Key Takeaways From Sprint’s Q4 Results

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Sprint (NYSE:S), the fourth largest U.S. wireless carrier, posted a better-than-expected set of adjusted Q4 FY 2015 earnings, driven by its recent phone subscriber gains and operating cost reductions. [1]  Below, we take a look at some of the key takeaways from the carrier’s results and what to expect from Sprint going forward.

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Sprint’s revenues declined marginally on a year-over-year basis, driven by lower postpaid service billings and prepaid customer losses, although this was partially offset by higher equipment revenues. However, adjusted EBITDA trended upwards, as the decline in the company’s operating cost base (SG&A down 17% y-o-y, cost of service down 6%) more than offset the decline in net operating revenues. Sprint is focusing on reducing its labor costs, network expenses, as well as IT and administrative expenses, targeting a sustainable reduction of $2 billion or more in run rate operating expenses exiting fiscal 2016.

Financials_2

 

Postpaid Phone Adds Outpace AT&T & Verizon

Sprint added a net of 22k postpaid phone customers, marking its third straight quarter of positive net adds, driven by promotional schemes – which included offering 50% off the monthly plan rates charged by its rivals. Notably, Sprint’s postpaid net adds for the quarter surpassed rivals AT&T (363k phone losses) and Verizon (8k net losses) which have both witnessed attrition of feature phone users, although it remained well behind T-Mobile (877k net adds).

Phone Churn Trends Lower, ARPU Higher

Postpaid phone churn also saw a decline, driven by the promotional offers and Sprint’s improving network performance. The carrier’s LTE network now covers 300 million POPs, up by roughly 7% year-over-year. While postpaid ARPU declined by about 7% year-over-year amid an increasing shift to subsidy-free plans that have lower service fees, average billings per user trended upwards on account of higher equipment-related billings.

Tablet Losses Hurt Overall Postpaid Net Adds

Sprint’s overall postpaid net adds came in at 56k for the quarter, down by about 73% year-over-year driven primarily by tablet losses. Sprint offered aggressive tablet promotions two years ago and many of these customers are now rolling off these contracts. That said, these tablet losses are unlikely to hurt Sprint’s bottom line going forward, as the carrier notes that the value of tablet customers can be as little as one-tenth that of a handset customer. [2]

Device Sales Skewed Towards Leasing, But Uptake Of Subsidized Plans Remains Strong

Sprint remains the only national wireless carrier to offer two-year contracts and subsidized devices, as the other three major carriers largely abandoned the subsidy model in 2015 or earlier. Sprint still sells roughly 37% of its new devices under subsidy plans, while leasing and equipment installment plans account for 45% and 18% of sales, respectively.

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Notes:
  1. Sprint Q4’15 Quarterly Investor Update []
  2. Sprint (S) R. Marcelo Claure on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, April 2016 []