TMUS

Business Context and Reporting Period

This Form 10-Q is filed by MetroPCS Communications, Inc. for the quarterly period ended September 30, 2009. The company operates as a wireless telecommunications carrier offering flat-rate, prepaid mobile services in major U.S. metropolitan areas. The reporting period covers the three and nine months ended September 30, 2009, compared to the same periods in 2008. The company operates through two reportable segments: Core Markets and Northeast Markets.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 30% year-over-year for the nine months ended September 30, 2009, driven by a 30% increase in service revenues. This growth was fueled by net customer additions of 955,436 and the launch of services in the Northeast Markets (New York and Boston).
• Profitability: Net income increased 64% for the quarter and 7% for the nine-month period compared to 2008. Operating income rose 31% for the quarter and 10% for the nine months.
• Expense Increases: Interest expense increased 47% for the nine months due to the issuance of $550 million in new Senior Notes in January 2009. Depreciation and amortization increased 46% due to network infrastructure expansion.
• Segment Performance: Core Markets Adjusted EBITDA increased 33% to $878.2 million for the nine months. Conversely, Northeast Markets reported an Adjusted EBITDA deficit of $173.2 million, reflecting significant launch costs and ramp-up expenses.
• Customer Metrics: Total customers grew 30% year-over-year to 6.32 million. However, churn increased to 5.8% for the quarter (from 4.8% in 2008) and 5.5% for the nine months (from 4.5% in 2008), attributed to increased competition and macroeconomic weakness.

Guidance, Outlook, and Risks

• Capital Expenditures: The company expects consolidated capital expenditures for the full year 2009 to range between $0.7 billion and $0.9 billion. $636.5 million was incurred in the first nine months.
• Liquidity: Management believes existing cash, cash equivalents, and short-term investments (totaling approximately $1.2 billion) combined with operating cash flows are sufficient to fund planned expansion and operations.
• Debt Covenants: The company maintains a senior secured leverage ratio of 1.74 to 1.0 (as of Sept 30, 2009), well below the 4.5 to 1.0 covenant limit.
• Key Risks:
  • Competition: Intense competition from national carriers and MVNOs offering unlimited plans and broader coverage.
  • Churn: Higher-than-forecasted churn rates could reduce revenues and increase acquisition costs.
  • Regulatory: Potential changes in intercarrier compensation rules and FCC regulations regarding net neutrality or spectrum allocation.
  • Vendor Concentration: Reliance on a single vendor for LTE infrastructure and initial dual-mode handsets.
• Unusual Items: The company recognized an impairment loss on investment securities of $1.8 million for the nine months ended September 30, 2009, related to auction rate securities. This is a significant decrease from the $20.0 million impairment in the same period in 2008.

Investor Verification Checklist

• Verify the sustainability of the 30% revenue growth given the 5.8% churn rate in Q3 2009.
• Confirm the timeline and cost implications of the LTE network rollout and the Master Procurement Agreement with Ericsson.
• Monitor the impact of the new $550 million Senior Notes on future interest expense and cash flow.
• Assess the progress of Northeast Markets in reducing their Adjusted EBITDA deficit.
• Review the status of auction rate securities and potential further impairment risks.