Sprint Corporation (S)

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Sprint Nextel Corp. (S)

Q4 2009 Earnings Call

February 10, 2010 8:00 am ET

Executives

Daniel Hesse – President & CEO

Robert Brust – CEO

Dan Schulman – President Prepaid Group

Paget Alves – President Business Markets Group

Yijing Brentano – IR

Analysts

David Barden - Banc of America

Michael Rollins - Citigroup

John Hodulik - UBS

Phil Cusick - MacQuarrie Research Equities

Simon Flannery – Morgan Stanley

Jason Armstrong - Goldman Sachs

Jonathan Chaplin - Credit Suisse

Mike McCormack – JPMorgan

James Ratcliffe - Unspecified Company

Timothy Horan - Oppenheimer & Co.

Chris Larson – Piper Jaffray

Rick Prentiss - Raymond James

David Dixon - Friedman Billings Ramsey

Presentation

Operator

At this time I would like to welcome everyone to the Sprint fourth 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 fourth quarter earnings call. Thanks for joining us this morning. For the format of the call, Daniel Hesse, our CEO, will discuss operational performance in the quarter, and then our CFO, Robert 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 website. Slide two 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 third quarter of 2009 and when filed, our Form 10-K for 2009.

Turning to slide three, 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 fourth 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 website.

Next, I would like to quickly cover our EPS results. Basic and diluted loss per common share for the fourth quarter was $0.34 compared to $0.17 in the third quarter of 2009 and $0.57 in the year-ago period. Approximately $0.11 of the fourth quarter loss per share was due to a noncash charge to increase the valuation allowance on deferred taxes. In 2009, basic and diluted loss per common share was $0.84 compared to $0.98 in 2008.

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

Daniel Hesse

Thanks Yijing, thank you for joining us this morning. I think some of you may be joining us from your homes, enjoying this winter. Going to slide number five, we’ve been making progress each quarter and the most recent quarter is no exception. I talk about the same three priorities on each of our calls; the customer experience, the brand and cash and I will keep this string going on this call.

I’ll try to shake it up today by going in reverse order, starting with cash, with $666 million of free cash flow in the fourth quarter, Sprint generated $2.8 billion in free cash flow in 2009, the highest level ever for Sprint Nextel allowing us to acquire Virgin Mobile, iPCS, and invest approximately $1.1 billion in Clearwire in the fourth quarter and still end the year with almost $4 billion in cash, cash equivalents, and short-term investment.

Robert will talk more about earnings and cash in his remarks. If you go to slide six, regarding the brand, we continue to make progress perhaps best evidenced by our improving subscriber performance. We lost a total of 69,000 retail subscribers in the quarter and fewer than one million for the entire year, an improvement of over four million year over year.

Although post-paid subscribers declined by 504,000, the fourth quarter represents both the best sequential and the best year over year improvements in company history. Sprint’s 600,000 or 54% year over year improvement post-paid results we would have achieved without any acquisitions lies in sharp contrast to the rest of the industry.

Our Sprint branded services which run on the CDMA network were net add positive in the fourth quarter and showed the best sequential improvement in almost three years. We showed a lot of progress in the second half. The improvement in net adds in the second half both year over year and compared to the first half of the year were both best ever results.

The brand improvement is being demonstrated further through gross adds. Second half gross add performance year over year and versus the first half were both the best in five years. Our estimate of fourth quarter share of gross adds or SOGA, shows an improvement year over year of 350 basis points.

Our fourth quarter cost per gross add was also the lowest in over three years. We also maintained a high percentage of prime customers on post-paid, over 84%. Churn of 2.11% was a slight improvement both sequentially and year over year. But we still need to do better with churn. Going to slide seven, fourth quarter prepaid net adds were 435,000.

For 2009 Boost generated over 2.5 million net adds and we grew Boost revenue by 35%. Although we took actions to minimize churn during the fourth quarter the success experienced by Boost unlimited during the first three quarters of 2009 became increasingly difficult to replicate. Prepaid competition expanded and intensified as our competitors used more aggressive pricing tactics.

We expect this highly competitive environment will continue. Our prepaid team is taking actions to overcome these recent challenges and expects to regain momentum during the second quarter. We expect to make meaningful progress in our prepaid net add results as we enter the second half of 2010.

Read the rest of this transcript for free on seekingalpha.com