Sprint Nextel Corp. today reported second quarter 2009 financial results that included consolidated net operating revenues of $8.1 billion, a net loss of $384 million and a diluted loss per share of 13 cents. The company generated Free Cash Flow* of $676 million in the quarter and $1.5 billion in the first half of 2009. As of June 30, 2009, the company had $4.6 billion of cash and cash equivalents and $1.5 billion of borrowing capacity available under its revolving bank credit facility, for a total liquidity of $6.1 billion.
In the second quarter, we made further progress on our efforts to enhance financial stability, improve the customer experience and reinvigorate the brand,” said Dan Hesse, Sprint Nextel CEO. “The widespread visibility surrounding our record-breaking June launch of the Palm® Pre™ handset gave us an unprecedented opportunity to showcase these improvements to customers as ‘a new Sprint.’ They saw a 3G network described by PC World magazine as the most reliable among competitors, key satisfaction and performance metrics in customer care improving for 18 straight months, advertising that won the top international award in Cannes, and a stable balance sheet with 2009 long-term debt maturities paid and enough cash on hand to cover maturities through 2011.
“In the quarter, we saw the best retail net add performance in the past seven quarters. We also saw the best quarterly sequential change in CDMA net add performance in two years, ARPU that has been stable for six consecutive quarters, continued prepaid growth, and improved sequential Adjusted Operating Income Before Depreciation and Amortization* (Adjusted OIBDA),” Hesse said. “However, we are not satisfied that we lost a quarter of a million customers in the quarter.”
Sprint also built on its history of innovation in the second quarter, with the launch of MiFi cards and continued growth in its award-winning Unified Communications solution for business mobility. Additionally, the company prepared for the August launch of 4G service in Las Vegas, Atlanta and Portland, with at least six more markets in its national network expected to follow in 2009, and announced the July launch of the Blackberry® Tour™ world phone.
* The company served 48.8 million customers at the end of the second quarter of 2009, compared to 49.1 million at the end of the first quarter of 2009. This includes 34.4 million post-paid subscribers (25.1 million on CDMA, 8.3 million on iDEN, and 1.0 million Power Source users who utilize both networks), 5.0 million prepaid subscribers (4.4 million on iDEN and 600,000 on CDMA) and 9.3 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, total wireless customers declined by approximately 257,000, including net losses of 991,000 post-paid customers – comprising 393,000 CDMA and 598,000 iDEN customers (including a net 69,000 customers who transferred from the iDEN network to the CDMA network). The company gained a net 938,000 prepaid iDEN customers, offset by net losses of 161,000 prepaid CDMA customers. The company also experienced a net loss of 43,000 wholesale and affiliate subscribers.
* The credit quality of our post-paid customer base improved sequentially from approximately 84% at the end of the first quarter of 2009 to almost 85% prime, compared to 82% at the end of the second quarter of 2008.
* Approximately 9% of post-paid customers upgraded their handsets during the second quarter, a slight increase sequentially, resulting in increased contract renewals.
* In the second quarter, the company added to its device and service capabilities with the launch of the award winning Palm® Pre™, Samsung Instinct® s30™, and the colorful SCP-2700™ by Sanyo®, all exclusively from Sprint. The company also added the Novatel® Wireless MiFi 2200 intelligent mobile hotspot device, Samsung® Exclaim™, HTC Snap™, and CapTel® 800i™ – the next generation CapTel® phone for deaf and hard-of-hearing users - to its device portfolio, and is the network provider for Amazon’s Kindle and Kindle DX. In addition, Sprint launched the BlackBerry® Tour™ 9630 Global Smartphone in July.
* Post-paid churn in the quarter was 2.05% compared to 2.25% in the first quarter and 1.98% in the year-ago period. The sequential decrease is due to seasonality, along with improved credit quality of our customer base and better retention performance; and the year-over-year increase in churn is primarily driven by deactivations on business lines due to current economic conditions.
* Boost churn in the second quarter of 2009 was 6.38%, compared to 6.86% in the first quarter of 2009 and 7.36% in the year-ago period. The sequential and year-over-year improvement in churn are due to fewer deactivations and a larger subscriber base of national Boost Monthly Unlimited subscribers.
Wireless Service Revenues
* Wireless service revenues for the quarter were flat sequentially at $6.4 billion as revenue growth from Boost Monthly Unlimited subscribers offset revenue declines from post-paid subscribers. Year-over-year, wireless service revenues declined 9% as a result of fewer wireless subscribers.
* Wireless post-paid ARPU has been stable for the past six quarters at around $56 primarily due to continued growth in fixed-rate bundled plans such as Simply Everything, offset by declines in usage and roaming. As a result of the company’s focus on improving the customer experience and 18 consecutive months of improvement in customer care satisfaction, post-paid ARPU benefited from reduced credits to customer bills.
* Data revenues contributed greater than $15.50 to overall post-paid ARPU in the second quarter, led by growth in CDMA data ARPU. CDMA data ARPU increased more than 3% from the first quarter of 2009, to greater than $18.50, an industry-best that now represents greater than 32% of total CDMA ARPU.
* Prepaid ARPU in the quarter was approximately $34 compared to $31 in the first quarter of 2009, and $30 in the year-ago period. The sequential and year-over-year increases reflect a growing contribution from prepaid subscribers on unlimited plans.
* Wholesale, affiliate and other revenues were down 13% sequentially and down 44% compared to the year-ago period. The sequential and year-over-year decline is primarily due to subscriber losses from one of our large carrier customers.
Wireless Operating Expenses and Adjusted OIBDA*
* Total operating expenses, after normalizing for special items, were $7.3 billion in the second quarter, compared to $7.3 billion in the first quarter of 2009 and $7.9 billion in the year-ago period.
* Adjusted OIBDA* of $1.4 billion in the second quarter of 2009 compares to $1.4 billion in the first quarter of 2009 and $1.9 billion in the second quarter of 2008. Sequentially, Adjusted OIBDA* was flat as the improvement in SG&A expenses offset the revenue decline. The year-over-year decline in Adjusted OIBDA* was primarily due to fewer wireless subscribers, offset by an improvement of $350 million in SG&A expenses.
* Equipment subsidy was almost $850 million (equipment revenue of approximately $500 million, less cost of products of $1.34 billion) as compared to almost $850 million in the first quarter of 2009 and about $700 million a year ago. The year-over-year increase in subsidy is primarily due to the increase in the number and timing of prepaid handsets shipped as a result of the national Boost Monthly Unlimited offer, and the increase in average cost per handset sold as the company continues to sell a greater number of higher-functionality handsets.
* SG&A expenses declined 4% sequentially from the first quarter of 2009 and 14% year-over-year from the second quarter of 2008. On a sequential basis, the decline reflects lower marketing and customer care expenses. The year-over-year improvement is due to lower selling, bad debt, customer care and labor expenses.
Wireless Capital Spending
Wireless capital expenditures were $227 million in the second quarter of 2009, compared to almost $200 million in the first quarter of 2009 and almost $400 million spent in the second quarter of 2008. The year-over-year decrease in wireless capital spending reflects reduced capacity needs due to fewer subscribers. The company continues to invest capital in the quality and performance of its networks. At the end of the second quarter of 2009, Sprint’s networks continue to operate at best-ever levels and, according to third-party data, Sprint has the most dependable+ 3G network in the country.