Wireless telecommunications network operator Clearwire Corp (Kirkland, Wash., U.S.A.) said it would post an operating profit a few quarters sooner than expected, but also said it needs as much as $900 million in new funding.
In after-hours trading, shares of Clearwire almost completely wiped out a 10% gain from the regular Nasdaq session after the company said it needs up to $300 million more to tide it over until it reports positive cash flow sometime next year, and that it needs another $600 million for a network upgrade.
Clearwire, which is majority owned by Sprint Nextel (Overland Park, Kan., U.S.A.), on Wednesday unveiled a plan to upgrade its network with Long Term Evolution (LTE) technology. Its hope is that Sprint and other companies would rent space on its LTE network to bolster their services.
John Stanton, interim chief executive at Clearwire, suggested that a plan to fund the project would not come this summer but he told analysts on a conference call that he was looking at everything from debt offers to investments from strategic partners.
The company said it expects to swing from a loss to a profit before interest, taxes, depreciation and amortization (EBITDA) in the first quarter of 2012. Wall Street expectations were for an EBITDA profit in the fourth quarter of next year.
"Their ability to turn EBITDA positive faster than expectations was materially important," said Roe Equity Research analyst Kevin Roe said.
This could give them more time "to negotiate the right strategic option" with potential network partners and potential investors, Roe said. "But the sooner they do it the better. Investors have been waiting a long time."
Investors have been concerned about the future of Clearwire's relationship with Sprint, its biggest wholesale client. Last week, Sprint unveiled a contract with Clearwire rival LightSquared. Clearwire shares fell 22% that day.
To soothe investor nerves Clearwire would want to be able to offer LTE services before LightSquared, which has technology problems as well as a funding gap of billions of dollars.
Stanton said on Wednesday that he was in talks with Sprint about expanding their partnership to include sharing network gear for any new markets as well as a potential new wholesale agreement for LTE, but he would not say when it might happen.
"It's all going to come together in due time," Stanton told Reuters, referring to funding plans and customer agreements.
Stanton said he believes companies, including Verizon Wireless and regional provider MetroPCS Communications, will want access to Clearwire airwaves in urban cities to cope with demand for capacity-hungry data services.
"It's fair to say we've talked to every carrier we think would have the need for it," he said. "They're very anxious to have a relationship with us."
The executive, who has been in the wireless industry since 1982, said Clearwire is close to deciding on a replacement CEO. He intends to stay on as chairman and head of its strategic committee when that happens.
Stanton said that Clearwire would need $150 million to $300 million to tide it over until it reports positive free cash flow in 2012.
Clearwire reported a $108.5 million loss EBITDA for the second quarter, compared with a first-quarter loss of $194.2 million. One analyst had expected a loss of $157 million.
"The focus has been to get to a profit as soon as possible. They made very good progress in improving their EBITDA loss," BTIG analyst Walter Piecyk said.
The company said it added 1.5 million net new wholesale customers in the quarter. Sprint said it sold 1.7 million phones that run over Clearwire's network.
Its net loss for the second quarter widened to $168.7 million, or $1.01 per diluted share, from a loss of $125.9 million, or 61 cents per share, a year earlier.
(Reporting by Sinead Carew; Editing by Richard Chang, Robert MacMillan and Carol Bishopric)