Good day, ladies and gentlemen. And welcome to the First Quarter 2016 Earnings Conference Call. My name is Christy, and I will be your operator today. At this time, all participants are in a listen-only mode. Participants on the call will have the opportunity to ask questions following the company’s prepared comments. [Operator Instructions] As a reminder this call is being recorded. I would now like to turn the call over to Mark Wallace, the company’s Executive Vice President, Chief Financial Officer and Treasurer for opening remarks. Please go ahead, Mr. Wallace.

Thank you and good morning, everyone. Before we start, I’d like to remind you that our discussions this morning during this call will include forward-looking statements and actual results could differ materially from those projected in these statements. The factors that could cause actual results to differ are discussed in our filings with the SEC. Discussions during the call will also include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation to those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in our current report on Form 8-K dated today. I’ll now turn the call over to Kenny Gunderman, our President and Chief Executive Officer.

Thank you, Mark. Good morning, everyone, and welcome to our first quarter earnings call. First quarter was an active investment period for us as we established a fiber operating platform as well as foothold in the tower and tower real estate verticals. These investments range from large to small, but in all cases the investments fit with our strategy of acquiring mission-critical communications infrastructure. Importantly, each investment lays the foundation for further success-based investment activity. On May 2, we closed our acquisition of PEG Bandwidth, and are pleased to now be directly serving three of the nation’s largest wireless carriers with mission-critical fiber infrastructure. As a result of this acquisition, we’ve already seen a dramatic increase in our dialogue with the carriers, regarding deploying more fiber and other strategic assets on their behalf. The PEG business is very success-based driven. One of the highlights of PEG’s first quarter was a 20-year dark fiber award to construct 100 route miles along the Gulf Coast for a large utility company. New site wins are generally large and unpredictable, so based upon our activity thus far, we are very excited about the organic growth prospects. In order to best position ourselves for this growth, we’ve already begun investing in the PEG team and we’ll continue to do so through the course of 2016. In addition, we remained very excited about the M&A growth potential that this business now affords us, and as such, expect to see more strategic and complementary acquisitions this year in the fiber space. Now, turning to towers, today we are announcing the acquisition of Summit Infrastructure that brings a team of veteran tower operators and builders. In particular, I’d like to welcome Lawrence Gleason to our team. Lawrence will continue to serve a CEO of Summit, and joined CS&L…

Thank you. As Kenny mentioned, we’re off to a strong start this year completing several new investments in the first quarter and have an active pipeline going forward. Operating results for the first quarter were in line with our expectations with consolidated revenues of $174.7 million and consolidated EBITDA of $165.7 million. We reported AFFO of $0.65 per diluted common share and net income attributable to common shares was $7.7 million or $0.05 per diluted share. Leasing segment revenues were $168.6 million including $4.3 million of straight-line rental income. Revenues for Talk America were $6 million with adjusted EBITDA of $1.3 million. Leasing segment revenues this quarter benefited from the $43 million of capital we funded to the Windstream in late 2015, as well as amortization of deferred revenue from tenant capital improvements. With the completion of the acquisition of PEG earlier this month, we will consolidate PEG’s operating results from the acquisition date going forward. We expect PEG’s 8-month contribution to revenues this year to be about $55 million and adjusted EBITDA to be about $21 million. To position PEG for future growth opportunities, we expect to make up to $2 million of investment in PEG’s business this year principally to expand and strengthen the sales organization and expect to add several new sales professionals this year; that cost is reflected as an expense in our 2016 guidance, although the associated sales growth will benefit 2017 and beyond. We expect maintenance CapEx related to PEG’s network to be less than $3 million, consistent with PEG’s history of maintenance CapEx running around 5% of revenues. Success-based CapEx for the balance of the year should range between $12 million to $16 million. During the first quarter, we acquired Summit Wireless for US$1.7 million, including debt and an equity based earn-out arrangement.…

Thank you. [Operator Instructions] Our first question comes from the line of James Moorman of DA Davidson. Your line is open.

Yes. Thanks for taking the question. It sounds like you’ve got a lot of things going on with the towers deal and lot of places to expand. It sounds like you’ve got opportunities for fiber expansion. How do you kind of weight the opportunity, I guess, the return on those investments on either furthering the tower business, furthering the fiber business or adding more tenants as more people - people may want to see you increase your tenancy. How do you kind of weight those two objectives? Thanks.

Good morning, James. It’s Kenny. Good question. And we actually think that the return potential in both fiber and towers are equally attractive. And as such, we’re pursuing both the people vigor. When you look at our pipeline mix, it’s still roughly 55-35 fiber and towers. And I think that’s a good - with the remaining being ground leases, I think that’s a good indication of where we’re spending our time and resources.

Okay. So you think it’s more like expanding kind of what you have rather than you need - just an addition, not to say of an additional tenant.

Yes. I think it’s both. I mean, I think what was very appealing to us about the foundational-type investments that we’re making now with PEG as an operating platform and with some of the Summit team that we’re bringing on is we think we can grow the assets, but we can also lease up our existing assets. So we’re going to be pursuing both.

Perfect. Thanks.

Thank you. Our next question is from Ana Goshko of Bank of America. Your line is open.

Hi, thanks very much. A few questions, so first of all on the ground lease program, I think you said that you’re acquiring ground leases from the three - or from three of the national wireless carriers. Is that what you said?

Yes, Ana its Kenny. They are actually - on the ones we’ve acquired so far, they are actually the tenants on the ground lease. So there are tenant.

Okay. And then so you’re acquiring, is it the ground that you’re acquiring. Is that?

That’s right.

Got it. Okay. And then, could you understand it, I mean, $25 million is not a large number relative to the scale of three of the national wireless carriers. So just want to understand the rationale from their standpoint, what the economics are to you and how big this program could get?

Yes. So the ground lease industry, as you probably know, Ana, is very fragmented and there are numerous aggregators out there. But there is a very large pool of these across the country and we think it’s growing particularly as you start overlaying small cells into the equation. So the opportunity for us we think is substantially beyond $25 million. And I think the - we’re focusing on that number, because we think it’s achievable, but we could easily ramp that number up over time. And we expect to see it ramped up over time, whether it’d be on the sort of the micro-level like we’ve done now or even more on the acquisition front on acquiring larger portfolios. So there is an opportunity to scale that up and we expect to do that over time. The economics on these are very attractive in our view, starting yields in the mid- to high-single-digits in some cases, double digits. And when you look at the lengths of these contracts, looking at returns over longer period of time, you start to really get into some very attractive IRRs for us. So very attractive asset class, particularly given those economics and who our customers are very high-quality creditworthy customers, which in our view, the stickiness of the tenancy on these ground leases are as good, if not, better than wireless towers.

Okay. Thanks. And then, on the comment that you accept more fiber acquisitions this year, can you give us a sense of the size. And obviously, I think the question is related to, are the acquisition - are you able to make these acquisitions with your existing resources with regard to cash and debt capacity or might you need to go into the market to raise either equity or debt capital?

Say, I’ll let Mark take the second part of your question. But in terms of size, we’re looking at both large and small acquisitions. I think there are a lot of really attractive bolt-on smallish opportunities that either fill in the PEG network or expand it geographically in sort of regional ways. So there are smaller opportunities and we’re looking at those. But then there are larger chunkier opportunities which are particularly appealing, because we do think that this industry, the fiber-to-the-tower industry, the backhaul industry is one that requires scale. And so, we do want to continue scaling up that business, particularly, as we start thinking about larger dark fiber deployments and larger small-cell deployments. Mark, you want to take this…?

Yes, then on the capital question, as you know, we don’t have an immediate need to access the capital markets today. Our liquidity position today is exactly where we thought it would be post the closing of the PEG transaction. And I think, right now, we can - we have the luxury of being patient and optimistic in terms of when we access the capital markets. That said, as you probably know our securities have performed very well this year. And partly in line with the high-yield market recovery, but also I think from partially from the very good reception we’ve had from the investment community to the PEG transaction, more broadly our diversification strategy. So all that said is, I think when we have a need and we decide to access the capital markets, I’m confident that we can do so very effectively.

Okay. Thank you. And then, Mark, well, I have you just things of housekeeping. But on the pro forma cash balance that you cited of $106 million, which was after PEG, so that was down about $60 million from the end of the quarter. Is that just from normal operations or was there some transaction that took that cash down?

Yes, so there - yes, so in between there we have obviously - there is a number of things that impact our cash, one it would be interest expense. We have term loan amortization and we have other just year-end expenses as well. So that’s the reason for that.

Okay, so normal course. Okay, great. Thank you very much.

Sure, thanks.

Thank you. Our next question is from Eric Pan of J.P. Morgan. Your line is open.

Good morning, guys. Thanks for taking my questions. Just on PEG in the guidance, the implied annual revenue growth based on the guidance is about 8% compared to $76 million last year. Can you bridge that to the 25% last quarter annualized growth in 4Q that was cited when you announced the acquisition?

Sure, Eric. So, first of all, I would say that the growth that we’re expecting this year is right in line with what we expected when we bought the business or announced the acquisition back in January. So it’s right in line and when you look at the 25% historical growth that is a reflection of PEG participating successfully in the first wave of the fiber to the tower land grab. As you know there was a real ramp-up in that, I guess, industry vertical during the period of time, that PEG was growing and they were very successful on getting a lot of sites. As part of our thesis on buying the business is that that industry is in a bit of a lull right now and carriers are formulating the next stage of their network investment both on towers and backhaul. And we’re seeing that not only with PEG, but on the other backhaul businesses that we’re looking at across the industry. And our thesis is to use this year as an investment year to position PEG for the next phase of growth, which we think will be adding new sites, a lot of dark fiber, bringing small-cells into the equation, and as we talked about, backfilling the PEG network with wholesale E-Rate and potentially enterprise. So we’re excited about the growth potential beyond the 8% this year. I think the conversations and the activity that we’re already seeing with the carriers and the groundwork that they’re laying on discussions they’re having with the industry reinforce our view that the opportunity will be tremendous and we’ll start seeing more of that growth in 2017 and certainly in 2018 and beyond.

So is the right way to think about the revenue trajectory going forward is high-single-digits rather than double-digits?

I think, we don’t want to get beyond 2016 guidance at this point, Eric, but I think later this year, early next year we’ll be in a position to start talking about guidance beyond that.

Hey, Eric, this is Mark. Let me just give you, maybe a couple of data points on PEG relative to what kind of we said with the - when we made the initial announcement. So I think at that point in time we said that annual revenues under contract were about $70 million. Today they stand at $75 million. And I think that previously we had said that the aggregate revenues under contract were $300 million. Today, they stand at $307 million. So, I’d say also that I think PEG had a very good first quarter 2016, came in with revenues about $20.2 million in adjusted EBITDA on their basis accounting not on ours, so before purchase price adjustments. Their adjusted EBITDA for the first quarter came in at $9 million.

Got it, and thinking about the CapEx, Just to clarify you said you expect that success-based CapEx to be about $12 million to $16 million. That’s on top of the maintenance CapEx of about 5% revenues, is that correct?

That’s correct. And those are both eight-month numbers.

Okay. Those are eight months’ numbers. And in your 8-K last week on PEG, they had a capital intensity of more than 50% in 2015. Does that mean the CapEx needs won’t be nearly as high going forward?

Yes, I think that’s right. And we’ve also pointed to the fact that, we’re going to try to have more of an emphasis on the near-net wholesale enterprise markets in E-Rate as well. And all those were utilized in the existing network more than some of the retail builds that they’ve done in the past. And so, yes, we do expect to capital intensity to go down relative to their historical performance.

Can you ballpark that for us, is that 25% to 30%?

Well, I’d say, it’s on a full-year basis there - so, I mean, I think if you just take the ranges I gave you for eight-month and annualize that, that’s what we would expect for the full year this year. Don’t really know what to expect for 2017 yet, until we get farther into the year.

Got it. Thank you for taking the questions.

Sure thing.

Thank you. Our next question is from David Barden of Bank of America. Your line is open.

Hey, guys. Thanks for taking my questions. I guess, my first question, I guess, Kenny, is now you’ve been separated on your own for now a little bit more than a year. During this year we’ve talked about all these hundreds of meetings, and hundreds of prospects, and dozens of kind of NDA-level conversations. And yet, we’ve really only seen one material deal in these two little tower things. I guess, it kind of feels like, either something should be happening that’s not happening, or maybe the strategy is pivoting a little bit more from trying to become an acquisition engine to really focusing on more becoming an operating company. If you could kind a give us a little bit more color on what CSAL is, acquisition engine or kind of a nascent operating entity will be kind of a helpful perspective to get here? The second thing would be, just understanding a little bit more about the Summit business. Were there any assets involved in that transaction? I don’t see any disclosures on that other than they have some rights to do, I guess, built-to-suits on a go-forward basis? And then, just the last part of the question will be, just thinking about CapEx, I guess, this $25 million of CapEx for the Mexico build there is $5 million of maintenance for PEG, $14 million midpoint success-based for PEG. Is there anything that’s going to go into the Windstream tower portfolio development on top of that or are any other things were kind of missing? Thanks.

Good morning, David. I’ll take those in order and let Mark take the CapEx question. So the pipeline development over the course of 2015, the meetings and NDAs and all the work that we did, it was very, very important for us in terms of assessing the opportunity set out there, meeting lots of companies, looking at lots of opportunities and giving us the full spectrum of opportunities and return potential that were available to us. We never had any intentions of trying to execute on that many deals or that many opportunities. It was more trying to prioritize the ones that made the most sense for us. And I think that effort has resulted in where we are today and where we are going with our strategy. So we are very pleased we had that level of dialogue with the industry and think it’s set us up for the next several months and the next few years. In terms of your question about operator versus M&A aggregator, I would say, we’re going to continue to be both. And I think that the two strategies beat up on themselves. I think there, if you take PEG for example, the ability to operate that business and deploy our capital to build fiber for the carriers is a very attractive return opportunity for us. And so, we’re going to continue to do that in a success-based CapEx way, but PEG also affords us the ability to be acquisitive to get scale and to bring M&A synergies to the table. So from a cash flow perspective, we think PEG is a great example of being both an operator plus an aggregator. And we’ll continue to do more of that in all of our asset classes. And with respect to Summit, there were some assets that came along with the team in the acquisition. The assets are with a - largely with again a large international wireless carrier and the same carrier with whom we have the built-to-suit MLA in place now. So we’re very excited about that. And I think that that team is scalable not only in Mexico, but frankly scalable across the border here into the U.S.

Hey, Dave, this is Mark. On your CapEx question, I think you said $25 million of capital on Mexico. That’s not what we said. The 25 that Kenny referred to was relative to ground leases. On PEG, we expect success-based CapEx of $12 million to $18 million for the balance of the year. Maintenance CapEx was $3 million. So those are the components of the CapEx.

And nothing on the Windstream portfolio?

Yes. I’m sure. I should have mentioned also on the Summit Wireless, I did say that we expect $1.7 million for the tower construction, but nothing related to Windstream.

Got it, all right. Thanks guys.

Sure, thanks.

Thank you. Our next question is from Frank Louthan of Raymond James. Your line is open.

Great. Thank you. Talk to us little bit more about the investment you’re saying, you’re making in PEG. Is this just in headcount for sales or is this in some back office and tools and so forth. And then on the tower, the ground leases, can you be a little bit more specific in what sort of the annual revenue looks like with the $25 million? And just give us a little more update on how that market works a bit - are there annual escalators or anything else that could help with growth in that?

Yes. So this is Mark. On the first part of the question on the investments in PEG, so, yes, those investments are solely related to the sales organization. And so, as we mentioned, we want to have more of a targeted emphasis on the markets I talked about earlier. So that was the wholesale enterprise E-Rate and the near-net cell-site backhaul opportunity that we mentioned when we initially made the PEG announcement. And so we are in the process of recruiting, I would say, senior sales professionals as well as kind of mid-level sales professionals, primarily to go after those markets more aggressively and more targeted.

Okay. And the revenue opportunity and potential growth in escalators for the ground leases?

Yes. So the ground leases as Kenny said, they’re kind of in the mid-to-high single-digits, low-double-digits on the initial yields. The escalators tend to be, let’s say, some of those are 3% annual. Some of those are - occur every two or three years. And then they have kind of cumulative escalators that on an annual basis tend to be in the 2% to 3% range as well.

Okay, great. All right, thank you.

Sure, thanks.

Thank you. Our last question is from Barry McCarver of Stephens Inc. Your line is open.

Hey, good morning, guys. Good quarter and thanks for taking my question. Just two, I guess. First off, you talked about an organic opportunity for PEG that was already in the pipeline on the Gulf Coast. Just a little more color on the timing of that and then just confirming that these investments are as you see now all are potentially readable investments?

Yes. So, yes, Barry this is Mark. So, yes, the tower construction we’re doing down in Mexico. That will be inside the read, the ground leases will be inside the read as well. So, yes, there are readable investments.

And, Barry, the timing on the dark fiber, when construction will start, this year; and in terms of your question about what’s in the read, we do expect dark fiber build eventually to move into the read as well.

Okay. Very good, thanks, guys.

Thank you.

Thank you.

Thank you. And that does conclude our Q&A session for today. I would like to turn the call back over to Mr. Kenny Gunderman for further remarks.

Thank you. Thank you all for joining our first quarter call and we look forward to seeing you on our next call.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day.