SPRINT Corp - FORM 8-K - EX-99.1

Attached files

file	filename
8-K - FORM 8-K - SPRINT Corp	d15545d8k.htm
EX-10.5 - EX-10.5 - SPRINT Corp	d15545dex105.htm
EX-10.1 - EX-10.1 - SPRINT Corp	d15545dex101.htm
EX-10.7 - EX-10.7 - SPRINT Corp	d15545dex107.htm
EX-10.6 - EX-10.6 - SPRINT Corp	d15545dex106.htm
EX-10.4 - EX-10.4 - SPRINT Corp	d15545dex104.htm
EX-10.3 - EX-10.3 - SPRINT Corp	d15545dex103.htm
EX-10.2 - EX-10.2 - SPRINT Corp	d15545dex102.htm

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Template Version: 4:3MF1.1

Version Date: 10/23/15

Sprint Executes Agreement With

Mobile Leasing Solutions

Exhibit 99.1

November 20

, 2015

confidential or privileged materials intended for the sole use of the intended recipient. Any review, use, distribution or disclosure is prohibited without authorization.

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Template Version: 4:3MF1.1

Version Date: 10/23/15

confidential or privileged materials intended for the sole use of the intended recipient. Any review, use, distribution or disclosure is prohibited without authorization.

Cautionary Statement

SAFE HARBOR

This presentation includes “forward-looking statements” within the meaning of the securities laws. The words “may,”

“could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan,” “providing

guidance,” and similar expressions are intended to identify information that is not historical in nature. All statements

that address operating performance, events or developments that we expect or anticipate will occur in the future —

including statements relating to the LeaseCo transaction and statements expressing general views about future

operating results — are 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, ability to recognize the expected benefits of the LeaseCo transaction; availability of devices;

availability of various financings, including any additional leasing transactions; and the timing of various events. Sprint

believes these forward-looking statements are reasonable; however, you should not place undue reliance on

forward-looking statements, which are based on current expectations and speak only as of the date when made.

Sprint undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of

new information, future events or otherwise, except as required by law. In addition, forward-looking statements are

subject to certain risks and uncertainties that could cause actual results to differ materially from our company's

historical experience and our present expectations or projections. Factors that might cause such differences include,

but are not limited to, those discussed in Sprint Corporation’s Annual Report on Form 10-K for the fiscal year ended

March 31, 2015. You should understand that it is not possible to predict or identify all such factors. Consequently, you

should not consider any such list to be a complete set of all potential risks or uncertainties.

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Template Version: 4:3MF1.1

Version Date: 10/23/15

confidential or privileged materials intended for the sole use of the intended recipient. Any review, use, distribution or disclosure is prohibited without authorization.

*Non-GAAP Financial Measures

Sprint provides financial measures determined in accordance with GAAP and adjusted 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 measurements

should be considered in addition to, but not as a substitute for, financial information 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 provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint 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 does not provide reconciliations to GAAP of its

forward-looking financial measures.

The measures used in this presentation include the following:

EBITDA is operating income/(loss) before depreciation and amortization. Adjusted EBITDA is EBITDA excluding

severance, exit costs, and other special items. Adjusted EBITDA Margin represents Adjusted EBITDA divided by

non-equipment net operating revenues for Wireless and Adjusted EBITDA divided by net operating revenues for

Wireline. We believe that Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to investors

because they are an indicator of the strength and performance of our ongoing business operations. While

depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent

non-cash current period costs associated with the use of long-lived tangible and definite-lived intangible assets.

Adjusted EBITDA and Adjusted EBITDA 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.

Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the

company’s website at www.sprint.com/investors.

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Template Version: 4:3MF1.1

Version Date: 10/23/15

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Deal Summary

Sprint expects to receive $1.1B in cash proceeds at closing in early

December from off balance sheet sale-leaseback transaction with Mobile

Leasing Solutions

Creates a repeatable structure to sell discrete pools of future leased

devices

Aligns the timing of cash outflows for device purchases with the cash

inflows from the sale of certain leased devices

Diversifies liquidity portfolio away from unsecured high-yield concentration

today, allows Sprint to access $600 billion annual global ABS liquidity pool

Implied cost of funds is well below high-yield alternatives

Strong combination of financial and strategic parties supporting the

transaction

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Template Version: 4:3MF1.1

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Mobile Leasing Solutions (MLS) Structure

Equity investors include Softbank and 6

leasing companies

Lenders include 3 international banks

providing low cost capital to MLS

Residual value protection provided by

Brightstar through Foxconn forward

purchase commitment

Sprint entitled to 100% of any net residual

value upside on devices

Brightstar manages logistics and acts as

sole remarketing agent for MLS to

monetize returned devices

Limited recourse to Sprint

Represents a unique structure that

considers credit risk and asset risk within

one vehicle

EQUITY

FOXCONN

LENDERS

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Diversifying the Capital Portfolio

Sale-leaseback structure similar to asset

backed lending construct

Important for Sprint to diversify its

sources of capital, which today is highly

concentrated around high-yield

unsecured debt

Effective cost of capital from the ABS

market has historically been lower than

the high-yield market

ABS market supply is nearly $400 billion

annually in the US alone, and $600

billion globally

100

200

300

400

500

2013

2014

2015

US Annual ABS Supply ($B)

200

400

600

800

2013

2014

2015

Global Annual ABS Supply ($B)

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Sprint -

MLS Relationship

Customer

Device Sale

Leaseback

Device Return

Cash

Devices Sold

Leaseback

Devices

Leaseback

Payments

Upside

Participation

Return

Device

Payment

Lease

•

Return Device

•

Purchase Device

•

Month-to-Month

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Expected Initial Tranche Details

Book value of ~2.5 million devices sold

is removed from PP&E on the Balance

Sheet

Total consideration of ~$1.2B includes

~$1.1B in cash plus deferred

consideration

Implied cost of funds of mid-single digits,

well below the current high-yield

alternatives

The difference between the net book

value and total proceeds will be

recognized on Sprint’s P&L as a loss at

the time of sale

Deferred consideration is held as

protection for MLS towards potential

losses, and will be trued-up with upside,

at the close-out of the transaction

*Adjusted at closing to reflect final assets sold/received

~$1.3B

Book Value Sold

~$1.2B

Proceeds*

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Cash Flow Impact

Addresses the working capital impact

of leasing by aligning the timing of

cash flows

Proceeds from sale of devices to MLS

is expected to approximate the net

book value of the associated leased

devices

For subsequent tranches Sprint

expects to sell the leased devices to

MLS 1-3 months after initiating lease

with the customer

Monthly leaseback payments to MLS

approximates lease payments

received from customers

Any net residual value upside would

be realized by Sprint at the end of the

transaction

Lease/Leaseback Term

Customer

Payments

Leaseback

Payments

Device

Sale to

MLS

Device

Purchase

From OEM

Residual

Value

Upside

Illustrative example only

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Income Statement Impact

No change to equipment revenue recognition during customer lease term

Leaseback payment recorded in Cost of Product on P&L

No depreciation after device sale to MLS

Small upfront loss expected to be recognized equal to difference between total proceeds and net book

value of devices sold

Illustrative example only

Customer

Each

Transaction

Month

Equipment Revenue

$20

Cost of Product

Other, Net

EBITDA

$20

Depreciation

($20)

EBIT

Business As Usual

MLS

Each

Transaction

Month

Equipment Revenue

$20

Cost of Product

($20)

Other, Net

($30)

EBITDA

($30)

Depreciation

EBIT

($30)

Sale-Leaseback

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Template Version: 4:3MF1.1

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Adjusted EBITDA* Guidance

$6.8B -

$7.1B

$7.2B -

$7.6B

Low end of

$7.2B -

$7.6B

Updated Guidance Only Reflects First Tranche

Business

As Usual

Transformation

& Program Costs

Prior

Guidance

Tranche

Loss

Leaseback

Payments

Revised

Guidance

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Template Version: 4:3MF1.1

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Operating Income Guidance

($50M)

–

($250M)

$200M

–

$500M

$0M

–

($150M)

Updated Guidance Only Reflects First Tranche

Business

As Usual

Transformation

& Program

Costs

Prior

Guidance

Tranche

Loss

Leaseback

Payments

Revised

Guidance

confidential or privileged materials intended for the sole use of the intended recipient. Any review, use, distribution or disclosure is prohibited without authorization.

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Questions & Answers

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Device Purchase Method Accounting

Traditional Subsidy

Equipment Installment Plan

Leasing

Customer

Device

Transaction

Each

Month

Total

Service

Revenue

$60

$1,440

Equipment

Revenue

$600

Imputed

Interest

$50

Cost of

Goods Sold

($650)

EBITDA

($50)

$62

$1,440

Depreciation

EBIT

($50)

$62

$1,440

Customer

Device

Transaction

Each

Month

Total

Service

Revenue

$60

$1,440

Equipment

Revenue

$20

$480

Imputed

Interest

Cost of

Goods Sold

EBITDA

$80

$1,920

Depreciation

($20)

($480)

EBIT

$60

$1,440

Customer

Device

Transaction

Each

Month

Total

Service

Revenue

$78.75

$1,890

Equipment

Revenue

$200

Imputed

Interest

Cost of

Goods Sold

($650)

EBITDA

($450)

$78.75

$1,440

Depreciation

EBIT

($450)

$78.75

$1,440

HYPOTHETICAL EXAMPLE FOR ILLUSTRATIVE PURPOSES ONLY:

•

numbers are simplified, representing a single device

•

device is purchased from a Sprint direct

channel

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