Subject: [NEXTEL-1] 24-Apr-03 Fulcrum Global Partners LLC (Walter Piecyk) on Nextel

From: Marcel <[email-masked]>
Date: Fri, 25 Apr 2003 11:27:11 -0400

24-Apr-03 Fulcrum Global Partners LLC (Walter Piecyk)
NXTL: RAISING ESTIMATES - BUY

Walter Piecyk
Jeff Brickman

Nextel Communications# (NXTL, $13.67, NASDAQ, BUY)
April 24, 2003

Company description: Nextel is a national wireless service provider that focuses on the
business segment through its unique walkie-talkie service.
It uses iDEN technology provided only by Motorola.

# Fulcrum Global Partners LLC makes a market in this security.
Decision points:

* We are increasing our 2003 EPS estimate to $1.10 from $1.00 and our 2004 EPS estimate to
$1.59 from $1.50 primarily as a result of the debt repurchase activity and persistent low
LIBOR rate.

* Nextel reported Q1 EPS of $0.20, which was $0.02 better than our estimate primarily on
the lower interest expense resulting from its repurchase of $568 million of debt and
preferred stock.

* Nextel posted free cash flow in the quarter despite our estimate of a slight burn
primarily because of capital spending that was $120 million less than we had estimated.

* We continue to expect $600 million of free cash flow this year and $1.8 billion next
year.

* Nextel's Q1 net additions of 480,000 topped our estimate by 33,000 and equaled the net
additions of AT&T Wireless and Sprint PCS' combined, perhaps explaining the industry
interest in Direct Connect.

* Q1 ARPU dropped less than one half of one percent despite investor concern that a
promotional rate plan would lead to dramatic erosion in its monthly bill.

* Lower than expected spending on network costs (83% gross margins) and overhead costs was
offset by higher spending on customer retention resulting in Q1 EBITDA that was in-line
with our estimate.

* Day sales outstanding, a measure of receivables, dropped to 40 days from 47 last quarter
and 46 last year despite an investor concern with a one-day increase in DSO's in a prior
quarter.

* Nextel disclosed that it met its stated milestone of receiving initial phones with a new
capacity increasing vocoder despite an investor speculation that it would be delayed.

* Non-marketing expenses rose just $4 million (0.5%) since the second quarter of last
year, despite investor concern at the time about potential up front discounts to its new
outsourcing agreements.

* Net debt declined $165 million in Q1 to $9.2 billion, 2.3x our 2003 EBITDA estimate of
$4.0 billion.

* We included a table below which compares Q1 results versus our estimates.

* We expect 15% revenue growth and 26% EBITDA growth in 2003 yet
Nextel trades at 12.4 our 2003 EPS estimate and 8.4x our 2004 EPS estimate.

* Our 12-month price target of $21 is based on 6.9x our 2004 EBITDA estimate and implies
19.1x our 2003 EPS estimate, 13.2x our 2004 EPS estimate, and 17.3x our 2004 free cash
flow estimate.

* Major risks include an industry-wide price war and a delay in its technology upgrade.

Rating:                BUY            FY: Dec     2002 A   2003 E
2004 E
Price:                 $13.67         Mar        (0.35)    0.20 A
0.32
52-Week Range:         $14.66-$2.42   Jun        (0.05)    0.29
0.41
Market Cap:            $14.2 billion  Sep         0.14     0.33
0.44
Net Debt :             $9.2 billion   Dec         0.21     0.28
0.42
Avg. Daily Volume:     20,700,000     FY         (0.05)    1.10
1.59
3-Yr. Est. Grwth Rate: 16.5%          Previous     N/A     1.00
1.50
Investment theme:      Growth         P/E          N/A     12.4x
8.6x
Target price           $21.00         EBITDA($mm) 3,190    4,007
4,658
Risk level             High           Rev($mm)    8,919   10,044
10,953
Nextel Corporation Q1 2003 Comparison         Est.
Act         Diff
                                              Mar          Mar
Subscribers                                  11.059
11.092        0.033
Net additions                                 0.447
0.480        0.033
Monthly Churn %                               2.10%
1.90%       -0.20%
Gross additions                               1.129
1.099       (0.031)
Average revenue per unit                     $68.25
$67.87       ($0.38)
Service Revenue                               2,219
2,210          (9)
Network Expense                                 388
369         (19)
G&A                                             395
375         (20)
EBITDA (before marketing)                     1,435
1,466          30
Cost per gross add with subsidy                $455
$509         $54
Sales/Marketing w phone loss                    514
559          45
EBITDA                                          922
906         (15)
Capital Expenditures                            425
305        (120)
Unlevered Free Cash Flow                        497
601         105
Net Cash Interest - Domestic                   (254)
(257)         (3)
Free Cash Flow (EBITDA-CAPEX-INTEREST)          242
344         102
Capital lease payments                           (9)
(16)         (8)
Free cash flow before acquisitions              234
328          95
Cash used for acquisitions                     (210)
(214)         (4)
Working capital                                 (66)
87         153
Cash taxes                                        0
0           0
FCF after adjustments                           (42)
201         243

Sources: Company data and Fulcrum Global Partners.

Nextel Corporation Q1 2003 Comparison

Consolidated Income Statement
Est
Act         Diff
                                                 Mar         Mar
Digital service revenue                         2,219
2,210         (9)
Analog/Equipment sales                          135.5
161.5        26.0
Total Gross Revenue                             2,354
2,371          17
Cost of equipment                                 254
310          56
Net Revenue                                     2,100
2,061         (39)
Domestic Operating Expenses                       388
369         (19)
Domestic SG&A                                     790
786          (4)
EBITDA                                            922
906         (15)
Domestic Depreciation                             397
399           2
Domestic Amortization                              14
14           0
Total Depreciation and Amortization               411
413           2
Operating Income                                  511
493         (17)
Domestic interest expense                        (249)
(225)         24
Domestic interest income                           14
12          (2)
Consolidated Net interest Expense                (235)
(213)         22
International other income                          2
0          (2)
Other (Nextel Partners)                           (20)
(13)          7
Consolidated Other Income(Expense)                (18)
(13)          5
Minority interests                                  0
0           0
Net Income Before Taxes                           257
267          10
Income Taxes (Benefit)                             26
22          (4)
Net Income before preferred                       159
245          86
Extraordinary loss(gain)                            0
7           7
Preferred Dividend                                 34
30          (4)
Net Income                                        197
208          11
Shares                                          1,085.0
1,047.0      (38.0)
Reported EPS                                     $0.18
$0.20       $0.02
Sources: Company data and Fulcrum Global Partners.

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