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T-Mobile US, Inc. reported third-quarter 2013 net loss of $36 million compared to a loss of $7.6 billion in the year-ago quarter.

Combined adjusted EBITDA (including adjusted EBITDA of MetroPCS) was $1.3 billion, down from $1.7 billion in the year-ago quarter. The company’s adjusted EBITDA margin was 26% that deteriorated 500 basis points (bps) year over year. The decline was mainly due to lower service revenues, higher customer acquisition expenses owing to growing handset sales and increased promotional activities.

Total revenue increased 8.7% year over year to $6.7 billion and surpassed the Zacks Consensus Estimate of $6.6 billion. Service revenues were $5.1 billion, up 21% year over year with the inclusion of $1.1 billion from MetroPCS service revenues. Excluding the favorable impacts of MetroPCS, the company registered a decline in its service revenues due to increased adoption of the new Simple Choice plans, which have lower monthly service charges.

Equipment revenues for the quarter were $1.5 billion against $554 million in the year-ago quarter. The growth was mainly attributable to rising handset sales driven by Apple Inc. iPhone 5 and Samsung Galaxy S4 both. In addition, handsets generated higher revenue per unit of sales mainly from increased sales of smartphones, representing higher average revenue per unit sold in comparison to other handsets.

Operational Metrics

In the third quarter, branded average revenue per user or (ARPU) was $45.38 compared with $50.55 in the year-ago quarter. Branded cost per user (CPU) was $25.00 compared with $28.00 in the year-ago quarter.

Branded cost per gross addition (CPGA) was $307, which declined from $382 in the year-ago quarter. Churn (customer switch) was 3.1%, unchanged year over year.

Subscriber Statistics

At the end of the reported quarter, the company had nearly 45 million customers. T-Mobile US added 672,000 branded customers bringing its base to 36.4 million. At the end of the quarter, the company had a wholesale customer base of 8.7 million, with 351,000 net customer additions.

Liquidity

T-MobileUSended the third quarter with cash and cash equivalents (inclusive of short-term investment) of $2,365 million compared with $394 million as of Dec 31, 2012. Capital expenditures increased 42% year over year to $1.1 billion in the reported quarter given continued investment in network modernization and 4G LTE deployment.

Guidance

T-MobileUS reaffirmed the financial guidance for 2013. The company maintained adjusted EBITDA projection in the range of $5.2 billion to $5.4 billion. Pro forma cash capital expenditures are estimated at $4.2 billion to $4.4 billion. On a reported basis, the company projects EBITDA in the range of $4.7 billion to $4.9 billion and cash capital expenditures of $4.0 billion to $4.2 billion.

T-MobileUS expects branded post-paid net addition of 1.6 to 1.8 million, up from 1.0 to 1.2 million projected previously.

Our Analysis

We believe that T-Mobile US remains well established to solidify its position in the U.S. market with the acquisition of wireless service provider MetroPCS. The synergies arising from this acquisition and improved data revenue will propel growth going forward. In addition, higher smartphone penetration will drive subscriber addition, fending competition from tier 1 carriers like AT&T, Inc. and Verizon Communications Inc. .

T-Mobile US has a Zacks Rank #3 (Hold).

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