Clearwire posts Q1 loss amid record subscribers, decides not to sell spectrum after all

You know you're having a wacky quarter when it involves a resigning CEO, lawsuits, and rumors that one of your wholesale partners is courting your potential replacement. But can you still come out on top? Clearwire answered this question during yesterday's Q1 2011 earnings report to investors, and the answer is just as intriguing as the quarter itself. Though it posted a substantial revenue of $242 million, the company was also inflicted with a net loss of $227 million. Don't worry, it gets crazier -- Clearwire experienced record subscriber growth, seeing an increase of 533 percent year-over-year from Q1 2010. Sounds like a contradiction, right? A few factors led to the loss, such as higher costs from network expansion and writing off the "abandonment of projects that no longer fit within management's strategic network plans." A loss is a loss, but at least the future looks brighter; Clearwire predicts it will end the year with nearly a million more subs than originally forecasted (9.5 million, up from 8.8). Saving the best news for last, CEO John Stanton announced his company is no longer feeling the pressure to sell off some of its spectrum, primarily due to its recent $1 billion deal with Sprint. The deal will add enough cash flow to sustain network operations for the next year, so Clearwire just needs to make sure it uses some of the extra cash to buy us all something pretty. The full press release can be found after the break.

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Clearwire Reports Record First Quarter 2011 Results

Record Quarterly Net Subscriber Additions of 1.8 Million; 1.6 Million Wholesale, 155,000 Retail
Pro Forma 1Q 2011 Revenue $258.1 Million, Up 142% From $106.7 Million, Year Over Year
4G Network Reaches 126 Million People in Q1 2011, Up 207% From 41 Million Year Over Year

KIRKLAND, Wash., May 4, 2011 (GLOBE NEWSWIRE) -- Clearwire Corporation [1] (Nasdaq:CLWR), a leading provider of 4G wireless broadband services in the U.S., today reported its financial and operating results for the first quarter 2011.

"During the quarter we made good progress toward our objective of achieving positive EBITDA in 2012 by executing new agreements with Sprint, delivering strong post-pay subscriber growth and company-best wholesale revenue growth, as well as significantly lowering our operating costs," said John Stanton, Clearwire [2]'s Chairman and interim CEO.

Erik Prusch, Clearwire [2]'s Chief Operating Officer added, "Looking ahead, we expect to work closely with Sprint and all of our other wholesale partners to expand our 4G leadership and capitalize on our rich spectrum holdings that enable us to meet the exploding customer demand for mobile broadband internet access. Since the beginning of the year, our network has experienced a 40% increase in network usage due to expanded coverage, record subscriber growth and higher usage per device. Only Clearwire [2] has the capacity required to deliver a truly next generation wireless broadband experience."

Clearwire [2] ended the first quarter 2011 with approximately 6.15 million total subscribers, up 533% from 971,000 subscribers in the first quarter 2010. The subscriber base consists of 1.29 million retail subscribers and 4.86 million wholesale subscribers. During the first quarter 2011, Clearwire [2] added 1.8 million total net new subscribers, including 155,000 retail additions and 1.6 million wholesale additions. Clearwire [2]'s wholesale subscribers consist primarily of users of 3G/4G multi-mode devices. For wholesale subscribers with minimal or no usage on Clearwire [2]'s network, including those outside of Clearwire [2]'s service areas, Clearwire [2] receives nominal revenue, subject to certain exceptions.

First quarter 2011 actual revenue was $242.0 million. Consolidated pro forma revenue for the first quarter 2011 was $258.1 million, a 142% increase over first quarter 2010 actual revenue of $106.7 million. Retail revenue and other revenue was $181.1 million in the first quarter 2011, retail average revenue per user (ARPU) was a record $46.32, and pro forma wholesale revenue was $77.0 million, or $6.37 in pro forma wholesale ARPU in the first quarter 2011.

Consolidated pro forma revenue and pro forma wholesale revenue includes approximately $16.1 million payable by Sprint to Clearwire [2] for wholesale services provided in the first quarter of 2011 under the amendment to the 4G MVNO Agreement with Sprint that was announced on April 18, 2011, or the 4G Amendment. This additional wholesale revenue, which Clearwire [2] expects to recognize in the second quarter, is not included in the Company's GAAP first quarter results because the 4G Amendment was signed after March 31, 2011. In evaluating Clearwire [2]'s financial performance for the first quarter, management believes that it is useful to present pro forma revenue and net loss attributable to Clearwire [2] Corporation.

Retail cost per gross addition (CPGA) improved to $301 in the first quarter 2011 from $439 in the first quarter 2010 and $422 in the fourth quarter 2010. Retail churn was 3.3% in the first quarter 2011, up from 3.0% in the first quarter of 2010, but an improvement from 3.8% in the fourth quarter 2010. Wholesale churn was 1.3% in the first quarter 2011, an improvement from fourth quarter wholesale churn of 1.4% and first quarter 2010 churn of 2.7%.

The first quarter 2011 actual net loss attributable to Clearwire [2] was ($227.0) million, or ($0.93) per basic share, and the first quarter 2011 pro forma net loss attributable to Clearwire [2] was ($223.0) million, or ($0.91) per basic share. Both include the impact of $202.2 million in non-cash write-offs as discussed in the results of operations section below. At the end of the first quarter 2011, Clearwire [2] operated networks covering areas where approximately 131 million people reside globally, including approximately 126 million people in 4G markets in the U.S. In the first quarter 2011, the Company added an additional 14 million covered people to its domestic 4G service areas.

2011 Outlook

Clearwire [2] now expects to end 2011 with approximately 9.5 million subscribers, with most of those subscribers coming from its wholesale business. This is an increase from the previous guidance of 8.8 million subscribers provided in February 2011. The Company continues to expect capital expenditures in 2011 to be less than $400 million. This year Clearwire [2] also expects to aggressively implement additional cost efficiencies aimed at improving cash flow and achieving positive EBITDA in 2012.

Results of Operations

Cost of goods and services and network costs for the first quarter 2011 increased 59% to $243.6 million compared to $153.4 million for the first quarter 2010, primarily due to an increase in tower lease expense of $54.3 million and an increase in network costs of $14.0 million resulting from Clearwire [2]'s network expansion activities in 2010.

Selling, General and Administrative (SG&A) expense for the first quarter 2011 increased 4.5% to $224.0 million compared to $214.4 million for the first quarter 2010. The increase is primarily due to higher general and administrative expenses, including customer care, commissions and property taxes incurred during the three months ended March 31, 2011, offset by lower marketing expenses as the Company continues to focus sales efforts on lower cost channels.

Loss from abandonment and impairment of network and other assets for the first quarter 2011 totaled $202.2 million as compared to $611,000 for the first quarter 2010. This charge consists of approximately $31.1 million in write-offs related to abandonment of projects that no longer fit within management's strategic network plans. The abandoned projects were originally undertaken in connection with Clearwire [2]'s network build-out but were not incorporated into the Company's network at launch and no longer fit within its future build plans. Additionally, in connection with Clearwire [2]'s savings initiatives, during the first quarter of 2011 the Company identified, evaluated and terminated certain tower leases, or when early termination was not available under the terms of the lease, Clearwire [2] advised its landlords of the Company's intention not to renew. The costs for projects classified as construction in progress related to leases for which Clearwire [2] has initiated such termination actions were written down, resulting in a charge of approximately $140.8 million for the three months ended March 31, 2011. Additionally, network assets and spectrum in two of the Company's international entities were determined to be impaired resulting in a charge of $30.3 million for the three months ended March 31, 2011.

Substantial completion of the first phase of the Company's network build activities led to a decrease in Capital Expenditures (CapEx) to $132 million in the first quarter 2011 from CapEx of $690 million for the first quarter 2010. The Company ended the first quarter 2011 with cash and investments of approximately $1.2 billion invested primarily in U.S. Treasury securities. On April 27, 2011, Clearwire [2] received a cash payment of $181.5 million comprised of the initial installments of the pre-payment and take-or-pay commitment for 2011, and the $28.2 million settlement amount in accordance with the new Sprint wholesale agreements.