NII Holdings Reports 2018 First Quarter Results

NII HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(in millions, except per share amounts)

Three Months
Ended
March 31,

Three Months
Ended
March 31,

2018

2017

(unaudited)

Operating revenues

  Service and other revenues

$

176.0

$

243.5

  Handset and accessory revenues

5.0

7.5

181.0

251.0

Operating expenses

  Cost of service (exclusive of depreciation and amortization

    included below)

88.9

102.7

  Cost of handsets and accessories

9.1

8.7

  Selling, general and administrative

90.9

134.5

  Impairment, restructuring and other (benefits) charges, net

(1.8)

71.9

  Depreciation

4.8

8.9

  Amortization

3.6

4.1

195.5

330.8

Operating loss

(14.5)

(79.8)

Other (expense) income

  Interest expense, net

(26.6)

(31.6)

  Interest income

5.4

9.1

  Foreign currency transaction (losses) gains, net

(1.2)

11.4

  Other expense, net

(6.3)

(1.8)

(28.7)

(12.9)

Loss from continuing operations before income taxes

(43.2)

(92.7)

Income taxes

—

—

Net loss from continuing operations

(43.2)

(92.7)

Net loss from discontinued operations, net of income taxes

(0.1)

—

Net loss

(43.3)

(92.7)

Net loss attributable to noncontrolling interest

(11.6)

—

Net loss attributable to NII Holdings

$

(31.7)

$

(92.7)

Net loss from continuing operations per common share, basic and diluted

$

(0.43)

$

(0.92)

Net loss from discontinued operations per common share, basic and diluted

—

—

Net loss per common share, basic and diluted

$

(0.43)

$

(0.92)

Weighted average number of common shares outstanding, basic and diluted

100.4

100.3

CONSOLIDATED BALANCE SHEETS

(in millions, except par values)

March 31,
 2018

December 31,
2017

(unaudited)

ASSETS

Current assets

Cash and cash equivalents

$

136.3

$

193.9

Short-term investments

50.3

16.7

Accounts receivable, net of allowance for doubtful accounts of $31.5 and $42.0

109.5

106.7

Handset and accessory inventory

5.0

3.1

Prepaid expenses and other

237.0

254.5

Total current assets

538.1

574.9

Property, plant and equipment, net

119.8

117.3

Intangible assets, net

206.8

194.7

Other assets

256.8

218.2

Total assets

$

1,121.5

$

1,105.1

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

Accounts payable

$

51.3

$

42.3

Accrued expenses and other

309.3

308.1

Current portion of long-term debt

5.8

8.0

Total current liabilities

366.4

358.4

Long-term debt

639.6

647.7

Other long-term liabilities

229.1

220.9

Total liabilities

1,235.1

1,227.0

Stockholders' deficit

Undesignated preferred stock, par value $0.001, 10.0 shares authorized, no shares

  issued or outstanding

—

—

Common stock, par value $0.001, 140.0 shares authorized, 100.4 shares issued and outstanding — 2018 and 2017

0.1

0.1

Paid-in capital

2,139.9

2,139.3

Accumulated deficit

(2,133.4)

(2,135.8)

Accumulated other comprehensive loss

(45.3)

(46.9)

Total stockholders' deficit

(38.7)

(43.3)

Noncontrolling interest

(74.9)

(78.6)

Total deficit

(113.6)

(121.9)

$

1,121.5

$

1,105.1

CONSOLIDATED CASH FLOW DATA

(in millions)

Three Months
Ended March 31,

Three Months
Ended March 31,

2018

2017

(unaudited)

Cash and cash equivalents, beginning of period

$

305.8

$

422.2

Net cash used in operating activities

(44.7)

(44.6)

Net cash (used in) provided by investing activities

(6.2)

32.0

Net cash used in financing activities

(6.7)

(43.1)

Effect of exchange rate changes on cash and cash equivalents

0.7

(0.1)

Cash and cash equivalents, end of period

$

248.9

$

366.4

NII HOLDINGS, INC. AND SUBSIDIARIES

OPERATING RESULTS AND METRICS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (1)

(UNAUDITED)

Nextel Brazil

(dollars in millions, except ARPU and CPGA, and subscribers in thousands)

Three Months Ended
March 31,

2018

2017

Service and other revenues

$

176.0

$

243.5

Handset and accessory revenues

5.0

7.5

Cost of handsets and accessories

(9.1)

(8.7)

(4.1)

(1.2)

Cost of service (exclusive of depreciation and amortization)

(88.9)

(102.7)

Selling, general and administrative

(86.6)

(127.2)

Adjusted operating (loss) income before depreciation and
   amortization

$

(3.6)

$

12.4

Subscriber units

iDEN

230.4

686.3

WCDMA

3,023.8

2,874.6

   Total subscriber units in commercial service (as of March 31)

3,254.2

3,560.9

iDEN net subscriber losses

(84.4)

(115.4)

WCDMA net subscriber additions

92.9

38.4

   Total net subscriber additions (losses)

8.5

(77.0)

Migrations from iDEN to WCDMA

34.8

21.0

iDEN subscriber churn

9.67

%

5.52

%

WCDMA subscriber churn

2.37

%

3.23

%

   Churn (%)

3.02

%

3.71

%

ARPU (1)

$

17

$

21

CPGA (1)

$

77

$

84

CCPU (1)

$

16

$

19

(1)

For information regarding ARPU, CPGA and CCPU, see "Non-GAAP Reconciliations for the Three Months Ended March 31, 2018 and 2017" included in this release.

NON-GAAP RECONCILIATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(UNAUDITED)

Consolidated OIBDA and Consolidated Adjusted OIBDA

Consolidated operating income before depreciation and amortization, or OIBDA, represents operating income before depreciation and amortization expense. Consolidated adjusted operating income before depreciation and amortization, or adjusted OIBDA, represents consolidated operating income before depreciation expense, amortization expense, material asset impairments, severance costs associated with publicly announced restructuring plans and other material non-recurring or unusual charges. Consolidated OIBDA and consolidated adjusted OIBDA are not measurements under accounting principles generally accepted in the United States, may not be similar to consolidated OIBDA and consolidated adjusted OIBDA measures of other companies and should be considered in addition to, but not as substitutes for, the information contained in our statements of operations. We believe that consolidated OIBDA and consolidated adjusted OIBDA provide useful information to investors because they are indicators of our operating performance, especially in a capital intensive industry such as ours, since they exclude items that are not directly attributable to ongoing business operations. Consolidated OIBDA and consolidated adjusted OIBDA can be reconciled to our consolidated statements of operations as follows (in millions):

NII Holdings, Inc

Three Months Ended

March 31,

2018

2017

Consolidated operating loss

$

(14.5)

$

(79.8)

Consolidated depreciation

4.8

8.9

Consolidated amortization

3.6

4.1

Consolidated operating loss before depreciation
   and amortization

(6.1)

(66.8)

Asset impairment charges

0.7

68.3

Restructuring (benefits) charges

(2.5)

3.6

Consolidated adjusted operating (loss) income
   before depreciation and amortization

$

(7.9)

$

5.1

Average Monthly Revenue Per Handset/Unit in Service (ARPU)

Average monthly revenue per subscriber unit in service, or ARPU, is an industry term that measures service revenues, which we refer to as subscriber revenues, per period from our customers divided by the weighted average number of subscriber units in commercial service during that period.  ARPU is not a measurement under accounting principles generally accepted in the United States, may not be similar to ARPU measures of other companies and should be considered in addition, but not as a substitute for, the information contained in our statements of operations.  We believe that ARPU provides useful information concerning the appeal of our rate plans and service offerings and our performance in attracting and retaining high value customers.  Other revenue includes revenues for such services as roaming, handset maintenance, cancellation fees, analog and other.  ARPU can be calculated as follows (in millions, except ARPU):

Nextel Brazil

Three Months Ended
March 31,

2018

2017

US$

Service and other revenues

$

176.0

$

243.5

Less: other revenues

(6.5)

(20.4)

Total subscriber revenues

$

169.5

$

223.1

ARPU calculated with subscriber revenues

$

17

$

21

ARPU calculated with service and other revenues

$

18

$

22

Nextel Brazil

Three Months Ended
March 31,

2018

2017

BRL R$

Service and other revenues

$

570.4

$

765.2

Less: other revenues

(20.6)

(64.2)

Total subscriber revenues

$

549.8

$

701.0

ARPU calculated with subscriber revenues

$

56

$

65

ARPU calculated with service and other revenues

$

59

$

71

Cost per Gross Add (CPGA)

Cost per gross add, or CPGA, is an industry term that is calculated by dividing our selling, marketing and handset and accessory subsidy costs, excluding costs unrelated to initial customer acquisition, by our new subscribers during the period, or gross adds. CPGA is not a measurement under accounting principles generally accepted in the United States, may not be similar to CPGA measures of other companies and should be considered in addition, but not as a substitute for, the information contained in our statements of operations. We believe CPGA is a measure of the relative cost of customer acquisition. CPGA can be calculated as follows (in millions, except CPGA):

Nextel Brazil

Three Months Ended
March 31,

2018

2017

US$

Handset and accessory revenues

$

5.0

$

7.5

Less: uninsured handset replacement revenues

—

—

Handset and accessory revenues, net

5.0

7.5

Less: cost of handsets and accessories

9.1

8.7

    Handset subsidy costs

4.1

1.2

Selling and marketing *

21.2

27.2

Costs per statement of operations

25.3

28.4

Less: costs unrelated to initial customer acquisition

(1.9)

(1.2)

    Customer acquisition costs

$

23.4

$

27.2

Cost per Gross Add

$

77

$

84

Nextel Brazil

Three Months Ended
March 31,

2018

2017

BRL R$

Handset and accessory revenues

$

16.4

$

23.4

Less: uninsured handset replacement revenues

(0.2)

(0.1)

Handset and accessory revenues, net

16.2

23.3

Less: cost of handsets and accessories

29.4

27.2

    Handset subsidy costs

13.2

3.9

Selling and marketing *

69.0

85.4

Costs per statement of operations

82.2

89.3

Less: costs unrelated to initial customer acquisition

(6.4)

(3.7)

    Customer acquisition costs

$

75.8

$

85.6

Cost per Gross Add

$

250

$

264

* The adoption of Accounting Standards Codification, or ASC, No. 606, resulted in the capitalization of both direct and indirect commissions beginning on January 1, 2018 compared to the expensing of these types of commissions during the first quarter of 2017, which resulted in a decrease in selling and marketing expenses from the first quarter of 2017 to the first quarter of 2018

Cash Cost per Handset/User

Cash cost per handset/unit, or CCPU, represents the sum of cost of service, general and administrative expenses and customer retention and other costs divided by average handsets in service during the period and divided by the number of months in the period. CCPU is not a measurement under accounting principles generally accepted in the United States, may not be similar to CCPU measures of other companies and should not be considered in addition to, but not as a substitute for, the information contained in our statements of operations.  We believe CCPU is a measure of the recurring costs we incur on a monthly basis to provide service to our subscribers. The CCPU calculation excludes material asset impairments, severance costs associated with publicly announced restructuring plans and other material non-recurring or unusual charges and is calculated as follows (in thousands, except CCPU):

Nextel Brazil

Three Months Ended
March 31,

2018

2017

US$

Total selling, general and administrative expenses

$

86.6

$

127.2

Less: selling and marketing expenses *

(21.2)

(27.2)

General and administrative expenses

65.4

100.0

Cost of service

88.9

102.7

Customer retention costs and other

1.9

1.2

Total

$

156.2

$

203.9

Cash Cost per User

$

16

$

19

Nextel Brazil

Three Months Ended
March 31,

2018

2017

BRL R$

Total selling, general and administrative expenses

$

281.0

$

399.6

Less: selling and marketing expenses *

(69.0)

(85.4)

General and administrative expenses

212.0

314.2

Cost of service

288.4

322.7

Customer retention costs and other

6.4

3.7

Total

$

506.8

$

640.6

Cash Cost per User

$

52

$

59

* The adoption of Accounting Standards Codification, or ASC, No. 606, resulted in the capitalization of both direct and indirect commissions beginning on January 1, 2018 compared to the expensing of these types of commissions during the first quarter of 2017, which resulted in a decrease in selling and marketing expenses from the first quarter of 2017 to the first quarter of 2018

Impact of Foreign Currency Fluctuations

The following table shows the impact of changes in foreign currency exchange rates on certain financial measures for the three months ended March 31, 2017 compared to the same period in 2018 by (i) adjusting the relevant measures for the three months ended March 31, 2017 to levels that would have resulted if the average foreign currency exchange rates for the three months ended March 31, 2017 were the same as the average foreign currency exchange rates that were in effect for the three months ended March 31, 2018; and (ii) comparing the actual and adjusted financial measures for the three months ended March 31, 2017 to the similar financial measures for the three months ended March 31, 2018 to show the percentage change in those measures before and after taking those adjustments into account. The amounts reflected in the following table for operating income before depreciation and amortization on a consolidated basis and segment earnings for Nextel Brazil, before the adjustments for changes in foreign currency exchange rates, are based on the calculations contained elsewhere in these non-GAAP reconciliations for the three months ended March 31, 2018 and 2017. The average foreign currency exchange rates for each of the relevant currencies during each of the three months ended March 31, 2018 and 2017 are included in the notes to the table below. The information reflected in the following table is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our statements of operations. We believe that these calculations provide useful information concerning our relative performance for the three months ended March 31, 2018 compared to the same period in 2017 by removing the impact of the significant difference in the average foreign currency exchange rates in effect for those periods

NII Holdings, Inc

(dollars in thousands)

Three Months Ended March 31,

1Q 2017
Actual

1Q 2017
Adjustment
(1)

1Q 2017
Normalized
(1)

1Q 2018
Actual

1Q 2017

to 1Q 2018

Actual B(W)
Growth (2)

Consolidated:

  Operating revenues

$

250,955

$

(8,519)

$

242,436

$

181,013

(28)%

(25)%

  Adjusted operating income (loss)
   before depreciation and
   amortization

5,115

(420)

4,695

(7,862)

(254)%

(267)%

Nextel Brazil:

  Operating revenues

$

250,925

$

(8,519)

$

242,406

$

180,992

(28)%

(25)%

  Adjusted operating income (loss)
   before depreciation and
   amortization

12,373

(420)

11,953

(3,600)

(1)

The  "1Q 2017 Normalized" amounts reflect the impact of applying the average foreign currency exchange rates for the three months ended March 31, 2018 to the operating revenues earned in foreign currencies and to the other components of each of the actual financial measures shown above for the three months ended March 31, 2017. The amounts included under the column "1Q 2017 Normalized" reflect the amount determined by adding the "1Q 2017 Adjustment" amounts calculated as described in the preceding sentence to the "1Q 2017 Actual" amounts and reflect the impact of the year-over-year change in the average foreign currency exchange rates on each of the financial measures for the three months ended March 31, 2018. The average foreign currency exchange rates for each of the relevant currencies during the three months ended March 31, 2018 and 2017 for purposes of these calculations were as follows:

Three Months Ended March 31,

2018

2017

Brazilian real

3.24

3.13

(2)

The percentage amounts in these columns reflect the growth rates for each of the financial measures comparing the amounts in the "1Q 2018 Actual" columns with those in the "1Q 2017 Actual" columns.

(3)

The percentage amounts in these columns reflect the growth rates for each of the financial measures comparing the amounts in the "1Q 2018 Actual" columns with those in the "1Q 2017 Normalized" columns.