Leap Reports Third Quarter Results
~ Operational and Financial Progress Drive Solid Results ~
- Net Additions Increase by More Than 200,000 Year-Over-Year
- Churn Improves to 3.8 Percent due to Enhanced Devices, All-Inclusive Plans and Successful Promotions
- ARPU Increases by More Than $4.00 Year-Over-Year, Primarily Due to Smartphone Customers
SAN DIEGO, Oct. 31, 2011 /PRNewswire/ -- Leap Wireless International, Inc., a leading provider of innovative and value-driven wireless communications services, today reported operational and financial results for the quarter ended September 30, 2011. Service revenues for the third quarter of 2011 increased 19.4 percent over the prior year quarter to $717.3 million. The Company reported $154.3 million of adjusted operating income before depreciation and amortization (OIBDA) for the third quarter, a 25.2 percent increase over the third quarter of 2010. Third quarter 2011 operating loss was $16.1 million compared to an operating loss of $478.1 million for the third quarter of 2010 (which included an impairment charge of $477.3 million related to goodwill and other assets). Net loss for the third quarter of 2011 was $68.8 million, or $0.90 per diluted share.
The Company reported approximately 666,000 gross customer additions for the quarter. The Company also reported a net gain of approximately 73,000 voice customers and a net loss of approximately 64,000 broadband customers, resulting in a net gain of approximately 10,000 customers, compared to a net loss of approximately 200,000 customers in the third quarter of 2010. Churn for the quarter was 3.8 percent, down from 5.5 percent for the third quarter of 2010. Third quarter voice churn was 3.4 percent, down from 5.2 percent for the third quarter of 2010.
"Our third quarter results reflect the benefits of the devices, service plans and nationwide 3G voice and data network coverage that we have introduced," said Doug Hutcheson, Leap's president and chief executive officer. "Our voice net additions improved by more than 245,000 customers year-over-year, reflecting continued improvements in gross customer additions and voice churn of 3.4 percent, a 180 basis point improvement year-over-year. In addition, ARPU increased to $41.25, reflecting the adoption of smartphones and Muve Music™ devices and related service plans by a third of our voice customers. We continue to pursue initiatives to build on this customer growth, including efforts to increase our distribution presence, enhance our already-compelling device line-up, improve customer awareness through a new nationwide marketing campaign and expand awareness and distribution of our successful Muve Music offering. We are pleased with our progress and believe we have attractive service plans and devices as we move into our stronger selling seasons."
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.
During the fourth quarter of 2010, the Company changed its method of accounting for regulatory fees and telecommunications taxes from a net to a gross basis in the consolidated statement of operations, such that the Company no longer deducts from service revenues regulatory fees and telecommunications taxes owed and remitted to government agencies and instead includes such amounts in cost of service. This change has been applied retrospectively to the Company's results for service revenues, total revenues, ARPU and CCU presented above. For more information regarding this change, please refer to "Definition of Terms and Reconciliation of Non-GAAP Financial Measures" included at the end of this release.
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
Customers and Churn
End-of-period customers for the third quarter of 2011 were approximately 5,755,000, a 13.1 percent increase from end-of-period customers for the third quarter of 2010. This increase resulted from the addition of customers in the Company's operating markets and the addition of approximately 323,000 former customers of Pocket Communications in the fourth quarter of 2010 in connection with the formation of our joint venture in South Texas.
Net customer additions for the third quarter of 2011 were approximately 10,000, compared to approximately 200,000 net customer deactivations for the third quarter of 2010. Third quarter 2011 net customer additions reflected a net gain of approximately 73,000 voice customers and a net loss of approximately 64,000 broadband customers.
The net gain of approximately 73,000 voice customers represented an increase of approximately 245,000 net customer additions over the third quarter of 2010. The year-over-year increase in net voice additions resulted from the improved device portfolio and all-inclusive service plans the Company introduced over the last year, successful promotional activity and the benefits of customers upgrading to smartphones and Muve Music devices.
The net loss of approximately 64,000 broadband customers represented an increase of approximately 36,000 customers deactivations over the third quarter of 2010. The year-over-year increase in net broadband deactivations was due primarily to higher device pricing, a reduction in broadband marketing, network management initiatives and the Company's continued focus on higher-value service plans.
Customer churn for the third quarter of 2011 was 3.8 percent, a decrease from 5.5 percent for the comparable period of the prior year. Voice churn for the third quarter of 2011 was 3.4 percent, compared to 5.2 percent for the comparable period of the prior year.
Nearly 50 percent of the Company's new handset sales in the third quarter of 2011 were for smartphones and Muve Music devices and approximately 10 percent of the Company's customer base upgraded their handsets during the quarter, typically to better devices coupled with higher-ARPU service plans.
Service Revenues and ARPU
Service revenues for the third quarter increased to $717.3 million, a 19.4 percent increase over the comparable period of the prior year, primarily due to an 11.9 percent increase in weighted-average customers due to existing market customer growth and the contribution of former Pocket customers in the fourth quarter of 2010, as well as continued uptake of the Company's higher-ARPU service plans.
ARPU for the third quarter of 2011 was $41.25, an increase of 11.1 percent over the comparable period of the prior year, and 2.7 percent from the second quarter of 2011. The year-over-year increase in ARPU primarily reflected increased customer acceptance of the Company's smartphones and all-inclusive service plans and increased service plan pricing for the Company's broadband service.
Adjusted OIBDA and Operating Expenses
Adjusted OIBDA for the third quarter of 2011 was $154.3 million, an increase of 25.2 percent over the comparable period of the prior year, reflecting growth in service revenues, partially offset by increased handset upgrade activity and associated subsidy expense. Compared to the second quarter of 2011, adjusted OIBDA decreased 4 percent, reflecting increased subsidy expense in connection with a successful third quarter 2011 promotion. Third quarter 2011 adjusted OIBDA also reflected approximately $2.8 million of costs associated with the proxy contest and settlement of associated litigation related to the Company's 2011 annual meeting of stockholders.
Third quarter 2011 operating loss was $16.1 million, compared with an operating loss of $478.1 million for the comparable period of the prior year.
Third quarter 2011 operating loss reflected increased depreciation and amortization expense associated with network and corporate platform upgrades and assets acquired in connection with the formation of the Company's South Texas joint venture in the fourth quarter of 2010 as well as approximately $23.7 million of charges primarily related to the integration of Cricket and Pocket assets in South Texas.
Third quarter 2010 operating loss reflected $477.3 million of non-cash charges, primarily related to impairment of the Company's goodwill as well as the write-off of certain previously-capitalized network expansion costs relating to network design, site acquisition and capitalized interest.
Excluding the impact of the $23.7 million and $477.3 million charges in the third quarters of 2011 and 2010, respectively, third quarter 2011 operating income was $7.6 million compared to third quarter 2010 operating loss of $0.7 million.
Net loss attributable to common stockholders for the third quarter of 2011 was $68.8 million, or $0.90 per diluted share, compared to a net loss attributable to common stockholders of $536.3 million, or $7.06 per diluted share, for the third quarter of 2010.
The change in net loss per share reflected the year-over-year changes in operating loss discussed above, the year-over-year increase in interest expense as a result of the Company's issuance of $400 million of unsecured senior notes in May 2011 and accretion expense related to the redemption value of the non-controlling interest in the Company's South Texas joint venture, which began operations in the fourth quarter of 2010. Additionally, income tax expense increased year-over-year as the third quarter of 2010 reflected a tax benefit from the impairment of the Company's goodwill.
CCU for the third quarter of 2011 increased 15.7 percent over the prior year quarter to $23.09, primarily due to increased device subsidy costs associated with increased device upgrades and increased telecommunications taxes and regulatory fees in connection with further customer migration to the Company's all-inclusive service plans.
CPGA for the third quarter of 2011 increased by 8.7 percent over the prior year quarter, reflecting increased device subsidy in connection with successful promotional activity, offset in part by reduced sales and marketing expense.
Capital expenditures during the third quarter of 2011 were $103.1 million.
Total capital expenditures for 2011 are expected to be between $425 million and $475 million, primarily to support the ongoing maintenance, development and growth of the Company's network in its operating markets and the initial deployment of LTE network technology.
Annual capital expenditures for 2012 to support the ongoing maintenance and development of the Company's network and other business assets are expected to be in the mid-teens as a percentage of annual service revenues.
The Company currently plans to deploy LTE across approximately two-thirds of its current network footprint over the next two to three years, with a commercial trial market scheduled to be launched in late 2011. The Company plans to cover approximately 25 million POPs with LTE network technology in 2012. Aggregate capital expenditures for LTE deployment are expected to be less than $10 per covered POP, excluding capitalized interest. Approximately half of the estimated capital expenditures for LTE deployment are included in the amounts estimated to be necessary to support the ongoing maintenance and development of the Company's network. The actual amount the Company spends to deploy LTE will depend upon multiple factors, including the scope and pace of the Company's deployment activities.
"We are pleased with the continued strengthening of our financial results, particularly in our margins, as a result of the product and service plan changes we have implemented, our expanding retail footprint and our innovation in music," said Walter Berger, Leap's executive vice-president and chief financial officer. "We ended the third quarter with $800 million in cash and short-term investments, and over the past year we have continued to actively manage our capital structure, including by extending the most significant maturities on our long term debt to 2016 and beyond and locking in more favorable interest rates. We believe that our solid balance sheet and strong operating results provide us with sufficient liquidity to fund our growing operations and our current business initiatives, including our planned launch of LTE."