Sprint Reports Results for Fourth Fiscal Quarter of 2014

May 05, 2015
Operating Income of $318 million and Adjusted EBITDA* of $1.7 billion 1.2 million Sprint platform net additions compared to net losses of 383,000 in the prior year quarter Postpaid net additions of 211,000 compared to net losses of 231,000 in the prior year quarter Postpaid phone losses of 201,000 improved sequentially for the fourth consecutive quarter and improved by nearly 500,000 year-over-year Prepaid net additions of 546,000 led the industry for second consecutive quarter and compared to net losses of 364,000 in the prior year quarter Wholesale net additions of 492,000 increased from 212,000 in the prior year quarter Postpaid net port positive for the quarter - first time in nearly three years Sprint platform postpaid churn of 1.84 percent improved 46 basis points sequentially from 2.30 percent last quarter Expanded company-owned distribution by opening 1,435 co-branded Sprint-RadioShack stores Launched industry-first Sprint Direct 2 You service 4G LTE coverage now reaches nearly 280 million people equaling 87 percent of U.S. population

OVERLAND PARK, Kan. (BUSINESS WIRE), May 05, 2015 – Sprint Corporation (NYSE:S) today reported operating results for the fourth fiscal quarter of 2014, including 1.2 million Sprint platform net additions, the highest number in nearly three years. The company recorded significantly better postpaid churn of 1.84 percent, and for the fourth consecutive quarter, reduced postpaid phone losses. In addition, the company reported operating income of $318 million and Adjusted EBITDA* of $1.7 billion.

“I am proud of the team for successfully executing the first phase of our strategy to stop the decline in customers. We are now one quarter into the second phase, focusing on attracting more quality customers, retaining our customers through a better customer experience and continuously improving the network,” said Sprint CEO Marcelo Claure. “As a result, Sprint platform net additions were the highest in nearly three years, postpaid churn dropped by 46 basis points sequentially, and the network received more awards in major markets, all of which will position the company for profitable growth.”

1.2 Million Sprint Platform Net Additions

  • Sprint platform net additions of 1.2 million compared to 967,000 in the prior quarter and net losses of 383,000 in the prior year quarter. The year-over-year improvement was mostly driven by growth in the prepaid business and fewer postpaid phone customer losses.
  • Postpaid net additions of 211,000 compared to 30,000 in the prior quarter and net losses of 231,000 in the prior year quarter. The 442,000 year-over-year improvement was due to both higher prime credit quality gross additions and lower churn.
    • Net port positive for the first time in nearly three years.
    • Postpaid phone losses of 201,000 compared to losses of 205,000 in the prior quarter and 693,000 in the prior year quarter. The 492,000 year-over-year improvement was driven by lower churn and higher prime credit quality gross additions.
    • Postpaid tablet net additions of 349,000 compared to 189,000 in the prior quarter and 516,000 in the prior year quarter.
  • Prepaid net additions of 546,000 led the industry for the second consecutive quarter and compared to 410,000 in the prior quarter and net losses of 364,000 in the prior year quarter. The 910,000 year-over-year improvement was mostly due to growth in the Boost Mobile brand.
  • Wholesale net additions of 492,000 compared to 527,000 in the prior quarter and 212,000 in the prior year quarter. The year-over-year growth was mostly driven by connected devices.

Solid Progress on Customer Retention Efforts

Sprint has focused on reducing postpaid churn by increasing credit standards, embracing customer demand to upgrade to the latest devices and continuing to improve the network experience. The company has also placed greater emphasis on Net Promoter Score (NPS), a measure of customer loyalty, by establishing a chief experience officer dedicated to improving this metric and by linking NPS improvement to every employee’s compensation. These actions, among others, have resulted in improvement in several customer retention metrics during the quarter.

  • Sprint platform postpaid churn of 1.84 percent improved 46 basis points from 2.30 percent last quarter, the best sequential improvement in nearly seven years.
  • Best sequential improvement in Sprint platform postpaid voluntary churn in nearly 11 years.
  • NPS improved from a negative score in mid-2014 to the highest level in nearly two years in March.

Enhancing the Customer Experience

Last month Sprint introduced several new innovative programs and features to further enhance the customer experience.

  • Sprint Direct 2 You is an industry-first program that is expected to transform the mobile phone buying experience by taking the retail store experience to the customer. With this personalized white glove service, a Sprint-trained expert will take a mobile device to a customer's location, set it up and transfer all of their content from their old device.
  • Free International Value Roaming when added to a domestic service plan gives customers the ability to travel to major areas in Latin America, Europe and Japan and roam with up to 2G speeds at no additional charge. Additionally, they can send unlimited text messages for no extra charge and call anywhere in the world from these areas for 20 cents per minute. More international locations are expected to be added to the service over time.
  • Free Wi-Fi Calling for iPhone® dramatically expands coverage and connectivity options for customers with service on iPhone 6, iPhone 6 Plus, iPhone 5c and iPhone 5s. Including the rich portfolio of Wi-Fi calling Android devices, Sprint now has 27 total devices capable of experiencing the benefits of Wi-Fi calling.

Continuing to Attract Quality Customers

Sprint is not only focused on attracting more customers but also better quality customers. With innovative offerings such as the Cut Your Bill in Half event and the industry’s only device leasing program, the company has seen improvement in customer acquisition on the Sprint platform.

  • Postpaid gross additions grew 11 percent year-over-year.
  • Postpaid phone gross additions with prime credit quality grew 65 percent year-over-year.
  • Prepaid gross additions were highest on record, growing 41 percent year-over-year.

Expanding Distribution

Sprint recently doubled its company-owned retail footprint by opening 1,435 Sprint-RadioShack co-branded stores and expects to have the “store-within-a-store” retail model fully operationalized over the next couple of quarters, providing a rapid and cost-effective expansion of the company’s distribution. The company will also continue to seek innovative ways, such as Sprint Direct 2 You, to further expand Sprint-branded distribution and achieve a more competitive position within the industry.

Quarterly Financial Results

  • Net operating revenues of $8.3 billion were down seven percent year-over-year, as lower wireless service revenues mostly driven by customer shifts to rate plans associated with device financing options were partially offset by higher equipment revenue.
  • Consolidated Adjusted EBITDA* of $1.7 billion declined five percent from the prior year period, as lower service revenues were partially offset by lower net subsidy expenses related to the introduction of device financing options, including leasing for which no cost of products expense is recorded at the point of sale, and lower cost of services expense due to the completion of the 3G and voice network replacement.
  • Operating income of $318 million was down from $420 million in the year-ago quarter, primarily due to higher depreciation expense.
  • Net loss of $224 million, or $.06 per share, compared to a net loss of $151 million, or $.04 per share, in the year-ago period, as lower operating income was partially offset by lower income tax expense.
  • Total liquidity was $7.5 billion at the end of the quarter, including $4.2 billion of cash, cash equivalents and short-term investments and $3.3 billion of undrawn borrowing capacity under the revolving bank credit facility and service receivables facility. The company also currently has $1.4 billion of availability under vendor financing agreements that can be utilized toward the purchase of 2.5 GHz network equipment. Additionally, in April Sprint amended the service receivables facility and increased its size from $1.3 billion to $3.3 billion by including equipment receivables.

Network Performance #GettingBetterEveryDay

Sprint is focused on leveraging its spectrum portfolio to provide a network that delivers the consistent reliability, capacity and speed that customers demand. During the quarter, Sprint continued to build out 4G LTE on the 800 MHz and 2.5 GHz spectrum and total LTE coverage now reaches nearly 280 million people.

Independent mobile analytics firm RootMetrics® acknowledged the company’s significant network improvements in their second half 2014 Mobile Network Performance Review Report. Since that time, Sprint has been awarded a total of 104 first place (outright or shared) RootScore Awards for overall, reliability, speed, data, call, or text network performance in the 77 markets measured to date in the first half of 2015, including these notable achievements.

City   Category   2H14 Ranking   1H15 Ranking Pittsburgh, PA   Reliability & Call Performance   3rd, Shared 2nd   Shared 1st San Antonio, TX   Reliability & Call Performance   Shared 2nd, Shared 1st   Shared 1st St. Louis, MO   Reliability & Call Performance   Shared 3rd, Shared 1st   Shared 1st Jacksonville, FL   Reliability & Call Performance   Shared 3rd, Shared 1st   Shared 1st Miami, FL   Call Performance   3rd   Shared 1st Las Vegas, NV   Overall Performance   4th   Shared 1st Denver, CO   Speed   Shared 3rd   Shared 1st Salt Lake City, UT   Speed   Shared 3rd   Shared 1st Dayton, OH   Speed   4th  

1st

Atlanta, GA   Text Performance   3rd   Shared 1st

Disclaimer: Rankings based on RootMetrics 2nd Half 2014 Mobile Network Performance Review Report, published February 10, 2015 and 77 RootMetrics (January 1 – April 7, 2015) RootScore Reports for mobile performance as tested on best available plans and devices on four mobile networks across all available network types. The RootMetrics award is not an endorsement of Sprint. Your results may vary. See www.rootmetrics.com for details.

“In our first half 2015 RootMetrics studies, a selection of top population metro areas have seen improvements in Sprint’s network performance, including reliability, call and speed,” said Bill Moore, CEO of independent mobile analytics firm RootMetrics. “This is great news for Sprint customers in these areas who are benefiting from the investment Sprint has made in these markets.”

Outlook

  • The company expects fiscal 2015 Adjusted EBITDA* to be between $6.5 and $6.9 billion.
  • The company expects fiscal 2015 accrued capital expenditures to be approximately $5 billion, excluding the impact of leased devices sold through indirect channels.

Conference Call and Webcast

  • Date/Time: 8:30 a.m. ET Tuesday, May 5, 2015
  • Call-in Information
    • U.S./Canada: 866-360-1063 (ID: 21947319)
    • International: 706-679-4164 (ID: 21947319)
  • Webcast available via the Internet at www.sprint.com/investors
  • Additional information about results, including the “Quarterly Investor Update,” is available on our Investor Relations website

Financial results in the enclosed tables include a predecessor period related to the results of operations of Sprint Communications, Inc. (formerly Sprint Nextel) prior to the closing of the SoftBank Group Corp transaction on July 10, 2013, and the applicable successor periods. In order to present financial results in a way that offers investors a more meaningful comparison of the year-to-date results, we have combined the 2013 results of operations for the predecessor and successor periods. For additional information, please reference the section titled Financial Measures. Trended financial performance metrics on a combined basis can also be found at our Investor Relations website at www.sprint.com/investors.

                      Wireless Operating Statistics (Unaudited)                         Quarter To Date   Year To Date     3/31/15     12/31/14     3/31/14     3/31/15     3/31/14   Net Additions (Losses) (in thousands)                     Sprint platform:                     Postpaid (2)   211     30     (231 )   (212 )   (339 ) Prepaid (3)   546     410     (364 )   449     (444 ) Wholesale and affiliate   492     527     212     2,349     467   Total Sprint platform   1,249     967     (383 )   2,586     (316 ) Nextel platform:                     Postpaid (2)   –     –     –     –     (1,060 ) Prepaid (3)   –     –     –     –     (255 ) Total Nextel platform   –     –     –     –     (1,315 ) Transactions:                     Postpaid (2)   (41 )   (49 )   (102 )   (218 )   (583 ) Prepaid (3)   (18 )   (39 )   (51 )   (189 )   (230 ) Wholesale   22     13     69     75     107   Total transactions   (37 )   (75 )   (84 )   (332 )   (706 )                       Total retail postpaid net additions (losses)   170     (19 )   (333 )   (430 )   (1,982 ) Total retail prepaid net additions (losses)   528     371     (415 )   260     (929 ) Total wholesale and affiliate net additions   514     540     281     2,424     574   Total Wireless Net Additions (Losses)   1,212     892     (467 )   2,254     (2,337 )                       End of Period Connections (in thousands)                     Sprint platform:                     Postpaid (2)   29,706     29,495     29,918     29,706     29,918   Prepaid (3)   15,706     15,160     15,257     15,706     15,257   Wholesale and affiliate   10,725     10,233     8,376     10,725     8,376   Total Sprint platform   56,137     54,888     53,551     56,137     53,551   Nextel platform:                     Postpaid (2)   –     –     –     –     –   Prepaid (3)   –     –     –     –     –   Total Nextel platform   –     –     –     –     –   Transactions: (a)                     Postpaid (2)   368     409     586     368     586   Prepaid (3)   361     379     550     361     550   Wholesale   275     253     200     275     200   Total transactions   1,004     1,041     1,336     1,004     1,336                         Total retail postpaid end of period connections   30,074     29,904     30,504     30,074     30,504   Total retail prepaid end of period connections   16,067     15,539     15,807     16,067     15,807   Total wholesale and affiliate end of period connections   11,000     10,486     8,576     11,000     8,576   Total End of Period Connections   57,141     55,929     54,887     57,141     54,887                         Supplemental Data – Connected Devices                     End of Period Connections (in thousands)                     Retail postpaid   1,320     1,180     968     1,320     968   Wholesale and affiliate   5,832     5,175     3,882     5,832     3,882   Total   7,152     6,355     4,850     7,152     4,850                                               Churn                     Sprint platform:                     Postpaid   1.84 %   2.30 %   2.11 %   2.09 %   2.00 % Prepaid   3.84 %   3.94 %   4.33 %   3.99 %   4.04 % Nextel platform:                     Postpaid   –     –     –     –     33.90 % Prepaid   –     –     –     –     32.13 % Transactions: (a)                     Postpaid   3.87 %   4.09 %   5.48 %   4.21 %   7.05 % Prepaid   3.77 %   4.95 %   5.11 %   5.28 %   7.58 %                       Total retail postpaid churn   1.87 %   2.33 %   2.18 %   2.13 %   2.26 % Total retail prepaid churn   3.84 %   3.97 %   4.35 %   4.03 %   4.21 %                       Nextel Platform Connection Recaptures                     Connections (in thousands) (4):                     Postpaid   –     –     –     –     364   Prepaid   –     –     –     –     101   Rate (5):                     Postpaid   –     –     –     –     34 % Prepaid   –     –     –     –     39 %

(a) We acquired approximately 352,000 postpaid connections and 59,000 prepaid connections through the acquisition of assets from U.S. Cellular when the transaction closed on May 17, 2013. We acquired approximately 788,000 postpaid connections, 721,000 prepaid connections, 93,000 wholesale connections and transferred 29,000 Sprint wholesale connections that were originally recognized through our Clearwire MVNO arrangement to Transactions postpaid connections as a result of the Clearwire acquisition when th