What Has Driven Sprint’s Recent Margin Expansion?

Sprint (NYSE:S) has seen its adjusted EBITDA margins expand from about 24% in Q4 FY’14 to roughly 33% in Q4 FY’15. While much of the growth comes from increasing uptake of the company’s handset leasing program, which sees costs recognized under the depreciation header (which is not captured in EBITDA), the company has also been cutting down on its operating expenses. Below we break down the key components of Sprint’s year-over-year EBITDA growth.

• Revenues declined owing to lower wireless and wireline services sales, although this was partially offset by higher equipment leasing revenues.
• Cost of services fell driven by lower network backhaul and wireless roaming expenses, while cost of products also declined amid lower upgrade volumes and an increasing mix of lease sales (45%, up 8% y-o-y), which account for costs under depreciation.
• SG&A expenses declined on account of Sprint’s improving customer credit profile, which lowered bad debt expenses. Marketing and prepaid selling expenses also saw a decline during the quarter.
• Other net adjusted expenses rose due to a loss on leased devices.

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