Leap Customer Losses Rise; Reviewing Turnaround Options
08/06/2012| 06:50pm US/Eastern
--Customer cancellations outpaced new customers in second quarter
--Leap plans to cut spending and review "all options" for turnaround
--Loss narrows as customer revenue rises
(Updates throughout with details and company comment.)
By Thomas Gryta
Leap Wireless International Inc. (>> Leap Wireless International, Inc.) reported a steep increase in net departing customers in the second quarter, though improved margins helped to narrow its overall financial loss in the period.
The pay-as-you-go wireless provider, which offers service under the Cricket brand, is now evaluating "all options," including cost cuts and potential asset sales, as it attempts to turn around its business. In the quarter, Leap wasn't able to add enough customers to offset higher service cancellations. It pulled back on promotions in order to put a larger effort into third-quarter product launches and marketing.
"We did not see the customer activity that we expected," Chief Executive Doug Hutcheson said in an interview.
Shares fell 12% in after-hours trading to $4.84. Through the close, the stock was down 41% so far this year.
The company lost a net 289,000 customers in the latest quarter, mostly consisting of voice customers, compared with a net loss of 103,000 customers a year ago. Wall Street analysts were expecting a loss of about 76,000 customers in the quarter, according to Wells Fargo.
"Our results for the second quarter are not acceptable," Chief Financial Officer Jerry Elliott, who was appointed in April, said on a conference call. He stressed the company would aggressively cut spending and focus on improving customer experience.
Mr. Elliott said the company is reviewing all options for all parts of its business and is focused on improving free cash flow.
The company now sees capital expenditures for 2012 of between $530 million and $560 million, a drop from its previous projection of $600 million to $650 million.
In cutting its capital expenditure plans for the year, the company will cut back some of its spending on its existing 3G network and keep focused on its next-generations rollout. Mr. Hutcheson said the company is confident the changes will have no effect on the quality of the Cricket service.
He said the company is also exploring options to reach a network partnership as a potentially "cost-effective" way to give its customers more access to next-generation network technology.
The Cricket service will also be rolling out new service plans in the coming weeks, he said, that will change "how we go to market on data."
The Cricket service had a total of 5.9 million customers, up 2.7% from a year earlier. Churn, a gauge of customer turnover, edged higher to 4.4% from 4.2% last year. Average revenue per user was up 3.7% at $41.64.
The company launched a pay-as-you-go version of Apple Inc.'s (>> Apple Inc.) iPhone in June, but Mr. Hutcheson wouldn't disclose how initial sales have performed. The company began its first advertising for the device last week, he said.
The carrier started selling the iPhone last month, making it the first major pay-as-you-go carrier in the U.S. to offer the popular device. It charges a high price for the phone itself, but monthly service is much less than contract-based plans from the major carriers. Sprint Nextel Corp.'s (S) Virgin Mobile began selling prepaid iPhone service plans shortly after Leap, but doesn't provide the device subsidy that Leap gives its customers.
Leap struck a three-year deal with Apple that included an agreement to spend $900 million to carry the iPhone.
Leap has reported growing revenue in recent quarters. But the company hasn't posted a quarterly profit since 2007, after its lower-income customer base was hit particularly hard by the recession.
Leap posted a loss of $41.6 million, or 54 cents a share, compared with a year-ago loss of $65.2 million, or 85 cents a share.
Revenue rose 3.5% to $786.8 million, while wireless service margins rose 25% from 23% a year ago and 17% in the first quarter.
Analysts polled by Thomson Reuters recently expected a loss of 50 cents a share, with revenue of $836 million.
-Kristin Jones contributed to this story
Write to Thomas Gryta at firstname.lastname@example.org
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