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Executives

Yijing Brentano - Vice President Investor Relations

Dan Hesse – CEO

Bob Brust – CFO

Paget Alves – President, Business Markets Group

Analysts

Michael Rollins – Citi Investment

Tom Sykes – Barclays Capital

Phil Cusick – Macquarie

David Barden – Bank of America-Merrill Lynch

Simon Flannery - Morgan Stanley

Rick Prentiss – Raymond James

Jason Armstrong – Goldman Sachs

John Hodulik - UBS

Mike McCormack – JP Morgan

Tim Horan – Oppenheimer

Walter Piecyk – Pali Research

Craig Moffett - Sanford Bernstein

Chris Larsen – Piper Jaffray

Sprint Nextel Corporation (S) Q1 2009 Earnings Call May 4, 2009 8:00 AM ET

Yijing Brentano

Thanks for joining Sprint Nextel’s First Quarter Earnings Call. For the format of the call Dan Hesse our CEO will discuss operational performance and notable events in the quarter, then our CFO, Bob Brust will cover financial results. After Bob’s comments Dan will provide a few closing remarks. We will then open it up for questions.

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-K for the year ended 2008 and when filed our Form 10-Q for the first quarter of 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 first quarter can be found on the attachments to our earnings release and also at the end of today’s presentation which are stored on our website at www.Sprint.com.

On slide four we provide the normalization of net income and earnings per share for the first quarter. We reported a net loss of $594 million or $0.21 per share which compares with a loss of $505 million and $0.18 per share in the year ago period. Special items in the first quarter totaled $385 million after tax or $0.14 per share.

Amortization expenses net of taxes were $283 million or $0.10 per share. Adjusting for these items, yields and adjusted net income before amortization of $74 million and adjusted earnings per share before amortization of $0.03. This compares to adjusted earnings of $0.04 per share in the first quarter of 2008 and a loss per share of $0.01 in the fourth quarter of 2008.

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

Dan Hesse

Overall Sprint had some positive areas to point to in the first quarter as well as some areas for improvement. Cash flow, ARPU, total subscribers, customer’s service and network performance were all strong points but the impact of the economy in our disproportionately sizeable business segment continues to be a challenge for us.

In spite of the economy Sprint ended the first quarter with an increased cash balance of $4.5 billion. For the first quarter we’re reporting sequentially stable adjusted OIBDA of $1.72 billion and free cash flow this quarter of nearly $800 million from which we recently paid off all of 2009 debt service requirements. Going forward we expect to continue to generate positive free cash flow.

A year ago many questioned the utility and viability of the iDEN network driven largely by the economic difficulties, our iDEN business customers are facing we have continued to lose post-paid revenues on this platform. We are very encouraged by the success of the Boost Unlimited prepaid offer which we launched on the iDEN network in February. It has been a very long time since we’ve reported the number of iDEN network subscribers actually increasing.

The economy has created challenges and it also creates opportunities for those who adapt as necessary. The first quarter of 2009 is the first quarter where we believe that there were as many prepaid as there were post-paid customer decisions in the US. The prepaid share of the market could increase in future quarters. Like prepaid, the wholesale market including devices like the Kindle 2 is another area of growth potential.

If you go to slide seven, in terms of total subscribers Sprint produced it’s best sequential quarter in Sprint Nextel history in both gross add and net add performance, with net adds improving sequentially by over one million and gross adds increasing sequentially by 24%. In post-paid, even though our analysis indicates that in the most recent quarter we had our best sequential improvement in share of gross adds in two years, we were disappointed by the continuing sizeable losses of post-paid customers. We lost 1.25 million post-paid customers in the quarter. We need to do better.

Even though post-paid churn improved by 20 basis points year over year it ticked up slightly from the previous quarter driven primarily by economy driven disconnects from business customers. We continued our focus of putting prime credit customers on our post-paid platform with 84% of our post-paid base being prime.

If you go to slide eight, we continue to make progress improving customer satisfaction. I am pleased to say that we have not achieved 15 consecutive months of unprecedented improvement in two key metrics. First call resolution and customer care satisfaction. During March, the portion of care survey respondents that gave us the highest possible rating on their customer care experience increased by 39% from a year ago.

Meanwhile the portion of customers that gave us the lowest possible rating those most susceptible to churning for service related reasons, reached an all time low declining by 45% year over year. We were also able to issue 38% fewer care credits to customers in the first quarter of ’09 compared to the first quarter of ’08 so we are not buying these improvements in customer satisfaction scores.

Additionally, the March care calls per subscriber dropped 31% year over year. Due to the significant reduction in the number of calls to care we were able to discontinue the use of six additional vendor operator call centers during the first quarter of 2009. Due to improved operating performance we have been able to eliminate a total of 17 vendor operated call centers during the last 12 months.

Our wireless network performance continues to receive positive affirmation from third parties. We were recognized by JD Power during the first quarter with a first place ranking for call quality performance in the West region. During the last two JD Power studies our network ratings have shown sequential improvement outpacing the industry average. In fact, on a national level, according to the latest JD Power survey we have now moved ahead of two of our large national competitors in call quality.

Additionally, Street.com noted that if you want to stay connected to the web wirelessly as you travel its hard to beat Sprint. ConsumerSearch.com recently recognized Sprint as having the best coverage for frequent travelers, also noting that Sprint gives users the best download speeds on average. Yet another exhaustive independent study allows us to claim the nation’s most dependable 3G network. Taking speed to the next level we have announced that we plan to launch 10 4G markets in 2009 in at least five markets in 2010.

Our wireline network also continues to meet or exceed our customer’s expectations, evidenced by strong overall customer satisfaction scores with the most recent wireline customer satisfaction results reaching 90%. We continue to use our IP and wireless integration capabilities as a differentiator in the wireline space. Sprint is on pace to grow our IP service revenues faster then the industry in 2009, posting a solid first quarter growth rate of 16% year over year.

If you go to slide nine, new devices like the iDEN Blackberry 8350i, Motorola Stature i9, and the Palm Treo Pro have been well received by new and existing customers. Additionally, we recently launched the second generation of the popular Samsung Instinct call the Instinct s30 Mini. Customer upgrades to these types of devices have had a positive impact on our data attach rates and ARPU especially as customers upgrade to our Everything Plans. Our monthly ARPU for Smart Phone and Touch category devices continues to exceed $80. We still plan to launch the must anticipated Palm Pre during the second quarter.

On the subject of ARPU, post paid ARPU remained stable in the first quarter at $56 and our CDMA data ARPU of over $18 leads the industry. Boost Unlimited, which I talked about earlier, is also accretive to prepaid ARPU and given its low acquisition costs, reaches break even fairly quickly with a $50 a month offer for unlimited voice and text with no extra fees and no contract there isn’t a simpler higher value alternative for customers who don’t qualify or would prefer not to sign a service contract. Boost Unlimited shares the brand attributes of simplicity and value we established for Sprint with the launch of the very successfully Simply Everything Plan which was Sprint’s acquisition, retention, and ARPU MVP of last year.

We have continued to make progress in building and evolving the Sprint brand around simplicity, productivity and value, embodied in the products and services and supported by our advertising. During the first quarter, Sprint has seven advertising spots in the weekly top 10 for brand recall among all wireless ads tested by the Nielson Company.

We evolved our messaging late in 2008 to make the value message more evident. This past quarter we wanted to put an even sharper edge on that same value message with examples like throwing away a garbage bag of money, or shoveling coins into a fountain, that are a bit more in your face or explicit.

Also, based upon the success of the Widget we had experimented with on Sprint.com to illustrate what was happening on the Now Network, we saw an opportunity to bring our network to life and to illustrate the customer benefits from all the things customers can do right now in the fast moving 21st century. The early results media coverage and buzz for the Now Network campaign are promising. Overall, and most important in our first quarter, we continue to generate cash and we plan to continue to do so.

Now I’ll turn it over to the king of cash is king, Bob Brust. After his comments on the quarter’s financial results I will make some closing comments.

Bob Brust

Looking at slide 11, we had a good quarter in terms of free cash flow generating almost $800 million in the first quarter, compared to over $500 million in the fourth quarter of last year and nearly $200 million in the first quarter of last year. Our focus on closely managing capital expenditures in addition to improvements in working capital allowed us to generate significant cash this quarter.

Inventories were approximately $500 million this quarter versus approximately $840 million in the year ago period. Looking forward, we expect to continue to generate positive free cash flow during the remainder of 2009. We spent approximately $300 million in capital during the first quarter compared to approximately $550 million in the fourth quarter and $1.4 billion in the year ago period.

With the close of the Clearwire transaction in the fourth quarter, we are no longer required to spend capital on 4G investments. Additionally, with the subscriber losses we experienced in 2008 we exited the year with excess capacity. In many cases, we can deploy dark network assets minimizing our capital spend.

Our networks are operating at best ever levels and we continue to invest in the quality and performance of our networks on a market by market, sight by sight basis to ensure that our customers are guaranteed the best possible experience. We believe the full year capital expenditures of 2008 will be consistent with the 2008 levels, excluding 4G spending which was approximately $560 million last year.

Our liquidity position also strengthened during the first quarter ending with $4.5 billion in cash and $5.9 billion in total liquidity. We had no specific debt maturities due in the first quarter but have since paid our $600 million Sprint Capital Corporation Note due on May 1st. This was our only 2009 debt obligation.

In order to be in a position to pay our maturities through 2011 we only need to generate an additional $100 million of free cash flow. Looking out further, the lower graph on slide 11 shows that we will need to generate $4.3 billion in cash over the next five years or an additional $900 million this year plus $900 million in each of the next four years to fund our debt obligations through 2013. We will remain intensely focused on our liquidity position and debt reduction.

Now turning to slide 12, consolidated adjusted OIBDA for the quarter was $1.7 billion, flat with the fourth quarter and down from $2 billion in the year ago period. Adjusted OIBDA margins improved sequentially from 21.7% to 22.2%. The chart on slide 12 outlines the sequential change. Consolidated operating revenues declined 2.6% sequentially primarily due to our post-paid subscriber losses. Post-paid ARPU remained at $56 for the fifth quarter in a row. We saw ARPU benefits from fixed rate bundled plans such as Simply Everything offset by seasonal declines in usage.

On the cost side, we saw several areas of improvement during the first quarter. Cost of service was the largest driver, declining by almost $150 million or 5% sequentially. Roaming expense drove the greatest reduction due to several initiatives put in place. Within SG&A we saw a 4% reduction sequentially and a 23% reduction year over year. Sequentially, the change was largely due to improvements in care and reductions in post-paid selling expenses.

As Dan discussed, the care improvements we have seen continually drive savings from discontinued use of vended cost centers. We also saw a sequential decrease in post-paid subsidy expense in the first quarter. This was due to a lower volume of handset sales, offset by a slight rate increase due to the growing mix of Smart Phones and touch devices in the base.

With the close of the Clearwire transaction in the fourth quarter we will no longer have an OIBDA impact related to 4G. This resulted in almost $60 million of sequential OIBDA improvement. We announced a restructuring in late January that will save approximately $1.2 billion in annualized costs from the reduction of internal and external labor. We are currently on track to realize these savings.

During the first quarter we recognized $327 million in severance and exit costs primarily related to the internal workforce reduction. We ended the quarter with approximately 49,000 employees, a decrease of almost 7,000 from the end of 2008. By the end of the second quarter we expect to have approximately 48,000 employees.

Additionally, several employee benefits were terminated at the beginning of March and we also discontinued the use of six vended call centers in the first quarter which will allow to recognize external labor savings in 2009. Going forward, we will continue to look for opportunities to utilize fewer call centers to improve care metrics.

One cost increase was the launch of Boost Monthly Unlimited which was very successful in the first quarter. The sequential increase in volume for Boost drove higher prepaid subsidy and sales expense. This will be favorable to OIBDA going forward.

In summary, our liquidity position remains strong as we generated significant free cash flow in the first quarter. Although we are not satisfied with our revenue trends, we have made progress in many areas related to cost improvements that allowed us to stabilize OIBDA and increase margins during the quarter. We will continue to explore other cost reduction opportunities in the future to ensure our business continues to generate cash.

I will now turn it over to Dan for closing remarks.

Dan Hesse

In the quarter, we continued to make progress in our quest to improve the customer experience, evidenced by 15 consecutive months of improving customer satisfaction metrics. Independent surveys show we now have a very robust network but we recognize that there is usually a lag between when performance improves and when the broader marketplace recognizes these improvements. Building a strong brand takes commitment, perseverance and time.

With respect to our financial objectives, we have strengthened the company financially as today we have both more cash on the balance sheet and less debt then we ended 2008 with. Total subscriber sequential performance improvement was the best in Sprint Nextel history but we are far from satisfied with our post-paid subscriber numbers. We are hopeful that with the foundation we are laying with strong network performance and customer service improvements that the Palm Pre and a variety of other initiatives we have planned will get traction later in the year.

We’ll now open it up for Q&A.

Yijing Brentano

In just a minute, the operator will instruct our listeners on how to queue up for questions and answers session. I want to point out that you may access an audio replay or a webcast of our presentation on www.Sprint.com. We will now open the line for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Michael Rollins – Citi Investment

Michael Rollins – Citi Investment

I was wondering if you could talk a little bit more about you’d expect seasonality to move into the second quarter and into the third quarter given that historically there is some significant moves from 1Q-2Q, and 2Q-3Q and maybe how they might be similar or different to years past given the restructuring initiatives that you have underway.

If you can give us a little bit more details on the success of the Boost Unlimited on iDEN in the quarter and give us a sense, just some of the economics you’re expecting to get out of those customers.

Dan Hesse

With respect to seasonality, yes this is a seasonal business and we would expect to see a lot of the similar seasonal trends in the Q2 and Q3 of this year that the industry has seen in past year. One thing that is changing that could be different is we have seen a fairly sizeable shift, as I mentioned earlier in the remarks in the first quarter between post-paid and prepaid.

In terms of subscriber acquisition and also of course we have some economic issues this year that are non-traditional. That could have some impact on what we see in Q2 and Q3 but I’m not going to provide any additional forecast or guidance beyond what we’ve already provided. Generally I think we’ll continue to see similar, we don’t see any reason that the industry trends of seasonality will not continue.

With respect to Boost Unlimited, as you see, we had very strong subscriber numbers in the first quarter. We continue to see that momentum is still there so we are hopeful that we could have similar numbers in terms of additions in the second quarter that we do in the first quarter. I think what’s positive is that we are seeing very little cannibalization of our post-paid base, our CDMA and iDEN customers post-paid that are showing up with Boost Unlimited which is another positive for the economics.

We’re very bullish and very pleased with what we’ve seen on Boost Unlimited and as you know, we have significant amount of capacity available on the iDEN network so there’s no incremental capital cost, manufacturer that capacity or the minutes that are required to disserve those customers and the prepaid ARPU of about $50 is pretty significant for prepaid and I think you’re also seeing an improvement in churn characteristics in prepaid.

If we can simultaneously going forward, I know there was stigmas associated with the profitability of prepaid, if we can have a higher ARPU, lower churn then traditional, and also not in essence utilize capacity that’s already there, we believe that from a cash flow perspective that the Boost Unlimited could be accretive to the company going forward.

Operator

Your next question comes from Tom Sykes – Barclays Capital

Tom Sykes – Barclays Capital

I understand you don’t want to give guidance but when you look at Leap and Metro there is a big seasonal drop off in second and third quarter in terms of net adds. I realize you’re not going to be seeing an up tick in churn from customers that you signed up in fourth quarter, you didn’t have the product. Do you think we’ll see patterns similar to that or have you changed this category enough that seasonality is going to be much less evident then you might see in those traditional unlimited businesses?

Dan Hesse

I think we have a different situation in that it’s a new product; it’s a new offer from us. Quite frankly we just don’t have enough of track record and experience. We only launched the product in February, to really reach those conclusions. We clearly watch Metro and Leap and what they experience and are trying to integrate that into our own forecasting. We’re bringing on new distribution, our adds are just beginning to soak in.

We have, if you will, one might argue an advantage in being new in the marketplace but also, as I mentioned earlier, we really don’t have the experience yet with this product because we’re new to it, if you will, this unlimited product to be able to predict with a lot of certainty or confidence what’s going to happen seasonally in Q2 and Q3, its too early to tell.

Operator

Your next question comes from Phil Cusick – Macquarie

Phil Cusick – Macquarie

Can you help us talk about the cost cuts that you announced back in January, how much of that came through in the quarter and how much should come through in 2Q and then 3Q? It seems like the business, if not on the post-paid side, but on the revenue and cash flow side has sort of seen an inflection point here and maybe we’re going to see some stability going forward.

Can you talk about what you expect in terms of revenue going forward and then as those cost cuts come through should we be able to look at the OIBDA number and think that this might be the level for the next few quarters or is that too aggressive?

Bob Brust

In the first quarter we announced a series of cost cuts and during the first quarter we implemented them and as far as the people we had reduced 7,000 during the first quarter. They are essentially gone now and we should start seeing the benefits this quarter and going forward. During the first quarter we did record about $327 million of restructuring charges and that is over and past now. We continue to be doing fine with our cost reduction activity and we’ll pursue that vigorously as the year goes on.

We were pleased to see the stabilization of the OIBDA for roughly three quarters now, the rate actually increasing a little bit to 22.2%. That would be our hope that we can keep this stabilization going but we’ll have to see how the year progresses. We will continue to do everything we can to do that because we need to have a reasonably good OIBDA to maintain the cash flow of the company to deal with our debt for the next several years.

Phil Cusick – Macquarie

At what point do you expect the cost cuts that you announced in January to be fully implemented in the business?

Bob Brust

They should come up to full speed during the second quarter.

Phil Cusick – Macquarie

By 3Q we should be a full run rate on that?

Bob Brust

I would think so, yes I hope so.

Operator

Your next question comes from David Barden – Bank of America-Merrill Lynch

David Barden – Bank of America-Merrill Lynch

On the ARPU side you guys have done a pretty good job of keeping that stable now roughly year over year. In years past the explanation for why the rate of reduction in ARPU was greater then the industry average was that you were losing customers at the higher end. Now even in this environment which is a fairly tough one for everybody and guys like AT&T are talking about reaching some kind of saturation level in some circumstances for data product, you guys have flattened it out. Is that no long the case or the subscribers that you’re losing are you losing them at the lower end now or more in a balanced, a discussion of that would be helpful.

On the debt side, you guys have put together a pretty strong cash portfolio now with your facilities and you’re kind of maintaining this cash on the side and meanwhile you’ve got debt that you could easily be taking out and kind of avoiding the negative carry. What are the reasons why you’re not going out and being more aggressive in taking debt out of the market?

Dan Hesse

Going back to my comment earlier about Simply Everything being the acquisition retention in ARPU MVP of 2008, that really was when we began to stabilize ARPU and you hit the nail on the head which is we were losing high value customers at too rapid a rate. They were susceptible to churn and what we were able to do since the launch of Simply Everything which was about, kind of the end of the first quarter.

During this year period that we’re talking about is plug a hole in that dyke if you will and in addition we’ve had more customers buying up to Simply Everything then buying down. It’s been quite ARPU accretive. That has been the major story with respect to ARPU. Now if you were to take a look at our churn characteristics by MRC or monthly recurring charge, it’s inversely related in a good way where we have our lowest churn among our highest ARPU customers and our highest churn among our lowest ARPU customers. Our churn numbers are really better then they look at a surface level because those most valuable customers are the ones that are staying with us the most.

Bob Brust

On the debt issue just because we haven’t done anything doesn’t mean we won’t in the future. We are limited by our covenants that we cannot use our current cash to go out and pre-buy debt past the first maturity early in 2011 of $1.650 billion. We constantly look at that and monitor that. We wanted to get enough cash on our balance sheet so that we were clearly could handle the next two or three years out in maturities which we have. We continue to look at that. Because of the covenants we would have to issue either some form of guaranteed debt at a much higher interest rate or equity at that. We’ll consider it.

Operator

Your next question comes from Simon Flannery - Morgan Stanley

Simon Flannery - Morgan Stanley

Could you talk a little bit about the economy and what you’re seeing? I think you sighted that as one of the reasons for the weakness on the post-paid side. Other companies have talked about seeing things stabilize in sort of the March, April period. Cable companies have said they got a little bit incrementally worse if you can give some color around things that have trending during the quarter.

On the post-paid side what are the opportunities to do a refresh Boost Unlimited or some other brand on prepaid on the CDMA side given that the sub-losses and the capacity there and the obvious success of the Boost product.

Dan Hesse

With respect to the economy where we’re seeing the impact is on what we call corporate liable business customers not on the consumer side yet. Knock on wood. The consumer side has been quite resilient in this economy but businesses, kind of a couple things are happening. Number one just layoffs which mean fewer devices, companies going out of business and particularly companies that are in a lot of manufacturing construction trades and what have you that tend to be heavy actually on our iDEN network are churning at much higher rates that had left historically.

The issue from the economy for us really on the business side and I mentioned in my comments earlier we are I think the most heavily reliant on business in terms of our overall revenue mix which over a long period of time historically is a very good thing because business tends to churn at lower rates. We’ve seen a significant up tick in what we call corporate liable churn in the past year particularly in the last six months when the economy has turned down. Our hope is as business leads the economy down maybe business will lead the economy up and hopefully we’ll see that improve before the rest of the economy overall.

Your second question with respect to prepaid potentially on the CMDA network. There’s no question that there is a movement in this country toward prepaid and we currently have if you will some strong offers out there through partners like Virgin Mobile that offer prepaid on our CDMA platform. We are evaluating the prepaid market and haven’t made any decisions yet on what we may do going forward. We’ve just launched Boost Unlimited on iDEN just a couple months ago, that’s doing very well. We’re going to ride that horse.

Potentially, we’re clearly looking at it but have made absolutely no decisions with respect to expanding our prepaid offers beyond our current set of prepaid offers.

Operator

Your next question comes from Rick Prentiss – Raymond James

Rick Prentiss – Raymond James

You mentioned several times about how you want to better on the post-paid side. If you had to rank order them as far as handset lineup, advertising taking hold, and the economy which you don’t control. As you look at the items out there how would rank order what needs to be done to get post-paid back to where you want to get it?

Dan Hesse

Number one is to continue to make improvements in churn, that’s the most important, it’s the most profitable way of improving, the overall economics of the post-paid subscriber base. We need to continue to make progress there even though I think we were the only national carrier that showed year over year improvement in churn, we improved by 20 points still. On an absolute basis our churn is lower then T-Mobile but higher than AT&T and Verizon which means we believe we still have some opportunity there.

Number two on the handset side we’re very excited about the handset lineup that we have coming out later this year. We hope that does make a big difference on the gross add side as well as on migrations on the retention side, it can help on the churn side when you have the best handset you don’t have to worry about people leaving to go get another handset. We think handset improvements are going to be a big part of our plan going forward this year as well. We’ll continue to look at a variety of other things.

I talked about just the overall strengthening of the brand. We continue to make progress, its important that we do that, its important from both an acquisition and a retention perspective.

Rick Prentiss – Raymond James

On the Boost Unlimited side we’ve seen some press reports of some texting problems and then also you mentioned how iDEN actually up quarter over quarter on the subscriber base. How much longer do you have the spare capacity in that factor, if you will? When would you have to maybe crank up some CapEx in iDEN and is there anything needed to fix the texting issue that’s been talked about in the press.

Dan Hesse

The iDEN network in terms of network capacity was never affected, calls went through, and there were no problems there at all. A separate issue is our texting platform. The iDEN network continues to perform very well, there’s plenty of additional capacity left on the iDEN network and we see that a lot of capacity for a fairly good period of time being available on the iDEN network.

With respect the texting platform, we did have some delays. We were surprised, a good surprise, but still surprised and no excuses. There was more demand for Boost Unlimited then we had anticipated and as a result our texting platform, our messaging platform wasn’t up to the task. We’ve taken the steps necessary to boost that capacity so as of today the messaging network on the iDEN network and for our Boost customers is back to normal.

Operator

Your next question comes from Jason Armstrong – Goldman Sachs

Jason Armstrong – Goldman Sachs

Following up on the economy, obviously this is something you attribute more to the business side then the consumer side. Specifically on business, can you talk through the laptop card impact versus the corporate voice or Blackberry sub impact?

Paget Alves

We can’t predict the change that’s going to occur in the business market, not surprisingly. We have seen our laptop card business even though initially there were some deactivations that were associated with the layoffs we generally have seen the revenue year over year increase. We believe that the examples such as the pandemic which is difficult in one respect but it tends to highlight the need to have connectivity to employees independent of your facilities.

That actually plays directly into some of the capabilities that Sprint Nextel offers with our wireline and wireless networks. We launched unified communications services this quarter and we also launched a mobile integration service which allows you to replicate your landline facilities on your wireless device. In general we expect economy certain is challenging but we believe that some of the services that will be attractive to business in this environment actually are services that Sprint leads the market in and we expect will allow us to disproportionately benefit in coming quarters.

Jason Armstrong – Goldman Sachs

On the post-paid sub losses you had a good track record here with guidance, the post paid sub losses being better in ’09 versus ’08 seems to be the one that’s the most at risk if we were to look at this guidance relative to what you’ve put up already in first quarter. When you talk about improvements you’re talking about handset lineup, churn, those two sort of go together.

If you think about the handsets you have coming to the market over the summer, is this, hey we just have the right handsets in the market and that’s what makes things better or is there some combination of refresh of the handset lineup and potentially tweaking the price points at which they’re available, maybe getting more aggressive on the subsidy side is that something we should think about?

Dan Hesse

The answer to your last is no. That part is not currently part of the plan that is getting more aggressive on the subsidy side. Other than what we currently have planned. As you know, Smart Phones carry a higher subsidy so from a mix point of view as we sell more Smart Phones and will continue over time you can see subsidies go up because of the increased mix of Smart Phones and data centric devices but its not like we would look at subsidies as a specific way of targeting additional adds.

As I mentioned earlier, and you’re correct that in this economic climate on the post-paid side in particular with fewer adds available to go out there an get that is a tall hill to climb to have better performance in post-paid subs in ’09 then in ’08. Our forecast is with respect to the full year or the entire year it’s not that we would do this each quarter.

We’ve obviously talked a lot about the Palm Pre, we’re cautiously optimistic that’ll be a very strong device. We also have a number of other devices that we planned. It’s important to have a very strong lineup. We have a number of other devices that we are planning to launch between now and the end of the year.

We have a number of 4G markets that are going to be launched this year that aren’t up yet. You heard me talk about 10 markets this year. We will be disproportionately advantaged in selling in those markets because of dual mode devices that can operate at 4G speeds in addition to 3G speeds. That’s still coming up in the second half of the year.

If you keep all of these things in mind that’s why our plan is still to improve post-paid subs year over year in terms of not losing as many post-paid subscribers in 2009 as we did in calendar 2008.

Operator

Your next question comes from John Hodulik - UBS

John Hodulik - UBS

In the past or at least last quarter you helped us quantify the effect of the cannibalization of the prepaid business on the post-paid business. Can you put some numbers, you said in your prepared remarks that, or maybe in a follow up question that it wasn’t meaningful but can you help us size or is there any way to tell how much the new business is going for. As a follow up to Jason’s question it’s another issue that could put some pressure on the post-paid base going forward.

Dan Hesse

It’s in the low single digits in terms of the percentage of our new Boost customers that are coming from existing Sprint or Nextel/iDEN post-paid customers. Of course we can tell when a number is ported in where it comes from. If a customer is coming on to Boost from either Sprint post-paid or iDEN/Nextel post-paid iDEN or CDMA we can tell. Conservatively we can say that it’s in the low single digits in terms of the percentage of our subscribers, new prepaid Boost Unlimited customers that are coming from other Sprint post-paid service.

John Hodulik - UBS

Do you think the unlimited prepaid segment is having an impact on the entire post-paid market? It looks like post-paid adds in the US are down considerably on a sequential basis. Seemingly timed the same time you saw this big increase in the growth of the unlimited segment. Do you think that’s a trend we can expect going forward in terms of industry in general?

Dan Hesse

It’ll be hard to say if it continues for a long period of time or we’re just seeing this spike or a lot of movement that way because of the economy. Customers just like business, Bob talks about Sprint de-levering a lot of companies are de-levering, and consumers are de-levering. As you know, when customers sign a contract for two years there really its almost like a mortgage where there’s a subsidy for that phone and they have to sign up for a two year agreement to get that low price on that device.

Post-paid is a form of de-levering where customers will say I’m not as interested in committing myself for two years, I don’t want a contract, I’m willing to pay the full price for the phone and not have that obligation. I think in this economic environment those kinds of purchase decisions just like there’s going to be less credit card debt and what have you, there’s going to be more of those during this period.

We see that growing this year. A lot of it I think will be economically driven. The question is will that trend continue or is this a permanent trend regardless of the economy of moving toward prepaid. I don’t know that. The other thing I would say is that I believe that these strong offers that are out there, these unlimited offers in particular that are out there in the prepaid market from Metro, from Leap, from Boost are actually expanding the overall size of the wireless pie.

A lot of these customers are first time wireless users. Some are customers that either are coming from post-paid or could have chosen a post-paid offer as they come into the market but I think that it’s even greater then that. There are some positives, some real positives for the industry as a whole in that I think the industry is seeing more revenue growth and more revenue then it would have seen otherwise without these offers.

Operator

Your next question comes from Mike McCormack – JP Morgan

Mike McCormack – JP Morgan

I know you guys made a couple comments on Boost Unlimited profitability as far as contribution to free cash and I guess more favorable to OIBDA. I’m assuming more favorable means OIBDA is negative and getting better or is that a positive OIBDA number that you think can move meaningfully higher. Maybe longer term on the Boost profitability are you thinking about like a Leap and Metro type margin as a longer term goal?

Lastly, not that we pay a lot of attention to wireline but revenue trends under pretty sever pressure, just trying to get a sense of what you’re seeing there is it just all economic related or is there a competitive pricing as well?

Bob Brust

We just launched this thing really in January and February and got a big upsurge. In the first quarter the cost of acquiring those customers made that a negative OIBDA but going forward that should become more positive to us starting the second quarter and then moving on to the third quarter. It still remains to be seen how positive that will be as we get it loaded and work out all the different things with having all those new customers. Clearly will be positive but it’s hard to tell how much yet.

Paget Alves

Regarding wireline what we’re experiencing is what I describe as a slowing in the growth of IP services. We still are growing at a rate that we’ve exceeded the industry rate of growth but the number of customers that are migrating to IP a lot of that has already occurred. The benefit from our standpoint, as I mentioned earlier, we’re using that platform along with our wireless platforms to integrate the services together. We’re seeing now a tremendous amount of interest from customers in unified communications mobile integration and services of that type.

We’re also seeing continued strength in the cable voice over IP enablement that we have dominated frankly for several years. We believe both of those are positive trends that are likely to continue. The revenue decline you’ve seen recently is more a function of the slowing of migrations for IP customers and the growth associated with that then anything else.

Operator

Your next question comes from Tim Horan – Oppenheimer

Tim Horan – Oppenheimer

Can you talk about what would change things in terms of subscriber trends in the second quarter? It sounds like a lot of what you’re talking about for post-paid is more in the second half of the year. I want to make sure that I understand that. Same thing from Boost, do you think Boost benefited at the beginning from almost like a grand opening where you have a lot of people looking for a product like this and they’re coming in and maybe the growth slows down a little bit or do you think it will sustain at this rate?

Lastly, are there steps that you can take and you’re obviously doing a great job on the expense front but to really strategically realign the company either do spin outs or mergers with other people. Do you think there is ways to transform the company in some innovative ways over the next two or three years?

Dan Hesse

With respect to post-paid subscriber trends you were listening in that most of the major initiatives that we have are really geared up and focused to have a larger impact in the second half of the year. That’s where we’re hoping to see the more significant impacts in terms of post-paid subscriber trends.

With respect to Boost, it’s just too early to tell. Getting back to an earlier question and I think what you’re asking is did we just see this great grand opening set of numbers in the first quarter, in the first couple months. We’re hoping that’s not the case. We have seen no evidence that that’s it but again we’re so early into it. I’m not saying that its not possible that that could be the case but we see no evidence of that and as I mentioned earlier that our goal is to have a similar net add growth number for Boost Unlimited in the second quarter as we had in the first quarter.

With respect to the third issue with respect to spin outs, mergers or what have you, obviously we don’t comment on things like that. Our goal right now is just to focus on cash flow generation in this economy. There isn’t a whole lot of M&A activity and other kinds of things like that going on that you describe right now, the environment isn’t terrific for it. What we’re doing is just putting our nose down and we’re focusing on taking our debt down, de-levering the company and generating cash flow. That doesn’t mean that we wouldn’t consider an alternative that made a lot of sense to the company.

Operator

Your next question comes from Walter Piecyk – Pali Research

Walter Piecyk – Pali Research

I like the fact that you just said you were going to take the debt down even though it’s obviously going to be a little bit challenging as Bob had talked about. The last quarter you talked about the retention, the 9% of post-paid customers you were retaining which was relatively high relative to your peers. Is it staying at that level or do you expect that to fall?

Dan Hesse

I wanted to make sure that my comment earlier was understood with respect to taking down debt. It’s just that we have to build up cash to retire our debt maturities when they come due. In Bob’s comments he said being able to pay two years or more of maturities out in advance, that’s what I meant in terms of focusing on cash generation. You’re right, we have retired all the debt due in ’09 but we want to make sure that we have a bank account that can pay off the maturities in ’10 and ’11. I wanted to clarify that.

Walter Piecyk – Pali Research

Basically the last quarter you talked about the fact that 9% of your customer base you were retaining with phones, I assume putting them on two year contracts. Is it staying at that level, would you expect that to change over time? That was actually my first question.

The first was more of a commentary because I know Bob in the last quarterly conference call had put up a chart showing that you only needed $900 million to hit your maturities through 2011. Since you did $800 million in the first quarter you’ve obviously shown that you’ve got like four years of runway now with that free cash flow outlook or that gap you needed to achieve in five years. Again the first question was on replacement phones, are you going to have retain as many now that you’re customer care is performing well or is that a cost that can come down?

The second question just relates to the Simply Everything Plan. Obviously this is a decent product as far as ARPU which has been sustaining your ARPU. Are these customers coming on at the same rate that they have historically or is there any fade in that since its launch?

Dan Hesse

I think it’s about $100 million that we need to generate in terms of additional cash that would pay off our maturities through the end of 2011. I just wanted to clarify that point. With respect to upgrades, we expect the upgrade percentages to remain fairly stable at least in the near term. We’ll see what it does over the long term but at least in the near term don’t expect big changes in terms of the upgrades which I think is a good industry practice.

Its practiced by us, its practices by our competitors and that is when a customers gets near the end of their contract to upgrade their phone to a new device to get them to sign up for a new two year contract. That’s a profitable activity that we undertake.

With respect to Simply Everything, anything when it’s brand new you’re going to see a lot of movement very early on. It continues to have very strong loading for us in terms of both gross adds and retention or upgrades internally with respect to our overall offer portfolio. Simply Everything continues to perform quite well for us.

Operator

Your next question comes from Craig Moffett - Sanford Bernstein

Craig Moffett - Sanford Bernstein

Could you drill down for us on where the subscribers that you’re getting are coming from on the Boost side? You mentioned before you think it may be growing the market. Do you think that they’re primarily coming from other post-paid plans, are they primarily coming from new comers to the market or are you getting a lot of customers that are switching from competitors prepaid plans into the Boost Unlimited plan?

On a related note, could you also do a little bit of the same with churn and just de-average the churn rates that you’re seeing particularly on the Boost side. If you think about the more mature cohort of customers rather than ones just acquired what is their churn rate look like?

Dan Hesse

With respect to Boost, we don’t disclose that detail, although we do have it internally as a matter of fact I look at it daily, looking at a port in and port out report daily so we know, we have a very good idea where the customers are coming from. It is a combination of customers choosing Boost Unlimited versus other prepaid plans.

This is clearly a very, very high performing network that really hasn’t been available to a lot of customers in the prepaid space as well as being a great offer so it’s a new level of network performance for a lot of customers. We are seeing a significant amount of movement from other prepaid plans. There is some movement from other post-paid and there are some customers that are coming in new that are saying this is their first wireless device. It’s a combination of all three.

Craig Moffett - Sanford Bernstein

Can you at least share what percentage of customers are not porting numbers at all?

Dan Hesse

We’ll consider possibly disclosing that at some point in the future. We’re not disclosing that at this time. With respect to de-averaging our churn, that’s another number that we don’t disclose. I appreciate you asking the questions and you’re asking it for a good reason because its not there. We’re not going to break that out any further.

Operator

Your next question comes from Chris Larsen – Piper Jaffray

Chris Larsen – Piper Jaffray

I’m not sure if you gave this already, but can you quantify the number of Boost Unlimited subs added the quarter. Secondly, you made a comment earlier during 1Q that churn from small business had ticked up but the inclination here is that churn seems to be coming down in the second quarter. I’m hoping I’m not reading too much in between the lines but is that the right way to look at that.

A follow on to Walt’s question about the upgrades, do you have a sense for what percent of your base has either signed a new contract or upgraded their handsets within the last two years on the post-paid side?

Dan Hesse

The first question was Boost Unlimited subs in the quarter in Q1 and we don’t break those out but we had a total of 674,000 net adds in the quarter and you can assume what is different this quarter then historical quarters as launch of Boost Unlimited. That has had a very, very sizeable impact on the first quarter. It’s a very strong number.

Chris Larsen – Piper Jaffray

The last couple quarters you’ve been losing 200,000 to 300,000 on the Boost prepaid is that fair to say that’s still consistent with what you’re seeing on the traditional prepaid?

Dan Hesse

It’s not inconsistent. I forgot what the other question was.

Chris Larsen – Piper Jaffray

Churn from small business in the second quarter?

Paget Alves

It’s a little bit difficult to anticipate not surprisingly where the economy is going to go. We do think we’ve seen some level of stabilization. I think you mentioned earlier that quite a few companies are reporting both in our industry and outside that there seems to be a bit of a bottoming even those we’re not seeing an upturn.

Candidly I don’t think we’re going to be able to predict exactly when that change occurs but we do believe that a lot of this tends to be correlated to unemployment and that unemployment rates have begun, even though the rate is going up, the number of new applications for unemployment has been coming down. We think both of those are positive indicators in terms of stability and then the likelihood that we will start to see this trend change.

Chris Larsen – Piper Jaffray

Then a sense for customers that have re-upped their contracts in the last two years? I was trying to get a sense for following on Walt’s question about 9% per quarter. Just a sense of the base that is on contract right now on post-paid that’s either re-upped with a new handset or that has been a recent gross add.

Yijing Brentano

We don’t disclose to that level of detail but you can go back to the last several quarters of press releases we do give the percentages of upgrade for at least the last three or four quarters and its been fairly stable.

Operator

We have reached the allotted time for Q&A session. Do you have any closing remarks?

Yijing Brentano

Thanks for your participation today. If you have any additional questions please contact our Investor Relations Department at 1-800-295-3755. This concludes our call this morning. Thanks again.

Operator

This concludes today’s first quarter Sprint Nextel Earnings Conference Call. You may now disconnect.

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Source: Sprint Nextel Corporation Q1 2009 Earnings Call Transcript
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