Sprint Corporation (S)

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Sprint Nextel (S)

Q1 2011 Earnings Call

April 28, 2011 8:00 am ET

Executives

Steven Elfman - President of Network Operations & Wholesale

Joseph Euteneuer - Chief Financial Officer

Daniel Hesse - Chief Executive Officer, President, Director and Chairman of Executive Committee

Yijing Brentano - Vice President Investor Relations

Analysts

John Hodulik - UBS Investment Bank

Philip Cusick - JP Morgan Chase & Co

Jonathan Chaplin - Crédit Suisse AG

Simon Flannery - Morgan Stanley

Michael Rollins - Citigroup Inc

David Dixon - FBR Capital Markets & Co.

David Barden

Brett Feldman - Deutsche Bank AG

Jason Armstrong - Goldman Sachs Group Inc.

Presentation

Operator

Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprint First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Yijing Brentano, VP of Investor Relations. Thank you, Mr. Brentano, you may begin.

Yijing Brentano

Thank you, Carmen. Good morning, and welcome to Sprint Nextel's First Quarter 2011 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, Joe Euteneuer, 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 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 Part I, Item 1A Risk Factors of our annual report on Form 10-K and, when filed, Part II, Item 1A Risk Factors of our quarterly report on Form 10-Q for the quarter ended March 31, 2011.

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 first quarter can be found on the attachments to our earnings release and also at the end of today's presentation, which are available on our website at www.sprint.com/investors.

Next, I would like to cover our loss per share results. Basic and diluted loss per common share for the first quarter were $0.15, compared to $0.31 in the fourth quarter 2010 and $0.29 in the year ago period.

The improvement in loss per share as compared to the fourth quarter 2010 was partly due to drivers that also impacted the sequential change in adjusted OIBDA, which Joe will discuss in more detail later on the call.

In addition, loss per share improved sequentially due to a reduction in depreciation and amortization and interest expense. The reduction in interest expense was driven primarily by an increase in amount of interest capitalized, which is related to our intention to deploy certain spectrum licenses as part of Network Vision, that were not previously utilized. We expect full year capitalized interest related to these spectrum licenses to be approximately $400 million.

Looking ahead at depreciation and amortization, the successful testing of push-to-talk technology on the CDMA network as part of the deployment of Network Vision in our test markets during the remainder of the year is expected to result in accelerated depreciation and amortization on certain assets.

We recorded a net tax expense of $37 million in the first quarter of 2011, primarily due to the temporary difference associated with amortization of our spectrum.

For tax reporting purposes, the spectrum intangible is amortized. So for financial reporting, it is considered an indefinite life asset with no associate amortization. Therefore, rather than expressing our income tax expense as a percentage of pretax loss as we did at year end in prior, we're now providing our expectations in terms of net tax expense to provide a clearer view of our tax outlook.

For the full year 2011, we expect our net tax expense to be approximately $200 million.

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

Daniel Hesse

Thank you, Yijing, and good morning and thanks for joining us. First, our thoughts and prayers are with the people in the Southern United States in the wake of the tragic tornadoes that have touched down there and Sprint will do all we can to help with that tragic situation.

While this is my 13th quarter at Sprint and it sure beats reporting the results after my first quarter on the job, which was the first quarter of 2008. Driven by customer service and sub-prime issues, that quarter I reported the worst postpaid churn since the Sprint Nextel merger, 2.45%.

By contrast, this quarter, I'm reporting the best quarterly postpaid churn in Sprint's long history. We continue to make slow but steady progress with respect to our goals of improving the customer experience, strengthening our brand and generating cash.

This quarter's performance is particularly noteworthy because of the unique changes in the first quarter's market dynamic. Verizon announced its iPhone and AT&T responded with price as even if duopoly provides more competition than device monopoly.

Even with these headwinds, because of our relentless focus on improving the customer experience, we felt we could increase our price per data on smart devices so that we could maintain Sprint's unique, customer friendly, unlimited and worry-free data plans.

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