01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
This filing is MetroPCS Communications, Inc.'s 10-K for fiscal year 2011, filed February 29, 2012 (the document text is labeled as MetroPCS, not T-Mobile US; TMUS is the ticker that MetroPCS later adopted after its 2013 merger with T-Mobile USA, so the ticker in the request does not match this filing's company).
The company is the fifth largest facilities-based wireless provider in the U.S. by customers, serving 9.3 million customers in 13 selected metropolitan areas on a prepaid, flat-rate, no-long-term-contract model. Results improved meaningfully: total revenues rose 19% to $4.85 billiona, net income increased 56% to $301.3 million, and Adjusted EBITDA reached $1.33 billion, up from $1.18 billion. Service revenue growth of 20% was driven by 1.2 million net customer additions and a $0.78 rise in ARPU to $40.57.
The balance sheet strengthened through debt-funded growth. Cash and short-term investments rose to $2.24 billion, while long-term debt increased to $4.74 billionb after new Tranche B-3 term loans and the 6 5/8% notes were issued and the 9 1/4% notes were retired. Capital expenditures were $890 million, and management guided 2012 capex to $900 million to $1.0 billion.
Unit economics showed some pressure: churn rose to 3.8% from 3.6%, and cost per gross addition increased to $173c from $157 on heavier promotional activity. Key risks for investors include intense competition from the four national carriers and MVNOs, limited spectrum relative to rivals (average about 22 MHz paired in major markets), dependence on roaming agreements and a single network vendor for CDMA, the lack of access to the iPhone, and exposure to FCC regulatory and net neutrality proceedings. The company reported effective internal control over financial reporting and has never paid a regular dividend.
02—Key points
Key Highlights
- Revenue grew 19% to $4.85B and net income rose 56% to $301.3M, with diluted EPS of $0.82 versus $0.54 in 2010.
- Adjusted EBITDA increased to $1.33B from $1.18B, supported by 1.19M net customer additions and ARPU up $0.78 to $40.57.
- Customer base reached 9.35M at year-end 2011, up 15% year over year, while churn rose to 3.8% monthly from 3.6%.
- Cost per gross addition rose to $173 from $157 due to increased promotional activity, a key margin pressure point.
- Cash and short-term investments more than doubled to $2.24B, funded by $1.5B of new debt including Tranche B-3 term loans and 6 5/8% senior notes.
- Total debt rose to about $4.7B; the company retired the 9 1/4% senior notes and reduced its weighted average interest rate to 6.09% from 7.29%.
- 2012 capex guidance of $900M to $1.0B reflects continued 4G LTE build-out and network capacity expansion.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2011, T-Mobile US, Inc. lost $0.23.
- Revenue$20.62B100.0%
- Cost of revenue−$2.91B14.1%
- Gross profit$17.70B85.9%
- Operating costs−$21.98B106.6%
- Operating income−$4.28B20.8%
- Interest, other & tax−$439.0M2.1%
- Net income−$4.72B22.9%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $20.62B$4.07B | +406.7% |
| Cost of Revenue | $2.91B$2.32B | +25.7% |
| Gross Profit | $17.70B$1.75B | +910.8% |
| SG&A Expenses | $6.73B$621.66M | +982.3% |
| Operating Expenses | $24.90B$3.35B | +643.1% |
| Operating Income | -$4.28B$718.90M | −695.2% |
| Interest Expense | $0$263.13M | −100.0% |
| Net Income | -$4.72B$193.41M | −2539.3% |
| EPS (Basic) | $-8.81$1.08 | −915.7% |
| EPS (Diluted) | $-8.81$1.08 | −915.7% |
| Shares Outstanding (Basic) | 535.29M176.86M | +202.7% |
| Shares Outstanding (Diluted) | 535.29M178.07M | +200.6% |
05—Questions
Frequently Asked Questions
What is the company's primary business model and how does it differentiate from national carriers?
MetroPCS sells wireless service on a prepaid, flat-rate, no-long-term-contract basis, with plans starting at $40 per month that include taxes and regulatory fees. It targets underserved mass-market customers in major metro areas and uses lower-cost distribution through independent retailers (about 90% of gross additions), which it believes gives it a cost advantage over national carriers that rely on subsidized handsets and long-term contracts.
How strong is the company's financial position and liquidity?
Liquidity improved substantially, with $2.24B in cash and short-term investments at year-end 2011 and operating cash flow of $1.06B. Total debt rose to about $4.7B, mainly senior secured term loans and senior notes, and management believes existing cash plus operating cash flow fund planned operations and expansion. The $1.0B revolver was undrawn at year-end, though lenders' ability to honor commitments in a stressed market was flagged as a risk.
What are the main risks to growth and margins?
Key risks include competition from larger carriers with more spectrum, handset exclusivity, and lower prices from MVNOs; churn and rising acquisition costs; limited spectrum (with some markets at only 10 MHz) that may constrain 4G LTE capacity; dependence on roaming partners whose rates and terms could worsen; and regulatory exposure involving FCC license renewals, net neutrality, and intercarrier compensation reform. Concentration in a few vendors and the lack of an iPhone offering are also highlighted.
Why did the company's profitability improve in 2011 despite higher costs?
Service revenue grew 20%, outpacing the 20% rise in cost of service, and SG&A grew only 4%, so operating income rose 4% to $747.5M. Net income grew faster (56%) mainly because the 2010 loss on debt extinguishment of $143.6M did not recur at the same scale in 2011, which was only $9.5M. Higher income tax expense of $178M, at a 37.2% effective rate, partly offset these gains.
Is there any ticker or corporate-identity discrepancy investors should note?
Yes. This filing is from MetroPCS Communications, Inc., which trades on the NYSE under the symbol PCS, not T-Mobile US (TMUS). The T-Mobile US name and TMUS ticker came after the 2013 combination with T-Mobile USA, so this document should not be used as T-Mobile US financial data.
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