MetroPCS Communications Inc. (PCS), the sixth-largest prepaid wireless service operator in the U.S., reported fourth quarter 2010 adjusted earnings per share of 20 cents beating the Zacks Consensus Estimate by two cents and improving 11 cents from the year-ago quarter. The company’s “Wireless for All” service plans led to overall stronger results.
Adjusted earnings excluded net charges of $60 million related to the extinguishment of senior notes, partially offset by a gain recognized on a FCC license exchange. In fiscal 2011, the company reported adjusted earnings of 70 cents per share compared to 46 cents in the prior year.
Total revenue climbed 14.6% year over year to $1,066 million in the fourth quarter, slightly lower than the Zacks Consensus Estimate of $1,067 million. Fiscal 2010 revenue increased 16.9% year over year to $4,069 million.
Adjusted EBITDA leaped 25.5% and 23% year over year to $315 million and $1,176 million in the fourth quarter and fiscal 2010, respectively. The company generated the highest annual adjusted EBITDA in its history. Continued strong execution as well as success of “Wireless for All” plans drove the improved results.
Operational Metrics
Average revenue per user declined 2.4% to $39.79 in the reported quarter from $40.70 in the year-ago quarter mainly due to the company’s “Wireless for All” (inclusive of applicable taxes and regulatory fees) plan.
Cost per user upped 4% year over year to $18.83 attributable to higher handset subsidies, regulatory fees in “Wireless for All” service plans as well as costs associated with fourth-generation (4G) long-term evolution network upgradation.
Churn (customer switch) was 3.5% in the fourth quarter, down from 3.5% in the year-ago quarter, driven by the adoption of “Wireless for All” service plans.
Subscriber Statistics
MetroPCS added 297,726 subscribers during the quarter totaling 8.1 million customers (up 22.8% year over year). Consolidated penetration of covered population was 8.4% compared with 7.2% in the year-ago quarter.
Liquidity
The company exited fiscal 2010 with cash and cash equivalents of $796.5 million compared with $929.4 million at the end of 2009. Long-term debt increased to $3.7 billion from the prior-year level of $3.6 billion.
Guidance
MetroPCS expects to incur capital expenditures in the range of $650 million to $800 million for fiscal 2011.
Our Analysis
As one of the lowest cost wireless service providers in the U.S., MetroPCS will likely benefit from its successful “Wireless for All” service plans, 4G network upgrade, smartphone offerings, and the ongoing expansion initiatives in Northeastern markets. Additionally, the company is making efforts to strengthen its balance sheet through extending and staggering the Company’s debt maturity profile.
On the flip side, we remain concerned about the highly leveraged balance sheet that may limit its ability to invest in growth initiatives going forward. Moreover, higher promotional expenses for rolling out new service plans and new smartphones offerings will also dilute margins going forward.
Although MetroPCS is strongly positioned than its bigger rival AT&T Inc. (T), it faces stiff competition with its archrival Leap Wireless (LEAP). Consequently, we are currently recommending our long-term Neutral rating on MetroPCS with a Zacks #3 Rank (Hold).
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