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Latin American wireless operator, NII Holdings Inc. (NIHD - Analyst Report) reported dismal third-quarter 2013 financial results, with both the top and the bottom line missing the Zacks Consensus Estimate.

NII Holdings lost around 178,000 subscribers in the reported quarter. Moreover, higher churns, weaker exchange rate, lower ARPU, increased operating expenses and a slashed outlook impacted its stock price. Following the result declaration, stock price fell by $1.37 or 28.54 to a 10-year low of $3.43.

Net loss from continuing operation was $293.1 million or $1.70 per share compared with a loss of $82.4 million or 36 cents per share per in the prior-year quarter. The number was wider than the Zacks Consensus Estimate of a loss of $1.31 per share.

Quarterly total revenue was $1,101.3 million, down 21.7% year over year and also below the Zacks Consensus Estimate of $1,346 million.

Operating expenses fell 6.2% year over year to $1,264.1 million in the quarter. Operating loss was $162.8 million against a profit of $60.3 million in the year-ago quarter. Increased promotional activities and service charges are accountable for the greater-than-expected loss.

Quarterly consolidated Operating profit before Depreciation and Amortization was $16.1 million against $225.4 million in the previous-year quarter.

At the end of the third quarter of 2013, NII Holdings had $1,897.3 million in cash, cash equivalents and marketable securities compared with $1,576million at the end of fiscal 2012. Total debt was $5,697.7 million compared with $4,765.5 million at the end of fiscal 2012. The debt-to-capitalization ratio was 0.82 against 0.67 at the end of fiscal 2012.

Operating Metrics

At the end of the third quarter of 2013, the total digital subscriber base of NII Holdings fell 1.1% year over year to 9735,900. The company lost 178,400 net new subscribers against a gain of 81,100 subscribers in the prior-year quarter. Customer churn in the reported quarter was 3.59% against 2.54% in the prior-year quarter.

Quarterly subscriber revenue ARPU was $31 compared with $40 in the year-ago quarter. Quarterly service and other revenue ARPU was $36 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 $245 compared with $319 in the year-ago quarter.

Our Take

NII Holdings is targeting the highly lucrative Brazilian and Mexican markets, which are dominated by America Movil S.A.B. de C.V. (AMX - Analyst Report) and Telefornica SA . Thus, to consolidate its position in these markets, NIHD plans to deploy its 3G service integrated with the Push to Talk (PTT) technology by the end of 2013. However, lack of funds has been a bottleneck for the company.

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

In order to overcome its financial crisis, NII Holdings struck a deal with American Tower Corp. (AMT - Analyst Report). Per the deal, NIHD will sell 2,790 Brazilian towers and 1,666 Mexican towers for $413 million and $398 million, respectively. The proceeds will be utilized to fund its 3G deployment goal across these regions.

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

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