Sprint Nextel Corp. today reported first quarter 2010 financial results. The company announced first quarter consolidated net operating revenues of approximately $8.1 billion, a net loss of $865 million, which includes a non-cash $365 million (12 cents per share) increase in valuation allowance on deferred tax assets resulting from net operating loss carryforwards generated during the first quarter, and a diluted loss per share of 29 cents. Excluding the increased valuation allowance on deferred tax assets, the diluted loss per share would have been 17 cents for the quarter. The company generated $506 million of Free Cash Flow* in the quarter. As of March 31, 2010, Sprint had approximately $4.4 billion in cash, cash equivalents and short-term investments.
Sprint lost a total of 75,000 net subscribers in the quarter. Driven by the best year-over-year improvement in post-paid gross subscriber additions and the highest prepaid gross subscriber additions in five years, the company achieved the best total company net subscriber results since the third quarter of 2007. Net post-paid subscriber losses improved year-over-year as the company lost 670,000 fewer subscribers than in the first quarter of 2009.
“Sprint’s first quarter results, including increased net operating revenues and significant year-over-year net post-paid subscriber improvements show we continue to make progress in improving the business,” said Dan Hesse, Sprint Nextel CEO.
Consumers and businesses alike are beginning to recognize that Sprint offers what others don’t – simple and predictable value-pricing, cutting-edge devices, a growing 4G network that provides download speeds up to 10 times faster than 3G networks, and now the industry’s leading money-back guarantee.
In addition, Sprint’s prepaid offerings continue to grow with the new $50 unlimited offer on its CDMA network and increased handset selection including the introduction of the first BlackBerry device on Boost. Sprint also continued with the successful launch of the Assurance Wireless brand, now available in five states, and introduced an enhanced Virgin Mobile broadband offer.
“Our ongoing focus on improving the customer experience, generating cash and strengthening the brand continues to pay off. Customer satisfaction has improved for the ninth consecutive quarter and we generated more than $500 million in Free Cash Flow.* The January launch of the award-winning and critically acclaimed Sprint Overdrive TM 3G/4G Mobile Hotspot, the upcoming launch of the world's first 3G/4G Android TM handset, HTC EVO TM 4G, and the introduction of the industry’s first true money-back guarantee demonstrate Sprint’s innovation,” Hesse said.
Beyond the Overdrive and HTC EVO 4G, since the beginning of 2010 Sprint has launched or announced several additional new devices including, Motorola i1, the world's first push-to-talk Android -powered smartphone, and Motorola Brute TM i680, which combines ultra-rugged durability with the best-in-class push-to-talk services of Nextel Direct Connect®. Sprint also announced the latest additions to its growing portfolio of eco-friendly devices – LG Remarq TM and Samsung Restore TM, as well as the new BlackBerry® Bold TM 9650 smartphone with multimedia features and international roaming capabilities. Sprint launched the fashionable LG Lotus Elite TM and LG Rumor TouchTM, and Boost Mobile® launched its first-ever QWERTY clamshell phone, the Sanyo Incognito TM by Kyocera, and the BlackBerry Curve TM 8330.
Sprint launched 4G service in Houston in first quarter 2010 and Sprint 4G is now available in 28 markets serving nearly 40 million people. As previously announced by Clearwire Corp. (NASDAQ: CLWR - News), coverage is expected to reach up to 120 million people by the end of 2010 including deployments in Boston, New York, San Francisco, Kansas City and Washington, D.C.
* The company served 48.1 million customers at the end of the first quarter of 2010. This includes 33.4 million post-paid subscribers (26 million on CDMA, 6.8 million on iDEN, and 607,000 Power Source users who utilize both networks), 11 million prepaid subscribers (5.7 million on iDEN and 5.3 million on CDMA) and approximately 3.6 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, net wireless customers declined by a total of 75,000, and net retail subscribers declined by approximately 230,000, including net losses of 578,000 post-paid customers.
* The CDMA network lost approximately 131,000 post-paid customers while iDEN lost almost 447,000 customers.
* The company gained a net 348,000 prepaid subscribers, which includes net additions of 392,000 CDMA customers, offset by net losses of 44,000 iDEN customers. The company also gained 155,000 wholesale and affiliate subscribers as a result of renewed subscriber growth in the wireless MVNO business.
* The credit quality of our post-paid customers remained flat year-over-year and sequentially at more than 84% prime.
* Approximately 9% of post-paid customers upgraded their handsets during the first quarter, resulting in continued strength in contract renewals.
* Post-paid churn in the quarter was 2.15% compared to 2.25% in the year-ago period and 2.11% in the fourth quarter of 2009. Post-paid churn, excluding the effect of deactivations of Helio customers, was 2.12% for the first quarter of 2010. The year-over-year improvement in churn is primarily due to improved retention performance. Sequentially, churn was negatively affected by historical first quarter seasonality; however, the first quarter sequential increase in churn improved by five and 12 basis points compared to the same periods in 2009 and 2008, respectively.
* Prepaid churn in the first quarter of 2010 was 5.74%, compared to 6.86% in the year-ago period and 5.56% in the fourth quarter of 2009. The year-over-year improvement in churn is primarily due to the inclusion of Virgin Mobile customers who have lower churn on average than that of Boost Mobile customers. Sequentially, prepaid churn increased as a result of deactivations of Boost Mobile customers at the expiration of holiday retention offers.
Wireless Service Revenues
* Retail wireless service revenues of $6.4 billion for the quarter increased by less than 1% compared to the first quarter of 2009 and increased approximately 3% compared to the fourth quarter of 2009. The year-over-year and sequential improvement is primarily due to an increased number of prepaid subscribers as a result of the acquisition of Virgin Mobile and success of the Boost Monthly Unlimited offering.
* Wireless post-paid ARPU of approximately $55 for the quarter declined year-over-year from $56, but remained flat sequentially. The year-over-year decline is due to lower overage revenues as a result of greater popularity of fixed-rate bundle plans, partially offset by reductions in credits issued to customers resulting from an improved customer experience.
* Prepaid ARPU in the quarter was approximately $27 compared to $31 in the year-ago period and in the fourth quarter of 2009. The year-over-year and sequential declines are due to the inclusion of Virgin Mobile and Assurance Wireless customers who have lower ARPU on average than that of Boost Mobile customers.
* Wholesale, affiliate and other revenues were down $113 million compared to the year-ago period and $53 million sequentially. Service revenues from Virgin Mobile and iPCS, Inc., subsequent to the fourth quarter 2009 acquisitions, are reported as wireless retail service revenues, resulting in a decline in wholesale, affiliate and other revenues. The year-over-year decline is also due to losses of two large telecom carrier customers.
Wireless Operating Expenses and Adjusted OIBDA*
* Total wireless operating expenses were $7.4 billion in the first quarter, compared to $7.6 billion in the year-ago period and $7.5 billion in the fourth quarter of 2009.
* Wireless equipment subsidy in the first quarter was approximately $1 billion (equipment revenue of $567 million, less cost of products of $1.57 billion) as compared to approximately $840 million in the year-ago period and approximately $960 million in the fourth quarter of 2009. The year-over-year increase in subsidy is a combination of a greater mix of post-paid handsets sold with higher functionality, and an increase in the number of prepaid handsets sold as a result of the national Boost Monthly Unlimited offering and the acquisition of Virgin Mobile. The sequential increase in subsidy is primarily due to the inclusion of Virgin Mobile for a full quarter, offset by favorability resulting from reduced post-paid device sales.
* Wireless SG&A expenses increased less than 1% year-over-year, and remained relatively flat sequentially. Year-over-year higher sales expenses, as a result of higher gross additions, were partially offset by lower labor expenses.
* Adjusted OIBDA* of $1.2 billion in the first quarter of 2010 compares to $1.4 billion in the first quarter of 2009 and $1.2 billion in the fourth quarter of 2009. The year-over-year decline in Adjusted OIBDA* was primarily due to higher subsidy costs. Sequentially, Adjusted OIBDA* improved $44 million, primarily as a result of higher prepaid service revenue partially offset by higher prepaid subsidy.
Wireless Capital Spending
Wireless capital expenditures were $311 million in the first quarter of 2010, compared to $197 million spent in the first quarter of 2009 and $427 million in the fourth quarter of 2009. During the quarter, the company invested in coverage and capacity to maintain a competitive position in mobile broadband and overall network quality. At the end of the first quarter of 2010, Sprint’s networks continue to operate at best-ever levels.