SBA Communications Corporation (SBAC) Q2 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the SBA Communications Corp Second Quarter Results Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions-and instructions will be given at that time. [Operator Instructions]. And as a reminder, this conference is being recorded. I’ll now turn the conference over to Vice President of Finance, Mark DeRussy. Please go ahead sir.

Thank you. Good morning everyone, and thank you for joining us for SBA's second quarter 2015 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; as well as Brendan Cavanagh, our Chief Financial Officer. Some of the information we are going to discuss on this call is forward-looking, including, but not limited to any guidance for 2015 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, which documents are publicly available. These factors and others have affected historical results, may affect future results, 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 30, 2015, and we have no obligation to update any forward-looking statement we may make. The comments we will make today will include non-GAAP financial measures as defined by Regulation G and other key operating metrics. The reconciliation of these non-GAAP financial measures and their most directly comparable GAAP financial measures and other information required by Regulation G has been posted to our website, sbasite.com. With that, I'll turn it over to Brendan to comment on our second quarter results.

Thank you, Mark. Good morning. As you saw from our press release last night, we had another very strong quarter in all areas. We were above the midpoint of our guidance for site leasing revenue, tower cash flow, adjusted EBITDA, and AFFO. GAAP site leasing revenues for the second quarter were $370.5 million or an 8.8% increase over the second quarter of 2014. Domestic cash site leasing revenue increased 8.5% to 300.2 million and international cash site leasing revenue increased 17.3% to $57 million. Eliminating the impact of changes in the foreign currency exchange rate, total site leasing revenue would have increased 13.9% over the year earlier period and international cash site leasing revenue would have increased 49%. Our leasing revenue growth was driven by organic growth and portfolio growth including our fourth quarter acquisition from Oi in Brazil. We continued to experience solid leasing demand both domestically and internationally. Approximately two thirds of our incremental leasing activity in the quarter came from new leases. The big four U.S. carriers contributed approximately 70% of our consolidated incremental leasing revenue signed up in the quarter. Tower cash flow for the second quarter of 2015 was $284 million or a 9.7% increase over the year earlier period. Eliminating the impact of changes in foreign currency exchange rate, tower cash flow would have increased 13.4% over the second quarter of 2014. Tower cash flow margin was 79.5% compared to 79.6% in the year earlier period. Our services revenues were $40.2 million compared to $43 million in the year earlier period. Services segment operating profit was $9.9 million in the second quarter compared to $10.9 million in the second quarter of 2014. Services segment operating profit margin was 24.5% compared to 25.4% in the year earlier period. SG&A expenses for the second quarter were $28.3 million including non-cash compensation charges of 8.1 million. SG&A expenses were $25.4 million in the year earlier period including non-cash compensation charges of 6.1 million. Adjusted EBITDA was $274.3 million or an increase of 9.2% over the year earlier period. Eliminating the impact of changes in foreign currency exchange rate, adjusted EBITDA would have increased 12.9% over the year earlier period. Adjusted EBITDA margin was 69% in the second quarter of 2015, compared to 68.2% in the year earlier period. Approximately 96% of our total adjusted EBITDA is attributable to our tower leasing business. AFFO increased 8.2% to $184.5 million compared to $170.6 million in the second quarter of 2014. AFFO per share increased 8.4% to a $1.42 compared to a $1.31 in the second quarter of 2014. Combined changes in the Brazilian and Canadian exchange rate during the second quarter versus the rate assumed in our guidance negatively impacted leasing revenue by $265,000 in both adjusted EBITDA and AFFO by approximately $150,000. iDEN related churn during the quarter had a negative impact of $950,000. Net income during the second quarter was $28.3 million compared to net loss of 9.5 million in the year earlier period. Net income for the second quarter of 2015 included a $15.7 million gain on the currency related re-measurement of a U.S. dollar denominated intercompany loan with our Brazilian subsidiary. Net income per share for the second quarter of 2015 was $0.22 compared to net loss per share of $0.07 in the year earlier period. Quarter end shares outstanding were 128.2 million. In the second quarter we acquired 317 communication sites and other assets for $220.1 million in cash. SBA also built 117 sites during the second quarter. We ended the quarter with 24,808 sites, 15467 of these sites are in the U.S. and its territories and 9341 are in international markets. Total cash capital expenditures for the second quarter of 2015 were $320.1 million consisting of 8.5 million of non-discretionary cash capital expenditures such as tower maintenance and general corporate CAPEX and 311.6 million of discretionary cash capital expenditures. Discretionary cash CAPEX for the second quarter includes 220.1 million incurred in connection with acquisition excluding working capital adjustments. Discretionary cash CAPEX also included 24.1 million in new tower construction including construction in progress and $15 million for gross augmentations in tower upgrades. The substantial majority of augmentation CAPEX is reimbursed to us by our customers. During the quarter we spent an aggregate of $54.9 million to buy land easement 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 73% 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 33 years. At this point, I will turn things over to Mark who will provide an update on our liquidity position and balance sheet.

Thanks Brendan. SBA ended the second quarter with $8.3 billion of total debt. We had cash, cash equivalents, short-term restricted cash, and short-term investments of $117.6 million. Our net debt to annualized adjusted EBITDA leverage ratio was 7.4 times. Our second quarter net cash interest coverage ratio of adjusted EBITDA to net cash interest expense was 3.5 times. During the quarter we borrowed an incremental $500 million under our existing credit agreement in the form of a seven year term loan B. The loan was issued at 99% of par value and will include interest at LIBOR plus 250 basis points for the 75 basis point LIBOR floor. Proceeds from this financing were used to repay $490 million of the outstanding balance under our revolver. Currently we have a $170 million outstanding under our $1 billion revolver. At the end of the quarter our total debt carried a weighted average coupon of 3.9% and a weighted average maturity at just over 5 years. During the quarter we repurchased the remaining $150 million of common stock authorized under our $300 million repurchase plan. This consisted of the repurchase of over 1.3 million shares at an average price of $114 or $0.96 per share. On June 4, we announced the authorization of a new $1 billion stock repurchase plan. Subsequent to the end of the second quarter we repurchased approximately 800,000 shares of stock for $91.1 million at an average price per share of $115.50 and currently have $908 million of repurchased authorization remaining under our current program. I’ll now turn the call over to Jeff.

Thanks, Mark and good morning everyone. As you’ve heard we had another solid quarter exceeding the midpoint of our guidance across all key financial metrics. Organic leasing activity, strong expense control, and some contribution from acquisitions were once again the primary reasons for our performance. We continue to see solid demand across our entire portfolio both domestic and international as well as in our services segment. We expect continued solid levels of activity for years to come as carrier seek additional network capacity as use of wireless data marches ever higher and as new spectrum gets deployed. Ahead of us is the deployment of AWS-3, WCS 600 MHz FirstNet [ph] and Dish spectrum all of those deployments we believe will require some additional infrastructure. The need for and the catalyst behind additional network investment continue on and we see no end in sight. These dynamics are at play in all of our markets both domestically and internationally. In the second quarter we posted solid leasing results across our entire portfolio domestic and particularly international. Same tower cash leasing revenue growth compared to the year ago prior period was 9.5% on a gross constant currency basis and 6.5% on a net of churn basis including iDEN related churn. Our same tower calculation as always is reflective of organic growth and recurring cash leasing revenue over the last four quarters, in this case ending June 30th and not including the second quarter of 2014, which was the highest leasing quarter in our history. Our same tower calculation includes no new tower builds or acquisitions and since our augmentation costs are almost entirely reimbursed, this growth comes at virtually no capital expenditure cost. Our domestic same tower growth rate was also 9.5% on a gross basis and was 6.0% on a net basis while our international organic growth rate was 11.5% both gross and net on a currency neutral basis. Brazil grew at an organic rate of 12.5%. We attribute our leasing success to a combination of quality assets, strong execution, good contracts, and excellent demand from our customers. In the second quarter in the U.S. the leasing demand environment improved over levels we experienced in the prior two quarters and was consistent with our expectations when we issued our 2015 outlook in November. Our incremental revenue added per tower in the U.S. this quarter was at the exact same rate as the second quarter of 2013 coincidentally. In total we executed high numbers of both new tenant leases and amendments. Revenue from new leases was greater than that from amendment and represented approximately 60% of incremental leasing revenue in the U.S. Horizon and T-Mobile represented the majority of our new business in the quarter. AT&T was more active in the second quarter compared to the first quarter but still at greatly reduced levels compared to the first three quarters of 2014. Contributions from Sprint with both new leases and amendments that paced similar to prior quarters and where we believe in advance of formerly launching its next generation network brands which are still ahead. Our backlogs continue to be healthy. We continue to expect that leasing levels will increase in the second half of the year over first half levels which depending on timing may or may not impact 2015 financial results. At a minimum we expect to end the year with a strong leasing run rate which will bode well for 2016 when we will have also gotten past substantially all of our I determination. We saw a strong activity in our international market adding our most incremental revenue in a quarter ever on a constant currency basis. International growth rates picked up nicely from the first quarter. As expected new leases represented the majority of the activity contributing approximately 80% of the total incremental international leasing revenue added in the quarter. International cash leasing revenue and tower cash flow growth grew materially year-over-year once again primarily due to portfolio growth. International tower cash flow margins were strong at 70% and are expected to grow now that we have had a couple of quarters to integrate our Brazilian acquisitions. GAAP requires us to markup our revenue and expenses by the amount of the ground lease expenses reimbursed to us by our customers so the true economic cash flow margins in Brazil are much higher. I continue to be pleased with the progress we are making in Brazil while the macro environment in Brazil continues to be challenging and to some degree we believe limiting carrier investment. We had our best order yet in terms of leasing revenue added. We remained convinced that Brazil will be an excellent long-term investment. The demographic trends, Smartphone sales, network needs, new spectrum in the competitive carrier dynamic all lead us to continue to believe that Brazil will be a growth market for a network investment for many years to come. We are making great progress in proving and integrating the towers we most recently acquired in Brazil and positioning ourselves to capture all the benefits of future improved economic conditions and increased carrier spending. Our services segment produced another strong quarter of results for us in the second quarter and we expect this steady services segment contribution through all of 2015. Our operational performance across the entire company was once again very strong in the second quarter. We posted industry leading tower cash flow margins of almost 80% companywide and over 81% in the U.S. Strong tower cash flow and services margins as well as low cash SG&A expense as a percentage of revenue drove our adjusted EBITDA margin to another record at 69%. We are generating phenomenal operating leverage in our business, even as we continue to invest in additional international back office and other capabilities. We believe our industry leading tower cash flow and EBITDA margins are due to our focus on and experience with macro tower site and the expense efficiencies attainable through the gross margin and SG&A lines in that business. The strong adjusted EBITDA results we had of the second quarter drove our equally strong AFO and AFFO per share results. Our updated 2015 outlook reflects our expectations of solid carrier activity, organic growth rates and services for the remainder of the year. On a constant currency basis the current outlook represents approximately a 1% increase to the mid points from our initial outlook for leasing revenue, adjusted EBITDA, and AFFO. Unfavorable changes in the Brazilian Reais to U.S. dollar exchange rate are expected however to more than offset those increases. We believe carrier activity will continue to increase as we move through the second half which will position us well for 2016. Our current 2015 outlook contemplates approximately 9% gross same tower cash revenue growth on a constant currency basis before iDEN churn. We have included no material contribution in 2015 from Dish, public safety, AWS-3, or Sprint’s next generation network plant. Our balance sheet remains in great shape and additional capital if needed remains readily available. We intend to continue our balance sheet strategy and maintain our existing leverage targets as we believe them to contribute materially to shareholder value creation. Our capital allocation focus is portfolio growth that meets are underwriting and investment return requirements on share repurchases at prices that we believe are below intrinsic value. If neither of those conditions are met, we don’t allocate capital. Capital allocation for us is a dynamic and opportunistic process. We had a good second quarter acquiring 317 additional sites almost all of which were in the U.S. We have a healthy amount of towers under contract to purchase mostly international. Our new tower build activities were also very solid in the second quarter both domestically and internationally. Portfolio growth remains our top priority but again only for qualified opportunities with the right price terms and business characteristics. So far this year our investment capacity has exceeded the amount of those qualified portfolio growth opportunities so we have repurchased a significant amount of our stock at prices we believe are well below intrinsic value. With respect to portfolio growth, our primary focus remains in the western hemisphere. If we are successful in consummating some additional acquisitions, depending on the timing of such acquisitions our 2015 outlook could increase. Last week ExteNet announced a restructuring where its current investors including SBA will exit and a new investment group will come in. Restructuring contemplates both initial and future earn out payment and when it is all said and done we expect to return of more than two times our initial investment of 43 million which we believe will equate to an approximately 13% to 15% internal rate of return. We have been investors in ExteNet for over 5 years and had a front row seat to watch the development of the dash and small cell business. We respect the management team there greatly and wish them the best. We learned a lot. Through the experience we have concluded that we prefer the macro site tower business given our history, experience, and the business models proven success, operational leverage, and financial advantages. We chose to exit ExteNet rather than increase our investment as we believe we have better uses of capital that will produce superior long-term growth in AFFO per share. In no way do we believe our macro site tower business will be negatively impacted by small cells in general or specifically by our decision not to increase our investment in small cells. We will continue to allocate resources to non macro site technology with the primary focus on accommodating non macro site technology on the over 30,000 sites we own or manage around the globe where we have capital efficiency exclusivity, contract advantages, and a traditional real estate structure. Before we open it up for questions, I want to thank our employees for their hard work in the second quarter and our customers for continuing to entrust us with their business. We look forward to continued success as we move through 2015. And operator at this time we are ready for questions.

Thank you. [Operator Instructions]. Our first question will come from David Barden with Bank of America. Go ahead please.

Hey guys, thanks a lot for taking the questions. Jeff maybe a couple for you, just first following up on the ExteNet decision, I think it was about six months ago when you kind of were asked if you had to come down on one side or the other of the decision between the kind of Crown Castle or small cell site focus for incremental investment or the American Tower International you actually said you are leaning on the Crown Castle side of things which I think put a lot of focus on SBA’s intentions in the small cell site business. Could you kind of tell us a little bit more about what you learned over the course of that exercise to kind of let you to decide that the doubling of your investment was enough to kind of buy you out of that strategy? And then I guess the second part would be just on kind of the impact on the outlook with respect to Brazil and the currency movements there kind of highlight the risks of investing certainly in individual international markets, what’s going on in Brazil increasing your desire to diversify away from Brazil, is it increasing your desire to focus more on the U.S. or is it really having no effect on kind of your capital allocation decisions that will be super helpful, thanks?

Let me first say David, I don’t really recall saying that we favored a Crown approach over to American Tower approach. I think what I recall saying was that I saw an increased level of activity in the small cell business and that was a positive change from years ago but that we were still evaluating our interest in the business from a capital efficiency and impact on AFFO per share generation. So, we really haven’t changed any views over the last six months but over the last five years we have taken it all in and concluded that to substantially increase our SG&A overhead expense, to vigorously compete for what we believe is the lower margin capital intensive loan cycle business, which is currently and we think is going up to stay relatively small percentage of our customer spending is inconsistent with our long term views of increasing tower cash flow margin, adjusted EBITDA margin, AFFO margin, and ultimately maximizing AFFO per share. It was really a financial decision as most things we do are and again it’s all about our quest to constantly maximize AFFO per share. And in terms of your international question, I think you have to be cognizant of what’s going in the Brazil with the Reais. Again we are in these markets to maximize AFFO per share. Over the last year of Brazil has not particularly contributed in that endeavor. We do believe that it will overtime do very well, but you have to take into consideration currency issues and what that means and whether that’s a short term dynamic, a long term dynamic. So we would have an interest in definitely continuing to diversify those income streams and currency risk as we continue to move forward.

Great, thank you very much.

Thank you. Our next question comes from Ric Prentiss with Raymond James. Go ahead please.

Thanks, good morning guys. First question I’ve got for you, if you think about your 2015 guidance change, can you kind of breakout for us how much of the change in guidance was due to external acquisitions, how much of the guidance change was from increased business in your legacy assets. I think I heard maybe 1% constant currency FX, how much was FX effect and then also talk a little bit about the change in interest cost which is kind of the bridge if you look in the last guidance to this guidance, how much was external driven, how much was internal business doing better, how much was FX, and how much was the interest cost?

Hey Ric, just to clarify you mentioned the 1%. The 1% is in reference to the changes that took place from the time that we initially gave our guidance in November of last year. Going back to what we guided to just a quarter ago for the full year 2015 and the changes in the new guidance that we just put out yesterday. Basically on the revenue line the entire change is just due to the FX shift. We lowered our the midpoint of our full year leasing revenue guidance by $9 million, the impact of the FX changes and our assumptions versus what we assumed last time was $9 million. So basically that’s the whole change and really that’s driven by the fact that while we did add a little bit of M&A, its frankly in consequential. We’ve increased our discretionary CAPEX by about $40 million for the year. A lot of that will be staggered over the last part of the year and we’ll have very little impact on the P&L. So our views on the organic leasing opportunities really are basically the same as what we had before. We’ve as Jeff mentioned earlier in his remarks we expect to see pickup in the second half in terms of activity levels, that’s what we expected before. So there really has been no change. So basically we are looking at the same expectations we had previously. And as you kind of go down the other categories, we have slight pickups in tower cash flow and EBITDA driven. By expense control a little bit out performance and services that we had in the second quarter so, that’s basically what’s flowing through to those items.

And the interest expense change?

And yes we’ve increased our interest expense which is basically due to two things; one, in our last guidance we did not include any expectations for stock repurchases. As you are aware we repurchased to date since that time about $240 million of stock buybacks. So that’s all basically paid for through incremental debt. It also takes into account the term loan that we did which was essentially terming out some of our revolver borrowings. While that gives us greater liquidity it does come at a slightly higher interest rate than the revolver so basically put those two things together we are up about $5.5 million at the midpoint on our interest expense guidance. And that negatively impact the AFFO. But will certainly help -- positively impact the AFFO per share as a lot of those dollars are going to buy back stock.

Great and then when we think forward to next quarter historical you guys will give the future year guidance, are you still expecting on the third quarter call to give 2016 guidance and how do you feel about the visibility of the different carriers by then?

We will definitely give full year guidance then and I think we are actually looking forward to it because we will be able to talk about a year where our iDEN terminations have ended. We believe that there is a very good likelihood that certain U.S. customer will come off historically low spending activity. We’ll take a fresh look at the exchange rate. So we expect to have the same visibility Ric that we always have in any type of outlook which is you know pretty good six months ahead. So I think we will have a good dialog.

And I think the streets are looking forward to that third quarter call and the 2016 guidance as well?

Yes.

Great, thanks guys.

Thank you. Our next question is from Jonathan Atkin with RBC Capital Markets. Go ahead please.

Yes, I was interested in maybe drilling down in Brazil a little bit in terms of what has been the drivers, is it Vivo, is it Tim, is it 3G overlays, 4G initial coverage if you characterize that a little bit, as well as your appetite in that market potentially for mom and pop acquisitions?

I believe Jonathan in the order of contribution that has been Vivo, Tim, Claro, Oi and Oi would be expected to be where they are because we bought most of our towers from them. So they already have some presence on almost every asset that we own. In terms of our additional appetite, we very much have an interest in continuing to invest the Reais that were the positive cash flow and Reais that we are generating down there in additional asset growth whether it would be new power bills or acquisitions. And we are pleasantly surprised to see a nice cottage mom and development market growing down there that would give us a chance to continue to grow through small to medium acquisitions for a long time.

And then on the U.S. wondered if you could been sure kind of a rough guess or timeframe around AWS-3 and when that might start to happen, is it going to be three carriers deploying that and MWCS which is obviously just one carrier any sense as to when that might become noticeable in 2016?

Yes, I don’t have a quarter for you Jonathan. I don’t believe it will be 2015 but that will be something that will have at least a three months better view on when we give out our full year guidance at our next call.

And then on the small cell topic, are you seeing any demands on your macro sites perhaps at lower hype that’s driven by some of the same drivers that are driving the small cell opportunity?

Yes we are. We absolutely -- we’ve leased up a fair number of positions at approximately the 20 to 30 foot level which of course is typically an open spot on the tower and a great incremental source of revenue for us and stuff we are going to be excited about going forward.

Thank you very much.

Thank you we have a question from Amir Rozwadowski with Barclays. Go ahead please.

Thank you very much. When we think about your guidance for the duration of the year it sounds like there is no real expectation for a change in the current spending environment that we are seeing and certainly even if there was it doesn’t seem like that would really impact this year. But can you give us an update in terms of what you are seeing in terms of bookings activities or maybe some of the initial conversation that you are having with some of the carriers to maybe give us a sense in terms of where the trajectory could fall out?

We clearly are seeing upticks in our backlog. I think your first comment Amir was spot on. I mean you know this business if you don’t really have your operational lease up signed by the end of September it will really typically not impact your full year financial results. As a fact of the matter we have about two months left of operational leasing activity in the U.S. to impact full year results. But looking past all that, we are very pleased with what we are seeing on the backlogs and the build and we have every reason to believe that activity levels across -- in the aggregate when you take all four carriers in the U.S. together we will be up in 2016.

Thank you and then one follow up if I may, when you were thinking about sort of your capital allocation decisions, I mean clearly the buyback sort of percolated to the top in terms of return criteria for you folks over the last couple of months, any sense you can give us in terms of expectations for AFFO growth over the long-term that sort of baked into this calculation of intrinsic value that you guys are looking at?

We are still battling everyday for 15% to 20% compound growth in the AFFO per share.

Great, thank you very much for the incremental color.

Thank you we’ll go next to Jonathan Schildkraut with Evercore ISI. Go ahead please.

Great, thank you for taking the questions. Two if I can; first, I just wanted to swing back to ExteNet make sure I fully understood your commentary on the sale Jeff. So you are talking about two times on your investment back, you invested at 43 million, does that mean you are going to see gross proceeds of around 130 million, just wanted to make sure I understood that and then what’s the timing of the receipt on that payment?

No Jonathan, I mean there is going to be some variability here because there is an earn out period that ends March 31. So when we say two times are better that would be the gross proceeds to us would be that multiple of what we invested, the 43 million.

Thank you. So we have been spending a lot of time I think talking about Brazil, I don’t know when the last time we sort of walked through some of the other markets that you have exposure to on the international side, I was wondering if you might spend a minute sort of talking through some of the dynamics in those markets, thanks?

Yes, we had huge lease up buy by at least the last four to eight quarters averages in Central America, particularly in Panama, Nicaragua, and Guatemala and Costa Rica and El Salvador continued to be very steady. So we were very, very pleased with Central America. Canada continues to be steady but given the size of our asset base there and good growth but not at the same level that we had in Central America and certainly not as good as we had in Brazil, continues to move forward. At this point though we have got such a low tower cash flow multiple up there to invested capital that it’s a great yielding market for us.

Excellent and if I can ask just one more question, given the movements in the Reais based on the second quarter results, what percent of revenue is currently coming out of Brazil?

Brazil within our 2015 guidance is projected to contribute about 11.5% of the total leasing revenue. A little bit less than actually on cash leasing revenue basis.

Thank you for taking the questions.

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

Hey, just wanted to go back to the buyback. Appreciate that you spent a thing about 90 million, I guess year-to-date in the third quarter but obviously you have taken out that 2015 just expense, just trying to get a sense of pacing as you go forward, would you expect to continue to I mean on the buyback really is it going to the end of the year assuming there is any additional M&A opportunities or could we see that I guess slowdown? And then my next question I guess just more broadly as you go into 2016 and you start to get a better sense of what the domestic operators are planning or intending to do, does it make sense to actually put an MLA in place with any of those carriers which could be I guess beneficial for both parties? Thanks.

Colby we intend to stay capitalized at relatively all times at our target leverage levels. So as I mentioned portfolio growth remains the number one priority but it has to meet our standard requirement firms and returns. And if we can find that that’s where the capital investment will go and if not and we stand by our stock at prices that we believe are below intrinsic value, that’s what we’ll do. So I don’t know that you should assume up or down, whether it will be one or the other I think will depend on the portfolio growth opportunities that we see and our views on intrinsic value of the stock. In terms of MLAs, we have them with Sprint, we have them with T-Mobile. It’s not as if there is an absolute aversion. It’s all about the terms and conditions. So that means the hypothetical or the theoretical answer to your question is of course if there are things that we do in fact find mutually beneficial. But in terms of our history we’re extremely happy that we did not do some of the MLAs that have been done. And has allowed us to capture every bit of activity and monetize that which today is the course of the permanent escalating part of our recurrent revenue base. So that’s what we are really focused on and if an MLA can allow that to happen sure, we’d be interested.

So I guess just to go back to the buyback then, from a modeling perspective we are not assuming in our models any additional M&A beyond what the company has already talked about or disclosed basically holding on to the low end of your target leverage ratio and assuming everything else goes to buyback is probably a prudent way of thinking about it?

Yes, I mean particularly if otherwise your models would have us below our target leverage range.

Okay, great. Thank you.

Thank you. Our next question is from Michael McCormack with Jeffries. Please go ahead.

Hey, guys thanks. Jeff just another question I guess on the small cell side, is your thought process there does it have anything to do with your thoughts regarding carriers to entry in small cell or alternatively what you are seeing as far as pricing trends in small cell? And then I guess secondly on the AT&T side, their commentary regarding spending this year including Mexican spending obviously means maybe a little more dampening in the U.S. although you said something like it was more positive in the current quarter, how do you think about second half with respect to AT&T specifically?

Well let me take your second question first. I mean my comment was that they were more active than first quarter. But first quarter was at levels that I don’t think we’ve seen on an absolute spend basis from that customer for as far as long as I can remember. So the spending on a historical average is way down and we’ve been at this for a long time. And that dynamic while it of course makes for our traditional [indiscernible] quarters here, a little more difficult in 2015. I think it touches up extremely well for 2015. And on the small cell question we had a window seat there for a very long time and we saw all aspects of the business and you mentioned two reasons Mike, but there are 10, 20, 30 other reasons why we just simply prefer the macro site business. And for us it’s all about maximizing AFFO per share and we believe that through our decision making we are going to put ourselves in the best position to do that.

Great, thanks guys.

Thank you. We now have a question from Phil Cusick with JP Morgan. Go ahead please.

Hey guys, thanks. I guess Jeff could you talk a little bit about -- remind of us of iDEN churn headwind in 2015 and is there any expectation of abnormal merger churn in 2016?

Brendan.

So Phil, the impacts from the churn that’s taking place in 2015, on 2015 is about $16 million. Although a lot of that churn is in the fourth quarter. So October 1st is kind of a big churn day that we have due to the tower portfolio we bought a few years ago which had more of a kind of a cliff termination that they’ve agreed to. And that’ll basically be about $6.5 million approximately of quarterly revenue that goes away on October 1st.

Okay, and anything for 2016 that we should be thinking about?

As it relate to iDEN churn?

No, from other merger churn?

Nothing that would be outside of our normal 1% to 1.5% of churn that we typically see as our average.

Okay.

Let’s be clear on that. I mean our non-iDEN churn in the U.S. this quarter was 1%. I mean we are not seeing any kind of aberrational activity there Phil, we don’t expect any.

And we’ve now seen by the time now where you guys haven’t bought anything, is it fair to say that given the higher currency volatility that we’ve seen in the last year, that you are hurt already for doing deals outside of the U.S. is maybe higher than it was before?

Yes, more than fair to say that.

Okay, thanks guys.

And thank you, we’ll go next to Brett Feldman with Goldman Sachs. Go ahead please.

Thanks for taking the question and just thinking ahead to the broadcast incentive option, we been so focused on site densification but those are going to be the lowest frequencies we’ve ever seen and those are frequencies that are generally well suited for towers. And so with that as the back drop can you maybe just give us some update or statistics on your portfolio for example to what extent are your towers situated in rural and suburban markets, where we are likely going to see a lot of deployments maybe average heights? I think just as a follow up, do you think there is an opportunity to maybe increase your construction of towers as a result of that option?

We believe the upcoming activity, particularly the low frequency spectrum and even the AWS-3 and the other spectrum like FirstNet for example that’s going to become available is going to be a boon to the non-urban market. And that of course is where we are primarily located. I have to refresh myself Brett on where we are in terms of demographics but I believe 50% of our U.S. towers are located in the top 100 markets and then of course the other 50 would be outside of that. I believe our current average heights are 175 to maybe 200 or more. So, we have got plenty of capacity there. To the extent that there is activity outside the cities, we are going to get more than our fair share and I am pretty optimistic that is in fact going to happen.

Great, thank you.

Thank you. Our next question is from Michael Bowen with Pacific Crest. Please go ahead.

Thanks for taking the questions. You’d mentioned that you are expecting to see a pickup in the second half, I was wondering if you might be able to talk a little bit about which carriers specifically you might be looking at there and then also I guess same question for 2016, I know that you would also mention that Sprints in very, very low but they are coming off that low spending activity or to be planning to so you can talk a little bit about perhaps timing of what you are seeing with the lease up would be great, thanks?

Now keep in mind when we say pickup an activity, we are talking about operational activity and not financial activity. But having said that, I think the pickup is going to come from AT&T and Sprint, probably more so from the former and depending on the timing of the new next generation plans. Still little unclear but once that does emerge that is going to be an increasing activity for the entire industry.

Okay and then quickly back on iDEN, I apologize did you say there would or would not be an impact from iDEN termination in 2016?

It would be nothing of any note in 2016.

Okay, great. Thanks guys.

Thank you. We have a question now from Simon Flannery with Morgan Stanley. Go ahead please.

Great, thank you very much. I think you mentioned Jeff about the value for the buyback being well below intrinsic value. Can you just give us a little bit more color on how you go back sort of assessing intrinsic value and by all means give us an actual number or…?

You have to save that one for the bar Simon after you buy me a couple of cocktails.

Sounds like a big spread and then on AT&T, coming back to that commentary, they are obviously in this grooming period after spending heavily, can you just look back at similar periods in history, how long can you really go without spending significant or adding capacity when you have this sort of growth we’re seeing in the traffic right now, is that a year, is that 18 months, any color on that would be great? Thanks.

It’s never really been longer than a year or so Simon. And again I said this earlier and it’s hard to over emphasize, we’ve never quite seen this particular customer at this low level of spend. So I am pretty confident and have every reason to believe things are going to pickup and that’s one of the key drivers behind why we are buying back our stock. And in terms of how we think about that, we look at a variety of metrics. We look at our five year model going forward and project where AFFO per share is going to be. We look at TCFs, we obviously we look at industry comps and look at where private multiples are trading. And so we trying to triangulate all that back, come up with a price that we will buy at. We are not formula buyers, we are opportunistic buyers. And depending on pricing there maybe periods of time where we go for a while without buying stock and there may be other periods of time where we jump in with both feet.

And on the available cash, is the M&A -- the lack of M&A is there partly fewer opportunities or higher prices or is it mostly the hurdle rate comment that you mentioned earlier?

Well higher price is equal hurdle rate issues. So I mean we actually had a pretty good quarter in terms of the U.S. towers that we acquired. But we also passed on a lot of towers that we thought looked no better than and perhaps worse than the towers we own that were trading it four times or more are public tower cash flow multiples. So we will pay higher multiples but we have to see greater growth and we have to see other reasons that to do that otherwise it makes most financial sense to pass on those that don’t meet the hurdle rate and see if you, your stock is at a price that is below intrinsic value.

Thank you.

Thank you. [Operator Instructions]. Next we have Spencer Kurn with New Street Research. Please go ahead.

Hey guys, thanks for taking the question. Verizon has mentioned that they started refarming some of their PCS spectrum from EVDO to LTE and AT&T has also mentioned that they are pulling from some of their AWS spectrum from the leap onto their own sites. Could you just remind us, are there activities that you can generate revenue through amendments or what are the parameters around that? Thanks.

Yes, it would depend on the specific task. Typically when the refarming is done there are antenna swaps and sometimes we don’t charge anything for that and sometimes we charge more than the minimust amount depending on what is leaving and what is being swapped out. To the extent remote radio heads are being added where none existed previously. That of course is a new weighty piece of equipment that goes on the tower that will generate additional amendment revenue.

Got it, so, I don’t know if you’ve seen any of this activity yet but if you have, have you been able to monetize it?

We have seen it and we have been able to monetize some of it when it met the characteristics I just described.

Great, thanks so much.

Okay, thank you. Then our next question is from Walter Paychest [ph] with BTID [ph]. Please go ahead.

Thanks, just want to come back to the key and thanks for that historical perspective that was helpful. You know they’ve talked on the conference call about how they are try to use spectrum more than sites, I would assume that you would see that if that was actually the case, that they would actually be coming back to the sites and gaining access in order to have the spectrum, can you comment on that whether you can validate that statement that they have made? And also same kind of question, have they even deploying this WCS spectrum, that I think they have been planning to put into service?

On the latter Walter I don’t think we’ve seen much of that yet and we kind of track all that because part of our process even though we don’t charge on a frequency specific basis we do track very diligently what frequencies are being used at particular sites.

Can I just interject, any sense on what’s going on with the delay in that because I think they originally said 2014 and then it went into 2015, any -- from the engineers that you talk to what the issue is with WCS and why it is not getting deployed?

I would have no input on that. And in terms of your other question we are seeing them but we are just not seeing them anywhere close to historical levels. And I am not even talking about the kind of off the charts activity that we saw in the four quarters ending Q3 of 2014. I am even talking five years prior to that. And what I believe is going on is very smart guys there, they were on great organization, and they are managing their free cash flow based on a number of initiatives that if you probably look at what is going on there it’s pretty big year of cash uses between DirecTV, the AWS spend, Mexico. That’s really simply all I believe it is. I would be very surprised if AT&T has changed its long-term views on wanting to always be a network leader and I don’t think they have changed that and I think that would bode well for future investment.

Sure and then the ebb and flow comment about that you would have answered, I think it was to Simon’s question about kind of never really last longer than a year or so, is that specific to AT&T or is that kind of a general comment to any operator that starts to pull back on CAPEX on a given year?

I think I would say that would be more, you might limit that comment to Verizon and AT&T.

Got it and then one last question on Verizon because you did mentioned that you kind of track their spectrum, usage and what’s getting out there. PCS, the last commentary that they made was they put it in a dozen markets, additional markets after they put some of ADB spectrum, have you seen any additional activity on them being more active in the point PCS in additional markets, let’s call these three months to six months?

I know they are doing some of that with us. I don’t have the specifics so Walter as to which markets and whether it’s more or less then what you might have thought.

Great, thanks for your comments.

Sure.

We thank you then. Ladies and gentlemen that does conclude our Q&A session, do you have any closing remarks.

Yes, I want to thank everybody for being on the call today and we look forward to our next call where we talk about our third quarter results and our views around 2016. Thank you.

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