Q1 2016 SBA Communications Corp Earnings Call

May 02, 2016 AM EDT
SBAC.OQ - SBA Communications Corp
Q1 2016 SBA Communications Corp Earnings Call
May 02, 2016 / 09:00PM GMT 

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Corporate Participants
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   *  Mark DeRussy
      SBA Communications Corporation - VP of Finance
   *  Brendan Cavanagh
      SBA Communications Corporation - CFO
   *  Jeff Stoops
      SBA Communications Corporation - President & CEO

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Conference Call Participants
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   *  Jonathan Atkin
      RBC Capital Markets - Analyst
   *  Phil Cusick
      JPMorgan - Analyst
   *  Jonathan Schildkraut
      Evercore ISI - Analyst
   *  David Barden
      BofA Merrill Lynch - Analyst
   *  Amir Rozwadowski
      Barclays Capital - Analyst
   *  Simon Flannery
      Morgan Stanley - Analyst
   *  Mike McCormack
      Jefferies LLC - Analyst
   *  Brett Feldman
      Goldman Sachs - Analyst
   *  Unidentified Participant
      - Analyst
   *  Colby Synesael
      Cowen and Company - Analyst
   *  Nick Del Deo
      MoffettNathanson - Analyst
   *  Matthew Heinz
      Stifel Nicolaus - Analyst
   *  Michael Bowen
      Pacific Crest Securities - Analyst

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Presentation
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Operator   [1]
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 Ladies and Gentlemen, thank you for standing by and welcome to the SBA first quarter results call.

 (Operator Instructions)

 As a reminder today's conference is being recorded. I would now like to turn the conference over to Vice President of Finance, Mark DeRussy. Please go ahead.

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 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [2]
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 Thank you, Ryan. Good evening, everyone, and thank you for joining us for SBA's first quarter 2016 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 2016 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 today's press release and in 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, May 2, 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 as well as other key operating metrics. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and the other information required by Regulation G can be found in our supplemental financial data package. In addition to the Regulation G information, this package also contains other current and historic financial data. This is located on our investor relations landing page at www.IR. SBAsite.com. With that I will turn the call over to Brendan.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [3]
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 Thank you, Mark, good evening. As you saw from our press release we had another great quarter. We were above the high end of our guidance for site leasing revenue, tower cash flow, adjusted EBITDA and AFFO. Total GAAP site leasing revenues for the first quarter were $374.5 million or a 1.3% increase over the first quarter of 2015.

 Eliminating the impact of changes in foreign currency exchange rates, total GAAP site leasing revenue increased 5.2% over the year-earlier period. Total cash, site leasing revenue was $365.6 million in the first quarter, an increase of 2.8% compared to the year ago period. Eliminating the impact of changes in foreign currency exchange rates, total cash site leasing revenue increased 6.5%.

 Our first quarter cash leasing revenue included approximately $2 million of miscellaneous revenues not forecasted to repeat at the same level in future periods. On a gross basis constant currency organic total cash site leasing revenue growth was 8.1%. On a net basis, including the negative impacts of approximately 2.4% from iDEN de-commissioning and 1.6% from normal churn, organic growth was 4.1%. As we discussed last quarter the loss of iDEN revenue during 2015 will negatively impact year-over-year growth rates during the first three quarters of 2016.

 Domestic cash site leasing revenue was $311.2 million in the first quarter an increase of 4.3% compared to the year-earlier period. On a gross basis, organic domestic cash site leasing revenue growth was 7.5%. On a net basis, including the negative impact of approximately 2.8% from iDEN decommissioning and 1.8% from normal churn, organic growth was 2.9%. Approximately 63% of incremental domestic leasing revenue added came from amendments, and the big four carriers represented 75% of total incremental domestic leasing revenue added during the quarter.

 Domestic tower cash flow for the first quarter was $254.3 million, an increase of 4% over the year-earlier period. Domestic tower cash flow margin was 81.7% compared to 81.9% in the year-earlier period, negatively impacted by the iDEN churn. International cash site leasing revenue was $54.5 million in the first quarter of 2016, a decrease of 4.5% compared to the year-earlier period.

 However, eliminating the impact of changes in foreign currency exchange rates, international cash site leasing revenue increased 18.5% driven by both organic growth and acquisitions. On a constant currency basis, net organic international cash site -- cash leasing revenue growth was 12.1%, inclusive of 0.9% of churn most of which was from one narrowband customer in Canada. Gross and net organic growth in Brazil was 13.5%. During the first quarter, cash site leasing revenue denominated in currencies other than US dollars was 10.3% of total cash site leasing revenue. Brazil represented 6.6% of cash site leasing revenue excluding pass-through revenues and 9.6% of all cash site leasing revenues during the quarter.

 International tower cash flow for the first quarter was $37 million, a decrease of 6.1% compared to the prior year or an increase of 14.8% eliminating the impact of changes in foreign currency exchange rates. International tower cash flow margin was 68% compared to 69.1% in the year-earlier period.

 Adjusted EBITDA in the first quarter was $274.7 million, an increase of 1.3%. Eliminating the impact of changes in foreign exchange rates, adjusted EBITDA growth was 4.2%. Eliminating both the impact of FX changes and the impact of iDEN churn, adjusted EBITDA growth was 7.4%. Adjusted EBITDA margin was 70.3% in the first quarter compared to 68.5% in the year-earlier period. Approximately 98% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter.

 AFFO decreased 1.2% to $182.4 million in the first quarter compared to $184.6 million in the year earlier period. Excluding the impact of both iDEN churn and changes in foreign currency exchange rates AFFO increased 8.1%. AFFO per share increased 2.8% to $1.45. Excluding the impact of both iDEN churn and changes in foreign currency exchange rates, AFFO per share increased 12.1% over the year-earlier period.

 In addition to these items, also excluding the impact of the year-over-year decline in our services business, AFFO per share increased 14.2%. We are extremely encouraged by our growth in AFFO per share after normalizing for these temporal issues. Particularly considering the historically modest leasing environment we are currently in, this growth demonstrates the underlying strength of our core leasing business and its ability to generate mid teens compounded growth in AFFO per share on a constant currency basis. This gives us great confidence in our ability to continue creating significant value for our shareholders for years to come.

 We continue to selectively deploy capital towards portfolio growth. In the first quarter, we acquired 117 communication sites for $75.3 million in cash. We also built 71 sites during the first quarter. These additional sites are located in both domestic and international markets.

 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 $14.7 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 74% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 33 years.

 Shifting gears, with regards to the Company's tax status, we continue as of the date of our last federal income tax filing to file as a C corporation. However, we've taken the necessary steps to ensure we are operating in accordance with all necessary requirements to allow the Company to choose to convert to filing as a real estate investment trust at any time. We have not officially made that election as of today. Several factors including financial, strategic, valuation and tax considerations will impact the timing of our eventual decision to convert to a REIT.

 On the tax when we currently have gross, federal NOLs of approximately $1.2 billion. We began using some of these NOLs over the last year or so to offset taxable income. Our current projections suggest we will use up these NOLs entirely sometime during 2020. In addition, our current accumulated earnings and profits balance is a deficit. We anticipate having positive accumulated E&P sometime during 2017. We will continue to consider these factors and others in determining the appropriate time for SBA to officially convert to REIT status.

 Finally, our first-quarter earnings press release includes an updated outlook for full year 2016. The adjustments we've made to our full-year guidance since it was originally provided have been driven primarily by changes in foreign exchange rates and adjustments to our expectations for carrier leasing and services activity levels from the levels we assumed when initially setting 2016 guidance back in early November.

 Beginning with our 2017 full-year guidance, in order to provide the most accurate outlook possible and to be more in line from a timing perspective with our customers' budgeting cycles, we will now be providing initial annual guidance for the first time each year when we report our fourth-quarter results for the prior year. We believe having full-year results for the prior year and better information about our carrier customers' annual spending plans will allow for greater precision when we provide our initial full-year guidance outlook.

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

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 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [4]
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 Thank you, Brendan. SBA ended the quarter with a $8.6 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $129.1 million. Our net debt to annualized adjusted EBITDA leverage ratio was 7.7 times. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.4 times.

 We ended the quarter with $20 million outstanding under our $1 billion revolver, and we have zero outstanding as of today. At quarter end the weighted average coupon of our outstanding debt is 3.9%, and our weighted average maturity is approximately five years. During the quarter we repurchased 507,000 shares of common stock for $50 million at an average price per share of $98.65.

 We currently have $650 million of authorization remaining under our stock repurchase program. Quarter end shares outstanding were 125.5 million. We have no debt maturities in 2016. Our next maturity is $550 million of securitization notes due April 2017. We believe the prevailing rates to refinance these notes and securitization market today would allow us to further reduce our weighted average interest rate. We feel good about our balance sheet strategy and our ability to refinance existing debt and access additional capital if desired. Our debt prices across our capital structure continue to reflect the stability in and attractiveness of our underlying business.

 Our leverage target remains in the 7 to 7.5 times range. Our primary capital allocation focus is portfolio growth that meets our investment return requirements which could be augmented with share repurchases at prices that we believe are below intrinsic value as we have done over the past several quarters. With that I'll turn the call over to Jeff.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [5]
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 Thanks, Mark, good evening everyone. As you heard from Brendan earlier we had a solid start to 2016. Our customers in the aggregate were and are still very active with their networks particularly in the US with amendments to existing macro site infrastructure. The driver for all of this activity continues to be that the demand for mobile data is outstripping network capabilities even after all of the benefits of spectral efficiency and improvements to technology. We believe the dynamic continues for years to come, and as a result we remain very optimistic about our future.

 In the US customer activity has remained steady for three straight quarters in terms of both contract volume and revenue added. The type of work we are seeing continues to be primarily around AWS-1 and 700 MHz deployments as well as refarming of 2G and 3G spectrum to LTE. We are in the very early innings of AWS-3, WCS or 2.5 GHz spectrum deployments, all of which remain opportunities ahead of us.

 By application and executed contract volume the activity is substantially amendments. The amount of activity around an investment in our customers' existing macro sites continues to be robust and underscores the importance of macro sites in our customers' network plans. We expect the investments in macro sites by our US customers will remain heavily weighted towards amendments for the remainder of this year. Our backlogs remain steady compared to last quarter, but we have not yet seen any material increase in activity levels.

 We have increased our full-year leasing revenue guidance due to improved assumptions around foreign currency translation. Our full-year leasing revenue guidance now also reflects our first quarter out performance, some pickup from acquisitions and assumes continued steady incremental revenue added in the US through the end of the year at a fourth quarter to fourth-quarter US and consolidated cash leasing revenue growth rate of 7.2% and 8.0%, respectively, on a gross basis at the midpoint of guidance. Aside from the guidance changes due to foreign currency translation, these other adjustments had a de minimis impact on our full-year leasing revenue guidance of approximately 0.1%.

 With regard to our services guidance, we revised our 2016 outlook downward to primarily reflect reduced work from Sprint compared to the amount we recognized from Sprint in 2015. Services work from other customers is expected to remain steady for the remainder of 2016 consistent with the activity we saw from those customers in 2015.

 Internationally we had a very good first quarter with constant currency gross same tower cash revenue growth of approximately 13%. Leasing activity occurred across all of our markets and with a variety of carriers. Demand for our international towers remains solid. We built 61 new towers internationally in the first quarter. Activity across our five Central American markets was very good.

 Our largest international market, Brazil, also continues to perform very well on a constant currency basis. It was our best same tower gross organic growth market year-over-year at almost 14%. We continue to have operational success building new sites for our customers and securing new leases and amendments on our existing portfolio. We expect solid long-term growth for our business in Brazil.

 Carrier networks in Brazil significantly lagged those here in the US, 4G deployments are in the early stages, the deployment of 700 MHz is still largely to come in Brazil, and the demographics of the population heavily support expanding wireless consumption. We continue to execute very well across all of our markets, and the quality of our assets is evident.

 Tower cash flow margins were once again close to 80% and well over 80% in the US. We expect tower cash flow margins to increase even further as we move into 2017. We expanded our industry-leading adjusted EBITDA margins by 180 basis points to 70.3% in the first quarter versus last year, and our cash SG&A expenses remained very low as a percentage of cash revenue. This was the first time we or for that matter anyone in our industry posted adjusted EBITDA margins above 70%. Excluding pass-through revenues our tower cash flow and adjusted EBITDA margins would be even higher. We remain very focused on our margin performance as we view it as the best gauge of our operating performance.

 As Mark mentioned earlier we are maintaining our 7.0 to 7.5 times net debt to adjusted EBITDA leverage target based on our expectations around organic growth, interest rates staying lower for longer and our excellent access to the capital markets. Our balance sheet and liquidity position remain in great shape. SBA remains a favorite issuer in several debt markets, and our debt trades very well on the secondary market. Over the next 12 months we expect our liquidity to be steady and remain at over $1.5 billion including the cash we generate. As always capital allocation remains a primary area of focus.

 In the first quarter we allocated capital in a very balanced fashion. We invested approximately $170 million of which $75 million was for acquisitions, $50 million for stock repurchases in lesser amounts for new tower builds, land purchases and tower augmentations. Our first preference for capital allocation remains to invest in quality assets that meet our return hurdles both domestically and internationally as we believe quality asset growth at the right price is the best way to increase long-term shareholder value.

 The opportunity set remains good. There are a number of additional acquisition opportunities, both domestic and international, that we are currently evaluating. As we have shown, however, if we do not believe those opportunities are at the right price or terms, we are quite comfortable using our leverage capacity to buy back our own stock when we believe the share price is below intrinsic value. We believe our continued thoughtful approach to capital allocation will create significant additional value for our shareholders for years to come.

 Looking forward we see many years of continued activity from our customers which will generate additional revenue opportunities for SBA. The AWS-3, WCS and 2.5 GHz spectrum deployments I mentioned earlier will accelerate, and deployments will occur of the DISH spectrum, the FirstNet spectrum and the soon to be auctioned 600 MHz spectrum. The FCC just announced that TV broadcasters have indicated willingness to sell the maximum amount of 600 MHz spectrum targeted by the FCC which we think will provide substantial activity for us and our primarily non-urban tower portfolio in years to come. More spectrum is anticipated to be made available in connection with 5G which we also expect to provide opportunities for us.

 While much is unknown about 5G at this point particularly in the non-urban markets, we expect a dramatic increase in the number of antennae, changes in antenna technology and size, the need for locations for C-RAN base stations and backhaul and front haul aggregation points and backup power resources. All these items and I'm confident others will keep macro sites a critically important part of our customers' networks.

 We see similar dynamics and prospects in our international markets. The deployment of the 700 MHz spectrum in Brazil is an example of a large spectrum deployment yet to come. With our high-quality asset portfolio that we have spent close to 20 years carefully assembling, we are very well positioned to participate in this activity which over time we expect to be very material.

 Nearer-term, in addition to the prospects for solid customer activity in all of our markets and particularly in the US post the 600 MHz auction spend we expect a number of SBA specific items will improve in 2017. We will have moved past reporting periods which include the impact of the iDEN churn. We expect year-year variations in our amortization of augmentation reimbursements to have smoothed considerably. Based on current exchange rates the headwinds we have experienced from foreign currency translations would be greatly reduced and could, if current exchange rates are maintained, actually turn into a tailwind in the fourth quarter of this year.

 As Brendan mentioned earlier, when you adjust for some of these temporal items you can see how strong our underlying results are and why we are so excited about the long term value creation prospects for SBA. As a result, today we are introducing our goal of over $10 per share of AFFO in 2020 representing compounded growth of AFFO per share in the mid teens on a constant currency basis.

 The future remains very bright. The business continues to be steady and predictable with ample opportunities to add revenue. We expect to continue to see good and steady leasing activity from our domestic and international customers driven by the growth in mobile data traffic worldwide. We are very well capitalized and have many opportunities to create value through capital allocation. Wireless growth shows no signs of slowing, more infrastructure will be required, and we are excited to be a key participant in that story. Ryan, we are now ready for questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions)

 Jonathan Atkin, RBC Capital.

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 Jonathan Atkin,  RBC Capital Markets - Analyst   [2]
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 I was interested in the $10 per share in AFFO guidance by 2020, and what would be the right way to think about the split between international and domestic? And then turning to the full year guidance, looks like you increased it entirely on FX and by also by a lesser amount then you beat this quarter. And I wonder if that had to do with the fact that are building fewer new towers this year, you did ratchet down the tower build guide. What are some of the factors there for the 2016 guide?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [3]
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 In terms of the splits between international and domestic we're really projecting ongoing revenue growth rate similar to where we are today, so very -- we feel conservative view on the next four years, and in terms of asset growth, it is probably two thirds international, one third domestic. Although the asset growth projections and all of that, Jonathan, are really right at the low end of our traditional 5% to 10% portfolio growth per year, so we feel it is extremely achievable goal that we have put forth.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [4]
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 Jonathan, on the full year guidance changes, you are correct that most of the change was due to FX. So if you take the leasing revenue guidance, we increased our midpoint of that guidance by $11.5 million from the previous version, $13 million positive increase was due to FX as we discussed. So the net change otherwise was a reduction of only $1.5 million at the midpoint.

 In the first quarter, we beat, when you exclude the FX component of our out performance in the first quarter, we outperformed by $4.2 million so that leaves us basically a reduction that is a little less than $6 million for the balance of the year from what we were assuming previously, and that is basically all due to the slower activity levels we expect organically during the rest of the year from what we were previously anticipating.

 There's a modest amount of pickup from some M&A that we did but that is less than $2 million, so basically the change is the reduction in domestic organic activity.

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 Jonathan Atkin,  RBC Capital Markets - Analyst   [5]
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 The tower build expectation dropped by 50. Just interested in what -- where that is taking place and what drove that.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [6]
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 That is correct most of the reduction is due to anticipating building less towers in Brazil. Many of the Brazil new builds that were expected to be completed toward the latter half of the year anyway, so based on the progress or the pace of progress with our customers, where we are right now we're expecting that some of those sites will probably slip into next year, but because many of them were expected to be completed toward the end of the year the impact on our forecasted revenues and TCS is relatively small.

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Operator   [7]
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 Phil Cusick, JPMorgan.

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 Phil Cusick,  JPMorgan - Analyst   [8]
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 First to follow up on the domestic, at this point you are not looking for any sort of carrier ramp for the rest of the year. Is that fair?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [9]
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 Yes, I think given the fact that we need to see something material between now and the end of the third quarter for it to impact our full-year financial results, Phil, and the fact that the 600 MHz auction looks like it may be bigger now and last longer based on the report that came out of the FCC on Friday, we are guiding to study revenue growth between now and the end of the year.

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 Phil Cusick,  JPMorgan - Analyst   [10]
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 I think that makes sense. So for the fourth quarter domestic you would be at 8% year-over-year growth?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [11]
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 Yes, on a consolidated basis. Not US, consolidated.

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 Phil Cusick,  JPMorgan - Analyst   [12]
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 I'm sorry. And what would that US be?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [13]
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 7.2% gross on the US.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [14]
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 At the midpoint of guidance.

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 Phil Cusick,  JPMorgan - Analyst   [15]
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 Perfect, okay. And then Brazil, you are seeing things are slipping a little bit. I'm hearing that things in Brazil sound almost completely dead. Do you feel like the growth there is petering out further as we go through the year? What does that look like?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [16]
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 No, I think that the comment that Brendan made was directed to new builds prick. Actually the lease up activity has been fine and steady. We really are not projecting any material changes between now and the end of the year in terms of the organic picture in Brazil. We would agree we think it could be a lot better if the economy were better down there, but we are actually doing just fine in spite of what is as you said a very tough economy.

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 Phil Cusick,  JPMorgan - Analyst   [17]
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 If I can one more. Can you remind us what you lose by converting to an REIT? What do you lose in terms of flexibility?

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [18]
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 In our case there is not a lot of loss flexibility because we are already operating as though we are a REIT today. So from an operation standpoint and some of the administrative headaches that go with it we are actually already set up now to deal with those. It is really more just about using those NOLs while we have the flexibility to do it.

 It is about some state tax implications that we might incur if we were to convert, because we would have taxable REIT subsidiaries that today are consolidated within our entire reporting structure. So there would be some, while very small some negative tax implications if we were to convert earlier.

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Operator   [19]
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 Jonathan Schildkraut, Evercore.

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 Jonathan Schildkraut,  Evercore ISI - Analyst   [20]
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 A couple if I may, the first is, just taking a look at the iDEN churn and the implications here, obviously it is a very big headwind, if I understood correctly, though, coming into this year the iDEN churn we were experiencing at the end of last year was related to the TowerCo set of assets that you had acquired. And I was under the impression there were more single tenant sticks in that portfolio such that you'd be able to ramp down some of the costs as some the site leasing revenue went away.

 I was wondering if we could get a perspective of whether that is actually happening or if there was some other reason why you have maintained those sites again just looking at the impact on AFFO guidance, and then I will circle back with a second question if I may.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [21]
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 Jonathan we actually did go into it, the TowerCo deal with the understanding that there were sites that if we were not able to add second tenants we would decommission those sites and eliminate the costs associated with them. We actually have been able to do that over the last couple of years, many of them in advance of the termination date that took place in October, so we did realize a number of savings there. There are some others that we're still doing that on, but that has been in our, building in our numbers over the last couple of years.

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 Jonathan Schildkraut,  Evercore ISI - Analyst   [22]
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 That's actually very helpful. It is great to hear that you are continuing to find some opportunities in the private markets, I guess both domestically and abroad, and I was wondering if you might give us a little insight into what is going on from a pricing perspective for those assets. Are you seeing any change in terms of the expectations set of the private tower companies given that right now we're at a slightly slower secular growth than we have seen maybe in some prior years?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [23]
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 The expectations are slowly changing, Jonathan, because we are walking away from probably more deals in the US then we do. There is a fair amount, though, of product out there that is available, and we will continue to pursue it and only pursue to the end when we see prices that make sense for us over both the short and long term period of time.

 I think there is a little bit still of unrealistic views of reality from some of the sellers particularly those that have the single tenant towers because while the carrier activity is pretty darn good around amendments, it is slower on brand-new cell siting as I think everybody knows in that, some folks who were building these towers still are unwilling to accept that, but those are not the ones we are buying.

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 Jonathan Schildkraut,  Evercore ISI - Analyst   [24]
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 That makes sense. If I could sneak one more in here, you gave the gross growth for the US and consolidated, I guess you just reviewed that with Phil. I was wondering if you, because you may have just moved past it to quickly for me, if you have the net numbers to correspond to the 7.2% and the 8.0%.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [25]
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 Sure. For the 8.0 we would be basically 6.5%, mid 6s, and for the domestic we would expect to be in the mid 5s, around 5.5%.

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Operator   [26]
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 David Barden, Bank of America.

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 David Barden,  BofA Merrill Lynch - Analyst   [27]
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 The first one would be maybe, Brendan, could you walk through your expectations on how the Brazilian exposure will exist through a potential Oi debt restructuring and all the different kinds of options that Oi has to cycle through to address their debt situation? Definitely getting questions on what the risk is to that process, because I don't think a lot of people are familiar with the quote unquote bankruptcy process in Brazil.

 The second question is, I think, Brendan, again you used the words, historically low activity levels here in the US. I was wondering could you comment on any potential that maybe the Verizon towers over American tower have been taking market share from the market in general, because it is the first time they have been available and obviously there is a new car smell that goes with that? And then that goes a way in 2017, and the market dynamic for towers normalizes a little or is that not an issue?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [28]
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 David, at the risk of disappointing you, this is Jeff. I'm going to answer the Brazil question, because I was spending a lot of time with our Brazilian team on it. Right now Oi is pursuing an out-of-court restructuring which would leave our involvement and our contracts unchanged. We have not been asked to opine. We have not been asked to participate in this process, and if it is successful, there is no changes for us other than we have a financially stronger customer down there.

 We are rooting for that to occur. If it doesn't occur, Brazil has two types of bankruptcy judicially. The first thing I talked bout was an out of judicial process. The two types of bankruptcy in Brazil judicial are centrally very much the same as the US chapter 7 and the US chapter 11.

 If Brazil or if Oi pursues a judicial remedy, we're very confident that it would only be in the restructuring side of things which again based on the laws down there they would not be able to terminate our operating leases. We feel extremely good about how we're going to come out of this Oi debt restructuring process whether it is out-of-court or in court. And then I would add that just like in the United States, if in fact the judicial process turns into a Chapter 7 liquidation, that would be the scenario in which we could lose our leases. We don't expect to see that even in the slightest.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [29]
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 David on your other question I think the words I used were historically modest not necessarily historically low, but in either case I think everybody knows that leasing activity has been depressed in terms of historical levels over the last year and a half. So we are seeing that because the carriers are focused primarily on upgrades at existing sites and capacity builds, not a lot of new siting.

 So I think, we don't believe that there is any impact from the Verizon towers taking market share. We have not seen any evidence of that at all. So I do not think that is a cause of this, and I think if you look across the industry, you wouldn't see any disparity in terms of what each of the tower companies are experiencing.

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 David Barden,  BofA Merrill Lynch - Analyst   [30]
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 Perfect. Good answer, Jeff. Thanks.

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Operator   [31]
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 Amir Rozwadowski, Barclays.

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 Amir Rozwadowski,  Barclays Capital - Analyst   [32]
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 Just wanted to follow up on some of the prior questions around the US activity levels. I guess what I'm trying to assess, what has changed with respect to your overall views right now versus last quarter? Is it that you haven't seen the pickup in activity you would have anticipated, and so given where we are in the year it is prudent to make those adjustments? Or do you think we are at a shift in terms of demand levels where we are probably not going to see as much leasing activity when it comes to new co location activity because of some of the capital allocations to different types of structures, small cells or anything along those lines to densify networks?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [33]
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 Amir I think it is entirely your first premise. I think we're just at the point now, and we were very clear with this our last couple calls that our initial guidance assumed sequentially increasing activity levels, and we haven't seen that from end of fourth quarter now to end the first quarter. And because we effectively only have four or five months to go that could impact our full-year results. We are at this point we're just going to guide to steady activity. But in terms of all the stuff that still needs to be done, and we think will be done in some period of time, we remain very confident about that.

------------------------------
 Amir Rozwadowski,  Barclays Capital - Analyst   [34]
------------------------------
 If I may on your longer term target on the $10 that you had mentioned, how should we think about that relative to growth versus capital allocation toward share buyback or anything along those lines?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [35]
------------------------------
 I think you should consider it as a mix, and our assumptions around that, first of all it is over $10, assume that we stay levered. It assumes some continued devaluation over time in the Brazilian real. It assumes some capital allocation towards new builds, portfolio growth and augmentations and other things, but it does include a healthy slug of that capital allocation to share repurchases.

------------------------------
Operator   [36]
------------------------------
 Simon Flannery, Morgan Stanley.

------------------------------
 Simon Flannery,  Morgan Stanley - Analyst   [37]
------------------------------
 Just continuing on the last question on that $10, can you just describe your confidence level at getting more than $10? Is this a base case number, or is this a conservative case number, and perhaps you just talk about what escalators you are assuming, can you continue at the 3%, 3.5% rate in that.

 And then I think you mentioned you are cutting your expectations on site development in part because Sprint is doing less, but what's changed between this quarter and last quarter around that specifically, because it sounds like some of that activity you weren't expecting any way coming into the year.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [38]
------------------------------
 I will take the last one first, we were -- we did have a number of conversations and things which through our last call gave us confidence that maybe the reductions from that client would not be necessary, but that is no longer the case Simon. In terms of the -- some of the other assumptions around the long term, we are continuing to assume that US escalators stay in the 3% to 3.5% range. We don't see any reason why that would change. And in Brazil for example we use a declining inflation rate over this period of time, down from where it is today.

 We actually think it is a fairly, you used the word base case, and if you were to see the document that we have prepared we call that our base case. But we do think the conservative -- we do think the assumptions around it are very conservative.

------------------------------
Operator   [39]
------------------------------
 Mike McCormack, Jefferies.

------------------------------
 Mike McCormack,  Jefferies LLC - Analyst   [40]
------------------------------
 Jeff, maybe just a quick comment, and I guess you can frame it in the 2020 over $10 guide, just thinking about your view on long-term growth and whether that has changed over the last six months. And maybe just a comment on the carrier behavior out there with respect to pricing, any more aggressive push back from the carriers to you guys when you're signing new deals?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [41]
------------------------------
 I think long-term growth, in the last two years, Mike, I think we have gone from a 20% compounded AFFO per share world down to a mid-teens world and that is the world that we see going forward and again that is with fairly non-heroic assumptions around it. I think when you parse down the operating leverage in our business all the way down to the AFFO per share line, and you look at our continued use of leverage at even assuming increasing rates but not wildly increasing rates over that period of time, that is how you get there.

 The biggest changes from two years ago to today are several percentage points of decline in assumed organic growth rates. So that is kind of how we -- our views have changed over the last couple of years. In terms of carrier behavior, our customers are fighting for every dime. They are in a very competitive world out there. They are definitely as they always have paying attention to expenses, so they fight for every last dollar, but we are good partners. They need what we have, and we understand what their needs are, and we meet somewhere in the middle, and we continue to do good business.

 But -- yes, are our customers are focused on expenses? Absolutely.

------------------------------
 Mike McCormack,  Jefferies LLC - Analyst   [42]
------------------------------
 Great. That's helpful. Thanks, Jeff.

------------------------------
Operator   [43]
------------------------------
 Brett Feldman, Goldman Sachs.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [44]
------------------------------
 Just going back to your REIT conversion evaluation I just want to make sure I get this correct. You're basically saying that if you were to pursue a conversion after next year, you would almost certainly have to have had a purge and dividend is that correct?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [45]
------------------------------
 Yes, our current forecasts say that we will be E&P positive sometime during 2017, so that would be correct if that holds true.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [46]
------------------------------
 Than if you were to achieve your base case in excess of $10 a share of AFFO, and you think about what the E&P would accumulate to at that point in time, that kind of lines up in terms of when you would have exhausted your NOLs. How big could that purge dividend be if you literally waited until you had no NOLs left to shield your taxes?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [47]
------------------------------
 Brett, you are talking somewhere north of $1 billion certainly, so at this stage that is not high on our list of considerations to wait that long, but it would be pretty significant.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [48]
------------------------------
 My last question here on this your largest peers, public peers have already converted to REITs. They ultimately decided to convert when they still had NOLS, and I think the E&P payment was a component of that. They also decided that on conversion to REIT status they would initiate dividends even though theoretically they could have postponed it for a bit.

 Do you have as view that if you decided to pursue that conversion while you still had NOLs that you would ultimately choose to start paying some level of dividend to align with other REIT practices, or is that still to be determined?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [49]
------------------------------
 That is the part that is still to be determined. In our earlier comments, Brett, assume that we would convert somewhere around the time that we did have positive E&P so that you don't have a additional drain on the capital structure, but that $10, over $10 per share in 2020 does not assume at this point the commencement of a dividend between now and then. So that is something yet to be look that.

------------------------------
Operator   [50]
------------------------------
 Matthew Niknam, Deutsche Bank.

------------------------------
 Unidentified Participant,  - Analyst   [51]
------------------------------
 This is Whitney on for Matt. Thank you for taking the question. Just one question on leverage, it looks that you guys stayed flat at around 7.7 times this quarter above your target range. Just wondering how we should think about leverage for the rest of the year and when you plan on getting towards that target goal?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [52]
------------------------------
 We continue to target 7.0 to 7.5 times. We're only above it because we believe our stock has represented extremely strong intrinsically valued opportunity, so you should see us get back to our target range by the end of the year.

------------------------------
Operator   [53]
------------------------------
 Colby Synesael, Cowan.

------------------------------
 Colby Synesael,  Cowen and Company - Analyst   [54]
------------------------------
 Just want to go back to the response you had to Brett's question. If I heard you correctly you said that the greater than $10 per share in AFFO in 2020 assumes no dividend is paid between now and that period. It seems like the real decision to potentially transition to a REIT which I guess you voluntarily started talking about today or proactively, would be just because you don't want to pay and E&P purge so effectively since you assuming you're going to be positive in that regard in 2017, it doesn't seem like there is any reason for us not to assume that you won't transition into a REIT in 2017 and my not understanding that correctly?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [55]
------------------------------
 Yes, you may be overstating it a little bit because initially the E&P is going to be de minimus. It is going to build, but it is not going to be much of anything in 2017.

------------------------------
 Colby Synesael,  Cowen and Company - Analyst   [56]
------------------------------
 Between 2017 and when it becomes material from your perspective is when you would want to convert. As tied to that, when you do become a REIT would you still have the same leverage calls the 7% to 7.5% is there any reason why as a REIT you would think that that would have to change?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [57]
------------------------------
 No it wouldn't have to change other than our assessment of how best to maximize value for our shareholders. We have for years believed and particularly in this interest rate environment that our capital appreciation model of leverage growth was the way to go.

 The math continues to support that regardless of whether you are in a REIT tax election or not but we will, as we get closer we will be evaluating whether a lower leverage, higher payout yield model makes more sense for our shareholders than the leverage capital appreciation model. And that is the issue, that is the decision to be made.

------------------------------
 Colby Synesael,  Cowen and Company - Analyst   [58]
------------------------------
 My last question, amendments, I think we all historically appreciated that in a generational upgrade cycle, 2G, 3G, 4G we first see amendments, and then at some point we are anticipating that we will see a lot more cell splitting. And so far with 4G it really hasn't played out that way. It continues to be more amendments. I think you've been asked this question a few tonight, but I will I will try to ask a little bit differently.

 It seems like something is different with this current generation upgrade versus those previous, and that is why we're not seeing the cell splitting like perhaps we have in the past. And one of the more obvious explanations for that could be small cell which is more the new cell sites are going towards small sites as opposed to macro towers. And that would suggest and that the overall growth rates that we've seen with 2G and 3G historically may not apply then to what we are seeing with 4G, what we'll see on a go forward basis with 5G. What is your response to that?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [59]
------------------------------
 I don't see it that way. What I see over the last two years, 2015 and 2016 is a world where our customers have a lot of calls on their capital. I believe it was $45 billion of AWS-3 spending last year, and now in light of the 126 MHz of 600 spectrum could be that much this year.

 You had other things that some of our customers were doing, and at the end of the day they I believe there top priority in addition to growing their business is to maintaining their dividend. So they are prioritizing things, and they have concluded I think that their highest priority for the time being is to densify their networks, which densify doesn't mean just small cells. It means amendments to all the macro sites, and that is where the capital is going which I find very logical in light of where they happen to be and the amounts of money that they have available to spend without impacting their credit ratings or their dividends. I would disagree with you there a little bit, Colby.

------------------------------
Operator   [60]
------------------------------
 Nick Del Deo, MoffettNathanson.

------------------------------
 Nick Del Deo,  MoffettNathanson - Analyst   [61]
------------------------------
 First on the $10 per share AFFO goal is that still achievable in the event that T-Mobile and Sprint get together?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [62]
------------------------------
 It is, because we don't think -- they're not going to be able to decommission things that quickly. So yes, the answer to that would be yes but then we would have to rebid -- that is not anticipated in that plan, don't think would prevent us from getting there, but it might impact the growth rates going forward in the United States.

------------------------------
 Nick Del Deo,  MoffettNathanson - Analyst   [63]
------------------------------
 Makes sense. Second question, last quarter you talked about having some things in the hopper that could help bolster growth later this year, and they weren't in guidance because they hadn't been signed, so presumably they wouldn't have been a driver of the reduction in the outlook. Are those items still out there, and if so what might the timing look like if they were to flow through?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [64]
------------------------------
 Some of those have come in, Nick, but the backlogs just haven't come in above that. We needed backlogs to continue to grow, and they have actually been very, very steady, but some of those things that we thought could happen did, but the backlogs still are stable and don't support that tick up in activity that we had originally assumed was going to occur.

------------------------------
Operator   [65]
------------------------------
 Matthew Heinz, Stifel.

------------------------------
 Matthew Heinz,  Stifel Nicolaus - Analyst   [66]
------------------------------
 Just like to get an update going back to your capital allocation plans, I think both in terms of portfolio M&A and the buyback it seems as if the pace of tower M&A continues to decelerate and looked like you chose not to do any additional buyback since the fourth quarter call. Just curious how you are thinking about putting the capital to work right now what the implications might be for your debt ratio leverages going forward?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [67]
------------------------------
 We have a lot of capital. We have an undrawn revolver, and then we have our organic AFFO that we generate. So we have tremendous liquidity, and you are right, and to your point, we're -- the primary governor at this point is our target leverage range.

 As we move through that and EBITDA picks up, and we could actually have a tremendous boost if we see continued improvements in the FX translation rates, but that will largely dictate how much of that liquidity we will spend. It's not it liquidity issue as much as it is staying around our long time leverage target.

------------------------------
 Matthew Heinz,  Stifel Nicolaus - Analyst   [68]
------------------------------
 I guess what I was looking for there was an update of how you are thinking about the M&A environment, you said that it continues to be sticky in terms of pricing and not necessarily all that attractive. So is there any consideration of going down below the target range for the time being when the environment remains less attractive? I guess how do think shareholders would react to a delevering process, a natural organic delevering process and maybe a move toward a slower growth income driven story for SBA?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [69]
------------------------------
 I think they would react well if you take that through to its logical conclusion, but if you do that you are really giving up the opportunity to use historically low cost debt to grow the Company and particularly to buy your stock back at what I think will prove to be extremely attractive pricing particularly as we move past 2016 and people start to see what the numbers look like once we get rid of the iDEN churn and the other three or four items that we mentioned which all will look better in 2017. We think we have some pretty unique opportunities right now that will be maximized if we continue to maintain the capital structure that we have.

------------------------------
 Matthew Heinz,  Stifel Nicolaus - Analyst   [70]
------------------------------
 Just as a follow up perhaps I missed this before, but could you remind us what your gross and net same tower growth assumptions are for both domestic and international on the updated 2016 guide?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [71]
------------------------------
 It measured as a fourth quarter compared to fourth quarter of last year the consolidated number gross number was 8%, net 6.5% range. On the domestic side it was about 7.2% at the midpoint of guidance, mid 5s, mid 5.5% on a net basis, and internationally we would expect it to be about 13% both gross and net.

------------------------------
 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [72]
------------------------------
 Ryan, we have time for one more question.

------------------------------
Operator   [73]
------------------------------
 Michael Bowen, Pacific Crest.

------------------------------
 Michael Bowen,  Pacific Crest Securities - Analyst   [74]
------------------------------
 Digging deep here to find something value added here, but a couple quick ones. I think everybody has hit everything. On the 600 MHz auction, I took from your comments that maybe you had something baked into your outlook so could you, if I am reading that right from your commentary if you could address that. And then one of the things I was looking at also was your percentage to domestic site leasing revenue.

 Most of the percentages over the last two years seem to make sense except for T-Mobile. It looks like they basically remained about constant in the 19%, 19.5% range of site lease revenue. I thought that would have increased given their activity. Can you point me in the direction of what I am missing there?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [75]
------------------------------
 Brendan's going to take the second one, but I'm -- I said something a little different on the 600 MHz. My point on the 600 MHz was, with the news that came out Friday and the size of the spectrum being offered now kind of at the max, that may prove to be a bigger call on our customers' capital than what folks originally thought or what they even planned for without knowing that the maximum was going to be made available.

 The way that auction works now with the greater amount of spectrum being available, it actually could take longer to complete as well. That was the point I was trying to make.

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [76]
------------------------------
 Michael on the question about T-Mobile if you go back into the 2014 timeframe and earlier, they were simply being out paced by AT&T pretty significantly so their percentage wasn't necessarily increasing too much at that point. Recently is it has begun to increase some, but the other factor is that we signed with them an agreement that allowed for a much higher escalator for a period of time.

 And when you book that on a GAAP basis and those percentages you're looking at our GAAP based it is straight lined in, so you don't actually see the revenue contribution from that increasing over time. But you are seeing some increases if you look at the last so many quarters, you will see that they are actually picking up. I think they're up a full percentage point from six months ago just in terms of --just based on organic leasing, new leasing activity.

------------------------------
 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [77]
------------------------------
 Thank you everyone for joining us this evening, and we look forward to reporting our second quarter results. Thanks, Ryan.

------------------------------
Operator   [78]
------------------------------
 Thank you. Ladies and gentlemen, does conclude today's conference. We want to thank you for your participation and for using AT&T executive teleconference. You may now disconnect.




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