Exhibit 99.1
Investor Relations Contact: | ||
Keith Terreri | Joele Frank / Dan Katcher / Jamie Moser | |
Vice President — Finance & Treasurer | Joele Frank, Wilkinson Brimmer Katcher | |
214-571-4641 | 212-355-4449 | |
investor_relations@metropcs.com |
MetroPCS Reports Quarterly Consolidated Adjusted EBITDA of $184 Million
Third Quarter 2007 Highlights Include:
• | Launch of service in the Los Angeles market provides additional platform for growth | ||
• | Adjusted EBITDA of $184 million, an increase of 70% over third quarter of 2006 | ||
• | Quarterly service revenue of $489 million, an increase of approximately 47% over third quarter of 2006 | ||
• | Increased Core Market penetration to 11.3% from 9.8% over the last twelve months | ||
• | Increased Expansion Market penetration to 6.9% excluding Los Angeles, and 4.1% including Los Angeles, over the last twelve months |
DALLAS (November 14, 2007)— MetroPCS Communications, Inc. (NYSE: PCS), the nation’s leading provider of unlimited wireless communications service for a flat rate with no signed contract, today announced financial and operational results for the quarter ended September 30, 2007. MetroPCS reported third quarter 2007 growth in Consolidated Adjusted EBITDA of 70% over the third quarter of 2006.
For the third quarter of 2007, MetroPCS reported total revenues of $557 million, an increase of 41% over the third quarter of 2006 and income from operations of $133 million, an increase of 92% when compared to the third quarter of 2006. During the third quarter of 2007, MetroPCS generated net income of $53 million versus $29 million for the third quarter of 2006, representing an increase of 81%. Diluted net income per common share for the third quarter of 2007 was $0.15 per common share compared to $0.08 per share for the third quarter of 2006.
“We are pleased with this quarter’s results, highlighted by strong year-over-year Adjusted EBITDA growth and the addition of approximately 114 thousand subscribers. It is noteworthy to point out that we’ve added these subscribers during our third quarter, which historically has been one of our seasonally slowest quarters characterized by lower net additions and higher churn. In the past twelve months, we have grown our subscriber base by over one million subscribers, and grown our quarterly EBITDA by over 70%,” said Roger D. Linquist, MetroPCS’ Chairman of the Board and Chief Executive Officer. “We firmly believe that customers want to get the most value for their dollar and our unlimited fixed-price service offers a compelling value proposition. Our focus on effectively managing our costs while growing our business enables us to deliver high cash flow margins within a competitive industry.”
Thomas C. Keys, MetroPCS’ President and Chief Operating Officer commented, “We recently launched service in Los Angeles, which represents the second largest metropolitan area in the United States. At launch, our service covered a densely populated area of approximately 11 million, with an ideal demographic of young, mobile, and communication intensive consumers for our unlimited fixed
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price wireless service; we believe it represents a significant source of future subscriber growth for MetroPCS. In addition to Los Angeles, we also have a number of exciting market opportunities ahead of us including New York, Boston, Philadelphia and Las Vegas, which we expect will contribute to our continued growth.”
Key Consolidated Financial and Operating Metrics
(in millions, except percentages, per share and subscriber amounts)
(in millions, except percentages, per share and subscriber amounts)
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
Service revenues | $ | 489 | $ | 333 | $ | 1,408 | $ | 916 | ||||||||
Total revenues | $ | 557 | $ | 396 | $ | 1,644 | $ | 1,094 | ||||||||
Income from operations | $ | 133 | $ | 69 | $ | 368 | $ | 171 | ||||||||
Net income | $ | 53 | $ | 29 | $ | 148 | $ | 71 | ||||||||
Diluted net income per common share | $ | 0.15 | $ | 0.08 | $ | 0.43 | $ | 0.19 | ||||||||
Consolidated Adjusted EBITDA(1) | $ | 184 | $ | 108 | $ | 514 | $ | 285 | ||||||||
Consolidated Adjusted EBITDA as a percentage of service revenues | 37.7 | % | 32.5 | % | 36.5 | % | 31.1 | % | ||||||||
ARPU(1) | $ | 42.77 | $ | 42.78 | $ | 43.22 | $ | 42.91 | ||||||||
CPGA(1) | $ | 125.92 | $ | 120.29 | $ | 118.99 | $ | 116.56 | ||||||||
CPU(1) | $ | 17.81 | $ | 19.15 | $ | 18.11 | $ | 19.65 | ||||||||
Churn-Average Monthly Rate | 5.2 | % | 5.0 | % | 4.7 | % | 4.7 | % | ||||||||
Consolidated Subscribers | ||||||||||||||||
End of Period | 3,664,218 | 2,616,532 | 3,664,218 | 2,616,532 | ||||||||||||
Net Additions | 114,302 | 197,623 | 723,232 | 691,911 |
(1) | - For a reconciliation of Non-GAAP financial measures, please refer to the section entitled “Definition of Terms and Reconciliation of Non-GAAP Financial Measures” included at the end of this release. |
Consolidated Comparison of Quarter Ended September 2007 versus Quarter Ended September 2006
MetroPCS reported a 47% increase in service revenues of $489 million that was primarily attributable to the net addition of over 1 million subscribers since the third quarter of 2006. Equipment revenues increased by $4 million, or 7%, for the quarter primarily as a result of increases in the equipment revenues for the Expansion Markets, partially offset by a decrease in Core Markets equipment revenues.
Income from operations increased $64 million, or 92%, for the quarter ended September 30, 2007 as compared to the prior year’s quarter. This was due in part to an increase in total revenues of $161 million, which was offset by a higher cost of service of $50 million and higher cost of equipment of $13 million. The increase in cost of service was primarily related to the increase in total subscribers, the expansion of the Tampa/Sarasota region to include Orlando during 2006 as well as the launch of service in the Los Angeles metropolitan area in September 2007. Cost of equipment increased primarily as a result of an increase in gross additions. Selling, general and administrative expenses increased $24 million for the quarter primarily related to supporting the company’s continued growth in both the Core and Expansion Markets. Depreciation and amortization increased by $9 million for the quarter due to a larger amount of property, plant and equipment in service, primarily within the Expansion Markets. Consolidated Adjusted EBITDA of $184 million increased $76 million when compared to the same period in the previous year.
Average revenue per user (ARPU) of $42.77 was essentially unchanged when compared to the third quarter of 2006. The company’s cost per gross addition (CPGA) of $125.92 for the quarter represents an increase of $5.63 when compared to the prior year’s third quarter and continues to be among the lowest in the wireless industry. The reduction in the cost per user (CPU) of 7% from the third quarter of
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2006 demonstrates the company’s ability to scale the business and generate substantial operating cash flow.
Core Markets Segment Results
(in millions, except percentages and subscriber amounts)
(in millions, except percentages and subscriber amounts)
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
Service revenues | $ | 358 | $ | 285 | $ | 1,052 | $ | 831 | ||||||||
Total revenues | $ | 407 | $ | 336 | $ | 1,220 | $ | 980 | ||||||||
Income from operations | $ | 141 | $ | 99 | $ | 394 | $ | 270 | ||||||||
Adjusted EBITDA(1) | $ | 171 | $ | 128 | $ | 489 | $ | 364 | ||||||||
Adjusted EBITDA as a percentage of service revenues | 47.7 | % | 45.0 | % | 46.5 | % | 43.9 | % | ||||||||
Subscribers | ||||||||||||||||
End of Period | 2,578,019 | 2,174,264 | 2,578,019 | 2,174,264 | ||||||||||||
Net Additions | 35,729 | 55,096 | 277,061 | 302,599 |
(1) | - For a reconciliation of Non-GAAP financial measures, please refer to the section entitled “Definition of Terms and Reconciliation of Non-GAAP Financial Measures” included at the end of this release. |
Core Markets Comparison of Quarter Ended September 2007 versus Quarter Ended September 2006
The Core Markets have continued to grow and ended the quarter with approximately 2.6 million subscribers, an increase of 1.5% in penetration of covered population over the third quarter of 2006. The additional 404 thousand subscribers acquired since September 30, 2006, generated an additional $73 million of service revenue for the quarter ended September 30, 2007 when compared to third quarter of 2006. Sales of lower-priced handset models, offset by an increase in gross additions, resulted in a $3 million decrease in equipment revenues for the quarter.
Income from operations increased $42 million, or 42%, for the quarter ended September 30, 2007 as compared to the third quarter of 2006. This increase was due in part to growth in total revenues of $71 million which was offset by a higher cost of service of $25 million due to growth in our Core Markets subscriber base and the deployment of additional network infrastructure over the past twelve months. Cost of equipment in the quarter was essentially unchanged from the third quarter of 2006 due to the sale of lower priced handsets offset by higher gross additions.
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Expansion Markets Segment Results
(in millions, except percentages and subscriber amounts)
(in millions, except percentages and subscriber amounts)
Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
September 30, 2007 | September 30, 2006 | September 30, 2007 | September 30, 2006 | |||||||||||||
Service revenues | $ | 131 | $ | 48 | $ | 356 | $ | 85 | ||||||||
Total revenues | $ | 150 | $ | 60 | $ | 424 | $ | 114 | ||||||||
Loss from operations | $ | (6 | ) | $ | (29 | ) | $ | (22 | ) | $ | (97 | ) | ||||
Adjusted EBITDA (Deficit)(1) | $ | 13 | $ | (20 | ) | $ | 25 | $ | (79 | ) | ||||||
Adjusted EBITDA as a percentage of service revenues | 10.3 | % | n/m | 7.0 | % | n/m | ||||||||||
Subscribers | ||||||||||||||||
End of Period | 1,086,199 | 442,268 | 1,086,199 | 442,268 | ||||||||||||
Net Additions | 78,573 | 142,527 | 446,171 | 389,312 |
(1) | - For a reconciliation of Non-GAAP financial measures, please refer to the section entitled “Definition of Terms and Reconciliation of Non-GAAP Financial Measures” included at the end of this release. |
Expansion Markets Comparison of Quarter Ended September 2007 versus Quarter Ended September 2006
The Expansion Markets’ rapid growth of subscribers surpassed the 1 million subscriber milestone during the third quarter of 2007. The additional 644 thousand subscribers that were acquired since September 30, 2006, generated an additional $83 million of service revenue for the quarter ended September 30, 2007 when compared to the third quarter of 2006. An increase in gross additions and sales of higher priced handset models resulted in an increase in equipment revenues of $7 million for the quarter.
Loss from operations decreased $23 million, or 80% for the quarter ended September 30, 2007 as compared to the third quarter of 2006. This was in part due to the increase in total revenues of $90 million which was offset by a higher cost of service of $25 million and higher cost of equipment of $14 million, which were related primarily to growth in the Expansion Markets’ subscriber base and the sale of new handsets to existing subscribers, respectively. Higher selling, general and administrative expenses of $22 million were primarily the result of supporting Expansion Market subscriber growth of 145% since September 30, 2006 as well as expenses incurred in relation to the launch of service in the Los Angeles metropolitan area in September 2007 as well as build-out expenses related to the New York, Philadelphia, Boston and Las Vegas metropolitan areas (the “AWS Markets”). The Expansion Markets generated an Adjusted EBITDA of $13 million for the quarter versus an Adjusted EBITDA deficit of $20 million for the same quarter a year ago.
Operational and Financial Outlook
MetroPCS continues to experience solid growth in its Core and Expansion Markets, and expects this growth to continue. At the same time, MetroPCS is seeing signs of an economic slowdown that could result in a 20% - 30% reduction in net additions during the fourth quarter of 2007. MetroPCS’ no contract model makes our churn and net additions, a sensitive early indicator of economic trends. We believe economic slowdowns facilitate an increase in our market penetration rates as consumers look for compelling value propositions. With no subscriber bad debt exposure and a low cost structure, MetroPCS is well positioned in a difficult economy to continue its aggressive customer acquisition. Additionally, over 85% of MetroPCS’ customers use the company’s services as their primary telephone service, and the company believes these customers are less likely to discontinue service even in an economic slowdown. MetroPCS’ unlimited no contract offering is well designed for wireline replacement, which will become more important regardless of economic conditions.
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For the year ended December 31, 2008, MetroPCS currently expects net subscriber additions to be in the range of 1.25 million to 1.52 million on a consolidated basis, with 250 thousand to 320 thousand in the Core Markets and 1.0 million to 1.2 million in the Expansion Markets, which includes 75 thousand to 125 thousand in the AWS Markets. The company currently expects Consolidated Adjusted EBITDA to be in the range of $750 - $850 million for the year ended December 31, 2008 which is inclusive of an Adjusted EBITDA loss in the range of $125 - $175 million in the AWS Markets.
MetroPCS currently expects to incur in the range of $1.1 billion to $1.3 billion in capital expenditures for the year ended December 31, 2008 in its Core and Expansion Markets, which includes $600 million to $700 million in its AWS markets.
The company currently plans to focus on building out approximately 40 million of the total population in its Auction 66 Markets with a primary focus on the New York, Philadelphia, Boston and Las Vegas metropolitan areas. MetroPCS anticipates launching service in these areas as follows:
• | Las Vegas — second quarter of 2008 | ||
• | Philadelphia — fourth quarter of 2008 | ||
• | Boston — first quarter of 2009 | ||
• | New York — first or second quarter of 2009 |
Of the approximate 40 million total population in these areas, MetroPCS is targeting launch of operations with an initial covered population of approximately 30 to 32 million. Initial launch dates will vary in the Auction 66 Markets and launch dates in the larger metropolitan areas may be accomplished in phases.
MetroPCS Conference Call Information
MetroPCS Communications, Inc. will host a conference call to discuss its 2007 Third Quarter Earnings Results at 9 a.m. (ET) on Wednesday, November 14, 2007.
Date: | Wednesday, November 14, 2007 | |
Time: | 9 a.m. (ET) | |
Call-in Numbers: | Toll free: 877-715-5318 | |
International: | 973-582-2852 | |
Participant Passcode: | 9357882 |
Please plan on accessing the conference call ten minutes prior to the start time.
The conference call will be broadcast live via the Company’s Investor Relations website at http://investor.metropcs.com. A replay of the webcast will be available on the website beginning at approximately 12:30 p.m. (ET) on November 14, 2007.
A replay of the call will be available for two weeks starting shortly after the conference call concludes and can be accessed by dialing 877-519-4471 (toll free) or 973-341-3080 (International). The passcode required to listen to the replay is 9357882.
To automatically receive MetroPCS financial news by email, please visit the Investor Relations portion of the MetroPCS website, http://www.metropcs.com, and subscribe to E-mail Alerts.
About MetroPCS Communications, Inc.
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Dallas-based MetroPCS Communications, Inc. (NYSE: PCS) is a provider of unlimited wireless communications service for a flat rate with no signed contract. MetroPCS owns or has access to licenses covering a population of approximately 140 million people in 14 of the top 25 largest metropolitan areas in the United States, including New York, Philadelphia, Boston, Miami, Orlando, Sarasota, Tampa, Atlanta, Dallas, Detroit, Las Vegas, Los Angeles, San Francisco and Sacramento. As of September 30, 2007, MetroPCS has over 3.6 million subscribers and offers service in the Miami, Orlando, Sarasota, Tampa, Atlanta, Dallas, Detroit, Los Angeles, San Francisco, and Sacramento metropolitan areas. MetroPCS is among the first wireless operators to deploy or use an all-digital network based on third-generation infrastructure and handsets. For more information please visit www.metropcs.com.
Forward-Looking Statements
This news release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Any statements made in this news release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including statements that may relate to our plans, objectives, strategies, goals, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. These forward-looking statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “would,” “could,” “may,” “will,” “forecast,” and other similar expressions.
This news release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Any statements made in this news release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including statements that may relate to our plans, objectives, strategies, goals, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. These forward-looking statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimates,” “targets,” “projects,” “should,” “would,” “could,” “may,” “will,” “forecast,” and other similar expressions.
These forward-looking statements or projections are based on reasonable assumptions at the time they are made, including our current expectations, plans and assumptions that have been made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Forward-looking statements or projections are not guarantees of future performance or results. Actual financial results, performance or results of operations may differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:
• | the highly competitive nature of our industry; | ||
• | the rapid technological changes in our industry; | ||
• | our ability to maintain adequate customer care and manage our churn rate; | ||
• | our ability to sustain the growth rates we are projecting; | ||
• | our ability to access the funds necessary to build and operate our Auction 66 Markets; | ||
• | the costs associated with being a public company and our ability to comply with the internal financial and disclosure control and reporting obligations of public companies; | ||
• | our ability to manage our rapid growth, train additional personnel and improve our financial and disclosure controls and procedures; | ||
• | our ability to secure the necessary spectrum and network infrastructure equipment; | ||
• | our ability to clear the Auction 66 Market spectrum of incumbent licensees; | ||
• | our ability to adequately enforce or protect our intellectual property rights; | ||
• | governmental regulation of our services and the costs of compliance and our failure to comply with such regulations; | ||
• | our capital structure, including our indebtedness amounts; | ||
• | changes in consumer preferences or demand for our products; | ||
• | our inability to attract and retain key members of management; and | ||
• | other factors described or referenced from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2006, in Part I, Item 1A, “Risk Factors” and our subsequently filed reports on Form 10-Q. |
The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions, many of which are beyond our ability to control or ability to predict. You should not place undue reliance on these forward-looking statements and projections, which are based on current expectations and speak only as of the date of this release. MetroPCS Communications, Inc. is not obligated to, and does not undertake a duty to, update any forward-looking statement or projection to reflect events after the date of this release, except as required by law.
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MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(Unaudited)
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,464,260 | $ | 161,498 | ||||
Short-term investments | 242,179 | 390,651 | ||||||
Restricted short-term investments | — | 607 | ||||||
Inventories, net | 96,090 | 92,915 | ||||||
Accounts receivable (net of allowance for uncollectible accounts of $2,562 and $1,950 at September 30, 2007 and December 31, 2006, respectively) | 34,362 | 28,140 | ||||||
Prepaid expenses | 53,382 | 33,109 | ||||||
Deferred charges | 30,449 | 26,509 | ||||||
Deferred tax asset | 815 | 815 | ||||||
Other current assets | 27,837 | 24,283 | ||||||
Total current assets | 1,949,374 | 758,527 | ||||||
Property and equipment, net | 1,669,175 | 1,256,162 | ||||||
Long-term investments | — | 1,865 | ||||||
FCC licenses | 2,072,895 | 2,072,885 | ||||||
Microwave relocation costs | 9,749 | 9,187 | ||||||
Other assets | 63,987 | 54,496 | ||||||
Total assets | $ | 5,765,180 | $ | 4,153,122 | ||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 410,527 | $ | 325,681 | ||||
Current maturities of long-term debt | 16,000 | 16,000 | ||||||
Deferred revenue | 108,258 | 90,501 | ||||||
Other current liabilities | 3,860 | 3,447 | ||||||
Total current liabilities | 538,645 | 435,629 | ||||||
Long-term debt, net | 2,990,778 | 2,580,000 | ||||||
Deferred tax liabilities | 269,006 | 177,197 | ||||||
Deferred rents | 28,615 | 22,203 | ||||||
Redeemable minority interest | 4,775 | 4,029 | ||||||
Other long-term liabilities | 40,311 | 26,316 | ||||||
Total liabilities | 3,872,130 | 3,245,374 | ||||||
COMMITMENTS AND CONTINGENCIES SERIES D CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 4,000,000 shares designated at December 31, 2006, 0 and 3,500,993 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively; Liquidation preference of $447,388 at December 31, 2006 | — | 443,368 | ||||||
SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK, par value $0.0001 per share, 500,000 shares designated at December 31, 2006, 0 and 500,000 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively; Liquidation preference of $54,019 at December 31, 2006 | — | 51,135 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock, par value $0.0001 per share, 100,000,000 shares authorized, 4,000,000 of which were designated as Series D Preferred Stock and 500,000 of which were designated as Series E Preferred Stock at December 31, 2006; no shares of preferred stock other than Series D & E Preferred Stock (presented above) issued and outstanding at September 30, 2007 and December 31, 2006 | — | — | ||||||
Common Stock, par value $0.0001 per share, 1,000,000,000 shares authorized, 346,919,900 and 157,052,097 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively | 35 | 16 | ||||||
Additional paid-in capital | 1,511,569 | 166,315 | ||||||
Retained earnings | 385,561 | 245,690 | ||||||
Accumulated other comprehensive (loss) income | (4,115 | ) | 1,224 | |||||
Total stockholders’ equity | 1,893,050 | 413,245 | ||||||
Total liabilities and stockholders’ equity | $ | 5,765,180 | $ | 4,153,122 | ||||
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MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share information)
(Unaudited)
Condensed Consolidated Statements of Income and Comprehensive Income
(in thousands, except share and per share information)
(Unaudited)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
REVENUES: | ||||||||||||||||
Service revenues | $ | 489,131 | $ | 332,920 | $ | 1,407,988 | $ | 916,179 | ||||||||
Equipment revenues | 67,607 | 63,196 | 236,612 | 177,592 | ||||||||||||
Total revenues | 556,738 | 396,116 | 1,644,600 | 1,093,771 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Cost of service (excluding depreciation and amortization expense of $40,247, $33,315, $112,073 and $87,602, shown separately below) | 163,671 | 113,524 | 471,233 | 313,510 | ||||||||||||
Cost of equipment | 131,179 | 117,982 | 437,925 | 330,898 | ||||||||||||
Selling, general and administrative expenses (excluding depreciation and amortization expense of $5,246, $3,296, $13,923 and $8,585, shown separately below) | 84,496 | 60,220 | 240,150 | 171,921 | ||||||||||||
Depreciation and amortization | 45,493 | 36,611 | 125,996 | 96,187 | ||||||||||||
(Gain) loss on disposal of assets | (1,239 | ) | (1,615 | ) | 1,419 | 10,763 | ||||||||||
Total operating expenses | 423,600 | 326,722 | 1,276,723 | 923,279 | ||||||||||||
Income from operations | 133,138 | 69,394 | 367,877 | 170,492 | ||||||||||||
OTHER EXPENSE (INCOME): | ||||||||||||||||
Interest expense | 54,574 | 24,811 | 152,718 | 67,408 | ||||||||||||
Accretion of put option in majority-owned subsidiary | 254 | 203 | 746 | 564 | ||||||||||||
Interest and other income | (23,317 | ) | (4,386 | ) | (44,968 | ) | (15,106 | ) | ||||||||
Impairment loss on investment securities | 15,007 | — | 15,007 | — | ||||||||||||
Gain on extinguishment of debt | — | — | — | (244 | ) | |||||||||||
Total other expense | 46,518 | 20,628 | 123,503 | 52,622 | ||||||||||||
Income before provision for income taxes | 86,620 | 48,766 | 244,374 | 117,870 | ||||||||||||
Provision for income taxes | (33,512 | ) | (19,500 | ) | (96,820 | ) | (47,245 | ) | ||||||||
Net income | 53,108 | 29,266 | 147,554 | 70,625 | ||||||||||||
Accrued dividends on Series D Preferred Stock | — | (5,295 | ) | (6,499 | ) | (15,711 | ) | |||||||||
Accrued dividends on Series E Preferred Stock | — | (756 | ) | (929 | ) | (2,244 | ) | |||||||||
Accretion on Series D Preferred Stock | — | (118 | ) | (148 | ) | (355 | ) | |||||||||
Accretion on Series E Preferred Stock | — | (85 | ) | (107 | ) | (254 | ) | |||||||||
Net income applicable to Common Stock | $ | 53,108 | $ | 23,012 | $ | 139,871 | $ | 52,061 | ||||||||
Net income | $ | 53,108 | $ | 29,266 | $ | 147,554 | $ | 70,625 | ||||||||
Other comprehensive income: | ||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | 3,961 | (330 | ) | 6,363 | (847 | ) | ||||||||||
Unrealized (loss) gain on cash flow hedging derivative, net of tax | (9,286 | ) | (335 | ) | (4,157 | ) | 896 | |||||||||
Reclassification adjustment for gains included in net income, net of tax | (5,016 | ) | (107 | ) | (7,545 | ) | (622 | ) | ||||||||
Comprehensive income | $ | 42,767 | $ | 28,494 | $ | 142,215 | $ | 70,052 | ||||||||
Net income per common share: | ||||||||||||||||
Basic | $ | 0.15 | $ | 0.08 | $ | 0.44 | $ | 0.19 | ||||||||
Diluted | $ | 0.15 | $ | 0.08 | $ | 0.43 | $ | 0.19 | ||||||||
Weighted average shares: | ||||||||||||||||
Basic | 346,844,393 | 156,003,088 | 267,545,403 | 155,672,061 | ||||||||||||
Diluted | 356,638,145 | 159,644,818 | 276,482,986 | 159,525,993 | ||||||||||||
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MetroPCS Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
For the nine months ended | ||||||||
September 30, | ||||||||
2007 | 2006 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 147,554 | $ | 70,625 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 125,996 | 96,187 | ||||||
Provision for uncollectible accounts receivable | 30 | 64 | ||||||
Deferred rent expense | 6,582 | 5,365 | ||||||
Cost of abandoned cell sites | 4,876 | 2,069 | ||||||
Non-cash interest expense | 2,657 | 3,702 | ||||||
Loss on disposal of assets | 1,419 | 10,763 | ||||||
Gain on extinguishment of debt | — | (244 | ) | |||||
Gain on sale of investments | (8,523 | ) | (1,875 | ) | ||||
Accretion of asset retirement obligation | 899 | 469 | ||||||
Accretion of put option in majority-owned subsidiary | 746 | 564 | ||||||
Impairment loss on investment securities | 15,007 | — | ||||||
Deferred income taxes | 95,257 | 41,792 | ||||||
Stock-based compensation expense | 18,971 | 7,750 | ||||||
Changes in assets and liabilities: | ||||||||
Inventories | (3,348 | ) | (220 | ) | ||||
Accounts receivable | (6,252 | ) | (7,542 | ) | ||||
Prepaid expenses | (10,268 | ) | (7,365 | ) | ||||
Deferred charges | (3,941 | ) | (8,172 | ) | ||||
Other assets | (16,057 | ) | (2,974 | ) | ||||
Accounts payable and accrued expenses | 49,584 | 49,121 | ||||||
Deferred revenue | 17,785 | 22,055 | ||||||
Other liabilities | 1,476 | 2,554 | ||||||
Net cash provided by operating activities | 440,450 | 284,688 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (525,701 | ) | (453,864 | ) | ||||
Change in prepaid purchases of property and equipment | (9,523 | ) | 2,427 | |||||
Proceeds from sale of property and equipment | 604 | 2,548 | ||||||
Cash used in business acquisitions | (669 | ) | — | |||||
Purchase of investments | (3,358,427 | ) | (737,088 | ) | ||||
Proceeds from sale of investments | 3,501,457 | 900,189 | ||||||
Change in restricted cash and investments | 294 | (3,291 | ) | |||||
Purchases of FCC licenses | — | (176 | ) | |||||
Deposit to FCC for licenses | — | (200,000 | ) | |||||
Microwave relocation costs | (547 | ) | — | |||||
Net cash used in investing activities | (392,512 | ) | (489,255 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Change in book overdraft | 23,021 | 22,993 | ||||||
Proceeds from bridge credit agreements | — | 200,000 | ||||||
Proceeds from 91/4% Senior Notes | 423,500 | — | ||||||
Proceeds from initial public offering | 862,500 | — | ||||||
Debt issuance costs | (3,120 | ) | (15,313 | ) | ||||
Cost of raising capital | (44,225 | ) | — | |||||
Repayment of debt | (12,000 | ) | (2,446 | ) | ||||
Proceeds from minority interest in majority-owned subsidiary | — | 2,000 | ||||||
Proceeds from exercise of stock options | 5,148 | 889 | ||||||
Net cash provided by financing activities | 1,254,824 | 208,123 | ||||||
INCREASE IN CASH AND CASH EQUIVALENTS | 1,302,762 | 3,556 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period | 161,498 | 112,709 | ||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 1,464,260 | $ | 116,265 | ||||
Definition of Terms and Reconciliation of Non-GAAP Financial Measures
The Company utilizes certain financial measures and key performance indicators that are not calculated in accordance with GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of income or statement of cash flows; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.
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Average revenue per user, or ARPU, cost per gross addition, or CPGA, and cost per user, or CPU, are non-GAAP financial measures utilized by the Company’s management to judge the Company’s ability to meet its liquidity requirements and to evaluate its operating performance. Management believes that these measures are important in understanding the performance of the Company’s operations from period to period, and although every company in the wireless industry does not define each of these measures in precisely the same way, management believes that these measures (which are common in the wireless industry) facilitate key liquidity and operating performance comparisons with other companies in the wireless industry. The following tables reconcile non-GAAP financial measures with the Company’s financial statements presented in accordance with GAAP.
ARPU — The Company utilizes ARPU to evaluate per-customer service revenue realization and to assist in forecasting future service revenues. ARPU is calculated exclusive of activation revenues, as these amounts are a component of costs of acquiring new customers and are included in the calculation of CPGA. ARPU is also calculated exclusive of E-911, FUSF and vendor’s compensation charges, as these are generally pass through charges that the Company collects from its customers and remits to the appropriate government agencies.
Average number of customers for any measurement period is determined by dividing (a) the sum of the average monthly number of customers for the measurement period by (b) the number of months in such period. Average monthly number of customers for any month represents the sum of the number of customers on the first day of the month and the last day of the month divided by two. The following table shows the calculation of ARPU for the periods indicated.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands, except average number | ||||||||||||||||
of customers and ARPU) | ||||||||||||||||
Calculation of Average Revenue Per User (ARPU): | ||||||||||||||||
Service revenues | $ | 489,131 | $ | 332,920 | $ | 1,407,988 | $ | 916,179 | ||||||||
Less: | ||||||||||||||||
Activation revenues | (2,995 | ) | (2,123 | ) | (8,137 | ) | (6,026 | ) | ||||||||
E-911, FUSF and vendor’s compensation charges | (25,215 | ) | (9,512 | ) | (71,206 | ) | (29,222 | ) | ||||||||
Net service revenues | $ | 460,921 | $ | 321,285 | $ | 1,328,645 | $ | 880,931 | ||||||||
Divided by: Average number of customers | 3,592,045 | 2,503,423 | 3,416,036 | 2,281,261 | ||||||||||||
ARPU | $ | 42.77 | $ | 42.78 | $ | 43.22 | $ | 42.91 | ||||||||
CPGA — The Company utilizes CPGA to assess the efficiency of its distribution strategy, validate the initial capital invested in its customers and determine the number of months to recover customer acquisition costs. This measure also allows management to compare the Company’s average acquisition costs per new customer to those of other wireless broadband PCS providers. Activation revenues and equipment revenues related to new customers are deducted from selling expenses in this calculation as they represent amounts paid by customers at the time their service is activated that reduce the acquisition cost of those customers. Additionally, equipment costs associated with existing customers, net of related revenues, are excluded as this measure is intended to reflect only the acquisition costs related to new customers. The following table reconciles total costs used in the calculation of CPGA to selling expenses, which the Company considers to be the most directly comparable GAAP financial measure to CPGA.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands, except gross customer | ||||||||||||||||
additions and CPGA) | ||||||||||||||||
Calculation of Cost Per Gross Addition (CPGA): | ||||||||||||||||
Selling expenses | $ | 35,625 | $ | 26,062 | $ | 99,096 | $ | 72,796 | ||||||||
Less: Activation revenues | (2,995 | ) | (2,123 | ) | (8,137 | ) | (6,026 | ) | ||||||||
Less: Equipment revenues | (67,607 | ) | (63,196 | ) | (236,612 | ) | (177,592 | ) | ||||||||
Add: Equipment revenue not associated with new customers | 31,590 | 28,802 | 107,492 | 80,571 | ||||||||||||
Add: Cost of equipment | 131,179 | 117,982 | 437,925 | 330,898 | ||||||||||||
Less: Equipment costs not associated with new customers. | (43,254 | ) | (38,259 | ) | (142,218 | ) | (108,292 | ) | ||||||||
Gross addition expenses | $ | 84,538 | $ | 69,268 | $ | 257,546 | $ | 192,355 | ||||||||
Divided by: Gross customer additions | 671,379 | 575,820 | 2,164,511 | 1,650,282 | ||||||||||||
CPGA | $ | 125.92 | $ | 120.29 | $ | 118.99 | $ | 116.56 | ||||||||
CPU — CPU is cost of service and general and administrative costs (excluding applicable non-cash stock-based compensation expense included in cost of service and general and administrative expense) plus net loss on equipment transactions unrelated to initial customer acquisition (which includes the gain or loss on sale of handsets to existing customers and costs associated with handset replacements and repairs (other than warranty costs which are the responsibility of the handset manufacturers)) exclusive of E-911, FUSF and vendor’s compensation charges, divided by the sum of the average monthly number of customers during such period. CPU does not include any depreciation and amortization expense. Management uses CPU as a tool to evaluate the non-selling cash expenses associated with ongoing business operations on a per customer basis, to track changes in these non-selling cash costs over time, and to help evaluate how changes in the Company’s business operations affect non-selling cash costs per customer. In addition, CPU provides management with a useful measure to compare our non-selling cash costs per customer with those of other wireless
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providers. We believe investors use CPU primarily as a tool to track changes in our non-selling cash costs over time and to compare our non-selling cash costs to those of other wireless providers. Other wireless carriers may calculate this measure differently. The following table reconciles total costs used in the calculation of CPU to cost of service, which we consider to be the most directly comparable GAAP financial measure to CPU.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands, except average number | ||||||||||||||||
of customers and CPU) | ||||||||||||||||
Calculation of Cost Per User (CPU): | ||||||||||||||||
Cost of service | $ | 163,671 | $ | 113,524 | $ | 471,233 | $ | 313,510 | ||||||||
Add: General and administrative expense | 48,871 | 34,158 | 141,054 | 99,125 | ||||||||||||
Add: Net loss on equipment transactions unrelated to initial customer acquisition | 11,664 | 9,457 | 34,726 | 27,721 | ||||||||||||
Less: Stock-based compensation expense included in cost of service and general and administrative expense | (7,107 | ) | (3,781 | ) | (18,971 | ) | (7,750 | ) | ||||||||
Less: E-911, FUSF and vendor’s compensation revenues | (25,215 | ) | (9,512 | ) | (71,206 | ) | (29,222 | ) | ||||||||
Total costs used in the calculation of CPU | $ | 191,884 | $ | 143,846 | $ | 556,836 | $ | 403,384 | ||||||||
Divided by: Average number of customers | 3,592,045 | 2,503,423 | 3,416,036 | 2,281,261 | ||||||||||||
CPU | $ | 17.81 | $ | 19.15 | $ | 18.11 | $ | 19.65 | ||||||||
The Company’s senior secured credit facility calculates consolidated Adjusted EBITDA as: consolidated net incomeplusdepreciation and amortization; gain (loss) on disposal of assets; non-cash expenses; gain (loss) on extinguishment of debt; provision for income taxes; interest expense; and certain expenses of MetroPCS Communications, Inc.minusinterest and other income and non-cash items increasing consolidated net income. The Company considers Adjusted EBITDA, as defined above, to be an important indicator to investors because it provides information related to the Company’s ability to provide cash flows to meet future debt service, capital expenditures and working capital requirements and fund future growth. The Company presents Adjusted EBITDA because covenants in its senior secured credit facility contain ratios based on this measure. If the Company’s Adjusted EBITDA were to decline below certain levels, covenants in the Company’s senior secured credit facility that are based on Adjusted EBITDA, including the maximum senior secured leverage ratio covenant, may be violated and could cause, among other things, an inability to incur further indebtedness and in certain circumstances a default or mandatory prepayment under the Company’s senior secured credit facility. The Company’s maximum senior secured leverage ratio is required to be less than 4.5 to 1.0 based on Adjusted EBITDA plus the impact of certain new markets. The lenders under the senior secured credit facility use the senior secured leverage ratio to measure the Company’s ability to meet its obligations on its senior secured debt by comparing the total amount of such debt to its Adjusted EBITDA, which the Company’s lenders use to estimate its cash flow from operations. The senior secured leverage ratio is calculated as the ratio of senior secured indebtedness to Adjusted EBITDA, as defined by the senior secured credit facility. Adjusted EBITDA is not a measure calculated in accordance with GAAP, and should not be considered a substitute for, operating income (loss), net income (loss), or any other measure of financial performance reported in accordance with GAAP. In addition, Adjusted EBITDA should not be construed as an alternative to, or more meaningful than cash flows from operating activities, as determined in accordance with GAAP.
The following table shows the calculation of our consolidated Adjusted EBITDA, as defined in the Company’s senior secured credit facility, for the three and nine months ended September 30, 2007 and 2006.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands) | ||||||||||||||||
Calculation of Consolidated Adjusted EBITDA: | ||||||||||||||||
Net income | $ | 53,108 | $ | 29,266 | $ | 147,554 | $ | 70,625 | ||||||||
Adjustments: | ||||||||||||||||
Depreciation and amortization | 45,493 | 36,611 | 125,996 | 96,187 | ||||||||||||
(Gain) loss on disposal of assets | (1,239 | ) | (1,615 | ) | 1,419 | 10,763 | ||||||||||
Stock-based compensation expense (1) | 7,107 | 3,781 | 18,971 | 7,750 | ||||||||||||
Interest expense | 54,574 | 24,811 | 152,718 | 67,408 | ||||||||||||
Accretion of put option in majority-owned subsidiary (1) | 254 | 203 | 746 | 564 | ||||||||||||
Interest and other income | (23,317 | ) | (4,386 | ) | (44,968 | ) | (15,106 | ) | ||||||||
Impairment loss on investment securities | 15,007 | — | 15,007 | — | ||||||||||||
Gain on extinguishment of debt | — | — | — | (244 | ) | |||||||||||
Provision for income taxes | 33,512 | 19,500 | 96,820 | 47,245 | ||||||||||||
Consolidated Adjusted EBITDA | $ | 184,499 | $ | 108,171 | $ | 514,263 | $ | 285,192 | ||||||||
(1) | Represents a non-cash expense, as defined by our senior secured credit facility. |
In addition, for further information, the following table reconciles consolidated Adjusted EBITDA, as defined in the Company’s senior secured credit facility, to cash flows from operating activities for the three and nine months ended September 30, 2007 and 2006.
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands) | ||||||||||||||||
Reconciliation of Net Cash Provided by Operating Activities to Consolidated Adjusted EBITDA: | ||||||||||||||||
Net cash provided by operating activities | $ | 173,141 | $ | 85,620 | $ | 440,450 | $ | 284,688 | ||||||||
Adjustments: | ||||||||||||||||
Interest expense | 54,574 | 24,811 | 152,718 | 67,408 | ||||||||||||
Non-cash interest expense | (608 | ) | (2,926 | ) | (2,657 | ) | (3,702 | ) | ||||||||
Interest and other income | (23,317 | ) | (4,386 | ) | (44,968 | ) | (15,106 | ) | ||||||||
Recovery of (provision for) uncollectible accounts receivable | (7 | ) | 47 | (30 | ) | (64 | ) | |||||||||
Deferred rent expense | (2,316 | ) | (1,989 | ) | (6,582 | ) | (5,365 | ) | ||||||||
Cost of abandoned cell sites | (1,044 | ) | (1,431 | ) | (4,876 | ) | (2,069 | ) | ||||||||
Accretion of asset retirement obligation | (327 | ) | (171 | ) | (899 | ) | (469 | ) | ||||||||
Gain on sale of investments | 6,282 | 607 | 8,523 | 1,875 | ||||||||||||
Provision for income taxes | 33,512 | 19,500 | 96,820 | 47,245 | ||||||||||||
Deferred income taxes | (33,100 | ) | (15,296 | ) | (95,257 | ) | (41,792 | ) | ||||||||
Changes in working capital | (22,291 | ) | 3,785 | (29,979 | ) | (47,457 | ) | |||||||||
Consolidated Adjusted EBITDA | $ | 184,499 | $ | 108,171 | $ | 514,263 | $ | 285,192 | ||||||||
The following table reconciles segment Adjusted EBITDA (deficit) for the three and nine months ended September 30, 2007 and 2006 to consolidated income before provision for income taxes:
Three Months | Nine Months | |||||||||||||||
Ended September 30, | Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(in thousands) | ||||||||||||||||
Segment Adjusted EBITDA (Deficit): | ||||||||||||||||
Core Markets Adjusted EBITDA | $ | 170,983 | $ | 128,283 | $ | 489,175 | $ | 364,585 | ||||||||
Expansion Markets Adjusted EBITDA (Deficit) | 13,516 | (20,112 | ) | 25,088 | (79,393 | ) | ||||||||||
Total | 184,499 | 108,171 | 514,263 | 285,192 | ||||||||||||
Depreciation and amortization | (45,493 | ) | (36,611 | ) | (125,996 | ) | (96,187 | ) | ||||||||
Gain (loss) on disposal of assets | 1,239 | 1,615 | (1,419 | ) | (10,763 | ) | ||||||||||
Stock-based compensation expense | (7,107 | ) | (3,781 | ) | (18,971 | ) | (7,750 | ) | ||||||||
Interest expense | (54,574 | ) | (24,811 | ) | (152,718 | ) | (67,408 | ) | ||||||||
Accretion of put option in majority-owned subsidiary. | (254 | ) | (203 | ) | (746 | ) | (564 | ) | ||||||||
Interest and other income | 23,317 | 4,386 | 44,968 | 15,106 | ||||||||||||
Impairment loss on investment securities | (15,007 | ) | — | (15,007 | ) | — | ||||||||||
Gain on extinguishment of debt | — | — | — | 244 | ||||||||||||
Consolidated income before provision for income taxes | $ | 86,620 | $ | 48,766 | $ | 244,374 | $ | 117,870 | ||||||||