e425
Filed by Clearwire Corporation Pursuant to Rule 425
under the Securities Act of 1933 and
deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: New Clearwire Corporation
Commission File Number 1-34196
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
In connection with the proposed transactions with Sprint Nextel Corporation, a Kansas
Corporation (Sprint), Intel Corporation, a Delaware corporation (Intel), Google Inc., a
Delaware corporation (Google), Comcast Corporation, a Pennsylvania corporation (Comcast), Time
Warner Cable Inc., a Delaware corporation (Time Warner Cable), and Bright House Networks, LLC, a
Delaware limited liability company (Bright House and, collectively with Intel, Google, Comcast,
Time Warner Cable and Bright House, the Investors.), Clearwire Corporation (Clearwire) filed a
definitive proxy statement concerning the transactions with the U.S. Securities and Exchange
Commission (the SEC) on October 17, 2008. The definitive proxy statement was mailed to
stockholders beginning on October 21, 2008. STOCKHOLDERS OF CLEARWIRE ARE URGED TO READ THE PROXY
STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY CONTAIN IMPORTANT
INFORMATION ABOUT THE TRANSACTIONS.
Investors and security holders may obtain free copies of the proxy statement and other
documents filed with the SEC by Clearwire through the web site maintained by the SEC at
www.sec.gov. Free copies of the definitive proxy statement and Clearwires other filings
with the SEC also may be obtained from Clearwire, by directing a request to Investor Relations at
(425) 216-4735. In addition, investors and security holders may access copies of the documents
filed with the SEC by Clearwire on Clearwires website at www.clearwire.com.
Clearwire, and its directors and executive officers, may be deemed to be participants in
the solicitation of proxies from Clearwires stockholders with respect to the transactions
contemplated by the definitive agreement between Sprint, the Investors and Clearwire. Information
regarding Clearwires directors and executive officers is contained in Clearwires Annual Report on
Form 10-K for the year ended December 31, 2007 and its definitive proxy statement filed with the
SEC on April 29, 2008 for its 2008 Annual Meeting of Stockholders, which are filed with the SEC.
You can obtain free copies of these documents from Clearwire using the contact information set
forth above. Additional information regarding interests of such participants are included in the
definitive proxy statement that was filed with the SEC and are available free of charge as
indicated above.
Forward-Looking Statements
This filing contains forward-looking statements that involve risks and uncertainties.
These forward-looking statements may include statements about future revenue, profits, cash flows
and financial results, the market for Clearwires services, future service offerings, change of
control, industry trends, client and partner relationships, Clearwires operational capabilities,
future financial structure, uses of cash, anticipated dilution or accretion of acquisitions or
proposed transactions. Actual results may differ materially from those stated in any
forward-looking statements based on a number of factors, including the ability of Clearwire to
successfully integrate the businesses of Clearwire and its acquisitions or partners; the
effectiveness of Clearwires implementation of its business plan, the markets acceptance of
Clearwires new and existing products and services, risks associated with management of growth,
reliance on third parties to supply key components of Clearwires services, attraction and
retention of employees, variability of quarterly operating results, competitive factors, other
risks associated with acquisitions, changes in demand for Clearwires service or product offerings,
financial stability of Clearwires customers, the ability of Clearwire to meet its contractual
obligations to customers, including service level and disaster recovery commitments, changes in
government laws and regulations; risks associated with rapidly changing technology; the risk that
the transactions described above are not consummated; as well as the other risks identified in
Clearwires filings with the SEC, including, but not limited to, its Annual Report on Form 10-K for
the year ended December 31, 2007 and Quarterly Reports on Form 10-Q, copies of which may be
obtained by contacting Clearwires Investor
Relations department at (425) 216-4735 or at Clearwires web site at www.clearwire.com. We
undertake no duty to update any forward-looking statement to conform the statement to actual
results or changes in Clearwires expectations after the date of these filings.
###
On November 10, 2008, Clearwire Corporation held a conference call to discuss its third quarter
earnings results. A copy of the transcript of the call follows.
CORPORATE PARTICIPANTS
Mary
Ekman
Clearwire Corporation VP, IR
Ben
Wolff
Clearwire Corporation CEO and Director
Perry
Satterlee
Clearwire Corporation President and COO
John
Butler
Clearwire Corporation CFO
CONFERENCE CALL PARTICIPANTS
Jonathan Atkin
RBC Capital Markets Analyst
Ric Prentiss
Raymond James & Associates Analyst
Simon Flannery
Morgan Stanley Analyst
Eric
Kainer
ThinkPanmure Analyst
PRESENTATION
Operator
Operator: Good day, ladies and gentlemen, and welcome to the Q3 2008 Clearwire Corporation earnings
conference call. My name is Antoine, and it will be my pleasure to be your operator for today. At
this time, all participants are in a listen only mode. We will conduct a question and answer
session towards the end of this conference.. I would now like to turn the call over to Mary Ekman.
Please proceed, maam.
Mary
Ekman Clearwire Corporation VP, IR
Thank you Antoine, and good morning, ladies and gentlemen. Im Mary Ekman, Vice President Investor
Relations with Clearwire, and I would like to welcome you to our third quarter 2008 financial
results conference call. With me today are Ben Wolff, Chief Executive Officer; Perry Satterlee,
President and Chief Operating Officer; John Butler, Chief Financial Officer; John Saw, Chief
Technology Officer; and Hope Cochran, Senior Vice President Finance and Treasurer.
During todays call, Ben will review Clearwires key results and accomplishments, as well as
provide an update on our pending Sprint transaction. Perry will discuss our WiMAX market progress,
as well as business results and operating metrics for the quarter, and John Butler will highlight
the key drivers behind our third quarter financial results. Following our prepared remarks, we will
open the lines for your questions. This mornings call is scheduled to last approximately 45
minutes including Q&A. As reminder to all listener, todays call is being webcast live on the
Clearwire investor relations website and will be archived on that site and available for replay
shortly after we conclude. Hopefully, you have all
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had an opportunity to read the earnings release
we issued earlier this morning, which provides detailed financial information on Clearwire
Corporations 2008 third quarter results.
Todays call may contain forward-looking statements reflecting managements beliefs and assumptions
concerning future events and trends in, or expectations regarding, financial results.
Forward-looking statements include, among other things, our future financial and operating
performance and financial condition, including projections and targets for 2008 and subsequent
periods, subscriber growth, network development and launch plans, strategic plans and objectives,
proposed transactions, and the need for additional financing. These forward-looking statements are
all based on currently available operating, financial and competitive information, and are subject
to various risks and uncertainties. Listeners are cautioned not to put undue reliance on any
forward-looking statements as they are not a guarantee of future performance. Please refer to our
press release and our filings with the SEC for more information concerning risk factors that could
cause actual results to differ materially from those in the forward-looking statements. The Company
assumes no obligation to update any of these forward-looking statements. Additionally, a
reconciliation of any non-GAAP financial measures discussed on this call can be found in our press
release. At this time I would like to turn the call over to Ben Wolff..
Ben Wolff Clearwire Corporation CEO and Director
Thank you, Mary. In the midst of almost daily momentous news about the economy and the capital
markets, at Clearwire we have maintained our strategic vision for the future, to build the nations
first wireless network that can deliver consumers, true mobile broadband and an entirely new
internet experience. While there is a tremendous amount yet to accomplish, much has already been
proven. In the third quarter, our performance reflected continued focus and progress across the key
priorities that we outlined for you on our last earnings call, and we are going to speak to each of
those priorities again, today. I will begin with an update on our pending combination with Sprints
WiMAX business, coupled with the $3.2 billion capital infusion from our strategic investor group,
including Google, Intel, Comcast, Time Warner Cable, and Bright House Networks. We have been making
great progress since we spoke with you last quarter, and some important transaction milestones have
been achieved.
First, in mid August, we completed the work necessary to file our preliminary S4 registration
statement and proxy solicitation materials. Following a brief review period with the Securities &
Exchange Commission, we filed our definitive proxy statement on October 17th, and on October 21st,
we began mailing the proxy materials to our stockholders. The mailing has now been completed, and
we have scheduled a special meeting of stockholders for November 20th, a week from Thursday, for
Clearwire shareholders to vote on the transaction.
Most of you saw the announcement last week that the Federal Communications Commission unanimously
approved the Clearwire Sprint transaction. In the words of FCC Chairman Martin, Clearwires
approach to open networks will spur innovation and give greater choice and improved services to
consumers. We were gratified by the overwhelming support this transaction attracted while under
consideration by the FCC, and the unqualified support and expeditious consideration given to the
transaction by the FCC Commissioners, FCC staff, and members of Congress. At this time, no further
action is required by any governmental agency.
Navigating successfully through all of the necessary regulatory approvals in the less than six
months since first announcing the definitive agreement, in May, is a tremendous milestone for us.
We are making progress on all final closing steps as expeditiously as possible, as we continue to
work toward closing the transaction before the end of this year.
In parallel with working to close the transaction, we have also been moving ahead with the key
decisions necessary to hit the ground running, post closing. Integration planning during the third
quarter focused on a variety of organizational and operating issues, including the new Companys
organizational structure, market launch prioritization, and branding. And, I want to update you on
our progress in each of these areas.
First, we are fortunate to have tremendous talent and bench strength to lead Clearwire and
implement our ambitious growth plans going forward, post closing. I am very pleased that Sprints
two most senior WiMAX leaders, Barry West and Atish Gude, will be relocating to Seattle to join our
senior team. Barry will be President and Chief Architect of the new Company, and Atish will serve
as Senior Vice President and Chief Marketing Officer. Together with current Clearwire leaders,
Perry Satterlee, Gerry Salemme, Scott Richardson, John Saw, Broady Hodder, Hope Cochran, and Scott
Hopper, our senior team will leverage the experience and expertise of both organizations. As most
of you know, after serving as our Chief Financial Officer for nearly four years, John Butler will
be leaving Clearwire once the Sprint transaction closes. I would like to take this opportunity to
publicly thank John, on behalf of myself, our team, and our board, for his important contributions
to Clearwire during his tenure. We are in the middle of an external search for our next CFO, and we
look forward to introducing that individual to you as soon as the search process is completed.
The infusion of $3.2 billion in committed capital by our strategic investor group, will give
Clearwire the resources and runway necessary to rapidly embark on new market deployments, and the
accelerated conversion of our existing markets to mobile WiMAX technology. Our
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integration planning
team, in conjunction with our partners at Sprint, has made considerable progress developing a
prioritized schedule for market builds and market conversions. We expect this build plan to
leverage the combined assets and progress of both Clearwire and Sprint, and to focus
on the top 100 US markets, together with the suburban and rural areas that are proximate to the top
100 markets. We expect to finalize our mobile WiMAX market deployment schedule shortly after
closing the transaction.
Our new market deployments will be enabled by the robust pipeline of cell sites we currently have
in various stages of development, all of which have been designed to support mobile WiMAX network
infrastructure. This network pipeline includes the nearly 14 million POPs currently covered by our
domestic pre-WiMax markets, and the approximately 6 million POPs in development across our first
four, planned mobile WiMAX markets of Portland, Atlanta, Las Vegas, and Grand Rapids. When you add
in Sprints recently launched Baltimore market, as well as all of the additional mobile WiMAX POPs
that both Clearwire and Sprint have in various stages of design and development, the combined
Company has markets throughout the US under development today covering more than 100 million
people.
The launch of mobile WiMAX services provides an exciting opportunity to convey through brand and
marketing messages that Clearwire will be delivering a truly revolutionary customer experience. We
think it is critical that the branding and marketing of our next generation services be simple and
innovative, and that it resonate with customers. We want to clearly communicate the unprecedented
combination of speed and mobility, in a way that is immediately recognizable and engaging. While I
cant share the specific details with you today, I can say, that in conjunction with rolling out
our service in Portland, we plan to unveil a brand and go-to-market strategy that we believe will
ignite consumer awareness and greatly differentiate our services.
We believe that by building the first nationwide 4G network which will deliver true broadband
mobility, we are well positioned to meet the ever growing consumer demand for mobile data. If you
look at global trends, Informa has projected worldwide mobile data service revenue to exceed $200
billion this year, a nearly 30% increase over 2007. According to research done by Analysys Mason,
47% of all broadband subscribers in Europe will access the internet through mobile networks by
2013, and in that same five year horizon, they project nearly a quarter of all broadband equipped
households could be using mobile networks as their primary data connection.
The US is also gaining tremendous traction as evidenced by wireless data revenues of more than $15
billion in the first half of this year, according to CTIA, up 40% over the same period in 2007.
Data revenues now account for 20% of total service revenues for wireless carriers, with 95 million
US wireless subscribers paying for internet connectivity over todays existing wireless networks,
as of the first quarter of this year.
Apples launch of the iPhone is demonstrating that advancements in devices and user interfaces
accelerate demand for mobile data. The better the experience, the more customers use it. Earlier
this year, Google stated it received 50 times more search requests on iPhones than on other mobile
handsets, and this has been proven out by the evolution in residential internet access moving from
dial-up to broadband. It clearly follows that more speed drives higher usage and customer demand.
We believe these converging market forces provide a tremendous opportunity for growth in an
industry where mobility, speed, and network capacity will become crucial points of differentiation
for wireless networks of the future.
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With mobile WiMAX technology capable of delivering peak data rates of more than 15
megabits per second today to an end user device, |
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with some 480 WiMax enabled products in development by more than 80 global vendors, and |
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with more than 100 megahertz of spectrum in most markets across the country, enabling
unparalleled network capacity, |
we believe Clearwire will be uniquely positioned to deliver a next generation, mobile broadband
experience to our customers, well beyond what is achievable by any other wireless network in
service today.
The solid third quarter financial results we have reported are a direct result of our continuing
focus on operational efficiencies, to enhance profitability at the market level and to wisely
manager our cash resources as we work towards closing our pending combination with Sprint.
Clearwire ended the third quarter with a total of 33 markets, achieving market EBITDA positive, and
all of our US operating markets as a group achieved a market EBITDA margin of 13%, after turning
market EBITDA positive just last quarter. Our initial 25 markets, the class of markets having the
most maturity and the strongest penetration, posted a record market EBITDA margin of 37% for Q3.
As we shared with you last quarter, we slowed new customer acquisitions in our pre-WiMAX markets in
order to focus our resources on new mobile WiMAX market deployments, upgrade of our existing
markets to mobile WiMAX technology, and further enhancing profitability in our current markets.
Clearwire ended the third quarter with just under 470,000 total subscribers across 50 markets. 35%
year-over-year subscriber growth, in combination with record ARPU resulting from an increase of
more that $3.00 over the same quarter last year, led to consolidated revenue growth of 47% for the
quarter just ended. Continued operational focus on managing expenses across the business helped us
deliver the
Page 4
fourth consecutive quarter of narrowing adjusted EBITDA losses in Q3. We manage and
evaluate our business by focusing on two discrete efforts, operation of existing markets and
development of future markets. Significantly, only about 15% of our $72.9 million third quarter
adjusted EBITDA loss was driven by our current US market operations, while the other, approximately
85%, went toward development of future markets and to our international efforts.
With that, I would like to turn the call over to Perry Satterlee for a review of our operating
highlights and key metrics for the third quarter.
Perry Satterlee Clearwire Corporation President and COO
Thank you, Ben. I would like to start with an update on the progress we are making in our
transition to becoming a mobile WiMAX service provider.
Development of our first WiMAX market, Portland, Oregon, is progressing very well. The construction
phase is largely complete with coverage of 680 square miles, and over 1.6 million people. Over the
last several months, we have been running a technical trial with a group of over 200 participants,
using both residential and mobile services, and feedback from this first wave of users has been
positive. Our field testing has shown that the mobile WiMAX network is delivering high-speed data
through-put and solid in-building penetration, and is providing a unique and differentiated
customer experience relative to todays 3G networks. We are also on track with the development of a
robust distribution network that will include big box retailers, independent dealers, company
retail stores and direct selling forces. Assuming the close of the Sprint transaction by year end,
we will begin adding customers to our mobile WiMAX network in Portland in December, with a full
commercial launch planned for early Q1. Our Portland network will be a template for future markets
by launching with coverage across the majority of the metro area delivering mobile WiMAX services
to residents where they work, live, and play. Coverage will continue to expand in the months
following the launch, giving us even more robust coverage over time. We are excited by the progress
being made on all fronts in Portland, and are looking forward to the first of many successful
mobile WiMAX market launches.
We continued to meet our internal development milestones for new mobile WiMAX markets during the
third quarter. We have also accelerated the process of evolving the brand, finalizing common
network architecture, aligning back-office systems, and consolidating subscriber devices while
integrating the two organizations. We see tremendous benefit in leveraging the collective strength
of the new Company by launching the next wave of mobile WiMAX markets in a consistent fashion with
an integrated organization that scales in these important areas. As Ben mentioned earlier, shortly
after closing, we expect to finalize the timing and prioritization of our new markets for 2009 and
2010.
As we shared with you last quarter, the considerable upgrade for our customers in terms of speed,
available end user devices, features and overall experience, prompted our decision to convert our
pre-WiMAX operating markets to mobile WiMAX technology as soon as possible. During the month of
October, we successfully completed a mobile WiMAX overlay in the core of our Bellingham, Washington
market. This first technical conversion successfully demonstrates the key tenets of our overlay
strategy rapid deployment, minimal disruption to pre-WiMax customers, and efficient leverage of
the existing infrastructure. The two network technologies are operating side by side, and we have
been able to utilize our pre-WiMax sites and related infrastructure such as tower, antenna, power,
and backhaul, to deploy the overlay. This has translated to savings in both time and expense for
the conversion process. We believe that the results that we have seen thus far in Bellingham,
reinforce our expectation that mobile WiMAX upgrades to the bulk of our pre-WiMAX networks can be
completed by the end of 2009.
During the second quarter of this year, we decided to moderate our spend in subscriber growth in
order to focus our resources on both new mobile WiMAX markets and the accelerated conversion of our
existing markets. As Ben and I highlighted earlier, both of these efforts are proceeding as
expected. With a reduced amount of sales and marketing activity, consolidated net subscriber
additions on the pre-WiMAX networks were largely flat with 8,300 net adds during the quarter. This
brings our total number of ending subscribers for the quarter to 469,000, which represents a 35%
subscriber growth rate from the third quarter of last year.
The planned reduction in sales and marketing spend has positive impacts on the profitability of the
markets, and while net growth has flattened as we prepare to launch our mobile WiMAX markets, we
are still able to capitalize on the word of mouth momentum in the markets to drive top line
results. Illustrating this point is a reduction in year-over-year spend which outpaced the
reduction in gross adds by nearly 2 to 1, and the quarter-over-quarter reduction in spend, which
outpaced the reduction in gross adds by nearly 3 to 1.
In Q3, consolidated ARPU reached another record high of $40.43, which reflects an increase of over
$3.00 from the same period in 2007, and a sequential quarterly increase of $1.15. The strong growth
in ARPU is the result of our emphasis on pricing stability, premium plan loading, and the prudent
use of promotional offers. This emphasis is contrary to the pricing strategy employed by some of
our larger competitors in recent quarters, which has lead to a decline in their broadband service
ARPU. Our growth in ARPU during the last year, also illustrates the strength of a differentiated
offering that combines residential and mobile broadband services along with residential voice.
Page 5
During last quarters earnings call, we projected churn would increase through the second half of
the year as we continue to navigate a challenging consumer economy and as we moderate our
advertising spend and customer growth in our markets. As a result of these factors, domestic churn
was 2.8% for the quarter, which is up from 2.3% last quarter, and 2.1% during the same period in
2007. Consolidated churn in Q3 was 3%, compared with 2.6% last quarter, and 2.3% during the same
period in 2007.
The tightening consumer economy is manifesting itself in several ways that are impactful to the
business, whether its an increase in credit card default rates or the delinquency of utility
service bills, when money is tight. A recent Wall Street Journal article highlighted the growing
rate of shut-offs by gas and power suppliers across the country. In some regions, the number of
utility shut-offs have grown by 78%, compared to last year. With a continued reduction in sales and
marketing spend, together with any effects of the unpredictable macroeconomic environment, we
currently expect consolidated churn to remain in this range for the rest of the year.
Consolidated CPGA for Q3 was $360, which is down from the $404 of last quarter, and down over $100
from the $462 during the same period last year. Reduction in CPGA is both a function of our
deliberate efforts to moderate spending and a natural result of our long-standing emphasis of
driving efficiency and profitability in our operating markets. This quarters CPGA performance is
also illustrative of the flexibility of the Clearwire business model, which has proven to be
adaptive in both the shifting industry landscape and the evolution of our Companys strategic
direction. As we touched on in last quarters call, with the launch of our mobile WiMAX markets, we
will see an increase in spend as we build a distribution channel and begin to build awareness in
the market.
We reported to you last quarter that we reached an important milestone when all of our US operating
markets, as a group, achieved Market EBITDA positive for the first time. The domestic markets
continued this positive trend in Q3, posting a Market EBITDA margin of 13% for the group, which is
up from the 4% in the previous quarter.
Our 25 initial markets continue to improve across multiple performance metrics after last quarters
significant milestone of all 25 reaching Market EBITDA positive. The market EBITDA margin of the
group grew steadily to 37% in Q3, which is up from 34% in Q2, and up from 10% in the third quarter
of 2007. CPGA in the initial markets was $293 in Q3, compared to $329 last quarter, and $391 in the
third quarter of 2007. ARPU in these markets grew to $39.68 in Q3, compared to $38.56 last quarter,
and $37.64 in the third quarter of 2007.
The third quarter marks another important financial milestone as the class of markets that launched
in 2006 reached market EBITDA positive as a group for the first time. This is a significant
accomplishment as this group includes some of our largest markets, namely, Seattle, Washington:
Honolulu, Hawaii: and Raleigh, North Carolina.
We are very pleased with the continued margin growth, the improvement in metrics and the progress
of our individual launch groups. The consistent ramp in performance of our operating markets has
always been a clear demonstration of the scalability of the Clearwire business model.
Now, I would like to provide an update on the quarterly performance of our VoIP and pc card
services.
During the third quarter, VoIP sales were 11% of broadband sales, down slightly from about 15% last
quarter. This decline is primarily the result of the limited promotions that we ran during the
third quarter, which in turn helped contribute to our growth in ARPU.
Q3 marked the first full quarter in which we had the Express form factor available for our PC Card
offering. With the introduction of this card type, new PC Card sales grew steadily through the
quarter, led by an increasing penetration of the base with residential and mobile combination. 50%
of the PC Cards sold during the quarter were part of a combination with the residential service,
which is up from the 40% last quarter. PC Card sales, overall, were 9% of residential broadband
additions during the third quarter, which is up from the 5% in the previous quarter. We are seeing
this momentum carrying into the fourth quarter, with the continued growth in the PC Card product
mix.
We believe that the trajectory that we are experiencing with our pre-WiMAX PC Card is a positive
indicator for our mobile WiMAX offering in Portland, and beyond. When considering the superior
performance of the network, and the increasingly diverse array of devices that will be available
with mobile WiMAX, it becomes clear that there is a demonstrable demand for the new class of mobile
internet service.
And now, I would like to turn it over to our Chief Financial Officer, John Butler, for a discussion
of the quarters financial results.
John Butler Clearwire Corporation CFO
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Thank you, Perry. As we have been discussing with you for the past several quarters, our
consolidated financial results for Q3 again reflect the results of our focus on driving
profitability rather than emphasizing top line growth, as we prepare to close the Sprint
transaction.
On a consolidated basis, Service Revenue for the third quarter increased 47% to $60.8 million, up
from $41.3 million in the same quarter of 2007. The increase was primarily driven by a 35%
year-over-year increase in our subscriber base, which has grown to 469,000, from 348,000 at the end
of Q3 07. Also driving higher service revenue was continued growth in ARPU. For the reasons Perry
mentioned, ARPU rose to record $40.43 for Q3, compared to $37.41 for the same period in 2007.
Cost of service expenses, which represent the direct operating costs of our markets, largely tower
rents and direct internet access costs, increased to $44.4 million in the third quarter of 08,
from $29.3 million in the third quarter of 07. This increase is driven by the significant number
of cell sites leased and in the development process, but not yet on air. More specifically, we now
have nearly 2,500 sites in service and producing revenue, and approximately 3,200 additional sites
leased in various stages of development, as we prepare for upcoming mobile WiMAX deployments.
Our SG&A expenses decreased both sequentially and year-over-year to $84.3 million for the third
quarter, reflecting our continued commitment to contain our spending the areas of marketing and
corporate overhead, as we focus on closing our pending transaction, and prepare to aggressively
expand our mobile WiMAX network during 2009. We ended the third quarter with approximately 1,600
employees, or partners, as we call them.
EBITDA for the quarter was a $105.5 million loss, compared to an EBITDA Loss for the same quarter
last year of $119.9 million. When we adjust for items such as non-cash stock compensation expense,
non-cash tower rent, non-cash spectrum lease expense, and Sprint transaction expenses, our Adjusted
EBITDA Loss for the quarter was $72.9 million, versus $84.1 million in 3Q 07. On the sequential
basis, this marks the fourth quarter in a row where we have seen our adjusted EBITDA losses narrow,
as we are laser focused on driving profitability in the existing markets.
Third quarter Net Loss was $166.6 million, compared to a Net Loss of $328.6 million in the same
quarter of 07. Last years Net Loss reflected a $159.2 million loss on the extinguishment of debt,
largely related to the warrants attached to our senior notes that were refinanced.
For a review of nine month year-to-date financial highlights, please refer to todays press
release, as well as to our third quarter 10-Q report that will be available later today.
Capital expenditures for Q3 totaled $63 million, as compared to $114.6 million in the third quarter
last year. During the quarter just ended, approximately $61 million was spent on the domestic
business and of that, $36 million, or approximately 60%, was spent on network and site development,
approximately 13% on CPE, with the balance on IT, billing and facilities.
Now, lets move to the balance sheet. As we work toward completion of the Sprint transaction, weve
remained appropriately focused on prudent use of our cash resources in the current economic
environment. We ended the quarter with approximately $368 million in Cash and Short-term
Investments. In addition to supporting our existing subscriber base, our spend prior to closing is
centered on our first mobile WiMAX network deployments while we continue integration planning
throughout the enterprise. Our transaction with Sprint and the strategic investors will bring in an
investment of $3.2 billion at closing, and our spectrum holdings will nearly triple to more than 42
billion megahertz POPs of spectrum. This will position us well to focus on prioritized market
deployments.
As we look ahead, we are maintaining our existing 2008 targets, which we updated in early August,
projecting revenue in the range of $205 million to $215 million, CapEx in the range of $220 million
to $240 million, and no material additions to our pre-WiMAX subscriber base over the balance of
this year.
With regard to 2009, our integration planning efforts are ongoing, and it wont be until after we
close our pending transaction with Sprint that a comprehensive operating plan for the combined
Company will be completed. Once that budgeting work is finalized and approved by our new Board, we
will communicate our public targets for 2009.
And with that, Ill turn the call back over to Ben.
Ben Wolff Clearwire Corporation CEO and Director
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Thank you, John. We find ourselves, today, on the cusp of bringing together the key assets
that we believe will enable Clearwire to build one of the fastest and most capable wireless
networks that the industry has ever seen. We are transforming our business to deliver a robust
suite of true mobile broadband services to meet the ever growing consumer demand for information,
whenever and wherever our customers happen to be. Combining super fast speed and mobility gives us
the ability to revolutionize the way people access the Internet and connect with each other, which
we believe creates a compelling opportunity to build long-term value for our shareholders. And with
that, we would be happy to take your questions.
QUESTION AND ANSWER
Operator
(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jonathan Atkin with RBC
Capital Markets. Please proceed with your question..
Jonathan Atkin, RBC Capital Markets
Yes, good morning. I wondered if you could give us an update on the status of the build-out in
the Sprint WiMAX market. They launched Baltimore, but they had quite a few other markets under
development. Are you going to have to invest a lot to complete those, or will those be pretty much
commercial ready when you take possession? And then, with respect to the Bellingham overlay, were
end user devices swapped out or were the old technology still operational?
Ben Wolff Clearwire Corporation CEO and Director
Thank you, Jonathan, for the questions. First of all, on the status of the Sprint markets, they are
continuing to work at very good pace to get those additional markets ready for launch. There is
more work that needs to be done in a number of those markets, and so, once we close the
transaction, then the combined Company will be looking towards how quickly we can both take
advantage of and leverage, both resources then, and assets that we both developed to get those
markets launched as quickly as possible. Again, the specific timing for those markets as well as
our existing markets will be something well talk more about a bit later, once we close the
transaction and our new Board has reviewed and approved the 2009 and 2010 plan. With regard to the
Bellingham overlay, that was a technical trial only, really taking a look at the feasibility of
getting the infrastructure deployed, using the same basic network assets that we have already got
in Bellingham. We have done a fair bit of testing, but we have not started adding customers to
Bellingham yet on a commercial basis, and in fact, thats probably something we wont do until we
bring up some of the other cities that are surrounding Bellingham at the same time. So, bottom line
is, it was really a feasibility trial, which we are very pleased with the outcome of.
Jonathan Atkin, RBC Capital Markets
And then finally, just any thoughts on demands for your products and services in a weakening
economy, assuming that the testing has continued this way, well into next year? Anything that you
have seen over the last month in terms of usage patterns or demand that shaped your qualitative
outlook for demand next year?
Ben Wolff Clearwire Corporation CEO and Director
Yes, I guess one is kind of a rear look, which is our gross adds have really remained relatively
stable, and that is notwithstanding the fact we have dramatically cut our spending at the market
level from a new customer acquisition perspective. So, we are very pleased that even in this
economy, were seeing the same kind of general demand from non customers to buy our service. Now
looking forward, as you take a look at the bundle of services that well be able to offer, the fact
that were going to be coming in with a more capable product, in some cases, and at a lower price
point, we think that bodes very well for us being kind of the sweet spot for folks that are trying
to find ways that they can to manage their cash more prudently every month, while at the same time
getting access to the products and services they really need to propel their lives forward on a
daily basis. So, I think were feeling like were in a very good spot from a positioning
perspective. Certainly, weve got all of the capacity we need in our WiMAX markets as we build them
to be able to support a lot of demand as we bring on these more reasonably priced products and
services.
Jonathan Atkin, RBC Capital Markets
Thank you.
Operator
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Your next question comes from the line of Ric Prentiss with Raymond James. Please proceed with your
question.
Ric Prentiss, Raymond James & Associates Analyst
Thanks, good morning, guys.
Ben Wolff Clearwire Corporation CEO and Director
Good morning, Ric.
Ric Prentiss, Raymond James & Associates Analyst
Couple of questions for you. First, now with the FCC approval done and the shareholder vote
coming up next Thursday, whats the next steps? I think I heard you, Ben, say no other governmental
requirements. Is the DOJ then done as well, and really, what else should we be looking for as far
as milestones before the money comes in?
Ben Wolff Clearwire Corporation CEO and Director
We have got DOJ done. So as I said, no more regulatory approvals required. Weve got a handful of
things that we have to accomplish before were done, including the shareholder vote as you
mentioned, and we need to get consent from our lenders, and a couple of other relatively minor
conditions that need to be met. But other than that, I think were on track for end of year, or
before end of year closing..
Ric Prentiss, Raymond James & Associates Analyst
Okay. And then on the overlay, I know you said it was more of a technical trial, but can you
give us some thoughts about what the CapEx, maybe for covered POP, or CapEx per market might be, or
the overlay of mobile WiMAX on top of a pre-WiMAX?.
Ben Wolff Clearwire Corporation CEO and Director
Yes, the CapEx associated with doing an overlay as we did it in Bellingham is dramatically
less than what we see when were doing a greenfield start up. We can, as Perry said, use the same
tower, the same backhaul, a variety of things. So, were looking at total CapEx that is less than
half of the cost of what a new WiMAX site would be. Ill tell you also, were going to take a look
at doing an overlay in a little different way than the one we just did, where we actually look at
putting up some additional towers on the site as well, to handle the WiMAX equipment. That would
actually have more CapEx and OpEx associated with it, but might give us the ability to perpetuate
the life of the existing NextNet technology a little bit longer. Were looking at the two different
paths. Were obviously very satisfied and pleased with the first trial we have done that is a
dramatic reduction in CapEx and OpEx over the secondary method, but well do the secondary method
as well, and then see which give us the best return on our investment.
Ric Prentiss, Raymond James & Associates Analyst
Okay, and then a final question. Im here in Baltimore today, and it seems the Sprint network
is pretty good in the urban corridor, but it starts becoming not as highly deployed as you get out
into the surrounding areas. As you look forward to becoming a combined Company, what is your
thought process on do you go wide with the coverage, do you go just deep with the coverage? When
looking for an area, what do you think is the appropriateness as you look at that 100 million POPs
under various stages of development?
Ben Wolff Clearwire Corporation CEO and Director
You know, so much of this is a matter of degree, Ric. I think Sprint has been pretty forthcoming in
describing where they have great coverage, a lot of depth as you would say, in Baltimore, and they
have been very transparent about the fact that they are continuing to build more sites outside of
the core area that theyve launched. So, I think they have talked about the fact that you are going
to see over the next six months, a significant number of additional sites come up, and so they are
going for, ultimately, both breadth and depth. I think youll see that same thing in the way
Clearwire both has launched markets historically, as well as the way well launch markets going
forward. We want to make sure we have got a lot of great depth of coverage so that we have good,
robust services at great speeds, with good in-building penetration, but at the same time we want to
have fairly robust geographic footprints. In wireless networks, it is never a steady state. So, you
build it right the first time in our view, launch it, but youll always be adding some additional
sites over time, and thats why weve talked to the market place about maintenance CapEx over time,
which will allow us to continue to expand geographically into areas where it makes sense to do so.
Ric
Prentiss, Raymond James & Associates Analyst
Thanks, guys.
Operator
Your next question comes from the line of Simon Flannery with Morgan Stanley. Please proceed
with your question.
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Simon Flannery, Morgan Stanley Analyst
Okay, thanks. Good morning, Ben. The FCC also voted on white spaces last week. It would be
interesting to get your take on where that fits into the whole wireless connectivity spectrum. And,
what is the latest from the equipment manufacturers? Were seeing, really a class of net books,
become very, very popular and open up sort of new device form factors and so forth, and your
ability to sort of work with the manufacturers to get embedded WiMAX chips in those, and other form
factors that might be emerging over the last several months? Thanks.
Ben Wolff Clearwire Corporation CEO and Director
Thanks, Simon for the question. First of all, on white spaces. White spaces is going to be a
fascinating thing to watch evolve. Certainly, it frees up some spectrum on an unlicensed basis for
what I consider, frankly, expanded WiFi type services. I think it is going to be a good thing as it
gets deployed, so that more people in more places have access to wireless broadband connectivity.
It is interesting to note that theres not going to be a consistent amount of spectrum available
under the white spaces ruling across the country. In some markets, it will be as little as 24
megahertz. In other markets, more than that. The more urban the market, likely the less spectrum
that is available. The more rural the market, the more spectrum that will be available. And, I
think that presents some interesting opportunities for us, where we might look at how we might
leverage some of the white space spectrum in more rural areas. You do have extended signal
propagation with the white space frequencies, which is good in more rural areas. As we talked about
in the past, we think that creates some challenges in more urban areas. I think youll see us at
least explore whether or not there are interesting opportunities for us to take advantage of this
unlicensed spectrum in ways that dont require us to have any kind of significant capital outlay to
acquire more spectrum. So were looking forward to exploring that, and obviously, some of our
partners have some significant interest in having white space utilization as well.
In terms of the equipment manufacturers, were seeing an awful lot of momentum, as you alluded to,
in the netbooks and mobile internet device space. I would bet that theres a vendor every week, or
two, thats coming through our offices, showing us some new designs, some prototypes and the like,
all of which are really the sweet spot in many ways for mobile WiMAX chip sets. A lot of vendors
have already made commitments to put combined WiMAX , WiFi chip sets into the net book and MID-type
of devices, and, Im very encouraged by the number of SKUs that well see coming to market in the
2009 time frame, including some in the very near future. So, were quite excited by the potential
of those devices which, obviously, have a better user interface, or opportunity for better user
interface with better screen size, while still being a fairly mobile or portable type of device.
You connect that to a 4G network and you wind up getting the great kind of home or business type of
connectivity experience in the palm of your hand.
Simon Flannery, Morgan Stanley Analyst
Thank you.
Operator
Your next question comes from the line of Eric Kainer with Think Equity. Please proceed with
your question.
Eric Kainer, ThinkPanmure Analyst
Thank you very much for taking my call. The first question is, it doesnt sound like theres
anything in the way of potentially closing the transaction by December 1st. Am I misreading that in
any way?
Ben Wolff Clearwire Corporation CEO and Director
Well, Eric, as I mentioned, we do have to get a couple of additional things done. Weve got to
get the shareholder vote done on the 20th. Weve got to get consent from our lenders. Those are the
two big things that were looking forward to trying to accomplish. I cant predict, at this point,
the exact timing on the lender consent. Its something we are working diligently on. Obviously, the
shareholder vote, we do know that will happen on the 20th. And then, beyond that, there are an
awful lot of mechanics that actually have to happen from kind of an administrative perspective. If
you go through the closing checklist, there are just a lot of administrative things that have to
happen. We are, as I said before, were highly confident in it happening by the end of the year.
Whether it can happen by December 1st, as you suggest, is just something we got to play out.
Eric Kainer, ThinkPanmure Analyst
Okay, I understand. Next thing is really on the availability of dual mode CPE, especially as
we talk about converting over the existing NextNet markets, probably starting in the first quarter,
if Im understanding correctly. Could you tell us how many devices are likely to come available
here, and I assume that the availability will need to force those devices through a WiMAX
certification process; is that right?
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Ben Wolff Clearwire Corporation CEO and Director
Eric, the way were thinking about dual mode, in the context of our existing operating
markets, is that we have not going to push hard on having dual mode pre-WiMAX and WiMAX devices.
When you think about the beauty of having an overlay of both NextNet and WiMAX infrastructure
operating in tandem, our plan is to have new customers that come on the network will be using
WiMAX, existing customers that decide they want to have the more robustness, the greater speeds, et
cetera, that WiMAX offers, can make the change, if they want. But, we also think there are going to
be an awful lot of customers that are perfectly satisfied with their existing pre-WiMAX services.
Recall that the vast majority of our current customers are using the residential gateway product.
And so, the plan is to continue to operate the two networks side by side, so that at least for some
period of time, were not forcing a conversion. Then as we have those customers migrate over to
WiMAX, either as a result of churn and new customers coming on, or the existing customer base
saying they want to upgrade to WiMAX, which well try to make that relatively painless for them,
then well ultimately look at taking the existing pre-WiMAX networks down.
So, were not focused on dual mode today as it relates to the existing customer base. Dual mode
going forward though, is something that were focused on as it relates to dual mode WiMAX and EVDO,
or CDMA, based devices. There are already some devices out there that are dual mode that we are
testing and that were encouraged by. We have some of those types of devices that are actually
already in commercial service in countries like Korea, where you have a combined WiMAX and CDMA
based dual mode device that is in the marketplace, and obviously our partners, Sprint being the
most significant, are focused on how we offer customers the ability to use both the 4G network and
the 3G network.
Eric Kainer, ThinkPanmure Analyst
Okay. And, next question from me is, do you have a feel for the latent demand in pre-WiMAX
markets, both on the part of people who would potentially want to upgrade to the more capable
product, as well as people who are maybe holding back on subscribing until you have WiMAX services
launched?
Ben Wolff Clearwire Corporation CEO and Director
You know, as we have come out with the Express PC Card form factor even in the pre-WiMAX
technology, as Perry alluded to, were seeing opening up of demand. Now that we have got a modem
that can connect to some of the more contemporary types of laptops that are coming out, that have
the Express form factor, we do believe both from what were seeing in the markets as well as from
independent third party surveys, that there is significant, pent up demand from mobile internet
services, and really, the hurdle so far, the roadblock to consumers being able to acquire the kind
services they are interested in, has been twofold. Number one is price, and number two is the
performance characteristics of existing services. Obviously, the services that we offer today are
not as fully mobile as well see with mobile WiMAX technology. It has not been deployed as widely
as what well a see with WiMAX technology. And I think, both the economic and the performance
characteristics are things that you can look to in the 3G world that have caused demand not to be
quite as robust as originally projected. So, I think were answering the two most fundamental
issues relating to demand, which is both price and quality, and so we are hopeful that were going
to see significant uptake as we roll out these mobile WiMAX markets.
Eric Kainer, ThinkPanmure Analyst
That makes sense. I mean, obviously, were going to see bigger demand there. Its just hard, as Im
sure you well appreciate, its hard to model how much thats going to be, and how quickly thats
going to come, and obviously, there are a couple of ways you can look at it. One is, people who
come into your stores or have conversations with the company, and basically walk out saying, Ill
wait a couple of months, and then of course, the ones that are much harder to quantify, and those
are the ones who never come in and just say, Thats not good enough for me yet, but at some point
in the near term there will be.
Ben Wolff Clearwire Corporation CEO and Director
I think, Eric, its fair to say that we dont have anything thats statistically significant,
but anecdotally, you are seeing some of that, particularly as you talk to folks that are in the
small business, medium sized business, and enterprise segment, where they are looking for both
broader footprint and more robust mobility capability with higher speeds.
Eric Kainer, ThinkPanmure Analyst
That actually touches on the next point that I wanted to get to, which is consumer subscribers
versus SMB. Do you kind of keep track of your customer base, looking at the different drivers for
why they have subscribed and what services they are likely to find most appealing, and how are you
seeing the economy impact those different segments, if, indeed, you do?
Ben Wolff Clearwire Corporation CEO and Director
We do some amount of tracking of our customer base. It is primarily a residential customer
base today with a kind of a smattering of small and mid sized business customers. Although, it is
interesting that something like 50% of our residential customers have told us that they have been
using our service for some kind of a business purpose alongside of their personal residential
broadband needs. So, its interesting to see the way the product or service has kind of this
cross-over capability. But clearly, the vast majority of our customers are buying from a
residential perspective. Were not seeing any dramatic change in the survey data as its coming in,
as it relates to the acquisition side, given whats going on in the economy. Again, as I mentioned,
the gross add side has remained relatively flat and robust. In other words were not seeing a drop
off in the number of gross new customers coming to us because of whats going on in the economy,
rather were seeing the changes in our net really being
Page 11
driven by what is going on with churn. So, I wouldnt say at this point were seeing the economy
affect the demand side. We are seeing it impact, as Perry mentioned, somewhat the churn side.
Operator
There are no more further questions at this time. I would now like to turn the call back over
to Mary Ekman for final remarks.
Mary
Ekman Clearwire Corporation VP, IR
Thanks, Antoine, and we appreciate everyone participating this morning on the call, and
listening to the webcast, and thank you, all, for joining us.
Ben Wolff Clearwire Corporation CEO and Director
Thank you.
Operator
Thank you for your participation in todays conference. This concludes the presentation.
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