Mark C. DeRussy - SBA Communications Corp. Brendan Thomas Cavanagh - SBA Communications Corp. Jeffrey A. Stoops - SBA Communications Corp..

Amir Rozwadowski - Barclays Capital, Inc. Joshua Frantz - Bank of America Merrill Lynch Philip A. Cusick - JPMorgan Securities LLC Simon Flannery - Morgan Stanley & Co. LLC Robert Gutman - Guggenheim Securities LLC Jonathan Atkin - RBC Capital Markets LLC Brett Feldman - Goldman Sachs & Co. Ric H. Prentiss - Raymond James & Associates, Inc.

Nick Del Deo - MoffettNathanson LLC Spencer Kurn - New Street Research LLP (US) Colby Synesael - Cowen & Co. LLC Michael L. McCormack - Jefferies LLC Walter Piecyk - BTIG LLC Matthew Niknam - Deutsche Bank Securities, Inc. Brandon Nispel - KeyBanc Capital Markets, Inc..

Ladies and gentlemen, thank you for standing by. And welcome to the SBA 2017 Second Quarter Results Call. At this time, all lines are in a listen-only mode. Later, there'll be an opportunity for your question and instructions will be given at that time. And as a reminder, this conference is being recorded. I'll now turn the conference over to, Mr.

Mark DeRussy, Vice President of Finance. Please go ahead, sir..

Good evening, and thank you for joining us for SBA's second quarter 2017 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 2017 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations.

Our statements are as of today, July 31, and we have no obligation to update any forward-looking statements we may make. In addition, our comments will include non-GAAP financial measures and other key operating metrics.

The reconciliation of and other information regarding these items can be found in our Supplemental Financial Data package, which is located on the landing page of our Investor Relations website. With that, I will turn the call over to Brendan to comment on our second quarter results..

Thank you, Mark. Good evening. The company had another steady financial performance in the second quarter. Our performance was once again primarily driven by solid operational performance on the leasing side of our business. Total GAAP site leasing revenues for the second quarter were $403.0 million, and cash site leasing revenues were $398.9 million.

Better than expected foreign exchange rates positively impacted leasing revenue by less than $0.7 million relative to the company's prior expectations for the second quarter. Same tower recurring cash leasing revenue growth for the second quarter was 4.6% over the second quarter of 2016. On a gross basis, same tower growth was 7.5%.

The net same tower growth calculation was negatively impacted by approximately 2.9% of churn. Domestic same tower recurring cash leasing revenue growth, over the second quarter of last year, was 7% on a gross basis and 3.8% on a net basis, excluding 3.2% of churn, over 70% of which was related to Metro, Leap and Clearwire terminations.

Internationally, on a constant currency basis, gross same tower cash leasing revenue growth was 10.7%, exclusive of 50 basis points of churn. Gross organic growth in Brazil was 10.8%.

Domestic operational leasing activity, representing new revenue signed up during the quarter, was ahead of 2016 levels, although based on revenue commencement timing, we do not expect this increase in lease up to have a material impact on our 2017 results.

Just over half of incremental domestic leasing revenue added came from amendments, and the big four carriers represented 86% of total incremental domestic leasing revenue added during the quarter. International leasing activity remained consistent with 2016 average levels, with continued solid contributions from all of our markets.

During the second quarter, 86.4% of cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar denominated revenue was from Brazil, with Brazil representing 12.8% of all cash site leasing revenues during the quarter and 9.1% of cash site leasing revenue excluding revenues from pass-through expenses.

With regard to second quarter churn, we continued to see churn from leases with Metro, Leap and Clearwire, consistent with our expectations.

As of June 30, we have approximately $31 million of annual recurring run rate revenue or less than 2% of annual leasing revenue from leases with Metro, Leap and Clearwire that we ultimately expect to churn off over the next two years to three years. That's down from $38 million at year-end and $50 million at September 30, 2016.

Domestic churn in the second quarter from all other tenants on an annual same-tower basis remained less than 1%. We continue to expect domestic same tower churn rate to be in the mid-2% range by the end of the year.

The total amount of churn continues to be as expected and is not anticipated to impact our long-term goal of producing $10 or more of AFFO per share in 2020. Tower cash flow for the second quarter was $317.2 million.

Better-than-expected foreign exchange rates positively impacted tower cash flow by approximately $0.4 million relative to prior expectations. We continue to have success controlling the direct cost associated with our towers, allowing us to continue to have the strongest operating margins in the industry.

Domestic tower cash flow margin was 82% in the quarter, and international tower cash flow margin was 68.7%. Adjusted EBITDA in the second quarter was $298.8 million. Foreign exchange rates positively impacted adjusted EBITDA by approximately $0.4 million relative to our expectations.

Our adjusted EBITDA results in the quarter were due to solid results from both our leasing and services businesses. SG&A for the quarter was generally in line with expectations, but up year-over-year, excluding the Oi reserve due primarily to increased personnel-related costs.

Adjusted EBITDA margin was 70.6% in the quarter, compared to 70.1% in the year earlier period, excluding the Oi reserve. Approximately 99% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter.

AFFO in the second quarter was $211.2 million, which amount was positively impacted by approximately $0.4 million relative to prior expectations due to stronger foreign exchange rates. Our industry-leading AFFO per share increased 16.9% to $1.73 excluding the impact of the $16.5 million Oi reserve that was reported in the second quarter of 2016.

Excluding both the Oi reserve and the positive year-over-year impact of changes in foreign currency exchange rates, AFFO per share increased 14.7% over the year earlier period. We continue to selectively deploy capital towards portfolio growth.

In the second quarter, we acquired 228 communication sites including 143 sites in Peru and the rights to manage 37 additional communication sites for $124.2 million, comprised of $60.9 million in cash and the issuance of approximately 488,000 shares of our Class A common stock. We also built 96 sites during the second quarter.

Subsequent to quarter end, we have acquired 68 additional communication sites, including 35 sites in Argentina at an aggregate purchase price of $16.5 million. The sites purchased and built in the second quarter as well as these additional sites are located in both domestic and international markets.

Jeff will touch briefly on our two new markets of Peru and Argentina in a moment. We continue to invest in the land under our sites, as this is both strategically beneficial and almost always immediately accretive. During the quarter, we spent an aggregate of $16.4 million to buy land and easements, and to extend ground lease terms.

At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 71% of our towers. And the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years. Looking forward, our earnings press release includes our updated outlook for full year 2017.

We have increased the midpoint of our guidance ranges for site leasing revenue, tower cash flow and adjusted EBITDA by $5.5 million each.

These increases were due to a variety of factors, including actual second quarter results, revised expectations around forward FX rates, and the impact of acquisitions put under contract since our first quarter earnings release.

Our assumptions for operational leasing activity during the remainder of 2017 remain exactly the same as the assumptions we made, when providing our initial 2017 guidance in February and the updated guidance we provided in May. We have not assumed any permanent pick-up in operational leasing activity for the second half of the year.

We have also increased our outlook for AFFO by $7 million at the midpoint, and AFFO per share by $0.075 at the midpoint. The increase in AFFO guidance is due to our higher expected adjusted EBITDA and lower expected non-discretionary cash capital expenditures, offset by slightly higher expected net cash interest expense.

The decrease in non-discretionary CapEx is due to lower experienced maintenance and general corporate CapEx during the first half of the year than we had previously expected.

The increase in anticipated net cash interest expense is primarily a result of increased LIBOR rates on our floating rate debt, as well as higher estimated average outstanding balances on our revolver due to share repurchases.

The updated outlook does not assume any impact from potential acquisitions not under contract as of today, and it does not assume any impact from new financings or repurchases of the company's stock, other than those that have been completed as of today.

With that, 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 $8.6 billion of net debt. And our net debt to annualized adjusted EBITDA leverage ratio was 7.2 times, within our targeted range of 7 to 7.5 times. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 4.0 times.

We ended the quarter with $150 million outstanding under our $1 billion revolver, and we have $215 million outstanding as of today. At quarter-end, the weighted average coupon on our outstanding debt was 3.6% and our weighted average maturity was approximately 4.4 years.

On April 17, we issued, through our existing tower trust, $760 million of secured tower revenue securities, which have an anticipated repayment date of April 11, 2022, and a final maturity date of April 9, 2047. The fixed interest rate on these securities is 3.168%.

Net proceeds from the offering were used to prepay our $610 million of 2012-1C Tower Securities, which carry an interest rate of 2.933%, as well as accrued and unpaid interest and also for general corporate purposes.

Year-to-date as of today, we have repurchased 1.9 million shares of common stock for $250 million at an average price per share of $134.98. We currently have $750 million of authorization remaining under our stock repurchase program. Current shares outstanding are 120.2 million, down from 124.6 million shares a year ago.

We are very pleased with our capital structure. SBA continues to be a preferred issuer in the debt markets and as a result, we believe our structure maximizes our ability to drive growth in AFFO per share. With that, I'll now turn the call over to Jeff..

Thanks, Mark, and good evening, everyone. As you heard from Brendan earlier, we had another solid quarter. We continued to execute well growing our portfolio, increasing our operating margins, efficiently meeting the increasing demands of our customers, growing AFFO and shrinking our share count.

Our positive results in the quarter combined with adjusted expectations for improved foreign exchange rates have allowed us to again increase our full year 2017 guidance.

In the U.S., operational customer activity measured as the amount of newly contracted cash revenue per tower, was up sequentially from the prior quarter for the second quarter in a row. This increase was primarily due to an increase in the number of new leases signed, although the majority of new business is still coming in the form of amendments.

Organic leasing activity in the quarter remained primarily from the refarming of 2G and 3G spectrum to LTE, as well as some AWS-1 and 700 megahertz deployments. We have also begun to see 600 megahertz applications. Internationally, we had another steady quarter of operational leasing activity.

This activity was approximately 60% from new leases and 40% from amendments in the second quarter. We again had strong contributions from all of our markets including Brazil, where we continue to see steady results. In general, international growth on a same tower basis should remain superior to the U.S.

for years, given the lesser maturity and density of the networks in international markets, and the lower revenue per tower, of which the growth rates are calculated. On the portfolio side, we entered two new markets that we have been evaluating over the last couple of years, Peru and Argentina.

We now operate and own towers in 13 countries in the Western hemisphere. During the second quarter, we acquired 143 sites in Peru and in July, we acquired 35 sites in Argentina, the first sites we own in each of these countries.

Each of these markets has characteristics we like and we believe we can increase the towers we own materially in coming years. In Peru, there are four competitive active wireless carriers and rapid growth occurring in the percentage of the population accessing wireless mobile Internet services.

The deployment of 700 megahertz 4G LTE spectrum that was auctioned off by the government in 2016 will be a big driver of continued investment in the wireless networks at Telefónica, Claro, and m:tel in particular.

The government has also recently called for significant increases in the number of cell sites in Peru to meet the quickly growing demands and needs of the population. Argentina is one of the largest markets in South America and we believe will be a source of meaningful growth opportunities over the coming years.

The investment in wireless infrastructure has been significantly lacking in Argentina for many years. But with the recent change in government in Argentina, we have seen significant strides in the country's efforts to attract external investment. There are three main wireless carriers in the market with a relatively equal market share.

We expect competition and lagging wireless network performance to be drivers of meaningful investment by all three of these carriers. We are excited about the opportunities that both of these new markets present.

Our strategy in these new markets will be the same as throughout the rest of Latin America; establish SBA as a long-term player with superior financial and operational resources and cultivate deep relationships with our customers based on trust and performance. It's a recipe that has led us to a leadership position in Latin America.

Looking ahead, we continue to feel very good about the environment in which we're operating. As we discussed last quarter, our customers have many things to accomplish over the coming years. In the U.S., deployments of AWS-3, WCS, 2.5 Gigahertz, and 600 Megahertz spectrum will all be drivers of future organic leasing activity for a number of years.

And of course, significant opportunity exists around AT&T's deployment of the FirstNet network. While the FirstNet deployment efforts have not yet officially begun, all indications are that we are getting closer to the commencement of a large wave of infrastructure investment associated with this project.

As of today, seven states have now announced their intention to opt in to the nationwide FirstNet network and many others are expected to follow.

Specific implications to SBA of this rollout are still being defined, and we do not anticipate any material impact to our 2017 financial results, but we continue to expect this important nationwide build-out to be a positive contributor to our growth for the next several years.

On the expense side, we continue to execute well, driving increased efficiency and cost reductions throughout our organization, as well as continuing to reduce land cost through our active ground lease buy-out program.

Our solid performance in cost control as well as our steady success in organic leasing growth, have allowed us to again lead the industry in Tower Cash Flow and adjusted EBITDA margins.

Our domestic Tower Cash Flow margin is now an impressive 82% and internationally we have grown our Tower Cash Flow margin to 68.7%, even as we continue to add many new immature towers to our portfolio.

With regards to capital allocation and balance sheet optimization, we ended the quarter with 7.2 times net debt to annualized adjusted EBITDA, within our target range of 7.0 times to 7.5 times. During the quarter, we allocated capital to portfolio growth and share repurchases.

It remains our goal and expectation that this year we will grow our portfolio by 5% to 10%. Within that range of portfolio growth, we believe we can continue to be very selective with regards to the tower assets we choose to buy and build. We expect to remain a predominantly U.S.

macro tower company, a very strong position to be in for the next several years given expected deployments, and the reason we feel confident in the value being created through our share repurchases.

Our significant liquidity and access to attractively priced additional financing allows us to continue to use our balance sheet to drive increased returns for our shareholders. In closing, we are well-positioned to achieve our goal of $10 or more of AFFO per share by 2020.

A steady demand environment with our customers and strong operational execution, not only drove good second quarter results, but also give us increased confidence for a solid 2017 and achieving our long-term goals. SBA continues to be a strong performer in a tremendous industry.

We have the highest quality assets and tremendous employees whose efforts continue to drive SBA on to greater success. We look forward to a successful remainder of 2017. Cathy, with that, we are now ready for questions..

Thank you. Our first question will come from Amir Rozwadowski with Barclays. Go ahead, please..

Thanks very much and good afternoon, folks..

Hey, Amir..

Jeff, I was wondering if we could touch base a bit on FirstNet. And if we think about the commentary that you suggested is that you don't expect a near-term impact at least through 2017.

How do you think that this sort of unfolds? I mean, are you guys – do you have visibility in terms of what type of benefits you could perceive from this, when do you expect to get that visibility? Would love any color that you can provide there..

Yeah. I'll give you some high-level color and obviously want to stay away from pricing and things like that. We have started to see specs and examples and how this might actually look. At this point, we believe that AT&T will choose to roll this out through their turf vendors, which is much of how they have done their deployments in the past.

And that's the first level of agreements and contract that have to be worked through and then as the turf vendors would begin to execute on the plan, then obviously that really won't yet and can't I believe occur until after a particular state ops in, then we'll actually start to receive applications and then be in a position to move forward.

So, I believe we're getting much closer. Will I be able to say next quarter as we have just said with respect the 600 Megahertz that we are seeing and receiving applications, I don't know. But I do feel that we're becoming obviously increasingly closer to that point..

Great. And then just one housekeeping question, if I may. The discretionary CapEx went up in the guidance.

What is that specifically related to?.

It's primarily relate to additional acquisitions that have been put under contract..

Got it. Excellent, excellent. Thank you very much for the incremental color..

Thank you. Our next question will come from David Barden with Bank of America. Go ahead please..

Hi, guys. It's Josh Frantz, in for Dave. Thanks for taking the questions. Question on the deployment for different antennas.

Can you talk about the relative revenue for an amendment for 600 Megahertz versus 700 Megahertz, versus AWS? And then also same for 2.5?.

We're not going to get into the exact differences between the types of amendments. I will tell you though that generally as you go lower in the frequency of the spectrum, the antennas get larger and as you would have larger antennas, you're going to typically attract larger amendment dollars..

Is there any sort of size on revenue that you can – typical basis that you can give us?.

No. No, we're not going to get into pricing..

Okay, sounds good. Thanks, guys..

Thank you. Our next question is from Phil Cusick with JPMorgan. Please go ahead..

Hey, guys. Thanks. A couple if I can.

Brendan, can you repeat what you said about acquired churn for the second half of 2017 and into 2018, did you say 2.5% for total churn exiting 2017?.

I'm not sure if I said that but it is our expectation that when we – from a domestic standpoint, when we exit the year that we would be at about 2.5%..

And how should we think about remaining churn for 2018 from that acquired network of customers?.

Yeah. So, we have – what I think what I gave in the scripted comments, was the total amount of dollars that we have that we believe will churn off from the three primary guys, Metro, Leap, and Clearwire, and that's $31 million of annual revenue at the end of the second quarter.

I would expect they will come out of the year somewhere in the mid to low $20 million range probably is what would be left when we exit this year, and that would go away over the subsequent two years. So, you're really not talking about much of a large impact, exact timing of that two years obviously remains to be seen.

But, hopefully that ballparks it for you in terms of magnitude..

Okay.

And Jeff, you said that – it looks like AT&T will be using its regular turf vendors, you have relationships with those guys and I think you do services for them sometime, should we think about any impact on your services business this year?.

Too early to tell this year and I think there's some opportunity in the future, but time will tell..

And how does AT&T not owning that FirstNet Spectrum change their rights on towers, if they didn't have some bigger agreement?.

Well, it's an amendment. I mean, it puts them in a position of having to come – it would be basically the standard amendment process, Phil..

Okay.

And a standard amendment process like there's a – like sort of a score card, and using X, Y, and Z or it's a negotiation?.

It's not – I mean it's not much – I'm not sure that's a distinction that really bears a difference because they'd have to do that anyway because the equipment is going to be different..

I see. Okay. And if I can one more. You're aggressive on the buyback in the quarter and as well at the start of the third quarter.

What's driving that and what does that tell us about the sort of opportunity set of other deals out there?.

Well, it's telling you that we're delevering pretty quickly. We actually invested more capital in portfolio growth in Q2 than Q1. And we have hopes and aspirations and opportunities to continue to invest in portfolio growth. And as I mentioned, we do feel good about hitting at least the low end of the 5% for the year.

And we want to stay in that 7 times to 7.5 times and no one should read the 7.2 times as any type of change there. And actually, as we were moving through the quarter, we saw that we're going to actually have lower leverage than we might have otherwise anticipated going into the quarter. So, we stepped up on the stock repurchases..

Great. Thanks very much..

And if the same thing happens again, we would most likely do the same thing..

Thanks, Jeff..

Yeah..

Thank you. We'll go next to Simon Flannery with Morgan Stanley. Go ahead please..

Great. Thank you very much. Jeff, first a clarification. I think you said on the lease up some of them wouldn't commence such that they benefit 2017. Is there anything unusual about what you're seeing now in terms of stuff that's being signed now that doesn't commence until next year or is this pretty much as in prior years.

And then, perhaps you could just comment on any non-traditional tenants interest that you're getting from folks? There's certainly been a lot of discussion about other players coming into the industry looking at potential network deployments.

It would be great to just get a general sense of what your expectations are around moving beyond the big four in the U.S.

and elsewhere?.

We're definitely seeing more leases, co-los in absolute numbers relative to past years, as part of the process and the give and take with various customers in various regions, it is not at all uncommon, Simon, where you would negotiate a rent commencement date of the earlier of installation or January 1, and until it's installed, we would count that as January 1, and obviously not include that in any type of guidance until we know.

So, that's a fairly typical customer SBA type of negotiation that's going on, and I think that's fairly representative throughout the industry. But I think the good thing that comes out of all that is the number of co-los is up, which is good.

In terms of other tenants, there's a lot of discussion and conversation and interest, but I can't point to anything material, Simon. And when we think about the business and plan and we are primarily, if not exclusively looking at the existing kind of base off which to build our future..

Great. Thank you..

Thank you. Our next question is from Robert Gutman with Guggenheim. Go ahead, please..

Hi. Thanks for taking the question.

So, we've heard a lot of talk over the past quarter about 5G and how the first sort of wave of 5G will be fixed wireless, and I was wondering how, if you could just comment on your views of how that will play out in rural locations and within your footprint over the next several years?.

Well, if true 5G, and it's not been defined yet by the technical authorities, but if it is true 5G, it will require different equipment than exists today to deploy it. So, you're looking at new equipment or different equipment or swapped equipment on the towers, so that of course is going to be an opportunity for us.

And if it's using higher frequency spectrum, you'll need more dense networks and that of course will be an opportunity for us. So, I do think we will participate in that, Robert, when that time comes because I don't think what is out there today will satisfy 5G requirements..

Thanks..

Okay. Was that all Mr.

Gutman?.

Yes. Thank you..

All right. Thank you. Then, we'll go next to Jonathan Atkin with RBC Capital Markets. Go ahead, please..

Thank you. So, couple of questions. As you look at the kind of the lower band activities around 600 Megahertz in FirstNet and you mentioned that you had seen some of the technical designs.

What portion of the time are we potentially looking at a new RAD center as opposed to a traditional amendment at an existing RAD center?.

We haven't seen enough data, Jonathan, to speak even remotely intelligently to that question..

And then just moving on.

Delta suite activity in the U.S., not so much speaking for your company, but if you take the industry itself is going to be seeing more kind of requirements for that by the carriers over the next couple of quarters or years, any movement that you're seeing on that front?.

Well, I think the last couple years have been historic lows for new builds industry wide. And I do think based on my understanding of some of the requirements of FirstNet and some of the other deployments with some of the other folks who want to make that, there will be more new builds necessary.

I don't know that they ever get back to obviously the days when people were building for coverage, but they should be greater than what they were over the last couple years on an annual basis..

Okay.

And then I was curious about Brazil and any color that you could provide around the mix between co-los and amendments, as well as how you would think about the growth rates that you saw this quarter prior to escalator impacts?.

Well, Brazil, I think is tracking logically, it is a less mature market. You would expect the ratio of new deployments to favor co-los over amendments and that's exactly what we've seen ever since we've been there. We expect that to continue. In terms of the growth rates ex-escalator, I think, they've been fairly stable..

It's roughly 4% or so, Jon, you're seeing our overall growth rate come down a little bit and that's really the escalator dropping..

Yeah. And actually we continue to be pleased with what's going on in Brazil, given the economy, and we're actually seeing some signs of green shoots down there, the GDP, I think, most people – not that it's taking a tremendous leg up, but most people feel it's bottomed and it's starting to climb back in the right direction.

So, we continue to feel very good about the long-term prospects of the Brazilian market..

And then lastly, in the U.S., how much of your land is owned outright? You gave kind of the owned and controlled stat, is the outright ownership, that's somewhere in the 30% to 35% range or how would you kind of ballpark that?.

Yeah. That's about right. That's about right. That includes some professional leases (34:45) that we have to, is in that 35% range..

Great. Thank you very much..

Sure..

Thank you. We now have a question from Brett Feldman with Goldman Sachs. Please go ahead..

Thanks.

Two questions, one is really just a follow-up to the one that you just answered, which is a few years ago we had an issue with some land aggregators, I'm just curious do you have any one who owns a sizeable amount of your land under your towers right now?.

No..

Okay..

So, that issue seems to have passed the (35:14) as an industry..

Okay, that's what I figured.

So I'll ask my second question which is, as we hear the carriers talk more and more about how they're moving to the centralized RAN architecture, they talk about how they may be using or maybe they are already using some of their macro locations as the hubbing point for all this equipment, so kind of the host location for nearby small cells.

I'm just curious if you've actually seen that play out where when they come to your sites, they're actually increasingly interested in what you can offer them from a ground space level.

And if not, do you think you're going to have to go through some investment phase where there's something you need to do at your towers to actually support that type of architecture?.

The carriers – well, the – as you know, Brett, AT&T and Verizon have traditionally used 12x20 shelters at all of their outdoor sites. And within that shelter, they're allowed to do whatever they want. So, there are many instances where this is occurring at our sites and we would not know it.

What they're looking for is the right site with the right fiber proximity and the right connections to where they want to make those connections.

But the actual ground lease additional – selling of additional ground space is not going to be that great an opportunity at least with those customer because historically they have always contracted for fairly good sized shelters that are going to be able to house most all that equipment..

All right. Thank you. Great color..

Thank you. Our next question is from Ric Prentiss with Raymond James. Please go ahead..

Thanks. Good afternoon, guys..

Hey, Ric..

Hi, Ric..

Hey. A couple of questions around portfolio growth. I think in the second quarter, Brendan, you mentioned that some of the acquisitions were paid for in stock, almost 0.5 million shares.

Can you update us a little bit about was that the buyer asking for that? Was that you? I think it's been a while since you've done some kind of stock compensation for M&A?.

Yeah. Right. That was a specific transaction where the buyer specifically wanted stock, that was the only option really available to us, but we were obviously actively repurchasing stock as well. So, in fact that you can consider it cash eventually..

Yeah, it was all tax-driven by the buyer..

Yeah..

Tax-driven. Okay. And then, Argentina, Jeff you mentioned obviously, went in there post the quarter. And you mentioned that it could be meaningful growth opportunity.

Can you help us kind of size what do you think Argentina might be and then how do you mitigate kind of the FX risk?.

Well, with the 35 towers we've bought have all the carriers on them, and they are predominantly denominated today in U.S. dollars. So, there is a history in Argentina of negotiating and contracting in U.S. dollars. That will be our first choice going forward. I don't know that we will do that a 100% of the time.

And where we can't do it, we will do it – we will manage that risk as we do and our other non-U.S. dollar denominated jurisdictions primarily Brazil where we match off expenses. We will look to local debt funding although that has not been an attractive option today although it is one that we are constantly evaluating.

And ultimately, we will watch the size of the non-U.S. dollar denominated revenues to come out of a particular spot..

So, as you think about the market size for the portfolio in Argentina, is it more buying, is it getting out? You've got a portfolio, you're going to start building, a mix of both? Just trying to think (39:12)..

There is – one of the reasons we're excited is, it's going to be primarily a longer-term build market that I think a company like ours that has excellent execution capabilities, great financial resources, long-term staying potential will be good at and the customers will recognize.

There are three – it's almost uncanny as to the mix of carriers down there. It's almost an equal split between Claro, Movistar and Personal/Nextel. You've got 43 million people, the number of sites is low, and I think, it's somewhere around 16,000 cell sites which seems ungodly low. That sounds too low.

I got to relook at – I'm looking at some notes here, but it is a – it's a country that has tremendously underdeveloped wireless. And yeah, it's a great country with great resources and a growing population, and we look at it much the same way that we looked at Brazil.

But unlike Brazil, I don't think you're going to have an opportunity to get big quick there because of the – through some tax – because of the way the currency has depreciated down there over time and the way the tax laws work.

My understanding is most of the carriers down there, their tower portfolios have been depreciated to almost zero, and the tax hits on the sales or transactions would be unpalatable.

And these – obviously these are things that I'm mentioning because these have all been thought of and people have talked about them, and you can imagine that there have been a lot of bankers pitching these three carriers in Argentina to sell their towers, but there are some structural impediments down there that I think are going to make that unlikely, and we'll see.

Maybe somebody will figure something out down there. But we're going into Argentina to build towers over a long period of time..

Great. The last question from me is on U.S. fiber. Obviously, a lot of transactions, all cash deals kind of going on.

Can you update us on your thought on small cells, enterprise, fiber, indoor DAS systems? And American Tower mentioned maybe some international opportunity for this, but kind what's your thoughts on fiber and how it might play into the space?.

Well, it's clearly a part of telecommunications infrastructure, but it's an entirely different business, and the fact that it may share some tenants or customers with macro sites doesn't mean it's the same business, because it's not.

And I think people have demonstrated that, and people are starting to see that, both from an investment perspective and an overhead perspective, and we'll see over time a return perspective. It is not a business that we believe is necessary for us to maximize the assets that we have and maximize the returns for our shareholders.

And we continue to look for exclusive opportunities that may involve fiber. Those would likely come in indoor opportunities, where you have some protectable rights to the real estate and things like that.

But we really haven't changed, notwithstanding the amount of activity that has occurred in that space between now and last time we spoke, our views haven't changed..

Great. Thanks for the update..

Yeah..

Thank you. Our next question is from Nick Del Deo with MoffettNathanson. Go ahead, please..

Hey. Thanks for taking my question. I just have one. It's been a little over a year since you first laid out your goal of $10 or more in AFFO per share by 2020.

As we look over the next few years, what would you say are the biggest sources of potential upside there and what do you view as the biggest or the most relevant risks?.

I think organic lease up could provide the most upside. I think, the biggest risk could be FX..

A significant increase in interest rate....

Yeah. FX and interest rates are the two big risk to the negative, and organic – I mean (44:08)..

I guess, if you....

Well, yeah, but I....

That's more of an upside opportunity..

Yeah. Because we based it really on the last couple years. I don't – I see that as much more lever to the upside than I do as a risk to the downside..

Yeah. Yeah..

I do think the greater downside risks are the FX and the interest rates..

Okay.

So, macro stuff is outside of your control?.

Yes..

Okay. Thanks, guys..

Yeah..

Thank you. We'll go next to Spencer Kurn with New Street Research. Please go ahead..

Hey, guys. So, over the last couple of days there have been a lot of press reports about cable companies partnering and merging with wireless companies. I just want to get your thoughts on how you think about the impact of cable and wireless convergence on your business.

And specifically, to what extent would that added capacity from cable alleviate the need for capacity on your towers?.

I don't think it does anything because ultimately, what we sell is the radios and the antennas. We sell the thing that turns the signal into the wireless signal that connects with the phone.

So, notwithstanding all the fiber that might come with a transaction like that, you still have to have a radio and an antenna on the end of it that turns the signal into what connects with the mobile device, and that's ultimately where our business comes into play..

Got it.

And does your mix of – as you're skewed towards rural and suburban towers, play a role in your thought process at all?.

Yeah, I think, it's extremely well-positioned for the future because those markets are, I think, best suited to macro site architecture whereas in the more urban markets, you have a lot of different options and where I think a lot of the fiber focus and the cable focus has been..

Got it. Thanks very much..

Thank you. Our next question is from Colby Synesael with Cowen. Go ahead, please..

Great. Thank you. Two, if I may. The first one, having to do with unlimited.

I'm just curious, since all the carriers have come out, guns blazing with their unlimited offerings this year, have you seen any explicit impact with your business? Are they coming to you and explicitly noting maybe anecdotally, or even more specifically in terms of the plan? That is because of the unlimited that they're having to perhaps do more activity than they had otherwise anticipated at this point in the year? And then, secondly, I think all of us on the sell side are always getting asked the differences between the various public tower operators and American, in particular, in this most recent quarter, their growth is up I think about 60 basis points on a year-over-year basis.

You're holding steady yourself at least in the U.S. I'm just curious, do you have any thoughts for why they might be seeing an acceleration in their business relative to yourself at this point? Thanks..

Yeah. On the first question, Colby, I got to believe the unlimited plays a part in the steadiness of our business and what we believe will be an uptick year as we move into 2018 with the deployments of the additional spectrum.

But in terms of coming right out and saying, yeah, we're doing this because of the unlimited plan, no, the conversations are never quite that explicit or specific..

Hey, Colby, on the second question, I can't really speak to how others are calculating their numbers or maybe more impactfully what the potential influence is of the accounting for MLAs.

So it's hard for me to draw any real clear comparisons, but we can confidently say that we're not seeing any material variance in activity levels with our key customers that would be – we would be surprised if it was any different from what our peers are seeing.

There may be occasional timing differences, but generally speaking, I would expect we'll all see our fair share of future organic growth opportunities..

Great. Thank you..

Thank you. We now have a question from Mike McCormack with Jefferies. Please go ahead..

Hey, guys. Thanks. I guess there's been some talk about alternative providers of wireless tower services. Let me just comment on that particularly and then also where you see sort of where you stand from a pricing power perspective? And then, thinking about the 600 deployments that you said you're getting some applications now.

But just trying to get a sense for when you think the real pace of that will pick up in a meaningful way? Thanks..

Yeah. I think we're just starting to see the beginnings of that, Mike, and obviously it will pick up from here. I can't really pick the quarter where it peaks, but it's well ahead of this, I think.

In terms of the alternate providers, I think towers has always been a very entrepreneurial business and people can build towers here and there, and the local person who has the unique knowledge of the real estate where the zoning might lend itself to that can get a tower built.

But it's not an easy process in general and in many cases, zoning – in most cases, zoning is going to make it extremely slow and cost prohibitive at best and just outright prohibitive at worst.

And if you look at the towers that are out there today, it's taken 30 years to build those towers and it's not because folks didn't want to try and go faster because they did.

So, yeah, there will be some other – there always have been folks out there besides the – I'm assuming when you say alternative tower providers, you mean people other than the publics as opposed to like hot air balloons?.

Correct..

Yeah. So, you'll always have that dynamic and there'll be some towers built.

And I think you'll definitely see and hear some of that because I think as I mentioned or answered one of the questions earlier, I think you'll have a greater need particularly with FirstNet where you'll have some extremely remote and rural needs where I think you will have to have some new builds and there'll be some new people interested in those..

Great. Thanks, Mark..

Thank you. Our next question is from Walter Piecyk with BTIG. Please go ahead..

Thanks. Just trying to get some specific timing on the sequence of FirstNet. So, AT&T already said they're going to put it in their CapEx for this year, so we know it's happening in Q4.

Do you get the call before or after they ordered the antenna as far as planning for the site?.

We would typically get the call from the turf vendor..

That's fine. But is the turf vendor calling you to get the site? Or are they calling the guy to buy the antenna first? The vendor as in like a CommScope..

I don't know the answer to that. I mean, they're going to have a pretty good idea of the sites, because I mean the sites are well-known and the inventory of what's on the site is well-known and what its capability is. I don't know Walter what the.....

I don't know if they know your portfolio?.

I don't know what the timing is on the equipment side..

But chances are if they know your portfolio, the antenna guy gets the call first and then they dial you up and say, okay, we're going to put an antenna or change the antenna on the site..

I mean the applications that would be submitted would be very equipment-specific and therefore antenna-specific. So, whether they've been ordered or not, we wouldn't necessarily know, but we would know what they're exactly planning to use..

Well, they haven't been ordered yet but if they're going to hit CapEx, presumably you're going to get ordered in the fourth quarter..

Yeah. And let me answer the question this way. We can move very, very quickly..

Okay. Can I move on to Brazil? Because Telesites today talked about how América Móvil who's got about 18,000 sites in Mexico is building like 1,000 a year. That's just new sites, like new builds as opposed to whatever co-los they're going.

And the answer was that they're doing these not for coverage in remote areas of Mexico but dropping them for capacity reasons.

So, I'm curious if you're seeing any of that type of activity, meaning an accelerated tower build by América Móvil, Claro in Brazil and also, I know you don't do a lot of builds there, but would you think about changing that since that seems like that might be a strategy for América Móvil going forward?.

You mean smaller-type installations that are more surgical?.

No. I mean building a new macro tower because there's three other carriers or maybe two with one big K1 (53:44) that would want to add to those sites as they also need to add sites for capacity reasons. Basically, what Telesites said is, América Móvil is not going back splitting towers for capacity because of all this LTE growth that they're having.

So, I'm curious if you're seeing that in Brazil and whether you would be willing to build sites for them in Brazil, let alone just adding tenants to your existing portfolio?.

Well, we know América Móvil is active in Brazil. They have been and we know that they're building towers and we do build towers for them. So, I think the answer to all that is, yes..

I agree. Thanks a lot. Have a great night..

Thank you. Our next question is from Matthew Niknam with Deutsche Bank. Go ahead please..

Hey guys. Thanks for taking the questions. Just two if I could. One on Peru and Argentina. Just wondering if there's any incremental SG&A you expect to flow through or do you actually expect to leverage the existing LatAm base of SG&A across these newer markets? And then secondly, on U.S.

leasing activity, I think in the past you said new business was about 60%, 40% with more of a skew I guess 60% towards amendments. Has that changed at all in 2Q? Thanks..

We will leverage a lot of what we have, Matt, but we will probably be adding initially 10 people or so. I don't know whether it's 8 or I don't know whether it's 12 but, say, 10 between the new countries that will be brand new additions. That will all be covered by the revenue and the cash flow we've picked up.

So these markets will be EBITDA positive from day one and a lot of the back office stuff that will be shared based on the strength that we have in the region. I'm sorry, Matt, your second question was on....

The split..

The split.

Domestically or internationally?.

Domestically..

Yeah, domestically. So, we moved closer to 60% – I'm sorry, to just over half this quarter is what I believe we said. So, it's roughly 55% coming from amendments and 45% coming from leases. That is obviously much less from amendments than we've had for the last two years. But I'm not sure that that's necessarily indicative of a longer-term trend.

I think it's more the specifics of this particular point in time. So, we would still expect amendments to most heavily be what we see coming over the next couple of years..

Thank you..

Cathy, we have time for one more question..

Thank you. That will come from Brandon Nispel with KeyBanc Capital Markets. Go ahead please..

Hey. Thanks for taking the question. So, you guys mentioned that absolute level of new leasing activity has increased sequentially for the past few quarters. Should we expect that to continue throughout the rest of 2018? And then, Jeff, maybe on a comment that you had on the new spectrum deployments coming online really focusing more on 2018.

You said gross organic leasing activity should pick up. I mean, is that assumption assuming that Metro, Clearwire and Leap lessen in terms impacting results or is that assumption more on the gross organic side? Thanks..

Yeah. It's really all about the true commencement of the 600 megahertz to 2.5G and the FirstNet business, that's what all those comments are based on. And we do think it's just a question of time. None of that is in our 2017 remaining guidance. We do think it's coming, we have talked about and have seen 600 megahertz applications.

We've talked about how we approach guidance which we're going to only include things once we've actually booked them and recorded the revenue which has not happened yet. So, it's all coming and we will be reporting it and it will be showing up on our numbers when we receive it, but it's coming..

So the $42 million in new leasing activity in 2017, are we looking at a number closer to $50 million in 2018?.

We don't get into next year's guidance until the end of the fourth quarter..

Okay. Got it. Thank you..

Thanks, everyone, for joining us on this call and we look forward to reporting our third quarter results in October..

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect..