iPCS Inc. Q3 2008 Earnings Call Transcript

iPCS Inc. (IPCS)

Q3 2008 Earnings Call Transcript

November 4, 2008, 11:00 am ET

Executives

Michael Polyviou – Financial Dynamics, IR

Tim Yager – President and CEO

Conrad Hunter – COO and EVP

Steb Chandor – CFO and EVP

Analysts

Rick Prentiss – Raymond James

Jonathan Schildkraut – Jefferies

Ana Goshko – Banc of America Securities

Todd Rethemeier – Soleil Securities

Christopher Taylor – Evergreen Investments

Gerard Hallaren – JRPG

Presentation

Operator

Good morning. My name is Tina and I will be your conference call operator today. At this time, I would like to welcome everyone to the iPCS 2008 third quarter earnings conference call. (Operator instructions) Thank you. Mr. Polyviou, you may begin your conference.

Michael Polyviou

Thank you, Tina, and good morning, everyone. Thanks for joining us to discuss iPCS’s results for the third quarter ended September 30, 2008, which were announced in a press release issued earlier this morning. If you do not have a copy of iPCS’s press release or Presentation, a copy can be found on the company’s website, at www.ipcswirelessinc.com. Please note that a replay of this call will be made available later today. The details are set forth in the press release.

Before I turn the call over to Tim Yager, the President and CEO of iPCS, I have a few housekeeping matters to go over. Let me remind everyone that management’s discussion this morning will likely contain forward-looking statements, which statements often include words like believe, expects, plans, anticipates, intends, projects, estimates, may, might, would, or similar words. 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 any information currently available to management.

A variety of factors could cause actual results to differ materially from those anticipated in iPCS’s forward-looking statements. For a detailed discussion of these factors and other cautionary statements that could cause actual results to differ from those described in management’s discussion, please refer to iPCS’s filings with the SEC, particularly, the Risk Factors section of iPCS’s Annual Report on Form 10-K, as such section may have been updated with subsequent filings with the SEC.

Investors and analysts should not place undue reliance on forward-looking statements. In addition, management will discuss certain non-GAAP financial measures. Please refer to iPCS’s press release for a reconciliation of these non-GAAP financial measures configured and derived using GAAP. Now, I would like to turn the call over to Tim Yager, President and CEO of iPCS. Tim?

Tim Yager

Thank you, Michael. I would like to welcome everyone to our earnings call this morning. I’m joined today by Steb Chandor, Executive Vice President and Chief Financial Officer, and Conrad Hunter, Executive Vice President and Chief Operating Officer.

To begin, iPCS had approximately 72,000 gross additions during the quarter compared to about 68,000 for the prior year quarter. Gross adds this quarter compared to 2007 were favorably impacted by our September launch of Nextel Direct Connect using the QChat technology in Western Michigan, and an increase in Nextel port ends. Net subscriber additions were approximately 20,000 for the quarter, about twice the amount for the same period 2007. Net adds were higher due to the increase in gross additions, lower churn of 2.3% versus 2.8%, and increased net transfers of Sprint customers to our markets.

Our ending sub base for the quarter was approximately 80% prime, up from 78% in the year ago quarter. We reported adjusted EBITDA of $20 million for the third quarter after adding back $5.3 million of Sprint-related litigation expenses. This is a decrease from the similarly adjusted EBITDA in 2007 of $28 million.

We were disappointed with these results, as they are significantly below our outlook due to a number items that moved against us. Specifically, we saw higher than expected customer care credits and lower bad debt recoveries in addition to higher roaming expense.

Customer care credits, typically given to address customer satisfaction issues, have reached historically high levels. These credits were more than $4 million higher in the third quarter compared to last year. Furthermore, although we believe these credits would moderate in the third quarter as compared to the second quarter, they actually increased by more than $2 million.

Overall, ARPU for the quarter was negatively impacted by about $2 due to these higher customer care credits versus the same quarter last year. Customer care credits have been a subject of numerous discussions with Sprint, as they manage our customer care process.

Bad debt expense for the quarter was higher than anticipated, and was driven in part by very low recovery rates of written off accounts we have experienced since our migration to Sprint’s ensemble billing system. The coverage which has historically run 300,000 to 400,000 a month declined to less than 100,000 a month during the third quarter.

Our recovery rate trend is countered to our lower gross write-offs and lower involuntary churn rates. As with the customer care credits, we’re discussing this negative trend with Sprint.

Roaming expense, particularly related to carriers other than Sprint, has grown significantly, primary as a result of subscriber plans that include unlimited roaming. Approximately half of our subscribers are now in plans which include unlimited roaming; and as this percentage increases, we may see continued use of off-network minutes and kilobytes. We believe that the additional towers that we’re launching should have a positive impact on roaming expense.

Our network continues to perform very well, and we have invested significant capital this year to further expand our footprint, capacity and EVDO Rev A coverage. The rate of development of EVDO Rev A during the first nine months of the year has allowed us to cover over 7 million pops, a milestone that has allowed us to receive another $0.15 reduction to our Sprint CCPU fee.

This reduction, which was effective August 1st, reduced the current CCP rate of $6.35 to $6.20 per subscriber. You will recall that during the second quarter, we reached an earlier milestone of over $6 million EVDO Rev A covered pops, which gave us a $0.15 reduction beginning July 1st. Achieving both these milestones during 2008 gives us a combined $0.30 reduction in our Sprint CCPU fee and allows us, along with the contractual step down, to begin 2009 with a Sprint CCP rate of $5.85.

Additionally, we completed the build out of our network in Grand Rapids markets to match the iDEN coverage so that we could launch QChat. We began that service in early September and have seen good initial results. We are evaluating these initial results to help determine our 2009 implementation plans.

While we continue to work with Sprint to address certain negative trends in our business, we remain committed to improving the company’s operating and financial metrics. We will continue to enhance our network capacity and coverage and improve the customer experience to reduce churn.

We’ll continue to focus on increasing ARPU through sales of high value rate plans such as Simply Everything, and we’ll be closely watching the economic conditions in our markets and the impact of a worsening economy on our business.

On this latter matter, while we are pleased with our reduction in credit-related involuntary churn during 2008 as a result of our credit tightening last fall, we believe additional tightening is warranted. As a result, we have adjusted credit scoring matrices in many of our markets in November.

This additional measure will assist us in our efforts to further reduce involuntary churn and lower our bad debt expense. While we recognize somewhat slower gross additions, we believe that it is prudent course of action in this challenging environment. I would now like to turn the call over to Conrad to provide additional detail on the operations and business. Conrad?

Conrad Hunter

Thank you, Tim, and I’m pleased to report that our sales initiatives and network operations continue to improve and we see growth opportunity in the markets we serve. During the third quarter, we completed several significant initiatives such as the recent milestone of having over 7 million coverage EVDO Rev A pops, which will go towards reducing our CCPU cost operations.

Successfully launched Nextel Direct, or NDC, in our Grand Rapids, Michigan market; built 57 new cell sites for improved and expanded voice coverage in select markets, and now cover in excess of 12.4 million pops in our territory.

Craig Kinley resigned as our Senior VP of Networking Operations and Engineering, and we have replaced him with David Zylka. David was a Chief Technology Officer of UbiquiTel, a former Sprint affiliate, and we are excited to have him on the team.

Successfully prepared our company-owned retail stores for the launch of Sprint’s Ready Now services, and upgraded three additional company-owned retail locations to the Gemini store format.

Our conversion to ensemble was completed during the second quarter, and we are continuing to pursue a better understanding of how it’s impacting our current customer base and how to use it to better manage our customers’ expectations.

As Tim said earlier, we are having substantial increases in customer care credits, and we are working with Sprint to understand why this is happening. We continue to focus on improving our channels of distribution by adding exclusively branded Sprint dealers that are customer-centric, and who have the proper local leadership resources in our market.

We ended the quarter with 107 of these doors, and expect to add eight more prior to the holiday selling period. A special note, we’ve signed on a major new dealer who will open several locations in our markets over the next several months. This new partner has a proven record of sales growth and exceptional customer service.

We have a total of six company-owned stores which have been upgraded to the Gemini format; and by the end of the fourth quarter, we’ll have eight of our 40 plus locations completed. This new format provides a customer-centric experience and has given us the ability to provide much improved hands-on demonstrations of our data services via laptop air cards.

Speaking of data products and services, we experienced sales growth of 26% in a number of data cards sold during the third quarter over our second quarter. We remain committed and focused on selling this broadband wireless functionality as a competitive advantage in the markets we’ve serve.

We continue to see positive adoption by our national Best Buy dealers in promoting Sprint data cards and the Instinct handset for the quarter. Smart Phone devices such as the Instinct, Blackberry Curve, and the Central [ph] are becoming a more dominant part of our handset mix.

Late in the quarter, we began the process of preparing all of our company-owned retail locations for the implementation of Ready Now, which they have programmed to better train, educate and equip customers to use all of Sprint’s NOW network functionality and allow a better user experience with all of the Smart and EVDO cable devices. We will launch Ready Now in the fourth quarter, which will support the ongoing activities we have to better train and educate our associates and customers, which should impact churn in a positive fashion.

We continue to see success in Sprint’s Simply Everything plans during the third quarter, and it is having an impact on our sales behavior, as our associates are now leading with this plan in a majority of our sales transactions versus the lowest price point promotion.

Customers are seeing the value, and with the increased interest in smart devices, this is a compelling plan for families, small business, and those who want to cut the land line cord.

Focus on the customer’s experience, selling value and improving ARPU remain on the top of our priorities and our base MRC should benefit as a result of these actions. As Tim discussed earlier, though, we’re seeing that improvement eroded by the granting of significant customer care credits, which is offsetting the improvements we’ve made in selling and offering higher end rate plans and add on services.

On the customer retention front, we have seen significant improvement in our churn from Q3 of 2007 of 2.8% to Q3 of 2008 of 2.3%, a significant improvement in light of a major billing conversion, a deteriorating economy and the launch of AT&T’s iPhone. We saw significant increases in our customer upgrade transactions and believe this bodes well for future churn reductions and improvement in overall customer satisfaction.

Finally, on our capital plan to build between 160 and 180 new cell phone this year, continues on pace with 57 new cell phones built in Q3 and 127 year-to-date. As stated earlier, we achieved over 7 million covered EVDO Rev A pops and we have seen a 12.4 million covered pops for the quarter.

We successfully launched QChat, Sprint’s CDMA Nextel Direct Connect service in our largest market of Grand Rapids, Michigan in September. We were seeing positive acceptance of the new service with just a marketing soft launch.

In conjunction with NDC, we launched several new handsets provided by Sanyo, Samsung and LG. Customer feedback from the Nextel Direct Connect users have been positive in Grand Rapids, and we are evaluating the early results of our Grand Rapids launch to determine if and where our future launches are warranted. We remain determined to build out a best-in-class network for both voice and data, dramatically improve our customers’ network and service experience, pursue profitable growth, and maximize our operational relationship with Sprint.

We are aggressively promoting Simply Everything rate plans, Ready Now services and our mobile broadband data devices and services. These efforts should reduce churn, improve voice and data ARPU and drive shareholder value in the long-term.

I remain pleased with the progress we have made on several fronts and I am excited about the prospects for iPCS for the remainder of the year. I would now like to turn the call over to Steb for a look at our financial metrics.

Steb Chandor

Thanks, Conrad. IPCS ended the quarter with 674,400 subscribers in a covered pop penetration rate of approximately 5.5%, representing a year-over-year growth of 8.4% in our ending subscriber base. We ended the third quarter with approximately 256,000 reseller subscribers in our territory, essentially flat from last year.

As Tim intentioned, growth additions for the quarter were approximately 72,000, up from 68,000 for the same period last year, due to an increased number of controlled doors, an increase in Nextel port ends and the early success of the Nextel Direct Connect service in Western Michigan. Churn, net of 30 day deactivations for the quarter, was 2.3%, down about 50 basis points from the year ago period and flat to the second quarter.

While voluntary churn remained unchanged for the quarter compared to the prior year quarter, involuntary churn decreased as the credit quality of our subscriber base continued to improve. Total revenue for the quarter was $132.1 million compared to $142.1 million for the prior year quarter.

However, it is important to note that beginning on January 1st of this year and per the terms of our amended agreements with Sprint, we no longer receive revenue from Sprint for 3G data roaming. Adjusting third quarter 2007 results by removing this revenue yields pro forma revenue of $129.3 million, resulting in year-over-year comparable growth of just over 2%.

Adjusted EBITDA after adding back the Sprint-related litigation expenses for quarter of $20 million was substantially below the $28 million for the same period last year. As Tim has already shared, a number of items negatively impacted our results, most notably higher than expected customer care credits, bad debt expense and roaming expense.

ARPU, excluding roaming for the quarter, was $48.31, down from $49.78 in the year earlier quarter but essentially flat from the second quarter’s 48 and 44.

Compared to the prior year quarter, an increase in MRC and overage was offset with lower late fee revenue and the previously discussed increase in credits. Data ARPU for the quarter is estimated at $13.53, and this compares to the prior quarter of $12.28 and the prior year quarter of $10.28.

For the September quarter, cash cost per user, or CCPU, excluding roaming and litigation expense, was $31. Compared to the prior year quarter, CCPU was down almost $2, primarily reflecting lower CCPU fees paid to Sprint.

Bad debt expense for the quarter was $5.6 million, down from $7.3 million in the year earlier quarter, but higher than the $4.8 million incurred in the second quarter of this year. As Tim mentioned, we have seen a sizeable decrease in bad debt recoveries during the quarter. The current quarter had approximately $200,000 in recoveries compared to just over 900,000 in the prior year quarter.

Total CCPU, which includes roaming expense, was $44 for the quarter, down from $47 for the prior year quarter. The year-over-year decrease primarily reflects the elimination of data roaming expense we pay Sprint, which contributed about $4 of the year ago CCPU, somewhat offset by the higher roaming expense.

Our roaming ratio with Sprint, which again no longer includes any 3G data roaming, was 1.6 to 1 for the quarter, equal to that of the prior year quarter. Although the ratio was unchanged year to year and is higher than in Q1 and Q2, overall roaming margin was negatively impacted by higher roaming expense with carriers other than Sprint.

Although we expected to see a seasonal increase in roaming during the third quarter, the increase in both voice and data expense was more pronounced than expected.

As Tim mentioned, this is due in part to the overall increase in subscriber plans containing a roaming inclusive feature. We also continue to monitor the overall roaming trends to gauge the impact of the worsening economic conditions.

Our cost per subscriber acquisition or CPGA, for the third quarter was 374, up from the prior year period of 358. While fixed costs per subscriber decreased due to the higher gross adds compared to the year ago period, increases in variable costs, primary equipment subsidy and commission expense during the quarter, offset this decrease.

Our reported net loss of $7.5 million for the third quarter was up from $2.4 million in the same quarter last year due in large part to the $4.9 million in incremental Sprint-related litigation expenses period over period.

Capital expenditures for the third quarter totaled $11.4 million compared to $5.6 million in the year ago period and was at $52.8 million for the first nine months of 2008. We still anticipate capital expenditures of between $70 and $75 million for fiscal ‘08.

With respect to guidance, given the current trends in our business, we now believe that our full year adjusted EBITDA will be between $88 and $93 million excluding expenses related to the Sprint litigation. We still expect that our full year 2008 gross adds will be between 250,000 and 280,000.

Lastly, given the uncertainties surrounding the issues we have discussed and the overall economic environment, we are reviewing our previously disclosed 2009 adjusted EBITDA growth rate and intend to provide an updated outlook for 2009 adjusted EBITDA and subscriber activity early next year when we release our full year 2008 results.

Turning to the balance sheet, we had approximately $70 million in cash as of the end of the quarter. The bulk of our cash is invested through a AAA-rated institution and very conservatively invested for the terms of our bond indentures. Please note that our accounts payable at year end was higher than normal and reflected approximately $9 million accrued but not yet paid costs related to the acquisition of equipment for our net work build out.

Accordingly, as we finish our 2008 capital investment in the network during the fourth quarter, we expect that our year-end cash balance will be lower, but still expect it to be at or above $50 million. At the same time, our long-term debt obligations consist primarily of two high yield notes, the first of which matures in five years or 2013. Accordingly, we remain very comfortable with our overall liquidity position, but we’ll continue to closely monitor the overall economy and our business performance and take the necessary steps as appropriate, including the moderation of growth and/or capital and operating expenditures to ensure more than sufficient liquidity. Now I’ll turn the call back over to Tim. Tim?

Tim Yager

Thanks, Steb. Before I turn the call over to the question and answer session, I would like to address our relationship with Sprint.

As you are aware, we received positive news on September 24th from the Illinois Supreme Court in the Nextel case that the Court has refused to hear Sprint’s appeal after the Appellate Court’s unanimous ruling last March that Sprint must cease owning, operating and managing the Nextel network in our territory. Sprint has filed a motion asking the Supreme Court to reconsider its decision, which we expect to be decided during the November session of the Court.

The 180 day time frame for Sprint to cease owning, operating and managing the Nextel network in our territory will not begin until the Appellate Court issues a mandate to lower court, which will not happen until the Supreme Court decides on Sprint’s motion for reconsideration.

As you are aware, Sprint began a new chapter on our litigation on May 7th, when on the morning that Sprint announced its plans for a WiMAX joint venture with ClearWire and others it also filed a complaint for declaratory judgment in the Chancery Court of Delaware seeking a ruling that its proposed WiMAX transaction is not a violation of the three sets of agreements between Sprint and iPCS’s operating subsidiaries.

On May 12th, we filed a complaint in the Circuit Court of Cook County, Illinois, against Sprint, seeking an injunction against Sprint’s consummation of the recently announced ClearWire WiMAX transaction and its plan to compete against us until the transaction is modified to comply with our agreements on the grounds that the joint venture’s operation in our exclusive territory would breach our agreements.

On July 14th, the Chancery Court of Delaware granted our motion to dismiss Horizon Personal Communications and Bright Personal Communications Services, LLC, from the Delaware litigation on the basis that Delaware Court lacked jurisdiction over those operating subsidiaries.

On September 16th, the Illinois Court lifted the stay for iPCS Wireless, Horizon and Bright allowing all three companies’ complaint to move forward in Illinois. The trial has been scheduled to begin in Illinois on December 2, 2008.

On October 8th, the Chancery Court in Delaware agreed to stay the proceedings in Delaware for iPCS, Inc., and iPCS Wireless.

On November 3rd, we filed an emergency motion for a preliminary injunction in the Circuit Court of Cook County, seeking an order preserving the status quo and enjoining Sprint from closing the ClearWire transaction until the Court is able to rule on the merits of our lawsuit.

We expect that the motion will be presented to the Court on Wednesday, November 5th, at which time we’ll ask the Court to set a date for a hearing on the motion.

Beyond our legal battles with Sprint in the courts, I’m disappointed to say that we’re now reviewing several items with Sprint under the dispute provisions of our affiliation agreements related to our level of customer credits, bad debt recoveries, late fees and several other operational and financial items.

In light of our many legal battles with Sprint, as well as our new operational and financial disputes with Sprint, we will not comment further on the progress or status of our relationship with Sprint or the progress of any disputes or legal matters beyond what I have just discussed. We appreciate the ongoing support we have received from our many stakeholders as it relates to our many disputes with Sprint, and you can rest assured we will continue to aggressively defend our exclusivity in operational disputes with Sprint until we’ve reached a satisfactory resolution.

In closing, despite our legal and operational challenges with Sprint, we continue to focus on the long-term value of iPCS. During 2008, we have substantially improved our network, grown our subscriber base and continue to expand and improve our distribution.

Providing we can get our customer care credits and bad debt recoveries back to normal levels and see the benefits of our expanded footprint result in lower roaming expense, we believe that we have positioned the company well for 2009. I would now like to turn the call over to the operator for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss – Raymond James

Thanks, good morning, guys.

Tim Yager

Good morning, Rick.

Steb Chandor

Good morning.

Rick Prentiss – Raymond James

Couple questions. First on the customer care item. Did I write the number down right that it was $4 million higher year-over-year and $2 million higher in the negative revenue quarter-over-quarter, so that was the delta, the $4 million and $2 million?

Steb Chandor

Yes, sir, that’s correct.

Rick Prentiss – Raymond James

Okay, and I guess you would theoretically think that customer care and retention stuff like that, would improve churn, but it really didn’t seem to drive churn down that much. What do you think they’re doing there?

Tim Yager

You know, we’re not exactly sure, Rick. You know, we don’t get as much visibility, I think, as we would like to see on the customer care credits. Obviously, our churn was down year-over-year to the tune of about 50 beeps, which is obviously heading in the right direction and I don’t know, Steb, if you want to add anything further to that?

Steb Chandor

Seasonally, we typically see an up tick in churn in the third quarter from the second quarter we saw if flat to flat.

Rick Prentiss – Raymond James

And then on the QChat product that you launched in early September, I think in the prepared marks in the beginning you talked about porting in Nextel customers. Does that mean Nextel customers in the Grand Rapids area are now all moved over on your network, or just the ones that took a QChat phone?

Steb Chandor

Certainly all of the Nextel customers in the Grand Rapids area have not been moved over to our network. We’re competing Rick, with the Nextel Direct Connect QChat product in the marketplace against Verizon’s Push to Talk product, as well as Nextel’s Push to Talk product. So we’re just another competitor out there. We can tell you that the product from our perspective seems to be working very well. As Conrad said in his remarks, the customer feedback we’re getting has been very positive, and as we said, we haven’t been aggressively advertising. We want to make sure we had the kinks worked out; but just through a soft launch, we’ve had pretty favorable responses to it thus far.

Rick Prentiss – Raymond James

Right, and when you mentioned the port ends from Nextel that was people that kept their Nextel number but bought a QChat phone from you?

Steb Chandor

Well, they may have bought a QChat phone, or frankly, they may have just decided they perhaps didn’t need the Push to Talk functionality and we are ready to switch to the just the Sprint CDMA product. So we’re not necessarily drawing a direct correlation between every customer that migrated or ported from Nextel to iPCS/Sprint was a Nextel Direct customer. There was a mixing of both of those.

Rick Prentiss – Raymond James

Okay and then Sprint has announced recently that they’re going to reinvigorate the iDEN brand, keeping the iDen network, not selling it, and suggested that early in ‘09 they’re going to launch an unlimited plan on using the Boost brand. How does that fit into all of your discussions with Sprint? Since that’s kind of fresh news.

Tim Yager

Yes, I mean, at the end of the day from our perspective, it’s just another competitor in the marketplace. Thus far, we’ve been fortunate not to have to compete with Leap or Metro, and it looks like it might be our first opportunity to compete head to head with a more unlimited type prepaid offering. It only reemphasizes the fact that we need to get our own prepaid offering, which we are working on, and we need to get offering rolled out so that we can compete effectively in that prepaid space.

Rick Prentiss – Raymond James

And then final question if you have it handy, what’s been the cumulative litigation cost that you guys have obviously normalized on a cash EBITDA basis, but how much have you kind of sunk into this thing now with a big spike up in third quarter?

Tim Yager

Well, Steb’s looking for the number, but it would include both the Nextel litigation as well as all of the ClearWire litigation and everything (inaudible)?

Steb Chandor

Yes, since we have filed the initial lawsuits I think in summer of ‘05, we’ve totaled between $15 and $16 million in total related expenses.

Rick Prentiss – Raymond James

Great, okay, thanks, guys.

Tim Yager

Thank you, Rick.

Operator

Your next question comes from the line of Jonathan Schildkraut with Jefferies.

Jonathan Schildkraut – Jefferies

Great. A couple of questions. In terms of the increase in roaming costs, you talk about more customers moving to unlimited plans. I think that, Tim, you mentioned about 50% of your customers are now on unlimited plans. Could you first give us some perspective as to what that percentage was historically, maybe where it’s come from? Additionally, are you seeing more kind of off-network roaming? Do you think that may be because Sprint has not made the investments in their network recently and you’re finding that there are more holes and so you’re going to third party networks like Verizon, or if it’s just a sheer volume of customers with broader plans? And then also, you know, I’d just – if you could comment a little bit more deeply about the change in guidance.

The last time we spoke to you, you were looking at the top end of a range that ended around $105 million of EBITDA for the year. Now we’re talking about somewhere in the low 90 millions. That’s obviously a very meaningful change based on one quarter’s activities. So just get a little more color as to that change and then finally, in terms of the CapEx outlook, you didn’t spend that much in the quarter but you did maintain your full year guidance of 70 to $75 million. As we look into 2009, how might we gauge how much capital you might deploy on your network? Thank you.

Tim Yager

Sure, Jonathan. That was a long question. I’ll do my best here. As it relates to roaming costs, you’re right. Just to be clear, I said we had about 50% of our customers that were on roaming inclusive plans. Not necessarily unlimited plans. So just a small tweak in terms of how you asked the question and Steb, do you have that number, what it was? I think he asked on a year over year basis.

Steb Chandor

Yes, I think the best number we have probably as of the end of the first quarter of this year was about 20%, and in the second quarter it was a little over 30%; and now we’re sitting close to about 50%. So there’s that piece of it and then I think in terms of why we’re getting that, I think, Jonathan, you raised a good point in terms of Sprint’s network and when it’s outside of our territory and where they have coverage for travel, and if they’re not there, we have to roam and so I think that clearly as other carriers have expanded and broadened their footprint and perhaps Sprint hasn’t kept pace, then clearly we’re going to be roaming more on those networks, and that’s no doubt a contributing factor as well and you know, also some of that roaming is within our territory, and we feel that many of the sites we’re launching this year already have launched, as well as on schedule to come on board between now and the end of the year will also help to mitigate those roaming expenses as we approach into 2009. I think your third question was related to guidance and just kind of, I think you were looking for perhaps some color around why the guidance changed?

Tim Yager

Yes, I think what we said at the last earrings call that we did believe it would be somewhere between 95 and 105, towards the upper end of that, and we saw 2009 EBITDA growth at or above 20%. As you can see, the difference in our performance on adjusted EBITDA of $20 million for the quarter was substantially below for a number of reasons we’ve already talked about; and as we looked at those trend and whether they will continue and at what level they continue in the fourth quarter in 2009, we decided that we would bring those numbers down for 2008 and obviously, as we get into early ‘09, we’ll have more visibility into our numbers as we complete the ‘08 numbers to update guidance for ‘09 EBITDA, as well as subscriber activity.

Steb Chandor

As it relates to your last point, Jonathan we’ve not provided outlook for 2009 capital expenditures. That’s something that I think as we report our year-end ‘08 results is when we have typically provided the new year CapEx guidance, and we would expect to follow suit.

Jonathan Schildkraut – Jefferies

Okay, then let’s take maybe a step back here. Obviously, this was a challenging quarter. You actually had very strong growth in terms of subscribers, but the financial results weren’t exactly what the Street was expecting. It sounds like some things are in your control and some things aren’t, and so maybe we could sort of walk through from an operational prospective the things that are in your control and things that we may have to just say all right, you know what? This is more about what Sprint does than what iPCS does, and kind of how you think about that internal check list?

Tim Yager

Yes, I mean, that’s a bit of an open-ended question. I mean, obviously, Jonathan, to your point, I mean, I’ll just point out some of the things we obviously have more control over when you look at our sales efforts and the job that Conrad’s team has done in terms getting the stores, the distribution and those things, we’re seeing the dividends. Our sales were up year-over-year. Our prime mix is up year-over-year.

Our churn is down year-over-year. So those are things that we feel proud of and when you look at our network, we’ve been successful in getting a fair amount of network build out this year. I think we ended last year around 1.5 million half EVDO covered pops. We’re going to end this year north of 7 million EVDO pops and the things that we can control directly, I fell like we’ve had a pretty solid year.

I think that the conversions to ensemble has clearly led to some challenges for us, both from a visibility as well as just some of the trends that we’ve seen; and because we don’t have the visibility whether these are anomalies or long-term trends, I think is what has led us to clearly revise our ‘08 guidance and be where we are as it relates to ‘09. I think to probe any deeper as it relates to some of those issues we’re having with the disputes with Sprint, I don’t think we want to go any further in light of the formal process that we’re in, and I think with that I’ll stop as it relates to those items.

Jonathan Schildkraut – Jefferies

All right. Just last question for Steb, just a housekeeping item. What was the roaming minutes during the quarter?

Steb Chandor

Roaming minutes for the quarter about 560 million, both up sequentially as well as year-over-year, although on a slightly smaller increase percentagewise than it has been the last couple of quarters.

Jonathan Schildkraut – Jefferies

Great, and can you also give us the reseller subscribers and the reseller revenue?

Steb Chandor

The reseller subscribers were about a little over 250,000, and reseller revenues for the quarter were about $3.9 million?

Jonathan Schildkraut – Jefferies

Thank you.

Tim Yager

Thanks, Jonathan.

Steb Chandor

Thanks, Jonathan.

Operator

Your next question comes from the line of Ana Goshko with Banc of America Securities.

Ana Goshko – Banc of America Securities

Hi, thanks very much for taking the question. On the gross adds, they were higher than we expected for the quarter, and – which is divergent from the policy that Sprint management has been talking about, which has been a deemphasize of gross adds and a focus on customer retention. So wanted to know what your sort of policy or framework is towards that topic currently and looking into the fourth quarter, do you expect to see continued strength in gross adds and to see a traditional holiday strength in the pace of the gross adds, or might there be something offsetting that?

Tim Yager

Sure, Ana, hi, this is Tim. Thanks for the question. You know, I think as we approach – I can’t comment on Sprint’s approach that you referenced, but I think as we look at it, we’re not bifurcating that we’re focused on gross adds or we’re focused on churn and customer retention.

I think it’s fair to say that we’re doing both. Conrad’s team has been incredibly focused on having the ideal customer experience, or as this team affectionately refers to it as ICE. I think that they’re focused on really taking care of the customer, and I think honestly we have a advantage. So, I mean, this is why the affiliate program was developed. We are able to focus on our markets. Our people live in our markets and we know how to market to the second tier cities that we’re selling in; and in Grand Rapids and in Illinois and Iowa and Indiana, and other markets and so I think that we’ve been successful along those fronts.

I think that we’ve been working hard on taking care of those customers. As it relates to the fourth quarter, you know, I think that we would expect to see a typical seasonal-type trend in the fourth quarter, with one caveat which is, as I said in my prepared remarks, we have tightened our credit policies in several of our markets here in November. So that may have a dampening effect on our gross sales in the fourth quarter a little bit, but we think it’s the prudent thing to do and we’re really focused on churn. We’re focused on bad debt and we’re focused on getting the right kind of customers, and I think with the overall economic picture where it is, we think it’s the prudent thing to do and so that could have an effect on the fourth quarter results.

Ana Goshko – Banc of America Securities

Okay, and the second question, I don’t know want to breach sort of your request that we don’t talk about some of the issues that you’re having with Sprint, but just from a more sort of factual standpoint, I’m trying to understand, as one of your customers calls into a Sprint call center, is there any differentiation between one of your customers or Sprint customers? I mean, my understanding is they’re just calling into the general Sprint call centers and your customers are just in that mix. So, I have a difficult time understanding what Sprint could really do to resolve some of your issues specifically, because it seems to be much more of just a larger Sprint issue on these customer credits.

Tim Yager

Yes, Ana I mean obviously from our perspective, it’s certainly our understanding and expectation that in fact our customers, if they dial star two or dial into the customer care call center that they’re getting essentially identical – they should be getting an identical experience to the Sprint customer. I can’t comment on what Sprint’s customer care and credit experience has been, because I don’t know. All I can comment is on iPCS and all I know is that our care credits are up $4 million year-over-year and $2 million quarter-over-quarter, and those are trends that we certainly didn’t expect to see this far past a billing conversion, and we’re obviously hopeful that those trends reverse themselves here in the near term, but when we look at the credits that we’re issuing through our stores and through channels and the like that we control, those credits have not moved at all. They’re spot on. They’re an incredibly small number in relationship to the overall total credit dollar, and there has not been a movement at all essentially on a year-over-year or quarter-over-quarter-type basis. So these credits, the changes have certainly been a result of customer care credits that have been provided for at the Sprint care level.

Ana Goshko – Banc of America Securities

Okay, great, thank you very much.

Tim Yager

Thank you.

Operator

Your next question comes from the line of Todd Rethemeier with Soleil Securities.

Todd Rethemeier – Soleil Securities

Thanks. Good morning, guys.

Tim Yager

Good morning, Todd.

Todd Rethemeier – Soleil Securities

Just wanted to see if u can, I don’t know if you will be able answer this or not, but I’m just wondering, the filing you made yesterday, the emergency request on the ClearWire transaction, how is that any different than the lawsuit you had previously filed in Cook County?

Tim Yager

Todd, it’s asking for the same thing, which is to prevent the merger from closing. I think that the order that we filed yesterday, as it is appropriately labeled, is an emergency order to prevent the closing until such time as the Court has an opportunity to work, and to do their thing and so I think that’s as far as we’ll go as it relates to commenting on the difference, but essentially, they’re asking for the same thing.

Todd Rethemeier – Soleil Securities

Was it the case where you thought that maybe that Sprint was looking to close this deal before the December 2nd court date?

Tim Yager

Well, our understanding is, obviously, we don’t know what Sprint’s official plans are. All we do know is that our understanding is the FCC is likely to issue something I believe today. We know that ClearWire has scheduled a shareholder vote for November 20th; and providing they have FCC approval and shareholder voter approval, I think it’s fair to say that they could close at their convenience after that.

Todd Rethemeier – Soleil Securities

Okay. Thanks.

Tim Yager

Thank you.

Operator

Your next question comes from the line of Christopher Taylor with Evergreen Investments.

Christopher Taylor – Evergreen Investments

I have a question, but first of all, there was no cash flow statement in your press releases. If that’s something you could do in the future that would be very helpful, but I wanted to ask a question, just a factual question on your agreement with Sprint in regards to merging the two companies. What are the formulas or the processes within your affiliate agreements?

Tim Yager

I think we’re struggling a little bit to understand – what exactly is your question?

Christopher Taylor – Evergreen Investments

Well, the first question, was just can you start including the cash flow statement in your press release going forward? Second, in terms of your agreement, your affiliate agreement with Sprint, can you walk us through the process or the formulas or, whatever provisions are in your agreement with Sprint regarding merging of the two companies?

Tim Yager

Yes, I think I’m going to answer that by what I said in my prepared remarks, we’re not going to comment further as it relates to our relationship with Sprint or the ongoing disputes with Sprint or any of those kinds of things. Our management agreement with Sprint is on file with the SEC, and to the extent one has questions about specific provisions in it, one can certainly look at the document itself.

Christopher Taylor – Evergreen Investments

Well, could you just give a quick synopsis of the merger provisions in that management agreement? I’m looking for facts. I’m not looking for any hints or anything like that. How does the valuation part process of that work? That might be a more precise way of asking the question.

Tim Yager

And again, we’re not going to comment further and I’m not trying to be evasive, and I apologize if I’m frustrating you, but that’s just not a question we’re comfortable answering on the call, and we’re not going to answer.

Steb Chandor

As it relates to the cash flow statement, we will point out that we do typically file our Q almost immediately after, and that information is fully incorporated in there.

Tim Yager

Operator, are there any more questions?

Operator

Yes, your next questions in from the line of Gerard Hallaren with JRPG.

Gerard Hallaren – JRPG

Hi, thank you for taking my question. This is Gerard Hallaren from JRPG. Can you hear me okay?

Tim Yager

Yes.

Gerard Hallaren – JRPG

Good. I have two questions for you, one that might bring a third. Could you take a moment, and I apologize for not knowing this, but could you just talk about the Gemini format a little bit?

Tim Yager

Sure. Conrad, you want to handle –

Conrad Hunter

Yes, the Gemini format is a new retail merchandising store layout that Sprint developed and that we are currently leveraging that same format with our stores. It basically just allows us to do a better job of displaying all of the Sprint products and services in a much more customer-centric, customer-friendly way and gives more hands on demonstrations, especially of the data products and services that Sprint has around the NOW network. So that’s generally all the Gemini format is. It’s just a much improved and enhanced store merchandising layout.

Gerard Hallaren – JRPG

Okay, so this is not unique to you? This is the normal kind of Sprint setup?

Conrad Hunter

Yes, that’s correct.

Gerard Hallaren – JRPG

Okay, in the context of that for your business with Sprint, are you selling air raves?

Conrad Hunter

Yes, we are selling air raves. We haven’t sold a huge quantity of them, but we certainly do offer them, and yes.

Gerard Hallaren – JRPG

Okay and my last question, I’m just going to ask you to restate some of the statements that you made regarding your litigation with Sprint, and particularly what are the lawsuits that Verizon is a participant in or not?

Tim Yager

I’m not sure if I – whether Horizon?

Gerard Hallaren – JRPG

Yes, you listed a number of actions and I’m afraid I just didn’t write fast enough to get where you had mentioned Verizon was up?

Tim Yager

Yes. No, I think you misunderstood. Not Verizon with a V, but Horizon with an H, which is one of our operating subsidiaries.

Operator

Your next question comes from the line of Rick Prentiss with Raymond James.

Rick Prentiss – Raymond James

Yes, hey guys. A couple of quick follow-ups. First, along those lines on the data products you were just talking about. In nice improvement on the data ARPU year-over-year and quarter-over-quarter. Can you kind of break out for us what people are spending on that data? Have you seen any up tick yet on the mobile broadband or the Rev A stuff, just to kind of get a sense of how it got to where it’s at and where it might be headed.

Tim Yager

Yes, as we mentioned, our data ARPU for the quarter was about 13.50, which was a nice improvement. At this point, we don’t have full visibility into the breakdown of all of the individual pieces; but getting back to the air card comment as one of the prepared comments that Conrad mentioned, we did see a 26%, I believe was the number, increase quarter-over-quarter in air card sales and again, we launched the EVDO Rev A and then the QChat in the September quarter, so we hope to get even more traction on that with now what we’ve got, what is it, seven, a little over $7 million in covered pops.

Conrad Hunter

Correct.

Rick Prentiss – Raymond James

Okay and, so when you sell an air card, that pretty much all goes to data ARPU, then I would assume? As far as the ARPU?

Tim Yager

Yes, they’re on a $59 rate plan, which has essentially unlimited data.

Rick Prentiss – Raymond James

And are you counting that in your gross adds and your net adds as well as a customer, then?

Tim Yager

Yes, we are.

Rick Prentiss – Raymond James

Okay and then on the liquidity side, you said comfortable with your liquidity, you’ve got two high yield pieces. Are there any covenants, or what covenants do you have out there, and what are they based on?

Steb Chandor

I would refer you to actually look at the file documents for all of the detail. Generally, we do not have any ongoing maintenance covenants in the documents.

Rick Prentiss – Raymond James

Okay, and then, no one touched on, it’s all headed, the economy, you alluded to it on as you looked to ‘09, updating guidance on the year-end results. What are you seeing right now in the economy so far that you saw in third quarter that you’ve seen so far in the fourth quarter, how is it affecting you guys up there?

Steb Chandor

Well, you know, Rick, it’s interesting. You know, Michigan obviously is our largest market with Grand Rapids up there in Saginaw, and I don’t think it’s a giant surprise to people that Michigan has been leading the nation, unfortunately, with unemployment for the last year plus. So I think we’ve been confronted with it for perhaps longer than the nationwide-type trends that are out there.

Having said that, we feel fortunate to be in a business that is kind of made a transition from, not a luxury item, but a convenience item to almost a necessity, and I think that we feel that we’re able to weather this storm pretty well and be ourselves in a position to make it through an economic downturn. Obviously, if that downturn turns long and protracted, it’s going to have an impact.

We do feel that, you know, obviously as it relates to our travel situation, gas prices dropping from, you know, it’s not uncommon for me to pay substantially over $4 a gallon for gas in Chicago land area or across the Midwest, to suddenly be paying around $2.50, that’s a noticeable difference and so hopefully we’ll see some positive impacts of the fuel prices as it relates to our travel revenues and the like to the bottom line.

Rick Prentiss – Raymond James

What we’ve seen, may be you can see how this squares up with what you guys are seeing, is landline replacement seems to be accelerating across the country where people are, if pressed, turning off their home phone, maybe moving onto wireless phones and we’re also wondering, at some point will wireless see any pressure on the ARPU side, but it sounds like you’ve seen that acceleration of the unlimited or certainly roaming inclusive type plans. So what are your thoughts about land line replacement, how that might affect you, and do you think anybody is tightening their belt on wireless ARPUs yet?

Tim Yager

All we can look at is the data we have. We can’t predict the future here, but you know, I think based the trends that we have, if you – for instance, had you normalized our credits, we said that it would have resulted in a $2 additional to our ARPU. That’s obviously bodes well that the Simply Everything is resonating with the customers. It is improving our MRC. It is providing benefits to the company. So we haven’t seen a contraction there, and I think we’re fortunate.

As a guy who’s got three teenagers living in my house, I think there’s a lot of expenses that I cut out of my budget before I would tell my kid they couldn’t have their cell phone and couldn’t have texting and couldn’t have some of the bells and whistles on their phone that they’ve grown accustomed to using. So I think again, obviously if the economy takes a substantial downturn from here, it could get worse, but we feel pretty fortunate to be in the industry in light of this environment.

Rick Prentiss – Raymond James

Okay, thanks, guys.

Tim Yager

Thank you, Rick and operator, we have time for maybe one more quick question, but that’s it.

Operator

Your final question comes from the line of Jonathan Schildkraut with Jefferies.

Jonathan Schildkraut – Jefferies

All right, thanks, guys, for letting me squeeze these last ones in. Two questions here. First, just following up on a question from one of the other analysts. If Sprint has a goal of lowering churn, do you think that given that your customer credits and customer service calls go through the service centers, that they may have possibly handed down to their customer service representatives to be a little more generous with customer service credits, and do you have a sense as to whether this is more broadly impacting Sprint customer base or just yours in particular? Second question, which is really a completely different one.

Sprint has made some comments and been out there with a Femtocell product, and I was wondering if that was something that you were testing and we might possibly see you deploy. Thanks.

Tim Yager

Sure, I’ll take the second one, Jonathan. We are currently selling the air rave product which is the Femtocell, and we haven’t sold a huge number of them but we have sold a handful of them, and they seem to be working well. As I think I said on the last call, I’ve had one in my house now for probably eight or nine months, and it’s been working quite well. As it relates to your first question, you would have to ask Sprint what their objectives are as it relates to credits and their level of aggressiveness or lack thereof, I’m not sure. That’s not really a question for us and as I said earlier, our expectations is and understanding is that our customers are being treated the same as Sprint customers. So beyond that, I can’t comment.

Jonathan Schildkraut – Jefferies

Thank you.

Tim Yager

Thank you Jonathan and thank you, everyone, for joining us on this call, and we look forward to updating you in the future. Thank you.

Operator

Thank you. This concludes today’s conference. You may now disconnect.

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