Sprint Reports Fiscal Year 2019 Second Quarter Results

^(a)During the three-month periods ended September 30, 2019 and June 30, 2019, net subscriber additions under the non-Sprint branded postpaid plan offering were 107,000 and 116,000, respectively, and are included in total retail postpaid subscribers above. During the three-month periods ended September 30, 2019 and June 30, 2019, end of period subscribers under the non-Sprint branded postpaid plan offering were 777,000 and 670,000, respectively, and are included in total retail postpaid subscribers above.

^(b)During the three-month period ended June 30, 2018, we ceased selling devices in our installment billing program under one of our brands and as a result, 45,000 subscribers were migrated back to prepaid from postpaid.

^(c)  As a result of our affiliate agreement with Shentel, certain subscribers have been transferred from postpaid and prepaid to affiliates. During the three-month period ended June 30, 2018, 10,000 and 4,000 subscribers were transferred from postpaid and prepaid, respectively, to affiliates.

^(d)  During the three-month period ended June 30, 2019,  one of our postpaid customers purchased a wholesale MVNO and as a result, 167,000 subscribers were transferred from the wholesale to postpaid subscriber base.

^(e)  On April 1, 2018, approximately 115,000 wholesale subscribers were removed from the subscriber base with no impact to revenue.

^(f)  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.  Postpaid phone ARPU represents revenues related to our postpaid phone connections.

^(g)  ARPA is calculated by dividing postpaid service revenue by the sum of the monthly average number of retail postpaid accounts.

WIRELESS STATEMENTS OF OPERATIONS (Unaudited)

(Millions)

Quarter To Date

Year To Date

9/30/19

6/30/19

9/30/18

9/30/19

9/30/18

Net operating revenues

Service revenue

Postpaid

$           4,218

$           4,199

$           4,255

$           8,417

$           8,443

Prepaid

792

843

954

1,635

1,936

35

280

289

315

579

5,045

5,322

5,498

10,367

10,958

Equipment sales

1,192

1,220

1,418

2,412

2,591

Equipment rentals

1,330

1,359

1,253

2,689

2,465

Total net operating revenues

7,901

8,169

15,468

16,014

Net operating expenses

Cost of services (exclusive of depreciation and amortization below)

1,591

1,519

1,466

3,110

2,895

Cost of equipment sales

1,359

1,341

1,517

2,700

2,787

Cost of equipment rentals (exclusive of depreciation below)

240

225

151

465

275

Selling, general and administrative

1,815

1,779

1,749

3,594

3,453

Depreciation – network and other

1,023

1,070

968

2,093

1,940

Depreciation – equipment rentals

1,056

1,029

1,181

2,085

2,317

Amortization

106

118

159

224

330

Other, net

20

230

58

250

95

Total net operating expenses

7,210

7,311

7,249

14,521

14,092

Operating income

$             590

$             920

$             947

$           1,922

WIRELESS NON-GAAP RECONCILIATION (Unaudited)

(Millions)

Quarter To Date

Year To Date

9/30/19

6/30/19

9/30/18

9/30/19

9/30/18

Operating income

$             357

$             590

$             920

$             947

$           1,922

Asset impairments ⁽²⁾

1

203

–

204

–

Loss from asset dispositions, exchanges, and other, net⁽³⁾

–

–

68

–

68

Severance and exit costs ⁽⁴⁾

19

27

12

46

15

Contract terminations costs ⁽⁵⁾

–

–

–

–

34

Hurricanes ⁽⁷⁾

–

–

(32)

–

(32)

Depreciation – network and other

1,023

1,070

968

2,093

1,940

Depreciation – equipment rentals

1,056

1,029

1,181

2,085

2,317

Amortization

106

118

159

224

330

Adjusted EBITDA*⁽¹⁾

$           2,562

$           3,037

$           3,276

$           5,599

$           6,594

Adjusted EBITDA margin*

50.8%

57.1%

59.6%

54.0%

60.2%

Selected items:

Cash paid for capital expenditures – network and other

$             963

$           1,027

$           1,101

$           1,990

$           2,120

Cash paid for capital expenditures – leased devices

$           1,786

$           1,516

$           1,707

$           3,302

$           3,524

WIRELINE STATEMENTS OF OPERATIONS (Unaudited)

(Millions)

Quarter To Date

Year To Date

9/30/19

6/30/19

9/30/18

9/30/19

9/30/18

Net operating revenues

$             300

$             307

$             328

$             607

$             666

Net operating expenses

Cost of services (exclusive of depreciation and amortization below)

256

262

295

518

606

Selling, general and administrative

49

45

53

94

122

Depreciation and amortization

42

47

51

89

100

Other, net

1

7

13

8

18

Total net operating expenses

348

361

412

709

846

Operating loss

$              (48)

$              (54)

$              (84)

$            (102)

$            (180)

WIRELINE NON-GAAP RECONCILIATION (Unaudited)

(Millions)

Quarter To Date

Year To Date

9/30/19

6/30/19

9/30/18

9/30/19

9/30/18

Operating loss

$              (48)

$              (54)

$              (84)

$            (102)

$            (180)

Asset impairments ⁽²⁾

1

7

–

8

–

Severance and exit costs ⁽⁴⁾

–

–

13

–

18

Depreciation and amortization

42

47

51

89

100

Adjusted EBITDA*

$                (5)

$                –

$              (20)

$                (5)

$              (62)

Adjusted EBITDA margin*

-1.7%

0.0%

-6.1%

-0.8%

-9.3%

Selected items:

Cash paid for capital expenditures – network and other

$               30

$               28

$               55

$               58

$             106

CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)

(Millions)

Year To Date

9/30/19

9/30/18

Operating activities

Net (loss) income

$            (393)

$             380

Asset impairments ⁽²⁾

212

–

Depreciation and amortization

4,494

4,691

Provision for losses on accounts receivable

266

166

Share-based and long-term incentive compensation expense 

63

68

Deferred income tax (benefit) expense

(106)

39

Amortization of long-term debt premiums, net

(31)

(67)

Loss on disposal of property, plant and equipment

465

343

Deferred purchase price from sale of receivables

–

(223)

Other changes in assets and liabilities:

Accounts and notes receivable

(435)

85

Inventories and other current assets 

503

168

Operating lease right-of-use assets

849

–

Accounts payable and other current liabilities 

(111)

(95)

Current and long-term operating lease liabilities

(955)

–

Non-current assets and liabilities, net 

(132)

(384)

Other, net 

121

186

Net cash provided by operating activities

4,810

5,357

Investing activities

Capital expenditures – network and other

(2,298)

(2,398)

Capital expenditures – leased devices

(3,302)

(3,524)

Expenditures relating to FCC licenses

(16)

(70)

Change in short-term investments, net

6

(832)

Proceeds from sales of assets and FCC licenses

599

272

Proceeds from deferred purchase price from sale of receivables

–

223

Other, net

(9)

42

Net cash used in investing activities 

Financing activities

Proceeds from debt and financings

3,364

2,944

Repayments of debt, financing and finance lease obligations

(5,826)

(2,928)

Debt financing costs

(12)

(248)

Proceeds from issuance of common stock, net

(33)

276

Net cash (used in) provided by financing activities 

(2,507)

44

Net decrease in cash, cash equivalents and restricted cash

(2,717)

(886)

Cash, cash equivalents and restricted cash, beginning of period

7,063

6,659

Cash, cash equivalents and restricted cash, end of period

$           4,346

$           5,773

RECONCILIATION TO CONSOLIDATED FREE CASH FLOW* (NON-GAAP) (Unaudited)

(Millions)

Quarter To Date

Year To Date

9/30/19

6/30/19

9/30/18

9/30/19

9/30/18

Net cash provided by operating activities

$           2,566

$           2,244

$           2,927

$           4,810

$           5,357

Capital expenditures – network and other

(1,109)

(1,189)

(1,266)

(2,298)

(2,398)

(1,786)

(1,516)

(1,707)

(3,302)

(3,524)

Expenditures relating to FCC licenses, net

(7)

(9)

(11)

(16)

(70)

Proceeds from sales of assets and FCC licenses

417

182

139

599

272

Proceeds from deferred purchase price from sale of receivables

–

–

53

–

223

Other investing activities, net

4

–

63

4

60

Free cash flow*

$               85

$            (288)

$             198

$            (203)

$              (80)

Net (repayments) proceeds of financings related to devices and receivables

(130)

230

327

100

613

Adjusted free cash flow*

$              (45)

$              (58)

$             525

$            (103)

$             533

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Millions)

9/30/19

3/31/19

ASSETS

Current assets

Cash and cash equivalents

$           4,262

$           6,982

Short-term investments

61

67

Accounts and notes receivable, net

3,723

3,554

Device and accessory inventory

963

999

Prepaid expenses and other current assets

1,197

1,289

Total current assets

10,206

12,891

Property, plant and equipment, net

20,562

21,201

Costs to acquire a customer contract

1,712

1,559

Operating lease right-of-use assets

6,885

–

Goodwill

4,598

4,598

FCC licenses and other

41,481

41,465

Definite-lived intangible assets, net

1,413

1,769

Other assets

1,071

1,118

Total assets

$         87,928

$         84,601

LIABILITIES AND EQUITY

Current liabilities

Accounts payable

$           3,918

$           3,961

Accrued expenses and other current liabilities

3,198

3,597

Current operating lease liabilities

1,835

–

Current portion of long-term debt, financing and finance lease obligations

4,101

4,557

Total current liabilities

13,052

12,115

Long-term debt, financing and finance lease obligations

33,268

35,366

Long-term operating lease liabilities

5,667

–

Deferred tax liabilities

7,489

7,556

Other liabilities

2,555

3,437

62,031

58,474

Stockholders’ equity

Common stock

41

41

Treasury shares, at cost

(16)

–

Paid-in capital

28,349

28,306

Accumulated deficit

(2,106)

(1,883)

Accumulated other comprehensive loss

(418)

(392)

Total stockholders’ equity

25,850

26,072

Noncontrolling interests

47

55

Total equity

25,897

26,127

Total liabilities and equity

$         87,928

$         84,601

NET DEBT* (NON-GAAP) (Unaudited)

(Millions)

9/30/19

3/31/19

Total debt

$         37,369

$         39,923

Less: Cash and cash equivalents

(4,262)

(6,982)

Less: Short-term investments

(61)

(67)

Net debt*

$         33,046

$         32,874

SCHEDULE OF DEBT (Unaudited)

(Millions)

9/30/19

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

7.625% Senior notes due 2026

03/01/2026

1,500

Sprint Corporation

12,000

Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC

3.36% Senior secured notes due 2021

09/20/2021

1,750

4.738% Senior secured notes due 2025

03/20/2025

2,100

5.152% Senior secured notes due 2028

03/20/2028

1,838

Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC

5,688

Sprint Communications, Inc.

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

6% Senior notes due 2022

11/15/2022

2,280

Sprint Communications, Inc.

5,780

Sprint Capital Corporation

6.875% Senior notes due 2028

11/15/2028

2,475

8.75% Senior notes due 2032

03/15/2032

2,000

4,475

Credit facilities

PRWireless secured term loan

06/28/2020

199

Secured equipment credit facilities

2021 – 2022

624

Secured term loans due 2024

02/03/2024

5,885

Credit facilities

6,708

Accounts receivable facility

2021

2,707

Financing obligations, finance lease and other obligations

2020 – 2026

396

Total principal

37,754

Net premiums and debt financing costs

(385)

Total debt

$            37,369

⁽¹⁾

For customers that elect to lease a device rather than purchasing one under our subsidized program, there is a 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 equipment sales 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 subsidy model, we recognize revenue from the sale of devices as equipment sales at the point of sale and the cost of the device is recognized as cost of equipment sales. During the three and six month periods ended September 30, 2019, we leased devices through our Sprint direct channels totaling approximately $1,309 million and $2,329 million, respectively, which would have increased cost of equipment sales and reduced EBITDA* if they had been purchased under our subsidized program.

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 in our indirect channels from the time value of money element related to the imputed interest on the installment receivable.

⁽²⁾

During the second and first quarters of fiscal year 2019, the company recorded non-cash asset impairments primarily related to the sale and leaseback of our Overland Park, Kansas campus.

⁽³⁾

During the second quarter of fiscal year 2018, the company recorded losses on dispositions of assets primarily related to cell site construction and network development costs that are no longer relevant as a result of changes in the company’s network plans.

⁽⁴⁾

During the second and first quarters of fiscal year 2019 and second and first quarters of fiscal year 2018, severance and exit costs consist of severance costs associated with reductions in our work force, and primarily exit costs related to payments that will continue to be made under our backhaul access contracts for which we will no longer receive any economic benefit.

⁽⁵⁾

During the first quarter of fiscal year 2018, contract termination costs are primarily due to the purchase of certain leased spectrum assets, which upon termination of the spectrum leases resulted in the accelerated recognition of the unamortized favorable lease balances. 

⁽⁶⁾

During the second and first quarters of fiscal year 2019 and second and first quarters of fiscal year 2018, we recorded merger costs of $69 million, $83 million, $56 million and $93 million, respectively, due to the proposed Business Combination Agreement with T-Mobile.

⁽⁷⁾

During the second quarter of fiscal year 2018 we recognized hurricane-related reimbursements of $32 million.