Highlights From CLWR's Q3 Conference Call: Funding Initiative A Go!, But Investors Worry About Long-Term Outlook

November 11, 2009 1:16 PM EST

Clearwire Corporation (NASDAQ: CLWR) reports a Q3 loss of $0.43, in-line with the analyst estimate of ($0.43). Revenue for the quarter was $68.8 million, which compares to the estimate of $66.62 million. Shares are tanking, down over 14%.

Highlights From CLWR's Q3 Conference Call:

• (CEO) On the funding initiative, we're delighted that the majority of our existing strategic investors have agreed to further fund Clearwire with the infusion of 1.56 billion in cash, as part of a new equity investment round. Sprint (NYSE: S), Comcast (CMCSK), Time Warner (NYSE: TWX), Intel (Nasdaq: INTC), Bright House and Eagle River will all participate.
  
• In addition to the equity financings, we are also launching a full debt offering today, and if the planned amount of the offering is fully subscribed, it would free up at least another 240 million in capital for us in the near term and substantially enhance our borrowing capacity longer term.
  
• This new round of financing will help us in meeting our funding needs for the 2010 targeted markets that we set forth in March of this year.
  
• At the end of our prior quarter ending June 2009, we offered 4G services in just Portland and Atlanta. By the end of our third quarter, we had added 11 more markets, bringing our total 4G markets in this quarter to 13. These additions included: Las Vegas, Boise, Bellingham, and eight Texas communities, which increased the total POPs covered by our 4G network to over 10 million.
  
• With our expansion into these markets, our 4G network covers nearly 29 million people. This means we have nearly tripled the size of our 4G footprint in the past several weeks.
  
• It's been a very quick pace, and we're firmly on track to finish the year with our planned launches in Seattle, Honolulu and Maui, which will extend our 4G coverage to over 30 million people across more than 25 markets. This will bring Clearwire's total network coverage in both legacy and 4G markets to over 40 million people.
  
• At the same time we are building out new markets, we are converting most of the remaining pre-WiMAX markets to 4G.
  
• When we compare Q3 '09 to the pro forma results for Q3 '08, our team delivered a 40% increase in covered POPs, a 13% increase in consolidated revenue, an 18% increase in our subscriber base, while holding churn stable at 3.1%, and launched 4G in multiple new markets with a lower-than-planned
  CPGA of $563.
  
• The team achieved this while generating a sequential quarter increase in ARPU averaging $39.71.
  
• We continue to believe that we are in the right place at the right time. If ever there was a rising tide that's lifting our boats, this is it. As I've said before, we don't have to unseat any of the giant telcos in order to be successful. I'm more confident than ever that we will gain our fair share of this brand new market opportunity.
  
• (CFO) We ended the third quarter with total cash and cash equivalents of approximately $2 billion.
  
• Comcast, Time Warner Cable, Intel, Eagle River and Bright House Networks to invest a total of $1.564 billion into Clearwire in a new equity round.
  
• Timing of this new funding is planned to be closed in three phases. Approximately 1.057 billion in cash will be available within the next five business days. Another 440 million is targeted for funding by year end 2009, with the remaining 66 million to be funded at the last closing, which is expected to complete in Q1 2010. This structure will allow us to continue work on the infrastructure and development steps necessary to stay on track toward our goal of covering as many as 120 million people across 80 markets, assuming additional capital is raised as planned.
  
• Clearwire subscriber base increased to approximately 555,000 at the end of September, which is up from approximately 469,000 for the same period last year.
  
• Our total number of subscribers for the 13 Clear 4G markets was approximately 173,000 at the end of September. Net adds in 4G markets were partially offset by a net reduction in subscribers in our U.S. and international pre-WiMAX markets of approximately 5,000, resulting in the 44,000 consolidated net adds reported for the third quarter.
  
• Consolidated churn in Q3 was 3.1% compared to 3% in Q3 2008 and sequentially up from 2.8% last quarter. A Q3 year-over-year decline in international churn was offset by higher churn in our U.S. pre-WiMAX markets, primarily as a result of our decision to dedicate fewer financial resources to the
  existing markets in anticipation of the mobile WiMAX upgrades, which are now underway.
  
• The sequential quarter increase in churn reflected the active network migration in 10 markets undertaken in Q3. Third quarter consolidated CPGA increased to $563, up from $404 in the same period last year, primarily due to sales and marketing expenses in new CLEAR 4G markets.
  
• As we project the first 18 months of a new market, we typically expect to see CPGA at its highest level across the first six months and then trend down to a sustained level of spend as the market matures into the 12-to 18-month age group.
  
• Turning now to the P&L results. You can see that the consolidated Company grew its revenues by 13% in the third quarter of 2009 compared to 2008, driven by the higher subscriber base.
  
• The net cash spend for the tird quarter was 504 million, bringing year-to-date net cash spend to 1.15 billion against our full year 2009 target range of 1.5 to 1.9 billion. In preparation for a significant 2010 build-out, we now expect to end the year at the high end of that range, or at approximately 1.9 billion.
  
• Bill, can you talk about 2010 build plans? I see you've reiterated the up to 120 million. But, obviously, it's been - you've been sort of focused on getting the capital together. Now that you've got the capital, is there a kind of a sort of restarting process to go and really aggressively build to some of the next markets? And does that sort of make it more of the second half of 2010? What are the variables between say getting to a 80, 90, 100 million versus 120 million?
  (A)We have had such a high degree of confidence that we were going to be able to secure additional funding. The way we approached the network build was to be able to have a fall-back or a pull-back should financing not come together. But because of that approach, we were able to stay on track with developing the sites. We've done a lot of work, that is within John Saw's organization, to prepare us for that. So we don't see any hiccup whatsoever for building the 2010 sites. I will say, however, again as we look at every market that we launch, we want to study the data to optimize the value going forward. There could be some fine tunes and tweaks that we expect in 2010, but at this point, we're on track for the plan that we have announced publicly.
  
• I kind of figured out during Simon's question there. I think previously you had mentioned to get to the 120 million POPs, you had a funding gap of 2.0 to 2.3 billion with the 1.8 billion plus today. Can you update us as far as how much more you need to get to that 120 million POPs? And also just an update maybe as far as what you're seeing as you open up markets as far as how much CapEx you're spending
  to build a market and how much OpEx burn it takes to get to that 18 months positive level? (A)Let me take the first part of that. I'll ask Erik to talk about the CapEx on the second part. As we look at our
  business model going forward to get to the 120, we've said that there is a range of two to 2.3. As we've indicated, with this current known round of funding, it's a range of 1.8 to 2.1. It's hard to say exactly what is going to come in. So it could very well be that we need some additional funds as we go forward into the next year. There's a couple of variety of different sources, should our refinancing be successful that we're on the road with right now, that will allow us to close the gap to be able to do that. On the
  CapEx question?
  (A)Yeah. And what we basically said was, with this latest round, both on the equity injection side, as well as what we anticipate under the debt side, that we should have ample funds for us to get to our 120 million POP plan. We don't provide the guidance split out between the CapEx and the OpEx.
  
• (Q)So we should be able to get to the 120 by year-end '10 and then basically with what you have here, maybe some other minor items?
  (A)And I think the -- one key thing that we want to note is we're learning a lot in the market these days. So to the extent that we're going to optimize and we're going to continue to build, the numbers will change a little bit, but we feel satisfied that we can get to that 120 million.

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