LEAP WIRELESS INTERNATIONAL, INC. 
By SAN DIEGO, Nov. 8, 2013 /PRNewswire/ -- Leap Wireless International, Inc. (NASDAQ: LEAP) today reported operational and financial results for the three and nine months ended September 30, 2013. Total revenues for the third quarter of 2013 decreased 10 percent to $694.0 million and service revenues decreased 10 percent to $646.3 million, each when compared to the prior year period. The Company reported $78.0 million of adjusted operating income before depreciation and amortization (OIBDA) for the third quarter of 2013, compared to $131.6 million for the prior year period. Excluding $16.4 million of merger-related expenses incurred during the quarter, adjusted OIBDA was $94.4 million. Third quarter 2013 operating loss was $83.4 million, compared to operating income of $81.4 million for the third quarter of 2012.
(Logo: http://photos.prnewswire.com/prnh/20101220/MM20546LOGO-a)
The Company reported approximately 316,000 core wireless gross customer additions for the third quarter of 2013 and approximately 140,000 core wireless net customer losses. Core wireless churn for the third quarter of 2013 was 3.5 percent. "Core wireless" refers to the Company's traditional, monthly voice and data service (Cricket Wireless) and excludes customers for Cricket Broadband and Cricket PAYGo(TM).
The Company reported a total of approximately 371,000 gross customer additions and a total of approximately 196,000 net customer losses for the third quarter of 2013. Total churn for the third quarter of 2013 was 4.0 percent.
"During the third quarter we continued our multi-faceted approach to enhancing customer satisfaction, which led to a 60 basis point improvement in core wireless churn and fewer net customer losses year-over-year," said S. Douglas Hutcheson, Leap's chief executive officer. "Gross customer additions decreased year-over-year primarily due to increased competitive activity and customer demand for an affordable purchase path to higher-priced devices. We continue to make progress reducing our device subsidy costs and that, coupled with our efforts to manage sales and marketing expenses, led to a relatively flat CPGA compared to the prior year period, despite gross customer additions having declined over 30 percent year-over-year.
"Our efforts to improve the customer experience are being realized, as customer survival was recently at its highest rate in over a year. We continue to seek new ways to meet our customers' needs and recently introduced a new handset financing program, which is designed to reduce the out-the-door price barrier for both new and upgrading customers. The new program is outperforming the previous plan we offered and drawing stronger customer interest, as evidenced by a seven-fold increase in the number of applications we have received. Our commitment to improve the customer experience is also being recognized by others. In a third-party customer care study published in August 2013, Cricket was ranked second highest in overall wireless customer care satisfaction among non-contract carriers.
"We are also pleased with the results of our recent special meeting of stockholders, at which Leap stockholders overwhelmingly voted to approve the proposed merger transaction with AT&T. This approval is an important milestone on our path to completing the transaction. We will continue to work closely with the Federal Communications Commission and Department of Justice on their review of the transaction."
(
)
Financial Results and Operating Metrics (1)
(Unaudited; in millions (2), except for customer data, operating metrics and per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2013 2012 Change 2013 2012 Change
---- ---- ------ ---- ---- ------
Service revenues $646.3 $722.0 (10.5)% $2,009.4 $2,247.3 (10.6)%
Total revenues $694.0 $774.0 (10.3)% $2,215.4 $2,386.4 (7.2)%
Operating income
(loss) $(83.4) $81.4 * $(120.3) $97.2 *
Adjusted OIBDA $78.0 $131.6 (40.7)% $347.9 $453.0 (23.2)%
Adjusted OIBDA as
a percentage of
service revenues 12% 18% - 17% 20% -
Net income (loss) $(160.5) $26.9 * $(426.4) $(113.5) *
Net income (loss)
attributable to
common
stockholders $(185.4) $25.0 * $(459.8) $(115.0) *
Diluted income
(loss) per share
attributable to
common
stockholders $(2.37) $0.32 * $(5.90) $(1.49) *
Gross customer
additions(3) 370,971 563,459 (34.2)% 1,127,918 1,915,726 (41.1)%
Net customer
losses (196,045) (268,984) 27.1% (653,350) (300,194) (117.6)%
End of period
customers 4,643,430 5,633,819 (17.6)% 4,643,430 5,633,819 (17.6)%
Weighted-average
customers 4,734,846 5,727,212 (17.3)% 4,993,461 5,914,895 (15.6)%
Churn 4.0% 4.8% - 4.0% 4.2% -
End of period
covered POPS ~96.2 ~95.5 - ~96.2 ~95.5 -
Average revenue
per user (ARPU) $45.45 $41.94 8.4% $44.66 $42.06 6.2%
Cash cost per
user (CCU) $31.64 $24.11 31.2% $28.51 $23.85 19.5%
Cost per gross
addition (CPGA) $319 $310 2.9% $335 $269 24.5%
Free cash flow $8.9 $(7.7) * $(24.9) $(218.1) 88.6%
Free cash flow
(excluding early
debt prepayment
premium)(4) $8.9 $(7.7) * $17.7 $(218.1) *
Net cash provided
by operating
activities(5) $39.0 $124.6 (68.7)% $71.7 $210.5 (65.9)%
Cash purchases of
property and
equipment(5) $30.1 $132.4 (77.3)% $96.7 $428.6 (77.4)%
Unrestricted
cash, cash
equivalents and
short-term
investments $909.2 $623.0 45.9% $909.2 $623.0 45.9%
Core Wireless
Metrics
-------------
Core wireless
gross customer
additions 315,920 428,869 (26.3)% 948,418 1,425,459 (33.5)%
Core wireless net
customer losses (139,636) (181,573) 23.1% (403,270) (160,739) *
Core wireless end
of period
customers 4,242,096 4,847,741 (12.5)% 4,242,096 4,847,741 (12.5)%
Core wireless
churn 3.5% 4.2% - 3.4% 3.5% -
* 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.
(4) Free cash flow for the nine months ended
September 30, 2013 excludes
approximately $43 million of premium
payments made in connection with early
extinguishment of debt.
(5) As restated for the three and nine
months ended September 30, 2012. The
Company has restated its unaudited
condensed consolidated statement of
cash flows for the nine months ended
September 30, 2012 due to a
classification error related to the
presentation of certain capital
expenditures and operating cash flows.
This classification error resulted in a
misstatement of net cash provided by
operating activities and net cash
provided by (used in) investing
activities. The Company has reflected
these corrections in the results
reported herein. See Note 16 of the
condensed consolidated financial
statements included in the Company's
Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the fiscal quarter
ended June 30, 2013 filed with the SEC
on October 28, 2013 for additional
information.
Discussion of Financial and Operational Results for the Quarter
Customer Activity
-- End-of-period customers for the third quarter of 2013 were 4,643,430, an
18 percent decrease from end-of-period customers for the third quarter
of 2012.
-- The Company reported net customer losses of 196,045 for the third
quarter of 2013, compared to net customer losses of 268,984 for the
third quarter of 2012.
-- Net customer losses for the third quarter of 2013 reflects fewer
gross additions due primarily to intensified competition and
increasing customer demand for high-end devices, as reflected in a
135 percent year-over-year increase in average out-the-door handset
price.
-- Net customer losses also reflects the discontinuation of sales of
the Company's daily PAYGo product, a narrowing of the Company's
focus in national retail to fewer, more productive retailers and
locations, and continued de-emphasis of the Company's broadband
service.
-- Third quarter 2013 net customer losses reflects a year-over-year
improvement in churn.
-- The Company reported core wireless net customer losses of 139,636 for
the third quarter of 2013, compared to core wireless net customer losses
of 181,573 for the third quarter of 2012.
-- Core wireless net customer losses for the third quarter of 2013
reflects fewer gross additions due primarily to intensified
competition and increasing customer demand for high-end devices,
reflected in a 135 percent year-over-year increase in average
out-the-door handset price, offset by a year-over-year improvement
in churn.
-- When compared to the prior year period, core wireless net customer
losses improved 23 percent due to the year-over year improvement in
churn resulting from better customer experience.
-- Total churn for the third quarter of 2013 was 4.0 percent, compared to
4.8 percent for the third quarter of 2012, and reflects approximately
570,000 fewer gross deactivations in the third quarter 2013, compared to
the prior year period, partially offset by fewer reactivations.
-- Core wireless churn for the third quarter of 2013 was 3.5 percent,
compared to 4.2 percent for the comparable period of the prior year.
-- Core wireless churn improved due to delivery of a better customer
experience, including increased adoption of automatic bill payment,
introduction of a new handset financing program, increased uptake of
Muve Music and expansion of the Company's lifeline credit program.
-- 76 percent of the Company's new handset sales were for smartphones in
the third quarter of 2013, compared to 57 percent in the prior year
period.
-- 61 percent of the Company's voice customer base was on a smartphone
service plan as of September 30, 2013, compared to 48 percent at the end
of the prior year period.
-- 12 percent of the Company's voice customer base upgraded their handset
during the third quarter of 2013, compared to 9 percent in the prior
year period. The Company continues to expect that facilitating customer
upgrades to higher-end devices will result in higher-value,
longer-tenured customers.
Revenues and ARPU
-- Total revenues for the third quarter of 2013 were $694.0 million, a 10
percent decrease over the comparable period of the prior year, primarily
due to a lower weighted-average number of customers, partially offset by
an improved mix of customers on higher-value service plans and increased
sales of higher-priced devices.
-- Service revenues for the third quarter of 2013 were $646.3 million, a 10
percent decrease over the comparable period of the prior year, primarily
due to a lower weighted-average number of customers, partially offset by
an improved mix of customers on higher-value service plans.
-- ARPU for the third quarter of 2013 was $45.45, an increase of $3.51 over
the comparable period of the prior year. The year-over-year increase in
ARPU primarily reflected improved uptake of higher-value service plans,
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 third quarter of 2013 was $78.0 million, a
decrease of 41 percent over the comparable period of the prior year.
-- The year-over-year decrease in adjusted OIBDA was primarily driven
by approximately $16.2 million of costs associated with the
year-over-year increase in customer handset upgrades, approximately
$16.4 million of costs associated with the proposed merger
transaction with AT&T and lower revenues due to the lower
weighted-average number of customers, partially offset by lower
operating expenses.
-- Excluding the approximately $16.4 million of merger-related costs,
adjusted OIBDA for the third quarter was $94.4 million, a 28 percent
decrease over the comparable period of the prior year.
-- Third quarter 2013 operating loss was $83.4 million, compared to
operating income of $81.4 million for the comparable period of the prior
year.
-- The third quarter 2012 operating income included a net gain of
approximately $130 million associated with the consummation of
spectrum transactions. Excluding the effect of this net gain, third
quarter 2012 would have had an operating loss of $48.6 million.
-- The year-over-year change, excluding the effect of the net gain on
the spectrum transactions, was primarily driven by approximately
$16.2 million of costs associated with the year-over-year increase
in customer handset upgrades, approximately $16.4 million of costs
associated with the proposed merger transaction with AT&T and lower
revenues due to the lower weighted-average number of customers,
partially offset by lower operating expenses as well as lower
depreciation and amortization expense, lower impairments and other
charges.
-- CCU for the third quarter of 2013 increased 31 percent over the prior
year period to $31.64, reflecting the year-over-year reduction in the
weighted-average number of customers, increased product costs, increased
upgrade expense driven by consumer demand for higher-end devices, and
costs associated with the proposed merger transaction with AT&T,
partially offset by reductions in fixed costs.
-- CPGA for the third quarter of 2013 increased only 3 percent over the
prior year period to $319, despite a 34 percent year-over-year decrease
in gross customer additions, reflecting a reduction in device subsidy
costs and the Company's continued management of its sales and marketing
expenses.
-- Net loss attributable to common stockholders for the third quarter of
2013 was $185.4 million, or $(2.37) per diluted share, compared to net
income attributable to common stockholders of $25.0 million, or $0.32
per diluted share for the third quarter of 2012.
-- As described above, excluding the effect of a net gain of
approximately $130 million from spectrum transactions, net loss
attributable to common stockholders for the third quarter of 2012
would have been $105 million.
-- The increase in net loss attributable to common stockholders,
excluding the effect of the net gain on spectrum transactions, was
primarily driven by the operating loss described above, as well as
an increase in accretion expense related to the redemption value of
the minority interest in the Company's joint venture, STX Wireless,
LLC.
-- In addition, in the third quarter of 2013, the Company recognized
tax expense, in contrast to the third quarter of 2012, where the
Company recognized a tax benefit related to the net gain on spectrum
transactions.
Capital Expenditures and Free Cash Flow
-- Capital expenditures during the third quarter of 2013 were $30.1
million, compared to $132.4 million for the prior year period.
-- Free cash flow for the third quarter of 2013 was $8.9 million, compared
to $(7.7) million for the prior year period.
-- Net cash provided by operating activities for the third quarter 2013 was
$39.0 million, compared to $124.6 million for the prior year period.
-- Total capital expenditures for 2013 are expected to be between $125
million and $150 million.
"As we discussed on our second quarter earnings call, the actions we are taking to protect our customer base and distribution, along with promotional device pricing and expanded data allotments we introduced in our service plans in the third quarter, resulted in increased costs and placed additional pressure on CCU," said R. Perley McBride, Leap's chief financial officer. "As a result, the decline in adjusted OIBDA reflects $16 million of increased upgrade costs associated with third quarter device promotions, $5 million in higher product costs related to roaming and increased Muve Music customers as well as $3 million in increased network costs. Adjusted OIBDA in the third quarter was also impacted by over $16 million of merger-related costs associated with the proposed transaction with AT&T.
"We are committed to the thoughtful management of our balance sheet and cash resources. During the third quarter we generated modest free cash flow of approximately $9 million. We continue to focus on driving free cash flow and plan to make appropriate investments to operate our business while conserving cash. To that end, we are reducing projected 2013 capital expenditures to the range of $125 million to $150 million, principally by managing 3G network capacity investments, exploring cost-effective alternatives to deliver 4G LTE services in lieu of deploying additional facilities-based coverage and exercising increased financial discipline."
Other Significant Business Highlights
-- Entered into a merger agreement with AT&T, which the Company's
stockholders recently approved at a special meeting of stockholders.
-- Introduced two new Samsung Galaxy smartphones, the 4G LTE Admire 2 and
the Samsung Galaxy Discover. The Discover offers Cricket customers an
exceptional value and delivered nearly 25 percent of the Company's
handset sales volume in the third quarter.
-- Debuted Muve Music 4.0, the latest version of our popular music service,
which features faster performance and a new user interface that allows
for easier exploration of music and improved navigation; Muve Music now
has more than two million customers, making it the largest on-demand
subscription music service in the U.S.
-- Introduced a new handset financing program, giving Cricket customers the
flexibility to pay for their handsets over time and removing the barrier
that high device prices present to many customers in the pre-paid space.
-- Launched our Unlimited International Long Distance Plus feature,
offering the lowest price for unlimited international calling and
texting to mobile phones in Mexico, making it easy for Cricket customers
to stay in close contact with friends and family in Mexico.
Merger Agreement with AT&T
On July 12, 2013, the Company entered into a merger agreement with AT&T for AT&T to acquire the Company in a transaction in which the Company's stockholders would receive $15 in cash per share, plus one non-transferable contingent value right per share, on the terms and subject to the conditions thereof. On October 30, 2013, the Company's stockholders approved the merger agreement at a special meeting of stockholders. Consummation of the transaction remains subject to review by the Federal Communications Commission and the Department of Justice. For additional information regarding the transaction, please see the Company's filings with the Securities and Exchange Commission (SEC).
About Leap
Leap provides innovative, high-value wireless services to a fast-growing, 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, music 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 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 network technology, 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 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 June 30, 2013 filed with the
SEC on August 5, 2013 (as amended by Amendment No. 1 filed with the SEC
on October 28, 2013) and our Quarterly Report on Form 10-Q for the
quarter ended September 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 November 8, 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)
September 30, December 31,
2013 2012
---- ----
Assets (Unaudited)
Cash and cash equivalents $563,613 $515,550
Short-term investments 345,594 159,426
Inventories 82,803 121,601
Deferred charges 40,776 60,963
Other current assets 165,197 139,242
------- -------
Total current assets 1,197,983 996,782
Property and equipment, net 1,381,043 1,762,090
Wireless licenses 2,091,248 1,947,333
Assets held for sale 3,091 136,222
Goodwill 31,886 31,886
Intangible assets, net 16,119 24,663
Other assets 73,873 68,284
------ ------
Total assets $4,795,243 $4,967,260
========== ==========
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $287,833 $396,110
Current maturities of long-term debt 266,454 4,000
Other current liabilities 238,525 216,880
------- -------
Total current liabilities 792,812 616,990
Long-term debt, net 3,368,157 3,298,463
Deferred tax liabilities 417,268 385,111
Other long-term liabilities 161,567 169,047
------- -------
Total liabilities 4,739,804 4,469,611
--------- ---------
Redeemable non-controlling interests 69,721 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; 79,371,522
and 79,194,750 shares issued and
outstanding at September 30, 2013 and
December 31, 2012, respectively 8 8
Additional paid-in capital 2,161,510 2,182,503
Accumulated deficit (2,175,114) (1,748,694)
Accumulated other comprehensive loss (686) (685)
---- ----
Total stockholders' equity (deficit) (14,282) 433,132
------- -------
Total liabilities and stockholders'
equity (deficit) $4,795,243 $4,967,260
========== ==========
LEAP WIRELESS INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(1)
(Unaudited and in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Revenues:
Service revenues $646,272 $722,022 $2,009,391 $2,247,305
Equipment revenues 47,720 51,950 206,002 139,058
------ ------ ------- -------
Total revenues 693,992 773,972 2,215,393 2,386,363
------- ------- --------- ---------
Operating expenses:
Cost of service (exclusive of items
shown separately below) 252,144 266,401 752,373 784,267
Cost of equipment 197,150 203,846 639,776 623,366
Selling and marketing 69,868 88,111 218,103 260,912
General and administrative 103,014 85,997 268,641 270,588
Depreciation and amortization 148,630 161,821 452,059 462,847
Impairments and other charges 8,608 14,753 13,630 14,753
----- ------ ------ ------
Total operating expenses 779,414 820,929 2,344,582 2,416,733
Gain on sale, exchange or disposal of
assets, net 2,039 128,366 8,897 127,565
----- ------- ----- -------
Operating income (loss) (83,383) 81,409 (120,292) 97,195
Equity in net loss of investees, net (8,005) (203) (7,467) (69)
Interest income 75 62 180 119
Interest expense (59,219) (67,308) (190,795) (201,333)
Loss on extinguishment of debt - - (72,988) -
--- --- ------- ---
Income (loss) before income taxes (150,532) 13,960 (391,362) (104,088)
Income tax benefit (expense) (9,928) 12,908 (35,058) (9,365)
------ ------ ------- ------
Net income (loss) (160,460) 26,868 (426,420) (113,453)
Accretion of redeemable non-
controlling interests and
distributions, net of tax (24,949) (1,853) (33,410) (1,561)
------- ------ ------- ------
Net income (loss) attributable to
common stockholders $(185,409) $25,015 $(459,830) $(115,014)
========= ======= ========= =========
Income (loss) per share attributable
to common stockholders:
Basic $(2.37) $0.32 $(5.90) $(1.49)
====== ===== ====== ======
Diluted $(2.37) $0.32 $(5.90) $(1.49)
====== ===== ====== ======
Shares used in per share
calculations:
Basic 78,297 77,402 77,977 77,213
====== ====== ====== ======
Diluted 78,297 77,524 77,977 77,213
====== ====== ====== ======
Other comprehensive income (loss):
Net income (loss) $(160,460) $26,868 $(426,420) $(113,453)
Net unrealized holding gains (losses)
on investments and other 12 11 (1) 23
--- --- --- ---
Comprehensive income (loss) $(160,448) $26,879 $(426,421) $(113,430)
========= ======= ========= =========
LEAP WIRELESS INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
(Unaudited and in thousands)
Nine Months Ended
September 30,
-------------
2013 2012
---- ----
(As Restated)
Operating activities:
Net cash provided by operating
activities $71,746 $210,512
------- --------
Investing activities:
Purchases of property and
equipment (96,677) (428,628)
Change in prepayments for
purchases of property and
equipment (5,894) (6,357)
Purchases of wireless licenses
and spectrum clearing costs (3,274) (3,625)
Proceeds from sales of wireless
licenses and operating assets,
net 9,522 154,021
Purchases of investments (509,215) (268,854)
Sales and maturities of
investments 322,837 497,762
Change in restricted cash (63) (760)
--- ----
Net cash used in investing
activities (282,764) (56,441)
-------- -------
Financing activities:
Proceeds from issuance of long-
term debt 1,414,313 -
Repayment of long-term debt (1,108,359) (21,911)
Payment of debt issuance costs (15,800) (296)
Proceeds from issuance of common
stock 2,436 483
Payments made to joint venture
partners (28,207) (27,566)
Other (5,302) (3,662)
------ ------
Net cash provided by (used in)
financing activities 259,081 (52,952)
------- -------
Net increase in cash and cash
equivalents 48,063 101,119
Cash and cash equivalents at
beginning of period 515,550 345,243
------- -------
Cash and cash equivalents at end
of period $563,613 $446,362
======== ========
Supplementary disclosure of cash
flow information:
Cash paid for interest $(167,129) $(151,519)
Cash paid for income taxes $(4,225) $(3,943)
Supplementary disclosure of non-
cash investing activities:
Acquisition of property and
equipment $15,378 $35,474
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 nine months ended
September 30, 2013 and 2012 (in
thousands, except percentages):
Three Months Ended September 30,
--------------------------------
Change from Prior Year
----------------------
2013 % of 2013 2012 % of 2012 Dollars Percent
Service Service
Revenues
Revenues
--------
(Unaudited) (Unaudited)
Revenues:
Service revenues $646,272 $722,022 $(75,750) (10.5)%
Equipment revenues 47,720 51,950 (4,230) (8.1)%
------ ------
Total revenues 693,992 773,972 (79,980) (10.3)%
------- ------- ------- ------
Operating expenses:
Cost of service 252,144 39.0% 266,401 36.9% (14,257) (5.4)%
Cost of equipment 197,150 30.5% 203,846 28.2% (6,696) (3.3)%
Selling and
marketing 69,868 10.8% 88,111 12.2% (18,243) (20.7)%
General and
administrative 103,014 15.9% 85,997 11.9% 17,017 19.8%
Depreciation and
amortization 148,630 23.0% 161,821 22.4% (13,191) (8.2)%
Impairments and
other charges 8,608 1.3% 14,753 2.0% (6,145) (41.7)%
----- --- ------ --- ------ ------
Total operating
expenses 779,414 120.6% 820,929 113.7% (41,515) (5.1)%
Gain on sale,
exchange or
disposal of
assets, net 2,039 0.3% 128,366 17.8% (126,327) (98.4)%
----- ------- ------
Operating income
(loss) $(83,383) (12.9)% $81,409 11.3% $(164,792) *
======== ====== ======= ==== ========= ===
*Percentage change not
meaningful.
Nine Months Ended September 30,
-------------------------------
Change from Prior Year
----------------------
2013 % of 2013 2012 % of 2012 Dollars Percent
Service Service
Revenues Revenues
-------- --------
(Unaudited) (Unaudited)
Revenues:
Service revenues $2,009,391 $2,247,305 $(237,914) (10.6)%
Equipment revenues 206,002 139,058 66,944 48.1%
------- -------
Total revenues 2,215,393 2,386,363 (170,970) (7.2)%
--------- --------- -------- -----
Operating expenses:
Cost of service 752,373 37.4% 784,267 34.9% (31,894) (4.1)%
Cost of equipment 639,776 31.8% 623,366 27.7% 16,410 2.6%
Selling and
marketing 218,103 10.9% 260,912 11.6% (42,809) (16.4)%
General and
administrative 268,641 13.4% 270,588 12.0% (1,947) (0.7)%
Depreciation and
amortization 452,059 22.5% 462,847 20.6% (10,788) (2.3)%
Impairments and
other charges 13,630 0.7% 14,753 0.7% (1,123) (7.6)%
------ --- ------ --- ------ -----
Total operating
expenses 2,344,582 116.7% 2,416,733 107.5% (72,151) (3.0)%
Gain on sale,
exchange or
disposal of
assets, net 8,897 0.4% 127,565 5.7% (118,668) (93.0)%
----- ------- ------
Operating income
(loss) $(120,292) (6.0)% $97,195 4.3% $(217,487) *
========= ===== ======= === ========= ===
*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 Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Service revenues $646,272 $722,022 $2,009,391 $2,247,305
Less pass-through regulatory
fees and telecommunications
taxes (614) (1,476) (2,243) (8,291)
---- ------ ------ ------
Total service revenues used in
the calculation of ARPU $645,658 $720,546 $2,007,148 $2,239,014
Weighted-average number of
customers 4,734,846 5,727,212 4,993,461 5,914,895
--------- --------- --------- ---------
ARPU $45.45 $41.94 $44.66 $42.06
====== ====== ====== ======
(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):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Selling and marketing
expense $69,868 $88,111 $218,103 $260,912
Less share-based
compensation
(expense) benefit
included in selling
and marketing expense (270) 300 (592) (339)
Plus cost of equipment 197,150 203,846 639,776 623,366
Less equipment revenue (47,720) (51,950) (206,002) (139,058)
Less net loss on
equipment
transactions and
third-party
commissions unrelated
to customer
acquisition (100,772) (65,611) (273,229) (228,640)
-------- ------- -------- --------
Total costs used in
the calculation of
CPGA $118,256 $174,696 $378,056 $516,241
Gross customer
additions 370,971 563,459 1,127,918 1,915,726
------- ------- --------- ---------
CPGA $319 $310 $335 $269
==== ==== ==== ====
(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 Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Cost of service $252,144 $266,401 $752,373 $784,267
Plus general and administrative
expense 103,014 85,997 268,641 270,588
Less share-based compensation
expense included in cost of
service and general and
administrative expense (5,954) (2,310) (10,817) (5,406)
Plus net loss on equipment
transactions and third-party
commissions unrelated to
customer acquisition 100,772 65,611 273,229 228,640
Less pass-through regulatory
fees and telecommunications
taxes (614) (1,476) (2,243) (8,291)
---- ------ ------ ------
Total costs used in the
calculation of CCU $449,362 $414,223 $1,281,183 $1,269,798
Weighted-average number of
customers 4,734,846 5,727,212 4,993,461 5,914,895
--------- --------- --------- ---------
CCU $31.64 $24.11 $28.51 $23.85
====== ====== ====== ======
(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 income
(loss), which we
consider to be
the most directly
comparable GAAP
financial measure
to adjusted OIBDA
(unaudited; in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
Operating income
(loss) $(83,383) $81,409 $(120,292) $97,195
Plus depreciation and
amortization 148,630 161,821 452,059 462,847
------- ------- ------- -------
OIBDA $65,247 $243,230 $331,767 $560,042
Less gain on sale,
exchange or disposal
of assets, net (2,039) (128,366) (8,897) (127,565)
Plus impairments and
other charges 8,608 14,753 13,630 14,753
Plus share-based
compensation expense 6,224 2,010 11,409 5,745
Adjusted OIBDA $78,040 $131,627 $347,909 $452,975
Plus merger-related
expense 16,360 - 16,360 -
------ --- ------ ---
Adjusted OIBDA
(excluding merger-
related expense) $94,400 $131,627 $364,269 $452,975
======= ======== ======== ========
(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 Ended Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
(As Restated) (As Restated)
Net cash
provided by
operating
activities $39,047 $124,634 $71,746 $210,512
Less purchases
of property
and equipment (30,145) (132,374) (96,677) (428,628)
------- -------- ------- --------
Free cash flow $8,902 $(7,740) $(24,931) $(218,116)
Plus early debt
prepayment
premium - - 42,625 -
--- ---
Free cash flow
(excluding
early debt
prepayment
premium) $8,902 $(7,740) $17,694 $(218,116)
====== ======= ======= =========
SOURCE Leap Wireless International, Inc.
