Clearwire Corporation (Nasdaq:CLWR), a leading provider of 4G wireless broadband services in the U.S., today reported its financial and operating results for third quarter 2011.
"Our record third quarter results demonstrate that our efforts to optimize performance are succeeding," said Erik Prusch, President and CEO of Clearwire. "We believe the growth of our subscriber base and improvements in our cost structure resulted in significant Adjusted EBITDA improvement in the third quarter, and support the merits of our business model. Additionally, the continued growth in network usage by our subscribers highlights the rapidly increasing demand for mobile broadband data that Clearwire is best-positioned to deliver.
"Today Clearwire is the only operational 4G wholesale business combining an all-IP network, substantial spectrum resources, and a technology roadmap to serve the growing demand for mobile broadband. We believe Clearwire's deep spectrum resources are capable of meeting the urban demand that will likely strain the lower-capacity LTE deployments planned by other wireless operators. Our common global technology roadmap, aligned with members of the Global TDD-LTE Initiative (GTI), including China Mobile, the largest wireless carrier in the world, should position us to benefit from the significant economies of scale of a converged LTE ecosystem. We look forward to opportunities to work with our current wholesale partners, and other wireless carriers, to serve this growing market."
Clearwire ended third quarter 2011 with approximately 9.54 million total subscribers, up 240% from 2.81 million subscribers in third quarter 2010. The subscriber base consists of 1.32 million retail subscribers and 8.22 million wholesale subscribers. During third quarter 2011, Clearwire added 1.89 million total net new subscribers, comprised of 35 thousand retail and 1.86 million wholesale net new subscribers. Clearwire's wholesale subscribers consist primarily of Sprint 3G/4G smartphone customers.
Third quarter 2011 aggregate network usage by wholesale customers increased 34% compared to second quarter 2011, driven primarily by growth in aggregate smartphone usage, which increased 43% over the same period.
Third quarter 2011 revenue was $332.2 million, a 134% increase over third quarter 2010 revenue of $142.2 million. Third quarter 2011 retail revenue and other revenue was $195.0 million, a year over year increase of 55% from $125.6 million in third quarter 2010. Third quarter 2011 retail average revenue per user (ARPU) was $47.05 up from $43.10 in third quarter 2010. Wholesale revenue in third quarter 2011 was $137.2 million, a year over year increase of 730% from $16.5 million in third quarter 2010. Third quarter 2011 wholesale ARPU was $6.20, up from $4.46 in third quarter 2010.
Retail cost per gross addition (CPGA) was $288 in the third quarter 2011 compared to $313 in second quarter 2011. Retail churn was 4.2% in third quarter 2011, up from 3.9% in second quarter 2011. Wholesale churn was 1.5% in third quarter 2011, up from second quarter 2011 wholesale churn of 1.3%.
Adjusted EBITDA in third quarter 2011 was a loss of $46.4 million, representing a sequential improvement of $62.1 million when compared to second quarter 2011 pro forma Adjusted EBITDA loss of $108.5 million. When compared to second quarter 2011 actual Adjusted EBITDA loss of $79.6 million, third quarter 2011 Adjusted EBITDA improved by $33.2 million.
Third quarter 2011 reported net loss from continuing operations attributable to Clearwire was $83.5 million, or $0.34 per basic share. Including the effects of discontinued operations, third quarter 2011 reported net loss attributable to Clearwire was $84.8 million, or $0.35 per basic share.
At the end of third quarter 2011, Clearwire operated networks in the U.S. covering areas where approximately 135 million people reside, including approximately 133 million people in 4G markets in the U.S.
Clearwire now expects to exceed its previous guidance of 10 million subscribers by the end of 2011, with most of the new subscribers coming from its wholesale business. Before any impact of an LTE deployment, the company now expects capital expenditures in 2011 to be less than $300 million, approximately $100 million lower than previous guidance.
New CLEAR Pricing
This week, Clearwire launched a family of new, user-friendly service plans for our new customers in order to simplify our CLEAR retail product offerings and focus on our core 4G network. All of the new CLEAR 4G internet plans now feature no long-term contracts and unlimited* Internet usage following successful retail trials in certain markets this summer. In addition, there are no credit checks, consumers and businesses choose from the same plans, and in most cases, the CLEAR service comes with a 15-day Risk-Free Satisfaction Guarantee.
The new flexible service plans allow customers to get CLEAR for 2 hours, one day, one week or on a monthly recurring basis. Monthly service prices start at $50 (plus tax) for a 4G Mobile or 4G Home plan. Device prices for new customers start at $39.99 and device leases will no longer be available.
Results of Continuing Operations
Cost of goods and services and network costs (COGS) for third quarter 2011 decreased 35% to $282.5 million compared to $433.4 million for second quarter 2011. These amounts include non-cash charges for network equipment reserves and other write-downs of $214.6 million and $38.7 million in the second and third quarters of 2011, respectively, and non-cash network related rents of $38.4 million and $65.2 million in the second and third quarters of 2011, respectively. The sequential increase in non-cash network related rents in third quarter 2011 was primarily due to a higher provision for unused tower-related leases and other network agreements. Excluding non-cash expenses, COGS decreased 1.3% sequentially reflecting a full quarter's benefit of outsourcing efficiencies.
Selling, general and administrative (SG&A) expense for the third quarter 2011 decreased 1% to $176.5 million compared to $178.2 million for the second quarter 2011. The decrease is primarily attributable to lower general and administrative expenses resulting from workforce reductions and outsourcing arrangements, partially offset by higher non-cash stock compensation expense.
Third quarter 2011 capital expenditures (capex) declined to $17 million from $56 million in second quarter 2011 primarily due to favorable settlements on prior capex purchases. The company ended the third quarter 2011 with cash and investments of approximately $711 million invested primarily in U.S. Treasury securities. In October 2011 Clearwire received cash payments totaling $110.1 million for the third installment of the pre-payment and take-or-pay commitment for 2011 in accordance with the Sprint wholesale agreements.