Sprint Nextel Corp. today reported that during the second quarter of 2010, the company achieved its first total net wireless subscriber growth in three years and its best postpaid churn result ever.
Sprint announced second quarter consolidated net operating revenues of approximately $8.0 billion, a net loss of $760 million and a diluted loss per share of 25 cents, which includes a non-cash $302 million (10-cent-per-share charge) increase in valuation allowance on deferred tax assets resulting from net operating loss carryforwards generated during the second quarter, for a pro forma diluted loss per share of 15 cents. The company generated $709 million of Free Cash Flow* in the quarter, and maintained a strong liquidity position with approximately $4.3 billion in cash and cash equivalents at the end of the quarter after retiring all 2010 note maturities of $750 million in the quarter.
“Our intense focus for the past ten quarters on improving the customer experience, strengthening our brands, and generating cash are paying off,” said Dan Hesse, Sprint Nextel CEO. “With strong cash flow, stable OIBDA and widespread third-party recognition for the improvements we’re making in the customer experience, which in turn strengthens our brands, we feel we can confidently improve our subscriber forecasts for the second half of 2010 and deliver positive total net wireless subscriber additions for the remainder of the year.”
Evidence of the company’s momentum in customer satisfaction has come from a variety of sources. With accolades from American Customer Satisfaction Index, Gartner, Forrester, and Frost & Sullivan, Sprint’s significant improvements in customer service are being recognized.
Sprint gained a total of approximately 111,000 net subscribers in the quarter. Demand for smartphones like HTC EVO™ 4G and BlackBerry® Curve™ - combined with Sprint’s best ever postpaid churn of 1.85 percent - led to positive net postpaid subscriber growth of 136,000 on the CDMA network and 285,000 for the Sprint brand, and best ever year-over-year quarterly net postpaid subscriber loss improvement of 763,000. The company achieved its best year-over-year quarterly improvement in postpaid gross subscriber additions in more than five years.
“I also want to underscore the importance of the prepaid business. We re-launched the Virgin Mobile brand, introduced Common CentsSM Mobile in about 700 Walmart stores this quarter, and we are encouraged by the customer response to Assurance WirelessSM, our government-subsidized program for qualified customers who need reliable wireless service,” Hesse said.
As part of the re-launch of the Virgin Mobile brand to serve data-centric customers, Sprint introduced the brand’s first smartphone, BlackBerry® Curve™ 8530, and its first touchscreen handset, LG Rumor Touch. The Virgin Mobile brand will continue to focus on more sophisticated handsets to complement its Beyond Talk plans. Further enhancing the Virgin Mobile brand’s prepaid Broadband2GoSM product, Sprint introduced MiFi™ 2200, a USB device which allows customers to link up to 5 wireless devices.
The world's first 3G/4G Android™ phone, HTC EVO™ 4G, became available in June. Sprint's second 4G-capable handset, the Samsung Epic™ 4G, was recently announced as the only Galaxy S™ phone to offer 4G as well as a slide-out QWERTY keyboard. Sprint extended its green leadership in the wireless industry by introducing eco-friendly devices LG Remarq™ and Samsung Restore™. In addition, Samsung Seek™ debuted as a messaging device with first-of-its-kind reusable packaging. For push-to-talk customers, Sprint launched Motorola i1, a Nextel Direct Connect® Android™ smartphone.
Sprint launched 4G service in eight new markets during the quarter, including its hometown, Kansas City. Sprint 4G is now available in 43 markets serving approximately 51 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 and Washington, D.C.
* Consolidated net operating revenues of $8.0 billion for the quarter were approximately 1 percent lower than in the second quarter of 2009 and the first quarter of 2010. The year-over-year decline is primarily due to lower postpaid wireless service revenues and wireline revenues, partially offset by increases from fourth quarter 2009 acquisitions, prepaid Boost service revenues and total equipment revenues. The sequential decline is primarily due to lower postpaid wireless service revenues and wireline revenues.
* Adjusted OIBDA* was $1.5 billion for the quarter, compared to $1.8 billion for the second quarter of 2009 and $1.5 billion for the first quarter of 2010. The year-over-year decline in Adjusted OIBDA* was primarily due to lower postpaid wireless service and wireline revenues and higher subsidy costs resulting from improvement in retail subscriber gross additions, as well as a greater mix of postpaid smartphones sold, which on average carry a higher subsidy rate. Sequentially, Adjusted OIBDA* remained relatively flat as continued improvement in SG&A expenses offset the decline in net operating revenues.
* Capital expenditures were $437 million in the quarter, compared to $321 million in the second quarter of 2009 and $419 million in the first quarter of 2010. Wireless capital expenditures were $319 million in the second quarter of 2010, compared to $227 million in the second quarter of 2009 and $311 million in the first quarter of 2010. During the quarter, the company invested in coverage and data capacity to maintain a competitive position in mobile broadband and overall network quality. Wireline capital expenditures were $49 million in the second quarter of 2010, compared to $47 million in the second quarter of 2009 and $56 million in the first quarter of 2010.
* Free Cash Flow* was $709 million for the quarter, compared to $676 million for the second quarter of 2009 and $506 million for the first quarter of 2010. In June, the company repaid $750 million of floating rate notes, as scheduled. There are no additional note maturities during 2010.
* The company served 48.2 million customers at the end of the second quarter of 2010. This includes 33.2 million postpaid subscribers (26.2 million via the Sprint brand on CDMA, 6.4 million on iDEN, and 517,000 Power Source users who utilize both networks), 11.2 million prepaid subscribers (5.2 million on iDEN and 6.0 million on CDMA) and approximately 3.8 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, Sprint added a total of 111,000 net wireless customers consisting of net retail subscriber declines of approximately 55,000 and net additions of 166,000 wholesale and affiliate subscribers.
* Net postpaid subscriber losses of 228,000, improved year-over-year and sequentially as the company lost 763,000 fewer subscribers than in the second quarter of 2009 and lost 350,000 fewer subscribers than in the first quarter of 2010.
* The CDMA network added almost 136,000 postpaid customers while iDEN lost almost 364,000 customers.
* The company gained a net 173,000 prepaid subscribers, which includes net additions of 638,000 CDMA customers, offset by net losses of 465,000 iDEN customers.
* The credit quality of Sprint’s end-of-period postpaid customers remained strong year-over-year and sequentially at more than 84 percent prime.
* Approximately 9 percent of postpaid customers upgraded their handsets during the second quarter, resulting in continued strength in contract renewals.
* Best ever postpaid churn of 1.85 percent in the quarter, compared to 2.05 percent in the year-ago period and 2.15 percent in the first quarter of 2010. The year-over-year improvement in postpaid churn is primarily due to a better customer experience resulting in higher levels of customer satisfaction at every touch point. Sequentially, postpaid churn benefited from historical second quarter seasonality, along with better retention performance.
* Prepaid churn in the second quarter of 2010 was 5.61 percent, compared to 6.38 percent in the year-ago period and 5.74 percent in the first quarter of 2010. The year-over-year improvement in prepaid 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 improved as a result of the continued growth of Boost Monthly Unlimited subscribers on the CDMA network.
Wireless Service Revenues
* Retail wireless service revenues of $6.4 billion for the quarter increased by less than 1 percent, compared to the second quarter of 2009 and decreased by less than 1 percent compared to the first quarter of 2010. The year-over-year improvement is primarily due to an increased number of prepaid subscribers as a result of the success of the Boost Monthly Unlimited offering and the acquisition of Virgin Mobile, partially offset by losses of postpaid subscribers since the second quarter 2009. Sequentially, retail wireless service revenues declined as a result of fewer postpaid subscribers, partially offset by higher prepaid service revenue.
* Wireless postpaid 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, casual data and text 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 $28, compared to $34 in the year-ago period and $27 in the first quarter of 2010. The year-over-year decline is due to the inclusion of Virgin Mobile and Assurance Wireless customers who have lower ARPU on average than that of Boost Mobile customers. Sequentially, prepaid ARPU improved as a result of continued popularity of the Boost Monthly Unlimited offering on the CDMA network.
* Wholesale, affiliate and other revenues were down $90 million, compared to the year-ago period, and increased slightly 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 year-over-year. The year-over-year decline is also due to the loss of two large wholesale customers.
Wireless Operating Expenses and Adjusted OIBDA*
* Total wireless operating expenses were $7.3 billion in the second quarter, compared to $7.3 billion in the year-ago period and $7.4 billion in the first quarter of 2010.
* Wireless equipment subsidy in the second quarter was approximately $1.0 billion (equipment revenue of $566 million, less cost of products of $1.58 billion), compared to almost $850 million in the year-ago period and almost $1.0 billion in the first quarter of 2010. The year-over-year increase in subsidy is a combination of an increase in postpaid handsets sold with a greater mix of smartphones, which on average carry a higher subsidy rate, and an increase in the number of prepaid handsets sold primarily as a result of the acquisition of Virgin Mobile. Sequentially, the increase in postpaid subsidy is partially offset by lower prepaid subsidy primarily due to rate improvement as a result of greater mix of CDMA prepaid handsets sold.
* Wireless SG&A expenses remained relatively flat year-over-year and declined approximately 4 percent sequentially. Year-over-year, improvements in postpaid marketing and customer care expenses offset higher prepaid expenses as a result of the acquisition of Virgin Mobile. The sequential improvement is primarily due to reduced marketing program spend and customer care expenses.
* Adjusted OIBDA* of $1.2 billion in the second quarter of 2010 compares to $1.4 billion in the second quarter of 2009 and $1.2 billion in the first quarter of 2010. The year-over-year decline in Adjusted OIBDA* was primarily due to lower postpaid service revenues and higher subsidy costs, partially offset by higher prepaid service revenues.
Sprint Nextel expects to deliver positive total net wireless subscriber additions during the remainder of 2010 and fewer net postpaid subscriber losses in the second half of 2010, as compared to the first half of 2010. The company continues to expect full-year capital expenditures in 2010 to be up to $2 billion. In addition, the company expects to continue to generate positive Free Cash Flow during the remainder of 2010.