Sprint Nextel Corp. (NYSE:S - News) today reported that during the first quarter of 2011, the company achieved its best total company wireless net subscriber additions in five years. The company added more than 1.1 million total wireless net subscribers driven by best ever prepaid net subscriber additions of 846,000 and net postpaid subscriber additions of 310,000 for the Sprint brand. Sprint achieved best ever postpaid churn of 1.81 percent and the lowest prepaid churn of 4.36 percent in over five years.
Sprint reported first quarter consolidated net operating revenues of approximately $8.3 billion, which is a 3 percent increase from the same quarter a year ago, and posted operating income of $259 million. The company also reported Adjusted OIBDA* of $1.5 billion, a net loss of $439 million and a diluted loss per share of 15 cents for the quarter. Sprint generated $178 million of Free Cash Flow* in the quarter. As of March 31, 2011, the company had approximately $4.0 billion in cash, cash equivalents and short-term investments after repayment of $1.65 billion of debt in the quarter. The company does not have any other debt maturities until March 2012.
“With net subscriber additions of 1.1 million, best ever postpaid churn and growing net operating revenues, Sprint maintained the momentum we had exiting 2010,” said Dan Hesse, Sprint CEO. “We’ve added two million wireless subscribers over the past two quarters. In spite of Verizon’s iPhone launch and aggressive competitive responses to it, our simple and unlimited plans, 4G leadership, strong customer service, and successful multi-brand strategy drove solid Sprint performance for the quarter.”
Third parties continue to praise Sprint’s achievements in customer service, wholesale and environmental sustainability. Sprint was named as a J.D. Power 2011 Customer Service Champion. Sprint was one of only 40 companies to earn this distinction as a company that delivers service excellence to U.S. customers – both within their respective industries and across all industries measured. Additionally, in April, Boost Mobile, one of Sprint’s prepaid brands, received the highest rating in the J.D. Power and Associates 2011 Wireless Non-Contract Customer Satisfaction Index (CSI) StudySM. Also this month, industry-leading research firm ATLANTIC-ACM awarded Sprint Global Wholesale Excellence awards for No. 1 in Brand and Voice Value, and U.S. Wholesale Excellence Awards for No. 1 in Brand, Provisioning, Network and Customer Service. Finally, Sprint was again the only U.S. wireless carrier to be named among the Environmental Protection Agency’s (EPA’s) national top 50 Green Power Partners list. Sprint’s wind-power purchase helped the company secure its No. 19 ranking on the EPA’s Fortune 500® green power partner list.
Sprint has launched or announced 22 4G devices – the largest 4G portfolio of any wireless carrier in the United States. During the first quarter of 2011, Sprint launched its third 4G phone, the HTC EVO™ Shift 4G, and the Overdrive™ Pro 3G/4G Mobile Hotspot by Sierra Wireless. In addition, Sprint announced the upcoming availability of two 4G tablets, the BlackBerry 4G PlayBook™ and HTC EVO View 4G™, as well as two more handsets – the HTC EVO™ 3D and the Nexus S™ 4G from Google™. Sprint currently offers 4G service in 71 markets in 28 states and customers have benefited from expansion of the 4G network footprint and capacity upgrades in many markets.
Sprint has also announced or launched several other additions to its innovative device line up. The award-winning Kyocera Echo™, the nation’s first dual-touchscreen Android™ smartphone was announced in February and launched earlier this month. The first Sprint device with Windows Phone 7, the HTC Arrive™, launched during the first quarter as did the LG Optimus V™, the latest Android phone carried by Virgin Mobile.
* Consolidated net operating revenues of $8.3 billion for the quarter were 3 percent higher than in the first quarter of 2010 and remained relatively flat as compared to the fourth quarter of 2010. The quarterly year-over-year improvement was primarily due to higher ARPU for postpaid and prepaid, growth in the number of prepaid subscribers and higher wireless equipment revenues, partially offset by net losses of postpaid subscribers and lower wireline revenues.
* Adjusted OIBDA* was $1.5 billion for the quarter, compared to almost $1.5 billion for the first quarter of 2010 and $1.3 billion for the fourth quarter of 2010. Year-over-year, Adjusted OIBDA* improved 2 percent as a result of an increase in wireless service revenues, primarily due to higher postpaid and prepaid ARPU, partially offset by higher subsidy costs from a greater mix of smartphone sales, which on average carry a higher subsidy rate per handset. Sequentially, Adjusted OIBDA* improved 15 percent primarily as a result of higher postpaid and prepaid ARPU and reduced subsidy costs resulting from a decline in postpaid handset sales.
* Capital expenditures(2), excluding capitalized interest of $99 million, were $555 million in the quarter, compared to $419 million in the first quarter of 2010 and $608 million in the fourth quarter of 2010. Wireless capital expenditures were $449 million in the first quarter of 2011, compared to $311 million in the first quarter of 2010 and $473 million in the fourth quarter of 2010. During the quarter, the company invested primarily in data capacity to maintain a competitive position in data service and overall network quality. Wireline capital expenditures were $53 million in the first quarter of 2011, compared to $56 million in the first quarter of 2010 and $67 million in the fourth quarter of 2010.
* Free Cash Flow* was $178 million for the quarter, compared to $506 million for the first quarter of 2010 and $913 million for the fourth quarter of 2010. The quarterly year-over-year decline was due to a $100 million pension contribution and changes in working capital. Sequentially, quarterly Free Cash Flow* decreased as a result of a one-time federal tax stimulus refund of approximately $153 million received in the fourth quarter of 2010, approximately $150 million in higher cash interest payments, which is typical for the first quarter of each year, the pension contribution and working capital changes.
* The company served over 51 million customers at the end of the first quarter of 2011. This includes 33.0 million postpaid subscribers (27.4 million via the Sprint brand on CDMA, 5.3 million on iDEN, and 317,000 Nextel PowerSource users who utilize both networks), 13.1 million prepaid subscribers (9.9 million on CDMA and 3.2 million on iDEN) and approximately 4.9 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, Sprint added more than 1.1 million net wireless customers including net additions of 732,000 retail subscribers and net additions of 389,000 wholesale and affiliate subscribers.
* Sprint lost approximately 114,000 net postpaid subscribers during the quarter, a net improvement of 464,000, or 80 percent, compared to the first quarter of 2010.
* The CDMA network added approximately 253,000 net postpaid customers during the quarter, which includes net losses of 57,000 Nextel PowerSource customers. Excluding Nextel PowerSource customer losses, the Sprint brand added 310,000 postpaid wireless subscribers. The iDEN network lost 367,000 net postpaid customers in the quarter.
* The company added 846,000 net prepaid subscribers during the quarter, which includes net additions of 1.4 million prepaid CDMA customers, offset by net losses of 560,000 prepaid iDEN customers.
* The credit quality of Sprint’s end-of-period postpaid customers remained strong with more than 83 percent prime.
* For the quarter, Sprint reported its best ever postpaid churn of 1.81 percent, compared to 2.15 percent for the year-ago period and 1.86 percent for the fourth quarter of 2010. The company achieved its best quarterly year-over-year improvement in postpaid churn in five years primarily as a result of progress in brand health, handset offerings and overall customer perception. Sequentially, postpaid churn improved five basis points overcoming the historical first quarter seasonal increase.
* Approximately 9 percent of postpaid customers upgraded their handsets during the first quarter, reflecting strong demand for Sprint’s handset portfolio and continued strength in contract renewals.
* Prepaid churn for the first quarter of 2011 was 4.36 percent, compared to 5.74 percent for the year-ago period and 4.93 percent for the fourth quarter of 2010. The year-over-year and sequential improvements in prepaid churn were primarily a result of the predominance of Boost Monthly Unlimited subscribers on CDMA and Assurance WirelessSM customers, who on average have lower churn than that of Virgin Mobile customers. Prepaid churn also benefited from improvement in churn for Virgin Mobile customers both year-over-year and sequentially.
Wireless Service Revenues
* Wireless service revenues of $6.6 billion for the quarter represent an increase of approximately 3 percent compared to the first quarter of 2010 and the fourth quarter of 2010. The year-over-year improvement is primarily due to higher postpaid and prepaid ARPU, an increased number of prepaid subscribers as a result of the Boost Monthly Unlimited offering, additional market launches of Assurance WirelessSM and the re-launch of the Virgin Mobile brand, partially offset by net losses of postpaid subscribers since the first quarter 2010. Sequentially, wireless service revenues increased primarily as a result of higher postpaid and prepaid ARPU and growth in prepaid net subscribers.
* Wireless postpaid ARPU increased year-over-year and sequentially from $55 to $56. Year-over-year, ARPU benefited from higher monthly recurring revenues as a result of premium data add-on charges for smartphones and the greater popularity of fixed-rate bundle plans, partially offset by lower overage, casual data and text revenues. Sequentially, ARPU increased primarily as a result of growth in premium data add-on revenues.
* Prepaid ARPU for the quarter was approximately $28, compared to $27 in the year-ago period and $28 in the fourth quarter of 2010. The year-over-year improvement primarily resulted from higher ARPU among Boost Mobile customers.
* Wholesale, affiliate and other revenues were up $20 million, compared to the year-ago period, and increased $7 million sequentially. Service revenues from wholesale, affiliate and other revenues improved year-over-year and sequentially primarily as a result of growth in wholesale revenues from our 3G MVNO relationships.
Wireless Operating Expenses and Adjusted OIBDA*
* Total wireless operating expenses were $7.3 billion in the first quarter, compared to $7.4 billion in the year-ago period and $7.6 billion in the fourth quarter of 2010.
* Wireless equipment subsidy in the first quarter was approximately $1.1 billion (equipment revenue of $695 million, less cost of products of $1.8 billion), compared to approximately $1.0 billion in the year-ago period and almost $1.2 billion in the fourth quarter of 2010. The year-over-year increase in subsidy is associated with both postpaid and prepaid handset sales. Within postpaid, the increase in subsidy is due to a greater mix of smartphones, which on average carry a higher subsidy rate per handset. Within prepaid, the increase is primarily due to higher handset sales volume as a result of the company’s multi-brand strategy. Sequentially, subsidy decreased primarily as a result of lower postpaid subscriber gross additions and upgrades, partially offset by higher prepaid subsidy driven by the popularity of Android devices on the Virgin Mobile and Boost Mobile brands, which on average carry a higher subsidy rate per handset.
* Wireless SG&A expenses increased over 1 percent year-over-year but remained relatively flat sequentially. Year-over-year, SG&A expenses increased primarily due to higher costs related to subscriber gross additions and upgrades, partially offset by improvement in customer care and bad debt expenses.
* Wireless depreciation and amortization expense decreased $397 million year-over-year primarily due to the absence of amortization for customer relationship intangible assets related to the 2005 acquisition of Nextel, which became fully amortized in 2010 as well as the company’s annual depreciable life study reflecting a reduction in the replacement rate of capital additions.
* Wireless Adjusted OIBDA* of almost $1.3 billion in the first quarter of 2011 compares to $1.2 billion in the first quarter of 2010 and $1.0 billion in the fourth quarter of 2010. The year-over-year improvement in Adjusted OIBDA* was primarily due to higher prepaid service revenues, partially offset by higher subsidy. Sequentially, Adjusted OIBDA* improved primarily as a result of higher postpaid and prepaid service revenues and lower subsidy.