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Sprint Nextel (S)

Q3 2012 Earnings Call

October 25, 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

Philip Cusick - JP Morgan Chase & Co, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

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

Jonathan Chaplin - New Street Research LLP

Brett Feldman - Deutsche Bank AG, Research Division

Kevin Smithen - Macquarie Research

Presentation

Operator

Good morning. My name is Christie, and I will be your conference operator. At this time, I would like to welcome everyone to the Sprint 2012 Third Quarter Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the call over to Brad Hampton, Vice President of Investor Relations. Mr. Hampton, please proceed.

Brad Hampton

Thank you, Christie. Good morning, and welcome to Sprint's Third Quarter 2012 Earnings Call. On today's call, Dan Hesse will discuss operational performance in the quarter; Steve Elfman will provide an update on Network Vision; and Joe Euteneuer will cover financial results. After that, we will open up the call to your questions.

However, due to securities law issues relating to the pending transaction, we will only address questions related to the ongoing business and not with respect to the pending SOFTBANK transaction or M&A-related questions. Under the merger agreement, a preliminary proxy statement with respect to the transaction is expected to be filed by the end of November and it will contain a complete description of the merger and related matters. We appreciate your understanding of and cooperation regarding this issue.

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 do 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 annual report on Form 10-K, and when filed, our quarterly report on Form 10-Q for the third quarter of 2012.

Turning to Slide 3. Throughout our call, we will refer to several non-GAAP metrics. Reconciliations of our non-GAAP performance and liquidity measures to the appropriate GAAP measures for the third quarter can be found in the attachments to our earnings release and also at the end of today's presentation, which are available on our website at sprint.com/investors.

Let's move on to earnings per share on Slide 4. Basic and diluted net loss per common share for the third quarter were $0.26 compared to $0.46 in the second quarter and $0.10 in the year ago period. There were a couple of noteworthy items impacting EPS this quarter that I'd like to cover. First, the loss per share in the current period included incremental depreciation expense of $397 million or negative $0.13 per share, primarily due to accelerated depreciation expense related to the expected shutdown of the Nextel platform. Our expectation for accelerated depreciation in Q4 is similar to that of this quarter, and we expect total depreciation for the fourth quarter of approximately $1.5 billion. Accelerated depreciation for 2013 is expected to be disproportionately weighted toward the first half of 2013 due to Nextel assets being fully depreciated by the middle of 2013.

The current period also includes $22 million or approximately negative $0.01 per share for lease exit costs, which are the net present value of remaining lease obligations associated with certain Nextel platform cell sites, which were taken off air during the quarter.

In the third quarter, we shut down approximately 1,300 Nextel platform sites, bringing the total number of sites shut down to approximately 9,600 in 2012. However, locations from which we may continue to gain future economic benefit, including co-located sites, were not included in this charge and represented approximately 39% of total Nextel sites shut down during 2012. We estimate that absent the actions taken to terminate leases in the second and third quarters of 2012, rent expense would have been higher by approximately $38 million for the third quarter and approximately $85 million for the full year 2012.

Net tax expense was $47 million in the third quarter, primarily related to state taxes. For the full year 2012, we continue to expect our net tax expense to be approximately $150 million to $200 million.

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

Daniel R. Hesse

Thank you, Brad, and thank you for joining us this morning and for your continued interest in Sprint. As Brad mentioned, today's call is about our performance in the third quarter. Our 3 priorities continue to be the customer experience, our brand and cash. But as I have mentioned in previous quarters this year, because of our heavy investments in our investment phase, our #1 priority in 2012 is cash.

Turning to Slide 6. Adjusted OIBDA of approximately $1.28 billion exceeded both our internal projections and Street consensus for the fifth consecutive quarter. Although our adjusted OIBDA margin at 16% is not yet where we want it to be over time, we are pleased with this quarter's results given the dilutive impacts of our 2 major investment areas, Network Vision and the iPhone, including the launch of the iPhone 5.

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