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Leading unlimited wireless carrier MetroPCS Communications (PCS) has announced first-quarter 2010 results, with earnings per share (EPS) of 6 cents matching the Zacks Consensus Estimate while falling from the prior-year quarter EPS of 12 cents. Net income tanked 48% year-over-year to $22.7 million on account of 30% year-over-year increase in operating expenses which offset the healthy revenue growth.

Revenue & EBITDA

Consolidated revenue soared 22% year-over-year to $970.5 million, beating the Zacks Consensus Estimate of $940 million. The growth was fueled by healthy subscriber accretion and a 17.4% annualized increase in service revenue that reached $853.3 million (88% of total sales). Equipment revenue was $117.2 million, up 70.8% year-over-year. Consolidated adjusted EBITDA increased 12.6% to $224 million.

ARPU & Churn

ARPU (average revenue per user) of $39.83 represents a decline from $40.40 reported in the year-ago quarter, impacted by aggressive price promotions. However, monthly average churn (a measure of customer attrition) declined to 3.7% from 5% a year ago on the back of healthy customer adoption of the new "Wireless for All" service plan.

MetroPCS revamped its prepaid wireless service plans in January 2010 to counter stiff competition in the low-cost unlimited prepaid segment. The revised service plans, which start at $40 per month, include all taxes and regulatory fees.

Subscriber Statistics

Net subscriber additions were 691,602 (a quarterly record), a significant improvement from 317,255 customers added in the previous quarter, driven by the success of the "Wireless for All" plan. The subscriber gains also exceed the year-ago quarter net addition of 683,694 customers.

Consolidated penetration of covered population in the quarter was 7.8%, compared to 7.3% a year ago. MetroPCS exited the quarter with approximately 7.3 million customers, up 21% year-over-year.

Financial Condition

MetroPCS exited the quarter with consolidated cash and marketable securities of approximately $1.19 billion and total debt of approximately $3.65 billion. The carrier generated positive free cash flow (cash flow from operations less capital expenditure) of approximately $85.7 million, compared to a negative free cash flow of $6 million a year-ago.

Outlook

MetroPCS has not released its financial guidance for 2010 given the uncertainties in the economic and competitive environment. However, the company has provided a grim margin outlook for 2010 as it expects adjusted EBITDA margin for its core markets in the mid-30% range, which underscores the impact of higher promotional expenses for rolling out its new service plans.

MetroPCS remains a leading low-cost service provider in the unlimited prepaid market. The company is increasingly focused on strengthening its position in this market by broadening its portfolio of discounted service plans. Moreover, the carrier continues to expand its footprint in the lucrative Northeastern US markets. MetroPCS is also exploring the possibility of buying its rival Leap Wireless (LEAP).

MetroPCS plans to launch 4G Long-Term Evolution (LTE) service and several dual-mode smartphones across its metropolitan markets in the second-half 2010. The ultra-high bandwidth multimedia data applications supported by the 4G LTE network will boost revenue per user through increased minutes of use. We currently have a Neutral recommendation for MetroPCS.

Source: MetroPCS Meets, Net Income Slides