iPCS Inc. Q2 2009 Earnings Call Transcript

iPCS Inc. (IPCS)

Q2 2008 Earnings Call

July 31, 2009 11:00 am ET

Executives

Tim Yager - President & Chief Executive Officer

Steb Chandor - Chief Financial Officer

Conrad Hunter - Chief Operating Officer

Nathan Elwell - Financial Dynamics

Analysts

Rick Prentiss - Raymond James

Todd Rethemeier - Hudson Square Research

Ana Goshko - Banc of America

Anupam - Jefferies

Matthew Lee - Octagon Credit Investments

Presentation

Operator

Mr. Elwell, you may proceed.

Nathan Elwell

Thank you, operator and good morning everyone. Thank you for joining us to discuss iPCS’s results for the second quarter ended June 30, 2009, which were announced in a press release issued yesterday.

Hopefully all of you have had an opportunity to review that press release. If you do not have a copy, a copy can be found on the company’s website at ipcswirelessinc.com. Please note a replay of this call will be made available later today. The details are set forth in the press release.

With us this morning are Tim Yager, President and CEO of iPCS; Steb Chandor, the company’s Chief Financial Officer; and Conrad Hunter, the company’s Chief Operating Officer.

Let me quickly outline the agenda for today’s call. Mr. Yager will begin with an overview of the company’s results; Mr. Hunter will give some operational perspective; Mr. Chandor will take you through the financial details, including the statement of operations, balance sheet and cash flow statement, as well as cover the company’s business outlook for the full year 2009.

Mr. Yager will then have a few closing remarks before we take your questions. Before I turn the call over to Mr. Yager, I would like to point out that certain of the statements on this conference call will be forward-looking and you should keep in mind such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please refer to the press release for more detailed information regarding forward-looking statements. Also, in an effort to provide useful information to investors, the company’s comments today include non-GAAP financial measures. For details on these measures, including the reasons the company uses these measures and reconciliations to GAAP measures, please refer to the company’s press release on its website or the 8-K filing provided to the SEC.

We ask that questions on this call be from current investors or analysts and that any media questions be led directly to Financial Dynamics, the company’s Investor Relations firm.

Now, I would like to turn the call over to Mr. Tim Yager.

Tim Yager

Thank you, Nathan and thanks everyone for joining us this morning. I’m pleased to report another strong quarter for iPCS. Despite the challenging economic conditions, we made progress on multiple fronts, such as ARPU and churn, which led to year-over-year improvements in key areas of our business.

Here some details from the second quarter. We report the highest adjusted EBITDA in company history of $31.6 million after adding back $2.3 million in Sprint-Nextel-related litigation expenses, which was a 25% increase over the second quarter 2008 on a similarly adjusted basis.

Continued improvements in ARPU and CCPU were significant contributors to our EBITDA improvement. ARPU for the second quarter increased $3 from the second quarter 2008 to approximately $51, due primarily to our robust rate plan mix and lower customer care credits.

MRC has shown steady increases over the past six quarters, driven by an increasing concentration of high end rate plans in our mix such as the $99 Simply Everything plan. Complementing the increase in ARPU during the second quarter was a sizable reduction in our CCPU.

CCPU, excluding roaming and Sprint-Nextel-related litigation expenses, was $28 for the quarter compared to $31 in the second quarter of ‘08. This $3 improvement is primarily the result of reduced bad debt expense and greater leveraging of our network costs.

We generated $7.8 million positive free cash flow during the second quarter, compared to reporting negative free cash flow of $8.4 million during the same quarter last year. The strong cash flow we’ve demonstrated during the first six months of the year has allowed us to repurchase nearly $6 million, or approximately 500,000 shares, of our common stock to date.

Our operational cash flow and the improvements in our working capital position, as well as the cash benefit from our first quarter settlement with Sprint, have given us the confidence to increase our free cash flow guidance for 2009, which Steb will discuss in more detail.

I am pleased we delivered positive earnings for the second consecutive quarter; we generated net income of $7.4 million, or $0.43 per diluted share, compared to a net loss of $600,000 or negative $0.04 per diluted share for the second quarter of ‘08.

Operation, we had over 55,000 gross additions during the second quarter compared to over 61,000 from the prior year quarter. We also reported net subscriber additions of approximately 10,100 for the second quarter, which is below year ago levels, but reflects our commitment to more tightly managing our credit policies.

In addition, we were able to reduce net churn to just under 2%, a record low from 2.3% a year ago. Overall, we are pleased that at the end of the second quarter, subscriber base of over 710,000 improved in terms of overall credit quality as bad debt and credit-related involuntary churn was substantially lower, evidencing the positive effect of the credit tightening efforts implemented last year.

Our credit decisions have been made to balance subscriber growth while maximizing customer lifetime value and we are comfortable with the credit profile of our current customer lineup. These subscriber results are even better when you consider the current competitive landscape. As a result, we believe the company is poised for healthy and sustained growth in the months and years ahead.

As we look forward to the balance of 2009, we are encouraged by the company’s second quarter performance, as we were able to report the second consecutive period of positive EPS and the highest adjusted EBITDA in our history.

I would now like to turn the call over to Conrad to provide additional detail on the operations of the business.

Conrad Hunter

Thank you, Tim. As Tim mentioned, we had a strong quarter operationally, and we experienced a number of successes including the following. We reduced net churn to just under 2%, the lowest level in company history. We built 30 new cell sites during the second quarter, bringing the year-to-date total to 65, as we provide coverage improvements in several of our core markets and expanding coverage where needed.

We lost the Nextel Direct Connect or NDC service in Saginaw, Michigan. We made plans to offer greater EV-DO coverage in the Illinois and Iowa markets later this year and lastly, we reorganized our sales infrastructure to more efficiently manage our distribution network and to improve effectiveness in sales staff and dealer development.

As Tim mentioned, we continue to grow our subscriber base during the quarter, posting a year-over-year growth of about 9% in our ending subscriber base. This continued growth was particularly gratifying, given the overall economic conditions and increased competition from prepaid offerings like Boost Mobile, MetroPCS and other providers.

We also achieved one of our primary objectives during the quarter, which was to reduce churn compared to prior periods. As we mention in our previous conference calls, we continue to actively review our credit policies and make periodic adjustments to improve the composition of our subscriber base to one that is more profitable and less likely to churn.

A critical strategy for the company is to continue to deploy our voice and EV-DO bill plan, which has allowed us to dramatically improve the quality of the product and service we offer in our market. Our network continues to perform very well. We have invested significant amount of capital to further expand our coverage, capacity, and EV-DO Rev. A technology.

We currently have over 7.4 million POP covered by EV-DO Rev. A technology, which is about 62% of our covered population. We estimate to have approximately 8 million POPs covered by year-end. This bill plan has allowed us to greatly improve our overall network coverage and capacity in several markets and we believe it will allow us to continue to improve customer satisfaction, increase ARPU and reduce churn in the future.

Again, our EV-DO Rev. A network continues to perform at high service levels and the increased coverage has allowed us to augment both data cards and other data centric devices such as Smartphones.

Regarding Smartphones, these devices made up approximately 22% of our total device activation mix during the second quarter, up from 14% in the year ago quarter. ARPU for smart devices continues to remain strong and is currently in the mid $70 range. We continue to see strong demand for the BlackBerry Curve, the Samsung Instinct, and Palm Pre devices in our markets.

We are currently experiencing healthy demand for the Palm Pre, which was launched on June 6, and overall, customer interest remains high. Given this, we are seeking greater quantities of the Palm Pre to satisfy the ongoing demand.

Our launch of Nextel Direct Connect or NDC in Western Michigan last fall continues to show strong customer adoption. We are experiencing significantly higher ARPU with NDC subscribers in that market than the company average.

We completed the launch of the NDC service in Saginaw, Michigan during the second quarter, which has been a resounding success. Given the success of the NDC service in Michigan, we intend to launch this service in Illinois and Iowa during the second half of 2009.

We are confident NDC will be successful in these markets, which have a strong base of trade businesses that are heavy users of this service. Before I turn the call over to Steb, I want to close by mentioning our ongoing efforts to launch a prepaid offering are still in progress. Although, we will not report specifics, we continue to aggressively review our alternatives to address this growing market.

I would now like to turn the call over to Steb for discussion of our financial results.

Steb Chandor

Thanks, Conrad. Total revenue for the quarter was $140.2 million, compared to $129.4 million for the prior year quarter. The approximate 8% increase in the prior year quarter is due to a 14% increase in service revenue from our larger subscriber base and higher ARPU, partially offset by lower roaming revenue from Sprint subscribers.

Adjusted EBIDTA reported for the quarter was $29.3 million. This figure includes expenses of $2.3 million resulting from the Sprint Nextel litigation. This compares to $23.4 million in the year ago quarter an approximate 25% year-over-year improvement.

ARPU, excluding roaming was approximately $51 for the quarter, up $3 from the year ago quarter and $1 higher than the first quarter of ‘09. The increase from the prior year quarter is due primarily to stronger rate plan mix and lower customer care credits, offset by reductions in overage and late fee revenue. Data ARPU for the quarter was $18, compared to the prior year quarter of $12.

Cash cost per user, or CCPU, excluding roaming and Sprint Nextel related litigation expense, was $28 for the quarter. This is an improvement of almost $3 compared to the prior year quarter due to lower per subscriber CCPU fees paid to Sprint, reduced bad debt expense, and improved leverage of our network costs over a larger subscriber base. Bad debt expense for the quarter was $1.6 million, down from $4.8 million in the prior year quarter due to an overall improvement in the subscriber credit quality resulting in fewer write-offs.

Our roaming ratio, which includes roaming revenue and expense for all carriers, including Sprint, was $1.2 to $1 for the second quarter, down from $1.3 to $1 in the first quarter and from $1.5 to $1 for the second quarter of ‘08. The year-over-year reduction in the ratio and margin reflected a reduction in revenue from Sprint subscribers that use our network, a reduction in roaming revenue from carriers other than Sprint, primarily Alltel, and an increase in roaming expense of our subscribers on carriers’ networks other than Sprint.

We believe that the reduction in Sprint’s roaming revenue from the second quarter of 2008, maybe the result of the current weak economic environment and the reduction in Sprint’s CDMA subscribers available to roam into our territory. Roaming expense on carrier networks other than Sprint, continue to increase during the quarter, largely as a result of our increased overall subscriber base and greater concentration of all-inclusive plans, many of which include unlimited roaming.

Our cost of subscriber acquisition, or CPGA, was $429 for the quarter, and was up from $358 a year ago quarter, and $402 last quarter. These increases primarily reflect higher commission costs related to the sale of more expensive rate plans and increase in the percentage of gross additions coming from distribution channels with higher commission structures and higher handset subsidies. In addition, lower gross additions for the current quarter, as compared to the earlier quarters, pushed the fixed cost component of CPGF higher despite relatively flat expenses.

As Tim mentioned, we ended the second quarter with positive free cash flow of $7.8 million, compared to a deficit free cash flow during the second quarter of ‘08. Cash flow during the second quarter of ‘09, compared to the second quarter of ‘08, benefited from improved operating performance and lower capital expenditures.

Capital expenditures for the quarter were $11.7 million, compared to $26.6 million in the year ago quarter. The majority of the capital was invested in the network, including completing approximately 30 cell sites during the quarter.

Our balance sheet at June 30, had a cash balance of approximately $76 million, up from $71 million at the end of the first quarter of ‘09. Our long term debt obligation consists primarily of two high yield notes totaling $475 million, having no principal payments due prior to 2013.

We have notified the trustee of our second lien notes that we’re exercising the payment in kind, or PIK feature, for the quarterly interest payment due February of 2010. This is the third interest period during 2009, where we have exercised the PIK feature of the second lien notes. The cash interest savings will be approximately $1.7 million each quarterly period. We have made no decisions regarding future elections.

Next, I’ll provide a quick update on our $50 million share repurchase program we announced in February. During the second quarter, we have purchased approximately 234,000 shares totaling $3.1 million. Since inception, including amounts purchased since the end of June, we have purchased 490,000 shares for approximately $6 million for an average price of $12.43 per share.

We’ve remain optimistic in our overall outlook for the remainder of ‘09. Although we now believe, that the weak economic conditions in the prepaid competitive landscape will result in the company reporting full-year gross additions at or slightly below the bottom range of our previous guidance of $250,000. We are encouraged by our churn improvement, which helps us continue to grow our subscriber base.

We are reaffirming our full-year 2009 guidance for adjusted EBITDA of $100 million to $120 million, excluding expenses related to Sprint-Nextel litigation and the first quarter impact of the $4.3 million gain related to a settlement with Sprint. We are also reaffirming our ‘09 outlook for capital expenditures of between $35 million and $45 million.

Lastly, as Tim mentioned in his opening remarks, we are increasing our free cash flow guidance for ‘09 to a range of $25 million to $35 million from the previous range of $15 million to $25 million.

Please keep in mind that this free cash flow guidance excludes financial activities such as picking the second lien notes and repurchasing stock. It includes, however, expenses related to our Sprint litigation and working capital changes, some of which is outside of our control.

The increase in guidance primarily reflects our strong first half performance of $24 million in free cash flow, our improved working capital position and visibility, and the cash related to our first quarter Sprint settlement. We believe the company’s free cash flow generation represents a significant competitive advantage in the current environment as we’ll continue to deploy capital with a goal of maximizing shareholder value.

Now I’ll turn the call back to Tim.

Tim Yager

Thanks, Steb. Before I turn the call over for the question-and-answer session, I’ like to update you on our Sprint relationship. As it relates to our litigation against Sprint regarding the Clearwire transaction, we are continuing with additional discovery as a result of the court allowing us to move forward with our amended claim that seeks to enjoin Sprint from obtaining the benefits of 4G technology without providing that technology and sharing its benefit with us.

We expect the discovery to be completed before the end of the year. We’ll seek to have a trial date set as soon as possible in the New Year. As most of you know, Sprint announced on June 12, that it is moving forward with a plan to sell the iDEN assets located in iPCS Wireless’s territory to comply with the Illinois Circuit Court’s ruling that Sprint must cease owning, operating, and managing the Nextel Wireless network in iPCS’s territory by January 25, 2010.

As a reminder, the iPCS Wireless territory includes portions of Michigan, Illinois, Iowa, and Nebraska. We are pleased that Sprint is taking steps to be in compliance with the court’s order. Through our agent, we requested from Sprint’s banker, Citibank, a copy of the offering memorandum related to Sprint’s sale of the Nextel Wireless network in our territory.

We were not giving the information memorandum. We’re told that we will not be allowed to participate in the process. We are disappointed, as we believe we would be a logical buyer for those assets. We’ll certainly continue to monitor the situation to ensure that whatever arrangement Sprint makes with a potential buyer will be in full compliance with the court’s final order.

Earlier this week, Sprint announced that is acquiring 100% of Virgin Mobile. While we applaud Sprint’s desire to more aggressively enter the prepaid business on the CDMA platform. We do not yet know what the final implications of this transaction will be on our business and our relationship with Sprint. As these items and other disputes with Sprint are ongoing, we unfortunately will not be able to comment further on these matters or the status of our litigation and disputes with Sprint.

Finally, I would like to make a closing comment about our quarter. As I stated in my previous remarks, we are very pleased with the results for the second quarter of 2009. On a similarly adjusted basis, our EBITDA improved 25% year-over-year. Our ARPU is at levels not seen in several years, and our churn is a record low level for the company. We look forward to continuing these trends throughout 2009 and beyond.

With that, I’d like to turn the call over to the operator for any questions.

Questions-and-Answers-Session

Operator

(Operator Instructions) Your next question comes from Rick Prentiss - Raymond James.

Rick Prentiss - Raymond James

I just wanted to follow-up on a couple of things. I think I heard Steb say that the change, the gross add guidance, was really due to; one, weak economy and two, the prepaid competition. Can you just elaborate a little bit on that which impacted you more and what caused the change from last quarter to this quarter as far as pulling it down to the add or slightly below the low end?

Tim Yager

I think one other key item on the gross add is certainly the credit tightening that we did in the fourth quarter of last year not knowing exactly when we set the guidance what the impact was going to be, so that certainly had an impact as well. We do think the weak economy has been a contributor to this.

During the quarter, we had MetroPCS launch in a couple of our Michigan markets and then also we’ve had Boost since the first year launch in all of our markets, Boost unlimited on the iDEN network. So I think it’s kind of a combination of those three effects is what has led us to the revision in our guidance on the gross adds.

Rick Prentiss - Raymond James

Then I think you also mentioned that the Palm Pre is doing well. You’ve asked for more supply, can you talk a little bit about what the supply situation has been like?

Conrad Hunter

I’ll just say it’s been constrained from day one. So we’ve got received limited quantities and we’ve allocated those based upon really where the product works the best, which is in our EV-DO market. It’s very constrained in most of our distribution. We’ve been told to start to see some additional quantities of that product. So we’re pleased with that. Quite frankly, we’re very pleased also with the advertising that Sprint is starting to do around that device.

Rick Prentiss - Raymond James

You touched on it a little bit on the Virgin Mobile deal, your exclusivity arrangement with Sprint that obviously has been called into question with Clearwire and Nextel. Is it network related or do you think the fact that Sprint is buying Virgin Mobile, which had been a separate company? If those customers come into Sprint, what are your thoughts initially, like as far philosophically? Because it wouldn’t be network driven, it would be still on the CDMA network. How does that play into your arrangement?

Tim Yager

We’re not going to provide any color or commentary at all as it relates to Sprint’s recent announcement around Virgin Mobile.

Rick Prentiss - Raymond James

The final question is, the cost of service was better than what we were looking for was pretty good. Is that where bad debt flows into it? Is that in the cost of service?

Steb Chandor

Yes, it is.

Operator

Your next question comes from Todd Rethemeier - Hudson Square Research.

Todd Rethemeier - Hudson Square Research

Just a couple of housekeeping ones to start with, what was the wholesale revenue this quarter?

Steb Chandor

Looking that up right now.

Todd Rethemeier - Hudson Square Research

Also the roaming minutes would be helpful?

Steb Chandor

Roaming minutes for the quarter about $467 million, I think which was equivalent to what it was in the first quarter. Wholesale revenues, if you’re referring to reseller revenues? It’s about $2.9 million for the quarter.

Todd Rethemeier - Hudson Square Research

Did I hear you correctly, you said that the bankers told you, you would not be allowed to participate in that process? Did they give you any explanation beyond that?

Tim Yager

Todd, no I think we were just told we wouldn’t be allowed to participate in the process and so that’s where we are and I think any other comments on that I’ll let my prepared remarks stand on their own.

Operator

Your next question comes from Ana Goshko - Banc of America.

Ana Goshko - Banc of America

The first is on the decision to continue to PIK, the second lien notes. You guys have a good cash balance, are generating good free cash flow. So, wondering what the thought process is there. Is the idea that the interest savings would go into a kitty for future stock buybacks or what is the rationale for saving that cash?

Tim Yager

I don’t think our rationale has changed per se from quarter-to-quarter. I think we feel it’s a right decision for the company to make. It’s a unique flexibility that we have and we just want to avail ourselves of that flexibility. While we’ve made no long term plans, at least for the next quarter, we’re going to PIK it and it adds to our financial flexibility going forward.

Ana Goshko - Banc of America

Then on the Direct Connect subscribers now that you’re adding, are those porting over from iDEN or are you finding that you are taking some of your own subscribers on the CDMA network and kind of upgrading or moving them into a Direct Connect phone? Or where do you think you’re getting the incremental subscribers on the Direct Connect?

Conrad Hunter

It’s a combination of both and also just new subs and new people to the category. A lot of your youth markets kind of like the push-and-talk feature, a lot of these kids are, but also it’s coming from existing iDEN customers along with other subs from other carriers.

Ana Goshko - Banc of America

Then third question is, if I walk into a Sprint store in New York, I see Virgin Mobile on the rack next to Boost as well. Have you guys been selling Virgin Mobile in your stores in your territory?

Tim Yager

Ana, I think for the last year plus, we’ve been selling Virgin Mobile out of our stores, yes.

Operator

Your next question comes from [Anupam] - Jefferies.

Anupam - Jefferies

Thank you. It’s Anupam for Jonathan. I just wanted to ask a quick question about the CPGA. Obviously, and as we go forward, we are going to get a greater mix of kind of handset sales of the Smartphones. You had a bit of a ramp here in the CPGA. How are you guys thinking about this forward? Is it kind of more upside from these levels in your CPGA?

Conrad Hunter

The CPGA really is a huge piece that’s driven by the handsets on the Smartphone devices. From my perspective, it’s a great tradeoff from the standpoint that we’re getting a much improved ARPU and also a much stickier customer and just a great customer experience in devices. So, I think as these continue to proliferate, I think pricing will come down, but for right now actually it’s a good situation, but it is what it is.

Anupam - Jefferies

Then you had, a pretty significant reduction with your churn, which is really great. Have you guys done anything incremental to the kind of the regular kind of customer care improvement that Sprint has made, in terms of moving more customers online and being able to take less customers kind of calling to the datacenter, in addition to what Sprint has done? Have you guys done anything incremental that has led to the decrease in churn?

Conrad Hunter

We have really focused on churn from a standpoint of training at the point-of-sale, doing a better job, making sure we explain to the customer what to expect on their first bill, going through proration. There again, a lot more leadership training, better store locations. So, yes, we’ve tried to augment that as much as possible and we have followed Sprint on the red carpet service and it’s something that we talk about daily in each one of our locations on our daily huddles.

Anupam - Jefferies

Just one final one on the prepaid, what are the next key hurdles that you guys have to get by in order to the next step forward to getting that into the marketplace? Thanks.

Tim Yager

Sure. I think Conrad made some remarks there. We are working diligently on the prepaid. At this point, we’re not prepared to put any hurdles out there publicly. It’s tricky becoming a prepaid provider as a Sprint affiliate, but we’re working on it and we will continue to work on it. It’s something we’re committed to being able to provide. As we hit some of those milestones, as you call them, we’ll certainly share those with the street when appropriate.

Operator

Your next question comes from Rick Prentiss - Raymond James.

Rick Prentiss - Raymond James

Earlier in the call, I was writing as fast I could, but I didn’t get this one. I think you said the $51 ARPU was rate mix and less customer care credits. Could you quantify how much customer care credits had improved? I know that has been an issue several quarters ago.

Steb Chandor

Just looking at total customer care credits, I want to make sure my colleagues tell me I’m looking at the right number here. For the three months ending June of ‘09, our customer care credits were $5.67. That same quarter a year ago was $6.65, so roughly $1 reduction.

Rick Prentiss - Raymond James

Then right after that part of your prepared remarks, you started talking about $28 million versus $31 million. I wasn’t sure, was that the cost of service or bad debt or what was that item?

Steb Chandor

Actually, not quite sure what you’re referring to. We did talk to $28 was the fully adjusted EBITDA number for the quarter and that was down $3 from the year ago quarter based on net ops improvement. The leverage there as well as the reduction in the CCPU fee that we pay Sprint as well as bad debt.

Rick Prentiss - Raymond James

If I look at cost of service, it was down nicely, so the bad debt helped some of that. Was there anything else that really drove that you could talk to significantly that drove it? Because cost of service is basically flat, whereas typically it would grow over time I would guess.

Steb Chandor

Again, the reduction in the year-over-year CCPU fee that we pay Sprint would drove some of that delta also.

Rick Prentiss - Raymond James

Then 10-Q, will we get that tonight or is it being filed later?

Steb Chandor

We expect to file it shortly.

Rick Prentiss - Raymond James

You probably won’t answer this one, but I’ll throw it out anyway. Since you do have Virgin in your stores, any anticipation that you might stop letting Virgin be sold in your stores?

Tim Yager

Thanks for the question, Rick, and your prediction was correct.

Operator

Your next question comes from Matthew Lee - Octagon Credit Investments.

Matthew Lee - Octagon Credit Investments

Could you talk about maybe updated thoughts, if you have any, on uses of cash and how much cash you think you want to keep on the balance sheet and maybe whether you would consider buying back bonds at these levels?

Steb Chandor

We take a look at every quarter what our excess cash is, if we have any, what we believe the appropriate use of that, whether we look to increase our capital expenditures, whether we want to get involved in any activities around buying back stocks or bonds or increasing the amount of buying back our stock. It is something the company looks at on a regular basis. We have never put out a minimum cash numbers. Obviously, we are buying back stock, so it’s less than what we currently think it is.

Matthew Lee - Octagon Credit Investments

Then as far as non-Sprint roaming revenue, I know it’s going down because of Alltel. How much do you think it goes down to roughly or could you just give us an idea of how much it’s declining?

Steb Chandor

We can comment on the Alltel number, which in general was a little over $12.4 million, last year’s Alltel revenue about three quarters all of our roaming revenue from subscribers other than Sprint. Through the first six months of this year, I believe our Alltel roaming revenue was about $6.5 million. It actually was up in the second quarter compared to the first quarter. Without giving specific numbers, we have said we do expect that to decline fairly substantially through the second half of ‘09.

Operator

At this time, we have no further audio questions. Tim, the floor is yours.

Tim Yager

I just want to thank everyone for taking the time to join us on our earnings call. We look forward to updating you on future quarters. Thank you.

Operator

We thank you for joining today’s conference call. You may now disconnect.

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