Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of NTELOS Holdings Corp. (NASDAQ: NTLS) jumped nearly 19% Thursday after the Virginia-based wireless carrier announced it has extended its strategic network alliance with Sprint (S) through 2022.
So what: Under the amended agreement, nTelos will continue serving as the exclusive network provider for Sprint for roughly 2.1 million customers in West Virginia and the western part of Virginia. Sprint customers will also gain access to nTelos' new 4G LTE network, and nTelos will enjoy access to Sprint's 800 MHz, 1.9 GHz, and 2.5 GHz wireless spectrums in the territory. Finally, nTelos says the deal "builds on initiatives announced in March by Sprint [...] that seek to accelerate the deployment of 4G LTE coverage throughout underserved American communities.
Now what: This eliminates significant uncertainty surrounding nTelos' relationship with Sprint, and obviously bodes well for its long-term survival in the face of ever-increasing competition in the wireless space.
But as a result, note nTelos is also eliminating its dividend following the already-declared July 2014 payment, which will free up roughly $36 million per year to invest in its network and growth initiatives. In the follow-up conference call, management elaborated it makes sense to invest in the business rather than paying a dividend, especially considering the dividend was "really a holdover from our consolidated sell Co case prior to the spin-off of our wireline business 2.5 years ago."
In addition, thanks primarily to accounting changes relating to deferred revenue in the new agreement, nTelos lowered guidance for 2014 adjusted earnings before interest, taxes, depreciation, and amortization to be between $128 million and $135 million. By comparison, two weeks ago nTelos saw 2014 adjusted EBITDA between $140 million and $150 million. In the end, I just can't get excited about nTelos despite the new agreement, so I'm fine watching this one from the sidelines.
