美國電塔 (AMT) 2003 Q1 法說會逐字稿

Good morning, my name is Unieki (ph) , and I will be your facilitator today. At this time, I would like to welcome everyone to the American Tower Corporation first quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press star then the number 2 on your telephone keypad. Thank you.

I will now turn the call over to Anne Alter, vice president of finance and investor relations. Please go ahead, ma'am.

Good morning and thank you for joining American Tower Corporation conference call regarding our first quarter earnings. We will begin with comments from Brad Singer chief financial officer, Jim Taiclet president and COO and Steve Dodge chairman and Chief Executive Officer.

We would like to remind that you this call will contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements include discussions about our quarterly and full year 2003 outlook, statements regarding our goals, beliefs, strategies, objectives, plans, or current expectations and other statements regarding matters that are not historical facts. You should be aware that certain factors may effect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set forth in this morning's press-release and those set forth in our form 10-K for the year ended December 2002 filed with the SEC and other SEC filings. We urge you to consider these factors and remind you that we undertake no obligation to update the information contained in this call, including forward-looking statements to reflect subsequently occurring events or circumstances. Our earnings release, which includes information required by regulation G was furnished this morning to the SEC on a form 8 K an is posted to our website.

Now I'd like to turn things over to Brad Singer.

Thank you, Anne.

Our first quarter was characterized by strong organic (inaudible) revenue and cash flow growth. Sizeable Tower and EBITDA margin expansion, the continuation of free cash flow and substantial improvement in our financial position. The success of our strategy to expand our core Tower operations and reduce our service operations result in our ability to continue to deliver solid results.

While total revenues decreased by approximately 5 percent from the same period last year, our core Tower division enjoyed substantial revenue increases. As a result our Tower division contributed almost 83 percent of our revenues in the first quarter compared to 68 percent in the same period of 2002. More strikingly our EBITDA increased by 35 percent as the increases in our time margin Tower operations more than offset the decreases in our service operation. This quarter also marked the first time our EBITDA margin topped 50 percent.

Tower's revenues an operating profit were 146.5 million and 95.3 million respectively excluding approximately 1 million of revenue an half million of operating profit relating to our Westwood (ph)building which was placed in discontinued operation pending it's sale. Adjusting for the sales of buildings our Tower revenues were at the mid point of our first quarter outlook and the Tower operating profit was at the high ends.

Our Tower's revenues increase by 20 million or 16 percent and our Tower operating profit increased by 22 million or 30 percent respectively from the first quarter of 2002. We continued to be successful in reducing our Tower operating cost through tighter controls and reduction in administrative costs resulting in over 2 million of expense reductions despite increasing revenues of almost 20 million between the first quarter of 2003 and first quarter of 2002. As a result we improved Tower operating margins from over 65 percent from 58%. We expect to modestly increase our Tower operating expenses as we complete the acquisition of N.I.I. Holdings an experienced a historic and seasonal increase in Tower level expenses in the second quarter and third quarters.

Tower revenues grew sequentially almost 3 million dollar in the fourth quarter of 2002 including net nonrecurring positive items and adjustment for discontinued operations while the total Tower expense decreased by over a million dollars during the quarter reducing a sequential cash flow increase of approximately 4 million. Sequential growth rate reflected the slower first quarter seasonal growth rated similar to our 2002 performance. We continue to convert over a hundred percent of our quarterly incremental revenue added into Tower's cash flow.

Our rental an management revenue and cash flow grew on the same Tower basis 14 percent an 19 percent respectively so that for the 12,854 American Tower owned at the beginning of 2002, this represented 93 percent of the total owned towers in our portfolio.

Our second quarter and remainder of 2003 Tower guidance reflects our first quarter revenue run rate the reduction of approximately 4 million dollars of annual revenue related to a rental property that we placed in discontinued operation, slightly slower than anticipated pace of closing of the NII Holdings acquisition. Our 2003 Tower guidance maintains our previously forecasted organic growth rate of 10 to 14 percent.

Our Tower operating profit remains unadjusted for the slower than anticipated NII Holdings closings and the rental property disposition given our success and continued to reduce our Tower expense structure. As a result of these modifications we have tightened our 2003 Tower revenue guidance 617 to 628 million and our Tower operating outlook to 404 to 418 million.

The Services division reported revenues of 30.7 million and operating profit of slightly over a million for the first quarter. Revenues reflected slower than anticipated January and February activity with March performing nearer to expectation. The week sales combined with higher than expected administrative costs results in service operating profits below the low end of our guidance.

We remained cautious with our service outlook as in prior years the first quarter had started slowly but we have shown more positive momentum during the last several weeks. We are reducing our second quarter and full year outlook to reflect our caution but we do expect service revenues and operating profit to build modestly over the course of the year. We anticipate our service revenues range from 30 to 40 million and service operating profit to range from 2 to 4 million in the second quarter.

Capital expense should continue to sequentially to 11 million dollar incurred in the first quarter of 2003 from 21 million in the fourth quarter of 2002. Payments for purchase of property and equipment on our statement of cash flows includes 7.8 million of accrued construction costs related to 2002. We incurred lower than anticipated CAPEX in the quarter due to the construction of only 16 towers compared to our expectation of 30 towers and lower than anticipated maintenance CAPEX.

We have provided a breakout of CAPEX pending a supplemental information in our press release. We maintain our expectation of building a hundred to 150 high quality towers in 2003. We are reducing overall 2003 incurred capital spending to between 50 and 65 million from 50 to 75 million including 3 to 5 million related Veristar (ph). As a result of the continued strength of our core tower operations and tight capital spending control , we generate approximately 7 million of free cash flow in the first quarter. We defined free cash flow as EBITDA less incurred CAPEX less total interest.

Our first quarter net income was below our outlook as a result of a 19 million dollar non-cash charge relating to our investment in Merritell (ph) . The charge was a result of a write down of Mettitell's long lived assets due to a change in the strategy of their business plan, remain optimistic that a portion or all of the non-cash charge will ultimately be recovered in cash distributions over the next several years as the company continues to successfully sell its spectrum.

From a strategic perspective we close at 72 million of previously announced asset sales during the first quarter. We also signed a definitive agreement to sell rental property for 18.5 million which we expect to close in the second quarter. Consistent with our strategy we re-deployed approximately 30 million dollars in to acquiring NII holdings towers. As of today we have acquired 56 million of the hundred million total NII Holding acquisitions. We anticipate closing the remaining 44 million of Towers through the rest of the year.

Our company continues to strengthen its financial position. As we discussed in the last earnings call we successfully completed a 420 million dollar financing and amended our credit facilities during the first quarter. As a result of the financing and the amendments we have reduced our bank facilities by 200 million and have 217 million in restricted cash account to repurchase -- 2 and a quarter convertible note.

We have worked hard to on improving our operating performance and our share price of the last twelve months we are mindful of not adversely impacting our share price while continuing to improve our financial position. If careful exchanged approximately 57 million dollars of accreted value of our 2 and a quarter convertible notes for approximately 7.2 million shares and 18.5 million dollars in cash with 3.2 million of the converse exchange in the first quarter and 53.3 million exchanged in April. As a resulted of these exchanges we have taken a 2.7 million non-cash charge in the first quarter and anticipate recognizing a 29 million dollars non-cash charge in the second quarter. These are both incorporated into our outlook.

Under the terms of our bank amendment we will issue shares -- if we issue shares to buy in the 2 and a quarter convertableance (PH) we have the ability to use the remaining restricted cash to repurchase other debt securities through the end of June, 2004. We will continue to be thoughtful of any future exchanges as we balance the returns to our shareholders with the improvement in our financial flexibility and Liquidity. We continued our sequential de-leveraging with out net debt to annualized EBITDA ratio decreasing to 9.1 times. Based on the mid point of our outlook and adjusting for the completed debt for equity exchanges our net debt to annualized EBITDA is expected to be below 8.5 times in the second quarter an to further reduce by the end of 2003 to approximately 7.5 times.

As of the end of March, we had 101 million in unrestricted cash an 217 million in restricted cash. As of the end of the first quarter our draws on our revolving loan were slightly reduced to 157 million and based on our performance in relation to our bank covenants and pro forma for our recently completed amendment we had the ability to draw on the full 265 million remaining availability, less 27 million dollar of letters of credit that were outstanding. Our cash on hand our availability under our revolving loan provided us with 556.5 million dollars of total liquidity including the restricted cash. We believe we have more than sufficient resources to execute our current business plan based on our current financial position. American Tower Corporation president and COO will provide several comments with regard to our operation.

Thank you. I will briefly discuss our major sources of new leasing business in Q1 and our expectations for Q2 and beyond and provide some color on our customer sales process. Our book new Tower leasing business in the first quarter was right in line with our expectations. In addition, as we see the major carrier spending plans firming up we are encouraged that sales threw the year will continue the fall well within our forecasted range.

Moreover the bulk of our new business continue to come from solid sources. In the first quarter, well over half our total new business was from the big 7 US carriers, Alltel , AT&T wireless, Singular, Nex-Tell, Sprint PCS, T-Mobile, and Verizon Wireless. Another major source of new business in the US during the first quarter was broadcast also a strong credit class. In addition, Mexico continued to generate significantly lease up , driven by Telephonic (ph) aggressive build-out following their acquisition of Pigaso (ph).

We also tracked a portion of new business in the form of brand new site leases verses additional equipment on our existing sites. The split in Q1 was approximately 80/20 new sites versus additional equipment. We expect a similar split in the next few quarters as most carriers up grades in the US are nearing completion, with singular CSM overlay project still going strong.

Overall, we anticipate stable, domestic new business in Q2 compared to Q1 and believe that this will be sustained into the second half of the year. Our visibility to a number of projects that carriers are pursuing gives us confidence that the big 7 will continue to deliver the majority of new leasing business throughout 2003. For example, Alltel continues on a path of strengthening its network bolstered by its strong balance sheet. AT&T wireless also continues through its project liberty to devote a stronger network foundation for its growing GSM service an GPRS data product. Next-tell for its part is bolstering its network with a program now in the initial stages. Sprint is initiating a major effort to bring a consistently strong signal to its footprint as well. T-Mobile remains active in addressing its network infrastructure to support the fastest subscriber growth rate in the industry an Verizon continues its strong focus on a strategy of superior differentiated network.

We are also excited about the entry of Spain's Telephonica (ph) into the Mexican market. Armed with its strong financial resources it looks to be building the type of high quality pervasive network that can provide a truly national competitive network in Mexico. We believe that one of the reasons our flow of new business continues to be healthy is the quality of our sales process. Our sales activities begin with an energetic and experienced sales force that's purposefully located next to our customer's local officers. It's generally these local offices where decisions are made. From there we go to customer contact map for each carrier, each of our 10 area general managers in the US sells to his or her counter part that heads up the carrier's local ops in that territory. Similarly our 3 regional vice presidents sell for their counterparts at the regional level of each carrier driving multi territory bulk deals for both new sites and site expansion.

At the corporate level in the US our head of Tower operation Steven Moschowitts (ph)works with heads of contracts and real estate and I strive to build solid relationships with the respective network heads. Our fundamentals in dealing with customers is that we address every level of their organization and our general managers throughout the company are accountable directly for the customer interface an for driving new business. We also bring a strong arsenal of sale support tools that encourage our customers to choose America Tower sites for their network. These include customized maps using our advanced geographic information systems that depict factors such as our site location relative to traffic patterns, topography, population density, et cetera. Specific sight information such as height, photos, space availability and Tower compound drawings are made available to our customers in hard copy, on line or disk. When warranted we offer RS studies developed by our engineering division or other vendors.

In addition, our customer facing team includes RF engineers, zoning experts and construction personnel with this integrated sales efforts we present a total solution to our customers, get them on the air quickly on one or many sites.

Before turning it over to Steve, I would also like to briefly address the performance of our services segment which had a relatively weak first quarter. Contributing factors included a soft overall construction environment, competitive pricing pressure and poor weather across much of the country. So expect a demand situation to improve and in fact we have seen the market firming up in the last couple of months. We have reduced our full year guidance for the network services segment. Our caution is driven primarily by continued market pricing pressures being faced by both our construction and engineering unit. We will, however, ensure that these businesses remain profitable by making adjustments to their cost structures as necessary. As reminder, we only plan on the services businesses to generate a very small portion of our overall profitability. For example our Q2 guidance for services cash flow is 2 to 4 million dollar verse the 98 to 102 million for our Tower leasing segment.

Before I close I would like to row iterate that our core Tower leasing business remains very much on track as we continued to benefit from our solid asset base, strong sales effort and steady and potentially increasing levels of customer activity.

I now like to turn it oar to Steve.

Jim, thank you.

Some of the things are beginning to sound repetitive but they remain relevant, simplify grow Tower revenues, hold expense, expand margins, drive free cash flow, deliver and sleep well at into it because this stuff is really happening and should continue to happen.

The Tower model is real and it does work and hopefully most of you now understand that. While we take some satisfaction in the progress we have been able to make we also recognize an applaud the efforts of our competitors as we all work together to restore the credibility of our sector. Balance sheet restoration for Tower companies is happening in the middle of the telecom firestorm for some very simple and fundamental reasons.

First our industry's base revenues and cash flows are secure and real.

Second, usage of wireless products an services continues to grow, driving our revenue growth.

Third, arguments for capital efficiency and infrastructure sharing are more compelling now than ever, also driving our revenue growth.

And finally as we are now demonstrates virtually all these new revenues can be converted to cash flow. This is good stuff and it is why the health of our sector should continue to improve.

Further, consolidation among wireless companies if and when it ever happens is not the kind of threat that many of you think it is. The number of sites required to support four or five comprehensive national fully deployed high speed wireless networks should get our industry to and eventually beyond the 3 tenant per Tower threshold to which we are managing. The specific performance of individual Tower companies may very some as the function of portfolio characteristics execution and other factors. But we expect overall industry growth to be healthy for the reasons that is we have articulated.

As you have heard us say before the Tower industry itself has an opportunity to benefit from consolidation and this will remain our principal strategic priority. It should be fun to see how things play out.

At American Tower we feel good about where we are and her we may be going. We like our industry, we like our team and we like our assets. No matter what we will remain riveted on continuous improvement and day to day execution and on the development of some serious free cash flow.

Thank you and I would like to open it up for questions.

At this time I would like to remind everybody in order to ask a question, please press star and then one on your telephone keypad. We'll pause for just a moment to compile the Q and A roster.

Your first question comes from Jonathan Atkin of RBC Capital Markets.

Good morning, a couple of questions. One, I was wondering if you could comment a little bit more detail or your site leasing revenue risk which carriers contribute odd most to lease up. Jim mentioned each of them but I wondered to what extent you saw strike from some and not others and how that would play out through the rest of the year. Also what's the trend you're seeing on less renewals as well as rent levels on new leases in thank you.

We tend not to break out publicly what our individual carrier revenues are and the business are. But I think the trend that we have described in the past is still relevant and that is that Verizon while our biggest revenue customer false into sort of a grouping with All-Tell, with T mobile, with AT&T wireless that have been some of our primary drivers of growth we actually expect to see some more activity from singular, next tell and sprint through the remainder of the year than we have seen in the past few quarters and I think that will be a nice benefit to us. But the others I don't think will diminish either. So we feel confident as I said about our growth rates going forward and I think that some of the carriers may not have been as high growth over the last few quarters will be contributed contributing to that now.

And then the lease renewals and rent --

Yeah, renewals, the lease renewals have been very consistently high 90 percent and as we have said on previous calls once you have got your network settled and you are building around it it's really tough to take down a site even if you want to and it will disrupt other in the network if you true to do it. Plus there's a cost of taking a site down and putting it up, 6 to 80 thousand dollars. So our rate of renewals has been terrifically consistent, the high anoints. Hardly anybody comes out (inaudible) still in business, stay with it. What was the last --

Lease rates, Jim.

Rates have been, you know, holding sort of a relevant range plus or 9 us 5 to 10 percent up the last quarters. We do bulk deals where our total revenue would exceed what we would have otherwise gotten by getting a volume commitment and we felt very good about the stability of rates again over the last airport quarters. So it's been fairly stable.

Just one last question on the margins. You are forecasting higher margins in the (inaudible) business to make up for the slowdown in your revenue ramp. Can you go into more detail on the improvements this your expense structure that are driving that.

A lot of it is at the tower level our repair and maintenance costs have been coming down. We are doing a better and better job of really triaging our sites and working on the ones that need to be worked on, and being efficient about doing that. Our construction group actually contributes as we combined it with our operations group to pick up the lack, if you will. We have people trained in construction that are able to do Tower (inaudible). Tower level costs having down and our SG&A costs more favorable in the first quarter, too and we think we'll still see some of that through the rest of the year. But there are some seasonal things that will add a little bit of cost in the second and third quarter but it will still be below budget.

There is a big difference this year versus a couple of years ago or even a year ago but the revenue growth or the new business or our towers has been at essentially the same level for the last three quarters and we see that continuing if not firming so I think we're at a level that is persistent and somewhat predictable within the range that we feel pretty comfortable that it will remain in that range.

Your next question comes from Ric Prentiss

Raymond James. Hey, guys. First, Jim, I think you mentioned half the business came if the big 7 but that was a big revenue pot including broadcast in Mexico.

That's right.

If you were to look at just the US wireless business how much of the big 7 would have been of your revenue growth in the quarter. Big 7 --

In the US wireless market it's north of 90 percent. Very high.

Okay. I want to make sure that was staying up there and there was no more of these cursory -- (inaudible) right

Second question, Steve n your prepared comments in the press release and you mentioned just briefly there, quote, consistent with your forecast, firming somewhat as you look into the second quarter and beyond, when does it become visible, Jim, you kind of hinted a little at singular, next tell and sprint, I know many of us have spiked up that next tell is saying they are going to do a lot more, when as a Tower company does it get firm enough to start showing up in your business and your guidance?

Jim, you want to take it?

Sure. Applications for site leases are what makes things real for us, and there's some free work that goes on before that, acquiring sites and making decisions on specific locations then there's zoning and building permits that oven have to be secured. So that's the pre- work that goes into making a carrier ready to file an application with us. So we are start to go see a lot of that pre-work now. It's beginning in a number of markets for many of those carriers that you listed and so we expect in late Q2 or early Q3 that there will be a trail of leases that will come from some of those carriers to us.

Over the next couple months we'll get a lot more clarity on is the second half doing firming or

That's right. And actually the budgets got released later than probably ever inside the carrier organization so the machine has been Ginning (ph)up in March through April and you're right, we should see some clarity back into the second quarter.

I think, Rick, a fair characterization, while we know where the year should potentially shape out we have a pretty good 90 day visibility and that keeps firming up on a rolling basis.

Rick, also, if you go by the articulated plan of the carriers there will be a firming and probably increase in the (inaudible) one or two carriers had a history of sometimes under-spending and we don't necessarily feel that's going to happen this year but I don't want to suggest we're going to be burned by having a liar (inaudible) but I think the prospect for that is out there if everyone carries threw and I think some of the network needs that are driving these expenditures are so obvious today that the likelihood of actually spending the money today is probably greater than it has in the past.

Brad, in the guidance you have taken your mid point of the cash interest expense down from what has been I think mid point of 224 million down to a mid point of 207 million for cash interest. What has to happen to realize that guidance, is there any more debt for equity planned in it, is there any more current cash availability, buy-down debt planned into it, what do you have to do to achieve that mid point of the cash interest guidance that came down by about 17 million?

There's a couple factors that distributed to the decease. The first is that we broke the escrow officer. (Inaudible) 90 days to get an amendment and we were giving ourselves the full 90 so that saved us because we got to bay down the earlier than the 2 million. This was part of it. The second part we changed 40 million dollar in equity for debt. That saved us a portion of that. And then we also have a conservative factor in how we forecast interest rates and we have already passed threw one quarter, so we still have the same forecast of interest rates but that plays itself out so that the debt rises as we look at it, and I think we take a pretty optimistic view that rates will remain fairly stable to maybe a slight increase over the next 12 months. But I think there's not much risk in this in terms of interest rates increase dramatically you will not -- you should be well within the range that we have laid out today. And there's no other -- there's no buybacks. We have done this in a way that there's no assumption of additional activity from us. So we would wait until the ends of when the bonds are -- the 2 (inaudible) buy them back at that point and all that full interest is in there.

So if you do anything via cash before then that would be above and beyond this?

That would reduce the interest if we ultimately use the 40 million in bonds that are yielding 10, 11 percent, that will reduce our -- all those things would reduce the numbers that you see on the page.

The EBITDA ratio that you talked about getting it down to 8 and a half, possibly in the second quarter and ending the year, I assume you mean the fourth quarter, not the calendar year at 7 and a half, those planned debt buybacks that's really growing the EBITDA having taken the line out?

That is exactly right. 8 and a half times debt to annualized mid point EBITDA that assumes no other transaction than looking where we are today and then getting to 7 and a half times is once again mid point of guidance and where we naturally would deliver, too, if you take the fourth quarter of 2003 and annualize.

Your next question comes from Jim Ballan from Bear Stearns.

Thank you. I have got a few questions as well. On the issuance of the stock to buy back some of the 2 and a quarters, can you give us a little more color or your thought process to do that now or over the last couple of months as opposed to doing in October especially given the momentum you have in your stock. The second thing is you have done a great job over the last several quarters in cutting operating costs out at the SG&A level and also at the direct Tower cost level. Do you believe that there is more room for additional cost cuts or as Steve mentioned, do you think you're at a point where now the challenge is stabilizing costs? And then the last question is just related to working capital, obviously the free cash flow number that you report doesn't take working cap that into account and we know the reason for that is that it's -- it fluctuates quarter to quarter pretty significantly. Can you give us an idea of whether or not you think working capital is going to be a source or use or pretty much flat for the total year?

Again, I'll answer that first and third question, Jim and I'll defer to Jim and Steve on the operating expense question. The quick answer for the working capital, working capital is tend is to be a source of funds not a use of funds as we have improved our balance sheet. So this year we tend to look at it as probably neutral, there is not as much to clean up or aggressively pursue. But hopefully we will do a little better than that. The reason we don't include working capital is very large interest payments that we make every other quarter so towards each quarter's actual free cash flow you're thinking how much is available to equity performance, measure - it would distort that number. So that's really the philosophy we have behind the working capital.

On the issuance of stock to buy back the 2 and a quarters, I think in my notes what I have tried to articulate and this is I think our company shares this view here is what we have worked role hard to get our share price to where it is today and hopefully we have demonstrated our actions of the last 12 months that the value of our equity is deer to us as it is to you. And we carefully consider how much has incrementally improved our financial, flexibility in terms of buying in debt or what we do to it and what does it do for our Liquidity.

So the thought process was is really weighing all those things. We structured our bank amendment to say if we do issue equity we want the ability to buy in debt at the opportunistic basis of next 18 months is what it was from the time of the amendment. While there's no perk, we are not great market timers in terms of when we did this, it's hard to pick that perfect point, we wanted to make a start of exchanging a small portion doing in a way that is -- that is non-disruptive to our existing shareholders and we did one deal that was done very tight to market. There was two actual deals but one was the vast majority of equity exchange. That was a very tight spread in the market and at the time a very goods price on a relative basis.

Now, as we think what wear doing in the future on this, I don't think we are seeking to exchange and I say this firmly the full amount of the 150 to 160 million left on the 2 and a quarters but we may do a small portion in addition to get additional financial flexibility but all this is really incremental to our cash position, incremental to our flexibility and that's how we're thinking about it an we are being very cautious and very judicious n doing that in a way that preserves our current share price.

In summary the way we think of it, added financial flexibility and strength in financial position ultimately results, we believe in the valuation multiple expansion -- which is -- that benefit accrues to all investors and hopefully shareholders -- get a big part of that.

Thank you.

I could talk to the cost area, Jim. First of all, I'd like to differentiate the Tower leasing business versus the services business. On the Tower leasing side we feel we have got the right cost structure for the revenue expectation that we have for this year. So you're not going to see a lot of additional cost reduction this is that business. One of the reasons that we feel comfortable with the cost structure is that we have invested in our sales organization capabilities and we think that's bearing fruit. On the operations side we keep working cost down but as was mentioned earlier we are going to be adding some NII side. On the services side we will do what we need to with cost to make sure we remain profitable and (gap in audio) we'll match it with resources. If we get less we'll reduce cost and keep it profitable.

Okay. Great.

Jim, one of the purposes in trying to increase the size of our asset basis, notwithstanding the fact that Jim has been clear, it is possible to lay our substantial incremental tours on the same cost foundation that we have in place today. So there's an overhead or cost leveraging opportunity and I think that that's one of the reasons we want to get to a higher level of critical mass and achieve that leveraging effect and threw that achieve an even higher overall margin performance.

Great. Thank you.

Your next question comes from (inaudible).

Good morning, guys. Just a couple quick questions. One sort of industry wide and house cleaning. Would you be able to just provide us what your 10ants added were during the quarter?

We don't provide that information. We have been fairly careful and I can defer to Jim why we do it this way but in terms of how that's related to our customer dynamics we don't specifically discuss pricing tenants and then what actually is a tenant versus an amendment to an existing lease so we have never broken that out separately. We will tell you of the new business 20 percent was amended related, and 80 percent came from new tenants.

I think we are saying the overall amount of business contracted for in this quarter is at or slightly above that of the prior quarter and I think that's directionally important to establish that we found the level that we're operating at. I think a couple, three quarters ago people were wondering at what point this downward trend might plateau. And it's done that and I think we like to feel and some of the comments we have heard are suggested there might be some opportunity to improve some off our current levels but our business plan does not suggest that but there is that opportunity.

Just a follow-up. I guess I'm trying to get a little more detail or your site rental and management revenue line this quarter. And then understood where it stood in first quarter of '02 but looking to the fourth quarter the differential now, I guess you gave some details why we're showing a net decrease on that line.

Doug, just the math behind it is we had 149 million dollars of revenue in the fourth quarter drafted and link it to the first quarter and we had one time items in there a little over 4 million dollars which was a lease buyback which we publicly disclosed last quarter in the earnings call and the press release and we also had put into discontinued ops a little over 11 million dollar on a quarterly basis so when you link that it was a sequential incremental revenue of around 3 million dollars between the fourth quarter and first quarter of '03.

And I guess if I were to look at how you ramped up in the other quarters of last year from fourth quarter to the first quarter, you mentioned your service revenues being down but it also sounds like January and February on the lease up side may have also been a slow-ish type period for whatever reason in the industry:

If you look at our fourth quarter to first quarter in '02 it's a very similar trend on the leasing side.

Understood. Okay. And then two other questions very quickly. The first is, your - I guess we'll call them negotiations with the two and a quarter percent convert holders, how do you envision the pace that to go for the remainder of the year? Should we look for this to come to the conclusion in October or do you expect ongoing discussions and announcements through the rest of the year?

I think right now we have in the restricted cash account almost 200 million dollar and we have 157 million or two and a quarter notes outstanding. And we have -- it gets to be a function of price. Liquidable (ph) cost at 80.29 I believe and if we can buy them in at something that's reasonable for cash I think we'll take the opportunity to earn a better spread on that than sitting on cash, but there really is dependent on the holders and each negotiation is its own separate events.

Okay. And then, Steve, last question for you and the team, sort of the general industry question, I know it's hard to put an exact number on this, but if I could just hear your thoughts right now on valuation. Obviously the discussion from our side of the street always talks about Tower evaluation valuations and things like that, I know you're more akin to talk about something along the lines of free cash flow or EBITDA multiples or something like that. Can you speak I guess general about where you see things going right now, what trend you are seeing out there? I know there's some assets for sale so if you could fill us in there.

Sure. I think there's a huge amount of dis-information or conclusions that have been drawn over the last couple of years on Tower valuations. What I don't think the market really understand is how different one group of Towers can be from another and it's always been the case and I don't know how you break out of the generalizations and the simplistic conclusions that people come to without just simply demonstrating over a period of time a higher growth rate which probably reflects better underlying portfolio content. But you can overpay for a Tower portfolio at 150,000 for Tower, you can under pay a 300,000 at Tower depending on the characteristics growth prospects and structural integrity of those assets and so I think the kind of assets that we're attracted to which are high quality structurally sound, high growth, broadband, attractive Tower assets are going to be trading at the higher end of that range.

And then separate an apart from all that of broadcast assets which in our case cash flow and average almost 300,000 dollars per Tower, yet another different kind of structure. And as you walk down these kind of discussions with analysts, both the buy and sell side it gets a little frustrating because we have 14,000 and of these things and that's where you fall back to the generic, organic, real organic growth rate which is the only way we can find to fairly and accurately articulate what's really happening to these Towers.

So now whether they work if our asset base is growing organically on a revenue basis of pick the mid range of 10 to 14 percent and say 12 or 13 and it's converting to cash flow 18 to 19 to 20, you know, and CAPEX, required CAPEX is almost zip what is that worth? I think that's worth a lot on a multiple basis. And finally in terms of overall company valuation you know, I think the free cash flow vernacular is going to become somewhat entrenched and I think when people begin to understand what this company's free cash flow is really going to be next year and beyond that they will conclude possibly accurately that our value wags is quite reasonable today, by any standard sort of free cash flow metric it's quite reasonable. It's very reasonable. We have to produce that free cash flow and we will.

Thank you very much.

Your next question comes from Michael Renoff (ph) with Miller Paddock (ph).

Hi, just first a technical question. Have the two to four converts been defeased (ph), and also can you give us an update on the sale of Veristar, that is the non NTN (ph) of Veristar in terms of structural separation? You still think you'll be able to remove the 120 million of capital leases from the balance sheet? Thanks.

Michael, it's Brad, and I'll turn over - (inaudible) are not defeased (ph), they are (inaudible) October 2003, so the holders still have them. And I think the question was asked by Doug how do we go about bringing them in and each of those are specific negotiations. They make an inquiry to us and then we respond and if we find a price we both agree on, that's when we would buy them for cash. So if there's any left over in October, we will go through the process that we need to tender for them. That's when they are putable (ph) and if they are put. So that is a situation in terms of the 2 and a quarters. So let me turn it over to Steve on Veristar.

We are coming down the home stretch on a sales for Veristar. Just to remind everybody we sold a fairly significant asset out of Veristar recently but the become of the company will be sold I'm quite sure in terms of contractual commitment relatively soon. One of the reasons we're comfortable in saying that is besides the fairly advanced end of the process is the fact that the company has achieved objective improvement in a lot of key areas both in terms of revenue composition and expense control so I think it's just a matter of how soon we are able to articulate what it is we have done to consummate the completion of the separation of the company. There will be no surprises. I think the valuation ranges that we suggested before will play and in any event we're very comfortable. It's also important to note that we haven't put a dime into Veristar since early last fall, which you know confirming the idea that the company is actually sustaining financially so for all those reasons we feel comfortable and hopefully by the time of the next earnings call or maybe sooner we will have something more definitive to say

Thank you.

Your next question comes from Alex Rygiel from Friedman Billings Ramsey.

Thank you, one quick clarification. The organic growth sequentially in your leasing business was about 3 million there 4Q to 1Q. With regards to your guidance going over the next three quarters you're looking for leasing revenues to ramp about 6 million per quarter, understanding that a portion of that is coming from NII as the acquisitions close. Can you quantify what you expect the organic leasing business to grow substantially over the next three quarters or so?

Sure. Based on the organic growth rates which we have given has the 10 to 14 percent, that equates to somewhere between 3 and three-quarters of a million and 5 million dollars a quarter of organic revenue growth, a that's consistent with last year, if you look at what we grew and then you add NII acquisitions on top of that. And that's based on when things commence. And so when we talk about business that we signed or what's going on, and there's a seasonal slowness to the first quarter, it's our commencement while it's signed, typically do not start until the second our third quarter because there is not as much construction as putting and installing people. Last year if you look at our numbers we were growing around 5 to 6 million sequentially a quarter, and it breaks down between acquisitions and new build and organic growth.

With regards to your services business, I guess about a week ago Nextel put out a press release that announced two different vendors that are going to participate Cydac (ph) and program management and construction activities in several major geographic regions across the country. Given the Tower industry and most of the company's downsizing and their services business, was this opportunity with next tell something American Tower was interested in or is interested in and could participate in going forward?

Alex, This is Jim. I can address that. The carriers have been looking for sort of general contractors or integrators to try to look across all the Tower opportunities, fighting opportunities and package service product for them around those sites. So they have typically been going not to Tower companies to do that, because of their belief that you might have a skewed site selection process if the Tower company was running it. That's been fine with us because whether it's Bechtel, the case of AT&T wireless or with next tell it's General Dynamics and a firm called North Star, we have very good relations with all three of those working the actual site so we end up subcontracting with those integrators then to do zoning and permitting and to do construction installation services. At the same time we are pitching and working with them on site selection to move in toward our site. So it's a pretty comfortable business relationship that's building between the integrators and American Tower.

Great. Thank you.

Your next question comes from Mark DeRussy of Raymond James.

Hi, good morning. Question for you, Jim. Brad was talking about CAPEX earlier, and you mentioned that the maintenance levels of spending come in a little bit lighter than expected. What are your current thoughts on the level of maintenance CAPEX sort of in a terminal scenario here, you know, on a Tower basis?

I think we are sort of shooting for a $1000 a Tower a year as a goal and we're getting to it. It's just a matter of putting the same discipline that we put expenses and the same discipline that we put to redevelopment and development CAPEX into maintenance CAPEX and we are just being very sure and very cautious about how we spent money and doing it for the right reasons. So it's more disciplined across-the-board an you are seeing it really hitting all the elements of spending.

Brad, two questions for you. One, was there any material churn in the quarter an two, in terms of the - in the political (ph) converts, are those still pretty concentrated in terms of ownership?

Sure Mark. The churn was slightly below 2 percent for the quarter on an annualized basis, that's two percent for the whole year and not a month, and that's consistent with where it's been running for the last let's call it 5 to 6 quarters. And then with the 2 and a quarters they are fairly concentrated still today.

Okay. Thank you.

Your next question comes from John Haregrane with Baldwin Anthony Securities.

Yes, thank you. I was just wondering since your definition of free cash flow is different from the standard you expect free cash flow - your definition, to match up with cash flow from operations or was that just kind of a coincidence this quarter?

I'll answer that. That was a coincidence this quarter even though there's nice symmetry there. Our definition, we tried to use something that is simple which is just total interest minus our CAPEX from EBITDA. And you know, understand there's no perfect definition from run rate cash flow available to equity holders. This definition we chose because cash from operations we have very large quarterly CAPEX swing as we highlighted before but also it does not capture the economic impact of accreting interest in our discount month (ph). That would be positive on a cash from operations line item. So for those two reasons we chose this one which we think is a pretty straight toward way for equity investors to understand or just to track our progress in what we are trying to do.

I think you meant interest swings for quarter (ph), not CAPEX.

All right. Thank you.

Your next question comes from Joe Arsenio with Arsenio and Associates, your line is now open.

Went to the ball game. Nice day.

Your next question from Ethan Schwartz with ERC capital.

A couple of questions. Going back to the revenue line, if I take the 3 million that you received in incremental revenue this quarter and I annualize that on Q4 revenue it comes to about 8 percent and then if I adjust downward for the increase in Towers that you have over the quarter an sort of assume tenant per Tower it would come to about 5 percent annual revenue increase. What am I missing there? In other words, why is the organic growth rate actually much higher than that?

Well, the organic revenue growth rate as you're capex (ph) doing year to year, as you take into account all the tenants over the year comparing first quarter '03 to first quarter '03 so that is in the organic revenue growth rate. You're doing a sequential quarter growth rate and come up with approximately 8 percent you're making an adjustments of slightly lower. Now on that 8 percent of the margin as we said there's a first quarter typically has a slower commencement signing (ph), not that business signings are slower, but just when things actually commence. So on this one quarterly basis you tend to catch up in the second, third and fourth quarter as we get to the end. That's why we look at it year to year the growth. That's really how we -- how it's measured and I think is a fair way to do it. I think we have been doing it for since our inception

I understand that because I'm doing it on a quarterly basis I'm not going to get the 14 percent you do but on the other hand the 14 percent number is based on a much smaller set of towers than you had at the end of ...

It's based on 93 percent of the Towers in the total portfolio.

So, in other words the rest of the towers - the difference in Towers that you're using for same Tower between what you're declaring as same Tower today and what you actually had starting at that quarter, those are Towers that you called out of the portfolio? In other words they were underperforming towers?

No, those are Towers we acquired during 2000 we did not have as of the beginning of the year 2002 because we're preparing first quarter, first quarter, or their management sublease sites which we have never put in that calculation. And so -- and we have a real estate property which is also -- just wireless and broadcast towers we use. So this represents 93 percent of the tours and approximately 93 percent of the revenues. We have a reconciliation on the last page of our press release and I'll walk you through that.

In other words, the 12,854, even though you actually had 13,190 - or at least that was the number that you released of active wire towers at the beginning of that first quarter a year ago? I certainly understand that you're not including Towers that you acquired this year but what accounts for the downward adjustment in those numbers that you're using for the same Tower denominator?

That 300 or so.

... is the number you gave out a year ago.

We sold towers in the year 2002 if you recall.

In other words so those presumably were underperforming tours that you kicked out of the portfolio?

250 tours and 300 based on the math you just gave.

Again, I go back to my original question. Clearly if you're selling underperforming towers on a year to year basis you're going to increase the organic growth on the towers that you have but on a steady state basis I would assume that the quarter to quarter annualized is a pretty good indication, so therefore is the only difference between what you expect going forward and what you actually experienced in the most recent quarter seasonal? In other words, you really only got sort of 5 to 8 percent annualized growth over this quarter and it would be higher over the next 3 quarters because they are better quarters in the season?

That's when the commencements occur. This is a trend we have had for the last two years and the amounts we sold is the 250 or 300 towers are so small on the basis of 13,000. So just looking at it from that perspective, so I think we're very comfortable with our projection. We guided this way, if you look at our o if we hit the mid point of our gains and this is what I think what Jim said, Steve said it and I think the numbers bare out this is right in line with our plan.

Let's reiterate, too, we have at this point very good advise built into where we're going into Q2 and that's because the revenues that we will report in Q2 are based on contracts written, commencement dates that we know, but the vast majority of revenue that's already in place, so this business of slower commencements and Q1 is standard stuff that's been going on for 3 or 4 years and we have a very high level of confidence in the numbers that we have articulated outlook for the balance of this year.

OK, and then another question, on GSM and TDMA - can you talk about the structure of your leases when a carrier does an overlay on a TDMA cell site how much additional equipment do they add? Do they pay an augmentation or an increased rent fee, and if they later dismantle the TDMA portion, does that lead to some sort of further reduction in rent?

I can address that Ethan. It's Jim Taiclet. Essentially what we do is have additional charges for lines in antennas to put the GSM equipment on. There is no provision then thereafter for taking the TDMA equipment down and having that then go down. So the carrier will have a right to say it started out with 6 antennas and lines going to 9 antennas and lines and that will not have a negative tract later back down to 6. So once it goes to 9 it's 9. They tend to not ever want to take that down because of capacity requirements anyway. So it's a one time increase that has the escalator in it and everything else that we normally contract and that expectation is that that increase will stay.

Okay. Finally, just for credit check purposes, what procedure portion of your rental revenue came from carriers currently in bankruptcy?

We don't -- the way we do revenue for tenants in bankruptcy we only recognize it when they pay us in cash. They do not accrue.

I'm saying what procedure portion of what you recognize this quarter came from tenants currently in bankruptcy?

I do not have the total number but my guess it's under 3 million, maybe 5 if you count WorldCom the other - (inaudible) and Skytel (ph). So that would be of the total amount that would be a guess. But I would have to get back to you on that exact number

Thank you.

It's only cash basis recommendation

Thank you.

Operator, we'll have one more question, please.

Final question comes from David Raney (ph) with Aker Capital (ph).

Thank you. First question is on a pro forma fully diluted basis, how many shares should we be thinking are outstanding, given the debt issuance in the quarter and the convert buyback?

David if you're looking at it including the warrants and excluding the out of the money converts, you're looking at approximately 214 million shares.

214. So you wouldn't be the 195 or so on the financials plus 20 plus about 6 in a quarter?

When you say 20

Well, 20 is for the warrants.

The warrants are only 11.4 million.

Okay. Great, The second question is difference between cash interested and accrued interest is running about 15 million a quarter?

It's running around 19 million a quarter.

Okay. And how ...

Because we issued these at the end of January so you have a shorter amount of interest accreted in the first quarter

Great, and how will that difference change next year?

It will go up slightly because you're paying accretive interest on the interest itself so it might move to 20 million a quarter. Not dramatic increases.

Got it and as I think about cash flows for project related activities this year and asset sales, in your notes you suggest about 35 million or so of additional potential core asset sales through the rest of the year. You'll be spending 44 million or so on the Mexican acquisition. And then if I recall correctly there might be a residual benefit from cleaning up Veristar by the ends of the year. Can you refresh us on what you thought that might be?

I think the range we gave for Veristar is between 10 and 20 million. We thought we may have a residual benefit by cleaning it up. In terms of the assets sales we have said we leave we will sell more than 50 million dollars including the rental property that is on the market that we have a signed purchase agreement that will close this quarter. And that's for 18 and a half million.

But again, you think that will close in the second quarter?

That should close this quarter.

Great. So then I add all that up and I'm roughly awash, roughly break even there.

That would be correct.

Okay. Great and then the last question is as you all think about Tower operating margins this year versus '04, are you thinking that they begin to flatten at the 66, 67 percent operating margin level or do they continue to push up a bit?

David, we have to be careful we haven't guided 04 but a good way to think about it is you can assume a relevant range of growth, whether it's 12 to 13 percent or something lightly less or more, I think our belief is we will contribute in the 90 percent plus rate of that incremental growth to cash flow.

Okay:

And when you factor that in, I think you can calculate just a pretty straightforward calculation on what the Tower margins would be.

Okay. So then they're still growing through '04.

Yes. That's right. On a cost basis is still scalable, David for the additional revenues that Steve was indicating.

OK. Great. Thank you.

Do you have any closing remarks?

Oh, no. That's it operator. Thank you all for joining us today.

This concludes the American Tower Company's first quarter 2003 earnings conference call. You may not disconnect.