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Clearwire Reports Fourth Quarter and Full Year 2008 Results

KIRKLAND, Wash.--(BUSINESS WIRE)--Mar. 5, 2009-- Clearwire Corporation (NASDAQ:CLWR) (along with its subsidiaries, “Clearwire” or the “Company”), a leading provider of wireless broadband services, today reported its unaudited consolidated financial and operating results for the fourth quarter and full year ended December 31, 2008.

“In 2008, we accomplished very significant milestones throughout our business. We completed a transaction with Sprint Nextel that rationalized our spectrum holdings into a nationwide footprint and gave us access to Sprint’s existing infrastructure to facilitate our network deployment. We raised more than $3 billion of new capital and entered into wholesale distribution arrangements with Sprint and leading cable companies, creating an expanded reach for our services well beyond what Clearwire could accomplish on its own,” said Benjamin G. Wolff, chief executive officer of Clearwire. “We also continued to demonstrate the financial strength of our business and our ability to compete, with ARPUs increasing despite industry declines, and our U.S. markets as a group producing positive market EBITDA margins.”

“During 2009, we expect to launch our Clear™ branded mobile broadband services in a number of new markets such as Las Vegas, Atlanta, Chicago, Philadelphia and Dallas/Ft. Worth and in our largest existing markets, namely Baltimore, Seattle, Honolulu and Charlotte,” Wolff added. “With a robust pipeline of cell sites under development, we are working to significantly extend our wireless 4G network to many more markets, giving us the ability to cover as many as 120 million people with true broadband mobility by the end of 2010, including in major markets such as New York, Boston, Washington D.C., Houston and the San Francisco Bay area to name a few.”

“In this difficult economic climate, our objective is to continue to balance the prudent use of our significant financial resources with our desire to take full advantage of the market opportunity that is in front of us, and we intend to do just that. This means retaining the flexibility to accelerate or decelerate our expansion based on our own successes and the macro economic environment. Our job is also to provide innovative products and services that give consumers more for less, which is more important than ever given the state of our economy. Our early results in Portland indicate we are doing just that,” Wolff continued. “As we move into 2009, we are expanding our network to support the rapidly growing consumer appetite for 4G mobile broadband services. We firmly believe that we are in the right place at the right time, with an unmatched group of assets, enabling us to build long-term value for our shareholders as we re-invent the way people use, experience and connect to the Internet.”

In addition to announcing network expansion plans, Clearwire also announced new products. The company expects to launch a dual-mode 3G/4G wireless modem in the summer giving Clear customers a national data footprint with Sprint’s 3G network. The modem will be sold by Clear and Sprint and automatically switch between WiMAX service and Sprint’s 3G network.

The company also plans to launch a personal hot spot, a Clear accessory which combines the mobility of WiMAX with the ubiquity of Wi-Fi. Expected to be available at the end of March, the device when paired with the Clear 4G service will open the Clear 4G network to hundreds of Wi-Fi enabled products.

As Clearwire is deploying a mobile WiMAX network, the PC industry is moving forward with WiMAX as well. Together with Intel, the technology now has a long list of supporters including Acer, Asus, Dell, Fujitsu, Lenovo, Panasonic, Samsung and Toshiba that are delivering new Centrino-2 processor powered notebooks with the integrated Intel WiMAX /Wi-Fi chipset that has advanced MIMO technology. There are 26 models that are WiMAX certified today and many more in the pipeline. A number of OEMs are also offering or plan to offer soon Intel Atom based netbooks, which increase the affordability and the reach of those products.

Clearwire expects there to be nearly 100 mobile WiMAX devices – such as laptops, netbooks, handhelds, USBs and modems – available to customers by the end of the year.

Business Outlook

Clearwire’s focus in 2009 and 2010 will be on development and expansion of its wireless 4G network. During this build-out phase, operating statistics will not be fully comparable to those in previous periods as the Company upgrades certain existing markets and launches new markets to extend the Clear mobile WiMAX network. Clearwire expects ARPU to be sustained over this period, but anticipates that Churn will increase in its pre-WiMAX markets as the Company transitions these networks to mobile WiMAX technology and that CPGA will increase as new markets are launched, consistent with Clearwire’s past operating experiences.

Clearwire targets total net cash spend in the range of $1.5 to $1.9 billion for 2009. At this time, Clearwire is structuring new market development work to enable the Company to manage current cash resources into 2011, although this time period can be extended as it is driven largely by the pace of expansion. Clearwire is currently engaged in the development and construction of mobile WiMAX networks covering 75 million people, as well as the long lead time cell site development work necessary to cover an additional 45 million people, giving the Company the ability to cover 120 million people by the end of 2010. The ultimate timing of Clearwire’s network build-out will largely be driven by the Company’s market by market success and the availability of additional capital.

Unaudited 2008 Fourth Quarter and Full Year Consolidated Results

On November 28, 2008, Clearwire, Sprint Nextel Corporation, Comcast Corporation, Time Warner Cable, Inc., Bright House Networks, LLC, Google Inc. and Intel Corporation completed the transactions contemplated by the Transaction Agreement and Plan of Merger (the “Transaction Agreement”), entered into by the parties on May 7, 2008. For accounting purposes, the transactions (the “Transactions”) are treated as a “reverse acquisition” with the WiMAX business contributed from Sprint (the “Sprint WiMAX Business”) deemed to be the accounting acquirer. As a result, the financial results of the legacy Clearwire Corporation (“Old Clearwire”) prior to the consummation of the transactions are not included as part of the Company’s financial statements. The reported results in the Company’s Consolidated Statement of Operations include the results of operations of the Sprint WiMAX Business for 2007 and for the period from January 1 through November 28, 2008 and the combined Clearwire operations for the period from November 28 through December 31, 2008.

Consolidated Revenue was $20.5 million for each of the fourth quarter 2008 and the twelve months ended December 31, 2008, compared to zero for the Sprint WiMAX Business for the same periods in 2007. Consolidated Revenue for each period does not include any revenue recognized by Old Clearwire prior to November 28, 2008 and reflects the fact that the Sprint WiMAX Business did not have any markets in operation prior to the fourth quarter 2008.

Consolidated Cost of goods and services and network costs was $47.9 million and $131.5 million for the fourth quarter and the twelve months ended December 31, 2008, respectively, compared to $34.9 million and $48.9 million, respectively, for the Sprint WiMAX Business in the same periods in 2007. The increases were primarily due to an increase in tower lease and backhaul expenses. Selling, general and administrative expense for the fourth quarter 2008 and the twelve months ended December 31, 2008 increased to $55.9 million and $150.9 million, respectively, compared to $51.4 million and $99.5 million for the Sprint WiMAX Business in the same periods in 2007 as a result of higher sales and marketing and customer care expenses in support of the launch of the Baltimore market. Fourth quarter 2008 Net loss was $118.0 million compared to $108.3 million for the Sprint WiMAX Business in the fourth quarter 2007, and Net loss for the twelve months ended December 31, 2008 was $432.6 million compared to $224.7 million for the Sprint WiMAX Business in 2007. The increased Net loss reflects $83.0 million of expenses related to the Transactions incurred in the fourth quarter 2008, which include a one-time $80.6 million settlement loss resulting from the termination of spectrum lease agreements in which Sprint leased spectrum to Old Clearwire prior to the Transaction.

Pro Forma 2008 Fourth Quarter and Full Year Consolidated Results

In order to facilitate the most useful comparative analysis between periods, set forth below is a summary of Pro Forma Financial Data derived from the unaudited pro forma condensed combined statements of operations of Clearwire for the three and twelve month periods ending December 31, 2008 and December 31, 2007. The unaudited pro forma statements of operations give effect to the Transactions as if they were consummated on January 1, 2007, and are based upon the financial results for both Old Clearwire and the Sprint WiMAX Business for the relevant periods. A full presentation of the unaudited pro forma condensed combined statements of operations for the three months and the years ended December 31, 2008 and 2007, and accompanying notes, are provided on subsequent pages of this release. The unaudited pro forma statements of operations are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have been obtained had the Transactions actually been consummated on January 1, 2007, nor do they intend to be a projection of future results of operations.

The following table summarizes Clearwire’s pro forma fourth quarter and full year ended December 31, 2008 consolidated results, versus pro forma fourth quarter and full year ended December 31, 2007 consolidated results.

Summary of Pro Forma Financial Data       (In thousands, unless otherwise noted)      

(Unaudited)                                           Three Months Ended December 31   Twelve Months Ended December 31       2008   2007   % Change   2008   2007   % Change   Revenue     59,716       45,384     32 %     230,646       151,440     52 %                                       Cost of Service     77,408       72,864     6 %     285,759       156,146     83 %   Gross Margin     (17,692 )     (27,480 )   36 %     (55,113 )     (4,706 )   -1071 %   Gross Margin %     -30 %     -61 %         -24 %     -3 %                                           Selling, General and Administrative     109,634       152,767     -28 %     484,421       461,553     5 %   Spectrum Lease Expense     76,091       63,738     19 %     250,184       190,942     31 %   EBITDA     (203,417 )     (243,985 )   17 %     (789,718 )     (657,201 )   -20 %                                       Adjustment for Non-Cash Items     46,076       59,551     -23 %     175,862       160,061     10 %   Adjusted EBITDA   $ (157,341 )  

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