SBA Communications Corp (SBAC) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the SBA Communications conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and 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 our host, Vice President of Capital Markets - Miss Pam Kline. Please go ahead.

Thank you for joining us this morning for SBA's first quarter 2006 earnings conference call. Here with me today 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 on this call is forward-looking including but not limited to any guidance for 2006 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 the fiscal year ended December 31st, 2005 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. Our statements are as of today May 9th, and 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 directly 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, would you please comment on the first quarter results?

Thanks, Pam, and good morning, everyone.

We had another very good quarter with growth both on the Site Leasing side and the Services side of our business. Total revenues were 68.8 million, up 18% over the year earlier period. Growth in the leasing segment was particularly strong due to strong carrier activity with new leases and especially lease amendments.

Site Leasing revenues for the first quarter were 45 million, up 17.4% over the first quarter 2005. Site Leasing segment operating profit was 32.7 million, up 24.3% over the year earlier period. With the AAT transaction and the addition of 1850 new towers to our portfolio, our quarterly Site Leasing revenue and segment operating profit will increase materially.

Our leasing segment contributed 94.7% of our total segment operating profit in first quarter. Site development or services revenue were 23.8 million, up 19.1% over the year earlier period. Services segment operating profit was 1.8 million compared to .7 million in the year earlier period. Services segment operating profit margins was 7.8% in the first quarter compared to 3.6% in the year earlier period.

Q1 came in with substantially better revenues and margins from the year ago. And better than break even on a net perspective. Kurt will discuss the Services business in more detail shortly.

Under our definition of Tower Cash Flow which excludes non cash leasing revenue and ground lease expense, Tower Cash Flow was 33.2 million, a 21.7% increase over the year earlier period. Tower Cash Flow margin was 75% compared to 71.9% in the year earlier period. Year-over-year, we improved our telecast flow margins by 310 basis points.

We expect Tower Cash Flow to increase materially with the AAT transaction and Tower Cash Flow margins to decline by 1 to 200 basis points due to the less mature status of the AAT assets.

We also expect Tower Cash Flow margins to continue to grow over time and we remain confident that Tower Cash Flow margin will eventually reach 80% or more.

SG&A expenses for the first quarter were 9.1 million or 7.7 million, excluding 1.4 million of non-cash compensation items compared to 7.2 million in the year earlier period. The increase was due primarily to increased peril expense over the year earlier period.

Our SG&A expense will fluctuate with the AAT transaction as we integrate their operations and realize our synergies. We expect to realize full synergies by year-end ahead of schedule, at which time we expect quarterly SG&A expense as we enter 2007 to be approximately 8.5 million when you exclude non-cash compensation items. We expect to incur up to $10 million of one-time integration in other expenses from the acquisition in 2006.

Our net loss from continuing operations is 9.6 million, substantially reduced from the year earlier period. Net loss per share from continuing operations for the first quarter was $0.11 and weighted average shares outstanding for the quarter were 86 million. Adjusted EBITDA which excludes non-cash leasing revenue and ground lease expense was 27.4 million in the first quarter, up 31.1% over the year earlier period. Adjusted EBITDA margin was 40.3%, up from 36.1% margin in the year earlier period. We expect both adjusted EBITDA and adjusted EBITDA margin will increase materially due to the AAT transaction.

We built 15 towers in the quarter, acquired 78 and ended the quarter with 3,396 towers. Our cash capital expenditures in the first quarter were approximately 29.9 million, of which we spent 700,000 on maintenance tower CapEx, 1.3 million for augmentations and rebuilds and 800,000 on general corporate CapEx. We also spent 24.2 million in acquisitions ground lease purchases pro-rations and earn-outs and 2.8 million on new tower build and new build work in process. Kurt will talk about the new build program in a few minutes.

At this point I am going to turn things over to Pam who is going to provide an update on our balance sheet and our liquidity.

SBA ended the first quarter with 405 million of commercial mortgage backed [past their] certificates outstanding. 222.2 million of 9 3/4% senior discount notes, 162.5 million of 8 1/2% senior notes and no borrowings under the Company's $160 million senior credit facility.

We had 71.2 million of cash or restricted cash leaving a net debt of 718.5 million. The Company's net debt to annualize adjusted EBITDA leverage ratio was 6.6 times at March 31st, 2006.

In connection with the closing of the AAT acquisition the Company's received 1.1 billion of bridge financing which currently bears interest at the euro dollar rate plus a margin of 200 basis points which margin increases to 275 basis points on September 13 during maturity. The 9 3/4% senior discount notes and the 8 1/2% senior notes were fully repaid on April 27th, 2006, with the proceeds from this bridge loan.

Currently the Company has 1.1 billion of bridge financing, 405 million of commercial mortgage back pass-through certificates, and no borrowings under the senior credit facility. Availability under the senior credit facility is suspended until the bridge facility has been paid in full. In the interim we anticipate all liquidity needs will more than be satisfied by our cash on hand and cash generated from operating activities.

The final maturity of the bridge facility is January 27th, 2007, including an extension period at our option after September 12th and we've already begun planning and preparing to refinance the facility. We will explore all options available to us including additional issuances in the CMBS market.

We currently have in place interest rate hedges with respect to 400 million of the anticipated refinancing and we continue to evaluate whether to put additional hedges in place. We've included our second quarter and full year 2006 outlook in our press release. The outlook includes the anticipated results of AAT after April 27th. We have also updated our pro forma 2006 outlook to increase several of the mid points in light of our better-than-expected first quarter results, and a more optimistic view of leasing activity for the rest of the year.

The pro forma outlook which we first issued on March 17th assumes that the closing of the AAT acquisition and the full realization of all anticipated synergies occurred as of January 1, 2006. When reviewing those figures please keep in mind that our definitions of Tower Cash flow and adjusted EBITDA and our outlook excludes non-cash revenue and ground lease expense.

Kurt, will you give us an update on operations?

Thanks. Operationally, the first quarter was solid for us at SBA on many different fronts. Revenues and margins were stronger, costs were held line were better than expectations. We picked up the pace on growing our asset base and finished the quarter with solid backlogs.

On the tower leasing side of our business, carrier activity continued to be strong for new leases and especially for lease amendments. We saw a wide variety of deployment by our customers, ranging from core market activity for performance and capacity sales to coverage expansion in medium and smaller population areas and at long key corridors where our sites are relocated.

At the center of this activity we continue to sense the need of our clients to increase their network depth and quality to offer the most competitive set of voice, data, and video products.

71% of our new leasing business signed in Q1 came from new tenant leases while 29% came from amendments to existing installations. Amendments were generated for the most part by carriers adding equipment to the towers, equipment at the base of the towers and generators for backup power. The equipment added to the sites was for capacity, new technology enhancements, and integration modifications due to carrier consolidations.

Amendments are coterminous with the underlying initial site lease and the total combined lease amount escalates per the terms of the initial agreement. Amendment activity was very strong in Q1 - our strongest ever - and we believe it will remain strong throughout the rest of 2006.

81% of the new lease revenue from executed leases came from the Big Four and their affiliates and 90% of the new lease revenues from executed leases came from telephony carriers. We experienced a broad spread of leasing activity from each of large wireless carriers in Q1 in addition to activity from regional carriers, data carriers, wireless backhaul carriers and municipal entities. We saw more activity this quarter from the data and wireless backhaul carriers.

Rates continue to be strong for new leases. In addition to robust lease up with the Big Four tenants we are seeing good new lease activity with Metro, PCS, Alltel and Cricket in several markets.

Our leasing backlog increased throughout the first quarter and we expect to have another year of strong leasing results very similar to the past two years which have produced good financial growth for us. AAT's first quarterly results were also strong and similar to ours.

Our end of first quarter signed lease count was 8,466 with average cash basis rents of $1,764 per month - up once again from the prior quarter. Of the 8,466 leases, 7,240 were telephony customers representing approximately 94% of run rate revenue at quarter end. Churn was average for the quarter.

With the AAT transaction our 10 account has grown to over 13,000. The percentage of telephony review on a combined basis would be approximately the same. The combined average rents will reset initially as in general we experienced higher rents than AAT and we expect the combined average to increase every quarter as it did for us prior to the AAT acquisition. This is an area where we believe applying our best practices to the AAT assets will improve results.

The operational costs of our tower portfolio remains very stable and predictable. Q1 OpEx from a repairs and maintenance perspective is a seasonally low quarter for us. And Q1 2006 was no exception. We came in right on plan with our expense in these categories. Cash maintenance CapEx for our towers for the quarter was approximately $895 per tower per year while net structural or augmentation cash CapEx ran below 1.3 million in the aggregate in Q1.

AAT had similar results. On a combined basis we have a high-quality, high-capacity tower portfolio that now extends nationwide. Based on our estimates of the remaining fiscal capacity of our current tower portfolio we can more than double the number of telephony tenants without incurring material augmentation costs.

On the asset growth front, our new tower build program continues to expand. During the first quarter we built 15 new towers in the Northeast and Southeast U.S. We built additional two sites so far this quarter, bringing our accounts to 63 since the restart of the program in 2004.

Our backlog has grown and as sites move through the leasing and zoning process, we expect a rate of completion to grow.

Our metrics on these new tower builds relating to initial CapEx, operating ground lease rates and additional lease up have all proven to be good. We expect the AAT transaction will increase our new build production over time with our expansion west of the Mississippi.

In the Services segment of our business, Q1 came in with substantially better revenues and margins from the year ago period and better than break even from a net perspective. Revenues were 23.8 million with gross profit -- gross operating profit of 1.8 million or roughly 8%.

We continue to press price points in this business as our goal for this business is to achieve higher gross margins. We continue to perform services work in just our core historical areas of wireless expertise that being site acquisition, technical services and construction. These groups also continue to support our lease in the new tower build functions at SBA.

Lastly I wanted to say how excited we are about the AAT transaction. We picked up some great new sites and employees, and are very excited about becoming a nationwide operator once again and the growth opportunities that this affords us. We intend to expand our M&A in new tower build back activities farther west in the targeted market areas.

We are implementing and leveraging our proven operational model as we integrate these new sites. The integration process is currently going very smoothly and is ahead of schedule. The AAT transaction and associated integration so far have proven to us how scalable and efficient our business model and systems really are; and we are excited to continue to grow SPA at a high rate in the future.

At this point I'll turn it over to Jeff.

Thanks, Kurt, and good morning, everyone.

We are off to a very successful start to 2006. Our results for the first quarter were ahead of our guidance and analyst consensus estimates, and reflect the quality of our operations, our assets, and a high level of activity from our customers. We continue to operate in a very favorable environment of wireless growth, that directly translates into organic growth in our business.

Our customers - the wireless carriers - once again had a very strong quarter in terms of subscriber and minutes of use growth. That growth of our customers and the increasing deployment of data and video products by our customers puts continuous strain on the quality and capacity of their wireless networks.

The primary means of relieving that network strain is to add antennas and equipment. Carriers are doing exactly that with continued capital expenditures in material amounts that their customers demand and their investors expect. The dynamic of the relationships is very straightforward. More subscribers, minutes of use and new bandwidth hogging products equals network strength which leads to continued carriers spending to alleviate that strain, which then translates into more business and leasing revenue for the tower industry.

Obviously it's a bit more complex than that and the specifics vary carrier by carrier. But in general the story is that simple and straightforward. Add to that macro environment the SBA specific elements of the quality of our assets and the operational skills and execution of our employees, and you have the full explanation of our success.

We are in a very good environment and we are performing well in that environment. That's why our first quarter results exceeded expectations. We expect these trends to continue, which is why we have increased our leasing revenue and Tower Cash Flow guidance for the full year. It's important to note that the guidance was increased on the SBA assets pre-AAT. We have not changed or increased our expectations on the AAT assets from those expressed in the pro forma outlook contained in our March 17th press release as we simply have not yet had enough time to study those assets for that purpose.

That is a good segue into the AAT transaction. We could not be happier with the outcome of the acquisition. In one fell swoop, we have increased our business by over 50% in terms of leasing revenue and towers owned.

Our geographical reach now extends to the entire continental United States, Puerto Rico and the U.S. Virgin Islands. This geographic expansion will increase our future portfolio of growth prospects materially.

We have acquired very high-quality assets, many of which we previously owned and are very familiar with. These assets have ample remaining structure capacity. In general we view the AAT assets as very similar to but less mature than our legacy assets, which is exactly the type of investment we want to be making against the backdrop of the favorable business environment and expected future growth I described earlier.

In AAT, we acquired what we view as one of few sizable portfolios available of quality tower assets. And we did it while the assets still have ample remaining growth capability and ahead of what we see as a long period of customer investment in their networks, particularly when you factor in the possible outcomes of the upcoming AWS auctions. I don't think our timing could have been any better here.

We executed this transformational acquisition at a price and with the mix of consideration that is materially accretive to our shareholders today and expected to remain that way in the future. We are taking leverage up somewhat in the transaction but not too much above our target range and with the expectation that we return to our target range of 6.0 times to 8.0 times net debt to annualize adjusted EBITDA in less than a year.

Our pro forma cash interest coverage ratio will be approximately 1.7 times to 1.8 times and expected to increase to about 2.0 times in well less than a year. We are very comfortable with our risk profile here in the high EBITDA growth environment that currently exists. And we see our position similarly to where we were a year ago when we created tremendous shareholder value through deleveraging. We like our operational and financial positioning a lot right now and we believe it will translate into material equity-free cash flow growth in the future.

I need to take a moment and thank the many of our employees who worked literally around the clock to get this transaction across the finish line. We consummated $1 billion transaction about five weeks after announcement. Actually it was that performance and ability on our part that allowed us to be the successful party here. AAT was highly sought after by a number of our peers but one of the requirements of this sellers was speed and certainty of closing as they had a portion of the proceeds earmarked for another investment.

Our familiarity with the sellers and the AAT assets really paid off here as did our experience and capabilities in buying and integrating towers in general. We were able to meet the sellers' timing needs and as a result here we are with a Company-transforming acquisition.

Although we are just beginning our ownership of AAT, the integration process is going very well so far and we are ahead of schedule. We are very pleased with what we have seen so far.

AAT beat their own budget in the first quarter and we are seeing good lease-up activity on the AAT assets. We're bringing over 28 AAT employees in the process and we welcome them to the SBA family. Total headcount will increase by about 40 people as a result of the transaction that Tony described earlier where we think our quarterly SG&A expense will settle out once we complete the integration and synergy process. Again, while early, we have seen some encouraging signs of what we can do to use our knowledge and experience to favorably impact operational and financial results, as we conform the AAT assets into our way of doing business. We look forward to reporting our continued AAT progress as we move through the year.

As for the rest of the year, our focus is very clear. First, fully integrate the AAT acquisition by year end, which is ahead of our initial plan but we are on track to do that. Next, refinance the bridge facility in the most advantageous manner we can. Third, continue to buy and build quality towers that meet our investment criteria while deleveraging the Company at the same time to our target leverage range in less than one year.

Kurt described earlier our new build activities and you can see from the press release that we also continue to be active acquiring towers. We expect to remain active acquirers of smaller portfolios of towers as long as we continue to see - as we do now - very good accretive opportunities to expand our portfolio, meet our investment return requirements, and maintain or even increase our growth rates. We are buying what we believe are high-quality towers in the 12 times to 16 times run rate Tower Cash Flow range, with a multiple paid, varying based on our estimates of future growth and the impact of that growth on our investment return criteria. We're very pleased with the operating results of the towers we have acquired.

Finally, while we are doing the first three items we expect to continue to execute well, meet our customers' needs and capture all the benefits of this very strong wireless growth environment we are currently in. We are committed to our path of high-quality high-growth. We're very excited about the future and we look forward to reporting our progress. Rochelle, at this time we are ready for questions.

(OPERATOR INSTRUCTIONS) Anthony Klarman of Deutsche Bank.

Couple of questions. First, with respect to AAT. Obviously it reunites you with a part of your old portfolio and brings you back out West. I guess what do you believe the implications are for you going forward and looking at additional tower opportunities? Obviously a lot of your work previously before the close had been all kind of in region - for a lack of a better term - on sort of east of the Mississippi. Are there other portfolios kind of sitting out there in the West that you really didn't have the desire to look at because it was a kind of non-core area for you but now you'll sort of look more aggressively at adding scale on the list?

Clearly Anthony of the acquisition of AAT we now have an operating base and resources that extends throughout the country and we will extend our focus and looking around for good investment opportunities now to the full continental United States as a result of the transaction. So to the extent we find things that meet our investment criteria and we think will be good for our shareholders over the long-term, we will try and take advantage of those opportunities out West.

What are your thoughts at this point I guess on scale? And, historically, I think you guys have espoused a view - and it's been right - that scale hasn't necessarily mattered. Obviously this transaction's wasn't necessarily about scale but more about what you feel you can do with the asset. But at what point do you sort of feel like you are looking forward to kind of scale the Company and weighing that against using the resources and develop the tower, this sizable tower portfolio you now have?

I think we always have to be maximizing the scale that we have. And in general, scale is a good thing in the sense that you end up with better EBITDA margins because this is a business where overhead is leverageable. But while I'm a fan of scale, I'm more of a fan of good solid smart growth. And I think growth is a better path for our shareholders necessarily than just the pursuit of scale.

What we're trying to do here and we think we are very well positioned to do that is enjoy the benefits of both. I think we will clearly benefit on the margins from being a bigger company; but our focus is really to continue to grow smartly and financially soundly at what we think will be a very fast rate compared to our peers.

Two final questions. First maybe for Pam or Tony. You may have mentioned it, I might have missed it but do you have a pro forma cash balance? I guess pro forma of the drawdown on the bridge to fund the cash portion of the acquisition plus the cash -- the tender on the high yield bonds?

Yes we are somewhere between 70 and $80 million today, including restricted cash.

Was the bridge fully funded? Or how much of the commitment is unfunded at this point?

Fully funded and actually we were bank to make a little bit of cash in the transaction out of the bridge. But there's a full $1.100 billion outstanding now.

So that's the difference I am looking for. You actually were able to apply some of the bridge proceeds as cash from a balance sheet?

Correct.

Shield that just term out as a securitization or some form of financing?

Correct.

Thank you very much.

David [Denazo]. Merrill Lynch.

You mentioned Option 66 as we head into some of the filing periods. What are your thoughts heading into the auction and how do you think about the scope and the timing of the impact on you in the future?

I think in general we are very optimistic about what will come out of Auction 66 for the tower industry and SBA in particular. I guess the variety of outcomes that could happen here are generally all good unless the results of the auction are such that one or two of the existing incumbents try and purchase all of the Spectrum to keep it from their competitors. That's probably the least desirable result from the tower industry's perspective although I don't really think that's a likely outcome.

So regardless of whether new market entrants emerge or T-Mobile gets Spectrum to build out 3G or Metro or [Lead] get Spectrum to acquire and build out of new markets. I mean all of those are commonly discussed auctions. I think it's all good for us.

I don't know that it will have any impact on our 2006 results. We certainly have it modeled in any benefits from those auctions in this year's numbers. We will have to see how things go and who wins as to what exact impact that will have in 2007 and how early in 2007. So I think, really, the impact on the future beyond '06 will best be told once we know where the auction shakes out.

Thank you.

Clay Moran of Stanford Group.

Good morning. A couple of questions. Everything sounds very much right in line or ahead of expectation and things are going very well. Just want to go back to maybe the risk side of the situation. Do you see any operational risk or significant in the near-term possibly municipal Wi-Fi system offloading some of the network traffic or maybe dual mode phones? Could you address those and what you think the impact could be?

Also looking out into the future I mean the risks appear limited on operations basis but if you look out a few years is there anything significant on the horizon at all? While we are talking about the risk side could you also just talk about decommissioning and what the rate looks like there? Thanks.

I'll take some of that. We are not too concerned with the Wi-Fi systems that are coming. I think they will be complementary for the most part in their more so data. There's potential for voice overlay with those as well. I think what the broadband telephony carriers really offer with their 3G products is such ubiquitous product with the right level of in building penetration and just consistent service and features from city to city nationwide. I think that's really the biggest driver that's going to keep their products very strong and robust for us.

So I think there may be some opportunity for that they are complementary to each other but I don't really view it as a huge risk or replacement.

As for other technologies, I mean, I think or services - I think that a lot of it is along the same lines. The ubiquity and the penetrating coverage required for the mobility the people want and need for these handheld devices is really served off of our towers. It's just sites have to be everywhere and very close to the users -- these devices are very low powered and there's high capacity needs as well.

Despite what the technology is or what the carrier service offerings are, I think that our sites really continue to play a role, despite all that.

Over the longer term we continue to identify as we have for a long time now really only two risks that we see operationally in the business. One would be additional carrier for actually Big Four carrier consolidation we serve, based on everything we understand and study that's -- we don't really see any likelihood of that. And the second would be some type of technological breakthrough that causes antenna sites to be farther apart than shorter or closer together as the trends have been over the last couple of years.

And we really haven't seen any evidence of any technological breakthrough there that would reverse the trend of continuing shrinkage of cell densities. In terms of decommissioning I think we had a handful of telephony decommissionings in the first quarter as a result of the Cingular AT&T transaction. They are not many. We expect more to come. We built some expectations actually beyond what we've already seen into our guidance.

So we really feel it's a very manageable event. There will be decommissionings but as time goes, the financial impact of those, we believe, will continue to be less and less material.

Did we cover everything?

Yes. Thanks.

Jim Ballan of Bear Stearns.

Couple of questions for you. I guess this is the second quarter in a row that you've raised your financial guidance. Can you give us a little color on what the change in the margin was? Is this just more volume from the Big Four? Is there higher pricing that is included in that or is there more alternative network operators that are doing more? Can you give us a little color on that? Then I've got one other question.

It's a little bit of everything. I don't know that we had a material increase in rate over the last quarter although our rates are still very strong and we think particularly good in the industry. But I can't point to rate as a big driver in the Q1 over Q4 or Q3.

We have had a lot more amendments. That's clearly one driver of the results; and we also have seen more activity from people like Clearwire, Fiber Tower and some other wireless Internet and data players that on the margins, I think, has benefited has been consistently strong -- you know, Big Four telephony lease up.

I guess amendments is kind of a form of increasing rate anyway. The other questions - just real quickly. On the decommissions when the site is coming down, are they -- how is that being structured? Is that at the end of a lease? And so it's just the lease is over and they take down or are they paying out the balance of time in the lease? How is that working?

So far we've had just very few instances but they've all been of the form of just at the end of the lease term. So there's no lump sum payments involved.

Thanks. Good job this quarter.

Vance Edelson. Morgan Stanley.

Your margins were strong and hit an all-time high and that's despite site development continuing to be something of a drag on margins and site development margins were actually down slightly, I believe. And the site development revenues were also down.

Could you comment on the importance of that revenue line? Is it contributing to the strong topline growth that you're seeing in the core business and will site development continue to be a focus going forward?

Actually our site develop a margins were up quarter over quarter. We had a pretty good Q1 in terms of historical quarters and the services business, which is typically the slower, less profitable quarter of the year. But, directionally, you're right. There's a big difference between the site development services margins and the tower margins.

We feel the same way about that business as we have for years. We continue to believe that it's of strategic importance. We continue to use it to stay close to our customers' technology to help us be smart about what is going on with our customers. It helps us be smart about which towers to buy and where and particularly which towers to build and the opportunities that we have there.

We would expect to continue to move along in that business the way we have for the last couple of quarters or a year. We do not have any intentions to expand the business west of the Mississippi because of the AAT transaction.

We will continue to focus the business in the eastern U.S. but we see continued value there and we like the fact that it performed a lot better in the first quarter than it did a year ago.

Mark DeRussy of Raymond James.

I have two question for you. One, to follow up on the Services margins can you give us an update on kind of the mix of construction versus consulting, and if there has been any shift there that's helped improve those margins?

The second question has to do with your tower revenue guidance. About a 4% variability between the top and the bottom but here he we are, kind of in seven months to go in the year. The AT deal is closes. I'm wondering kind of what are the pivot points around that high and low end of your range? Is it the rate at which Kurt pulls towers out of the ground? The closing of your acquisition pipeline? Or you thinking you might -- you negotiating some incremental purchases that maybe you could give us some color around that variability in the topline?

I will talk to you about services real quick. 85% of it's typically construction and another 15% is on the site acquisition leasing zoning side. Both performed better year-over-year from a revenue and a margin perspective than Q1 of last year. But there wasn't a big shift between the business sliding one way or the other. Kind of historical proportions but they both just performed better. We really had a more diverse client base and steady performance in every territory.

Thanks.

Your other question was unfair. And all those things matter but at the end of the day we have a very good view as to where those, that revenue line will come out. And the honest answer is we have that range in there, because we have a big deal. We are integrating and we just want to be very very cautious. Donna thanks.

(OPERATOR INSTRUCTIONS) Anthony Klarman of Deutsche Bank.

Is there anything different with respect to the AAT towers as it relates to customer concentrations or customer mix? And would you expect any difference in some of the decommissioning activity associated with AAT?

No - no real mix. Actually they tend to have even a slightly lesser overlap on both the Cingular and AT&T and the Sprint Nextel as a percentage of their overall towers than we did. So we really don't expect anything material there. Their 91-ish % I believe telephony compared to our 93 to 94. So I mean that's really about the only difference. It's very very similar.

You mentioned that the few decommission sites that you are seeing are coming off at the end of leases so it sounds like these are old perhaps TDMA type cell sites. Are these sites that while they are being decommissioned or being replaced somewhere else nearby or in some cases are they being replaced on facility at a different spot with different site? What is the real netting effect of the decommissioning of some of these sites?

It wouldn't be on the same tower. They would just basically take over the lease so that would not be a true decommissioning. There's some stuff that's going on nearby but in general there's just so much new activity of new leases, new amendments that it's really dwarfing any type of decommissioning and there is -- you are mostly right on the TDMA but it's not 100%.

They're just going through and making choices based on a very site-specific analysis and it's taking a long time for, I think, everyone in the industry to really see any of this stuff. And while we all think it will continue to go on it really is not proving out in any way, shape, or form to be material.

Finally will there be any investments you will have to make in the services business - particularly out West as you look to provide the same kind of services in infrastructure support to the AAT tower assets that you are doing on your current towers?

No. We won't invest in the services business. What we will do is we will add people that are contained in our SG&A line. That's part of the comments that Tony made earlier and I mentioned that we're going to add about 40 people as a result of this deal. About a dozen of those folks will be what we call RSMs, which are regional site managers who are actually the folks out in the fields, tending to the towers and helping the co-locations and helping the customers install.

But that is -- that's not really through our services group. That's just part of the tower side SG&A.

Thank you.

(OPERATOR INSTRUCTIONS) There are no further questions. Please continue.

Great. Thank you, Rochelle, and thank you all for joining us today and we look forward to reporting our next quarter results.

Thank you. And ladies and gentlemen, this conference will be available for replay after 5 o'clock PM today through Tuesday, May 23rd. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, entering the access code 826454. International participants dial 320-365-3844. That does conclude our conference for today.