T-Mobile US, Inc. (TMUS) reported fourth quarter 2013 loss per share of 3 cents, which bettered the Zacks Consensus Estimate of 15 cents loss per share. However, the quarterly loss deteriorated from 1 cent loss per share incurred in the year-ago quarter. For the full year, the company reported earnings per share of 5 cents against loss of $13.70 per share in the year ago.
Total revenue increased 39.1% year over year to $6,827 million in the fourth quarter, missing the Zacks Consensus Estimate of $6,946 million.The growth was aided by the inclusion of MetroPCS fourth quarter results and higher equipment sales buoyed by record smartphone sales. For 2013, total revenues increased 5.3% year-over-year to $26.1 billion.
Adjusted EBITDA was $1,239 million, down from $1,355 million in fourth quarter 2012. Adjusted EBITDA margin was 24%, down 200 basis points (bps) year over year. Adjusted EBITDA for the year was $5.317 billion, down from $6.398 billion in 2012. Adjusted EBITDA margin was down 300 bps year over year to 26%.
Service revenues of the company increased 25.2% year over year to $5,169 million in the fourth quarter primarily due to the inclusion of MetroPCS. Revenues from Equipment were $1,581, up 120% year over year.
The company sold 6.2 million smartphones in the fourth quarter, representing 91% of total equipment sales. Smartphone penetration increased to 81% of total branded customers at the end of the quarter.
Subscriber and Churn Rate
At the end of 2013, T-Mobile US had a subscriber base of 46 million with net addition of 4.4 million. In 2013, the company had 22.299 million branded post-paid customers and 15.072 branded prepaid customers. At year end, the company had 3.6 million, 5.7 million and 9.3 million customers under M2M, MVNO and wholesale category, respectively.
The company’s 4G LTE base increased to 209 million in 2013 covering 273 metro areas.
Post-paid churn improved 80 bps in the fourth quarter to 1.7%.
The company currently has 3.5 million MetroPCS customers under its wings with expansion of services in 30 additional markets.
Liquidity and Capital Expenditure
The company exited the year with $3,545 million in cash from operating activities, which is lower than $3,862 million a year ago. Cash and cash equivalents amounted to $5,891 million in 2013 against $394 million in 2012. Long-term debt was $14,345 million against no debt in 2012.
The company recorded cash capital expenditure of $882 million in the fourth quarter, down from $898 million in the fourth quarter of 2012.
Guidance
For 2014, the company projects adjusted EBITDA in the range of $5.7 billion to $6.0 billion. Cash capital expenditures are expected in the range of $4.3 billion to $4.6 billion.
Outlook
T-Mobile US currently has a Zacks Rank #3 (Hold). We believe the company has an attractive fundamental outlook based on increasingly favorable growth prospects for its wireless business. Growth in branded customers, 4G expansion, smartphone sale and incorporation of MetroPCS’ prepaid business will not only support top line growth in the coming quarters but will also provide a better competitive position against the likes of AT&T, Inc. (T), Verizon Communications Inc. (VZ) and Sprint Corporation (S). However, factors like increased debt levels and capital expenditure keep us cautious on the stock.
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