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Latin American wireless operator NII Holdings Inc. (NIHD - Analyst Report) declared dismal financial results for the fourth quarter of 2012, hurt by higher churn, weaker exchange rate and higher operating expenses, arising from the one-time charges linked with the company's plan to attract customers in Brazil and a non-cash asset impairment charge to write down the value of its assets in Chile.

On a GAAP basis, net loss in the reported quarter was $592.9 million or $3.45 per share compared with a net income of $3.2 million or 2 cents per share per in the prior-year quarter. Reported net loss was wider than the Zacks Consensus Estimate of a loss of $1.06 per share.

Quarterly total revenue was $1,465.6 million, down 8.4% year over year and also below the Zacks Consensus Estimate of $1,475 million.

Quarterly operating expenses spiked 25.3% year over year to $1,844.9 million. Operating loss in the fourth quarter of 2012 was $379.3 million against a profit of $127 million in the previous-year quarter. Such massive loss was mainly due to restructuring expenses borne by the company.

Quarterly consolidated Operating loss before Depreciation and Amortization stood at a $178.6 million against a profit of $287.2 million, hammered by foreign exchange fluctuation rate, reduced ARPU and higher cost associated with the roll out of 3G networks.

At the end of the fourth quarter of 2012, NII Holdings had $1,588.3 million in cash, cash equivalents and marketable securities compared with $2,666.3 million at the end of fiscal 2011. Total debt at the end of the reported quarter was $4,866.2 million compared with $4,818.2 million at the end of fiscal 2011. Debt-to-capitalization ratio for the reported period was 0.68 compared with 0.60 at the end of fiscal 2011.

Operating Metrics

At the end of the fourth quarter of 2012, total digital subscriber base at NII Holdings increased 6.1% year over year to 11,361,500. During the reported quarter, the company added 2,200 net new subscribers against 466,600 subscribers in the last year quarter.

Customer churn in the reported quarter was 3.4% against 1.78% in the prior-year quarter and was mainly impacted by removal of unprofitable subscribers in Brazil. Quarterly subscriber revenue ARPU was $36 compared with $43 in the year-ago quarter.

Quarterly service and other revenue ARPU was $41 versus $48 in the year-ago quarter. Such reduction in ARPU was mainly hurt by fluctuation in foreign currency exchange rate. However, quarterly costs per gross subscriber added was $260 compared with $299 in the year-ago quarter.


NII Holdingsexpect adjusted OIBDA for fiscal 2013 to remain in between $600 and $650 million.

Our Take

NII Holdings plan to successfully roll out 3G network across the highly lucrative Brazilian market. 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 (TEF - Analyst Report).


Furthermore, deployment of 3G networks requires huge cash, which happens to be a major drawback for NII Holdings, thereby slowing down things further. To make matters worse, Standard and Poor’s (S&P) lowered NII Holdings’ corporate credit rating by one notch to B- from the previous B rating status.

Moreover, NII Holdings is involved in the process of 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 costs and delaying the 3G launch.

Currently, NII Holdings has a Zacks Rank #4 (Sell).

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