Press Release: Leap Reports Second Quarter 2007 Adjusted OIBDA of $115 Million, Up 48% Compared to Prior Year Quarter
Leap Reports Second Quarter 2007 Adjusted OIBDA of $115 Million, Up 48% Compared to Prior Year Quarter, New Markets in Aggregate Begin Contributing Positively to Adjusted OIBDA
Company Reports 127,000 Net Customer Additions, More Than Double Net Additions from Second Quarter 2006
SAN DIEGO, Aug. 7 -- Leap Wireless International, Inc., a leading provider of innovative and value-driven wireless communications services, today announced financial and operational results for the second quarter 2007. The company reported service revenues of $350.2 million, a 52 percent increase over the prior-year quarter, driven by a 45 percent growth in weighted-average customers and a five percent rise in average revenue per user (ARPU). In the second quarter, the company posted adjusted operating income before depreciation and amortization (OIBDA) of $115.2 million, up $34.2 million from the first quarter of 2007 and up $37.5 million from the comparable period of the prior year. Operating income for the quarter was $36.9 million compared to $16.5 million for the second quarter of 2006.
"In the second quarter, we continued to experience attractive customer growth over the prior year period, including 115,000 net customer additions in the new markets launched in 2006 and 2007. With the addition of 12,000 new customers in existing markets during the quarter, net customer additions increased approximately 60 percent over the prior year quarter and approximately 30 percent during the first half of the year as compared to the prior year period, in each case after adjusting for the sale of our Toledo and Sandusky, Ohio markets in 2006," said Doug Hutcheson, Leap's chief executive officer and president. "During the quarter, we saw strong acceptance of our new higher-value service plans from both new and existing customers, resulting in ARPU of $45.13. As a result of the success we have seen with the uptake of our new service plans, we expect to see continued upward pressure on ARPU over the coming quarters, subject to normal seasonal fluctuations. Second quarter ARPU declined from the first quarter of 2007 due to our typical seasonal rhythms and customer deactivations associated with the increase in less-tenured customers from our market launch successes."
The financial and operating data presented in this press release, including customer information, reflect the consolidated results of Leap, its subsidiaries and its non-controlled joint ventures, LCW Wireless, LLC (LCW Wireless) and Denali Spectrum, LLC (Denali).
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.
Adjusted OIBDA of $115.2 million for the second quarter benefited from a higher weighted-average number of customers, increased ARPU and improved operating expense leverage. In addition, adjusted OIBDA was aided by approximately $3 million of contribution from new markets, which include nearly 20 million new covered POPs launched in 2006 and three million additional covered POPs launched in the second quarter. During the quarter, as a result of amendments to several agreements, we reduced our liability for the removal of equipment at certain cell sites at the end of the lease term. This change resulted in a reduction of approximately $6 million in cost of service. The company had net income of $3.2 million in the second quarter, compared to net income of $7.5 million for the corresponding quarter of the prior year. The increase in operating income was more than offset by increases in interest and income tax expenses. Capital expenditures during the second quarter of 2007 were approximately $106 million, relating primarily to the company's continued investment in the existing business, new market development and network upgrades.
As of June 30, 2007, total unrestricted cash, cash equivalents and short-term investments were $684.8 million. These amounts increased by $355.6 million from the first quarter of 2007 due primarily to a private offering of senior notes in June that yielded approximately $371 million in proceeds.
Said Amin Khalifa, executive vice president and chief financial officer, "The markets we launched since the beginning of 2006 have now turned, in the aggregate, adjusted OIBDA positive, contributing to significant growth over the first quarter of 2007 and the prior year quarter. Our existing markets, defined as those in operation at the end of 2005, delivered 18 percent adjusted OIBDA growth over the prior year quarter due to net customer additions, higher ARPU, and operating expense leverage. In the second quarter, we launched new markets in Charleston, Rochester and Raleigh, adding nearly three million new covered POPs to our service, which brings our total covered POPs to approximately 51 million."
Continued Khalifa, "During the quarter, customer churn was 4.3 percent, up 0.7 percentage points from the prior year quarter. We estimate that approximately 0.4 percentage points of this increase are attributable to a year-over-year increase in the number of customers who upgraded their handsets by deactivating their existing line of service and then activating a new line of service. The remaining increase in customer churn is attributed to an approximately 20% decrease in average customer tenure over the prior year quarter, a by-product of our success in adding customers in our newly-launched markets, since less-tenured customers are more susceptible to churn.
"Our focus for 2007 is to optimize our current business and to take the initial steps for another round of expansion that will begin in earnest in 2008. In support of these efforts, we raised approximately $371 million in proceeds during the quarter through a private placement of senior notes at an effective interest rate of approximately eight percent. As a result of recent positive revisions to the company's credit ratings, the interest rate on our approximately $900 million term loan was reduced in the second quarter by 25 basis points to LIBOR plus 2.0%."
Additional Market and Business Developments
During the second quarter, Leap:
* Announced enhancements to service plans, including free unlimited text, picture and instant messaging in all plans, and introduced new higher-value $55 and $60 service plans that include nationwide roaming minutes.
* Introduced a popular Ringback tone feature and Cricket by Week service plan, which features unlimited wireless service on a week-to-week payment basis.
Third Quarter and Fiscal Year 2007 Business Outlook
Said Hutcheson, "We have demonstrated our ability to grow customers, revenue and ARPU in a very competitive environment and absorb impacts associated with the macroeconomic environment. As we outlined during our Leap Analyst Day in June, our current focus is to increase customer penetration through distinctive service plans, enhanced coverage in our markets, development of new markets and introduction of higher-speed data services, all while maintaining relentless attention to our cost leadership position.
"Due to high net customer additions we realized in the third quarter of 2006 as a result of new market launches, we expect third quarter 2007 net additions to be lower than the prior year quarter. As a result of the recent addition of less-tenured customers in our newly-launched markets, we expect to continue to see additional near-term pressure on churn, and our experience in our more established markets indicates that churn rates should improve as the newly-launched markets mature. We expect adjusted OIBDA in the third quarter to be approximately double the prior year quarter, before the effects of our major new initiatives."
Continued Hutcheson, "Over the last quarter, the company has further developed its plans with respect to our planned coverage expansion and higher-speed data services. In addition, we have more information about the government's spectrum clearing activities and have been able to refine our Auction #66 build-out plans. We are confident that these opportunities will create significant value and we will continue our disciplined approach to strengthen our business."
With the completion of the new market launches and aggregate adjusted OIBDA contributions from these markets, the company's outlook now combines the expected performance of our new and existing markets. In addition, we will begin reporting separately the results of the major new initiatives we are developing, similar to our prior reporting on the effects of the Auction #58 markets. These major new initiatives include our planned coverage expansion, Auction #66 market development and higher-speed data services.
The Company's outlook for third quarter 2007
* Net customer additions are expected to be between 40,000 and 120,000.
* Customer churn is expected to be in the range of 4.9 percent to 5.4 percent, reflecting typical seasonal rhythms and the effects of a greater number of less-tenured customers and customer handset upgrades.
* Adjusted OIBDA is expected to be between $110 million and $120 million, which does not include approximately $10 to $15 million of negative adjusted OIBDA we expect to incur to support our major new initiatives.
The Company's updated outlook for fiscal year 2007
* As a result of ongoing expansion of market footprints, the company expects to cover up to an additional two million POPS by the end of 2007, bringing total covered POPs to approximately 53 million.
* Adjusted OIBDA is expected to be between $430 million and $460 million, which does not include approximately $25 to $35 million of negative adjusted OIBDA that we expect to incur to support our major new initiatives.
* Capital expenditures are expected to be $280 million to $320 million for the existing business, the costs associated with our launched markets to date, and the EVDO network upgrade, including capitalized interest costs. In addition, the company expects to invest approximately $200 million to $250 million in capital expenditures to support our major new initiatives, including capitalized interest costs.
The Company's outlook for fiscal year 2008
* With the planned coverage expansion and launches of Auction #66 markets, the company expects to cover up to an additional 20 to 28 million POPS by the end of 2008, bringing total covered POPs to between approximately 73 to 81 million by 2008 year end.
* Adjusted OIBDA for fiscal year 2008 is expected to be between $550 million and $650 million, which includes the effects of negative adjusted OIBDA that we expect to incur with respect to our planned coverage expansion, initial launches of Auction #66 markets and costs associated with initial higher-speed data service trials.
* Capital expenditures are expected to be $650 million to $850 million, which include the investments we expect to make for planned coverage expansion, initial launches of Auction #66 markets and initial higher-speed data services trials and exclude capitalized interest costs.
Conference Call Note
As previously announced, Leap will hold a conference call to discuss its second quarter results and its outlook for third quarter 2007, as well as fiscal years 2007 and 2008, at 5:00 p.m., Eastern Daylight Time, on Tuesday, August 7, 2007. Other forward-looking and material information may also be discussed during this call. Interested parties may listen to the call live by dialing 1-800-561-2731 or 1-617-614-3528 and entering reservation number 67160620. This call is also being web cast and can be accessed at the Investor Relations section of Leap's website, www.leapwireless.com, or by accessing the following external websites: www.fulldisclosure.com or www.streetevents.com.
To listen to the call, please go to the website at least 15 minutes prior to the start time to register, and download and install any necessary audio software. An online replay will follow shortly after the live conference call and will be available until September 7, 2007. The telephonic rebroadcast will be available shortly after the completion of the call and will be available until close of business August 14, 2007. Interested parties can access the rebroadcast by dialing 1-888-286-8010 or 1-617-801-6888 internationally and entering the reservation number 20884537. A downloadable MP3 recording of the call will also be available 24 hours after broadcast. Interested listeners can download the file from the "Events" page of the Investor Relations section of Leap's website and on Street Events at www.streetevents.com.
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 both the Cricket(R) and Jump(TM) Mobile services. The Company and its joint ventures now operate in 23 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. Jump Mobile is a unique prepaid wireless service designed for the mobile-dependent, urban youth market. 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 Securities and Exchange Commission (SEC) Item 10 to Regulation S-K, 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, 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.
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