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On May 10th, NII Holdings reported Operating Income before Depreciation and Amortization (OIBDA) of $5.1 million, much improved over the 1Q16 OIBDA loss of -$8.1 million. OIBDA is another name for Ebitda, or Earnings before depreciation and amortization. The full release can be viewed here.
While the company reported a net loss of $93 million, about $72 million of this was impairment charges and other write-downs. A key profit metric for NII’s financial health at this stage is cash flow as measured by OIBDA. Revenues of $251 million were 10.5% higher than year-ago revenues. The number of net subscribers (adds minus losses) fell by 77,000 from the prior quarter (4Q16), much improved from prior losses well into the 100,000-plus range. WCDMA net subscribers increased by 38,000 (about 1.3%) from the prior quarter, indicating that NII’s efforts to build this business are gaining traction. WCDMA is a more advanced technology than iDEN, NII’s other wireless service which is in decline. Net subscribers in the iDEN business fell by 155,000 (about 14%) from the prior quarter,
While the company is making progress, improvements are slow relative to its cash flow hurdle and the company continues to struggle financially. Annual net interest expenses are running nearly $160 million and annual capital spending requirements are roughly $40-50 million. Annual cash outflow in 2017 could be as much as $200 million.
The cash balance is $213 million. Another $163 million remains held in escrow to secure indemnifications related to its now-sold Mexico operations. It is not clear when these funds would become available, but it would be a clear positive to add this cash to NII’s balance sheet.
NII is negotiating to further extend the covenant waivers with its Brazilian banks that recently were extended through December 31, 2017. The extensions would buy NII more much-needed time to explore high-value strategic opportunities like a sale or joint venture. Given its cash burn and heavy debt service, we see little chance of the company becoming financially self-sufficient.
There are a few potential catalysts for NII Holdings. First, the company replaced the Brazil CEO on April 25, 2017, and the president of Nextel Brazil is departing. New CEO Roberto Rittes previously was a principal of highly-regarded private equity firm H.I.G. Capital, which followed his roles as a senior leader at Brasil Telecom and Oi Paggo. He could implement very aggressive changes, perhaps including shutting down the iDen network, to resuscitate NII’s operations. A second catalyst would be an acquisition of NII by another Brazilian telecom firm. NII’s valuable spectrum and customer base would appear to be a bargain at the current $500 million enterprise value. A bid for NIHD could be well in excess of its current trading price.
On Monday, May 15, 2017, NIHD shares surged over 54%. It appears that a large shareholder that had been an aggressive seller could be finished with reducing their position. We continue to rate NII Holdings (NIHD) shares a BUY up to 4 and consider these shares to be speculative.
Accounts managed by an affiliate of the Publisher currently hold NIHD shares.