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Sprint Corporation (S - Analyst Report) reported third quarter 2013 net income of $383 million against loss of $767 million in the year-ago quarter. The improvement came on the back of $1.4 billion gains related to investments in Clearwire.

Quarterly operating revenues decreased 1% year over year to $8,681 million and missed the Zacks Consensus Estimate of $8,792 million.

Adjusted EBITDA of $1.34 billion increased 5% year over year buoyed by service revenues, gains from the shut down of the Nextel platform and lower net subsidy expenses.
 
Segment Results


Wireless operating revenues was $8,017 million in the quarter, down marginally from $8,042 million in the year-ago quarter. The company recorded service revenues of $7,307 million in comparison to $7,292 million in the year-ago quarter thanks to the introduction of new pricing plans such as Unlimited, My Way and My All-In plans that include unlimited talk, text and data while on the Sprint network. In addition, the company has also gained from its smartphone upgrade plan, Sprint One Up, which offers unlimited talk, text and data alongside smartphone upgrade in every 12 months.

Sprint lost approximately 313,000 million subscribers in the reported quarter, representing a net loss of 507 million in retail subscribers and gain of 194,000 in wholesale and affiliate subscribers.

The Sprint platform lost 360,000 post-paid customers. With regard to prepaid subscription, Sprint added 84,000 users.

At the end of the third quarter, Sprint had approximately 53.252 million customers (including 30.1 million post-paid, 15.3 million prepaid and 7.9 million wholesale and affiliate) compared with 52.857 million in the year-ago quarter.

Wireless post-paid average revenue per unit (ARPU) increased to $64.28 from $63.21 in the year-ago quarter backed by higher monthly recurring revenues. Prepaid ARPU decreased to $25.33 from $26.19 in the year-ago quarter.  

Sprint platform post-paid churn (customer switch) rate was 1.99% in the reported quarter, compared with 1.88% in the year-ago quarter. Sprint platform prepaid churn deteriorated to 3.57% from 2.93% in the prior-year quarter.

During the third quarter, Sprint sold nearly 1.4 million Apple Inc. (AAPL - Analyst Report) iPhones and about 40% of the iPhone customers were new to Sprint.

Wireline revenues dropped to $875 million from $939 million in the year-ago quarter owing to poor performances by voice, Internet and cable units.

Liquidity

At the end of third quarter, Sprint had approximately $6,058 million in cash and cash equivalents compared with $6,351 million in 2012. Net debt increased to $23 billion from $16.1 billion at the end of 2012. The company incurred capital expenditure of $1,841 million in the third quarter compared with $1,489 million in the corresponding year-ago quarter.

Guidance

For full-year 2013, Sprint expects adjusted EBITDA between $5.1 billion and $5.3 billion assuming the dilutive impact of SoftBank and Clearwire transactions. Capital expenditure is expected at $8 billion.

Our Take

Sprint currently has a Zacks Rank #3 (Hold). We believe Sprint’s near future remains challenged by the dilutive impact of the Network Vision program and subscriber headwinds due to re-certification of the Lifeline service. However, Sprint’s efforts to taper its losses supported by a strong wireless business with reducing churn, improving ARPU, increasing penetration of handsets, service offerings and spectrum acquisitions from Clearwire and United States Cellular Corporation (USM - Analyst Report) transactions are encouraging. Nevertheless, increased competition from carriers like Verizon Communications Inc. (VZ - Analyst Report), heavy investments, and continued wireline margin erosion keep us cautious on the stock.
 

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