Sprint.com

April 25, 2012

Sprint Nextel Reports First Quarter 2012 Results

  • Best ever Sprint platform postpaid ARPU increase of $4.03, or 6.9 percent, year-over-year drives Sprint platform wireless service revenue growth of 16 percent year-over-year
  • Operating loss of $255 million; Adjusted OIBDA* of $1.2 billion, which includes $104 million in Network Vision related operating expense
  • 263,000 postpaid net additions on the Sprint platform in the quarter – eighth consecutive quarter of postpaid subscriber growth on the Sprint platform
  • Total company net additions of more than 1 million for the sixth consecutive quarter
  • Strong iPhone sales of more than 1.5 million – 44 percent to new customers
  • Network Vision deployment continues on track
    • Continue to expect six major cities to launch 4G LTE by mid-year
    • Continue to expect 12,000 sites on air by end of 2012
    • To date work has begun on 25 percent of planned 2012 sites; 5 percent are on air
    • Nearly 1,300 iDEN sites taken off air to date; expect 9,600 total by the end of the third quarter

The company’s first quarter 2012 earnings conference call will be held at 8 a.m. ET today. Participants may dial 800-938-1120 in the U.S. or Canada (706-634-7849 internationally) and provide the following ID: 68178739 or may listen via the Internet at www.sprint.com/investor.

OVERLAND PARK, Kan. (BUSINESS WIRE), April 25, 2012 - Sprint Nextel Corp. (NYSE: S) 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.

LIQUIDITY

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.

CONSOLIDATED RESULTS

TABLE NO. 1 Selected Consolidated Financial Data (Unaudited) (dollars in millions, except per share data)
      Quarter To Date    

Financial Data

    March 31,
2012
  March 31,
2011
 

%
?

               
Net operating revenues     $ 8,734     $ 8,313     5 %
Operating (loss) income     $ (255 )   $ 259     NM  
Adjusted OIBDA*     $ 1,213     $ 1,514     (20 ) %
Adjusted OIBDA margin*       15.2 %     19.9 %    
Net loss (1)     $ (863 )   $ (439 )   (97 ) %
Diluted net loss per common share (1)     $ (0.29 )   $ (0.15 )   (93 ) %
               
Capital expenditures (2)     $ 800     $ 555     44 %
Net cash provided by operating activities     $ 978     $ 919     6 %
Free Cash Flow*     $ 138     $ 178     (22 ) %
  • Consolidated net operating revenues of $8.7 billion for the quarter were 5 percent higher than in the first quarter of 2011 and nearly unchanged from the fourth quarter of 2011. The quarterly year-over-year improvement was primarily due to higher wireless service revenues, partially offset by a reduction in wireline revenue. Sequentially, higher wireless service revenues were offset by lower wireless equipment revenue and lower wireline revenue.
  • Operating loss was $255 million compared to operating income of $259 million for the first quarter of 2011 and an operating loss of $438 million for fourth quarter of 2011. The quarterly year-over-year and sequential impacts to operating loss were driven by items identified below in Adjusted OIBDA* coupled with a first quarter 2012 increase in depreciation expense resulting primarily from accelerated depreciation related to the expected decommissioning of the Nextel network and a one-time net gain associated with the termination of our spectrum hosting contract in the first quarter of 2012.
  • Adjusted OIBDA* was $1.2 billion for the quarter, compared to $1.5 billion for the first quarter of 2011 and $842 million in the fourth quarter of 2011. The quarterly year-over-year decline in Adjusted OIBDA* was primarily due to higher equipment net subsidy, higher wireless cost of service and lower wireline revenues, partially offset by higher postpaid and prepaid wireless service revenues. Sequentially, Adjusted OIBDA* increased primarily as a result of higher wireless service revenues and lower equipment net subsidy and sales expense primarily associated with fewer handset sales.
  • Capital expenditures(2), excluding capitalized interest of $115 million, were $800 million in the quarter, compared to $555 million in the first quarter of 2011 and $900 million in the fourth quarter of 2011. Wireless capital expenditures were $710 million in the first quarter of 2012, compared to $449 million in the first quarter of 2011 and $774 million in the fourth quarter of 2011. During the quarter, the company invested approximately $315 million for our Network Vision program and approximately $250 million in data capacity related to both legacy network and Network Vision equipment. Wireline capital expenditures were $45 million in the first quarter of 2012, compared to $53 million in the first quarter of 2011 and $34 million in the fourth quarter of 2011. Corporate capital expenditures were $45 million in the first quarter of 2012, compared to $53 million in the first quarter of 2011 and $92 million in the fourth quarter of 2011, primarily related to IT infrastructure to support our Wireless and Wireline businesses.
  • Net cash provided by operating activities was $978 million for the quarter, compared to $919 million for the first quarter of 2011 and $1.1 billion for the fourth quarter of 2011.
  • Free Cash Flow* was $138 million for the quarter, compared to $178 million for the first quarter of 2011 and $257 million for the fourth quarter of 2011.

WIRELESS RESULTS

Wireless Customers

  • 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.

Sprint Platform Churn and Nextel Recapture

  • For the quarter, the company reported Sprint platform postpaid churn of 2.00 percent, compared to 1.78 percent for the year-ago period and 1.99 percent for the fourth quarter of 2011. Quarterly, Sprint platform postpaid churn increased year-over-year primarily due to higher involuntary deactivations, which occur when Sprint disconnects a customer due to lack of payment or violations of terms and conditions. This is expected to be a temporary increase, the majority of which was associated with pricing actions taken in the second and third quarters of 2011 primarily through indirect channels. Sprint tightened its credit standards during the third and fourth quarters of 2011 to stem further impacts of these types of promotional activities by our indirect dealers.
  • Approximately 46 percent of total subscribers that left the postpaid Nextel platform during the period were retained on the Sprint postpaid platform as compared to 27 percent in the first quarter of 2011 and 39 percent in the fourth quarter of 2011.
  • Approximately 8 percent of Sprint platform postpaid customers upgraded their handsets during the first quarter as compared to 9 percent in the first quarter of 2011 and in the fourth quarter of 2011. The sequential decline was primarily driven by seasonality and is typical in the first quarter following fourth quarter holiday sales. The year-over-year decline was primarily due to changes in our upgrade eligibility policies.
  • Sprint platform prepaid churn for the first quarter was 2.92 percent, compared to 3.41 percent for the year-ago period and 3.07 percent for the fourth quarter of 2011. The quarterly year-over-year and sequential improvements in the Sprint platform prepaid churn were primarily a result of improvements in the Virgin Mobile and Boost brands, and continued changes in the mix of our subscriber base as a result of strong growth in the number of Assurance Wireless® customers, who on average have lower churn than the remainder of our Sprint platform subscriber base.
 
TABLE NO. 2 Wireless Operating Statistics (Unaudited)
        Quarter To Date
        March 31,
2012
  December 31,
2011
  March 31,
2011
                 
Net Additions (Losses) (in thousands)                
Sprint platform:                
Postpaid (a)         263       539       253  
Prepaid (b)         870       899       1,406  
Wholesale and affiliate         785       954       389  
Total Sprint platform         1,918       2,392       2,048  
Nextel platform:                

Contact(s):

Sprint Nextel Corp.
Media Relations:
Scott Sloat, 240-855-0164
scott.sloat@sprint.com
or
Investor Relations:
Brad Hampton, 800-259-3755
investor.relations@sprint.com


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