Q2 2016 SBA Communications Corp Earnings Call

Jul 28, 2016 AM EDT
SBAC.OQ - SBA Communications Corp
Q2 2016 SBA Communications Corp Earnings Call
Jul 28, 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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   *  Phill Cusick
      JPMorgan - Analyst
   *  Matt Niknam
      Deutsche Bank - Analyst
   *  Jonathan Atkin
      RBC Capital Markets - Analyst
   *  Amir Rozwadowski
      Barclays Capital - Analyst
   *  David Barden
      BofA Merrill Lynch - Analyst
   *  Justin Singh
      Evercore ISI - Analyst
   *  Rick Prentiss
      Raymond James & Associates, Inc. - Analyst
   *  Spencer Kern
      Green Streen Research - Analyst
   *  Simon Flannery
      Morgan Stanley - Analyst
   *  Brett Feldman
      Goldman Sachs - Analyst
   *  Walter Piecyk
      BTIG - Analyst
   *  Michael Bowen
      KeyBanc Capital Markets - Analyst
   *  Nick Del Dio
      MoffetNathanson - 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 2016 second-quarter results call.

 (Operator instructions)

 As a reminder this teleconference is being recorded. At this time we'll turn the conference over to your host, Vice President of Finance, Mr. Mark DeRussy. Please go ahead, sir.

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 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [2]
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 Thank you. Good evening everyone, and thank you for joining us for SBA's second 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 our SEC filings, which documents are publicly available. These factors and others have affected historical results, may affect future results, and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, July 28, 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, and 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 historical 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 to comment on our second-quarter results.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [3]
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 Thank you, Mark. Good evening.

 We had another stellar quarter. We were above the high end of our guidance for site-leasing revenue, tower cash flow, adjusted EBITDA, and AFFO, driven by both favorable moves in foreign currency and by operational outperformance on the leasing side of our business. In discussing our adjusted EBITDA and AFFO results, guidance and related calculations, unless otherwise indicated, we are excluding the Oi reserve discussed in detail in our press release, as we believe it to be one time in nature and not to be repeated in future periods.

 Total GAAP site leasing revenues for the second quarter were $381.8 million or a 3.1% increase over the second quarter of 2015. Eliminating the impact of changes in foreign currency exchange rates, total GAAP site leasing revenue increased 4.8% over the year-earlier period. Total cash site leasing revenue was $373.1 million in the second quarter, an increase of 4.4% compared to the year-earlier period. Eliminating the impact of changes in foreign currency exchange rates, total cash site leasing revenue increased 6.1%. On a gross basis, constant currency organic total cash site leasing revenue growth was 8%, materially the same as the first quarter. On a net basis, including the negative impacts of approximately 2.2% from iDEN decommissioning and 1.7% from normal churn, organic growth was 4.1%, exactly the same as last quarter. As we have previously discussed, the loss of iDEN revenue during 2015 will negatively impact year-over-year reported growth rates during the first three quarters of 2016, and we will be free from the negative comparisons starting in the fourth quarter of this year.

 Domestic cash site leasing revenue was $312.8 million in the second quarter, an increase of 4.2% compared to the year-earlier period. On a gross basis, organic domestic cash site leasing revenue growth was 7.5%, exactly the same as the first quarter. On a net basis, including the negative impacts of approximately 2.6% from iDEN decommissioning and 1.7% from normal churn, organic growth was 3.2%. Approximately 65% of incremental domestic leasing revenue added came from amendments, and the big four carriers represented 82% of total incremental domestic leasing revenue added during the quarter.

 Domestic tower cash flow for the second quarter was $255.4 million, an increase of 4.6% over the year-earlier period. Domestic tower cash flow margin was 81.7%, an increase compared to 81.3% in the year-earlier period despite the negative impact of iDEN churn.

 International cash site leasing revenue was $60.3 million in the second quarter of 2016, an increase of 5.7% compared to the year-earlier period. Eliminating the impact of changes in foreign currency exchange rates, international cash site leasing revenue increased 16%, driven by both organic growth and acquisitions. On a constant currency basis, net organic international cash leasing revenue growth was 10.1%, inclusive of 1.1% of churn, most of which was from one narrowband customer in Canada.

 Gross organic growth in Brazil was 12.3%. During the second quarter cash site leasing revenue denominated in currencies other than US dollars was 11.5% of total cash site leasing revenue, the substantial majority of which was from Brazil. Brazil represented 10.8% of all cash site leasing revenues during the quarter and 7.5% of cash site leasing revenue excluding pass-through revenues.

 International tower cash flow for the second quarter was $40.9 million, an increase of 2.7% compared to the prior year, or an increase of 12% eliminating the impact of changes in foreign currency exchange rates. International tower cash flow margin was 67.9% compared to 69.9% in the year-earlier period, reflecting increased pass-through revenue.

 Adjusted EBITDA in the second quarter was $278.1 million, an increase of 1.4%. Eliminating the impact of changes in foreign exchange rates, adjusted EBITDA growth was 2.7%. Eliminating both the impact of FX changes and the impact of iDEN churn, adjusted EBITDA growth was 5.5%. Adjusted EBITDA margin was 70.1% in the second quarter, compared to 69% in the year-earlier period. Approximately 99% of our total adjusted EBITDA was attributable to our tower leasing business in the second quarter.

 AFFO increased 0.8% to $185.8 million in the second quarter, compared to $184.5 million in the year-earlier period. Excluding the impact of both iDEN churn and changes in foreign currency exchange rates, AFFO increased 7.1%. AFFO per share increased 4.2% to $1.48. Excluding the impact of both iDEN churn and changes in foreign currency exchange rates, AFFO per share increased 10.5% over the year-earlier period.

 We continue to selectively deploy capital towards portfolio growth. In the second quarter, we acquired 42 communication sites for $40.6 million in cash. We also built 90 sites during the second 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 $19.8 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.

 Looking forward, our second-quarter earnings press release includes an updated outlook for full year 2016. The full-year outlook excludes the impact of the Oi reserve. We have increased our full-year leasing revenue guidance to reflect our second-quarter outperformance and improved assumptions around foreign currency translation. Our core expectation for organic leasing growth continues to assume steady amounts of incremental revenue added in the US through the end of the year. The midpoint of our guidance assumes gross US and consolidated fourth quarter to fourth quarter cash leasing revenue growth rates of 7.2% and 8% respectively, which are unchanged from our prior guidance.

 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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 Thanks, Brendan.

 SBA ended the quarter with $8.6 billion of total debt. We had cash and cash equivalents, short-term restricted cash, and short-term investments of $159.6 million. Our net debt to annualized adjustment EBITDA leverage ratio was 7.6 times. Our second-quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.4 times. Both of these metrics exclude the Oi reserve.

 During the quarter we spent $100 million to repurchase just over 1 million shares of common stock at an average price per share of $97.80. We currently have $550 million of authorization remaining under our stock repurchase program. Quarter-end shares outstanding were 124.6 million, down from 128.2 million shares a year ago. Subsequent to the end of the quarter, on July 7 we issued $700 million of secured tower revenue securities out of our existing tower trust. These notes have a coupon of 2.877% and an anticipated repayment date of July 2021. A portion of the net proceeds of this offering were used to prepay the full $550 million outstanding of our 5.101% secured tower revenue securities. The remainder of the net proceeds will be used for general corporate purposes.

 We ended the quarter with $30 million outstanding under our $1 billion revolver, and we have zero outstanding as of today. At quarter end in pro forma for the July 7 offering, the weighted average coupon of our outstanding debt is 3.7%, and our weighted average maturity is approximately 4.5 years. Our leverage target remains in the 7 to 7.5 times range. Our primary capital allocation focus continues to be 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 now turn the call over to Jeff.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [5]
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 Thanks, Mark, and good evening everyone.

 As you heard from Brendan earlier we had a another solid quarter. The volume and type of organic activity we captured was virtually identical to that we experienced in the first quarter. Our site leasing business demonstrated continued steady demand, which our operational excellence was able to translate in continued strong margins and EBITDA growth. We allocated capital to a mix of stock repurchases and portfolio growth while keeping leverage steady. AFFO is growing and share count is shrinking. Through the combination of these factors, we were able to continue to grow AFFO per share, and our results and actions in the second quarter positively contribute to achieving our goal of over $10 per share of AFFO in 2020.

 In the US, customer activity has remained steady for four straight quarters in terms of both contract volume and revenue added. The type of work we are seeing continues to be primarily around the re-farming of 2G and 3G spectrum to LTE, as well as AWS-1 and 700 MHz deployments. We still have not yet seen much in the way 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 remains substantially amendments. On a revenue business, the mix was 65% amendments and 35% new leases. Three of the four nationwide US carriers were responsible for substantially all of our domestic activity. This continued amount of activity underscores the current and future importance of macro sites and our customers' network plans. We expect the investments in macro sites by our US customers will remain heavily weighted toward amendments for the remainder of this year. Our backlogs remain steady compared to last quarter, and our domestic leasing outlook for the second half of the year remains unchanged from last quarter. We continue to believe second-half organic leasing activity will be materially similar to the first half.

 Our services results were at the low end of our expectations for the quarter, reflecting a very competitive environment for the work that is available and our choice to pass on unprofitable or less profitable business.

 Internationally, leasing activity was steady and in line with our expectations. Activity was more balanced between new amendments and new leases compared to the US. International organic activity outside of Brazil came in above plan, while Brazil's results were at expectations. Given the macro challenges in Brazil, we're actually very pleased with the results we are producing. On a positive note, second-quarter reports from the Brazilian carriers paint a stable to improving picture for the second half of the year.

 We continue to grow our portfolio internationally and we had a nice increase in towers built internationally compared to the first quarter.

 With respect to the Oi reserve, we intend to vigorously pursue those amounts in the reorganization process and we will see what happens. While not an insignificant amount, we believe the $16.5 million should be more than offset over time by the benefit to SBA of an Oi that is materially strengthened as a result of our restructured balance sheet. To that point, Oi has already recommenced new leasing activity with us, post-petition. The on-the-legal obligations to pay its rents to SBA during and subsequent to the reorganization process, Oi has strongly expressed its commitment and operational need to honor our agreements, reflecting the necessity to a successful reorganization of Oi's continued access to the towers hosting its equipment.

 Operational excellence remains a guiding principle at SBA and one that pervades our entire organization with a heavy focus on cost control. Our reported second-quarter tower cash flow margin was 79.4% compared to 79.5% in the year-earlier period, which we are quite pleased with, given the negative impact of foreign-exchange rates, iDEN churn and a growing international inclusion of pass-through revenue. We continue to post low-cash SG&A expenses as a percentage of revenue, and for the second consecutive quarter posted adjusted EBITDA margins above 70%. Our tower cash flow EBITDA margins are actually materially higher excluding pass-through revenue, which is a better picture of true economic margins, and we've got that set forth in our supplemental package.

 Beyond organic growth and execution in our business, we continue to focus on driving incremental AFFO per share and therefore we believe incremental shareholder value through the deployment of capital and the optimization of our balance sheet. As has been the case for some time, our primary uses for capital are portfolio growth and stock repurchases. The decision around the aggregate amount of capital we deploy towards these two uses starts with our view around how we want to leverage business. As Mark mentioned, our target leverage remains in the 7 to 7.5 times range. While the bias is to grow the portfolio, we are very disciplined about meeting our return targets and the actual allocation mix will depend on the relative returns available between repurchases and portfolio additions. We stayed fully invested in the second quarter as we took advantage of excellent opportunities for stock repurchases. We invested approximately $183 million of discretionary capital, of which $100 million was for stock repurchases, $57 million for acquisitions and lesser amounts for new tower builds, land purchases, and tower augmentations.

 One of the reasons for our views on balance sheet leverage is that we believe we are in a lower-for-longer interest rate environment and that we can access debt at historically low rates today. The securitization deal we priced in July was done at some of the most attractive terms we have seen in a number of years and had the effect of lowering our waited average coupon and at the same time increasing our weighted average maturity. We have plenty of liquidity, and over the next 12 months we expect our liquidity to remain over $1.5 billion, including the cash we generate.

 Looking forward, we see many years of continued activity from our customers, which will generate additional revenue opportunities for SBA. In the US, the AWS-3, WCS and 2.5 GHz spectrum deployments I mentioned earlier will come, and deployments will occur of the Dish spectrum, the FirstNet spectrum and the soon to be optioned 600 MHz spectrum. More spectrum is anticipated to be made available in connection with 5G, which we also expect to provide opportunities for us. 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 market. 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. We are very optimistic about the future, and we take a long-term approach to the business.

 Speaking of our long-term approach, I want to spend a moment reviewing the assumptions around and our confidence in our long-term goal of producing more than $10 per share of AFFO in 2020. The goal assumes organic leasing revenue added per tower at materially the same rate we are experiencing today, which we previously discussed is at or around historical lows. The portfolio growth is assumed at 5% per year. The goal does assume little-to-no foreign currency translation losses. Refinancings are projected using a forward interest curve, and we assume we end the period, 2020, at or below the low end of our current leverage target of 7.0 times.

 Our assumptions do not contemplate adding dividends through 2020, even if we elect REIT status earlier, because our tax loss position is expected to shield us from any dividend obligations through 2020. Our assumptions do include a healthy amount of stock repurchases, which could be reduced and offset with additional portfolio growth. We see the assumptions underlying our long-term goal as very achievable. We are confident that achieving the goal will create material additional value for our shareholders, as we will be compounding AFFO per share by a midteens percentage per year.

 We had a very steady second quarter and expect a stable second half of the year. We accomplished a number of things this quarter that directly and clearly help us to achieve our goal of more than $10 per share of AFFO in 2020, and we look forward to reporting and measuring future results with that perspective in mind.

 Tony, at this time we're ready for questions.

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Questions and Answers
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Operator   [1]
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 Thank you very much.

 (Operator instructions)

 Phil Cusick with JPMorgan. Please go ahead.

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 Phill Cusick,  JPMorgan - Analyst   [2]
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 Sorry, you caught me napping.

 First I think Brazil, can you walk through a little bit more? You said expect second half to be similar to first half. But I think you said stable to improving? Can you clarify that for me Jeff?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [3]
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 Yes, our view is stable. The carrier commentary was stable to improving.

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 Phill Cusick,  JPMorgan - Analyst   [4]
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 Okay.

 And then in terms of the buyback, that was up nicely this quarter-to-quarter. Should we expect this level going forward or with the rally in the stock? Should we expect more like 1Q or even lower?

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [5]
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 I think the best I can tell you, Phil, is that you should expect that we will stay at or slightly above the high-end of our target leverage range, and that investable capital will either go into acquisitions or stock repurchases. But we are only going to buy acquisitions that meet our return requirements, and were only going to buy stock when we believe it is below intrinsic value.

 Now we believe our stock is below intrinsic value at today's prices. But we have a history of being opportunistic around where we buy the stock, and I expect we will continue to do that.

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 Phill Cusick,  JPMorgan - Analyst   [6]
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 If I can just follow up, how do you see the M&A environment right now?

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [7]
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 You know, there is actually a fair amount of stuff out there, but prices continue to be high. And when you do the relative weighting against stock repurchases, particularly at the prices we were able to buy in the earlier quarter, the decision tree was a pretty easy one the went towards the stock repurchases.

 So it continues to be a relative equation, and you should not think we went stock repurchases because there weren't acquisition opportunities. It was because the stock repurchase opportunities were better.

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 Phill Cusick,  JPMorgan - Analyst   [8]
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 Thanks, Jeff. That helps.

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Operator   [9]
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 Thank you. The next question in queue will come from Matt Niknam with Deutsche Bank. Please go ahead.

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 Matt Niknam,  Deutsche Bank - Analyst   [10]
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 Hello. Thank you for taking the questions. Just two if I could.

 One, following up on the last question, I think this was the first quarter in some time total portfolio growth actually dipped below 5%, so I'm just wondering is it still fair to assume you're targeting 5% portfolio growth for the year, and is a fair to assume you would reallocate capital to more buybacks if there is still a lack of maybe more attractive portfolio growth opportunities?

 And then secondly, in the US you talked about 65% amendment activity in terms of incremental revenue. Maybe if you could just touch on how that compares to what you have been in recent quarters and whether the current outlook implies this stays constant over the course of the year.

 Thank you.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [11]
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 I will take the second one first because it's easy. The relative splits between amendments and leases has been consistent at least two quarters, maybe two or three. And I think, Matt, based on our backlogs today that it should be relatively similar as we move through the year. In terms of allocation, we have built the Company growing the portfolio.

 We like to grow the portfolio when the opportunities makes sense from a return on investment perspective. Our 5% number that we use each year is one that is well supported by the cash we generate and the leverage we expect to operate at.

 So we're going to continue to look for opportunities to grow the portfolio, and if it is a jump ball between portfolio growth and stock repurchases, we will favor portfolio growth. But we will likely not leave any investment capacity unutilized this year. So if we don't spend it on acquisitions, we will spend it on stock repurchases.

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 Matt Niknam,  Deutsche Bank - Analyst   [12]
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 Thank you.

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Operator   [13]
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 Thank you. The next question will come from Jonathan Atkin with RBC Capital. Please go ahead.

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 Jonathan Atkin,  RBC Capital Markets - Analyst   [14]
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 So one thing I noticed on the CapEx guidance in terms of new tower construction is that's been edging down the last couple of quarters, and I wondered what is driving that? In terms of build opportunities, it just seemed to be a little bit fewer this year than you thought three months ago and six months ago.

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 Brendan Cavanagh,  SBA Communications Corporation - CFO   [15]
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 Hello, John, it's Brendan.

 We basically have reduced the number of towers we expect to build this year with about half of that being related to Brazil. It has been a little bit of a slow go with some of our customers down there, based on the pace of progress with those customers, we are anticipating that a number of those sites will actually slip into next year. The other half of the reduction is related to expectations around domestic new builds.

 In line with what Jeff was saying about M&A cost is the opportunities for these new builds have become extremely competitive. We simply made what we believe are appropriate capital allocation decisions and chosen not to participate in a number of the new builds opportunities that are currently available. So that's really where the change is there.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [16]
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 And I would just also add that compared to years past the opportunity set for new builds this year is lower.

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 Jonathan Atkin,  RBC Capital Markets - Analyst   [17]
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 Can you elaborate on that? I didn't quite follow. Those last points.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [18]
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 We believe there is less total new tower builds this year than in years past, on average.

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 Jonathan Atkin,  RBC Capital Markets - Analyst   [19]
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 Great. Thank you very much.

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Operator   [20]
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 Thank you. The next question in queue will come from Amir Rozwadowski with Barclays. Please go ahead.

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 Amir Rozwadowski,  Barclays Capital - Analyst   [21]
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 Thank you very much, and good afternoon, folks.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [22]
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 Hello, Amir.

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 Amir Rozwadowski,  Barclays Capital - Analyst   [23]
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 Jeff, I was wondering could you touch a bit upon some of the opportunity set that you see with respect to some of the new spectrum builds. There is been a lot of discussion among carriers about how they are going to try to optimize some of those new spectrum builds, perhaps using different types of structures or talking a bit about how they're very much focused on escalator rates when it comes to some of the tower companies. Was wondering if you could provide a little bit more color in terms of the tentative conversations you have right now and whether or not as that new spectrum comes to market, in terms of being able to build out, whether you see the same size and scope of opportunity as you have seen in the past.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [24]
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 I would start by saying, Amir, that our customers are working hard as they should, as we all do, to maximize revenue and minimize costs, and that is really not anything new over the history of the relationship.

 The traditional way of rolling out new spectrum, and by far the most efficient way for our customers is to come back and amend existing installations where they have already the legacy tower, the back haul, the shelters. So that kind of sets a bit of a starting point for the discussions. And there is often -- well sometimes, I would not say often -- but the way we have always approached leasing is on a one-off basis where every single lease or every single amendment is subject to its own discussion.

 And when there are high rents on a site because it's either been very much loaded up or it's been around for 10 or 15 years and it 's escalated to 3% plus, we absolutely take that into consideration when we work out arrangements with our customers. So there will be many instances where we charged less for that particular site than we might otherwise with the existing rent in mind.

 And in many cases, certainly not near a majority, but a not insubstantial amounts of amendments, and I've mentioned this before, we actually work with our customers and let them do things for zero dollars on the amendment side, for exactly that reason. This is a partnership that we have. Their success is very important to us.

 And that is how we approach it, and it's worked pretty darn well for 20 years and we expect it to continue to work well. In terms of the actual spectrum that is still to go, most every new bit of spectrum is going to require its own radio head. Whether it's WCS or 2.5 GHz or AWS-3, certainly 600.

 There are some opportunities for the AWS-3 to be pumped on an antenna basis through the AWS-1 antennas. Depending on how those antennas were set up originally our customers may or may not get the most efficient bang for their buck there. So we're actually seeing a variety of types of installations there.

 The 600 MHz, when it does come, clearly is going to require both new radios and new antennas. So we think the world will continue to be one that is focused on new and changing and in many cases additional equipment. And then when we work that out with our customers we kind of take everything into consideration and find something that works for both of us.

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 Amir Rozwadowski,  Barclays Capital - Analyst   [25]
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 Thank you very much. And one quick follow-up, if I may. I appreciate the color when it comes your longer-term guidance outlook.

 You mentioned no plans for significant dividend payouts. Is that a way to interpret no expectations for REIT conversion? Because I know there was not a lot of debate going on since the last earnings call in terms of timing --

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [26]
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 I'm glad you asked that question, because please do not interpret the no dividend comment through 2020, which basically is a statement of the assumptions that underlie the $10 per share or more of AFFO in 2020. That is not connected with when we will convert to a REIT. We fully expect to convert to a REIT prior to that time. But what people should not assume is that by converting to a REIT, we will immediately and automatically begin to pay a dividend.

 We continue to believe, particularly with our stock trading where it is, that stock repurchases are a more capital-efficient and better long-term creator of value than paying dividends when you don't have to, and we won't have to pay a dividend, because even if we converted to a REIT say next year or early 2018, we would have NOLs that would carry us through and allow us to avoid the necessity of paying dividends through 2020. Does that make sense?

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 Amir Rozwadowski,  Barclays Capital - Analyst   [27]
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 Very helpful. Thanks so much for the color.

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Operator   [28]
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 Thank you. The next question in queue will come from David Barden with Bank of America. Please go ahead.

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 David Barden,  BofA Merrill Lynch - Analyst   [29]
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 Hello, thank you for taking my questions. Jeff, sorry it wasn't totally clear to me just then. So I just wanted to see if SB became a REIT, it would be your intention to shield income with NOLs, not pay a dividend and devote those capital resources to the highest and best use between portfolio growth and share repurchase. I think that's what I understood you to say, and so I want to make sure I heard it right. And then second was --

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [30]
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 Before you even get to that, the answer to that is yes.

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 David Barden,  BofA Merrill Lynch - Analyst   [31]
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 Okay, good. Thank you.

 And then the second comment was on -- Brendan's comments on the build-to-suit market or the new tower development market being increasingly aggressive domestically and not an attractive deployment of capital opportunity for you. Are you seeing -- we are kind of seeing and expecting T-Mobile and AT&T and others to kind of invite this type of activity in an effort to either use it as a negotiating tool to achieve some of these options that you discussed earlier in terms of your carrier relationships. Are you seeing a market uptick in that activity level with more private equity money and cheaper money being available in the market impacting the business in any measurable way?

 That would be helpful. Thank you.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [32]
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 No, not in any measurable way. Maybe it'd cost 50 new builds a year. I mean, what's happening is you have less new builds that are being built in general. You have a whole subculture of developers who have spent the last five, 10 years building towers to sell to people like us.

 They are not getting as much work because there isn't as much work to be done, so they are chasing that business. And that is really working to our customer's benefit today.

 Good for them. It's not particularly work that we feel like we should be chasing.

 Unlike those developers who don't really have anything else to do, we have other uses for capital, including stock repurchases. So we do have other alternate uses, which is I think an important thing to keep in mind. But other than that, other than our customers getting some towers built pretty darn cheaply and good for them, it really doesn't affect anything else.

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 David Barden,  BofA Merrill Lynch - Analyst   [33]
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 Okay, great. Thanks Jeff.

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Operator   [34]
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 Our next question in queue will come from Jonathan Schildkraut with Evercore. Please go ahead.

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 Justin Singh,  Evercore ISI - Analyst   [35]
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 Hello, this is Justin on for Jonathan. I was just hoping you could talk briefly about how you come up with your FX assumption. Just given the past two quarters, we've kind of seen some FX headwinds from what is a conservative assumptions set.

 Thank you.

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 Jeff Stoops,  SBA Communications Corporation - President & CEO   [36]
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 Sure. Consistent with the practice we adopted earlier this year, we have adjusted our forward assumptions around exchange rates to be in line with the median of updated projected forward rates that are published by economists at several large banks.

 It is usually generally in line with the forward curves, but sometimes not exactly. And so, based on what they are putting out as their forecast, we're basically going in line with that. Obviously the forecasted rates imply weakening in the exchange rate during the rest of 2016, but the level of impact on our 2016 numbers is much lower than what we provided in our prior full year guidance and substantially lower than what we've experienced over the last couple of years.

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 Justin Singh,  Evercore ISI - Analyst   [37]
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 Great. Thank you.

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Operator   [38]
------------------------------
 Thank you very much. Our next question will come from Rick Prentice with Raymond James. Please go ahead.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [39]
------------------------------
 Thank you. Good afternoon.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [40]
------------------------------
 Hello, Rick.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [41]
------------------------------
 A couple quick ones if I could. Obviously, like Jonathan asked about the build program. We have seen you cut the build program at the midpoint about 60 towers last time. 70 more this time at the midpoint. What keeps changing?

 I think the build environment in the US has been what you described for quite a while. Was it more the international side? And could we see further cuts in the program?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [42]
------------------------------
 Most of it, Rick, of the roughly say 130 or so sites, roughly 100 of that is Brazil and consistent with what I said before. I think we cut that last time based on Brazil, and this time as well.

 It is just a little bit slower go down there for, I think, somewhat obvious reasons around the economy and the way it is affecting our customers. There still are obligations under build-to-suit agreements that we have down there, and those will be fulfilled. Just the timing, I think, is shifting back a little bit.

 And the balance of it is domestically, we came into the year with certain expectations, which were lower than what we did last year. But based on the competitive nature of what we have seen, we are making the decision that we are probably going to build a few less sites this year than we thought at the beginning of the year. Is that simple.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [43]
------------------------------
 But in the US it's not real, I mean it's not a material change.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [44]
------------------------------
 That makes sense. And it is the right decision. So the $450 million in your middle of the build program, how much would be international versus US then in total?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [45]
------------------------------
 The vast majority of it I would say in the $350 million to high $300 million range.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [46]
------------------------------
 Is international?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [47]
------------------------------
 International, yes.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [48]
------------------------------
 One other easy one. We were pleased to see the first-quarter -- the second-quarter US business being higher than we thought. Last quarter you had some one-timers, I think maybe about $2 million worth of one-timers. Were there any one-timers in the Q2 number, or is it clean?

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [49]
------------------------------
 Basically pretty clean. There are always little miscellaneous things, but nothing material.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [50]
------------------------------
 Not like the $2 million of last quarter.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [51]
------------------------------
 And final question, Jeff, you mentioned that you're going to pursue vigorously the OIA receivable. What is the process? I will admit I'm not that familiar with how it works down there in Brazil with this jurisdictional item.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [52]
------------------------------
 Well that part of that is just like the US. You have all the claims that accrue as of the date of the petition. They are broken up into classes and then ultimately for those to be paid or converted into equity or however they are resolved, a plan needs to be approved by all of the creditors in each class voting by both amount of claim and by number of creditor.

 So there is a bunch of us, obviously, who have operating monies owed in that prepetition period. And we will be a class, and we will all pursue it. But how much of that we ultimately get back will be a part of the bigger resolution.

 Which is exactly I believe how it works in the United States, Chapter 11, for amounts that are owed prepetition.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [53]
------------------------------
 That sounds like it could take several quarters, though, to play out.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [54]
------------------------------
 Yes, it could, and it will be nice whatever we get back when we get it. But out of an abundance of caution, we've taken everything we could think of and put it in the reserve so that at lease from a reserve perspective we're done, and any other new news will be on the side of recovery.

------------------------------
 Rick Prentiss,  Raymond James & Associates, Inc. - Analyst   [55]
------------------------------
 Right. Makes sense. Thank you.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [56]
------------------------------
 Yep.

------------------------------
Operator   [57]
------------------------------
 The next question will come from Spencer Kern with Green Street Research.

------------------------------
 Spencer Kern,  Green Streen Research - Analyst   [58]
------------------------------
 Hello, thank you for taking the question. I just wanted to get your thoughts on how 5G will impact your business. Also AMT said they are in early stages of exploring options for new structures that are targeted for adding capacity and dense markets that unlike outdoor small cells could generate tower-like returns. Is this something that you're exploring right now, or an avenue of growth that you might be interested over the next couple of years?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [59]
------------------------------
 Yes, we are certainly watching and studying and working on all of that. And if we can find something that we think is a good allocation of capital in that regard we definitely will do it.

 I think 5G, in terms of our portfolio, which again is primarily a non-urban residential highway corridor to rural portfolio, I think you're going to see further equipment on the towers, but a continued reliance on macro sites. The high-frequency spectrum that people are talking about, really most people do not think that will work outside of a dense urban environment.

 And actually there was some good commentary on that from Neville Ray on T-Mobile's call is to what he thought about 28 GHz spectrum outside of dense urban markets, and he had some pretty negative things to say about its feasibility.

 So we're watching it all very carefully, but I think for as long as there has been wireless, the laws of physics and how radio waves promulgate kind of drives and dictates things, and you just aren't going to get that outside of urban markets; any good promulgation with these high frequencies that folks are talking about.

 So I think the true economically viable prospects there, you're not going to have 5G out along the highway corridors that runs only on 28 GHz. And will not be economically feasible.

 We think our towers will continue to be extremely important; more so as fiber hubs, as allocation points for back haul. So we are actually pretty optimistic about where all of that takes us, and we definitely do not believe that systems and networks that run on 28 GHz or even some of the higher stuff that they've talked about is going to replace or even dilute the macro networks that is the bulk of our portfolio.

------------------------------
 Spencer Kern,  Green Streen Research - Analyst   [60]
------------------------------
 Thank you.

------------------------------
Operator   [61]
------------------------------
 Thank you very much. Our next question in queue, that will come from Simon Flannery with Morgan Stanley. Please go ahead.

------------------------------
 Simon Flannery,  Morgan Stanley - Analyst   [62]
------------------------------
 Great, thanks a lot.

 Jeff, I wanted to come back to your assumption about 5% portfolio growth, and you talked about the challenges of finding attractively valued assets. Perhaps you can just help us think about your international strategy right now. You've really concentrated Central America then Brazil.

 Are you still really focussed on Latin America, and do you think the portfolio growth will continue to skew international? And we've seen a number of portfolios coming up in Europe. Do you think you might go beyond the Americas or stay there? And any color there would be great.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [63]
------------------------------
 Our first preference, Simon, is to continue to flesh out the markets that we are in, and potentially expand into new countries in the Western Hemisphere. There is plenty of opportunities to do that and build towers relatively easily at 5% per year portfolio growth.

 So that is our first and foremost focus, and I will continue to be that for a while. We will look and have looked on the other side of the ocean, keeping in mind though that our plan as it exists today, we're very confident will produce midteens AFFO per share growth compounded.

 We want to see assets that are at least that good. And historically the European assets have been lower growth yield-type assets that don't necessarily, or not even necessarily, that don't fit a higher capital appreciation-type model.

------------------------------
 Simon Flannery,  Morgan Stanley - Analyst   [64]
------------------------------
 So that would be fair to say that all of that 5%, it would skew more international than domestic?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [65]
------------------------------
 Yes, probably. Probably.

------------------------------
 Simon Flannery,  Morgan Stanley - Analyst   [66]
------------------------------
 Okay. Thanks a lot Thank you.

------------------------------
Operator   [67]
------------------------------
 Our next question will come from Brett Feldman with Goldman Sachs. Please go ahead.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [68]
------------------------------
 Thanks.

 Just going back to the last call when you first started talking a little bit more specifically around potential timelines for converting to a REIT, I think you'd implied that 2017 or 2018 was kind of the range, and it would depend on where you were with the E&P to dividend. And so my question is, if you were going to convert say next year, when do you have to decide?

 In other words, do you have to sort of make an affirmative decision and start operating differently by January 1, or can you wait until you file your tax return and look back and figure out whether you really think you met the qualifications or not? And then, I don't know if it came up last time, but are you going to seek a PLR, or do you feel it's unnecessary considering all the other tower companies that operate as REITS.

 Thanks.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [69]
------------------------------
 Yes Brett, we have actually been operating we believe in alignment with all of the requirements of being a REIT already. We just haven't made the formal election as of yet.

 So in terms of structuring our operations, having what would be taxable REIT subsidiaries properly cordoned off and making sure that we meet all asset tests and income tests that would be required as a REIT, we have been doing all of that now for the last two years, actually, in order to allow us the flexibility to choose to convert whenever we would like.

 And so it really is a matter of pretty much just making the election on the tax return. So we could effectively do it even retroactively if we chose to, so long as we haven't yet filed our tax returns. So the flexibility remains.

 In terms of the PLR, we do not expect to look for a PLR. We think it has been will determined, and there's plenty of president for tower companies as REITs.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [70]
------------------------------
 And thank you. If you could remind me, what was it about 2017 and 2018 and the sensitivity around that? And do you have a bias as to whether it's more likely one year versus the other, based on how you're running those calculations.

------------------------------
 Brendan Cavanagh,  SBA Communications Corporation - CFO   [71]
------------------------------
 You said it right up front. It is around the ENT calculation.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [72]
------------------------------
 Got it.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [73]
------------------------------
 We basically -- I think we disclosed on the last call that our current estimates around our accumulated earnings and profits, which are currently in a deficit position, is that they would move into a positive position in the latter part of 2017.

------------------------------
 Brett Feldman,  Goldman Sachs - Analyst   [74]
------------------------------
 Got it. Thank you. I appreciate it.

------------------------------
Operator   [75]
------------------------------
 Thank you. The next question will come from Walter Piecyk with BTIG. Please go ahead.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [76]
------------------------------
 Thank you. My first question is Sprint had mentioned that a small cell costs about 20% of a macro. I'm just curious if in your experience you can replicate the coverage or capacity in the same coverage diameter as a macro site with five cell sites, five small cells.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [77]
------------------------------
 Most people say no. It takes eight to 10. And I'm not sure we necessarily would agree with the 20% mark.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [78]
------------------------------
 Okay. My second question is on what's known as band 70. You earlier on the call, I think you were talking about being able to put AWS-3 through the AWS-1 antennas. Do you think that would extend to band 70, which as I recall I think the frequencies there on the uplink is about the 1,700 MHz, and then the downlink is right around 2,000 MHz or 2 GHz.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [79]
------------------------------
 You got me there, Walter. I don't know the answer to that.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [80]
------------------------------
 Okay, but least on AWS-3 you think they can pump the signal through the AWS-1 antennas, obviously having to add the radio heads for each of them.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [81]
------------------------------
 Yes, but we've been told by the equipment manufacturers that if they do that they are going to leave some performance on the ground, so to speak.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [82]
------------------------------
 Interesting.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [83]
------------------------------
 Performance will not be optimized by running AWS-3 through AWS-1 antennas.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [84]
------------------------------
 Got you. And then my last question, I think I may have asked this before, so I want to refresh it to the last three months or so. Have you had any new discussions with people that are not wireless operators in the US that are interested in looking at what your portfolio of assets are and where they are with the consideration of new lease ups?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [85]
------------------------------
 Yes.

 A fair number of internet of things players, machine-to-machine, I don't know if we've had any of the big guys who I think you're talking about on the fiber side. But definitely there is some every day. There's some interest from folks that are outside the traditional wireless world.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [86]
------------------------------
 Got it.

 Can I actually throw one more in there? I think it goes back to, I forget whose question it was, but on Brazil. Obviously OIA's been dead for a while, but when you think about the change more recently, is it more heavily weighted towards Claro, or are you using a little softness across all of those three other national operators there?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [87]
------------------------------
 I would say it is probably spread, with Telephonic probably being the most steady and active, and any changes really as a result of the combined activity of the other three.

 We are actually, and we're not projecting this, but it is logical to think that OIA, who is being watched closely by Anatel through all of this and now has a whole lot of better cash flow, actually picks up. They certainly have the network needs for that. So it's certainly possible. We will be watching all that.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [88]
------------------------------
 Okay. Thanks.

------------------------------
Operator   [89]
------------------------------
 Thank you. Our next question in queue will come from Michael Bowen with Pacific Crest. Please go ahead.

------------------------------
 Michael Bowen,  KeyBanc Capital Markets - Analyst   [90]
------------------------------
 Okay, thank you. Most of my questions have been answered, but one follow-up. I apologize if I missed it, but discretionary CapEx quarter-over-quarter, I think your outlook went up around $40 million. I was hoping you could just give us any thoughts there.

 And then appreciate the chart where you basically go through the, I have 10 different line items with year-over-year growth rates and then taking out OIA and FX impact and iDENT impact, you know, looking at the quarter-over-quarter, second quarter over first quarter, obviously it continues to come down literally almost across the board, line item by line item. So I was hoping you could give us some thoughts there as whether you think maybe we're reaching an inflection point here, or just some thoughts around that would be helpful.

 Thank.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [91]
------------------------------
 First, Mike, on the second one, some of that is driven by other things. So for instance, our AFFO per share growth year-over-year was 10.5%, which is lower than last quarter. But our services margins were very, very high last year. And if you just adjusted for that one item alone and said it was flat from last year, the growth would have been 14%.

 So I think when you take out -- there are other items of noise that perhaps could be adjusted out of there, and we're very confident that there's not a steady drop. It is just an accumulation over the trailing 12 months. And then the first question --

------------------------------
 Michael Bowen,  KeyBanc Capital Markets - Analyst   [92]
------------------------------
 Discretionary CapEx.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [93]
------------------------------
 Sorry. Discretionary CapEx. We raised the discretionary CapEx by $35 million, I believe, at the midpoint. Or maybe it was $40 million at the midpoint. That is primarily made up of new acquisitions that we put under contract.

 We did also have some decline in new tower build spending, but not a lot because a lot of the new tower build reductions that we are assuming are really just timing, and we're still incurring much of those costs. So it's mainly new acquisitions put under contract offset by a little bit of decline in new builds.

------------------------------
 Michael Bowen,  KeyBanc Capital Markets - Analyst   [94]
------------------------------
 Okay. Thanks a lot.

------------------------------
Operator   [95]
------------------------------
 Thank you. The next question in queue will come from Nick Del Deo with MoffettNathanson. Please go ahead.

------------------------------
 Nick Del Dio,  MoffetNathanson - Analyst   [96]
------------------------------
 Thanks for taking my question. I'll keep it to one given the time. To the extent that you're looking to acquire more assets in your Latin American markets, what will it take to shake loose any carrier-owned assets that remain? And do you see any movement there, given some of the macroeconomic turbulence?

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [97]
------------------------------
 You never, never say never, Nick. But right now with Claros forming tele-sites -- although none of their Brazilian, or none of their the South American assets of gone into that yet.

 And Telefonica's formation of Telsius, you're probably looking all carriers other than those for the most likely opportunities, and I don't want to get into rumors. But there are definitely some rumors, some of which we think are more real than others, that there are some carriers down there that are looking to monetize their assets.

 But it's really like it is everywhere else, where carriers, they need the money and they believe that the terms of the deal that they get and the additional OpEx that they take on is outweighed by the capital that they take in. And that is really a different recipe for everybody. So more will happen.

 Do I think any of it is like next quarter? No, I don't think that. But I do think over time there will be additional carrier portfolios available.

------------------------------
 Nick Del Dio,  MoffetNathanson - Analyst   [98]
------------------------------
 Thanks, Jeff.

------------------------------
 Mark DeRussy,  SBA Communications Corporation - VP of Finance   [99]
------------------------------
 Tony, we have time for one more question.

------------------------------
Operator   [100]
------------------------------
 Actually the queue is clear. There's no additional questions.

------------------------------
 Jeff Stoops,  SBA Communications Corporation - President & CEO   [101]
------------------------------
 Great timing. We appreciate everyone joining us this evening, and we look forward to reporting next quarter's results. Thank you.

------------------------------
Operator   [102]
------------------------------
 Thank you, and ladies and gentlemen, this conference will be available for replay after 8 PM Eastern time this evening, running through August 11 at midnight.

 (Operator Instructions)

 That does conclude your conference call for today. We do thank you for your participation and for using AT&T's executive teleconference. You may now disconnect.




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