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NII Holdings Inc. (NIHD - Analyst Report) reported dismal second-quarter 2013 financial results as this Latin American wireless operator’s both top and bottom lines missed the Zacks Consensus Estimate. Higher churn, weaker exchange rate, lower ARPU and higher operating expenses dragged the results lower.

Net loss from continuing operation was $384.9 million or $2.23 per share compared with loss of $85.3 million or 50 cents per share per in the prior-year quarter. Reported net loss was much wider than the Zacks Consensus Estimate of a loss of $1.05 per share.

Quarterly total revenue was $1,259.6 million, down 10.6% year over year and also below the Zacks Consensus Estimate of $1,346 million.

Operating expenses fell 0.3% year over year to $1,341.6 million in the quarter. Operating loss in the second quarter of 2013 was $82 million against a profit of $63.7 million in the year-ago quarter. Such a huge loss was mainly due to higher promotional activity and service charges.

Quarterly consolidated Operating profit before Depreciation and Amortization was $99.6 million against $216.6 million in the previous-year quarter.

At the end of the second quarter of 2013, NII Holdings had $1,781.7 million in cash, cash equivalents and marketable securities compared with $1,588.3 million at the end of fiscal 2012. Total debt at the end of the reported quarter was $5,653.1 million compared with $4,866.2 million at the end of fiscal 2012. The debt-to-capitalization ratio for the reported period was 0.79 compared with 0.68 at the end of fiscal 2012.

Operating Metrics

At the end of the second quarter of 2013, the total digital subscriber base of NII Holdings increased 1.5% year over year to 9914,300. During the reported quarter, the company added 100,500 net new subscribers against 241,000 subscribers in the prior-year quarter. Customer churn in the reported quarter was 2.67% against 2.16% in the prior-year quarter.

Quarterly subscriber revenue ARPU was $36 compared with $41 in the year-ago quarter. Quarterly service and other revenue ARPU was $41 versus $46 in the year-ago quarter. Such reduction in ARPU was mainly hurt by higher promotional expenses incurred by the company to counter intense competition and fluctuation in the foreign currency exchange rate. However, quarterly costs per gross subscriber added were $276 compared with $301 in the year-ago quarter.

Our Take

NII Holdings plans to rollout 3G network across the highly-lucrative Brazilian market by the end of fiscal 2013. However, it may not prove to be beneficial for the company as these Latin American markets are dominated by America Movil (AMX - Analyst Report) and Telefonica .

Moreover, deployment of 3G network requires huge cash, which will impede NII Holding’s further growth. To make matters worse, Standard and Poor’s (S&P) lowered NII Holdings’ corporate credit rating by one notch to B-.

In order to overcome its financial crisis, NII Holdings plans to sell its 4,500 wireless towers located across Brazil and Mexico by the middle of fiscal 2013. The proceeds of which will be utilized to fund its 3G deployment goal across these regions.

Moreover, NII Holdings is phasing out Motorola Solution’s (MSI - Analyst Report) Integrated digital enhanced technology (iDEN) and consequently integrating its new Push to Talk (PTT) technology, hence driving expenses and delaying the 3G launch.

Currently, NII Holdings has a Zacks Rank #3 (Hold).
 

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