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sprint nextel Quarterly Presentations 2007 3rd
 

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    sprint nextel Quarterly Presentations 2007 3rd sprint nextel Quarterly Presentations 2007 3rd Presentation Transcript

    • Sprint Nextel Investor Quarterly Update - 3Q07 November 1st, 2007 © 2007 Sprint Nextel. All rights reserved.
    • Cautionary Statement • This presentation includes “forward-looking statements” within the meaning of the securities laws. The statements in this presentation regarding the business outlook, expected performance, forward looking guidance, continuation of our previously announced share buy-back program, as well as other statements that are not historical facts, are forward-looking statements. The words quot;estimate,quot; quot;project,quot; ”forecast,” quot;intend,quot; quot;expect,quot; quot;believe,quot; quot;target,quot; “providing guidance” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, operating costs, the timing of various events and the economic environment. Future performance cannot be assured. Actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include: • the effects of vigorous competition, including the impact of competition on the price we are able to charge customers for services and equipment we provide and our ability to attract new customers and retain existing customers; the overall demand for our service offerings, including the impact of decisions of new subscribers between our post-paid and prepaid services offerings and between our two network platforms; and the impact of new, emerging and competing technologies on our business; • the impact of overall wireless market penetration on our ability to attract and retain customers with good credit standing and the intensified competition among wireless carriers for those customers; • the potential impact of difficulties we may encounter in connection with the integration of the pre-merger Sprint and Nextel businesses, and the integration of the businesses and assets of Nextel Partners, Inc. and the PCS Affiliates that we have acquired, including the risk that these difficulties could prevent or delay our realization of the cost savings and other benefits we expect to achieve as a result of these integration efforts and the risk that we will be unable to continue to retain key employees; • the uncertainties related to the implementation of our business strategies, investments in our networks, our systems, and other businesses, including investments required in connection with our planned deployment of a next generation broadband wireless network; • the costs and business risks associated with providing new services and entering new geographic markets, including with respect to our development of new services expected to be provided using the next generation broadband wireless network that we plan to deploy; • the impact of potential adverse changes in the ratings afforded our debt securities by ratings agencies; • the effects of mergers and consolidations and new entrants in the communications industry and unexpected announcements or developments from others in the communications industry; • unexpected results of litigation filed against us; • the inability of third parties to perform to our requirements under agreements related to our business operations, including a significant adverse change in Motorola, Inc.’s ability or willingness to provide handsets and related equipment and software applications, or to develop new technologies or features for our iDEN®, network; • the impact of adverse network performance; • the costs and/or potential customer impacts of compliance with regulatory mandates, particularly requirements related to the reconfiguration of the 800 MHz band used to operate our iDEN network, as contemplated by the Federal Communications Commission’s Report and Order released in August 2004 as supplemented by subsequent memorandums; • equipment failure, natural disasters, terrorist acts, or other breaches of network or information technology security; • one or more of the markets in which we compete being impacted by changes in political or other factors such as monetary policy, legal and regulatory changes or other external factors over which we have no control; • and other risks referenced from time to time in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2006, in Part I, Item 1A, “Risk Factors.” 2
    • Non-GAAP Financial Measures Sprint Nextel provides financial measures generated using generally accepted accounting principles (GAAP) and using adjustments to GAAP (non- GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use, but these measures may not be synonymous to similar measurement terms used by other companies. Sprint Nextel provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint Nextel does not predict special items that might occur in the future, and our forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures, Sprint Nextel does not provide reconciliations to GAAP of its forward- looking financial measures. The measures used in this release include the following: • Adjusted Earnings per Share (EPS) is defined as income from continuing operations, before special items, net of tax and the diluted EPS calculated thereon. Adjusted EPS before Amortization is defined as income from continuing operations, before special items and amortization, net of tax, and the diluted EPS calculated thereon. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that these measures are useful because they allow investors to evaluate our performance for different periods on a more comparable basis by excluding items that relate to acquired amortizable intangible assets and not to the ongoing operations of our businesses. • Adjusted Net Income is defined as income (loss) from continuing operations before special items. Adjusted Net Income before Amortization is defined as income (loss) from continuing operations before special items and amortization, net of tax. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that these measures are useful because they allow investors to evaluate our performance for different periods on a more comparable basis by excluding items that do not relate to the ongoing operations of our businesses. • Adjusted Operating Income is defined as operating income before special items. This non- • GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe this measure is useful because it allows investors to evaluate our operating results for different periods on a more comparable basis by excluding special items. • Adjusted OIBDA is defined as operating income before depreciation, amortization, restructuring and asset impairments, and special items. Adjusted OIBDA less Cap Ex represents Adjusted OIBDA less our capital expenditures. Adjusted OIBDA Margin represents Adjusted OIBDA divided by non-equipment net operating revenues for Wireless and Adjusted OIBDA divided by net operating revenues for Long Distance. These non-GAAP measures should be used in addition to, but not as a substitute for, the analysis provided in the statement of operations. We believe that Adjusted OIBDA and Adjusted OIBDA Margin provide useful information to investors because they are an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, spectrum acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Adjusted OIBDA and Adjusted OIBDA Margin are calculations commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the telecommunications industry. • Free Cash Flow is defined as the change in cash and cash equivalents less the change in debt, investment in certain securities, proceeds from common stock and other financing activities, net, from continuing operations. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the statement of cash flows. We believe that Free Cash Flow provides useful information to investors, analysts and our management about the cash generated by our core operations after interest and dividends and our ability to fund scheduled debt maturities and other financing activities, including discretionary refinancing and retirement of debt and purchase or sale of investments. • Net Debt is consolidated debt, including current maturities, less cash and cash equivalents, current marketable securities and restricted cash. This non-GAAP measure should be used in addition to, but not as a substitute for, the analysis provided in the balance sheet and statement of cash flows. We believe that Net Debt provides useful information to investors, analysts and credit rating agencies about the capacity of the company to reduce the debt load and improve its capital structure. 3
    • Normalizing EPS 3Q07 3Q06 Net Income EPS Net Income EPS (millions) (millions) Reported - Continuing Operations $64 $0.02 $279 $0.09 Special Items $136 $0.05 $53 $0.02 Amortization $472 $0.16 $619 $0.21 Adjusted $672 $0.23 $951 $0.32 4
    • Paul Saleh Acting Chief Executive Officer Chief Financial Officer © 2007 Sprint Nextel. All rights reserved.
    • Operational Highlights • Best-ever CDMA & iDEN network performance • Marketing campaign gaining traction • Bolstering competitiveness of handset lineup • Improving customer care metrics • Churn challenges persist • Mixed performance in Wireless • Solid contributions from Wireline 6
    • Financial Summary 3Q07 2Q07 QoQ 3Q06 YoY Total Subscribers on Network 54.0M 54.0M - 51.9M 4% Net Operating Revenues $10.0B $10.2B -1% $10.5B -4% Adjusted OIBDA $2.9B $2.9B - $3.4B -14% Adjusted OIBDA Margin 30.7% 30.1% 50bps 34.9% -420bps Capital Expenditures $1.2B $1.7B -$0.5B $1.8B -$0.7B Free Cash Flow $1.3B $0.2B $1.1B $0.8B $0.5B • Wireless ARPU and subscriber deactivations pressuring top line • Solid improvement in subsidy costs from 1H levels • Higher customer care & bad debt, offset by lower variable compensation • Lower capital spending drives higher cash flow 7
    • Revenue Performance Wireless Service Equipment Wireline (Billions) $0.84 $8.23 $1.63 $8.17 $0.66 $1.62 $1.61 $0.61 $8.04 Q3-06 Q2-07 Q3-07 Q3-06 Q2-07 Q3-07 Q3-06 Q2-07 Q3-07 • Voice ARPU decline primarily due to rate plan mix • Strong aircard and messaging propel 3Q07 data ARPU >$10 • CDMA ARPU up slightly from 3Q06 • iDEN ARPU and base erosion • Wireline IP revenue up 43% YoY, offset by lower voice and legacy data 8
    • Postpaid Trends Postpaid Subscribers 41.7M 41.4M 35% iDEN 44% • Growing CDMA gross adds • Plan to re-ignite demand for CDMA 65% Nextel Direct Connect 56% (incl. PowerSource) 3Q06 3Q07 Postpaid Churn • Drivers of sequential churn: 2.3% Seasonal & macro- Intra Involuntary Account economic impacts Netting Voluntary 0.9% Competitive pressure 2.0% Voluntary Involuntary • Actions underway to increase 1.4% customer retention 2Q07 3Q07 9
    • Enhance the Customer Experience Simplify the Business Customer Marketing Sales & Distribution Management Balance spending Increase channel Bolster staffing between retention & efficiency Finish billing migration acquisition Invest to support Drive quality & Revise sub-prime small & mid-sized consistency across offer businesses centers & vendors More effective Align incentives with Simplify upstream product & service balanced focus on activity to reduce call launches acquisition & retention volumes Simplified pricing and Extend service & care promotions capabilities in stores Deliver a Consistent Customer Experience Across the Business 10
    • Boost Mobile Update Boost Pay-As-You-Go Boost Unlimited Boost Pay-As-You-Go Boost Unlimited • Walkie-talkie centric, traditional • 226,000 subscribers prepaid offering • Expanding handset lineup • 4.3M subscribers • Launching in 10 new markets • Competitive environment & • Distribution now includes macroeconomic trends RadioShack and Wal-Mart Declining gross adds • Introducing web, text messaging, Lower ARPU & usage PictureMail • Action plans • Criteria for success: Loyalty programs Strong customer lifetime value New handsets Increased gross add share Boost Unlimited Low cost structure 11
    • Capital Spending $4.5B Year-to-Date (Billions) Wireless $1.7 CDMA investments in capacity & coverage $1.6 Growing EVDO rev A footprint to ~230M by YE07 Continued iDEN quality focus Wireline Supporting MPLS and Cable VOIP growth $1.2 WiMAX Initial network build Q1-07 Q2-07 Q3-07 Future Capital Investments Reflect current wireless subscriber trends Emphasize retention of current subscribers Support WiMAX build-out and data growth Seek higher levels of capital efficiency Note: 2007 YTD capital spending figures do not include the non-network portion of re-banding expenditures. 12
    • Financial Update • Solid financial position Adjusted OIBDA less cap ex of $3.9B YTD Ample liquidity with $2.2B of cash No senior note maturities before Nov-2008 • Share buyback program $432M used to purchase shares in Q3, 2007 $3.5B invested since inception Maintaining a conservative approach Program expires in Q1, 2008 • Tracking slightly below guidance for 2007 • Reduced capital investment preserves FCF 13
    • Q&A • Paul Saleh, Chief Financial Officer and acting CEO • Mark Angelino, President of Sales & Distribution • Tim Kelly, Chief Marketing Officer • Bob Johnson, Chief Service Officer • Kurt Fawkes, Vice President of Investor Relations 14
    • Non-GAAP Reconciliations Quarter Ended Quarter Ended Year To Date June 30, June 30, September 30, September 30, September 30, September 30, 2007 2006 2007 2006 2007 2006 Operating Income $ 316 $ 712 $ 398 $ 719 $ 715 $ 1,915 Special items before taxes Merger and integration expense (2) 163 113 135 107 397 296 (3) Severance, exit costs and asset impairments 85 40 125 50 384 128 Contingencies and other (5) 5 (2) - 1 46 (1) Adjusted Operating Income 569 863 658 877 1,542 2,338 Depreciation and amortization 2,313 2,354 2,222 2,488 6,803 7,188 Adjusted OIBDA* 2,882 3,217 2,880 3,365 8,345 9,526 Capital expenditures (b) 1,666 1,359 1,176 1,843 4,449 4,445 Adjusted OIBDA* less Capex $ 1,216 $ 1,858 $ 1,704 $ 1,522 $ 3,896 $ 5,081 Operating Income Margin (c) 3.3% 7.7% 4.2% 7.5% 2.5% 6.8% Adjusted OIBDA Margin* (c) 30.1% 34.7% 30.7% 34.9% 29.4% 33.8% (a) Results for each of the periods reflected include the results of each of the acquired PCS Affiliates, Nextel Partners and Velocita from either the date of the acquisition or the start of the month closest to the acquisition date. (b) Capital expenditures includes capex accruals (c) Operating Income Margin and Adjusted OIBDA Margin excludes equipment revenue and revenue generated by the non-core line of business that has been normalized out of Adjusted OIBDA. (1), (2), (3), (4), (5) See accompanying Notes to Financial Data. 15
    • Non-GAAP Reconciliations RECONCILIATIONS OF EARNINGS PER SHARE (Unaudited) (Millions except per share data) Quarter Ended Quarter Ended Year To Date September 30, September 30, June 30, June 30, September 30, September 30, 2007 2006 2007 2006 2007 2006 Income (Loss) Available to Common Shareholders $ 64 $ 279 $ 19 $ 370 $ (128) $ 1,066 Preferred stock dividends paid - - - - - 2 Net Income (Loss) 64 279 19 370 (128) 1,068 Discontinued operations, net - - - (79) - (334) Income (Loss) from Continuing Operations 64 279 19 291 (128) 734 Special items (net of taxes) (a) Merger and integration expense 84 66 100 69 244 181 Severance, exit costs and asset impairment 78 31 52 23 239 77 Contingencies and other - 2 12 - 37 2 Net gains on investment activities and equity in earnings (4) - (11) (8) (15) (40) Tax audit settlement (19) (42) - - (19) (42) Gain on early retirement of debt (3) (4) - (5) (5) (9) Adjusted Net Income* $ 200 $ 332 $ 172 $ 370 $ 353 $ 903 Amortization (net of taxes) 472 619 547 577 1,570 1,760 Adjusted Net Income before Amortization* $ 672 $ 951 $ 719 $ 947 $ 1,923 $ 2,663 Diluted Earnings (Loss) Per Common Share 0.02 0.09 0.01 0.12 (0.04) 0.36 Discontinued operations - - - 0.02 - (0.11) Diluted Earnings (Loss) Per Common Share from 0.02 0.09 0.01 0.10 (0.04) 0.25 Continuing Operations Special items (net of taxes) (a) 0.05 0.02 0.05 0.02 0.16 0.05 Adjusted Earnings Per Share* $ 0.07 $ 0.11 $ 0.06 $ 0.12 $ 0.12 $ 0.30 Amortization (net of taxes) (b) 0.16 0.21 0.19 0.20 0.55 0.59 (b) Adjusted Earnings Per Share before Amortization* $ 0.23 $ 0.32 $ 0.25 $ 0.32 $ 0.67 $ 0.89 (a) See accompanying Notes to Financial Data. (b) Rounding differences are recorded to the Amortization (net of taxes) line. 16
    • Non-GAAP Reconciliations FREE CASH FLOW (NON GAAP) (Millions) Quarter Ended Quarter Ended Year To Date September 30, September 30, June 30, June 30, September 30, September 30, 2007 2006 2007 2006 2007 2006 Adjusted OIBDA* $ 2,880 $ 3,365 $ 2,882 $ 3,217 $ 8,345 $ 9,526 Adjust for special items (260) (158) (253) (151) (827) (423) Other operating activities, net (a) 94 (303) (659) (645) (370) (1,511) Cash from continuing operating activities (GAAP) 2,714 2,904 1,970 2,421 7,148 7,592 Capital expenditures (1,261) (1,885) (1,577) (1,395) (4,651) (4,798) Expenditures relating to FCC Licenses (204) (51) (151) (271) (462) (458) Dividends paid (71) (74) (72) (74) (215) (224) Proceeds from sales of investments and assets 115 54 15 38 157 221 Other investing activities, net (2) (179) (2) 42 (6) 5 Free Cash Flow* 1,291 769 183 761 1,971 2,338 Increase (decrease) in debt, net (775) (1,783) 748 (3,095) - (5,746) Purchase of common shares (432) (1,523) (1,101) - (1,833) (1,523) Retirement of redeemable preferred shares - - - - - (247) Acquisitions net of cash acquired (287) (867) - (6,216) (287) (10,483) Proceeds from spin-off of local communications business and proceeds from sale of Embarq notes - - - 6,268 - 6,268 Discontinued operations activity, net - - - 69 - 367 Change in restricted cash - 1,124 - (1,125) - 93 Investments, net (3) 91 5 207 9 1,128 Proceeds from common shares issued 25 46 243 141 337 372 Other financing activities, net - 12 - - - 12 Change in cash and cash equivalents - GAAP $ (181) $ (2,131) $ 78 $ (2,990) $ 197 $ (7,421) (a) Other operating activities, net includes the change in working capital, change in deferred income taxes, miscellaneous operating activities and non-operating items in net income (loss). 17