SOURCE Leap Wireless International, Inc./ PR Newswire

~New Initiatives Being Introduced to Drive Improved Customer Activity and Financial Performance

~ ~ Initiatives Include Higher-Quality Devices, Enhanced Service Offerings and Customer Experience Improvements

~– Third quarter customer results reflect higher entry-level smartphone pricing, expected second quarter churn pressures and wireless industry softness

— Adjusted OIBDA impacted by marketing and other expenses associated with transition

— Significant sequential improvement to free cash flow

— Operating income of $81 million includes net gain on spectrum transaction

— Earnings per share of $0.32

Note: A webcast of Leap’s conference call and accompanying presentation slides will be available at 11:00 a.m. EST today at http://investor.leapwireless.com.

SAN DIEGO, — Leap Wireless International, Inc. (NASDAQ: LEAP) today reported operational and financial results for the three and nine months ended September 30, 2012. Service revenues for the third quarter of 2012 increased 0.7 percent over the prior year quarter to $722.0 million. The Company reported $131.6 million of adjusted operating income before depreciation and amortization (OIBDA) for the third quarter, compared to $154.3 million for the prior year quarter. Third quarter 2012 operating income was $81.4 million, compared to an operating loss of $16.1 million for the third quarter of 2011, and reflected an approximate $130 million net gain resulting from an exchange of spectrum licenses.

The Company reported approximately 563,000 gross customer additions for the third quarter of 2012 and approximately 269,000 net customer losses. Customer churn for the third quarter of 2012 was 4.8 percent.

“During the third quarter, we continued a significant transition of our business to meet the changing needs of our customers and improve our financial performance,” said S. Douglas Hutcheson, Leap’s president and chief executive officer. “We increased pricing on entry-level smartphones to improve customer survival and plan to continue adding higher-quality, higher-priced handsets to our device portfolio. We also added compelling, new features and updated pricing for our service plans and enhanced our Muve Music service, all to provide customers with increased value at a selection of different price points. Third quarter customer results also reflect previously discussed churn pressures from the effects of certain retention programs and handset quality issues we experienced in the second quarter, as well as general industry softness. We believe that the new initiatives that are being introduced will enhance the customer experience, improve our customer value proposition and drive improvements to churn.

“We also remain focused on improving our financial performance and profitability, evidenced by the significant sequential improvement in free cash flow. The year-over-year change in third quarter adjusted OIBDA reflected increased marketing costs for the launch of our new devices and service plans and increased product costs associated with uptake of our all-inclusive offerings. In addition, we are reducing projected 2012 capital expenditures by approximately $85 million, principally by managing 3G network capacity investments, exploring cost-effective alternatives to deliver 4G LTE services and exercising increased financial discipline. We also recently strengthened our balance sheet by refinancing $300 million of senior indebtedness due in 2015 through a new $400 million senior secured term loan facility maturing in 2019. Our top priorities remain improving our customers’ experience and continuing to drive free cash flow.”

Financial Results and Operating Metrics (1)

(Unaudited; in millions, except for customer data, operating metrics and per share amounts)

Discussion of Financial and Operational Results for the Quarter

Customer Activity

• End-of-period customers for the third quarter of 2012 were approximately 5,634,000, a 2.1 percent decrease from end-of-period customers for the third quarter of 2011.
• The Company reported a net loss of approximately 269,000 customers for the third quarter of 2012, compared to net additions of approximately 10,000 customers for the third quarter of 2011.
  • Voice net customer losses of approximately 239,000 reflected lower gross additions due to increased pricing for the Company’s entry-level smartphones and general wireless industry softness, as well as higher year-over-year churn levels.
  • Broadband net customer losses of approximately 29,000 reflected the Company’s continued de-emphasis of this product and further shift of network usage to higher-ARPU smartphones.
• Customer churn for the third quarter of 2012 was 4.8 percent, compared to 3.8 percent for the third quarter of 2011.
  • Voice customer churn for the third quarter of 2012 was 4.7 percent, compared to 3.4 percent for the comparable period of the prior year, reflecting continued churn pressures from the second quarter of 2012 due to changes in the Company’s retention programs and quality issues in certain entry-level smartphones.
  • Broadband customer churn for the third quarter of 2012 was 7.8 percent, compared to 8.7 percent for the comparable period of the prior year, reflecting increased customer tenure and higher out-the-door device pricing.
• 57 percent of the Company’s new handset sales in the third quarter of 2012 were for smartphones and approximately 9 percent of the Company’s voice customer base upgraded their handsets during the quarter.

Service Revenues and ARPU

• Service revenues for the third quarter of 2012 increased to $722.0 million, a 0.7 percent increase over the comparable period of the prior year, primarily due to continued uptake of the Company’s higher-ARPU service plans.
• ARPU for the third quarter of 2012 was $41.94, an increase of $0.69 over the comparable period of the prior year.  The year-over-year increase in ARPU primarily reflected continued uptake of higher-value service plans.

Operating Expenses, Adjusted OIBDA & Financial Metrics

• Adjusted OIBDA for the third quarter of 2012 was $131.6 million, a decrease of 14.7 percent over the comparable period of the prior year.  The year-over-year decrease primarily reflected higher marketing and product costs.
• Third quarter 2012 operating income was $81.4 million, compared with an operating loss of $16.1 million for the comparable period of the prior year.  The year-over-year improvement in operating income reflected an approximate $130 million net gain associated with spectrum transactions with Verizon Wireless, offset by approximately $15 million of restructuring costs.
• CCU for the third quarter of 2012 increased 4.4 percent over the prior year quarter to $24.11, primarily due to higher product costs.
• CPGA for the third quarter of 2012 increased by 30.3 percent over the prior year quarter to $310, reflecting a year-over-year increase in marketing costs and decrease in gross customer additions, which reflected a lower percentage of non-subsidized activations compared to the prior year quarter.
• Net income attributable to common stockholders for the third quarter of 2012 was $25.0 million, or $0.32 per diluted share, compared to a net loss attributable to common stockholders of $68.8 million, or ($0.90) per diluted share, for the third quarter of 2011, and was primarily attributable to the increase in operating income discussed above.

Capital Expenditures and Free Cash Flow

• Capital expenditures during the third quarter of 2012 were $106.2 million.
• Free cash flow for the third quarter of 2012 was ($7.7) million, compared to $63.4 million for the prior year quarter and ($103.8) million for the second quarter of 2012.  Free cash flow is defined as net cash provided by operating activities, less purchases of property and equipment. The decrease to free cash flow was primarily driven by an increase in marketing and product costs as well as the timing of payments in the quarter related to capital expenditures and inventory purchases.

Updated Business Outlook

• Total capital expenditures for 2012 are expected to be between $450 million and $470 million, including spending for the deployment of next-generation LTE network technology.
• Total capital expenditures for the ongoing maintenance and development of the Company’s network in 2013 (excluding capital expenditures for any deployment of next-generation LTE network technology) are expected to be approximately 10% as a percentage of the Company’s service revenues.
• The Company is considering alternatives to offer next-generation LTE network technology services to customers in its network footprint.
  • The Company plans to cover approximately 21 million POPs with LTE network technology in 2012.
  • The Company is exploring cost-effective ways to deliver LTE services to additional customers, which may include deploying facilities-based coverage and/or entering into possible partnerships or joint ventures with others.

Other Business & Operational Highlights

• Launched Cricket Lifeline service in 11 new states and the District of Columbia.
• Introduced four new handsets, including iPhone 5, HTC One V, Huawei Ascend Q and ZTE Engage.
• Introduced new, enhanced service plans and features, including Muve Music in all Android-based smartphone service plans and new international calling features.
• Announced the introduction of RadioShack No-Contract Wireless, powered by Cricket.
• Completed previously announced spectrum transactions with Verizon Wireless.

Webcast Information

As previously announced, Leap management will host a live webcast at approximately 11:00 a.m. EST / 8:00 a.m. PST today to discuss these results.  Other forward-looking and material information may also be discussed during this call.

To listen live via telephone, dial 1-800-748-2715 (domestic) or 1-212-231-2926 (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 11:00 a.m. EST/8:00 a.m. PST.

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 21606816.

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;
• the duration and severity of the current economic downturn in the United States and 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;
• the impact of competitors’ initiatives;
• our ability to successfully implement product and service plan offerings, enhance our retail distribution and execute effectively on our other strategic activities;
• our ability to obtain and maintain roaming and wholesale services from other carriers at cost-effective rates;
• our ability to maintain effective internal control over financial reporting;
• our ability to attract, integrate, motivate and retain an experienced workforce, including members of senior management;
• 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 acquire or obtain access to additional spectrum in the future at a reasonable cost or on a timely basis;
• our ability to refinance our indebtedness under, or comply with the covenants in, any credit agreement, indenture or similar instrument governing any of our existing or future indebtedness;
• failure of our network or information technology systems to perform according to expectations and risks associated with the upgrade or transition of certain of those systems, including our customer billing system; 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 June 30, 2012 filed with the SEC on August 6, 2012 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, 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 November 7, 2012, 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, 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, Muve First, Muve Headliners, Cricket Crosswave, Seek Music, Cricket MyPerks and Cricket Wireless Internet Service. All other trademarks are the property of their respective owners.

Download the full report; Leap Reports Third Quarter Results