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Executives

Keith Terreri – Vice President and Treasurer

Roger Linquist – Chairman, President and Chief Executive Officer

Tom Keys – Chief Operating Officer

Braxton Carter – Executive Vice President and Chief Financial Officer

Analysts

Michael McCormack – JP Morgan

Scott Malat – Goldman Sachs

James Breen – Thomas Weisel Partners

Simon Flannery – Morgan Stanley

Ric Prentiss – Raymond James

David Barden – Bank of America

Phil Cusick – Macquarie Research Equities

Brett Feldman – Barclays Capital

MetroPCS Communications Inc. (PCS) Q1 2009 Earnings Call May 7, 2009 9:00 AM ET

Operator

Welcome to the MetroPCS Communications first quarter 2009 conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Keith Terreri, Vice President and Treasurer for MetroPCS.

Keith Terreri

The speakers with me this morning are Roger Linquist our Chairman, President and Chief Executive Officer, Tom Keys our Chief Operating Officer, and Braxton Carter our Executive Vice President and Chief Financial Officer. The format for today's call is as follows. First, Roger will provide an overview of our business then Tom will provide an update on a number of operational results and initiatives, then Braxton will review the financial highlights of the first quarter 2009 followed by a question and answer session.

During today's call, we will refer to certain non-GAAP financial measures. We reconcile these historical non-GAAP measures to GAAP measures in our earnings release, which is available in the investor relations section of our website at www.metropcs.com under the investor relations tab. Before I turn the call over to Roger, I want to remind you that certain information that we will discuss in this conference call may constitute forward-looking statements within the meaning of Federal Securities laws. Words such as believes, anticipates, expects, intends, should, could, would, estimates, projects and other similar expressions typically identify forward-looking statements.

Forward-looking statements involve risks and uncertainties that could cause actual results or the timing of events to differ materially from those made in the forward-looking statements. We cannot assure you that the forward-looking statements discussed on this conference call will be attained. Our forward-looking statements are also subject to the risk factors described in our filings with the Securities and Exchange Commission, and we encourage you to review them. We would like to remind you that the results for the first quarter may not be reflective of results for any subsequent period.

Also, I would like to remind everyone of our new segment reporting format. Our first quarter results reflect core markets, which are comprised of all our operating markets with the exception of our northeast market segment, which includes the Philadelphia, New York City and Boston Metropolitan areas. For anyone listing to a taped or webcast replay or reviewing a written transcript of today's call, please note that all information presented, including our reaffirmation of guidance for 2009, is current only as of May 7, 2009 and should be considered valid only as of May 7, 2009 regardless of the date reviewed or replayed.

MetroPCS disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The company does not plan to update or reaffirm guidance, except through formal public disclosure pursuant to Regulation FD.

I hope by now you've had a chance to review our earnings release issued this morning, with the financial and operational results for the first quarter 2009. I would encourage everyone to read our earnings release in conjunction with the information discussed in this call, along with previous SEC filings. We intend to file our 10-Q for the period ended March 31, 2009 by Monday, May 11.

At this time, I'd like to turn the call over to our Chairman, President and CEO, Roger Linquist.

Roger Linquist

With industry leading growth and a low cost structure, we delivered record first quarter adjusted EBITDA. We reported approximately 684,000 net subscriber additions in the first quarter and we have added over 1.6 million net subscriber additions in the past 12 months. In fact, based on a recent prominent third party study, in aggregate our share of gross subscriber additions in our launched markets was higher than any other U.S. carrier in the first quarter of 2009 at approximately 25% market share.

With the lowest CPG in the industry, this outstanding growth demonstrates our focus on marketing, cost efficiency, and execution and is a record for the company. Customers in our markets continue to realize the value of our service and in what has been a challenging economy, we are pleased to report strong net subscriber additions in both our core markets, as well as recently launched northeast markets.

On a consolidated basis, the growth of our subscriber base actually accelerated this quarter growing over 37% year-over-year compared to 30% growth when compared to the first quarter's 2008 to 2007. Helping to drive our strong subscriber growth is the continuing trend of subscribers cutting the cord. Residential wireline access line losses at the largest national telephone companies continued in this first quarter and were over 12% year-over-year. We expect this to continue as voice continues to go wireless.

Among our PCS customers, the trend is clear as nearly 60% of MetroPCS subscribers have already replaced their landline phones with our MetroPCS wireless phones. As innovators in the unlimited wireless space, we recently introduced GroupLINE. GroupLINE enables MetroPCS family plan subscribers to port their landline number to MetroPCS and to receive calls on a shared group line number while still maintaining their individual mobile numbers.

Our customers need only one phone and that is our MetroPCS phone. We believe the economy will continue to struggle for the foreseeable future, and within the unlimited wireless space, we are perfectly positioned to continue to offer customers a superior value proposition. Customers are looking for value and our offer of unlimited wireless service that is predictable, affordable and flexible fits this need perfectly.

Recently, we have seen additional entrance into the unlimited space. As such, the awareness and acceptance of the availability, practicality of unlimited wireless plans is growing. We believe we execute the best in the unlimited space and as a result demonstrate we believe we continue to grow and take share. Endless within the wireless industry forecast on unlimited segment of wireless will grow faster than the overall wireless segment.

As pioneers in the flat rate no sign contract service, we are very well positioned. Unlimited is the only thing we do, and we do it well. On February 4, we announced the simultaneously launches of service in New York City and Boston Metropolitan areas. The northeast markets, which now include the Metropolitan areas of Philadelphia, New York and Boston, were build within that and that work using both macro sites and distributed antenna systems or data sites.

At the end of the first quarter, our networks in densely populated northeast markets covered approximately 23 million POPs. With first quarter net subscriber additions of approximately 249,000 in the northeast, we are very pleased with our initial results. We continue to expand coverage and add POPs outside the initial launch service areas. In the future, we expect to connect these three

Metropolitan areas and provide continuous coverage within the northeast region, as well as expand into adjacent Metropolitan areas. Given the initial results, we continue to be excited about the opportunities for growth in the northeast markets. Few facilities based carriers can report sustained annual subscriber growth of at least 35% for over six years in a row.

At the end of the first quarter this year, we served approximately 6.1 million subscribers. Given our first quarter results, we expect our growth to continue and have today reaffirmed our guidance for 2009. Strategically, we are embracing the convergence of devices at MetroPCS. As voice has gone wireless data will go mobile. We have recently introduced several smartphones, including the BlackBerry Curve and the Samsung Finesse and we intend to introduce more over the next few quarters, as we want to be well positioned to bring a variety of smartphones to the marketplace of an unlimited service basis.

Ultimately, smartphones will run increasingly complex applications and media rich content. In terms of future technology deployments, we continue to work on our transition to an LTE infrastructure platform to provide 4G data rates to our subscribers. We are currently working with a number of handset and infrastructure providers and will announce these strategic relationships and timetables in the near future. We continue to anticipate having an LTE smartphone solution available in the second half of 2010.

Touching on RPU, this quarter's RPU reflects steps we took during the fourth quarter of 2008. We see a positive impact from these changes, and based upon our current pricing projections, we continue to expect RPU will stabilize over the next year in the low $40 range, which is consistent with our long-term plan.

Our recently announced promotional Mexico unlimited offering is another example of how we provide extraordinary value to our customers, while having a positive incremental affect on RPU. We continue to focus on execution and believe our results demonstrate the strength and resiliency of our business, even in these difficult economic times.

Now, I'd like to turn it over to Tom to discuss some of the operational highlights from the quarter.

Tom Keys

The first quarter of 2009 proved to be another successful quarter for MetroPCS. The quarter was highlighted by outstanding subscriber growth, well executed large market launches, continued product innovation, smartphone introductions, and overall operational excellence. We continue to show extraordinary financial and operational results as we expand our leadership position in the unlimited wireless space.

So how did we do in Q1? During the first quarter we added approximately 684,000 net additions with over 1.5 million gross additions, both of these were records for the company. So, taking a look at the last 12 months, we've added over 1.6 million net subscriber additions. It is clear that consumers are changing the way they think about wireless services. The troubled economic times we're experiencing are driving a change in the way people spend money.

Consumers are looking for the most value for every dollar they spend. We think this is a permanent change and we are perfectly positioned to take advantage of this re-evaluation. This change towards value for money has accelerated our brand position in all markets. We have aggressively brought the brand to value and feature seeking consumers and result has been increased subscriber penetration in all markets during Q1.

A common remark heard in recently launched markets has been, "Wow, Metro, you guys are everywhere. Thanks for coming here." And we're real proud of that. When you take a look around the country, you will note that very few companies have the growth story that MetroPCS has. Even during these difficult economic times, we have continued to grow. While other companies are cutting back during an economic era not seen since the Great Depression, we are forging ahead aggressively acquiring customers.

AT&T added 875,000 post-paid net additions on a nationwide footprint of roughly 250 million covered POPs, while MetroPCS added approximately 684,000 net additions on a 77 million average POP footprint. In fact according to independent third party research, in our operating markets and in aggregate MetroPCS sold more handsets and had the highest share of decision of any wireless carrier. We think we're doing extremely well.

New York and Boston launches, clearly one of the most important events during the first quarter and honestly for the company as a whole, was the launch of two of our northeast markets New York and Boston on the same day, another company first. New York is the largest market in the country, and we're excited about the growth potential there. While we've launched these markets our building has not stopped. We continue to expand Philadelphia, New York and the Boston footprint every day.

We are pleased with our progress and excited about the future in the northeast. Our local teams have done an outstanding job building these networks and the coverage quality is excellent. Our drops and blocks are below the average of the national carriers. And the in-building penetration has been outstanding. These networks were built for high demand and high usage and they are delivering.

The increased deployment of data systems has enhanced the customer experience and the news of MetroPCS's value proposition is spreading. Our viral word-of-mouth messaging is truly amazing. We used some unique marketing tactics at launch and I wanted to quickly walk through some of those with you. Out of home execution, bus wraps, bus panels, subway panels, billboards, station domination and talented, trained, energetic and engaged street teams helped introduce our unlimited offerings to the Boston and New York marketplaces.

We colored the markets purple, we touched consumers one by one and listened and watched the word spread from Brooklyn to the Bronx and from Providence to Lynne. As you can see from the results, customers in New York, Boston, as well as Philadelphia are embracing the unlimited nature and exceptional value of the MetroPCS product. We have an unparalleled value proposition that resonates with those who pay their own bill.

Handset roadmap, as Roger mentioned earlier, our handset roadmap continues to evolve. We've recently introduced several smartphones including the Samsung Finesse a touch screen smartphone, the Blackberry Curve and more recently the Motorola Hint. We continue to work with our vendors to provide higher end handsets, which our customers demand.

Based on our early experience with the Curve and the Finesse, all evidence points to the fact our customers do want and have the money to spend on these types of handsets, handsets they can't get from other carriers with plans that are unlimited and don't require a signed contract. Our Best Buy relationship continues to expand and is going well. They have embraced the product and been successful early on, particularly with the Blackberry Curve and the Samsung Finesse, more to come on this relationship as we move throughout 2009.

Products and promotions, product differentiation and a low cost structure will prove to be the winning combination that prevails. I want to mention a couple of products we've recently introduced that we feel will continue to fuel the growth. We recently introduced GroupLINE, a product whereby a family can port their landline number over to a group of family member's wireless phones. This second line on everyone's wireless handset functions similarly to multiple extensions in your home.

GroupLINE eliminates a significant barrier to cutting the cord and that families can now all receive calls anywhere. This enables us to continue to capitalize on the ongoing landline replacement trends in the U.S. in this largely untapped market segment.

A promotion we launched in April was our Mexico Unlimited offering. Our subscribers can now call landlines in 200 cities and towns throughout Mexico, as well as text wireless callers on an unlimited basis. Since the introduction of this promotion in the LA market, we have now successfully rolled the service out in all markets and are excited about the results. We saw a need, we engineered a solution and we delivered tremendous value.

RPU, the changes we made back in October '08 are taking effect and we feel confident that we've established a good runway towards RPU stabilization. During the first quarter, a slight decline we saw in RPU was primarily due to lower MetroFLASH activations, which was a direct offshoot of the popularity of our $49 handset. The customers are simply choosing to spend an extra $9 and get a new handset versus paying $40 and using an older handset.

We expect new products and services, such as GroupLINE and our Mexico Unlimited service will continue to provide further stabilization to our RPU. We estimate that of the 5% churn we experienced in the first quarter, false churn is estimated at 1.7%. Without the false churn, our churn would be in the 3% range. The increase in churn is in part due to our record level of gross additions over the past nine months. Additionally, sales of our $49 handset have been strong, and we believe that some subscribers are upgrading their handsets.

As long as a new phone number is assigned, we are not capturing these upgrades as an offset to churn, thus creating false churn. During this period of heightened growth, there is a natural propensity for increased churn. Importantly though for tenured customers, those who have been with us over 12 months, churn has historically been in the 2% range. We are very pleased with the first quarter of 2009 results.

And with that, I'll turn the call over to Braxton.

Braxton Carter

Once again we have reported record first quarter adjusted EBITDA, even with the largest gross additions and highest overall acquisition costs in our history. We optimize all of our key metrics, RPU, CPGA, CPU and churn to maximize our profitability. No individual metric dominates our financial results. It is the focus on the entire picture and on adjusted EBITDA per subscriber that has produced these exceptional results during these difficult economic times.

We ended the first quarter 2009 with approximately $1.1 billion in cash and short-term investments. We believe our strong financial condition and liquidity is a significant differentiator and will allow us to capitalize on unique opportunities for future growth when they occur, and will allow us to continue to be the leader in the unlimited wireless space. Our total leverage computed in accordance with the indentures governing our 9.25% senior notes, at the end of March was approximately 4.5 times and our net leverage was approximately 3 times, demonstrating the ability of our model to significantly reduce leverage quickly over time.

With debt maturities in 2013 and 2014, a weighted average cost of debt for the quarter of below 9% and substantially all of our debt fixed by its nature or through interest rate swaps, and with over $1.1 billion in cash and short-term investments, we are very well positioned from a balance sheet perspective.

We are pleased to see the positive impact our RPU initiatives had during the first quarter. Our first quarter 2009 RPU was 40/40 down only $0.12 or approximately 0.3% when compared with 40/52 in the fourth quarter of 2008 continuing the change in our recent trajectory of this metric. Our CPGA for the quarter was approximately $134 as compared to $125 in the prior year's first quarter, the lowest of any facilities based carrier.

Other unlimited carriers have historically had CPGA in the $200 or higher range, and the average of the national carriers is well over three times MetroPCS. MetroPCS's results demonstrate incredible spending efficiency in our marketing and distribution. The $9 increase was primarily driven by costs associated with the launch of the New York and Boston Metropolitan areas.

Our CPU for the quarter was 16/69 as compared to 18/86 in the prior year's first quarter. This decrease was due primarily to continued cost reduction efforts and the increasing scale of our business offset by expenses related to our recent launches in the northeast market segment. Our business continues to scale and our CPU continues to be among the lowest in the industry. We expect our CPU will continue to decline as we achieve future economies of scale.

MetroPCS continues to focus on profitable growth and we are pleased to report that during the first quarter, adjusted EBITDA was $199 million, which represents a margin of approximately 27% compared to approximately 32% the first quarter of 2008, these results after an adjusted EBITDA burn of $69 million for the first quarter in our northeast markets.

Our core market adjusted EBITDA margin was 38% compared to approximately 34% in the first quarter of 2008. We believe over time all of our markets on a consolidated basis can achieve a mid-40% adjusted EBITDA margin on average, as demonstrated by our original core market segment.

I'd like to highlight a few items from the income statement and cash flow statement. On a consolidated basis, both service revenue and cost of service continued to grow as our overall subscriber base increases. In the quarter, our service revenue and cost of service grew over 29% and 30% respectively to approximately $727 million and approximately $246 million.

Our consolidated selling, general and administrative expenses were $136 million for the first quarter of 2009, representing an increase of approximately $32 million when compared to a year ago quarter. This increase is primarily related to the launch of the Boston and New York Metropolitan areas.

We generated approximately $307 million in cash from operating activities in the quarter, an increase of $199 million from the prior year's first quarter. Offsetting this operating cash flow we incurred capital expenditures of approximately $313 million for the quarter. We also generated $44 million in consolidated net income during the quarter or $0.12 per share.

I am very pleased to announce that we've completed the conversion of all of our markets to our new Amdox billing platform. This conversion was done in less than nine months and on budget, and we believe it will be a significant differentiator for MetroPCS going forward.

I would now like to discuss reporting changes that we will make starting in the second quarter of 2009. Going forward, we will not pre-release quarterly subscriber results except for at year end. We commenced the pre-release of subscriber results in late 2007 given the concern of how our business model would perform during difficult economic times. That concern has been put to rest as the MetroPCS business model has proven to be extremely resilient.

To put any rumors to rest now, our second quarter is off to a strong start and we plan on being aggressive in capturing additional market share during the upcoming quarters. For the year ending December 31, 2009, MetroPCS today reaffirms the guidance it originally provided on November 5, 2008 and reaffirmed on February 27, 2009. MetroPCS currently expects net subscriber additions to be in the range of $1.4 million to $1.7 million on a consolidated basis, and consolidated adjusted EBITDA to be in a range of $900 million to $1.1 billion for the year ending December 31, 2009.

MetroPCS currently expects to incur capital expenditures in the range of $700 million to $900 million on a consolidated basis for the year ended December 31, 2009. MetroPCS currently expects to reach free cash flow positive on a consolidated basis in late 2009. The company currently plans to focus on building out networks to cover approximately 40 million of total population during 2009 through 2010, which includes the Boston and New York Metropolitan areas in which service was launched on February 4, 2009.

This is the end of our prepared remarks. I'd now like to turn the call back over to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael McCormack - JP Morgan.

Michael McCormack – JP Morgan

A couple of things, Braxton can you try to quantify for us the impact of RPU, I'm sorry, of the MetroFLASH and RPU this quarter? I'm assuming it was the activation revenues that you're not seeing that were flowing through RPU and if we could get quantification on that, that might be helpful.

And then secondly, I know you've been pretty vocal historically about Sprint's entry into the marketplace and they obviously put up some pretty impressive numbers on Boost, but maybe just circling back in your thoughts on what demographic you think they might be targeting and what impact it might have on yourself.

Braxton Carter

Sure, Mike. I'll touch base on RPU and then I'll have Roger address the question on the competition. First of all, the full change in RPU, we're decreased $0.12 was related to the change in MetroFLASH and you're absolutely right, the activation revenue's related to MetroFLASH. But I think there's a couple other pieces to the story here, first of all, that really accounts for it being flat on a sequential basis.

The rest of the story is we just launched two very major markets that are ramping, and when you look at the distribution of ads during the quarter, it doesn't follow the normal distribution that we typically see in the first quarter, because you're ramping and you have better marks and that does have a dilutive impact on RPU, as we discussed in the fourth quarter.

The second thing we have seen, which we think is a real positive, is a higher take rate on our family plan during a non-promotional period than what we've experienced on a historical basis. And if you remember, Roger's talked about some of the branding that we did in the prior year for family plan and its really resonating with our consumers, so that really kind of fills out the picture of RPU.

Michael McCormack – JP Morgan

Braxton, just quickly on that, your thoughts going into second and third quarter in the legacy markets, do you expect any additional promotional activity on the family share?

Tom Keys

This is Tom. We will always look at what's the right thing to pulse the market with, so I think if you just watch our offering, you'll find that family plan has always been part of our offerings. It's never gone away. It's always been there for the consumer to take advantage of.

Roger Linquist

Let me address the question on the competition because, obviously, the Sprint Boost people posted some very impressive numbers and I think they did a great job. I would say that, bear in mind that they have roughly three times the covered POPs that we do. And I think what we're seeing is an expansion of the pay in advance segment for unlimited no sign contract type service.

So, I think it's really an impact of the segment growing rather extensively. But then I come back to the fact that the numbers that we've seen from this third party looking at share, with our 25% share of gross additions being number 1 in the country among all carriers, it's obviously not had a great impact of us in our markets.

Operator

Your next question comes from Scott Malat - Goldman Sachs.

Scott Malat – Goldman Sachs

I don't want to harp on RPU, but I think it's maybe just from a bigger picture perspective, obviously, a lot of focus on that metric. I know you said in the past that you've targeted in the low 40's range, but can you take us through your bigger picture of thinking here? Meaning, the obvious goal is to maximize free cash flow, so wouldn't more subscribers in the family plans, which have attractive unit economics, just be better for free cash flow over the long run, while maybe more dilutive to RPU and wouldn't you be okay with that?

Braxton Carter

We've consistently talked about a term actually that you've coined, the productivity loop, and we do focus on the full picture. And if you remember some of my comments earlier, we were talking about optimizing all of our metrics from a macro standpoint to reach the end goal of profitability, which we really look at from an EBITDA per sub-standpoint.

So absolutely, family plan is accretive to the overall profitability of our company due to several other positive features, greater stickiness lower churn that we've talked about in the past, so your point is well taken. But we've also been very clear that we're focused on RPU stabilization in the low 40's, and we believe that we've taken all the necessary impact to do that. And you're seeing a lot of, I think, really innovative marketing coming out of Metro PCS. Our unlimited Mexico offering is a good example. Those are items that will be accretive to RPU going forward.

Roger Linquist

Let me just add to that, because I think it's a great question. The opportunity, as we see it, is in growing the segment that is really wireline replacement and displacement I might add. You don't have to give up your phone line to be committed to a wireless solution if you have other uses for it like Internet or DSL, etc. The point that you make though is very important, that the real growth segment is the wireline replacement and we are perfectly positioned for that. So, yes, there is a balancing act in RPU because it tends to be, at least from our offering, it tends to be a bit of RPU decrementing.

On the other hand, we do have services as I think we've added, with smartphones that do bring people to realize that there are other offerings as we have in GroupLINE that will enhance it. Mexico calling, Navigator, which pushes them back into higher rate plans on average. So, I think the smartphone development is meant to kind of counteract that, but we would much rather own the wireline replacement market because we think our ever improving CPU gives us the bottom line that we need and the growth that we're after.

Scott Malat – Goldman Sachs

And just another question just on the handset pricing strategy, the lower end phones, the $50 phones I'm wondering the churn profile for those phones and maybe, does it make sense to offer phones at low prices but maybe only give a partial or free first month, and kind of how are you looking at the unit economics of those phones?

Roger Linquist

I think it all comes back to the metric CPGA and churn, I think the note that Tom made and one that's very important, that there's gross churn and net churn. And unfortunately, we don't have the customer identity to absolutely nail this, but the fact is that churn is stabilized and has been over the last number of years since we've been keeping this data at around 3%.

But the fact is that the so-called $49 handset buyers do have a higher false churn because they typically are through indirect dealers who don't keep this information and don't track the fact that a customer is basically trading in a phone that he has already on our service if they don't require their same number. So, higher false churn on the $49 overall, we don't think it's a significant difference.

Operator

Your next question comes from James Breen - Thomas Weisel Partners.

James Breen – Thomas Weisel Partners

A couple questions, one on the market launches, can you talk about any competitive response you saw, if there was a difference between Boston and New York? And then secondly, with respect to the BlackBerry, any color there in terms of how that's gone since the launch?

Tom Keys

On the New York and Boston launches, we were first of all, extremely pleased. If you go back over our history, we've always tried to take lessons learned from previous launches, and the lessons that we learned are about coverage, coverage and coverage. I think Roger highlighted the use of our DAS networks in both of those markets. And right now we're seeing extremely good coverage, which really resonates as we increase our distribution over the course of time.

So, both of those launches for us are really exciting. We've mentioned some of the marketing initiatives that we've activated the brand with and it really resonates. The people in New York and Boston their just really happy that we're there, they've heard of us and now that we're there, we're seeing very, very good results.

In terms of competitive response, I think we're going to see just an increased pay in advance prepaid sector. I think you can look around the post-paid world, there's a lot of excitement around what others have done, including us, and we think that's only going to highlight to consumers that there's an offer out there that's now available to everybody and we think MetroPCS will gather our share along the way.

The BlackBerry, so in introducing the BlackBerry we have utilized Best Buy as an early distribution point, and we've seen extremely good results, just as we've recently introduced the Finesse. The uptake in smartphone products by our customer base is actually taken us by surprise. We've seen extremely good results. There were times that we were not able to keep some product on the shelves in some of our Best Buy locations, which is never a good thing, but a great indication of our consumer demand for the product.

We've seen a phenomenal outbreak in tweeting about our products and it is so viral, that the minute we launched the BlackBerry in Best Buy, there was thousands of tweets going on about the excitement of it inside of our customer base. We think the products will do very well. We've got three phones now positioned at a 249 for the Hint, at a 349 for the Finesse and a 449 for the Curve, and we think that distributing sits well.

Operator

Your next question comes from Phil Cusick - Macquarie Research Equities.

Phil Cusick – Macquarie Research Equities

Going back to churn and this false churn, I just want to explore this a little more. Can you help us out, because you've given in the past what you thought that number was. What do you think it was a year ago versus the 1.7 of the 5 today? And then also, is this an issue that needs to be addressed and that you're working on, or is something that you're just going to accept and say this is part of the cost of doing business and it's really not that big a deal and move forward?

We've heard about some activities with dealers, I'm trying to minimize this and is it sort of a result of, the first month is free that's our business, period. Or do you sort of explore maybe we don't want to be giving the first month free over time?

Braxton Carter

It's amazing the adjusted level of normalized churn has been remarkably consistent over the last four to five years. And actually, on our Analysts Day that's coming up on the 15th, which I know you will be attending, and for the people who can't attend, we will definitely have webcast with the slides. We have actually a chart where we're showing year-over-year how stable it has been.

What you have seen is an increase in overall churn, which is an increase in false churn, but when you normalize for that, it's only in the 3% range. Churn is very important. But remember our focus is really on the all-in, and we think the right way of looking at a business model when you're evaluating customer turnover, is looking at the cost of acquisition amortized over the life of a customer. Churn is never a positive thing, but if you can minimize your acquisition costs, then you can minimize the overall impact on the profitability of the company.

And we do this by taking churn by CPGA and multiplying it by CPGA and that gives you a monthly cost of acquisition. And it's a really interesting analysis to do that and then to compare it to all of the other players. And you'll see that, even with a higher level of churn that you're going to have with this model of the 3% normalized range, we benchmark very, very well against the national players, when you're looking at the all-in cost of churn.

The false churn it is something that, of course, we're always at ways to minimize churn, I mean, it's a part of what we do from the operational standpoint. But overall we're not overly concerned because we're not seeing any adverse affect when you look at the inner play of everything and keeping our low CPGA down on the profitability of the business. And bottom line that's what we're here to do is create value for our shareholders. Roger, do you want to comment?

Roger Linquist

I think to summarize saying that it's really the whole business because, if we can grow as we have and you've seen our growth in first quarter has been quite exceptional, if you can maintain growth and you can maintain profitability, then it's the confluence of all these variables that really matter. And in our original core markets, once again, we had 48% plus EBITDA margin. So if we can make that kind of profitability and grow this quickly, then the issue is really moot.

Phil Cusick – Macquarie Research Equities

And if I could follow up just for a second. We've talked in the past how churn tends to pickup in the summer months. We've got this false churn happening and then we've got the impact of the New York and Boston launches just recently. I know you don't want to give guidance, but can you help us clarify what churn probably does over the next quarters? Just to help people get an idea of what they should be looking for in 2Q and 3Q.

Braxton Carter

I think you hit the two key factors. I mean, you can go back and you can look at the historical seasonality of churn and there definitely is a seasonable impact on churn and it's pretty simple. Your highest churn periods are following your highest growth periods and the summer months for any carrier, I mean it's the dog days of summer. You always see an uptick in churn, which also brings up another phenomenon that's going on, is we're penetrating very rapidly new market segments, which have continued to show incremental growth and will continue to show incremental growth and you do need to model that impact.

Operator

Your next question comes from Brett Feldman - Barclays Capital.

Brett Feldman – Barclays Capital

Just to get back to the topic of new competitors in your segment, obviously, a lot of interest in Boost considering the quarter that it reported and I think that people are somewhat surprised that everyone seems to be doing well. When you look at Boost, they're technically available everywhere. You guys obviously have a strong presence in significant markets in the country, so it would seem that you completely overlap with that product. But I'm wondering if that's too simplified of a way of looking at the market place.

Could you maybe give us a little bit more color on what actually happens at the distribution level, how extensively you think their distribution is overlapping yours, and maybe talk a bit about where most of your additions come from. For example, what percentage come from a Metro PCS branded channel versus say a multi-branded channel where you could be on the shelf next to a Boost product.

Roger Linquist

First of all, we haven't released that data in the past and as the nature of the question suggests, it almost suggest that we have more complete knowledge on distributors that carry multiple brands, and even though we have anecdotal information, that that information is difficult to come by even from our standpoint. But I would just say this, that the share of gross additions in our market far exceed the share of gross additions that Boost has been able to turn up. But they've done a good job and what's clear to us is that this market segment is expanding.

Braxton Carter

Brett, I think if you look at this real simply, we use less water and we have the tallest crops in the land. And it's really about the execution of what we do locally, it's how we activate a brand in any city, it's the spin that we do, it's how we maximize it. We don't use the most expensive marketing spins we use things that are seen a little bit differently. But we've been doing this now consistently since we've launched our first market. It's in our DNA and it's really about execution. There are times that if you study harder you get better grades and just think that's what we do. It's about local execution.

Brett Feldman – Barclays Capital

Maybe just one more quick question to make sure I get all my POPs math right here. I think you have about 83 million POPs in operation at the first quarter; is that correct?

Braxton Carter

That is correct.

Brett Feldman – Barclays Capital

And then that's inclusive of 15 of the 40 million POPs you want to launch by the end of next year, right?

Braxton Carter

Oh, no. The 15 million was the initial launch in New York and Boston. We have definitely had incremental POPs in other areas and we continue to expand post launch in those markets.

Brett Feldman – Barclays Capital

I guess I'm just really trying to say that it looks like you are still looking at about 25 million additional POPs by the end of next year, is that right?

Braxton Carter

It would be less than that because we've already added some of that…

Roger Linquist

And it'll be building throughout this year so if you really do put the line at 2009 versus 2010, it'll be much more in the 15 to 17 million range.

Operation

Your next question comes from Simon Flannery - Morgan Stanley.

Simon Flannery – Morgan Stanley

Just keeping up on the POPs point, can you just talk about what you've been doing in the first quarter in New York and Boston? If you launched with 15 million, was your marketing really focused on 10 or 12 million of that and is that sort of steadily expanding through the quarter. And then in addition, can you talk about the impact of the national roaming deal, how important that is. Are you starting to see some traction with some of your higher rate plans and some usage as a result of that?

Roger Linquist

That's a great question about New York. Let me just kind of give you the five burros play if you will. We certainly focused on Brooklyn, Manhattan, Queens, the Bronx and Stanton Island with our, what we'll call a Phase 1 approach. We used macro coverage as well as dense status deployment, and then we limited the things we did. As an example, zoned cable is how we reached the market. We tried not to get a lot of overlap in places that we didn't have coverage to reach, so the spend was very economical.

If you were in Manhattan for any of that point in time, you probably ran into somebody dressed in purple who was engaging and was greeting you with an offer that we had to bring you into one of our distribution points. We also put some of our distribution points in some of the highest density traffic corridors in the city. We're on 125th Street up in Harlem. We are in Fulton Street in Brooklyn. So we really measured where we should go. We did a great job of understanding commuting corridors.

We know exactly how many people go from every burro into Manhattan and out. In the morning you found us in Manhattan at key places. In the evening you found us out at the other end of the burros greeting people as they went home from their day in Manhattan. We dominated major billboards and signage in the cities. You'll find us right above Junior's in Brooklyn with a permanent billboard that's unbelievable.

We did a similar thing in Boston with our T-stop domination. There's not as much outdoor available in Boston as there is in New York, obviously, but we made great use of our street teams as well. And we think that initial exposure with how viral the product is was a huge part of our success in both of those markets. Philadelphia included but especially Boston and New York most recently.

Simon Flannery – Morgan Stanley

And on the roaming?

Roger Linquist

Our nationwide roaming, we keep all the stats of where our customers roam to and who roams on us through all of our switches. And we found some amazing things that maybe weren't intuitive, but we found some cities such as Raleigh, North Carolina was a phenomenal commuting environment for our customers to go to to utilize another network that we have in our roaming platform from our Atlanta market.

We have definitely enjoyed the use of this agreement and we've given people a lot more mobility, which was certainly one of the barriers that we were trying to overcome when we thought about putting this agreement in place. So, our nationwide roaming has been very, very well accepted by our customers.

Tom Keys

I think the question you raise is that how many POPs do we really market to in these launches and I would say as a rule of thumb you've really got to take at least 10% off because we're just not going to market to the fringe areas where there's a high risk that customers will roam, or at least have a place of residence outside our coverage, so you'd have to take at least 10% to 15% off the covered POPs.

Operator

Your next question comes from Ric Prentiss – Raymond James.

Ric Prentiss – Raymond James

Couple questions for you, Braxton, you're probably the best one for some of these. The CPGA, can you help us out a little bit about how much of the CPGA cost might have been from the launching of the New York and Boston launch, or on the CCPU how much might have been, at the consolidated level, how much might have been pulled down by the launches. I'm just trying to gauge the ability to grow those back once you get more steady state.

Braxton Carter

Just look at the burn for the first quarter on the northeast markets, it was $69 million. And without that, our EBITDA for the first quarter would have been well over $250,000 million. That $69 million burn has significant impact on both CPGA and CPU and you're still seeing incredible improvement and scaling in our CPU metrics.

On CPGA specifically, we did comment that the driver of the $9 increase was the New York and Boston launch. And you saw a similar phenomenon following the launch of our LA market where you saw CPGA again in the quarter following launch spike up to this level, but then you saw it come down very rapidly in the next two quarters. And the bottom line is, when you launch in a new market you're scaling, you're ramping your gross ads and you're covering your fixed costs, and that's part of what we're seeing there.

The same with CPU, definitely a large impact but we're past these large launches. Where we entered '08 to where we're going to exit '10, we'll more than double the number of POPs that we cover in this company. And that's been a significant drain on EBITDA and you think about the profile of our markets reaching EBITDA breakeven in three or four quarters, and you think about what that's going to do organically to our EBITDA going forward. Even if multiples stay where they're at, it's a pretty exciting story.

Ric Prentiss – Raymond James

Yes, it is. On the CCPU side, if we look at cost of service, I think it was flat in a dollar term, almost, from fourth quarter to first quarter. So, I'm just trying to understand also with the burn would some of those costs maybe been capitalized in the early part of the quarter and we should see it spike up a little bit in the second quarter. I'm just trying to understand that kind of flat.

Braxton Carter

We do not, and have not, ever capitalized any pre-operating OpEx costs. There's been a full burden on our P&L for anything that would typically hit OpEx for any market launch that we do.

Ric Prentiss – Raymond James

And then final question, obviously, a pretty substantial cash balance there. You've alluded a little bit to looking at opportunities. Can you help us understand, given that you said you were going to be free cash flow by late '09, you probably will exit with a good chunk of cash. How do you look at what the opportunities there are, how do you gauge attractiveness, just help us kind of prioritize what you might be thinking about.

Braxton Carter

We think that in this environment there is going to be some very, very high return on invest to capital opportunities. One of the things that's really interesting is spectrum opportunities. I mean, for example, just look at our federal government and the amount of money that they're spending right now. They're going to be looking for ways to recapture as much revenue as possible, and we would not be the least bit surprised to see additional spectrum coming to the marketplace.

There will be companies who are monetizing assets. We just think there's going to be some unique opportunities in this environment. Roger, do you want to add anything?

Roger Linquist

I think that just opportunistically we want to be positioned to capitalize on whatever we can, but, as Braxton mentioned, obviously if AWS-2 or other spectrum comes to the market any time soon, then we're clearly well positioned to take advantage of that.

Ric Prentiss – Raymond James

Is this also to prepare you for the LTE opportunities in the second half of 2010?

Braxton Carter

It certainly doesn't hurt, but we think that we can measure our steps without taking a major hit to our CapEx, so it's really for all of the above, but it's not significantly for that last topic and namely the LTE build out.

Operator

Your last question comes from David Barden – Bank of America.

David Barden – Bank of America

Just to follow up on a couple of things, first with respect to you guys POP build out, if you could kind of maybe just give us the target split for that between the enhancements to what you're putting in the core market buckets and how the new market, expansion markets, are going to be built out.

Second, on the cost side, obviously when you look year-over-year at the service revenues stripping out the equipment, it's like a 46% incremental margin and that includes all the network build expenses. Are there going to be any new big chunky costs that go along with that market expansion?

And then I guess my last question, if I could, is on where the growth is coming from. I know we talked a lot about wireless substitution and things like that. But, I think there is as debate about how impactful this business is on the national post-pay players and do the national post-pay players need to kind of react to it and push back on you.

And I think it would be helpful if could kind of give us the sense, what percentage of the customers you're getting are new to wireless, how many are coming from existing prepaid businesses and how many are coming from as a percentage from the national post-pay players would be helpful.

Braxton Carter

Well, the first question breaking down our POP guidance to market or segment specific, we're not going to get that granular. It's a dynamic situation and we've already put out Roger said the additional build that has not happened to this point is in the 15 to 17 million range. We will, of course, continue to evaluate that. There may be more incremental growth, we're certainly funded to do so, but that's about all we can say there.

I like your math on the incremental margins and, again, part of our theme here today has been the incredible efficiency of the model that MetroPCS has deployed. And Roger mentioned, even though we're not disclosing our old core market segment, he disclosed that legacy, and this is transitional disclosure, that's a 48% EBITDA margin for the first quarter, which is incredible.

You've got to remember that when you're launching markets of the magnitude that we just launched, there's some pretty significant burn, as you can now see with the transparency that we've given you on the northeast market. But, any more chunky costs coming through from an OpEx standpoint, nothing would really come to mind that would have the impact of a very, very, very large market burn.

I think your last question I think is probably best addressed by Roger, and just to recap, just looking at the effective competition on our business with the big guys potentially be attracted to these types of offerings and wherever our cost structure advantage is. And then any information that we can give you on new to wireless or coming from existing carries, I'll hand that question over to Roger.

Roger Linquist

A number of years ago, I'd say probably three years ago, we were saying that more than 50% of our customers were new to wireless. And that was partly due to the fact that we had such a significant attraction among the teens and then going to tweens. There was also a fairly significant number of people that were not able to meet the credit requirements as the very early wave, but since then we've moved on in a number of ways, certainly into higher discretionary income groups.

And now that number has gone and is beginning to go to about 1/3 coming from new and the rest being share or people shifting service providers. I think foundationally the issue that we're not terribly concerned about, obviously, competition does get our attention, but the key for us is our cost structure. I think Braxton has indicated in the past that our cost structure in the very mature markets, which is the only ones that we can really reflect on, is pressing the $14 and lower range.

And as we get to the $13 and $14 range, we're almost 1/2 that of the major carriers. So, our cost structure gives us a lot of latitude to enjoy very profitable customers, even as we get more aggressive on our pricing, if that were the case.

David Barden – Bank of America

I guess I was kind of thinking of a lot of people wonder, since you're a $40 RPU plan, you must be taking share from $50 RPU national players. But, to the point of wireless substitution, you can take a $10 Tracfone customer if that customer is also paying $40 for a fixed line telephone.

So, presumably all the prepaid base is an opportunity for you, if you think about wireline and wireless, and that you're growth can come from taking some of those 12 million Tracfone and 9 million Go Phone and 4 million [Boost] and 5 million Virgin customers. And it's not obvious to me that you have to grow by taking national player share and even risking that they'll have to push back on you. Is that a fair statement?

Roger Linquist

That's absolutely fair. It's difficult to track because people who are going into prepaid that they're typically into a number of providers, but we do see that and I think it's a very astute observation.

Braxton Carter

Well, we would, again, like to thank all of you for participating on today's call. We appreciate your interest and support of MetroPCS and we look forward to our next quarter of continued progress, and we look forward to seeing many of you at our Analyst Day next week.

Operator

Ladies and gentlemen, this concludes the MetroPCS Communications 2009 first quarter conference call. Thank you for your participation. You may now disconnect.

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Source: MetroPCS Communications Inc. Q1 2009 Earnings Call Transcript
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