Sprint Nextel Reports Results for 1Q 2009

Sprint Nextel Corp. has reported first quarter 2009 financial results.

In a release on May 4, the company noted that it generated $796 million of Free Cash Flow- in the quarter. As of March 31, the company had $4.5 billion of cash and cash equivalents and $1.4 billion of borrowing capacity available under its revolving bank credit facility, for total liquidity of $5.9 billion.

The company reported consolidated net operating revenues of $8.2 billion and a diluted loss per share of 21 cents. The company recorded $327 million of severance and exit costs, primarily related to the reduction in work force announced in January 2009. Adjusted EPS before Amortization- was 3 cents for the quarter.

"In the first quarter, we again made progress in our major areas of focus: financial stability, improving the customer experience and reinvigorating the brand," said Dan Hesse, Sprint Nextel CEO. "We achieved the largest sequential improvement in overall gross adds and net adds in Sprint Nextel history, reduced churn versus the prior year, and we generated more than enough cash in this quarter alone to pay all of our 2009 debt maturities.

"In customer care, our consecutive monthly improvement in first call resolution and customer satisfaction metrics has now extended to 15 months. This occurred even as we reduced cost by discontinuing the use of another six vendor call centers in the first quarter, bringing the reduction in call centers to 17 over the past 12 months. We performed well in the J.D. Power 2009 Wireless Call Quality Performance Study, including a tie for first place in the Western region, and achieved other third-party confirmations of our solid network performance," Hesse said.

In the first quarter, the company announced it will be the exclusive carrier partner for the Palm Pre, a compelling wireless device for both consumer and business customers.

Sprint 4G WiMAX service is currently available in Baltimore and is expected to be available in Portland this summer. In the first quarter, the company announced it also plans to launch WiMAX service in Atlanta, Las Vegas, Chicago, Charlotte, Dallas/Ft. Worth, Honolulu, Philadelphia and Seattle in 2009, and expects 2010 launch cities to include New York, Boston, Washington, D.C., Houston and the San Francisco Bay Area.

The company also noted business highlights:

Wireless Customers

- The company served 49.1 million customers at the end of the quarter, compared to 49.3 million at the end of 2008. This includes 35.4 million post-paid subscribers (25.3 million on CDMA, 8.9 million on iDEN, and 1.2 million Power Source users who utilize both networks), 4.3 million prepaid subscribers (3.5 million on iDEN and 800,000 on CDMA) and 9.4 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.

- For the quarter, total wireless customers declined by approximately 182,000, including net losses of 1.25 million post-paid customers - comprising 531,000 CDMA and 719,000 iDEN customers (including a net 94,000 customers who transferred from the iDEN network to the CDMA network). The company also lost 90,000 prepaid CDMA customers. The company gained a net 764,000 prepaid iDEN customers and 394,000 wholesale and affiliate subscribers. The company achieved total subscriber growth on the iDEN network.

- The sequential decline in total subscribers improved by more than 1 million. Subscriber growth in wholesale was primarily driven by the increasing market opportunity for open network devices, such as the Amazon Kindle 2, that extend broadband wireless connectivity to a variety of electronic applications.

- The credit quality of our post-paid customer base remained at approximately 84 percent prime, compared to 81 percent a year ago.

- About 8.6 percent of post-paid customers upgraded their handsets during the first quarter, resulting in increased contract renewals.

- In the first quarter, the company added to its device and service capabilities with the launch of the Treo Pro, LG Rumor2, the next generation of LG Rumor, and the Sierra Wireless 598U, providing customers a dependable connection on Sprint's Mobile Broadband Network. Additionally, the company launched the Motorola Stature i9 - the newest Nextel Direct Connect-capable device available to both prepaid and post-paid customers.

- In addition to the planned launch of the Palm Pre in the first half of 2009, Sprint in April launched the Samsung Instinct s30, the AirCard 402 by Sierra Wireless and the Sanyo SCP-2700. The company plans to launch a total of seven new Nextel Direct Connect handsets as part of its new device portfolio in 2009, with most launching during the first half of the year.

Wireless Churn

- Post-paid churn was 2.25 percent compared to 2.16 percent in the fourth quarter and 2.45 percent in the year-ago period. The sequential increase in churn is primarily driven by deactivations on business lines, made worse by current economic conditions, and the year-over-year decrease is due to the improvement in the credit quality of our customer base and was achieved in spite of a reduction in customer credits.

- Boost churn in the first quarter was 6.86 percent, compared to 8.20 percent in the fourth quarter of 2008 and 9.93 percent in the year-ago period. The year-over-year improvement in churn is due to fewer deactivations, and the sequential improvement is due to fewer deactivations and a slightly larger subscriber base as a result of the national Boost Monthly Unlimited offer.

Wireless Service Revenues

- Wireless service revenues for the quarter of $6.4 billion declined 10 percent year-over-year and 2 percent sequentially. The year-over-year decline and the sequential decline were due primarily to fewer wireless subscribers.

- Wireless post-paid ARPU in the quarter was stable sequentially and year-over-year at $56, primarily due to growth in fixed-rate bundled plans such as Simply Everything, offset by seasonal declines in usage.

- Data revenues contributed greater than $15 to overall post-paid ARPU in the first quarter, led by growth in CDMA data ARPU. CDMA data ARPU increased about 5 percent from the fourth quarter, to greater than $18, an industry-best that now represents more than 31 percent of total CDMA ARPU.

- Prepaid ARPU in the quarter was approximately $31 compared to $29 in the year-ago period and $30 in the fourth quarter of 2008. The year-over-year and sequential increases reflect a growing contribution from prepaid subscribers on unlimited plans.

- Wholesale, affiliate, and other revenues were down sequentially and as compared to the year-ago period. Although the company experienced strong growth in the total wholesale subscriber base, most of the growth was in services with lower revenue per subscriber, minimal acquisition costs and no subsidy expenses.

Wireless Operating Expenses and Adjusted OIBDA-

- Total operating expenses, after normalizing for special items, were $7.3 billion in the first quarter, compared to $8.2 billion in the year-ago period and $7.6 billion in the fourth quarter of 2008.

- Adjusted OIBDA- of $1.4 billion in the quarter compares to $1.8 billion in the first quarter of 2008 and $1.5 billion in the fourth quarter of 2008. The year-over-year decline in Adjusted OIBDA- was primarily due to fewer wireless subscribers, offset by an improvement of $560 million in SG&A expenses. The sequential decline was due primarily to fewer wireless subscribers partially offset by lower cost of service and continued improvement in SG&A expenses.

- Equipment subsidy was almost $850 million (equipment revenue of approximately $450 million, less cost of products of $1.3 billion) as compared to $800 million in the fourth quarter of 2008 and about $700 million a year ago. The year-over-year increase in subsidy is primarily due to the increase in the average cost per handset sold as the company continued to sell a greater number of higher-priced units, partially offset by a decrease in the number of handsets sold. The sequential increase in subsidy is primarily due to the increase in overall handset sales.

- SG&A expenses declined over 20 percent from the first quarter of 2008 and 5 percent from the fourth quarter of 2008. The year-over-year improvement is due to lower selling, bad debt, customer care and labor expenses. On a sequential basis, the decline reflects lower selling and customer care expenses.

- Bad debt expense was at its lowest level since 2005 due to the continued improvement in the credit quality of our subscribers, and continued actions to address customer payment plans and rate plan needs.

Wireless Capital Spending

Wireless capital expenditures were almost $200 million in the first quarter, compared to about $300 million spent in the fourth quarter of 2008 and more than $900 million spent in the first quarter of 2008. In the fourth quarter of 2008, we added capacity and introduced EVDO capability in certain smaller markets. Wireless capital expenditures decreased sequentially as we exited 2008 with excess capacity on our networks. The year-over-year decrease in wireless capital spending reflects reduced capacity needs due to fewer subscribers and the conclusion of several network and IT investment initiatives. At the end of the quarter, Sprint's CDMA and iDEN networks continue to operate at best-ever levels, and according to third-party data, Sprint has the most dependable+ 3G network in the country.

Forecast

Sprint Nextel anticipates that an increasing number of wireless customers could choose prepaid services instead of post-paid services in this economic environment. Nevertheless, the company continues to expect that not only prepaid, but also post-paid and total subscriber full-year losses should improve in 2009 as compared to 2008. In addition, the company still expects that full-year capital expenditures in 2009 will be consistent with 2008 levels, excluding WiMAX. The company expects to continue to generate positive Free Cash Flow- during the remainder of 2009, aided by the growth of Boost Monthly Unlimited.

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