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Clearwire (CLWR)

Q4 2011 Earnings Call

February 15, 2012 4:30 pm ET

Executives

Alice Ryder -

Erik E. Prusch - Chief Executive Officer and President

Hope F. Cochran - Chief Financial Officer

John Saw - Chief Technology Officer and Senior Vice President

Analysts

Walter Piecyk - BTIG, LLC, Research Division

Jonathan Chaplin - Crédit Suisse AG, Research Division

Richard Choe - JP Morgan Chase & Co, Research Division

Romeo A. Reyes - Jefferies & Company, Inc., Research Division

Marc Albanese - Evercore Partners Inc., Research Division

Michael J. Funk - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Clearwire Corporation Q4 2011 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn conference over to your host for today, Ms. Alice Ryder, VP of IR. Ma'am, you may begin.

Alice Ryder

Thank you, Mary. Good afternoon, and welcome to Clearwire's Fourth Quarter 2011 Financial Results Conference Call. With me today are Erik Prusch, Clearwire's President and Chief Executive Officer, and newly appointed member of Clearwire's Board of Directors; and Hope Cochran, our Chief Financial Officer. John Saw, our Chief Technology Officer, is also available for the question-and-answer session.

Today's call is being webcast live on the Clearwire Investor Relations website and will be archived on that site and available for replay shortly after we conclude. Unless otherwise mentioned, where applicable, all sequential comparisons in today's discussion reference third quarter 2011 financial measures.

In addition, today's call may contain forward-looking statements reflecting management's beliefs and assumptions concerning future events and trends in or expectations regarding financial results. Forward-looking statements include, among other things, our future financial and operating performance and financial conditions, including projections and targets for 2012 and subsequent periods, subscriber growth, network deployment or development plans, strategic plans and objectives and future liquidity.

These forward-looking statements are all based on currently available operating financial and competitive information and are subject to various risks and uncertainties. Listeners are cautioned not to put undue reliance on any forward-looking statements as they are not a guarantee of future performance. Please refer to our press release and our filings with the SEC for more information concerning risk factors that could cause actual results to differ materially from those in the forward-looking statements. The company assumes no obligation to update any of these forward-looking statements.

Finally, all mentions of EBITDA on this call reference adjusted EBITDA as defined in our press release where listeners may find definitions and reconciliations for all non-GAAP measures discussed today.

I will now turn the call over to Erik Prusch.

Erik E. Prusch

Thank you, Alice. Good afternoon, everyone. At the beginning of 2011, we laid out 4 goals for the year, all aligned towards achieving profitability. Those goals were, first, drive wholesale revenue growth; second, optimize the retail channel for cash generation with double-digit subscriber growth; third, cut costs; and fourth, develop and implement a long-term technology and funding plan.

I'm pleased to announce that through the hard work and dedication of our employees and our partners, we have achieved all 4 of our 2011 goals and also reached positive EBITDA in Q4, 1 quarter earlier than we expected.

I'll spend a few minutes discussing our accomplishments in these 4 areas. I will turn the call over to Hope to discuss our financial results and outlook and then I'll close with a discussion of our goals for 2012.

Starting with our first goal of driving the wholesale business. 2011 was a momentous year in terms of both subscriber and revenue growth and cemented our long-term strategic partnership with Sprint. During 2011, we added 5.9 million new wholesale subscribers to end the year with a total of 9.1 million, a 181% increase from the end of 2010. Wholesale revenue for the year 2011 was $494 million, which represented a staggering 876% increase from the full year 2010.

We've always recognized the need to ensure that the future growth of our business had a stable foundation on which to build. To that end, in our negotiations with Sprint during the fourth quarter, we pursued the objectives of extending our current WiMAX agreement, securing a commitment for future LTE network usage and creating a path to funding our LTE network build.

In December, we announced that we had successfully achieved those objectives with a series of new agreements that, one, extended Sprint's use of the WiMAX network through at least 2015; two, committed Sprint to prepayments for capacity on our planned LTE Advanced-ready network, subject to certain buildout conditions; and three, committed Sprint to participate in our recent equity fundraising.

Turning now to our second goal of optimizing the retail channel and targeting double-digit subscriber growth. During the year, we added 193,000 new retail subscribers to end the year with a total of 1.3 million, an 18% increase from the end of 2010. With the growth in subscribers and growth in average revenue per subscriber, as well as our meaningful cost-cutting efforts, our retail operations generated significant cash in 2011, a complete reversal of our 2010 operations which consumed a significant amount of cash.

This is an impressive accomplishment. It's also a direct result of achievements against our third goal, in cutting costs. During 2011, we implemented aggressive measures to reduce overall operating costs and improved spending efficiency throughout the business. In the second quarter, we entered into outsourcing agreements to transfer responsibility for day-to-day network management and customer care services. We also evolved our retail distribution model to focus on more low-cost channels with less overhead and drove marketing spend efficiencies.

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