Crown Castle International (CCI)

Q2 2011 Earnings Call

July 28, 2011 10:30 am ET

Executives

W. Moreland - Chief Executive Officer, President and Director

Jay Brown - Chief Financial Officer, Senior Vice President and Treasurer

Fiona McKone - Vice President of Finance

Analysts

Gray Powell - Wells Fargo Securities, LLC

Jonathan Schildkraut - Evercore Partners Inc.

Philip Cusick - JP Morgan Chase & Co

Batya Levi - UBS Investment Bank

James Ratcliffe - Barclays Capital

Jonathan Atkin - RBC Capital Markets, LLC

Michael Rollins - Citigroup Inc

Richard Prentiss - Raymond James & Associates, Inc.

Simon Flannery - Morgan Stanley

Clayton Moran - The Benchmark Company, LLC

David Barden

Brett Feldman - Deutsche Bank AG

Jason Armstrong - Goldman Sachs Group Inc.

Presentation

Operator

Compare to:
Previous Statements by CCI
» Crown Castle International's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» Crown Castle International's CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Crown Castle International Management Discusses Q3 2010 Results - Earnings Call Transcript

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Crown Castle International Second Quarter Earnings Call. [Operator Instructions] This conference is being recorded today, July 28, 2011. I would now like to turn the conference over to Fiona McKone, Vice President of Finance and Investor Relations. Please go ahead.

Fiona McKone

Thank you. Good morning, everyone, and thank you all for joining us as we review our second quarter 2011 results.

With me on the call this morning are Ben Moreland, Crown Castle's Chief Executive Officer; and Jay Brown, Crown Castle's Chief Financial Officer. To aid the discussion, we have posted supplemental materials in the Investors section of our website at crowncastle.com, which we will discuss throughout the call this morning.

This conference call will contain forward-looking statements and information based on management's current expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurances that such expectations will prove to have been correct.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions. Information about potential factors that could affect the company's financial results is available in the press release and in the Risk Factor sections of the company's filings with the SEC. Should 1 or more of these or other risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary significantly from those expected. Our statements are made as of today, July 28, 2011, and we assume no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, today's call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, recurring cash flow and recurring cash flow per share. Tables reconciling such non-GAAP financial measures are available under the Investors section of the company's website at crowncastle.com.

With that, I'll turn the call over to Jay.

Jay Brown

Thanks, Fiona, and good morning, everyone. As you've seen from our press release and as outlined on Slide 3, we had an excellent second quarter and are excited about the ongoing deployment of wireless data networks. The strong year-to-date results and our expectations for the second half of the year allow us to meaningfully increase our outlook for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow outlook for the full year 2011.

Also, since the end of the first quarter, we have invested over $180 million purchasing our common shares, which we believe will enhance long-term recurring cash flow per share.

Turning to Slide 4, I'd like to highlight a few items from the second quarter. During the second quarter, we generated site rental revenue of $457 million, up 12% in the second quarter of 2010. Site rental gross margin, defined as site rental revenues less the cost of operations, was $336 million, up 14% from the second quarter of 2010.

Adjusted EBITDA for the second quarter of 2011 was $320 million, up 14% from the second quarter of 2010, with an incremental margin of 90%, reflecting our continued focus on managing our cost. Recurring cash flow, defined as adjusted EBITDA less interest expense, less sustaining capital expenditures, was $189 million, up 22% from the second quarter of 2010. And recurring cash flow per share was $0.66, also up 22% from the second quarter of 2010.

It is important to note that these growth rates were achieved almost entirely through organic growth on assets we owned as of April 1, 2010 as growth from acquisitions was negligible. Site rental revenue and adjusted EBITDA benefited by $1.6 million and $1 million, respectively, from a stronger Australian dollar than assumed in our outlook for the second quarter. Further, there were no significant nonrecurring items in the second quarter.

Turning to investments and liquidity as shown on Slide 6. During the second quarter, we purchased approximately 3.6 million of our common shares and an additional 700,000 shares in July. Year-to-date, we have spent $220 million to purchase our common shares. Since 2003, we have spent $2.6 billion to purchase approximately 98 million of our common shares and potential shares, representing 1/3 of the company's shares and potential shares at an average price of about $26.50 per share. Further, in July, we used $6 million of cash to purchase a portion of our fixed in our quarter preferred shares.

Also during the second quarter, we spent $64 million on capital expenditures. These capital expenditures include $30 million on our land lease purchase program. As of today, we own or control for more than 20 years the land beneath our towers, representing approximately 73% of our U.S. gross margin, up from less than 40% in January 2007 when we completed our acquisition of Global Signal.

Further, the average term remaining on our ground leases is approximately 34 years. We continue to focus a significant amount of effort on purchasing land beneath our towers and extending our ground leases. We believe this activity has resulted in the most secure land position in the industry based on land ownership and final ground lease expiration. This is an important effort, because it provides a long-term benefit as it protects our margins and controls our largest operating expense.

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