Sprint Corporation (S)

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Sprint Nextel (S)

Q4 2011 Earnings Call

February 08, 2012 8:00 am ET

Executives

Brad Hampton -

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

Steven L. Elfman - President of Network Operations & Wholesale

Joseph J. Euteneuer - Chief Financial Officer

Analysts

Michael Rollins - Citigroup Inc, Research Division

Jonathan Chaplin - Crédit Suisse AG, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Kevin Smithen - Macquarie Research

David Michael Dixon - FBR Capital Markets & Co., Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Brett Feldman - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning. My name is Gina, and I will be your conference operator today. 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 the call over to Brad Hampton, Vice President of Investor Relations. Sir, you may begin.

Brad Hampton

Thank you, Gina. Good morning, and welcome to Sprint Nextel's Fourth 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; then Steve Elfman, our President of Network Operations and Wholesale, will provide an update on Network Vision; and finally, 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 our Part II, Item 1A, Risk Factors of our quarterly report on Form 10-Q for the quarter ended September 30, 2011 and when filed, Part I, Item 1A, Risk Factors of our annual report on Form 10-K.

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 can be found on the attachments to our earnings release and also at the end of today's presentation.

Turning to Slide 4, with today's earnings release, we are providing a number of new disclosures related to our network platforms. We are providing this new disclosure to give you a better understanding of the underlying trends of our operations and the growth of our core Sprint platform business. In our disclosure and throughout today's call, Nextel platform refers to our iDEN business, which we’ll begin decommissioning in 2012 and Sprint platform refers to our core ongoing business, which includes CDMA, WiMAX, LTE and other network technologies.

Let's move to earnings per share on Slide 5. Basic and diluted loss per common share for the fourth quarter were $0.43 compared to $0.10 in the third quarter and $0.31 in the year-ago period. Basic and diluted loss per common share for the full year 2011 were $0.96 compared to $1.16 in the full year 2010. The loss per share increased as compared to the third quarter 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 increased sequentially due to higher equity losses in unconsolidated investments and other, as well as higher net tax expense. The current period net loss per share includes $0.04 pretax loss per share related to an impairment of our holding in Clearwire as well as $0.03 pretax loss per share related to the impairment of certain network assets related to Network Vision. The fourth quarter net loss per share also included a $0.01 pretax loss per share impact due to severance costs.

We recorded a net tax expense of $106 million in 4Q '11, which included $6 million related to changes in corporate income tax laws enacted in the quarter. For the full year 2012, we expect our net tax expense to be approximately $150 million to $200 million. Also, please keep in mind that Clearwire's fourth quarter 2011 results from operations have not yet been finalized. Please refer to the press release and our form 10-K, when it is filed, for additional detail.

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

Daniel R. Hesse

Thanks, Brad, and thank you for joining us this morning. Sprint has shown continued momentum in recent quarters, and Q4 is no exception. Before I recap our overall performance in 2011 in the context of our broader turnaround effort, let me take a moment and touch on some of the key highlights from the fourth quarter.

Turning to Slide 7. I am pleased to report today that we had a very successful launch of the iPhone, with total activations in the quarter of over 1.8 million, above our expectations. 40% of those activations were new customers to Sprint, a proof point of the renewed strength of the Sprint brand. I'm also pleased to report today a year-over-year growth of $3.69 in our Sprint platform postpaid ARPU rate, which is the largest increase on record in U.S. wireless industry history. This historic ARPU growth was achieved in the same quarter that we delivered our best postpaid voluntary churn number for any quarter since 2005 and in which we also delivered our highest postpaid gross add volume for any quarter in 4 years.

As you know, voluntary churn is churn based on the customers' choice, churn determined by the strength of the brand, the customer experience and comparative pricing. To improve postpaid churn in 2011 more than any major U.S. carrier and delivering the best annual postpaid churn in Sprint history while simultaneously increasing prices to an extent that delivered industry record-breaking ARPU in the same year is nothing short of remarkable.

The significant upfront costs associated with the introduction of the iPhone in the beginning of the ramp-up in Network Vision operating expense lowered adjusted OIBDA below historical levels, but the $842 million of adjusted OIBDA in the quarter topped the high end of our forecast and analyst estimates. This marked the third time in 2011 that quarterly OIBDA exceeded Street consensus estimates and, on a pro forma basis, full year 2011 adjusted OIBDA topped analyst consensus by over 5%.

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