LEAP WIRELESS INTERNATIONAL, INC. 
By SAN DIEGO, Aug. 1, 2013 /PRNewswire/ -- Leap Wireless International, Inc. (NASDAQ: 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.
(Logo: http://photos.prnewswire.com/prnh/20101220/MM20546LOGO-a)
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(TM).
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.
Financial Results and Operating Metrics (1)
(Unaudited; in millions(2), except for customer data, operating metrics and per share amounts)
Three Months Ended June
30, Six Months Ended June 30,
------------------------ -------------------------
2013 2012 Change 2013 2012 Change
---- ---- ------ ---- ---- ------
Service revenues $678.5 $751.3 (9.7)% $1,363.1 $1,525.3 (10.6)%
Total revenues $731.5 $786.8 (7.0)% $1,521.4 $1,612.4 (5.6)%
Operating income (loss) $(7.6) $31.6 * $(36.9) $15.8 *
Adjusted OIBDA $148.8 $190.8 (22.0)% $269.9 $321.3 (16.0)%
Adjusted OIBDA as a percentage
of service revenues 22% 25% - 20% 21% -
Net loss $(156.4) $(46.0) * $(266.0) $(140.3) 89.6%
Net loss attributable to common
stockholders $(163.1) $(41.6) * $(274.4) $(140.0) 96.0%
Diluted loss per share
attributable to common
stockholders $(2.09) $(0.54) * $(3.50) $(1.82) 92.3%
Gross customer additions(3) 283,066 492,720 (42.6)% 756,947 1,352,267 (44.0)%
Net customer losses (364,268) (289,270) 25.9% (457,305) (31,210) *
End of period customers 4,839,478 5,902,803 (18.0)% 4,839,478 5,902,803 (18.0)%
Weighted-average customers 5,031,930 5,992,047 (16.0)% 5,122,768 6,008,737 (14.7)%
Churn 4.3% 4.4% - 4.0% 3.8% -
End of period covered POPS ~96.2 ~95.4 - ~96.2 ~95.4 -
Average revenue per user (ARPU) $44.89 $41.64 7.8% $44.30 $42.12 5.2%
Cash cost per user (CCU) $27.79 $22.91 21.3% $27.06 $23.73 14.0%
Cost per gross addition (CPGA) $387 $296 30.7% $343 $253 35.6%
Free cash flow $(33.0) $(103.8) (68.2)% $(33.8) $(214.8) (84.3)%
Free cash flow (excluding early
debt prepayment premium) $9.6 $(103.8) * $8.8 $(214.8) *
Net cash provided by (used in)
operating activities $(10.5) $15.3 * $15.0 $50.6 (70.4)%
Cash purchases of property and
equipment $22.5 $119.1 (81.1)% $48.9 $265.4 (81.6)%
Unrestricted cash, cash
equivalents and short-term
investments $913.1 $524.4 74.1% $913.1 $524.4 74.1%
Core Wireless Metrics
---------------------
Core wireless gross customer
additions 239,514 364,678 (34.3)% 632,498 996,590 (36.5)%
Core wireless net customer
additions (losses) (255,132) (142,779) 78.7% (263,634) 20,834 *
Core wireless end of period
customers 4,381,735 5,029,314 (12.9)% 4,381,735 5,029,314 (12.9)%
Core wireless churn 3.6% 3.3% - 3.3% 3.2% -
* Percentage change not
meaningful.
(1) For a reconciliation of non-
GAAP financial measures,
please refer to the section
entitled "Definition of
Terms and Reconciliation of
Non-GAAP Financial
Measures" included at the
end of this release.
Information relating to
population and potential
customers (POPs) is based
on population estimates
provided by Claritas Inc.
for the relevant year.
(2) Minor calculation
differences may exist in
percentage changes due to
rounding.
(3) The Company recognizes a
gross customer addition for
each Cricket Wireless,
Cricket Broadband and
Cricket PAYGo line of
service activated by a
customer.
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.
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (1)
(In thousands, except share amounts)
June 30, December 31,
2013 2012
---- ----
Assets (Unaudited)
Cash and cash
equivalents $605,039 $515,550
Short-term
investments 308,012 159,426
Inventories 102,533 121,601
Deferred charges 49,331 60,963
Other current assets 167,442 139,242
------- -------
Total current assets 1,232,357 996,782
Property and
equipment, net 1,499,934 1,762,090
Wireless licenses 2,090,821 1,947,333
Assets held for sale 1,835 136,222
Goodwill 31,886 31,886
Intangible assets,
net 18,581 24,663
Other assets 87,999 68,284
------ ------
Total assets $4,963,413 $4,967,260
======== ==========
Liabilities and
Stockholders'
Equity
Accounts payable and
accrued liabilities $325,928 $396,110
Current maturities
of long-term debt 18,250 4,000
Other current
liabilities 211,604 216,880
------- -------
Total current
liabilities 555,782 616,990
Long-term debt, net 3,619,964 3,298,463
Deferred tax
liabilities 407,794 385,111
Other long-term
liabilities 157,027 169,047
------- -------
Total liabilities 4,740,567 4,469,611
--------- ---------
Redeemable non-
controlling
interests 58,550 64,517
------ ------
Stockholders'
equity:
Preferred stock -
authorized
10,000,000 shares,
$.0001 par value;
no shares issued
and outstanding - -
Common stock -
authorized
160,000,000 shares,
$.0001 par value;
79,180,726 and
79,194,750 shares
issued and
outstanding at June
30, 2013 and
December 31, 2012,
respectively 8 8
Additional paid-in
capital 2,179,639 2,182,503
Accumulated deficit (2,014,653) (1,748,694)
Accumulated other
comprehensive loss (698) (685)
---- ----
Total stockholders'
equity 164,296 433,132
------- -------
Total liabilities
and stockholders'
equity $4,963,413 $4,967,260
======== ==========
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (1)
(Unaudited and in thousands, except per share data)
Three Months Six Months Ended
Ended June 30, June 30,
--------------- -----------------
2013 2012 2013 2012
---- ---- ---- ----
Revenues:
Service revenues $678,497 $751,285 $1,363,119 $1,525,283
Equipment revenues 53,046 35,487 158,282 87,108
------ ------ ------- ------
Total revenues 731,543 786,772 1,521,401 1,612,391
------- ------- --------- ---------
Operating expenses:
Cost of service (exclusive of items
shown separately below) 249,371 256,555 500,229 517,866
Cost of equipment 183,658 171,673 442,626 419,520
Selling and marketing 69,397 77,247 148,235 172,801
General and administrative 83,402 94,892 165,627 184,591
Depreciation and amortization 150,856 154,483 303,429 301,026
Impairments and other charges 4,287 - 5,022 -
----- --- ----- ---
Total operating expenses 740,971 754,850 1,565,168 1,595,804
Gain (loss) on sale, exchange or
disposal of assets, net 1,870 (333) 6,858 (801)
----- ---- ----- ----
Operating income (loss) (7,558) 31,589 (36,909) 15,786
Equity in net income (loss) of
investees, net 1,696 (59) 538 134
Interest income 58 28 105 57
Interest expense (66,851) (66,983) (131,576) (134,025)
Loss on extinguishment of debt (72,988) - (72,988) -
------- --- ------- ---
Loss before income taxes (145,643) (35,425) (240,830) (118,048)
Income tax expense (10,710) (10,562) (25,130) (22,273)
------- ------- ------- -------
Net loss (156,353) (45,987) (265,960) (140,321)
Accretion of redeemable non-
controlling interests and
distributions, net of tax (6,756) 4,397 (8,461) 292
------ ----- ------ ---
Net loss attributable to common
stockholders $(163,109) $(41,590) $(274,421) $(140,029)
======== ======= ======== ========
Loss per share attributable to common
stockholders:
Basic $(2.09) $(0.54) $(3.50) $(1.82)
====== ====== ====== ======
Diluted $(2.09) $(0.54) $(3.50) $(1.82)
====== ====== ====== ======
Shares used in per share calculations:
Basic 77,915 77,206 78,347 77,116
====== ====== ====== ======
Diluted 77,915 77,206 78,347 77,116
====== ====== ====== ======
Other comprehensive loss:
Net loss $(156,353) $(45,987) $(265,960) $(140,321)
Net unrealized holding gains (losses)
on investments and other (10) 10 (13) 12
--- --- --- ---
Comprehensive loss $(156,363) $(45,977) $(265,973) $(140,309)
======== ======= ======== ========
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(Unaudited and in thousands)
Six Months Ended
June 30,
-----------------
2013 2012
---- ----
Operating
activities:
Net cash provided
by operating
activities $15,028 $50,619
------- -------
Investing
activities:
Purchases of
property and
equipment (48,861) (265,412)
Change in
prepayments for
purchases of
property and
equipment (4,986) (1,940)
Purchases of
wireless licenses
and spectrum
clearing costs (2,337) (2,712)
Proceeds from
sales of wireless
licenses and
operating assets,
net 3,404 1,420
Purchases of
investments (334,935) (173,141)
Sales and
maturities of
investments 186,103 440,734
Change in
restricted cash (891) (1,501)
---- ------
Net cash used in
investing
activities (202,503) (2,552)
-------- ------
Financing
activities:
Proceeds from
issuance of long-
term debt 1,414,313 -
Repayment of long-
term debt (1,103,796) -
Payment of debt
issuance costs (15,800) -
Proceeds from
issuance of
common stock 620 483
Payments made to
joint venture
partners (14,867) (5,230)
Other (3,506) (2,187)
------ ------
Net cash provided
by (used in)
financing
activities 276,964 (6,934)
------- ------
Net increase in
cash and cash
equivalents 89,489 41,133
Cash and cash
equivalents at
beginning of
period 515,550 345,243
------- -------
Cash and cash
equivalents at
end of period $605,039 $386,376
======== ========
Supplementary
disclosure of
cash flow
information:
Cash paid for
interest $(138,236) $(126,747)
Cash paid for
income taxes $(4,088) $(3,943)
Net wireless
licenses received
in exchange
transaction (6,809) -
Explanatory Note to Financial
Statements
(1) The condensed consolidated
financial statements and
the tables of results and
operating and financial
metrics included at the
beginning of this release
include the operating
results and financial
position of Leap and its
wholly-owned subsidiaries
and consolidated joint
ventures. The Company
consolidates STX Wireless,
LLC in accordance with the
authoritative guidance for
consolidations based on the
voting interest model. All
intercompany accounts and
transactions have been
eliminated in the condensed
consolidated financial
statements.
The following tables
summarize operating data
for the Company's
consolidated operations for
the three and six months
ended June 30, 2013 and
2012 (in thousands, except
percentages):
Three Months Ended June 30,
---------------------------
Change from
Prior Year
------------
2013 % of 2013 2012 % of 2012
Service Service
Revenues Revenues Dollars Percent
---- --------- ---- --------- ------- -------
(Unaudited) (Unaudited)
Revenues:
Service revenues $678,497 $751,285 $(72,788) (9.7)%
Equipment revenues 53,046 35,487 17,559 49.5%
------ ------
Total revenues 731,543 786,772 (55,229) (7.0)%
------- ------- ------- -----
Operating expenses:
Cost of service 249,371 36.8% 256,555 34.1% (7,184) (2.8)%
Cost of equipment 183,658 27.1% 171,673 22.9% 11,985 7.0%
Selling and marketing 69,397 10.2% 77,247 10.3% (7,850) (10.2)%
General and
administrative 83,402 12.3% 94,892 12.6% (11,490) (12.1)%
Depreciation and
amortization 150,856 22.2% 154,483 20.6% (3,627) (2.3)%
Impairments and other
charges 4,287 0.6% - - % 4,287 *
----- --- --- --- --- ----- ---
Total operating
expenses 740,971 109.2% 754,850 100.5% (13,879) (1.8)%
Gain (loss) on sale,
exchange or disposal
of assets, net 1,870 0.3% (333) - % 2,203 *
----- ---- ---
Operating income
(loss) $(7,558) (1.1)% $31,589 4.2% $(39,147) *
======= ===== ======= === ======= ===
*Percentage change not meaningful.
Six Months Ended June 30,
-------------------------
Change from
Prior Year
------------
2013 % of 2013 2012 % of 2012
Service Service
Revenues Revenues Dollars Percent
---- --------- ---- --------- ------- -------
(Unaudited) (Unaudited)
Revenues:
Service revenues $1,363,119 $1,525,283 $(162,164) (10.6)%
Equipment revenues 158,282 87,108 71,174 81.7%
------- ------
Total revenues 1,521,401 1,612,391 (90,990) (5.6)%
--------- --------- ------- -----
Operating expenses:
Cost of service 500,229 36.7% 517,866 34.0% (17,637) (3.4)%
Cost of equipment 442,626 32.5% 419,520 27.5% 23,106 5.5%
Selling and marketing 148,235 10.9% 172,801 11.3% (24,566) (14.2)%
General and
administrative 165,627 12.2% 184,591 12.1% (18,964) (10.3)%
Depreciation and
amortization 303,429 22.3% 301,026 19.7% 2,403 0.8%
Impairments and other
charges 5,022 0.4% - - % 5,022 *
----- --- --- --- --- ----- ---
Total operating
expenses 1,565,168 114.8% 1,595,804 104.6% (30,636) (1.9)%
Gain (loss) on sale,
exchange or disposal
of assets, net 6,858 0.5% (801) (0.1)% 7,659 *
----- ---- ---
Operating income
(loss) $(36,909) (2.7)% $15,786 1.0% $(52,695) *
======== ===== ======= === ======== ===
*Percentage change not meaningful.
Definition of Terms and Reconciliation of
Non-GAAP Financial Measures
The Company utilizes certain financial
measures that are widely used in the
telecommunications industry and are not
calculated based on GAAP. Certain of these
financial measures are considered non-GAAP
financial measures within the meaning of
Item 10 of Regulation S-K promulgated by
the SEC.
(1) Churn, which measures customer
turnover, is calculated as the net
number of customers that disconnect
from our service divided by the
weighted-average number of customers
divided by the number of months
during the period being measured.
Customers who do not pay the first
bill they receive following initial
activation are deducted from our
gross customer additions in the month
in which they are disconnected; as a
result, these customers are not
included in churn. Customers of our
Cricket Wireless and Cricket
Broadband service are generally
disconnected from service
approximately 30 days after failing
to pay a monthly bill, and pay-in-
advance customers who ask to
terminate their service are
disconnected when their paid service
period ends. Cricket PAYGo customers
generally have 60 days from the date
they activated their account, were
charged a daily or monthly access fee
for service or last "topped-up"
their account (whichever is later) to
do so again, or they will have their
account suspended for a subsequent
60-day period before being
disconnected. Management uses churn
to measure our retention of
customers, to measure changes in
customer retention over time, and to
help evaluate how changes in our
business affect customer retention.
In addition, churn provides
management with a useful measure to
compare our customer turnover
activity to that of other wireless
communications providers. We believe
investors use churn primarily as a
tool to track changes in our customer
retention over time and to compare
our customer retention to that of
other wireless communications
providers. Other companies may
calculate this measure differently.
(2) ARPU is service revenues, less pass-
through regulatory fees and
telecommunications taxes, divided by
the weighted-average number of
customers, divided by the number of
months during the period being
measured. Management uses ARPU to
identify average revenue per
customer, to track changes in average
customer revenues over time, to help
evaluate how changes in our business,
including changes in our service
offerings, affect average revenue per
customer, and to forecast future
service revenue. In addition, ARPU
provides management with a useful
measure to compare our subscriber
revenue to that of other wireless
communications providers. Our
customers are generally disconnected
from service after a specified period
following their failure to either pay
a monthly bill or replenish, or "top-
up," their account. Because our
calculation of weighted-average
number of customers includes
customers who are not currently
paying for service but who have not
yet been disconnected from service
because they have not paid their last
bill or have not replenished their
account, ARPU may appear lower during
periods in which we have significant
disconnect activity. We believe
investors use ARPU primarily as a
tool to track changes in our average
revenue per customer and to compare
our per customer service revenues to
those of other wireless
communications providers. Other
companies may calculate this measure
differently.
The following table reconciles total
service revenues used in the
calculation of ARPU to service
revenues, which we consider to be the
most directly comparable GAAP
financial measure to ARPU (unaudited;
in thousands, except weighted-
average number of customers and
ARPU):
Three Months Six Months Ended
Ended June 30, June 30,
--------------- -----------------
2013 2012 2013 2012
---- ---- ---- ----
Service revenues $678,497 $751,285 $1,363,119 $1,525,283
Less pass-through regulatory fees and telecommunications taxes (774) (2,678) (1,629) (6,815)
---- ------ ------ ------
Total service revenues used in the calculation of ARPU $677,723 $748,607 $1,361,490 $1,518,468
Weighted-average number of customers 5,031,930 5,992,047 5,122,768 6,008,737
--------- --------- --------- ---------
ARPU $44.89 $41.64 $44.30 $42.12
====== ====== ====== ======
(3) CPGA is selling and marketing
costs (excluding applicable
share-based compensation
expense or benefit included in
selling and marketing expense),
and equipment subsidy
(generally defined as cost of
equipment less equipment
revenue), less the net loss on
equipment transactions and
third-party commissions
unrelated to customer
acquisition, divided by the
total number of gross new
customer additions during the
period being measured. The net
loss on equipment transactions
unrelated to customer
acquisition includes the
revenues and costs associated
with the sale of wireless
devices to existing customers
as well as costs associated
with device replacements and
repairs (other than warranty
costs which are the
responsibility of the device
manufacturers). Third-party
commissions unrelated to
customer acquisition are
commissions paid to third
parties for certain activities
related to the continuing
service of customers. We deduct
customers who do not pay the
first bill they receive
following initial activation
from our gross customer
additions in the month in which
they are disconnected, which
tends to increase CPGA because
we incur the costs associated
with a new customer without
receiving the benefit of a
gross customer addition.
Management uses CPGA to measure
the efficiency of our customer
acquisition efforts, to track
changes in our average cost of
acquiring new subscribers over
time, and to help evaluate how
changes in our sales and
distribution strategies affect
the cost-efficiency of our
customer acquisition efforts.
In addition, CPGA provides
management with a useful
measure to compare our per
customer acquisition costs with
those of other wireless
communications providers. We
believe investors use CPGA
primarily as a tool to track
changes in our average cost of
acquiring new customers and to
compare our per customer
acquisition costs to those of
other wireless communications
providers. Other companies may
calculate this measure
differently.
The following table reconciles
total costs used in the
calculation of CPGA to selling
and marketing expense, which we
consider to be the most
directly comparable GAAP
financial measure to CPGA
(unaudited; in thousands,
except gross customer additions
and CPGA):
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(4) CCU is cost of service and general and
administrative costs (excluding
applicable share-based compensation
expense or benefit included in cost
of service and general and
administrative expense) plus net loss
on equipment transactions and third-
party commissions unrelated to
customer acquisition (which includes
the gain or loss on the sale of
devices to existing customers, costs
associated with device replacements
and repairs (other than warranty
costs which are the responsibility of
the device manufacturers) and
commissions paid to third parties for
certain activities related to the
continuing service of customers),
less pass-through regulatory fees
and telecommunications taxes, divided
by the weighted-average number of
customers, divided by the number of
months during the period being
measured. CCU does not include any
depreciation and amortization
expense. Management uses CCU as a
tool to evaluate the non-selling
cash expenses associated with ongoing
business operations on a per customer
basis, to track changes in these non-
selling cash costs over time, and to
help evaluate how changes in our
business operations affect non-
selling cash costs per customer. In
addition, CCU provides management
with a useful measure to compare our
non-selling cash costs per customer
with those of other wireless
communications providers. We believe
investors use CCU primarily as a tool
to track changes in our non-selling
cash costs over time and to compare
our non-selling cash costs to those
of other wireless communications
providers. Other companies may
calculate this measure differently.
The following table reconciles total
costs used in the calculation of CCU
to cost of service, which we consider
to be the most directly comparable
GAAP financial measure to CCU
(unaudited; in thousands, except
weighted-average number of customers
and CCU):
Three Months Six Months Ended
Ended June 30, June 30,
--------------- ----------------
2013 2012 2013 2012
---- ---- ---- ----
Cost of service $249,371 $256,555 $500,229 $517,866
Plus general and administrative expense 83,402 94,892 165,627 184,591
Less share-based compensation expense included in cost of
service and general and administrative expense (2,860) (3,813) (4,863) (3,096)
Plus net loss on equipment transactions and third-party
commissions unrelated to customer acquisition 90,385 66,932 172,457 163,029
Less pass-through regulatory fees and telecommunications taxes (774) (2,678) (1,629) (6,815)
---- ------ ------ ------
Total costs used in the calculation of CCU $419,524 $411,888 $831,821 $855,575
Weighted-average number of customers 5,031,930 5,992,047 5,122,768 6,008,737
--------- --------- --------- ---------
CCU $27.79 $22.91 $27.06 $23.73
====== ====== ====== ======
(5) Adjusted OIBDA
is a non-GAAP
financial
measure defined
as operating
income (loss)
before
depreciation
and
amortization,
adjusted to
exclude the
effects of:
(gain)/loss on
sale, exchange
or disposal of
assets, net;
impairments and
other charges;
and share-
based
compensation
expense or
benefit.
Adjusted OIBDA
should not be
construed as an
alternative to
operating
income (loss)
or net income
(loss) as
determined in
accordance with
GAAP, or as an
alternative to
cash flows from
operating
activities as
determined in
accordance with
GAAP or as a
measure of
liquidity.
In a capital-
intensive
industry such
as wireless
telecommunications,
management
believes that
adjusted OIBDA,
and the
associated
percentage
margin
calculations,
are meaningful
measures of our
operating
performance. We
use adjusted
OIBDA as a
supplemental
performance
measure because
management
believes it
facilitates
comparisons of
our operating
performance
from period to
period and
comparisons of
our operating
performance to
that of other
companies by
backing out
potential
differences
caused by the
age and book
depreciation of
fixed assets
(affecting
relative
depreciation
expenses) as
well as the
items described
above for which
additional
adjustments
were made.
While
depreciation
and
amortization
are considered
operating costs
under GAAP,
these expenses
primarily
represent the
non-cash
current period
allocation of
costs
associated with
long-lived
assets acquired
or constructed
in prior
periods.
Because
adjusted OIBDA
facilitates
internal
comparisons of
our historical
operating
performance,
management also
uses this
metric for
business
planning
purposes and to
measure our
performance
relative to
that of our
competitors. In
addition, we
believe that
adjusted OIBDA
and similar
measures are
widely used by
investors,
financial
analysts and
credit rating
agencies as
measures of our
financial
performance
over time and
to compare our
financial
performance
with that of
other companies
in our
industry.
Adjusted OIBDA
has limitations
as an
analytical
tool, and
should not be
considered in
isolation or as
a substitute
for analysis of
our results as
reported under
GAAP. Some of
these
limitations
include:
-- it does not reflect capital
expenditures;
-- although it does not include
depreciation and amortization, the
assets being depreciated and
amortized will often have to be
replaced in the future and adjusted
OIBDA does not reflect cash
requirements for such replacements;
-- it does not reflect costs associated
with share-based awards exchanged
for employee services;
-- it does not reflect the interest
expense necessary to service interest
or principal payments on
indebtedness;
-- it does not reflect expenses incurred
for the payment of income taxes and
other taxes; and
-- other companies, including companies
in our industry, may calculate this
measure differently than we do,
limiting its usefulness as a
comparative measure.
Management
understands
these
limitations and
considers
adjusted OIBDA
as a financial
performance
measure that
supplements but
does not
replace the
information
provided to
management by
our GAAP
results.
The following
table
reconciles
adjusted OIBDA
to operating
loss, which we
consider to be
the most
directly
comparable GAAP
financial
measure to
adjusted OIBDA
(unaudited; in
thousands):
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
2013 2012 2013 2012
---- ---- ---- ----
Operating
loss $(7,558) $31,589 $(36,909) $15,786
Plus
depreciation
and
amortization 150,856 154,483 303,429 301,026
------- ------- ------- -------
OIBDA $143,298 $186,072 $266,520 $316,812
Plus
(gain)
loss
on
sale,
exchange
or
disposal
of
assets,
net (1,870) 333 (6,858) 801
Plus
impairments
and
other
charges 4,287 - 5,022 -
Plus
share-
based
compensation
expense 3,071 4,429 5,185 3,735
----- ----- ----- -----
Adjusted
OIBDA $148,786 $190,834 $269,869 $321,348
====== ====== ======== ======
(6) Free cash flow is a non-
GAAP financial measure
defined as net cash
provided by operating
activities less purchases
of property and equipment.
Free cash flow should not
be considered as an
alternative to net cash
flow provided by operating
activities as determined in
accordance with GAAP or as
a measure of liquidity.
Management believes that
free cash flow provides
useful information about
the amount of cash
available to us to fund
ongoing operations and
working capital needs,
service our debt, satisfy
our tax obligations,
strengthen our balance
sheet and make investments
in our business. Management
also believes that the
presentation of free cash
flow is relevant and useful
for investors because it
allows investors to
evaluate cash generated
from our underlying
operations in a manner
similar to that used by
management. In addition,
free cash flow is a primary
measure used externally by
investors, analysts and
peers in our industry for
purposes of valuation and
comparing our operating
performance to that of
other companies in our
industry.
Free cash flow has
limitations as an
analytical tool, and should
not be considered in
isolation or as a
substitute for analysis of
our results as reported
under GAAP. Free cash flow,
as we calculate it, may not
be comparable to similarly
titled measures used by
other companies. In
addition, free cash flow
(as a measure of liquidity)
has certain limitations and
does not represent funds
available for discretionary
use and is not necessarily
a measure of our ability to
fund our cash needs.
The following table
reconciles free cash flow
to net cash provided by
operating activities, which
we consider to be the most
directly comparable GAAP
financial measure to free
cash flow (unaudited; in
thousands):
Three Months Six Months Ended
Ended June 30, June 30,
--------------- -----------------
2013 2012 2013 2012
---- ---- ---- ----
Net
cash
provided
by
(used
in)
operating
activities $(10,529) $15,262 $15,028 $50,619
Less
purchases
of
property
and
equipment (22,499) (119,098) (48,861) (265,412)
------- -------- ------- --------
Free
cash
flow $(33,028) $(103,836) $(33,833) $(214,793)
Plus
early
debt
prepayment
premium 42,625 - 42,625 -
Free
cash
flow
(excluding
early
debt
prepayment
premium) $9,597 $(103,836) $8,792 $(214,793)
====== ======== ====== ========
SOURCE Cricket Communications, Inc.
