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Understanding Sprint’s EBITDA Margin Trend

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Sprint’s EBITDA margin for the last few quarters

In the previous part, we discussed how Sprint’s (S) wireless service revenues remained under pressured in fiscal 3Q16 (quarter ending December 2016). Now let’s take a look at Sprint’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin.

Sprint’s EBITDA growth continues to benefit from top-line growth as well as ongoing cost saving initiatives. The company’s adjusted EBITDA was ~$2.5 billion in fiscal 3Q16 as compared to ~$1.9 billion in fiscal 3Q15. Its adjusted EBITDA margin rose to 38.7% in fiscal 3Q16 from 28.4% in fiscal 3Q15.

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The main reason for this increase was cost reductions and the shift toward handset leasing. In fiscal 2016 (year-to-date), Sprint has realized $1.6 billion in cost reductions, of which ~$500 million was realized in fiscal 3Q16. As a result, Sprint remains on track to save $2 billion or more in costs during fiscal 2016 and has plans for further reductions in fiscal 2017 and beyond. It eliminated $1.3 billion in costs in fiscal 2015.

Sprint is using a combination of employee layoffs and expense curtailment as it presses toward sustainable profitability. The carrier laid off 2,500 workers in fiscal 2015. Top-line growth is also supporting Sprint’s path to profitability.

Peer comparisons

According to company filings, in calendar 4Q16, Verizon Communications’ (VZ) and AT&T’s (T) adjusted EBITDA margins were 35.5% and 35.7%, respectively. T-Mobile’s (TMUS) adjusted EBITDA margin was 35% in 4Q16. Sprint is thus enjoying higher margins than its competitors due to cost savings and higher equipment contributions.

While Sprint grows its top line and lowers costs, it anticipates that its adjusted EBITDA will be in the range of $9.7 billion–$10 billion in fiscal 2016.

Continue to the next part for a look at Sprint’s postpaid phone net additions.

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