Forward GuidAnce Predictions: 40 market plan
Much of LWIN's losses over the last 2 quarters Q3, Q4 have been due to Higher Marketing Expenses associated with much higher than normal Pre-Launch expenses. The other part of the higher than normal expenses was filling the distribution channel with UT Equipment. After all, they launched 26 markets in under 9 months. And as of the last 10-Q we saw over 34 million in equipment inventories on the books. These inventories were required to fill the distribution channel in the 13 markets that were launched in Q4.
Estimating the number of handsets that we will need to reach 2 million subs, at associated Churn rates. I estimate that Cricket will require 1.1 million User terminals net in 2002. I predict that at the end of Q4, Cricket will have in inventory, a total of 40 million dollars in phone inventory. Representing a 120 day supply, at current growth rates. Therefore we know through guidance that Cricket expects 7%-8% penetration during the first year or a given market, and 10% in the second year of operations. So we know that along with slower subscriber growth, come decreases Cost of Equipment expenses. So I have modeled a conservative average of 25 million per quarter in Cost of Equipment expenses over CY02 to meet these subscriber objectives. Additionally, the end of the Rebate program will provide three objectives.
One, lower CPGA costs,
Two, Increase Equipment Revenue margins which go toward financial covenants.
Three, create a third party resale market for Cricket phones. In other words, when a new subscriber could walk out the door for $39 dollars (with Rebate) and get your first month of service included. The resale value of a Cricket phone was less than $5. With the price now $69.00, and $32 a month for service. The price difference is now almost $40 per month. So by buying a "Churned" phone from a third party for let's say $20. Results in a first month cost of phone and service at only $52 per month to the end user. However, this third party "Churned phone" is a windfall for Cricket! Service. Revenue is generated in the first month of service. vs in the second month of service with a traditional retail subscriber add. CPGA of these "Churned phone" customers is much smaller. So in turn, the "Churned phone" does not get suck in a drawer with all of it's initial CPGA lost. I have been watching EBAY over the last 6 months and the few Cricket phones that have been offered usually resulted in Zero Bids. However, since the rebates ended last month, the activity has increased. Last night a Cricket Nokia sold for $25, and a MOT sold for $29, and a couple of other Noka's currently on EBAY have between 4 and 9 bids with prices in the early $20 range.
Sales/Marketing, I have modeled at a cost of an average of 1 million per market per quarter.
General and Administrative expenses are modeled to stabilize at 40 million per quarter.
So at the end of Q1 I estimate 1.35 million subs(231,000 net adds) which will generate 15.7 million in Equipment Revenues, and 108 million in Service Revenues for a total of 123.7 million in Revenues.
Cost of Equipment will drop to 25 million.
Marketing/Sales will level off at 40 million, down from 52 million in Q4 due to pre launch expenses.
General and Administrative will decline to 40 million down from 44 million in Q4 due to associated G/A launch expenses!
Which should result in a EBITDA loss of approx. 35 million dollars. Decreasing to an EBITDA loss of 16 million in Q2.
Liquidity resources are as follows:
Q4 2001
Cash and cash equivalents 190 million dollars
Restricted cash equivalents: 140 million dollars
Short-term investments: 42 million dollars
Inventories: 40 million dollars (120 day supply)
Notes receivable, net. 33.2 million
Other current assets 15 million
Total current assets 460 million vs 426 million in Q3 (34 million net gain)
Q1 2002
Cash and cash equivalents 245 million dollars (FCC Auction return of 70 million dollars)
Restricted cash equivalents: 140 million dollars
Short-term investments: 42 million dollars
Inventories: 40 million dollars (120 day supply)
Notes receivable, net. 33.2 million
Other current assets 15 million
Total current assets 515 million vs 460 million in Q4 01 (55 million net gain from previous quarter)
So at the end of Q1 2002 LWIN should have 245 million in cash. 140 million in reserved cash. To fund 140 million dollars in annualized EBITDA losses (36% or Restricted Cash and Cash on hand) ( heading to EBITDA break even in the next three quarters) Generating 500 million in annualized revenues.
In Q2 Cash and Equivalents will drop by some 70 million due to the final payment and due to extenquising the related debt of approx. 48 million dollars to CenturyTel for the Michigan properties, and funding of Operational losses of 16 million.
So at the end of Q2 2002 LWIN should have 180 million in cash. 140 million in reserved cash. To fund 60 million dollars in annualized EBITDA losses (representing 19% of Restricted Cash and Cash on hand) ( heading to EBITDA break even and in the next two quarters) Generating 580 million in annualized revenues.
At this point refinancing the vendor debt should be an easy accomplishment. Doing so should release most of the 140 million in Reserved Cash back into the Cash and cash equivalents column.
Leaving LWIN with over 300 million in Cash to fund continued operations at or near EBIDTA break-even if restricted cash is released upon the refinancing!
PCSTEL |
