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 June30, 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 bymanaging 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 oEnd-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. oThe 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. oVoice 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. oBroadband net customer losses of approximately 84,000 customers reflect the Company's planned shift of network usage to higher-ARPU smartphones. oCustomer churn for the second quarter of 2012 was 4.4 percent, compared to 4.2 percent for the second quarter of 2011. oVoice customer churn for the second quarter of 2012 was 4.0 percent,compared to 3.6 percentfor the comparable period of the prior year, reflecting higher churn levels in certain national retail channels. oBroadband 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. o57 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 oService 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. oARPU 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 oAdjusted 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. oSecond 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. oCCU 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. oCPGA 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. oNet 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 oCapital expenditures during thesecond quarter of 2012 were $119.1 million. Updated Business Outlook oTotal 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. oThe 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. oThe Company plans to cover approximately 21 million POPs with LTE network technology in 2012. oThe 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. oAggregate capital expenditures for LTE deployment are expected to be less than $10 per covered POP. Other Business & Operational Highlights oIntroduced the iPhone4 and iPhone4S in company-owned stores and select dealers in nearly 60 Cricket markets. oAnnounced agreements to exchange spectrum between T-Mobile, Leap and their venture partners. oIntroduced the BlackBerry Curve 9350 Smartphone. oAppointed 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: oour ability to attract and retain customers in an extremely competitive marketplace; othe 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; othe impact of competitors' initiatives; oour ability to successfully implement product and service plan offerings, expand our retail distribution and execute effectively on our other strategic activities; oour ability to obtain and maintain roaming and wholesale services from other carriers at cost-effective rates; oour ability to maintain effective internal control over financial reporting; oour ability to attract, integrate, motivate and retain an experienced workforce, including members of senior management; ofuture 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; oour ability to acquire or obtain access to additional spectrum in the future at a reasonable cost or on a timely basis; oour 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; ofailure 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 oother 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 March31, 2012 filed with the SEC on April27, 2012 and our Quarterly Report on Form 10-Q for the quarter ended June30, 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 August6, 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) June30, December31, 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 10,000,000shares, — — $.0001par 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 June30, 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 30days 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: oit does not reflect capital expenditures; oalthough 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; oit does not reflect costs associated with share-based awards exchanged for employee services; oit does not reflect the interest expense necessary to service interest or principal payments on indebtedness; oit does not reflect expenses incurred for the payment of income taxes and other taxes;and oother 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 depreciationand 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, firstname.lastname@example.org, or Amy Wakeham, Investor Relations, +1-858-882-9876, email@example.com
Leap Reports Second Quarter Results
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