MetroPCS Communications Inc. (PCS), the sixth-largest prepaid wireless service operator in the U.S. reported first quarter 2011 adjusted earnings per share of 15 cents, which missed the Zacks Consensus Estimate of 19 cents but shot up 150% from 6 cents in the year-ago quarter on record high net subscriber additions.
The company’s “Wireless for All” service plans and significant penetration of smartphones led to the robust year over year growth.
Total revenue climbed 23% year over year to $1,194.4 million in the first quarter, outpacing the Zacks Consensus Estimate of $1,127 million. Adjusted EBITDA leaped 28% year over year to $285 million.
Operational Metrics
Average revenue per user inched up 1.5% to $40.42 in the reported quarter from $39.83 in the year-ago quarter mainly on strong demand for Wireless for All and fourth-generation (4G) long-term evolution (LTE) rate plans.
Cost per user upped 5% year over year to $19.79 attributable to higher handset subsidies, regulatory fees in Wireless for All service plans as well as costs associated with 4G LTE network upgradation.
Churn (customer switch) was 3.1% in the first quarter, down from 3.7% in the year-ago quarter, driven by the adoption of the Wireless for All service plans.
Subscriber Statistics
MetroPCS added 725,945 subscribers during the quarter totaling 8.9 million customers (up 21% year over year). Consolidated penetration of covered population was 9.0% compared with 7.8% in the year-ago quarter.
Liquidity
The company ended the first quarter with cash and cash equivalents of $1,321.6 million compared with $914.6 million at the end of year-ago quarter. Long-term debt increased to $4.3 billion from $3.8 billion at year-end 2010.
Guidance
MetroPCS expects to incur capital expenditures in the range of $700 million to $900 million for fiscal 2011.
Our Analysis
We believe MetroPCS’s low cost structure i.e., providing mobile broadband on advanced smartphones for an affordable price coupled with 4G LTE network bode well for growth in a competitive marketplace. In addition, the company’s expansion into the lucrative Northeastern market appears encouraging for future business growth.
The company believes 4G LTE is rapidly gaining ground and expects to finish the majority of its 4G LTE build out by the end of this year. Further, the company remains focused on increasing profitability and returns for shareholders.
On the flip side, we remain concerned about the highly leveraged balance sheet, which 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 maintaining our long-term Neutral rating on MetroPCS with a Zacks #3 Rank (Hold).
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