Leap Reports Fourth Quarter and Full-Year Results -- Cost management initiatives drive improvements to quarterly adjusted OIBDA and adjusted OIBDA margin

-- Fourth quarter customer results reflect prepaid industry softness and Company's focus on higher-quality smartphones and increased out-the-door device pricing

-- Customer experience initiatives delivering expected churn improvements for Cricket Wireless users

-- Continued management of capital expenditures even with launch of 4G LTE in certain markets

Note: A webcast of Leap's conference call and accompanying presentation slides will be available at 11:00 a.m. EST today at http://investor.leapwireless.com.

SAN DIEGO, Feb. 20, 2013 /PRNewswire/ -- Leap Wireless International, Inc. (NASDAQ: LEAP) today reported operational and financial results for the fourth quarter and year ended December 31, 2012.  Service revenues for the fourth quarter of 2012 decreased 4.0 percent over the prior year quarter to $700.2 million. The Company reported $148.2 million of adjusted operating income before depreciation and amortization (OIBDA) for the fourth quarter, compared to $135.1 million for the prior year quarter. Fourth quarter 2012 operating income was $60.6 million, compared to an operating loss of $3.5 million for the fourth quarter of 2011, and included a net gain of approximately $106 million resulting from an exchange of spectrum licenses.

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

The Company reported approximately 419,000 gross customer additions and approximately 337,000 net customer losses for the fourth quarter of 2012. Customer churn for the fourth quarter of 2012 was 4.6 percent.

Approximately 322,000 of the total gross customer additions and approximately 202,000 of the total net customer losses for the fourth quarter of 2012 related to the Company's Cricket Wireless service. Customer churn for Cricket Wireless for the fourth quarter of 2012 was 3.7 percent. Cricket Wireless refers to the Company's traditional, monthly voice service and excludes customers for Cricket Broadband and Cricket PAYGo.

"The Company's customer results reflect the transition we are driving in our business to offer more full-featured, better-quality devices in order to attract more profitable, longer-lived customers," said S. Douglas Hutcheson, Leap's chief executive officer. "During the fourth quarter, Cricket Wireless gross additions decreased by nearly 50 percent year-over-year due to general softness in the prepaid sector and increased average out-the-door selling price for our full-featured, better-quality devices. Although the changes we made contributed to lower gross additions, we believe that our strategy to manage device subsidies towards more desirable, high-quality handsets is having the desired effect, as we have begun to see improvements to the churn performance for Cricket Wireless. We expect to see further improvements to churn for Cricket Wireless in 2013, driven by our continued focus on improving the customer experience. We also expect to introduce new initiatives to improve new customer activity, including expanded device financing and other programs to help customers purchase the devices and service that meet their needs.

"We also continue to remain focused on improving financial performance. We reported year-over-year ARPU improvement again this quarter driven by fewer retention activities and a larger percentage of our customers using higher-revenue service plans. Total customer acquisition costs for the quarter were also lower year-over-year, with approximately 90% of the increase to fourth quarter CPGA driven by lower gross addition volume in the quarter. These factors and other cost management initiatives enabled us to deliver annual improvements to adjusted OIBDA and adjusted OIBDA margin in the quarter. We also continue to evaluate opportunities to cost-effectively deliver 4G LTE services to additional customers. We have deployed LTE across 21 million POPs and may launch the service over up to an additional 10 million POPs in 2013. In addition, we recently entered into an LTE roaming agreement with a national carrier to supplement our own facilities-based coverage. We also continued to thoughtfully manage our balance sheet and valuable spectrum assets, completing our fourth spectrum exchange transaction with another carrier in certain of our markets. We plan to continue our focus on making smart investments in our business and driving improvements to free cash flow."

Financial Results and Operating Metrics (1)

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For a reconciliation of non-GAAP financial measures, please refer to the section entitled "Definition of Terms and Reconciliation of Non-GAAP Financial Measures" included at the end of this release.  Information relating to population and potential customers (POPs) is based on population estimates provided by Claritas Inc. for the relevant year.


The Company recognizes a gross customer addition for each Cricket Wireless, Cricket Broadband and Cricket PAYGo line of service activated by a customer.

Discussion of Financial and Operational Results for the Quarter

Customer Activity

  • End-of-period customers for the fourth quarter of 2012 were 5,296,784, a 10.7 percent decrease from end-of-period customers for the fourth quarter of 2011.
  • The Company reported a net loss of 337,035 customers for the fourth quarter of 2012, compared to net additions of 178,889 customers for the fourth quarter of 2011.
    • Net customer losses reflected discontinued sales of the Company's daily PAYGo product to new customers in October 2012, a narrowing of the Company's focus in national retail to fewer, more productive retailers and locations, and continued de-emphasis of the Company's broadband service.
    • Cricket Wireless net customer losses of approximately 202,000 reflected lower gross additions due to general prepaid industry softness and increased average out-the-door selling price for the Company's devices.
  • Total Company churn for the fourth quarter of 2012 was 4.6 percent, compared to 3.9 percent for the fourth quarter of 2011, and reflected discontinued sales of the Company's daily PAYGo product to new customers in October 2012 and continued de-emphasis of the Company's broadband service.
    • Cricket Wireless churn for the fourth quarter of 2012 was 3.7 percent, compared to 3.5 percent for the comparable period of the prior year.
  • 59 percent of the Company's new handset sales in the fourth quarter of 2012 were for smartphones and approximately 10 percent of the Company's voice customer base upgraded their handsets during the quarter.

Service Revenues and ARPU

  • Service revenues for the fourth quarter of 2012 were $700.2 million, a 4.0 percent decrease over the comparable period of the prior year, primarily due to a lower average number of subscribers due to lower gross additions and the increase in total Company churn described above.
  • ARPU for the fourth quarter of 2012 was $42.73, an increase of $0.64 over the comparable period of the prior year.  The year-over-year increase in ARPU primarily reflected fewer retention programs, a reduction in the number of customers for the Company's daily PAYGo product and an improved mix of customers on higher-value service plans.

Adjusted OIBDA, Operating Expenses & Financial Metrics

  • Adjusted OIBDA for the fourth quarter of 2012 was $148.2 million, an increase of 9.7 percent over the comparable period of the prior year. The year-over-year increase was primarily driven by improvement in device subsidy and operating costs, partially offset by lower revenues related to net customer losses.
  • Fourth quarter 2012 operating income was $60.6 million, compared to an operating loss of $3.5 million for the comparable period of the prior year. The year-over-year improvement in operating income reflected a net gain of approximately $106 million associated with a spectrum transaction completed in the fourth quarter of 2012, offset by approximately $25 million of restructuring costs.
  • CCU for the fourth quarter of 2012 increased 8.5 percent over the prior year quarter to $24.38, primarily driven by increased network, reverse logistics and product costs.
  • CPGA for the fourth quarter of 2012 increased by 52.5 percent over the prior year quarter to $363, reflecting a reduction in the number of gross customer additions.  Total costs used to calculate CPGA (generally selling and marketing expense and new customer device subsidy) decreased 25.0 percent over the prior year quarter to $152 million, driven primarily by reductions to total device subsidy expense.
  • Net loss attributable to common stockholders for the fourth quarter of 2012 was $74.3 million, or ($0.96) per diluted share, compared to a net loss attributable to common stockholders of $84.4 million, or ($1.10) per diluted share, for the fourth quarter of 2011.  The year-over-year improvement was primarily driven by the increase in operating income, offset in part by an increase in income tax expense related to the net gain associated with a spectrum transaction and a loss on extinguishment of debt associated with the refinancing of the Company's 10% senior notes due 2015 with a secured term loan facility.

Capital Expenditures and Free Cash Flow

  • Capital expenditures during the fourth quarter of 2012 were $62.8 million.
  • Free cash flow for the fourth quarter of 2012 was $(29.4) million, compared to $(33.0) million for the prior year quarter. Free cash flow is defined as net cash provided by operating activities, less purchases of property and equipment. The improvement to free cash flow was primarily driven by lower capital expenditures, partially offset by a decrease in cash from operations as a result of the decrease in gross customer additions.

Updated Business Outlook

  • Total capital expenditures for 2013 are expected to be between $275 million and $325 million, including up to $100 million which may be spent to deploy next-generation LTE network technology.
  • The Company is exploring cost-effective ways to deliver LTE services to additional customers, which may include deploying additional facilities-based coverage and entering into possible partnerships or joint ventures with others.
    • The Company may elect to cover up to approximately 10 million additional POPs with LTE in 2013 (which is reflected in projected total capital expenditures for 2013 above).
    • The Company recently entered into a national LTE roaming agreement.

Other Business & Operational Highlights

  • Continued transition to 4G LTE with commercial market launches during 2012 in Las Vegas, Philadelphia, Phoenix, Houston, San Antonio and South Texas. The Company's LTE service now covers approximately 21 million POPs across 11 markets.
  • In conjunction with the 4G LTE market launches, introduced the Company's first two 4G handsets: the Samsung Galaxy S® III and the LG Optimus Regard™.
  • Introduced the HTC Desire C and the Cricket Groove smartphones and the Samsung Comment™ 2 feature phone.
  • Announced several management changes, including the appointments of Jerry Elliott as president and chief operating officer, Perley McBride as executive vice president and chief financial officer, and Anne Liu as senior vice president and chief accounting officer.
  • Completed a spectrum exchange transaction with T-Mobile. Leap acquired 10 MHz of additional AWS spectrum in Phoenix, AZ and Houston, Galveston and Bryan-College Station, TX to supplement the spectrum Leap currently operates in those markets, among others. The transactions also included intra-market exchanges in Philadelphia, Wilmington, Atlantic City and various markets in New Mexico and Texas.
  • Announced the successful syndication and closing of a $400 million senior secured term loan facility, primarily to refinance the Company's $300 million of 10% senior notes due 2015.

Webcast Information

As previously announced, Leap management will host a live webcast at approximately 11:00 a.m. EST / 8:00 a.m. PST today to discuss these results.  Other forward-looking and material information may also be discussed during this call.

To listen live via telephone, dial 1-800-732-8470 (domestic) or 1-212-231-2901 (international). No participant pass code number is required for this call. 

More information about this event including a live webcast, the accompanying presentation slides and other supporting materials may be accessed by visiting http://earnings.leapwireless.com. These materials will be available for download at approximately 11:00 a.m. EST/8:00 a.m. PST.

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 21647043.

About Leap
Leap provides innovative, high-value wireless services to a young and ethnically diverse customer base. With the value of unlimited wireless services as the foundation of its business, Leap pioneered its Cricket service. Cricket products and services are available nationwide through company-owned stores, dealers, national retailers and at MyCricket.com.  Through its affordable, flat-rate service plans, Cricket offers customers a choice of unlimited voice, text, data and mobile Web services. Headquartered in San Diego, Calif., Leap is traded on the NASDAQ Global Select Market under the ticker symbol "LEAP." For more information, please visit www.leapwireless.com.

Notes Regarding Non-GAAP Financial Measures
Information presented in this press release and in the attached financial tables includes financial information prepared in accordance with generally accepted accounting principles in the U.S., or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure, within the meaning of Item 10 of Regulation S-K promulgated by the Securities and Exchange Commission (SEC), is a numerical measure of a company's financial performance or cash flows that (a) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, which are included in the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated balance sheets, condensed consolidated statements of comprehensive income or condensed consolidated statements of cash flows; or (b) includes amounts, or is subject to adjustments that have the effect of including amounts, which are excluded from the most directly comparable measure so calculated and presented. As described more fully in the notes to the attached financial tables, management supplements the information provided by financial statement measures with several customer-focused performance metrics that are widely used in the telecommunications industry. Adjusted OIBDA, free cash flow, CPGA, ARPU and CCU are non-GAAP financial measures. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures used in this release to the most directly comparable GAAP financial measures can be found in the section entitled "Definition of Terms and Reconciliation of Non-GAAP Financial Measures" included toward the end of this release.

Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management's current expectations based on currently available operating, financial and competitive information, but are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated in or implied by the forward-looking statements. Our forward-looking statements include our discussions about planned product and service plan developments, expected customer activity, future capital expenditures and LTE deployment and expected financial and operational performance, and are generally identified with words such as "believe," "expect," "intend," "plan," "could," "may" and similar expressions. Risks, uncertainties and assumptions that could affect our forward-looking statements include, among other things:

  • our ability to attract and retain customers in an extremely competitive marketplace;
  • our ability to successfully implement product and service plan offerings, strengthen our retail distribution and execute effectively on our other strategic activities;
  • the impact of competitors' initiatives and our ability to anticipate and respond to such initiatives;
  • changes in economic conditions, including interest rates, consumer credit conditions, consumer debt levels, consumer confidence, unemployment rates, energy and transportation costs and other macro-economic factors that could adversely affect demand for the services we provide;
  • our ability to meet significant purchase and revenue commitments under agreements we have entered into;
  • our ability to refinance our indebtedness under, and comply with the covenants in, any credit agreement, indenture or similar instrument governing our existing indebtedness or any future indebtedness;
  • future customer usage of our wireless services, which could exceed our expectations, and our ability to manage or increase network capacity to meet increasing customer demand, in particular demand for data services;
  • our ability to offer customers cost-effective LTE services;
  • our ability to obtain and maintain 3G and 4G roaming and wholesale services from other carriers at cost-effective rates;
  • our ability to acquire or obtain access to additional spectrum in the future at a reasonable cost or on a timely basis;
  • 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;
  • our ability to attract, integrate, motivate and retain an experienced workforce, including members of senior management;
  • our ability to maintain effective internal control over financial reporting; and
  • other factors detailed in the section entitled "Risk Factors" included in our periodic reports filed with the SEC, including our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC on November 8, 2012 and our Annual Report on Form 10-K for the year ended December 31, 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 February 20, 2013, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors and prospective investors are cautioned not to place undue reliance on our forward-looking statements.

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



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