SBA Communications Corp (SBAC) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA fourth quarter results conference call. At this time, all lines are in a listen-only mode. Later there will be an opportunity for questions, instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would now like to turn the conference over to Vice President Capital Markets, Pam Kline. Please go ahead.

Thank you for joining us this morning for SBA's fourth quarter 2003 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer; and Jack Fiedor, our Chief Accounting Officer.

Before we get started, I need to get the standard SEC disclosure out. Some of the information we will discuss in this call is forward-looking including, but not limited to any guidance for 2004 and beyond. These forward-looking statements may be affected by the risks and uncertainties in our business. Everything we say here today is qualified and its entirety by cautionary statements and risk factors set forth in last night's press release and our SEC filings, particularly those set forth in our Form 10-K for the fiscal year ended December 31, 2002 which document is publicly available.

These risk 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. Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to their most comparable GAAP financial measures, and the other information required by Regulation G, is included in our earnings press release which has been posted on our website at www.SBAsite.com. Jack, would you please comment on our fourth quarter results?

Thanks, Pam. All of the operational results we will discuss for any period reflect discontinued operations treatment for the sale in 2003 of 787 towers and intended sales of 61 towers in our Western region. Site leasing revenues for the quarter were 32.9 million, up 8.9 percent over the fourth quarter of 2002, and a quarterly record for us. Site leasing gross profit, or tower cash flow, was 22.7 million, up 17 percent over the year earlier period, also a quarterly record. Both site leasing revenue and site leasing gross profit were up sequentially. Total revenues were 57.6 million, flat with the fourth quarter of 2002, but up 10 percent sequentially in the third-quarter. Services, or site development revenues, were 24.7 million, down 9.3 percent from the fourth quarter of 2002, but up 22 percent from the third quarter of 2003. Net loss from continuing operations was 53.1 million and net loss was 51.2 million for the fourth quarter.

Approximately half the loss was attributable to asset impairment charges, the write-off of deferred financing fees and net loss associated with the extinguishment of our higher cost debt. Net loss per share for the fourth quarter from continuing operations was 98 cents and net loss per share was 95 cents. Excluding the $25.2 million of asset impairment and debt retirement related charges, net loss per share from continuing operations was 52 cents and net loss per share was 48 cents. Weighted average shares outstanding for the quarter were 54.1 million. Adjusted EBITDA was 16.8 million, up 8.8 percent from the year earlier period.

We recognized 6.2 million of non-cash asset impairment charges in the fourth quarter resulting from our regular FAS 144 review of our portfolio on a tower-by-tower basis, and our estimates of future lease up potential for those specific towers. The charge related to approximately 30 (indiscernible) towers spread throughout the portfolio. We also recognized 19 million of charges in the fourth quarter for debt associated with the early retirement of $153.3 million of 12 percent senior discount notes and 83.6 million of 10.25 senior notes we retired in the fourth quarter. The amount relates to premiums paid and the write-off of the deferred financing fees associated with these notes. Based on our first quarter refinancing and repurchase activity to date, we expect to incur a similar charge of approximately $24 million in the first quarter.

We continue to work hard on controlling tower expenses and in the fourth quarter we were able to once again reduce tower expenses sequentially from the prior quarter. As a result, we posted record site leasing gross profit margins of 68.9 percent, up 140 basis points from the third quarter of 2003 and 408 basis points from the year earlier period. We expect to achieve 70 percent gross profit margins on our site leasing business in 2004. Services margins improved to 7.4 percent in the fourth quarter, up from 4.2 percent from the third quarter and down from 14.1 percent in the year earlier period. Kurt will discuss the services business in more detail shortly.

SG&A expenses for the fourth quarter were 7.9 million or 7.7 million excluding non-cash compensation items. SG&A was a little higher in the fourth quarter due to some from performance bonus payouts and charges we took to improve our receivables position as we reduced our net receivables position from 36.3 million at year end 2002, to 19.4 million at year end 2003. We expect SG&A, excluding non-cash compensation, to return to approximately $7 million per quarter in 2004. While we feel good about our belief to maintain a relatively steady level of SG&A expense in 2004, we would caution against expectations of continued declines in SG&A expense, particularly as we work through full implementation of the provisions of Sarbanes-Oxley in 2004 which we believe will add as much as $1 million to our (indiscernible) cost in 2004.

Our adjusted EBITDA margin in the fourth quarter was 29.1 percent, 230 basis points higher than the year earlier period. The adjusted EBITDA margin improvement was driven by a continuing shift in our gross profit mix to the higher margin leasing business. Our leasing segment contributed 92.5 percent of our gross profit in the fourth quarter compared to 83.5 percent in the year earlier period. Cash capital expenditures in the fourth quarter were approximately 2.9 million.

We completed construction of three towers in the quarter and ended the year with 3032 towers continuing operations and an additional 61 towers held for sale. Capital expenditures for our new builds, including trailing costs and development costs for those completed in prior quarters, were approximately 1.8 million. We spent an additional 400,000 on maintenance tower CAPEX, 300,000 for augmentations and rebuilds, and approximately 400,000 on general corporate CAPEX. At this point, Pam is going to provide some information about our capital position.

Thanks, Jack. We pretty much have an entirely new capital structure in place since our last call. We've reduced the cost of our debt materially, dramatically reduced debt service requirements over the next four years, and lengthened our maturities. Last night's press release details our forth and first quarter refinancing activities to date, and we think it makes the most sense to discuss our position on a pro forma basis as of December 31st to include everything we've done so far in the first quarter. We have a new $400 million senior credit facility, of which 275 million has been drawn and 125 million remains committed in the form of a $50 million additional term loan and 75 million of revolver.

Availability is determined by a number of financial covenants, the most constraining of which is the leverage limitation of four times annualized adjusted operating cash flow of the borrower. That calculation is approximately the same as trailing 12-month adjusted EBITDA, but uses the most current quarter of site leasing gross profit annualized and excludes approximately 5 million of annual holding company expenses. The credit facility bears interest at the euro rate plus 350 basis points and amortization applies only to the term loan portion at a rate of 1 percent per annum commencing September of this year. The new credit facility will be attached as an exhibit to or Form 10-K.

As of Monday March 1st, we will have retired in full our 269 million 12 percent senior discount note issue and reduced the balance of our 10 1/4 senior notes outstanding to approximately 358 million. To pay for all this, in December we issued 275 million in gross proceeds of 9 3/4 quarter percent senior discount notes. We've used proceeds from the new senior credit facility obtained in January and we've issued 2 million shares of our common stock, 1 million in each of the fourth and first quarters.

Pro forma debt balances at December 31, 2003 are 275 million under the new senior credit facility, 275.8 million of 9 3/4 percent senior discount notes, 357.9 million of 10 1/4 senior discount notes -- or senior notes, and net debt of 851.5 million after giving pro forma effect to 57.2 million of cash, restricted cash and short-term investments. We would have had an additional approximately 21 million available to us under the new credit facility at December 31st.

Restricted cash includes approximately 7.3 million that remains in escrow from our sale of 784 towers in our Western region. We received approximately 10 million of proceeds in the fourth quarter from tower sales. We are not anticipating any material amounts from the sale of the remaining 61 towers held for sale nor are we anticipating putting any additional towers up for sale. The pro forma net debt figure of 851.5 million is down from 957.9 million at the end of 2002. As a result of our refinancing activities, we have reduced our weighted cost of debt from 10.5 percent at June 30, 2003 to 8.4 percent on a pro forma basis at December 31st. With the opportunity to reduce that cost even further by continuing to use credit facility proceeds to repurchase higher cost holding company debt.

The combination of lower interest cost, the zero coupon feature of our new 9 3/4 senior discount notes, and the greatly reduced amortization requirements of our new senior credit facility have resulted in a reduction in debt service requirements over 50 million for 2004 compared to where our debt structure was at June 30, 2003. As a result, we've been able to accelerate our expectations producing positive cash flow from operating activities to this year. Reducing our leverage is now our primary capital structure goal. We intend to continue to take steps to reduce our cash interest, total interest and overall leverage in SBA. And exactly what we do and when we do it will depend on market opportunities and our liquidity position at the time. In last night's press release we set forth our detailed 2004 guidance. Jeff has a few comments on that later. Kurt will now provide us with an update on operations.

Thanks, Pam. As you heard from Jack, fourth quarter continued a strong trend for our site leasing business in both topline revenue and gross profit growth. We continue to feel confident in our ability to successfully capture incremental leasing revenue from both new installations and additional equipment on the well-placed assets in our portfolio. Our consistent success in this area is the result of an active carrier client community, solid execution, and, most importantly, high quality tower sites.

Additionally, it continues to appear to us that the carriers are all taking network expansion, technology and quality fill-in site work very seriously. With the continued strong subscriber and usage growth, both from voice and data, our customers are focusing hard on the basic fundamentals of providing a high-quality of service which we believe bodes well for those of us in the infrastructure industry and our numbers continue to show it.

The large network improvement plan Sprint announced last year, of which we have a significant piece, will move into the antenna placement phase in 2004. Nextel last week announced material increases to their 2004 build plan, and T-Mobile has previously stated they will do more cell sites in 2004 than in 2003. Verizon is staying consistently active, and Cingular continues to be very active trying to complete its GSM overlay and otherwise improve network quality. AT&T continues to deploy some new cell sites, although we do not expect AT&T to be quite as active in 2004 as some of its peers. We've not seen any evidence yet that the AT&T acquisition will slow Cingular's or AT&T's 2004 activity.

Other telephony providers, particularly Alltel and U.S. Cellular, continue to be active. The affiliates are getting healthier and starting to show signs of renewed activity. In general, we share the opinion of or peers that more cell sites will be deployed in 2004 than in 2003. Longer-term, we think solid activity will continue well beyond 2004 given the multiyear network improvement plans that have been announced by our customers.

Our fourth quarter lease up results were the best in six quarters in terms of revenue added per tower. In the fourth quarter, 84 percent of our new leasing revenue came from the big six, the highest levels experienced in 2003. Over 95 percent of our new leasing revenue came from the big six and other telephony carriers like Alltel, U.S. Cellular and the big six affiliates. We also continue to see some level of lease up from a few of the new wave of wireless data providers.

Our mix in the fourth quarter between new revenue from new installations and new revenue from amendments was 89 percent and 11 percent respectively. Our most active tenants in Q4 were Cingular, Nextel, T-Mobile, and Sprint. Verizon and AT&T wireless continued to grow their networks with us as well in a steady fashion. Our lease up was spread widely across our portfolio and included both large and small demographic markets.

We ended the year with leases from 6847 tenants on the 3032 towers in continuing operations. Not all of these tenants have installed and begun paying rent, and therefore their contribution is not yet fully reflected in our financial results. Cash rents from those 6847 tenants average $1603 per month, our highest ever. Increasing average cash rents are driven by escalators, amendments and new tenants paying higher rent.

Same tower revenue growth on the 3020 towers we owned at December 31 2002 and 2003 was 9.3 percent and tower cash flow growth was 16.1 percent. New lease rates per installation rose in the quarter from the year earlier period, and we believe that fact, along with steady volume, will continue to support our expectations of high single digit to low double-digit same tower revenue growth and tower cash flow growth that will exceed revenue growth.

We're off to a good start in the first quarter and our backlog currently of pending leases is the highest it's been in six quarters. Our tower maintenance OpEx and CAPEX continue to stay at very low levels in Q4, actually beating our internal models. Some of this is seasonal with the slowdown of weather-related issues, but it is also due to very tight control and discipline about every dollar being spent. Most importantly, we believe it to be a product of having built most of our towers ourselves to very high-quality standards with efficient cost structures. Our ability to control this aspect of our cost space is solid and expected to continue.

In our services business, topline revenue improved sequentially from Q3 to Q4, jumping over 20 percent. We expect Q1 2004 to be flat to slightly down in the area of topline services revenue due to normal seasonality, but then increasing in Q2 as our backlog remains strong. In the area of services gross margin, we had said that Q3 was going to be our low point for the year and that proved to be true as Q4 gross profit bounced back to 7.4 percent compared to 4.2 percent the previous quarter. We're not satisfied with the 7.4 percent margin and we continue to focus hard on stabilizing and improving this margin across 2004. We believe we can return to high single digit to low double-digit services margins over time.

We continue to perform site acquisition, construction and technical services work, our historical core offerings for all of the big six and many others on a national basis. To sum up operations right now, we continue to be optimistic about the environment that exists today and the prospects for the future. Customer activity is strong. Even assuming some stops and starts from the Cingular AT&T merger later in the year, we expect higher overall activity levels in 2004 than 2003 for the wireless site development and infrastructure business. The continued need for every carrier to provide high-quality ubiquitous coverage is a key fundamental that bodes well for 2004. At this point, I'll turn it over to Jeff.

Thanks, Kurt, and good morning, everyone. It's hard for me to find the right words to express how proud and pleased I am for the progress SBA has made in the last 12 months. We have accomplished many things that others said could not be done. With our asset sale we've proved the value of our own tower assets, and by doing so I believe helped restore the understanding of the Capital Markets to the value of our industry. We opportunistically took advantage of some favorable Capital Market conditions and in two short months almost totally revamped our capital structure. We materially lowered our debt service requirements and dramatically improved our cash flow profile. We performed steadily throughout the year on our leasing business growing revenue, tower cash flow add margin every quarter and ending the year with pending leases at a 2003 yearly high.

We began to turn our services business around by midyear and ended the year with a quarterly high in revenue and a strong backlog, which has continued to grow in the first quarter. During the year, our shareholders and bondholders were rewarded handsomely. Our stock was up over 800 percent in 2003. Each and every SBA employee contributed in some way to this success and I want to thank all of our employees for bringing us so far this past year. I want to particularly commend our employees for maintaining our position as one of the premier wireless infrastructure services providers through a challenging last two years.

We believe 2004 is also going to be a good year. Our customers appear to be relatively healthy and focused on network improvement. I have a couple of additional comments on the Cingular, AT&T merger. As Kurt said earlier, we have not seen any adverse fallout from the merger to date. We have stated many times in the past that we do not believe that the Cingular, AT&T merger will result in any material loss of existing leasing revenue. For those of you, however, who wish to consider the theoretical worst-case scenario, Cingular and AT&T are currently both located on 287 of our towers and produce combined revenue on those towers of $12.8 million.

The average remaining lease term is over three years. If we lost fully half of that, which we do not believe will happen or even close to that, that would comprise 6.4 million or approximately 4.7 percent of the midpoint of our projected 2004 leasing revenue. More interesting, I believe, is the fact that we have 1400 towers where neither Cingular nor AT&T are tenants, so we think our opportunities to benefit from the nationwide buildout, coverage and cell density needs of the combined companies is tremendous.

Currently, our leasing and services backlog support our belief that 2004 will be a good year. I want to make a few points about our 2004 guidance. With respect to 2004 site leasing revenue guidance, we have projected essentially the same dollar amount of revenue growth per tower as we realized in 2003. While we do believe more cell sites will be deployed in 2004, and we will at a minimum maintain our market share of those new sites, we have chosen a conservative path for the time being while we see how the year plays out. We'll revisit that guidance each quarter. I will say that about 40 percent of the projected leasing revenue growth in 2004 is already in the bag so to speak in the form of signed leases pending equipment installation.

The most exciting part of the guidance for us is the projected positive cash flow from operating activities which is an event that we have been able to accelerate, as Pam mentioned, through our refinancing activity. We have in placed the means and ability to continue to refinance higher cost debt with lower-cost debt. We feel very good about our expense structure on the leasing side and overhead side and with respect to capital expenditures. We don't expect any surprises there. As far as services goes, if we see minimal to no fallout from the Cingular, AT&T merger, we believe we would be at the key high-end of the services revenue range, and if there were to be a lot of fallout, we believe we would be no worse than the low end of the services revenue range given our business from other carriers, particularly Sprint.

We believe margins will continue to improve as customers steer a little more towards speed, quality and resource decisions. We continue to like our tower assets a lot. We feel we are in the right markets, provide the right product offerings, and believe we have the best employees in the business. We agree with the consensus that our customers will be busier in 2004, and we are confident that we will get at least our fair share.

On the balance sheet site, our liquidity and risk profile have been improved dramatically. We have substantially reduced our debt service requirements through mid 2008. As a result our balance sheet focus now moves from stabilization, which we have done, to reducing leverage, which we are committed to do. In summary, it has been a number of years since I have felt as optimistic as I do today about our prospects at the beginning of the year. I believe we will have a lot of positive opportunities in 2004 -- opportunities clearly to grow revenue in both business segments; opportunities to further reduce expenses, some of the tower side, but clearly more on the interest expense side.

We have a good history of taking advantage of opportunities and I believe that will continue. We have always felt we execute well as a company, and the real difference today compared to 18 months ago is that we have a much better business environment and a much better capital structure. And I'm very much looking forward to our future calls this year. Operator, at this time, we're ready for questions.

(OPERATOR INSTRUCTIONS) Ric Prentice with Raymond James.

Good morning, guys. I applaud you on your goals, too, I think that's a great thing to be looking at, continued reduction of cash interest, total interest and leverage (indiscernible) it's obviously the clear message you guys have been working and I'm glad to hear you continue working on it. Questions in regards that, Jeff, you were saying your guidance basically implies same cell site deployed for the industry '04 versus '03, but maybe little nuances as far as amendments go, is that what you were trying to draw there?

Well, I think we want to come out, Ric, at this point of the year with a conservative view. The point was that on an Average Revenue Per Tower basis, we're guiding to the same incremental growth '04 over '03 that we enjoyed '03 over '02. Yet at the same time, we do agree and see evidence in our backlogs and in the industry that actually '04 should be better than '03. And that will be a combination of both new leases and amendments. But, for the time being, we're guiding to the same amount of incremental revenue growth in '04 as we saw in '03.

In regards to the data offerings that some of the carriers have started talking about, in particular Verizon Wireless, have you seen any activity so far as far as people asking for surge rings (ph), specifically for high-speed data from the large carriers? When do you think you might be seeing dataflow in and what it might mean to you?

There's a lot of rings out there -- it's really a good mix right now of coverage expansion, capacity, fill in sites, data sites -- I wouldn't say there's a lot of rates that are data only because they're also working at the same time on voice quality and capacity fill in. But the data is definitely driving the approval of a lot of these rings single-handedly because they've got to get that level of service more ubiquitous than it is today and have that density up as they go to the new upgrades for things like DBDO or EBDB on the CDMA side.

And we've refined our definition of valuation free cash flow to really just focus on maintenance capital or non-buying and building CAPEX. And if I look at your guidance for '04, the $5 to $8 million, how much of that would be from buying or building as opposed to augmentation versus maintenance versus corporate CAPEX?

There will be a couple million dollars, say 2-ish plus or minus half a million that's probably going to go for new assets and the rest would be for just maintenance and augmentation and general corporate.

And then the final question for you guys. In the past you've talked a little bit about efforts at looking at backhaul, can you update us as far as what your thoughts are as far as backhaul as a business opportunity?

It continues to the a good business opportunity. We will look at it as we will all of our new opportunities. Right now, our primary focus, Ric, is taking excess cash and using it to pay down debt and delever, but to the extent we do make some new investment, we will have opportunities there and we're going to have continued opportunities with new builds and acquisitions. So we kind of look at it as part of the opportunity mix that I referred to as feeling pretty good about 2004.

Well, you've definitely got the priorities right. Good luck, guys.

Jonathan Atkin with RBC.

Just a couple of housekeeping items. One is, and perhaps you addressed this, I just didn't hear it. How much of your site leasing revenues were recurring in nature? And then turning to your tower gross profits, the 70 percent guidance for '04, where would you anticipate ending the year. And then my final question relates to the services business. Can you comment more specifically on how you intend to drive the services margins higher, how do you view doing the work, self-performing versus outsourcing and so forth? And if you could refresh us on customer concentration, what's the pipeline for that business look like and what's the typical duration of the major carrier projects that you're currently working on?

All of the site leasing revenues are current. There's not anything in there that -- is their, Jack? It's all current, it's all leased, all long-term leases. The 70 percent -- I may be off a quarter here, Jonathan, but I think we hit that around Q2, no later than Q3. So we end the year maybe fourth quarter run rate, 71-ish, maybe a tad higher.

And on your services questions, I'm going to let Kurt speak to the plans to increase margin. But, on the concentrations, our two largest customers -- well, our single largest customer in terms of backlog would be Sprint based on the Keebler project we have in the northeast. But we also do a pretty good amount of work for AT&T, we do a good amount of work for Cingular, we do a good amount of work for -- for that matter T-Mobile. Those would be the tops on the list. But far and away, more than half of the current backlog is the Sprint Keebler project in the Northeast.

Keep in mind that part of the services business that hasn't changed through time other than these longer-term contracts is that a lot of the business that we do is construction bid work and that rolls over every 60 to 90 days. But Kurt, why don't you talk about services margins, and I think Jonathan also asked about duration of these projects?

On our services margins, what we've been working towards to increase those, really consolidating a lot of our operations, we've got a much more centralized back office that we've worked on over the past year, year and a half. We've seen a lot more volume projects out there versus -- there are still a lot of piecemeal bid work every day, but we're seeing on both the site acquisition and the construction side higher volume turnkey projects which generally are better for us from an inefficiency perspective, it keeps us busy constantly versus having down time. That's a big driver. And another piece is that the work with all six carriers be very active, the work is just much steadier in every geographic location which is much more efficient for us.

At the same time, there is kind of a renewed sense of urgency by the carriers on their network front, and with demand for speed typically in some cases there's somewhat of a premium. So prices have been fairly stable but I would say they definitely bottomed out last year and they're inching back up if you can provide the quality work which we think we do.

Duration wise, we have some turnkey projects like the Sprint project and others that are long-term. There are turnkey from site acquisition to engineering to construction. The Sprint project is a good two-year project that started six or seven months ago. We've got some daily bid work in construction that you bid it today, you win it next week and it takes three or four days to perform the work. It's a real mixed bag there in terms of duration. Most of our site acquisition projects are typically a volume of sites anywhere from say 20 to 200 sites in a project and those durations are probably six to 24 months depending on the area and the exact scope of work.

Great. Thanks for the detail on that as well as the site leasing pipeline. I appreciate it.

Alex Rygiel with Friedman, Billings, Ramsey.

Jeff and Kurt, you mentioned that the non big six carriers were strengthening. Can you talk a little bit about what you expect your incremental growth from those customers to be in '04 versus '03?

Well, at the risk of oversimplification, almost anything in '04, Alex, will be growth over '03. I don't think we saw but a handful of leases coming out of the affiliates in '03. We are already starting to see a little bit more activity than that in the backlog. And you know, it won't be great, it won't even probably come close to 10 percent, but it will still be more than what we had in 2003 because there virtually was not anything in '03. They're all in the process of restructuring their balance sheets. They laid off network deployment and improvement for two years basically. And they now -- they still have capital challenges obviously, but they clearly are in need of and have recognized the need for additional network improvement. So, from an overall perspective, it may not be a big number, but it's going to be a huge percentage increase from what we saw in 2003.

One last question with regards to your services business. Long-term where do you think margins can get back to maybe in 2005 or 2006 if you continue to have a fairly strong tailwind behind you in 2004?

I'd like to tell you they'll get back to the 20 percent range but we don't believe that really to be true in this environment. You ought to ask us that every quarter, every six months. Our internal goal is to move them back into the low double digits which we think we can do, and will feel pretty good compared to where we've been, but the '99/2000 margins of 20 percent plus, as we sit here today we don't believe we can get back there.

Thank you very much.

Matt Krantz with Merrill Lynch.

Quick question. I noticed that your annualized tower cash flow is like almost 91 million for the fourth quarter. And then your guidance for the year of '04 is only 93 to 100 million. It seems -- the 93 seems pretty conservative.

You mean the low-end?

Yes.

Yes, I don't think we're going to miss our low end.

Okay. I just wanted to clarify that. So it is likely we will see that low-end increase by midyear at the very latest?

Are you looking for me to say yes to that? With everything that we've come through, Matt, we want to make sure that we don't get too far out over our skis, but we do certainly think that 2004 in terms of tower cash flow growth is going to be a good year, and we feel really good about the guidance that we have and we'll be looking at it every quarter.

Okay. And the last thing I want to ask you, do you guys still -- or previously we discussed possibly that you guys could look for opportunities to maybe issue equity to mom-and-pop tower companies to purchase towers sometime during the next 12 months or so, and I was just wondering if you're still looking at those types of opportunities?

We are. We think there will be opportunities to do that out there, and as we do with any potential equity issuance it has to make sense not only today but over the next five-year period. We think that there will be some opportunities where that will not only make sense but accelerate some are other goals such as deleveraging, obviously growing tower cash flow, growing EBITDA. We did it before, we know how to execute that, we know where the opportunities are. We'll just wait and see what actual opportunities get presented, but it's one of the things we will look at along with a lot of other opportunities.

Great. And then a final two questions. One is that my understanding is the Sprint -- auction for the Sprint towers is starting to actually start to heat up. Have you guys -- have you heard anything on that, Jeff, or heard of the players interested in the auction and just want to comment on that or --?

Well, it's pretty widely rumored. I believe advisers have been engaged by Sprint. But this has been a topic that has been kind of off-again on-again for the last couple years. I don't know that we know much more than that other than it will be I think a very closely followed and I think it will generate a lot of interest. They're good tower assets. We -- as a company we know that built a lot of those back in the mid-90s and actually when Kurt was running the network development for Sprint, so we have some pretty good knowledge of the quality there. And I don't have any better insight, though, as to timing or what the current thinking is at the treasury of Sprint which I think ultimately will decide that.

Great. Last thing, are you guys going to CTI this year?

Yes, sir.

Okay, I'll probably call you about a meeting later. Thanks, guys.

Steve Flynn with Morgan Stanley.

Good morning. A couple of questions. Number one, just with your cash flow from operations guidance, it looks like with your higher EBITDA guidance that the cash flow from operating activities would be higher. I'm just wondering if -- it appears to be a big working capital use maybe in the first quarter of '04. I was wondering if you could clarify that?

You're exactly right. We run our analysis for guidance off of a formula based on expected revenue and how much that will cause receivables to increase or decrease. And we apply that when we put forth our guidance. We're not expecting our receivables to increase materially, but that guidance, just because that, Steve, is an issue that's kind of hard to predict the nuances of receivables, payables and accrued expenses. We actually do have a provision in our guidance for a fairly healthy increase in ARs which we actually don't expect will happen. But you're right on the money as to how those relationships work.

It seems very conservative giving away your receivables balance. Is it at all related to the Sprint outsourcing contract, there were some onetime issues there, or just timing?

It is. We're expecting higher revenue, and in our model we kind of run that formulagly (ph) to produce a projected account receivable balance. That balance would be much higher than where it ended at year end, but that's just kind of how we do it. And as we move through and get the actual results from each and every quarter we'll be fine-tuning that. But there is -- if you break down the -- that guidance on the first quarter, over 5 million of that would be attributed to changes in working capital balances.

Okay. I guess my second question is, I know they'll be more details on the new credit facility with the 10-K filing, but just wondering if you could talk about the restricted payment capacity under that credit facility because you talked about using that credit facility to buyback a lot of the 10 1/4's that remain outstanding. Is there a restricted payments test or will that be guided by the four-times leverage covenant? And that four-times leverage covenant you talked about earlier, was that just for the new or the additional term loan, or does that apply to the existing term revolver and term loan?

The existing revolver and term loan are gone. It would apply to the overall new credit facility, and there are some restricted payments. We can't go out and buy a Taco Bell or something like that. But in terms of the high yield debt, there are no restrictions on that and it's just clearly an issue of what our financial covenants will allow us to borrow under the new facility.

Okay. So as long as you stay under the leverage and whatever other covenants are in there you can utilize that cash for the 10 1/4's?

That's correct.

And my final question, you may the comment earlier when you were talking about your average rental per tenant increasing, and one of the things you mentioned was that the newer tenants are paying higher rates. Can give us some color, I guess, about overall demand supply trends? And it sounds like you're getting a higher rental rate for new tenants, which sounds very positive. I'm wondering if you can give us some more color?

Well, we are. I think we're not going to speak specifically to numbers, although we will speak directionally. But, part of the mix in moving our average rents up, and that includes even the smallest of tenants paying low rates, we now have on average, as Kurt mentioned, over $1600 rent from all tenants across the board. Obviously, because we have some lower existing tenants than that, then you can assume that our average new tenant rent is well above that, and directionally it continues to move in an increasing direction. It is clearly supply/demand, it's clearly time sensitivity, carriers wanting to improve their network quality. But more than that, it's we have great tower assets in exclusive areas where carriers want to be. We certainly hope that that trend continues, and, based on our backlog today, we think it will.

Great. Thank you.

Richard Worley with Permit Capital.

Jeff and Pam and Kurt and everybody, great job in '03. It was great fun to be both a bondholder and a stockholder. One of the things that you said in some of the past calls, and I think some of your counterparts at other companies have said is that it was a pretty good environment to be a builder of new towers. And yet, as I look at your guidance and the like, you have more financial flexibility than you did at any time in the last 18 months, but it doesn't seem like you have built in any new new building opportunity. And I think the numbers that I've heard thrown around is that there are opportunities to build towers that will come out of the ground with two tenants at rental rates that are a little above your average rental rate.

It would seem to be that that would be an awfully good activity compared with buying existing tower portfolios and the like. And so, I'm just wondering if those opportunities seem to be going away, and were the result of a particular period of no supply of funds for that, or whether you might be able to do some of that, finance it with the existing credit -- the new credit facility and/or with these debt for equity swaps? And then the second question is that most analysts have a drop off in '05 in their tower revenue growth. I'm not asking you to project '05, but is there anything that you see or that you're aware of that would make you think today that there will be a material slowdown in the growth rate of tower revenue in '05?

I'll take the first one -- or the last one first. The answer is we don't see anything that would project a material slowdown. It's a relatively short cycle sales process when you bring in a lease. So, the reason I would say that in light of the short sales process is really some comments from our customers. Nextel, Sprint -- they've all announced multi-year improvement projects. I think you take that at face value and you see that the work will continue well beyond 2004, at least that's what the evidence would suggest. And we know of no reason why that wouldn't be true.

On the new builds, you're right. And for us it's going to be a question of balancing the goals of deleveraging versus new investment opportunities, which we clearly believe are out there and will produce very, very strong long-term shareholder appreciation. It's a balance -- it's a capital resource and leverage balancing question for us. It is not a change in the opportunity mix.

Thank you.

Oliver Belind (ph) with Invesco.

I'd like to go back to Steve Flynn's question on the first quarter cash flow from operations guidance. I guess I understand what you're saying about receivables and working capital, but is there also any part of the fees on the new bank facility that is in that negative 30 to 35 million?

No. The reason it's larger is it includes -- that's what we have -- the first and third quarters are when we make high yield payments.

Okay. Maybe I need to walk through this with you off-line. It just seems like the pickup is just very high and I'm just -- I can't tie the numbers together very well.

Would to mind calling Pam Kline off-line and she'll walk you through that?

Sure. The second question I have is you mentioned that cash SG&A was about 7.7 million in the fourth quarter, and your goal is to get that back to 7 million a quarter. And I'm just wondering, A, what's the timing on -- how soon to you think you can do that? And then secondly, what are the components that kind of make up bringing that down 10 percent?

Well, if you look at where we were in Q3 and Q2, we were there. And really all we're suggesting is that we get back to where we were before. And it would basically be by taking out the two items that we mentioned which caused it to be above what we consider the norm anyway which is -- it was about a $600,000 to $700,000 allocation to bad debt which we don't expect will be repeated going into 2004. And so bonus payments which we hadn't accrued for throughout the course of the year. So, we know exactly how to get back there. We feel good about getting back there and we think you're going to see us getting back there in Q1.

Okay. The bad debt, is that Sprint affiliate related or is that -- I guess maybe the other way to ask the question is, who do you -- do you think that that's an issue in '04 that's not going to exist?

No, that's not an issue. What it really is is as much as we, and I think everyone, focused on our debt structure, but we were committed in '03 to improve all parts of our balance sheet. We actually took our receivables down by 50 percent and that's a huge improvement. And as part of that process we just cleaned up a bunch of things that were this and that's and here and there to end the year with the strongest receivables position that we've had in a couple of years. That's where we are now. We expect to be able to maintain that. We don't see any issues there going forward.

Okay. Last question I have is the 7 million or approximately 7 million of escrowed cash on the tower sales, when do you think that rolls off in terms of being available to you and what are the conditions to that? If you could just remind me?

It rolls off in April -- April 30, and it is -- we expect to recover most of that, not all of that, and the amount that we expect to recover we have previously stated is within the 194 million of proceeds that we expect in total to have generated from that asset sale. So, we're going to get it in April 30. There might not be some of all of it coming back because of the provisions of the contract, but I would think by our next call we will have -- we will know exactly where that is.

Okay. Thank you.

David Marsh with Friedman, Billings, Ramsey.

Good quarter, guys, and very nice guidance. My question is actually on the guidance. As I look at it, I'm just trying to get a sense of what type of gross margin is built into the services guidance? And also, I was hoping you might be able to give us some idea of what kind of clarity you have into the gross margin in that side of the business given the fact that you have the agreement in place with Sprint and that's at least probably in part contractual?

Yes, we have previously stated, and it continues to be true, that that is a low, low teens to midteens margin project. That's how we bid it, that's how we expect it to commit over time. That hasn't changed. Although 2004 will be the year where the rubber hits the road on that. As far as our guidance, I'm not going to put too fine a point on it because of some of the vagaries of that segment of the business, but that you should look at the guidance from a high single digit kind of range there and maybe touching 10 percent.

Thanks.

Ric Prentiss with Raymond James.

A couple quick follow-ups. And first, Jeff, I guess was your Taco Bell comments, you're not going to make a run for the border because things are getting better I guess. Escalators, you talked about what was going on with the average rent out there. Can you talk a little bit about what you're seeing when the contracts come up for renewal? Are the escalators staying in place, are they staying in a similar zone, or what are you seeing in regards to escalators?

They stay in place, and we rarely hear about any renewal, it just happens -- happens automatically.

So it's automatically and they're staying kind of in the 3 to 4 kind of percent range?

Yes.

Okay. And then one company we've been keeping an eye on that recently raised some debt money and talks about significantly expanding their network is Metro PCS. They're in South Florida, Georgia and California. Are you seeing those guys show up a lot more and do you anticipate them getting even larger?

We see them showing up a lot more, and until their business goals are met, we would expect that to continue. We have a lot of towers in the markets where they provide service, obviously Georgia and Florida.

On their conference call last night they were talking about a pretty significant ramp up in CAPEX and they're already actually turned net income positive. So it's not that they're a spurious credit quality, it just seems like they've got a lot of cash and want to start running with it.

That's good. I missed that. That's good to hear.

Good luck, guys.

David Sherritt (ph) of Lehman Brothers.

Jeff, just wanted to follow-up on one point. Do you have any progress you can talk about on the CFO front?

Yes, we retained one of the top nationwide executive search firms in December. We've been working with them since, and we're down to a very short list of what I believe are very high-quality folks, and should have some news for you there shortly.

And any amendment or refinement to the dollar amount you were expecting from the Sprint contract still in sort of a $70 to $90 million range?

No, we're still there.

And if you had a dollar amount of amendment and augmentation revenues in 2003 and what's baked into your forecast on that dollar amount in '04?

I don't have it handy. I believe the average, if you split out amendments and new tenants, it's probably at 80-20. And we don't see any dynamics in the industry that will cause that mix to shift materially between '03 and '04.

Okay. Thanks, guys.

We have no further questions at this time. Please go ahead with your closing remarks.

Great. We certainly appreciate everyone's attention this morning. We would ask you to stay tuned, and we look forward to our next call with you. Thank you.

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