Nextel Partners posts strong results, withdraws Nextel lawsuit

[TNDan21]

Nextel Partners posts strong results, withdraws Nextel lawsuit
By Dan Meyer
Jul 28, 2005

Nextel Partners Inc. posted a company-record 103,300 net customer additions during the second quarter, which was 12-percent higher than the 92,000 customers the carrier added during the second quarter of last year and surpassed the most optimistic analyst estimates. Nextel Partners noted it was the fourth quarter in a row that it had posted record net additions, and it ended the quarter with more than 1.8 million total subscribers.

Nextel Partners also reported it has withdrawn its lawsuit against Nextel Communications Inc. while it works with an arbitration panel to settle disagreements between the two carriers.

Nextel Partners' strong customer growth was boosted by a drop in customer churn from 1.4 percent during the second quarter of last year and 1.45 percent during the first quarter of this year to 1.3 percent during the second quarter, which Nextel Partners said matched a company low. The carrier posted $68 in average revenue per user during the quarter, which was in line with the second quarter of 2004 and ahead of estimates of between $66 and $67.

Nextel Partners also managed to rein in its cash cost per user from $38 during the second quarter of last year to $36.37 this year, though the cost per gross addition ticked up during the second quarter from $459 last year to $463 this year.

Total revenues surged 30 percent year-over-year from $334.6 million during the second quarter of 2004 to $434.8 million this year, with nearly all of the increase coming from service revenues. Analysts were expecting the carrier to post around $415 million in revenues for the quarter.

Net income improved from a loss of $20.5 million during the second quarter of 2004, a loss of 8 cents per share, to a return of $71.9 million this year, or 23 cents per diluted share.

Following the strong quarterly results, Nextel Partners' management revised full-year guidance. The company now expects to post 400,000 net customer additions for the year, which is up from previous guidance of 375,000 net customer additions; report churn at or below 1.5 percent for the remaining quarters, which is down from the previous guidance of 1.6 percent; post service revenues of at least $1.65 billion for the year, which is up from a prior forecast of $1.6 billion; and report at least $550 million in adjusted earnings before interest, taxes, depreciation and amortization for this year-an increase from the $525 million previously forecast-and $743 million for 2006.

Analysts were somewhat surprised by the aggressive update, noting a potential link between the guidance and Nextel Partners' ongoing negotiations with Nextel regarding a possible acquisition.

"With the final valuations on the company for its sale to [Nextel] likely prior to 2006, this guidance looks more like negotiations, but combined with outstanding Q2 results, could push up valuations marginally," noted SG Cowen & Co. telecommunications industry analyst Tom Watts.

Nextel Partners' affiliate agreement includes a put option that if triggered would force Nextel to acquire the 68 percent of Nextel Partners is does not currently own following Nextel's pending acquisition by Sprint Corp. Nextel has questioned the value of such a put option, which also includes a control premium, noting that Nextel Partners' current trading value of around $25 per share and nearly $7 billion in market capitalization are not supported by its financial results.

Nextel Partners also reported in a Securities and Exchange Commission filing that a three-member arbitration panel has been selected by both Nextel and Nextel Partners in an attempt to settle a lawsuit filed by Nextel Partners earlier this month regarding some of the terms of Sprint's acquisition of Nextel. The lawsuit focused on potential branding issues and sought an injunction to force Nextel to resolve the issues prior to the closing of the Sprint deal.

Nextel Partners noted that the arbitration panel has scheduled a hearing for Aug. 25 with respect to its request for a preliminary injunction, and it has voluntarily withdrawn the suit.

Nextel Partners posts strong results, withdraws Nextel lawsuit