Filing summary
Entity discrepancy: The supplied filing is MetroPCS Communications, Inc.’s Form 10-Q for the quarter ended March 31, 2012, not a T-Mobile US, Inc. filing. The figures and statements below relate to MetroPCS.
Business context and reporting period
MetroPCS was a U.S. wireless carrier operating primarily in selected metropolitan markets, with CDMA and 4G LTE networks and roaming coverage. This unaudited report covers the three months ended March 31, 2012, compared with the same 2011 quarter. The company reported one segment.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Service revenue | $1,158.8 million | $1,050.2 million; up 10% |
| Equipment revenue | $117.8 million | $144.2 million; down 18% |
| Total revenue | $1,276.6 million | $1,194.4 million; up 7% |
| Operating income | $98.3 million | $145.3 million; down 32% |
| Operating margin | 7.7% | 12.2% |
| Net income | $21.0 million | $56.4 million; down 63% |
| Diluted EPS | $0.06 | $0.15 |
| Operating cash flow | $136.9 million | $138.3 million |
| Capital expenditures | $144.0 million | $187.0 million of property and equipment purchases |
Cash and cash equivalents were $1.886 billion at quarter-end; short-term investments were $329.9 million, for combined cash, cash equivalents and short-term investments of approximately $2.2 billion. Total debt, including capital leases and current maturities, was approximately $4.761 billion. Current assets were $2.767 billion versus current liabilities of $778.0 million.
Customer count was 9.478 million, up 7% year over year; quarterly net additions were 131,654 versus 725,945. Monthly churn was 3.1% in both periods. ARPU was $40.56 versus $40.42; CPGA rose to $235.45 from $157.28; CPU rose to $22.87 from $19.79. Adjusted EBITDA, a non-GAAP measure, was $262.4 million versus $285.2 million.
Material changes versus prior comparable period
- Service revenue growth was driven primarily by customer growth and a modest increase in ARPU; lower equipment revenue reflected fewer gross customer additions and lower handset selling prices.
- Operating expenses increased 12%, faster than revenue. Cost of service rose 14%, cost of equipment 12%, and depreciation and amortization 19%, contributing to lower operating income and margins.
- Net income declined 63%, reflecting weaker operating income and 24% higher interest expense, partly offset by lower income tax expense.
- Interest expense increased to $70.1 million from $56.6 million, while average debt outstanding increased to approximately $4.5 billion from $3.6 billion.
- Cash from operations was broadly flat. Investing cash outflow was $182.9 million; financing cash outflow was $11.1 million, compared with $555.4 million of financing inflow in Q1 2011, which included debt proceeds.
Outlook, commentary, risks and unusual items
- Management expected 2012 capital expenditures of $900 million to $1.0 billion, primarily for network expansion, capacity and 4G LTE upgrades. It stated that available liquidity and anticipated operating cash flows were expected to fund near-term operations and planned investments.
- Management cited competitive pricing and promotions, customer growth and churn, network capacity and technology deployment, spectrum availability and cost, vendor and roaming arrangements, regulation, and economic conditions as key risks. No material changes to the risk factors in the 2011 Form 10-K were reported.
- Approximately $2.5 billion of senior secured facility borrowings bore floating rates. Interest-rate hedges covered $1.4 billion; management estimated that a 100-basis-point LIBOR increase would add $10.7 million to annual interest expense on approximately $1.1 billion of unhedged variable-rate debt.
- A state tax settlement produced a $3.7 million tax benefit in Q1 2012 and contributed to the lower effective tax rate of 26.7%, versus 37.0%.
- In April 2012, the company acquired microwave spectrum for $19.8 million. It also introduced a $25 nationwide voice-and-text plan in April, after quarter-end.
- The company reported no pending litigation it believed would have a material adverse effect, while cautioning that litigation outcomes remain uncertain. It reported no off-balance-sheet arrangements and stated disclosure controls were effective.
Important facts for investors to verify
- Confirm the intended issuer: this source is MetroPCS Communications, Inc., not T-Mobile US, Inc.
- Review customer additions, handset upgrade costs, CPGA and CPU to assess whether acquisition and retention costs are sustainable.
- Assess the planned $900 million to $1.0 billion of 2012 capital expenditures against operating cash generation and the company’s debt burden.
- Verify debt maturities, facility terms and covenants, capital lease obligations, and exposure to unhedged interest-rate changes.
- Consider the non-GAAP nature and company-specific definitions of Adjusted EBITDA, ARPU, CPGA and CPU when comparing performance.