Filed by AirGate PCS, Inc., AGW Leasing Company, Inc., AirGate Network Services,
LLC and AirGate Service Company, Inc. Pursuant to Rule 425 under the Securities
Act of 1933, as amended.
Subject Companies: AirGate PCS, Inc., AGW Leasing Company, Inc., AirGate Network
Services, LLC and AirGate Service Company, Inc.
Commission File No.: 333-109165
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
Page 1
AIRGATE PCS
Moderator: (Drew Anderson)
December 19, 2003
8:00 am CT
Operator: Good day and welcome to this AirGate PCS, Incorporated
Conference Call.
Today's call is being recorded.
At this time for opening remarks and introductions, I would
like to turn the conference over to Ms. (Drew Anderson).
Please go ahead ma'am.
(Drew Anderson): Thank you.
Statements made in this conference call regarding expected
financial results and other planned events should be
considered forward-looking statements that are subject to
various risks and uncertainties. Such forward-looking
statements are made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995 and
are made based on management's current expectations or
beliefs as well as assumptions made by and information
currently available to management.
A variety of factors could cause actual results to differ
materially from those anticipated. For a detailed discussion
of these factors and other cautionary statements, please
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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refer to AirGate PCS filings with the Securities and
Exchange Commission especially in the investment
consideration section of AirGate PCS Form 10K for the fiscal
year ended September 30, 2003.
In addition, we will be providing non-GAAP financial
measures during this call such as EBITDA, ARPU, CPGA and
CCPU. These metrics are a supplement to GAAP financial
information and should not be considered an alternative to
or more meaningful than GAAP financial information.
A reconciliation of these non-GAAP financial measurements to
the most directly comparable GAAP financial measure is
included as a schedule to our earnings release which has
been filed with the SEC on Form 8K.
I would now like to introduce Tom Dougherty, Chief Executive
Officer and President of AirGate PCS. Please go ahead sir.
Thomas Dougherty: Good morning and thanks (Drew) and thank you all
for joining us. With me today is Will Seippel, the Chief
Financial Officer of AirGate PCS.
The purpose of this call is to review financial and
operating trends reflected in our fourth quarter of fiscal
2003 for the three month period ended September 30, 2003.
We issued a news release yesterday evening and each of you
should have received a copy of the release and the
accompanying financial summary.
I'll begin our discussion today with some brief comments
about the company and then turn the call over to Will who'll
follow with more detailed information about our fourth
quarter and the operating metrics as well as financial
results.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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Then we can update our investors on recent events as well as
the status of our proposed recapitalization plan.
This was another successful year and quarter as we made
further strides under Phases I and II of our four phase
strategy for AirGate. I thought it would make sense to touch
on our progress under this plan and to remind investors
about our view of future elements of the strategy.
As we articulated in our last conference call, we're
pursuing a four phase strategy in which Phase I addresses
the operational costs immediately within our control and
Phase II addresses our capital structure.
As part of Phase I, we have addressed the operational costs
immediately within our control so we can improve EBITDA and
our cash position. This is the bulk of what we have carried
out so far as part of our smart growth strategy.
We have addressed and will continue to address operational
issues by doing the following: Focusing on adding higher
value subscribers.
During last year, 69% of our activations were in the prime
category and during the past quarter, 76% of our activations
were in the prime category.
We've reduced headcount by about 28% over the last year from
over 640 employees to about 460 employees today.
Rebuilding our finance and accounting staff in Atlanta and
moving it from Geneseo, Illinois.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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Eliminating the lowest productivity distribution retail
outlets to keep controllable elements of the CPGA within a
reasonable range.
Reducing capital expenditures while exceeding network
performance standards and generally managing our vendor
relationships more effectively to reduce costs.
Largely, as a result of these efforts, we have experienced
the following.
Our quarterly EBITDA has been at or above $14 million for
the last three quarters whereas all prior quarters had
either been negative or a low single digit positive.
And our cash has increased from 4.9 million in the fourth
quarter of 2002 to 54.1 million at the end of the fourth
quarter of 2003.
Suffice it to say, the build up of this cash is one
component that has provided us the financial flexibility to
reach future phases of this strategy.
Phase II. As for Phase II, we're addressing our capital
structure. We're in registration with our bond exchange deal
but I will not go into detail on this point as Will will be
able to provide some insight into where things stand on our
proposed recapitalization plan a bit later in the call.
That brings us to the third phase of the four phase plan
addressing churn, bad debt and key operating issues that are
currently controlled by Sprint.
We believe we can enhance our customer care and related
services in order to reduce churn, lower bad debt and
improve customer satisfaction as well as improve our
knowledge of our customers.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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Two recent surveys performed by a leading consumer opinion
company by two leading companies on customer care within the
wireless industry included that Sprint's customer care does
not lead the industry.
Achieving lower churn and bad debt expense are particularly
critical in our market as we face competition from providers
who traditionally had some of the best metrics in the
industry. As a result, we've been exploring ways to improve
the quality and the cost of customer care and similar
services.
We believe improvements in these areas could result in as
much as five to ten percentage points of improvement in our
EBITDA margin therefore, we're evaluating potential
improvements in costs and service from Sprint and
simultaneously reviewing the benefits of outsourcing these
services to another vendor who can provide industry leading
customer care at a reasonable price.
After addressing operational and capital structure issues in
Phases I through III, we can move to the accelerated phase
of our smart growth strategy. At that point, each additional
subscriber added should be more profitable and it would be
more advantageous to ramp up our growth.
Our goals in this phase of the strategy would include
building meaningful long term growth by adding profitable
subscribers, expanding our distribution, offering targeted
marketing programs tailored to the needs of our customer
base and diversifying our products and services to better
meet the needs of our customers.
We believe we can capitalize on the Sprint Wireless product
and service offerings and take advantage of new product
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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opportunities to build on new growth initiatives including
PCS vision, data services and wireline to wireless migration
opportunities.
With this said, I'll turn the call over to our Chief
Financial Officer, Will Seippel. Will.
William Seippel: Thanks Tom. I'll go over the highlights of the
financial results and operating statistics for the quarter
as well as the year ending September 30, 2003 and then
provide an update on the status of our proposed
recapitalization plan.
In regards to iPCS and some of the inclusions and exclusions
and as some of you have talked with me over the past couple
of weeks, the iPCS accounting is certainly complex and in
some cases, somewhat confusing.
So before jumping into the operating results, I wanted to
note that because of iPCS's Chapter 11 bankruptcy filing on
February 23, 2003, after that date, AirGate no longer
consolidates the accounts and results of operations of iPCS,
I will limit my comment to our AirGate on a stand-alone
basis.
I wanted to point out to those reading our financial reports
and filings that our quarterly consolidated results for 2003
do not include iPCS and our fiscal year consolidated results
include iPCS only through February 23, less than a five
month period.
The accounts of iPCS are recorded as an investment using the
cost method of accounting subsequent to their bankruptcy
petition date and as a result, the consolidated balance
sheet as of September 30, 2003 does not include the
consolidated accounts of iPCS. However, it does include the
company's investment in iPCS as of February 23, 2003.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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In regards to the iPCS Trust, on October 17, 2003, AirGate
transferred its iPCS stock to a Trust organized under
Delaware law and no longer has any interest in iPCS.
As a result of this transfer, iPCS will be accounted for as
a discontinued operation as of that date and the iPCS
investment of approximately $184 million will be eliminated
and reported as a non-monetary gain from disposition of
discontinuing operations in the first fiscal quarter of
2004.
So with that said, we can move on to the AirGate stand-alone
operations.
First, I would like to discuss our subscriber statistics. We
ended the quarter with 359,460 subscribers compared to
339,139 a year ago. This represents a 6% growth.
With respect to 3G subscribers, approximately 15% of our
subscribers are 3G subscribers and contribute approximately
$2 to ARPU when averaged across the entire subscriber base.
Gross adds for the quarter were 34,464 versus 48,276 a year
ago. Although we were close to where we had said the results
would come out for the quarter in regards to the subscribers
from the earlier conference call and with the plan of
operations in the S-4, additions were lighter than
originally expected at the time we did our budgets earlier
in the year due to the loss of distribution channels such as
Circuit City and a decline in market share.
We had made progress during the current quarter in
bolstering distribution in the addition of another major
local distributor.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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For the year, gross adds were 172,000 versus 247,000 in the
year ago period. Prime credit quality gross additions as Tom
had alluded to were up and as a percentage of total growth
additions, we're about 76% for the quarter versus 60% a year
ago and 61% last quarter.
At the end of the quarter, prime subscribers as a percentage
of total subscribers stood at 72% versus 65% a year ago.
To provide some insight into the effect of the improved
quality of the subscriber base since January of this year,
past due accounts that we have within our receivables detail
have fallen from 33% to 27%.
Churn, net of 30 days return, was 3.41% in this quarter
versus 4.3% in the year ago quarter. Compared to the quarter
ended June 30, 2003, we experienced uptick in churn of about
50 basis points which we believe is consistent with the
results of the other public Sprint affiliates.
Although churn spiked during the quarter, we have
subsequently seen it come back down to lower levels despite
the implementation of WLNP. For the year, churn was 3.2%
versus 3.5% in the year ago period.
Net additions for the quarter were negative at 4697 versus
1836 positive a year ago.
As I touched on, these negative net adds were due to later
than expected gross additions as well as a bump in the churn
rate by about 50 basis points from the prior quarter.
For the year, net additions were 20,321 versus 104,116 in
the year ago period.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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Second, I'd like to discuss our revenue and net income.
During the quarter, AirGate reported total revenues of 89.3
million and for the one year period, we reported total
revenues of 331 million point three.
As for net income, AirGate reported a net loss of 7.8
million for the three months ended September 30, 2003 and
for the year period, the company reported a net loss of 42.2
million.
In regards to revenue and ARPU and getting into a little
more of the detail, of the 89.3 million of total revenues we
reported for the quarter, 66.5 million was from service
revenue, 19.6 million from roaming revenue and 3.2 from
equipment revenue.
Of the 331.3 million of total revenues we reported for the
year, 251.5 million was from service revenue, 68.2 million
from the roaming revenue and 11.6 million from equipment
revenue.
In regards to the ARPU, as for the average revenue
prescriber (sic) excluding roaming, this statistic came in
at $61 compared with 60 for the third fiscal quarter of
2003.
MRC was up more than a dollar due to both from increases in
MRC voice plans as well as the increased penetration of data
services. Despite a small contraction in our subscriber
base, the absolute dollars from MRC increased during the
quarter and I think truly represents the value of the new
customers.
Furthermore, revenue from the quarter included a 1.9 million
special settlement from Sprint.
For the year, ARPU was $60 compared to 61 for the prior
year.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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The ratio of inbound traffic to outbound traffic was 1.37 to
one during the fourth fiscal quarter compared to 1.43 to one
at the prior year's quarter. This is an increase from 1.34
to one in the third quarter of 2003.
Fourth, going on to operating statistics, CCPU or cash cost
per user was $52 for the fourth fiscal quarter compared to
$62 reported in the prior year's quarter. These improvements
were the result of change in roaming rates among Sprint
related companies, lower bad debt expense in telco costs as
well as head count reductions.
For the year, cash cost per user was $50 compared with 59
reported a year ago.
In regards to CPGA or cost per gross addition, this was $403
for the quarter compared to 505 in the year ago quarter. We
continue to spend our sales and marketing dollars more
wisely with advertising and promotions and have closed the
lowest productivity stores over the last year which lowers
our recurring sales cost.
Furthermore, as we have pointed out before, I will note that
while we are decreasing our CPGA year over year, we are also
increasing our proportion of prime gross adds as a
percentage of total gross adds.
For the year, cost per gross addition was $364 compared with
387 a year ago. EBITDA for stand-alone AirGate was 15.3
million for the quarter, an increase of 21.5 million over
the prior year's level of a loss of 6.2 million.
For the year, EBITDA was 46.8 million compared to a loss
last year of 16.7 million.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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In regards to cap ex, cap ex in the three months ended
September 30, 2003 totaled 7.1 million compared to the 9.1
million in the quarter last year. Because the network has
been upgraded to 1X technology, incremental cap ex has been
minimized in spite of the significant increase in traffic
over the network from last year.
The cap ex during the quarter related to increasing switch
capacity and adding channel elements to our base stations to
further improve network performance.
While during 2003, we added only 12 cell sites, we
anticipate adding in the neighborhood of 30 cell sites
during 2004.
For the year, cap ex was 16.1 million versus 41.3 million
during 2002.
And on to the balance sheet.
Looking at our balance sheet, the company had $54.1 million
in cash and cash equivalents at September of 2003, an
increase of 23.3 million from the prior quarter and an
increase of 4.9 million from September 30, 2002.
During the quarter, we drew down the remaining available $9
million under our credit facility. During the year, we
increased cash and cash equivalents by 49.2 million.
The increase over the year is primarily attributable to 10.5
million from ongoing Sprint special settlements, 39.7
million from other operating cash flow activities and 17
million in additional borrowings offset by 16 million in cap
ex and $2 million in payments under the credit facility.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
Page 12
At the end of the quarter, some other events have happened
that I would like to touch on.
First, in regards to the amendments in our credit facility,
AirGate entered into an amendment to its credit facility on
November 30, 2003. Certain changes are effective and are
used in determining compliance with financial covenants for
periods ending December 30, 2003 and thereafter.
These changes clarify certain ambiguities and modify the
definition of EBITDA and the period for calculating for
purposes of complying with financial covenants under the
credit facility. We expect these changes to help us in
complying with our financial covenants for the next 12
months.
Under the amendment, AirGate is required to prepay $10
million of principal on the date the restructuring is
complete. Of this prepayment, 7.5 million will be credited
against principal payments otherwise due in 2004 and 2.5
million will be credited against principal payments
otherwise due in 2005.
AirGate and my willingness to prepay is an indication of our
confidence in our ability to continue to generate cash as we
have in the last year.
Other changes are not effective unless the restructuring is
complete. With this amendment, the company believes it will
meet its debt covenants for 2004.
I want to take a moment to acknowledge the efforts of and
provide a thanks to Lehman Brothers in working with the
banks as well as thanking the banks themselves in reaching
this amendment. They all showed a strong knowledge of our
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
Confirmation #215156
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business as well as the challenges we face. The result was
the banks representing 84% of the amounts outstanding under
our credit facility agreed to the terms of this amendment.
To help us confront the challenges we face, the banks have
demonstrated flexibility in providing us breathing room when
necessary so we can pursue efforts that we believe
ultimately create more value for all parties.
Specifically, we believe the carve outs of the EBITDA for
covenant purposes were startups related to our outsourcing
of customer service as well as expenses related to
negotiating with Sprint will enable AirGate to pursue path
that we would have been hard pressed to pursue without such
carve outs.
The banks have been very supportive of our goals and I look
forward to a continued good working relationship with them.
In regards to wireless local portability, as appears to be
consistent with the experience of most other wireless
operators, it appears that WLNP has not had a significant
effect on our business in the approximate 35% of our markets
in which it was implemented in November 24. It's almost
seemed like the Y2K of 2004.
To date it appears that the levels of port ins and port outs
are quite a bit lower than most analysts have thought and
consultants had expected. Having said that, it is still too
early to predict the full effect of WLNP going forward.
In regards to Sprint and the roaming rate announcement, on
December 4, 2003, Sprint notified us of their unilateral
decision to reduce the reciprocal roaming rate to 4.1 cents
per minutes of use in 2004.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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To provide a frame of reference on how this would have
impacted our financials for the entire fiscal 2003, if such
a rate had been in place then, we estimate it would have
increased our net losses by $4.3 million.
As many of you are aware, two other public PCS affiliates,
Alamosa and UbiquiTel have accepted offers from Sprint
related to locking in roaming rates amongst the Sprint
family that are higher than the 4.1 cents imposed on AirGate
as well as service (unintelligible) fees lower than what
AirGate is presently being charged for the next three years.
I suppose many investors wonder why they have not seen an
agreement between AirGate and Sprint.
Now with our year end audit out of the way, the S-4
complete, the credit facility amendment squared away and
some of the recapitalization work completed in moving the
finance group to Atlanta, we will be able to focus more
intently on pursuing how to best maximize our long term
value with respect to the potential to outsource customer
care and billing and our relationship with Sprint.
We are still examining all alternatives and will pick the
best one at the appropriate time.
In regards to the audit opinion, in connection with the
audit of our year end financial results, KPMG, our
independent auditors included an explanatory paragraph for
going concern in their audit opinion with respect to the
fiscal 2003 financial statements.
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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Such a paragraph would result in a default under our credit
facility. We have obtained an amendment to our credit
facility to permit this paragraph and to prevent a default
under the credit facility.
The audit process was very complicated and took longer than
expected due to a few issues. The single biggest issue was
the treatment and related treatment of iPCS that I alluded
to in the beginning.
The company and its auditors and the SEC all had to struggle
through the issues about how to account for iPCS. While at
the end of the day, it is the subsidiary with no recourse to
AirGate and zero cash impact, it's amazing the amount of
accountants it took to figure out and to pay the accountants
for something that had a zero cash impact to the company.
It nonetheless needed to be resolved so that it could be
accounted for properly according to GAAP and the new law. We
have made significant strides in improving our settlement
process with Sprint in getting a better grasp of the data we
receive from Sprint. Furthermore, Sprint has stepped up and
improved its dissemination of (dated) AirGate regarding our
subscribers. I would like to thank the people at Sprint who
have worked with us on improving access to data about our
subscribers.
In regards to the recapitalization, I'd like to now address
the proposed recap plan and the contemplated timing. In
order to launch the Exchange Offering Schedule of
Shareholders Meeting, we must complete the SEC review
process.
By finishing our year-end audit and filing our 10-K, we
certainly were way ahead of where we did this last year.
We've cleared a major step needed to complete the SEC review
process. Once the SEC review process is complete, we will
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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announce the launch of the Exchange Offer, which must remain
open for 20 business days after we launch. We plan to set
the Shareholder Meeting date for the same date the Exchange
Offer expires.
Lastly, I'd like to thank the bondholders for their
continued strong support and for hanging in there with us.
With that, I'd like to turn the call back over to the
operator. Operator, we're now ready to take questions on the
call.
Operator: Thank you, sir. If you would like to ask a question on
today's call, you may do so by pressing star 1 on your
touchtone telephone. Again, to ask a question, you may do so
by pressing star 1 on your touchtone telephone. If you are
on a speakerphone, please make sure your mute function is
turned off until I re-signal to (return) equipment. Once
again, that is star 1 to ask a question.
We'll take our first question from (Mark Duresi) with
Raymond James.
(Mark Duresi): Hi. Good morning.
Thomas Dougherty: Good morning.
(Mark Duresi): A couple questions about the Sprint reciprocal
rate. I guess first of all, what percentage of your roaming
revenues is coming from Sprint customers?
Thomas Dougherty: Something in excess of 90%, it's probably about 93%.
(Mark Duresi): Okay. And how - is - do you have a timeframe for
how long that new rate would be in place? In other words, is
there another scheduled step-down, as you know?
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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Thomas Dougherty: Well, Sprint has exercised an annual review of this.
(Mark Duresi): Okay.
Thomas Dougherty: They have said that this will be the rate for the
year 2004, calendar year 2004.
(Mark Duresi): Okay. Okay. And then changing topics, could you
just clarify where you stand and what your strategy is in
terms of potential outsourcing of some of the, you know, the
back office and other functions that are being performed by
Sprint? Have you guys decided definitively that you're going
to pursue the outsourcing? Could you just kind of clarify
what your position is there?
Thomas Dougherty: We'll be able to clarify much more for you once
this bond deal is done exactly what we're going to do. The
rate at which we are evaluating these has to be somewhat
inhibited by my participation in the transaction.
But we have three good options on the table and we're
evaluating the Sprint proposals alongside those three
outsource options. I will address this as quickly as I can
for the simple reason that, you know, there's money to be
saved and there's strategies to be implemented as soon as
the decision is made.
But quite frankly, I'm - it's me more than anything else
that this has slowed us down. We're doing just fine on the
making the evaluation though.
(Mark Duresi): Okay. Thank you.
Thomas Dougherty: We do have a - just one last thing I will say is
that while we have quite a bit of information from the three
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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outsourcing candidates, we're lacking a little bit of
information to finalize our determination about the Sprint
alternatives. And as soon as we get back and we get the
three of them put together, we'll be in a good position to
make a decision.
(Mark Duresi): Okay.
Operator: We'll take our next question from (Pat Nyson) with Credit
Suisse First Boston.
(Pat Nyson): Good morning.
Thomas Dougherty: Good morning.
(Pat Nyson): Just a follow-up on the previous question. As far as
the Sprint deal is concerned, to what extent is your
thinking altered by the announcement they made earlier this
week in relation to the converges billing relationship in
which they expect to see their number was cash operating
expense savings of $100 million in 2004?
And then additionally, just as far as - it sounds like once
you complete the bond restructuring, then you'll have a
definitive determination as to directionally where you're
going to outsource or to take the Sprint deal. But if you
were to outsource, how with the - your thinking on timing as
to when you would be able to fully implement the outsourcing
relationship?
Thomas Dougherty: Well, outsourcing timing, just so we can be clear
about this, there are - there is - everyone of the
outsourcing candidates has their own timetable for
implementing it but it would probably take somewhere in the
range of three to six months to actually implement the
AIRGATE PCS
Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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changes that are necessary. We're also dependent on Sprint
opening up some of their systems to us in order to make that
implementation as quickly as possible.
In terms of the billing system changes that the way that
Sprint was going about it, I think it does make it easier
for us to evaluate because we know what the current billing
system can do. It makes us easier - it easier for us to
understand what Sprint is offering. It does not, however,
impact us directly in the financials because while Sprint
may be saving money, there's nothing that they have
indicated to us since that publication that they would pass
those savings on to us.
(Pat Nyson): Okay. I guess I'm not surprised. Okay. And then -
and just as far as on the operational basis, William talked
about the fact that churn has improved from the September
quarter, you saw improvements in October and November. So
kind of away from LNP, what would you attribute the improved
churn to? And can you give us a sense of kind of the
magnitude of the improvement that you see?
Thomas Dougherty: Well, the improvement obviously is at least
partially attributable to the higher quality of our customer
base. And what we have seen is that the greater number of
prime customers, if we can satisfy their needs, there's no
reason to think that they will not only be satisfied with
the service but also will pay their bills.
But the - projecting forward, I think there are a number of
things that will determine our future churn rate, not the
least of which is the positioning of the Sprint brand within
the marketplace and having the future performance of
customer care and our network bring high quality
subscribers, high quality service so that we can reduce our
churn.
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Moderator: (Drew Anderson)
12-19-03/8:00 am CT
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I don't see any one event that is going to bring increased
churn and I don't see any one event that is going to
dramatically decrease it until we have a better handle on
this customer carriage.
(Pat Nyson): Right. Okay. And then I guess just finally on the
LNP, you talked about the fact that the porting requests
both in and out are lower than expected which is always in
consistence with - from some others but could you
characterize what - as to whether you are a net beneficiary
or do you see something net (loser) just even in those lower
amount of port requests?
Thomas Dougherty: Yeah. In the lower number of ports that we have,
I would describe us, as more or less, balanced in our ports
in and ports out.
(Pat Nyson): Okay. Thanks a lot.
Operator: We'll take our next question from (Sam Martini) with (Caubo)
Capital.
(Sam Martini): Hey, Will, how are you?
William Seippel: Oh, pretty good, (Sam).
(Sam Martini): What's - I just - you can't give any better color
on churn for October/November? I mean the directional trends
sound like it's sort of in a steady state but you indicated
it was better. You can't - to follow-up to the past question
on the magnitude you can't give us anything there, a solid
number?
William Seippel: We can't be any more specific, (Sam), than what
we've already provided in the documents. We have to be very,
very cognizant that we're in an offering period.
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(Sam Martini): Fair enough. Can you give me what bad debt was for
the quarter then?
William Seippel: Three point four.
Thomas Dougherty: The quarter ended September 30th...
William Seippel: Three point four percent.
(Sam Martini): Three point four percent.
William Seippel: And as I noted that one of the great beneficiaries
of these prime customers is that the bad debt rate goes
down, your receivables come in which they have marketably,
you end up with more lines per account and I think five more
of the add-on products. I mean it's a, you know, you see a
real strengthening of the financial position of the company
even though the customer base has not grown dramatically.
(Sam Martini): Right. And then finally, some of the - there was a
trend in the last quarter with people discussing Sprint
pricing plans being a bit off market, do you think that
Sprint's plans are now better suited to what your customers
want? Are you seeing that reflected in, you know, absent
some of the noise that we're seeing in your, you know, your
gross adds, etc.; are you seeing more favorable feedback to
the way Sprint is pricing their plans, things that are out
of your hands, that is?
Thomas Dougherty: Sprint has offered some new plans that are
particularly attractive to families and they've offered some
very attractive handsets and continue to offer a vision
product that is probably the best in the industry in terms
of data and voice combination. Additionally, there's a new
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product out -- Push-To-Talk. So all of those things have
helped to enhance Sprint's position in the marketplace. It
leaves them much more attractive from a customer's point of
view than they were say three or four months ago.
(Sam Martini): And what's your overlap with Nextel or Nextel Partners?
Thomas Dougherty: Nextel Partners has a much smaller footprint than
we have in our territory. Nextel is not in our territory.
(Sam Martini): And you don't have - is it 25%, 30%, 70%, I mean...?
Thomas Dougherty: You mean the overlap?
(Sam Martini): Yeah. I mean where - if you look at Push-To-Talk,
I mean it's becoming more - it's becoming at least somewhat
more commoditized but, you know, if Nextel is soon to be the
leader, what's your - can you just give a rough overlap with
- on an op basis on...?
Thomas Dougherty: Yeah. I'll - without seeing their footprint here
in front of me, I would estimate that we probably - they
have a footprint that's roughly 60% of our footprint.
(Sam Martini): Okay, guys. Good luck. Thanks.
Thomas Dougherty: Thank you.
William Seippel: Thank you.
Operator: We'll take our next question from (Mark Bishop) with The
Boston Company.
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(Mark Bishop): Yeah. Hi. I just wanted to clarify where you stand
with PCS right now? You mentioned that they've told you
about the new roaming rates. So you're still in discussions
with them concerning the customer service and so they've
told you this new roaming rate. But like Alamosa has settled
with them for a much better roaming rate for the next year.
And is the thought that this proposal on the table that you
could take the same rates what they've given to everyone
else as well as take their customer service or else you can,
you know, accept this other roaming rate that they're
talking about, you know, and go find your own customer
service or something in between? Is that kind of where your
discussions are?
Thomas Dougherty: I think you summed it up pretty well. Sprint has
offered an alternative to us that, you know, is very similar
to what Alamosa and I believe UbiquiTel have agreed to and
they've offered us that and this reduced roaming rate with
Service Plus that we don't yet have the total service costs
scheduled for 2004.
But until we see that and we see the - all of the other
options that we can pursue, it's very difficult to make a
final determination. I would expect sometime in January we
will see the prices for the other services for Sprint when
they publish their annual price for services.
(Mark Bishop): Services meaning customer service?
Thomas Dougherty: Customer service for, you know, things like
national platform, all that sort of thing; they publish
those once a year and we would expect to see those in the
new year.
(Mark Bishop): Okay. Great. Well, thank you.
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Operator: We'll take our next question from (Marion Pablus) with CTR -
CRT.
(Marion Pablus): I actually had a question on the projections in
your recent S-4. Is there anything going forward that you
should be adding back to the EBITDA? Can this contain any
charges that could be considered a one-time and anything
that happened related to the recent Sprint roaming rate
adjustment, anything like that?
William Seippel: No. We looked - I will say that we look at EBITDA
in two fashions; one is the carve-outs we're allowed to take
from the bank in regards to any costs incurred with the
negotiations with Sprint as well as the financial
restructuring charges that are related to the deal that
we're in the middle of. And those, you know, we had some of
those in the fourth quarter.
But, you know, looking at the model in the S-4, that
certainly has taken into account Sprint lowering the travel
rate to us. And certainly, if we are able to get them to be
more gracious in the number for next year, it could be
upside to the plan.
(Marion Pablus): Okay. Thank you.
Operator: We'll take our next question from (Mike Rollins) with
Citigroup Smith Barney.
(Mike Rollins): Hi. Good morning. I have a quick question on the
mix of customers. I've observed in the last month or so,
you've picked up the advertising as a franchise family plans
and I was wondering how that's effecting gross adds? What
kind of mix you expect from family plans? And is that also
affecting the percentage of customers that are coming on as
prime versus sub-prime?
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Thomas Dougherty: Let me answer the last question first. In order
to qualify for multiple phones, people have to have a fairly
decent credit rating. So we're getting something in the
order of magnitude of a 20% take rate on the multiple phone,
you know, family plan, if you will, and those people are
virtually all good credit class.
(Mike Rollins): And then the mix of family plans in your gross adds?
Thomas Dougherty: I said I think we have about a 20% take rate on
the multiple phone, you know, the family plan where we would
expect that to, if anything, as we get closer to Christmas,
to increase a bit. But, you know, probably it won't increase
much beyond say 25% or 30% in our - in the coming weeks.
(Mike Rollins): And is that enough to affect ARPU in terms of the
promotion since - is it free for a few months?
Thomas Dougherty: Yeah. The first couple of months, the ADA phone
is free. But when you look at it over the life of the high
credit quality customer, it is not significant. And the ARPU
actually improves as you go forward because believe it or
not, the bundle of minutes is usually, you know, as people
get more and more addicted to the service, there could very
well be an overage or people assign themselves a higher MRC.
So we're actually pretty happy with this - the results so
far.
(Mike Rollins): Thanks very much.
Thomas Dougherty: Thank you. Operator, I think we should probably
take one more call, one more question, and then that should
be enough.
Operator: Our last question comes from (Antone Aniss) with Morgan
Stanley.
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(Antone Aniss): Hi, guys, thanks for taking the question.
Thomas Dougherty: Hi, (Antone).
(Antone Aniss): Most of the, you know, key questions have been asked
but just curious, I think you mentioned that Sprint had
offered you a very similar deal to the one they cut with
Alamosa and UbiquiTel and if I think back to the Alamosa,
you know, the Sprint affiliate amendments, those were
predicated upon the balance sheet restructuring.
So I'm curious if there are any contingencies with respect
to, you know, the deal that's been maybe willing to extend
to you, you know, as far as your own balance sheet
de-levering and issues are concerned?
And the second just quickly for Will, I could probably get
this you're your K, but if you don't mind just walking us
through the, you know, $14 million of cash build net of the
drawdown on the bank facility? That would be helpful.
Thanks.
Thomas Dougherty: The - I'll take the short one and then Will can
take the long one, how's that?
William Seippel: Sounds good.
Thomas Dougherty: Sprint has made offers to the Sprint affiliate
that I believe all of us have a requirement to have our
balance at a place that's somewhat better than it was some
time ago. So I'm sure that our recapitalization will make
Sprint more attractive to us and want to make our offer even
more attractive than it is today.
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Will, do you want to answer the question about the - maybe
you could restate the question, if you don't mind?
(Antone Aniss): Oh, sure. I think your cash build in the quarter was
about $23 million and that included a $9 million drawdown in
the bank facility. So I'm just curious if you could quickly
walk us through the $14 million of cash build? I'm assuming
that included $1.9 million from Sprint settlements, right?
William Seippel: Largely, the increased cash which was kind of
impressive since we accelerated our cap exs, if you noticed
that we had a lot of pent-up demand were cap ex in the field
because we had managed it so tightly during the year, that
ongoing operations was extremely strong. There was some
provided through working capital. And I think that's pretty
much it if you look at the fact that fourth quarter, our
calendar year, our first fiscal quarter is usually a quarter
when cash goes out due to taxes, due to buying up of
inventory.
And the third calendar quarter is usually the largest build
for us just with the timing of items, both from working
capital and in regards to the company of ongoing operations
with payments coming through from roaming and things like
that, you know, with the summer seasons at the beach and so
you can see it come through well in operations. But it's a
nice pop usually in the third calendar quarter or our fourth
fiscal quarter.
(Antone Aniss): Right, from a foreseeable (unintelligible). And, you
know, I'd like to think...
William Seippel: We're...
(Antone Aniss): I'm sorry.
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William Seippel: We're real pleased with the cash position and, you
know, start - it was actually our idea in dealing with the
banks to give them the $10 million early assuming the deal
closes.
(Antone Aniss): Okay.
William Seippel: You know that was not at the bank's request; that
was our idea, just to lower our interest expense.
(Antone Aniss): I'm sure they did not protest.
Thomas Dougherty: Okay.
(Antone Aniss): All right. Thanks so much.
William Seippel: All right.
Thomas Dougherty: Thank you. Operator, I think that pretty well
finishes up. I'd like to thank all of you for participating
on the call today and we look forward to moving ahead with
our recapitalization plan and improving the metrics of the
company even further so that we can provide more and more
value to both our debt holders and our equity holders in
2004. Thanks again for being on the call.
Operator: This does conclude today's conference call. At this time,
you may disconnect.
END