iPCS, Inc. Reports Third Quarter Results
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Company Reports Adjusted EBITDA
SCHAUMBURG, Ill.--(BUSINESS WIRE)-- iPCS, Inc. (NASDAQ: IPCS), a PCS Affiliate of Sprint Nextel Corporation, today reported financial and operational results for its third quarter ended September 30, 2009.
Third Quarter Highlights:
-- Total revenues of $141.4 million compared to $132.1 million in the prior
year quarter ended September 30, 2008.
-- Net Income of $2.7 million, or $0.16 per diluted share, compared to a
net loss of $7.5 million, or $0.44 per diluted share, in the prior year
quarter.
-- Adjusted EBITDA of $23.6 million compared to $14.7 million in the prior
year quarter. Included in Adjusted EBITDA for the current year third
quarter is approximately $3.0 million in Sprint-related litigation
expenses. Included in Adjusted EBITDA for the prior year quarter is
approximately $5.3 million in Sprint-related litigation expenses.
-- Capital expenditures of $10.9 million compared to $11.4 million for the
prior year quarter.
-- Subscriber activity for the quarter as follows:
o Gross additions of approximately 68,300 compared to 72,200 for the
prior year quarter.
o Net additions of approximately 9,900 compared to 20,400 for the prior
year quarter.
o Monthly churn, net of 30 day deactivations, of approximately 2.4%,
compared to 2.3% for the prior year quarter.
o Ending subscribers of approximately 720,100 compared to 674,400 for
the prior year quarter.
Merger Agreement with Sprint Nextel
As previously disclosed, on October 18, 2009, the Company, Sprint Nextel Corporation, a Kansas corporation ("Sprint Nextel"), and Ireland Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Sprint Nextel, entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which, among other things, on October 28, 2009 the Purchaser commenced a tender offer (the "Offer") to acquire all of the Company's outstanding shares of common stock, par value $0.01 per share (the "Shares"), at a price of $24.00 per share in cash, subject to required withholding taxes and without interest. The Merger Agreement also provides that following the consummation of the Offer, the Purchaser will be merged with and into the Company (the "Merger") with the Company surviving the merger as a wholly owned subsidiary of Parent.
In light of the proposed transaction with Sprint Nextel described above, the Company is withdrawing its full year 2009 operating and financial guidance and will not be hosting an earnings conference call for its third quarter results.
NOTICE TO INVESTORS
The tender offer described in this release commenced on October 28, 2009. The description contained in this release is not an offer to buy or the solicitation of an offer to sell securities. Upon the commencement of the tender offer, Sprint Nextel filed a tender offer statement on Schedule TO with the Securities and Exchange Commission (the "SEC"), and iPCS filed a solicitation/recommendation statement on Schedule 14D-9 with respect to the planned tender offer. The tender offer statement (including an offer to purchase, a related letter of transmittal and other tender offer documents) and the solicitation/recommendation statement contain important information that should be read carefully before making any decision to tender securities in the tender offer. Those materials are being made available to iPCS's stockholders. In addition, all of those materials (and all other tender offer documents filed with the SEC) are available at no charge on the SEC's website at www.sec.gov.
About iPCS, Inc.
iPCS, through its operating subsidiaries, is a Sprint PCS Affiliate of Sprint Nextel Corporation with the exclusive right to sell wireless mobility communications network products and services under the Sprint brand in 81 markets including markets in Illinois, Michigan, Pennsylvania, Indiana, Iowa, Ohio and Tennessee. The territory includes key markets such as Grand Rapids (MI), Fort Wayne (IN), the Tri-Cities region of Tennessee (Johnson City, Kingsport and Bristol), Scranton (PA), Saginaw-Bay City (MI), Central Illinois (Peoria, Springfield, Decatur, and Champaign) and the Quad Cities region of Illinois and Iowa (Bettendorf and Davenport, IA, and Moline and Rock Island, IL). As of September 30, 2009, iPCS's licensed territory had a total population of approximately 15.1 million residents, of which its wireless network covered approximately 12.7 million residents, and iPCS had approximately 720,100 subscribers. iPCS is headquartered in Schaumburg, Illinois. For more information, please visit iPCS's website at www.ipcswirelessinc.com.
Definitions of Operating and Non-GAAP Financial Measures
iPCS provides readers financial measures calculated using generally accepted accounting principles ("GAAP") and other measures which are derived from GAAP ("Non-GAAP Financial Measures"). These financial measures reflect conventions or standard measures of liquidity, profitability or performance commonly used by the investment community in the telecommunications industry for comparability purposes. These financial measures are a supplement to GAAP financial measures and should not be considered as an alternative to, or more meaningful than, GAAP financial measures.
The Non-GAAP Financial Measures and non-financial terms used in this release include the following:
-- Gross subscriber additions for the period represent the number of new
activations during the period (excluding transfers into our territory).
-- Net subscriber additions for the period represented is calculated as the
gross subscriber additions in the period less the number of subscribers
deactivated plus the net subscribers transferred in or out of our
markets during the period.
-- Churn is a measure of the average monthly rate at which subscribers
based in our territory deactivate service on a voluntary or involuntary
(credit-related) basis. We calculate average monthly churn based on the
number of subscribers deactivated during the period (net of those who
deactivate within 30 days of activation and excluding transfers out of
our territory) as a percentage of our average monthly subscriber based
during the period divided by the number of months during the period.
-- Adjusted EBITDA represents earnings before interest, taxes, depreciation
and amortization as adjusted for gain or loss on the disposal of
property and equipment, stock-based compensation expense and debt
extinguishment costs. Adjusted EBITDA is a measure used by the
investment community in the telecommunications industry for
comparability and is not intended to represent the results of our
operations in accordance with GAAP.
-- ARPU, or average revenue per user, is a measure of the average monthly
service revenue earned from subscribers based in our territory. This
measure is calculated by dividing subscriber revenue or subscriber
revenue plus roaming revenue in our consolidated statement of operations
by the number of our average monthly subscribers during the period
divided by the number of months in the period.
-- CCPU, or cash cost per user, is a measure of the monthly costs to
operate our business on a per subscriber basis consisting of costs of
service and operations, and general and administrative expenses in our
consolidated statement of operations, plus handset subsidies on
equipment sold to existing subscribers, less stock-based compensation
expense. These costs are divided by the number of our average monthly
subscribers during the period divided by the number of months in the
period.
-- CPGA, or cost per gross addition, is a measure of the average cost we
incur to add a new subscriber in our territory. These costs include
handset subsidies on new subscriber activations, commissions, rebates
and other selling and marketing costs. We calculate CPGA by dividing (a)
the sum of cost of products sold less product sales revenue associated
with transactions with new subscribers, and selling and marketing
expense, net of stock-based compensation expense, during the measurement
period, by (b) the total number of subscribers activated in our
territory during the period.
-- Licensed Population represents the number of residents in the markets in
our territory for which we have an exclusive right to provide wireless
mobility communications services under the Sprint brand name. The number
of residents located in our territory does not represent the number of
wireless subscribers that we serve or expect to serve in our territory.
-- Covered Population represents the number of residents covered by our
portion of the wireless network of Sprint. The number of residents
covered by our network does not represent the number of wireless
subscribers that we serve or expect to serve in our territory.
-- Free Cash Flowis defined as the net increase (decrease) in cash and cash
equivalents less the change in debt (including payment in kind, or "PIK"
interest), proceeds from the exercise of common stock options or the
issuance or repurchase of common stock and other financing activities,
net. This non-GAAP measure should be used in addition to, but not as a
substitute for, the analysis provided in the statement of cash flows. We
believe that Free Cash Flow provides useful information to investors,
analysts and our management about the cash generated by our core
operations after interest and dividends and our ability to fund or
refinance scheduled debt maturities and other financing activities,
including discretionary refinancing and retirement of debt, the
repurchase of common stock and purchase or sale of investments.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
Statements in this press release regarding iPCS's business which are not historical facts are "forward-looking statements." Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Such statements are based upon the current beliefs and expectations of management and are subject to significant risks and uncertainties. A variety of factors could cause actual results to differ materially from those anticipated in iPCS's forward-looking statements, including, but not limited to, the following factors: (1) iPCS's dependence on its affiliation with Sprint; (2) the final outcome of iPCS's litigation with Sprint concerning the scope of iPCS's exclusivity under its affiliation agreements; (3) changes in Sprint's affiliation strategy; (4) changes in Sprint's ability to devote as much of its personnel and resources to the remaining Sprint Affiliates of Sprint Nextel; (5) iPCS's reliance on Sprint's internal support systems and its related execution of back office activities, including customer care, billing and back office support; (6) changes in iPCS's customer default rates and/or in the level of bad debt expense; (7) changes or advances in technology; (8) changes in Sprint's national service plans, products and services or its fee structure with iPCS; (9) adverse changes in the amounts of, and the relationship between, roaming revenue iPCS receives and roaming expense iPCS pays; (10) iPCS's reliance on the timeliness, accuracy and sufficiency of financial and other data and information received from Sprint; (11) difficulties in network construction, expansion and upgrades; (12) increased competition in iPCS's markets; (13) iPCS's dependence on independent third parties for a sizable percentage of its sales; (14) the depth and duration of the economic downturn in the United States and its effect on our vendors, distribution partners and customers, (15) uncertainties as to the timing of the Offer and the Merger; (16) uncertainties as to how many Shares will be tendered into the Offer; (17) the risk that competing offers will be made; (18) the possibility that various closing conditions for the transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction and (19) the effects of disruption from the transaction making it more difficult to maintain relationships with employees, licensees, other business partners or governmental entities. For a detailed discussion of these and other cautionary statements and factors that could cause actual results to differ from iPCS's forward-looking statements, please refer to iPCS's filings with the SEC, especially in the "risk factors" section of the Annual Report on Form 10-K for the fiscal year ended December 31, 2008, our Form10-Q for the quarter ended March 31, 2009, June 30, 2009 and our Form 10-Q for the quarter ended September 30, 2009 to be filed shortly. Investors and analysts should not place undue reliance on forward-looking statements. The forward-looking statements in this document speak only as of the date of the document and iPCS assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those contained in the forward-looking statements
iPCS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share and per share amounts)
September 30, December 31,
2009 2008
Assets
Current Assets:
Cash and cash equivalents $ 77,092 $ 55,940
Accounts receivable, net 44,922 37,859
Receivable from Sprint 29,168 25,623
Inventories, net 6,346 5,465
Assets held for sale -- 389
Prepaid expenses 7,653 7,223
Other current assets 34 63
Total current assets 165,215 132,562
Property and equipment, net 159,726 162,014
Financing costs, net 5,387 6,419
Deferred customer activation costs 2,935 3,816
Intangible assets, net 83,720 90,602
Goodwill 141,783 141,783
Other assets 432 416
Total assets $ 559,198 $ 537,612
Liabilities and Stockholders' Deficiency
Current Liabilities:
Accounts payable $ 5,044 $ 5,051
Accrued expenses 19,848 18,337
Payable to Sprint 49,709 41,067
Deferred revenue 14,793 13,410
Accrued interest 3,672 5,519
Current maturities of long-term debt and capital 42 37
lease obligations
Total current liabilities 93,108 83,421
Deferred customer activation fee revenue 2,935 3,816
Interest rate swap 11,749 16,621
Other long-term liabilities 6,761 6,551
Long-term debt and capital lease obligations, 477,667 475,401
excluding current maturities
Total liabilities 592,220 585,810
Stockholders' Deficiency:
Preferred stock, par value $.01 per share;
25,000,000 shares authorized; none -- --
issued
Common stock, par value $.01 per share;
75,000,000 shares authorized, 173 172
17,262,954 and 17,163,221 shares issued,
respectively
Additional paid-in-capital 171,021 167,531
Accumulated deficiency (183,448 ) (199,280 )
Accumulated other comprehensive loss (11,749 ) (16,621 )
Treasury stock, at cost; 658,863 and 0 shares, (9,019 ) --
respectively
Total stockholders' deficiency (33,022 ) (48,198 )
Total liabilities and stockholders' deficiency $ 559,198 $ 537,612
iPCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except share data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Revenue:
Service revenue $ 108,480 $ 96,097 $ 319,600 $ 282,370
Roaming revenue 27,783 32,282 83,556 94,083
Equipment and 5,141 3,678 14,571 10,633
other
Total revenue 141,404 132,057 417,727 387,086
Operating
Expense:
Cost of service 74,038 74,520 217,838 213,167
and roaming
Cost of 18,497 15,905 50,029 40,442
equipment
Selling and 17,542 18,091 51,528 52,394
marketing
General and 8,948 10,028 25,565 25,108
administrative
Gain on Sprint -- -- (4,273 ) --
settlement
Depreciation 8,986 10,592 29,233 33,809
Amortization of
intangible 2,294 2,295 6,882 6,882
assets
Loss on
disposal of 113 71 629 329
property and
equipment, net
Total operating 130,418 131,502 377,431 372,131
expense
Operating 10,986 555 40,296 14,955
income
Interest income 47 316 211 1,420
Interest (8,065 ) (8,320 ) (24,096 ) (25,456 )
expense
Other income, 72 63 99 93
net
Income (loss)
before 3,040 (7,386 ) 16,510 (8,988 )
provision for
income tax
Provision for 358 108 678 758
income tax
Net income $ 2,682 $ (7,494 ) $ 15,832 $ (9,746 )
(loss)
Income (loss)
per share of
common stock:
Basic $ 0.16 $ (0.44 ) $ 0.94 $ (0.57 )
Diluted $ 0.16 $ (0.44 ) $ 0.93 $ (0.57 )
Weighted
average shares
of common stock
outstanding:
Basic 16,595,364 17,159,794 16,828,193 17,150,061
Diluted 16,917,497 17,159,794 16,994,820 17,150,061
iPCS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
For the Nine Months Ended
September 30, 2009 September 30, 2008
Cash Flows from Operating
Activities:
Net income (loss) $ 15,832 $ (9,746 )
Adjustments to reconcile net income
(loss) to net cash flows from
operating activities:
Loss on disposal of property and 629 329
equipment
Depreciation and amortization 36,115 40,691
Non-cash interest expense 1,032 1,032
Payment-in-kind interest 3,600 --
Stock-based compensation expense 3,502 4,778
Provision for doubtful accounts 8,044 15,791
Changes in assets and liabilities:
Accounts receivable (15,105 ) (21,395 )
Receivable from Sprint (3,546 ) 9,885
Inventories, net (881 ) (3,476 )
Prepaid expenses, other current and 464 206
long-term assets
Accounts payable, accrued expenses (1,048 ) 5,753
and other long-term liabilities
Payable to Sprint 8,642 (815 )
Deferred revenue 502 1,081
Net cash flows provided by 57,782 44,114
operating activities
Cash Flows from Investing
Activities:
Purchases of property and equipment (27,910 ) (52,435 )
Proceeds from disposition of 248 156
property and equipment
Net cash flows used in investing (27,662 ) (52,279 )
activities
Cash Flows from Financing
Activities:
Payments on capital lease (27 ) (22 )
obligations
Proceeds from the exercise of stock 5 582
options
Payment of special cash dividend (89 ) (109 )
Repurchase of common stock (8,857 ) (19 )
Net cash flows (used in) provided (8,968 ) 432
by financing activities
Net increase (decrease) in cash and 21,152 (7,733 )
cash equivalents
Cash and cash equivalents at 55,940 77,599
beginning of period
Cash and cash equivalents at end of $ 77,092 $ 69,866
period
Supplemental disclosure of cash
flow information - cash paid for 21,254 24,978
interest
(net of amount capitalized)
Supplemental disclosure for
non-cash investing activities:
Accounts payable and accrued
expenses incurred for the
acquisition of property, $ 1,552 $ 12,070
equipment and construction in
progress
iPCS, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(UNAUDITED)
(In thousands)
Adjusted For the Three Months Ended For the Nine Months Ended
EBITDA
September September 30, September 30, September 30,
30, 2008 2009 2008
2009
Net income $ 2,682 $ (7,494 ) $ 15,832 $ (9,746 )
(loss)
Net interest 8,018 8,004 23,885 24,036
expense
Provision
for income 358 108 678 758
tax
Depreciation
and 11,280 12,887 36,115 40,691
amortization
Stock-based
compensation 1,188 1,118 3,502 4,778
expense
Loss on
disposal of
property and 113 71 629 329
equipment,
net
Adjusted $ 23,639 $ 14,694 $ 80,641 $ 60,846
EBITDA
Free Cash For the Three Months Ended For the Nine Months Ended
Flow
September September 30, September 30, September 30,
30, 2008 2009 2008
2009
Net increase
(decrease)
in cash and $ 1,453 $ 4,312 $ 21,152 $ (7,733 )
cash
equivalents
Add back:
Cash Flows
from
Financing
Activities
Payments on
capital 10 7 27 22
lease
obligations
Proceeds
from the
exercise of (5 ) (186 ) (5 ) (582 )
stock
options
Payment of
special cash 30 37 89 109
dividend
Repurchases
of common 4,374 8 8,857 19
stock
Free cash $ 5,862 $ 4,178 $ 30,120 $ (8,165 )
flow
iPCS, INC. AND SUBSIDIARIES
Summary of Operating Statistics
(UNAUDITED)
For the Three Months Ended
September 30, June 30, 2009 September 30,
2009 2008
Subscribers
Gross Additions 68,300 55,300 72,200
Net Additions 9,900 10,100 20,400
Total Subscribers 720,100 710,200 674,400
Churn, net 2.4% 2.0% 2.3%
Average Revenue Per User,
Monthly
Including Roaming $ 63 $ 64 $ 65
Without Roaming $ 50 $ 51 $ 48
Cash Cost Per User, Monthly
Including Roaming $ 41 $ 39 $ 44
Without Roaming $ 31 $ 29 $ 34
Cost Per Gross Addition $ 373 $ 429 $ 374
Licensed Population (Millions) 15.1 15.1 15.1
Covered Population (Millions) 12.7 12.6 12.4
Cell Sites 1,981 1,941 1,819
iPCS, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(UNAUDITED)
(Dollars in thousands except per user and per gross addition amounts)
For the Three Months Ended
September 30, June 30, 2009 September 30,
2009 2008
ARPU
Service revenue $ 108,480 $ 107,139 $ 96,097
Roaming revenue 27,783 28,153 32,282
Total service and roaming $ 136,263 $ 135,292 $ 128,379
revenue
Average subscribers 716,700 704,400 663,100
Average revenue per user $ 63 $ 64 $ 65
including roaming, monthly
Average revenue per user $ 50 $ 51 $ 48
without roaming, monthly
CCPU
Cost of service and roaming $ 74,038 $ 71,650 $ 74,520
plus: General and 8,948 7,736 10,028
administrative
less: Stock-based compensation (1,047 ) (1,050 ) (988
expense
less: Retail equipment upgrade (1,575 ) (1,563 ) (676
revenue
plus: Retail equipment cost of 6,839 5,482 3,897
upgrades
Total cash costs including $ 87,203 $ 82,255 $ 86,781
roaming
less: Roaming expense (21,102 ) (20,409 ) (19,317
Total cash costs without $ 66,101 $ 61,846 $ 67,464
roaming
Average subscribers 716,700 704,400 663,100
Cash cost per user, monthly $ 41 $ 39 $ 44
Cash cost per user without $ 31 $ 29 $ 34
roaming, monthly
CPGA
Selling and marketing $ 17,542 $ 17,336 $ 18,091
less: Stock-based compensation (141 ) (144 ) (129
expense
less: Equipment revenue, net (3,555 ) (3,293 ) (2,991
of upgrade revenue
plus: Equipment costs, net of 11,658 9,838 12,008
cost of upgrades
CPGA Costs $ 25,504 $ 23,737 $ 26,979
Gross additions 68,300 55,300 72,200
Cost per gross addition $ 373 $ 429 $ 374
Source: iPCS, Inc.
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