Leap Reports 171,000 Net Customer Additions in Second Quarter 2008
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| Leap Reports 171,000 Net Customer Additions in Second Quarter 2008 |
-Total Customers Increase by 212,000 Including Acquisition-
-Also Reports 42 Percent Year-Over-Year Improvement in Existing
Business Adjusted OIBDA-
Note: A webcast of Leap's conference call and accompanying presentation slides will be available at 8:30 a.m. EDT today at http://investor.leapwireless.com. SAN DIEGO--(BUSINESS WIRE)--Aug. 5, 2008--Leap Wireless International, Inc. (NASDAQ:LEAP), a leading provider of innovative and value-driven wireless communications services, today reported financial and operational results for the quarter ended June 30, 2008. The Company achieved approximately 171,000 net customer additions in the second quarter of 2008, including approximately 44,000 net customer additions for voice services in existing markets, approximately 116,000 net customer additions for voice services in recently launched markets and approximately 11,000 net customer additions associated with mobile broadband service, bringing total broadband customers to 14,000. Including customers acquired in connection with the Company's acquisition of Hargray Wireless, total customers increased by nearly 212,000. Churn for the quarter was 3.8 percent, an improvement from 4.3 percent from the prior year period. Net customer additions and churn exclude customers in South Carolina and Georgia markets acquired from Hargray Wireless during the quarter. The Company's operating income for the quarter was $14.5 million, compared to $30.7 million for the second quarter of 2007. The Company reported adjusted operating income before depreciation and amortization (OIBDA) of $106.7 million, down $2.3 million from the comparable period of the prior year. The year-over-year reduction in adjusted OIBDA reflects the impact of expected initial operating losses from the Company's investments in new initiatives, which included the launch of new markets covering approximately eight million covered POPs, pre-launch expenses associated with anticipated future market launches and the expansion of its mobile broadband service into markets currently serving approximately 23 million covered POPs. Offsetting the initial losses associated with these investments were significantly increased financial contributions from the Company's existing markets (defined as markets in operation at the end of 2007). For the quarter, Existing Business Adjusted OIBDA was $154.5 million, an increase of $45.5 million, or 42 percent, from the prior year period. This increase reflects an approximately 460,000 year-over-year increase in end-of-period customers in existing markets and the resulting benefits of scale. "Our overall customer activity was solid, even as our customers absorbed the effects of a challenging macroeconomic environment," said Doug Hutcheson, Leap's president and chief executive officer. "The Company delivered solid year-over-year improvements in Existing Business Adjusted OIBDA, further demonstrating the underlying strength of our business and the success of our existing market growth programs. We are also very pleased with the pace and performance of our new initiatives, including our recent new market launches and our Cricket Wireless Internet Service. The performance of each of these initiatives is meeting or exceeding our expectations, and we anticipate significant improvements in long-term customer penetration and the resulting financial contributions from these key investments over time." Financial Results and Operating Metrics (1) (2)
(Unaudited; in millions, except for customer data, operating metrics
and per share amounts)
Three Months Ended June 30,
-------------------------------------
2008 2007 Change
-------------- -------------- -------
Service revenues $ 417.1 $ 347.3 20.1%
Total revenues $ 474.9 $ 397.9 19.4%
Operating income $ 14.5 $ 30.7 (52.8%)
Adjusted OIBDA $ 106.7 $ 109.0 (2.1%)
Adjusted OIBDA as a percentage
of service revenues 26% 31% --
Existing Business Adjusted OIBDA $ 154.5 $ 109.0 41.7%
Net income (loss) $ (26.1) $ 9.6 --
Diluted net earnings (loss) per
share $ (0.38) $ 0.14 --
Gross customer additions 542,005 462,434 17.2%
Net customer additions 171,171 126,791 35.0%
End of period customers 3,305,251 2,674,963 23.6%
Weighted-average customers 3,162,058 2,586,900 22.2%
Churn 3.8% 4.3% --
End of period covered POPs approximately approximately
61.7 50.7 21.7%
Average revenue per user (ARPU) $ 43.97 $ 44.75 (1.7%)
Cash costs per user (CCU) $ 21.01 $ 19.87 5.7%
Cost per gross addition (CPGA) $ 205 $ 182 12.6%
Cash purchases of property and
equipment $ 181.1 $ 106.1 70.7%
Unrestricted cash, cash
equivalents and short-term
investments $ 934.4 $ 683.8 36.6%
Six Months Ended June 30,
-------------------------------------
2008 2007 Change
-------------- -------------- -------
Service revenues $ 816.1 $ 668.9 22.0%
Total revenues $ 943.2 $ 791.3 19.2%
Operating income $ 40.5 $ 29.2 38.7%
Adjusted OIBDA $ 225.4 $ 184.1 22.4%
Adjusted OIBDA as a percentage
of service revenues 28% 28% --
Existing Business Adjusted OIBDA $ 289.4 $ 184.1 57.2%
Net income (loss) $ (44.2) $ (14.6) --
Diluted net earnings (loss) per
share $ (0.65) $ (0.22) --
Gross customer additions 1,092,525 1,027,489 6.3%
Net customer additions 393,131 445,137 (11.7%)
End of period customers 3,305,251 2,674,936 23.6%
Weighted-average customers 3,059,252 2,490,030 22.9%
Churn 3.8% 3.9% --
End of period covered POPs approximately approximately
61.7 50.7 21.7%
Average revenue per user (ARPU) $ 44.46 $ 44.77 (0.7%)
Cash costs per user (CCU) $ 21.36 $ 20.54 4.0%
Cost per gross addition (CPGA) $ 182 $ 173 5.2%
Cash purchases of property and
equipment $ 338.3 $ 239.4 41.3%
Unrestricted cash, cash
equivalents and short-term
investments $ 934.4 $ 683.8 36.6%
(1) The foregoing results and operating metrics reflect the
operations of Cricket markets for the periods indicated and
markets in South Carolina and Georgia acquired from Hargray
Wireless on April 1, 2008, except for net customer additions and
churn. The Company is currently upgrading the Hargray Wireless
networks it acquired in South Carolina and Georgia. Until the
Company completes the upgrades and introduces Cricket service in
these markets, the Company will report its results for net
customer additions and churn without customers in the Hargray
markets. The Company currently expects to begin incorporating
the results of the Hargray markets into its results for net
customer additions and churn beginning in the first quarter of
2009.
(2) 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.
Discussion of Financial and Operational Results for the Quarter
-- Customer churn in Cricket markets for the quarter was 3.8
percent, an improvement from 4.3 percent in the comparable
period of the prior year, reflecting increased customer
tenure in markets launched in the first half of 2007,
additional customers added as a result of our new market
launches and the seasonal rhythms of the business. The
Company's churn performance also reflects an increase in both
customer deactivations and reactivations during the quarter.
-- ARPU for the quarter was $43.97 and reflected expected
customer uptake of the mix of new rate plans launched in the
quarter, offset by the dampening effect to second quarter
revenue of greater customer deactivations and reactivations in
the quarter.
-- Service revenues increased 20 percent year-over-year, and 5
percent over the first quarter of 2008, to $417 million. These
increases were the result of a 22.2 percent year-over-year
increase in weighted-average customers due to new market
launches and existing market customer growth, offset by a 1.7
percent year-over-year decline in ARPU.
-- Second quarter 2008 operating income of $14.5 million
decreased by $16.2 million over the comparable period of the
prior year, reflecting the impact of additional depreciation
expense and the investments the Company is making to support
the its new initiatives.
-- Net loss for the second quarter was $26.1 million, or ($0.38)
per share, compared to net income of $9.6 million, or $0.14
per diluted share, for the comparable period of the prior
year. Net loss of ($0.38) per share for the quarter included
the effect of approximately $0.70 per share of negative
adjusted OIBDA associated with the Company's new initiatives.
-- Capital expenditures during the second quarter of 2008 were
$181.1 million, including expenditures associated with the
build-out of new markets and capitalized interest.
Other Key Operational Highlights
-- Completion of the Company's acquisition of Hargray Wireless, a
wireless telecommunications company providing service to
approximately 600,000 covered POPs in Savannah, Ga., Hilton
Head, S.C. and surrounding areas.
-- Issuance of $550 million of new debt, consisting of $300
million in aggregate principal amount of 10 percent senior
notes due 2015 and $250 million in aggregate principal amount
of 4.5 percent convertible senior notes due 2014, resulting in
net proceeds of approximately $535.8 million.
-- Successful launch of Cricket unlimited wireless voice service
in St. Louis, South Texas, Las Vegas, and Oklahoma
City, completing the planned launch of approximately eight
million covered POPs by the end of the second quarter of 2008.
-- Launch of Cricket Wireless Internet Service in 16 markets in
the second quarter bringing the total number of broadband
markets to 25 and the total number of covered POPs to 23
million as of June 30, 2008, providing high-speed mobile
broadband service for a low, flat rate with no long-term
commitments or credit checks.
-- Appointment of Walter Berger as the Company's executive vice
president and chief financial officer, with responsibility for
all financial activities of the Company including accounting,
treasury, financial planning and reporting, investor
relations, and overseeing internal audit. The Company also
appointed Al Moschner as the Company's executive vice
president and chief operating officer, with responsibility for
all sales and marketing activities, information technology and
technical operation functions, as well as supply chain
management. The company also announced that Glenn Umetsu, as
the Company's executive vice president and chief technical
officer, will now lead all strategic programs and projects,
new market launches and technology planning. In addition, the
Company appointed Jeff Nachbor as senior vice president,
financial operations and chief accounting officer as the
Company continues to expand its accounting organization.
"During the first half of 2008, the Company made significant progress refining and validating our current programs to strengthen our existing business and to expand the scope of our business through new initiatives," continued Hutcheson. "First, the Company continues to execute on programs to expand our existing business, such as our initiatives to enhance our existing footprint and improve market level presence. The expected success of these programs, coupled with the underlying organic growth in our existing markets, is reflected in the penetration targets we are announcing today for our existing business. Second, early customer penetration in our recently launched markets indicates we are heading in the right direction and, as a result, we have updated our guidance to provide investors with a more detailed view into the early financial and operational results we expect from our new markets. Finally, the early results from our mobile broadband initiative remain promising and today we are announcing further expansion plans for this program which we believe will provide significant benefits in the future." Updated Business Outlook The Company updated its previously announced business expansion outlook to reflect the following: -- Customer penetration for voice services in the Company's
existing markets in aggregate is expected to reach between 8
percent to 9 percent by the end of 2010. This forecast does
not include the effects of the Company's mobile broadband
initiative.
-- Annual capital expenditures to support the on-going growth and
development of the Company's markets in commercial operation
for one year or more are expected to be in the mid-teens as a
percentage of service revenue. This estimate may be affected
by capital expenditures for footprint enhancement in existing
markets. The Company may provide additional updates as it
finalizes plans to develop additional sites.
-- With its planned launches of AWS markets and coverage
expansion in existing markets, the Company and its joint
venture, Denali Spectrum, LLC, expect to increase network
coverage, in each case measured on a cumulative basis from
January 2008, by up to 36 million additional POPs by the first
half of 2009, and up to 50 million additional POPs by the end
of 2010.
-- Aggregate capital expenditures for the build-out of new
markets through their first full year of operation following
commercial launch are anticipated to be approximately $25 per
covered POP, excluding capitalized interest.
-- Aggregate investment in OIBDA loss in newly launched markets
through adjusted OIBDA break-even for these markets in
aggregate is expected to be approximately $6 per covered POP.
The OIBDA loss for a single new market through adjusted OIBDA
breakeven in that market is expected to be approximately $7
per covered POP. The Company's new markets are generally
expected to reach adjusted OIBDA break-even within four
quarters of commercial operation.
-- Total Company adjusted OIBDA is expected to grow at a compound
annual growth rate of between 35 percent to 45 percent from
2007 through 2010. This forecast does not include the effects
of the Company's mobile broadband initiative. The mobile
broadband initiative is still developing; however, the Company
believes that the compound annual growth rate of adjusted
OIBDA from 2007 through 2010 would be higher if the effects of
the mobile broadband initiative were included.
-- With the continued expansion of the Company's mobile broadband
initiative, the Company expects to cover approximately 60
million total POPs with broadband service by the end of 2008.
The Company also expects to have approximately 100,000 mobile
broadband customers by the end of the fourth quarter of 2008.
Mobile broadband penetration after the first year of operation
following commercial launch of the service in that market is
expected to be approximately 0.5 percent.
-- Aggregate investment in cumulative OIBDA loss for the mobile
broadband initiative through adjusted OIBDA break-even is
expected to be approximately $0.50 per covered POP or
less. The Company expects that peak OIBDA burn on a
market-by-market basis will be higher.
-- Broadband activity in launched markets is generally expected
to reach adjusted OIBDA break-even within three full quarters
of commercial operation. The cumulative OIBDA loss for mobile
broadband excludes approximately $6 million per quarter of
EvDO-related fixed costs associated with our new initiatives
through 2008. The Company expects that the negative OIBDA from
the mobile broadband initiative will peak in the second half
of 2008 and that the mobile broadband initiative will
contribute positive adjusted OIBDA by the second half of 2009.
Conference Call Information
As previously announced, Leap management will host a conference call with live webcast at 8:30 a.m. EDT / 5:30 a.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 1-800-638-4817 (domestic) or 1-617-614-3943 (international) and enter passcode number 46142173. If listening via telephone, the accompanying presentation slides may be accessed by visiting http://investor.leapwireless.com. Listeners should navigate to the webcast and choose the 'Live Phone' option to view the slides in conjunction with the live conference call. Individuals dialing into the live call are encouraged to call in 15 minutes prior to the start time in order to register and be placed into the call. To listen live via webcast and view accompanying presentation slides, visit http://investor.leapwireless.com. Please choose the 'webcast' option to view the slides in conjunction with the webcast. An online replay and downloadable MP3 of the event will be available on the Company's website shortly after the live call and will be accessible for a limited period of time. A telephonic replay will be available two hours after the call's completion and can be accessed by dialing 1-888-286-8010 (domestic) or 1-617-801-6888 (international) and entering conference ID number 56923116. 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(R) service. The Company and its joint ventures operate in 29 states and hold licenses in 35 of the top 50 U.S. markets. 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 consolidated balance sheets, consolidated statements of operations or 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, Existing Business Adjusted OIBDA, CPGA, 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 in "Updated Business Outlook" for fiscal year 2008 and future years, our plans to offer our services to additional covered POPs and our expectations regarding future growth, spending, results of operations and customer penetration, 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;
-- changes in economic conditions, including interest rates,
consumer credit conditions, unemployment and other
macro-economic factors that could adversely affect demand for
the services we provide;
-- the impact of competitors' initiatives;
-- our ability to successfully implement product offerings and
execute effectively on our planned coverage expansion,
launches of markets we acquired in the FCC's auction for
Advanced Wireless Services, or Auction #66, expansion of our
mobile broadband product offering and other strategic
activities;
-- our ability to obtain roaming services from other carriers at
cost-effective rates;
-- our ability to maintain effective internal control over
financial reporting;
-- delays in our market expansion plans, including delays
resulting from any difficulties in funding such expansion
through our existing cash, cash generated from operations, or
additional capital, or delays by existing U.S. government and
other private sector wireless operations in clearing the AWS
spectrum, some of which users are permitted to continue using
the spectrum for several years;
-- our ability to attract, motivate and retain an experienced
workforce;
-- our ability to comply with the covenants in our senior secured
credit facilities, indentures and any future credit agreement,
indenture or similar instrument;
-- failure of our network or information technology systems to
perform according to expectations; and
-- other factors detailed in the section entitled "Risk Factors"
included in our periodic reports filed with the SEC, including
our Quarterly Report on Form 10-Q for the quarter ended June
30, 2008, which we expect to file shortly with the SEC, and
our Quarterly Report on From 10-Q for the quarter ended March
31, 2008.
All forward-looking statements included in this news release should be considered in the context of these risks. We undertake no obligation to publicly 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, Jump, the Cricket "K" and Flex Bucket 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 and Cricket Wireless Internet Service. All other trademarks are the property of their respective owners. LEAP WIRELESS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS(1)
(In thousands, except share amounts)
June 30, December 31,
2008 2007
------------ ------------
Assets (Unaudited)
Cash and cash equivalents $ 646,165 $ 433,337
Short-term investments 288,202 179,233
Restricted cash, cash equivalents and short-
term investments 4,474 15,550
Inventories 100,609 65,208
Other current assets 49,739 38,099
------------ ------------
Total current assets 1,089,189 731,427
Property and equipment, net 1,541,923 1,316,657
Wireless licenses 1,880,383 1,866,353
Goodwill 432,731 425,782
Other intangible assets, net 36,133 46,102
Other assets 76,211 46,677
------------ ------------
Total assets $ 5,056,570 $ 4,432,998
============ ============
Liabilities and Stockholders' Equity
Accounts payable and accrued liabilities $ 289,989 $ 225,735
Current maturities of long-term debt 12,000 10,500
Other current liabilities 127,246 114,808
------------ ------------
Total current liabilities 429,235 351,043
Long-term debt 2,573,136 2,033,902
Deferred tax liabilities 204,293 182,835
Other long-term liabilities 93,450 90,172
------------ ------------
Total liabilities 3,300,114 2,657,952
------------ ------------
Minority interests 53,412 50,724
------------ ------------
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; 69,210,929 and
68,674,435 shares issued and outstanding
at June 30, 2008 and December 31 2007,
respectively 7 7
Additional paid-in capital 1,832,068 1,808,689
Accumulated deficit (119,912) (75,699)
Accumulated other comprehensive loss (9,119) (8,675)
------------ ------------
Total stockholders' equity 1,703,044 1,724,322
------------ ------------
Total liabilities and stockholders'
equity $ 5,056,570 $ 4,432,998
============ ============
LEAP WIRELESS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS(1)
(Unaudited and in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Revenues:
Service revenues $ 417,143 $ 347,253 $ 816,072 $ 668,944
Equipment revenues 57,715 50,661 127,170 122,395
---------- ---------- ---------- ----------
Total revenues 474,858 397,914 943,242 791,339
---------- ---------- ---------- ----------
Operating expenses:
Cost of service
(exclusive of items
shown separately below) (118,857) (90,559) (230,027) (180,999)
Cost of equipment (105,127) (90,818) (219,348) (213,483)
Selling and marketing (74,276) (47,011) (132,376) (95,780)
General and
administrative (77,233) (66,407) (153,140) (131,641)
Depreciation and
amortization (86,167) (72,415) (168,806) (141,215)
---------- ---------- ---------- ----------
Total operating
expenses (461,660) (367,210) (903,697) (763,118)
Gain on sale or disposal
of assets 1,252 -- 961 940
---------- ---------- ---------- ----------
Operating income 14,450 30,704 40,506 29,161
Minority interests in
consolidated subsidiaries (1,865) 673 (2,688) 2,252
Equity in net loss of
investee (295) -- (1,357) --
Interest income 2,586 7,134 7,367 12,419
Interest expense (30,401) (27,090) (63,758) (53,586)
Other expense, net (307) -- (4,343) (637)
---------- ---------- ---------- ----------
Income (loss) before
income taxes (15,832) 11,421 (24,273) (10,391)
Income tax expense (10,237) (1,783) (19,940) (4,195)
---------- ---------- ---------- ----------
Net income (loss) $ (26,069) $ 9,638 $ (44,213) $ (14,586)
========== ========== ========== ==========
Earnings (loss) per share:
Basic $ (0.38) $ 0.14 $ (0.65) $ (0.22)
========== ========== ========== ==========
Diluted $ (0.38) $ 0.14 $ (0.65) $ (0.22)
========== ========== ========== ==========
Shares used in per share
calculations:
Basic 67,991 67,124 67,963 66,998
========== ========== ========== ==========
Diluted 67,991 68,800 67,963 66,998
========== ========== ========== ==========
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(1)
(Unaudited and in thousands)
Six Months Ended June 30,
-------------------------
2008 2007
------------ ------------
Operating activities:
Net cash provided by operating
activities $ 181,590 $ 108,795
------------ ------------
Investing activities:
Acquisition of business, net of cash
acquired (31,322) --
Purchases of property and equipment (338,287) (239,413)
Change in prepayments for purchases of
property and equipment (5,644) 11,187
Purchases of and deposits for wireless
licenses and spectrum clearing costs (72,713) (2,361)
Return of deposit for wireless licenses 70,000 --
Proceeds from sale of wireless licenses
and operating assets -- 9,500
Purchases of investments (297,784) (380,743)
Sales and maturities of investments 186,446 91,360
Purchase of minority interest -- (4,706)
Purchase of membership units (1,033) (13,182)
Changes in restricted cash, cash
equivalents and short-term investments,
net (1,309) 834
------------ ------------
Net cash used in investing activities (491,646) (527,524)
------------ ------------
Financing activities:
Proceeds from long-term debt 535,750 370,480
Principal payments on capital lease
obligations (7,969) --
Repayment of long-term debt (5,000) (4,500)
Payment of debt issuance costs (6,443) (1,319)
Proceeds from issuance of common stock,
net 6,546 7,588
------------ ------------
Net cash provided by financing
activities 522,884 372,249
------------ ------------
Net increase (decrease) in cash and cash
equivalents 212,828 (46,480)
Cash and cash equivalents at beginning of
period 433,337 372,812
------------ ------------
Cash and cash equivalents at end of period $ 646,165 $ 326,332
============ ============
Supplementary disclosure of cash flow
information:
Cash paid for interest $ 89,568 $ 72,295
Cash paid for income taxes $ 1,906 $ 341
Explanatory Notes to Financial Statements
(1) The consolidated financial statements and the tables of results
and operating and financial metrics included at the beginning of
this release include the accounts of Leap and its wholly owned
subsidiaries as well as the accounts of LCW Wireless, LLC and
Denali Spectrum, LLC and their wholly owned subsidiaries. The
Company consolidates its interests in LCW Wireless, LLC and
Denali Spectrum, LLC in accordance with Financial Accounting
Standards Board Interpretation No. 46-R, "Consolidation of
Variable Interest Entities," because these entities are variable
interest entities and the Company will absorb a majority of
their expected losses. All significant intercompany accounts and
transactions have been eliminated in the condensed consolidated
financial statements.
(2) The following tables summarize operating data for the Company's
consolidated operations for the three months ended June 30, 2008
and 2007 (unaudited; in thousands, except percentages):
Three Months Ended June 30,
-----------------------------------------
% of 2008 % of 2007
Service Service
2008 Revenues 2007 Revenues
---------- --------- ---------- ---------
Revenues:
Service revenues $ 417,143 $ 347,253
Equipment revenues 57,715 50,661
---------- ----------
Total revenues 474,858 397,914
---------- ----------
Operating expenses:
Cost of service 118,857 28.5% 90,559 26.1%
Cost of equipment 105,127 25.2% 90,818 26.2%
Selling and marketing 74,276 17.8% 47,011 13.5%
General and administrative 77,233 18.5% 66,407 19.1%
Depreciation and
amortization 86,167 20.7% 72,415 20.9%
---------- --------- ---------- ---------
Total operating expenses 461,660 110.7% 367,210 105.7%
Gain on sale or disposal
of assets 1,252 0.3% -- 0.0%
---------- --------- ---------- ---------
Operating income $ 14,450 3.5% $ 30,704 8.8%
========== ========= ========== =========
Change from
Prior Year
-----------------------------------------
Dollars Percent
-------------------- --------------------
Revenues:
Service revenues $ 69,890 20.1%
Equipment revenues 7,054 13.9%
-------------------- --------------------
Total revenues 76,944 19.3%
-------------------- --------------------
Operating expenses:
Cost of service 28,298 31.2%
Cost of equipment 14,309 15.8%
Selling and marketing 27,265 58.0%
General and administrative 10,826 16.3%
Depreciation and
amortization 13,752 19.0%
-------------------- --------------------
Total operating expenses 94,450 25.7%
Gain on sale or disposal
of assets 1,252 100.0%
-------------------- --------------------
Operating income $ (16,254) (52.9)%
==================== ====================
Six Months Ended June 30,
-----------------------------------------
% of 2008 % of 2007
Service Service
2008 Revenues 2007 Revenues
---------- --------- -------- -----------
Revenues:
Service revenues $ 816,072 $668,944
Equipment revenues 127,170 122,395
---------- --------
Total revenues 943,242 791,339
---------- --------
Operating expenses:
Cost of service 230,027 28.2% 180,999 27.1%
Cost of equipment 219,348 26.9% 213,483 31.9%
Selling and marketing 132,376 16.2% 95,780 14.3%
General and administrative 153,140 18.8% 131,641 19.7%
Depreciation and
amortization 168,806 20.7% 141,215 21.1%
---------- --------- -------- -----------
Total operating expenses 903,697 110.7% 763,118 114.1%
Gain on sale or disposal
of assets 961 0.1% 940 0.1%
---------- --------- -------- -----------
Operating income $ 40,506 5.0% $ 29,161 4.4%
========== ========= ======== ===========
Change from
Prior Year
-----------------------------------------
Dollars Percent
-------------------- --------------------
Revenues:
Service revenues $ 147,128 22.0%
Equipment revenues 4,775 3.9%
-------------------- --------------------
Total revenues 151,903 19.2%
-------------------- --------------------
Operating expenses:
Cost of service 49,028 27.1%
Cost of equipment 5,865 2.7%
Selling and marketing 36,596 38.2%
General and administrative 21,499 16.3%
Depreciation and
amortization 27,591 19.5%
-------------------- --------------------
Total operating expenses 140,579 18.4%
Gain on sale or disposal
of assets 21 2.2%
-------------------- --------------------
Operating income $ 11,345 38.9%
==================== ====================
(3) Total share-based compensation expense related to the Company's
share-based awards for the three months ended June 30, 2008 and
2007 was allocated to the statements of operations as follows
(unaudited; in thousands, except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Cost of service $ 614 $ 466 $ 1,517 $ 1,145
Selling and marketing
expenses 1,179 560 2,534 1,561
General and administrative
expenses 5,541 4,869 12,985 11,933
---------- ---------- ---------- ----------
Share-based compensation
expense $7,334 $5,895 $17,036 $14,639
========== ========== ========== ==========
Share-based compensation
expense per share:
Basic $ 0.11 $ 0.09 $ 0.25 $ 0.22
========== ========== ========== ==========
Diluted $ 0.11 $ 0.09 $ 0.25 $ 0.22
========== ========== ========== ==========
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. (4) 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
their first monthly bill 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. In addition,
customers are generally disconnected from service approximately
30 days after failing to pay a monthly bill. Beginning during the
quarter ended June 30, 2007, pay-in-advance customers who ask to
terminate their service are disconnected when their paid service
period ends, whereas previously these customers were generally
disconnected on the date of their request to terminate service.
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.
(5) ARPU is service revenue 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 and fees, 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. We do not recognize service revenue
until payment has been received and services have been provided
to the customer. In addition, customers are generally
disconnected from service approximately 30 days after failing to
pay a monthly bill. Therefore, because our calculation of
weighted-average number of customers includes customers who have
not paid their last bill and have yet to disconnect service, 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.
(6) 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 unrelated to initial 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 initial customer acquisition includes the revenues
and costs associated with the sale of handsets to existing
customers as well as costs associated with handset replacements
and repairs (other than warranty costs which are the
responsibility of the handset manufacturers). We deduct customers
who do not pay their first monthly bill from our gross customer
additions, which tends to increase CPGA because we incur the
costs associated with this 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,
--------------------- -----------------------
2008 2007 2008 2007
---------- ---------- ----------- -----------
Selling and marketing
expense $ 74,276 $ 47,011 $ 132,376 $ 95,780
Less share-based
compensation expense
included in selling
and marketing expense (1,179) (560) (2,534) (1,561)
Plus cost of equipment 105,127 90,818 219,348 213,483
Less equipment revenue (57,715) (50,661) (127,170) (122,395)
Less net loss on
equipment
transactions
unrelated to initial
customer acquisition (9,389) (2,591) (23,409) (7,353)
---------- ---------- ----------- -----------
Total costs used in
the calculation of
CPGA $ 111,120 $ 84,017 $ 198,611 $ 177,954
Gross customer additions 542,005 462,434 1,092,525 1,027,489
---------- ---------- ----------- -----------
CPGA $ 205 $ 182 $ 182 $ 173
========== ========== =========== ===========
(7) 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 unrelated to initial customer
acquisition (which includes the gain or loss on the sale of
handsets to existing customers and costs associated with handset
replacements and repairs (other than warranty costs which are
the responsibility of the handset manufacturers), divided by the
weighted-average number of customers, divided by the number of
months during the period being measured. CCU does not include
any depreciation and amortization expense. Management uses CCU
as a tool to evaluate the non-selling cash expenses associated
with ongoing business operations on a per customer basis, to
track changes in these non-selling cash costs over time, and to
help evaluate how changes in our business operations affect non-
selling cash costs per customer. In addition, CCU provides
management with a useful measure to compare our non-selling cash
costs per customer with those of other wireless communications
providers. We believe investors use CCU primarily as a tool to
track changes in our non-selling cash costs over time and to
compare our non-selling cash costs to those of other wireless
communications providers. Other companies may calculate this
measure differently.
The following table reconciles total costs used in the calculation
of CCU to cost of service, which we consider to be the most
directly comparable GAAP financial measure to CCU (unaudited; in
thousands, except weighted-average number of customers and CCU):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
Cost of service $ 118,857 $ 90,559 $ 230,027 $ 180,999
Plus general and
administrative
expense 77,233 66,407 153,140 131,641
Less share-based
compensation
expense included in
cost of service and
general and
administrative
expense (6,155) (5,335) (14,502) (13,078)
Plus net loss on
equipment
transactions
unrelated to
initial customer
acquisition 9,389 2,591 23,409 7,353
----------- ----------- ----------- -----------
Total costs used
in the
calculation of
CCU $ 199,324 $ 154,222 $ 392,074 $ 306,915
Weighted-average
number of customers 3,162,028 2,586,900 3,059,252 2,490,030
----------- ----------- ----------- -----------
CCU $ 21.01 $ 19.87 $ 21.36 $ 20.54
=========== =========== =========== ===========
(8) 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/disposal
of assets; impairment of assets; and share-based compensation
expense (benefit).
Existing Business Adjusted OIBDA is a non-GAAP financial measure
that further adjusts adjusted OIBDA to exclude total revenues
attributable to new markets launched after December 31, 2007 and
the Company's mobile broadband offering that were included in
total revenues, and to add back operating expenses attributable
to such activities that were included in total operating expenses
(other than depreciation and amortization and share-based
compensation expense, which have already been added back to
adjusted OIBDA). Generally, for purposes of calculating these
measures, corporate-level and regional-level overhead expenses
are allocated to our markets based on gross customer additions
and weighted average customers by market. Adjusted OIBDA and
Existing Business Adjusted OIBDA should not be construed as
alternatives to operating income or net income as determined in
accordance with GAAP, as alternatives to cash flows from
operating activities as determined in accordance with GAAP or as
measures of liquidity.
In a capital-intensive industry such as wireless
telecommunications, management believes that adjusted OIBDA and
Existing Business Adjusted OIBDA, as well as the associated
percentage margin calculations, are meaningful measures of the
Company's operating performance. We use adjusted OIBDA and
Existing Business Adjusted OIBDA as supplemental performance
measures because management believes they facilitate comparisons
of the Company's operating performance from period to period and
comparisons of the Company's 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 generally
accepted accounting principles, 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 and Existing Business
Adjusted OIBDA facilitate internal comparisons of our historical
operating performance, management also uses these metrics for
business planning purposes and to measure our performance
relative to that of our competitors. In addition, we believe that
adjusted OIBDA, Existing Business 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 and Existing
Business Adjusted OIBDA have limitations as analytical tools, and
should not be considered in isolation or as substitutes for
analysis of our results as reported under GAAP. Some of these
limitations include:
-- they do not reflect capital expenditures;
-- although they do not include depreciation and amortization, the
assets being depreciated and amortized will often have to be
replaced in the future, and adjusted OIBDA and Existing Business
Adjusted OIBDA do not reflect cash requirements for such
replacements;
-- they do not reflect costs associated with share-based awards
exchanged for employee services;
-- they do not reflect the interest expense necessary to service
interest or principal payments on current or future indebtedness;
-- they do not reflect expenses incurred for the payment of income
taxes and other taxes; and
-- other companies, including companies in our industry, may
calculate these measures differently than we do, limiting their
usefulness as comparative measures.
Management understands these limitations and considers adjusted
OIBDA and Existing Business Adjusted OIBDA as financial
performance measures that supplement but do not replace the
information provided to management by our GAAP results.
The following table reconciles adjusted OIBDA and Existing
Business Adjusted OIBDA to operating income, which we consider to
be the most directly comparable GAAP financial measure to
adjusted OIBDA and Existing Business Adjusted OIBDA (unaudited;
in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2008 2007 2008 2007
--------- -------- --------- ---------
Operating income $ 14,450 $ 30,704 $ 40,506 $ 29,161
Plus depreciation and
amortization 86,167 72,415 168,806 141,215
--------- -------- --------- ---------
OIBDA 100,617 103,119 209,312 170,376
Less gain on sale or disposal
of assets (1,252) -- (961) (940)
Plus share-based compensation 7,334 5,895 17,036 14,639
--------- -------- --------- ---------
Adjusted OIBDA $106,699 $109,014 $225,387 $184,075
--------- -------- --------- ---------
Plus net operating expenses
attributable to new markets
included in total operating
expenses 38,167 -- 48,235 --
Plus net operating expenses
attributable to broadband
included in total operating
expense 9,611 -- 15,817 --
--------- -------- --------- ---------
Existing Business Adjusted
OIBDA $154,477 $109,014 $289,439 $184,075
--------- -------- --------- ---------
CONTACT: Leap Wireless International, Inc.
Greg Lund, Media Relations
858-882-9105
glund@leapwireless.com
or
Amy Wakeham, Investor Relations
858-882-6084
awakeham@leapwireless.com
SOURCE: Leap Wireless International, Inc.
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