue increased 171.2% to $48.6 million.

Our leasing revenue growth was driven by organic growth and portfolio growth, including our two recent acquisitions in Brazil. iDEN related churn during the quarter had a negative impact of $1.7 million.

We continue to experience strong leasing demand, both domestically and internationally. Amendment activity continues to be significant and represented the substantial majority of incremental leasing revenue in the second quarter, reflecting a combination of coverage and capacity related 4G spending by our customers.

The big four US carriers contributed 90% of our consolidated incremental leasing revenue in the quarter. We continued to maintain leasing backlogs near record levels. Tower cash flow for the second quarter of 2014 was $259 million, or a 27% increase over the year-earlier period.

Tower cash flow margin was 79.6% compared to 77.6% in the year-earlier period. Our services revenues were $43 million compared to $44.8 million in the year-earlier period.

Services segment operating profit was $10.9 million in the second quarter compared to $8.9 million in the second quarter of 2013. Services segment operating profit margin was 25.4% compared to 19.8% in the year-earlier period.

SG&A expenses for the second quarter were $25.4 million, including non-cash compensation charges of $6.1 million. SG&A expenses were $21.5 million in the year-earlier period, including non-cash compensation charges of $4.9 million. Increases were primarily attributable to increases in employee related costs and, specifically, to headcount increases in Brazil.

Adjusted EBITDA was $251.1 million, or an increase of 27.8% over the year-earlier period. Adjusted EBITDA margin was 68.2% in the second quarter of 2014 compared to 63.9% in the year-earlier period. Approximately 96% of our total adjusted EBITDA is attributable to our tower leasing business.

AFFO increased 31.8% to $170.6 million compared to $129.5 million in the second quarter of 2013. AFFO per share increased 31% to $1.31 compared to $1 in the second quarter of 2013.

Combined changes in the Brazilian and Canadian exchange rates during the second quarter versus our guidance positively impacted leasing revenue by $1.3 million and adjusted EBITDA and AFFO by approximately $700,000 each. Net loss during the second quarter was $9.5 million, compared to a net loss of $35.9 million in the year-earlier period. Net loss per share for the second quarter was $0.07 compared to a net loss of $0.28 per share in the year-earlier period.

Quarter-end shares outstanding were 129.1 million. In the second quarter, we acquired 45 sites for $28.5 million in cash. SBA also built 51 sites during the second quarter.

We ended the quarter with 22,305 sites. 15,038 of these sites are in the US and its territories, and 7,267 are in international markets.

Total cash capital expenditures for the second quarter of 2014 were $79.1 million, consisting of $6.7 million of non-discretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $72.4 million of discretionary cash capital expenditures. Discretionary cash CapEx for the second quarter includes $28.5 million incurred in connection with tower acquisitions, excluding working capital adjustments and earnouts.

Discretionary cash CapEx also included $17.4 million in new tower construction, including construction in progress, and $12.4 million for gross augmentations and tower upgrades. The substantial majority of augmentation CapEx is reimbursable to us by our customers.

With respect to the land underneath our towers, we spent an aggregate of $13.3 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.

At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 72% of all of our towers and 74% of our domestic towers. At the end of the quarter, the average remaining life under our ground leases, including renewal options under our control, is approximately 31 years.

At this point, I will turn things over to Mark who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. SBA ended the second quarter with $6.9 billion of total debt. We had cash and cash equivalents, short-term restricted cash, and short-term investments of $149.9 million.

Our net debt to annualized adjusted EBITDA leverage ratio was 6.7 times. Our second-quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.5 times.

During the quarter, we settled the early conversion of $121.5 million in principle of our 4% convertible notes for $121.5 million in cash and 2.7 million shares of common stock. The settlement was neutral to our share count as the stock portion of the transaction was hedged. We expect to settle an additional $11 million in principle of the 4% comparable notes in the third quarter, with the remaining $367 million in principle maturing on October 1 of this year.

Also during the quarter, we paid $276.2 million to early settle 30% of the outstanding warrants sold in connection with the issuance of the 4% notes, which are scheduled to mature in the first quarter of 2015. Subsequent to the quarter, we paid $66.7 million to early settle an additional 7.5% of the warrants.

Pro forma for these two transactions, and based on recent stock prices, our warrant liability consists of 10.3 million underlying shares with a value of approximately $605 million. We expect to settle this obligation in cash.

On July 1, we issued $750 million in principle of new senior notes. The notes have a cash coupon of 4.875% and will mature in 2022. The net proceeds from the offering will be used to settle the principal amount related to the early conversion of our 4% convertible notes to call our outstanding 8.25% senior notes, and for general Corporate purposes.

At the end of the second quarter, and pro forma for this financing, the weighted average coupon of our outstanding debt is 4.1% and our weighted average maturity is approximately five years. We currently have no outstanding balance under our $770 million revolver. Based on specified covenants we have available to us today, $720 million under that revolver.

We did not repurchase any shares of our common stock during the quarter, and currently have $150 million remaining under our existing $300 million authorization. I will now turn the call over to Jeff.

Thanks, Mark, and good morning, everyone. As you have heard, we had another excellent quarter exceeding the high end of our guidance across all key financial metrics. Once again, we expect to lead our industry in many important growth and margin metrics.

Our organic leasing activity was strong again in the second quarter and a prime reason for our out performance. Based on our year-to-date activity, current backlogs, and pending portfolio growth, we are once again announcing meaningfully increases to our 2014 outlook.

In the US, we expect to benefit from elevated levels of customer activity for the next several years as carriers build out their initial 4G coverage footprints to be followed by capacity spending as consumer adoption increases. Scheduled spectrum auctions in a number of our markets will add additional spectrum resources to our customers, which in turn, come with buildout requirements and will necessitate additional infrastructure needs that we expect will be a source of additional customer demand for years to come.

In the second quarter, we once again experienced strong leasing demand across our entire portfolio, both domestic and International. Same tower cash leasing revenue growth was 12.7% on a gross basis and 10.2% on a net of churn basis, including iDEN related churn. This is higher than our expectations and one reason for the increase to our outlook.

We attribute our leasing success to a combination of quality assets, strong execution, good contracts, and excellent demand from our customers. Strong execution was particularly evident with tower cash flow margins up 200 basis points over the year-earlier period.

In the second quarter in the US, we executed high numbers of both new tenant leases and amendments. Amendment revenue, once again, made up the substantial majority of incremental leasing revenue in the US. Amendments are for both coverage and capacity, and many amendments represent the first or second equipment change or a addition after the initial 4G deployment.

Our customers continue to request larger equipment loads for both leases and amendments, which has a favorable impact on rate. AT&T and Verizon continue to be very busy and represented the substantial majority of our new business in the quarter.

We saw another quarter of material contribution from Sprint due to its network vision project, and T-Mobile remains active on its 4G upgrade. The contributions from both Sprint and T-Mobile continue to come mostly in the form of amendments, with the level of activity from T-Mobile, in particular, up substantially compared to the last two quarters, although still well back of AT&T and Verizon levels of activity.

Our backlogs remained large and continue to replenish. Based on current activity, we have included a small leasing benefit from Sprint, 2.5 G in our 2014 outlook, but nothing yet from the T-Mobile 700 megahertz business. We have included no contribution in our 2014 outlook from any prospective customer that is not currently reasonably active, so that would exclude Dish and public safety.

Please keep in mind that our 2014 outlook reflects site leasing revenue on a GAAP basis, while our tower cash flow adjusted EBITDA and AFFO outlooks are all on a cash basis. Our services segment produced strong results again for us in the second quarter, with all four major US carriers contributing. We executed extremely well, producing a record services margin.

Our services backlog remained high. We expect continued strong services segment contribution through 2014, and have raised the midpoint of our full-year services outlook by $20 million to reflect those expectations and our second-quarter out performance.

We continue to see strong activity in our international markets in both organic leasing and portfolio growth. Internationally, we are seeing strong growth in new cell sites, with a lot of basic 3G coverage builds still ongoing in our markets, and a small but increasing amount of 4G coverage builds. International leasing activity is mostly new leases, but there is a growing amount of amendment activity.

International cash leasing revenue and tower cash flow growth grew materially year over year, once again primarily due to portfolio growth. International tower cash flow margins were strong and only slightly behind those in the US, reflecting strong execution.

Our operational performance across the entire Company was very strong in the second quarter. Strong tower cash flow and services margins drove our adjusted EBITDA margin to an industry-leading 68.2%, another record for SBA topping, our first-quarter results.

We think to have produced that level of margin, while growing materially internationally and increasing SG&A expense to manage that international growth, is a real accomplishment. The strong adjusted EBITDA results we had in the second quarter drove our equally strong AFFO and AFFO per share results.

We announced an acquisition from Oi of an additional 1,641 sites which is expected to close in December of this year. Our thinking behind that acquisition is as follows. This is a great deal for us and was exclusively negotiated given our strong relationship with Oi.

These are high-growth wireless sites purchased at a lower multiple of price per site than the acquisition we closed with Oi at the end of the last quarter. Given our positive history with Oi, we expect the integration of these sites to go very smoothly.

While our motivation here was primarily financial, there was also a strategic rationale behind the acquisition. We continue to be very optimistic about the Brazil market long term. There is a large and likely never to be repeated number of communication sites available for purchase this year in Brazil.

We wanted to participate in those opportunities, at least to the degree necessary to secure our position in Brazil as a substantial tower operator long term, similar to the position we have built in the United States. With the closing of the Oi transaction by year end, we will own approximately 7,000 sites in Brazil, which we believe will secure that position.

With our long-term position believed secure, we expect our focus in Brazil for at least the remainder of this year will be organic growth and new site builds, perhaps with some smaller tuck-in acquisitions similar to our historic mom and pop activity in the US, should those opportunities arise.

I'm very pleased with the progress we've made in Brazil year to date and look forward to continuing our positive momentum. We continue to finalize leasing agreements with carriers from which we expect an increase in our new leasing business in Brazil. Higher expectations around our Brazil business, due in part to stronger than expected second-quarter results, are one of the drivers to our increased 2014 outlook.

We continue to perfect and fine tune our thinking on the potential scope and size of our international activities. We are convinced that international expansion, if well executed, will create substantial value for our shareholders long term. Currently, we believe the most value will be created if we continue to source the financing for our international activities in the US debt markets denominated in US dollars.

We believe the local financing options in the international markets that we are interested in are currently too expensive relative to the US markets, even after factoring in the foreign exchange benefits of matching some expenses to revenue in local currency. With such an approach, managing the amount of our US dollar denominated EBITDA relative to our US denominated debt becomes a primary risk control and focus.

Managing these items involves limiting our non-US dollar activities, reducing leverage, and/or obtaining financing denominated in local currencies. Because I believe our balance sheet management and leverage has been a critical driver of our shareholder value creation, particularly in these accommodative debt markets, our current thinking is to limit our non-US dollar denominated revenue to approximately 25% to 30% of total revenue.

There are a number of variables that, of course, go into that outcome, some of which change every day, so this will be a constant area of analysis and adjustment for us. I believe we are years away from approaching those limits, based on our current assessment of the international activities that interest us.

Based on the midpoint of our 2014 full-year outlook for total revenue, this year we expect non-US dollar denominated revenue to comprise approximately 11.5% of the total, growing to approximately 15% in 2015 as we see full-year contributions from our 2014 acquisitions. The practical impact of limiting our non-US dollar denominated activities is that, long term, if we are to continue to maintain our target leverage as is our current goal, we will have material amounts of capital which we will look to invest in US dollar denominated investments or stock repurchases.

With respect to portfolio growth, long term we will continue to look for additional acquisition opportunities, certainly in our existing markets and potentially some new markets, although our preference currently is to stay in the Western Hemisphere. Our 2014 guidance reflects only those acquisitions we have under contract today, and if we are successful in consummating some additional acquisitions our 2014 outlook could increase.

Shorter term, our focus is to satisfy our obligations under our 4% convertible notes and the related warrants for cash, including consummating an additional financing as set forth in our outlook. We expect to be substantially complete with that task by year end and end the year with leverage around the high-end of our 7 to 7.5 times target range.

Financing markets continue to be very accommodative and we expect the contemplated financing to occur in the secured debt markets at very favorable rates. We're very pleased with our recent $750 million high-yield offering, a market which we knew we needed to access by year end once we agreed to the acquisition of the additional 1,641 sites from Oi, although neither of which were contemplated in our out last outlook.

We chose to go into the high-yield market earlier given the strength of the market at that time, and we are glad we did. As our guidance indicates, we expect the current strength in our business to continue through 2014.

Our focus remains the same. Execute well against the favorable macro environment, add quality growth assets, and continue to take advantage of what is expected to remain a favorable financing market.

With our annual portfolio growth goal already achieved, leverage within our target range and tremendous liquidity, we look forward to continuing to realize strong revenue and tower cash flow growth on our high-quality assets. We believe we have SBA ideally positioned for future success. We expect to once again produced material growth across a number of key metrics, including growth in AFFO per share.

Before we open it up for questions, I want to recognize the contributions of our employees and customers to our success. Our operational results were very strong in the second quarter, continuing a strong results that we have been producing since the beginning of the year. Those results come from the efforts of many and I thank all those who contributed to our second-quarter success.

We look forward to reporting continued success as we move through 2014. Sean, at this time we're ready for questions.

Thank you.

(Operator Instructions)

Ric Prentiss.

Thanks. Good morning, guys -- couple questions.

First, on organic growth: Obviously, 10.2% net same-tower revenue growth, pretty strong. What's implied in your 2014 guidance midpoint as far as what that organic same-tower revenue growth rate would be?

Ric, it currently implies approximately a 10% growth rate, which is actually an increase from where we were previously. We've been a little bit higher than that in the first half of the year. We actually did take up our expectations around organic growth for the second half of the year from where they were previously, although we do not have them at the same level that we actually experienced during the first half. So you can kind of think about it as close to 10.5% in the first half of the year to date, and closer to 9.5% for the second half of the year, blending to approximately 10%.

Yes, we've been inching it up, Ric, as we've moved through the year, given the outperformance. But because we've outperformed really so much in the first half, we're just a little hesitant to go to that same level, although there's nothing that we see and no reason why we couldn't potentially do that again.

A little bit of conservatism, just to be safe in the year?

Yes. And I mean, I think the focus is: We've been moving up the base assumption all year long.

Right. And then, on the organic side also, I think both you guys mentioned that amendment activity in a revenue term was more significant than new co-lo's. Is there some kind of percent you can throw to us there as far as amendment -- leasing revenue from amendment versus new co-lo's?

It's about 75%/25% for us in the quarter.

Okay. And then on external growth, Jeff, I think you hit pretty strong about where you want to keep your non-US-dollar-denominated to grow to. When you think about portfolio growth, historically, 5% to 10% targets, at what point does stock buyback become more interesting? Or how do you guys -- every day probably look at that: Do I buy my own stock, do I keep buying assets?

Asset growth, has always been, Ric, our top priority, and I think it will continue to be our top priority now with the few bands around it based on the targets and the thinking that we outlined. We will always also consider stock repurchases if the relative value appears attractive. Because we're in the midst of cleaning up the converts, and settling the converts and the warrants this year, people shouldn't really expect -- it would be counterproductive to that process to be in the market buying our stock this year.

But I do expect we'll be taking a strong look at allocating capital in that direction in years to come. And it will be a question of: Do we find better acquisition opportunities? The one constant that I believe right now, and you can kind of run your models off this, is that we do believe that the 7 to 7.5 times target leverage level is the right spot for us to operate in. That will throw off certain amounts of additional investment opportunity, which will either go towards asset growth or stock repurchases.

Makes great sense. Thanks, guys.

Amir Rozwadowski.

Thank you very much, and good morning, folks. We've gotten some great color in terms of some of the carrier initiatives you folks had mentioned. I did want to ask: If we're looking at some of the larger carriers that we've seen already report results, it does seem as though there's a bit of a front-end-loaded element to their CapEx outlook for the year.

Now, I realize that there's a bit of nuance when it comes to translating their CapEx outlook versus the visibility that you folks have in your Business. But just trying to tie the two here, how should we think about the visibility that you folks have in terms of overall capacity spending for not just the duration of 2014, but also going into 2015?

Well, we've never had perfect visibility, of course, Amir, because only a fraction of what the carriers report as CapEx actually goes on the towers. So, I don't know that we can -- you should not take what we say as a 100% correlated indicator of what our customers are going to be doing. But I will tell you that, obviously, we're familiar with the reports and the statements of our customers. We really don't see any material change in activity levels, and obviously, we don't because we've guided I think so strongly going forward.

If anything, there might be a slight pullback on some new leases versus amendment activity. But the amendment activity is really a race to finish certain levels of 4G networks. We don't see that slowing down at all. So I think people should look at our guidance and say: It's really not going to affect SBA.

That's very helpful. And then, if I may, you mentioned that you included a small amount of that -- Sprint's 2.5-gigahertz build in your outlook, and nothing on the 700-megahertz A block. In terms of the discussions with the carriers, though, where do you think in terms of timing and potential scope of those types of investments?

Just seems as though both new spectrum pieces are strategically important to those carriers. So I'm just wondering how to think about the opportunity set that could present itself once you start including that into your outlook?

Well, that will be primarily a good conversation for next quarter when we roll out our 2015 outlook, which is where we would expect much more material contributions from those two items.

Great. Well, thank you very much for the incremental color.

Sure.

David Barden.

Hey, guys, thanks for taking the questions. Good quarter. Maybe two if I could.

Maybe, Brendan, I think you called out that December month that you're planning on closing the Oi transaction as being accretive to guidance. If you could give us a little color as to how much that added? And your comfort level that December is a meetable target for closing that?

And then, second, maybe, Jeff, there's some conversation out there about how important the AWS-3 auction is really going to be for the tower companies, because it's more likely than not going to be able to be broadcast through existing antennas. But I know that you guys have had contract structures that very specifically call out the spectrum bands as well, as opportunities to monetize the relationship with the carrier. So if you could elaborate a little bit on how you think the AWS-3 auction impacts you guys as a business, it would be helpful color. Thanks.

David, first on the Oi deal, we've included the assumption that it will close December 1 for purposes of our guidance. We included that because we do think that that's the most likely closing date. That's why we put in there. So I think at this point as we sit here today the odds are very good that's when it will close.

The impact to our guidance was approximately $4 million of incremental leasing revenue added. And closer to $2.5 million -- $2.5 million to $3 million on the TCF line.

On the AWS-3 auctions, David, we really do not have spectrum-specific charges that we would ask our customers to pay in the absence of new or changed equipment. And that's been our operating philosophy for years. It's one that's appreciated and understood by our customers.

So what will happen, or what will need to happen -- and I don't have the actual specs yet of what the deployments will look like -- is if the AWS-3 spectrum deployments involve new or changed equipment, we will have an opportunity to increase our leasing revenue from that. And if they don't involve those things, we will not.

Okay. That's clear. Thanks, Jeff.

Jon Schildkraut.

Good morning, and thank you for taking the questions. A couple, if I may. First, I was wondering if you could give us a perspective on how much investable capacity you have left? I think that it was about $1 billion you were highlighting out at PCIA.

And then, it was really good color in terms of the organic growth rates that you provided. Could you give us a breakdown of what it looked like between your US assets and internationally?

And then, specifically on the US, any incremental color about how TowerCo and Mobilitie assets are doing would be appreciated? Thanks.

Yes. On the capacity, we've announced Oi. So that's over $500 million. And we're going to direct probably the rest of our capacity this year, Jonathan, towards cleaning up the warrants for cash.

So folks should not really look for a lot of material acquisition from us. There'll be some mom-and-pop stuff as we move through the year. But we will look to have a clean start with our capital deployments and our capacity in 2015. And we'll be able to give you some more color on that next quarter when we roll out full-year guidance.

In terms of the growth rates, we're not going to get too granular, go country by country, but I will tell you that Brazil and the US were higher than the 12.7% Companywide, and Central America and Canada were lower.

Thank you. That's helpful. And TowerCo and Mobilitie?

Yes. They continue to do well, and perform ahead of plan. They continue to attract less amendments, but more than their disproportionate share of new leases.

Great. And I did notice that you took up your newbuilds slightly versus last quarter's expectation. Was that around deploying a little bit more new sites down in some of your international markets, or are you looking to do newbuilds in the US as well?

That's really around Brazil. And is the flow-through effect of some large build-to-suits that we've been awarded that I think we talked about last quarter.

Great. Thanks so much for taking the questions.

Phil Cusick.

Just a couple things. One, can you help us think about how much of your AFFO is coming from the services business this year, based on the guidance? And then, second, Jeff, can you expand on your maximum 25% to 30% of revenue from international -- what went into that? Thanks.

You want me to take that?

Yes, go ahead.

The services piece, Phil -- it's approximately $38 million of AFFO is implied in our guidance for full-year AFFO.

Thanks, Brendan.

On the latter, Phil, it's been a culmination of a lot of intense analysis and modeling. And basically it gets down to this: As long as there continues to be such a wide discrepancy in economics between borrowing in the US and borrowing in the foreign markets, we're going to stick to the US funding sources.

So, with that as your base, you have to manage then to repay that in US dollars. So we triangulate around leverage in US dollars. We triangulate around cash interest coverage ratios in US dollars.

We use, as a baseline, the fact that we want to stay in the 7 to 7.5 times leverage range. And then, all of those things -- we have certain goals and targets; that is what produced that 25% to 30% non-US-dollar-denominated international target.

Okay, and if --

I'm very pleased with the thoughtful approach we've taken here, and I'm pleased to be able to enunciate it to our investors, really pretty clearly. And it has been something that we've been thinking a lot about all year long.

Good. Thanks, Jeff.

Simon Flannery.

Thanks a lot, good morning. Jeff, you touched on public safety, saying that you were not including anything in 2014, but obviously with AWS-3 coming up, the funding is starting to come into a better relief. Have you had any more color into when you might start to see some activity, and maybe get some benefit in 2015, or is it still out a little bit beyond that?

And if you could just touch on small cells and ExteNet -- what are you seeing in terms of demand from carriers, and how are you thinking about that opportunity? Thanks.

Yes. To be honest with you, Simon, I haven't really dug in to the degree that we will by the time we give out 2015 guidance as to what the timing will be with public safety. I don't know. I can't say yet how much activity, if any, we'll see in 2015, but stay tuned for that. Remind me to answer that question next time around.

Okay.

And on ExteNet, they are staying very busy. Volumes of small cells clearly are up from where they've been over the last couple years.

We think they're doing a good job. We're happy to be a part of it. And we'll see where the future takes that relationship, but we're pleased with the way things are going.

Thank you.

Colby Synesael.

Great, thank you. Two questions. One, modeling, as it relates to the converts. So the converts on the balance sheet as of the second quarter were still $370 million. Can you just walk us through what the anticipated cash premium that you expect to pay for what remains on the balance sheet? So when we start thinking about our models in terms of reducing the cash portion, obviously taking out the $370 million, but then what other remaining cash portions should we be subtracting out of our cash balance?

And then also, what the implied total share count should be exiting the year? Obviously, it's bounced around a little bit in terms of how it's reported on a GAAP basis. Just want to make sure I have the right total share count assumed, based on what's happening with the convert as we exit the year.

And then, my other question just has to deal with network services segment of the Business. Can you just remind us what the historical correlation or -- has been to the site rental business, and whether or not that's historically proven to be a leading indicator of any type of demand going forward? Thanks.

Sure. Colby, this is Brendan. On the convert, as of the end of the second quarter, you're right, it was about $379 million of principal that was left, and that will mature on October 1. And we'll settle that at that time.

When you talk about the premium associated with it, we are fully hedged against the premium. So the actual timing of experiencing that premium and paying off the principal are not necessarily in sync, because the premium for us is basically satisfied through settling the warrants that were sold at the time that we issued the convert.

We have begun unwinding some of those warrants already. And as was mentioned in the release, we, through -- into the third quarter here, have already unwound 37.5% of the warrants.

So basically what this means is that, at October 1, we will settle the remainder of the principal, $379 million; there will be no impact on the share count. We have guided to doing additional financing to clean up the rest of the warrants. So throughout the rest of the year, by the end of the year, our guidance contemplates settling all of the remaining warrants for cash. And excluding what we've already settled and announced, that, based on yesterday's stock price, would be valued at approximately $605 million.

Okay.

On your network services question, Colby, if you were able, and I'm not sure it's possible, but if you were able to gather all the network services business revenue, and then look at it, it would be a good indicator of future leasing activity. In our case, however, while you should expect from our guidance that we do expect strong leasing activity, our network services business actually has a much different mix than where we happen to be in enjoying most of our incremental leasing revenue.

For example, the Sprint 2.5G project is a big contributor to our services business, but not nearly to the same degree to our incremental leasing revenue. So, in general, as a whole, yes, it is a correlator. But if you actually get very granular and look at our Business, where it's coming from versus our leasing business, it's actually pretty different, which I think is a good sign. It shows that everybody's busy doing something.

Great, thank you.

And then, Colby, on the share count, you asked I think an assumption of approximately 130 million, maybe slightly less than that at year end is reasonable. Shouldn't be really any different -- materially different than where we are today, because the converts are not anticipated to have any impact on that.

Yes, this --

So the only other incremental increase this year's out is typical stock comp, et cetera?

Yes. It would be minor things like that, exercise of stock options or something.

Yes.

Okay.

I mean, our plan and our expectation and goal all along here has been to cash settle these warrants, so our share count would not increase, which is why we're devoting a lot of our otherwise investable capital for the back half of the year into settling the warrants.

Great. Thanks for the color.

Jonathan Atkin.

Yes, good morning. I was wondering if you could give us your views on how the tower industry in Mexico might evolve, given some of the divestitures that may happen in that market? And then, domestically, you give the stats for landownership owned and controlled, 74%; what would be the pure ownership stat for your US towers?

That's probably about 30%, Jonathan.

On Mexico, we're watching it with a lot of interest. We have chosen, historically, to not enter Mexico up until this time, in part based on the concentrations of carriers there. So this could all change all that.

But just this week, some statements were made by America Movil that they're looking to spin out and operate independently the towers. So that will be very interesting because if that happens, all of a sudden you'll have a very big dominant player down there that will be, I'm sure, a strong competitor going forward. So we have to take all that into consideration.

Great. And then, one last question on the guidance. You are excluding T-Mobile 700, but I think you said in your script that you're actually seeing some activity there. So is it just conservatism that explains why it wouldn't be in the guidance, or it's just not happening enough to -- ?

No. The amendment activity in the business that we're seeing from T-Mobile is not 700 yet. It's metro changeouts, it's some other things, but it's not 700 megahertz.

Understood. Thank you.

Joe Mastrogiovanni.

Hi, guys, thanks for the taking the question. Jeff, last quarter, you had mentioned that you stepped up the work on the REIT conversion. Can you just give us a sense of how quickly you could convert, if you felt the timing was better to do it sooner rather than later?

And then, with the work that you have done, do you have an updated timeline that you could share with us?

I'm going to let Brendan handle that.

Yes, we have been doing some work around it, just to make sure that we have all of our facts ready, so that we would have the flexibility to go whenever we feel it's appropriate. We could conceivably, if we wanted to -- we think we could conceivably convert effective next year, January 1. But at this point, we don't necessarily see the need to do it at that time, but we'll continue to evaluate it, and remain flexible and available to do it when the timing seems right.

Yes, we are doing work, Joe, around our E&P position. We have concluded we're still years away from positive E&P, which would be one catalyst to convert.

So really, our focus will remain watching the political landscape and seeing if there's any real chance that the laws get changed. Our current thinking, and the advice from a lot of folks, is that that is not going to happen, but that's something we monitor very closely.

Got it. Thanks.

Michael Bowen.

Okay. Good morning; thank you very much -- couple questions.

I think last quarter, you had mentioned that the international growth rates -- the core growth was a little bit less. I'm sorry if I missed it, but I wanted to see if you could give us an update on that this quarter?

And then, secondly, can you help us think a little bit through the reasons why your amendment-driven revenue will be a higher percentage of your revenue growth than, say, your other two competitors, and how we should think about that going forward? Thanks.

Yes, we picked up a quarter this quarter, and dropped off a quarter that we had last quarter in Brazil. The only towers that we've owned down there that go into the calculation are our Vivo 800 towers, because those are the only ones we've owned for a full year. And the timing is such that we just picked up a lot of business, which turned those towers and that metric from a laggard to a leader. And that's why it happened.

And in terms of the -- I really don't want to get into comparisons with our peers. We're seeing a tremendous amount of activity for us. It's 75% amendments that we're enjoying in our revenue recognition. It's a busy time out there. And as you can see from our guidance, we expect to continue the strength through the rest of the year.

So do you think -- just to follow up on that -- do you think that as we move into 2015, that that 75% comes down more to maybe a 50%/50% level, or how should we think about it?

Well, we'll see how the AWS turns out, and what that means. That could be a whole new flurry of amendments.

We think that the 2.5G and the 700-megahertz business will all come, mostly in the form initially of amendments. We think that there's still a lot left to do by AT&T and Verizon. So while I'd be hesitant to say it'll be the same high rate all through 2015 that it looks like it will be in 2014, I think it's going to be pretty strong.

All right. Thank you very much, guys.

Mike McCormack.

Yes. Hi, guys, thanks. Maybe just a quick comment on what you're seeing out there with respect to Wi-Fi adoption among the carriers? How many carriers are actually embracing it?

And then, thinking about some of the stuff that people are talking about with Comcast, is cable, at some point, maybe incented to deploy in the macro network with some sort of Wi-Fi technology? Thanks.

Yes, I guess it's possible, Mike. I have not seen or heard of any concrete plans for cable companies to deploy macro sites. I think I'm seeing the same thing you are, which is a lot of talk around Wi-Fi in the home or in -- around the urban markets.

And Wi-Fi, whether it's deployed by the cable companies or by anyone, Wi-Fi has been around for a while. It is a fixed-location solution. It is not a mobility solution.

So we continue to see it as part of the growing infrastructure of wireless -- helps people kind of continue to get hooked on video and things like that. But it's not something that has, in any way, impacted our Business, and I don't think it will.

Jeff, just maybe another clarification on your M&A strategy -- you mentioned western hemisphere obviously, but what is it about the eastern hemisphere that you don't think is appropriate for SBA?

I'll speak generically by region. Europe -- we're not sure that the growth for the price to be paid there, based on the deals that we have looked at, is our cup of tea.

Africa's an interesting market, but it's still very much in development. We're watching it. But Africa adds a whole new element of operational challenge that is not present in the western hemisphere, which is power. A lot of the African tower business is about the provision of power; so we find that different.

And you can't really go to China because of the way the laws work there for real-estate-owned companies. And in India, we've looked, and we've been there, and we just -- that was, again, not our cup of tea.

We have clearly experienced the strategic value of staying in the western hemisphere because of where we are located in south Florida. We have a huge pool of resources that we can pull on to deal with the Latin cultures and the various countries. We have people now employed at SBA that I think come from every single country in Central and South America. And our travel ability from here is also -- makes it much easier to operate. So that's our current thinking.

Great. Thanks, Jeff.

(Operator Instructions)

Kevin Smithen.

Thanks. Jeff, you've had some very nice improvements in tower cash flow margins. Can you give some more detail on operational achievements in Brazil, and your confidence level in that business? I know you've kind of felt that you had a learning process there. Where are you in that learning process? And some of the TCF leverage we saw this quarter -- how much of that came from Brazil?

Yes, a fair amount came from Brazil, Kevin. We continue to move up our progress curve, quite rapidly, I'm pleased to say. And that is an area where we're bringing a lot of US-learned experience in terms of operating efficiencies to a market that really didn't think or pursue that before. So that has been, and I think will continue to be, a good source of margin expansion for us.

The other thing about margins, and we have some of this in the US with our Mobilitie assets, but for the most part, all of our Brazil assets, the margins are actually even higher. But the way GAAP makes you account for ground leases when they are reimbursed to you by the carrier is you have to expense them yourself, and then you gross up the revenue, which is -- obviously, because it's required by GAAP -- how we do it. But our true economic margins are actually much higher.

And as you look to 2015, do you feel that you have the right portfolio of assets in Brazil, or are there potentially more deals you could do there? And obviously, given your comments about regional expansion, seems like if there's no more deals in Brazil and the US, that share repurchase might be more -- it might be higher up on your capital allocation list relative to the last few years?

Well, if, in fact, that's the way the portfolio opportunities play out, that would be true, because we do intend to stay capitalized at the 7 to 7.5 times range. I do think there will be additional growth opportunities in Brazil. I think there will be some opportunities in other countries in South America that we are not currently in.

So I think folks should expect a mix of those capital allocations in the future. But our bias will be continued portfolio growth in markets we want to be in. But we're not going to just grow the portfolio, obviously, for the sake of growing the portfolio to the exclusion of stock repurchases, which we think, if well executed against our high-quality assets, will be a good source of shareholder value creation for years to come.

Thank you.

Spencer Kurn.

Okay, and, Sean, this will need to be our last question.

Thanks, guys. Just to circle back to the tower cash flow margins, it looks like in the US, your domestic costs actually declined year over year. I was wondering what drove that decline? And is this a trend that you think you can manage going forward?

I'm sorry, Spencer. Can you repeat -- what declined year over year?

Your cash site leasing costs in the US.

Yes. I think there's a couple of things where we had some benefits during this quarter. We had significant outperformance in the area of property taxes, for one, as well as maintenance cost. Some of those were just good timing, but we've also had an active program of challenging property taxes and trying to reduce those costs. So some of it would be associated with that, but --

And buying our land.

And, of course, yes, that's a good -- I forgot -- we are also obviously active in buying out our land or doing long-term pre-paid easements, so that's reducing the ground rent expense.

Yes. I doubt, Spencer, and this is a preview of 2015 guidance, I doubt we're going to project that we're able to continue to reduce that cost line in absolute dollars. I think we certainly would expect to continue to project margin expansion, but not sure we'll be able to actually reduce absolute dollars going forward.

Got it. Thanks so much.

Sure. Okay. Well, that is all for this quarter. We appreciate everyone's attention, and look forward to our next results.

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