Q4 2015 Sprint Corp Earnings (Jan-Mar 2016)

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Sprint Finishes Fiscal Year 2015 by Generating Positive Annual Operating Income for the First Time in Nine Years and Delivering More Postpaid Phone Net Additions Than Verizon and AT&T for the First Time on Record in the Fiscal Fourth Quarter

Tue May 3, 2016 7:30 AM|Business Wire | About: S

Fiscal year 2015 operating income of $310 million was positive for the first time in nine years; Fiscal year 2015 Adjusted EBITDA* of $8.1 billion grew 36 percent year-over-year

Fiscal fourth quarter operating income of $8 million included charges of $258 million; Adjusted EBITDA* of $2.2 billion grew 24 percent year-over-year

Fiscal year 2015 Sprint platform postpaid net additions of more than 1.2 million, including phone net additions of 438,000 which improved nearly two million year-over-year

Fiscal fourth quarter postpaid phone net additions of 22,000 are the third consecutive quarter of positive net additions and more than both Verizon and AT&T for the first time on record

Fiscal year 2015 Sprint platform postpaid churn of 1.61 percent and phone churn of 1.52 percent are the best in company history and both improved by approximately 50 basis points year-over-year

Delivered substantial financial flexibility with $11 billion in currently committed liquidity, up from $6 billion at the end of the fiscal third quarter

Ended fiscal year 2015 with $5.7 billion of available liquidity, including $2.6 billion of cash

Successfully raised an additional $5.3 billion in April, including $2.2 billion of network-related financing, $1.1 billion from the second transaction with Mobile Leasing Solutions, LLC (MLS), and $2 billion of bridge financing

OVERLAND PARK, Kan.--(BUSINESS WIRE)-- Sprint Corporation (S) today reported operating results for fiscal year 2015 fourth quarter and full year, including a nearly two million year-over-year improvement in Sprint platform postpaid phone net additions and the lowest annual Sprint platform postpaid phone churn in company history. The company also reported fiscal year 2015 net operating revenue of $32.2 billion, operating income of $310 million, and Adjusted EBITDA* of $8.1 billion, which grew 36 percent year-over-year.

 

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20160503006056/en/

 

http://mms.businesswire.com/media/20160503006056/en/522822/4/Average_LTE_Delivered_Download_Speed_Trend.jpg

Source: Sprint analysis of Nielsen NMP data for total LTE downloads 150 KB+ in 44 markets (over 155M POPs). (Graphic: Business Wire)

 

For the fiscal fourth quarter, the company reported net operating revenue of $8.1 billion, operating income of $8 million, and Adjusted EBITDA* of $2.2 billion, which grew 24 percent year-over-year.

 

“Fiscal 2015 was a transformational year in the turnaround of Sprint. We significantly reduced our operating expenses and stabilized operating revenues, leading to positive operating income for the first time in nine years. At the same time, we generated positive postpaid phone net additions for the first time in three years, capped off by surpassing both Verizon and AT&T for the first time on record this quarter,” said Sprint CEO Marcelo Claure. “These accomplishments provide positive momentum heading into fiscal year 2016 and put the business on a path to sustainable free cash flow.”

 

Cost Reduction Effort Showing Results

 

Sprint has a multi-year plan to transform the way it does business and significantly lower its cost structure. The company has realized a $1.3 billion reduction in cost of services and selling, general and administrative (SG&A) expenses in fiscal year 2015.

 

Moving forward, Sprint expects a sustainable reduction of $2 billion or more of run rate operating expenses exiting fiscal year 2016 and has already realized a portion of these reductions with its fiscal 2015 fourth quarter results, as about half of the approximately $500 million year-over-year reduction in cost of services and SG&A expenses was related to these fiscal year 2016 initiatives. The company continues to expect approximately $1 billion of transformation program costs, split between both operating expenses and capital expenditures, to be incurred to achieve the $2 billion or more of run rate benefit. Approximately $200 million of the expected transformation program costs, mostly related to severance, were incurred in fiscal year 2015.

 

The company also reported the following financial results:

 

Net operating revenues of $8.1 billion in the quarter decreased three percent year-over-year, as growth in equipment revenue, mostly driven by higher leasing revenue, helped offset lower wireless and wireline service revenue. Net operating revenues have stabilized around $8 billion per quarter during fiscal year 2015.

 

For the full year, net operating revenues of $32.2 billion decreased seven percent year-over-year. The decline was largely due to Brightstar (BTSR) sourcing some devices in Sprint’s indirect channels, resulting in less equipment revenues than if Sprint had fulfilled these channels. While the impact to Adjusted EBITDA* was not material due to the offsetting reduction in cost of products expense, net operating revenues would have declined less year-over-year when adjusting for this change.

Wireless service revenue plus installment plan billings and lease revenue, which represents the total recurring cash flows from customers, was $7.1 billion in the fiscal fourth quarter and increased one percent from the prior year period, as growth in both postpaid phone customers and postpaid average billings per user* were partially offset by lower prepaid service revenue.

 

For the full year, wireless service revenue plus installment plan billings and lease revenue of $28.4 billion was up slightly from the prior year.

Consolidated Adjusted EBITDA* of $2.2 billion in the fiscal fourth quarter grew 24 percent from the prior year period, as expense reductions, including approximately $500 million in cost of services and SG&A expenses, more than offset the decline in net operating revenues.

 

For the full year, Consolidated Adjusted EBITDA* was $8.1 billion and grew 36 percent year-over-year.

Operating income of $8 million in the fiscal fourth quarter included $258 million of charges and compared to operating income of $318 million in the year-ago quarter. The charges were mostly related to severance and lease exit costs, including the shutdown of legacy WiMAX service that will free up valuable spectrum and immediately lower network costs. Adjusting for the charges in both periods, operating income would have been relatively flat year-over-year.

 

For the full year, operating income of $310 million improved by approximately $2.2 billion and was positive for the first time in nine years.

Net loss of $554 million, or $0.14 per share, in the fiscal fourth quarter compared to a net loss of $224 million, or $0.06 per share, in the year-ago period. Adjusting for the aforementioned charges, net loss per share would have been relatively flat year-over-year.

 

For the full year, net loss was approximately $2 billion, or $0.50 per share, compared to a net loss of approximately $3.3 billion, or $0.85 per share, in the prior year, which is an improvement of $1.3 billion, or $0.35 per share.

Adjusted free cash flow* was $603 million in the fiscal fourth quarter compared to negative $914 million in the prior year, an improvement of approximately $1.5 billion, which was driven by improved business trends and lower capital spending.

 

For the full year, Adjusted free cash flow* of negative $1.4 billion compared to negative $3.3 billion in the prior year, an improvement of nearly $2 billion.

Postpaid Phone Customer Growth Continues

 

Sprint has been focused on attracting and retaining higher value postpaid phone customers and added 22,000 of these customers in a highly competitive fiscal fourth quarter, bringing the fiscal year total to 438,000 – an improvement of nearly two million from the prior year and the third consecutive quarter of positive postpaid phone net additions.

 

Significant network improvements, a more compelling value proposition, and better customer quality have led to higher customer retention, with postpaid phone churn reaching a record low of 1.52 percent in fiscal year 2015 and improving by approximately 50 basis points year-over-year. For the fiscal fourth quarter, postpaid phone churn of 1.56 percent improved 22 basis points year-over-year.

 

In addition, the company also saw year-over-year growth in postpaid phone gross additions for both the fiscal fourth quarter and full year.

 

The company also reported the following Sprint platform results:

 

Total net additions were 447,000 in the fiscal fourth quarter, including postpaid net additions of 56,000, prepaid net losses of 264,000, and wholesale and affiliate net additions of 655,000.

 

For the full year, total net additions were nearly 2.7 million, including postpaid net additions of more than 1.2 million, prepaid net losses of 1.3 million, and wholesale and affiliate net additions of over 2.7 million.

Postpaid churn of 1.72 percent in the fiscal fourth quarter improved by 12 basis points year-over-year and was the lowest ever for a fiscal fourth quarter.

 

For the full year, postpaid churn of 1.61 percent was also the best in company history and improved by approximately 50 basis points year-over-year.

$11 Billion of Committed Liquidity

 

Sprint has taken several actions to improve its financial flexibility and currently has $11 billion of committed liquidity, up from $6 billion at the end of the fiscal third quarter. The company also has an additional $1.2 billion of availability under vendor financing agreements that can be used toward the purchase of 2.5 GHz network equipment.

 

Total liquidity at the end of fiscal year 2015 was $5.7 billion, including $2.6 billion of cash and cash equivalents, $3 billion of undrawn borrowing capacity under the revolving bank credit facility, and approximately $100 million of undrawn availability under the receivables facility.

Sprint received $2.2 billion from the sale and lease-back of certain existing network assets at an attractive cost of funding in the mid-single digits. This transaction did not include any of the company’s spectrum assets.

The company executed its second sale-leaseback transaction of certain leased devices with MLS, providing a $1.1 billion cash infusion.

Sprint signed an 18-month bridge financing facility for $2 billion with better terms than its alternatives in the high-yield debt market.

These sources of liquidity are expected to provide the resources for the company to execute its transformation plan and fully fund the repayment of the $3.3 billion of note maturities that come due in fiscal year 2016. The company continues to consider financing initiatives, including structures that would involve a small portion of its spectrum assets, as well as additional transactions with MLS to fund its transformation, continue to improve the network, and meet its future financial obligations.

 

LTE Plus Network Expanding and Outperforming the Competition

 

The Sprint LTE Plus Network, which takes advantage of the company’s rich tri-band spectrum portfolio and uses some of the world’s most advanced technologies in wireless such as carrier aggregation and antenna beamforming, is now available in 204 markets across the country, including recent launches in New York City, Boston, and Philadelphia.

 

The expansion is driving network performance that is beating the competition. An analysis of Nielsen Mobile Performance crowd-sourced data from January through March 2016 showed that Sprint’s LTE Plus Network continued to outperform Verizon, AT&T and T-Mobile by delivering the fastest LTE download speeds.

 

Total LTE coverage now reaches nearly 300 million people, including approximately 70 percent being covered by the 2.5 GHz spectrum deployment.

 

Outlook

 

The company expects fiscal year 2016 Adjusted EBITDA* to be $9.5 billion to $10 billion.

The company expects fiscal year 2016 operating income to be $1 billion to $1.5 billion.

The company expects fiscal year 2016 cash capital expenditures, excluding indirect channel device leases, to be approximately $3 billion, as non-network expenditures are expected to decline year-over-year and more of the cash outlays related to network densification are expected to be incurred in fiscal year 2017. The company’s deep spectrum position and its small cell focused densification are also expected to improve overall capital efficiency.

ine asset group, which consists primarily of property, plant and equipment.

 

(4)

As more of our customers elect to lease a device rather than purchasing one under our subsidized program, there is a positive impact to EBITDA* and Adjusted EBITDA* 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 twelve-month periods ended March 31, 2016, we leased devices through our Sprint direct channels totaling approximately $600 million and $3.2 billion, 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 twelve-month periods ended March 31, 2016, the equipment revenue derived from customers electing to finance their devices through device leasing or installment billing programs in our direct channel was 58% and 51%, respectively.

 

The impact to EBITDA* and Adjusted EBITDA* resulting from the sale of devices under our installment billing program is neutral except for the impact from the time value of money element related to the imputed interest on the installment receivable.

 

(5) During the fourth and second quarters of fiscal year 2015, we 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.

 

(6) 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 our backhaul access contracts for which we will no longer be receiving any economic benefit, and severance costs associated with reduction in our work force.

 

(7) For the fourth and third quarters of fiscal year 2015, litigation activity is a result of unfavorable developments in connection with pending litigation.

 

(8) The partial pension settlement resulted from amounts paid to eligible terminated participants who voluntarily elected to receive lump sum distributions as a result of an approved plan amendment to the Sprint Retirement Pension Plan by the Board of Directors in June 2014.

 

(9) 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.

 

(10) During the fourth quarter of fiscal year 2015, the Company elected to adopt accounting guidance which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. Also addressed in this guidance is the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. We elected to adopt the guidance early with full retrospective application. Debt issuance costs associated with our revolving credit facility remain in "Other assets" on the consolidated balance sheet and continue to be amortized over the term of the facility as allowed by the guidance. For the year ended March 31, 2015 debt issuance costs for all other debt totaling $189 million have been reclassified from "Other assets" to "Long-term debt, financing and capital lease obligations" on the consolidated balance sheet.

 

*FINANCIAL MEASURES

[JimBob]

*press release*

 

http://www.businesswire.com/news/home/20160503006056/en/

[RedSpark]

LTE network now covering 300 Million people.  Good to see that.  Keep it up.

 

Approximately 70% of the footprint has been covered by the 2.5 GHz deployment. There's more to do!

 

Per the SPRINT QUARTERLY INVESTOR UPDATE– FISCAL 4Q15 (Page 5):

 

 

• Device financing take rate was 63 percent of postpaid sales for the quarter (45 percent on leasing and 18 percent on installment plans) compared to 53 percent for the year-ago period and 65 percent in the prior quarter. At the end of the quarter, 46 percent of the postpaid connection base was active on a device financing agreement (33 percent on leasing and 13 percent on installment plans) compared to 25 percent in the year-ago quarter and 44 percent in the prior quarter.
• Phone financing take rate was 71 percent of phone sales for the quarter compared to 61 percent for the year-ago period and 71 percent in the prior quarter. At the end of the quarter, 54 percent of the phone connection base was active on a device financing agreement compared to 28 percent in the year-ago quarter and 51 percent in the prior quarter. The percentage of our postpaid phone base on unsubsidized plans was 61 percent at the end of the quarter compared to 37 percent in the year-ago period and 57 percent in the prior quarter.
• Upgrade rate was 5.9 percent during the quarter compared to 7.5 percent for the year-ago quarter and 9.3 percent for the prior quarter. The year-over-year decline was driven by a lower percentage of the base being eligible for upgrades compared to the prior year, while the sequential decrease was due to seasonality
• Tri-band LTE phones represented 69 percent of the 25.3 million ending postpaid phone connection base compared to 37 percent at the end of the year-ago quarter and 64 percent at the end of the prior quarter. During the quarter, 90 percent of postpaid phones sold were tri-band.
• Smartphones represented 92 percent of the ending postpaid phone connection base compared to 88 percent at the end of the year-ago quarter and 91 percent at the end of the prior quarter. During the quarter, 97 percent of postpaid phones sold were smartphones.
• Carrier aggregation capable phones, which allow for higher data speeds, were 74 percent of postpaid phones sold during the quarter, increasing the number of these phones within the phone base to 28 percent.

 

 

People have to keep upgrading! There's still a lot of the userbase which can get a Triband or CA-capable device.

[Arysyn]

Approximately 70% of the footprint has been covered by the 2.5 GHz deployment. There's more to do!

 

Per the SPRINT QUARTERLY INVESTOR UPDATE– FISCAL 4Q15 (Page 5):

 

 

People have to keep upgrading! There's still a lot of the userbase which can get a CA-capable device.

 

Yes they do! Hopefully more high-end devices too.

[Terrell352]

Approximately 70% of the footprint has been covered by the 2.5 GHz deployment. There's more to do!

 

Per the SPRINT QUARTERLY INVESTOR UPDATE– FISCAL 4Q15 (Page 5):

 

 

People have to keep upgrading! There's still a lot of the userbase which can get a Triband or CA-capable device.

I don't believe this at all. Even there coverage map is nowhere near 70% coverage. When Sprint LTE was 70% finished it was easy find it. 2500 at 70% is still non existent for miles. Granted my home site just recieved nokia equipment this week but its still much harder to find a tower with b41 on it.

[Terrell352]

I am impressed that Sprint has done so well though. It's going to be a interesting summer.

[RedSpark]

The Quarterly Presentation is chock full of good stuff.

 

Listening to the call, and if I heard correctly, it sounds like 3xCA is coming to the network in 1Q2017.

 

Also, it seems Sprint will also demonstrate 5G at Copa America by streaming two 4K streams.

[NYC126]

The Quarterly Presentation is chock full of good stuff.

 

Listening to the call, and if I heard correctly, it sounds like 3xCA is coming to the network in 1Q2017.

 

Also, it seems Sprint will also demonstrate 5G at Copa America by streaming two 4K streams.

 

WTF, 3x next year no good. This delay is not about technical problems, but lack of $$$ for additional backhaul.

[payturr]

WTF, 3x next year no good. This delay is not about technical problems, but lack of $$$ for additional backhaul.

Not true. The backhaul currently in place is scalable over 1Gbps, meaning they'd just need to call vendors to turn up the dial. If they're waiting until Q12017, it's because they plan to address the existence of Clear WiMAX equipment that can generally only handle 2 carriers.

[Jones]

WTF, 3x next year no good. This delay is not about technical problems, but lack of $$$ for additional backhaul.

Didn't Sprint change their financial calendar so 1Q actually means Sept to Dec 2016? or am I mistaken

[nexgencpu]

WTF, 3x next year no good. This delay is not about technical problems, but lack of $$$ for additional backhaul.

I think they are being conservative..third carrier deployment going pretty steady as we speak.

[Jones]

"more of the cash outlays related to network densification are expected to be incurred in fiscal year 2017." (Apr 2017 - Mar 2018)

 

This makes me sad too

[NYC126]

Didn't Sprint change their financial calendar so 1Q actually means Sept to Dec 2016? or am I mistaken

If that is the case then most likely it will be launched around September just like 2x was deployed late August 2015.

[nexgencpu]

This makes me sad too

I think its a time based situation with construction approval.

[Jones]

I think its a time based situation with construction approval.

Oh, so they will be paying for the work after it's been completed? Giving the time frame of FY2017 for payments assuming that work will be completed before then?

[nexgencpu]

Oh, so they will be paying for the work after it's been completed? Giving the time frame of FY2017 for payments assuming that work will be completed before then?

Marcelo just mentioned it. Looks like that is the case, they just started seeing the majority of the approvals for construction kick in.

[lilotimz]

It's like people don't understand that Sprint is trying to under promise and over deliver after all the broken deadlines and dates in the past.

 

Sent from my Nexus 5X

[NYC126]

Oh, so they will be paying for the work after it's been completed? Giving the time frame of FY2017 for payments assuming that work will be completed before then?

Yup, that is when the bills will start to come from the small cells deployment.

[dnicekid]

The Quarterly Presentation is chock full of good stuff.

 

Listening to the call, and if I heard correctly, it sounds like 3xCA is coming to the network in 1Q2017.

 

Also, it seems Sprint will also demonstrate 5G at Copa America by streaming two 4K streams.

 

I thought 3xca was already available on new phones?? New Sammy was supposed to have it?? Do they mean completed?

[Overstew]

I thought 3xca was already available on new phones?? New Sammy was supposed to have it?? Do they mean completed?

It means network-wise, the network will be able to support 3xCA by then.  The phones already support it, they just need to program the cell towers to broadcast and configure B41 for 3 channels.

[tyroned3222]

I think they are being conservative..third carrier deployment going pretty steady as we speak.

So, the few markets that are reporting 3CA are for testing I assume?

 

Sent from my SM-G935V using Tapatalk

[nexgencpu]

So, the few markets that are reporting 3CA are for testing I assume?

 

Sent from my SM-G935V using Tapatalk

They are live for non CA devices, so not just testing. 

[tyroned3222]

They are live for non CA devices, so not just testing.

Nice ! Sounds like big improvements with a lot more work left to do

 

Sent from my SM-G935V using Tapatalk

[Paynefanbro]

So, the few markets that are reporting 3CA are for testing I assume?

 

Sent from my SM-G935V using Tapatalk

 

 

It's not that they're reporting 3xCA, it's that they're reporting a third Band 41 carrier.

[tyroned3222]

The Quarterly Presentation is chock full of good stuff.

 

Listening to the call, and if I heard correctly, it sounds like 3xCA is coming to the network in 1Q2017.

 

Also, it seems Sprint will also demonstrate 5G at Copa America by streaming two 4K streams.

Did they announce anything on the 800 mhz

 

Sent from my SM-G935V using Tapatalk