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Leap Reports Second Quarter Results



                     Leap Reports Second Quarter Results

- Highest Quarterly Adjusted OIBDA in Company History

- Service Revenues Increase Nearly 7 percent Year Over Year

- Customer Results Softer Than Anticipated

- Reduced FY12 Capital Expenditure Guidance

Note: A webcast of Leap's conference call and accompanying presentation slides
will be available at 5:00 p.m. EDT today at http://investor.leapwireless.com.

PR Newswire

SAN DIEGO, Aug. 6, 2012

SAN DIEGO, Aug. 6, 2012 /PRNewswire/ -- Leap Wireless International, Inc.
(NASDAQ: LEAP), a leading provider of innovative and value-driven wireless
communications services, today reported operational and financial results for
the three and six months ended June 30, 2012.  Service revenues for the second
quarter of 2012 increased 6.7 percent over the prior year quarter to $751.3
million. The Company reported $190.8 million of adjusted operating income
before depreciation and amortization (OIBDA) for the second quarter, an 18.8
percent increase over the prior year quarter.  Second quarter 2012 operating
income was $31.6 million compared to operating income of $12.3 million for the
second quarter of 2011. 

(Logo: http://photos.prnewswire.com/prnh/20101220/MM20546LOGO-a)

The Company reported approximately 493,000 gross customer additions for the
second quarter of 2012 and approximately 289,000 net customer losses.  Net
customer losses were comprised of approximately 205,000 voice customers and
84,000 broadband customers. Customer churn for the second quarter of 2012 was
4.4 percent.  In-footprint voice churn excluding PAYGo customers was
essentially flat year-over-year at 3.4 percent.

"We are pleased to have delivered the Company's best-ever quarterly adjusted
OIBDA, which drove an adjusted OIBDA margin increase of 260 basis points over
the prior year and 850 basis points over first quarter 2012," said Doug
Hutcheson, Leap's president and chief executive officer. "Second quarter
customer results, however, were softer than anticipated.  The Company's plan
for the balance of 2012 is designed to position us to capture customer growth
and improve operational performance. Over the coming weeks, we will be
announcing significant enhancements to our higher-ARPU service plans to
provide more alternatives and value at different price points.  We'll also be
making improvements to our customer experience and adding more desirable,
high-quality handsets.

"At the same time, we remain focused on improving cash flows and financial
performance.  We are tightening our focus in our national retail channel by
narrowing the number of retail locations and our marketing spend. In addition,
we are reducing 2012 capital expenditures by approximately $80 million,
principally by managing 3G network capacity investments, and are exploring
cost-effective alternatives to deliver 4G services as we roll out LTE.  We are
also continuing to review alternatives to drive additional cash flow and value
from our assets."

 

 

Financial Results and Operating Metrics ^(1)
(Unaudited; in millions, except for customer data, operating metrics and per share
amounts)
                  Three Months Ended June 30,       Six Months Ended June 30,
                  2012        2011        Change    2012        2011        Change
Service revenues  $  751.3    $  704.1    6.7%      $ 1,525.3   $ 1,382.5   10.3%
Total revenues    $  786.8    $  760.5    3.5%      $ 1,612.4   $ 1,540.5   4.7%
Operating income  $  31.6     $  12.3     156.9%    $ 15.8      $ (5.8)     372.4%
(loss)
Adjusted OIBDA    $  190.8    $  160.7    18.8%     $ 321.3     $ 273.2     17.6%
Adjusted OIBDA
as a percentage   25%         23%         —         21%         20%         —
of service
revenues
Net loss          $  (46.0)   $  (58.4)   —         $ (140.3)   $ (144.9)   —
Net loss
attributable to   $  (41.6)   $  (65.2)   —         $ (140.0)   $ (161.4)   —
common
stockholders
Diluted net loss
per share
attributable to   $  (0.54)   $  (0.85)   —         $ (1.82)    $ (2.11)    —
common
stockholders
Gross customer    492,720     622,863     (20.9)%   1,352,267   1,475,027   (8.3)%
additions^(2)
Net customer      (289,270)   (103,140)   180.5%    (31,210)    227,434     (113.7)%
additions (loss)
End of period     5,902,803   5,745,613   2.7%      5,902,803   5,745,613   2.7%
customers
Weighted-average  5,992,047   5,766,438   3.9%      6,008,737   5,708,394   5.3%
customers
Churn             4.4%        4.2%        —         3.8%        3.6%        —
End of period     ~95.4       ~95.3       —         ~95.4       ~95.3       —
covered POPS
Average revenue   $  41.64    $  40.15    3.7%      $ 42.12     $ 39.75     6.0%
per user (ARPU)
Cash cost per     $  22.91    $  21.83    4.9%      $ 23.73     $ 22.43     5.8%
user (CCU)
Cost per gross    $  296      $  251      17.9%     $ 253       $ 217       16.6%
addition (CPGA)
Cash purchases
of property and   $  119.1    $  93.3     27.7%     $ 265.4     $ 186.2     42.5%
equipment
Unrestricted
cash, cash
equivalents and   $  524.4    $  724.0    (27.6)%   $ 524.4     $ 724.0     (27.6)%
short-term
investments

    For a reconciliation of non-GAAP financial measures, please refer to the
    section entitled "Definition of Terms and Reconciliation of Non-GAAP
(1) 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.
    The Company recognizes a gross customer addition for each Cricket
(2) Wireless, Cricket Broadband and Cricket PAYGo™ line of service activated
    by a customer.

Discussion of Financial and Operational Results for the Quarter

Customer Activity

  o End-of-period customers for the second quarter of 2012 were approximately
    5,903,000, a 2.7 percent increase from end-of-period customers for the
    second quarter of 2011.
  o The Company reported a net loss of approximately 289,000 customers for the
    second quarter of 2012, compared to a net loss of approximately 103,000
    customers for the second quarter of 2011.

       o Voice net customer losses reflect approximately 191,000 net voice
         customers lost inside Cricket's own network footprint and
         approximately 14,000 net voice customers lost outside of Cricket's
         network footprint.  Voice customer losses reflect lower gross
         additions, promotional activities that did not perform as expected
         and higher churn levels.
       o Broadband net customer losses of approximately 84,000 customers
         reflect the Company's planned shift of network usage to higher-ARPU
         smartphones.

  o Customer churn for the second quarter of 2012 was 4.4 percent, compared to
    4.2 percent for the second quarter of 2011.

       o Voice customer churn for the second quarter of 2012 was 4.0
         percent, compared to 3.6 percent for the comparable period of the
         prior year, reflecting higher churn levels in certain national retail
         channels.
       o Broadband customer churn for the second quarter of 2012 was 10.3
         percent, compared to 9.9 percent for the comparable period of the
         prior year reflecting the planned shift of network usage to
         higher-ARPU smartphones.

  o 57 percent of the Company's new handset sales in the second quarter of
    2012 were for smartphones and Muve Music-enabled devices and approximately
    9 percent of the Company's voice customer base upgraded their handsets
    during the quarter.

Service Revenues and ARPU

  o Service revenues for the second quarter increased to $751.3 million, a 6.7
    percent increase over the comparable period of the prior year, primarily
    due to a 3.9 percent increase in weighted-average customers and continued
    uptake of the Company's higher-ARPU service plans.
  o ARPU for the second quarter of 2012 was $41.64, an increase of $1.49 over
    the comparable period of the prior year.  The year-over-year increase in
    ARPU primarily reflects continued penetration of higher-value service
    plans, offset in part by the effect of certain customer retention
    activities.

Operating Expenses, Adjusted OIBDA & Financial Metrics

  o Adjusted OIBDA for the second quarter of 2012 was $190.8 million, an
    increase of 18.8 percent over the comparable period of the prior year. 
    The year-over-year increase primarily reflects growth in the Company's
    service revenues.
  o Second quarter 2012 operating income was $31.6 million, compared with
    operating income of $12.3 million for the comparable period of the prior
    year.  The year-over-year increase in operating income resulted primarily
    from growth in the Company's service revenues, offset by increased
    depreciation and amortization expense primarily associated with network
    upgrades.
  o CCU for the second quarter of 2012 increased 4.9 percent over the prior
    year quarter to $22.91, primarily because of higher product costs, costs
    associated with the transition of the Company's supply chain vendor and
    upfront expenses related to cost reduction initiatives.
  o CPGA for the second quarter of 2012 increased by 17.9 percent over the
    prior year quarter to $296, reflecting a year-over-year decrease in gross
    customer additions and costs associated with national retail channels.
  o Net loss attributable to common stockholders for the second quarter of
    2012 was $41.6 million, or $0.54 per diluted share, compared to a net loss
    attributable to common stockholders of $65.2 million, or $0.85 per diluted
    share, for the second quarter of 2011.

Capital Expenditures

  o Capital expenditures during the second quarter of 2012 were $119.1
    million.

Updated Business Outlook

  o Total capital expenditures for 2012 are expected to be between $530
    million and $560 million, including spending for the deployment of
    next-generation LTE network technology.
  o The Company currently plans to offer next-generation LTE network
    technology services over the next two to three years to customers in at
    least two-thirds of its network footprint.

       o The Company plans to cover approximately 21 million POPs with LTE
         network technology in 2012.
       o The Company continues to explore cost-effective ways to deliver LTE
         services to its customers, including by deploying facilities-based
         coverage and/or by entering into possible partnerships or joint
         ventures with others.

  o Aggregate capital expenditures for LTE deployment are expected to be less
    than $10 per covered POP. 

Other Business & Operational Highlights

  o Introduced the iPhone4 and iPhone4S in company-owned stores and select
    dealers in nearly 60 Cricket markets.
  o Announced agreements to exchange spectrum between T-Mobile, Leap and their
    venture partners.
  o Introduced the BlackBerry Curve 9350 Smartphone.
  o Appointed Jerry Elliott as executive vice president and chief financial
    officer.

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 1-800-951-1214 (domestic) or 1-212-231-2911
(international). No participant pass code number is required for this call. 
If listening via telephone, the accompanying presentation slides may be
accessed by visiting http://earnings.leapwireless.com.

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 today.

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 21599263.

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 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, 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, pending spectrum transactions,
competitiveness 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:

  o our ability to attract and retain customers in an extremely competitive
    marketplace;
  o the duration and severity of the current economic downturn in the United
    States and changes in economic conditions, including interest rates,
    consumer credit conditions, consumer debt levels, consumer confidence,
    unemployment rates, energy and transportation costs and other
    macro-economic factors that could adversely affect demand for the services
    we provide;
  o the impact of competitors' initiatives;
  o our ability to successfully implement product and service plan offerings,
    expand our retail distribution and execute effectively on our other
    strategic activities;
  o our ability to obtain and maintain roaming and wholesale services from
    other carriers at cost-effective rates;
  o our ability to maintain effective internal control over financial
    reporting;
  o our ability to attract, integrate, motivate and retain an experienced
    workforce, including members of senior management;
  o 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;
  o our ability to acquire or obtain access to additional spectrum in the
    future at a reasonable cost or on a timely basis;
  o our ability to refinance our indebtedness under, or comply with the
    covenants in, any credit agreement, indenture or similar instrument
    governing any of our existing or future indebtedness;
  o failure of our network or information technology systems to perform
    according to expectations and risks associated with the upgrade or
    transition of certain of those systems, including our customer billing
    system; and
  o 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, 2012 filed with the SEC on
    April 27, 2012 and our Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2012, which we expect to file shortly with the SEC.

All forward-looking statements included in this news release should be
considered in the context of these risks. All forward-looking statements speak
only as of August 6, 2012, and we undertake no obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. Investors and prospective investors are cautioned not to
place undue reliance on our forward-looking statements.

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

 

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS ^(1)

(In thousands, except share amounts)
                                                    June 30,      December 31,

                                                    2012          2011
Assets                                              (Unaudited)
Cash and cash equivalents                           $ 386,376     $ 345,243
Short-term investments                              138,002       405,801
Inventories                                         117,137       116,957
Deferred charges                                    56,516        57,979
Other current assets                                147,173       134,457
Total current assets                                845,204       1,060,437
Property and equipment, net                         1,946,547     1,957,374
Wireless licenses                                   1,605,256     1,788,970
Assets held for sale                                390,682       204,256
Goodwill                                            31,886        31,886
Intangible assets, net                              32,288        41,477
Other assets                                        66,796        68,290
Total assets                                        $ 4,918,659   $ 5,152,690
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities            $ 362,637     $ 460,278
Current maturities of long-term debt                21,911        21,911
Other current liabilities                           231,711       256,357
Total current liabilities                           616,259       738,546
Long-term debt, net                                 3,202,472     3,198,749
Deferred tax liabilities                            354,459       333,804
Other long-term liabilities                         178,058       172,366
Total liabilities                                   4,351,248     4,443,465
Redeemable non-controlling interests                89,894        95,910
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; 79,419,622 and 78,924,049 shares  8             8
issued and outstanding at June 30, 2012 and
December 31, 2011, respectively
Additional paid-in capital                          2,179,948     2,175,436
Accumulated deficit                                 (1,701,738)   (1,561,417)
Accumulated other comprehensive loss                (701)         (712)
Total stockholders' equity                          477,517       613,315
Total liabilities and stockholders' equity          $ 4,918,659   $ 5,152,690

 

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ^(1)

(Unaudited and in thousands, except per share data)
                          Three Months Ended        Six Months Ended

                          June 30,                  June 30,
                          2012         2011         2012          2011
Revenues:
Service revenues          $ 751,285    $ 704,087    $ 1,525,283   $ 1,382,498
Equipment revenues        35,487       56,451       87,108        157,954
Total revenues            786,772      760,538      1,612,391     1,540,452
Operating expenses:
Cost of service
(exclusive of items       256,555      244,870      517,866       480,815
shown separately below)
Cost of equipment         171,673      182,677      419,520       412,472
Selling and marketing     77,247       87,161       172,801       197,013
General and               94,892       92,079       184,591       187,488
administrative
Depreciation and          154,483      136,137      301,026       262,811
amortization
Impairments and other     —            631          —             631
charges
Total operating expenses  754,850      743,555      1,595,804     1,541,230
Loss on sale or disposal  (333)        (4,646)      (801)         (4,995)
of assets, net
Operating income (loss)   31,589       12,337       15,786        (5,773)
Equity in net income      (59)         1,010        134           2,189
(loss) of investees, net
Interest income           28           59           57            123
Interest expense          (66,983)     (61,923)     (134,025)     (120,742)
Other expense, net        —            (32)         —             (32)
Loss before income taxes  (35,425)     (48,549)     (118,048)     (124,235)
Income tax expense        (10,562)     (9,893)      (22,273)      (20,647)
Net loss                  (45,987)     (58,442)     (140,321)     (144,882)
Accretion of redeemable
non-controlling
interests and             4,397        (6,769)      292           (16,540)
distributions, net of
tax
Net loss attributable to
                          $ (41,590)   $ (65,211)   $ (140,029)   $ (161,422)
common stockholders
Loss per share
attributable to common
stockholders:
Basic                     $ (0.54)     $ (0.85)     $ (1.82)      $ (2.11)
Diluted                   $ (0.54)     $ (0.85)     $ (1.82)      $ (2.11)
Shares used in per share
calculations:
Basic                     77,206       76,497       77,116        76,436
Diluted                   77,206       76,497       77,116        76,436
Other comprehensive
loss:
Net loss                  $ (45,987)   $ (58,442)   $ (140,321)   $ (144,882)
Net unrealized holding
gains on investments,     10           —            12            9
net of tax
Comprehensive loss        $ (45,977)   $ (58,442)   $ (140,309)   $ (144,873)

 

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ^ (1)

(Unaudited and in thousands)
                                                    Six Months Ended June 30,
                                                    2012          2011
Operating activities:
Net cash provided by operating activities           $ 50,619      $ 101,639
Investing activities:
Acquisition of a business                           —             (850)
Purchases of property and equipment                 (265,412)     (186,186)
Change in prepayments for purchases of
                                                    (1,940)       (2,953)
property and equipment
Purchases of wireless licenses and spectrum
                                                    (2,712)       (2,845)
clearing costs
Proceeds from sale of wireless licenses
                                                    1,420         468
and operating assets
Purchases of investments                            (173,141)     (297,430)
Sales and maturities of investments                 440,734       149,767
Change in restricted cash                           (1,501)       (420)
Net cash used in investing activities               (2,552)       (340,449)
Financing activities:
Proceeds from issuance of long-term debt            —             396,772
Repayment of long-term debt                         —             (15,089)
Payment of debt issuance costs                      —             (6,680)
Proceeds from issuance of common stock, net         483           712
Proceeds from sale lease-back financing             —             23,891
Distributions made to joint venture partners        (5,230)       (2,268)
Other                                               (2,187)       (1,199)
Net cash provided by (used in) financing            (6,934)       396,139
activities
Net increase in cash and cash equivalents           41,133        157,329
Cash and cash equivalents at beginning of period    345,243       350,790
Cash and cash equivalents at end of period          $ 386,376     $ 508,119
Supplementary disclosure of cash flow information:
Cash paid for interest                              $ (126,747)   $ (102,328)
Cash paid for income taxes                          $ (3,943)     $ (2,974)

Explanatory Notes to Financial Statements
    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 its non-controlling interest in Savary Island Wireless, LLC
    (Savary Island) in accordance with the authoritative guidance for the
(1) consolidation of variable interest entities because Savary Island is a
    variable interest entity and, among other things, the Company has entered
    into an agreement with Savary Island's other member which established a
    specified purchase price when it exercised its right to sell its
    membership interest to the Company. 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, 2012
    and 2011 (unaudited; in thousands, except percentages):

                Three Months Ended June 30,
                                                            Change from Prior
                                                            Year
                            % of                  % of
                2012        2012      2011        2011      Dollars    Percent
                            Service               Service
                            Revenues              Revenues
Revenues:
Service         $ 751,285             $ 704,087             $ 47,198   6.7%
revenues
Equipment       35,487                56,451                (20,964)   (37.1)%
revenues
Total revenues  786,772               760,538               26,234     3.4%
Operating
expenses:
Cost of         256,555     34.1%     244,870     34.8%     11,685     4.8%
service
Cost of         171,673     22.9%     182,677     25.9%     (11,004)   (6.0)%
equipment
Selling and     77,247      10.3%     87,161      12.4%     (9,914)    (11.4)%
marketing
General and     94,892      12.6%     92,079      13.1%     2,813      3.1%
administrative
Depreciation
and             154,483     20.6%     136,137     19.3%     18,346     13.5%
amortization
Impairments
and other       —           —%        631         0.1%      (631)      (100.0)%
charges
Total
operating       754,850     100.5%    743,555     105.6%    11,295     1.5%
expenses
Loss on sale
or disposal of  (333)       —%        (4,646)     (0.7)%    4,313      (92.8)%
assets, net
Operating       $ 31,589    4.2%      $ 12,337    1.8%      $ 19,252   156.1%
income

 

                Six Months Ended June 30,
                                                                Change from Prior
                                                                Year
                              % of                    % of
                2012          2012      2011          2011      Dollars     Percent
                              Service                 Service
                              Revenues                Revenues
Revenues:
Service         $ 1,525,283             $ 1,382,498             $ 142,785   10.3%
revenues
Equipment       87,108                  157,954                 (70,846)    (44.9)%
revenues
Total revenues  1,612,391               1,540,452               71,939      4.7%
Operating
expenses:
Cost of         517,866       34.0%     480,815       34.8%     37,051      7.7%
service
Cost of         419,520       27.5%     412,472       29.8%     7,048       1.7%
equipment
Selling and     172,801       11.3%     197,013       14.3%     (24,212)    (12.3)%
marketing
General and     184,591       12.1%     187,488       13.6%     (2,897)     (1.5)%
administrative
Depreciation
and             301,026       19.7%     262,811       19.0%     38,215      14.5%
amortization
Impairments
and other       —             —%        631           —%        (631)       (100.0)%
charges
Total
operating       1,595,804     104.6%    1,541,230     111.5%    54,574      3.5%
expenses
Loss on sale
or disposal of  (801)         (0.1)%    (4,995)       (0.4)%    4,194       (84.0)%
assets, net
Operating       $ 15,786      1.0%      $ (5,773)     (0.4)%    $ 21,559    373.4%
income (loss)

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.
    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
(1) 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.
    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
(2) 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      Six Months Ended

                         June 30,                June 30,
                         2012        2011        2012          2011
Service revenues         $ 751,285   $ 704,087   $ 1,525,283   $ 1,382,498
Less pass-through

regulatory fees and
                         (2,678)     (9,455)     (6,815)       (20,914)
telecommunications

taxes
Total service revenues

used in the calculation  $ 748,607   $ 694,632   $ 1,518,468   $ 1,361,584

of ARPU
Weighted-average number
                         5,992,047   5,766,438   6,008,737     5,708,394
of customers
ARPU                     $ 41.64     $ 40.15     $ 42.12       $ 39.75

    CPGA is selling and marketing costs (excluding applicable share-based
    compensation expense 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). 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
(3) 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      Six Months Ended

                              June 30,                June 30,
                              2012        2011        2012        2011
Selling and
                              $ 77,247    $ 87,161    $ 172,801   $ 197,013
marketing expense
Less share-based

compensation expense
                              (616)       (261)       (639)       (308)
included in selling and

marketing expense
Plus cost of equipment        171,673     182,677     419,520     412,472
Less equipment revenue        (35,487)    (56,451)    (87,108)    (157,954)
Less net loss on equipment

transactions and third-party
                              (66,932)    (56,920)    (163,029)   (131,044)
commissions unrelated to

customer acquisition
Total costs used in the
                              $ 145,885   $ 156,206   $ 341,545   $ 320,179
calculation of CPGA
Gross customer additions      492,720     622,863     1,352,267   1,475,027
CPGA                          $ 296       $ 251       $ 253       $ 217

    CCU is cost of service and general and administrative costs (excluding
    applicable share-based compensation expense 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
(4) 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      Six Months Ended

                                June 30,                June 30,
                                2012        2011        2012        2011
Cost of service                 $ 256,555   $ 244,870   $ 517,866   $ 480,815
Plus general and
                                94,892      92,079      184,591     187,488
administrative expense
Less share-based

compensation expense

included in cost of service     (3,813)     (6,685)     (3,096)     (10,217)

and general and administrative

expense
Plus net loss on equipment

transactions and third-party
                                66,932      56,920      163,029     131,044
commissions unrelated to

customer acquisition
Less pass-through regulatory

fees and telecommunications     (2,678)     (9,455)     (6,815)     (20,914)

taxes
Total costs used in the
                                $ 411,888   $ 377,729   $ 855,575   $ 768,216
calculation of CCU
Weighted-average number of      5,992,047   5,766,438   6,008,737   5,708,394
customers
CCU                             $ 22.91     $ 21.83     $ 23.73     $ 22.43

    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;
(5) impairments and other charges; and share-based compensation expense.
    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:
  o it does not reflect capital expenditures;
  o 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;
  o it does not reflect costs associated with share-based awards exchanged for
    employee services;
  o it does not reflect the interest expense necessary to service interest or
    principal payments on indebtedness;
  o it does not reflect expenses incurred for the payment of income taxes and
    other taxes; and
  o 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      Six Months Ended

                  June 30,                June 30,
                  2012        2011        2012        2011
Operating income
                  $ 31,589    $ 12,337    $ 15,786    $ (5,773)
 (loss)
Plus

depreciation and  154,483     136,137     301,026     262,811

amortization
OIBDA             $ 186,072   $ 148,474   $ 316,812   $ 257,038
Plus loss on

sale or disposal  333         4,646       801         4,995

of assets, net
Plus

impairments
                  —           631         —           631
and other

charges
Plus share-

based
                  4,429       6,946       3,735       10,525
compensation

expense
Adjusted OIBDA    $ 190,834   $ 160,697   $ 321,348   $ 273,189

SOURCE Leap Wireless International, Inc.

Website: http://www.leapwireless.com
Contact: Greg Lund, Media Relations, +1-858-882-9105, glund@leapwireless.com,
or Amy Wakeham, Investor Relations, +1-858-882-9876, awakeham@leapwireless.com
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