An increased focus on subsidizing LTE handsets and dramatic drop in gross customer additions torpedoed MetroPCS’ PCS) first quarter results that sent stockholders scurrying.
MetroPCS reported an 82% drop in net customer additions for the first quarter, plummeting from nearly 726,000 new subscribers added in 2011 to just over 131,000 customers added this year. The shortfall was due to a significant decrease in gross customer additions as churn remained stable year-over-year at 3.1%. MetroPCS ended the quarter with nearly 9.5 million total customers.
Average revenue per user inched up slightly from $40.42 during the first quarter of 2011 to $40.56 this year, while cash cost per user surged $3.08 to $22.87 per month. The carrier recently tweaked its rate plans in an attempt to further bolster ARPU potential.
Total revenues increased 7% year-over-year to $1.277 billion during the first quarter, however that increase was negated by increased expenses that pushed net income down from $59.9 million in 2011 to $20.75 million this year.
MetroPCS’ management cited the carrier’s attempts to place lower-cost LTE devices into the hands of consumers during the quarter, which was evident by the near 50% increase in it cost per gross addition from $157.28 last year to $235.45 this year. LTE smartphones typically have higher subsidies as carriers attempt to bring the price of these advanced devices down to an attractive price for consumers. However, MetroPCS is somewhat being forced to migrate its customer base from its legacy CDMA network to its LTE network due to spectrum constraints that limit the resources it can devout to both networks and its inclination to focus future funding to its more efficient and marketing competitive LTE offering.
“Our first quarter results highlight our continued focus on getting affordable 4G LTE smartphones into the hands of our customers,” explained Roger Linquist, chairman and CEO of MetroPCS, in a statement. “We upgraded 16% of our subscriber base, 40% of which went from a feature phone to a smartphone, and we reported churn of 3.1%, matching the all-time low for the company. However, the significant number of upgrades at a higher promotional handset cost during the quarter resulted in higher costs and as a result both adjusted [earnings before interest, taxes, depreciation and amortization] and adjusted EBITDA margins were pressured significantly.”
MetroPCS reported that adjusted EBITDA shrank 8% during the quarter to $262 million, while EBITDA margins fell 460 basis points to 22.6% compared with Q1 2011 results. Analysts noted that EBITDA drop was surprising as typically a decrease in gross customer additions helps to prop up those results.
MetroPCS’ stock was trading down more than 9% early Thursday at $7.20 per share.
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