Second quarter financial performance was driven by revenue growth of 18% over the previous quarter, with only an 8% increase in operating expenses (excluding depreciation and amortization). This resulted in a substantial 51% sequential improvement in EBITDA (earnings before interest, taxes, depreciation and amortization) compared with the first quarter of 2001.
Microcell made substantial progress this quarter in its pursuit of EBITDA breakeven, stated André Tremblay, President and Chief Executive Officer of Microcell Telecommunications. Negative EBITDA improved a further $9.8 million in the second quarter, to $9.4 million, due in large part to healthy double-digit revenue growth and continued cost control. Excluding non-PCS-related operations, negative EBITDA was $4.7 million, representing a 65% improvement compared with the previous quarter.
We kept operating costs in check, while effecting a major turnaround in the acquisition of a substantial number of new postpaid subscribers in the second quarter, said Jacques Leduc, Chief Financial Officer and Treasurer of Microcell Telecommunications. But, more importantly, we improved our performance in the key postpaid market, although we have not yet begun actively marketing our GPRS high-speed data opportunity, especially within the business market segment. As data-enabled devices become more widely available in the coming months, we will benefit from our competitive advantage in this area to further grow our postpaid business.
New retail net additions increased 12% to 63,297 in the second quarter of 2001 compared with 56,339 in the previous quarter. Postpaid subscribers represented 72% of this figure at 45,576, while prepaid accounted for the remaining 28%, or 17,721, of the new retail customers added during the second quarter.
At June 30, 2001, the Company provided wireless service to 1,042,163 retail PCS subscribers, with a 51%/49% mix of postpaid and prepaid customers. This represents a 44% increase over the same period one year earlier. In addition, as at the end of the second quarter 2001, Microcell provided PCS network access to 15,229 wholesale subscribers acquired by its five non-affiliated service providers.
The second quarter blended retail, post-guarantee-period average monthly churn rate of 2.3% comprised postpaid churn of 1.7% and prepaid churn of 2.9%. This compares with a blended churn rate of 2.2% in the previous quarter. The slight increase in blended churn was due to greater prepaid churn resulting from the high level of gift-related customer account activations during the fourth quarter of 2000.
Total revenue grew to $141.3 million in the second quarter, increasing 18%, or $21.5 million, over the previous quarter, and 36%, or $37.2 million, over the second quarter of 2000. The improvements resulted primarily from a significantly expanded and higher revenue-generating customer base. Equipment sales of $13.7 million in the second quarter represented a sequential and year-over-year improvement of approximately 30%. Meanwhile, service revenue in the second quarter increased 17% to $127.6 million from $109.2 million in the first quarter of 2001, and improved 37% from $93.4 million in the same quarter last year.
Retail postpaid average revenue per user (ARPU) of $61.73 per month was the highest reported in the Canadian wireless industry in the second quarter. This represents notable increases of 14% and 7%, respectively, compared with the three-month periods ended March 31, 2001 and June 30, 2000. The improvement was due to the implementation of a higher monthly system access fee, and a marked increase in average monthly minutes of usage (MoU). Average postpaid MoU for the second quarter was 318 minutes, compared with 272 minutes and 259 minutes, respectively, for the first quarter of 2001 and second quarter of 2000.
Retail prepaid ARPU for the three months ended June 30, 2001, was $22.89, up from $21.94 in the previous quarter, reflecting improved average monthly usage of 69 minutes per customer compared with 65 minutes per customer in the first quarter of 2001. This result remains among the highest in the Canadian wireless industry.
As a result of the substantial increase in the number of new customers subscribing to postpaid plans, the Company’s combined postpaid and prepaid retail ARPU for the second quarter was $42.15, up 11% from $37.84 in the previous quarter.
Operating expenses, excluding depreciation and amortization, were $150.7 million for the second quarter of 2001, compared with $125.9 million for the same period in 2000. The difference is due primarily to the higher cost of products and services, and higher selling and marketing expenses. These cost increases are consistent with the Company’s ongoing network enhancement activities, the rapid growth of its PCS customer base, and the expansion of its non-PCS operations. The Company’s non-PCS activities accounted for expenses totalling $4.8 million in the second quarter of 2001, compared with $0.9 million for the same period one year earlier.
Total cost of products and services of $86.1 million for the second quarter consisted of $35.8 million for cost of products and $50.4 million for cost of services, compared with cost of products of $38.1 million and cost of services of $51.0 million for the previous quarter. This favourable result clearly highlights the Company’s continued commitment to expense control and reflects reductions in equipment costs, as well as network efficiencies resulting from a scalable, all-digital GSM network.
Network operating costs and expenses for customer care, training and billing (the major components of cost of services) remained relatively flat at $31.0 million and $11.9 million, respectively, compared with $32.3 million and $11.4 million in the first quarter of 2001. This was despite increased network traffic and a greater level of subscriber-related activity.
The retail cost of acquisition (which consists of a handset subsidy, and related selling and marketing expenses) decreased to $385 per gross wireless addition for the second quarter of 2001, compared with $396 per gross wireless addition for the same period in 2000. This result was achieved despite higher selling and marketing expenses stemming from heightened competition and the comparatively greater number of new postpaid customers acquired during the quarter.
General and administrative expenses of $25.8 million increased by 16% in the second quarter on a year-over-year basis, but decreased as a percentage of total revenues. This demonstrates the benefits of scale in achieving improved operating efficiency.
SOURCE: COMPANY PRESS RELEASE
