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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