01—Abstract
Summary
Summary of the 10-K filed March 1, 2011. Cited figures are marked; the original filing is the authoritative source.
This 10-K is from MetroPCS Communications, Inc. (NYSE: PCS), filed March 1, 2011 for fiscal 2010, not T-Mobile US (TMUS) as the request states.
MetroPCS is the fifth-largest facilities-based U.S. wireless carrier by subscribers and sells flat-rate, unlimited, prepaid (pay-in-advance) plans without long-term contracts. Growth was strong in 2010: total revenues rose 17% to $4.07 billiona, service revenues rose 18% to $3.69 billion, and income from operations rose 34% to $718.9 million. Net income increased 9% to $193.4 million, held down by a $143.6 million loss on debt extinguishment and a 38.1% effective tax rate.
Consolidated Adjusted EBITDA, the metric used in its credit facility, grew to $1.18 billionb from $956 million. Subscriber growth and churn improved. The company ended 2010 with 8.16 million customers, after 1.52 million net additions (about 23% growth).
Average monthly churn fell to 3.6% from 5.5%, helped by its tax-inclusive 'Wireless for All' plans. Offsetting this, ARPU declined to $39.79c from $40.68, and cost per gross addition rose to $157.26 from $145.79 on heavier promotional activity. Cost per user rose to $18.49 from $17.23, reflecting upgrade subsidies and 4G LTE network costs.
The company launched 4G LTE in Las Vegas and Dallas/Fort Worth in September 2010, extended it to most markets by year-end, and expanded further in January 2011. Liquidity and leverage were managed actively. Operating cash flow was $994.5 milliond and capital expenditures were $790.4 million, leaving about $1.17 billion in cash and short-term investments.
In 2010 the company refinanced its 9 1/4% senior notes with $1.0 billion of 7 7/8% notes due 2018 and $1.0 billion of 6 5/8% notes due 2020. Total debt was about $3.78 billion, and the senior secured leverage ratio was 1.54x against a covenant maximum of 4.5x. Key risks include intense competition from larger carriers, reliance on roaming agreements and a few key vendors, net neutrality and FCC regulatory exposure, legal challenges to the Auction 66 and 73 spectrum licenses (about $1.7 billion combined), and a pending securities class action.
02—Key points
Key Highlights
- Revenue growth: Total revenues rose 17% to $4.07 billion, with service revenues up 18% to $3.69 billion, driven by 1.5 million net customer additions.
- Profitability: Income from operations increased 34% to $718.9 million, and Consolidated Adjusted EBITDA reached $1.18 billion (up from $956 million). Net income rose 9% to $193.4 million after a $143.6 million debt extinguishment loss.
- Customer metrics: Ended 2010 with 8.16 million customers (up 23%). Churn improved to 3.6% from 5.5%, but ARPU fell to $39.79 from $40.68 and CPGA rose to $157.26 from $145.79.
- Cash generation and capex: Operating cash flow was $994.5 million and capex was $790.4 million. 2011 capex guidance is $650–800 million.
- Balance sheet: Refinanced $2.0 billion of 9 1/4% notes with 7 7/8% notes due 2018 and 6 5/8% notes due 2020. Total debt was about $3.78 billion, with a 1.54x senior secured leverage ratio versus a 4.5x covenant.
- 4G LTE rollout: Launched the first U.S. commercial 4G LTE service in September 2010 and expanded to most metro areas by year-end, with further expansion in January 2011.
- Risk factors: Include competition from larger national carriers, reliance on Alcatel-Lucent and a single 4G LTE vendor, net neutrality rules, legal challenges to Auction 66 and 73 licenses, and a securities class action (filed December 2009).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, T-Mobile US, Inc. kept $0.05.
- Revenue$4.07B100.0%
- Cost of revenue−$2.32B57.0%
- Gross profit$1.75B43.0%
- Operating costs−$1.03B25.4%
- Operating income$718.9M17.7%
- Interest, other & tax−$525.5M12.9%
- Net income$193.4M4.8%
Where FY2010 revenue went
$4.07B- Cost of revenue: $2.32B, 57% of revenue
- SG&A: $621.7M, 15% of revenue
- Interest, other & tax: $525.5M, 13% of revenue
- Net income: $193.4M, 4.8% of revenue
- Other operating costs: $410.9M, 10% of revenue
Kept 4.8% as net incomeNet income $193.4M · 4.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 1, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $4.07B$3.48B | +16.9% |
| Cost of Revenue | $2.32B$2.00B | +15.6% |
| Gross Profit | $1.75B$1.48B | +18.6% |
| SG&A Expenses | $621.66M$567.73M | +9.5% |
| Operating Expenses | $3.35B$2.95B | +13.8% |
| Operating Income | $718.90M$535.29M | +34.3% |
| Interest Expense | $263.13M$270.29M | −2.6% |
| Net Income | $193.41M$176.84M | +9.4% |
| EPS (Basic) | $1.08$1.00 | +8.0% |
| EPS (Diluted) | $1.08$0.98 | +10.2% |
| Shares Outstanding (Basic) | 176.86M175.95M | +0.5% |
| Shares Outstanding (Diluted) | 178.07M177.97M | +0.1% |
05—Questions
Frequently Asked Questions
Why did net income grow more slowly than operating income in 2010?
Operating income rose 34% to $718.9 million, but net income grew only 9% to $193.4 million. The main drags were a $143.6 million loss on extinguishment of debt, from redeeming the 9 1/4% senior notes at a 104.625% premium, and a higher tax provision of $118.9 million (38.1% effective rate versus 32.9% in 2009). Interest expense fell slightly to $263.1 million.
Is the subscriber growth sustainable given falling ARPU?
Management attributed the ARPU decline to the January 2010 tax-inclusive 'Wireless for All' plans, which bundle taxes and regulatory fees into a flat price. Growth depended on lower churn and continued customer additions. The filing also warns that rising competition and falling market prices could pressure ARPU and churn going forward, so sustainability depends on keeping churn low and launching successful 4G LTE services.
How strong is the company's balance sheet and debt position?
The company had about $1.17 billion in cash and short-term investments and total debt of about $3.78 billion at year-end 2010. Its senior secured leverage ratio was 1.54x against a covenant maximum of 4.5x, which suggests comfortable headroom. Its $1.0 billion revolving line of credit was undrawn. Its debt maturities are light until 2013, when the remaining term loans come due, and the bulk of its notes mature in 2018 and 2020.
What are the main regulatory and legal risks?
Key risks include the FCC's net neutrality rules, which could limit flat-rate unlimited pricing, and the possibility that Auction 66 and Auction 73 spectrum licenses (paid for at about $1.4 billion and $313.3 million) are invalidated by courts. The company also faces a securities class action filed in December 2009 alleging misleading statements, and possible FCC enforcement on E-911, CPNI and license construction requirements. Management said it cannot predict the outcome of these matters.
What is the outlook for capital spending and 4G LTE?
The company expects 2011 capital expenditures of $650 million to $800 million, down from $790.4 million in 2010, as it completes its 4G LTE upgrades. It said its existing cash and operating cash flow are sufficient to fund planned expansion. Risks include dependence on a limited number of 4G LTE equipment and handset vendors, limited roaming partners for 4G LTE, and the 700 MHz spectrum block being incompatible with the devices of the largest carriers.
06—Continue