SBA Communications Corporation
Q3 2008 Earnings Call Transcript

Published: 31 Oct 2008

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the SBA Third Quarter Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions). Just to remind you, this conference is being recorded. I would now like to turn the conference over to Ms. Pam Kline, Vice President of Capital Markets

[Pam Kline:]

Thank you for joining us this morning for SBA's third quarter 2008 Earnings Call. Here with me today are Jeff Stoops, President and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer, and Brendan Cavanagh, our Chief Financial Officer. Before we get started, I need to get the standard SEC disclosure out. Some of the information we will discuss on this call is forward-looking including but not limited to any guidance for 2009 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. Particularly, those set forth on our Form 10-K for the fiscal year ended December 31, 2007, and our quarterly reports on 10-Q 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 statements we may make. Our statements are as of today, October 31, 2008, and we have no obligation to update any forward-looking statements. 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 financial measures and the other information required by Regulation G has been posted on our website, www.sbasite.com. Brendan, would you comment on our third quarter results?

[Brendan Cavanagh:]

Yes. Thank you, Pam. Good morning everyone. As you saw from our press release last night, our third quarter financial results were excellent and we exceeded the mid point or were above the high end of our guidance for site leasing revenues, tower cash flow, adjusted EBITDA, and equity free cash flow. Total revenues were $118.7 million, up 15% over the year earlier period. Site leasing revenues for the third quarter were $105 million or 24% increase over the third quarter of 2007. Site leasing revenue included a onetime benefit of $0.8 million. This leasing revenue growth was driven by both organic growth and acquisitions. Site leasing segment operating profit was $75.8 million. Site leasing contributed 98.9% of our total segment operating profit in the third quarter. Tower cash flow for the third quarter of 2008 was $76.6 million or 29.4% increase over the year earlier period. Tower cash flow margin was 77.7%, up 260 basis points over the year earlier period. Our services revenues were $18.2 million, compared to $22.2 million in the year earlier period or an 18.1% decrease. Services segment operating profit was $868,000 in the third quarter of 2008, compared to $2.9 million in the third quarter of 2007. Services segment operating profit margins were 4.8% in the third quarter of 2008, compared to 13.1% in the year earlier period. Kurt will discuss services in more detail shortly. SG&A expenses for the third quarter were $12.5 million including non-cash compensation charges of $1.6 million and a onetime severance expense of $0.9 million. This compares to SG&A expense of $11.3 million in the year earlier period including non-cash compensation charges of $1.5 million. Other expenses for the third quarter included another than temporary impairment charge of $0.5 million related to certain auction rate securities held at September 30, 2008. As discussed previously, the company still holds three auction rate securities with a par value of $29.8 million which had a fair value of $8.8 million and September 30, 2008. Net loss during the third quarter was $16.4 million, compared it a net loss of $17.5 million in the year earlier period. Net loss per share for the third quarter was $0.15, compared to a net loss of $0.17 in the year earlier period. Weighted average shares outstanding for the quarter were $107.4 million. Adjusted EBITDA was $66.9 million in the third quarter of 2008 or a 26.7% increase over the year earlier period. Adjusted EBITDA margin was 57.3%, up from 52.3% in the year earlier period. Once again, equity free cash flow increased materially in the quarter, reflecting strong adjusted EBITDA growth. Equity free cash flow for the third quarter of 2008 was $39.3 million, a 30.1% increase over the year earlier period. Equity free cash flow per share for the third quarter of 2008 was $0.37 or a 27.6% increase over the year earlier period. In the third quarter, we acquired 567 towers build 22 towers and end the quarter with 7,484 towers owned and the rights to manage approximately 4,300 additional communication sites. Total cash capital expenditures for the third quarter of 2008 were $45.9 million consisting of $2 million of non-discretionary cash capital expenditures such as tower maintenance and general corporate CapEx and $43.9 million of discretionary cash capital expenditures. Discretionary cash CapEx includes $31.3 million incurred in connection with acquisitions and earn-outs; $5.8 million in new tower construction and $2.1million for augmentations and tower upgrades. With respect to the land underneath our towers, we spent an aggregate of $5.4 million to buy land and easements and to extend ground lease terms. At this point, I'll turn things over to Pam, who will provide an update on our liquidity position and balance sheet.

[Pam Kline:]

Thanks Brendan. SBA ended the third quarter with $1.555 billion of commercial mortgage-backed pass-through certificates outstanding, $350 million of 0.375% convertible senior notes, $550 million of 1.875% convertible senior notes, $225.4 million outstanding on our $285 million senior credit facility, $150 million principle balance outstanding on our Optasite credit facility, and $476.6 million of cash, short-term investments, and short-term restricted cash resulting in net debt of $2.4 billion. During the quarter, we issued 7.7 million shares in connection with acquisitions and our share count at the end of the quarter was 113.7 million. The company's net debt to annualized adjusted EBITDA leverage ratio was 8.8 times at September 30, 2008. Our net secured debt to annualized adjusted EBITDA leverage ratio was 5.4 times. Our auction rate securities are not included in our calculation of liquidity or net debt. As of quarter end 87% of our debt was fixed rate and the weighted average cash coupon on all of our debt was 4.25% per year. Our third quarter cash interest coverage ratio of adjusted EBITDA to net cash interest was very strong 2.7 times. Since the end of the quarter, we've used a portion of our substantial cash balances to close the Light Tower transaction and to repurchase debt. Since September 30, we've repurchased $83 million of our 0.375% convertible senior notes which were due in 2010 in privately negotiated transactions for $60.9 million in cash. Additionally, we exchanged 2.735 million shares of Class A common stock for 60.5 million of our 0.375 senior convertible notes. Based on the discounts, we were able to repurchase or exchange these notes at we achieved an average effective risk free yield to maturity of approximately 17%. As of today, we have $206.5 million of our 0.375% convertible senior notes outstanding. On a pro forma basis, for the debt exchanges and repurchases, and assuming the Optasite transaction closed as of July 1, 2008, our net debt to annualized adjusted EBITDA leverage ratio was 7.9 times at September 30. I will now turn it over to Kurt to discuss our operational results.

[Kurt Bagwell:]

Thanks, Pam and good morning. As I was reviewing our results and putting together my notes for the call this morning, I realized yet again what a great business model we have. As you have seen in the numbers, our growth is strong and steady and the efficiencies provided for our scale are tremendous. Our customers continue to report strong results in terms of subscriber additions and usage growth for both voice and data. The quality value and inherent safety in utility of wireless services has become evermore clear in times where people are cutting back on almost all other spending. In regards to our third quarter results, our gross tower leasing revenues signed in the quarter was again very solid and we expect Q4 to be similar to Q3 based on our robust leasing backlog. We saw very strong activity from AT&T and T-Mobile both for new leases and for 3G UMTS amendments. The 3G overlay activity seems to be accelerating in both cases as the iPhone and other data device demand increases with the user base. We've also seen substantial leasing from [program security] called roaming over bills which is why they increased their footprint in areas where they are seeing the highest levels of roaming so they can increase their margins. For the quarter, year-over-year same-tower cash leasing revenue and same-tower cash flow growth was 10% and 14% respectively. Rental rates of state farm and our average cash basis rents across all of our 18,381 tenants is up over 4% in the past 12 months to $1,859. During the third quarter, 77% of our new revenue signed came from new tenant leases and 23% from amendments to existing installations. We like this percentage mix as it shows strong demand for new locations, as well as a healthy influx of additional revenue from our existing tenants. Wireless backhaul continues to gain momentum and we feel strongly that this trend is here to stay due to the tremendous needs of 3G and 4G technologies. We also expect that fiber backhaul will continue to grow dramatically at our sites and we welcome these providers to bring in the bandwidth to our clients need to maintain and grow their quality of service. Our new tower build team completed 22 towers during the quarter, putting us on schedule to meet our stated goal of at least 80 in the calendar year 2008. We have a strong and diverse backlog of new tower build sites in our pipeline. The leasing results on these sites have exceeded our expectations and the leased up results of the average site in our portfolio. We completed the Optasite transaction in Q3 bringing 528 towers and 38 managed sites into our portfolio. The transition went very smoothly and we are already signing new leases and amendments on these properties. The Light Tower transaction was completed on October 20 and those 340 towers and five managed sites have also been integrated into our systems and the tenant sales process commenced immediately. These two transactions in addition to our summertime tower co-transaction continue to demonstrate the scalability of the tower model as the resources added to handle these sites was minimal. On the operational side of our portfolio, both OpEx and CapEx continue to be predictable and within our plans. Maintenance CapEx for Q3, once again came in at an annualized rate of less than $1,000 per tower per year. As we have been preparing budgets for 2009, we've been able to once again maintain the same unit costs for all OpEx categories using scale and efficiency to our advantage. Lastly in the expense area, the percentage of our towers for which we own or control for more than 50 years the underlying land was up to 26% and we feel there is much more opportunity with the new towers we recently acquired to advance that percentage even further. Unlike on the leasing side, where we captured customer activity broadly, our services business continues to be more concentrated. Our third quarter services results show that, as we are not able to satisfactorily diversify our backlog after this brand activity slow down. Q3 services revenue was basically flat with Q2 at $18.1million, but profitability was down substantially. Q4 is expected to be better than either Q2 or Q3 and our outlook for 2009 is better than what we believe our full year 2008 will end up being, although the services business continues to be very competitive. We are committed to improving services and we continue to review our options for improvement with respect to that segment. As mentioned on our last call, in addition to picking up towers and managed sites from Light Tower this past week, we also picked up five existing data networks in New England, with one more in construction in the Back Bay area of Downtown Boston. We look forward to diving into this niche business and moving it forward in the most profitable way possible. At this point, I'll turn the call over to Jeff.

[Jeff Stoops:]

Thanks, Kurt and good morning everyone. Let me start by welcoming Brendan Cavanagh, our new CFO to his first earnings call. The third quarter was another strong quarter for us for site leasing revenue continuing a trend that goes all the way back for us to the beginning of 2004. Our backlog remains solid and all of the other data points we see tell us that leasing demand will stay strong through 2009 and beyond. Our customers are in the middle of significant additional investment in their networks to be able to deliver and capture consumer demand for high quality 3G service across all of their service areas. The amount of investment dollars flowing into the development of content and applications for mobile data service is already large, growing fast, and expected to drive material additional demand by consumers for 3G and 4G service. 4G equipment and planned deployments are beginning to take shape and will be a source of new business for SBA for years to come with the first true provider, Clearwire, expected to become very active later this year or early in 2009. New market entrance Leap, Metro, and now Cox have plans for significant new network launches over the next couple of years. All of this adds up to a very favorable demand environment for SBA for the foreseeable future. While we are optimistic, we are also mindful of the difficult economic and capital markets conditions we now face and we'll likely continue to face well into 2009. We do believe wireless in general and towers in particular will do better in the current environment than most other businesses. This is the second opportunity for this management team to guide SBA through difficult economic times. Looking back to the last time, the downturn of 2001 to 2003, there are a number of important differences between then and now. Wireless is a much bigger business now for both the consumer and for our customers, the wireless service providers. For multi-business companies like AT&T and Verizon, wireless has become their most important business segment. In the earlier period, no one was sure whether wireless was a disposable luxury item or a staple. Wireless results in the current economy certainly argue that wireless has become a staple; not only because of its continued growth, but its growth against declines in wire line use. For those consumers who have to make a choice, they are making it and are choosing wireless over wire line. Looking back, wireless capital spending in the 2001 to 2003 period remained substantial. Our customers are much stronger today than five or six years ago with much greater cash flow and ability to invest in their networks. Our customers have all chosen a path that emphasizes smartphones and data use as a way to increase ARPU and reduce churn. This path requires some material level of continued network investment. Over the long term, unless our customers want to abandon their data initiatives and open themselves up to increased churn, we believe they must and will choose to continue to invest in their networks. As is the case with our customers, SBA is a much stronger company than we were five or six years ago. We are very well positioned to weather a rough economy and produce materially increasing cash flows in 2009 and beyond. As you can see from our 2009 outlook, we are projecting materially high and for us record amounts of equity free cash flow next year. We will see a full year of results from the towers we acquired this year and we expect organic leasing growth to once again be strong. The components of our equity free cash flow outlook for 2009 are very predictable and substantially fixed in nature. Substantially, all of our 2009 site leasing revenue was already booked and new leases or amendments really need to be signed by the end of June of 2009, to have any impact on 2009 financial results. Our operating expenses are stable and not very susceptible to material swings. 87% of our debt is fixed rate. Our need to spend maintenance CapEx to support our towers continues to be very small. We have no debt maturities in 2009 and with greatly reduced plans for discretionary spending and materially higher adjusted EBITDA we expect to reduce leverage materially by the end of 2009. Our outlook implies we will end 2009 with net debt to quarterly annualized adjusted EBITDA in the high sixes, and excluding our 2013 convertible notes, the ratio would be approximately 5.0 times at the end of 2009. That puts us at excellent shape for 2010 and 2011 refinancing obligations. I want to spend a few minutes on credit and refinancing since I believe concern over our refinancing is the primary reason why our stock is trading at such undervalued levels. Of the two main concerns driving markets lower, SBA is more impacted by credit concerns than it is by recession. On the credit side, government stimulus appears to be working, LIBOR is falling rapidly and we believe banks and others will resume lending to creditworthy borrowers well before the second half of 2010 when we have our first debt maturities. Towers with their predictable and growing cash flows have always been a preferred and more creditworthy borrower. Our banking relationships tell us they expect towers to once again lead the list of most desirable borrowers as we emerge from debt markets. We have multiple paths, we can take to comfortably refinance our 2010 and 2011 maturities, all paths can take advantage of the tremendous flexibility we have to separate and then combine our towers into multiple segments for financing purposes. Our recent debt repurchases improve all of the paths available to us as would additional repurchases of debt at a discount which we intend to do given the right opportunity. I'm going to outline one specific refinancing path, not because it is the one we will necessarily take, but because it is the most straightforward and easiest to understand. With cash on hand and projected equity free cash flow after discretionary spending between now and the second half of 2010, we can pay off all of our remaining 2010 convertible notes and our two credit facilities except for approximately $50 million to $100 million and less if we repurchase additional debt at a discount. At that time, we expect to have over 3,000 towers outside of our CMBS generating over $90 million in run rate adjusted EBITDA. If you add to that the 1,700 towers that supported our $405 million CMBS due on November 2010, which by then should be producing an additional of approximately $100 million of run rate adjusted EBITDA, we'll have 4,700 towers producing approximately $190 million of run rate adjusted EBITDA that we could use to obtain approximately $500 million or less of refinancing debt necessary in the second half of 2010. That's less than 3.0 turns of leverage against available assets, although we would target using no more than $125 million of our run rate EBITDA to obtain four or more turns of leverage and save the rest for 2011 where a similar approach has us equally comfortable about our 2011 refinancing obligations. We are very confident about our ability to obtain four turns of first lien secured leverage. With an expectation now of an extended period of low LIBOR even with higher than historical spreads, we believe our all in refinancing costs will be reasonable. You should also assume, we are prepared to move quickly to take advantage of market opportunities to refinance well ahead of the second half of 2010. Longer-term, we may find it appropriate to revise our target leverage range to five to seven turns to maximize shareholder value which will give us plenty of ability for future and additional growth. We will be finalizing our thinking on that topic as credit markets stabilize. With respect to future portfolio growth, we intend to resume additional acquisitions for cash at such time as we see sufficient improvement in the credit markets. In the interim, we may pursue some acquisitions for stock when we can do so on an immediately accretive basis and the acquisition otherwise meets our investment returns and criteria. I believe any acquisitions for stock however are likely to be relatively small in size. We continue to believe that acquisitions of high quality growth towers for the right price is an excellent way to increase shareholder value. Lease up and calculated returns on our historical acquisitions have been excellent and as we have said earlier, we believe the operating environment will continue to be favorable for the foreseeable future. We like the assets we purchased this year a lot, and we believe they have excellent growth prospects, which will shine through in 2009 as our results move through the year to become increasingly driven by organic growth as oppose to by portfolio growth. We remain plugged into the selling community, and as a result, we do not believe we will miss many opportunities as most of the sellers we have speak to have said they will wait for market conditions to improve. When we do decide to get materially active in acquisitions again, I'm confident we can do so very quickly. While we will not go into 2009 with our typical goal of 5% to 10% portfolio growth, we could still be there by year end with an improvement in the capital markets. With reduced leverage and increasing equity free cash flow, we will be well positioned for future growth. In the meantime, the 25% portfolio growth we will experience in 2008 is more than enough to keep us on our multi-year path of material portfolio growth, even if 2009 turns out to be a lower portfolio growth here. As always I want to close by thanking our employees and our customers. We have accomplished a lot so far this year. I'm confident their contributions will remain strong as we look to a very good finish to 2008 and a solid 2009. We have a great business that performs well in both good economies and bad and we look forward to reporting future results. And Paul, at this time we are ready for questions.

[Operator:]

(Operator instructions). First question is from Clayton Moran, Stanford Group. Please go ahead.

[Clayton Moran:]

Good morning. I have just one question, but it's really separated into a few different parts. Around the 2009 guidance, if you could give us more insight into some of the assumptions on the items I'm looking for would be; what you're assuming in regards to churn, what it implies in regard to same tower growth, what you're assuming in regards to Clearwire, what's the scenario whereby you get to the bottom end of the site leasing revenue range? And then lastly, do you assume any contribution to EBITDA from the site development segment?

[Jeff Stoops:]

So, that was one question, clay? Let me give that a shot. As we mentioned in the press release, we are looking at slightly higher in absolute dollar incremental revenue growth next year than we will experience in '08. And very roughly, that's because we do expect some contribution from Clearwire and Cox and basically we expect everything else on every other customer that we've had in '08 to be relatively similar in terms of activity in '09. That's roughly how we got there. The actual amount for Clearwire is not that great, because as you know, given the way our numbers work, you really have to have leases signed up by the middle of the year to impact the 2009 financial results. So, you're only going to really get a half year of activity operationally that will go into the 2009 results. And roughly, Clay, Clearwire is in there for about $1.5 million. Obviously, that will grow quite a bit in 2010 but because of the timing of the way things work operationally, that's the continue probation for '09. In terms of same-tower, it's on a cash basis, it's around 10%, although, you don't see that in the financials because we're starting to lose GAAP revenue based on the impact of the FAS 13, straight lining of revenue impact as mentioned in the press release. But other than that, we're really expecting a stable year as we move from '08 into '09 again with a little slight increase in the cash contribution from Clearwire and Cox, but it doesn’t really add a whole lot to the expected '09 times numbers and I think you'll see that a lot more in the '10 numbers.

[Clayton Moran:]

Okay. And churn is roughly steady at 1% or just over 1%?

[Jeff Stoops:]

Yeah, I think we're between 1% and 1.5%, right Brendan?

[Brendan Cavanagh:]

1%.

[Clayton Moran:]

And the contribution from site development to EBITDA?

[Jeff Stoops:]

Not much. We don't really kind of get into that level of detail. But after the allocation of SG&A, it will have a positive, we're projecting a positive contribution, but not a materially positive contribution.

[Clayton Moran:]

Okay. And then lastly, can you talk about the 458 million bottom end of the site leasing revenue range? Does that assume Clearwire doesn't happen and that carriers pulled back a little bit, how do you get to that number?

[Jeff Stoops:]

Yeah. You'd have to have all those things and probably some more. I mean, I don't really think we're going to be at the bottom end of our revenue guidance.

[Clayton Moran:]

Okay. Thanks, Jeff.

[Operator:]

Next question is from the line of Ric Prentis with Raymond James.

[Ric Prentis:]

Yeah. Hey, good morning guys. Couple of question for you. Jeff, as you think of your balance sheet, how much cash on hand do you want to keep on the balance sheet and with that I mean cash, short-term investment, restricted cash, etcetera?

[Jeff Stoops:]

We don't need to keep a lot and with the current focus, I mean let me back up. We're in this Ric and we've always been in it to maximize shareholder value. Right now I think, shareholder value is being depressed by concerns and uncertainties over the 2010-2011 refinancing obligations that we have. So with that being our focus, to remove that concern, maximize shareholder value as a result, the money that we would be holding is ultimately going to go in these current market conditions to repay and refinance that debt. So we don't see any real reason to sit on cash at 2.5% or whatever it is we are earning, it might not even be that, when we can go out and retire debt particularly at a discount and actually begin to make not only progress but substantial progress when you combine debt at a discount. So, we don't need to hold, particularly with a reduced view on discretionary spending. I don't know; $40 million, $50 million would be well more than sufficient. I don't know if we'll ever get down that low, but we could.

[Ric Prentis:]

And then speaking of buying back your debt, little hard to see where the debt's trading and almost kind of by appointment some of the stuff out there. Where are you seeing the debt trading now, is it still in the 80s, has it moved into the 90s yet?

[Jeff Stoops:]

A couple things have happened. I mean one of the reasons that I believe our stock took the low dip that it did as we had some forced selling by some of our hedge fund holders that same dynamic also caused some of the holders of our convertible notes which were in a lot of hedge funds to look for liquidity. And because of our convertible notes are primarily equity like in their nature, they do have a high correlation to our stock price. So, as our stock price was lower, we took advantage of that and some of the pressure on the hedge fund holders for liquidity to buy that stuff at really good rates, which I think blended out to less than 70. I think today those notes would be certainly higher with the higher stock price. They are probably somewhere above 80 today, which we will monitor that and we will kind of use that pricing to guide us as to whether we continue to be interested in the '10 converts or whether we move our interest to the CMBS which don't really trade so much in correlation to our stock price, but they trade in correlation to different debt issues and the need for liquidity with some of those holders. So, we actually have a lot of opportunities there. I mean there is plenty more out there than we will actually have the cash to pursue and as a result, I think we'll be selective and have the opportunity to acquire some of this stuff at a very good price. But the comments that I laid out earlier don't even assume any of that. So, anything we do additionally with the repurchases at a discount can only improve the profile.

[Ric Prentis:]

And then as you think about your available capacity on the revolver, where is that at? Is it like around $60 million and how do you think about drying on that to take our other higher cost debt maybe putting in place that they will last longer, how is that going to play into your thinking Pam may be?

[Pam Kline:]

We have about $60 million left Ric, but we are not able to under the existing credit facility to use that to repurchase debt. We can use that for tower acquisitions, new builds and ground lease acquisitions.

[Ric Prentis:]

Got you. Okay, thanks, guys.

[Jeff Stoops:]

Let me just add to that, Ric. What we could do, because the little discretionary spending that we do have guided to would all fall under that. We could actually use a credit facility to fund the discretionary spending that we have guided to in '09 which will free up additional cash. So, it kind of get you to the same spot.

[Ric Prentis:]

Right, so I think at $25 million to $50 million in discretionary cap, you could use the available all on the revolver to go after that?

[Jeff Stoops:]

Yes.

[Ric Prentis:]

Okay. Very good. Thanks.

[Operator:]

We have a question from Jonathan Atkin with RBC Capital Markets.

[Jonathan Atkin:]

Yes. So, just with respect to the '09 outlook, you kind of talked about Cox and Clearwater being additives to the outlook relative to '08 but that the rest of the carriers would be relatively flat. I'm curious with respect to the emerging carriers Leap and Metro that are expanding their footprint. Do you think with regard to those carriers, you are seeing more of a weighting towards one year or the other or would that be kind of equal impacts in '08 versus '09? And your comments on Clearwire, I was curious about whether you start to see significant levels of site leasing sooner than mid year or is there some sort of a multi-month lead time that you expect to see before leases get signed in large quantities?

[Jeff Stoops:]

I'll say a few things and Kurt jump in and add your thoughts. But on the Leap, Metro has got a lot going on right now and will continue to have a lot as they look to meet their 2009 launch dates. So, we expect that activity to continue certainly all the way through past the middle of '09, Jonathan which is what certainly impacts the '09 reported results and I think similar with Leap. Kurt, you may have some more color?

[Kurt Bagwell:]

No. I think that's right. Metro has had a huge year this year, but they've got some follow on build out they've got to do in some of these big northeast markets and where they're going to have a lot to do next year as well and we hope Leap actually is bigger next year than this year.

[Jeff Stoops:]

And on the Clearwire, I want to make sure everybody understands my comments. The comments really relate to the operational relationship of when leases need to be signed for them to show up in our financial results. I'm assuming, Clearwire comes out of the blocks pretty quick first of the year. But even if they do, Jonathan, take a half, basically you get a half year of operational activity that impacts the 2009 leasing results because there's a one to two quarter lag, which is why we made the comments. But from a, I think a bigger picture perspective, we are engaged today in a number of different conversations with Clearwire that cause us to continue to believe that when their merger deal does close, they will hit the ground running very quickly.

[Kurt Bagwell:]

Yeah. And a lot of that is based on the fact also that they are going to utilize the existing Sprint, Nextel locations for a lot of their broadcast points. So amending a site can happen very quickly versus new searchings.

[Jonathan Atkin:]

And then on the target levered ratio, it sounds like that's coming under reassessment and it might be awhile before you kind of reach any conclusions, but what are the some of the factors that you'll be looking at as you assess whether it's five to seven or maybe some lower range?

[Jeff Stoops:]

Yeah. I think operationally, we've always been comfortable at eight. The business throws off the kind of cash flow and it grows, but now we'll have to see where things table out in terms of their relationship of cost and certainty refinancing against leverage. And once the markets stabilize a bit Jon then we'll look at relative accessibility of debt and its cost at various leverage levels and target the level that maximizes equity free cash flow per share growth over the long-term. And it's hard for me to give you an exact number today because it's moving around but you can trust that we're thinking about that all the time and as market stabilize, we'll have a more definitive view for you.

[Jonathan Atkin:]

And the M&A side, it sounds like you are [biased] to enter for the time being. What are you seeing about the general pace of smaller scale M&A in the private markets either the pace or multiples?

[Jeff Stoops:]

I think it's pretty slow. I mean, everybody gets it. They understand what's going on in the world today. They understand that credit markets are tight and that has a direct impact on the willingness of companies like us to continue at the pace we've been proceeding at the last couple of years. I think where folks do need to sell there are opportunities for reduced prices and there will be some of that. I don't think that will be that great. I think more likely you'll have folks who say I don't need to sell and I think this is a crazy time in terms of credit and its resulting impact on valuations and I'm going to wait this out for a while as well. I really don't think you'll see a lot of distressed sellers who sell out at the bottom here.

[Jonathan Atkin:]

Thank you very much.

[Operator:]

We have a question from Jason Armstrong with Goldman Sachs.

[Jason Armstrong:]

Great. Thanks good morning, a couple of questions. First just to get back to the debt question, Jeff, I think you mentioned in your comments obviously there is a significant portion of your towers outside of sort of the existing CMBS plan. So, opportunities, potentially to borrow against those towers, I guess what many of us especially in the equity community struggle with is what the rate structure is going to look like given huge spreads, limited transparency, etcetera in some of these debt markets. So, can you maybe step back and give us a framework for what rates in this environment you'd be comfortable deploying this strategy if needed? And then second getting just sort of getting back to the churn rates in the business and the outlook; Sprint has been sluggish for this part of the year, I am just wondering if you saw any sort of pick up in the quarter and how this extents into guidance. I know for the big four you sort of said status quo into '09. Is the interpretation there that Sprint continues to be extremely sluggish into '09? Thanks.

[Jeff Stoops:]

I'll answer the last one first, Jason, which is yes. I mean, Sprint didn't contribute much to '08 and we are prepared about our 2009 outlook with similar expectations. I mean, on the debt, obviously I don't know exactly what the spread will be in 2010. But think this one through with me, and I go back a lot to the 2002-2003 time period. You've got an environment that's likely to be sluggish economically. LIBOR is to be low and stay low as we move into 2010 and 2011. I mean, we're borrowing today at 150 to at 6.9 turns 300 over LIBOR. Even if you take that up dramatically, with the low LIBOR, you're talking about refinancing rates that aren't really too materially higher than they are today and certainly way below what we have read about some analysts thinking is it's kind of the doomsday scenario. So, I think we're going to be helped from this low LIBOR kind of sluggish recession environment exactly as we were back in 2002-2003. I think spreads will be higher, but I think by that time you add the two together, it's not going to be all that bad. And this is what I believe even more so with absolute degree of conviction, banks will lend. They will say, if I can borrow Fed funds at 1% and lend it at 400 spread SBA at 5% or pick any number there that you think is reasonable, that will happen because banks will need to make money and towers have always been right at the very top of the list in terms of borrowing. So, while I can't tell you exactly where that spread will be in 2010, I feel really good about our ability to work through these economic times and come out on the back end with a result that's a whole lot better than people are expecting.

[Jason Armstrong:]

And Jeff maybe as it just relates to your comfort level that the ability to sort of find windows or pockets of opportunity here and extend sort of at least the term structure of the debt, is there a certain rate, can you tell us if you got the opportunity to do a lot of long-term debt at 8%, would that be acceptable? Is there some sort of rate you can throw out there as a framework for us?

[Jeff Stoops:]

No, I don't really want to do that for competitive reasons. And you can assume though that we've had a history of being extremely creative and opportunistic in the financing markets and we will continue to do that. We'll have a lot of markets that we'll be looking at. We could do additional converts, we could go back to the high yield market, we could obviously and certainly look to a broadened bank market and the Term Loan B market. We'll see where CMBS is two years from now. We certainly wouldn’t have to do, we could stay all investment grade in the CMBS market and easily refinance what we're talking about. So I will say this to you though, Jason. To remove what I believe is a penalty being applied to our stock today. We will take advantage of opportunities that will lend certainty to the longer-term as they arise.

[Jason Armstrong:]

Okay great. Thanks.

[Operator:]

You have a question from Brett Feldman with Barclays Capital. Please go ahead.

[Brett Feldman:]

Yes, thanks. Just a point of clarification, it may be a bigger question. The point of clarification, you talked about earlier how your outlook for 2009 I think implies and on a cash basis same-tower revenue leasing revenue would be growing about 10%. What's the comparable number for third quarter '08 and for 2008 based on our outlook for this year?

[Jeff Stoops:]

No, what I said Brett is that the dollar amount will be the same. Actually, as you work off the increasingly greater base each year, the same dollar figure of growth typically translates into a one percentage point reduction in growth rate because you are always working off a bigger base, right?

[Brett Feldman:]

Yes.

[Jeff Stoops:]

So, we are projecting we add greater incremental dollars per tower. But the percentage growth rate is likely to be flattish with where we are right now just because of the increasingly larger base. And the number for Q3 was 10%.

[Brett Feldman:]

Okay. So, here's the bigger picture question. You talk in the release about how you've more than doubled the size of your portfolio over the last two years. We know that you are going to be slowing that pace now because of the credit markets. But even if the credit markets were there the opportunity to double your portfolio again in two years probably wasn’t there just because you've already consolidated most of the sizable private portfolios. So, I guess maybe the question is what if we flip this around? Do you think there are synergies available to your shareholders by achieving meaningful scale by combining with a bigger tower operator?

[Jeff Stoops:]

Theoretically, yes. There are large synergies that exist in the business that could be maximized in that type of a combination.

[Brett Feldman:]

How do you think about that? Is it mostly strategic stuff? Is it just getting rid of overhead? Do you think there are financing synergies? I'm just wondering how you think about the benefit of increasing your scale?

[Jeff Stoops:]

Well, I think we've been very clear on how we think about that and I think our thoughts have changed. We don't think revenue synergies exist because of the approach of carriers to his look at one tower at a time. The real synergies exist in the SG&A line and the back office and I don't know that synergies exist so much in capital markets. I think any of the sizable public companies there the issue is more at what leverage they want to attain rather than if you are bigger do you somehow get a better deal. I don't think that has existed for several years. So the real synergy that you are speaking of and that we would think is attainable is in the back office.

[Brett Feldman:]

So, you don't necessarily think about your balance sheet maybe be in the refinancing you have to focus on being somehow enhanced by being combined with somebody else?

[Jeff Stoops:]

No. We're going to be bind on the refinancing based on the one path and there is a bunch more that we haven't talked about. The real issue long-term is here is the real issue that we will be addressing over the long-term. Where does the capital structure ultimately settle at what point to maximize shareholder value and we have within that appropriate capital structure, the right opportunities for additional growth that maximize shareholder value as an independent company.

[Brett Feldman:]

Okay. Well, thanks for taking the question.

[Operator:]

Our next question is from the line of Simon Flannery with Morgan Stanley.

[Simon Flannery:]

Okay, thanks very much. Good morning. Can you talk a little bit about the medium-term, are you seeing any early signs around LTE from Verizon. You talked a lot about AT&T and T-Mobile. But as we've seen in Canada some HSPA deployment by Bell Canada and TELUS and any sort of sense that as we exit '09, we'll start to see some revenue coming through from that and into 2010 and perhaps with all your acquisitions recently, can you give us some a sort of end of the quarter where your customer mix is, what are the sort of percentages in the various categories? Thanks.

[Kurt Bagwell:]

Simon, this is Kurt. On the LTE, '09 would be a stretch for getting revenue out of that from Verizon or anyone else has announced that path. I think a lot of planning and a lot of testings will happen in 09, but I don't think you are realistically going to see any revenue in '09. I think that's more of an '10 start for deployment for sure.

[Jeff Stoops:]

Brendan, correct me if I'm wrong here. But on a pro forma basis Simon, I think AT&T is about 27ish percent of leasing revenue, Sprint is 23%-24% the combined Verizon, Alltel is 16ish percent, and I think then T-Mobile is 11% or 12% and growing.

[Simon Flannery:]

Okay. And then what about Metro and Leap, where do [they account]?

[Jeff Stoops:]

They are still relatively small. What are they? 2% or 3%?

[Brendan Cavanagh:]

Yeah. I think Leap is a little bit bigger. They are maybe 3% or 4% and Metro is even smaller, 1% or 2% right now.

[Simon Flannery:]

Okay, great. Thanks a lot.

[Operator:]

Next question is from Jonathan Schildkraut with Jefferies.

[Jonathan Schildkraut:]

Thank you. Most of my question have been asked and answered but I was wondering if you could give us the cell sites per tower number. And then on the wireless backhaul that you mentioned as potential opportunity and you were seeing in activity, I was wondering if that was coming from operators directly or if you were seeing that from kind of third-party backhaul providers and then if you can give us some call around what the level of application activity was? Thank you.

[Jeff Stoops:]

I think, Jonathan, two and a half tenants per tower where we ended the quarter. And that, that is likely to stay the same as we work through at least for the fourth quarter as we work through Light Tower and Optasite which both had fewer than that on the tenants per tower basis. Kurt, do you want to speak to the wireless backhaul?

[Kurt Bagwell:]

Wireless backhaul Jonathan is, it's a mix of the carriers putting in some themselves and there is also third-parties out there doing it. We are seeing a little bit more interest from third-party wireless backhaul providers. But it's really a mixed bag right now. But we are seeing a lot of the carriers doing it themselves. And then we are also, as I said, we are also seeing a lot of fiber being pulled to these sites, it don’t have a huge economic effect on us, because they really don't take that much space at all on our compounds but it's a great thing for our carriers to have access to because these new technologies, especially the WiMAX and LTE are going to demand incredible amounts of backhaul at these sites. That's a real challenge for the carriers right now.

[Jonathan Schildkraut:]

Great. Applications activity?

[Kurt Bagwell:]

It's been good.

[Jonathan Schildkraut:]

All right, great. The last question has to do with kind of looking out over the long-term here. You've mentioned that you are going to focus mostly the internal cash flows on your balance sheet or towards your balance sheet over the next call it 15 months or so. As we look out over the long-term, are your goals of 5% to 10% portfolio growth are something that we should be thinking about as we look into 2010 and beyond?

[Jeff Stoops:]

Ultimately, we want to get back there, Jonathan. The way we're looking at the current scenario is we exist to maximize shareholder value. The world today is saying to maximize shareholder value. We want more certainty around refinancing. So, that's what we are doing today. That situation will correct itself at some point in which event we would fully expect given our history and success and capabilities in portfolio growth and the fact we think it's a great long-term business operationally that we would resume that.

[Jonathan Schildkraut:]

Okay. Thank you for taking the questions.

[Jeff Stoops:]

Sure. Paul, we're going to have time for one more question if there is one.

[Operator:]

Okay. We'll go next to the line of Gray Powell with Wachovia. Please go ahead.

[Gray Powell:]

Great. Thanks for taking my questions. Looks like I'm just getting in here under the line. I have a few. Just based on your Q4 guidance and I know you've touched on this already, but it looks like you're going to exit the year with about a 10% organ revenue growth rate. If I do the math for making the non-cash adjustments for the 2009 guidance, I get closer to like an 8% growth rate. So to me it just seems like you have some sort of cushion in your guidance that gives you the ability to hit the mid point even if carriers pull back significantly on expansion plans next year. Am I looking at that correctly?

[Jeff Stoops:]

Yeah. I think you are and I think our history has been we always put out guidance that we feel very comfortable we'll hit.

[Gray Powell:]

Okay. And then if I just kind of look back over the last couple of years, 2007 was a very back end loaded year, 2008 was fairly even. How should we look at 2009? To me it seems like maybe more front end loaded?

[Jeff Stoops:]

I don't know about front end loaded. I think it will be steady. You are going to have the new market entrance or the new entrance of any type. Clearwire, Cox, I think once they start we'll stay busy for the whole year. You've got a lot of existing momentum that will carry into '09 from AT&T, Verizon, T-Mobile. Don't really expect that to vain as we move through the year. So, I think it's going to be steady, Gray.

[Gray Powell:]

Okay. And then I know you can't give too much detail here on it's like carrier-by-carrier basis, but can you give us an idea as to the level of discussions that you've held with Cox Cable and kind of when you would expect to start to see some sort of benefit from that build?

[Jeff Stoops:]

I mean, we have had discussions but unfortunately we are not at liberty to share those with you. I mean that's just the way Cox wants it.

[Gray Powell:]

Okay. Fair enough. That's all I got. Thank you very much.

[Jeff Stoops:]

Great. Well thank you, everyone. We appreciate you dialing in and I guess the next time we'll speak will be late February or early March and we look forward to discussing our results with you then.

[Operator:]

Ladies and gentlemen, this conference will be available for replay after 1 PM Eastern Time today through midnight Eastern Time on Friday, November 14. You may access the AT&T Executive Replay Service at any time by dialing 1800-475-6701 and entering the access code, 963419. That does conclude our call for today. Thank you for your participation. You may now disconnect.