Sprint Nextel Corp. (S - News) today reported a net loss of $863 million and a diluted net loss of $.29 per share for the first quarter of 2012. This compares to a net loss of $439 million and a diluted net loss of $.15 per share in the first quarter of 2011 and includes depreciation of approximately $543 million, or negative $.18 cents per share, primarily due to accelerated depreciation related to the expected shut down of the Nextel platform and a one-time net benefit of $170 million, or approximately $.06 per share, related to the spectrum hosting contract termination with LightSquared. The company had wireless service revenues of $7.2 billion during the quarter, an increase of more than 7 percent year-over-year, driven primarily by Sprint platform postpaid ARPU growth of $4.03 – the largest year-over-year increase on record for the U.S. wireless industry. The company reported total net subscriber additions of nearly 1.1 million during the first quarter, bringing total ending subscribers to a record 56 million.
The total number of customers on the Sprint platform grew almost 4 percent sequentially including 263,000 postpaid net subscriber additions, 870,000 prepaid net subscriber additions and 785,000 wholesale and affiliate net subscriber additions. Sprint recorded more than 1.5 million iPhone® sales in the first quarter with 44 percent going to new customers. Prepaid churn on the Sprint platform improved to 2.92 percent, the tenth consecutive quarter of year-over-year improvement.
“The continuing revenue growth on the Sprint platform, which represents the future of our company, driven by record ARPU improvement and strong net subscriber growth, contributed to our Adjusted OIBDA* performance of $1.2 billion,” said Dan Hesse, Sprint CEO. “The value and simplicity of our unlimited data, talk and text plans, combined with an unsurpassed customer experience and our increasingly robust device portfolio make for a strong combination.”
NETWORK VISION HIGHLIGHTS
Sprint’s Network Vision initiative remains on track. To date, the company has approximately 600 sites on air, which are meeting speed and coverage enhancement targets. Zoning requirements are completed for approximately 9,700 sites and leasing agreements have been completed for close to 7,700 sites. More than 3,200 sites are in notice to proceed status and work has started on approximately 3,000. Sprint expects to bring approximately 12,000 sites on air by the end of 2012 and to complete the majority of its Network Vision roll-out in 2013. The company has also taken approximately 1,300 iDEN sites off air to date and expects to shut down a total of 9,600 before the end of the third quarter.
In addition, as part of Network Vision, Sprint continues to expect to launch 4G LTE in six major cities by mid-year 2012 including Houston, Dallas, San Antonio, Atlanta, Kansas City and Baltimore. This week, Sprint launched its first two 4G LTE smartphones – Galaxy Nexus™ and LG Viper™ 4G LTE with eco-friendly features – and earlier this month also announced the upcoming launch of HTC EVO 4G LTE™.
“We continue to hit our key internal milestones and make significant progress on Network Vision,” said Hesse.
CUSTOMER EXPERIENCE AND BRAND HIGHLIGHTS
During the first quarter, Sprint recorded its lowest level of calls to customer care per postpaid subscriber on record, consistent with more third-party recognition of Sprint’s customer experience. Sprint was ranked by J.D. Power and Associates highest among full-service providers in its 2012 Wireless Purchase Experience Study, Volume 1. Boost Mobile was ranked highest among non-contract providers in the same study and Virgin Mobile USA received the highest ranking in the J.D. Power and Associates 2012 Wireless Customer Care Non-Contract Study – Volume 1, with Boost placing second. This month, Sprint Wholesale collected four 2012 Domestic Best-In-Class Awards from Atlantic-ACM in the categories of Network, Provisioning, Customer Service and Sales Representatives. Sprint also received the ATLANTIC ACM Best-in-Class Network Award for Global Wholesale Excellence earlier this year and Frost & Sullivan identified Sprint as an excellent example of an end-to-end mobile solution provider for the small business sector.
Sprint also launched several innovative products and services in addition to its 4G LTE devices. Sprint introduced its first tablet for under $100 with a two year agreement, ZTE Optik™ as well as ZTE Fury™, a family-friendly Android-powered device. Boost Mobile began offering LG Rumor Reflex™ – the fifth device from Sprint with eco-friendly attributes and the second from Boost. Additionally, the company introduced Sprint Complete Collaboration, the most comprehensive hosted and fully managed unified communications bundle available for businesses and launched additional Sprint Biz 360 solutions, phone and applications for small businesses. Sprint also created New Ventures, a new organization focused on delivering new business models that leverage open platforms to drive revenue and overall customer satisfaction for the global marketplace.
During the first quarter, Sprint raised additional financing of $2 billion to help fund the Network Vision deployment, debt maturities and working capital requirements over the next few years. This followed financing of $4 billion raised in the fourth quarter of 2011. Sprint’s next scheduled debt maturities include $300 million due in May 2013 and $1.5 billion due in October 2013. As of March 31, 2012, the company’s total liquidity was approximately $8.8 billion, consisting of $7.6 billion in cash, cash equivalents and short-term investments and $1.2 billion of undrawn borrowing capacity available under its revolving bank credit facility. Sprint generated $978 million of net cash provided by operating activities and $138 million of Free Cash Flow* in the quarter.
The company served more than 56 million customers at the end of the first quarter of 2012. This includes 32.8 million postpaid subscribers (29 million on the Sprint platform and 3.8 million on the Nextel platform), 15.3 million prepaid subscribers (13.7 million on the Sprint platform and 1.6 million on the Nextel platform) and approximately 8 million wholesale and affiliate subscribers, all of whom utilize the Sprint platform.
The Sprint platform added 263,000 net postpaid customers during the quarter. The Nextel platform lost 455,000 net postpaid customers in the quarter. Sprint platform postpaid net additions and Nextel platform postpaid net subscriber losses include 228,000 net subscribers who migrated from the Nextel platform to the Sprint platform.
The company added 489,000 net prepaid subscribers during the quarter, which includes net additions of 870,000 prepaid Sprint platform customers, offset by net losses of 381,000 prepaid Nextel platform customers. Sprint platform prepaid net additions and Nextel platform prepaid net losses include 137,000 net subscribers who migrated from the Nextel platform to the Sprint platform.
For the quarter, the company added net additions of 785,000 wholesale and affiliate subscribers (all of which are on the Sprint platform) as a result of growth in MVNOs reselling prepaid services.
The credit quality of Sprint’s end-of-period postpaid customers was approximately 82 percent prime, relatively flat as compared to the fourth quarter of 2011.
Wireless Operating Expenses
Total wireless net operating expenses were $8.3 billion in the first quarter, compared to $7.3 billion in the year-ago period and $8.4 billion in the fourth quarter of 2011.
Wireless equipment net subsidy in the first quarter was approximately $1.6 billion (equipment revenue of $735 million, less cost of products of $2.3 billion), compared to approximately $1.1 billion in the year-ago period and approximately $1.7 billion in the fourth quarter of 2011. The quarterly year-over-year increase in net subsidy is primarily due to the launch of the iPhone, which on average carries a higher subsidy rate per handset as compared to other handsets. The sequential decline in net subsidy is primarily due to a decline in postpaid handset sales typical for the first quarter following the fourth quarter holiday sales activity.
Wireless cost of service was flat sequentially, primarily due to lower 4G data costs, offset by higher Network Vision related expenses. Wireless cost of service increased approximately 12 percent year-over-year primarily due to higher 4G data costs, Network Vision related expenses, service and repair expenses and backhaul costs driven by higher data usage, partially offset by lower licenses and fees.
Wireless SG&A expenses increased approximately 2 percent year-over-year and declined by approximately 1 percent sequentially. Quarterly year-over-year SG&A expenses increased primarily due to higher bad debt and selling expenses, partially offset by lower marketing costs. Sales expenses increased year-over-year primarily due to iPhone point-of- sale discounts (subsidy) for devices directly sold by the manufacturer to indirect dealers in which Sprint does not take device title, as well as higher postpaid gross additions. The impact from the iPhone was partially offset by improvements in sales channel mix with a larger portion of activations coming from direct retail channels. Bad debt expense increased year-over-year by $60 million driven primarily by an increase in the agings of accounts receivable outstanding combined with a higher average write-off per account. Sequentially, SG&A expenses decreased primarily as a result of lower sales and bad debt expenses, partially offset by seasonally higher marketing expense. Sequentially, bad debt expense declined $50 million due to a seasonal improvement in the agings of accounts receivable outstanding.
Wireless depreciation and amortization expense increased $421 million year-over-year and $494 million sequentially primarily related to a reduction in estimated useful lives of certain assets. The year-over-year and sequential increase is primarily associated with accelerated depreciation on Nextel platform assets related to our decision to decommission that platform.