MetroPCS Communications Inc Earnings Call Nuggets: Seasonal Patterns, Competition
On Thursday, MetroPCS Communications Inc (NYSE:PCS) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.
Brett Feldman – Deutsche Bank: Second quarter is usually sort of a seasonal down period for you guys and it sounds like you’re sort of waiting to reset the business around the LTE re-launch later in the year. How should we think about seasonal patterns going into second quarter, do you think that perhaps it will be a little more exacerbated than we’ve typically seen notably around things like churn in gross adds?
Roger D. Linquist – Chairman and CEO: I think that would a correct statement. I think seasonality is always going to be a part of our business and the economy, of course, is not improving dramatically. So, I would suspect that we would see a seasonality, not untypical of past years, the opportunity as we’ve said is to ensure that we meet our operating margins and free cash flow objectives and take subscriber growth that we feel is in order with the product offerings that we have today.
Brett Feldman – Deutsche Bank: So, if you just run a little math around and bake in what is usually the seasonal uptick in churn and the seasonal decline in gross adds, it’s just you’d probably have a net loss of customers in the quarter. So, with that as the probable outcome what is the missing you can do around margins to kind of make sure you are generating cash ahead of what’s going to be a more interesting product launch later in the year?
Roger D. Linquist – Chairman and CEO: Well, I think, that is exactly the job we’ve got at hand and I think the churn as we’ve indicated has been more moderated. One of the benefits of first quarter has been that there’s a significant number of our subscribers that upgraded to the Android service and they now have a phone that we feel that satisfies them. So, it’s not so much a matter of changing on phones, it’s a matter of providing the good service that we need to provide and maintain those customers. The 3.1% churn is not the lowest (indiscernible), but it is equal to the lowest. So, we think that churn is not going to be the biggest factor going in much different than we saw in the first quarter of last year when we promoted the family plan type retention plans.
J. Braxton Carter – Vice Chairman and CFO: Brad, I think it’s also important to note that we have substantially curtailed the handset promotions that were out in the marketplace during the first quarter. The primary promotion in the second quarter was a $25 talk and text plan. That does have a very different dynamic when it comes to acquisition costs, and more importantly, you saw the key driver on our miss this quarter was about $70 million of incremental upgrade expense as compared to the prior year. The $25 plan, we think is very high from an NPV basis. There is no data, there is no web access. It’s a talk and text plan, and we think from a promotional standpoint, it is the right thing for us to do during the second quarter. It will obviously be somewhat of a drag on ARPU, but Tom talked about the substantial uptick that we are seeing in our new LTE rate plans, the new pricing that we did on that. So, we hope to execute a fairly neutral ARPU during the next quarter.
Brett Feldman – Deutsche Bank: What’s the market like right now for the sort of legacy talk and text plans? I mean, one of your competitors was talking about the continued pressure from the Lifeline products. Is that why you’re trying to put something like that into the market?
Thomas C. Keys – President and COO: Brett, I think there is probably two reasons. One is, we went out at this through a card based product earlier on and I think what we’ve realized is that we’re monthly subscription company first. So, we think we’ll get a better degree of traction there. Number two, we also think we’ve heard from the marketplace where not having a web-based product for children is really important and this product does not get a family plan discount, that’s a really important dynamic in terms of the economics for this. So there’s no family plan discount. It can be certainly added to a family plan program to pay one bill, but there is no discount. Lastly, this probably is a farm team for people to come into MetroPCS (NYSE:PCS) to understand the first offering and then based upon our feature phone to smartphone upgrade pattern with higher ARPUs because our lowest smartphone ARPU was $50, we think there’s an opportunity for this to be ARPU creative over time.
Richard Prentiss Jr. – Raymond James: Follow-up on (Brett’s) question maybe. When you think about the competition in the space if you break it into the low-end on the lifeline, maybe the high-end as far as what AT&T (NYSE:T), Verizon (NYSE:VZ) might be planning to do, also with family plans on the data being discussed, and then maybe a mid zone with Sprint’s (NYSE:S) version product and the WiMAX coming in the second quarter. Can you help us understand the competition on the low, medium, and high-end of who you’re seeing out there and how you’re addressing it?
Thomas C. Keys – President and COO: I don’t know that we address every single carrier separately. I don’t think we’ve ever truly been able to do that and have tried to. We think there is probably three segments inside of our acquisition model today. The first, we’ve just described right on the on the high value, low-end $25 talking tax. The other goalpost, if you will, number three is really our premium service our 4G LTE service and as mentioned, we have a very, very good churn rate there presently it’s about 2% which we enjoy and we also came close to doubling that customer base in the first quarter. So we think that there’s a really big opportunity at number three. Number two in the middle of costs is our 1X RTT smartphones and what I think you saw us do is defend that base in the first quarter, so we can keep those customers on the network, give them the level of expectation to the best we can as we transition the network to our full 4G LTE services and work on giving our customers what they’ve asked for over the long haul and that’s really good high-speed data.
Richard Prentiss Jr. – Raymond James: As you think of that, how important is VoLTE, voice over LTE, availability for making that occur for that opportunity, and then how does spectrum fit into that kind of game plan also?
Roger D. Linquist – Chairman and CEO: Let me try the first question which is really VoLTE. It’s inextricably linked with our spectrum needs. VoLTE is foundational obviously, to be able to reform CDMA spectrum in our business. We see that the opportunity there is going to be back-ended this year. We’ll be introducing a device, the Samsung will be the first device to be introduced in the third quarter on VoLTE and we will I think be the first certainly in North America, if not in Europe and elsewhere to offer VoLTE, because it is foundational for us going forward in 2013, for us to begin to manage our way through the spectrum holdings that we have. So refarming is totally dependent on VoLTE and we plan to do it as we have the experience and insight to offer service that is at least comparable to our CDMA voice service today.
Richard Prentiss Jr. – Raymond James: As far as when do you need more spectrum, how critical is that given the VoLTE timeline and devices coming?
Roger D. Linquist – Chairman and CEO: Well a VoLTE timeline, as I mentioned, they’ll be coming in this year. In fact, we’ll have at least two, probably three devices that are on VoLTE this year. More are available, if we choose to take them, but we want to make sure that we have a service that we have broadly understood how effective VoLTE is in terms of being comparable to our CDMA voice product. So, the fact that it is available will become available 2013 will be a much more volume year where we can take advantage of that and have the experience of really exploring and finding out what the level of service and the various (indiscernible) are. It is a VoIP service, it is totally new and we want to make sure that the quality of service is comparable or exceeds what we now have on CDMA.