SBA Communications Corp (SBAC) 2002 Q1 法說會逐字稿

Gentlemen, thank you for standing by and welcome to the SBA 2002 first quarter results conference call. At this time, all lines are in a listen only mode. Later we will conduct a question and answer session, instructions will be given at that time. If you should require assistance during this call, please press 0, then star. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, vice-president of capital markets, Ms. Pam Cline. Please go ahead.

Thank you for joining us this morning for SBA's first quarter 2002 earnings conference call. Here with me today are Jeff Stoops our president and chief executive officer, John Marino our chief financial officer, and Kurt Bagwell our chief operating officer. Before we get started, I need to give the standard S.E.C. disclosure out-of-the-way. Some of the information we will discuss in this call is forward-looking, including all of our guidance for second quarter 2002, fiscal year 2002 and beyond. These forward-looking statements may be affected by the risks and uncertainty in our business. Everything we say here today is qualified in its entirety by cautionary statements and risk factors set forth in last night's press release. In our S.E.C. filings, particularly those set forth in our form 10K for the fiscal year ended December 31st 2001, which document is publicly available. These factors and others have affected historical results, may affect future results and may cause future results to differ materially from those expressed in any forward-looking statement we may make. We have no obligation to update any forward-looking statement we may make. Now, we can get started. John, would you please start with our financial results?

Thanks, Pam. Good morning, once again we posted solid financial results and demonstrated good growth in key areas. Total revenues were 63.9 million, up 21% over the first quarter of 2001. Site leasing revenues for the quarter were 32.5 million, up 60%. Site development revenues were 31.4 million, down 4% over the first quarter of 2001. Power cash flow of 21.3 million was a quarterly record for us by a wide margin, up 62% over the year earlier period. EBITDA or earnings before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses was 19.3 million, our highest ever and up 76% over the year earlier period. Gains in tower revenue and cash flow combined with continued success and expense reductions drove EBITDA to a new high. Margins continued to be solid in the first water. Power cash flow margin improved by 50 basis point in the last quarter to 65.5%. Services margins were 21.4%, about the same as the fourth quarter. Our EBITDA margin in the first quarter was 30.2%, our highest ever, and 950 basis points higher than the year earlier period. EBITDA margins continue to improve, driven by our continue shift in our revenue mix toward leasing and continued year-over-year reductions in SG&A as a percentage of revenue. We expect both of these trends to continue on a year-over-year basis. Cash capital expenditures in the first quarter, including acquisitions, were approximately $46 million. We built 59 towers in the quarter and bought 57. We completed all our pending acquisition obligations in the quarter. Combined expenditures for new builds and acquisitions was approximately 33 million. We spent an additional 5 million on land, tower augmentations, microwave equipment and generators, 2 million on [inaudible] out, a million dollars on maintenance capex and about 2-million dollars for general corporate purposes. The last 3 million of the 46 million related to trailing costs on sites previously built, which were incurred during the quarter. Net loss per share was $1.70, including the restructuring charge. Average shares outstanding for the quarter were 49 million. We recognize restructuring charge in the first quarter of 54.1 million. Approximately two-thirds of this charge charge relates to the write-off of work in progress carried on our books to build new towers, which we have done as a result of our decision to reduce our investment in new towers. The remainder relates to employee reduction, office closings and some repairment charges taken on certain of our towers that are primarily non-revenue producing that we may look to dispose of. Head count has been reduced from approximately 1, 350 at the beginning of the year to about 150. Offices have been reduced from 65 to 45. We expect to complete the restructuring process in the second quarter, recognize and additional 5 to $8 million of such charges in that quarter. We have adopted FASB 142 goodwill and other intangible assets, which establishes a new method of testing goodwill in intangible assets for impairment. On March 31st, 2002, net intangibilities on our books subject to FASB 142 was approximately 92.4 million. Which was generated over time, primarily from our acquisition of services companies pop for evaluations of the document standards has not been completed. It's likely that we will record a non-cash charge in the second quarter relating to this change in accounting principle. It's also likely that if a charge is recorded, it will be well below the full 92.4 million, currently carried on our books. Kurt, could you please provide an update on our operation?

Thanks, John, good morning. K 1 was solid for us on the operational side. Services were right in line with what we forecasted and lease up results were strong. Let's start with services. We are pleased with our results, particularly considering the big carrier's spending and even smaller percentage than historical in the first quarter, 14% versus 21% of annual capex year-over-year the first quarter is always seasonly the lightest, our services revenue came from a wide variety of activity. Si dot tic, network design and provisioning, leasing work, zoning work, equipment installation and repair and maintenance work. Very little came from building new towers for others. Our technical services group was awarded a two year Big 6 contract for base station installs, and our broadband group continues to perform well in the network design and provisioning arena.

AT&T continues to be very active in their GSM overlay Singular is very active on the beginning stage officer their GSM overlay or project genesis, we expect the middle stage or construction and equipment, swaps, modifications and addition to begin in late Q 2. The other 4 major carriers were not quite as busy but we saw activity from all 4. The affiliates and other regional players also had various levels of activity. Many of them were still making quite a few network expansion, enhancement and changes. Our belief is there is still much to do at each of the carriers in terms of capacity and performance work to the network that will drive leasing and services throughout 2002. The full year picture is becoming more clear now that we're in May. Based on our back log and what we're seeing in the field, we believe the recent statements that carriers will be proportion Natly more active and spend more money quarterly over the rest of the year than they did in the first quarter. We expect higher services revenues from Q 2 to Q 1. While the business seems to be there, the bigger challenge may be with profit margin. Margins in the service area held steady in the low 20s in the first quarter although that may be the last quarter for the foreseeable future where we perform at this margin level. As we have stated before fewer new builds leading to less anchor tenant installation work and increased price competition may cause services margins to the client to the mid to high teens range by year end. Our tenant install capture rate was 74% for the quarter, which is consistent steady with the past few quarters. On the new tower front, we put go new build and suit towers in service in Q1 in addition to 7 strategic towers, total new builds were 59. Our new tower backlog and process at the start of Q 2 was approximately 150, with 100 of those being build to suit and 50 of those being strategic. We expect between 40 and 55 of these new builds to be completed in Q2. Lastly, let's review our lease point up for Q1. Lease up was strong and we recognize gross revenue growth of $7,740 per tower per year, up from $7,200 in Q4 of 2001. This ekuwait to a .43 BBE which is up sequentially from the fourth quarter. Tenant credit quality remains very high with 96% of our new lease revenues coming from major voice carriers and government users and 76% of our new lease revenues coming from the big six voice carriers and their affiliates. Rents remain strong on average and actually increase in the first quarter. We are seeing no material downward pricing pressure. We have great relationships with the carriers, we know our portfolio well. All the feedback we get says we're easy to do business with, all of these things add for us to produce good lease up results. We lost a total of 120 tenants in Q1, with the majority of those due to revenue loss, relating to South Carolina telephone a C block voice carrier that leased space, began paying rent but never really got off the ground operationally. We see this as an isolated event and believeon going [inaudible] will return to and stabilize at levels of approximately 1% of revenues. Remaining terminations were almost all paging or small local users. The paging industry now accounts for less than 4% of our total tower revenues. Same tower revenue growth on the towers we owned on March 21st, 2002, came in at 20%, net of churn, same tower cash flow growth came in at 24%, net of churn. Based on what we know today, we continue to expect gross revenue growth in Q2 to fall within the 7 to $8,000 of added revenue per tower per year range. At this point, I'd like to turn it over to Pam, who will provide and update on our capital position. Pam Pam thanks, Kurt. We had cash and restricted cash of 39.8 million on March 30 fierce and total debt of 950 million. Our net debt increased by 73 million in the quarter which was partiallyoff set by an $18 million improvement in working capital excluding cash and interest payable. Net cash used in the first quarter, besides capex, included approximately 26 million of interest paid on our 10 1/4 senior note. The improvement in working capital at approximately 5 million of current expenses within the restructure charge. As we plan and worked through the restructuring, we expected net debt to increase the most in the first quarter, because of the timing of the restructuring and related expenses and changes and working capital. Now that we're substantially through the restructuring, we expect much less of an increase in net debt in the second quarte, which we currently estimate to be approximately 20 million. As we first stated last quarter, we continue to expect debt to peak in the third quarter of 2002,, stay flat for a couple of quarters, and then begin to decline in the second quarter of 2003. At peak debt, we expect available liquidity to be approximately $80 million. We continue to expect to reach positive free cash flow in early 2003. Net debt to quarterly EBITDA annualized at March 31st was 11.8 times. At year-end, we expect our net debt to EBITDA ratios to be in the 9 times range. At March 31st, we were in full compliance with all of our bank covenants and we expect to stay that way as we move through 2002 and beyond. Net cash interest expense for covenant purposes for the first quarter was 14 million. For purposes of bank covenant calculation adjusted EBITDA in the first quarter was 20.7 million. Which was 1.3 million in excess of the requirement. Leverage under the senior credit facility at Marion 31st was 2.7 times, compared to a permitted ratio of 5.5 times. At March 31st the full remaining 92 million under the senior credit facility was immediately available us to and we expect full availability to continue through 2002. Total liquidity of March 31st was 132 million. Now, let's turn to first quarter 2002 and full year 2000 to 2 guidance. The following estimates are based on a number of assumptions that management believes to be reasonable and reflects the company's expectations as of May 7th, 2002. Please refer to the cautionary language previously described, and that included in yesterday's press release, when considering this information. The company undertakes no obligation to update this information. For the second quarter, total revenues are expected to be between 65 and 70 million. Site leasing revenues are expected to be between 33,000 and 35 million. Site development revenues are expected to be between 32 and 35 million. Earnings before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses, including the remainder of the restructuring charge are expected be between 19.5 million and 22 million. Net interest expense is expected to be between 21,000 and 24 million. Cash interest expense is expected to be between 14-16 million. With this EBITDA and cash interest guidance, we will remain in full compliance with our bank covenant. Basic and diluted net loss per share is expected to be between 60-80 cents, including any restructuring charge, but excluding any impact of a FASB 142 charge. We expect to add 40 to 55 towers to the portfolio in the second quarter, all of which will be new builds. We expect to spend cash, can tall expenditures of 18 million-25 million including maintenance and general corporate capital expenditures. As Kurt discussed, we have more visibility today on full-year activity than we had three months ago. As a result we're able to tighten and modestly improve some of our full-year guidance. We are increasing the minimum services revenue in EBITDA guidance by might have million and 1 million, respectively. Full-year 2002 guidance is now as follow:s Site leasing revenues. 145-160 million. Services revenues. 125-155 million. Total revenues, 270 to 315 million. EBITDA 83-100 million. Net interest expense, 87 to 97 million. Cash interest expense, 58-66 million. Cash capital expenditures, 85-135 million. Amortization and depreciation, 100-115 million. Net loss per share before any FASB 142 charge, $3.35 to $3.65. All of our second quarter 2002 and full-year 2002 guidance is premised in part on the assumption that we add revenue per tower at the rate of 7000-8000 per year. Based on all we know today, looking in our leasing backlog, carrier activity, public and private discussions with the carriers and all other factors, we continue to believe that that amount of revenue growth per tower will be achieved. At this point, I'd like to turn it over to Jeff.

Thanks, Pam. I want to start this morning by thanking our employees for very good results in difficult times. Once again, we posted financial results squarely within our guidance. We know our business very well, that was particularly evidence dent this quarter as we worked through some tough issues, we produced these operational financial results while at the same time restructuring our company which entailed reducing head count by 25% and offices by 33%. I am pleased to say that the restructuring part of our efforts is now substantially behind us and we can once again turn 100% of our focus to executing our plan. We believe the restructuring efforts are already showing some benefits and we experience healthy expense savings and reduced cash consumption in the first quarter. We expect to see additional mprovement in the second quarter and throughout 2002 in these areas. We are very confident that you will continue to see each quarter this year material year-over-year improvement in SG&A as a percentage of revenue. As pleased as I am with our ability to control expenses, I am more encouraged at what I see as continued opportunites for top-line revenue growth. Looking past the first quarter, which is always seasonly slow for carrier expenditures, we see increasing activity for SBA, as we move through 2002. Carriers are active and in our opinion, will continue. To be active as they address the necessity of continued network development to satisfy the needs of their customers, and reduce churn. Our basic services offerings of site audits, site acquisition, zoning, construction, technical services and microwave engineering continue to see good demand. We do think that carriers will spend the money that they say they will, and that we will get our fair share of those expenditures. We obviously got up to a great start in lease up this year and as a result, feel very comfortable with full-year added revenue per tower guidance of 7-$8,000. We had a greater contribution than ever before from new equipment added by existing tenants, and we expect that trend to continue for at least the remainer of this year as the GSM overlays continue. I also want to state very forcefully that pricing remains good for tower space for SBA, that no material concessions or special deals are necessary to produce good lease-up results. We believe our assets are in very desirable location. As we have said all along when a carrier wants to provide service in a particular location, the price of tower space is not the primary determining factor, carriers are willing to pay a fair price for tower space. It is this combination of strong starting rents and the probabilities of subsequent rent increases, necessitated by changes in equipment over time, which gives us continuing comfort that we will hit our long-term revenue per tower goals off of an average of approximately three tenants per tower. The other thing that is happening for us, is that our tenant quality is improving. Almost all incremental revenues from new lease came came from solid operational voice carriers in the first quarter, mostly from Big 6 and affiliates. I use the word "solid" for a reason, because we believe it matters as a predicter of churn in later periods. Over the last couple of years, we have carefully studied churn in our portfolio, and found that it stems primarily from financial reasons, and not technical engineering or operational reasons. This has been the case with all material terminations we have ever experienced, whether it be metrocome, some of the paging companies, conn nextsis or South Carolina telephone. We believe that the higher the percentage of our lease revenues that come from operational financially sound clients, the lower our future percentage of terminations will be. This is the directions our lease revenues are headed, this is why we aren't particularly concerned with the first quarter tenant termination statistics. Our business mix continues to move the way we wan it to. In the first quarter, leasing contributed 76% of our total gross profit and 51% of our total revenue, which marks a first for us. It means we accomplished a goal set way back in 1996, which is to get more of our business from leasing than from services. Our leasing and EBITDA margins continue to improve, and we believe those trends will continue. Our tower cash flow margin leased the industry and we expect our current lease upsuccess will cause tower cash flow margin to further improve over the next couple of quarters. We believe EBITDA margin will continue to improve year-over-year, because leasing will continue to be an increasing part of our revenue mix and we expect to continue to reduce SG&A as a percentage of revenue. We expect these two benefits to more than offset any decline we may experience in services margin. Our most important goal currently remains getting to free cash flow as quickly as possible and starting to reduce net debt balances. We continue to be on track to be free cash flow positive in early 2003, weer carefully managing our liquidity and our balance sheet as we get there. Our existing cash resources and availability are more than sufficient to get a us, there and we remain confident in our ability to stay in compliance with our bank covenants. In closing, I would say that we continue to have the ultimate confidence in our business plan and our ability and resources to carry it out. We have a great management team whose strengths and experience are in operations, we have tremendously loyal dedicated and capable employees who understand our business, understand changing market conditions, and are committed to making SBA a success in any environment. The keys to our success remain the same, focus, operational excellence, good customer service and expense control. These are items we can and will control and we are increasingly confident that our carrier demand and their need to support their wireless networks will continue to be more than sufficient to allow us to achieve our operational and financial goals. And Morgan, at this time, we'd like to open it up for questions.

Ladies and gentlemen, if you wish to ask a question, please press the 1 on your touch-tone phone. You will hear a tone indicating your line has been placed in queue and you may remove yourself from queue at any time by pressing the # key. We do have a question from the line of Rick [Prentiss] from Raymond James. Go ahead.

Good morning, guys. A couple questions for you.

Yes, they use that's name to do business under, right. They carved up their licenses and sold it to, if I remember right, Triton [Laviate], Verizon and VoiceStream.

That's right. Any likelihood that those, first, was there any equipment actually installed or was it just place holders ?

There was a little bit of equipment installed there, Rick. It was in essence just place hold der leases in general. What's the likelihood of Triton, Horizon or VoiceStream coming in and needing accessture towers in those locations?

It's already starting to occur, and with respect to a couple of those folks, particularly, Horizon, so we think the chances, you know, it's happening now, and will continue to be good, as we move throughout this year and beyond.

Because, in essence, Carolina PCS is the one who basically installed the C block player [phonetic] sold its three pieces into 3 larger companies obviously.

That's right. Just wanted to to make sure it was the same name I thought it was. The second question has to do with pricing trends, Kurt addressed it a little bit earlier. Can you be a little more specific on what you're seeing out there as far as pricing trends, in regards to the leasing business, there's been some discussions out there, just trying to gauge what we're seeing.

There's a lot of different leases and amendments that we're seeing revenue from today, but on an apples to apples, broadband initial installation, say a full 9 panel array, and 9 lines, we are seeing, we actually saw in the first quarter the highest average rents that we had ever experienced, at SBA, Rick. I think we want to be a little careful about putting those numbers out there, but I will tell you that based on things we've said previously, if you want to kind of extrapolate that, Q1 on an apples to apples basis was the best yet.

We can. I don't think we have that handy for Q1, but if you want to call Pam offline, I can get that for you. Okay, thanks.

We have a question from the line of Nevine Simon [phonetic] with [inaudible]. Please go ahead. Good morning, guys.

Good morning, Nevine. Can you break up the construction charges of the components, what are the timing of the payments and how much is cash versus non-cash.

Well, the cash part was 5 million which we stated was part of the cash use es in the quarter, and then the -- John, do you want to cover some of the remaining parts? John John sure, never vene, there is a remaining liability of about 6 or $7 million. Most of that liability is driven by direct materials, or direct labor that was incurred prior, that we haven't paid, so it's a normal accounts payable, if you will. There are some costs associated with severance and those kinds of things on our books, but the vast majority of that 6 or 7 million, it's clearly directly related to the site. You break out the charge itself, about $35 million or so related to work in process, about $16 million or so related to impairment of assets on our books, and the remaining really was office closings, severance, those kinds of things.

Okay. One other question. You reclassified or decommissioned 34 towers? Can you talk about that?

Yeah, mostly, that was a reclassification. Over time, we had primarily in acquisitions had picked up bun Dallas of towers where you had multiple structures on the same piece of real estate, which for all practical purposes was operationally a single site, so within that 34 number, I think all but two or three, [Nevine] were the result of reclassifying two or three structures on a single piece of real estate into one tower. Okay. Thanks.

We have a question from the line of Shawn [inaudible]

Good morning. My question was about the tenant growth rate. If you exclude the escalated and the microwave and generators and you just look at the co-lows [phonetic] and the amendments, I was coming up with an estimate of about .35. Is that reasonable, do you think?

That might be a tad low.

Okay. And then also, on the.

On a gross basis, Shawn. On a gross basis, right. And then on the, on the churn, excluding the 51 from Carolina PCS, the 69 that you had churn, looks like it was up a little bit from fourth quarter, particularly if you exclude Metra cow from fourth quarter. There is an increased amount of churn you're seeing among the nonwireless players out there?

No, not really. It's just a lot of little, little guys and paging. And I think on a dollar basis, I think it was about equivalent to Q4. The number might seem a little higher, but I think the average rents were lower in Q1 which got you to essentially the same revenue number. Really, no change there. I mean, it's been the same, the same kind of guys all along, which is why, as we continue to incremently boost our portfolio with you know, voice carriers, primarily Big 6 and affiliates, we think that's a real good thing because that's not where the churn is coming from or we think is likely to come from. Right. Then you mentioned earlier about 96% of new leases were from wireless and government. Do you also have a total percentage of left new from the big Big 6 affiliates and government?

No. I think the 96% was on a revenue basis. Okay.

Yeah. That's a revenue number. So that is kind of a current revenue number, mix ?

Right. Great.

We have a question from the line of Alex [Ligel] from Friedman, Billings, Ramsey and Company [phonetic.] Pease go ahead.

Thank you. I apologize if I missed the answer to this question. But your BBE rate in the first quarter was very strong subsequently, last quarter you suggested that you did expect BBE to be flat for the first time, in many, many quarters. Do you have any guidance for your gross BBE quarter going into the second quarter relative to the second quarter?

I think, Alex, we're going to stick with the 7-$8,000 of added a gross revenue per tower per year. Which, you know, if you take the midpoint of that, that is around a .41. But that's probably about as precise as we can get today, five weeks into the quarter pap.

And within your services business, can you break out a mix between consulting and construction?

Sure. John, do you have that handy?

I have it. It's consistently been what about 25, to 30% on the consulting side and the remaining on the traditional constructions side. That's about what it was in Q1.

Yeah, I think 7 -- 724.4.

Great. In looking out longer term, and could you comment on the proposed spectrum reconfiguration of the 800-megahertz band or any opportunities or scenarios that you see that SBA could be a beneficiary of?

No. Not really, at this time. There's a lot of different possibilities that are, that's are being kicked around, but I don't really have any final, final thoughts to that really, you know, pursue with you right now. Okay. Thank you.

We have a question from the line of Gregg [Lundberg ] with Morgan Stanley, please go ahead.

Yeah. The BBE net of churn was .35. The Rf -- the term loan is fully drawn, $100 million, and the $200 million revolver was drawn to 108 million as of March 31.

Great. Thanks a 0 lot.

We have a question from the line of [Gregg Arbatango] from Luke capital markets [phonetic]. Please go ahead.

Hi, guys. It's good to see that the guidance came up on the low end. That was nice to see. I just want to be sure I absolutely understand this. When you say 7 to 8000. Jeff you just about,thy think about a .41 on the lease-up, you have confidence for the rest of the year. If you've got .35 this quarter, what can you account for that's going to be the .41 number that you're looking for?

The 7-8 Gregg, is a Gross number, Gross number.

Gotcha. Then the last question is on the SG&A, it's been coming down nicely, it looks like you've got it more down on an absolute basis, is that pretty much the low point or can you expects further reductions from there.

We're looking we're working on an trend to keep that absolutely down on that basis. I think there's some room to continue to do that this year, but at some point, I think we're not going to be able to squeeze out any more absolute dollars, but we'll always be comfortable in believing we can squeeze it down as a percentage of revenue. Very good. All right. Thanks.

We have a question from the line of Jim ball land with bear stern. Please go ahead. Thanks a lot. I want to ask a question on the services side, going forward, for I may. There are others in the industry who seem to be kind of diem fa sizing service as little bit, kind of indicating that the services business may be shrinking over the long-term.

Do you expect the same thing for you, and if not, how do you, how do you anticipate managing growth of the services? Thanks.

Well, I think, you know, we have a slightly more narrowly focused services offering, Jim. And the stuff that we focus on, specialize in, we continue to believe there will be good demand for. It's not an area that we are going to certainly push to grow in excess of leasing. But we do think that it's likely to, you know, remain fairly healthy, at least to the point of allowing us to, you know, to come within our guidance. So for us, we continue to, it's kind of so far, so good, with respect to carriers demand for the basic services of construction, site acquisition, zoning, but you know, we really don't have any plans to grow that disproportionately, you know, to the rest of our business.

Okay. But as we see you know, sort of as the, as the wireless industry matures, do you think that that just will be guilty of replacing some of that, will that acquisition become possibly a little bit less important for the carriers and maybe more that will be work on the tow er? Do you anticipate that mixed change?

Yeah, I think the mix will change. I think what you'll see over time is more of a maintenance component, because one of the things I don't think people fully appreciate is how much just ongoing maintenance dollars carriers spend on companies like or with companies like SBA to keep the networks up and running.

Thanks a lot.

Yeah. The services side is not just about development, it's about maintaining and keeping the networks up and running.

Terrific. Thanks a lot.

If there are any additional questions at this time, please press the 1 on your touch-tone phone. One moment. We have a question from the line of [Rachel Golder] with Goldman Sachs, please go ahead. Thank you. I wonder, this is a bit redundant from your text, I'm sorry, could you build us up please from your EBITDA number from your sequential change in debt, sort of factoring in all the cash elements?

I'll tell you what, we can get into a lot of detail there, but could you call Pam Klein on that?

Sure. I just want to double-check some of the things you did say, it was 46 million of cash capex, 26 of cash interest, and you said that networking capital was a source of cash, 18 million?

It was a use of cash.

It improved by 18 million. Okay. Use of cash. Okay. I'll call Pam, thank you.

We have a question from the line of Michael linenal with the bank of America. Please go ahead.

Two questions. One is to try to define the guidance a little bit better. There's a fairly wide range for the full-year number. You guys, for you only hit the low end of the second quarter 19 1/2 after doing 19.3 in the first quarter, could you still make the loan of full-year EBITDA guidance, is it reasonable to expect that sort of pick up you would need to hit 83 for the full-year in the second half? And then on the flip side, is there really a shot even if you hit the high end in the second quarter, is the 100 top end for full-year guidance, is that shouldn't that be mod rated down a little bit, is it reasonable to think you could even get there if you hit high end in the second quarter?

Because the second half does usually vary quite a bit from the first half, I think the answer to both of your questions is, yes. And as the second quarter plays out what we've typically done, given the movement in services over time is we will again look to tighten this up very, once again each quarter, basically. But we have experience in our history, swing that you know would allow us to hit, you know,

both of your, your your ends, as you so put it. So the answers are, yes, and what we will do as we move through the year is continue to tighten up the guidance as we go.

Second question is one of your competitors recently withdrew their guidance, I think generally spoke about a lack of clarity in their business on going forward. You spoke of about apparently better clarity for your business going forward. Are there differences you think between the types of markets that that particular company operates in and the market that you're in that might describe why you've got clarity to better performance through the rest of the year than they apparently seem to have.

I don't think there's a difference in the market, but there is a difference in the product lines. We tend to be a little more narrowly focused than some of the other folks that you've heard from, and that would be perhaps the reason for that.

Can you elaborate on that a little bit?

Well, we're not into tall towers, we're not into fabrication, we're not into components, we're not into RF engineering. Let me start with what we do do, and it's really a fairly narrow product offering, it's site acquisition, zoning, construction, technical services, and microwave engineering. That's all we do. And we think those areas continue, well, more than think, we know those areas continue to be pretty well in demand. So it would have to mean that some of the things that were not in were perhaps disappointing to some other folks.

Anything on the leasing side that might differentiate you?

Well, I mean, weaver said consistently through our history that we believe we have the highest quality portfolio, because we have had the greatest impact in determining the locations of each of our towers. And we have always been firm believes that location is the ultimate determinant of lease-up and the fact that we've had the highest ability to control our locations, I think directly is certainly one of the leading, if not primarily drivers of our lease-up success.

Okay. Thank you.

Thank you.

We do have a follow-up question from the line of Rick [Prentiss] of Raymond James. Please go ahead.

I figured I'd wait until the toned make sure everyone has their chance. Two other Jess for you, Jeff. One you touched on it a little bit there in your last question about the microwave. Can you talk to us what's going on in that particular area, carriers have been talking to us about how back haul has become yet another bottleneck to them. Rue seeing interest from them yet for using a tower solution for back haul?

Yeah, the broad answer is yes but I'm going to let Kurt give you some color.

There's definitely interest, the hardest part to actually cobble together a solution, a physical solution that works for both of us. toggle? And make sense economically, they have issues with term liabilities, termination liabilities with the license fee. We have issues with our model that we run into, can we toggle together a full series of paths on our facilities without having a without having to lease space on other facilities, that's where the advantage really comes in place. We've got a couple in place, we've got a couple more we're ready to begin installation on, but they're very unique solutions, they take a group of traffic from, you know, point A to point B and trying to work that in with the carriers on exactly where they need to take you know multiple traffic workshop we're not talking about the T 1 level here we're talking more so on the kind of a long haul back haul multiple DF 3 level. I'm trying to find those exact locations where they were and then the economic model is the trickest part. There's definitely interest, it's just, it you know, we're finding a few solutions, but it's been a it's been tricky to find that real panacea there. At least they're considering the alternatives. What is the typical contract length for the circuit that the carriers might have to be getting out of?

It's all over the board, depending whether they negotiated [inaudible] or not but typically, between three and five years. Is what we're seeing. All right. Is there, are these unique solutions, or is it that you're going to try and put a couple of carriers on to the back haul when you put it in?

No, we're only implementing these where we know we can get our return from the initial tenant, because again, they're very, they're so unique in where they take traffic from and to, that it's very tough to find two guys that need to go from exactly those, between those same two points. We see Sprint putting in additional carriers, another use of the word "carrier" we see sprint putting additional carriers as into their cell [inaudible] as they're looking to get into the 1X zone does 2 and-a-half [inaudible] need for this back haul anymore?

To some degree, but again we're really finding the economics set up for both of us to make it a win win is not really from the single cell side level, it's really more so on the long haul back haul level. So that will drive a lot more traffic, but it's, to the extent that that pushes it across a lot of boundaries as well as where a lot of our solutions work for both of us that does make it more enticing but it's not the single cell rebel. Final question back to you Jeff. A lot of people talk about industry on wire consolidation on the wireless carrier front, what about consolidation on the tower front, what's your take on what the future might hold there?

I think really from just kind of a textbook sense it would make sense down the road because all the larger companies of built some fairly large back offices, I do think there's a lot of operating expense, energies to be attain third degree not quite as convinced that it's going to be a catalyst for top-line revenue growth that some seem to imply but if nothing else from the operating expense savings perspective it's something that should be looked at probably over time causes it to happen.

Great. Thanks.

We do have a question from the line of Thomas [Boyce] of [Bairstrom.] Please go ahead.

Just two weak questions. One is you gave us guidance for second quarter new builds, and I assume new acquisition, can you update your guidance for the rest of the year with regard to new builds and or acquisitions? And the second question is. the prices you've given for site leasing assuming you hit the high end of that in the second quarter, that will imply almost 90 million site leasing not site leasing, services, it would imply almost ninth million of services revenue for the second half. Is there some contract or something in your backlog that would lead you to get that that kind of number or what is -- can you give us -- shed a little light on that estimate?

I'm not sure I followed your last one because you were mixing up leasing and services, but if we oh let me start with your first question. No more acquisitions are in the, in the guidance, and 150 new builds are in the guidance in Q -- combined between Q 2, Q3 and Q4. Now, I think your question might have been the one we heard earlier, which is if we hit the high end of site development or the services side, where does that put us in respect to full-year services guidance? What I want to make clear to everybody is the second half is always oh well, always, historically, much more robust than the first half, and as we get into our second quarter earnings result, that's where we get a much clearer picture of what the second half will look like. So I think it is possible, but what you could look for is, as we move through the year that we continue to tighten up our guidance on all fronts.

Okay.

We have a question from the line of John [Bentz] from Lehman Brothers, please go ahead.

Hi, John Bentz at Lehman. Just a few questions. First on the capex guidance, 85 to 135. I can kind of drive a truck through, Jeff, I was wondering if you can help us understand what would be the factors to cause it to be apt the low end or high end, if I look at 209 build number the low end is still applying over 400,000 per tower.

Well, you have the acquisitions in there, right the 57 that we did in Q1. We count all the acquisition capex in that number, John. There's no more acquisitions after this quarter plan, I heard you right on that?

Right. We're going to be looking to move that 135 number down. I mean, we are working. That's what I thought.

Yeah. We're working to move the 150 number down, we're working with our customers, we have some obvious flexibility there on the strategic sites, so I think you're going to see the top ends move down over time.

Okay. The second question I just I basically jettisoned when I think of a relevant broadband equivalent the metric in favor of annualized tower revenue number, I'm intrigued by your 7-8000 number. As I look at some of the disclosure in your press release you talk about the fourth quarter December 31st, 01, having a 32,576 number. Is that one we can work with to say that by fourth quarter of 02, we should be seeing something like a $40,000 annualized revenue per tower number? Is it something we can use in modeling?

Yes. But it is a gross number, so -- .

What does that's mean ?

The 7 to $8,000 of revenue added per tower per year is a gross number, so excluding churn, the answer would be yes, but you know, we don't expect churn to be material, I think you should be looking for somewhere in the 39ish, 39,000ish range.

Good. Then a last question, I guess I'm always a little surprised, since I hear of the write-offs generally in the industry on work in process. As I think about the $35 million, that it's included in the charge this quarter, how many sites were you working on that, come up to this number? When I think of even say 50,000 bucks of, you know, land bank work or something, you're talking like 700 sites, when you're -- .

We're forecasting, it's 800. You basically wiped your pipeline clean essentially?

In this capital market's environment, that is the decision we made. To basically get this get the operations to a point where we were not, you know, spending any more on capex than we needed to, which is kind of a stake we put in the ground, John, to be the first company to positive free cash flow. Final follow-up, if you'll indulge me, how much work in process is on your balance sheet or March 31st, order of magnitude?

It's about 20 million, John, give or take. 20 million. And you've got 150 more builds contemplated for the rest of the year, so 100 33,000. Okay. Thank you.

We do have a follow-up question from the line of Gregg [Arbitango] from Luke capital markets. Please go ahead.

I talked to a bunch of people last night and it just, everyone's kind of the consensus the numbers look pretty good, then you look at the screen today, it looks like a tough morning. Is there a sense of that people were looking for something that they much different, in talking with some clients, maybe on your end, what is it that people aren't happy with, in your view? Thanks.

That's a tough question, because we're -- I mean, it would be speculation, as to we think the numbers were good. They could always have been higher, I guess we think the BBE number was great, folks really should take a lot of comfort in that it's a proxy for really where the action is coming from. We don't think people should be particularly concerned about the South Carolina telephone issue, Gregg, to be honest with you, until we get off the call and get a little feedback, it's hard for me to speculate beyond that. Okay. Thanks.

Now there are no additional questions at this time. Please continue.

Okay. We certainly appreciate everybody tuning in for our first quarter results. We look forward for a chance to share our second quarter results with you in about 90 days. Thank you.

Ladies and gentlemen, that does complete our conference for today. Thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.