Sprint Reports Year-Over-Year Growth In Wireless Service Revenue With Fiscal Year 2018 Second Quarter Results
OVERLAND PARK, Kan., Oct. 31, 2018 /PRNewswire/ --
-- Wireless service revenue grew year-over-year for the first time in nearly five years, excluding the $173 million impact of the new revenue recognition standard -- Net income of $196 million, operating income of $778 million, and adjusted EBITDA* of $3.3 billion -- Fourth consecutive quarter of net income and 11(th) consecutive quarter of operating income -- Highest fiscal second quarter adjusted EBITDA* in 12 years and raising fiscal year 2018 adjusted EBITDA* outlook -- Net cash provided by operating activities of $2.9 billion and adjusted free cash flow* of $525 million -- Positive adjusted free cash flow* in six of the last seven quarters -- Retail net additions of 95,000 -- Postpaid net additions for the fifth consecutive quarter -- Prepaid net additions in the Boost brand for the seventh consecutive quarter -- Most improved network among national carriers based on average download speeds -- Further improvement expected with nationwide deployment of LTE Advanced features that offer up to two times faster speeds than before -- Strong progress on digitalization initiatives -- Postpaid gross additions in digital channels increased nearly 60 percent year-over-year
Sprint Corporation (NYSE: S) today reported year-over-year growth in wireless service revenue for the first time in nearly five years and positive adjusted free cash flow* for the sixth time in the last seven quarters as part of results for the second quarter of fiscal year 2018. The company also announced an increase to its fiscal year 2018 adjusted EBITDA* outlook.
"Sprint reached an important milestone this quarter by returning to year-over-year growth in wireless service revenue two quarters earlier than promised," said Sprint CEO Michel Combes. "Our strategy of balancing growth and profitability while we increase network investments and add digital capabilities continues to drive solid financial results."
Wireless Service Revenue Inflection Contributes to Improved Profitability
One quarter after reporting sequential growth, Sprint reported year-over-year growth in wireless service revenue for the first time in nearly five years, when excluding the impact of the new revenue recognition standard. Five consecutive quarters of postpaid net additions and seven consecutive quarters of prepaid net additions within the Boost brand, along with stabilizing ARPU, have contributed to improved revenue trends in the business.
-- Postpaid service revenue grew sequentially for the second consecutive quarter. -- Prepaid service revenue grew year-over-year for the fourth consecutive quarter.
Sprint reported its fourth consecutive quarter of net income, its 11(th) consecutive quarter of operating income, and its highest fiscal second quarter adjusted EBITDA* in 12 years, all excluding the positive impact of the new revenue recognition standard. The new revenue recognition standard had a positive impact of $178 million on reported net income and $225 million on reported operating income and adjusted EBITDA* in the quarter.
Sprint continued to make progress on its multi-year plan to improve its cost structure. Excluding the impact of the new revenue recognition standard and merger costs, the company reported approximately $200 million of combined year-over-year reductions in cost of services and selling, general and administrative expenses in the first half of fiscal 2018. For the full fiscal year, the company expects to deliver gross reductions of more than $1 billion for the fifth consecutive year, with net reductions of less than $500 million after reinvestments.
(Millions, except per share data) Fiscal 2Q18 Fiscal 2Q17 Change --- Net income (loss) $196 ($48) $244 --- Basic income (loss) per share $0.05 ($0.01) $0.06 --- Operating income $778 $601 $177 --- Adjusted EBITDA* $3,256 $2,729 $527 --- Net cash provided by operating activities $2,927 $2,802 $125 --- Adjusted free cash flow* $525 $420 $105 ---
New Premium Option Joins the Best Lineup of Unlimited Plans
Sprint expanded its portfolio of unlimited data, talk and text plans this quarter by introducing Unlimited Premium, a VIP platinum-style wireless plan tailored for the customer who wants it all. The company also recently launched a selection of unlimited plans for customers who want value, a great network and unlimited data, including the Unlimited Plus, Unlimited Basic, Unlimited Military, and Unlimited 55+ plans. All these plans are part of the company's "Unlimited for All" initiative to design plans so customers can select the best choice for them.
Increased Network Investments Driving a Better Experience
Sprint's quarterly network investments, or cash capital expenditures excluding leased devices, nearly doubled year-over-year as the company made continued progress on executing its Next-Gen Network plan.
-- Sprint completed thousands of tri-band upgrades and now has 2.5 GHz spectrum deployed on 70 percent of its macro sites. -- Sprint added thousands of new outdoor small cells and currently has 21,000 deployed including both mini macros and strand mounts. -- Sprint continued commercial deployment of Massive MIMO radios, which increase the speed and capacity of the LTE network and, with a software upgrade, will provide mobile 5G service launching in the first half of 2019.
These deployments are contributing to Sprint providing customers with a better network experience, as seen in Speedtest Intelligence data from Ookla.
-- Best-ever showing with the fastest average download speed in 123 cities, including Seattle, Pittsburgh, Denver, and Honolulu.(1 ) -- Most improved network among national carriers with national average download speeds up 31.5 percent year-over-year.(2)
The company has reached nationwide deployment with LTE Advanced features such as 256 QAM, 4X4 MIMO, and two- and three-channel carrier aggregation, a milestone on the road to 5G. These enhancements are expected to deliver up to two times faster speeds than Sprint 4G LTE on capable devices.
Becoming a Digital-First Company
Sprint is leading the U.S. telecommunications industry in leveraging digital capabilities, including boosting sales in digital channels, leveraging artificial intelligence to improve customer care interactions, and utilizing deep dive analytics to identify customer issues.
-- Postpaid gross additions in digital channels increased nearly 60 percent year-over-year. -- Nearly 20 percent of postpaid upgrades were in digital channels in the quarter. -- More than 25 percent of all Sprint customer care chats are now performed by virtual agents using artificial intelligence.
Fiscal Year 2018 Outlook
-- Due to strong year-to-date performance, the company is increasing its expectation for adjusted EBITDA* to a range of $12.4 billion to $12.7 billion. The previous expectation was $12.0 billion to $12.5 billion. -- Excluding the impact of the new revenue recognition standard, the company is also increasing its expectation for adjusted EBITDA* to a range of $11.7 billion to $12.0 billion. The previous expectation was $11.3 billion to $11.8 billion. -- The company expects cash capital expenditures excluding leased devices to be $5.0 billion to $5.5 billion. The previous expectation was $5.0 billion to $6.0 billion.
Conference Call and Webcast
-- Date/Time: 8:30 a.m. (ET) Wednesday, October 31, 2018 -- Call-in Information -- U.S./Canada: 866-360-1063 (ID: 6693758) -- International: 443-961-0242 (ID: 6693758) -- Webcast available at www.sprint.com/investors -- Additional information about results is available on our Investor Relations website
1 Analysis by Ookla(R) of Speedtest Intelligence(R) data average download speeds from 7/1/18 to 9/30/18 for all mobile results. 2 Analysis by Ookla(R) of Speedtest Intelligence(R) data comparing average download speeds from September 2017 to September 2018 for all mobile results.
Wireless Operating Statistics (Unaudited) Quarter To Date Year To Date 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net additions (losses) (in thousands) Postpaid 109 123 168 232 129 Postpaid phone (34) 87 279 53 367 Prepaid (14) 3 95 (11) 130 Wholesale and affiliate (115) (69) 115 (184) 180 --- Total wireless net (losses) additions (20) 57 378 37 439 --- End of period connections (in thousands) Postpaid(a) (c) (d) 32,296 32,187 31,686 32,296 31,686 Postpaid phone(a) (c) 26,813 26,847 26,432 26,813 26,432 Prepaid(a) (b) (c) (e) 9,019 9,033 8,765 9,019 8,765 Wholesale and affiliate (b) (c) (f) 13,232 13,347 13,576 13,232 13,576 --- Total end of period connections 54,547 54,567 54,027 54,547 54,027 --- Churn Postpaid 1.78% 1.63% 1.72% 1.71% 1.69% Postpaid phone 1.73% 1.55% 1.59% 1.64% 1.55% Prepaid 4.74% 4.17% 4.83% 4.45% 4.70% Supplemental data -connected devices End of period connections (in thousands) Retail postpaid 2,585 2,429 2,158 2,585 2,158 Wholesale and affiliate 10,838 10,963 11,221 10,838 11,221 --- Total 13,423 13,392 13,379 13,423 13,379 --- ARPU(g) Postpaid $43.99 $43.55 $46.00 $43.77 $46.65 Postpaid phone $50.16 $49.57 $52.34 $49.86 $53.13 Prepaid $35.40 $36.27 $37.83 $35.83 $38.04 NON-GAAP RECONCILIATION - ABPA* AND ABPU* (Unaudited) (Millions, except accounts, connections, ABPA*, and ABPU*) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- ABPA* Postpaid service revenue $4,255 $4,188 $4,363 $8,443 $8,829 Add: Installment plan and non-operating lease billings 326 352 397 678 765 Add: Equipment rentals 1,253 1,212 966 2,465 1,865 --- Total for postpaid connections $5,834 $5,752 $5,726 $11,586 $11,459 --- --- Average postpaid accounts (in thousands) 11,207 11,176 11,277 11,192 11,295 Postpaid ABPA*(h) $173.53 $171.57 $169.25 $172.55 $169.10 Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Postpaid phone ABPU* Postpaid phone service revenue $4,038 $3,977 $4,132 $8,015 $8,346 Add: Installment plan and non-operating lease billings 279 307 358 586 690 Add: Equipment rentals 1,247 1,204 953 2,451 1,840 --- Total for postpaid phone connections $5,564 $5,488 $5,443 $11,052 $10,876 --- --- Postpaid average phone connections (in thousands) 26,838 26,745 26,312 26,792 26,182 Postpaid phone ABPU* (i) $69.10 $68.41 $68.95 $68.75 $69.23
(a) During the three-month period ended June 30, 2018, we ceased selling devices in our installment billing program under one of our brands and as a result, 45,000 subscribers were migrated back to prepaid. (b) Sprint is no longer reporting Lifeline subscribers due to regulatory changes resulting in tighter program restrictions. We have excluded them from our customer base for all periods presented, including our Assurance Wireless prepaid brand and subscribers through our wholesale Lifeline MVNOs. (c) As a result of our affiliate agreement with Shentel, certain subscribers have been transferred from postpaid and prepaid to affiliates. During the three-month period ended June 30, 2018, 10,000 and 4,000 subscribers were transferred from postpaid and prepaid, respectively, to affiliates. During the three-month period ended June 30, 2017, 17,000 and 4,000 subscribers were transferred from postpaid and prepaid, respectively, to affiliates. (d) During the three-month period ended June 30, 2017, 2,000 Wi-Fi connections were adjusted from the postpaid subscriber base. (e) During the three-month period ended September 30, 2017, the Prepaid Data Share platform It's On was decommissioned as the Company continues to focus on higher value contribution offerings resulting in a 49,000 reduction to prepaid end of period subscribers. (f) On April 1, 2018, approximately 115,000 wholesale subscribers were removed from the subscriber base with no impact to revenue. (g) ARPU is calculated by dividing service revenue by the sum of the monthly average number of connections in the applicable service category. Changes in average monthly service revenue reflect connections for either the postpaid or prepaid service category who change rate plans, the level of voice and data usage, the amount of service credits which are offered to connections, plus the net effect of average monthly revenue generated by new connections and deactivating connections. Postpaid phone ARPU represents revenues related to our postpaid phone connections. (h) Postpaid ABPA* is calculated by dividing postpaid service revenue earned from postpaid customers plus billings from installment plans and non- operating leases, as well as equipment rentals, by the sum of the monthly average number of postpaid accounts during the period. Installment plan billings represent the substantial majority of the total billings in the table above for all periods presented. (i) Postpaid phone ABPU* is calculated by dividing service revenue earned from postpaid phone customers plus billings from installment plans and non- operating leases, as well as equipment rentals, by the sum of the monthly average number of postpaid phone connections during the period. Installment plan billings represent the substantial majority of the total billings in the table above for all periods presented.
Wireless Device Financing Summary (Unaudited) (Millions, except sales, connections, and leased devices in property, plant and equipment) Quarter To Date Year To Date 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Postpaid activations (in thousands) 3,772 3,473 3,917 7,245 7,585 Postpaid activations financed 81% 83% 85% 82% 85% Postpaid activations - operating leases 59% 70% 68% 64% 62% Installment plans Installment sales financed $255 $213 $268 $468 $821 Installment billings $292 $325 $373 $617 $741 Installment receivables, net $838 $983 $1,583 $838 $1,583 Equipment rentals and depreciation -equipment rentals Equipment rentals $1,253 $1,212 $966 $2,465 $1,865 Depreciation - equipment rentals $1,181 $1,136 $888 $2,317 $1,742 Leased device additions Cash paid for capital expenditures -leased devices $1,707 $1,817 $1,706 $3,524 $3,065 Leased devices Leased devices in property, plant and equipment, net $6,184 $6,213 $4,709 $6,184 $4,709 Leased device units Leased devices in property, plant and equipment (units in thousands) 15,392 15,169 13,019 15,392 13,019 Leased device and receivables financings net proceeds Proceeds $1,527 $1,356 $789 $2,883 $1,554 Repayments (1,200) (1,070) (1,148) (2,270) (1,421) --- Net proceeds (repayments) of financings related to devices and receivables $327 $286 $(359) $613 $133 --- ---
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Millions, except per share data) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net operating revenues Service revenue $5,762 $5,740 $5,967 $11,502 $12,038 Equipment sales 1,418 1,173 994 2,591 2,181 Equipment rentals 1,253 1,212 966 2,465 1,865 --- Total net operating revenues 8,433 8,125 7,927 16,558 16,084 --- Net operating expenses Cost of services (exclusive of depreciation and amortization below) 1,694 1,677 1,698 3,371 3,407 Cost of equipment sales 1,517 1,270 1,404 2,787 2,949 Cost of equipment rentals (exclusive of depreciation below) 151 124 112 275 224 Selling, general and administrative 1,861 1,867 2,013 3,728 3,951 Depreciation - network and other 1,021 1,023 997 2,044 1,974 Depreciation - equipment rentals 1,181 1,136 888 2,317 1,742 Amortization 159 171 209 330 432 Other, net 71 42 5 113 (359) --- Total net operating expenses 7,655 7,310 7,326 14,965 14,320 --- Operating income 778 815 601 1,593 1,764 --- Interest expense (633) (637) (595) (1,270) (1,208) Other income (expense), net 79 42 44 121 (8) --- Income before income taxes 224 220 50 444 548 Income tax expense (17) (47) (98) (64) (390) --- Net income (loss) 207 173 (48) 380 158 --- Less: Net (income) loss attributable to noncontrolling interests (11) 3 (8) - --- Net income (loss) attributable to Sprint Corporation $196 $176 $(48) $372 $158 --- --- Basic net income (loss) per common share attributable to Sprint Corporation $0.05 $0.04 $(0.01) $0.09 $0.04 --- --- Diluted net income (loss) per common share attributable to Sprint Corporation $0.05 $0.04 $(0.01) $0.09 $0.04 --- --- Basic weighted average common shares outstanding 4,061 4,010 3,998 4,036 3,996 --- Diluted weighted average common shares outstanding 4,124 4,061 3,998 4,095 4,080 --- Effective tax rate 7.6% 21.4% 196.0% 14.4% 71.2% --- NON-GAAP RECONCILIATION - NET INCOME (LOSS) TO ADJUSTED EBITDA* (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net income (loss) $207 $173 $(48) $380 $158 --- --- Income tax expense 17 47 98 64 390 --- Income before income taxes 224 220 50 444 548 Other (income) expense, net (79) (42) (44) (121) 8 Interest expense 633 637 595 1,270 1,208 --- Operating income 778 815 601 1,593 1,764 --- Depreciation - network and other 1,021 1,023 997 2,044 1,974 Depreciation - equipment rentals 1,181 1,136 888 2,317 1,742 Amortization 159 171 209 330 432 --- EBITDA*(1) 3,139 3,145 2,695 6,284 5,912 --- Loss (gain) from asset dispositions, exchanges, and other, net(2) 68 68 (304) Severance and exit costs (3) 25 8 33 - Contract terminations (4) - 34 34 (5) Merger costs (5) 56 93 149 - Litigation and other contingencies(6) - (55) Hurricanes (7) (32) 34 (32) 34 --- Adjusted EBITDA*(1) $3,256 $3,280 $2,729 $6,536 $5,582 --- --- Adjusted EBITDA margin* 56.5% 57.1% 45.7% 56.8% 46.4% Selected items: Cash paid for capital expenditures - network and other $1,266 $1,132 $692 $2,398 $1,843 Cash paid for capital expenditures - leased devices $1,707 $1,817 $1,706 $3,524 $3,065
WIRELESS STATEMENTS OF OPERATIONS (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net operating revenues Service revenue Postpaid $4,255 $4,188 $4,363 $8,443 $8,829 Prepaid 954 982 990 1,936 1,989 Wholesale, affiliate and other 289 290 296 579 555 --- Total service revenue 5,498 5,460 5,649 10,958 11,373 Equipment sales 1,418 1,173 994 2,591 2,181 Equipment rentals 1,253 1,212 966 2,465 1,865 Total net operating revenues 8,169 7,845 7,609 16,014 15,419 --- Net operating expenses Cost of services (exclusive of depreciation and amortization below) 1,466 1,429 1,422 2,895 2,834 Cost of equipment sales 1,517 1,270 1,404 2,787 2,949 Cost of equipment rentals (exclusive of depreciation below) 151 124 112 275 224 Selling, general and administrative 1,749 1,704 1,936 3,453 3,811 Depreciation -network and other 968 972 944 1,940 1,869 Depreciation - equipment rentals 1,181 1,136 888 2,317 1,742 Amortization 159 171 209 330 432 Other, net 58 37 5 95 (309) --- Total net operating expenses 7,249 6,843 6,920 14,092 13,552 --- Operating income $920 $1,002 $689 $1,922 $1,867 --- --- WIRELESS NON-GAAP RECONCILIATION (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Operating income $920 $1,002 $689 $1,922 $1,867 Loss (gain) from asset dispositions, exchanges, and other, net(2) 68 68 (304) Severance and exit costs (3) 12 3 15 (5) Contract terminations (4) - 34 34 (5) Hurricanes (7) (32) 34 (32) 34 Depreciation -network and other 968 972 944 1,940 1,869 Depreciation - equipment rentals 1,181 1,136 888 2,317 1,742 Amortization 159 171 209 330 432 Adjusted EBITDA*(1) $3,276 $3,318 $2,764 $6,594 $5,630 --- --- Adjusted EBITDA margin* 59.6% 60.8% 48.9% 60.2% 49.5% Selected items: Cash paid for capital expenditures - network and other $1,101 $1,019 $549 $2,120 $1,514 Cash paid for capital expenditures -leased devices $1,707 $1,817 $1,706 $3,524 $3,065
WIRELINE STATEMENTS OF OPERATIONS (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net operating revenues $328 $338 $409 $666 $842 --- --- Net operating expenses Cost of services (exclusive of depreciation and amortization below) 295 311 372 606 759 Selling, general and administrative 53 69 66 122 123 Depreciation and amortization 51 49 49 100 100 Other, net 13 5 18 5 --- Total net operating expenses 412 434 487 846 987 --- Operating loss $(84) $(96) $(78) $(180) $(145) --- --- WIRELINE NON-GAAP RECONCILIATION (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Operating loss $(84) $(96) $(78) $(180) $(145) Severance and exit costs (3) 13 5 18 5 Depreciation and amortization 51 49 49 100 100 --- Adjusted EBITDA* $(20) $(42) $(29) $(62) $(40) --- --- Adjusted EBITDA margin* -6.1% -12.4% -7.1% -9.3% -4.8% Selected items: Cash paid for capital expenditures - network and other $55 $51 $40 $106 $102
CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited) (Millions) Year To Date 9/30/18 9/30/17 Operating activities Net income $380 $158 Depreciation and amortization 4,691 4,148 Provision for losses on accounts receivable 166 199 Share-based and long-term incentive compensation expense 68 87 Deferred income tax expense 39 364 Gains from asset dispositions and exchanges (479) Loss on early extinguishment of debt 65 Amortization of long-term debt premiums, net (67) (90) Loss on disposal of property, plant and equipment 343 410 Deferred purchase price from sale of receivables (223) (640) Other changes in assets and liabilities: Accounts and notes receivable 85 (179) Inventories and other current assets 168 541 Accounts payable and other current liabilities (95) (161) Non-current assets and liabilities, net (384) 183 Other, net 186 120 Net cash provided by operating activities 5,357 4,726 --- Investing activities Capital expenditures - network and other (2,398) (1,843) Capital expenditures - leased devices (3,524) (3,065) Expenditures relating to FCC licenses (70) (19) Change in short-term investments, net (832) 3,834 Proceeds from sales of assets and FCC licenses 272 218 Proceeds from deferred purchase price from sale of receivables 223 640 Other, net 42 (2) Net cash used in investing activities (6,287) (237) --- Financing activities Proceeds from debt and financings 2,944 1,860 Repayments of debt, financing and capital lease obligations (2,928) (4,261) Debt financing costs (248) (9) Call premiums paid on debt redemptions (129) Proceeds from issuance of common stock, net 276 1 Other, net (22) Net cash provided by (used in) financing activities 44 (2,560) --- Net (decrease) increase in cash, cash equivalents and restricted cash (886) 1,929 Cash, cash equivalents and restricted cash, beginning of period 6,659 2,942 --- Cash, cash equivalents and restricted cash, end of period $5,773 $4,871 --- RECONCILIATION TO CONSOLIDATED FREE CASH FLOW* (NON-GAAP) (Unaudited) (Millions) Quarter To Date Year To Date --- 9/30/18 6/30/18 9/30/17 9/30/18 9/30/17 --- Net cash provided by operating activities $2,927 $2,430 $2,802 $5,357 $4,726 Capital expenditures - network and other (1,266) (1,132) (692) (2,398) (1,843) Capital expenditures - leased devices (1,707) (1,817) (1,706) (3,524) (3,065) Expenditures relating to FCC licenses, net (11) (59) (6) (70) (19) Proceeds from sales of assets and FCC licenses 139 133 117 272 218 Proceeds from deferred purchase price from sale of receivables 53 170 265 223 640 Other investing activities, net 63 (3) (1) 60 (2) Free cash flow* $198 $(278) $779 $(80) $655 --- --- Net proceeds (repayments) of financings related to devices and receivables 327 286 (359) 613 133 Adjusted free cash flow* $525 $8 $420 $533 $788 --- ---
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Millions) 9/30/18 3/31/18 --- ASSETS Current assets Cash and cash equivalents $5,726 $6,610 Short-term investments 3,186 2,354 Accounts and notes receivable, net 3,555 3,711 Device and accessory inventory 859 1,003 Prepaid expenses and other current assets 1,121 575 --- Total current assets 14,447 14,253 Property, plant and equipment, net 20,816 19,925 Costs to acquire a customer contract 1,379 - Goodwill 6,598 6,586 FCC licenses and other 41,373 41,309 Definite-lived intangible assets, net 2,075 2,465 Other assets 1,163 921 --- Total assets $87,851 $85,459 --- --- LIABILITIES AND EQUITY Current liabilities Accounts payable $4,210 $3,409 Accrued expenses and other current liabilities 3,370 3,962 Current portion of long-term debt, financing and capital lease obligations 5,346 3,429 --- Total current liabilities 12,926 10,800 Long-term debt, financing and capital lease obligations 35,329 37,463 Deferred tax liabilities 7,704 7,294 Other liabilities 3,428 3,483 Total liabilities 59,387 59,040 --- Stockholders' equity Common stock 41 40 Treasury shares, at cost (15) - Paid-in capital 28,251 27,884 Retained earnings (accumulated deficit) 432 (1,255) Accumulated other comprehensive loss (308) (313) Total stockholders' equity 28,401 26,356 --- Noncontrolling interests 63 63 Total equity 28,464 26,419 --- Total liabilities and equity $87,851 $85,459 --- --- NET DEBT* (NON-GAAP) (Unaudited) (Millions) 9/30/18 3/31/18 --- Total debt $40,675 $40,892 Less: Cash and cash equivalents (5,726) (6,610) Less: Short-term investments (3,186) (2,354) Net debt* $31,763 $31,928 --- ---
SCHEDULE OF DEBT (Unaudited) (Millions) 9/30/18 ISSUER MATURITY PRINCIPAL --- --- Sprint Corporation 7.25% Senior notes due 2021 09/15/2021 $2,250 7.875% Senior notes due 2023 09/15/2023 4,250 7.125% Senior notes due 2024 06/15/2024 2,500 7.625% Senior notes due 2025 02/15/2025 1,500 7.625% Senior notes due 2026 03/01/2026 1,500 Sprint Corporation 12,000 --- Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC 3.36% Senior secured notes due 2021 09/20/2021 2,625 4.738% Senior secured notes due 2025 03/20/2025 2,100 5.152% Senior secured notes due 2028 03/20/2028 1,838 Sprint Spectrum Co LLC, Sprint Spectrum Co II LLC, and Sprint Spectrum Co III LLC 6,563 --- Sprint Communications, Inc. Export Development Canada secured loan 12/17/2019 300 9% Guaranteed notes due 2018 11/15/2018 1,753 7% Guaranteed notes due 2020 03/01/2020 1,000 7% Senior notes due 2020 08/15/2020 1,500 11.5% Senior notes due 2021 11/15/2021 1,000 9.25% Debentures due 2022 04/15/2022 200 6% Senior notes due 2022 11/15/2022 2,280 Sprint Communications, Inc. 8,033 --- Sprint Capital Corporation 6.9% Senior notes due 2019 05/01/2019 1,729 6.875% Senior notes due 2028 11/15/2028 2,475 8.75% Senior notes due 2032 03/15/2032 2,000 --- Sprint Capital Corporation 6,204 --- Credit facilities PRWireless secured term loan 06/28/2020 181 Secured equipment credit facilities 2021 - 2022 461 Secured term loan 02/03/2024 3,940 --- Credit facilities 4,582 --- Accounts receivable facility 2020 3,024 Financing obligations 2021 129 Capital leases and other obligations 2019 - 2026 478 Total principal 41,013 --- Net premiums and debt financing costs (338) Total debt $40,675 ---
RECONCILIATION OF ADJUSTMENTS FROM THE ADOPTION OF TOPIC 606 RELATIVE TO TOPIC 605 ON CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Millions, except per share data) Three Months Ended September 30, 2018 Six Months Ended September 30, 2018 --- As reported Balances Change As reported Balances Change without adoption without adoption of Topic 606 of Topic 606 --- Net operating revenues Service revenue $5,762 $5,935 $(173) $11,502 $11,818 $(316) Equipment sales 1,418 1,067 351 2,591 1,959 632 Equipment rentals 1,253 1,270 (17) 2,465 2,498 (33) --- Total net operating revenues 8,433 8,272 161 16,558 16,275 283 --- Net operating expenses Cost of services (exclusive of depreciation and amortization below) 1,694 1,714 (20) 3,371 3,402 (31) Cost of equipment sales 1,517 1,468 49 2,787 2,716 71 Cost of equipment rentals (exclusive of depreciation below) 151 151 275 275 - Selling, general and administrative 1,861 1,954 (93) 3,728 3,902 (174) Depreciation - network and other 1,021 1,021 2,044 2,044 - Depreciation - equipment rentals 1,181 1,181 2,317 2,317 - Amortization 159 159 330 330 - Other, net 71 71 113 113 - --- Total net operating expenses 7,655 7,719 (64) 14,965 15,099 (134) --- Operating income 778 553 225 1,593 1,176 417 --- Total other expense (554) (554) (1,149) (1,149) - --- Income (loss) before income taxes 224 (1) 225 444 27 417 Income tax (expense) benefit (17) 30 (47) (64) 23 (87) --- Net income 207 29 178 380 50 330 --- Less: Net income attributable to noncontrolling interests (11) (11) (8) (8) - --- Net income attributable to Sprint Corporation $196 $18 $178 $372 $42 $330 --- --- Basic net income per common share attributable to Sprint Corporation $0.05 $ - $0.05 $0.09 $0.01 $0.08 --- --- Diluted net income per common share attributable to Sprint Corporation $0.05 $ - $0.05 $0.09 $0.01 $0.08 --- --- Basic weighted average common shares outstanding 4,061 4,061 4,036 4,036 - --- Diluted weighted average common shares outstanding 4,124 4,124 4,095 4,095 - ---
RECONCILIATION OF ADJUSTMENTS FROM THE ADOPTION OF TOPIC 606 RELATIVE TO TOPIC 605 ON CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Millions) September 30, 2018 As reported Balances Change without adoption of Topic 606 --- ASSETS Current assets Accounts and notes receivable, net $3,555 $3,470 $85 Device and accessory inventory 859 881 (22) Prepaid expenses and other current assets 1,121 691 430 Costs to acquire a customer contract 1,379 1,379 Other assets 1,163 1,004 159 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued expenses and other current liabilities $3,370 $3,397 $(27) Deferred tax liabilities 7,704 7,251 453 Other liabilities 3,428 3,460 (32) Stockholders' equity Retained earnings (accumulated deficit) 432 (1,205) 1,637
NOTES TO THE FINANCIAL INFORMATION (Unaudited) (1) As more of our customers elect to lease a device rather than purchasing one under our subsidized program, there is a significant positive impact to EBITDA* and Adjusted EBITDA* from direct channel sales primarily due to the fact the cost of the device is not recorded as cost of equipment sales but rather is depreciated over the customer lease term. Under our device leasing program for the direct channel, devices are transferred from inventory to property and equipment and the cost of the leased device is recognized as depreciation expense over the customer lease term to an estimated residual value. The customer payments are recognized as revenue over the term of the lease. Under our subsidized program, the cash received from the customer for the device is recognized as revenue from equipment sales at the point of sale and the cost of the device is recognized as cost of equipment sales. During the three and six month periods ended September 30, 2018, we leased devices through our Sprint direct channels totaling approximately $1,094 million and $2,257, respectively, which would have increased cost of equipment sales and reduced EBITDA* if they had been purchased under our subsidized program. The impact to EBITDA* and Adjusted EBITDA* resulting from the sale of devices under our installment billing program is generally neutral except for the impact in our indirect channels from the time value of money element related to the imputed interest on the installment receivable. (2) During the second quarter of fiscal year 2018 and the first quarter of fiscal year 2017, the company recorded losses on dispositions of assets primarily related to cell site construction and network development costs that are no longer relevant as a result of changes in the company's network plans. Additionally, during the first quarter of fiscal year 2017 the company recorded a pre-tax non- cash gain related to spectrum swaps with other carriers. (3) During the second and first quarters of fiscal year 2018, severance and exit costs consist of lease exit costs primarily associated with tower and cell sites, access exit costs related to payments that will continue to be made under the company's backhaul access contracts for which the company will no longer be receiving any economic benefit, and severance costs associated with reduction in its work force. (4) During the first quarter of fiscal year 2018, contract termination costs are primarily due to the purchase of certain leased spectrum assets, which upon termination of the spectrum leases resulted in the accelerated recognition of the unamortized favorable lease balances. During the first quarter of fiscal year 2017, we recorded a $5 million gain due to reversal of a liability recorded in relation to the termination of our relationship with General Wireless Operations, Inc. (Radio Shack). (5) During the second and first quarters of fiscal year 2018, we recorded merger costs of $56 million and $93 million, respectively, due to the proposed Business Combination Agreement with T- Mobile. (6) During the first quarter of fiscal year 2017, we recorded a $55 million reduction in legal reserves related to favorable developments in pending legal proceedings. (7) During the second quarter of fiscal year 2018 we recognized hurricane- related reimbursements of $32 million. During the second quarter of fiscal year 2017 we recorded estimated hurricane-related charges of $34 million, consisting of customer service credits, incremental roaming costs, network repairs and replacements.
*FINANCIAL MEASURES
Sprint provides financial measures determined in accordance with GAAP and adjusted GAAP (non-GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. These measurements should be considered in addition to, but not as a substitute for, financial information prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use, but these measures may not be synonymous to similar measurement terms used by other companies.
Sprint provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint does not predict special items that might occur in the future, and our forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures, Sprint does not provide reconciliations to GAAP of its forward-looking financial measures.
The measures used in this release include the following:
EBITDA is operating income/(loss) before depreciation and amortization. Adjusted EBITDA is EBITDA excluding severance, exit costs, and other special items. Adjusted EBITDA Margin represents Adjusted EBITDA divided by non-equipment net operating revenues for Wireless and Adjusted EBITDA divided by net operating revenues for Wireline. We believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors because they are an indicator of the strength and performance of our ongoing business operations. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent non-cash current period costs associated with the use of long-lived tangible and definite-lived intangible assets. Adjusted EBITDA and Adjusted EBITDA Margin are calculations commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the telecommunications industry.
Postpaid ABPA is average billings per account and calculated by dividing postpaid service revenue earned from postpaid customers plus billings from installment plans and non-operating leases, as well as equipment rentals, by the sum of the monthly average number of postpaid accounts during the period. We believe that ABPA provides useful information to investors, analysts and our management to evaluate average postpaid customer billings per account as it approximates the expected cash collections, including billings from installment plans and non-operating leases, as well as equipment rentals, per postpaid account each month.
Postpaid Phone ABPU is average billings per postpaid phone user and calculated by dividing service revenue earned from postpaid phone customers plus billings from installment plans and non-operating leases, as well as equipment rentals by the sum of the monthly average number of postpaid phone connections during the period. We believe that ABPU provides useful information to investors, analysts and our management to evaluate average postpaid phone customer billings as it approximates the expected cash collections, including billings from installment plans and non-operating leases, as well as equipment rentals, per postpaid phone user each month.
Free Cash Flow is the cash provided by operating activities less the cash used in investing activities other than short-term investments and equity method investments. Adjusted Free Cash Flow is Free Cash Flow plus the proceeds from device financings and sales of receivables, net of repayments. We believe that Free Cash Flow and Adjusted Free Cash Flow provide useful information to investors, analysts and our management about the cash generated by our core operations and net proceeds obtained to fund certain leased devices, respectively, after interest and dividends, if any, and our ability to fund scheduled debt maturities and other financing activities, including discretionary refinancing and retirement of debt and purchase or sale of investments.
Net Debt is consolidated debt, including current maturities, less cash and cash equivalents and short-term investments. We believe that Net Debt provides useful information to investors, analysts and credit rating agencies about the capacity of the company to reduce the debt load and improve its capital structure.
SAFE HARBOR
This release includes "forward-looking statements" within the meaning of the securities laws. The words "may," "could," "should," "estimate," "project," "forecast," "intend," "expect," "anticipate," "believe," "target," "plan", "outlook," "providing guidance," and similar expressions are intended to identify information that is not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future -- including statements relating to our network, cost reductions, connections growth, and liquidity; and statements expressing general views about future operating results -- are forward-looking statements. Forward-looking statements are estimates and projections reflecting management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, the development and deployment of new technologies and services; efficiencies and cost savings of new technologies and services; customer and network usage; connection growth and retention; service, speed, coverage and quality; availability of devices; availability of various financings, including any leasing transactions; the timing of various events and the economic environment. Sprint believes these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date when made. Sprint undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our company's historical experience and our present expectations or projections. Factors that might cause such differences include, but are not limited to, those discussed in Sprint Corporation's Annual Report on Form 10-K for the fiscal year ended March 31, 2018. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
About Sprint:
Sprint (NYSE: S) is a communications services company that creates more and better ways to connect its customers to the things they care about most. Sprint served 54.5 million connections as of Sept. 30, 2018 and is widely recognized for developing, engineering and deploying innovative technologies, including the first wireless 4G service from a national carrier in the United States; leading no-contract brands including Virgin Mobile USA, Boost Mobile, and Assurance Wireless; instant national and international push-to-talk capabilities; and a global Tier 1 Internet backbone. Today, Sprint's legacy of innovation and service continues with an increased investment to dramatically improve coverage, reliability, and speed across its nationwide network and commitment to launching the first 5G mobile network in the U.S. You can learn more and visit Sprint at www.sprint.com or www.facebook.com/sprint and www.twitter.com/sprint.
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