SBA Communications Corporation (SBAC) Q1 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the SBA First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Director of Finance, Mark DeRussy. Please go ahead.

Thanks, Paul. Good morning, everyone, and thank you for joining us for SBA's first quarter 2013's 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 2013 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 the risk factors set forth in last night's press release and our SEC filings, which documents are publicly available. These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. Our statements are as of today, April 30, 2013, and we have no obligation to update any forward-looking statements we may make. Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures and other information required by Regulation G has been posted on our website, sbasite.com. With that, I'll turn it over to Brendan to comment on our first quarter results.

Thanks, Mark. Good morning. As you saw from our press release last night, we had another great quarter on all fronts. We exceeded the high end of our guidance for leasing revenue, services revenue, tower cash flow, adjusted EBITDA and AFFO. Total revenues were $313.1 million, up 62.6% over the year earlier period. Site leasing revenues for the first quarter were $273.5 million, or a 58.2% increase over the first quarter of 2012. Our leasing revenue growth was driven by -- both by organic growth and portfolio growth, including the impact of the Mobilitie and TowerCo acquisitions, which closed during the second and fourth quarters, respectively of 2012 and our Brazil acquisition, which closed at the end of 2012. The vast majority of our site leasing revenue continues to come from the U.S. and its territories, with approximately 7% of total leasing revenue in the quarter coming from international operations. Site leasing segment operating profit was $205.4 million, or an increase of 49.4% over the first quarter of 2012. Notwithstanding a big services quarter, site leasing still contributed 96.7% of our total segment operating profit. Tower cash flow for the first quarter of 2013 was $197.1 million, or a 48.9% increase over the year earlier period. Tower cash flow margin was 76.8%, compared to 80.4% in the year-earlier period. As expected, margins were slightly impacted by the addition of the less mature Mobilitie, TowerCo and Brazil portfolios and the way we account for the domestic Mobilitie towers, where we calculate tower cash flow margins by recording expenses as ours and grossing up revenue by the same amount in order to reflect the triple net reimbursement of these expenses by our tenants. We continue to experience strong leasing demand both domestically and internationally. Amendments continue to be numerous and contributed the majority of U.S. leasing revenue added in the quarter. Most of these amendments were LTE-related. The Big 4 U.S. carriers contributed approximately 88% of our consolidated incremental leasing activity in the quarter. We have a solid leasing backlog and expect that the second quarter will be another strong one in terms of customer activity. Our services revenues were $39.6 million compared to $19.6 million in the year-earlier period, reflecting generally higher activity levels and work mandated to us by our Sprint Network Vision contract and T-Mobile 4G agreement. Services segment operating profit was $7 million in the first quarter compared to $2.8 million in the first quarter of 2012. Services segment operating profit margin was 17.6% compared to 14.2% in the year-earlier period. SG&A expenses for the first quarter were $20.4 million, including noncash compensation charges of $3.8 million. SG&A expenses were $17.2 million in the year-earlier period, including noncash compensation charges of $3 million. Our overhead efficiency continues to improve as we grow. As a percentage of revenue, SG&A expenses were 6.5%, a decline of 250 basis points compared to the first quarter of 2012. Adjusted EBITDA was $187.7 million, or a 54.5% increase over the year-earlier period. Adjusted EBITDA margin was 63.4% in the first quarter of 2013 compared to 65.9% in the year-earlier period. Strong organic margin expansion from our leasing segment was slightly offset by the inclusion of the less mature Mobilitie, TowerCo and Brazil towers and an increase in our lower margin services revenue. Approximately 97% of our total adjusted EBITDA is attributable to our tower leasing business. AFFO increased 66.2% to $126.3 million compared to $75.9 million in the first quarter of 2012. AFFO per share increased 46.3% to $0.98 compared to $0.67 in the first quarter of 2012. AFFO for the first quarter includes a nonrecurring benefit of $3.6 million for coupon interest expense not required to be paid upon conversion of our 1 7/8% convertible notes. Net loss attributable to SBA Communications Corporation during the first quarter was $22.4 million compared to a net loss of $22.6 million in the year-earlier period. Net loss per share for the first quarter was $0.18 compared to $0.20 per share in the year-earlier period. Quarter-end shares outstanding were 127.3 million. In the first quarter, we acquired 41 tower sites for $20.2 million in cash. SBA also built 62 towers during the first quarter. We ended the quarter with 17,539 owned towers. 14,926 of these towers are in the U.S. and its territories and 2,613 are in international markets. Total cash capital expenditures for the first quarter of 2013 were $245.2 million, consisting of $4.7 million of nondiscretionary cash capital expenditures, such as tower maintenance and general corporate CapEx, and $240.5 million of discretionary cash capital expenditures. Discretionary cash CapEx for the first quarter includes $196 million incurred in connection with tower acquisitions, including $176 million paid in January, associated with our Brazil acquisition that closed at the end of 2012. These acquisition amounts are exclusive of any working capital adjustments and paid earn-outs. Discretionary cash CapEx also included $22.6 million in new tower construction, including construction in progress, and $8.3 million for gross augmentations and tower upgrades. Of the $8.3 million augmentation figure, approximately $7.7 million or 93% were simultaneously reimbursed by our customers, resulting in net augmentation cash expenditures to us of $0.6 million. These reimbursed amounts are treated as deferred revenue and amortized into site leasing revenue and therefore AFFO, over the initial lease term, notwithstanding our having received the cash today. With respect to the land underneath our towers, we spent an aggregate $13.6 million to buy land and easements and to extend ground lease terms. Our investments in land are both strategically beneficial and almost always immediately accretive. At the end of the quarter, we owned or controlled for more than 20 years the land underneath approximately 71% of our towers. At the end of the quarter, the average remaining life under our ground leases, including renewal options under our control, is approximately 30 years. In a moment, Mark will provide details on our balance sheet positioning and our recently completed $1.33 billion financing. A portion of the proceeds of that financing will be used to satisfy obligations associated with the conversion or maturity of our 1 7/8% convertible notes. For the sake of clarity, I'd like to take a moment to go through in detail how the settlement of the convert will work. There are basically 3 separate instruments that must be settled: the convertible notes; the purchased call options, which we typically refer to as our convertible note hedges; and the written warrants. The amount to be paid by us under the convertible notes and the amount be paid to us by our counterparties under the purchase call options are both derived from the average value of our stock over the 45-day trading period ended last Friday, April 26. This average value of our stock over this period was $73.14. Absent the failure of Lehman Brothers, one of our counterparties under the purchased call option, regardless of our stock price, we would have had to deliver, on a net basis, solely the face amount of the notes on the final settlement day. However, because the value of the Lehman call option was lost as a result of their bankruptcy, we will be making a net cash payment on May 1 of $612 million, which will fully settle the convertible notes and the purchased call options. The settlement period for the warrants is different than that of the convertible notes and convertible notes hedges. The settlement period for the warrants will begin on August 1, and they will unwind over a similar 45-trading-day period. Because the Lehman bankruptcy did not terminate the warrants, we are subject to satisfying 100% of the original warrants sold. By way of example, at a $77 stock price, we would be required to pay approximately $125 million in settlement of the outstanding warrants. This payment can be made in either cash, stock or a mix of the 2 at our election. Because there are approximately 13 million shares underlying the warrants, every $1 moved higher in our stock price will result in an additional $13 million required payment. And every $1 moved lower will result in a $13 million reduction in our required payment. Under current accounting rules, this settlement will be reported through equity, and thus, will have no impact on the company's statement of operations this year. Hopefully, this clears up any confusion that may exist around the settlement of our convert. At this point, I will turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

Thanks, Brendan. SBA ended the first quarter with $5.4 billion of total debt. We had cash and cash equivalents, short-term restricted cash and short-term investments of $153 million. Our net debt to annualized adjusted EBITDA leverage ratio was 7.0x, and our target leverage ratio remains 7.0 to 7.5x. Our first quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.2x. In April, we issued several tranches of secured tower revenue securities through our existing SBA Tower Trust, generating a total of $1.33 billion in gross proceeds. The offering had a weighted average coupon of 3.22% and a weighted average maturity of 7.2 years. We issued at 7.3x leverage in the trust compared to 6.7x leverage in our most recent prior financing out of the same trust last July. We are very pleased with the outcome. Net proceeds from the offering were used to repay the $100 million outstanding balance under our revolver and to repay $500 million on a pro rata basis across our 2 outstanding Term Loan Bs. The rest of the net proceeds we'll use to satisfy unhedged obligations required to be satisfied in connection with the conversion or maturity of our 1 7/8% convertible notes. Pro forma for the April offering, the weighted averaged coupon of our outstanding debt is 4.3% and our weighted average maturity is 5.25 years. Compared to where we were -- where we ended 2012, this transaction increased our tender by almost 1 year, reduced our exposure to changes in interest rates by increasing our fixed-rate debt to 90% of total debt and kept our cash coupon essentially unchanged. Additionally, during the quarter, we increased the total commitments under our revolver from $700 million to $770 million. We currently have no outstanding balance under our revolver and the full $770 million in commitments is available to us. We did not purchase any shares of common stock during the quarter and currently have $150 million remaining under our existing $300 million authorization. I'll now turn the call over to Jeff.

Thanks, Mark, and good morning, everyone. Our first quarter results show that SBA is off to a great start in 2013. Our financial results were excellent and as a result, we are able to increase our 2013 outlook in a number of key metrics. Our revised 2013 outlook implies year-over-year growth and AFFO per share well above 20%, providing what we believe is a solid foundation for continued value creation for our shareholders. Domestically, our leasing and services business continue to be driven by the Big 4 U.S. carriers, all of whom were once again very busy in the first quarter with LTE deployments. The lease-up we executed in the first quarter exceeded our expectations and is a continuation of the increased level of customer activity that started in the second half of 2012. AT&T was once again our largest customer in terms of incremental revenue added with nationwide activity. Verizon stayed active as well and began to deploy its AWS spectrum to add LTE capacity. Verizon's AWS deployments involved different and additional equipment on the tower compared to its 700 megahertz deployments, which provides us with additional revenue opportunity. Sprint is now fully engaged in the Network Vision project. We are seeing increasing numbers of installations completed for Network Vision, which is the event that triggers the commencement of cash revenue recognition for SBA. T-Mobile has also ramped up its LTE deployment. All in all, it is a very busy time around our tower sites. In the last 4 quarters, we have processed over 7,800 monetary amendments. We would estimate that on our tenancies from the Big 4 U.S. wireless carriers, LTE has been deployed on less than 40% of our sites, which implies much remaining amendment activity. Current activity levels with the Big 4 U.S. carriers remain high and our backlogs remain solid. While current activity on an incremental revenue added basis is mostly still amendments, we are also seeing an increasing number of new leases and our new lease backlog is at an all-time high. We believe this is the very beginning of the capacity infill stage of a wireless technology rollout, which is a stage that we believe will produce customer leasing activity for an extended period of time, certainly well into 2014 at a minimum. As a result, we are increasing our full year 2013 outlook for site leasing revenue, which continues to include a second half of the year loss of $6 million of iDEN revenue, reflecting the worst-case scenario pursuant to our agreements with Sprint. Any result better than the worst-case scenario will reduce that number and we have received no termination notices yet. Our services business was a good indicator this quarter of the level of activity among our customers. We saw none of the seasonal slowness typically associated with the first quarter. We had a record services quarter, generating over $39 million in revenue. Services activity in general is up, plus we have certain work mandated to us through our Sprint Network Vision and T-Mobile 4G agreements. We are expecting our busiest services year ever this year, and we have materially increased our full year services outlook as a result of those expectations. I expect this increased level of activity to spill over well into 2014, primarily as a result of the limited human resources in the industry relative to the aggregate demands and plans for LTE deployments. Internationally, we continue to see good level of activity in all of our markets. Latin America, in particular, is projected in the latest Cisco Visual Networking Index to have a compound annual growth rate in mobile data traffic through 2017 of 67% compared to the projected CAGR in North America of 56%. We expect the high levels of customer activity we are currently experiencing in the U.S. will be recognized in our Latin American markets in years to come. Our international business is growing faster than our U.S. business, as you would expect, given the relative size of each. International leasing revenue and tower cash flow grew 89% and 77%, respectively over the year-earlier period. We built and acquired towers in a number of our international markets in the first quarter and ended the year with solid backlogs for both leasing and new builds in all markets. We are very pleased with the returns to date on our international investments. In the first quarter, we continued to focus on integrating and maximizing the towers we acquired last year and improving our tower portfolio in general. Brazil is coming along nicely with good integration progress being made on the 800 towers we acquired at year end and growing leasing demand for those assets. We built and bought a total of 103 towers in the first quarter, split approximately equally between the U.S. and international. We continue to favor portfolio growth as our preferred growth for investment, and we remain confident in achieving our annual goal of 5% to 10% portfolio growth. We are currently evaluating a number of U.S. and international tower acquisition opportunities. We intend to continue to actively pursue new build and acquisition opportunities that we believe will meet or exceed our return requirements. We have almost $1 billion of discretionary spending capacity this year, based on expected AFFO generation and our revolver availability, all while still being able to maintain our target leverage levels. Speaking of leverage, we enjoyed a material reduction in leverage in 1 quarter off the organic strength of our business. On a pro forma basis for the funding of the Brazil transaction, we started the quarter with net debt annualized EBITDA leverage of 7.5 turns and ended the quarter at 7.0 turns, a reduction of a full half turn in only 1 quarter. It is this strength in our organic growth, together with low interest rates and accommodating debt markets that continues to give us confidence around our target leverage range of 7.0 to 7.5 turns. We continue to take steps to strengthen our balance sheet and liquidity within our target leverage range. As Mark mentioned, we completed our largest single financing transaction to date in April, raising $1.33 billion in 5- and 10-year notes. Through this financing, we increased our percentage of fixed-rate debt and extended our average maturities. We used a portion of the proceeds to repay amounts outstanding under our $770 million revolver, which is fully available, and repaid $500 million in term loans. The collateral remaining in our secured credit facility would support a reissuance of at least that $500 million in term loans today, and more over time should we choose to seek additional debt financing. As a result, our liquidity position and prospects are excellent. Before we open it up for questions, I want to recognize the contributions of our employees and customers to our success. We have been very busy these last 3 months and I'm proud of our efforts. Our employees work really hard to achieve the goals of our customers. Our customers are and we think will remain extremely busy improving and expanding their wireless networks. Our employees do a great job, our customers recognize that, and as a result, we are a preferred provider for our customers' network needs. We look forward to continued success as we move through 2013. Paul, at this time, we're ready for questions.

[Operator Instructions] We'll start out with Jonathan Schildkraut from Evercore Partners.

Two, if I may. First, Jeff, in your prepared remarks, you alluded to amendments still driving most of your business. Could you give us a little color maybe in terms of percent or something, amendments versus new cell site applications? And then secondly, I did notice that this quarter had a higher number of tower decommissionings than we've seen in the past and I was wondering if we can get a little bit more color around that?

Okay. On the splits, on the new lease versus amendment revenue was approximately 80% stilted towards amendments in Q1 actual documents signed up. But our backlog has grown quite a bit on the -- on both sides, but particularly on the leasing side. And that's probably now approaching 55-45-ish, still on the amendment side, but with big gains on the full lease side of it, which gives us the perspective of around cell splitting and future business that we mentioned, Jonathan. On the decommissioning, we have a lot of towers now and we kind of took a breath in the first quarter to really to go back and take an asset optimization approach to our portfolio. And those towers were ones that were either naked or were negative cash flow, and we evaluated those and decided that we felt we'd be better off without them rather than maintaining the expense to continue to own them, and so we decommissioned them.

And next we'll move to the line of Rick Prentiss of Raymond James. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: A couple of questions, if I could. First, Jeff, in your guidance, can you talk to us a little bit about Clearwire? You mentioned how Verizon, AT&T, the active Sprint, T-Mobile getting active, but what are you seeing as far as Clearwire and what's in your guidance? And has anybody started moving beyond what's covered in the MLAs?

Well, yes, we're definitely seeing activity outside of the MLAs. So the MLAs that we have signed are very equipment-specific, and we have seen instances where we have those -- many instances where more equipment is being deployed. On the Clearwire side, we are seeing increasing levels of activity, which is probably a material jump from where Clearwire was a year ago, but not certainly to the contributory level of the Big 4. So while it is moving in a positive direction, I would not yet say that Clearwire is a primary driver for increases in our guidance. In fact, that's not why we increased our outlook. So we remain hopeful and optimistic that in the future, that will be the case. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: Great. And the second question is on the pipeline for your 5% to 10% growth in the portfolio. It seemed like on the fourth quarter call, there was maybe 96 to 100 towers in the backlog as far as deals to close or letters signed. It seems to be about a similar number now. Just trying to gauge how the pipeline is maturing along and then the cost to construct seems a little higher this time. I think you mentioned maybe that was work in progress, but wanted to touch on both those items.

Yes, the pipeline continues to be good. What you don't see and what we don't kind of announce until it's signed is what we're working on. So we are actually working on a couple of things, which is taking some time in the first quarter, which hopefully will result in some increased numbers this time next quarter. So the actual signed and closed stuff, Rick, was, you're right. It looked like whatever we had, we kind of just replaced that and didn't add to that. But that's not really the story. The story is kind of the things that we're working on that we haven't yet got the contract. I'm going to let Brendan talk about the new build costs.

Yes, Rick. It's a mix of a couple of things. It certainly is costs associated with towers that are in progress. You can't just necessarily take the CapEx that we report in a particular quarter and divide it by the number of sites that are finished in that quarter because some of the CapEx on the sites we finished was incurred previously and some of it is related to towers that aren't complete. In addition, it's a cash CapEx disclosure, so there are certain payments in the first quarter that actually related to sites completed at the end of the fourth quarter as well. It's just a timing issue. So on average, we're still seeing our costs in the $250,000 to $275,000 range domestically and much less than that internationally. Richard H. Prentiss - Raymond James & Associates, Inc., Research Division: When you say much less, so that being kind of less than $150,000 international?

That'd be a good number.

And next from Nomura Securities, Mike McCormack.

Can you just comment on PCS and T-Mobile closing? Do you think you'll see further acceleration once that deal is closed? And then secondly, maybe some commentary on the competitive landscape in Brazil, particularly around 4G network sharing?

The PCS-T-Mobile deal did close. The Metro represented slightly less than 3% of our aggregate run rate revenue. The overlapping mix there between T-Mobile and Metro where they're on the same tower, Mike, is about 1%. So we haven't seen anything yet. We may see something, but it's not going to be material. In Brazil, they're still working out exactly what the equipment sharing, network sharing means. It will mean probably something more elevated in terms of active sharing between TIM and Oi, which means we'll have to take all that into consideration as we price our product down there. In the case of Claro and Telefonica, or Vivo, it really isn't sharing of active electronics or any kind of equipment. It's really more of a tower-sharing type of agreement, which we don't think really is going to have any impact at all in terms of what we were expecting down there from those 2 carriers.

Jeff, just thinking about the -- you said AT&T obviously quite active in the quarter. Can you sort of identify whether or not that's VIP-related or is it too premature to be VIP?

I don't think I know. I don't think they tell us when they're deploying, whether this was part of the regular rollout or part of the -- I will guess that most of the new leases, which we're seeing a nice number from AT&T and our backlog are probably VIP.

Then next from RBC Capital Markets, Jonathan Atkin.

The 40% of your sites that have been touched by LTE, I wonder if you had a similar number in terms of the number of sites that have fiber deployed to them by at least 1 carrier? Would that be a similar percentage or would it deviate from that at all?

That may be a bit higher. That maybe 50%, 55%, Jonathan. Although we don't -- because we don't really control our carriers' utilities, backhaul easement, we don't have perfect visibility, but we do try and track that. And I think that number is around 50%, 55%.

And then I was interested in the triple net structure of the Mobilitie assets. And does it make sense at some point to try to revisit the terms of those contracts to make them more in conformity with the rest of your portfolio?

It does. It does. We're analyzing how we do that. Some of the issues involved with that -- the accounting for that is very complex. And at this point, we think it involves changing lease accounting, which has some crazy impacts that bear nothing in relation to the economic effect of what we'd be trying to accomplish there. So we're trying to sort all that through. But the big picture economic proposition there remains the same. It's something we'd be interested in purchasing and I would think something that T-Mobile might have an interest in selling. So stay tuned. We're still working on that.

And then finally on the $6 million iDEN exposure, does that represent only second half of this year contracts that roll? Or is that -- and therefore, that number could increase in the out years if there's decommissioning?

Yes, that number could increase in the out years. That's just a 2-quarter number, which is when the rights to terminate begin for Sprint as of July 1.

Then next from Morgan Stanley, we'll go to the line of Simon Flannery.

Could you talk a little bit about some of the deals, the big deals, you've done over the last couple of quarters, Jeff, and just how the lease-up is tracking versus your expectations? And in terms of the portfolio growth this year, are you still -- we'll likely to see more of that in international markets primarily in Brazil or are you still focused on Central America as well?

Yes, the 2 deals -- and including Brazil, 3 deals, are going very well. And those 3 deals are the primary recipients of new lease activity versus amendments because they both were underrepresented relative to the rest of our portfolio with AT&T and Verizon tenancies. So that's exactly what how we had hoped it would play out, and it is playing out. And a good portion of the new lease backlog that I mentioned is around those activities. And the portfolio growth, we certainly -- there's a lot going on and we're very committed and believe that we're well going to hit the 5% to 10% portfolio growth. But as, I think, I mentioned last time, Simon, I think as far as years pass, certainly compared to last year, I believe the mix of what we're going to do will probably be more international, maybe as much as 50% of what we'd grow this year might be internationally or perhaps even a little bit more.

Great. And so -- and looking at existing markets for international?

Yes, there's a lot to do in the Western Hemisphere. We're still getting off the ground and running in Brazil. We have very high hopes and expectations for that market in particular.

Then next we'll move to the line of Jason Armstrong of Goldman Sachs.

Jeff, quick question, you mentioned the new lease backlogs at an all-time high. Is this primarily cell splitting in markets where LTE has already been deployed at this point? And then maybe second question, just that the site development business obviously another strong quarter, how much visibility do you have from here in terms of how long you would expect this type of run rate?

I do believe most of the new brand in leases, Jason, is cell splitting in markets that you have seen a basic LTE network deployed. Not 100%, but I think substantially all -- particularly the ones that were -- are from AT&T and Verizon. On the -- I'm sorry, your second question?

I mean I'll ask -- maybe this could follow up on the first question. So you've said 40% of sites have LTE at this point. So if you're over indexing cell splitting in those markets, would you expect the backlog in cell splitting to accelerate as sort of that LTE amendment overlay percentage moves higher?

Yes.

Okay, great. And how is that factored into -- is an acceleration factored into your guidance for the year?

Probably not because of the 6-month lead time that you will typically be associated with the new lease. If -- and you know this, because it's always been this way. If you don't really have your new lease signed up by September 1, it's really not going to contribute to that particular year's fiscal results. So we basically have the second quarter of lease-up that will, at least on the new lease side, that will impact the rest of 2013. So I think you're probably looking more towards the impacts from all that in 2014 and beyond. On the services side, it was a good quarter, very busy. Our backlogs today are very solid, near or at all-time highs, which gives us the confidence around increasing our outlook for the second quarter and for the full year. But services, it's a short-cycle business. You can get an order in the second month of the quarter and have it completed by the third month and impact, which is -- what happened in the first quarter where we were -- we produced results that were substantially ahead of our outlook. So it is a -- on a project basis, it's a short cycle kind of business, but given the mandates to us for entire projects, particularly from Sprint and T-Mobile, we're very confident that it's going to be our busiest year ever this year and that activity will go well into 2014. So on an order basis, it's short cycle. But if you're mandated to have the entire project, as we are in those cases, it gives you a lot more visibility.

Then next, we'll move to Deutsche Bank and the line of Brett Feldman.

So if we look at Sprint and the decisions they need to make here, if their current set of transactions close as anticipated, they'll likely be deploying 2.5 spectrum that they'll have full control over it. It could also end up being that they do a transaction with DISH, in which case they could be deploying AWS-4 spectrum that they have full control over, or maybe even both bands. And so my question here is, could you remind us what's contemplated in the existing master lease agreement with Sprint so that whenever we do get an update from them on where they're taking the network, we can determine the extent to which that activity would be incremental?

Yes, our agreement with Sprint allows them to deploy spectrum without an additional charge just for the sake of deploying spectrum where they own spectrum. So in fact, there was a combination there and they all -- and that DISH and Sprint became one, that would be how it worked. Now the real issue though is our agreement is also totally equipment-specific. So if new equipment, either antennas or receivers, transmitters or anything were required to submit those additional -- or to operate those additional frequencies, which has for the most part always been the case, that provides an amendment opportunity.

And so just to be clear, you said the agreement which is I guess essentially designed around Network Vision, if they go back to any site they've already contemplated and they can accommodate that spectrum in the existing gear, there's nothing unique for you. If they need new gear, that would be additive and then presumably any new cell sites, regardless of the spectrum, would be additive and as well. Is that correct?

That's correct.

Then next we will move to Pacific Crest and the line of Michael Bowen.

Maybe a bigger picture question as you move through the year and you're looking at acquisitions, how is your approach different now than it might have been a couple of years ago? And then also, with regard to the tax rate, it's kind of gone up and down a little bit here. Can you give us any thoughts on how we might want to treat that?

Acquisitions, we have remained, I think, in all cases, exactly the same as we were a couple of years ago with the exception that the reduced cost of debt has allowed us to reduce our estimates of our WAC. So we're able to basically pay more, yet get the same return spread that we've always been looking for over our cost of capital. That's really, really the only difference over the last several years.

Yes, Michael, with regard to the tax rate, I assume you're talking about changes in the federal income tax rate. Obviously, it doesn't have much of an immediate impact on us, given our net loss position and the meaningful NOLs that we have to the extent that it fluctuates meaningfully in either direction. It may extend or shorten the time period until we eventually get to where we've used up our NOLs. But at this stage, we have such a long runway, roughly 8-plus years and the view towards potentially becoming a REIT, subsequent to that, that I'm not sure that it really has much of a meaningful impact.

Then next we'll move to the line of Colby Synesael of Cowen.

Great. Just wanted to go back to the 5% to 10% portfolio growth, just after being a little bit late on tower adds in the first quarter, and obviously, recognizing you have some M&A that you're working on. Is there any indication whether you feel at this point you'll be more towards the lower end or higher end of that range for the year? And then the other question just has to do with discretionary CapEx. You're effectively in line with your guidance this year. You didn't change your tower construction, still expecting 380 to 400, but you did increase your discretionary CapEx for the year by, I think, about $30 million. Just curious what that's in regards to?

On the first question, it's too early to really say whether it will be at 5% or 10%. There's certainly plenty of stuff out there and plenty of time this year to achieve or even exceed the high end of the portfolio growth goal.

Colby, on the CapEx, we actually increased the full year guidance by $24 million. And it's really a mix of all the different things. We did sign up some M&A agreements. So roughly half, a little less than half of that is from new M&A deals under contract. We also outperformed a little bit our expectations in the first quarter on ground lease by us, so that carries through and is a factor contributing to the increase. And frankly, some of those costs that we talked about in the new builds earlier are also in there. So it's really across the board, but no one item is standing out.

Then next we'll move to New Street Research and the line of Jonathan Chaplin.

This is Spencer in for Jonathan. We've been hearing about the efficiency for deploying high-frequency spectrum on small cells. And with AT&T going to 40,000 and Clearwire deploying spectrum in the coming years, I was just curious as to your thoughts on the small cell business and if your perspective has changed at all?

Yes, we're watching the small cell business carefully. We currently have a material minority -- material for ExteNet, minority investment in ExteNet, which is really how we're approaching the deployment of small cells and seeing how that works and whether that is in fact going to prove to be a multi-tenant business model similar to towers. Beyond that though, we are starting to see a number of inquiries where customers, carriers are looking to deploy small cells on our sites. Where they have immediate accessibility, these would be hung at the 20-foot level and provide the lower coverage closer to the ground that the small cells are designed to do. So I think it's going to be definitely an active part of wireless network deployment over the next couple of years and something that we're kind of looking to play in a variety of different ways.

Then next we'll move to the line of Kevin Smithen of Macquarie.

Maybe just a follow-up to that, can you give us an update on ExteNet, what its size is today and growth rate? And I guess, why wouldn't you bring this in-house before small cell growth accelerates and valuation picks up significantly?

Yes, I mean, I can't you give any details about ExteNet because that's not our business to do. But I would say that we are very interested and potentially increasing our interest in ExteNet and you should stay tuned as to how that might play out.

Then the last person in the question queue at this time, Jonathan Atkin with RBC Capital Markets.

Just a follow-up on the DAS payments, to what extent that it makes sense or are there opportunities to pursue that in Brazil or elsewhere internationally?

It could make a lot of sense, Jonathan, and we are considering that. And that would be something that would be entirely consistent with our investment in and agreements with ExteNet.

So how does that work? Do you get the right of first refusal on any new DAS installations outside of this country? Or is that something that you can pursue?

Yes, we're free to pursue any of that stuff outside of this country.

And back to you, sir.

Great. Well thanks, everyone, for joining us. Appreciate the interest and we look forward to getting together again when we report our second quarter results. Thank you.

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