01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
MetroPCS Communications (NYSE: PCS) reported strong 2008 results driven by rapid subscriber growth in its prepaid, flat-rate, unlimited wireless service.
Total revenues rose 23% to $2.75 billiona and service revenues grew 27% to $2.44 billion. Net income increased 49% to $149.4 million, and income from operations reached $467.8 million. Customers ended the year at 5.37 million, up 35%, with Expansion Markets (Boston, New York, Las Vegas, Philadelphia, Dallas, Detroit, Los Angeles, Orlando, Tampa) contributing most of the growth.
Expansion Markets Adjusted EBITDA turned positive at $62.8 millionb, while Core Markets generated $720.3 million. The balance sheet is heavily leveraged but financed for growth. Long-term debt was about $3.07 billion, consisting of a $1.4 billion 9.25% senior notes issue and a $1.6 billion senior secured term loan.
Cash fell to $698 millionc from $1.47 billion as capital expenditures reached $955 million and $1.3 billion was spent on FCC licenses, including the 700 MHz license. A $550 million add-on notes offering in January 2009 provides additional liquidity. Management guides 2009 capital expenditures to $0.7 to $0.9 billion and plans to cover about 40 million people during 2009-2010.
Key risks for investors include heavy dependence on Royal Street Communications, an 85% non-controlling interest the company cannot control. Its FCC licenses from Auction 66 and Auction 73 (about $1.7 billiond combined) face legal challenges that could lead to revocation.
Revenue quality is also a concern: ARPU declined to $41.39 from $43.31 as customers shifted to Family Plans, and churn is elevated at 4.7% monthly. The company also relies on a single infrastructure vendor, Alcatel-Lucent, and is migrating its billing system to Amdocs.
02—Key points
Key Highlights
- Total revenues grew 23% to $2.75 billion; service revenues grew 27% to $2.44 billion, driven by Expansion Markets, where service revenue rose 85%.
- Net income rose 49% to $149.4 million (diluted EPS $0.42), and income from operations rose 2% to $467.8 million.
- Customer base reached 5.37 million (up 35%), with 1.40 million net additions in 2008. Expansion Markets Adjusted EBITDA turned positive at $62.8 million, while Core Markets Adjusted EBITDA rose 10% to $720.3 million.
- ARPU fell to $41.39 from $43.31 due to heavier Family Plan adoption and reduced a la carte feature revenue, a notable pressure on per-customer economics.
- Capital expenditures of $955 million and $328.5 million in FCC license purchases, plus the $313 million 700 MHz license, drove a cash decline to $698 million; 2009 capex guidance is $0.7-0.9 billion.
- Long-term debt of $3.07 billion, including $1.4 billion of 9.25% senior notes and a $1.6 billion senior secured term loan. A January 2009 $550 million notes issue (net proceeds $480.5 million) was completed after year-end.
- Material risks include the Royal Street Communications structure (85% non-controlling interest, with C9 holding the control rights), legal challenges to Auction 66 and 73 licenses, and an FCC E-911 compliance investigation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, T-Mobile US, Inc. kept $0.05.
- Revenue$2.75B100.0%
- Cost of revenue−$704.6M25.6%
- Gross profit$2.05B74.4%
- Operating costs−$1.58B57.4%
- Operating income$467.8M17.0%
- Interest, other & tax−$318.3M11.6%
- Net income$149.4M5.4%
Where FY2008 revenue went
$2.75B- Other operating costs: $1.13B, 41% of revenue
- Cost of revenue: $704.6M, 26% of revenue
- SG&A: $447.6M, 16% of revenue
- Net income: $149.4M, 5.4% of revenue
- Interest, other & tax: $318.3M, 12% of revenue
Kept 5.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 2, 2009Financial Statements
| Revenue | $2.75B |
| Cost of Revenue | $704.65M |
| Gross Profit | $2.05B |
| SG&A Expenses | $447.58M |
| Operating Expenses | $2.28B |
| Operating Income | $467.77M |
| Interest Expense | $179.40M |
| Net Income | $149.44M |
| EPS (Basic) | $0.86 |
| EPS (Diluted) | $0.84 |
| Shares Outstanding (Basic) | 174.70M |
| Shares Outstanding (Diluted) | 177.69M |
05—Questions
Frequently Asked Questions
How profitable is MetroPCS's core business compared with its newer markets?
Core Markets (Atlanta, Miami, Sacramento, San Francisco) generated $720.3 million of Adjusted EBITDA on $1.69 billion of revenue, a 47.9% margin on service revenue. Expansion Markets are still ramping, with $62.8 million of Adjusted EBITDA on $1.06 billion of revenue (6.7% of service revenue), reflecting heavy launch and build-out costs in New York and Boston.
Is MetroPCS's debt load manageable?
Debt is high at about $3.07 billion, but the senior secured leverage ratio was 1.95x against a covenant maximum of 4.5x. Consolidated Adjusted EBITDA was $783 million. Roughly $1.4 billion of the debt is fixed-rate 9.25% notes maturing in 2014, and the term loan is partially hedged with interest rate swaps covering $1.5 billion. Debt service is covered by operating cash flow, but leverage leaves limited room if growth slows.
What regulatory risks could affect MetroPCS's spectrum and licenses?
Auction 66 (AWS) and Auction 73 (700 MHz) licenses, costing about $1.7 billion, are under legal challenge over the DE rules. If overturned, MetroPCS would receive refunds without interest or compensation for build-out costs and could lose service in markets such as Las Vegas, Philadelphia and New York, which rely solely on AWS spectrum. The company also faces an open FCC E-911 compliance investigation and pending rules on backup power and roaming.
Why did the company's cash balance fall, and what funds the 2009 build-out?
Cash declined to $698 million from $1.47 billion, mainly from $955 million in capex and $328.5 million in spectrum purchases. Operating cash flow was $447 million, down from $589 million, mostly due to working capital changes. The January 2009 $550 million notes offering supports the planned 2009-2010 build-out to cover roughly 40 million people, although management acknowledges that credit market conditions could make additional financing harder to obtain.
06—Continue