SBA Communications Corp (SBAC) 2004 Q1 法說會逐字稿

Welcome to the SBA first-quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded. I would now to turn the conference over to Pam Kline, please go ahead.

Thank you for joining us this morning for SBA's first-quarter 2004 earnings conference call. Here with me today are Jeff Stoops, our president and Chief Executive Officer; Kurt Bagwell, our Chief Operating Officer and making his first appearance, Tony Macaione, our new Chief Financial Officer.

Before we started, I need to get the standard SEC disclosure out. Some of the information we will discuss 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 in 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 10K for the fiscal year ended December 31st 2003, 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. Our comments will include non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures for 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.

Tony, welcome to your first SBA conference call. Would you please comment on our first-quarter results?

Thanks Pam and good morning everyone. I want to start out first by saying that it's a pleasure to be here and I look forward to meeting with and speaking to many of our customers shareholders and bondholders over the coming months.

Now for the first-quarter results. Both site-leasing revenue and site-leasing gross profit were up sequentially. Site-leasing revenues for the first-quarter were 33.9 million, up 9.3 percent over the first quarter of 2003, a quarterly record for us. Site-leasing gross profits or tower cashflow was 23.7 million, up 16.9 percent over the year earlier period, also a quarterly record.

Total revenues were 57.3 million, up 10.8 percent over the year earlier period. Services revenues were 23.4 million, up 13.2 percent from the first quarter of 2003. Net loss from continuing operations was 48 million and net loss was 47.9 million for the first quarter of 2004. 22.2 million of the net loss was attributable to the write-off of deferred financing fees and net loss associated with the extinguishment of 65.7 million of 12 percent senior discount notes. And 67.3 of 10.25 percent Senior notes which were redeemed or repurchased in the first quarter in the refinancing of our senior credit facility. We have made 12.8 million of repurchases of the 10.25 senior notes in the second quarter and may make future repurchases; therefore, we anticipate incurring the same type of charges in the second quarter of 2004 although not of the same magnitude.

Net loss per share from continuing operations for the first quarter was 86 cents, and net loss per share after discontinued operations was 86 cents. Excluding the 22.2 million of debt return and refinancing related charges, net loss per share from continuing operations was 46 cents and net loss per share after discontinued operations was also 46 cents.

Weighted average shares outstanding for the quarter were 55.7 million. Adjusted EBITDA was 17.2 million, up 13.8 percent from the year earlier period. We continue to work hard on controlling tower expenses, and in the first quarter we were once again able to reduce tower leasing expenses sequentially from the prior period. As a result, we posted record site-leasing gross profit margins of 7 percent, up 110 basis points from the fourth quarter of 2003 and 460 basis points from the year earlier period.

Services margins declined (indiscernible) first-quarter compared to 9.6 percent in the year earlier period. Kurt will discuss the services business in more detail shortly. As set forth in the press release to help improve our profitability in the services business, we have adopted a plan to sell our site development services operations in the western United States. We are in the process of taking the necessary actions to implement is plan of disposition and we expect this plan of disposition will result in discontinued operations treatment commencing in the second quarter of 2004.

For the first quarter of 2004 this component of the site development services business reduced 6.5 million of revenue and 150,000 gross profit. SGNA expenses for the first quarter were 7.3 million or 7.2 million excluding non-cash compensation items. We expect SGNA excluding non-cash compensation to remain relatively flat per quarter for the remainder of 2004 as expense reductions from our exit conservatives in the West and additional cost cutting measures will likely be offset by increased insurance costs and the cost of complying with Sarbanes-Oxley.

Our adjusted EBITDA margin for the first quarter was 30.1 percent, 100 basis points higher than the fourth quarter of 2003. The adjusted EBITDA margin improvement was driven by a continuing shift in our gross profit mix to a higher margin leasing business. Our leasing segment contributed 97.1 percent of our gross profit in the first quarter, compared to 91.1 percent in the year earlier period.

We sold 10 towers in the first quarter for an asset held for sell for 400,000. We built no towers in the quarter and ended the quarter with 3032 towers in continuing operations and an additional 51 towers held for sale.

Cash capital expenditures in the first quarter were approximately $2 million. Capital expenditures for our new builds, including trailing costs and developments costs for those completed in prior quarters were approximately 592,000. We spent an additional 480,000 on maintenance tower CAPEX; 383,000 for augmentation in the rebuilds; and 538,000 on general corporate CAPEX. At this point Pam is going to provide some information about our capital structure.

Thanks Tony. Last night's press release details our first and second quarter refinancing activities to date. Debt balances at March 31st, 2004 are as follows, 275 million under our new 400 million senior credit facility; 282.5 million of 9.75 percent senior discount notes; 339.1 million of 10.25 Senior Notes; and net debt of 867.2 million after giving effect to 29.5 million of cash and restricted cash. We redeemed the last of our 12 percent senior discount notes in the first-quarter. Restricted cash includes approximately 7.3 million that remains in escrow from our sale of towers in our western region. We had an additional approximately 29.8 million available to us under the new credit facility at March 31st, for total liquidity of 59.3 million. We are not anticipating any material announcement in the disposition of the remaining 51 towers held for sell nor are we anticipate putting any additional towers up for sale.

The 10.25 percent Senior note balance has been further reduced to 326.3 million through additional open market purchases in the second quarter. As a result of our refinancing activities, we have reduced our weighted cost of debt from 10.5 percent at June 30, 2003, to 8.3 percent today. With the opportunity to reduce that cost even further by continuing to use credit facility proceeds to repurchase higher cost debts.

The combination of lower interest costs, the zero coupon feature of our new 9.75 Senior discount notes and the greatly reduced amortization requirements of our new Senior credit facility have resulted in a reduction in debt service requirements of over $60 million for 2004, compared to where our debt structure was at June 30, 2003. These reductions in interest expenses are one of the primary reasons why we are increasing our full-year guidance for cash flows from operating activities.

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 at SBA and exactly what we do in what we do it will depend on market opportunities and our liquidity position at the time. We expect to use substantially all of our excess liquidity for additional high-yield debt repurchases and anticipate capital expenditures of 6 to 8 million for the first full year.

In last night's press release we updated our detailed 2004 guidance. Jeff will have a few comments on that later. Kurt, would you please provide us an update on operations?

Thanks Pam. As you heard from Tony, the first quarter up 2004 continued to produce very strong results for SBA on the site-leasing business in both top-line revenue and gross profit growth. The activity was strong from the carriers across the board, as the majority of them have been aggressive in their pursuit to maintain and growth equality and footprint of their networks. Our execution on marketing and operational front to capture this activity was exceptional.

As you have seen from the Q1 2004 results and now so far by the carriers, subscriber growth and MOU growth continues to be strong. Wireless data penetration and usage is increasing and new technologies are being tested and deployed which bodes well for continued network deployment.

Cingular, Nextel and T-Mobile continue to be our most active clients; Sprint and Verizon were also active, with AT&T recently altering their 2004 plan and pulling back to some degree which we believe is due to the announced Cingular merger. Non Big 6 telephony activity continues to pick up speed and we view those entities as valuable long-term tenants.

Our first-quarter operational lease up results were our best since early 2002 in terms of revenue added per tower. In the first quarter, 78 percent of our new leasing revenue came from the Big 6 with 99 percent coming from the Big 6 and other telephony carriers, our highest ever. Our mix in the first quarter between new revenue from new installations and new revenue from amendments to existing installations was 87 percent and 13 percent respectively. The continued high percentage for new installations is another strong sign of total network development growth. Even if some of the current overlay programs wind down, amendment activity remains strong due to carrier needs for capacity upgrades and performance enhancement. Both often requiring additional equipment on towers. We expect that amendment activity will continue for the foreseeable future.

Same tower revenue growth on the 3022 hours towers we owned at March 31st, 2003, and 2004 was 10 percent. And tower cash flow growth was 15 percent. We continue to believe same-tower revenue growth will remain in the 9 to 11 percent range for the remainder of 2004.

Quarter end tenants increased to 6958, and monthly cash basis rents on our existing portfolio increased to $1631 driven by higher initial rents, amendments and escalators. Operational numbers can include newly signed leases that have not begun to accrue revenue for financial statement purposes.

Those facts, along with our continued high reaching backlog gives us the confidence to increase our full-year 2004 guidance for leasing revenue and site-leasing gross profit. We expect continued solid growth in the tower cashflow at least into 2005.

Our tower maintenance OPEX and CAPEX continued to stay at very low levels in Q1 2004. In addition to the first quarter of each year being generally lower for maintenance OPEX due to seasonal conditions, the snowfall this year had far less affect in 2004 than it had in 2003. Our field teams continue to refine their procedures in this area and our very disciplined with every dollar spent. We expect to continue to perform well in this area of our business, although we do expect maintenance expenses to be seasonally higher in the second and third quarters.

In our construction site acquisition services business, Q1 showed relatively flat top-line revenue but had lower margins in Q4 of 2003 and the year earlier period. Given the much higher gross profit we earned from our leasing business, the services business impacts our financial results very little but we continue to believe that strategic benefits to our tower ownership business outweigh a certain level of financial or other negatives.

The industry intelligence and customer relations we gather through our services business continues to be very beneficial to our ownership in leasing business.

Backlog continues to be strong for this segment but margins have been less than satisfactory due to low price points, geographic variability of the volume of work, with continued fixed cost structure, weather conditions and execution that was below where we would have liked. We continue to lead major site development projects for Sprint and Cingular, as well as other projects for many of the other major carriers.

While we see many continued revenue opportunities, we continue to be dissatisfied with our profitability. After SGNA allocations we estimate that we have lost approximately $1 million related to the servicing segment in the first quarter of 2004.

We recently put into motion a plan to sell our west region services business comprised of offices operating in the Midwest, Pacific Northwest and California areas. With no strategic benefit to our tower ownership business, this region was not meeting our profitability targets. Similar to our tower portfolio, all of our services offerings going forward will be in the Eastern one-third of the Continental U.S. Our updated 2004 guidance for services revenue now includes just our Northeast and Southeast regions. We will now focus on the East where we have larger, longer-term projects and our towers. Our goal is to make the remaining services businesses more profitable and better align the service business strategically with our core fitness of tower ownership which we believe these steps will do.

To sum up operations right now, we continue to be very optimistic about the environment that exists today and the prospects for the future. Customer activity is strong, the product and services that the carriers are offering is getting better every day and our high-quality tower portfolio continues to prove itself out as a key part of the growth plan with our clientele.

At this point, I will turn it over to Jeff.

Thanks Kurt and good morning everyone. I want to start by welcoming Tony Macaione to our Senior Management Team. Tony has been with us only three weeks and has gotten up to speed quickly and is already positively contributing to the organization as we knew he would.

We had a very good leasing quarter. And our leasing business is the strongest it has been in two years; volume is up, prices are up, and our backlog is the highest it has been in 18 months. Activity is well spread out by client and by geography with all areas of our portfolio seeing some level of activity. Even with the pullback from AT&T, we expect the activity level for the remainder of 2004 to continue to be very good. We expect the strong operational lease-up results we enjoyed in both the fourth and first quarters will begin to be reflected in our financial results in the second quarter and as a result we are raising our full-year leasing revenue and site leasing gross profit guidance.

We are holding off for the time being on raising our adjusted EBITDA guidance for the full year as we work to improve the services segment. Indications of strength in our leasing business are many, ranging from a 99 percent plus renewal rate for telephony clients to expense control, a 70 percent site-leasing gross profit margin, to continued low maintenance CAPEX per tower.

I believe the strongest indicator is our increase in average cash basis monthly rents across the entire portfolio by over 8 percent year-over-year and that's not an incremental number; that is every lease in our portfolio. Obviously to do that we have increased price for new tenants. We view all of this as continued proof of a very strong business model.

On the balance sheet side, we have now had four quarters in a row of some type of debt refinancing activity to reduce our cost of debt. We have done a number of different types of transactions that have made our intentions clear to improve our cash flows through capital markets activities as well as organic growth. We have increased our full-year cash flow guidance as a result. We intend to engage in more debt refinancing activity through the remainder of the year and we believe we have the structure and resources in place to do so. We have not, however, assumed in our new guidance any benefits from additional debt refinancing beyond that which has already been completed.

Our focus is now to increase cashflow and reduce leverage which we intend to do primarily to organic growth of tower cashflow and secondarily, through continued capital markets activity as opportunities arise. We have more work to do to reduce our leverage but with our current capital structure we strongly believe that cashflow will grow and leverage will decline on or ahead of schedule.

We are focused on every part of our business and most focused on the two areas that matter most to us and we think should matter most to the investment community, how much and how fast we can grow tower cashflow and reduce interest expense. These are the drivers of our cashflow and we believe that any changes in other items such as services profits while having some incremental impact are of secondary importance to our future cashflows. On our two primary focus points, increasing tower cashflow and reducing interest expense, we have made tremendous progress over the past year and expect continued strong improvements.

The full year is now a third over and we continue to feel as good or better about our full-year leasing growth to cash flow prospects as we ever have. We look forward to our next opportunity to report our progress to you.

Operator, at this time, we are ready for questions.

(OPERATOR INSTRUCTIONS) Jonathan Atkins from RBC Capital.

Good morning. A couple of questions. First you raised your outlook for site-leasing revenues and site-leasing cashflows but the guidance for adjusted EBITDA remains the same, maybe I missed it but can you go into a bit why that remains unchanged? Secondly on the services business, what is the rough magnitude of the cost savings that you would realize by discontinuing or selling the western portion of that unit? And if you could maybe go into more detail on the refinancing side; you talked about substantial remaining potential for debt refinancing. What is the rough order of magnitude of interest savings that you could realize in the future by taking advantage of all the options that you see today?

On the adjusted EBITDA guidance, Jonathan, while we picked up and expect to pick up a couple million dollars or more on the site-leasing gross profit this year over and above what we originally thought, we came in a million dollars short on the services gross profit in the first quarter. We want to be conservative there and as we work hard and look to improve that profitability, we will continue to look to increase our EBITDA guidance. But it's really the gain in one area that was offset somewhat by the services issue that caused us to hold tight -- at least at this point on the adjusted EBITDA guidance.

Current trends told you that you could foresee your EBITDA guidance at some point later in the year?

That it certainly our goal and we believe we should be able to do that provided we are able to improve the services side of the business. In terms above the cost reductions on the West, beyond what will flow out through discontinued operations, plus an additional expense savings that we will be putting in place throughout the year in connection with that, it's probably our round $1 million of savings. But rather than to try and work that in we again are not going to pass that through to the adjusted EBITDA guidance line because we are also seeing some increases in Sarbanes-Oxley costs, the Rule 404 compliance aspects of that which may roughly offset those savings in the West on the SG&A side.

In terms of the refinancing, I mean there's a lot that we can continue to do. We established I think a very straightforward path of just using our credit facility to buy in high yield debt and that's something that is being done and can be done on a regular basis in small increments as market opportunities arise.

Then there are larger refinancing transactions that are available to us, there have been a couple of transactions where the LIBOR spreads credit facilities have been reduced. We think we will have that opportunity over the next 12 months. Our 10.25 percent debt becomes callable in February which makes the larger scale refinancing transaction much easier to do. So we have a lot of different things that we're looking at and we can rest assured the we will be exploring every single opportunity to continue to reduce our interest costs.

Thank you.

Ric Prentiss from Raymond James.

Good morning guys. Couple questions for you. On the selling of the services business, you mentioned -- in the West Coast -- you mentioned how keeping it in the Southeast and Northeast would help the business, where should we look for that help to materialize? Is it on the margin side; is it on the leasing side? How do we quantify the value if you will of being involved in the services business where you have a tower portfolio?

I think you have a couple of factors at play there. First of all in the Southeast and the Northeast we have more history, we have more resources and we have in place today longer-term projects. We're actually doing, as you know, the Sprint work in the Northeast which is a multi-year project, we've recently been hired by Cingular to do some long-term work in the Southeast and we really didn't have those types of longer-term projects or prospects in the West. That's one of the issues that made it pretty straightforward for us. It's hard to quantify on the leasing side but we have enjoyed such tremendous success in terms of being able to push activity and price. It's our services organization that's really out there that is the initial line of intelligence on what the carriers are doing. It's through that part of the organization that we get the first look at who's doing what, what they need, where they need it and really how quickly and how badly they need it. All of which intelligence can filter back in through the leasing side of the organization and we use that to help maximize our price as we price our tower space.

The other thing that we want to preserve our ability to do, and it's not expected to be a big issue this year but in years to come, we want to preserve the ability to produce what we think are the highest returning assets for our shareholders which are new builds. And we really believe that to have the services competency, we're going to be much better suited to source and produce those new builds at some point in the future than we would be without that services business.

Those are the more qualitative aspects, Ric, of why we think the business remains very strategic and important. And there's obviously the financial side of it which you can readily track through the gross profit contribution, that's right now what we are very, very much focused on improving.

It certainly seems like the bigger public tower companies aren't doing as many new build, but some are actually happening out there, I guess. When the capital markets clean up a little bit, some limited new builds probably do make sense for people.

We need to continue to produce our leverage and improve our interest costs and our cashflows but we're doing all that because at some point we went to be in a position to add cash to either return to the shareholders or reinvest in new assets and through our years of experience, we know where we choose to reinvest in new assets and that's in new builds.

I might of missed it, on the towers that you sold in the quarter, did you say much you sold them for or what the multiple was?

It really wasn't a multiple, many of those had negative tower cashflow; some had no tenants or one tenant where the expenses were exceeding the revenues. But we sold them for $400,000 or about $40,000 per tower.

Okay. Final question for you, the backlog sounds pretty strong. What's the timeframes do you think to close it from backlog to actual site-leasing, is it the carrier still studying it, is it the application process, what exactly should we be thinking of from that backlog?

The thought that has never been an issue of application process, from the time we get a carrier that says go, they have the lease from us in 24 hours. It's always the carrier decision process that is the wild-card in timing. They are pretty busy and it feels like things are moving through the pipeline a little bit quicker, certainly quicker than any they did a year ago, and they moved through one of the things that -- here’s the datapoint, I don't have the timeframe for you but here's a datapoint that I think is helpful to prove the point out. When we signed up a bunch of new tenants in Q1 and typically you drop your backlog down and then it takes a while to rebuild, but our backlog reached its high point before Q1 ended and it continues to be at that high point today. So things are turning through pretty quickly.

That's great. Good luck. I think you're on the right path. I'll talk to you guys later.

Anthony Klarman from Deutsche Banc.

First on the restricted cash, I was wondering at what point do you expect that cash to be released from escrow and once it's released will that cash be unencumbered for you be able to use for additional debt reduction?

Once it is released, it will be unencumbered and it will be able to be used by us for whatever purpose, debt reduction. We expect some of that restricted cash to be released to us actually this month, the month of May, and then more of it will continue to be released throughout the year as we work through the final provisions of the asset sale transaction that we did last year.

Just additional couple debt questions. Your stock is off of its high, I guess maybe this isn't as relevant but what are your views on using your stock as currency for debt reduction and whether there's the possibility of doing any debt for debt swaps out of the 10.25s and into the 09.75?

We look at all that stuff carefully. We have done some debt for equity exchanges. We really don't like the stock price today. The average price that we did the debt for equity exchanges in Q1 was about $4.30 or $4.40. We don't like that price to be honest with you. We think the stock is worth a lot more. It's locked in risk-free, 10 percent returns and it also helps us delever the Company and over time those are our primary goals but to do so in a way to maximize shareholder value.

We watch all those things and we will basically pull what triggers and levers that we think are appropriate at the time, keeping in mind the primary focus of reducing leverage but at the same time doing it in a way that maximizes the short-term, moderate term and long-term interest of our shareholders.

Final question, just from the recent conference calls it sounds as though the Sprint affiliates are back on much more solid footing than they were one, two, even three quarters ago. What kind of impact have you seen from them and have you seen that activity in particular pick up outside of that Big 6 that you were talking about earlier?

They are definitely on the rebound. Financially you have seen their results and their subscriber numbers look good and usage. They are definitely getting active again with their network deployment too and we are starting to see that. It is not tremendous at this point but it is definitely growing every day. We feel good that they've gotten the worse behind them and we will see some good incremental growth.

Thank you.

Alex Rygiel from Friedman, Billings, Ramsey

Thank you and congratulations on another pretty good quarter here gentleman. Quick question. Actually two questions. I believe Tony mentioned that in the second quarter you anticipate repurchasing a similar amount of debt as you did in the first quarter, is that correct? Did I hear that?

No, Alex. What I had indicated is that to date this month we already repurchased about 12.8 million and we're going to continue evaluating for the balance of the quarter whether it makes sense to redeem or repurchase additional amounts but probably not at the same level that you saw in the first quarter.

Not to the same levels? Fair enough.

And Alex, we want to make sure we're talking the same language here. I think what we were also referring to was the magnitude of the charge that we took in the first quarter and that took into account premiums -- basically you are not going to see anywhere close to a $22 million charge for write-off of deferred financing fees in the second quarter. And not only did we not have to pay the premiums that we did in the first quarter but if you look closely at the cash that we paid for the 12.8 million, we actually bought those below par. It will be a similar charge in terms of where the line item is on the income statement but it's going to be nowhere close to $22 million.

Thank you for the clarification. You clearly talked about having on a year-over-year basis about an 8 percent increase in your average monthly leasing rates. Can you talk about whether or not you're losing any potential new customers due to the fact that you are maybe taking pricing up here or are you getting that price solely because of the quality of your assets?

I think we always get what we get because the quality of our assets. We do -- we take great pride and comfort in the quality of our assets and we will tell carriers no and repeatedly tell carriers no when they want on our towers at prices that we just don't think makes sense for that particular asset. We try not to do that but we do it every quarter.

And that strategy and that approach to business has I think paid off for us well over the years because even though we may not get that particular carrier that quarter, we do have the confidence in our asset base to know that ultimately they will need that tower and we'll get them on as a tenant later on at the fair price.

We are not a company that takes all tenants at any price; we are very much interested in getting the right price for our assets. Effectively, you're signing up a thirty-year deal when you sign up because of the five-year lease and five five-year renewal options, so we take the pricing of our assets very, very seriously.

Thank you very much.

Thank you Alex.

David Marsh from Friedman, Billings, Ramsey.

Good quarter folks. I was wondering, do your one quarter, your first quarter services cost of services revenues include any nonrecurring charges that might be associated with your exit of the services business in the Western part of the U.S.?

No. Any expenses that will be incurred in connection with the sale would start to become or start to be incurred in the second quarter.

Do you have an estimate of what it will cost you to exit that business and what portion of that cost might be cash?

Actually we believe today that the sale of the Western services region will produce a net source of cash because the receivables and the collection of receivables and the stopping of additional receivables associated with that portion of the business will far outweigh any additional cost that will go into exiting the West. Actually it's a cash pickup.

That sounds very good. Lastly, a lot of the historical transactions, acquisitions of towers in the industry have included earn-out payments. I was wondering if your sale of your towers to AAT (ph) includes any potential earn-out payments to you and what the timing of those might be?

No, it does not.

Thank you.

(OPERATOR INSTRUCTIONS) Jonathan Atkins from RBC.

I was wondering about how lease-up turns vary within your portfolio? Are you seeing greater lease-up activity in some geographic areas versus others or in higher population versus lower population markets?

We really don't, Jonathan, we are in basically what we would call Tier 2 suburban markets or along major roadways where activity has been relatively the same throughout all aspects of our portfolio. I would say that up and down the Eastern Seaboard and around the Gulf and into parts of Tennessee, places like that, continue to be very strong.

There are some pockets in the Midwest in general that perhaps are not as strong but for us the lease uptrends have never fallen along any kind of demographic DTA flights up (ph). It gets much, much more to really the quality of the assets and do you have towers in places where wireless service is being provided.

Thanks.

Ric Prentiss from Raymond James.

Two other quick follow-ups. The amendments, you talked about that was pretty significant. Can you mention how much of the business in the first quarter came from amendments and have you started, I guess probably not seeing any of the EVDO amendments from Verizon because they are starting to move beyond the Washington and San Diego areas into other areas of the country?

About 13 percent of the new revenue added in the first quarter, Ric, came from amendments. Verizon EVDO, we are just now starting to hear some rumblings, but we've not seen significant activity yet actually hit the books. We are seeing some planning; we are getting some interest but not in full swing at this moment.

Can you talk a little bit, does it look like Verizon is heading down using PCS frequency and putting up what we saw in San Diego and Washington at least in the trial phase was some extra antennas and then if they are using PCS, that would also kind of imply more (indiscernible) needed ultimately as well?

Absolutely, that's very consistent with our conversations with them and what we've seen makes sense with how we need to preserve that 800 for voice capacity and quality.

On the CAPEX, Tony, I think you broke out different components of CAPEX and maintenance CAPEX I wasn't writing fast enough, it was 400 something thousand, is that what I heard?

480,000.

Do you look at it at all on an average per tower basis where you think maintenance CAPEX will head? I mean you have a pretty young portfolio of towers, so I would expect it is low, but have you looked at what you think on average you should be spending?

We're still as we've been very, I think sure about this for years now and it's a $1000 per tower per year on the maintenance side. We just don't see that changing for the foreseeable future. A lot of it is, you are right, due to the fact that we do have a young, newly built portfolio.

That certainly is good because we are trying to shift people thinking about this valuation free cashflow and stripping out the different components of CAPEX so I appreciate you guys giving that detail.

Thanks Ric.

Richard Worley from Permit Capital Group.

This is Rich. In the maintenance -- the service, excuse me, the service area in the first quarter, how much of a disappointment was for the shortfalls in 1 million net cash flow loss was seasonal and how much of it was that the business just wasn't as profitable as you had hoped?

I would say about half and half. There was clearly some weather issues that slowed us down in the North East, Rich, but the pricing has got to the point now where the stuff basically has been priced to perfection on many of these jobs and we were not able to attain perfection. I would say there is as much a performance and a difficulty in meeting price points today as anything else. That has been a challenge for this business for I think everyone in the industry for at least the last year, maybe longer. That's where we are really focused on improving.

If it was half the fundamental problem, if that's stabilized at $.5 million a quarter, in some way you have to just evaluate that $.5 million a quarter then as the cost of the revenue gain on the site-leasing side and evaluate whether that price is worth it, is that correct?

That is absolutely the way we look at it. That is that is the analysis that gets done regularly.

In view of the world, you don't expect that let's say $.5 million a quarter to get worse?

No, but at the same time we don't ever expect it to be multimillions of dollars of profit unless the world just changes well beyond what we think is possible which is why we think it's important for folks to keep their eye on the ball here for us; which is tower cashflow and reducing the cost of interest. Because the rest of it really is of course every dollar counts but it's much more incremental than the two primary drivers of our cash flows.

Thanks and good job on the main business and that was a really good quarter.

Thanks, Rich.

Jessica Brewer from Credit Suisse First Boston.

I wonder if we could clarify the guidance for the services for the full year, the 70 to 80 million, that's exclusive of the 6.5 million from the Western services business that was booked in the first quarter?

Yes it does.

That will be classified as discontinued operations going forward?

Yes. When you start discontinued ops treatment, it basically takes you back the full year so our full-year 2004 results will exclude any contribution from the West in services.

So we should just go ahead and pull that out this quarter? Okay. Thank you.

At this time we have no further questions in queue.

We certainly appreciate everyone joining us and we look forward to our next call. Thank you operator.

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