S - Sprint

[Jurgis]

So I think there could be some value here, and potential for a buyout in the future. Maybe someone from outside of the wireless industry, similar to att/directtv.

 

Do you think Softbank/Son would sell?

 

My concern is that Son is looking for his 100-year company and he might not sell while Sprint keeps burning cash and going nowhere.

I am somewhat concerned that he does not have a good plan to get Sprint on track and contributing to Softbank instead of being a deadweight... I'll keep watching. But this is one of the reasons I'm not adding to my Softbank position here.

[Guest Schwab711]

They don't use sprint software, they use the sprint network to connect the cars. Its not a Sprint issue, millions of phones and computers run on there, its the underlying software developed by the car manufacturers that have security holes.

 

Thanks for the clarification. Looks like FC's Uconnect software (which runs the touchscreen in your car) was using Sprint's network during the crash. However, I believe the Chrysler vehicles use Sprint's network (Velocity software). Without knowing the details I really couldn't comment on whether Sprint is responsible.

 

http://seekingalpha.com/news/2659025-sprint-minus-8_5-percent-as-analyst-highlights-companys-part-in-jeep-hack

http://newsroom.sprint.com/news-releases/chrysler-group-enlists-sprint-for-strategic-wireless-partner-role-enabling-uconnect-access.htm

http://www.wired.com/2015/07/jeep-hack-chrysler-recalls-1-4m-vehicles-bug-fix/

[fareastwarriors]

Jefferies Sprint -No Relief for Cash Burn  7/23/15

Jefferies_Sprint_-No_Relief_for_Cash_Burn_.pdf

[supertutti]

Solid earnings for Sprint this morning. Profit increased, on lower revenue. How ever capital expenses continue to grow as they continue to invest in building out their network. Still burned $2.1b in cash this quarter, so lets see. Positive signs, but not out of the woods yet. Still a ripe target for a takeover or asset sale though.

[Jurgis]

Looks pretty ugly. Son digs in, gonna invest in the leasing companies. Hopefully that's gonna end up better than his S investment so far...

[muscleman]

Still burned $2.1b in cash this quarter

 

Where did you get this number? I see their cash balance is 2.1 bn less than last quarter, but their total liability is down by 1.6 bn. They only burned 0.5 bn cash. Not 2.1 bn.

On the other hand, their account receivable jumped by 1.6 bn. If this is all collectible, then this is a pretty good sign of turnaround.

[dwy000]

Still burned $2.1b in cash this quarter

 

Where did you get this number? I see their cash balance is 2.1 bn less than last quarter, but their total liability is down by 1.6 bn. They only burned 0.5 bn cash. Not 2.1 bn.

On the other hand, their account receivable jumped by 1.6 bn. If this is all collectible, then this is a pretty good sign of turnaround.

 

It's the Free Cash Flow figure they give in the press release.

 

Operating cash flow of $128M, capex of $2.35bn, other adjustments -$28M = ($2,246M) free cash flow

 

There's a ton of working capital movement in there.  Not just jump in AR but a paydown of payables by $1bn.  Either way, unless that turns around or they get this financing sub up and running (which is just selling off assets) they're going to be pretty short of cash going into end of year.

[Guest Grey512]

Is it just me or is Sprint trading at +$3/sh just because of Masa Son?

 

When I look at S, I see:

- Cash-burn, even BEFORE interest costs

- Precipitous leverage. Given the extent of leverage, Masa Son has no choice but to keep S listed - he needs to maintain S's ability to tap the equity markets -> likely dilution in 2016

- Creaking infrastructure that fell way behind AT&T

- Brutally competitive, commoditized industry, with government blocking consolidation moves

- Too big to be taken over

 

So we have an investment that does not generate cash and is unlikely to be taken over in a corporate action. Why is this trading at +$3?

 

 

 

[Jurgis]

Some people will argue that S has spectrum more valuable than market cap (or EV).

The issue is that it's not clear if there's a way to unlock that value. It might never be unlocked.

 

OTOH that means shorting is risky.

And contemplating why it's trading at $3 and not $7 or $1 is also pretty waste of time IMO. Any of these prices could be justified by just adjusting the probability and price of spectrum monetization. ;)

[Guest Grey512]

Some people will argue that S has spectrum more valuable than market cap (or EV).

The issue is that it's not clear if there's a way to unlock that value. It might never be unlocked.

 

OTOH that means shorting is risky.

And contemplating why it's trading at $3 and not $7 or $1 is also pretty waste of time IMO. Any of these prices could be justified by just adjusting the probability and price of spectrum monetization. ;)

 

If this is an asset story then why not just own LLL? LLL at least generates cash.

Also... I am not a telco expert but the most straightforward S asset realization scenario appears to be debt-induced forced selling of the family silver (possibly via bankruptcy). Which is not a long-term positive for the current equity- holders.

 

whichever way I look at it, I just don't get why people are long S. Of the tens of thousands of equities and hundreds of megacaps is this really what people like? oy vey

 

edit: found this interesting article

http://www.fiercewireless.com/story/analyst-sprint-selling-some-its-25-ghz-spectrum-wont-be-its-financial-salva/2015-06-09

 

 

[Jurgis]

I am not sure anyone here is long S. Except for some people being long via SFTBY.

 

Anyway, I don't really disagree with you. I read this thread to try to understand how the heck Masa will extricate himself from this S(hit). ;)

[muscleman]

Is it just me or is Sprint trading at +$3/sh just because of Masa Son?

 

When I look at S, I see:

- Cash-burn, even BEFORE interest costs

- Precipitous leverage. Given the extent of leverage, Masa Son has no choice but to keep S listed - he needs to maintain S's ability to tap the equity markets -> likely dilution in 2016

- Creaking infrastructure that fell way behind AT&T

- Brutally competitive, commoditized industry, with government blocking consolidation moves

- Too big to be taken over

 

So we have an investment that does not generate cash and is unlikely to be taken over in a corporate action. Why is this trading at +$3?

 

2015 Q2's operating income 0.5 Bn. D&A 1.5 Bn. EBITDA is 2 bn this quarter.

Interest expense 0.5 Bn. Capex network 1.8 bn and lease devices 0.5 bn.

 

Total cash burn is 2 - 0.5 - 2.3 = 0.8 bn.

 

Cash balance is 2 bn on the book. Capex for leased devices part will likely continue in the future. Not sure about network capex. Anyone knows?

 

Long term debt 32 bn. Leverage ratio is 4.

 

It is hard to say. I think there is a good chance that they need to raise 4 bn equity.

[fareastwarriors]

how timely:

 

 

Inside SoftBank’s Struggle to Turn Around Sprint

Two years after takeover, SoftBank’s Masayoshi Son struggles to overhaul the U.S. carrier

 

http://www.wsj.com/articles/doubts-grow-about-whether-softbank-can-save-sprint-1439346616?mod=LS1

[muscleman]

how timely:

 

 

Inside SoftBank’s Struggle to Turn Around Sprint

Two years after takeover, SoftBank’s Masayoshi Son struggles to overhaul the U.S. carrier

 

http://www.wsj.com/articles/doubts-grow-about-whether-softbank-can-save-sprint-1439346616?mod=LS1

 

Yeah. Saw it last night. Softbank's Q1 presentation stated that Sprint does not need either additional borrowing from public funds or equity raise. Not sure how that could be done. They said they expected capex to peak this year, so maybe we will have another quarter of cash burn and things will turn around. Who knows.

[krazeenyc]

how timely:

 

 

Inside SoftBank’s Struggle to Turn Around Sprint

Two years after takeover, SoftBank’s Masayoshi Son struggles to overhaul the U.S. carrier

 

http://www.wsj.com/articles/doubts-grow-about-whether-softbank-can-save-sprint-1439346616?mod=LS1

 

Yeah. Saw it last night. Softbank's Q1 presentation stated that Sprint does not need either additional borrowing from public funds or equity raise. Not sure how that could be done. They said they expected capex to peak this year, so maybe we will have another quarter of cash burn and things will turn around. Who knows.

 

A huge part of capex in addition to network upgrades is equipment capex which is a huge pain in the short term. When you sign up new customers or existing customers upgrade phones sprint has a huge cash outlay that they don't recoup for at least 2 years. For example when someone gets a new iphone 16GB the upfront cost to Sprint is ~$650.  Then they lease the iPhone to the customer for $20.00 per month and after 2 years, and $480 of payments (assuming the customer upgrades again) they presumably send the iPhone to Brightstar to lease or sell the 2 year old phone (where it is most profitable) -- the phone at that point has some sort of residual value -- generally greater than $650(original purchase price) - (lease payments) $480.  What Sprint/Softbank is setting up, is a finance company that removes the need for this giant cash outlay (presumably they might even be buying up many phones that Sprint has already leased to customers -- bringing in an influx of cash).  The finance company is basically paying Sprint up front for the phones at Sprint's cost so Sprint has no cash outlay to sign up new or upgrading customers.  In exchange Sprint is selling to the finance company the lease payments as well as giving up the residual value of the phone to the finance entity.

[muscleman]

how timely:

 

 

Inside SoftBank’s Struggle to Turn Around Sprint

Two years after takeover, SoftBank’s Masayoshi Son struggles to overhaul the U.S. carrier

 

http://www.wsj.com/articles/doubts-grow-about-whether-softbank-can-save-sprint-1439346616?mod=LS1

 

Yeah. Saw it last night. Softbank's Q1 presentation stated that Sprint does not need either additional borrowing from public funds or equity raise. Not sure how that could be done. They said they expected capex to peak this year, so maybe we will have another quarter of cash burn and things will turn around. Who knows.

 

A huge part of capex in addition to network upgrades is equipment capex which is a huge pain in the short term. When you sign up new customers or existing customers upgrade phones sprint has a huge cash outlay that they don't recoup for at least 2 years. For example when someone gets a new iphone 16GB the upfront cost to Sprint is ~$650.  Then they lease the iPhone to the customer for $20.00 per month and after 2 years, and $480 of payments (assuming the customer upgrades again) they presumably send the iPhone to Brightstar to lease or sell the 2 year old phone (where it is most profitable) -- the phone at that point has some sort of residual value -- generally greater than $650(original purchase price) - (lease payments) $480.  What Sprint/Softbank is setting up, is a finance company that removes the need for this giant cash outlay (presumably they might even be buying up many phones that Sprint has already leased to customers -- bringing in an influx of cash).  The finance company is basically paying Sprint up front for the phones at Sprint's cost so Sprint has no cash outlay to sign up new or upgrading customers.  In exchange Sprint is selling to the finance company the lease payments as well as giving up the residual value of the phone to the finance entity.

 

I see. That makes sense. So softbank is essentially infusing more money into Sprint through this off-balance sheet arrangements, to avoid triggering the debt covenants with Japanese banks that disallow Softbank to loan more money to Sprint.

Are you saying the current quarter's 0.5 bn capex for leases is not using the above arrangements, therefore making Sprint buying these devices upfront?

[krazeenyc]

The lease company deal has not been finalized yet.  So yes, the capex for leases so far were not done in the manner I described. I assume they could actually go back, say 9 months, and actually buy out the phones for all leases initiated during the last 9 months, so I expect they'd get some sort of cash infusion from this.

 

 

[supertutti]

They are not using this method yet. They will be setting up and equipment leasing company in the coming quarter.

[Guest Grey512]

Let's see how this works out... My sense is that financial engineering can augment returns when the underlying businesses generate good steady-state cash flows and the competitive position is not precarious.. This does not look like one of those situations, so I am inclined to be skeptical and misanthropic.

[krazeenyc]

Let's see how this works out... My sense is that financial engineering can augment returns when the underlying businesses generate good steady-state cash flows and the competitive position is not precarious.. This does not look like one of those situations, so I am inclined to be skeptical and misanthropic.

 

Well, I think this deal is designed to give Sprint access to cash now, in order to attempt to implement a turn around without raising debt or equity. I think everyone would agree that the business is not good and that their competitive position is precarious and the task ahead is daunting. That being said Sprint is being run by 2 extremely talented entrepreneurs who have had great success in situations where the odds were against them. Son and Claure, as well as their spectrum assets are why we take a peek and the current state of their business as well as their poor competitive position is why we stay on the sidelines.

[dwy000]

At this point, wireless in the US is pretty much a zero sum game with very little growth.  The sad truth is that given the infrastructure cost and geography, the US can really only support 3 carriers profitably.  Right now there are 2 with another 2 operating at either a loss or barely earning a return on capital.

 

Sprint is largely screwed because they cannot compete on price given their cost base (including interest) and their network isn't good enough to compete on any other factor.  The only way to support the network fix and improve margins is to massively ramp up customers - which they can't do because they aren't competitive.  TMobile was in the same situation but were the first to act.  It appears they may be able to grow the volume to more than offset the margin shrink from starting a price war.  But they are far from earning a decent return on capital.

 

In my mind the big question is not whether Sprint will survive but whether the regulators will allow it to be bought or merged before it becomes terminal.  As much as the regulators would like there to be 4 competitors, the economics simply won't support it.  Will they let Sprint just die or will they allow them to merge with TMobile (or even Verizon).  Nobody else is likely to come in given the cost needed just to breakeven.  There's no return on capital under just about any scenario

[Guest Grey512]

krazeenyc, dwy000,

 

Thanks for your perspectives. I think you are both right! Really enjoying this thread.

Will be interesting to see what happens to this company and what it will look like 2,3,4 years out.

[supertutti]

http://www.fool.com/investing/general/2015/08/11/5-things-sprint-corps-management-wants-you-to-know.aspx

[supertutti]

 

SoftBank Group Corp. has been buying up shares of Sprint Corp., a show of confidence that Sprint’s Japanese parent is a believer in the struggling carrier’s latest turnaround plan.

 

SoftBank said Wednesday it had bought 22.9 million shares at a weighted average price of $3.80, or about $86.9 million. The company didn’t say whether it intends to keep buying more shares, but if it does, it intends to keep its stake below an 85% threshold that would trigger a tender offer, a condition SoftBank agreed to when it bought less than an 80% stake in Sprint in 2013 for $22 billion.

 

The Sprint share purchases add to the $1 billion SoftBank spent last week buying shares of its own company, which it said were undervalued due to doubts about Sprint. The company had to wait until after Sprint reported earnings last week to buy its shares.

 

http://www.wsj.com/articles/softbank-increases-sprint-stake-by-nearly-87-million-1439424844

[no_free_lunch]

 

SoftBank Group Corp. has been buying up shares of Sprint Corp., a show of confidence that Sprint’s Japanese parent is a believer in the struggling carrier’s latest turnaround plan.

 

SoftBank said Wednesday it had bought 22.9 million shares at a weighted average price of $3.80, or about $86.9 million. The company didn’t say whether it intends to keep buying more shares, but if it does, it intends to keep its stake below an 85% threshold that would trigger a tender offer, a condition SoftBank agreed to when it bought less than an 80% stake in Sprint in 2013 for $22 billion.

 

The Sprint share purchases add to the $1 billion SoftBank spent last week buying shares of its own company, which it said were undervalued due to doubts about Sprint. The company had to wait until after Sprint reported earnings last week to buy its shares.

 

http://www.wsj.com/articles/softbank-increases-sprint-stake-by-nearly-87-million-1439424844

 

As a softbank shareholder this is about the last thing I want them to be doing.