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Latin American wireless operator, NII Holdings Inc. (NIHD - Analyst Report) declared dismal financial results for the first quarter of 2013, missing both the top and bottom line of the Zacks Consensus Estimate, hurt by higher churn, weaker exchange rate, lower ARPU and higher operating expenses.

On a GAAP basis, net loss in the reported quarter was $207.5 million or $1.21 per share compared with a net income of $13.6 million or 8 cents per share per in the prior-year quarter. Reported net loss was wider than the Zacks Consensus Estimate of a loss of 68 cents per share.

Quarterly total revenue was $1,413.4 million, down 13.5% year over year and below the Zacks Consensus Estimate of $1,451 million.

Quarterly operating expenses spiked 25.3% year over year to $1,515.3 million. Operating loss in the first quarter of 2013 was $101.9 million against a profit of $184.6 million in the year-ago quarter. Such a huge loss was mainly due to higher promotional activity and service charges.

Quarterly consolidated Operating profit before Depreciation and Amortization was $102 million against $287.2 million in the previous year quarter.

At the end of the first quarter of 2013, NII Holdings had $1,928.4 million in cash, cash equivalents and marketable securities compared with $1,588.3 million at the end of fiscal 2012. Total debt at the end of the reported quarter was $5,702.2 million compared with $4,866.2 million at the end of fiscal 2012. The debt-to-capitalization ratio for the reported period was 0.72 compared with 0.68 at the end of fiscal 2012.

Operating Metrics

At the end of the first quarter of 2013, the total digital subscriber base of NII Holdings increased 4.9% year over year to 11,513,100. During the reported quarter, the company added 151,600 net new subscribers against 260,100 subscribers in the prior-year quarter. Customer churn in the reported quarter was 2.59% against 2.07% in the prior-year quarter. Quarterly subscriber revenue ARPU was $35 compared with $42 in the year-ago quarter. Quarterly service and other revenue ARPU was $40 versus $47 in the year-ago quarter. Higher promotional expenses incurred by the company to counter intense competition and fluctuation in the foreign currency exchange rate mainly hurt such reduction in ARPU. However, quarterly costs per gross subscriber added were $240 compared with $276 in the year-ago quarter.

Our Take

NII Holdings plans to rollout 3G network across the highly lucrative Brazilian market by the end of fiscal 2013. However, it may not prove to be beneficial for the company as America Movil (AMX - Analyst Report) and Telefonica (TEF - Analyst Report) dominate these Latin American markets.

Furthermore, deployment of 3G networks requires huge cash, which will impede growth further for NII Holdings. To make matters worse, Standard and Poor’s (S&P) lowered NII Holdings’ corporate credit rating by one notch to B-.

In order to overcome its financial crisis, NII Holdings plans to sell its 4,500 wireless towers located across Brazil and Mexico by the middle of fiscal 2013. The proceeds of which will be utilized to fund its 3G deployment goal across these regions.

Moreover, NII Holdings is 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 expenses and delaying the 3G launch.

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

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