NET Servicos de Comunicacao S.A. (
declared financial results for the second quarter of 2010 that fell below the Zacks Consensus Estimate.
Quarterly net income was $31.6 million or 9 cents per share compared with a net income of $101 million or 15 cents per share in the year-ago quarter. Second quarter 2010 EPS of 9 cents was significantly below the Zacks Consensus Estimate of 19 cents. NET Servicos cited higher operating costs and unfavorable movement of foreign currency exchange rate are the primary reasons for this poor performance.
Second-quarter gross revenue was $967.6 million, an improvement of 18% year over year. This was mainly due to higher subscription revenue as the subscriber base enlarges. Net revenue (excluding connection cancellations and sales taxes), in the reported quarter, was $725.7 million, up 19% year over year. This was slightly better than the Zacks Consensus Estimate of $724 million.
Segment wise, Subscription revenue was $839.5 million, up 16.5% year over year. Hook-up revenue was $3.4 million, down 72.5% year over year. Revenue from Other services was $124.7 million, up 43.8% year over year.
At the end of the second quarter 2010, Pay TV subscriber base was 3,883,000, up 12% year over year. Net additions during the quarter were 107,000 clients. Churn rate during the second quarter 2010 was 15.2% compared with 15.5% in the prior-year quarter.
Broadband subscriber base totaled 3,100,000, up 19% year over year. Out of this, bidirectional household penetration reached 34%.Fixed Telephone Line in Service was 2,765,000, up 21% year over year. NET Servicos said that despite a year-over-year increase, its broadband and voice customer net addition was below expectations. Quarterly consolidated ARPU was $75.85, up 2% over the prior-year quarter.
Quarterly operating expenses were $347.2 million, up 11% over the prior-year quarter. This was mainly due to 22% increase in Programming costs and 15% increase in Personnel & Benefit expenses. Selling, general and administrative expense was $169.7 million, up 23% year over year.
Quarterly EBITDA was $210 million, an improvement of 30% year over year. EBITDA margin in the second quarter 2010 was 28.6% compared with 26.1% in the year-ago quarter. Quarterly EBIT was $87 million, up 9% year over year. However, EBIT margin was 11.9% compared with 13% in the year-ago quarter.
At the end of the second quarter 2010, NET Servicos had $592.2 million of cash and cash equivalents, up 97% year over year. At the end of the same quarter, the company had $1,266.3 million of total outstanding debt, up 36.4% year over year. At the end of the second quarter 2010, debt-to-capitalization ratio was 0.3 compared with 0.28 at the end of the year-ago quarter.
We maintain our Neutral recommendation for NET Servicos. Currently it is a Zacks #3 Rank (Hold) stock.