NTELOS Holdings Q1 2009 Earnings Call Transcript

| About: NTELOS Holdings (NTLS)


Q1 2009 Earnings Call

May 01, 2009 10:30 AM ET


Wesley B. Wampler - Director, Investor Relations

Michael B. Moneymaker - Executive Vice President, Chief Financial Officer, Treasurer and Secretary

James S Quarforth - Chief Executive Officer

James A. Hyde - President and Chief Operating Officer


Ric Prentiss - Raymond James

Phil Cusick - Macquarie

Robert Dezego - SunTrust Robinson Humphrey

David Dixon - FBR Capital Market

Batya Levi - UBS Securities

Thomas Seitz - Barclays Capital

Michael McCormick - JPMorgan

David Coleman - RBC Capital Markets


Greetings and welcome to the NTELOS First Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Mr. Wes Wampler, Director of Investor Relations for NTELOS. Thank you, you may begin.

Wesley B. Wampler

Good morning. And welcome to the NTELOS first quarter 2009 earnings conference call. The topics for today's call include an overview of business activities and financial highlights for the quarter. Here at NTELOS today, we have James S. Quarforth, the company's Chief Executive Officer; James A. Hyde, President and Chief Operating Officer and Michael B. Moneymaker, Executive Vice President and Chief Financial Officer.

We'll begin with comments from Mike and Jim Quarforth and then we'll take any questions you may have. We ask that questions on this call be from current investors or analysts and that any media questions be later directed to Mike Minnis, our Director of Public Relations.

Before we continue, I would like to point out that certain of the statements contained in our earnings release and on this conference call are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those described. Please refer to the earnings release for a special note regarding forward-looking statements.

Also, an effort to provide useful information to investors, our comments today includes non-GAAP financial measures. For details on these measures including why we use them and reconciliations to the most comparable GAAP measures, please refer to our Earnings Release on our website at www.ntelos.com or to the 8-K filing provided to the SEC.

With that, I will now turn the call over to Mike Moneymaker, CFO of NTELOS.

Michael B. Moneymaker

Thank you, Wes, and good morning. We are pleased to announce record level operating revenues of 140.7 million, and record level operating income of 33.6 million for the first quarter of 2009.

We also realized an exceptional level of net income attributable to NTELOS fourth quarter of 17.4 million or $0.41 per share for the first quarter of 2009.

Adjusted EBITDA was another quarterly record high of 58.1 million for the first quarter of 2009, an increase of 4.6% over the comparable period of 2008.

We are pleased to report that this record level of adjusted EBITDA is a result of record levels achieved by both, our wireless and our wireline segment.

As previously disclosed on April 28, 2009, we recently discovered a process here relating to the billing information used by the company for billing services to scrap under Strategic Network Alliance Agreement.

A portion of the network is as customers have been incorrectly classified in the company's billing process. As a result, wireless wholesale revenues and wireless operating income were overstated by 3.6 million or 2.4 million after-tax in 2008.

The balance sheet that company has released has been revised to reflect the impact of this adjustment. Our Form 10-Q putting out disclosure for the first quarter of 2009 reflects the revised results by quarter for 2008.

In our discussion today, announced relating to 2008 have been revised to reflect the impact of this correction. Looking next at our operating metrics for wireless.

First, for comparability purposes, the following 2009 and 2008 comparisons will based on the pro forma results and metrics for the period prior to April 1, 2008, each adjusted to reflect the change in gross versus net reporting of handset insurance revenues and costs. As a result of these disclosing contracts for such services, that went into effect on April 1 2008.

Please refer to the earnings release and Form 10-K and previously filed Form 10-Qs for actual results for the periods and further discussion on this change in gross versus net reporting.

Our pro forma year-over-year increased and well our subscriber revenues were 6.2% in the first quarter of 2009. This growth was achieved to subscriber growth of 9,467 net adds in the first quarter of 2009 and 23,210 net add over last 12 months, of which 76% were postpay net subscribers additions.

We are pleased with the record level of gross adds during the first quarter. As total gross adds were 50,426, an increase of 7.4% over the first quarter of 2008 gross additions.

Since launching EV-DO, high speed data services in mid-year 2008. We are seeing strength in postpay sales results with sales of higher ARPU, lower churn postpay gross additions of 72,876 for the nine months period ended March 31, 2009, up 22% over postpay gross additions for the comparable nine months period ended March, 31, 2009.

Our total and postpay ARPU for the first quarter 2009 were $54.58 and $56.87 respectively. Again, we are very pleased with the year-over-year growth in postpay ARPU which increased $2.23 over the comparable pro forma postpay ARPU for 1Q '08.

Postpay data ARPU was the catalyst for those improvements. As postpay data ARPU increased $2.84 or 43%, over 1Q '08 and increased $0.89 or 10% over Q4 '08. These improvements reflect strong sales of smart phones and data cards, which represent a 27% of our postpay gross addition in the first quarter of 2009.

CPGA was $336 for the first quarter 2009, as compared to $380 for the fourth quarter 2008. As mentioned earlier, we continued to see strong growth and postpay sales as a percentage in total sales and sales of smart phones and data cards, since our launch of EV-DO high speed data offerings, which as expected have resulted in higher CPGA cost.

However, the continued growth in the sales mix of these devices, feel the growth and gross additions and ARPU and should continue to drive data ARPU growth in the future.

CCPU was $32.10 for 1Q '09, a decrease of 6.2% from 4Q '08 CCPU of $34.22. As expected this decline reflects seasonal variances in intellect cost, which was 5.2 million down from 6.2 million in 4Q '08 and retention cost net of related equipment revenues from existing customers which was 2.7 million down from 3.4 million in the fourth quarter. While net debt expense was 2.3 million or 3.2% of wireless subscriber revenues for 1Q '09 as compared to 2.7 million or 3.8% for 4Q '08, reflecting slight improvements in collections in 1Q '09. As we previously discussed throughout 2008, our EV-DO upgrade and self side expansion contributed to an upward trend in CCPU during 2008.

We are pleased to see network access in self side expenses leveled off in 1Q '09 at 11.6 million, down slightly from 11.9 million in 4Q '08.

Moving next to wireline, our wireline segment recognized adjusted EBITDA of 17.7 million in 1Q '09, an increase of 0.7 million or 4.1% from 17 million in 1Q '08. Driven by 8% growth in 1Q '08, over 1Q '08 and wireline strategic product revenues in the competitive of segment.

Looking next to our liquidity, adjusted EBITDA plus expenditures were probably planned equipment for the first quarter of 2009. It was 26.5 million reflective of capital expenditures of 31.6 million for the quarter.

Cash provided by operating activities was 44.3 million for the first quarter of 2009, an increase of 27% over Q1 '08 cash flows of 34.9 million, reflected a growth in adjusted EBITDA and positive changes in working capital.

Our ratio of total debt at March 31, 2009 for adjusted EBITDA for the last 12 months ended March 31, 2009 was 2.69 to 1. I am also pleased to report the total debt net of 65.6 million of cash on hand at March 31, 2009 was 540.9 million. At 540.9 million, this represents a ratio to adjusted EBITDA for the last 12 months ended March 31, 2009 up to 2.4 to 1.

With that, let me now turn discussion over to Jim Quarforth, our CEO, who will provide an update on our latest business and operational development.

James S Quarforth

Thank you, Mike. First let me introduce Jim Hyde. Jim joined NTELOS in March as President and Chief Operating Officer. He has a tremendous amount of experience in the wireless business, most recently he was a Director of team of our operations in the U.K.

As Mike has pointed out, we had a record quarter with an adjusted EBITDA of 58.1 million which was an 8.3% sequential growth driven primarily by our wireless retail business. Wireless adjusted EBITDA grew 5.1 million sequentially or 13.5%. We also experienced nice margin expansion in the quarter with an adjusted EBITDA margin of 41.3%.

We're very pleased with these results, particularly in this economic environment. Our momentum in growth catalyst gave us great confidence for another solid year growth in 2009. Our strong cash position, low debt ratio and accelerated free cash flow will allow the company to continue to grow without the need to access the capital markets.

I plan to discuss our EV-DO and cell site deployments activities in our wireless retail operations, to spend wholesale revenue wireline highlights in our recent guidance update.

First, looking at our EV-DO in the new sale side construction. As we reported last quarter, we finished 2008 with 70% of our sales size with EV-DO revenue capability. In the fourth quarter, we added 40 markets including Danville and Martinsville, Virginia and Bluefield and Beckley, West Virginia.

We also completed part of our upgrade in the Richmond and Norfolk Virginia markets. The significance of this additions it has positioned the company to continue to drive accelerated growth in data services and ARPU. As a result in the first quarter, we experienced continued strong sales in smart phones and data cards and data ARPU.

Smart phones and data cards represented 27% of our postpay sales and data ARPU increased by $0.89 for the quarter. In the first quarter, we continue to add EV-DO capability to the Richmond and Norfolk markets, which are scheduled to be 100% EV-DO Rev A capable by the end of the second quarter. We also completed the upgrade the EV-DO Rev A in the Harris and Berg Virginia market.

Looking at our wireless retail operations, we had a record sales quarter with over 50,000 gross additions.

This result was driven by the expanded retail distribution we completed last year, improve selection of handset including more smart phones, touch and QWERTY phones having EV-DO capability in our value market position.

Our direct distribution channel represented 78% of our sales for the quarter, which is an important element in driving down our CPGA cost. We currently have 10 smart phones in the lineup, including touch devices. We will be adding additional nice touch and QWERTY devices this year.

EV-DO has clearly given us more consideration in the ability to track switchers as evidence by an increased mix of postpay gross addition during the quarter, which increased 34% year-over-year.

We continue to be pleased with the accelerating demand for our EV-DO products. As I mentioned earlier, postpay data ARPU increased $0.89 for the quarter to $9.37, an increase of 43% year-over-year driving its growth with data cards and Blackberry sales. The data card installed base doubled in sequential quarters. The Blackberry device installed base increased 31% in sequential quarters.

The EV-DO we believe our network work is on par with our competitors and as a result we expect to see an improvement in our sales from our business channel during the year.

Sharing continues to be at similar levels as the third and fourth quarter of 2008 due to economic conditions. We believe this will continue to the second quarter however, we did see some improvement in the involuntary postpay churn this quarter.

Looking at some highlights in the wireline business unit, some key areas of focus, I'd like to highlight within the wireline business include the success we have had in our business strategic products within our competitive segment in a progress with data penetration in IPTV within the ILEC.

Over the past few years our efforts and investments within the competitive segment have focused on data-centric products, including broadband, video, integrated access and metro Ethernet.

The revenues on these services have grown 22% year-over-year and now represent an annualized $22 million revenue stream for the company. The EBITDA margin for the competitive segment continues to expand due to these efforts and approached 41% for the quarter.

The focus on the ILEC has been the reposition the assets toward data and video overtime, currently 97% of our customers have accepted DSL 6 megabit speeds. Our current penetration of broadband within the ILEC is 48%. IPTV continues to exceed our expectations with overall penetration homes past at 23%. In neighborhoods where IPTV has been available for 18 months our penetration has reached 27%.

Others subscribing to video 89% are taking broadband speed to 10 megabits or greater and 74% are taking the triple play. Our now since suggested fiber-to-the-home neighborhoods had the lowest churn in our five times less likely to be lost to cable. The primary driver to churn the local services, wireless substitution followed by the effect of the economy as consumers look to produce costs.

We recently reported in area in our strength billing processes had impacted our 2008 adjusted EBITDA results by 3.9 million and lowered our revenue and EBITDA forecast for the first half of 2009.

We view this as a one-time event as we will be billing at the 9 million monthly memo beginning in July when the travel data rates are reset from contracted transition rate to an industry rate set at 90% of screens data revenue yield. Stream wholesale revenue increased 4.8 million or 20% year-over-year and decrease 1.6% in sequential quarters driven by a semi-annual growth rate reduction offset by continued revenue growth from home and travel data.

We continue to see incredibly strong growth trends in data usage and expect it will continue as more EV-DO device penetration continues. Growth in travel data usage has increased 551% since we have amended the wholesale contract a year and half ago at 448% since we launched our first EV-DO market a year ago.

Home data usage has grown 685% since our first EV-DO launch a year ago. Similar to our retail business, we view data as a key catalyst for future growth in this business.

Here in the quarter, we decreased our 2009 guidance to reflect a strength billing issue, economic impact and operating initiatives to improve performance.

The new guidance reflect a decrease in operating revenue of $12 million to a new range of 552 to 571 million, and a decrease in adjusted EBITDA of 8 to $9 million to a new range of 230 to 236 million.

Using the mid-points of the guidance range, 2009 operating income is projected to increase by more than 11% over 2008. Net income to increase more than 40% over 2008, and free cash flow has increased more than 33% over 2008.

To summarize, we're very pleased with our first quarter results and beginning the year with a record EBITDA of 58.1 million and royal sales exceeding 50,000 gross additions.

Our financial focus is to drive increased EBITDA while accelerating net income and free cash flow. We're seeing the positive results of our prior year's investment and initiatives, which give us great confidence in our ability to execute on our gross plans for 2009. Our position in the market as a value player also provides us distinct advantage in this economic climate.

Our primary catalyst for growth in both our wireless and wireline businesses will come from the increased demand and capability of providing data to our customers.

We expect to execute on accelerating growth and data penetration in ARPU within the wireless. As a result of our EV-DO deployments brought our retail business and Rev Distribution channels in a robust handset lineup. We expect to see continued strength in our postpay mix which will drive a high value customer, better ARPUs and lower blended churn overtime.

Data is clearly a key catalyst for our wireline business as we continue to see the demand for more bandwidth in both our ILEC and comparative segments. Continued focus on our strategic products within the comparative segment in repositioning the ILEC with broadband and video will be key drivers in 2009 and beyond. We believe our mini catalyst for growth, our market positions and our season management team will provide our company the unique opportunity to grow our business in 2009.

At this time, we'd like to take questions and we'll ask the operator to give those instructions.

Question-and-Answer Session


Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question is from the line of Ric Prentiss with Raymond James. Please state your question.

Ric Prentiss - Raymond James

Thanks. Good morning guys.

Michael Moneymaker

Hey Ric.

James Quarforth

Good morning, Ric.

Ric Prentiss - Raymond James

Couple of questions for you, first on the data side, obviously an important priority for you guys. Can you talk just little about the billing this classification, kind of what happened? How you fix it and then more importantly, as you look at the new trends now when you get it recast, what are your thoughts as far as wouldn't the rates reset for the $9 million a month? What you've seeing in the new trends and how they get built? When do you think you might be able to surpass the minimum levels?

James Quarforth

Okay, big questions. As I reported before Ric, NTELOS found us as billing issue through their internal process we had. And what happened was or what we found was we had an incorrect disposition of our record type from the home category of data usage to the travel category, which we believe are best guesstimate currently for 2008 is 3.9 million as Mike pointed out. That, those adjusted will be reflected in our Q and certainly it has some impact in the first half of 2009, as we were running in access of 9 million minimum.

As we reported before, we expected the second half of 2009 to drop to the 9 million minimum as we have that travel data rate we said, I think some key points here are from a trend perspective is that we irrespective of that re-categorization of those record types who seen tremendous data growth in travel data and home data as I mentioned in my talk travel data growth since we turn up EV-DO is up 448% and it continues to be very strong as we get more device penetration overtime.

I think the bigger question is, we've seen the focus on the travel data usage and that being the key driver to get to the 9 million minimum. I think the real key driver here is really all the rate elements.

And if you believe strength is going to turn their business around. We have three other rate elements that should kick-in that will help accelerate, that through the 9 million monthly minimum. You may recall that when we had an amendment a year and a half ago with Sprint we build the $8 million minimum for about fourth quarters. No we haven't provided any guidance for 2010 at this point in time so to give you a specific view as to when that will go through the 9 million minimum -- we're not prepared to answer that question yet. But I think the key focus here is to really watch our Sprint and the strength of Sprint.

I will tell you that if you go back and look at the customers, and while we don't report customers for our contract. We can tell you that the customers have been stabled for the last 15 months in this market. We have not seen any customer decline which is different than what you've seen nationwide and it really goes back to the fact that riding our network. And we have the most robust network in that market area compared to our competitors who have fewer customer that wants to align yourself with the national player. Sprint is the best choice. So we're really looking this as really whether or not Sprint begins to turn their business around? You will expect all rate elements to kick-in, which would provide some additional growth.

Clearly our focus is on the retail business and I think as you go forward you're going to see an accelerating growth in our data ARPU as we get more device penetration today. If you look at smart phones and data cards, our installed basis a little over 10% industry, which started before us with the EV-DO is about 32-33%. So we've got some tremendous upside on data which we're pretty excited about.

Ric Prentiss - Raymond James

Second question. Can you kind of talk to the economy, couple points to that maybe, one how it's affecting both your wireless and your landline business in that area, the Virginia and the West Virginia as we operate. And two, smart phones are an important part of the process, seems to be people are buying smart phones even in a tough economy. They always have that just hesitation in my mind I guess where people slow down buying smart phones as the economy stays weak.

James Quarforth

Yeah, I think a couple, maybe global points here first as we reported before Virginia has from an unemployment standpoint has grown about 2 basis points or 2% less than the national average. West Virginia has been even more favorable than that.

So, we have a little better situation here at Virginia, clearly we have seen some pressure on ARPU since the third quarter of last year. We haven't seen that get any worse. It's been pretty level or stabilized. We would expect that to start changing, as I mentioned probably after the second quarter. So from an economy on wireless, it's been some pressure on ARPU, some pressure on churn.

On the landline, I think we've seen little bit of acceleration in line loss as a result of folks converting to wireless, that's the number one reason for line loss cable competition only runs about 11% of our line loss, so its really not a huge factor.

Regarding the economy another global point that we're seeing out there -- there is a fair amount of evidence that we're starting to come out of this economic decline and one of the first segments that recovers is retail. And so we believe that will help the wireless business. And that should begin to kick in from information, we've seen probably mid year 2009.

So we feel like we have really weathered this storm pretty well, particular when you look at gross additions. Gross additions were significantly higher in the first quarter as they were in the fourth and the third quarter year-over-year. That has continued in the April and that's really a function of a lot of things we talked about, everything from -- in fact we have EV-DO which is giving us more consideration.

It's giving us the higher mix of postpay you talk about this markdowns and concerns about that continuing, we've seen an acceleration of that to 27% of the postpay. In the first quarter its 28% in April and realize, these are other state customers so these are your more credit quality customers that can afford the Smart phones and many times they are using that is thanks to the more productive and cut cost elsewhere.

So, we're very bullish on where we are. I think as you look forward in the 2009 and in the 2010, particular we've pretty much got our ramp up cost behind us. So, you're going to see a leveling out of our operating costs with an accelerating top-line revenue, again with driven by data, which is going to allow us to continue to grow the business but also grow our margins.

Ric Prentiss - Raymond James

Great. Thanks Jim.


Our next question is from the line of Phil Cusick with Macquarie. Please state your question.

Phil Cusick - Macquarie

Hi, guys. Thanks for the time.

Michael Moneymaker

Hi, Phil.

James Quarforth

Good morning, Phil.

Phil Cusick - Macquarie

Rick did a pretty good job covering list away, he had planned to talk about which is not a surprise. But I thought I'd add -- can you give us an update on the cable competition. It seems like even you initiated a few years ago, the way that cable had come through and it's never have. Are they building out the ILLEC footprint and getting more aggressive or is it just not something we worry about it anymore?

Michael Moneymaker

The Comcast in the first quality (ph) property they've launched in the Waynesboro Gulf County market, last May 2008, it's actually May of 2008. We saw at the very beginning fairly aggressive approach by Comcast in that one market which realizes only representatives about a third of our ILEC footprint.

As you look at line loses and you look at the line loses from cable that has really diminished probably since the middle of the third quarter. For example, last summer if you look at the second quarter it probably ran about 17% of our line loses came from cable.

First quarter was about 11%. So it's really a small piece of the line last story that the bigger piece, I think its well a substitution. And secondly, I think the economy obviously it had some impact where folks have just dropped lines and they have chosen to move towards wireless.

So with our introduction of IPTV, we've had tremendous success with that product. As I pointed out in my talk that in those neighborhoods we have deployed that, the propensity towards churn is one fifth of that in a non private home neighborhood. So we're continuing to reposition the ILEC to a fiber-based broadband video, a platform, and we're really having great success.

If you look at some of the industry stats, in neighborhoods where we've been we've had customers for -- we had the availability for 18 months, we had 27% penetration. If you compare that with five years it's dramatically better performance. So we're very excited about the transition we're making. We think it's a right long-term strategy and it will continue to allow the ILEC to grow. However it will get its revenue and cash flow from different sources overtime.

James Quarforth

Just to add, again I think in the outlook. If you look at our EBITDA, over the last eight quarters, the highest level of EBITDA was 11.1 million. We did 11 million in this first quarter, then at same eight quarters our competitive wireline EBITDA has gone probably over 20%. So thus contributing to the wireline segment having record level adjusted EBITDA for the first quarter. So, as Jim said data is strong and that's probably one other things back to it talking about the economy has been very a pleasant surprise and is really the demand per data is very strong and that has filled that record level contributions from our wireline segment.

Phil Cusick - Macquarie

Yeah, I think -- I suppose just looking back at our expectations when we launch few years ago and the expectations have been for legacy revenue decline by 5 or 10%.

Michael Moneymaker

I think the other big story sale in wireline is -- it's somewhat unique to tell us numbers of years ago we really one competitive business in French day out leveraging of our long haul fiber network.

And as a result of that's generating a very meaningful amount of revenue and revenue growth. And to go back in time, it's an accelerating margin, so is that pointed out earlier the margins approaching 41% in that comparative segment again driven primarily by data. So, this will grow story on wireless to wireline is all about data. And, that's what we expect to growing on growth in the future.

Phil Cusick - Macquarie

Okay. And, just one sort of last question here. I mean Mike, from your standpoint. Can you update us on how you're looking at the debt level, it seems like your leverage is really declining and your pay orders are substantial book, what you are going to do with that cash. And Jim as you look at a year from now the tax situation between the two sides of the business changes.

As data becomes more and more the story here are you thinking about maybe we want to keep this businesses together in these lot of synergies or do you sort of look out a year and say, we really see value still in separating these two companies?

Michael Moneymaker

Yeah, on the debt, Phil. We've historically said we've always been comfortable with a debt leverage of probably 3 or 3.5 times. Now with that being said certainly we're all in a very unique and different lending environment today than we have been and for probably quite some time.

I think what trend relates to and how that may impact that leverage and what we do, I think we'll determent year over the next 6 to 12 months as we look to refinance that debt. I would tell you that today when we talk to various investment bankers that are, they call on us and say what you're going to do refinancing a debt, what are you going to do when you ask them what they think the timing.

Not now because you're too far away from the end of 2010 which is the first balloon that occurs. And really the thing that we're pleased is that the debt market seems to be improving. There is probably more, some fixed income, some high yield deals being done. So the bond market seems to have some life or be it at higher prices today, but probably at the same time improving prices here over recent months.

So certainly the outlook looks positive in terms of strength, I think as Jim said with funds that the economy continues to improve. Certainly we're going to take a hard look at this from a financing standpoint.

So in mid-year it's the same time even mid year we're still at 18 months out from any loan payments. So I think we're going to be prudent but while keeping a close on eye on the market and looked to finance when there is the right opportunity. But same time, we got the ability to watch the market in some time to see if this wont continue to improve.

James Quarforth

Yeah, feel on the longer-term strategy I would say that something that we looked at continuously I think we are all aware that May 2010 is a five year anniversary of our change to control and it does allow us to separate the businesses on a more tax efficient basis if we like to do that.

Other than that I think it's just a date, I think what's key is related to monitor what's going on in the competitive landscape and the changing landscape it was seeing certainly consolidation in wireless we're seeing consolidation in wireline. We're also seeing the thing that is tangible move back and forth if you went back five six seven years ago there is a trend towards blended companies.

And then there is period time three or four years ago where there was a trend towards pure play companies because of better evaluations. And I would say here beginning to see trend back towards blended companies its now from the standpoint of technologies like LTE that will allow more integration products and services and the ability of companies to better satisfy their customers, at the same time lower their operating expenses and doing so.

So I think we haven't made any decisions. Its something clearly the board has spoke -- is focused on I think one thing that we're pretty excited about is that we're in a really unique situation, and that is that we have those assets and we have a lot of choices. And so we're going to be thoughtful about it and make sure that we get down the path that generates the best value for our shareholders.

Phil Cusick - Macquarie

That's great. Thanks Jim.


Our next question is from the line of Robert Dezego with SunTrust Robinson Humphrey. Please state your question.

Robert Dezego - SunTrust Robinson Humphrey

Good morning, guys. Good follow-ups to bring out number of share. Sort of quick question for you on the ARPUs. The postpay data ARPU and prepay data saw pretty big jumps, I think we saw -- I think larger than expected declines in the voice side? Can you talk about both sides of these businesses and kind of what you're expecting throughout the rest of the year and perhaps where you think, where data ARPU could get by the end of the year?

James Quarforth

So the focus is on data ARPU where --

Robert Dezego - SunTrust Robinson Humphrey

Well, little bit of color (ph). We saw it's a pretty health growth in data, I think voice is a little weaker than we thought. So I just want to get your thoughts on what's going on?

James Quarforth

Let's just kind of break it apart. It's important, clearly data is the driver and as we pointed out we're -- we see nice growth in data ARPU up 43% year-over-year and 89% from the quarter and we would expect to see acceleration of data ARPU because every quarter we've added more EV-DO markets. We've created more visibility in those market prices as far as the availability of the product. We broadened our retail channels and enhanced our, enhanced that line up. So we've got a lot of catalyst in place to create the acceleration of data ARPU.

If you look at where with maybe some of the national carriers, the national carrier average right now in the fourth quarter was about $12.70. If you look to all carriers, regional and national in the fourth quarter, it's about 11.15. So I realize there are some carriers that are higher than that. So we would expect to see continued growth in that and clearly there is no reason we can't reach similar levels as other carriers that are being in EV-DO for a longer period of time.

We think it also really helps us in the business channel. We now -- we have tool to go after those customers which are higher value customers and lower churn customers and it takes a while to harvest that because its fairly saturated market. But we would expect to have some announcements. In that regard, that will demonstrate that probably in the very near future.

On the overall ARPU side, postpaid was up 4% year-over-year and that's really on the strength of continuing to see data ARPU growth helping profit up. Prepay is down but the part of that is by design and that's lot of things that we've talked about in the past. I'm not sure it's been fully understood back in the fall of 2007.

We actually lowered our prepaid pricing in order to be better positioned from our current but also future competition. And then also prepaid is being impacted somewhat by the economy. So, really what you have there is strength in postpaid. Some pressure on prepaid but some of that was really by design, and -- so we feel very good about where we are, ARPU has held very nicely and when you consider in the economic climate that we're in, that's a pretty good result.

Michael Moneymaker

Just to add Robert, keep in mind when you add a data card, if you have $40 data card even though we're very pleased with that data ARPU contribution. For blended ARPU we will go down as a result of that.

Robert Dezego - SunTrust Robinson Humphrey


Michael Moneymaker

And so you need to look carefully at the blending of -- as we sell more of the data devices its still kind of units in terms of the overall phone numbers accounts that we used to con subscriber. So a number is a number and account, and the total count we added in that example that would have downward pressure on the blended ARPU even though we're very comfortable, very pleased get that revenue stream in contribution.

Robert Dezego - SunTrust Robinson Humphrey

Okay. Do you have a percentage of your subscribers that are taking these data cards?

James Quarforth

Look you combine them with data and smart phones. It's 27% of postpay sales in the first quarter, that's continued in the April, 28%. If you look at installed base right now, data cards are actually, we're only about 2% the industry that 10% so we've got a lot upside there if you look at smart phones, our installed base is about 8.8% in the industry to 22. So, I'll think the real good news here is we've got good upside and penetration in installed base.

Robert Dezego - SunTrust Robinson Humphrey

Okay, great. And if I could just follow-up with one last question on the competitive markets. Any change that you're seeing out there whether it's from the -- version or boost you maybe just talking about the new pricing from these guys and if you're seeing any kind of impact in your markets.

Michael Moneymaker

Sure, firstly we get that question pretty frequently. There is no evidence of any activities in the Virginia's markets. I think publicly they've announced that they're turning up the ball in Washington market I'm believe in the second quarter lot of there larger market deals are completing in the first half of the year and that set publicly that there won't be much activity in the second half.

I think, my guess is they're looking at their growth and one of be able to fund that growth through their existing balance sheet based on the current capital markets. As you probably aware, when you start building market it's about an 18 month process. So they will start today its going to be some common in, or should be the end of 2010, 2011 at the very earlier.

So we think that's the way is off and as we've mentioned before we have a lot of proactive things that we would be doing in the case it's only with the end of the market. But there has been a lot of advertising and activity nationwide. We've seen at certainly in East. So they are competitive player to our in advanced product in Virginia East. Now while they have a network in Virginia West and, West Virginia we really haven't seen much competitive activity there. The network is clearly inferior and so that has not been an issue in those markets.

Robert Dezego - SunTrust Robinson Humphrey

All right. Thank you.


Our next question is from the line of David Dixon with FBR Capital Markets. Please state your question.

David Dixon - FBR Capital Market

Yeah, thanks for the questions and Jim welcome to the team. Certainly it seems for me that our network sharing UK market, certainly fairly similar dynamics here in Virginia but welcome.

My questions are on the data side obviously. I wanted first of all just to probing on the travel data outlook here, were the revenue yield first of all with lower traffic assumptions now with the billing issues behind us. Should we be assuming a higher revenue yield but that's the moment I ended now coming in a little? That's the first question.

And secondly, I wondered if you could talk given that some of the factors that could delay the rebound through the minimum threshold levels from the current times that you've experienced in the past and I'll come back with the third.

James Quarforth

Okay. Sure we will first realize the revenue yield is based on international revenue yield. So, it really shouldn't be affected by this. Let's say you take their national revenue yield and you take 90% of that, in the case of travel now get deployed by the actual usage.

Interesting enough, the growth rate is reported before and if you look at it after it was adjusted with the change in the record type disposition. The growth rates are very similar. The growth rates is very strong in that quarter, data was 448% since the turn up of EV-DO and 551% since this -- the start of contract you just started at a little smaller base and it wasn't a material difference but you had an navigator (ph) effect and obviously when you have a slightly smaller base.

I think the real key quite frankly on what would delay going through the -- either delay or accelerate going through the $9 million marketing is really the strength of Sprint, and whether Sprint turns the quarter, it starts growing their business as we pointed out they have been -- customer account has been flat in the last 18 months. If that starts to change, you're going to see improvement in home voice, travel voice and home data and travel data.

So we're going to look Sprint as a whole and not just one rate element.

David Dixon - FBR Capital Market

And just Bill talked is kind of $0.10 megabit in the ballpark estimate, is it something we could be using as a reference point beyond July 1st?

Michael Moneymaker

Yeah, that's a good question. I mean we don't have that rate reset yet. We would tell you that based on looking at some industry data and revenue yields. That being in the single-digit is probably a reasonable place to be.

One of the things that obviously, if you look at the usage by device, I think the average out there for data cards is about 3 gig . And then the average for in our case for a smart phone is about 72 megabytes and then our regular handsets about 16. So depending on what the mix is, that obviously will drive your revenue yield.

David Dixon - FBR Capital Market

And that's on the Sprint International --

Michael Moneymaker

That's right.

James Quarforth

That's right.

David Dixon - FBR Capital Market

And then just -- impact of the color the question on mobile better economic could you talk about, how the business price mix shifted mobile data given the better than expected data demand, thinking here the pressures on the network. We are hearing obviously across the board here and internationally that guide was just off the chart.

It has simply shown the example of being the convertible data at retail level into data on the office side...

Michael Moneymaker

Data is incredibly efficient. It doesn't utilize your switch capacity and there are ways to continue that efficiency overtime. For example, today we are going to end up about 3% of our sale side for end of the second Tier 1. And so and we've seeing tremendous growth but yet we are really not having the analog or backlog capacity.

One of the things that you can actually do to optimize that overtime is to aggregate your all your traffic voice and data can be converted to IPSE, that's sell site and you could actually go back and groom your network and improve your operating efficiency. Is that quoted out few minutes ago I think was maybe on Ric's question but is more probably to reiterate that is, you know last two years we've experienced and absorb the ramp up cost of adding additional PI (ph) for each sale side which is obviously very expensive.

But now we're at a point where we can really leverage that cost and we will see that flatten out as an operating expense at the same time you are going to see revenue continue to accelerate which will allow us to expand our margins and also accelerate our EBITDA growth.

David Dixon - FBR Capital Market

Got you. That's great.


Our next question is in the line of Levi Batya with UBS. Please take your question.

Batya Levi - UBS Securities

Hi, thanks a lot. Just one quick follow-up question on the prepay ARPU. We typically see a seasonal uptick in prepay ARPU and that really didn't come in this time. Can you talk a little bit about that was it most of the economy and people using the phone less.

And another question on margins want to result definitely exceeded our assumption and it was, I think mainly coming from lower CCPU. You mentioned some of the seasonal help you had but does that mean that call should pickup during the remainder of the year or what were some of the cost cutting measures that you actually hold for the rest of the year. And also if you could give update on bad debt expense. Thank you.

James Quarforth

Good. I think on the prepay ARPU is there a couple of things going on this year compared to last year and previous years. In previous years we've had a very high prepaid addition in the fourth quarter and the first quarter which helps drive that uptick.

And what you've seen in this year is you've seen a higher mix of postpay because of the strength of the EV-DO and the consideration we're getting on postpay. So you've actually had less uptick in your prepay customers in those quarters compared to the past. But certainly the economy has probably impacted prepay more than postpay from an ARPU perspective. And we'll see more churn as a result of that and we also see more pressure on joined or to buy a lower rate plans. On the comment about the CCPU again that the two items that are sided in collect and that retention cost. Both of those have a touch of seasonality.

Fourth quarter for example and retention cost that's your holiday promotion period normally do to this subscribers seek that promotion but, obviously your existing subscribers as well, which is one reason you'll see an uptake and retention cost typically in the fourth quarter.

Historically, that retention cost goes down in the second and third quarter. Somewhat those your lower seasonal lower growths add activity quarters. On the in collect cost, your highest roaming period it's typically your third quarter followed by your probably your second quarter very high. Your first tends to be the lowest.

And so from that standpoint, we would historically see again higher in collect cost to keep that problem in prospective from first quarter to third quarter last year, that probably went up on average to contribute, just a little lower at dollar to the CCPU and again it came back down that pulls our immense from third quarter to first quarter of '09. And so those are the main drivers in terms of the seasonal line to refer to is the higher retention cost and the in collect which is more of a just seasonal travel behavior.

Batya Levi - UBS Securities

That's great and the bad debt expense?

James Quarforth

Sorry, what

Batya Levi - UBS Securities

The bad debt expense in the quarter.

James Quarforth

Yeah bad debt expense again improved slightly in terms of from fourth to first, I think that's we saw some improvement in collections and James commented in voluntary return improved slightly. Those were slight improvements, and hopefully that's some final strength in terms of economy. But too early to tell, but if you, I will tell you that from December 31 to March 31 our retail receivables in wireless, the receivable balances improved and our ILEC the other large receivable category of retail, that also improved from December to March 31. So we are pleased to see those kinds of trends. Obviously, or really but encouraging to see the receivables improved from 12/31 to March 31.

Batya Levi - UBS Securities

Just had a follow up, one more topic our expenses voice its revenues sequentially down versus the fourth quarter. And its looks like March was a slow month across the board for the wireless carriers, have you seen the similar extend in April or have you seen traffic picking up a little bit in April?

James Quarforth

Well, regarding the Sprint revenue you had on the voyage side, you had a rate reset on January 1st at which reduced the rate little less than 10%. That's the semi annual rate the calculation we did. You may recall data, we do every quarter. Voice, we do every six months. The last voice rate was July 1st and it actually went up in July. It went down in January.

The overall rates, revenue reduction is about 6.7%. So, you had got a higher rate reduction and then you had more days in the quarter and what made up the difference. As far as March, it was the question on usage or --

Batya Levi - UBS Securities

Mainly on usage, yes.

James Quarforth

As far as Sprint usage?

Batya Levi - UBS Securities


James Quarforth

Yeah, I mean we don't give usage for Sprint. We don't give usage to our customers. What I can tell you that as I mentioned before that customers have remained flat or slightly up over the last 18 months with Sprint customers. So we really have not been impacted the way Sprint's being impacted nationwide. Any reduction and usage could be impacted by the economy perhaps, if Sprint customers are like other customer nationwide are looking for lower rate plans to cut some cost and they'd be using a little bit less but really didn't see any material usage changes sequentially.

Batya Levi - UBS Securities

Okay. Thanks so much.


Your next question is from the line of Thomas Seitz with Barclays Capital. Please state your question.

Thomas Seitz - Barclays Capital

Yeah, thanks for taking the questions. I know you already spoke about the accounting issue with the strength billing. But, is there any other step to that? Is this essentially a done deal or the auditors and strength still going back and checking what you found?

Just some comments there, and then, you probably will take a pass on this one but any general comments you could make regarding the quadrangle ownership and the board involvement just given the closing of the hedge funds versus the private equity ownership of the shares. Any very high level comments you could make there would be appreciated.

James Quarforth

Okay. Yeah, regarding Sprint, we have basically provided our best estimate for the billing and regarding 2008. Once we were aware there wasn't there we notified Sprint. So Sprint is aware of the issue. We're having dialog with them as to how we want to deal with 2008. It's a very complex billing situation and so we're going to continue have discussions with Sprint and try to determine how we want to deal with that issue but we think the maximum liability here is 3.9 million, whether that improves or not, we couldn't say at this point.

Regarding quadrangle, you maybe aware that they have got payables last Friday on the continuation of the fund. To that we have said before, you probably are at the quadrangle but how they like their investment in NTELOS but clearly they made a big investment a little over a year ago.

I think you will find that their, they like the business model. They like the management team and we're expected to they're going to continue to be an investor in this company and we would expect that they would continue to have representation on the Board. They currently have two Board members out of eight today.

Thomas Seitz - Barclays Capital

Jim, I think I lost you.

James Quarforth

Is that answered your question.

Thomas Seitz - Barclays Capital

No, that was terrific type walking right there. Thank you very much for the comment.


Our next question is from the line of Michael McCormick with JPMorgan. Please state your question.

Michael McCormick - JPMorgan

Hey, guys. Thanks.

Michael Moneymaker


Michael McCormick - JPMorgan

It's common, I know you talked a bit about the economy. Some of the other carriers are talking some pressure on data card sales and fuel pricing down to either disconnecting data plans or lower priced data plans. Just asking if you are seeing in that place. And then secondly, any thoughts on network cost savings from the rollout of EV-DO and when we are going to see that. Thanks.

James Quarforth

Okay. We're seeing, obviously relatively it's relatively new product for us that first market launch a year ago and we've been adding markets throughout the year. So in our sales have been very strong as we pointed out our installed basis is 2%, which is a low number but in a short period of time, we feel very good about it and it seems to be accelerating.

The industry have pointed out is it 10% and they have EV-DO longer, so we would expect to continue see growth there. Clearly, we think that we're we've hit the bottom of this economy from everything we're seeing on a macro level and that as the retail industry that's one of our first industry is to recover when you come out of an economic decline.

So we would expect to see that -- actually be a catalyst, quite frankly going forward. So lot of our rural areas in particular don't have access to many of them don't have access to DSL or cable modems. So that's been a catalyst for sales as well.

And generally, if you look at our more urban markets, data cards and mobile broadband is something that's been out there and people understand it. And so that's really kind of assisted the visibility of the product for us. So we feel pretty good about it. On the operating side, clearly the first thing that we're focused on is to get the Virginia, Richmond and Norfolk markets complete which we'd done in the second quarter.

And then what we'll be doing after that is going back and evaluating how we can groom the market. As I mentioned before, you can do something at the cell sites aggregate traffic and convert it to IP. So, we'll be looking at those things. There is other ways to reduce cost as well of all the things we're looking at it is wireless backhaul. As again the more row markets around the T1 cost are pretty expensive.

So, there maybe ways to cut costs on wireline business have been actively building the cell sites and so what you do there is you identify sites and multiple carriers on it. You'll build to those sites, and what that does it? It reduces the cost. For wireless, they also generate some revenue for the wireline. So, yes there are lot of different strategies that I think you are going to see us looking at to reduce our operating cost.

And then as I pointed out before the ramp is pretty much complete. So now we are going to be in little bit of a harvest now meaning that you will see that acceleration of that operating expense but you will see the acceleration of revenue which should allow us to improve margins.

Michael McCormick - JPMorgan

Thanks, guys.


And next is from the line of Dave Coleman with RBC Capital Market. Please state your question.

David Coleman - RBC Capital Markets

Great, thanks a lot. I believe I missed the number earlier but could you just remind what CPGA was for the quarter and then what expectations for CPGA are in 2009 guidance? And Mike in the past you've talked about potentially amending the credit facility either I guess remove the ARPU basket and then I believe in the past its been expensive to do so given state of credit markets.

Just curious whether in the current environment with credit markets improving if that's something that you think deal to do less expensively and therefore something we could expect this year? Thanks.

Michael Moneymaker

Sure, first on CPGA. That number was $336 again compared through 380. Again we've mentioned that if you look back over the last it starts to go back but over the last five quarters certainly as we rolled out EV-DO and that's started selling more Smart phones and more data cards.

We did see some lift in that net subsidy from the higher price devices. And so we think that's reflected in our run rate. We have given and not giving specific CPGA or CCPU forward-looking forecast for 2009.

On the Amended Credit Facility, we've had discussions with banks really at this point given that part between the next 6 to 12 months. I think we're looking at refinancing the debt. I don't think it would be cost efficient to attempt in a minute just to address the ARPU basket outside of that refinancing.

I do think Dave that would be a very expensive process. I still think the fees would be high to get that amendment as you really incur fees I think you would do that in a totality of addressing the refinancing. And so we have -- I think what's important here is that we have a sufficient RP basket after the Board to evaluate and use the cash flows that we're generating the cash on hand to support the dividend and that's something they'll be looking at each quarter as they make that assessment.

But certainly we have the -- we have the generating cash on hand and the ARPU basket that exist today is sufficient to address the needs and allow them for even growth in that dividend.

David Coleman - RBC Capital Markets

All right. Thanks a lot.


(Operator Instructions). Our next question is from the line of Ric Prentiss with Raymond James. Please state your question.

Ric Prentiss - Raymond James

Yeah, couple of questions I am having here. I think Jim mentioned LTE frequently there with circle back top back there were lot of guys at CTIA. Lot of guys briefly in the present horizon I mean you are getting deal in place, you have got deal and usually not getting ready this quarter. What are your thoughts as when LTE would be ready for you guys as a data holding what you are hearing also?

Michael Moneymaker

So we're obviously looking at LTE and one of the things that we're pretty excited about is the fact that is what are we -- did EV-DO, prior to EV-DO we had Motorola and Lucent as our infrastructure providers, and we made the election to move to an all Lucent network and one of the architectural things about that product is it allows you to feather in LTE as part of that network which is a pretty nice transition and little more incremental on nature.

Scott (ph) is also more efficient than just replacing the LTE if you will. We've not made any decisions on that technology at this point or set any timeframe so that we think there is tremendous amount of upside in growth in our markets with EV-DO Rev A, a lot of the folks that were competing with are not Rev A, the REV zero. So we planned on harvesting this technology for a while.

Ric Prentiss - Raymond James

Okay. And then may be Jim Hyde sitting in there, I think one month on the job today, what your initial thoughts are and what are your kind of top priorities.

James Hyde

Yeah, thanks. Thanks for also observing, its one month end. So suffice to say, still got a little bit of a ramp up here to get my arms around it.

Initial observations as expected when I got here, not too many of the regional guys are doing what we're doing here in Dallas, which is growing and growing profitably, both on the wireline and the wireless side.

A big opportunity I think upside on the wireless side. You see that the year-on-year trends has all been positive I think that we should expect those to continue here in 2009. And beyond, the key areas to focus that we've initially on the operational side is to make sure that we whether the economic storm better than most and that means drive -- drive churn out of the business. And that continue to focus on quality service to the customers.

I got to tell you, I've been working for growth companies and the wireless stays pretty much in my entire career and when you're in the growth modem wireless side, like we are here at NTELOS. It doesn't happen very often that you see a record sales quarter and record EIBTDA in the same period. I mean I think that speaks to the strength of the business, the strength of the leadership team and certainly reflects on the smart strategic decisions and investments have been made in prior periods.

Ric Prentiss - Raymond James

Great. Thanks.


Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Wes Wampler for closing comments.

Wesley Wampler

Thank you. As a reminder, a replay of this call and an archive of the audio webcast will be available. Please also to our Investor Relations website details. Pleas also feel free to contact us anytime with questions, media should contact Mike Minnis at 540-946-7290 and investors should contact me please, Wes Wampler at 540-949-3447. Thank you again for joining us this morning. And this concludes our call.

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