Filed by AirGate PCS, Inc.
Pursuant to Rule 425 under the Securities Act of 1933, as amended
and deemed filed pursuant to Rule 14a-12(b) of
the Securities Exchange Act of 1934
Subject Company: AirGate PCS, Inc.
Commission File No. 027455
Set forth below is the transcript of an earnings conference call held
by AirGate PCS, Inc. on December 14, 2004.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 1
AIRGATE PCS, INC.
Moderator: Drew Anderson
December 14, 2004
8:00 am CT
Operator: Good day and welcome to the AirGate PCS conference call.
Today's call is being recorded. At this time for opening
remarks and introductions I would like to turn the
conference over to Ms. Drew Anderson. Please go ahead Ms.
Anderson.
Drew Anderson: Thank you. Statements made in this conference call
regarding expected financial results and other planned
events should be considered forward-looking statements
that are subject to various risks and uncertainties.
Such forward-looking statements are made pursuant to the
Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995 and are made based on
management's current expectations or beliefs as well as
assumptions made by and information currently available
to management.
A variety of factors could cause actual results to differ
materially from those anticipated. For a detailed
discussion of these factors and other cautionary
statements please refer to AirGate PCS filings with the
Securities and Exchange Commission especially in the Risk
Factors Section of AirGate PCS Form 10-K for the fiscal
year ended September 30, 2004.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 2
In addition today we'll be providing non-GAAP financial
measures during this call such as EBITDA, ARPU, and CPGA.
These metrics are a supplement to GAAP financial
information and should not be considered an alternative to
or more meaningful than GAAP financial information.
A reconciliation of these non-GAAP financial measurements
to the most directly comparable GAAP financial measurement
is included as a schedule to our earnings release which
has been filed with the SEC on Form 8-K.
I would now like to introduce Tom Dougherty, Chief
Executive Officer and President of AirGate PCS. Please go
ahead sir.
Tom Dougherty: Good morning and thank you all for joining us. With me
today on the call is Bill Loughman, our Chief Financial
Officer, and Roy Hadley, our General Counsel.
The purpose of this call is to review financial and
operating results reflected in our fourth quarter of
fiscal 2004 for the three month period ended September 30,
2004. We issued a news release yesterday evening and each
of you should have received a copy of the release and
accompanying financial summary.
I'll begin our discussion today with some comments about
recent events at the company and then turn the call over
to Bill who will follow with more detailed information
about our fiscal fourth quarter, financial results and
operating metrics.
Well we've been pretty busy to say the least since we last
reported earnings and I think many would agree that our
team has accomplished quite a bit.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 3
First we had a strong quarter with solid operating
results. Second we came to a new agreement with Sprint
during September. Third we began our efforts on
refinancing some of our debt with a $175 million floating
rate note deal that closed after the end of the quarter.
And lastly we explored various options to maximize value
for our shareholders and came to the conclusion last week
that this was best accomplished by teaming up with
Alamosa.
So moving onto some of the highlights some of our
operating results were gross additions were stronger in
the quarter -- almost 10,000 higher than in the same
quarter last year. Churn was almost 60 basis points lower.
And this enabled us to generate 9,296 net adds during the
quarter -- our highest level of net adds in almost two
years.
In terms of revenues, our travel and roaming minutes
continue to be strong. Our ratio of inbound to outbound
travel and roaming minutes of use increased to 1.35 to 1
this past quarter from 1.33 to 1 in the third fiscal
quarter of 2004.
As with nearly all the broad Sprint family data continues
to be a bright spot. Data usage continued to increase and
now represents about $4.30 of subscriber ARPU. We're
optimistic that data usage and applications will continue
to diffuse into our subscriber base.
So another strong quarter of operating results we grew
gross additions by nearly 10,000 year over year, netted
additions came from minus 4,900 to plus 9,300. We had a
strong 1.35 to 1 travel ratio and we continue to increase
in data usage and revenues.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 4
I'd like to talk now about the Sprint settlement. The
Sprint settlement from mid-November we are pleased to come
to a new agreement with Sprint that provides some clarity
to parts of our business and also leads to a more
productive partnership between our companies.
For those of you not entirely familiar with some of the
key terms of the new agreement here's a quick summary. The
voice travel rate has increased to 5.8 cents per minute
through 2006. This compares to the prior travel rate of
4.1 cents per minute. Since we are a net generator of
minutes this increase in the pricing is a benefit to us.
The data travel rate has remained constant at .2 of a cent
per kilobyte through 2006. While this is unchanged we do
see it as a positive as it provides more certainty to our
revenues and costs as data usage ramps up.
The service bureau fees related to cash costs per user
expenses are $7.25 per subscriber per month for this year;
$7.00 for 2005 and $6.75 for 2006. As pricing for 2004 is
modestly better than what we have been recently
experiencing and is at least a small benefit but more
importantly it provides certainty to our cost structure
for the next few years.
As part of the settlement we made a cash payment of $6.8
million to Sprint to settle claims of $18.5 million. The
$11.7 million difference between the $18.5 million in
claims and our payment of $6.8 million to Sprint is being
realized as a benefit to EBITDA during this quarter.
With this settlement behind us the management team will
now be able to focus more of its efforts on operating and
growing the business rather than trying to manage a
relationship with Sprint.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 5
The floating rate notes - in addition to the settlement
with Sprint our management team also began the effort to
refinance some of the debt with a $175 million floating
rate note at the end of the quarter which we completed in
late October after the end of the quarter.
The offering was $175 million of first priority senior
secured notes. They're due in 2011 and they attract a rate
of LIBOR plus 3.75.
The proceeds were used to repay $131.2 million in
outstanding bank debt, call $1.7 million of 13-1/2% notes,
and increase the cash balance by almost $40 million.
With the deal we were able to extend the maturity of a
significant portion of our debt by two years. And we could
relieve the company of all maintenance covenants that we
had under our credit facility. And we could maintain the
exact same interest rate terms of LIBOR plus 3.75 which we
had with our credit facility.
With the completion of this deal were able to finally
address all of or imminent capital structure - structural
issues and again get one more non-operational issue off
the management team's plate.
As we've shared with you before with our capital structure
and many operating issues having been addressed we're now
in a better position to focus on growth and creating
value.
As part of this initiative we're working on four specific
areas. Virtually we're revitalizing our distribution
network by reformatting some of the older existing stores
and relocating some to newer larger stores in premium
locations.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 6
We're also opening 50 to 75 Sprint branded third party
doors -- exclusive doors -- over the next 12 to 18 months.
By December 1 we have opened approximately 20 of these
stores. Creating an improved and standardized customer
experience by adding touch screen services as part of the
activation process.
Secondly we're focusing on initiatives to reduce churn by
continuing to address the credit quality of the subscriber
base in selective ways, continuing to improve the quality
of our customer care, and targeting higher value
subscribers with new contract offers with special
retention programs.
Thirdly we're accelerating the improvement of our network
capabilities. We'll expand our cell sites by 250 to 300
over the next three years. More specifically we expect to
build over 100 cell sites by the end of our fiscal year to
expand coverage as well as improve existing coverage
within our footprint.
We'll also evaluate select areas for EBDO and the roll out
of high speed data applications. And we're going to
achieve capital expenditure savings while accelerating our
build out.
I'd like to note that we recently signed a new contract
with Lucent that will provide attractive pricing as well
as the ability for us to accelerate our build out and
support high level of minutes of use. This network
improvement plan will also support our churn reduction
efforts.
The last of my four points of our strategy has to do with
the introduction of new products. We're looking at ways to
more effectively address the sub prime market. And we've
anticipated beginning a market trial sometime in the
spring.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 7
As part of the EBDO rollout we'll be doing a market trial
during 2006 of a high speed data product. With a more
development network we would anticipate developing a LAN
line bypass trial for 2007.
These initiatives are off into the future but we see them
as potentially important ways of generating shareholder
value.
Lastly I'd like to make a few comments on our merger deal
with Alamosa that was announced last Wednesday. As part of
the agreement AirGate shareholders will receive 2.87
Alamosa shares for each AirGate share.
In addition AirGate shareholders will have the option to
elect cash consideration in place of Alamosa stock up to
an aggregate amount of $100 million with the per share
cash consideration based on the average closing price of
Alamosa stock in the 10 trading days prior to the
completion of the transaction multiplied by 2.87.
There are a number of conditions to closing the merger.
I'll list some of them -- the approval of the shareholders
of both AirGate and Alamosa; NASDAQ approval of Alamosa
shares to be offered to AirGate; Hart-Scott-Rodino
clearance; SEC declaration of the (S4) being effected; the
consent of Sprint PCS, no material weakness in AirGate's
internal control over financial reporting in its 2004
10-K; legal counsel for both companies must provide an
opinion that the merger will be a tax-free reorganization
under the tax code; and no breaches of representation,
warranties and covenants.
It is anticipated that the merger will be completed in the
third fiscal quarter of 2005 for AirGate or for those of
you on a calendar cycle the second calendar quarter of
2005. All the details of the merger agreement have been
filed with the SEC and are available on the EDGAR website.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 8
On the issue of the merger with Alamosa I'd like to make a
few comments on the rationale. First we believe this first
transaction maximizes value for our shareholders. Our
shareholders get significantly increased liquidity with a
strong Alamosa stock that is more widely traded and
followed than that of AirGate. And for those investors
looking for a way to cash out up to a $100 million of
proceeds can be taken in cash.
And in combination with Alamosa we will be better able to
achieve the goals that I've outlined here and Alamosa
their goals. We believe our investors agreement with this
course of action and we believe that the movement of our
stock price in the market would underscore that.
With all of this said and all of the activities we've had
this quarter I'll now turn the call over to our Chief
Financial Officer Bill Loughman. Bill?
Bill Loughman: Thanks Tom. I'll now go over the highlights of financial
results and operating statistics for the quarter ending
September 30, 2004. I'll start by discussing our
subscriber statistics.
We ended the quarter with 384,537 subscribers compared to
359,460 a year ago representing a growth of 7% and 2%
sequentially. Of our subscriber base over 35% of 3G Vision
users and contribute approximately $4.30 to ARPU and added
of course to the entire subscriber base. This compared to
approximately 30% penetration of our base in our prior
quarter and approximately a $3.80 contribution to ARPU.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 9
Data clearly continues to be an especially strong area in
our results and we are optimistic that we will continue to
increase adoption of Vision services by our subscribers.
Gross adds for the quarter were 44,437 versus 34,464 a
year ago. The breakout by distribution channel for the
quarter is AirGate operated Sprint stores at 43%, our
local third party stores at 7%, a B2B with 7%, Radio
Shacks with 17%, while other national third parties were
8%; and Sprint and Other were 18%.
Our prime credit quality (unintelligible) adds to the
percentage of our total growth additions for about 58% for
the quarter, versus about 76% a year ago, and about 52%
last quarter.
As for our subscriber base it stands at about 71% prime
which compares to 72% a year ago and 72% in the third
fiscal quarter of 2004. Our churn net of (unintelligible)
was 2.83% in the fourth quarter versus 3.41% in the
quarter year ago, and 2.55 in the third fiscal quarter of
2004. At best we can tell our seasonable up tick in churn
was consistent with the other results of our peers.
Net additions for the quarter were 9,296 versus a loss of
4,697 a year ago. Moving on I'd like to discuss our
revenue in net income. During the quarter AirGate reported
total revenues of $91.4 million versus $89.3 million a
year ago.
As for net income we reported net income of $8.7 million
during the quarter versus a loss of $7.8 million a year
ago. And EPS is 74 cents per share this quarter versus a
loss of $1.45 per share in last year's quarter.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 10
Among a variety of factors earnings were impacted by an
$11.7 million settlement credit resulting from the
resolution of previous disputes with Sprint in connection
with the amendment of our management services agreement;
seasonally higher travel and roaming volumes; a higher
travel rate with Sprint of 5.8 cents per minute compared
to 4.1 per minute prior to our renegotiated settlement;
and lower interest expense due to our recapitalization.
Moving onto revenue of the $91.5 million of total revenues
being reported for the quarter $55.6 million was from
service revenues, $22.3 million from roaming revenues, and
$3.6 million from equipment revenue.
As for the average revenue per subscriber -- excluding
roaming -- came in at $57.58 compared with $61.22 a year
ago. Last year's service revenue included a $1.9 million
settlement credit from Sprint related to an adjustment to
the calculation of bad debt in a subscriber cash profile.
This adjustment accounted for $1.75 of last year's ARPU.
Year over year the primary changes to ARPU were from data
was up approximately $1.40 offset by MRC which was down
approximately 70 cents. Minutes over plan down $1.50. And
the ARPU was impacted by the Sprint credit of $1.75. And
promotional credits and other reduced by $1.10.
Our ratio of inbound MOU traffic to outbound MOU traffic
was 1.35 to 1 during this quarter compared to 1.38 to 1 in
last year's quarter. The travel rate between AirGate and
Sprint and affiliates increased to 5.8 per minute in
August - on August 1 from 4.1 cent and during last year's
quarter the travel rate was 5.8 per minute the entire
quarter.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 11
Inbound travel minutes increased approximately 23% year
over year. And the percent of inbound MOUs from members of
the Sprint family were about 98% in the quarter versus 97%
in last year's quarter.
(Unintelligible) gross addition CPGA -- excluding hand set
upgrades -- was $375 for the quarter compared with $395 in
the quarter a year ago. Non-custom acquisition related
costs we have realized improvements in some of the
following areas year over year. PCPU related to Sprint
service bureau improved approximately $8.50 last year to
now $7.25 as of August 1 under the settlement with Sprint.
Network operations expenses declined by approximately
$1.00 per subscriber as we realize more scale through
increased MOUs. And bad debt expense declined by
approximately $1.00 per subscriber and there were no
recapitalization fees in the period versus last year's
period. This is partially offset by travel and roaming
expenses which were impacted by $1.50 due to increased
MOUs off network.
EBITDA -- earnings before interest taxes depreciation
amortization -- was $28 million for the quarter versus
$15.3 a year ago. This quarter's EBITDA was positively
impacted by $11.7 million settlement credit resulting from
the resolution of previous disputes with Sprint in
connection with the amendment of our management services
agreements with approximately $750,000 related to
(unintelligible) charges.
Last year's EBITDA was positively impacted by a $1.9
million settlement credit from Sprint. For the full year
2004 EBITDA was $73.2 million versus $46.8 million in the
prior year.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 12
I'll touch a few points on the network. Capital
expenditures during the quarter totaled $2.3 million
compared to $5.7 million in the same quarter last year.
For the full fiscal year capital expenditures were $14.1
million versus $16 million in the prior year.
During the quarter we turned up 6 additional cell sites to
bring the total to 817. And our network usage increased by
approximately 2.5% over the third quarter of fiscal 2004.
Average MOUs per subscriber were approximately 1,045
minutes during the quarter compared to 1,050 in the prior
quarter and about 900 a year ago. And as Tom noted in his
earlier comments we've recently signed a new agreement
with Lucent that should enable AirGate efficiently
expanded its capital as we expand the network.
Lastly moving onto the balance sheet, the company ended
the quarter with cash and cash equivalents and short term
investments of $68.5 million. Subsequent to the end of the
quarter we closed a $175 million floating rate deal which
increased cash balances by approximately another $40
million.
As for our debt balance at the end of the quarter we had a
credit facility of $131.2 million. We had the 13-1/2%
notes at $1.7 million. And we had 9-3/8 notes at $159
million. As of today we have only two instruments of
(unintelligible) $159 million and we have the floating
rate note at $175 million.
With that I'd like to turn it back over the operator.
Operator we are now ready to take questions.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 13
Operator: Thank you. Today's question and answer session will be
conducted electronically. If you'd like to ask a question
please press the star key followed by the digit 1 on your
touchtone telephone. If you are using a speaker phone
please make sure your mute function is turned off to allow
your signature to reach our equipment.
Once again if you would like to ask a question please
press star 1. And we'll pause for just a moment to give
everyone an opportunity to signal.
We will take our first question from (Pat Dysant) with
Credit Suisse First Boston. Please go ahead.
(Pat Dysant): Good morning.
Tom Dougherty: Good morning.
(Pat Dysant): Tom maybe just in the context of all of the
scuttlebutt out there as far as Nextel/Sprint,
Verizon/Sprint, maybe if you could just talk about the
protections that AirGate would have in the context of
whether it is Nextel or Verizon.
And I guess secondly in the context of that whether the
merger of Sprint with any of those partners would change
your agreement Alamosa in any way.
Tom Dougherty: The protection I think you're referring to is
the exclusivity that we enjoy in our relationship with
Sprint and our exclusivity - our agreement was one of the
early ones that Sprint had. I believe ours and one other
affiliate has an exclusivity that goes across all of the
frequency bands of mobile voice communication. I think
that's what you're referring to is it not?
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 14
(Pat Dysant): Yeah that's right Tom.
Tom Dougherty: Okay. It is there and we think it's certainly adequate.
Our attorneys think it's there to maintain our exclusivity
in our particular territory. As far as how our merger
with Alamosa would change it wouldn't change at all
regardless of what happens.
And frankly all of the talk that has gone on in the press
so far is something that - it's just been speculations by
everyone as far as I can tell. And neither Sprint nor
Nextel has called me and invited me to the negotiations
table. So I don't know anymore about it than anyone else
does. I read the same papers that you do.
(Pat Dysant): Okay but I guess the net point would was that you feel
that you'd be well protected in context of whether it be
Nextel or Verizon.
Tom Dougherty: That's correct.
(Pat Dysant): Okay. Great. Thanks.
Operator: We will take our next question from (Rick Prentiss) with
Raymond James.
(Rick Prentiss): Good morning guys.
Tom Dougherty: Good morning (Rick).
(Rick Prentiss): How are you doing?
Tom Dougherty: Good.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 15
(Rick Prentiss): Good. A follow up on - one extra on (Pat)'s question and
a couple other ones for you. On the protection in case
you wanted to put to Sprint I think yours is a slightly
different calculation of the entire business value and
then the percent value on top of it because of the
(spectrum) position. Could you update us as far as how
that calculation works?
Tom Dougherty: I don't think there is a calculation in this one (Rick).
It is simply a commercial value that is established in
that we have an exclusivity. I think the only calculation
is if we are somehow in violation of the agreement.
(Rick Prentiss): Okay.
Tom Dougherty: So we wouldn't be in violation of the agreements.
Whoever the acquirer is or, you know, whatever the
conflict was would just be solved through a commercial
negotiation.
(Rick Prentiss): Okay. Second thing I think Bill one of the
first things that you did when you got there is you guys
brought the Virgin product - agreed that Virgin could
start selling into your market places. Can you update us a
little bit about what you're seeing there? Have you seen
that effect the revenue streams yet? Because - was that
what back in August maybe?
Bill Loughman: We didn't really start selling the Virgin
product until October but we have seen a significant take
rate in that product since we've implemented in our market
place.
Tom Dougherty: (Rick) we just started selling it in our retail
stores in the last week or so. Prior to that it was just
sold through Virgin's other distribution channels like
Best Buy.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 16
(Rick Prentiss): Okay good. Yeah that's what I was wondering. Because
before you had not had it in your stores and I was
wondering if you were going to put them in. So they now
are in as of kind of the...
Tom Dougherty: About a week ago.
(Rick Prentiss): Okay. And then you mentioned the CPGA cost - I think
that also includes the retention costs. Can you break out
for us how much was retention versus how much was really
for gross add on the CPGA side?
Tom Dougherty: Hold on just a minute.
(Rick Prentiss): Sure.
Bill Loughman: Retention was approximately $3,224,000 for the full
quarter.
(Rick Prentiss): Okay and what percent of the base are you retaining in a
quarter or having to spend to retain a customer?
Tom Dougherty: I think we're going to have to get back to you
with the detail of that. What we're doing is every quarter
we're looking at - particularly the prime customers - the
ones who are under contract that are within a few months
of having their contract expire or they have expired and
they've been operating with a contract for a number of
months. And we're targeting them and offering them either
a new handset or some sort of attractive proposition
perhaps on a service credit.
And what we'd like to be able to do is to give you a more
accurate picture of that but it is having a significant
impact on our voluntary churn rate. I think that Bill has
some numbers on that. I just don't have them right here
with me.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 17
(Rick Prentiss): Sure. Okay. I'll circle back with you on that. And then
Auction 58 is coming up the end of January. I think you
guys had registered to be a bidder. This will be I guess
occurring before the close of your merger with Alamosa.
What's your thoughts on activity in Auction 58?
Tom Dougherty: (Rick) if you look carefully at the documents
that we have filed already with the Alamosa deal I think
the acquisition or frequency would probably not be allowed
under the current terms of our agreement.
(Rick Prentiss): That's what I thought. I just wasn't sure with Auction
starting before then if you could do it beforehand or not.
So...
Tom Dougherty: We will not be able to participate.
(Rick Prentiss): Right. And the final question for you guys - just blast
these quick ones out. You mentioned the EBDO trial in '06
and possibly for LAN line by-pass in '07 trial. What kind
of pricing are you seeing? You mentioned good pricing
from Lucent on kind of the core network. Are you seeing
any early indications of where EBDO pricing might be at?
Tom Dougherty: What we have in terms of pricing for EBDO will
be related to what Sprint is able to negotiate on this.
And it's is not all settled (Rick) and I prefer to give
you some information once we have concrete answers.
But what we have done is we've talked to Lucent about
perhaps providing us with a small amount of equipment for
a trial. And we're working out the commercial terms of
that. But it probably means that we can operate a trial in
a small area without having to put capital at risk.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 18
And we're working with Lucent on that. And once we issue a
press release about our agreement we'll try to include as
much information as we can.
(Rick Prentiss): Great. Well good luck guys.
Tom Dougherty: Well thank you so much.
(Rick Prentiss): Take care.
Operator: We'll take our next question from (Phil Cusick) with Bear
Stearns. Please go ahead.
(Phil Cusick): Good morning guys.
Tom Dougherty: Good morning (Phil).
(Phil Cusick): Just wanted to ask a quick question on one, the
timing of - any change in your thoughts on the timing of
future cell site builds. And second of all if you have an
update on the value of your NOL for us, if there was any
clarification there.
Tom Dougherty: Let me take the cell site one. We have an
ambitious build plan for this year. But as you might
imagine we have been going at a fairly slow rate so we're
going to be on the acceleration phase.
In our discussions with Alamos about what they have been
doing they're also having a good high rate of build. And I
think that between the two of us we're going to if
anything be accelerating the build of network for AirGate
as it goes forward
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
Confirmation #931645
Page 19
So I think that we're going to be building at a good
aggressive pace going forward. As I said I hope that we
finish 100 cell sites by the end of the fiscal year if not
more. Bill do you have anything?
Bill Loughman: Yeah (Phil) regarding the NOL we'll be filing
our 10-K later on today. In that will be details of the
NOL but approximately - it's over $200 million of NOL. And
- but I think it's better off as you look at exactly
there's some restrictions in part - using certain of those
NOLs. So I think if you look at the 10-K it'll give you
the detail you need.
(Phil Cusick): So of the $290 that you reported a year ago $200 million
remains after the IPSC spinout?
Bill Loughman: Yeah and about $75 to $90 are not subject to limitations.
But the $75 to $90 million those details will be in the
10-K.
(Phil Cusick): That's great. Thank you.
Operator: We'll take out next question from (Ethan Schwartz) with
CRT Capital Group. Please go ahead.
(Ethan Schwartz): Hi. A couple of questions. First of all just to make
sure I understand the credit from Sprint is the benefit of
that reflected in the $28 million EBITDA. In other words
should that be deducted for normalized EBITDA?
Bill Loughman: That reflected in the EBITDA and it should be deducted
from normal EBITDA.
(Ethan Schwartz): Okay. Second of all back on the issue of the non-compete
just to clarify would that be maintained by whomever
acquired AirGate if - let's say if AirGate was maintained
as a corporate entity as a separate subsidiary. In other
words would that still benefit the AirGate territory for
the new owners?
AIRGATE PCS, INC.
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12-14-04/8:00 am CT
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Tom Dougherty: That is my understanding from our lawyers - that
exclusivity would follow to the owner.
(Ethan Schwartz): Okay and in the negotiations with Alamosa did you on your
side specifically discuss the potential value of your
better exclusivity agreement. Was that explicitly raised
as an element of the value in AirGate?
Tom Dougherty: When you talk about the values for a company
you express all of the attributes that you have. Sort of
like when you're thinking about dating somebody you start
telling them all of the beauty marks that you've got but I
don't know that Alamosa valued us any differently as a
result of that.
(Ethan Schwartz): Well I mean I just got married. I'd be thrilled to know
that my wife had an (unintelligible).
Tom Dougherty: I believe (unintelligible) on the call having found out
(unintelligible) how to dial in this morning. I do
apologize for my curtness.
(Ethan Schwartz): Okay. All right. Thanks very much. Take care.
Tom Dougherty: Okay.
Operator: We'll take our next question from (Dennis Liebowitz) with
(Unintelligible) Partners. Please go ahead.
(Dennis Liebowitz): Yes I wanted to ask - although you have
exclusivity -- I guess Alamosa doesn't -- are there any
arrangements with respect to a buyout of Sprint that
AIRGATE PCS, INC.
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12-14-04/8:00 am CT
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affect you or them or the other affiliates? And what
difference would it make under those conditions if it were
Verizon who was the buyer as opposed to the current
proposal?
Tom Dougherty: (Dennis) I don't know what the current proposal is.
(Dennis Liebowitz): Well presuming it's what's in the papers -- Sprint buying
Nextel at the ratio that was given.
Tom Dougherty: Right. You know, I don't know the content of
every one of these agreements. And, you know, the
exclusivity that we have specifically states that it's for
mobile voice, you know, across all frequencies. In the
case of the others if their exclusivity is different than
that I think there'd be a separate negotiation that would
determine how they would be dealt with.
But frankly I just have a lot of difficulty dealing with
this until there's an offer on the table and we can deal
with real numbers and real facts. I just feel like I'm
dealing in vapor.
(Dennis Liebowitz): But there's no specific arrangement or clause
with respect to your or the other affiliates' arrangements
that say what happens if Sprint -- which actually owns the
frequencies -- gets bought?
Tom Dougherty: No but if - like any two commercial entities
we'd sit down and talk about how we're going to resolve
it. And I can't believe that any good and fair assessment
would come out differently than, you know, a good
commercial negotiation.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
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The market place has valued us all at certain level. And
if one party or the other wants to own the entity I would
think that we'd use the market place as a benchmark.
(Dennis Liebowitz): Right. Okay. Thanks.
Tom Dougherty: Thank you.
Operator: We'll take our next question from (Michael Wieder) with
Banc of America. Please go ahead.
(Michael Wieder): Hey Tom I'm just wondering can you shed any light
-- I don't know if you guys have to this point -- but shed
any light as to your thinking - the parameters you guy
used in arriving at the conclusion that the offer from
Alamosa was, you know, 2.87 shares it made sense, at 2.8
shares it didn't. Just thinking broadly about where
they're valued, where you're valued. Just what some of the
background thinking was on the deal?
Tom Dougherty: I really can't talk about the whole negotiation
and what alternatives we explored. But our board evaluated
the offers that were available and came to the conclusion
that 2.87 shares of Alamosa stock was in the best interest
of our shareholders.
(Michael Wieder): And then back to the agreement or the nature of
your agreement - the actual (unintelligible) that you have
I don't know whether the focus is more on a bit on the
defensive side but on a more offensive side if you will.
If you've got exclusivity across all frequencies on all
wireless mobility is that going to preclude a Verizon if
it acquires Sprint from continuing to compete against you?
AIRGATE PCS, INC.
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12-14-04/8:00 am CT
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Tom Dougherty: One of the two of us would probably find
ourselves trying to establish the opportunity to serve
these customers in the Carolinas and Georgia. And I think
that commercially we would figure out who's going to do
that.
(Michael Wieder): Okay. Thank you.
Operator: We will take our next question from (Steve Renerie) with
(Ramius) Capital Group. Please go ahead.
(Steve Renerie): Hi. Good morning. Just a follow up at the risk of
beating a dead horse...
Tom Dougherty: This horse is pretty dead.
(Steve Renerie): It's dead but...
Tom Dougherty: He's starting to smell here.
(Steve Renerie): We're going to beat it one more time. Just - on
timing - just to make sure it's perfectly clear. I think
some of the reasons that you're getting so many questions
on this is because nobody's really come right out and said
this. But when a theoretic merger of Sprint with anyone
else closes, on day one they will - if no commercial
arrangements are agreed in advance be violating the
agreement they have with you. Is that right.
Tom Dougherty: That's my understanding.
(Steve Renerie): Okay.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
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Tom Dougherty: So therefore do you think that the deal would close before
they came out with some sort of commercial arrangement?
(Steve Renerie): Unlikely but, you know, I'd like to know, you know, going
in your, you know, posture with regard to the question.
Tom Dougherty: I think that we have an exclusive right to
operate and to provide wireless voice services in our
territory. And I would continue to exercise that right.
And if there is some way that this is going to be
conflicted we'd deal with it head on.
(Steve Renerie): And, you know, I think one of the other points which maybe
you could address at some point if not right now as the
process goes along and in the proxy statement is sort of
the idea that since you have this - I mean, now very
valuable contractual position that other players like
Alamosa don't have, you know...
Tom Dougherty: Well they have an exclusivity as well. Now
let's not say they don't have any exclusivity. Their
exclusivity is just defined differently than ours. All of
us have an exclusivity.
(Steve Renerie): Agreed. But, you know, clearly I guess the point
is if there's a more valuable exclusivity for us we have
to accept the fact that if we're going to do the merger
that we're diluting that, you know, and sharing it with
the Alamosa shareholders.
And I just think that's something that everybody should
know with eyes wide open. And I'd just be interested in
hearing about that at some point.
And other than that I fully support everything you guys
are doing. And I thank you for it.
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
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Tom Dougherty: Well thank you. We are - look, I don't mean to
be - sound at all evasive about this. It's just when we
have - we're trying to identify a posture based on what is
being said in a newspaper. I just find that very difficult
to answer and be frank with you guys. So it has nothing to
do with anything except let's get the real issue on the
table once the real issue surfaces and then we'll deal
with it.
(Steve Renerie): Great. I'll look forward to it. Thank you guys.
Tom Dougherty: Thanks.
Operator: We will take a follow up question from (Rick Prentiss)
with Raymond James. Please go ahead.
Tom Dougherty: (Rick) you're not going to beat that horse again are you?
(Rick Prentiss): That horse is dead.
Tom Dougherty: Thank you. Thank you.
(Rick Prentiss): Let's talk about some real issues.
Tom Dougherty: Good. Thank you.
(Rick Prentiss): You guys signed a new agreement with Sprint.
You've got the lower back office costs. Tom you guys have
been one of the leading ones pressing for Sprint to
improve and reduce the cost of customer service. Have you
noticed any improvement so far in customer care that
Sprint is providing on the back office and billing side
yet?
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Moderator: Drew Anderson
12-14-04/8:00 am CT
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Tom Dougherty: Well I think that it's not a clear yes or no
with this. There - when you go through a customer care
change out like this there are many different ways that
you can manage the process to make things happen and
there's indicators along the way.
The final test is when you get things like the JD Powers
survey that actually goes out and evaluates how customers
perceive it. Now there's plenty of small indicators that,
you know, calls are being answered more quickly, there's
more resolution of, you know, one call and it's done.
There's plenty of little incremental improvements that are
being seen. But in the totality - that is from the
customer's point of view what he perceives as being a
better customer care I don't believe that we've moved the
needle very much there.
So lots of building blocks being established, lots of
improvement we hope being made, but the final real acid
test I think that when we see survey after survey and
there's improvement made there that's when I'll say that
there's some real improvement being made.
But since you bring up the customer care you should know
that part of our agreement with Sprint is that if there is
no improvement made by the period of January through July
of 2006 we did reserve the right to go off and establish
our own customer care to execute at a higher standard than
in the even that they fail in improving their customer
care. I'm here cheering for them. I don't want to exercise
that option.
(Rick Prentiss): Right. But just in case. I know you've made that - and
obviously for customer care, churn, the whole
interrelation there you want to make sure that
improvements actually are real.
AIRGATE PCS, INC.
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12-14-04/8:00 am CT
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Tom Dougherty: That's correct.
(Rick Prentiss): Or it's just anecdotal.
Tom Dougherty: That is absolutely correct. And what we're
looking for here is - we see the building blocks being
done but, you know, when it's all moved along and we're
getting that high quality customer care and our customers
are experiencing and feeling better about us that's when
we'll be happy to say we're not going to exercise that
option.
(Rick Prentiss): Okay. One other question for you - operational
question instead of a dead horse question. Metro PCS is in
the Atlanta area. Leap is out of bankruptcy now and
looking to come into other areas. Have you seen them in
your market place and what do you think of that kind of
product offering?
Tom Dougherty: Metro PCS does not operate in our territory.
Leap did for a short period of time operate in Hickory,
North Carolina, but they subsequently folded. So we don't
have Metro PCS or (unintelligible) in our territory today.
(Rick Prentiss): What do you think about that type offering plan? You guys
have- it seems that your minutes of use on the Sprint
plans have kind of maybe plateaued out here. I think Bill
mentioned that the minutes of use have stabilized 1,045
versus 1,050 minutes. What do you think about those type
unlimited plans, without roaming...
Tom Dougherty: I'll tell you that I think that that has a
great deal of merit for the sub prime category in offering
a product that may do just what somebody wants for sub
prime and for, you know, local use only. And we're
certainly going to take a long hard look at what something
like that might do as a complement to our existing Sprint
offerings.
AIRGATE PCS, INC.
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12-14-04/8:00 am CT
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However I think that some of the things you should
probably recognize is that the number of minutes of use
that we have are close enough to what a Metro PCS product
like - might offer. I'm not sure it's all that much of a
difference. We have one quarter here where it's pretty
much plateaued.
But I think that the growth in our minutes of use for our
Sprint customers continues to go up. And when you're at
1,050 and a Metro PCS customer is at 1,600 I'm not so sure
there's all that much difference in terms of network
stress.
(Rick Prentiss): Right. Right. It really becomes of a question of
acquisition costs and controlling a sub prime customer.
Tom Dougherty: It's more than anything being able to keep your
costs for both the - servicing the customer and acquiring
the customer at a level that you can make a decent margin.
And that frankly Metro PCS seems to have done quite a good
job on that. And I think studying their model and
understanding how they've made a success of it is a lesson
that all of us could learn.
(Rick Prentiss): Great. Well good luck with the operations.
Tom Dougherty: Thank you very much sir.
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12-14-04/8:00 am CT
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Operator: Once again if you would like to ask a question please
press star 1 at this time. We will go next to
(Sam Savall) with (Quattro) Global Capital. Please go
ahead.
Man: Yes. Hi. It's (unintelligible) for (Sam Savall). I was
wondering if you might be able to talk about what the
circumstances are under which Sprint might be permitted
to withhold consents after your merger.
I know that you mentioned that as a condition. I was
wondering under what circumstances might (unintelligible)
be permitted to withhold that concern.
Tom Dougherty: I think the words are not be unreasonably
withheld. So there's every precedent that I know of -
every acquisition that has been brought to Sprint they've
approved. So I can't imagine what the circumstances would
be with two affiliates in good standing both of us in good
financial condition and both of us with a renegotiated
Sprint agreement.
I don't want to speak for Sprint but I can't believe that
they will withhold it for any reason and certainly they
are not going unreasonable withhold it.
Man: Great. Thank you.
Tom Dougherty: Sure. Operator can we make this the last question please?
Operator: And gentlemen at this time there are no additional
questions. Mr. Dougherty I'll turn the call back over to
you sir.
Tom Dougherty: Thank you very much. I'd like to just thank
everybody for being here this morning. We've had a very
AIRGATE PCS, INC.
Moderator: Drew Anderson
12-14-04/8:00 am CT
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eventful year at AirGate. And we look forward to reporting
more growth and both in terms of revenue and in earnings
in the very near future and we'll look forward to talking
to you in February. Thanks very much.
Operator: This will conclude today's conference call. We do thank
you for your participation and you may disconnect at this
time.
END
Forward-Looking Statements
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements include, but
are not limited to, (1) statements about the benefits of the proposed merger
between Alamosa Holdings, Inc. ("Alamosa") and AirGate PCS, Inc. ("AirGate"),
including future financial and operating results; (2) statements with respect to
Alamosa's plans, objectives, expectations and intentions and other statements
that are not historical facts; and (3) other statements identified by words such
as "believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "projects" and similar expressions. Such statements are based upon
the current beliefs and expectations of Alamosa's and AirGate's management and
are subject to significant risks and uncertainties. Actual results may differ
from those set forth in the forward-looking statements.
The following factors, among others, could cause actual results to differ from
those set forth in the forward-looking statements: (1) the businesses of Alamosa
and AirGate may not be integrated successfully or such integration may be more
difficult, time-consuming or costly than expected; (2) expected combination
benefits from the Alamosa/AirGate transaction may not be fully realized or
realized within the expected time frame; (3) the failure of AirGate and Alamosa
stockholders to approve the merger and/or the failure to obtain approvals from
regulators or other groups; (4) disruption from the merger making it more
difficult to maintain relationships with clients, employees or suppliers; (5)
Alamosa's and AirGate's dependence on their affiliation with Sprint; (6) shifts
in populations or network focus; (7) changes or advances in technology; (8)
changes in Sprint's national service plans or fee structure with Alamosa or
AirGate; (9) change in population; (10) difficulties in network construction;
(11) increased competition in Alamosa's and AirGate's markets; and (12) adverse
changes in financial position, condition or results of operations. Additional
factors that could cause Alamosa's and AirGate's results to differ materially
from those described in the forward-looking statements can be found in the 2003
Annual Report on Form 10-K and in the Quarterly Reports on Form 10-Q of Alamosa
and AirGate filed with the Securities and Exchange Commission (the "Commission")
and available at the Commission's internet site (http://www.sec.gov). The
forward-looking statements in this document speak only as of the date of the
document, and Alamosa and AirGate assume 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.
STOCKHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING
THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. Stockholders will be able to obtain a free copy of the
joint proxy statement/prospectus, as well as other filings containing
information about Alamosa and AirGate, without charge, at the Securities and
Exchange Commission's internet site (http://www.sec.gov). Copies of the joint
proxy statement/prospectus and the filings with the Securities and Exchange
Commission that will be incorporated by reference in the joint proxy
statement/prospectus can also be obtained without charge, when they become
available, by directing a request to Alamosa Holdings, Inc., 5225 S. Loop 289,
Lubbock, Texas 79424, Attention: Jon Drake (806-722-1100); or AirGate PCS, Inc.,
Harris Tower, 233 Peachtree Street, N.E. Suite 1700, Atlanta, Georgia 30303,
Attention: Bill Loughman (404-525-7272).
The respective directors and executive officers of Alamosa and AirGate and other
persons may be deemed to be participants in the solicitation of proxies in
respect of the proposed merger. Information regarding Alamosa's directors and
executive officers is available in the proxy statement filed with the Securities
and Exchange Commission by Alamosa on April 23, 2004, and information regarding
AirGate's directors and executive officers is available in the proxy statement
filed with the Securities and Exchange Commission by AirGate on March 5, 2004.
Other information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings or
otherwise, will be contained in the joint proxy statement/prospectus and other
relevant materials to be filed with the Securities and Exchange Commission when
they become available.