Mark DeRussy - Director of Finance Brendan T. Cavanagh - Chief Financial Officer and Executive Vice President Jeffrey A. Stoops - Chief Executive Officer, President and Director.

David W. Barden - BofA Merrill Lynch, Research Division Amir Rozwadowski - Barclays Capital, Research Division Yong Choe - JP Morgan Chase & Co, Research Division Armintas Sinkevicius - Morgan Stanley, Research Division Richard H. Prentiss - Raymond James & Associates, Inc., Research Division Spencer Kurn - New Street Research LLP.

Ladies and gentlemen, thank you for standing by. Welcome to the SBA Third Quarter Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. And I'd now like to turn the conference over to our host, Vice President, Finance, Mr. Mark DeRussy. Please go ahead, sir..

Thank you. Good morning, and thank you for joining us for SBA's Third Quarter 2014 Earnings Conference Call. 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 in this call is forward looking, including but not limited to any guidance for 2014, 2015 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 statements we may make. Our statements are as of today, November 5, 2014, and we have no obligation to update any forward-looking statements we may make.

Our comments will include non-GAAP financial measures as defined by Regulation G. The reconciliation of these non-GAAP financial measures and their most directly comparable GAAP financial measures, and other information required by Regulation G, has been posted to our website, www.sbasite.com.

With that out of the way, I will turn the call over to Brendan..

Thanks, Mark. Good morning. 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 third quarter were $349 million or a 21.4% increase over the third quarter of 2013.

Domestic cash site leasing revenue increased 12.3% to $283.8 million and international cash site leasing revenue increased 167.1% to $48.8 million. Our leasing revenue growth was driven by organic growth and portfolio growth, including our 2 recent acquisitions in Brazil. iDEN-related churn during the quarter had a negative impact of $1.7 million.

We continued to experience strong leasing demand, both domestically and internationally. Amendment activity continues to be significant and represented the majority of incremental leasing revenue in the third quarter, reflecting a combination of coverage and capacity-related 4G spending by our customers. The big 4 U.S.

carriers contributed over 80% of our consolidated incremental leasing revenues signed up in the quarter. We continued to maintain very healthy leasing backlogs. Tower cash flow for the third quarter of 2014 was $263.8 million or a 24.6% increase over the year-earlier period. Tower cash flow margin was 79.3% compared to 78.2% in the year-earlier period.

Our services revenues were $44.3 million compared to $44.6 million in the year-earlier period. Services segment operating profit was $10.3 million in the third quarter compared to $9.4 million in the third quarter of 2013. Services segment operating profit margin was 23.3% compared to 21% in the year-earlier period.

SG&A expenses for the third quarter were $26.6 million, including noncash compensation charges of $6.3 million. SG&A expenses were $21.8 million in the year-earlier period, including noncash compensation charges of $4.1 million.

Increases were primarily attributable to increases in employee-related costs and specifically to headcount increases in Brazil. Adjusted EBITDA was $254.3 million or an increase of 24.9% over the year-earlier period. Adjusted EBITDA margin was 67.5% in the third quarter of 2014 compared to 64.6% in the year-earlier period.

Approximately 96% of our total adjusted EBITDA is attributable to our tower leasing business. AFFO increased 29.4% to $173.8 million compared to $134.3 million in the third quarter of 2013. AFFO per share increased 27.9% to $1.33 compared to $1.04 in the third quarter of 2013.

AFFO for the third quarter includes a nonrecurring benefit of $7.4 million for coupon interest expense not required to be paid upon conversion of our 4% convertible senior notes.

Combined changes in the Brazilian and Canadian exchange rates during the third quarter versus our guidance positively impacted leasing revenue by $400,000 and adjusted EBITDA and AFFO by $220,000 each. Net loss during the third quarter was $16.6 million compared to net income of $21.5 million in the year-earlier period.

Net income for the third quarter of 2013 was positively impacted by a $6.9 million gain on a mark-to-market of a currency hedge and a gain of approximately $27.3 million on the sale of a bankruptcy claim against Lehman Brothers related to a hedge terminated in 2008.

Net loss per share for the third quarter of 2014 was $0.13 compared to net income of $0.17 per share in the year-earlier period. Quarter-end shares outstanding were 129.1 million. In the third quarter, we acquired 94 sites for $79.9 million in cash. SBA also built 114 sites during the third quarter. We ended the quarter with 22,454 sites.

15,099 of these sites are in the U.S. and its territories and 7,355 are in international markets.

Total cash capital expenditures for the third quarter of 2014 were $140.5 million, consisting of $8.6 million of nondiscretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $131.9 million of discretionary cash capital expenditures.

Discretionary cash CapEx for the third quarter includes $79.9 million incurred in connection with tower acquisitions, excluding working capital adjustments. Discretionary cash CapEx also included $24.3 million in new tower construction, including construction in progress, and $18.7 million for gross augmentation 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 $12.4 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 33 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 quarter with $7.6 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $500 million. Our net debt to annualized adjusted EBITDA leverage ratio was 6.9x. Our third quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.3x.

During the quarter, and on October 1, we settled the remaining outstanding principal of our 4% convertible notes for $378 million in cash and 9 million shares of common stock. The settlement was neutral to our share count as the stock portion of the transaction was fully hedged.

Also during the quarter, we paid $327 million to early settle 32% of the outstanding warrants that were sold in connection with the issuance of the 4% notes. Subsequent to the third quarter, we had early settled an additional 7% of the warrants for $74.3 million.

Pro forma for these settlements, and based on the recent stock prices, our work liability now consists of 5.1 million underlying shares with a value of approximately $340 million. We expect to settle the remaining warrants in cash on or prior to the end of the first quarter of 2015. On July 1, we issued $750 million in principal of senior notes.

The notes have a cash coupon of 4.875% that will mature in 2022. The net proceeds from the offering were used to call our outstanding 8.25% senior notes, pay conversion obligations with respect to approximately $121 million aggregate principal amount of our 4% notes and for general corporate purposes.

On October 15, we issued 2 tranches of Secured Tower Revenue Securities through our existing SBA Tower Trust, generating a total of $1.54 billion in gross proceeds. The offering had a weighted average coupon of 3.29% and a weighted average maturity of 7 years.

Net proceeds from the offering were used to prepay in full $680 million of outstanding Secured Tower Revenue Securities and to repay the $300 million outstanding balance under our revolver, which has been drawn to partially fund the October 1 settlement of our 4% notes, as well as for general corporate purposes, including acquisitions and the settlement of a warrants.

At the end of the third quarter and pro forma for the October 15 financing, we had $7.7 billion of outstanding debt with a weighted average coupon of 3.9% and a weighted average maturity of approximately 5.8 years. We currently have no outstanding balance under our $770 million revolver.

Based on specified covenants, we have available to us today the full $770 million under the revolver. We did not repurchase any shares of common stock during the quarter and currently have $150 million remaining on our existing $300 million authorization. With that, I will turn the call over to Jeff..

execute well against the favorable macro environment; add quality growth assets; and continue to take advantage, if necessary, of what is expected to be a favorable financing market. We expect to once again produce 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 employees worked really hard to achieve the goals for 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 in improving and expanding their wireless networks. We look forward to continued success as we finish this year and move into 2015. Laurie, at this time, we'll take some questions..

[Operator Instructions] And our first question from the line of Dave Barden with Bank of America Merrill Lynch..

So thanks for all the detail. I guess I want to make sure, Jeff, I kind of understand the kind of baseline core growth guidance, same-store sales domestically, that you're giving. You're seeing, I think you said 13% gross right now, but you are expecting 9% to 10% next year. But that's before iDEN.

If you could just kind of bridge the growth rate we have now realized in the third quarter year-over-year to what you're guiding to and try to boil it down to a same-store sales domestic apples-to-apples core growth rate, that would be super helpful because there's obviously a lot of confusion with what's happening with Clearwire, PCS and Leap.

And then I think the second question would be just in terms of AT&T and Verizon being busy. I think Verizon has been quite clear that they continue to plan to spend as much as they can. I think there has been greater questions about AT&T's network development momentum into the second half and into the first part of next year.

Are you getting any sense that there is a slowdown there? Or kind of revisiting what their rate of investment is in the network? I'd appreciate it..

1% of that is FX; 1% of that is just what happens when you add the same amount of revenue to a tower on a same-tower basis and then you carry that forward to the next year, which some people have called the law of larger numbers, which leaves the 1% to 1.5%.

And that last delta is of the amount -- it basically relates to the amount of revenue added per tower that we are forecasting now for 2015 or at least at this point in the year. And those are levels that we were -- that's where we kind of were a year ago, David.

And actually, in probably each of the last 3 or 4 years, it was that amount of revenue added per tower. It just so happens that we had a blowout year or are having a blowout year in 2014. And it actually does segue a little bit into your second question. I mean, one of the thoughts behind where we're guiding to right now is we're watching AT&T.

There has certainly been widely reported expectations of their slowdown. I have to tell you, we're not seeing much, but we are perhaps seeing a little bit. And then the other part of that will be is we're taking -- we'll enjoy it as it comes, but not get too far out over our skis with respect to the magnitude of Sprint's 2.5G activity.

We're kind of waiting to see how that pans out as well. So your 2 questions are related.

Does that help?.

Well, it does on the second part for sure.

If you could just -- I was just trying to understand, if I take your next year's domestic same-store sales tower growth rate, net of regular churn of 1.5%, net of $16 million iDEN, what is that growth rate that you are starting out looking at?.

Well, first of all, we're talking about company-wide growth rates, and you're trying to reduce it to U.S. But all the comments are around company-wide growth rates, which is why the FX [indiscernible]. That's why I gave that answer. Brendan, go ahead. You take a shot at that..

the law of large numbers are just -- as we add the same amount, it's a lower percentage year-over-year; plus we are projecting 1% to 1.5% less lease-up. The other difference is basically churn. The 13% is a gross number. The 9% to 10% is net of normal churn. It's not net of iDEN, but it's net of normal churn.

So really you're comparing -- 10% to 11% compares to the 13% that we had for this year..

Okay. So 7% to 8% is kind of the core baseline domestic growth rate apples-and-apples for the U.S.

market?.

No. No, for the whole company..

That's for the whole company..

And that's net of everything..

And we'll go next to Amir Rozwadowski with Barclays Capital..

Just tailing on those prior questions around the sort of the growth rate expectation, it does seem as though you're taking a much more cautious approach to AT&T and to Sprint at the moment.

I'm wondering, clearly, '14 was a stronger growth rate and investment cycle than you had anticipated, what could drive further surprises to the upside when we think about '15 right now, when we're looking at the different initiatives by the different carriers?.

Well, I mean, keep in mind that the growth rates that we're putting forth today are exactly what -- the same ones we've put forth a year ago, and obviously, we were very pleasantly surprised by actual results well ahead of expectations.

And what drove that was all 4 carriers having fair amounts of activity and continuing to not only complete coverage, but also begin to densify their networks for capacity. All that can still be there today. The operational needs, we think, are just as strong today as they were then.

I think the real issues that we're taking a conservative view on today are budgetary issues with respect to several of our clients as opposed to operational needs, which are every bit as strong as they were this time a year ago, when we were basically guiding to the same type of growth rate..

That's very helpful. And then if I may, one other sort of area of new spectrum build has, of course, been T-Mobile's 700 megahertz A block. You've mentioned some of the commentary around Sprint.

I was wondering if you could provide us a little bit of commentary around where your expectations are for that network build in terms of within your -- the context of your growth rate anticipation..

Yes, we believe Sprint will be very active in certain markets with its 2.5G. But I don't have many -- or much more insight beyond what they've already publicly stated, which is that they're going to focus their initial efforts on certain more urban markets.

And really, what we do with Sprint next year will be a function of what the geography is that they tackle on that project..

And then -- apologies.

On T-Mobile's 700 megahertz A block?.

No, I'm sorry. I thought you were referring to Sprint. No, the T-Mobile actually is, as I mentioned, very active. And it's mostly with A block work, although we are just, I believe, on the cusp of starting more 700-megahertz business.

And actually, that is -- we are -- within our guidance, we expect T-Mobile to be stronger; Verizon to continue with strength; and then as I mentioned earlier, a bit of conservatism around AT&T and Sprint. That's how we're viewing the 4 U.S. customers within the context of next year..

And we'll go to Phil Cusick with JPMorgan..

It's Richard for Phil. Just a follow-up on David's question. It looks like you're implying that the U.S. domestic organic growth rate is about 6%.

What was it at the beginning of last year when you guided? Was it around this level or a little bit higher? And is that 6% number kind of correct?.

It's a little bit higher than that, closer to 7% for the U.S. And that would be fairly consistent because we had the iDEN -- similar iDEN churn expectations last year as we do this year. So I would say it's basically about the same as it was a year ago..

And then the other M&A churn is probably taking the place of other churn this year?.

Well, our other non-iDEN churn expectations are probably slightly higher going into next year, but not really outside of the range that we typically expect. We usually see 1% to 1.5%. We have, over the last year or 2, probably been closer to 1% in actuality, and we're projecting 1.5% going into next year, but it's not a material difference..

So that -- as your tallying up the differences, that would be 50 basis points..

Okay.

And a final question, I guess, not looking out too far ahead but for '16 then, as iDEN churn goes away and there is only this churn left, things should get better in '16 on a churn basis?.

Yes..

Yes..

And we'll go to Kevin Smithen with Macquarie..

This is Will [ph] for Kevin. We were wondering how do you evaluate a share repurchase plan versus M&A opportunities.

Specifically, if Verizon were to break up its tower portfolio, would that make it more interesting to you relative to a share repurchase?.

Well, that's a difficult question to ask. I mean, ultimately, whether we're interested in any particular acquisition or not will depend on the price and the terms.

And if we find that the price and the terms attractive and we can fund the transaction, stay within our target leverage levels or at least be around that such that we can easily be within them within 1 year, we will be interested in that transaction.

Now at the same time, we'll be looking at stock repurchases, depending on where the price of the stock is, and evaluating one versus the other.

As we have always stated, and I think our behavior has been consistent, when it's kind of a jump ball, we favor portfolio growth because we think EBITDA growth, when well executed and well priced, is the best way to create additional shareholder value..

And we go to Simon Flannery with Morgan Stanley..

This is Armintas for Simon. I was hoping to get more color on the trends in Brazil. Obviously, American Tower had a strong quarter and you seem to be reiterating similar commentary. And also on the portfolio growth, are you considering other markets? I know previously you've said 25% to 30% of total revenue from non-U.S. dollar-denominated revenue.

So if you were to grow the portfolio instead of share buybacks, would you look at Brazil or some other markets?.

Yes, we still are of a mind with the 25% to 30% non-U.S. as a current limitation. Our guidance next year, about 13.5% of revenue would be in Brazil, the only real non-U.S. dollar-denominated country to speak of, so obviously well within that. So Brazil has been good. Activity levels are up.

We are watching how the recent elections shake out in terms of where the country's interest rates, inflation rates, pace of investment go. But the needs for Brazil remain tremendously strong in terms of additional infrastructure. The consumers want it. The government wants it.

So we remain very bullish in Brazil, and we would continue to look for additional opportunities there. And we'd also look elsewhere in the Western Hemisphere, where we're not today, particularly in South America. And I think that will be our focus for the next year as opposed to anything outside of the Western Hemisphere..

And we'll go to Ric Prentiss with Raymond James..

Yes, it's Ric. A couple of questions. One, last year, I think you started at $16 million of iDEN churn and I think you heard you say iDEN churn in the quarter was only $1.7 million.

So where did iDEN churn -- is it looking like it's going to end up in '14?.

In terms of its total impact on '14?.

Yes..

It's going to end up closer to $14.5 million-ish with an expectation for Q4 here..

Sure. Okay.

And the expectation for '15, is that $16 million? And again, on those least favorable terms as far as the most expensive sites come off first?.

Correct..

Yes..

Okay. And when you look at the rest of the world, Jeff, you'd have to maybe set up more SG&A platforms as you look around the world.

How do you kind of think about -- again, it's not this year, as you just mentioned, but how do you think about what regions of the world might be interesting and what would be involved in setting up the platform? And like in Brazil, where you acquired a company that brought in some talent, how long does it kind of take to set up other geographic focuses?.

do you go in kind of de novo, where it's going to take a year? We've never actually done that. We've gone in and always had some local existing talent on the ground, where you can really get up and running quite a bit faster.

As I think about the world, I think you probably would need -- right now, one of the attractions of South America for us is we can kind of share a lot of SG&A with our -- within our Latin American markets. I think you'd have to break up the rest of the world into at least 3 regions, probably each one deserving of its own mini SG&A group.

And that would be Europe, Africa and Asia would be the 3 components. So we haven't gotten anywhere close to doing any of that yet. We have thought about it, of course, some. But I think the real key to answer to your question, Ric, is how you win there..

Sure, makes sense. And maintenance CapEx seems to be going up a little bit as we look at the guidance in 2015 being $30 million to $40 million versus what had been kind of high $20 million range.

Is that just that your asset base is getting larger with the growth in the portfolio? Is there something changing on the maintenance side?.

Yes, it a mix of a few different things. That's part of it, that we obviously have a lot more assets that need to be maintained. We're doing some work on some of our older assets to make sure that they are kept up, and we expect to anyway. So we've increased it for that.

And that nondiscretionary CapEx also includes some general corporate stuff, such as IT projects and other system-related initiatives. So it's kind of a mix of all those things..

Is there some special projects in IT that would cause it maybe to drop back down in '16? Or is this kind of what we should expect on a run rate basis for the long term?.

This is probably towards the higher end of what we would expect on a run rate basis. But of course, the portfolio will continue to grow, we would expect, too. So I would imagine that would offset any less, lesser amount..

And we'll go to Spencer Kurn with New Street Research..

You guys have been growing significantly faster than your public company peers pretty much all year. And your guidance is starkly different than the other company that's given guidance.

Could you just talk about, I mean, from your perspective, what is it about your portfolio that grows faster? Is it TowerCo on Mobilitie assets? Or are your sites located in better areas? Any color on how you view your business and why you've achieved superior growth rates would be helpful..

Yes, I think it's a combination of many things. It's the ability to select assets, probably, a little bit better, given some of the very large portfolios some of our peers have bought. A lot of a building has gone on here over the years. So we had the good fortune to create a lot of our assets.

And we actually bought from other people like us that were builders for the tower industry. I think we've also -- we've been very faithful to a pricing discipline over the years, where every additional incremental piece of equipment that a customer wants to put on, for the most part, we are able to monetize.

And I think the combination of all those things, and plus we execute well, we really do believe that our services business and our services roots make us better operators. I think the combination of all those things adds up to the highest growth rates in the industry..

I'll turn it back to our speakers now..

Great. Well, we appreciate everyone joining us today. And we look forward to our year-end Q4 call, which should be some time in February. Thank you..

Thank you. Ladies and gentlemen, this concludes our teleconference for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect..