MetroPCS Communications Inc. ( PCS )
reported second quarter 2012 earnings per share of 41 cents that
breezed passed the Zacks Consensus Estimate of 22 cents and shot up
78% from 23 cents in the year-ago quarter driven by strong
Total revenue climbed 6% year over year to $1,281 million in the
second quarter, beating our expectation of $1,267 million. Adjusted
EBITDA rose 33% year over year to $477 million. EBITDA margin
(adjusted EBITDA as a percentage of service revenues) increased a
whopping 900 basis points (bps) to 41.1% from 32.1% in the year-ago
quarter. Operating expenses dropped 3% year over year to $969.2
Average revenue per user (ARPU) was $40.62 in the reported
quarter compared to $40.49 in the year-ago quarter. The increase
was mainly backed by strong demand for "Wireless for All" services
and fourth-generation (4G) long-term evolution (LTE) rate plans,
offset by promotional service plans and an increased penetration of
family plans that rose to 42% from 38% in the year-ago quarter.
Cost per user (CPU) dipped 3% year over year to $18.40 due to
the decrease in expenses on customer retention and long distance
cost, taxes and regulatory fees. Additionally, cost on handset
upgrades were substantially lowered to $3.06 in CPU from $3.73 in
the year-ago quarter. These cost related gains were partially
offset by an increase in expenses associated with 4G LTE network
upgrade and roaming expenses related to Metro USA.
Cost per gross addition (CPGA) increased 7% year over year to
$190.53 due to lower gross additions offset by reduces promotional
Churn (customer switch) decreased 50 bps to 3.4% in the second
quarter, reflecting an improvement from 3.9% in the prior-year
quarter. The sequential improvement was primarily attributable to
continued investment in network upgrades.
MetroPCS lost 186,062 subscribers during the quarter compared to
subscriber addition of 198,810 in the year-ago quarter. Total
subscriber base at the end of the reported quarter was 9.3 million
customers (up 2% year over year). Consolidated penetration of the
covered population remained flat year over year at 9.1%.
The company ended the second quarter with cash and cash
equivalents of $1,901.2 million compared with $1,856 million at the
end of the year-ago quarter. Long-term debt was $4.726 billion
compared with $4.711 billion.
For fiscal 2012, MetroPCS maintained its prior expectation of
capital expenditures in the range of $0.9 billion to $1.0
The company expects the launch of its 4G LTE for All program by
the end of the third quarter this year. Given the launch of 4G LTE
for All the company anticipates subdued results this year in terms
of CPGA and CPU.
MetroPCS remains hopeful that the launch of its 4G LTE for All
program will enable it to add subscribers in near future. The
company expects to further expand its LTE services, which currently
serves 8% of its existing subscriber base.
With faster broadband speed the company aims at fulfilling the
growing demand for data services. Further, the stellar operating
performance in terms of record adjusted EBITDA and EBITDA margin
remains encouraging despite substantial subscription losses.
However, we remain cautious on associated expenditures on
expansion plans that may weigh over the margins. Further, the
company faces stiff competition from peers like United
States Cellular ( USM
We are currently maintaining our long-term Neutral rating on
MetroPCS with a Zacks #3 Rank (Hold).
METROPCS COMMUN (PCS): Free Stock Analysis
US CELLULAR (USM): Free Stock Analysis Report
To read this article on Zacks.com click here.