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MetroPCS Communications Inc. reported second quarter 2012 earnings per share of 41 cents that breezed passed the Zacks Consensus Estimate of 22 cents and shot up 78% from 23 cents in the year-ago quarter driven by strong operating results.
Total revenue climbed 6% year over year to $1,281 million in the second quarter, beating our expectation of $1,267 million. Adjusted EBITDA rose 33% year over year to $477 million. EBITDA margin (adjusted EBITDA as a percentage of service revenues) increased a whopping 900 basis points (bps) to 41.1% from 32.1% in the year-ago quarter. Operating expenses dropped 3% year over year to $969.2 million.
Average revenue per user (ARPU) was $40.62 in the reported quarter compared to $40.49 in the year-ago quarter. The increase was mainly backed by strong demand for “Wireless for All” services and fourth-generation (4G) long-term evolution (LTE) rate plans, offset by promotional service plans and an increased penetration of family plans that rose to 42% from 38% in the year-ago quarter.
Cost per user (CPU) dipped 3% year over year to $18.40 due to the decrease in expenses on customer retention and long distance cost, taxes and regulatory fees. Additionally, cost on handset upgrades were substantially lowered to $3.06 in CPU from $3.73 in the year-ago quarter. These cost related gains were partially offset by an increase in expenses associated with 4G LTE network upgrade and roaming expenses related to Metro USA.
Cost per gross addition (CPGA) increased 7% year over year to $190.53 due to lower gross additions offset by reduces promotional expenses.
Churn (customer switch) decreased 50 bps to 3.4% in the second quarter, reflecting an improvement from 3.9% in the prior-year quarter. The sequential improvement was primarily attributable to continued investment in network upgrades.
MetroPCS lost 186,062 subscribers during the quarter compared to subscriber addition of 198,810 in the year-ago quarter. Total subscriber base at the end of the reported quarter was 9.3 million customers (up 2% year over year). Consolidated penetration of the covered population remained flat year over year at 9.1%.
The company ended the second quarter with cash and cash equivalents of $1,901.2 million compared with $1,856 million at the end of the year-ago quarter. Long-term debt was $4.726 billion compared with $4.711 billion.
For fiscal 2012, MetroPCS maintained its prior expectation of capital expenditures in the range of $0.9 billion to $1.0 billion.
The company expects the launch of its 4G LTE for All program by the end of the third quarter this year. Given the launch of 4G LTE for All the company anticipates subdued results this year in terms of CPGA and CPU.
MetroPCS remains hopeful that the launch of its 4G LTE for All program will enable it to add subscribers in near future. The company expects to further expand its LTE services, which currently serves 8% of its existing subscriber base.
With faster broadband speed the company aims at fulfilling the growing demand for data services. Further, the stellar operating performance in terms of record adjusted EBITDA and EBITDA margin remains encouraging despite substantial subscription losses.
However, we remain cautious on associated expenditures on expansion plans that may weigh over the margins. Further, the company faces stiff competition from peers like United States Cellular (USM - Analyst Report).
We are currently maintaining our long-term Neutral rating on MetroPCS with a Zacks #3 Rank (Hold).