Sprint Corporation (S)

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Sprint Nextel Corporation (S)

Q3 2009 Earnings Call

October 29, 2009 8:00 am ET


Yijing Brentano - Investor Relations

Daniel R. Hesse - President and Chief Executive Officer

Robert H. Brust - Chief Financial Officer


Mike McCormack – JP Morgan

John Hodulik - UBS

Jason Armstrong - Goldman Sachs

Phil Cusick - MacQuarrie Research Equities

David Barden - Banc of America

Michael Rollins - Citigroup

Rick Prentiss - Raymond James

Timothy Horan - Oppenheimer & Co.

David Dixon - Friedman Billings Ramsey

Jonathan Chaplin - Credit Suisse



At this time I would like to welcome everyone to the Sprint third quarter earnings conference call. (Operator Instructions) I would now like to turn today's call over to Yijing Brentano.

Yijing Brentano

Good morning and welcome to Sprint Nextel’s third quarter earnings call. Thanks for joining us this morning. For the format of the call, Dan Hesse, our CEO, will discuss operational performance in the quarter, and then our CFO, Bob Brust, will cover the financial aspects of the quarter.

Before we get underway, let me remind you that our release and the presentation slides that accompany this call are both available on the Investor Relations page of the Sprint Web site. Slide 2 is our cautionary statement. I want to point out that in our remarks this morning we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review, including our Form 10-Q for the second quarter of 2009 and when filed, our Form 10-Q for the third quarter of 2009.

Turning to Slide 3, throughout our call we will refer to several non-GAAP metrics. Reconciliation of our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the third quarter can be found on the attachments to our earnings release and also at the end of today’s presentation, which is stored on our Web site at www.sprint.com.

Next, I would like to quickly cover our EPS results. Basic and diluted loss per common share for the third quarter was $0.17 compared to $0.13 in the second quarter of 2009 and $0.11 in the year-ago period. As we mentioned last quarter, we are not providing adjusted net income or loss or adjusted earnings or loss per share values. Table 5 now provides you with selected items, net of taxes, for your analysis.

I will now turn the call over to Sprint CEO, Dan Hesse.

Daniel R. Hesse

Good morning everyone and thanks for joining us and for your interest in Sprint.

If you go to Slide 5, on our last earnings call, I said Sprint is not the same company that it was a year ago. A study showed that customers who had experienced Sprint's service in the past 12 months had a much more favorable view of Sprint than people who had not. I am pleased to report continued progress. Customer Satisfaction with Care and First Call Resolution has now improved for the seventh consecutive quarter and third-party sources, including J.D. Power, Boy Genius, PC World, and Laptop Magazine, confirm the progress we've made.

In addition to improving these two important areas, the customer experience and the perception of Sprint, or our brand, we continue to generate cash, our third key priority. We generated $664.0 million of free cash flow, even after a $200.0 million pension contribution, and ended the third quarter with almost $6.0 billion in cash and short-term investments.

We are far from satisfied in that we have not returned to subscriber growth yet. We did lose a total of 135,000 retail subscribers, which is a combination of our post-paid and prepaid subscribers, but this is the company's best retail net subscriber result in more than two years.

If you go to Slide 6, with respect to post-paid, after years of gross add declines, we are beginning to change this trend. Both our sequential and our year-over-year improvement in post-paid gross adds were the best in Sprint Nextel history. The year-over-year gross add improvement is the best in four and a half years and the sequential improvement in gross adds is the best in more than five years.

Based on our preliminary analysis, we believe that our third quarter share of post-paid gross ads improved sequentially by more than 120 basis points. Because of the strength of our third quarter gross adds, we improved our post-paid net subscriber result by almost 200,000 subscribers sequentially, and by more than 300,000 subscribers compared to last year.

While acquiring more customers put pressure on our third quarter OIBDA [Operating Income before Depreciation and Amortization], the improved productivity of our sales and marketing costs resulted in an 8% sequential decline in our average post-paid acquisition cost per customer. We are being prudent and selective. The percentage of our post-paid customers that have prime credit ratings are the highest in Sprint Nextel history as well.

On Slide 7, the other element of our retailer subscriber number, our prepaid business, delivered another very strong quarter, with our third consecutive quarter of over 600,000 net adds. During the first three quarters of 2009, Boost has generated over 2.1 million net adds, which is more prepaid net adds than any carrier reported on a full-year basis in 2008. We are still on track to close the Virgin Mobile acquisition in the fourth quarter, with the goal of strengthening our position in the growing prepaid market.

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