美國電塔 (AMT) 2004 Q4 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator. At this time, I would like to welcome everyone to the American Tower fourth quarter and full-year results 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. [OPERATOR INSTRUCTIONS] Thank you.

I will now turn the conference over to Mr. Michael Powell, Director of Investor Relations and Financial Planning. Please go ahead, sir.

Good morning. We will begin with comments perfect Brad Singer, our Chief Financial Officer and Jim Taiclet. We would like to remind you that this call would will contain forward-looking statements that involve a number of risks and uncertainties.

Forward-looking statements include discussions about our first quarter and full-year 2005 outlook, statements regarding our goals, beliefs, strategies, objectives, plans and current expectations, and other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future, and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include this morning's press release, and those set forth in our form 10-Q for the quarter ended September 30, 2004 filed with the SEC, and other SEC filings.

We urge you to consider these factors and remind you we undertake no obligation to update this information contained in this call, including these forward-looking statements to reflect subsequent 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, and is also posted on our website.

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

Thanks, Michael. American Tower delivered solid operating results and continued to improve its financial position during the fourth quarter, through consistent incremental channel revenue growth, strong cost control, and capital spending discipline. We also continue to sequentially reduce our leverage, and successfully access the capital markets, resulting in lowering our borrowing costs, and accelerating our free cash flow drive.

Our fourth quarter total revenues increased 11% to 185 million in the same period of 2003, and our fourth quarter adjusted EBITDA increased 13% to over 114 million, and adjusted EBITDA margins expanded 62%. Please note that our fourth quarter adjusted EBITDA and tower operating profit have been reduced by an additional 2.6 million of noncash rental expense, as a result of our previously disclosed change in lease accounting practices. With the completion of our sale of our construction service division, our financial results reflect these operations as discontinued. As a result of the sale of our lower margin construction services group, our adjusted EBITDA margin increased by over 500 basis points in the third quarter.

In our rental and management segment, our revenues increased 9% to 177 million, and our tower operating profits increased 13% to 121 million from the fourth quarter of 2003. Please note that approximately 1.5 million of the revenue and operating profit increase was driven by nonrecurring items consisting of large and unanticipated backfilling revenues, recognition of revenue due to tenants emerging from bankruptcy, and favorable currency rate movements. The nonrecurring revenue items were partially offset by about 0.75 million in nonrecurring expense items. On a same-tower basis, for the 13,900 towers that have been in our portfolio since October 1, 2003, our revenues grew 9% and our tower level cash flow, which excludes tower level SG&A costs grew 13%, matching the overall growth of our tower units.

With the completion of the fourth quarter, our tower division performance marked the third consecutive year in which we have increased tower revenues while holding tower expenses relatively flat, continuing to demonstrate the strength and consistency of the tower operating model. Over the past 12 quarters, we've added over 200 million of annualized revenue to our tower portfolio without increasing tower operating expenses. Expanding our tower operating margins by over 1300 basis points, and converting all 200 million plus of incremental annualized revenue into cash flow during this period.

As we look forward to 2005, we've provided our full-year and first quarter outlook. We anticipate tower revenues between 729 and 744 million, and tower operating profit between 504 and 515 million, including 10 million of additional noncash rental expenses as a result of our change in lease accounting. Our tower guidance is based on the run rate of fourth quarter 2004 revenue anticipated net revenue growth in 2005. Our revenue range is based on the continuation of current annual business trends less anticipated churn, offset by the net effect of our rental escorted and acquired straight line adjustments. Our tower operating profits anticipate capturing 90% or better of incremental revenue, as we continue to successfully control our cost structure.

Our first quarter outlook reflects our historical seasonal trends in terms of revenue expenses, as well as our fourth quarter run rate excluding nonrecurring items. We feel confident in our future performance in 2005 and ability to deliver on our outlook, based on predictability of the tower business model, and the continued strong growth of wireless and telecommunications services.

The network services segment reported revenues of slightly more than 7 million, and operating profit of 600,000 for the fourth quarter. Including approximately 4.6 million of revenue from winding down at a modest loss of steel fabrication project. Our services unit results exclude our construction operations, which was sold in November. We believe that our remaining set acquisition, zoning, and structural services operations will generate revenues raising from 12 to 15 million, and operating profit of approximately 4 million in 2005.

In the fourth quarter, our capital expenditures were approximately 13.6 million. The level of capital spending was directly related to our additional capital improvement investment criteria. While we continue to demonstrate stringent investment discipline, we remain committed to investing double-digit return new builds. The 61 towers we have built to date have averaged over 15% day one unleveraged returns on investment. We have provided a breakout of CapEx spending as supplemental information in our press release. Our capital expenditure outlook for 2005 reflects our expectations of building at least 125 newly built towers with the goal of building more high return sites. We anticipate discretionary CapEx of 30 to 35 million and improvement augmentation and corporate capital requirements of 25 to 30 million.

As a result of the continued strength of our core tower operations, disciplined capital expending, and lower interest expense, we sequentially increased our free cash flow by 4 million from the third quarter to 41 million of free cash flow in the fourth quarter, our highest level ever. And 24 million more than the fourth quarter of 2003. We define free cash flow as adjusted EBITDA plus total interest expense in CapEx. We continue to work hard on delivering on our financial strategy of improving our financial position and flexibility, or reducing our interest costs. We set out to reduce our interest expense by approximately $100 million on an annual basis at the beginning of '04. Over the past 12 months, we have refinanced over $2 billion, saving approximately 65 million of annual interest expense on a gross basis, and approximately 55 million on a net basis when factoring in increasing short-term interest rates.

We anticipate reducing our gross interest costs by an additional 40 to 50 million over the next 12 months from our current run rate of approximately 220 million. With the expectation exceeding our $100 million goal in total. Our incremental interest savings will be achieved by repurchasing our higher cost debt securities with our cash on hand, cash available under a $400 million undrawn revolving facility, and our free cash flow. Consistent with our financial goals and part of our interest savings to date, we successfully completed a $300 million 7 1/8 senior note offering October 2004 and $200 million add-on in December 2004, which effectively yields 6.8%. The net proceeds and approximately 30 million of cash on hand were used to repurchase or redeem 494 million principal amount of our 9 3/8 senior notes due in 2009. Including 361 million principal amount in the fourth quarter 2004, and 133 million principal amount in January of '05. Please note our cash and debt balances reflect only those senior notes redeemed prior to December 31, 2004.

In addition, we've utilized our free cash flow and cash on hand to repurchase approximately 163 million of face value of our 12.25 senior subordinated discount notes since the end of the third quarter. As a result of our capital markets activities, we recorded a loss of 51 million in the retirement of long-term debt obligations of 51 million in the fourth quarter 2004, and included approximately 15 million in our guidance for the first quarter. The combination of the vast majority of our organic revenue converting directly into operating profit and the continuing reduction in interest costs provide us with 2 significant sources that contribute to our expected approximate 50% increase in free cash flow to over 200 million in 2005 from 2004, based on our outlook.

Our strong operating performance also enable us to sequentially reduce our leverage. Our net debt to annualized adjusted EBITDA ratio decreased during the fourth quarter to 6.7 times from 7.6 times a year ago. Based on 2005 outlook, we anticipate our net debt to adjusted EBITDA ratio to decline below 6 times during 2005, entering the high end of our target capital structure range of 4 to 6 times.

Overall, our $0.32 per share net loss exceeds our outlook for the fourth quarter as a result of losses on retirement of debt obligations. Excluding these charges and other nonrecurring items, our net loss would have been $0.14 per share.

I now hand things over to Jim Taiclet, American Tower's CEO and Chairman.

Thanks, Brad. Good morning to everybody on the call. As we set our sights on delivering another strong performance in 2005, our management team has an attitude. That attitude is one of confidence but not of complacency. We have confidence in three major respects. The macro economic environment, sustained growth in the wireless sector, and our continuing ability to deliver on the strength of the tower business model.

First, we're confident in current macro economic fundamentals, GDP growth, new job creations, moderate levels of inflation, and relatively modest movements in interest rates, should all contribute to a positive stable economic environment in 2005. This in turn should support continued wireless industry growth and increased levels of capital spending in 2005. Historically, subscriber growth has been the closest corollary to cell site growth. We anticipate that the momentum in subscriber growth experienced in 2004, will carryover to 2005, as voice and data communications increasingly migrate from wired to wireless devices. While the U.S. wireless industry had a great year in 2004, adding over 20 million subscribers and reaching 180 million by year end, this still amounts to a little over 60% penetration. Based on current penetration rates in numerous countries in Europe and Asia, 75% or higher penetration rates may ultimately be attainable in the U.S.

Recent wireless subscriber studies also support the expectation for additional penetration and wireless revenue growth in the U.S., as well as the increasing importance of network quality as the market matures. First, surveys have indicated that wireless service is increasingly viewed as a necessity rather than a discretionary service. Especially relative to personal security, and staying in touch with family.

A second trend is that average revenue per user has been shown to grow as individuals tenure as a wireless subscriber lengthens. In other words, the longer a survey respondent was a wireless user, the more that person integrated wireless communications into their lifestyle and used the service. This affect was further enhanced as more of an individual's family and friends also became users. And third, the studies indicated that experienced and attractive high income subscribers value network quality as the most important criterion for selecting or retaining a service provider. And to ensure that the needs of all types of these potential customers are being met, U.S. carriers and new mobile virtual network operators, or MVNOs, are using creative rate plans, marketing approaches, and channels to reach out to new customer segments. As a result, the wireless industry is segmenting and addressing the market more effectively than ever.

In addition, the industry is applying more advanced credit management process to open up more of the youth market and other segments, with less established credit histories. All these trends should contribute to another year of robust subscriber growth for the wireless industry. While more people sign up for wireless service, all subscribers continue to use their wireless devices for more of their communication needs. Based on a sampling of analyst estimates, minutes of use per subscriber has increased over the past 12 months, from a little more than 600 MOUs to over 700 MOUs per month. Again, we believe there's room for further growth as 700 MOUs amounts to only 23 minutes a day. With continued wireline displacement being reinforced by the high volume local calling plans that are offered by carriers such as Metro PCS and a resurgent lead communications, we forecast the growing MOU per sub trend will continue.

Adding all this together, total network utilization in the U.S. also exceeded over 1 trillion minutes of use in 2004 for the first time ever. This 2004 milestone of over a trillion minutes was also the second consecutive year of approximately 30% growth in total network utilization. Where there are more subscribers than minutes there's more revenue. The national U.S. carriers in 2004 achieved record revenue performance of approximately $90 billion, a 14% improvement over the prior year. So with the heightened numbers of subscribers and minutes of use, the burdens on wireless networks are greater than ever, and the playing field among carriers remains highly competitive.

With the imperative to limit churn, these carriers hold network quality as a competitive necessity. As a result, early guidance for 2005 industry CapEx indicate the potential increase over the nearly $20 billion in CapEx spent in 2004. Even with the advent of carrier mergers. As noted in yesterday's "Wall Street Journal," at the time the Cingular/AT&T Wireless merger was announced last year, Cingular's CEO said the deal will mean better coverage, improved reliability, enhanced call quality, and a wide array of new services.

The network quality clearly remains a key focus area for our wireless carrier customers. Therefore, we expect the recent levels of around 13,000 to 15,000 new cell sites per year to be sustained in 2005. The preliminary estimates of 2005 site activity is based on a combination of national carrier announcements and research analyst reports, suggesting that each national carrier is expected to deploy between 2,000 and 2,500 sites with Cingular. And perhaps Nextel, both of those potentially deploying more. So we're seeing the following cell site deployment initiatives at each carrier qualitatively.

First, Cingular's implementing it's plan to achieve consistently high quality across its two legacy networks, while preparing for greater combined net adds, as former AT&T Wireless customers churn is being attenuated. Verizon is addressing the network needs of its significant subscriber additions and is striving to maintain its brand message of leadership and network quality, and is further rolling out its EVDO 3G network. Nextel, we see continuing its program of strengthening its I-Band network across the country to protect and grow its strong 'push to talk' franchise. T-Mobil is working to accommodate its rapid subscriber growth with a focus on the California/Nevada market, in preparation for the winddown of its joint venture with Cingular.

Finally, on the Big 5, Sprint's continuing to execute on its program to bring a ubiquitous level of quality to its coverage footprint. Lots of activity with the big carriers, but we expect the balance of new sites will also come from major regionals and affiliates especially Alltel, US Cellular, Nextel partners, Alamosa, and Metro PCS. In addition, we anticipate continued activity from government customers with a prominent example being the U.S. Coast Guard. In addition to new sites we also expect a continuation of site augmentations on the order of 15 to 20% of our new business, as carriers bulk up the equipment on their existing sites to handle more traffic, and to prepare for data services.

We're also confident in solid 2005 growth in our international business. The major wireless service providers in Mexico including Telcel, Telefonica, Uniphone, [I-isacell], and Nextel international have all performed well operationally in 2004. Like their U.S. counterparts, these carriers have experienced a growth that increases network utilization, and they have the financial capability to invest capital in these networks. Combining the new cell sites that we believe will come online in the U.S., Mexico and Brazil, the site augmentations that we expect in the U.S. and the typical growth delivered by a reliable broadcast business, we're fully confident in achieving our new business goal of 50 to $55 million of incremental revenue in 2005.

As for timing, in the U.S., most carriers are completing their typical beginning of the year planning and budgeting processes. As they gear up for the actual deployment, we anticipate that we'll see the majority of our commence leasing business occur in the latter half of the year. In our international business, early 2005 lease-up activity has been particularly strong, due to the rapid initiation of some key network coverage expansion projects.

All of this gives us great confidence that we're going to attain our full-year revenue goals for 2005 as outlined in our guidance, that we'll be delivering solid organic growth once again, as we've demonstrated consistently over the past number of years. And in delivering that growth, we're also highly confident, that we'll continue to demonstrate the tremendous operating leverage of this tower business model. As Brad said, we are committed to converting at least 90% of incremental revenue growth to EBITDA, and our track record as the industry's most efficient operator will be sustained in 2005. We expect to deliver tower cash flow margins close to 70% and total Company EBITDA margins of over 65%.

Add to that, the benefits of our recent financings that reduced our interest costs while strengthening our balance sheet overall, and we entered 2005 highly confident we'll enter free cash flow in excess of $200 million. By the way, we'll deliver this level of free cash flow while building more towers than we did in 2004, as we invest further in this business that we all strongly believe in on this management team.

Our guidance for 2005 new tower builds is 125 to 150. More than double the 61 built in 2004. As we pursue this more aggressive build plan, we will maintain our strict return criteria, and use our customer relationships, newly developed analytical tools, and a dedicated team, to seek out more great opportunities to build towers.

As I mentioned earlier, our team's attitude is confidence but it's surely not complacent. We're not complacent about our revenue growth. We go after every lease with 100% effort to be responsive to the customer. We invest in our fast track systems, to enable our sales and lease administration teams to capture every opportunity. Our single-minded goal is to be the fastest and most accurate in the industry when responding to customer [search] requests.

We're not complacent about cost control or asset management. Everyone is cost conscious in our Company, and each quarter our senior management team hold operating reviews in our U.S. areas and international markets, focusing on revenue generation, but also paying significant attention to local costs and CapEx control.

We're not complacent about our employees. At American Tower, we use a rigorous process of talent assessment, review and development. We're also intent on communicating with, and listening to our employees, in creating a positive merit-based environment here. Retention and advancement of our strong performance are two of our key goals with people.

In closing, I'd like to thank our employees for a stellar effort in 2004, that enabled our Company to deliver another strong performance. Thank our customers for their business and trust in partnering with us, to build out our networks, and our investors for their continued support. I also hope that each of you share our confidence in the future. Specifically, 2005 should be a strong growth year for the wireless industry, continuing the solid foundation for tower revenue growth, and I assure you that we'll strive to convert on each and every lease.

Now let's go ahead and open up the call for questions. Crystal, we're ready to open up for questions now.

[OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q & A roster. Your first question comes from the line of Jonathan Atkin with RBC Capital Markets.

Yes, good morning. I was wondering if there's any way could you perhaps quantify your site leasing backlog and how that compares with the recent levels? And then also was curious as to what you're seeing or expecting to see regarding lease terminations or future rent levels, as a result of the wireless carrier consolidation that's going on?

Jonathan, Hi it's Jim. Speaking of backlog in the following way, which is regarding to applications. So, the application flow at the beginning of the year was light, as it typically is during the planning process of the carriers. It's beginning to pick up noticeably now. We're looking forward to that flow reaching the types of levels that, you know, we see in a typical year.

On the termination side, with respect to Cingular/AT&T, we haven't received a list, or been asked to decommission any sites yet, but we may see some in the future. To my knowledge, Cingular is still deeply in the planning and evaluation process that they laid out for their investors, and they're trying to figure out the impact of their network improvement plans, and their data rollout on the overall ultimate array of sites they're going to need, and they are still in the middle of that.

Thanks. Finally -- for Brad. Maybe share any updated thoughts on share repurchases and issuing asset back debt that type of thing?

Sure, Jon. As we've said I think over the last several months, 2005 is a year where we will be deploying our excess free cash flow to buying our expensive debt the 12.25 and 9 3/8 notes.

You should anticipate during the course of this year we will not be repurchasing shares, but we will be bringing down our interest costs by another 40 to $50 million, on an annual basis. If we are successful in our year and it works out like we hope it will, we will then look in '06 to look to invest our excess cash flow, if we can't put it into the business into repatriating to shareholders. So that's where we stand in terms of share buybacks. It will not be an '05 event. Potentially it may be '06, depending on where we come out '05.

In terms of securitization, right now, as we buy back our expensive debt, what we would have remaining outstanding would have an average coupon in the 6% range. So we have a fairly attractive average interest cost structure in place at the end of '05/early '06, which while the securitization can be an attractive product, may not be the best position for this Company, given the cost to redo your balance sheet. The more stringent structure of that securitization, as well as the reduced length in terms of actual duration of the instrument. Those are the things we weigh before ultimately embarking on some sort of securitized financing.

Thank you.

Your next question comes from the line of Anthony Klarman with Deutsche Bank.

Thanks. I was wondering on the build side, if any of those builds were being done in the international markets, and if you could quantify what the return on investment has been like, or what is differential in ROI has been like in the U.S. versus international?

Then turning back to the U.S., you know, you guys are already on the run rate of getting close to generating 200 million in free cash flow. I would imagine as you look out past '05 and '06, that number only escalates. I'm just wondering, are you looking at additional acquisition opportunities or places to redeploy that additional free cash flow? Because I would imagine at some point, you know, what is your sort of break-even analysis on returning the cash to shareholders versus, you know, how aggressive would you be willing to be on acquisitions and those types of things to grow the top line?

Okay. That's a lot of questions. With regard to our build program, it approximately based on our budgets. We have to assume that we successfully fulfill those budgets. About a third of builds are in the U.S., two-thirds are in international markets, primarily Mexico, with a little bit in Brazil. The returns in the U.S. have run approximately 15% unlevered. There haven't been a lot of towers but that's what it was in '04.

Mexico was comparable to those levels. A lot of these contracts are dollar denominated. In Brazil it's 400 to 1,000 basis points ahead, depending on what it is, and who the carrier is. But there's very few of those. In '04, I don't believe we actually built new towers down there.

In terms of free cash flow and deploying it, I think we have a set of return criteria for each of the markets we participate in, and we think that return criteria is what would be additive, or accretive to our shareholders. And if we hit those, we will deploy the capital. If we do not and don't have the use of the capital, we think it makes sense to repatriate that to shareholders. That's what you should from us in '06 if the world works out, the way we would like it to.

Just expanding on that maybe slightly. Are the guys who are holding on to tower assets right now, you know, obviously they are probably catching wind of the stronger fundamentals industry-wide. Are the valuations on potential acquisition opportunities creeping higher and, you know, will that force people to be more competitive, and will that perhaps force some of the carriers still holding towers, to which there is a substantial amount, to maybe shake some of those loose?

Look. I think you can assume our primary core business is a tower business. So we have an interest since this is a scale business, and it's helpful to aggregate assets at an appropriate price. As we look at what makes sense to invest money in, and do we get a return based on what we think the growth will be in those assets, is whether or not that's a buying decision.

The marketplaces, different people have different expectations of certain questions of assets, and that's what makes the marketplace. We are, I wouldn't say aggressive but we are very thoughtful and committed to exploring our expansion opportunities. Especially if they can provide us with good returns to our shareholders.

We have a very thorough due diligence process that includes our field teams which have extensive local knowledge of tower assets of our own and others in the field, and also our core team, which understands the economics and growth opportunities against those types of assets. So we feel we're very capable of making these evaluations and assessments, and matching them against our return criteria and making good decisions.

Thanks very much.

Yep.

Your next question comes from the line of Ric Prentiss with Raymond James.

Yes, good morning, guys. A couple of follow-on questions there. Jim, I think in your comments you mentioned "a new analytical tool that helps you kind of look at builds and buys." What exactly is that that you were referencing?

It's a feature of our fast track system that we put in, which primarily is used to respond rapidly and accurately to a customer search ring request. But as we get the search ring in, we can actually use a feature of that tool to overlap the new search ring -- with all the search rings we've received over the past 2-3 years, to figure out if there is a matchmaking opportunity for a new tower if we don't have a tower in that circle at that time. So you've got an automated way, Ric, now to instantly see if a search rings comes out, and we don't happen to have an asset there, is there another customer or two over the last couple of years that may have interest in that area? We'll contact them and try to make it work out for one of our build opportunities.

Second question, we finished up kind of the at AT&T/Cingular thought processes about what would be involved as they go through their process. Seems this week and last week have been people talking about Sprint and Nextel. Can you talk about what you see happening add as Sprint and Nextel merge together? And also Sprint and Nextel suggesting if there were some that could be relocated, how in competing structures do you have, within like a half mile of yourself? Where there's some other tower out there, or some other asset? I seem to recall a pretty small number.

I think our basic premise that you've heard Ric, many times is 80% of our towers don't have a competing structure within half a mile.

Right.

Yep.

So that implies 20% may. But you've got to get down, you know, at the end of the day, you've got to get down to the individual site. What are the RF characters, when's the traffic pattern, and what's the technology? The issue that Sprint and Nextel have acknowledged right up front on their deal, is their technologies are completely currently incompatible. So they are looking out to 2008 and beyond, to figure out how to may try to bring the technologies closer together.

So our view of how this will play out in the next at least couple of years, is you'll have two, you know, required to be robust networks. One based on CDMA, one based on iDEN, and the risk of rushing that convergence is the potential loss of many of your loyal iDEN customers. I think that's a high hurdle and that this new company is going to plan its network with care and try to reduce the churn risk as they move through their plan. And as a result, I think you're going to have two very solid networks over a long period of time.

Final question. [CTIA], a lot of noise coming about mobile broadcast video if you will. Qualcomm was showing off their media flow product. You guys have broadcast towers. Have you seen any early indication of leasing activity from Qualcomm's network rollout, and what type of rents might that be?

Yeah. We're working with them on an introductory site in Southern California, Ric, already, and the tower meets their needs for height, as you indicated. We don't disclose individual lease rates with customers, but it'd be a great business if they launch it. We'd be glad to see them do it.

I think At CTI, they were telling us they need several cell sites per major market, but at a 1,000 foot height.

Their service will work very will and would be very complementary to our fundamental portfolio of broadcast assets. Our team has worked with them. We do have an initial site with them. We expect to have several more as they roll out to the cities.

Have you baked that into your guidance for '05 yet, or is that extra juice if it does come in?

It won't move the dial that much. You're not talking 1,000 leases. So wherever it comes out, ultimately, most of those leases would commence. Chances are, late '05 or into '06, as they fill out the service.

They want to be launched in 100 markets by the middle of '06.

That's right.

Good luck, guys.

Thanks.

Your next question comes from the line of Michael Rollins, Citigroup.

Hi, good morning. Just a quick follow up. When you talk about your expectations for interest cost reduction, how much of it is actually reducing principal versus just the cost of interest? As you model this business over time, what would you like to have as a minimum cash balance, just to stay on the balance sheet, to maintain your flexibility to pursue the different issues that you look at from time to time?

Hey, Mike, the amount from reducing principal just by using our free cash flow is about half the savings. So somewhere between 20 and 25 million. The rest is from utilizing the line of credit to buy in the more expensive debt ,and that spread is the rest of the savings. In terms of how much cash we'd like to have on a balance sheet, I would say that more is better. Pragmatically, this business does not require a lot of cash. You should anticipate from us somewhere in that 25 to $50 million range, we probably have just to handle typical working capital flows. It should not be any more than that.

Great. Thanks.

Your next question comes from the line of Jim Ballan, Bear Stearns.

Thanks a lot. Just a few real quick questions. One is, Brad, I didn't hear what you set as your goal for the net leverage at the end of the year. And can you talk a little about -- you talked about how you're not going to be thinking about buying back stock this year. Is there a bogey that you have for a net leverage level where you think you might change your mind about that? And then I have one question about CapEx as well.

Sure. With regard to where we'll be, I think I mentioned in my prepared remarks that we should be in to the high end of our target range of 5 to 6 times. Call it the high 5s. Based on our outlook, can you infer a 5.75 range for the fourth quarter. Then we end that, in terms of net leverage to adjusted EBITDA when you annualize the fourth quarter.

In terms of where we'd be when we think about buying back shares or doing some sort of repatriation, I think that range is a potential fine range, once we're within our target capital structure. Even if you paid out 100% of your free cash flow, what you would have, is you'd still be deleveraging as your adjusted EBITDA grows, even if your net debt stays the same. And so you could work down within your target range within that.

Now, having said that, I think we're going to be thoughtful about what we actually do when that presents itself to us. And that's why we hope the world works out that way, and, you know it would be a very really high class set of issues to encounter and go through. We are preparing the balance sheet just for that occurrence.

Terrific. The other question I had was you break out CapEx for discretionary improvements augmentations and corporate. Can you help me out with what falls into each of those categories? Just trying to get a sense of what's maintenance CapEx, where the builds are, land acquisitions, or whatever else you're spending on there?

Sure.

Can you help me out a little bit there?

Sure, discretionary is new builds. Think of it as new towers.

Okay.

The improvements and augmentations is what's required to maintain a tower to make it compliant, and what's required to add on capability to handle additional tenants.

So is that both maintenance and augmentations to accommodate -- ?

think of improvements as maintenance. And augmentation is exactly that. Then the corporate is mostly IT related, for the most part.

Can you give me a sense of how much of the 7.6 in the quarter was improvements versus augmentations?

It's usually about 50%, 60% improvements. That does move around a little bit. I shouldn't say that. It's probably a little higher. Our augmentation for the year was about $7 million, out of the 25 million.

7 out of the 25?

Yep.

Okay. Great. Thanks a lot, Brad.

Sure.

Your next question comes from the line of Vance Edelson, Morgan Stanley.

Thanks. Good morning. Jim this is a scale business, as Brad mentioned. Could you share with us your views on tower industry consolidation? Are there any advantages or disadvantages that stand out in your mind, and do you think that over the next several years a transaction is a possibility? Thanks.

We've indicated over the last couple years in our public filings that we think there's benefits to tower industry consolidation. To summarize them in three pieces. One is there's an identifiable cost reduction in SG&A, that you could get by merging tower companies. There is also a revenue opportunity, difficult to quantify, but you're going to have more sites to offer to your customers. In theory, you might be more successful in selling to them. Third is a capital markets improvement, where you have one less tower company competing for debt and equity capital. You've got a bigger scale company and maybe it's in an index. Those kinds of things could be helpful on weighted average cost of capital.

Those are the three categories of improvement. Only the first one is very specifically quantifiable, you know, with data up front, and the other two, you would hope for and expect. And as a result, you know, we would continue to encourage consolidation of our industry. I can't predict when and if it will happen. So we're in favor and it takes two to tango, as they say.

Fair enough. You mentioned Verizon's EVDO initiative. Could you provide more color in terms of 3G rollouts? Are Verizon, Cingular and Sprint actively coming to your towers now with 3G equipment? And when is it realistic to expect 3G to add something to the top line? Thanks.

Yes, in all three cases. Verizon got out in front of everything first Vance, as you know, and they're continuing to look at each site in the markets they deploy at, and decide if they just need a base station, or if they need a couple extra antennaes, or maybe they need to split the site. And that's the specific decision making processes that all these guys go through as they roll out 3G.

Some need more upgrade and cell splitting than others. I would probably put Verizon in a slightly higher category than Sprint, for example, in that regard. Then on Cingular, again they're very committed to the original AT&T program of launching UMTS, and in fact, maybe taking it to an even higher speed in their own Atlanta trial. So yes that's rolling out. It's got some helpful marginal improvement to our revenue. But it's going to occur over a period of time, to become significant.

That's great, thanks a lot.

Your next question comes from the line of Donna Jaegers, Janco Partners.

Given that your customers are consolidating and trying to exert their pricing power a little more, are you seeing any sort of demands for them to lower the pricing on tower sites?

There are always requests or demands to lower price in those businesses. We're experiencing a couple of years' track record now of barely stable pricing within a band depending on the mix of markets that get addressed in a given quarter, that's been, again, relatively stable.

Okay, thanks.

The way to think about pricing in our industry, at least the way we do, is that the tower operators don't necessarily compete against each other very often, but the decision inflection point for most tower sites is, well, what's it going to cost me to build my own tower, versus lease up on a provider that's already there?

Then one other question. In Mexico, are you seeing any interest yet of increased tower sites given the recent auctions?

We've actually seen some of that in anticipation of the auctions, and we would hope that it continues after, especially in the case of NII, who is ready to roll out into some new markets and they've won some licenses already.

When do those auctions get finalized? I know that's been drug into the courts, I think.

The 800 megahertz segment of the auction is completed. The 1.9 segment is in-process still. There's also an underlying challenge on some of these licenses regarding spectrum caps, and that's all being resolved as well.

So realistically that would be a late '05 event for you guys?

We are working with some of our customers in anticipation and in the execution of business spectrum coming to bare now.

Okay, thank you.

Your next question comes from the line of Anthony Klarman with Deutsche Banc.

Thanks. Two follow-up questions. First, I think in the MD&A or in the prepared comments that Brad gave, we're talking a free cash flow number for '05 of around $200 million. It seems look you were basing that off of total interest expense, I do see that you have a noncash interest expenses budgeted for full year '05, because the 12.25s will still be outstanding for in some amount for at least part of the year. So will the actual cash on cash free cash flow, be above that level?

And the other question is on ground purchases. Will that be another area of focus for you this coming year and does the recent changes to the lease accounting incentivize you to more aggressively go after land purchases underneath the towers? Thanks.

With regard to free cash, I think my remarks were over 200 million. I think if you look at our guidance, it is total interest expense. I think the midpoint is like 208 million, something like that, 207 million of free cash flow. We have approximately $18 million of noncash expense for the year related to deferred financing costs that we amortized, as well as more interest expense. Certain people include that in their calculation. Others do not. That is included in the total interest costs.

With regard to making operating decisions and economic decisions based on accounting implications. I think economic decisions are made for economic purposes, and not for accounting purposes. And I hope most people agree with that, so I think the easiest way if you want to change the accounting decisions is to convert to CPI rather than fixed.

We buy land when the criteria makes sense. In terms of getting a good return, that's really how we deploy the capital. There are times you do buy it when you need to strategically to really expand on the site, and that's the only way to do it.

We've already got a lot of land ownership today. It's the highest in the sector. The percentage is 20% of our leases. We still strive to do it. We've got a lot of that already done.

Thank you.

Your next question comes from the line of Ric Prentiss with Raymond James.

Follow-up question. Since the accountants took a while to get you guys through the quarter with a sign-off, I thought we'd ask, how's first quarter look since there's 2 days left?

Also, Crown Capital talked this morning about how much of their '05 is already in the books already. Do you have a similar number for your view, given how forecast-able and forward-looking this business is.

Ric, we were going to do a joint fourth quarter/first quarter conference call, but since we have not, our first quarter outlook is pretty clear. That's what I think we'll say about the first quarter. And I think we have not typically commented on how much is in, of what we've booked is in to the full year. What you can extrapolate by saying look, our run rate of revenues is let's say 176 million is of fourth quarter, based on what we disclosed. That gets to you roughly 704 million for the year. We have new business, obviously we've booked going into '05, so you can add that on. If our mid-point of guidance for Tower revenues is 737 million, you can start doing the math and get very close to where you think we should be at.

Any significant change to what you are seeing as far as churn on the tower level business?

Our churn actually decreased in the fourth quarter from from throughout 2004. 2005 we do have agreed upon contractual stepdowns from some of our paging customers which we anticipate. But we think churn will be slightly lower overall in '05 than '04.

Final question. Are there any other noncash revenue or noncash expense items besides the lease changes that we need to be aware of, in your EBITDA numbers?

We've always had noncash revenue for straight lining. That's always been disclosed as in our case as well as noncash straight line expense, rental expense. Those are also always in our 10-Ks. Those are really the only numbers in there.

Okay. Using that it's clean.

With the exception of those two, it's clean.

Right, that's what I mean. Thanks, guys.

Operator, can we make this the last question?

Yes, sir. Your final question comes from the line of Abe Bronchtein with AJB Capital.

Two quick questions.

Sure.

Can you describe your conversations with Qualcomm. I wonder if you could characterize any conversations you've had with respect to potential WiMax leases, precertification WiMax-type leases? Secondly, I don't know if I did this correctly, but looking at your first quarter guidance and your annual guidance and converting it to year-over-year numbers, it appears that in your case, your first quarter revenue gain is above your full year, which appears to be a bit different pattern than some of the other tower companies have indicated where they said seasonality, we go back to more normal, which would have made first quarter a little softer, perhaps than the full year? Could you just comment on that?

Sure. Let me comment first on the outlook. First quarter actually is our seasonally slowest time. If you look, rather than year on year, look at sequential, and sequential from fourth quarter to first quarter is always our slowest, or the least incremental revenue growth. I'm not sure of the comparison you're looking at, but it's fairly consistent with how we've guided in '02, '03, '04 and '05. And so, this seasonal pattern is what you said, compared to our peers also. Where first quarter generally does have the least incremental revenue in cash flow growth. As any other quarters.

And on the WiMax question, WiMax is a specific technology still in the development stage, as you're implying. We have a few leases in the category of development, not a lot, but with Clearwire as an example, that's a slightly different technology that's developed by a different vendor. We do have leases with Clearwire to do a fixed wireless product that they're rolling out in certain cities. We have the media flow lease that we talked about with Qualcomm, and also, we've worked with other providers, you know, such as Flarion and the Nextel trial. So there are numerous new technologies being trial rolled out, but they're modest impact to us in '05 revenue, versus certainly the major carriers in the network development plan.

Thank you very much.

Sure.

We'd like to thank everyone for being on the call. We're very happy to have a call. So we look forward to talking to you maybe within the next month or so. Thanks a lot, guys.

Thank you.

This concludes today's American Tower fourth quarter and full year results conference call. You may now disconnect.