Leap Reports Second Quarter Results

SAN DIEGO, Aug. 1, 2013 /PRNewswire/ -- Leap Wireless International, Inc. LEAP today reported operational and financial results for the three and six months ended June 30, 2013. Total revenues for the second quarter of 2013 decreased 7 percent to $731.5 million and service revenues decreased 10 percent to $678.5 million. The Company reported $148.8 million of adjusted operating income before depreciation and amortization (OIBDA) for the second quarter of 2013, compared to $190.8 million for the prior year quarter. Second quarter 2013 operating loss was $7.6 million, compared to operating income of $31.6 million for the second quarter of 2012.

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The Company reported approximately 240,000 core wireless gross customer additions for the second quarter of 2013 and approximately 255,000 core wireless net customer losses. Core wireless churn for the second quarter of 2013 was 3.6 percent. "Core wireless" refers to the Company's traditional, monthly voice service (Cricket Wireless) and excludes customers for Cricket Broadband and Cricket PAYGo™.

The Company reported a total of approximately 283,000 gross customer additions and a total of approximately 364,000 net customer losses for the second quarter of 2013. Total churn for the second quarter of 2013 was 4.3 percent.

 

Discussion of Financial and Operational Results for the Quarter

Customer Activity

• End-of-period customers for the second quarter of 2013 were 4,839,478, an 18 percent decrease from end-of-period customers for the second quarter of 2012.
• The Company reported a net loss of 364,268 customers for the second quarter of 2013, compared to a net loss of 289,270 customers for the second quarter of 2012.
  • Net customer losses reflected fewer gross additions due to intensified competition in our markets and increasing customer demand for 4G data services, combined with a 57 percent year-over-year increase in our out-the-door handset pricing and fewer reactivating customers.
• Total churn for the second quarter of 2013 was 4.3 percent, compared to 4.4 percent for the second quarter of 2012, and reflected approximately 400,000 fewer gross deactivations in the second quarter 2013 compared to the prior year period, partially offset by fewer reactivations.
  • Core wireless churn for the second quarter of 2013 was 3.6 percent, compared to 3.3 percent for the comparable period of the prior year.
• 72 percent of the Company's new handset sales in the second quarter of 2013 were for smartphones and approximately 10 percent of the Company's voice customer base upgraded their handsets during the quarter.

Revenues and ARPU

• Total revenues for the second quarter of 2013 were $731.5 million, a 7 percent decrease over the comparable period of the prior year, primarily due to a lower average number of customers, partially offset by higher average service revenue per customer (ARPU) and sales of higher-priced devices.
• Service revenues for the second quarter of 2013 were $678.5 million, a 10 percent decrease over the comparable period of the prior year, primarily due to a lower average number of customers resulting from net customer losses, partially offset by higher ARPU.
• ARPU for the second quarter of 2013 was $44.89, an increase of $3.25 over the comparable period of the prior year. The year-over-year increase in ARPU primarily reflected an improved mix of higher-value service plans and additional fees and a reduction in the number of customers for the Company's daily PAYGo product.

Adjusted OIBDA, Operating Expense & Financial Metrics

• Adjusted OIBDA for the second quarter of 2013 was $148.8 million, a decrease of 22 percent over the comparable period of the prior year. The year-over-year decrease was primarily driven by lower revenues due to lower average number of customers, partially offset by lower operating expenses, including lower device subsidy.
• Second quarter 2013 operating loss was $7.6 million, compared to an operating income of $31.6 million for the comparable period of the prior year. The year-over-year change was primarily driven by lower revenues due to the lower average number of customers.
• CCU for the second quarter of 2013 increased 21 percent over the prior year quarter to $27.79, reflecting the year-over-year reduction in the average number of customers, increased product costs and changes in the Company's dealer compensation structure to focus on customer retention.
• CPGA for the second quarter of 2013 increased by 31 percent over the prior year quarter to $387, reflecting 43 percent fewer gross customer additions than in the second quarter of 2012.
• Net loss attributable to common stockholders for the second quarter of 2013 was $163.1 million, or ($2.09) per diluted share, compared to a net loss attributable to common stockholders of $41.6 million, or ($0.54) per diluted share, for the second quarter of 2012. The year-over-year increase in net loss attributable to common stockholders was primarily driven by lower revenues due to the lower average number of customers, as well as a loss on early extinguishment of debt of $73 million related to the redemption of the Company's $1.1 billion in principal amount of senior secured notes and the purchase of $1.8 million of the Company's convertible senior notes in connection with the borrowing of $1,425 million of term loans under the Company's Credit Agreement in April 2013.

Capital Expenditures and Free Cash Flow

• Capital expenditures during the second quarter of 2013 were $22.5 million, compared to $119.1 million for the prior year quarter.
• Free cash flow for the second quarter of 2013 was ($33.0) million, compared to ($103.8) million for the prior year quarter. Second quarter 2013 free cash flow reflected approximately $43 million of premium payments made in April 2013 in connection with the Company's redemption of $1.1 billion in principal amount of senior secured notes. The improvement to free cash flow was primarily driven by lower capital expenditures, partially offset by a decrease in cash flow from operations resulting from a lower average number of customers.
• Net cash provided by (used in) operating activities for the second quarter 2013 was ($10.5) million, compared to $15.3 million for the prior year quarter, reflecting the effect of the premium payments on the senior secured notes in April 2013.
• Total capital expenditures for 2013 are expected to be between $150 million and $200 million.

Other Significant Business Highlights

• Introduced the Kyocera Kona flip-phone catering to talk-and-text users
• Introduced Cricket's new Family Plan
• Appointed Julie Dexter Berg as the Company's Chief Marketing Officer
• Introduced the 4G Samsung Galaxy S4
• Launched the Company's "Half is More" marketing campaign

Merger Agreement with AT&T

On July 12, 2013, the Company entered into a merger agreement with AT&T, Inc. (AT&T) for AT&T to acquire the Company for $15 in cash per share, plus one non-transferable contingent value right per share, subject to customary closing conditions, including stockholder and regulatory approvals.  For additional information regarding the transaction, please see the Company's filings with the Securities and Exchange Commission (the "SEC"), including its current report on Form 8-K dated July 12, 2013, as filed with the SEC on July 15, 2013.

Webcast Information
As previously announced, Leap management will host a live webcast at approximately 5:00 p.m. EDT / 2:00 p.m. PDT today to discuss these results.  Other forward-looking and material information may also be discussed during this call.

To listen live via telephone, dial 1-800-926-9907 (domestic) or 1-212-271-4657 (international). No participant pass code number is required for this call. 

More information about this event including a live webcast, the accompanying presentation slides and other supporting materials may be accessed by visiting http://earnings.leapwireless.com. These materials will be available for download at approximately 5:00 p.m. EDT/2:00 p.m. PDT.

A replay of the conference call will be available for a limited time via webcast, MP3 or telephone and may be accessed by visiting http://earnings.leapwireless.com or dialing 1-800-633-8284 (domestic) or 1-402-977-9140 (international) and entering reservation number 21667819.

About Leap
Leap provides innovative, high-value wireless services to a young and ethnically diverse customer base. With the value of unlimited wireless services as the foundation of its business, Leap pioneered its Cricket service. Cricket products and services are available nationwide through company-owned stores, dealers, national retailers and at MyCricket.com.   Through its affordable, flat-rate service plans, Cricket offers customers a choice of unlimited voice, text, data and mobile Web services. Headquartered in San Diego, Calif., Leap is traded on the NASDAQ Global Select Market under the ticker symbol "LEAP." For more information, please visit www.leapwireless.com.  

Notes Regarding Non-GAAP Financial Measures
Information presented in this press release and in the attached financial tables includes financial information prepared in accordance with generally accepted accounting principles in the U.S., or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure, within the meaning of Item 10 of Regulation S-K promulgated by the Securities and Exchange Commission (SEC), is a numerical measure of a company's financial performance or cash flows that (a) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, which are included in the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated balance sheets, condensed consolidated statements of comprehensive income or condensed consolidated statements of cash flows; or (b) includes amounts, or is subject to adjustments that have the effect of including amounts, which are excluded from the most directly comparable measure so calculated and presented. As described more fully in the notes to the attached financial tables, management supplements the information provided by financial statement measures with several customer-focused performance metrics that are widely used in the telecommunications industry. Adjusted OIBDA, free cash flow, CPGA, ARPU and CCU are non-GAAP financial measures. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures can be found in the section entitled "Definition of Terms and Reconciliation of Non-GAAP Financial Measures" included toward the end of this release.

Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management's current expectations based on currently available operating, financial and competitive information, but are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements. Our forward-looking statements include our discussions about planned product and service plan developments, expected customer activity, future capital expenditures and LTE deployment and expected financial and operational performance, and are generally identified with words such as "believe," "expect," "intend," "plan," "could," "may" and similar expressions. Risks, uncertainties and assumptions that could affect our forward-looking statements include, among other things:

• our ability to attract and retain customers in an extremely competitive marketplace;
• our ability to successfully implement product and service plan offerings and execute effectively on our strategic activities;
• our ability to compete effectively against wireless carriers with nationwide networks and significantly greater deployment of 4G Long Term Evolution, or LTE, network technology, and the impact of competitors' initiatives (including new service plans and pricing) and our ability to anticipate and respond to such initiatives;
• our ability to offer customers cost-effective 4G LTE services and to meet increasing customer demand for high-quality, high-speed data services;
• uncertainties with respect to the proposed merger with AT&T, including the possibility that the proposed merger may not close or may be delayed, including due to the failure to timely receive required regulatory and stockholder approvals or satisfy other closing conditions;
• the effect of the announcement of the proposed merger with AT&T on our customers, employees, suppliers, vendors, distributors, dealers, retailers, content and application providers, operating results and business generally;
• the diversion of management's time and attention while the proposed merger transaction is pending;
• the amount of the costs, fees, expenses and charges related to the merger;
• our ability to operate our business in light of the proposed merger with AT&T and the covenants contained in the Agreement and Plan of Merger, dated as of July 12, 2013, between Leap, AT&T and the other parties thereto;
• changes in economic conditions, including interest rates, consumer credit conditions, consumer debt levels, consumer confidence, unemployment rates, energy and transportation costs and other macro-economic factors that could adversely affect demand for the services we provide;
• our ability to meet significant purchase commitments under agreements we have entered into;
• our ability to refinance our indebtedness under, and comply with the covenants in, any credit agreement, indenture or similar instrument governing our existing indebtedness or any future indebtedness;
• future customer usage of our wireless services, which could exceed our expectations, and our ability to manage or increase network capacity to meet increasing customer demand, in particular demand for data services;
• our ability to obtain and maintain 3G and 4G roaming and wholesale services from other carriers at cost-effective rates;
• our ability to acquire or obtain access to additional spectrum in the future at a reasonable cost or on a timely basis;
• our ability to cost-effectively procure handsets compatible with our network technology and frequency channels;
• failure of our network or information technology systems to perform according to expectations and risks associated with the ongoing operation and maintenance of those systems, including our customer billing system;
• our ability to attract, integrate, motivate and retain an experienced workforce, including members of senior management;
• our ability to maintain effective internal control over financial reporting; and
• other factors detailed in the section entitled "Risk Factors" included in our periodic reports filed with the SEC, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 2, 2013 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, which we expect to file shortly with the SEC.

All forward-looking statements included in this news release should be considered in the context of these risks. All forward-looking statements speak only as of August 1, 2013, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors and prospective investors are cautioned not to place undue reliance on our forward-looking statements.

Leap is a U.S. registered trademark and the Leap logo is a trademark of Leap. Cricket, Cricket Wireless, Cricket Clicks, Muve Music, Muve First, Muve Headliner, MyPerks, Flex Bucket, Real Unlimited Unreal Savings and the Cricket "K" are U.S. registered trademarks of Cricket. In addition, the following are trademarks or service marks of Cricket: BridgePay, Cricket By Week, Cricket Choice, Cricket Connect, Cricket Nation, Cricket PAYGo, Muve, Muve Money, Cricket Crosswave, Seek Music, Cricket MyPerks and Cricket Wireless Internet Service. All other trademarks are the property of their respective owners.

 

 

 

 

 

              

 

 

 

 

 

 

 

 

 

 

 

 

SOURCE Cricket Communications, Inc.