Sprint Corporation (NYSE: S) today reported an inflection in wireless service revenue and the sixth consecutive quarter of retail phone net additions as part of results for the first quarter of fiscal year 2018.
“Sprint continued to deliver solid results this quarter while embarking on our transformative merger with T-Mobile,” said Sprint CEO Michel Combes, “By balancing growth and profitability, we were able to grow wireless service revenue sequentially, continue to add retail phone customers, generate net income for the third consecutive quarter, and improve the network.”
Senior Analyst of MoffettNathanson, Craig Moffett saw things as less than solid. “We have long maintained that, absent a merger, Sprint was destined for insolvency,” Moffett said. “Chronic underinvestment had left their network woefully deficient. To sustain subscriber growth, or at least to minimize subscriber losses, the company had grown dependent on hyper-aggressive promotional pricing. Moffett said the customers Sprint attracted with their promotions were “predictably fickle,” and the mismatch between their low marginal prices and their high average prices meant chronically high churn rates.
“With a weak balance sheet and perpetually negative free cash flow,” he said, “there seemed to be no way out of the box they were in. Save for a merger, that is. The obvious question now is… what if the merger doesn’t happen?”
Colby Synesael of Cowen gave the report a positive spin. “S reported good F1Q18 results and reaffirmed F2018 guidance ex. accounting changes,” he said. Management expects higher churn/lower gross adds in F2018 due primarily to price increases. S continues to hold the line while it awaits a decision on TMUS. Arb spread is ~12% with an implied probability of approval at ~46%. We continue to believe standalone S value is meaningfully less than its current price,” Synesael said.
Wireless service revenue grew sequentially for the first time in more than four years, excluding the impact of the new revenue recognition standard
- Postpaid ARPU grew sequentially for the first time in nearly five years
- Net income of $176 million, operating income of $815 million, and adjusted EBITDA of $3.3 billion
- Third consecutive quarter of net income
- 10th consecutive quarter of operating income
- Highest adjusted EBITDA in more than 11 years
- Net cash provided by operating activities of $2.4 billion and adjusted free cash flow* of $8 million
- Positive adjusted free cash flow in five of the last six quarters
- Retail phone net additions for the sixth consecutive quarter
- Postpaid phone net additions of 87,000 were the 12th consecutive quarter of postpaid phone net additions
- Seven consecutive quarters of postpaid phone net additions in the business market
- Prepaid net additions for the sixth consecutive quarter, including the lowest prepaid churn in more than three years
Wireless Service Revenue Returns to Sequential Growth
Sprint reported sequential growth in wireless service revenue for the first time in more than four years, when excluding the impact of the new revenue recognition standard, as postpaid and prepaid ARPU grew sequentially. The company continues to expect year-over-year growth in wireless service revenue by the end of fiscal year 2018, excluding the impact of the new revenue recognition standard.
Several other revenue metrics showed improvement in the quarter, excluding the impact of the new revenue recognition standard.
- Postpaid ARPU grew sequentially for the first time in nearly five years.
- Postpaid service revenue grew sequentially for first time in more than four years.
- Prepaid service revenue grew both sequentially and year-over-year.
August 2, 2018