SBA Communications Corp (SBAC) 2002 Q3 法說會逐字稿

Good morning. My name is Constance, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the SBA Communications third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you'd like to withdraw your question, press star, then the number 2.

As a reminder, ladies and gentlemen, this call is being recorded today, November 6, 2002.

Thank you. I would like to turn the conference over to Ms. Pam Kline (ph), Vice President, Capital Markets. Ms. Kline, you may begin your conference.

Thank you for joining us this morning for SBA's third quarter 2002 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; John Marino, our Chief Financial Officer, and Kurt Bagwell, our Chief Operating Officer.

Before we get started, I need to get the standard SEC disclosure out. Some of the information we will discuss in this call is forward-looking, including but not limited to our guidance for fourth quarter 2002. 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 10-K for the fiscal year ended December 31st, 2001, which document is publicly available. These factors and others have (ph) affected historical results, may affect future results, and may cause future results to differ materially from those expressed in any forward-looking statement we may make. We have no obligation to update any forward-looking statement we may make.

Now we can get started. John, will you please start with our financial results?

Thanks, Pam. Results for the quarter were mixed, reflecting weaker wireless carrier cap ex environment. Total revenues were 67 million and were up 6.4% over the third quarter of 2001. Segment (ph) leasing revenues for the quarter were a record at 36 million, up 29.9% over the third quarter last year. (inaudible) revenues were 31 million, down 12.1% over the third quarter of 2001. Power (ph) cash flow of 22.6 million was up 27.2% over the year earlier period.

EBITDA, or earnings before interest, taxes, depreciation, amortization, noncash charges, and unusual or nonrecurring expenses, was 19.6 million, up 16.9% over the year earlier period. Power cash flow margins decreased to 62.9%, down 290 basis points from last quarter and 140 basis points from the year earlier period. This decrease in power cash flow margin was attributable to a variety of items, some of which we believe were one-time in nature and some of which we believe will be of an ongoing nature.

The items included increased operating costs of towers in Puerto Rico of about 300,000, increased property tax accruals of approximately 300,000, and an increase in repair and maintenance over prior quarters of approximately 600,000. Of this 1.2 million, we believe approximately one-third will be nonrecurring.

With respect to property taxes, in the third quarter, we completed an analysis that demonstrated that actual property taxes were increased and were likely to continue to increase as local jurisdictions struggle for budget dollars in the current economy. As a result, we increased our property tax accrual by about 300,000 per quarter.

On the maintenance side, a number of small items contributed to higher costs. Some were seasonal in the third quarter, such as lightning strikes and increased landscape costs, and some simply reflect the need for replacement parts in the portfolio that will be of a recurring nature. We expect lease and gross (ph) profit margins to rebound to 64% to 65% in the fourth quarter and resume in their sequential growth thereafter for the foreseeable future.

As anticipated, services margins continued to decline, averaging 16.7% for the quarter, down approximately 260 basis points from the second quarter and 630 basis points from the year earlier period. Primary factor here was increased price competition.

We continue to make good progress on reducing overhead. SG&A expenses calculated before non-cash compensation dropped to 8.2 million, our fifth straight quarterly decline, driven primarily by reductions in headcount. We are able to hold SG&A expenses net of non-cash compensation expense as a percentage of revenues relatively constant at 12.3% despite lower revenues compared to the second quarter. On a year over year basis, SG&A expenses net of non-cash compensation as a percentage of revenue decreased to 12.3% from 14.5%.

Our EBITDA margin in the third quarter was 29.2%, 260 basis points higher than the year-earlier period. The EBITDA margin improvement was driven by continued shift in our revenue mix to leasing, which comprised 54% (ph) in the third quarter, our highest ever, compared to 44% in the year-earlier period.

Restructuring and other charges in the third quarter of 1.2 million were related to the cancellation of additional sites, associated write-up of work in process, and further headcount reduction. Net loss per share for the quarter was 62 cents, including the restructuring and other charge. Weighted average shares outstanding for the quarter was 50.7 million.

Cash capital expenditures in the third quarter were approximately 13.5 million. We built 23,000 a quarter and acquired none. Capital expenditures for our new builds, include trailing costs for those completed in prior quarters, were approximately 9.3 million. We spent an additional $1 million on general corporate cap ex, $1 million on earn-outs from prior tower acquisitions, $1 million on ongoing tower cap ex, and a million dollars for augmentations and rebuilds.

Exclude the 10.3 million in capital expenditures associated with new tower development, our free cash flow in the third quarter would have been a positive 1.8 million. As you can see, with the winding down of our new builds, we are continuing to get closer to positive free cash flow.

Kurt, please provide an update on our operations.

Thanks, John. Third quarter 2002 was a challenging for SBA on the lease-up and services front, as we experienced a material and abrupt decline in carrier sell side activity levels from those levels in the second quarter. Some carriers delayed projects we were expecting to begin, and a few actually halted projects we had commenced.

The most active players in the market in Q3 were Verizon and Voicestream, and that in a nutshell is the reason behind Q3 results. We did not get the activity we expected from the other four of the big six.

Let's start with lease-up. We had a new tenant revenue in the quarter at a gross rate of .26 DDE (ph), and churn of .03 DDE, for a net lease-up rate of .23. This equates to $4,700 per tower per year of gross revenue growth, which was below our expectations coming into the quarter.

Churn remained constant, at approximately 1% of leasing revenues on an annualized basis. The majority of the churn continues to be from smaller, local operators of all types, including paging and two-way systems (ph). The paging industry continues to account for less than 4% of our total tower revenues on a run-rate basis.

We continue to be pleased with same-tower revenue and cash flow growth in our portfolio. Same-tower revenue growth on the towers we own as of September 30, 2001, was 17% net of churn and same-tower cash flow growth was 23% net of churn. 73% of the new leases we received were from the big six and their affiliates, 95% of the new leases from the big six affiliates and other telephony providers.

Average rents for new full (ph) installations remained steady on an apples to apples basis, considering type of installation and geography. Amendment revenue from sectorization, GSM overlays, and capacity augmentations continued to grow. We believe credit quality continues to be good, with 61% of our run rate leasing revenues coming from the big six, 15% from the spread (ph) affiliates, 3% from Triton (ph) and Nextel partners, 5% from other commercial telephony, providers such as Alltel, U.S. Cellular, and Leaf (ph) Wireless, 4% from paging, and the remaining 12% from a variety of other users, mostly federal, state, and local government agencies.

For fourth quarter 2002, we expect a similar lease upgrade in the third quarter of 2002 and believe we'll be within a range of $3,600 to $5,400 of annualized gross revenue added per tower for the fourth quarter.

On the services front, Q3 was weaker than anticipated. Revenue was at the low end of our guidance, and price competition and the effects of a sequential revenue decline on our expense base contributed to margin pressure.

On a fully-allocated indicated basis, we still made money in the services business. We remain committed to the services business, but are watching it carefully to make sure that we continue to make money from it. We intend to stay in services because it remains strategically and operationally important to SBA. It keeps us out there in daily contact with the carriers as they continue their network augmentations.

We believe these ongoing relationships through our services work (ph) contribute materially to our lease-up success.

As with past quarters, the majority of our services business came from our core offerings of fed (ph) acquisitioning and construction. We continue to be pleased with our execution capability, but we are uncertain about the amount of work that will be available in the near term. As a result, we expect the quarter services results to be approximately the same as the third quarter. Our backlog right now is steady.

On the new tower development front, SBA built 23 towers in the third quarter. This puts our current ending tower count at 3,875. All new towers had anchor tenants and a portion of them had multiple leases signed day one.

Our current new tower development backlog stands at 23, with 14 to 18 of those expected to be completed in the fourth quarter, and the remainder in 2003. While we are not currently pursuing additional new build opportunities, we continue to see strong demand for new tower sites in the marketplace. We view this as positive evidence of the favorable long-term prospects for our industry.

On the cost side, we continue to experience positive cost savings in the company. We will have reduced both head count and total offices (ph) this year by over 40%. Efficiency and cost control continue to be the top priorities, and we believe we may realize additional savings as we move forward.

At this point I'd like to turn it over to Pam, who will provide an update on our capital position.

Thanks, Kurt. We ended the quarter with cash of 42.3 million, and total debt of approximately $1 billion. Our cash position increased by 10.5 million during the quarter. We had EBITDA of 19.6, proceeds from borrowings of 40 million, and proceeds from our interest rate swaps of 2 million, plus debt service payments and amendment fees of 29 million, cash capital expenditures previously mentioned of 13.5 million, and a working capital net usage of 8.6.

Net debt to quarterly EBITDA annualized at September 30 was 12.4 times. At September 30, we were in full compliance with all of our bank covenants, and we expect to stay that way as we complete 2002. Debt cash interest expense for covenant purposes for the third quarter was 14.1 million. For purposes of bank covenant calculations, adjusted EBITDA in the third quarter was 20.4 million, which was 1.4 million in excess of required EBITDA levels.

Leverage under the senior credit facility on September 30 was 2.8 times compared to a permitted ratio of 3.5 times. At September 30th, the full remaining 35.9 million under the senior credit facility, which is net of 16.1 million of letters of credit outstanding, was immediately available to us. We expect this amount to be fully available to the company through 2002.

Total liquidity at September 30 was 78.2 million. We did borrow an additional 7 million in October. This amount was used to pay an earn-out obligation resulting from an acquisition of a construction services company. We're projecting no additional borrowings will be needed other than possible immaterial amounts to maintain target cash balances. We believe bank debt has peaked, including the 7 million borrowed in the fourth quarter, and will stay flat for a couple quarters, and we expect a decline in the third quarter of 2003.

Now let's turn to fourth quarter 2002 guidance. The following estimates are based on a number of assumptions that management believes to be reasonable and reflect our expectations as of November 6, 2002. Please refer to the cautionary language previously described, and that included in yesterday's press release when considering this information. The company undertakes no obligation to update this information.

Fourth quarter 2002 guidance is as follows: site leasing revenues, 36.5 million to 38 million; services revenues, 27 million to 32 million; total revenues, 63.5 million to 70 million, EBITDA, 19 million to 21.5 million; net interest expense, 23.5 million to 24.5 million; cash interest expense, 14.5 million to 15.5 million; cash capital expenditures, 7 million to 15 million; amortization and depreciation, 25 million to 27 million.

Net loss per share, 58 cents to 68 cents. For the fourth quarter of 2002 we're projecting that we had gross revenues per tower at the rate of 3,600 to 5,400 per year. Based on all we know today, including our leasing backlog, carrier activity, public and private discussions with carriers and all other factors, we continue to believe that this amount of revenue growth per tower will be achieved. We will provide full-year 2003 guidance when we provide our fourth quarter 2002 results.

At this point, I would like to turn it over to Jeff.

Thanks, Pam, and good morning, everyone. We continue to operate in a difficult environment for wireless carriers. Most of the carriers have reported their third quarter results, and generally capital expenditures as reported were well below expectation and guidance. While carriers do not break out their cap ex detail, we saw a dramatic decline in the third quarter in the portion of carrier cap ex and activity that matters most to SBA and our industry, which is expenditures on or around the sell side.

With a couple of carrier and geographic-specific exceptions, activity levels at sell-side were lower in general than at any time since we first moved into the tower ownership business. While this trend has been developing throughout the year, it really accelerated in the third quarter as some large customers who were much more active in the first half of the year materially slowed their activity levels.

The trend has been particularly challenged for us because it's operationally counterintuitive. It is continuing despite steady increases in minutes of use, widespread reports of deterioration in network quality, and the lack of any other real network fixes which can emerge to satisfy the quality issues. It is clearly driven, in our opinion, by financial pressure on our customers, the wireless carriers, to reduce their capital expenditures and conserve cash.

While we do not believe this operational pension can continue to increase indefinitely, we believe it is likely to continue for some time while the wireless carriers work to improve the perceived financial health of their industry. At this time it is unclear to us when carrier expenditures will increase.

While the carrier trend of cutting capital expenditures and conserving cash continues, and certainly if it accelerates, our services business and the amount of incremental new lease revenue we add will remain under pressure on a quarterly basis. Those parts of our business are in contrast to, however, and separate from our existing tower cash flows, which have remained strong and still growing through the current carrier cap ex cycle.

Revenues and tower cash flows continue to grow sequentially. Churn continues to be low and stable, and we expect it to remain so even through periods of carrier consolidation or customer restructurings due to the location-specific and mission-critical nature of antennas on our towers. Year over year same-tower cash flow growth, net of churn, was 23%, which we believe is a very healthy number.

We've seen no indication of overcapacity in our industry, as evidenced by continued pricing strains (ph) for tower space. Any issues surrounding lower incremental revenues added to our to towers involve the volume of activity and not rate. We believe that sequential tower cash flow margin growth will resume in the fourth quarter and continue for the foreseeable future thereafter.

Ongoing capital expenditures on our towers are low and expected to remain so. Finally, the operational leverage in the business remains evident, as overhead costs continue to be reduced year over year both in absolute dollars and as a percentage of revenues. We continue to be very pleased with the performance and strength of our base tower business and see it as further proof of the soundness of the tower ownership business model, particularly in light of the portfolio's continued growth, despite difficult business and economic continues.

So SBA is in a business environment where the services and incremental lease-up portions of our business are likely to remain under pressure for the foreseeable future, while our base business, tower cash flow generated from tower ownership, remains secure and growing.

We're addressing the situation in a number of ways. First, we are doing everything we can to accelerate attaining sustained positive free cash flow. Obviously, as we always have, we want to capture as much services and lease-up businesses as possible that meets our criteria for scope, profitability, and credit quality. We continue to focus on providing customer service and quality and are confident that we continue to be a vender of choice through the wireless carrier industry.

In these times, however, that's not enough, and we are prepared for a sustained period of lower sell side activity by carriers. We are reducing expenses, particularly cash expenditures, as much as possible on both the capital side and the operating side. By year-end, we will have reduced headcount to 750 or so employees from approximately 1,350 at the beginning of the year, and will have reduced offices from 72 to 40.

We believe we have the right overhead structure now for our current level of business activity, but we will not hesitate to reduce expenses further if activity levels continue to deteriorate. By completing our remaining new tower builds and not pursuing any additional new towers, we believe we will be able to reduce cash capital expenditures to a steady state of approximately $10 million to $15 million per year, which is an all-end number including capital to support our services business, general corporate purposes, and any augmentation cap ex in addition to ongoing capital expenditures for our towers, which we continue to estimate to be very low at no more than $1,000 to $1,500 per tower per year.

Compare that number, the 10 million to 15 million steady stay cash capital expenditures, with the approximately 92 million to 100 million of cash capital expenditures we will spend this year and the 530 million we spent in 2001. We've greatly reduced operating and capital expenditures going into 2003. When and how much we generate in positive free cash flow will primarily depend on the level of interim wireless carrier self-site expenditures.

If carrier activity stays at third quarter levels, we project that we will be approximately cash flow break-even in the first quarter of 2003, but falling back to negative cash flow in the second quarter and remaining there through the rest of 2003 as our 12% discount notes go cash pay. Assuming carrier activity at third quarter levels, we now project sustained positive free cash flow in 2004.

With a slightly delayed target for sustained positive free cash flow, we are, of course, focused on maintaining sufficient liquidity and remaining fully funded. We expect to begin next year with approximately 50 million in cash, at least 30 million of additional bank availability, increased EBITDA for the year, and dramatically reduced capital expenditures, the combination of which, in our opinion, provides us with sufficient liquidity for next year, including all amounts necessary to service approximately 68 million of high-yield interest payments, 12 million of credit facility interest payments, and 5 million of credit facility amortization next year.

We continue to believe that we are fully funded and our cash position is adequate to get us to our sustained positive free cash flow target. Our only liquidity issue is continued compliance with certain of our financial covenants in our credit facility, which may or may not prove to be an issue, depending generally on where wireless carrier spending is and specifically where our EBITDA will be in the middle of next year.

If carrier activity remains at third quarter levels, we may not comply with one or more financial covenants as early as the second quarter of 2003. We are in regular contact with a number of the banks in our lender group on these issues. If there is a need, we will be proactive in seeking a solution with our senior banks, as we have done several times in the past.

Longer term, our focus is to reduce leverage and absolute debt levels in our business. In these economic times, we believe the business should be run and would be optimized with lower leverage. Our first choice continues to be leverage and debt reduction through organic growth and positive free cash flow, and we continue to grow our tower revenues and tower cash flows every quarter. There are other avenues to supplement and accelerate debt and leverage reduction. These avenues, some of which we have begun to explore, include asset sales, re-financings, debt exchanges or repurchases, equity issuances, merger, acquisition, and divestiture opportunities, and other options.

Each of these alternatives, of course, presents their own pros and cons. Some of the options would have a clear positive impact on our credit facility covenant compliance. We are confident that the security growth and ultimately the value of our tower cash flows will continue to afford us many options to consider. While we do not intend to discuss the specifics of which options we are considering, we think it is likely that we will pursue one or more options to help our organic growth delever the balance sheet.

I want to address our stock price for a moment. With our price below $1 a share for some time now, should it stay there, we are facing a real prospect of being delisted by the NASDAQ national market system. Should that occur, we would expect to move to the NASDAQ Small Cap Market and believe we meet all criteria for inclusion in the small cap market.

In closing, we remain on track to ultimately get to positive free cash flow with our existing resources and asset base. We continue to materially reduce operating and capital expenditures. Our tower revenues and cash flow continue to grow. We are confident in our ability to manage and adjust the services business as necessary to minimize the impact on cash flows in the event of continued weakness in carrier spending.

Our management team and our employees remain focused and dedicated to our goals, and have chosen to tackle the current business environment by working harder and making the tough decisions on cost reductions. For that I would like to thank each of our employees for their great work through challenging times.

And at this point, Constance (ph), we would like to open it up for questions.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before asking your question.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from John Bensche of Lehman Brothers.

Hi, John Bensche at Lehman Brothers. Good morning, gang. Question for you on the organic growth angle, Jeff. What would be the things that would create a step function positive change for the business? Particularly I'm thinking new spectrum or next waive? Paint the bookcase (ph) for us without asset sales or something like that.

Well, I think, you know, in the next wave spectrum, a new spectrum all of which would be a positive. I also believe a realization, John, by the carriers that they need to spend money and the translation into new subscribers is maybe not this quarter, but I think imminent. If you kind of look back -- and I know you track the wireless guides pretty carefully -- if you look back at who really spent the cap ex they said they were going to spend this past quarter, those were the guys who had the big increases in subscriber growth. And from our perspective, there is a clear correlation between the two. And I think that's going to be realized here with the wireless carriers in the not-too-distant future.

So I believe network quality and the fact that, in our opinion, it's getting close to, you know, the point where it really can't deteriorate much farther without substantial churn is probably the best thing to be looking for. But clearly consolidation, I think, will be a long-term catalyst for expenditures and the two spectrum things that we just talked about.

Okay. And for John or Pam, could you just take us through what principal amortizations look like over the next couple of years in both bank and bond?

Yes. John, we have nothing on either of our bonds. And on our bank, we have 5 million the second half of '03, 15 million in '04, 25 million in '05, and then it continues until we get to the middle of '07 to 100 million, and that's only on the term loan. The revolver is a bullet in June of '07.

Very good. Thank you.

Our next question comes from the line of Mark DeRussy (ph) with Raymond James.

Hi, good morning. In your press release you indicated what a sort of maintenance level cap ex might be for next year. And I'm wondering if you could kind of give us -- not really guidance, but kind of a range of what maintenance level GA - G&A would be for this business, assuming that we have the same, you know, level of spending out there and you obviously don't build any more towers. What kind of G&A do you need to basically run the business as it is today?

Yeah, and I think, Mark, the 10 million to 15 million, I want to be clear, is a fully loaded number. The true amount of money that we will spend maintaining our towers will be somewhere around 4 million to 5 million.

All right.

And we feel we've been pretty conservative in the 10 to 15, because that's much everything we can possibly imagine without ...

Okay.

... any more new builds.

Okay.

On the SG&A line, I think, you know, we're going to be comfortable at these levels of business, with $30 million to $32-ish million SG&A level on a steady state (ph) basis.

Okay. Okay. And then, should we expect the tower op ex would decline a little bit in the fourth quarter relative to where we were this quarter?

I don't know if you will see a decline as much as you will see not an increase. I mean, typically we increase the op ex side every quarter by 300,000 or 400,000 just kind of -- because not 100% of the increased revenue drops through, but high margin percentage does. But we actually expect that, you know, the actual expense in absolute dollars will be somewhat flat, maybe up a little bit, but pretty flat. And you will see basically everything that comes through on the top line coming through to the margin.

Okay. And then last question's for John. Could you repeat what sort of the residual (inaudible) cap ex was for the quarter? And, you know, when does that get worked through? That sort of trailing build to suit cap ex is not associated with towers that you report having built in the quarter.

Right, Mark. What we had is, we disclosed about $9.3 million of cap ex related to towers actually built during the quarter or going into operation. Of that 9.3 million, I'm going to estimate about $2 million to $3 million would have been trailing cap ex on sites built in prior quarters.

Okay.

Obviously, that numbers is going to continue to go down. And those are obviously estimates for you.

Okay. All right. Thanks.

Thanks, Mark.

Our next question comes from the line of Jim Ballen (ph) with Bear Stearns.

Thanks. Hi, guys. AT&T Wireless, on their conference call, talked about building out their GSM/GPRS (ph) overlay in their telecorp (ph) properties in the fourth quarter. I was wondering -- I know that you guys picked up about 275 telecorp towers, I guess it was last year. Can you talk about -- can you talk about, are you seeing them -- are you seeing them in the telecorp areas? And also, if you could also talk a little bit just about the remaining earn-outs that you have? Those are my two questions.

Yeah, Tim. This is Kurt. We are seeing the starting -- the starting point of the overlay in the telecorp (ph) markets by AT&T; obviously nowhere near as far along as the earlier AT&T markets, but that activity has begun, and we expect that to pick up in the fourth quarter and continue on through the -- probably through at least the first half of next year.

So do you think it will have any kind of material improvement in your lease-up rate in the fourth quarter, or do you think it's just ...

Yes, to some degree. Obviously, with the antenna loads they're adding, there are going to be some amendments there, as there have been. It's really on a site-by site basis depending on what they originally leased and what load they have up there today, depending on the site type.

Got it.

Jim, as it relates to the remaining earn-outs, both on the services side and the tower side, it's about $13 million over the next couple of years. Candidly, we don't expect anything near $13 million to hit. Maybe another $1 million or so in the next quarter, and I would suspect no more than 3 or 4 next year.

Okay. That's great. Thanks a lot, John.

Although it would be a good thing if we paid the full amount.

Yeah.

Understood.

Absolutely.

Right. Understood. Thanks a lot, guys.

Your next question comes from the line of Greg Robatinco (ph) with Loop Capital Markets.

Great. Thanks for taking the question. My question is centered around the cap ex involved with the services business. I think it's pretty small, but I just want to verify that. And then also, if you could just speak to what (ph) the 60 million in LLCs (ph), give us a little bit more color on what that is, and then I've got a quick follow-up.

Yeah. Just for the cap ex on the services side, we actually had under - actually, well under $1 million in cap ex this quarter on the services side of the business. When Jeff gave you the number for last year, that included some cap ex for the services business. But it is kind of diminimous. But that 500 million some-odd number for '01 included some acquisitions in there which, you know, on a steady -- assuming there's none of that, Greg, it's a pretty low number on a quarterly basis.

And the LLCs?

Yeah, those are writers of credit that we post to secure performance bonds on a number of service projects that we have. I mean, it's typical for jurisdictions to require removal bonds and other types of performance guarantees while you're doing work. And you can either, you know, cash collateralize those guarantees, or you can post LCs, and we've chosen to post LCs.

So if the service work stops, you get that money back type of thing?

That's correct.

And then the last question kind of on a strategic front is, it seems like you make a pretty good case for the banks to work with you, you know; seeing that the bank debt has peaked and it's going to be decreasing, you know, maybe I'm just going too bullish on this. Wouldn't it be pretty -- in the bank's best interest to work with you guys to do that? And then also, if that doesn't work, what about maybe a rights issue to do some type of debt buyback or something like that? Thanks.

I don't really want to speak to any particular option other than to assure you we're, you know, considering everything. But on the banks in particular, you know, I think your assessment is right. You know, our bank group's been with us a long time. They're good folks. They're good contributors in terms of productive ideas.

And, you know, we need to get to that point, we certainly would have no problem going back to the bank from a collateral perspective and a leverage perspective. I mean, the banks are in very good shape and are certainly, I think, going to be open to working with us, you know, whether -- where exactly that ends up, should we need to get there, Greg, you know, remains to be seen. But it's certainly positioned the right way.

Okay. Thanks, guys.

Your next question comes from the line of Naveen Sarma (ph) with Deutsche Bank.

Hi, guys. A couple of questions. Can you break out how much renegotiations was as a percentage of lease-up? Also, on the services side -- let me kind of ask Mark's question a different way. What op ex savings do you think you'll be able to achieve once you've completed your new build obligations?

Yeah. I don't think there's going to be a whole lot of additional op ex savings beyond the 30 to 32 kind of steady stay (ph) basis I answered to Mark. That kind of takes into -- that takes some savings into account to get to that number. I know -- on the -- I'm not sure what you mean by re-negotiation of leases. Do you mean amendments?

Yes.

Yeah, we really don't break that out other than it's getting to be and has been a fairly material number, which I'm guessing is somewhere between 10% and 20% of our added lease revenue.

Okay. And on the services margins, where do you think it will settle out? I know you talked about the mid-teens, but can you give us an update on that?

Yeah. Naveen, this is Kurt. Probably -- we're still thinking that's the right range, in the mid-teens. You know, there's still -- with the downturn in volume, there's still a lot of pressure on pricing. We don't see it improving. But I don't necessarily see it going down much further, if any. So mid-teens is probably still accurate.

Okay. Thank you very much.

Your next question comes from the line of Steve Lynn (ph) with Morgan Stanley.

Good morning. Two questions. Number one, you talked a little bit about property taxes increasing, and that was driver of higher op ex on the site leasing side in the third quarter. But you also talked about that continuing. Could you give us an idea of why you think those property taxes will continue to increase. Was it spread across your entire portfolio or concentrated in any regions? And about what component of -- or what percentage of revenues goes out the door in local property taxes on the site lease side?

Yeah. We hopefully didn't send the wrong message there, Steve. We don't think they're going to continue to increase, but we think that the increase we experienced in the third quarter is now going to be somewhat of a permanent part of our cost structure. So we don't see the 300,000 going up again in the fourth quarter, but basically we've increased our accrual by that amount, so now we have an amount that we're going to accrue every quarter, which in the third quarter and fourth quarter will be approximately 300,000 more than we accrued in the second and first quarter.

And that's -- so it's not -- we don't see it continuing to increase, but we did have to increase it on a kind of a one-time accrued basis which accrual will carry through, because we see the environment -- you know, the local jurisdictions are doing everything they can to squeeze out additional revenue dollars.

On a percentage of revenue basis, our towers are about 36,000 of annualized revenue now. And we accrue approximately $2,000 or so for annual property taxes.

Okay. Great. I'm sorry. I thought you said earlier that, because of tight local state budgets, that you thought that that was going to increase going forward.

Well, we've kind of anticipated that in setting the accrual. But we -- we're certainly not expecting to further increase the accrual that we -- it will be the same accrual in the fourth quarter that it was in the third quarter.

Okay, great. My second question is, regarding the fourth quarter and some of the comments out of the carriers, it seems most of the carriers have kept their full-year '02 budgets pretty much intact from where they were a few months ago, but that implies huge spending for most of these guys in the fourth quarter, that your fourth quarter guidance seems relatively conservative. Can you talk about why there seems to be such a discrepancy with the amount of money the carriers are spending in the fourth quarter to what your expectations are at this point?

Yeah, if you dial back about three months, exactly the same thing happened as we headed into the second half of the year. Carriers said, gee, we only spent 40%, and we're going to spend the rest. And, you know, they didn't. And as we saw in their third quarter announcements, they did not spend the amount of cap ex dollars that they projected to do.

And we're going to actually -- you know, we want to wait and see this time, because last time they really didn't spend -- at least -- at least at the sell site. And Steve, you have to remember, carrier cap ex, when they report that to the financial community, is a much broader range of things than actually what trickles down to the tower companies.

Sure, sure. So, so far in the fourth quarter you haven't seen much of a change in their sell side component of their cap ex so far?

We have not.

Okay. Great. Thank you.

Your next question comes from the line of Armond Musey (ph) with Salomon Smith Barney.

Good morning, guys. One of my questions has been answered, but I'm wondering if you think there's a risk to -- some of your smaller customers are having a fair amount of financial trouble, if there's a risk that any of them come back and try to negotiate some of their lease rates down somewhat, or if you have seen any evidence that this might be happening?

Well, we think about that a lot, Armond. And we've actually had history primarily in the paging side of things. And what it will ultimately come down to is whether these customers are going to seek to continue to operate their networks, because if they do, their RF designs and their tower and antenna placements are very specific. And they need to be there without, you know, a massive reengineering.

And remember, our industry is really predicated upon exclusivity. So there's not a lot of choices for carriers to kind of go down the street and still meet their RF engineering designs. So we don't really see that as a big risk for those customers which will reorganize and continue to operate their networks.

Where we saw fallout, where we lost revenues permanently, was where companies like a Metricom (ph) or a Conexsys (ph) or a GeoTech (ph) who really did not have enough of an infrastructure to reorganize around, actually liquidated. And I think that's going to be the guiding force as to how customer revenues go. Anybody who reorganizes and continues to operate their network needs tower space. They actually need it where they are today.

Okay. One other question relative to the cap ex slowdown with the major carriers. Clearly they're adding customers, and seems they're not adding capacity at the same rate. What kind of metrics can we look at in terms of how far they can go with this plan before it really hits the wall? Is there anything we can look at in terms of, you know, cap ex per customer or cap ex per thousand? Anything we can look at to get an idea of where you think these guys just have no choice but to start spending more?

Kurt, you want to take a shot at that?

Yeah, Armond, that's kind of the answer to the holy grail, right?

Well, I thought I'd take a shot.

It's really tricky because they do do some things at the sell level that don't affect our tower space that they connect the capacity with through new and old technologies. They can add spectrum in an area if they're spectrum limited with some of these swaps that have been going on.

You know, I think a lot of it, the sell drivers out there are as much about -- I really think of this business as cell density over the long term. And I know I've got a new (inaudible) card in my laptop and it's a great ubiquitous product, but I'm immediately demanding it to work inside of every building, inside of every conference room I'm in, inside of every airport waiting lounge. And so I think it's about capacity to some degree, but it's also about cell density and the in-building penetration. If you look at one of the latest studies that's out, for the first time ever, less than 50% of usage is in vehicles, and that's a huge shift -- paradigm shift since wireless started. When wireless first came out, that was the big use was in vehicle, and now less than 50% is there. So it's either walking around or inside.

And with the advent (ph) of data -- and I can tell you from personal experience, the new data products are pretty darn good. And the price is very fair, in my mind. It creates some real usage. It's going to drive people to push the carriers to increase the cell density because at the end of the day, the physics of two-tenths of a millowatt phones and air (ph) cards require the near placement of the cell site. So to me it's a couple of factors. But there's -- the real indicators, there's just so many it's really hard to come up with any kind of formula that gives you a number that you could count on.

Okay. I thought I'd try. Thanks a lot.

Our next question comes from the line of Sandy Leane (ph) with Bear Stearns.

Hi. Good morning. Can you just discuss the working capital usage of 8.5 million and give us some color on wireless (inaudible) usage (ph) in the quarter?

Probably the biggest contributor there is on the payable side. As we have gotten away from the new builds, obviously our payables for internal bills have come down. That's probably the biggest usage of working capital during the quarter. Pam, I'm not sure anything else comes to mind, but that certainly was the big usage. And we expected that.

But we don't expect it, of course, to continue as that kind of works -- as it works through the system.

Right.

You think working capital will be about flat in the fourth quarter?

I think it's still going to come down a little bit, or there's going to be more usage. It's not going to be flat meaning zero, but it will certainly, I think, be less than we saw in the third quarter.

Okay. Thanks.

We have reached the end of the allotted question and answer period. Mr. Stoops, are there any closing remarks?

No. We appreciate everyone's attendance, and we look forward to sharing our fourth quarter results with you. Thanks, Constance.

Thank you for participating in today's SBA third quarter 2002 release conference call. This call will be available for replay beginning at 1:30 p.m. Eastern Time today through 11:59 p.m. Eastern Time on November 20th, 2002. The conference ID number for the replay is 5951180. Again, the conference ID number for the replay is 5951180. The number to dial for the replay is 1-800-642-1687, or 706-645-9291. You may now disconnect.