SBA Communications Corp (SBAC) 2004 Q4 法說會逐字稿

Good morning. Welcome to the SBA fourth quarter earnings results.

At this time all your phone lines are muted. However, later during the conference there will be opportunities for your questions, and those instructions will be given at that time. Should you require assistance during the call, you may reach an AT&T operator by pressing star then zero on your phone keypad.

As a reminder, today's call is being recorded. With that being said, let's get right to this quarter's agenda. Here with our opening remarks is SBA Communications Corporation's Vice President of Capital Markets, Pam Kline. Please go ahead, ma'am.

Thank you for joining us this morning. Here with me today is are Jeff Stoops, our President and Chief Executive Officer, Kurt Bagwell, our Chief Operating Officer, and Tony Macaione, our Chief Financial 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 2005 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 Form 10-K for fiscal year ended December 31, 2003, which document is publicly available, and our Form 10-K for fiscal 2004 that we expect to file next week. 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 with may make.

We have no obligation to update any forward-looking statement we may make. Our comments will include nonGAAP financial measures as defined in Regulation G. The reconciliation of these nonGAAP financial measures to their most comparable GAAP financial measures, and other information required by regulation G, is included in our earnings press release, which has been posted on our website at www.sbasite.com.

All historical financial results presented herein for the fiscal year ended December 31, 2003, and 9 months ended September 30, 2004 have been restated to reflect the Company's change in its method of accounting for ground lease expense described in last night's press release. Additionally as previously announced, the Company has completed it's previously adopted plan to sell all of its services business in the western U.S. The results of the Company's western services segment, are reflected as discontinued operations, in accordance with Generally Accepted Accounting Principles, for the three months and fiscal year period ended December 31, 2004 and 2003. Other than the net loss information, all other financial information that we will discuss is from the Company's continuing operations.

Tony, would you please comment on the fourth quarter results.

Thanks, Pam. Good morning, everyone. The fourth quarter was a big growth quarter for us.

In the quarter both site lease and revenue and site development revenue were up significantly over the year earlier period. Site lease and revenues for the fourth quarter was 37.7 million, up 14.3 percent over the fourth quarter of 2003 and a quarterly record for us. Site development or services revenues were 27.9 million, up 50.7 percent over the year earlier period. Site lease and gross profit was 25.9 million, up 22.1 percent over the year earlier period. Services gross profit was 2.2 million, compared to 1.7 million in the year earlier period.

Our leasing segment contributed 92.1 percent of our gross profit for the fourth quarter. Total revenues were 65.5 million, up 27.4 percent over the year earlier period. Net loss in continuing operations was 41.5 million, and net loss was 41.8 million for fourth quarter 2004. 21.9 million of the net loss was attributable to noncash asset impairment charges and the writeoff of deferred financing fees and net losses associated with the extinguishment of approximately 230 million of high yield debt that we repurchased during the fourth quarter. Net loss per share from continuing operations for the fourth quarter was $0.65, and in the net loss per share after discontinued operations was $0.66. Excluding the 21.9 million of asset impairment and debt related charges, net loss per share from continuing operations was $0.31. Weighted average shares outstanding for the quarter was 63.6 million.

As we explained in our press release, as a result of the change in our method of accounting for ground leases, we have charged our definition of tower cash flow and adjusted EBITDA to exclude the noncash impact from straight-line calculations used to determine both leasing revenue and ground lease expense on the GAAP. We exclude these noncash amounts because we believe the materially different time period, that we now use to calculate straight-line ground lease expense, compared to that used to calculate tenant lease revenue under GAAP, results in a gross profit number that does not provide an accurate view of our leasing cash flows. We straight-line tenant lease revenues over an approximate five year period, which is the same as before.

We now straight-line ground lease expense over an approximately 25-year period, compared to an approximate 7-year period before the change. Although there has been no change in actual cash paid or received, we now recognize a much larger ground lease expense under our revised GAAP method because our ability to control our lease ground for relatively long periods of time on average, we believe along the average period of time, than our peers. One benefit from the accounting change, is that investors now will have a clearer picture of the tower Company's ability to control its ground leases. We think longer ground lease control is a good thing from an operational standpoint.

We believe long renewal terms and ground leases are better for our business, and we are concerned that the GAAP reporting may confuse the real lease and cash flows. For example, the noncash straight-line impact of our revised accounting method for the fourth quarter 2004 on ground lease expense was 1.3 million, compared to less than 100,000 under the prior method of accounting for the same cash rents paid.

As a result, we think our new definitions of tower cash flow and adjusted EBITDA will be helpful for our investors. Using the new definitions, tower cash flow was 26.8 million, a 20.6 percent increase over 22.2 million in the year earlier period. Tower cash flow margin was 72 percent, compared to 68.6 percent in the year earlier period. Adjusted EBITDA was 21.9 million fourth quarter, up 34.3 percent, compared to 16.3 million in the year earlier period. Adjusted EBITDA margin was 33.6 percent, up slightly from 32 percent margin in the year earlier period.

Under the prior method of accounting and definitions, tower cash flow and adjusted EBITDA for the quarter would have been approximately 400,000 higher, representing the noncash straight lining revenue, that we now exclude from our definitions. The other principle income statement line item that has been impacted by the change in accounting and consequently restated are primarily depreciation expense, which increased cumulatively, and asset impairment which decreased cumulatively. The changes are noncash in nature, and will be detailed in our Form 10-K, which we expect to file next week.

Year-over-year leasing revenue growth was strong at 14.3 percent. This reflects the financial statement impact from the strong lease up we experienced earlier in the year. In the fourth quarter we also benefited from approximately 700,000 of nonrecurring items, such as account reconciliations, settlements, termination fees, including those from tenants that may not have begun to approve revenue for financial statement purposes, and other miscellaneous items.

For the full year we benefited from approximately $2 million of nonrecurring leasing revenue, and as a result we recommend that you consider 142 million of leasing revenue as the recurring number for 2004, rather than 144 million as reported, when you compare this to our 2005 outlook. We believe -- excuse me.

We continue to believe that tower cash flow margin will continue to increase year-over-year driven by revenue growth materially exceeding expense growth. We expect modest leasing expense growth going forward, with expected increases in property taxes, being offset in large part by our ability to tightly control maintenance, repair, and utility expense, and expected continued success in our efforts to purchase the land that we currently lease underlying some of our towers. Services margin were 8 percent in the fourth quarter compared to 9.1 percent in the year earlier period. Our profitability in services in the fourth quarter was very similar to our performance in the second and third quarters, although on materially higher revenue. Kurt will discuss services business in more detail shortly.

SG&A expenses for the fourth quarter was 7.2 million, or 7.1 million excluding noncash compensation items. This compared to 7.7 million in the prior period. We had a couple of one-time credits that helped this quarter, including the $600,000 reduction in our bad debt reserve. We expect SG&A expense of approximately 7.4 million to 7.5 million per quarter in 2005, as we continue to feel the impact of increased expenses from Sarbanes-Oxley compliance.

We disposed of 16 towers in the fourth quarter from assets held for sale for approximately $300,000. We built 10 towers in the quarter, acquired 5 towers, and ended the quarter with 3,060 towers in continuing operations, and an additional 6 towers held for sale. Cash capital expenditures in the fourth quarter were approximately 3.5 million, of which we spent 600,000 on maintenance tower CapEx, 300,000 for augmentations and rebuilds, 300,000 for general corporate CapEx, we also spent 500,000 on acquisitions and related earn outs, 400,000 on ground lease purchases, and 1.4 million on new tower builds and new build work in process. We also issued 400,000 shares of common stock for the acquisition of the 5 towers. Kurt will talk about the new build program in a few minutes.

Our cash flow from operating activities in the fourth quarter was impacted the early payment of 7.5 million of interest, associated with the repurchase of our 10.25 percent notes, and by about $6 million of negative accounts receivable and costs in excess of billing variances, that have been largely corrected in the first quarter of 2005.

At this point Pam is going to provide some information on our capital structure.

Thanks, Tony. Debt balances as of December 31, 2004 were 323.4 million under the $400 million senior credit facility. 302.4 million at 9.75 senior discount notes, 250 million of our newly issued 8.5 percent senior notes, 50 million of our 10.25 senior notes, and net debt of 854.2 million, after giving effect to the 71.6 million of cash and restricted cash, and 1.9 million of deferred gain from the termination of a derivative in 2002. We have an additional approximately 36.5 million available to us under our credit facility at December 31st for total liquidity of 108.1 million.

During the fourth quarter we repurchased an additional 228.5 million of our 10.25 senior notes, and 1.3 million face amount of our 9.75 senior discount notes. In connection with with these repurchases we paid 220.9 million of cash including accrued interest, and issued 4.1 million shares of our common stock. We repriced our senior credit facility to reduce the spread over LIBOR from 350 to 275. This quarter we've redeemed the remaining 50 million of our 10.25 senior notes. We paid cash of 55.1 million including accrued interest.

As a result of our refinancing and debt repurchase activities, we have reduced our weighted cost of debt from 10.5 percent in mid-2003, to 7.7 percent at 12-31-04. We are continuing to analyze additional steps by which we can further reduce our weighted average cost of debt. Once again, we've made great strides in reducing our leverage. In the fourth quarter we surpassed or leverage reduction goals, and reduced our net debt to annualize adjusted EBITDA leverage ratio by 0.6 times, to 9.7 times at December 31, 2004. Our goal is to continue to reduce leverage by at least a full turn per year, and this goal takes precedence over our discretionary capital expenditure plan.

We've included our first quarter and full year 2005 outlook in our press release. Please keep in mind we're using our new definitions of tower cash flow and adjusted EBITDA in that outlook. The practical implication of the new definitions, is to reduce both tower cash flow and adjusted EBITDA from our prior definitions, by approximately 1.2 million for the full year 2005, which is the amount of noncash GAAP revenue we now exclude from the definitions. You will note, however, that we have not changed the full-year 2005 outlook for tower cash flow or adjusted EBITDA from our January guidance, as we've increased site leasing revenue guidance for the full year by 1 million, to reflect our belief in a strong leasing environment and increased contribution from acquisitions.

With respect to our nondiscretionary cash capital expenditure guidance, even though we widen the range, we aren't signalling any change in spending expectations from our low historical levels. We simply took a more conservative view at this early point in the year.

Kurt would you please provide an update on operations.

Thanks, Pam. Good morning. From an operational perspective Q4 was solid for our core tower leasing business. Our customers continue to consistently spend on their core networks by adding new cell sites for geographic expansion, MOU and data capacity expansion, and to enhance current network penetration and performance. New cells continue to be added at all levels of the networks. From the inner core, to the suburbs, to the more rural areas.

As you have read and heard, the continued subscriber, MOU, and data growth requires that attention be paid to all areas, to continue to capture this growth. During Q4 our same tower revenue growth was 14 percent, while same tower cash flow growth was 20 percent. We do expect to see low double digit leasing revenue growth in mid to high teens tower cash flow growth through 2005. 90 percent of our new leasing business signed in the fourth quarter was for complete new installations, with 10 percent coming from amendment activity on existing installations. We are comfortable with this mix, and we have seen it remain fairly steady for the last several quarters.

We benefit from any level of amendment activity and we believe a material level will continue for the foreseeable future, particular as Cingular rolls out UMTS. Our year-end tenant count was 7,257 equating 2.4 tenants per tower, and cash basis to average ramps on the entire base, increased again to $1,692 per month. We expect continued increases in both numbers quarterly throughout 2005.

Our leasing business saw Nextel, Verizon, and Cingular continue to be the most active in Q4, with some of the regional and affiliate carriers also adding a material amount of leaseup to our totals. Pricing remained firm and up from year earlier levels. Our leasing backlog today is at its highest level in years, and we feel confident that business will stay strong as 2005 progresses. There have been no materially adverse effects from carrier consolidation so far. None of our Cingular, AT&T overlapping sites have been decommissioned.

Consistent with published reports, our research and discussions lead us to continue to believe that network growth of these larger merged carriers will dominate their activity over time. The integration of the existing networks is complex, and will take time in all cases. The biggest question seen so far in consolidation, is exactly where the new budget dollars will be spent first, not on how much will be spent.

Our tower management team continues to perform at high levels as well. We continue to fine tune all OpEx and CapEx spending, including costs that are recurring and one-time in nature. In Q4 we completed testing of a broadband wireless backhaul system for our tower right monitoring, and have approved a program for 2005 to implement this program nationally. We believe this program affords us material outback savings on several fronts, as operationally superior, and greatly utilizes the data products our customers are producing. We view this as a true win-win scenario.

Our quarterly tower structural upgrade, or augmentation costs, were also very low, running lower than any of our previous 5 quarters. Our portfolio continues to demonstrate it's ability to handle new customers with very little incremental cost. Maintenance CapEx was also very low in Q4, running at lower than $900 per tower on an annualized basis.

In the services segment of our business total revenue was 27.9 million, and gross profits were 2.2 million, or 8 percent. Q4 saw high revenue volumes but also saw continued pressure on margins, although we did better than breakeven, on an allocated basis. We continued to stay focused in just the northeast and southeast regions of the U.S. and are involved in major projects with several of the national carriers.

As has historically been the case, we believe the first quarter will be the weakest of the year, in terms of services revenue and gross profit margin, both of which we believe will improve as the year progresses. We anticipate first quarter profit margins in the 5 to 6 percent range. This group has also secured two major build-to-suit projects for our new tower build division, which we believe will produce attractive new assets for 2005 and beyond.

Lastly, our new tower build division continues to strengthen since we restarted it in 2004. Our goal this year is to produce 50 to 75 new towers for SBA's ownership, with all of them meeting stringent internal requirements. We had 10 new towers go into service in Q4, and expect 2 to 3 to go into service Q1 2005, with the remaining quarters of 2005 picking up steadily as zoning is obtained, and the backlogs move into the permits and construction phases. All of our new bills will have at least 1 tenant on day 1, and we expect many will have multiple tenants. These are hand selected individual tower candidates that we believe with exceed our model parameters once completed, with CapEx averages to be $200,000 per tower.

With that, I'll now turn the call over to Jeff.

Thanks, Kurt. Good morning everyone. We had a very good fourth quarter, which was an appropriate ending for a great year for SBA.

During the course of the year, we met every major goal we had set for ourselves, including tower cash flow and adjusted EBITDA growth, recommencing new asset growth, stabilizing the services businesses, reducing our weighted average cost of debt, turning equity-free cash flow positive, and ending the year with fourth quarter leverage below 10 times. We believe most of our leasing growth rates and margin led the industry. Our stock performance led the industry by a wide margin, and I'm pleased for our shareholders and employees, who saw the benefits of our hard work in our stock price. We believe 2005 will be another great year for a number of reasons.

Our customers are very busy. Carrier network use as measured by minutes of use continues to grow at a 30 percent plus rate. New products, particularly data, are being introduced and appear to be well accepted by consumers. In general, in an environment of increasing minutes of use and new product rollouts, carriers must add antennas and increase cell densities, to maintain or improve network quality to meet customer expectations. This, of course, takes money, and our wireless customers appear to be in the best financial shape they have been in years, to continue to invest in their networks. Announced CapEx budgets for 2005 are materially increased over 2004 levels. We have direct evidence of this in the field.

Our leasing backlog is at a two-year high, and there is more services demand than we have seen in quite some time. Budgets are being released and work is being awarded as we speak, and as a result we anticipate strong demand for our tower space and services in 2005, particularly in the second half, when we believe Cingular will be in full post-merger swing, and T-Mobile will have returned to nationwide network improvement, after spending virtually all recent attention on the California-Nevada network purchase.

We think the year will play out such that the first quarter will be the lightest, although still with good growth over the year ago period, and results should improve steadily through 2005, and our industry we believe, will be very well positioned going into 2006. Again, it's that very favorable customer demand backdrop, we believe SBA will continue to perform very well.

We continue to believe we have the best tower assets in the industry based on both our reported results, and our observations of other portfolios we have knowledge of. We believe our towers will continue to perform at or near the top of the industry, in terms of same tower revenue growth, tower cash flow growth, and tower cash flow margin. We believe that, because our towers are relatives young with low maintenance CapEx requirements, and have a relatively low monthly operating expense structure. We believe our operating expense structure on a cash basis per tower is the lowest in the industry. We have ample remaining structural capacity, which should result in continued low augmentation or enhancement CapEx.

Finally, we know when we put the portfolio together that we largely avoided any competing structures within miles. We continually analyze and re-evaluate the quality and attractiveness of our towers, and we are pleased with what we see. We have high quality across the entire portfolio. We have at least 1 telephony tenant on 93 percent of our towers, and 2 or more telephony tenants on 58 percent of our towers. Those numbers grow every quarter. We believe this is evidence that our towers are well located, desirable for today's uses, and that as the nationwide carriers all strive to cover the same geographic areas, we should expect a high continued growth and future absorption rate, and that is exactly what our leasing results and backlog are showing us.

Beyond our organic growth, we believe we have some real opportunities to accelerate growth by adding new towers to the portfolio. One to 200 towers added per year could have a very material positive impact on our tower cash flow and adjusted EBITDA growth. We will look to both build and buy towers with a preference toward new builds. New builds is an area where we have historically distinguished ourselves, and where we believe we continue to have a competitive advantage. Acquisition opportunities have also increased in the last year, and we have taken advantage of some of those opportunities to pick up what we believe are some very good growth towers at good prices.

Our acquisition team is very busy, again reviewing a variety of opportunities. You can see the results of that in last night's press release, where we detailed our closed and pending acquisition activity. We are buying towers in the 11 times to 13 times tower cash flow range. We will continue to look at a variety of acquisition opportunities and believe we can further our three primary corporate goals in that area. We really like our positioning here as a high organic growth company with what we see as a superior ability, to increase our growth rate through a relatively modest amount of new builds and tower purchases.

We will continue our focus on the balance sheet in 2005. We will remain committed to reducing our net debt to annualized adjusted EBITDA leverage ratio by at least a full turn this year, which means the fourth quarter 2005 target is now 8.7 times or better. If necessary we will cut back on our discretionary growth spending to hit our leverage goals.

We continue to analyze new refinancing options at all levels of our debt structure. Our goal is to refinance each piece of our current debt by no later than 2008, and hopefully sooner, rather than later. We would like to refinance at least a third of our debt structure this year. We believe refinancings are going to be very material to our continued reduction in our weighted average cost of debt, just as it has been over the last 18 months. We're analyzing all markets for refinancing opportunities, including the securitization market, which we believe could be very attractive for SBA and ideally suited for our high-quality assets.

We are projecting positive equity free cash flow for 2005, which for a full year would be our first ever as tower owners. Our goal is to grow equity free cash flow per share throughout the year, and then materially year-over-year, and we feel good about our ability to do that, primarily through increased tower cash flow and reduced interest expense over time.

We believe we have all the tools and personnel in place to make 2005 another very successful year. All the reasons we outperformed in 2004 remain valid today. Favorable customer demand, superior growth prospects and the ability to materially reduce interest expense and leverage.

I want to thank all of our employees and customers for their primary role in our success. We look forward to our quarterly reports throughout the year, as we report on our progress on our three primary goals for 2005. Reducing leverage, increasing adjusted EBITDA through tower cash flow growth, and increasing equity free cash flow per share.

Brent, at this time we're ready for questions.

Thank you very much Mr. Stoops. Ladies and gentlemen, if you have questions or comments we invite you to queue up at this point. [OPERATOR INSTRUCTIONS] And first in queue we go to the line of Jonathan Atkins, RBC Capital Markets.

I have one question on the accounting and then one operational question. Maybe start with the operational one first. You gave a pretty good description of which carriers you're seeing most active from a site leasing standpoint, and it sounds like you expect one of the inactive carriers to become a little more active during the second half of the year. Any signs on the horizon that those carriers that are contributing most to site leasing today, might scale back the effort as we move through the year?

Then the accounting question really relates to the presentation of adjusted EBITDA. You gave that for full year '03 and full year 2004, and you break out the adjustments to revenues and expenses to account for the new way of recognizing the escalators, and for 2004 it looks like you're adjusting revenues by 1.2 million, and you were adjusting the expenses by about 5.6 million. I wondered if you could give that estimated breakout for 2005 going forward.

Jonathan, this is Kurt. I will take the operational question on leasing. We expect the active carriers we saw in Q4 to continue to be active. We know the build plans that have, and that they're approving now. They have very aggressive plans. So we feel very confident that all 5 will have big years this year. There's really not going to be a break on those 3 in between.

Jonathan, on the accounting side, for '05 the 1. -- what was it on the revenue side?

1.2 on the revenue side.

That should drop by $100,000 or so as we are moving through that phase in time where the noncash positive contribution on the leasing revenue, kind of winds down a little bit, so it will be less -- you know, it will be less than we think for '05.

On the leasing side it should also be a little bit less than what you saw in '04. So you're going to have less of a deduct on a noncash basis on both the revenue and the expense side.

Okay. I missed the numbered the number. I think Tony mentioned we should consider the site revenue leasing figure going forward.

Like 142. When you look to that compared to our midpoint, I think that's a more accurate growth comparison.

Lastly on the site development side what sorts of margins do you think you could post? Is 8 percent a realistic number to think about for this year?

Yeah, I think we're still going to be in that range. As we said, first quarter will be a little slower due to volume, but as it picks up, that's a very realistic range to get back to, for the other quarters.

Thank you.

Thank you very much Mr. Atkins. Next in queue is Anthony Klarman with Deutsche Bank.

Thanks. Couple of questions. First if you look at the cash CapEx you spent on some of the tower construction that you completed, both what was in progress and you divide that out by the number of towers, it looks like you're well under 200,000. I'm wondering if there was some CapEx spent in prior periods for towers completed this quarter, and can you give us a sense what the new build cost is running at currently. And then I have a follow-up question on refinancing.

There was some spent in the prior quarter, but you will see us meet or beat the 200,000 per tower CapEx number. We did have some of those sites were less than 200 though in total in Q4, that we put on the air.

Got you. Okay. On the refinancing front, I guess how do you weigh the opportunities of delevering the balance sheet, versus redeploying the cash for some of these growth opportunities? We've seen almost all the tower companies make a significant dent in delevering, and a lot of people talked about this target leverage ratio of 4 to 6 times. Do you share that view, or do you believe that given the growth prospects of your portfolio, that you might be able to withstand a bit more leverage in there, or a bit more discretionary cash to spend on redeploying it in either acquisitions or additional builds?

Well we look at this, Anthony, from a maximizing share appreciation perspective over time. I think in the traditional financing world of banks and high-yield, that 4 to 6 times target goal that you've heard people talk about, might be the right one to minimize the cost of debt in those markets. We're not sure that that necessarily applies as we look into other markets, which we're just exploring. So I don't have a lot of detail for you.

But the securitization market in particular, is one where that may not be the case, and actually if you look at the second deal that was recently done by one of our peers, you will see that consolidated leverage was higher than that, and the rates were pretty darn good. So our goal is to get leveraged down to the point that will allow us to attract the lowest cost debt we can at that particular period in time. I think as we look across various markets, that's a little bit of a moving target right now.

I guess on the average rent that you guys spoke about, that's kept a fairly steady trend upward. I imagine if you're talking about an average in something in the mid to high 1600s, the actual rent that you are getting on a lot of these new PCS additions, will we be able to meaningfully interpolate that they are much higher than that? What type of new rent are you signing some of your new PCS wireless data leasing customers at?

We don't want to get too specific there. We have publicly talked about numbers north of $1800 a month on average.

Great. I imagine that with the tower that you've talked about constructing, that in general folks are no longer heavily discounting anchor tenants, is that right?

They are not. That's part of our strategy going forward. We will be charging fair market rents for every tenant on a new build.

We have a question from Ric Prentiss representing Raymond James. Please go ahead.

Yes, good morning. Couple questions. I want to hit on your goals, where you want to reduce leverage and increase EBITDA through tower cash flow, and then, what we call valuation free cash flow per share.

On the increasing EBITDA through cash flow, we heard at our conference this past week, that a lot of the carriers are very interested in trying to get some backhaul and maybe power generator supplied by the tower companies, because as they roll out their data products, you need a lot more T1s. You were one of the first guys out there kind of experimenting with backhaul, it's a little early, but how many tenants you get per tower, and juxtaposition of the carriers now rolling out data. Are there some opportunities there to get some extra rents, if you will, or extra recurring revenues in the towers, and how do you proceed on that path?

I think there are clear opportunities, but as we all have in this business, we've learned some lessons over time. One of those early data networks or backhaul networks that we built, has actually been overtaken by fiber coming to that area, and when you're a tower owner, and you want to deploy a proprietary network where you actually own the equipment, and obviously the towers as well, that's well and good, and that is our business, to own capital assets and rent them out.

The carriers, you know, to make all this work, they need to be prepared to commit to monies and timeframes, similar to the leasing of base space that makes sense. If all that can -- if we can find a nice meeting in the middle, it's certainly a part of our business, and I know our peers' business, that we would find very attractive, and I think very accommodating and helpful to the carriers. But to spend the money, we need to know that there's going to be a long-term recurring revenue stream there.

Basically the same thing holds true with generators. The hurricanes have brought a whole new focus to generators. Power shortages was the primary reason why wireless networks went out. We're getting a lot more inquiries from carriers about their desire to have generators, particularly in Florida and along the coasts, and we think that will, you know, certainly add some revenue as we rent out the space.

What's not clear yet, Ric, is whether there's a real business to be had by us buying the generators and then offering them up, and seeing the carriers actually uptake a portion of that. It makes sense in theory, but we haven't really yet proven it out in reality.

It seems to be good that the carriers were looking to get more service for recurring revenue from you guys.

That's probably a more positive statement on that front than we've heard in years, and that certainly is a good thing.

Second question is as we look out to this year for your thoughts on what's happening with the different carriers and their builds, we have the merger of a couple of companies going on. I think you've done a good job laying out what the potential impacts might be. We're seeing two other things possibly come out in that area.

One is Sprint/ Nextel, Sprint anticipates moving some of their outdoor equipment into the huts at Nextel sites, but then also strapping on brand-new antennas on the towers. If you had a site where Nextel was a customer, and they had a hut down there and their typical 800, 900 megahertz antenna there, if Sprint came to the site and Sprint moved inside the hut, what would they get as far as reduced ground rent? And then if they did put up a 9-antennae array up there, what would be the offsetting new revenues to put up antennas and coax?

I don't think we will get into specific pricing, Ric, but you have exactly how it works. To the extent Nextel has space in their shelters, that's their space and they can put Sprint equipment in there. To the extent new lines and antennas are needed on the tower, that will result in an increased -- that's a new rental

Typically antennae space and wind loading for coax would be a higher portion of the rent, than the ground space, wouldn't it?

yes

So just magnitude-wise that would be good. Final question. You mentioned you had issued 400,000 share shares for some of the acquisitions. How is the appetite out there on the acquisition front to take stock based, and what are your thoughts as far as using stock?

I mean, we found the appetite to be good. I mean, it's not universally accepted, as you well know, but it has been accepted enough for us to accomplish our goals. Our appetite to use stock is really -- if it furthers our three primary goals, which are adjusted EBITDA growth primarily through tower cash flow growth, reducing leverage, and increasing equity of free cash flow per share, then we're comfortable with the concept, and we think that what we've done in that area helps all three of those goals.

Good luck. Sounds like you guys have a lot of work on the plate, but the path looks pretty clear.

Representing Craig Hallum, our next question comes from the line of Christian Schwab. Please go ahead.

If we're looking back a year from now just big picture, what would be the primary reason in your viewpoint for site leasing revenue to be at the high end, or better than expectations?

The primary reason?

Yeah. We know all the reasons, right? Minutes of use, subscribers, new towers , data, potentially even Wi-MAX capital spending. What logically in your viewpoint maybe is one or two things that we should be most concerned about focusing on, to see if there could be upside to that expectation?

Well, I think it's really, Christian, just volume and carrier busyness and what we will -- you have a timing issue in our business because the antennas that get leased up operationally today, don't begin to hit the financial statements until at least the end of the next quarter, perhaps the quarter after that. So to see in our industry, you know, big upside in the -- I think the guidance -- I'll just speak about SBA. I think you're going to want to see some really busyness amongst our carriers, kind of in the second quarter, and then certainly into the third.

Now, again, that's all in timing. Because if it gets -- if the big burst that we expect doesn't start until the second quarter, then it just kind of all rolls into 2006. But it's all about volume and carrier spending. The minutes of use, whether you see it jump to 38 percent versus 33 percent, it's -- I don't know if that's going to -- the most material thing is listening to the carrier spending announcements, and picking up anecdotal evidence from folks like us who are actually out there doing the work.

Excellent. Thank you.

And thank you very much, Mr. Schwab. Ladies and gentlemen, [OPERATOR INSTRUCTIONS] We have David Marsh with Freedman, Billings and Ramsey in queue.

Thanks. Good quarter, guys. Question on the accounting side I guess for Pam and Tony primarily. Regarding -- just regarding kind of AICPA acceptance of this new rule, I believe it was actually handed down by the -- from the SEC. Can you just talk about what the accounting community reaction is to it? I know it doesn't just affect your industry, but it has further reaching effects.

Well, I mean, as far as the CEC response on February 7 when they came out with it, what they basically have indicated was that expectation that industry is going to follow -- the accounting guidance literature that's out there today on the FAS 13, they didn't come out with a different point of view, other than saying their expectation is that companies are going to follow FAS 13 guidance and the fact that they find they have not been following that guidance, they're expecting them to acknowledge the correction of an error, and then make the appropriate adjustments in their financials.

I think what we've heard from our folks, David, is that in a a perfect world this issue might have been vetted through the EITF. Basically the groups of folks who take a measure and kind of longer term view of, how these issues get worked out , as opposed to being mandated by the SEC. The SEC is the final arbitrator of all that stuff, and that's just the way it came down

Too bad it doesn't go very far towards matching expenses and revenues.

Well, that's why we've adopted -- we've adopted the definitions that we have because on a GAAP basis, our GAAP gross profit number is now farther away from cash flows than before, and that just doesn't seem to be right. It is what it is, and we're going to try and provide as much transparency as we can so everybody knows exactly what's going on.

Along those lines, can you give us some idea on what timeframe that you would file the amended quarterly numbers, at least for this past fiscal year, so we can better reconcile going forward?

Yeah. You will see that information on a summary and selected basis in our 10-K.

Well, I commend you guys for not postponing your call like others in the industry have done, and putting the numbers out there. We certainly appreciate it.

Thanks.

Thanks, David

thank you, Mr. March. Net we go to Mark DeRussy with Raymond James and Associates. Go ahead.

I have some questions for Kurt. You mentioned a double-digit tower revenue growth for this year. How much is coming from your existing portfolio, as opposed to the expansion of your portfolio? What I'm trying to get at, is sort of your view on organic tower revenue growth this year. That's question number 1.

Question number 2, circling back to the anticipated CapEx per tower your goal is kind of a $200,000 per tower, and now I'm thinking back a couple years ago when that number was in the high 200s. Could you talk a little bit about how you're getting that CapEx per tower number down? Are you building different types of towers? Are the towers being built in different locations, or are you just finding that you're able to be more efficient in your construction process?

On your first question, basically all of it is from the existing base.

It's the same tower concept, Mark.

Okay.

On the CapEx, I mean, it's really -- we're building similar towers, still building a lot of 250-foot self-supporters, high capacity sites. Obviously, everyone gets smarter over time. The more you do something, the more efficient you become. You know, it's some of the same pricing issues that we face on our services business, that has pressure on those margins, is part of the reason that we're able to take advantage of that, as we're building out our new assets.

So it's kind of a good thing and a bad thing, but, you know, it's really just learning from the past and -- steel is about the same. Site development, you know we're picking these sites pretty smartly. We have zoning protection, but we know how to get through zoning better than ever, and how we go about the business. We're outsourcing a lot of this work on fixed pay points, and we've just been able to squeeze it down.

And sticking with the new construction concept, you know, what are your views, or what the trends in terms of, you know, industry-wide the number of new towers coming on line? Is that changing? Is it getting higher? Is it getting lower? Any observations there in terms of greenfield builds?

It's fairly flat. It's probably still in the 10 to 15 percent range, of new cell sites that get built. They probably have a new tower created for it. I don't see that drastically going up or down.

Thanks.

Thank you very much. With that Mr. Stoops and our host panel, I'll turn the call back to you for your closing remarks.

We certainly appreciate everyone's participation today, and we look forward to the next chance we have to report our first quarter results. Thanks, Brent.

You're welcome, sir. Thank you. Ladies and gentlemen, your host is making today's conference available for digitized replay for two weeks. Starting 6pm EST March 11th, all the way through 11:59pm March 25. To access AT&T's executive replay service please dial 800-475-6701 and the at the voice prompt enter today's conference ID of 767825. That does conclude our results for this quarter. Thank you very much for your participation, as well as for using AT&T's executive teleconference service. You may now disconnect and enjoy your weekend.