Record Low Postpaid Phone Churn with Second
Quarter of Fiscal Year 2016 Results
- Net operating revenues of $8.25 billion
grew year-over-year for the first time in over two years
- Net loss of $142 million, operating
income of $622 million and Adjusted EBITDA* of $2.35 billion
- More than $1.1 billion of year-to-date
reductions in cost of service and selling, general, and
administrative expenses
- Net cash provided by operating
activities of $1.71 billion; Adjusted free cash flow* of $707
million
- Nearly $1.2 billion of Adjusted free
cash flow* in the first half of fiscal year 2016
- Postpaid phone net additions of 347,000
doubled from the prior quarter and improved from 62,000 in the
prior year – a year-over-year increase of more than five times
- Postpaid phone churn of 1.37 percent is
the best in company history and improved year-over-year for the
seventh consecutive quarter
- Postpaid phone gross additions
increased nearly 20 percent year-over-year
- Postpaid net port positive against all
three national carriers for the second quarter in a row
- Successful launch of Unlimited Freedom
plan offering exceptional value and simplicity for customers
- Increased liquidity and dramatically
lowered cost of capital with spectrum-backed notes priced at 3.36
percent – less than half of Sprint’s current effective interest
rate
Sprint Corporation (NYSE:S) today reported operating
results for the second quarter of fiscal year 2016, including the
first year-over-year increase in total net operating revenues in
over two years, a year-over-year increase of more than five times
in postpaid phone net additions, and record low postpaid phone
churn. The company also reported a net loss of $142 million,
operating income of $622 million, and Adjusted EBITDA* of $2.35
billion.
“We took another step forward in our plan toward sustainable
profitability and cash generation with this quarter’s results,”
said Sprint CEO Marcelo Claure. “The top line is now growing, we
continue to take costs out of the business, and we are successfully
raising money at materially lower rates to reduce our future cash
interest expenses.”
Revenue Grows as Cost Structure ImprovesSprint reported
year-over-year growth in total net operating revenues for the first
time in over two years, another sign its plan to transform the
company is progressing. Total net operating revenues of $8.25
billion grew 3 percent year-over-year and wireless net operating
revenues of $7.85 billion grew nearly 5 percent year-over-year.
Sprint continues to improve the cost structure of the business,
realizing more than $1.1 billion of year-to-date reductions in cost
of services and selling, general and administrative (SG&A)
expenses, with nearly $600 million of the reduction coming in the
fiscal second quarter. The company remains on track to achieve its
goal of a sustainable reduction of $2 billion or more of run-rate
operating expenses exiting fiscal year 2016 and has plans for
further reductions in fiscal year 2017 and beyond.
The company also reported the following financial results:
- Net loss of $142 million, or $0.04 per
share, in the quarter compared to a net loss of $585 million, or
$0.15 per share, in the year-ago period, an improvement of $443
million, or $0.11 per share.
- Operating income of $622 million in the
quarter compared to an operating loss of $2 million in the year-ago
period, an improvement of $624 million. The current quarter
included a non-cash pre-tax gain of $354 million related to
spectrum swaps with other carriers that was partially offset by
$103 million of litigation and other contingency expenses.
- Adjusted EBITDA* of $2.35 billion in
the quarter compared to $2.01 billion in the year-ago period, an
increase of approximately $340 million or 17 percent. The
improvement was primarily due to higher operating revenues and
lower cost of services and SG&A expenses, partially offset by
higher cost of products expenses.
- Net cash provided by operating
activities was $1.71 billion in the quarter compared to $1.67
billion in the year-ago period, an improvement of $39 million.
- Adjusted free cash flow* was positive
$707 million in the quarter compared to negative $100 million in
the year-ago period, an improvement of $807 million.
Spectrum-Backed Notes Improve Liquidity PositionTotal
liquidity was $11.3 billion at the end of the quarter, including
$5.7 billion of cash, cash equivalents and short-term investments.
Additionally, the company also has $1.1 billion of availability
under vendor financing agreements that can be used toward the
purchase of 2.5GHz network equipment.
Last week, the company priced $3.5 billion of spectrum-backed
senior secured notes at 3.36 percent, which is less than half of
the company’s current effective interest rate. This transaction
represents the latest example of Sprint’s strategy to diversify its
sources of financing, lower its cost of capital, and reduce future
interest expenses by retiring upcoming maturities with higher
coupon payments. In conjunction with closing of the spectrum-backed
notes, which is expected on Oct. 27, the company’s $2.5 billion
unsecured financing facility will terminate.
Postpaid Phone Customers Continue to Choose
SprintSprint’s focus on delivering the best value proposition
in wireless resulted in its fifth consecutive quarter of positive
postpaid phone net additions with 347,000 in the quarter, an
improvement of 285,000 compared to the year-ago period. The
year-over-year improvement was driven by both better acquisition
and retention, as postpaid phone gross additions were up nearly 20
percent year-over-year and postpaid phone churn of 1.37 percent
improved 12 basis points to reach the lowest level in company
history. Postpaid phone churn has improved year-over-year for seven
consecutive quarters.
Sprint enhanced its rate plan options for customers by launching
Unlimited Freedom in August, an exceptional offer of value and
simplicity. The popularity of this new plan has grown quickly and
today about half of new customers are choosing the Unlimited
Freedom plan when they join Sprint. This attractive new rate plan
helped the company remain postpaid net port positive against all
three national carriers for the second quarter in a row.
The company also reported the following Sprint platform
results:
- Total net additions were 740,000 in the
quarter, including postpaid net additions of 344,000, prepaid net
losses of 427,000, and wholesale and affiliate net additions of
823,000.
- Total postpaid churn of 1.52 percent in
the quarter improved by two basis points year-over-year.
Third Party Sources and Record Low Churn Reinforce Network
ImprovementsSprint aims to unlock the value of the largest
spectrum holdings in the U.S. by densifying and optimizing its
network to provide customers the best experience. The company’s LTE
Plus Network, which combines a rich tri-band spectrum portfolio
with the LTE Advanced features of carrier aggregation and antenna
beamforming, has been deployed across the country. Third party
sources, along with record low postpaid phone churn, continue to
validate the network improvements.
- Sprint ranked second for wireless
network quality performance in five out of six geographic regions
of the U.S. according to J.D. Power, a leader in independent
industry benchmark studies, in its 2016 Wireless Network Quality
Performance Study – Volume 2.
- Sprint’s LTE Plus Network continued to
outperform Verizon, AT&T, and T-Mobile by delivering the
fastest LTE download speeds based on recent crowd-sourced data from
Nielsen.1 Additionally, Sprint’s reliability beat T-Mobile and
performed within 1 percent of AT&T and Verizon.2
- Independent mobile analytics firm
RootMetrics® awarded Sprint 52 percent more first or shared first
place RootScore® Awards (from 90 to 137) in the 70 markets measured
in the second half of 2016 compared to the prior testing
period.3
Sprint’s LTE Plus Network is now available in more than 250
markets and the company has started to deploy three-channel carrier
aggregation in such markets as Chicago, San Francisco, Minneapolis,
Dallas, Denver, Kansas City, Cleveland, and Columbus. These
deployments will provide peak download speeds of more than 200Mbps
on capable devices when available. The company currently has 10
three-channel carrier aggregation capable devices, including the
recently launched iPhone 7 and Samsung Galaxy S7.
Fiscal Year 2016 Outlook
- The company is raising its guidance for
operating income from its previous expectation of $1 billion to
$1.5 billion to a range of $1.2 billion to $1.7 billion, partially
due to the net benefit of special items in the quarter.
- The company now expects cash capital
expenditures, excluding devices leased through indirect channels,
to be less than $3 billion, as the company has better visibility
into the timing of payments associated with its network
densification plan.
- The company continues to expect
Adjusted EBITDA* of $9.5 billion to $10 billion and Adjusted free
cash flow* around break-even.
Conference Call and Webcast
- Date/Time: 8:30 a.m. (ET) Tuesday, Oct.
25, 2016
- Call-in Information
- U.S./Canada: 866-360-1063 (ID:
84455839)
- International: 443-961-0242 (ID:
84455839)
- Webcast available at
www.sprint.com/investors
- Additional information about results is
available on our Investor Relations website
1 Sprint’s analysis of Nielsen NMP data for average LTE download
speeds, based on a population weighted average of all 99 Sprint
markets in the U.S.2 Average network reliability (voice & data)
based on Sprint’s analysis of Nielsen drive test data in the top
106 metro markets.3 Rankings based on RootMetrics 70 Metro
RootScore Reports (January-October 2016) for mobile performance as
tested on best available plans and devices on 4 mobile networks
across all available network types. Your experience may vary. The
RootMetrics awards are not an endorsement of Sprint. Visit
www.rootmetrics.com.
Wireless
Operating Statistics (Unaudited) Quarter To Date Year To Date
9/30/16 6/30/16 9/30/15
9/30/16 9/30/15
Sprint
platform (1): Net additions (losses) (in
thousands) Postpaid 344 180 378 524 688 Prepaid (427 ) (331 )
(188 ) (758 ) (554 ) Wholesale and affiliate 823
528 866
1,351 1,597
Total
Sprint platform wireless net additions 740
377
1,056 1,117
1,731 End of period connections (in
thousands) Postpaid (d) 31,289 30,945 30,394 31,289 30,394
Prepaid (d) 13,547 13,974 15,152 13,547 15,152 Wholesale and
affiliate (d) 15,357 14,534
12,322 15,357
12,322
Total Sprint platform end of
period connections 60,193
59,453 57,868
60,193
57,868 Churn Postpaid 1.52 % 1.56 %
1.54 % 1.54 % 1.55 % Prepaid 5.63 % 5.55 % 5.06 % 5.59 % 5.07 %
Supplemental data - connected devices End of
period connections (in thousands) Retail postpaid 1,874 1,822
1,576 1,874 1,576 Wholesale and affiliate 9,951
9,244 7,338
9,951 7,338
Total
11,825 11,066
8,914
11,825 8,914
Supplemental data - total company End of period
connections (in thousands) Sprint platform (1)(d) 60,193 59,453
57,868 60,193 57,868 Transactions (2) -
- 710 -
710
Total 60,193
59,453
58,578 60,193
58,578 Sprint platform ARPU
(1) (a) Postpaid $ 50.54 $ 51.54 $ 53.99 $ 51.04 $ 54.73
Prepaid $ 27.31 $ 27.34 $ 27.66 $ 27.32 $ 27.73
Sprint
platform postpaid phone (1) Postpaid phone net
additions 347 173 62 520 50 Postpaid phone end of period
connections (d) 25,669 25,322 24,928 25,669 24,928 Postpaid phone
churn 1.37 % 1.39 % 1.49 % 1.38 % 1.49 %
NON-GAAP
RECONCILIATION - ABPA*, POSTPAID PHONE ARPU AND ABPU*
(Unaudited) (Millions, except accounts, connections, ABPA*,
ARPU, and ABPU*) Quarter To Date Year To Date 9/30/16
6/30/16 9/30/15 9/30/16
9/30/15
Sprint platform ABPA*
(1) Postpaid service revenue $ 4,720 $ 4,778 $ 4,893 $ 9,498
$ 9,857 Add: Installment plan billings 274 264 305 538 603 Add:
Lease revenue 811 755
389 1,566
645
Total for Sprint platform postpaid
connections $ 5,805 $
5,797 $ 5,587
$ 11,602 $ 11,105
Sprint platform postpaid accounts (in thousands)
11,363 11,329 11,197 11,346 11,186 Sprint platform postpaid ABPA*
(b) $ 170.29 $ 170.56 $ 166.26 $ 170.43 $ 165.45 Quarter To
Date Year To Date 9/30/16
6/30/16 9/30/15
9/30/16 9/30/15
Sprint
platform postpaid phone ARPU and ABPU* (1)
Postpaid phone service revenue $ 4,441 $ 4,489 $ 4,608 $ 8,930 $
9,290 Add: Installment plan billings 248 243 286 491 568 Add: Lease
revenue 797 741
379 1,538
628
Total for Sprint platform postpaid phone
connections $ 5,486 $
5,473 $ 5,273
$ 10,959 $ 10,486
Sprint platform postpaid average phone connections
(in thousands) 25,514 25,275 24,886 25,394 24,871 Sprint platform
postpaid phone ARPU (a) $ 58.03 $ 59.20 $ 61.71 $ 58.61 $ 62.25
Sprint platform postpaid phone ABPU* (c) $ 71.69 $ 72.17 $ 70.62 $
71.93 $ 70.27
(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. Sprint platform postpaid phone ARPU
represents revenues related to our postpaid phone connections.(b)
Sprint platform postpaid ABPA* is calculated by dividing service
revenue earned from connections plus installment plan billings and
lease revenue by the sum of the monthly average number of accounts
during the period.(c) Sprint platform postpaid phone ABPU* is
calculated by dividing postpaid phone service revenue earned from
postpaid phone connections plus installment plan billings and lease
revenue by the sum of the monthly average number of postpaid phone
connections during the period.(d) As part of the transaction
involving Shenandoah Telecommunications Company (Shentel), 186,000
and 92,000 subscribers were transferred in May 2016 from postpaid
and prepaid, respectively, to affiliates. An additional 270,000
nTelos' subscribers are now part of our affiliate relationship with
Shentel and are being reported in wholesale and affiliate
subscribers during the quarter ended June 30, 2016.
Wireless Device Financing Summary (Unaudited) (Millions,
except sales, connections, and sales and connections mix) Quarter
To Date Year To Date 9/30/16 6/30/16
9/30/15 9/30/16 9/30/15
Postpaid sales (in thousands) 3,747 3,268
4,117 7,015 8,157
Postpaid sales mix Subsidy/other 27 % 31 %
36 % 29 % 36 % Installment plans 34 % 25 % 13 % 30 % 13 % Leasing
39 % 44 % 51 % 41 % 51 %
Installment plans
Installment sales financed $ 745 $ 407 $ 242 $ 1,152 $ 497
Installment billings 274 264 305 538 603 Installments receivables,
net - - 1,113 - 1,113
Leasing Lease revenue $ 811 $
755 $ 389 $ 1,566 $ 645 Lease depreciation 724 644 420 1,368 696
Leased device additions: Cash paid for capital
expenditures - leased devices $ 358 $ 405 $ 573 $ 763 $ 1,117
Transfers from inventory - leased devices 645 541 742 1,186 1,550
Leased devices in property, plant and equipment, net $ 3,759
$ 3,766 $ 3,609 $ 3,759 $ 3,609
Leased device net
proceeds Proceeds from MLS sale $ - $ 1,055 $ - $ 1,055 $ -
Repayments to MLS (161 ) (165 ) - (326 ) - Proceeds from lease
securitization - - - - - Repayments of lease securitization
(23 ) (75 ) -
(98 ) -
Net
(repayments) proceeds of device financings and sales of future
lease receivables $ (184 )
$ 815 $ -
$ 631 $ -
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Millions, except per share data) Quarter To Date
Year To Date 9/30/16 6/30/16
9/30/15 9/30/16 9/30/15
Net operating revenues Service revenue $ 6,413 $ 6,516 $
6,880 $ 12,929 $ 13,917 Equipment revenue 1,834
1,496 1,095
3,330 2,085
Total net
operating revenues 8,247
8,012 7,975
16,259 16,002
Net operating expenses Cost of services (exclusive of
depreciation and amortization below) 2,101 2,099 2,453 4,200 4,846
Cost of products (exclusive of depreciation and amortization below)
1,693 1,419 1,290 3,112 2,655 Selling, general and administrative
1,995 1,917 2,224 3,912 4,411 Depreciation - network and other 986
1,036 992 2,022 1,957 Depreciation - leased devices 724 644 420
1,368 696 Amortization 271 287 331 558 678 Other, net (145 )
249 267
104 260 Total net
operating expenses 7,625 7,651
7,977 15,276
15,503
Operating income (loss)
622 361
(2 ) 983
499 Interest expense (630
) (615 ) (542 )
(1,245 ) (1,084 ) Other (expense) income, net
(15 ) 8 5
(7 ) 9
Loss before
income taxes (23 )
(246 ) (539 )
(269 ) (576
) Income tax expense (119 ) (56
) (46 ) (175 ) (29
)
Net loss $ (142 )
$ (302 ) $ (585
) $ (444 ) $
(605 ) Basic and diluted net loss per
common share $ (0.04 )
$ (0.08 ) $ (0.15
) $ (0.11 ) $
(0.15 ) Weighted average common shares outstanding
3,979 3,975
3,969 3,977 3,968
Effective tax rate -517.4
% -22.8 %
-8.5 % -65.1 %
-5.0 % NON-GAAP
RECONCILIATION - NET LOSS TO ADJUSTED EBITDA* (Unaudited)
(Millions) Quarter To Date Year To Date 9/30/16
6/30/16 9/30/15 9/30/16
9/30/15
Net loss $
(142 ) $ (302 )
$ (585 ) $ (444
) $ (605 ) Income tax
expense 119 56
46 175 29
Loss before income taxes (23 )
(246 ) (539 ) (269 )
(576 ) Other expense (income), net 15 (8 ) (5 ) 7 (9
) Interest expense 630 615
542 1,245
1,084
Operating income (loss)
622 361
(2 ) 983
499 Depreciation - network and other
986 1,036 992 2,022 1,957 Depreciation - leased devices 724 644 420
1,368 696 Amortization 271 287
331 558
678
EBITDA* (3)
2,603 2,328
1,741 4,931
3,830 (Gain) loss from asset
dispositions and exchanges, net (4) (354 ) - 85 (354 ) 85 Severance
and exit costs (5) (5 ) 16 25 11 38 Contract terminations (6) - 113
- 113 - Litigation and other contingencies (7) 103 - 157 103 157
Reduction in liability - U.S. Cellular asset acquisition (8)
- - -
- (20 )
Adjusted
EBITDA* (3) $ 2,347
$ 2,457 $ 2,008
$ 4,804 $
4,090 Adjusted EBITDA margin*
36.6 % 37.7 % 29.2 %
37.2 % 29.4 % Selected
items: Cash paid for capital expenditures - network and other $
470 $ 473 $ 1,162 $ 943 $ 2,964 Cash paid for capital expenditures
- leased devices $ 358 $ 405 $ 573 $ 763 $ 1,117
WIRELESS
STATEMENTS OF OPERATIONS (Unaudited) (Millions) Quarter To Date
Year To Date 9/30/16 6/30/16
9/30/15 9/30/16 9/30/15
Net operating revenues Service revenue Sprint platform (1):
Postpaid $ 4,720 $ 4,778 $ 4,893 $ 9,498 $ 9,857 Prepaid 1,129
1,165 1,259 2,294 2,559 Wholesale, affiliate and other 168
158 185
326 366 Total
Sprint platform 6,017 6,101 6,337 12,118 12,782 Total
transactions (2) - -
84 -
189 Total service revenue 6,017 6,101 6,421 12,118 12,971
Equipment revenue 1,834
1,496 1,095 3,330
2,085
Total net operating
revenues 7,851
7,597 7,516
15,448 15,056
Net operating expenses Cost of services (exclusive of
depreciation and amortization below) 1,793 1,784 2,111 3,577 4,116
Cost of products (exclusive of depreciation and amortization below)
1,693 1,419 1,290 3,112 2,655 Selling, general and administrative
1,931 1,834 2,136 3,765 4,232 Depreciation - network and other 936
985 943 1,921 1,860 Depreciation - leased devices 724 644 420 1,368
696 Amortization 271 287 331 558 678 Other, net (151 )
249 266
98 258 Total net
operating expenses 7,197 7,202
7,497 14,399
14,495
Operating income $
654 $ 395
$ 19 $ 1,049
$ 561
WIRELESS NON-GAAP RECONCILIATION (Unaudited)
(Millions) Quarter To Date Year To Date 9/30/16
6/30/16 9/30/15 9/30/16
9/30/15
Operating income
$ 654 $ 395 $ 19 $
1,049 $ 561 (Gain) loss from asset
dispositions and exchanges, net (4) (354 ) - 85 (354 ) 85 Severance
and exit costs (5) (11 ) 16 24 5 36 Contract terminations (6) - 113
- 113 - Litigation and other contingencies (7) 103 - 157 103 157
Reduction in liability - U.S. Cellular asset acquisition (8) - - -
- (20 ) Depreciation - network and other 936 985 943 1,921 1,860
Depreciation - leased devices 724 644 420 1,368 696 Amortization
271 287
331 558 678
Adjusted EBITDA* (3) $ 2,323
$ 2,440 $
1,979 $ 4,763
$ 4,053 Adjusted EBITDA margin*
38.6 % 40.0 % 30.8 %
39.3 % 31.2 % Selected
items: Cash paid for capital expenditures - network and other $
358 $ 376 $ 1,003 $ 734 $ 2,643 Cash paid for capital expenditures
- leased devices $ 358 $ 405 $ 573 $ 763 $ 1,117
WIRELINE
STATEMENTS OF OPERATIONS (Unaudited) (Millions) Quarter To Date
Year To Date 9/30/16 6/30/16
9/30/15 9/30/16 9/30/15
Net operating revenues Voice $ 172 $ 181 $ 212 $ 353 $ 445
Data 43 43 43 86 92 Internet 288 302 323 590 651 Other 18
19 31 37
51
Total net operating revenues 521
545 609
1,066 1,239
Net operating expenses Costs of services (exclusive of
depreciation and amortization below) 436 448 495 884 1,029 Selling,
general and administrative 62 78 85 140 172 Depreciation and
amortization 48 49 48 97 94 Other, net 7 -
1 7 2 Total
net operating expenses 553 575
629 1,128 1,297
Operating loss $ (32 ) $
(30 ) $ (20 ) $ (62
) $ (58 )
WIRELINE NON-GAAP RECONCILIATION (Unaudited) (Millions)
Quarter To Date Year To Date 9/30/16 6/30/16
9/30/15 9/30/16
9/30/15
Operating loss $ (32 )
$ (30 ) $ (20 ) $ (62 )
$ (58 ) Severance and exit costs (5) 7 - 1 7 2
Depreciation and amortization 48 49
48 97 94
Adjusted EBITDA* $ 23 $
19 $ 29 $ 42
$ 38 Adjusted EBITDA
margin* 4.4 % 3.5 % 4.8
% 3.9 % 3.1 %
Selected items: Cash paid for capital expenditures - network
and other $ 31 $ 20 $ 63 $ 51 $ 131
CONDENSED CONSOLIDATED CASH FLOW
INFORMATION (Unaudited)** (Millions) Year to Date
9/30/16 9/30/15
Operating activities Net loss $ (444 ) $ (605 ) Depreciation
and amortization 3,948 3,331 Provision for losses on accounts
receivable 232 278 Share-based and long-term incentive compensation
expense 29 40 Deferred income tax expense 157 28 Gains from asset
dispositions and exchanges (354 ) - Amortization of long-term debt
premiums, net (159 ) (157 ) Loss on disposal of property, plant and
equipment 231 85 Contract terminations 96 - Other changes in assets
and liabilities: Accounts and notes receivable (126 ) (1,357 )
Inventories and other current assets (892 ) (1,025 ) Deferred
purchase price from sale of receivables (400 ) 1,198 Accounts
payable and other current liabilities (195 ) (509 ) Non-current
assets and liabilities, net (205 ) 125 Other, net
332
365
Net cash provided by operating
activities
2,250
1,797 Investing activities Capital
expenditures - network and other (943 ) (2,964 ) Capital
expenditures - leased devices (763 ) (1,117 ) Expenditures relating
to FCC licenses (32 ) (45 ) Change in short-term investments, net
(1,650 ) 63 Proceeds from sales of assets and FCC licenses 66 4
Other, net
(36 ) (21 )
Net cash used in
investing activities
(3,358 )
(4,080 ) Financing activities
Proceeds from debt and financings 3,278 434 Repayments of debt,
financing and capital lease obligations (667 ) (206 ) Debt
financing costs (175 ) (1 ) Other, net
37
18
Net cash provided by financing activities
2,473 245
Net increase (decrease) in cash and cash equivalents
1,365 (2,038 ) Cash and cash
equivalents, beginning of period
2,641
4,010 Cash and cash
equivalents, end of period
$ 4,006
$ 1,972 RECONCILIATION
TO CONSOLIDATED FREE CASH FLOW* (NON-GAAP) (Unaudited)
(Millions) Quarter To Date Year to Date 9/30/16
6/30/16 9/30/15 9/30/16
9/30/15
Net cash provided by
operating activities $ 1,708 $ 542
$ 1,669 $ 2,250 $ 1,797
Capital expenditures - network and other (470 ) (473 )
(1,162 ) (943 ) (2,964 ) Capital expenditures - leased devices (358
) (405 ) (573 ) (763 ) (1,117 ) Expenditures relating to FCC
licenses, net (17 ) (15 ) (19 ) (32 ) (45 ) Proceeds from sales of
assets and FCC licenses 39 27 3 66 4 Other investing activities,
net (11 ) (25 )
(18 ) (36 ) (21 )
Free
cash flow* $ 891 $
(349 ) $ (100 )
$ 542 $
(2,346 ) Net (repayments) proceeds of device
financings and sales of future lease receivables (184 )
815 -
631 -
Adjusted free cash flow* $ 707
$ 466 $
(100 ) $ 1,173
$ (2,346 )
**Certain prior period amounts have been reclassified to conform to
the current period presentation.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Millions)
9/30/16 3/31/16
ASSETS Current
assets Cash and cash equivalents $ 4,006 $ 2,641 Short-term
investments 1,650 - Accounts and notes receivable, net 1,004 1,099
Device and accessory inventory 981 1,173 Prepaid expenses and other
current assets 2,215
1,920 Total current assets 9,856 6,833 Property,
plant and equipment, net 19,176 20,297 Goodwill 6,575 6,575 FCC
licenses and other 40,541 40,073 Definite-lived intangible assets,
net 3,861 4,469 Other assets 819
728
Total assets $ 80,828
$ 78,975
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities
Accounts payable $ 2,649 $ 2,899
Accrued expenses and other current
liabilities
4,285 4,374 Current portion of long-term debt, financing and
capital lease obligations 7,014
4,690 Total current liabilities 13,948 11,963
Long-term debt, financing and capital lease obligations 29,541
29,268 Deferred tax liabilities 14,120 13,959 Other liabilities
3,796 4,002
Total liabilities 61,405
59,192 Stockholders' equity
Common stock 40 40 Treasury shares, at cost - (3 ) Paid-in capital
27,637 27,563 Accumulated deficit (7,822 ) (7,378 ) Accumulated
other comprehensive loss (432 )
(439 ) Total stockholders' equity 19,423
19,783
Total liabilities and
stockholders' equity $ 80,828
$ 78,975 NET
DEBT* (NON-GAAP) (Unaudited) (Millions) 9/30/16
3/31/16 Total debt $ 36,555 $ 33,958
Less: Cash and cash equivalents (4,006 ) (2,641 ) Less: Short-term
investments (1,650 ) -
Net debt* $ 30,899
$ 31,317
SCHEDULE OF DEBT (Unaudited) (Millions)
9/30/16
ISSUER
MATURITY PRINCIPAL Sprint
Corporation 7.25% Senior notes due 2021 09/15/2021 $ 2,250
7.875% Senior notes due 2023 09/15/2023 4,250 7.125% Senior notes
due 2024 06/15/2024 2,500 7.625% Senior notes due 2025
02/15/2025 1,500
Sprint
Corporation
10,500 Sprint Communications, Inc. Export
Development Canada Facility (Tranche 4) 12/15/2017 250 Export
Development Canada Facility (Tranche 3) 12/17/2019 300 6% Senior
notes due 2016 12/01/2016 2,000 9.125% Senior notes due 2017
03/01/2017 1,000 8.375% Senior notes due 2017 08/15/2017 1,300 9%
Guaranteed notes due 2018 11/15/2018 3,000 7% Guaranteed notes due
2020 03/01/2020 1,000 7% Senior notes due 2020 08/15/2020 1,500
11.5% Senior notes due 2021 11/15/2021 1,000 9.25% Debentures due
2022 04/15/2022 200 6% Senior notes due 2022
11/15/2022 2,280
Sprint Communications,
Inc.
13,830 Sprint Capital Corporation 6.9% Senior
notes due 2019 05/01/2019 1,729 6.875% Senior notes due 2028
11/15/2028 2,475 8.75% Senior notes due 2032
03/15/2032 2,000
Sprint Capital
Corporation
6,204 Clearwire Communications LLC 14.75%
First-priority senior secured notes due 2016 12/01/2016 300 8.25%
Exchangeable notes due 2040 12/01/2040
629
Clearwire Communications LLC
929 Secured
equipment credit facilities 2017 - 2021
618
Financing obligations 2017 - 2021
3,670
Capital leases and other obligations
2016 - 2023
471 Total principal
36,222
Net premiums and debt financing costs
333 Total debt
$ 36,555
NOTES TO THE FINANCIAL INFORMATION (Unaudited)
(1)
Sprint platform refers to the Sprint network that supports the
wireless service we provide through our multiple brands. (2)
Postpaid and prepaid connections from transactions are defined as
retail postpaid and prepaid connections acquired from Clearwire in
July 2013 who had not deactivated or been recaptured on the Sprint
platform. (3) As more of our customers elect to lease a device
rather than purchasing one under our subsidized program, there is a
significant positive impact to EBITDA* and Adjusted EBITDA* from
direct channel sales primarily due to the fact the cost of the
device is not recorded as cost of products but rather is
depreciated over the customer lease term. Under our device leasing
program for the direct channel, devices are transferred from
inventory to property and equipment and the cost of the leased
device is recognized as depreciation expense over the customer
lease term to an estimated residual value. The customer payments
are recognized as revenue over the term of the lease. Under our
subsidized program, the cash received from the customer for the
device is recognized as equipment revenue at the point of sale and
the cost of the device is recognized as cost of products. During
the three and six-month periods ended September 30, 2016, we leased
devices through our Sprint direct channels totaling approximately
$645 million and $1,186 million, respectively, which would have
increased cost of products and reduced EBITDA* if they had been
purchased under our subsidized program. Also, during the three and
six-month periods ended September 30, 2016, the equipment revenue
derived from customers electing to finance their devices through
device leasing or installment billing programs in our direct
channel was 68%.
The impact to EBITDA* and Adjusted EBITDA*
resulting from the sale of devices under our installment billing
program is generally neutral except for the impact from the time
value of money element related to the imputed interest on the
installment receivable.
(4) During the second quarter of fiscal year 2016 the company
recorded a pre-tax non-cash gain of $354 million related to
spectrum swaps with other carriers. During the second quarter of
fiscal year 2015, the company recorded losses on dispositions of
assets primarily related to network development costs that are no
longer relevant as a result of changes in the company's network
plans. (5) Severance and exit costs consist of lease exit costs
primarily associated with tower and cell sites, access exit costs
related to payments that will continue to be made under the
company's backhaul access contracts for which the company will no
longer be receiving any economic benefit, and severance costs
associated with reduction in its work force. (6) Contract
terminations primarily relate to the termination of our
pre-existing wholesale arrangement with Ntelos Holding Corp. (7)
Litigation and other contingencies consist of unfavorable
developments associated with legal as well as federal and state
matters such as sales, use or property taxes. (8) As a result of
the U.S. Cellular asset acquisition, we recorded a liability
related to network shut-down costs, which primarily consisted of
lease exit costs, for which we agreed to reimburse U.S. Cellular.
During the third quarter of fiscal year 2014, we identified
favorable trends in actual costs and, as a result, reduced the
liability resulting in a gain of approximately $41 million. During
the first quarter of fiscal year 2015, we revised our estimate and,
as a result, reduced the liability resulting in approximately $20
million of income.
*FINANCIAL MEASURES
Sprint provides financial measures determined in accordance with
GAAP and adjusted GAAP (non-GAAP). The non-GAAP financial measures
reflect industry conventions, or standard measures of liquidity,
profitability or performance commonly used by the investment
community for comparability purposes. These measurements should be
considered in addition to, but not as a substitute for, financial
information prepared in accordance with GAAP. We have defined below
each of the non-GAAP measures we use, but these measures may not be
synonymous to similar measurement terms used by other
companies.
Sprint provides reconciliations of these non-GAAP measures in
its financial reporting. Because Sprint does not predict special
items that might occur in the future, and our forecasts are
developed at a level of detail different than that used to prepare
GAAP-based financial measures, Sprint does not provide
reconciliations to GAAP of its forward-looking financial
measures.
The measures used in this release include the following:
EBITDA is operating income/(loss) before depreciation and
amortization. Adjusted EBITDA is EBITDA excluding
severance, exit costs, and other special items. Adjusted EBITDA
Margin represents Adjusted EBITDA divided by non-equipment net
operating revenues for Wireless and Adjusted EBITDA divided by net
operating revenues for Wireline. We believe that Adjusted EBITDA
and Adjusted EBITDA Margin provide useful information to investors
because they are an indicator of the strength and performance of
our ongoing business operations. While depreciation and
amortization are considered operating costs under GAAP, these
expenses primarily represent non-cash current period costs
associated with the use of long-lived tangible and definite-lived
intangible assets. Adjusted EBITDA and Adjusted EBITDA Margin are
calculations commonly used as a basis for investors, analysts and
credit rating agencies to evaluate and compare the periodic and
future operating performance and value of companies within the
telecommunications industry.
Sprint Platform Postpaid ABPA is average billings per
account and calculated by dividing postpaid service revenue earned
from postpaid customers plus installment plan billings and lease
revenue by the sum of the monthly average number of postpaid
accounts during the period. We believe that ABPA provides useful
information to investors, analysts and our management to evaluate
average Sprint platform postpaid customer billings per account as
it approximates the expected cash collections, including
installment plan billings and lease revenue, per postpaid account
each month.
Sprint Platform Postpaid Phone ABPU is average billings
per postpaid phone user and calculated by dividing service revenue
earned from postpaid phone customers plus installment plan billings
and lease revenue by the sum of the monthly average number of
postpaid phone connections during the period. We believe that ABPU
provides useful information to investors, analysts and our
management to evaluate average Sprint platform postpaid phone
customer billings as it approximates the expected cash collections,
including installment plan billings and lease revenue, per postpaid
phone user each month.
Free Cash Flow is the cash provided by operating
activities less the cash used in investing activities other than
short-term investments, including changes in restricted cash, if
any, and excluding the sale-leaseback of devices. Adjusted
Free Cash Flow is Free Cash Flow plus the proceeds
from device financings and sales of future lease receivables, net
of repayments. We believe that Free Cash Flow and Adjusted Free
Cash Flow provide useful information to investors, analysts and our
management about the cash generated by our core operations and net
proceeds obtained to fund certain leased devices, respectively,
after interest and dividends, if any, and our ability to fund
scheduled debt maturities and other financing activities, including
discretionary refinancing and retirement of debt and purchase or
sale of investments.
Net Debt is consolidated debt, including current
maturities, less cash and cash equivalents, short-term investments
and, if any, restricted cash. We believe that Net Debt provides
useful information to investors, analysts and credit rating
agencies about the capacity of the company to reduce the debt load
and improve its capital structure.
SAFE HARBOR
This release includes “forward-looking statements” within the
meaning of the securities laws. The words “may,” “could,” “should,”
“estimate,” “project,” “forecast,” “intend,” “expect,”
“anticipate,” “believe,” “target,” “plan”, “outlook,” “providing
guidance,” and similar expressions are intended to identify
information that is not historical in nature. All statements that
address operating performance, events or developments that we
expect or anticipate will occur in the future — including
statements relating to our network, connections growth, and
liquidity; and statements expressing general views about future
operating results — are forward-looking statements. Forward-looking
statements are estimates and projections reflecting management’s
judgment based on currently available information and involve a
number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking
statements. With respect to these forward-looking statements,
management has made assumptions regarding, among other things, the
development and deployment of new technologies and services;
efficiencies and cost savings of new technologies and services;
customer and network usage; connection growth and retention;
service, speed, coverage and quality; availability of devices;
availability of various financings, including any leasing
transactions; the timing of various events and the economic
environment. Sprint believes these forward-looking statements are
reasonable; however, you should not place undue reliance on
forward-looking statements, which are based on current expectations
and speak only as of the date when made. Sprint undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law. In addition,
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from our company's historical experience and our present
expectations or projections. Factors that might cause such
differences include, but are not limited to, those discussed in
Sprint Corporation’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2016. You should understand that it is not possible
to predict or identify all such factors. Consequently, you should
not consider any such list to be a complete set of all potential
risks or uncertainties.
About Sprint:Sprint (NYSE:S) is a communications services
company that creates more and better ways to connect its
customers to the things they care about most. Sprint served
60.2 million connections as of Sept. 30, 2016 and is widely
recognized for developing, engineering and deploying innovative
technologies, including the first wireless 4G service from a
national carrier in the United States; leading no-contract brands
including Virgin Mobile USA, Boost Mobile, and Assurance Wireless;
instant national and international push-to-talk capabilities; and a
global Tier 1 Internet backbone. Sprint has been named to the Dow
Jones Sustainability Index (DJSI) North America for the past five
years. You can learn more and visit Sprint at www.sprint.com or
www.facebook.com/sprint and www.twitter.com/sprint.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161025005867/en/
Sprint CorporationMedia:Dave Tovar,
913-315-1451David.Tovar@sprint.comorInvestors:Jud Henry,
800-259-3755Investor.Relations@sprint.com
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