MetroPCS Communications Inc. (PCS), the sixth-largest prepaid wireless service operator in the U.S. has reported fourth quarter 2011 adjusted earnings per share of 25 cents breezed passed the Zacks Consensus Estimate of 19 cents and registered a whopping 525% increase from the year-ago earnings of 4 cents. The staggering growth was a result of increased demand for wireless data service and higher penetration of Google‘s (GOOG) Android-based smartphones. Additionally, a sequential decline in the churn rates also aided the fourth quarter results.
Adjusted earnings for fiscal 2011 increased 51.8% year over year to 82 cents.
Total revenue climbed 16% year over year to $1,134 million in the fourth quarter, but failed to match our expectation of $1,248 million. Revenue for the full year grew 20% year over year to $4,428 million.
Adjusted EBITDA increased 15% year over year to a record high of $362 million in the fourth quarter. Adjusted EBITDA in fiscal 2011 was $1,332, up 13% year over year.
Quarterly operating expenses increased 19.2% year over year to $1,023 million. Operating expenses for the year increased 22.4% year over year to $4,099.8 million.
Operational Metrics
Average revenue per user nudged up 1.9% to $40.55 in the reported quarter from $39.79 in the year-ago quarter mainly on strong demand for “Wireless for All” services and fourth-generation (4G) long-term evolution (LTE) rate plans, offset by growth in the family plan that increased to 45% from 32% in the year-ago quarter.
Cost per user upped 6% year over year to $20.00 due to higher expenses on customer retention, costs associated with 4G LTE network upgrade and roaming expenses.
Churn (customer switch) was 3.7% in the fourth quarter, up from 3.5% in the year-ago quarter, due to an increase in subscriber gross additions, adjustment of false churn rates and prevailing weak economical conditions of subscribers and increased demand for data services due to Android-based smartphone penetration. However, churn rates improved sequentially from 4.5% in the third quarter driven by favorable impacts of the festive season, coupled by increased network efficiency to accommodate growing data demand.
Subscriber Statistics
MetroPCS added 197,410 subscribers during the quarter to reach a total of 9.3 million customers (up 15% year over year). Consolidated penetration of the covered population was 9.13% compared with 8.4% in the year-ago quarter. The growth was primarily driven by increased demand of Android-based smartphones.
Liquidity
The company ended the fiscal 2011 with cash and cash equivalents of $1,943.3 million compared with $796.5 million in the prior year. Long-term debt was $4.7 billion compared to $3.8 billion a year ago.
Our Analysis
Despite the gradual slowdown in the economy, increasing cost pressure and stiff competition from AT&T Inc. (T), and Leap Wireless (LEAP), we believe MetroPCS will remain benefited from the continued high demand for Android-based smartphones backed by the company’s non-contractual and affordable wireless data plans. Further, the company’s Wireless for All service plans and entry into 4G LTE wireless services bode well for earnings growth in 2012 and beyond.
We are currently maintaining our long-term Neutral rating on MetroPCS with a Zacks #3 Rank (Hold).
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