Crown Castle International's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Crown Castle International (CCI)

Q3 2011 Earnings Call

October 26, 2011 10:30 am ET

Executives

W. Benjamin Moreland - Chief Executive Officer, President and Director

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

Fiona McKone - Vice President of Finance

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

Jonathan A. Schildkraut - Evercore Partners Inc., Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Michael Rollins - Citigroup Inc, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Clayton F. Moran - The Benchmark Company, LLC, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Simon Flannery - Morgan Stanley, Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Crown Castle International Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, October 26, 2011. I would now like to turn the conference over to Fiona McKone, Vice President of Corporate Finance. Please go ahead.

Fiona McKone

Thanks, Lisa. Good morning, everyone, and thank you all for joining us as we review our 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 the potential factors that could affect the company's financial results is available in the press release and in the Risk Factors section of the company's filings with the SEC. Should one 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, October 26, 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 A. 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 third quarter, exceeding the high end of our previously issued guidance for site rental revenue, site rental gross margin, adjusted EBITDA and recurring cash flow. The strong year-to-date results from our Site Rental business, together with better-than-expected performance from our Services business, allow us to increase our 2011 outlook for adjusted EBITDA by approximately $18 million. Also during the third quarter, we invested $278 million in activities around our core business, which we believe will enhance long-term recurring cash flow per share.

Turning to Slide 4, I'd like to highlight a few things from our third quarter results. During the third quarter, we generated site rental revenue of $469 million, up 7% from the third quarter of 2010. Site rental gross margin, defined as site rental revenues less cost of operations was $347 million, 8% from the third quarter of 2010. Adjusted EBITDA for the third quarter of 2011 was $332 million, up 9% from the third quarter of 2010.

As shown on Slide 5, recurring cash flow, defined as adjusted EBITDA less interest expense less sustaining capital expenditures was $199 million, up 12% from the third quarter of 2010, and recurring cash flow per share was $0.70, up 13% from the third quarter of 2010. It is important to note that these growth rates were achieved almost entirely through organic growth on assets that we owned as of July 1, 2010 as growth from acquisitions was negligible.

Turning to investments and liquidity, during the third quarter, as shown on Slide 6, we spent $278 million on purchases of our common and preferred shares, capital expenditures and acquisitions. Specifically, during the third quarter, we purchased approximately 2.7 million of our common shares for $109 million. Further, we used $15 million of cash to purchase a portion of our 6 1/4 preferred shares, reducing the potential common shares by a little over 300,000 shares.

Since 2003, we have spent $2.7 billion to purchase approximately 100 million of our common shares and potential common shares, representing more than 1/3 of the company's shares at an average price of $26.84 per share.

With regards to our capital expenditures during the third quarter, we spent $148 million. These capital expenditures include $111 million in our land lease purchase program, which includes an $89 million purchase of our ground leases in a single transaction. As of today, we own or control for more than 20 years the land beneath towers representing approximately 75% of our site rental gross margin, up from less than 40% in January 2007 when we completed our acquisition of Global Signal. We continue to enjoy significant success with this program as evidenced by the fact that today, 37% of our site rental gross margin is generated from towers on land that we own, up from less than 15% in January of 2007. Further, the remaining average term on our ground leases is approximately 34 years.

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