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Press Release -- July 31st, 2014
Source: Sprint Nextel
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Sprint Reports Results for First Fiscal Quarter of 2014

Net Income of $23 million; Operating Income of $519 million is best in over seven years
Adjusted EBITDA* of $1.83 billion grew year-over-year for the fourth consecutive quarter
Network deployment reaches key milestones
3G and voice network rip and replace largely complete
4G LTE coverage expands to approximately 254 million people
High Definition (HD) Voice available nationwide
Launched Sprint Satisfaction Guarantee and exclusive innovative devices and content
The company’s quarterly earnings conference call will be held at 8:30 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: 71692129 or may listen via the Internet at www.sprint.com/investors.

Additional information about results can be found in the “Quarterly Investor Update” posted on our Investor Relations website at www.sprint.com/investors.

Financial results in the enclosed tables include a predecessor period for the quarter ending June 30, 2013 related to the results of operations of Sprint Communications, Inc. (formerly Sprint Nextel) prior to the closing of the SoftBank 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-over-year quarterly results, we have combined the calendar second quarter 2013 results of operations for the predecessor and successor periods. The enclosed remarks relating to calendar second quarter of 2013 are in reference to an unaudited combined period, unless otherwise noted. 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.
OVERLAND PARK, Kan. (BUSINESS WIRE), July 30, 2014 - Sprint Corporation (NYSE:S, news, filings) today reported operating results for the first fiscal quarter of 2014, including net income of $23 million, the best performance in almost seven years when excluding the non-cash transaction-related impacts from last year, and consolidated operating income of $519 million, the highest in more than seven years.

“We reached several key milestones for the company this quarter, including largely completing a multi-year project to upgrade our core 3G and voice network, expanding 4G LTE coverage to approximately 254 million people and launching nationwide availability of HD Voice,” said Dan Hesse, Sprint CEO. “Our complete network replacement impacted the network experience, so we lost customers last quarter. To improve customer confidence given our recent network build progress, we launched the Sprint Satisfaction Guarantee, which invites customers to experience our new and improved network and enjoy the value of our Sprint Framily plans.”

Adjusted EBITDA* Shows Solid Year-Over-Year Growth

Adjusted EBITDA* of $1.83 billion grew 30 percent over the prior year period and Adjusted EBITDA* margin of nearly 24 percent was the company’s best in six years. Wireless Adjusted EBITDA* of $1.8 billion increased nearly 40 percent from the prior year period, driven mostly by lower expenses across several areas of the business, partially offset by declining wireless service revenues. Lower postpaid subsidy costs associated with impacts of the Sprint Easy Pay installment billing plan and device sales mix as well as lower customer care and cost of service expenses all contributed to year-over-year growth in Wireless Adjusted EBITDA* of nearly $500 million.

Sprint Platform Subscriber Loss Improves

The Sprint platform reported a net loss of 220,000 customers in the quarter, compared to a net loss of 383,000 customers last quarter and 520,000 customers in the prior year period. Sprint platform postpaid net losses of 181,000 during the quarter were largely due to expected elevated churn levels related to service disruption associated with the company’s ongoing network overhaul. However, Sprint platform postpaid gross additions grew by 16 percent compared to the year-ago quarter, and retail smartphone sales were nearly 5 million, representing a record 87 percent of total retail handset device sales in the quarter. Sprint platform prepaid net loss of 542,000 customers was primarily caused by the timing of the annual Lifeline program recertification process that impacted the Assurance Wireless® subscriber base. Sprint added 503,000 wholesale and affiliate customers during the quarter. The Sprint platform served over 53 million subscribers at the end of the quarter.

Network Deployment Reaches Key Milestones

Sprint’s replacement of its entire 3G and voice network, one of the most complex network upgrades in history, is largely complete and network performance metrics continue to improve. Sprint also hit its mid-year target for 4G LTE coverage, as the company now covers approximately 254 million people in 488 cities across the country including Pittsburgh and Buffalo, N.Y., which launched today.

Sprint HD Voice service is also now available nationwide and represents the new Sprint standard for crystal-clear voice calls. Sprint’s HD Voice provides fuller, more natural-sounding voice, plus noise-cancelling technology that virtually eliminates background noise from places like busy roads or crowded restaurants1. Over 16 million customers currently have HD Voice-enabled devices.

The deployment of Sprint Spark™, an innovative combination of advanced network and device technology that leverages the company’s 800MHz, 1.9GHz and 2.5GHz spectrum, continues to progress and is now available in 27 markets across the country. Twenty-two Sprint Spark-capable devices are currently available, including the recently launched Samsung Galaxy S® 5 Sport, LG G3, and HTC One (M8) Harman/Kardon® edition.

Sprint Satisfaction Guarantee Demonstrates Confidence in America’s Newest Network

In June, the company announced the Sprint Satisfaction Guarantee, providing wireless users a worry-free experience of Sprint’s improved network, exclusive Framily plan and unique services. If customers aren’t completely satisfied with the Sprint experience within the first 30 days, Sprint will refund the cost of their device and waive all service and activation charges.

Sprint Earns Third-Party Recognition for Customer Experience, Innovation and Corporate Responsibility

According to results from the 2014 American Customer Satisfaction Index released in May, Sprint is the most improved U.S. company in customer satisfaction, across all 43 industries, over the last six years. Additionally, Light Reading recognized Sprint with a 2014 Leading Lights Award in the category of Most Innovative 4G Service for Sprint Spark. Sprint was also the winner of the Informa Telecoms & Media MVNO’s Industry Awards Best Wholesale Operator for the second consecutive year.

Sprint also received multiple awards for its corporate responsibility efforts during the quarter. Sprint was recognized by the Department of Energy for achievements in the Better Buildings Challenge for energy reduction, and the Environmental Protection Agency recognized Sprint with the WasteWise National Partner of the Year Award for Very Large Companies for diverting solid waste from landfills. Additionally, Sprint received the VITA Achievement Award for Environmental Sustainability from the Wireless Foundation.

Forecast

The company continues to expect calendar 2014 Adjusted EBITDA* to be between $6.7 billion and $6.9 billion.
Wireless Operating Statistics (Unaudited)
Quarter To Date
6/30/14 3/31/14 6/30/13
Net (Losses) Additions (in thousands)
Sprint platform:
Postpaid (3) (181 ) (231 ) 194
Prepaid (4) (542 ) (364 ) (486 )
Wholesale and affiliate 503 212 (228 )
Total Sprint platform (220 ) (383 ) (520 )
Nextel platform:
Postpaid (3) - - (1,060 )
Prepaid (4) - - (255 )
Total Nextel platform - - (1,315 )
Transactions:
Postpaid (3) (64 ) (102 ) (179 )
Prepaid (4) (77 ) (51 ) (20 )
Wholesale 27 69 -
Total transactions (114 ) (84 ) (199 )

Total retail postpaid net losses (245 ) (333 ) (1,045 )
Total retail prepaid net losses (619 ) (415 ) (761 )
Total wholesale and affiliate net additions (losses) 530 281 (228 )
Total Wireless Net Losses (334 ) (467 ) (2,034 )

End of Period Subscribers (in thousands)
Sprint platform:
Postpaid (3) 29,737 29,918 30,451
Prepaid (4) 14,715 15,257 15,215
Wholesale and affiliate 8,879 8,376 7,710
Total Sprint platform 53,331 53,551 53,376
Nextel platform:
Postpaid (3) - - -
Prepaid (4) - - -
Total Nextel platform - - -
Transactions: (a)
Postpaid (3) 522 586 173
Prepaid (4) 473 550 39
Wholesale
227 200 -
Total transactions 1,222 1,336 212

Total retail postpaid end of period subscribers 30,259 30,504 30,624
Total retail prepaid end of period subscribers 15,188 15,807 15,254
Total wholesale and affiliate end of period subscribers 9,106 8,576 7,710
Total End of Period Subscribers 54,553 54,887 53,588

Supplemental Data - Connected Devices
End of Period Subscribers (in thousands)
Retail postpaid
988 968 798
Wholesale and affiliate 4,192 3,882 3,057
Total 5,180 4,850 3,855

Churn
Sprint platform:
Postpaid 2.05 % 2.11 % 1.83 %
Prepaid 4.44 % 4.33 % 5.22 %
Nextel platform:
Postpaid - - 33.90 %
Prepaid - - 32.13 %
Transactions: (a)
Postpaid 4.15 % 5.48 % 26.64 %
Prepaid 6.28 % 5.11 % 16.72 %

Total retail postpaid churn 2.09 % 2.18 % 2.63 %
Total retail prepaid churn 4.50 % 4.35 % 5.51 %

Nextel Platform Subscriber Recaptures
Subscribers (in thousands) (5):
Postpaid - - 364
Prepaid - - 101
Rate (6):
Postpaid - - 34 %
Prepaid - - 39 %

(a) We acquired approximately 352,000 postpaid subscribers and 59,000 prepaid subscribers through the acquisition of assets from U.S. Cellular when the transaction closed on May 17, 2013. We acquired approximately 788,000 postpaid subscribers, 721,000 prepaid subscribers, 93,000 wholesale subscribers and transferred 29,000 Sprint wholesale subscribers that were originally recognized through our Clearwire MVNO arrangement to Transactions postpaid subscribers as a result of the Clearwire acquisition when the transaction closed on July 9, 2013.

Wireless Operating Statistics (Unaudited) (continued)

Successor

Predecessor

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13
ARPU (b)
Sprint platform:
Postpaid $ 62.07 $ 63.52 $ 64.20
Prepaid $ 27.38 $ 26.45 $ 26.96
Nextel platform:
Postpaid $ - $ - $ 36.66
Prepaid $ - $ - $ 34.48
Transactions: (a)
Postpaid $ 39.16 $ 37.26 $ 59.87
Prepaid $ 45.15 $ 43.80 $ 19.17

Total retail postpaid ARPU $ 61.65 $ 62.98 $ 63.59
Total retail prepaid ARPU $ 27.97 $ 27.07 $ 27.02

(a) We acquired approximately 352,000 postpaid subscribers and 59,000 prepaid subscribers through the acquisition of assets from U.S. Cellular when the transaction closed on May 17, 2013. We acquired approximately 788,000 postpaid subscribers, 721,000 prepaid subscribers, 93,000 wholesale subscribers and transferred 29,000 Sprint wholesale subscribers that were originally recognized through our Clearwire MVNO arrangement to Transactions postpaid subscribers as a result of the Clearwire acquisition when the transaction closed on July 9, 2013.
(b) ARPU is calculated by dividing service revenue by the sum of the average number of subscribers in the applicable service category. Changes in average monthly service revenue reflect subscribers 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 subscribers, plus the net effect of average monthly revenue generated by new subscribers and deactivating subscribers.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Millions, except per Share Data)
Successor
Predecessor
Combined (1)

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13 6/30/13 6/30/13

Net Operating Revenues $ 8,789 $ 8,875 $ - $ 8,877 $ 8,877
Net Operating Expenses
Cost of services 2,520 2,622 - 2,747 2,747
Cost of products 2,158 2,038 - 2,298 2,298
Selling, general and administrative 2,284 2,371 22 2,442 2,464
Depreciation and amortization 1,281 1,297 - 1,632 1,632
Other, net 27 127 - 632 632
Total net operating expenses 8,270 8,455 22 9,751 9,773
Operating Income (Loss) 519 420 (22 ) (874 ) (896 )
Interest expense (512 ) (516 ) - (428 ) (428 )
Equity in earnings (losses) of unconsolidated investments and other, net 1 1 (153 ) (240 ) (393 )
Income (Loss) before Income Taxes 8 (95 ) (175 ) (1,542 ) (1,717 )
Income tax benefit (expense) 15 (56 ) 61 (55 ) 6
Net Income (Loss) $ 23 $ (151 ) $ (114 ) $ (1,597 ) $ (1,711 )

Basic Net Income (Loss) Per Common Share $ 0.01 $ (0.04 ) NM $ (0.53 ) NM
Diluted Net Income (Loss) Per Common Share $ 0.01 $ (0.04 ) NM $ (0.53 ) NM
Basic Weighted Average Common Shares outstanding 3,945 3,949 NM 3,022 NM
Diluted Weighted Average Common Shares outstanding 4,002 3,949 NM 3,022 NM

Effective Tax Rate -187.5 % -58.9 % 34.9 % -3.6 % 0.3 %

NON-GAAP RECONCILIATION - NET INCOME (LOSS) TO ADJUSTED EBITDA* (Unaudited)
(Millions)
Successor
Predecessor
Combined (1)

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13 6/30/13 6/30/13

Net Income (Loss) $ 23 $ (151 ) $ (114 ) $ (1,597 ) $ (1,711 )
Income tax (benefit) expense (15 ) 56 (61 ) 55 (6 )
Income (Loss) before Income Taxes 8 (95 ) (175 ) (1,542 ) (1,717 )
Equity in (earnings) losses of unconsolidated investments and other, net (1 ) (1 ) 153 240 393
Interest expense 512 516 - 428 428
Operating Income (Loss) 519 420 (22 ) (874 ) (896 )
Depreciation and amortization 1,281 1,297 - 1,632 1,632
EBITDA* 1,800 1,717 (22 ) 758 736
Severance and exit costs (7) 27 52 - 632 632
Asset impairments (8) - 75 - - -
Business combinations (9) - - - 34 34
Adjusted EBITDA* $ 1,827 $ 1,844 $ (22 ) $ 1,424 $ 1,402
Capital expenditures (2) 1,416 1,057 - 1,897 1,897
Adjusted EBITDA* less Capex $ 411 $ 787 $ (22 ) $ (473 ) $ (495 )

Adjusted EBITDA Margin* 23.8 % 23.4 % NM 17.7 % 17.4 %

Selected item:
(Decrease) Increase in deferred tax asset valuation allowance $ (27 ) $ 82 $ - $ 621 $ 621

WIRELESS STATEMENTS OF OPERATIONS (Unaudited)
(Millions)

Successor
Predecessor

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13
Net Operating Revenues
Service revenue
Sprint platform:
Postpaid (3) $ 5,553 $ 5,719 $ 5,835
Prepaid (4) 1,221 1,232 1,276
Wholesale, affiliate and other 163 145 131
Total Sprint platform 6,937 7,096 7,242
Nextel platform:
Postpaid (3) - - 74
Prepaid (4) - - 17
Total Nextel platform - - 91
Transactions:
Postpaid (3) 65 70 24
Prepaid (4) 69 75 1
Wholesale 16 14 -
Total transactions 150 159 25

Equipment revenue 1,106 999 820
Total net operating revenues 8,193 8,254 8,178

Net Operating Expenses
Cost of services 2,049 2,106 2,292
Cost of products 2,158 2,038 2,298
Selling, general and administrative 2,193 2,273 2,294
Depreciation and amortization 1,212 1,224 1,526
Other, net 23 123 632
Total net operating expenses 7,635 7,764 9,042
Operating Income (Loss) $ 558 $ 490 $ (864 )

Supplemental Revenue Data
Total retail service revenue $ 6,908 $ 7,096 $ 7,227
Total service revenue $ 7,087 $ 7,255 $ 7,358

WIRELESS NON-GAAP RECONCILIATION (Unaudited)
(Millions)

Successor
Predecessor

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13

Operating Income (Loss) $ 558 $ 490 $ (864 )
Severance and exit costs (7) 23 51 632
Asset impairments (8) - 72 -
Depreciation and amortization 1,212 1,224 1,526
Adjusted EBITDA* 1,793 1,837 1,294
Capital expenditures (2) 1,276 930 1,728
Adjusted EBITDA* less Capex $ 517 $ 907 $ (434 )

Adjusted EBITDA Margin* 25.3 % 25.3 % 17.6 %

WIRELINE STATEMENTS OF OPERATIONS (Unaudited)
(Millions)

Successor
Predecessor

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13
Net Operating Revenues
Voice $ 327 $ 352 $ 377
Data 56 62 87
Internet 345 345 432
Other 18 11 14
Total net operating revenues 746 770 910

Net Operating Expenses
Costs of services and products 626 668 669
Selling, general and administrative 85 90 112
Depreciation and amortization 67 69 105
Other, net 4 5 -
Total net operating expenses 782 832 886
Operating (Loss) Income $ (36 ) $ (62 ) $ 24

WIRELINE NON-GAAP RECONCILIATION (Unaudited)
(Millions)
Successor
Predecessor
Quarter
To
Date
Quarter
To
Date
Quarter
To
Date
6/30/14 3/31/14 6/30/13

Operating (Loss) Income $ (36 ) $ (62 ) $ 24
Severance and exit costs (7) 4 2 -
Asset impairments (8) - 3 -
Depreciation and amortization 67 69 105
Adjusted EBITDA* 35 12 129
Capital expenditures (2) 66 72 93
Adjusted EBITDA* less Capex $ (31 ) $ (60 ) $ 36

Adjusted EBITDA Margin* 4.7 % 1.6 % 14.2 %

CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)
(Millions)

Successor Predecessor Combined (1)

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date

Quarter
To
Date
6/30/14 3/31/14 6/30/13 6/30/13 6/30/13
Operating Activities
Net income (loss) $ 23 $ (151 ) $ (114 ) $ (1,597 ) $ (1,711 )
Depreciation and amortization 1,281 1,297 - 1,632 1,632
Provision for losses on accounts receivable 225 153 - 99 99
Share-based and long-term incentive compensation expense 26 35 - 16 16
Deferred income tax (benefit) expense (23 ) 46 (61 ) 52 (9 )
Equity in losses of unconsolidated investments, net - - - 257 257
Contribution to pension plan (10 ) (10 ) - - -
Amortization and accretion of long-term debt premiums and discounts (74 ) (74 ) - 13 13
Change in fair value of derivative - - 167 - 167
Other working capital changes, net (738 ) (549 ) 8 564 572
Other, net (31 ) (225 ) 8 199 207
Net cash provided by operating activities 679 522 8 1,235 1,243

Investing Activities
Capital expenditures (2) (1,246 ) (1,488 ) - (1,571 ) (1,571 )
Expenditures relating to FCC licenses (41 ) (152 ) - (68 ) (68 )
Reimbursements relating to FCC licenses 95 - - - -
Change in short-term investments, net (102 ) (115 ) - 654 654
Acquisitions, net of cash acquired - - - (509 ) (509 )
Investment in Clearwire (including debt securities) - - - (160 ) (160 )
Other, net 17 (1 ) - - -
Net cash used in investing activities (1,277 ) (1,756 ) - (1,654 ) (1,654 )

Financing Activities
Debt financing costs - (1 ) - (1 ) (1 )
Repayments of debt, financing and capital lease obligations (210 ) (159 ) - (303 ) (303 )
Proceeds from issuance of common stock, net 9 - - 44 44
Net cash used in financing activities (201 ) (160 ) - (260 ) (260 )

Net (Decrease) Increase in Cash and Cash Equivalents (799 ) (1,394 ) 8 (679 ) (671 )

Cash and Cash Equivalents, beginning of period 4,970 6,364 3 6,275 6,278

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