Sprint reported quarterly financials that largely surpassed Wall Street expectations, but the company’s customer figures were decidedly mixed.
On the financial front, 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. Specifically, the company’s wireless service revenue clocked in at $5.5 billion, ahead of Wall Street expectations of $5.47 billion.
And, perhaps more importantly, the company raised its adjusted EBITDA outlook for its fiscal year 2018 to a range of $12.4 billion to $12.7 billion, up from its previous expectation of $12 billion to $12.5 billion.
Sprint attributed its stabilizing financials to its cost-cutting efforts, including the elimination of aggressive promotions and its new, higher-priced unlimited rate structure, as well as its focus on attracting high-value customers.
At the same time, though, Sprint executives warned that the company’s high churn rates could continue as the company focuses on improving its financials. The company said churn levels might improve as it works to improve its network.
“The company has finally found a sustainable footing on service revenues (which has grown for the second consecutive quarter), but this is in an environment where Sprint has been able to raise price along with the wireless incumbents; it’s likely that the competitive environment for wireless will get more difficult in the coming quarters with Cable and TMUS continuing to ramp share gains,” wrote the Wall Street analysts at New Street Research in a note to investors immediately following the release of Sprint’s earnings.
Analysts from Wells Fargo largely agreed: “Financials beat across the board in FQ2 2018, as Sprint's focus on cost reductions continues to bear fruit,” they wrote in a report to investors immediately following the release of Sprint’s earnings. “That said, subscriber numbers were mixed, as the company lost postpay phone subscribers for the first time since FQ1 2015.”
Indeed, in terms of customers, Sprint reported 20,000 net losses in the current quarter compared with 378,000 net additions in the year-ago period and 57,000 net additions in the prior quarter. Sprint ended the quarter with 54.5 million connections, including 32.3 million postpaid, 9 million prepaid, and 13.2 million wholesale and affiliate connections.
In postpaid specifically, Sprint reported net additions of 109,000 during the quarter, down from net additions of 168,000 in the year-ago period and net additions of 123,000 in the prior quarter. In postpaid phones, Sprint reported net losses of 34,000, compared with net additions of 279,000 in the year-ago period and net additions of 87,000 in the prior quarter. “The year-over-year decrease was driven by lower gross additions associated with the introduction of less promotional service pricing, and higher churn. The sequential decrease was driven by higher phone churn. The current quarter included 81,000 net migrations from prepaid to non-Sprint branded postpaid compared to 71,000 in the prior quarter,” Sprint said.
In prepaid, Sprint reported net losses of 14,000 during the quarter compared to 95,000 net additions in the year-ago period and 3,000 net additions in the prior quarter. “The year-over-year decrease was primarily due to 81,000 net migrations from prepaid to non-Sprint branded postpaid, as Boost saw higher gross additions and lower churn year-over-year,” the company said.
Interestingly, Sprint executives said the company would begin focusing more heavily on nonphone devices like tablets and watches, an area where they said other carriers have made strides and where Sprint hasn’t played much. During the quarter, Sprint reported “data device” net additions of 143,000, up from net losses of 111,000 in the year-ago period and net additions of 36,000 in the prior quarter. “The year-over-year and sequential increases were driven by improved tablet net additions and higher other device net additions associated with wearables. The current quarter included 3,000 tablet net additions, compared to 145,000 net losses in the year-ago period and 64,000 net losses in the prior quarter,” the carrier said.
Here are some key topics Sprint covered during its earnings announcement:
LTE Advanced: Sprint said it has deployed technologies such as 256 QAM, 4x4 MIMO, enhanced Beamforming with Transmission Mode 9 and two- and three-channel carrier aggregation—technologies that help increase overall LTE speeds by a factor of two—across more than 225 cities.
T-Mobile merger: Sprint officials didn’t offer much commentary on the merger beyond the fact that they, along with T-Mobile, continue to expect the deal to close next year. However, CEO Michel Combes said coverage of the merger is affecting traffic to Sprint stores.
"With press articles every day on the merger discussions, that's put a little bit of pressure on our base as well as on new customers; … the merger is impacting store traffic,” he said.
VoLTE: Sprint’s John Saw, Ph.D., said the carrier has “soft launched” VoLTE in 35 of Sprint’s 99 markets. He said the service would be “commercially available” next year.
2.5 GHz: Sprint has now deployed 2.5 GHz services across 70% of its macro sites, up from 50% a year ago.
Digital: Combes discussed the creation of “the hive” team within Sprint that focuses on using a digital channel for sales and customer care, thus lowering costs. He said postpaid gross additions in digital channels increased nearly 60% year over year, and that nearly 20% of Sprint’s postpaid upgrades were in digital channels in the quarter.
Financials: Sprint reported net income of $196 million for the quarter compared to a net loss of $48 million in the year-ago period and net income of $176 million in the prior quarter.
Capex: Sprint said its cash capital expenditures for its fiscal year 2018 will come in at $5 billion to $5.5 billion, down slightly from the company’s previous expectation of $5 billion to $6 billion. Saw attributed the decline to the fact that “unit costs [for equipment] are coming in cheaper than we thought” and because Sprint is shifting more of its spending this year to deploying Massive MIMO technology.
Small cells: Sprint said the number of small cells it has deployed has grown from 2,000 at this time last year to fully 21,000 2.5 GHz outdoor small cells on air at the close of Sprint’s most recent quarter. The carrier said that figure includes 15,000 strand-mount small cells deployed on cable infrastructure from Altice and Cox, and about 6,500 on-street mini macros.
“Things are starting to break loose” in small cell deployments, Saw said, acknowledging that Sprint’s agreements with Cox and Altice helped speed up the deployment of the carrier’s small cells.