Sprint’s (S) CEO Dan Hesse on Q1 2014 Results – Earnings Call Transcript

Source: Seeking Alpha

 

Sprint Corporation (NYSE:S)

Q1 2014 Earnings Conference Call

July 30, 2014 08:30 am ET

Executives

Brad Hampton – Vice President of Investor Relations

Dan Hesse – Chief Executive Officer

John Saw – Chief Technology Operator

Joe Euteneuer -Chief Financial Officer

Analysts

Kevin Smithen – Macquarie

Amir Rozwadowski – Barclays

Jennifer Fritzsche – Wells Fargo

John Hodulik – UBS

Jonathan Chaplin – New Street

Michael Rollins – Citi Investment

Tim Horan – Oppenheimer

Operator

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprint Fiscal First Quarter Earnings Conference Call. After the speakers’ remarks, there will be a question-and-answer session. Thank you.

Mr. Brad Hampton, VP of Investor Relations, you may begin your conference.

Brad Hampton – Vice President of Investor Relations

Thank you, Christie. Good morning, everyone and welcome to Sprint’s quarterly earnings call. On today’s call, Dan Hesse will discuss operational performance in the quarter. John Saw will provide an update on the network and Joe Euteneuer will cover financial results. After that, we will open up the call to your questions.

Before we get underway, let me remind you that our release, quarterly investor update and presentation slides that accompany this call, are all available on the Investor Relations page of the Sprint website.

Slide 2 is our cautionary statement. I want to point out that in our remarks this morning we will be discussing forward-looking information, which involves a number of risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. We provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review, including our annual and quarterly reports.

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

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Let’s move on to our earnings on Slide 4, please. Financial results include a predecessor period for the second calendar quarter of 2013 related to the results of operations of Sprint Communications Incorporated, formerly Sprint Nextel prior to the closing of the SoftBank transaction on July 10, 2013, and the applicable successor periods.

In order to present financial results in a way that offers investors a more meaningful comparison of the year-over-year quarterly results, we have combined the second calendar quarter 2013 results of operations for the predecessor and successor periods.

The following remarks relating to second quarter calendar of 2013 are in reference to an unaudited combined period, unless otherwise noted. Trended financial performance metrics on a combined basis can also be found at our Investor Relations website at sprint.com/investors.

As announced earlier this year, Sprint changed its fiscal year end to March 31st. Making this our first fiscal quarter of 2014. However, for ease of comparison to ease of comparison to prior periods, any references to the first quarter ended June 30, 2014 on today’s call, will be referred to as our second calendar quarter.

Net income for the quarter was $23 million compared to a net loss of approximately $151 million last quarter and $1.7 billion in the second quarter of 2013. Total depreciation and amortization was approximately $1.3 billion for the quarter, consistent with last quarter and compared to $1.6 billion in the year ago period.

As you may recall, 2013 included accelerated depreciation, primarily related to the shutdown of the Nextel network and certain legacy 3G equipment. We had a net tax benefit of $15 million in the quarter, due to a decrease in valuation allowance on deferred tax assets, resulting from the planned disposition of certain FCC licenses. We expect net tax expense of $140 million to $180 million for the calendar year.

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Lastly, although Clearwire’s financial results are now consolidated with Sprint’s and included in today’s presentation, its standalone quarterly financial results will be available on our website in the next several weeks as required by its debt covenants.

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

Dan Hesse – Chief Executive Officer

Thanks Brad. We appreciate everyone joining us this morning. Thanks for your interest in Sprint. Let me start by touching on the operational highlights of the quarters.

Turning to Slide 6, our net income of $23 million for the quarter represents our best performance in almost seven years; excluding one-time non-cash transaction related impacts reported last year.

Adjusted EBITDA of $1.83 billion represents growth of 30% year-over-year and our adjusted EBITDA margin of almost 24% is up over six percentage points compared to last year, our largest year-over-year growth on record. This marks the 12th consecutive quarter we have exceeded or matched the Street consensus expectation for adjusted EBITDA.

I’m pleased to report; we hit all of the key network deployment mid-year targets. Sprint LTE service now reaches 254 million people. The multi-year rip and replacement of our core voice and 3G platform is now largely complete and HD voice service is now available nationwide.

Given our strong HD voice call quality and continued improvements in the customer experience, including network performance, which John will discuss later, we currently or we recently reinstituted the Sprint satisfaction guarantee, the opportunity for customers to try Sprint for 30 days worry free.

Finally in keeping with our track record of innovation, during the quarter we launched exclusive new devices and mobile content into high demand consumer lifestyles segments music and fitness.

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