MetroPCS Communications, Inc. — FY 2011 Form 10-K
Filing identity: The supplied filing is MetroPCS Communications, Inc.’s Form 10-K for the fiscal year ended December 31, 2011, not a T-Mobile US, Inc. filing. It reports full-year 2011 results and includes unaudited fourth-quarter data.
Business context and reporting period
MetroPCS provided prepaid, no-long-term-contract wireless service in 13 U.S. metropolitan areas, using CDMA and 4G LTE networks and roaming partners. At year-end it reported 9.35 million customers, up 15% from 2010, and licensed spectrum covering a population of 142 million. Its nationwide Metro USA roaming footprint covered a population of more than 280 million.
Financial and operating performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Service revenue | $4.43 billion | $3.69 billion |
| Equipment revenue | $419.2 million | $379.7 million |
| Total revenue | $4.85 billion | $4.07 billion |
| Operating income | $747.5 million | $718.9 million |
| Net income | $301.3 million | $193.4 million |
| Diluted earnings per share | $0.82 | $0.54 |
| Operating cash flow | $1.06 billion | $994.5 million |
| Capital expenditures | $889.8 million | $790.4 million |
Calculated operating margin was approximately 15.4% (17.7% in 2010); net margin was approximately 6.2% (4.8% in 2010). Operating cash flow less reported property-and-equipment purchases was approximately $172 million.
Fourth-quarter 2011 revenue was $1.24 billion, operating income $215.1 million, and net income $91.3 million. In Q4 2010, the corresponding figures were $1.07 billion, $207.3 million, and $13.6 million.
Annual Adjusted EBITDA, a company-defined non-GAAP measure, was $1.33 billion, up from $1.18 billion. Average monthly churn rose to 3.8% from 3.6%; ARPU increased to $40.57 from $39.79. CPGA rose to $173.11 from $157.26 and CPU to $19.56 from $18.49.
Liquidity, debt, and material changes
At December 31, 2011, cash, cash equivalents, and short-term investments totaled $2.24 billion, compared with $1.17 billion a year earlier. Current assets were $2.74 billion and current liabilities $816.7 million. Total debt, including capital leases and current maturities, was $4.74 billion, up from $3.78 billion; reported long-term debt including current maturities was also $4.74 billion. The company reported a 6.09% weighted-average interest rate for 2011. Cash and investments exceeded total debt by approximately $2.50 billion.
Revenue grew 19%, while operating income increased only 4%, as operating expenses rose 22%. Equipment costs increased 32%, reflecting more handset upgrades and gross additions and higher average handset costs. Net income rose 56%, helped by a sharp reduction in debt-extinguishment losses: $9.5 million in 2011 versus $143.6 million in 2010. The company issued additional term loans in 2011 and used part of the proceeds to repay $535.8 million of existing loans.
Management said current liquidity and expected operating cash flows were adequate for near-term operations and planned investments. The filing reports no off-balance-sheet arrangements. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Outlook, commentary, risks, and unusual items
- Management expected 2012 capital expenditures of $900 million to $1.0 billion, primarily for network capacity, coverage, and 4G LTE upgrades.
- Key risks include aggressive competition and pricing, rising churn and customer-acquisition costs, limited spectrum and network capacity, uncertain 4G LTE roaming availability, and dependence on roaming partners and a concentrated group of vendors.
- Debt and interest-rate exposure remain material. Much of the credit-facility debt is variable-rate, though the company used interest-rate protection agreements; it estimated that a 100-basis-point increase would add about $10.2 million in annual interest expense on unhedged variable-rate debt.
- Other notable exposures include regulatory and spectrum-license requirements, tax-inclusive plans that leave the company exposed to increases in taxes and fees, and long-term lease and purchase commitments. Total future cash contractual obligations were reported at $9.49 billion.
- The company stated that no pending legal proceedings were then believed likely to have a material adverse effect, while cautioning that litigation outcomes are uncertain. It also reported a $4.0 million tax benefit expected in Q1 2012 from a state tax settlement finalized after year-end; the position had been fully reserved at year-end.
Important facts for investors to verify
- Confirm the issuer and period: this is MetroPCS’s 2011 annual filing, not T-Mobile US’s, and Q4 figures are unaudited quarterly data within that filing.
- Review the audited statements and debt notes for the $4.74 billion debt balance, maturity schedule, covenants, and interest-rate protection coverage.
- Assess whether customer growth can offset higher churn, CPGA, CPU, equipment costs, and roaming expenses.
- Check execution of the 2012 capital-spending plan and whether network capacity, spectrum, and LTE roaming can support customer and data demand.
- Reconcile reported cash generation with capital spending and debt issuance; Adjusted EBITDA is non-GAAP and is not a substitute for cash flow or net income.