Sprint Reports Highest Retail Net Additions In Nearly Three Years And Raises Adjusted Free Cash Flow* Guidance With Fiscal 2017 Third Quarter Results

February 02, 2018
  • Postpaid net additions of 256,000, including 184,000 phone net additions
    • Tenth consecutive quarter of postpaid phone net additions
  • Prepaid net additions of 63,000 compared to net losses of 460,000 in the prior year
    • Fourth consecutive quarter of net additions and improved by 523,000 year-over-year
    • Prepaid churn improved year-over-year for the sixth consecutive quarter
  • Net income of $7.2 billion, operating income of $727 million, and adjusted EBITDA* of $2.7 billion
    • Net income includes approximately $7.1 billion of favorable impact from tax reform 
    • Eighth consecutive quarter of operating income
    • Highest fiscal third quarter adjusted EBITDA* in 11 years
  • Net cash provided by operating activities of $1.2 billion and adjusted free cash flow* of $397 million
    • Adjusted free cash flow* improved by more than $1 billion year-over-year
    • Raising fiscal year 2017 adjusted free cash flow* guidance from around break-even to a range of $500 million to $700 million
  • Sprint Next-Gen Network to drive further network improvements and provide path to 5G

Sprint Corporation (NYSE: S) today reported operating results for the third quarter of fiscal year 2017, including its highest retail net additions in nearly three years with postpaid net additions of 256,000 and prepaid net additions of 63,000. The company also reported its eighth consecutive quarter of operating income and the highest fiscal third quarter adjusted EBITDA* in 11 years.

Net cash provided by operating activities of $1.2 billion improved by more than $500 million year-over-year. Adjusted free cash flow* of $397 million improved by more than $1 billion year-over-year and the company is raising its fiscal year 2017 expectation from around break-even to a range of $500 million to $700 million.

“Sprint has now added postpaid phone customers for 10 consecutive quarters and added prepaid customers for four consecutive quarters,” said Sprint CEO Marcelo Claure. “This momentum, along with a continued focus on the cost structure, is driving improvements in profitability metrics and adjusted free cash flow*.”

Customer Growth Continues in Both Postpaid and Prepaid Businesses

Sprint’s execution in both its postpaid and prepaid businesses resulted in the highest retail net additions in nearly three years. Postpaid net additions of 256,000 in the quarter included 184,000 phone net additions, the tenth consecutive quarter of postpaid phone net additions.

Sprint’s prepaid business also continued to add customers with 63,000 net additions, its fourth consecutive quarter of net additions and a 523,000 improvement compared to the prior year. Prepaid churn improved year-over-year for the sixth consecutive quarter and prepaid gross additions grew year-over-year for the second consecutive quarter. The sustained improvement in prepaid customer trends has translated into better financial results, as prepaid wireless service revenue grew year-over-year for the first time in nearly three years.

More Progress on Cost Reduction Program

Sprint continued to make progress on its multi-year plan to improve its cost structure. Excluding approximately $100 million of hurricane-related and other non-recurring charges in the quarter, the company reported approximately $260 million of combined year-over-year reductions in cost of services and selling, general and administrative expenses, bringing the year-to-date total reduction to more than $1 billion. The year-to-date reductions were primarily driven by changes to the device insurance program, as well as lower network expenses.

Net income of $7.2 billion included $7.1 billion of non-cash benefit from tax reform, resulting from a re-measurement of our deferred tax assets and liabilities under provisions contained in the new tax law.

The company also reported the following financial results:

(Millions, except per share data)

Fiscal 3Q17

Fiscal 3Q16

Change

Net income (loss)

$7,162

($479)

$7,641

Basic income (loss) per share

$1.79

($0.12)

$1.91

Operating income

$727

$311

$416

Adjusted EBITDA*

$2,719

$2,450

$269

Net cash provided by operating activities

$1,166

$650

$516

Adjusted free cash flow*

$397

($646)

$1,043

Sprint Next-Gen Network to Drive Further Network Improvements and Provide Path to 5G

Sprint is unlocking the value of the largest mobile broadband spectrum holdings in the U.S. and its Next-Gen Network is designed to drive significant improvements to network performance and the customer experience by investing in four main areas.

  • Upgrade existing towers to leverage all three of the company’s spectrum bands – 800 MHz, 1.9 GHz and 2.5 GHz – for faster, more reliable service.
  • Build thousands of new cell sites to expand its coverage footprint and extend coverage to more popular customer destinations.
  • Add more small cells — including Sprint Magic Boxes, mini-macros and strand mounts to densify every major market and significantly boost capacity and data speeds – and leverage the recent strategic agreements with Altice and Cox. The company has already deployed more than 80,000 Sprint Magic Boxes in approximately 200 cities across the country and plans to deploy more than 1 million as part of its multi-year roadmap.
  • Deploy game-changing 64T64R Massive MIMO 2.5 GHz radios to increase capacity up to 10 times that of current LTE systems and increase data speeds for more customers in high-traffic locations. Massive MIMO, a key enabler for 5G, will allow the company to support both LTE and 5G NR (New Radio) modes simultaneously without additional tower climbs.

Sprint’s network has already seen significant improvements. According to Ookla Speedtest Intelligence data, Sprint was the most improved operator in 2017 with a 60 percent year-over-year increase in its national average download speed.1

Fiscal Year 2017 Outlook

  • The company is raising its expectation for operating income to $2.5 billion to $2.7 billion. Its previous expectation was $2.1 billion to $2.5 billion.
  • The company expects adjusted EBITDA* to be around the mid-point of its prior expectation of $10.8 billion to $11.2 billion.
  • The company expects cash capital expenditures, excluding devices leased through indirect channels, to be at the low end of its prior expectation of $3.5 billion to $4 billion.
  • The company is raising its expectation for adjusted free cash flow* to $500 million to $700 million.  Its previous expectation was around break-even.

Conference Call and Webcast

  • Date/Time: 8:30 a.m. (ET) Friday, Feb. 2, 2018
  • Call-in Information
    • U.S./Canada: 866-360-1063 (ID: 6374738)
    • International: 443-961-0242 (ID: 6374738)
  • Webcast available at www.sprint.com/investors
  • Additional information about results is available on our Investor Relations website

1 Average download speed increase based on Ookla’s analysis of Speedtest Intelligence data comparing December 2016 to December 2017 for all mobile results.

 

Wireless Operating Statistics (Unaudited)

         

 Quarter To Date 

   

 Year To Date 

 

12/31/17

9/30/17

12/31/16

 

12/31/17

12/31/16

Net additions (losses) (in thousands)

           

Postpaid 

256

168

405

 

385

929

Postpaid phone 

184

279

368

 

551

888

Prepaid (f)

63

95

(460)

 

193

(1,215)

Wholesale and affiliate(f)

66

115

619

 

246

2,051

Total wireless net additions

385

378

564

 

824

1,765

             

End of period connections (in thousands)

           

Postpaid (d) (e) 

31,942

31,686

31,694

 

31,942

31,694

Postpaid phone(d)

26,616

26,432

26,037

 

26,616

26,037

Prepaid(d) (f) (g) (h) (i)

8,997

8,765

8,493

 

8,997

8,493

Wholesale and affiliate (d) (f) (h)

13,642

13,576

13,084

 

13,642

13,084

Total end of period connections

54,581

54,027

53,271

 

54,581

53,271

             

Churn

           

Postpaid

1.80%

1.72%

1.67%

 

1.73%

1.58%

Postpaid phone

1.71%

1.59%

1.57%

 

1.60%

1.44%

Prepaid (h)

4.63%

4.83%

5.74%

 

4.68%

5.57%

             

Supplemental data – connected devices

           

End of period connections (in thousands)

           

Retail postpaid

2,259

2,158

1,960

 

2,259

1,960

Wholesale and affiliate

11,272

11,221

10,594

 

11,272

10,594

Total

13,531

13,379

12,554

 

13,531

12,554

             

ARPU(a)

           

Postpaid

$          45.13

$          46.00

$          49.70

 

$          46.14

$          50.59

Postpaid phone

$          51.26

$          52.34

$          57.12

 

$          52.50

$          58.11

Prepaid(h)

$          37.46

$          37.83

$          33.97

 

$          37.84

$          33.35

             

NON-GAAP RECONCILIATION – ABPA* AND ABPU* (Unaudited)

           

(Millions, except accounts, connections, ABPA*, and ABPU*)

             

Quarter To Date

 

 Year To Date 

 

12/31/17

9/30/17

12/31/16

 

12/31/17

12/31/16

ABPA*

           

Postpaid service revenue

$          4,297

$          4,363

$          4,686

 

$          13,126

$          14,184

Add: Installment plan and non-operating lease billings 

379

397

291

 

1,144

829

Add: Lease revenue – operating

1,047

966

887

 

2,912

2,453

Total for postpaid connections

$          5,723

$          5,726

$           5,864

 

$          17,182

$          17,466

             

Average postpaid accounts (in thousands)

11,193

11,277

11,413

 

11,261

11,368

Postpaid ABPA*(b)

$        170.39

$         169.25

$          171.28

 

$          169.53

$          170.71

               

Quarter To Date

 

 Year To Date 

 

12/31/17

9/30/17

12/31/16

 

12/31/17

12/31/16

Postpaid phone ABPU*

           

Postpaid phone service revenue

$            4,069

$          4,132

$          4,420

 

$          12,415

$          13,350

Add: Installment plan and non-operating lease billings 

335

358

261

 

1,025

752

Add: Lease revenue – operating

1,037

953

873

 

2,877

2,411

Total for postpaid phone connections

$            5,441

$          5,443

$          5,554

 

$          16,317

$          16,513

             

Postpaid average phone connections (in thousands)

26,461

26,312

25,795

 

26,275

25,528

Postpaid phone ABPU* (c)

$            68.54

$          68.95

$          71.77

 

$            69.00

$            71.87

             

(a)  ARPU is calculated by dividing service revenue by the sum of the monthly average number of connections in the applicable service category. Changes in average monthly service revenue reflect connections for either the postpaid or prepaid service category who change rate plans, the level of voice and data usage, the amount of service credits which are offered to connections, plus the net effect of average monthly revenue generated by new connections and deactivating connections.  Postpaid phone ARPU represents revenues related to our postpaid phone connections.

(b)  Postpaid ABPA* is calculated by dividing service revenue earned from connections plus billings from installment plans and non-operating leases, as well as, operating lease revenue by the sum of the monthly average number of accounts during the period. Installment plan billings represent the substantial majority of the total billings in the table above for all periods presented.

(c)  Postpaid phone ABPU* is calculated by dividing postpaid phone service revenue earned from postpaid phone connections plus billings from installment plans and non-operating leases, as well as, operating lease revenue by the sum of the monthly average number of postpaid phone connections during the period. Installment plan billings represent the substantial majority of the total billings in the table above for all periods presented.

(d)  As part of the Shentel transaction, 186,000 and 92,000 subscribers were transferred from postpaid and prepaid, respectively, to affiliates, of which 18,000 prepaid subscribers were subsequently excluded from our customer base as a result of the Lifeline regulatory change as noted in (f) below. An additional 270,000 of nTelos’ subscribers are now part of our affiliate relationship with Shentel and were reported in wholesale and affiliate subscribers beginning with the quarter ended June 30, 2016. In addition, during the three-month period ended June 30, 2017, 17,000 and 4,000 subscribers were transferred from postpaid and prepaid, respectively, to affiliates as a result of a the tran