OVERLAND PARK, Kan. (BUSINESS WIRE), October 25, 2017 – Sprint Corporation (NYSE: S) today reported operating results for the second quarter of fiscal year 2017, including its highest share of postpaid phone gross additions in company history and its third consecutive quarter of net additions in both postpaid phones and prepaid with 279,000 and 95,000 net additions, respectively. The company also reported operating income of $601 million and its highest fiscal second quarter adjusted EBITDA* in 10 years at $2.7 billion.
Net cash provided by operating activities of $2 billion improved by $251 million year-over-year, bringing the year-to-date total to $3.2 billion, an improvement of $1 billion compared to a year ago. Adjusted free cash flow* was $420 million in the quarter, bringing the year-to-date total to more than $650 million. The company now expects adjusted free cash flow* for fiscal year 2017 to be around break-even.
“Sprint was able to deliver net additions in both its postpaid phone and prepaid business for the third consecutive quarter,” said Sprint CEO Marcelo Claure. “I’m even more proud that the team was able to deliver this customer growth while continuing to attack the cost structure, improve the network, and maintain positive adjusted free cash flow*.”
Highest Retail Phone Net Additions in More Than Two Years
Sprint’s execution in both its postpaid and prepaid business resulted in the highest retail phone net additions in more than two years. The company continued to add postpaid phone customers with 279,000 net additions in the quarter, its ninth consecutive quarter of net additions. Postpaid phone gross additions grew 10 percent year-over-year, including 30 percent year-over-year growth in digital channels, and Sprint’s share of postpaid phone gross additions was the highest in company history.
The recent turnaround of the prepaid business resulted in 95,000 net additions in the quarter, its third consecutive quarter of net additions and a 544,000 improvement compared to the prior year. Prepaid gross additions grew year-over-year for the first time in two years, and prepaid churn improved year-over-year for the fifth consecutive quarter.
Total company net additions were 378,000 in the quarter, including postpaid net additions of 168,000, prepaid net additions of 95,000, and wholesale and affiliate net additions of 115,000.
Cost Reduction Program Contributes to Improved Profitability
Sprint continued to make progress on its multiyear plan to transform the way it does business and improve its cost structure. The company delivered nearly $400 million of combined year-over-year reductions in cost of services and SG&A expenses in the quarter, bringing the year-to-date total reduction to more than $750 million, primarily driven by changes to the device insurance program. Lower network and customer care expenses also contributed to the year-to-date reduction.
Sprint continues to expect $1.3 billion to $1.5 billion of year-over-year net reductions in cost of services and SG&A expenses in fiscal year 2017. Although the gross reductions are expected to be higher, the company plans to reinvest some of the savings into future growth initiatives.
The cost reduction program has contributed to improved profitability, as the company has now reported seven consecutive quarters of operating income and $158 million of net income year-to-date.
Operating income and net loss in the quarter were negatively impacted by $34 million of hurricane-related charges and future quarters may be impacted by additional charges.
The company also reported the following financial results:(Millions, except per share data) Fiscal 2Q17 Fiscal 2Q16 Change Net loss ($48) ($142) $94 Basic loss per share ($0.01) ($0.04) $0.03 Operating income $601 $622 ($21) Adjusted EBITDA* $2,729 $2,347 $382 Net cash provided by operating activities $1,959 $1,708 $251 Adjusted free cash flow* $420 $707 ($287)
Sprint Magic Box Contributes to Network Speed Improvements
Sprint is unlocking the value of the largest spectrum holdings in the U.S. by densifying and optimizing its network. The company has already deployed tens of thousands of small cell solutions, including the Sprint Magic Box, which recently won the 2017 Mobile Breakthrough Award for Small Cell Technology Innovation of the Year. As the world’s first all-wireless small cell, Sprint Magic Box improves data coverage and increases download and upload speeds on average by 200 percent.1
Sprint’s extended network toolbox is improving the experience for customers across the country. Based on Ookla’s Speedtest Intelligence data, Sprint is the most improved network with national average download speeds up 33 percent year-over-year.2 And in more than 25 of 99 top markets, the company’s average download speeds increased anywhere from 40 percent to more than 100 percent, including Chicago, Los Angeles, Seattle, and Houston.3
Fiscal Year 2017 Outlook
- The company continues to expect adjusted EBITDA* of $10.8 billion to $11.2 billion.
- The company continues to expect operating income of $2.1 billion to $2.5 billion.
- The company continues to expect cash capital expenditures, excluding devices leased through indirect channels, of $3.5 billion to $4 billion.
- The company expects adjusted free cash flow* to be around break-even.
- Additional information about results, including a message from management, is available on the Investor Relations website at www.sprint.com/investors
(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 transfer of additional subscribers to Shentel.
(e) During the three-month period ended June 30, 2017, 2,000 Wi-Fi connections were adjusted from the postpaid subscriber base.
(f) Sprint is no longer reporting Lifeline subscribers due to recent regulatory changes resulting in tighter program restrictions. We have excluded them from our customer base for all periods presented, including our Assurance Wireless prepaid brand and subscribers through our wholesale MVNO’s.(g) In the quarter ended June 30, 2017, the Company enhanced subscriber reporting to better align certain early-life gross activations and deactivations. This enhancement had no impact to net additions, but did result in reporting lower gross additions and lower deactivations in the quarter. Without this enhancement, total postpaid churn in the quarter would have been 1.73 percent versus 1.65 percent. (h) During the three-month period ended September 30, 2017, the Prepaid Data Share platform It’s On was decommissioned as the Company continues to focus on higher value contribution offerings resulting in the reduction of 49,000 to prepaid end of period subscribers. Wireless Device Financing Summary (Unaudited) (Millions, except sales, connections, and leased devices in property, plant and equipment) Quarter To Date Year To Date 9/30/17 6/30/17 9/30/16 9/30/17 9/30/16 Postpaid activations (in thousands) 3,917 3,668 3,747 7,585 7,015 Postpaid activations financed 85 % 85 % 73 % 85 % 71 % Postpaid activations – operating leases 68 % 55 % 39 % 62 % 41 % Installment plans Installment sales financed $ 268 $ 553 $ 745 $ 821 $ 1,152 Installment billings $ 373 $ 368 $ 274 $ 741 $ 538 Installment receivables, net $ 1,583 $ 1,792 $ – $ 1,583 $ – Leasing revenue and depreciation Lease revenue – operating $ 966 $ 899 $ 811 $ 1,865 $ 1,566 Lease depreciation $