Quantcast
Last updated on April 23, 2014 at 11:31 EDT

Leap Reports Results for Fourth Quarter and Full Year 2011

February 16, 2012

SAN DIEGO, Feb. 16, 2012 /PRNewswire/ — 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 fourth quarter and year ended December 31, 2011. Service revenues for the fourth quarter increased 14.6 percent over the prior year quarter to $729.5 million. The Company reported adjusted operating income before depreciation and amortization (OIBDA) of $135.1 million for the fourth quarter, compared to $107.0 million for the comparable quarter of the prior year. Leap also reported a fourth quarter 2011 operating loss of $3.5 million, compared to an operating loss of $27.0 million for the fourth quarter of 2010.

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

The Company gained approximately 179,000 customers during the fourth quarter of 2011. Net customer additions for the fourth quarter were comprised of approximately 209,000 voice net customer additions and net deactivations of approximately 30,000 broadband customers, bringing total net customer additions for the full-year 2011 to approximately 416,000. The Company ended the year with approximately 5.9 million customers. Customer churn for the fourth quarter of 2011 was approximately 3.9 percent.

“We had solid performance in the fourth quarter and are pleased with the operational progress the business has made,” said Doug Hutcheson, Leap’s president and chief executive officer. “Sales volume in the quarter generally followed broader retail trends, reflecting strong sales throughout the holiday selling season. We continued to see attractive adoption of our higher-value service plans, which helped drive a nearly $4.00 year-over-year improvement in fourth quarter ARPU. Our adjusted OIBDA performance reflected service revenue growth and the benefits of continued cost management initiatives, even as we absorbed higher subsidy costs associated with increased sales of smartphones and Muve Music® devices. Churn performance was solid, despite some billing system disruptions that affected both new sales and existing customers in the quarter. Sales of smartphones and Muve Music devices continued to provide attractive results, comprising 60 percent of device sales for the fourth quarter and peaking at nearly 65 percent of devices sold during the heavy sales period in December.”

Hutcheson continued, “In addition, we saw positive results from our strategy of evolving the look and feel of our marketing campaigns and expanding the Cricket brand nationwide. During the second half of 2011, we expanded into an additional 6,500 national retail locations, increasing our retail presence to approximately 11,500 locations. Our national retail strategy is driving solid uptake of Cricket products in this expanding channel and strengthening our retail presence and customer additions in our existing facilities-based footprint. In addition, our Muve Music service had over 500,000 subscribers at year end, making it the second-largest digital music subscription service in the U.S. The steps we have taken in expanding distribution, broadening our device portfolio, growing our successful Muve Music service and improving customer awareness have combined to drive the business forward and provide us with a platform for continued growth.”

Financial Results and Operating Metrics(1)
(Unaudited; in millions, except for customer data, operating metrics and per share amounts)


                                Three Months Ended
                                   December 31,                           Year Ended December 31,
                                      ------------------                  -----------------------
                              2011               2010      Change                   2011               2010 Change
                              ----               ----      ------                   ----               ---- ------
    Service
     revenues            $729.5             $636.6           14.6%           $2,829.3            $2,482.6      14.0%
    Total
     revenues            $767.4             $708.0            8.4%           $3,071.1            $2,697.2      13.9%
     Operating
     loss                 $(3.5)            $(27.0)        (87.0)%             $(25.4)            $(450.7)   (94.4)%
    Adjusted
     OIBDA               $135.1             $107.0           26.3%             $562.6              $525.3       7.1%
    Adjusted
     OIBDA as
     a
     percentage
     of
     service
     revenues              19%            17%          -           20%            21%          -
    Net
     loss(2)             $(78.7)           $(167.0)             -             $(317.7)            $(785.1)        -
    Net loss
     attributable
     to
     common
     stockholders(2) $(84.4)     $(249.4)          -     $(314.6)    $(872.0)          -
    Diluted
     loss
     per
     share
     attributable
     to
     common
     stockholders    $(1.10)      $(3.28)          -      $(4.11)    $(11.49)          -
    Gross
     customer
     additions(3)       850,386            758,785           12.1%          2,991,352           3,219,485     (7.1)%
    Net
     customer
     additions(4)       178,889            107,443           66.5%            415,834             241,546      72.2%
    End of
     period
     customers        5,934,013          5,518,179            7.5%          5,934,013           5,518,179       7.5%
     Weighted-
     average
     customers        5,735,799          5,400,449            6.2%          5,724,152           5,239,638       9.2%
    Churn                   3.9%               4.0%             -                 3.8%                4.7%        -
    End of
     period
     covered
     POPS                ~95.3               ~95.3              -              ~95.3              ~95.3         -
    Average
     revenue
     per
     user
     (ARPU)          $42.09       $38.14        10.4%     $40.72      $37.76         7.8%
    Cash
     cost
     per
     user
     (CCU)           $22.46       $21.77         3.2%     $22.60      $19.22        17.6%
    Cost per
     gross
     addition
     (CPGA)                $238               $209           13.9%               $228                $199      14.6%
    Cash
     purchases
     of
     property
     and
     equipment       $152.4       $100.0        52.4%     $441.7      $398.9        10.7%
     Unrestricted
     cash,
     cash
     equivalents
     and
     short-
     term
     investments     $751.0       $419.2        79.2%     $751.0      $419.2        79.2%

(1) 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.

(2) The Company recorded impairment and other changes of $477.3 million in the third quarter of 2010 primarily relating to impairment of goodwill.

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

(4) Net customer additions for the three months and year ended December 31, 2010 exclude 322,527 customers acquired from Pocket Communications in October 2010 in connection with the formation of our South Texas joint venture.

Discussion of Financial and Operational Results for the Fourth Quarter
Customers and Churn

  • End-of-period customers for the fourth quarter of 2011 were approximately 5,934,000, a 7.5 percent increase from end-of-period customers for the fourth quarter of 2010.
  • Net customer additions for the fourth quarter of 2011 were approximately 179,000, compared to approximately 107,000 net customer additions for the fourth quarter of 2010. Fourth quarter 2011 net customer additions reflected net additions of approximately 209,000 voice customers and net deactivations of approximately 30,000 broadband customers.
    • The approximately 209,000 net voice additions represented an increase of approximately 54,000 voice customers compared to the fourth quarter of 2010 and resulted from continued uptake of the Company’s higher-end device portfolio and “all-inclusive” service plans, uptake of the Company’s Muve Music service, continued focus on customer service and the Company’s expansion into the national retail sales channel. Approximately 65,000 net voice additions were added outside of Cricket’s network footprint areas in the fourth quarter of 2011.
    • The approximately 30,000 net broadband deactivations represented an improvement of approximately 18,000 customer deactivations compared to the fourth quarter of 2010 and reflected the Company’s continued focus on higher-value service plans, a reduction in emphasis on broadband sales and marketing efforts and higher device prices.
  • Customer churn for the fourth quarter of 2011 was 3.9 percent, a decrease from 4.0 percent for the comparable period of the prior year. Voice churn for the fourth quarter of 2011 was 3.7 percent, compared to 3.6 percent for the comparable period of the prior year.
  • Approximately 60 percent of the Company’s new handset sales in the fourth quarter of 2011 were for smartphones and Muve Music devices, compared to approximately 30 percent in the fourth quarter of 2010. Approximately 10 percent of the Company’s customer base upgraded their handsets during the quarter, most of which were upgraded to better devices coupled with higher-ARPU service plans, compared to 13 percent in the fourth quarter of 2010.

Service Revenues and ARPU

  • Service revenues for the fourth quarter increased to $729.5 million, a 14.6 percent increase over the comparable period of the prior year, primarily due to a 6.2 percent increase in weighted-average customers and continued uptake of the Company’s higher-ARPU service plans.
  • ARPU for the fourth quarter of 2011 was $42.09, an increase of $3.95, or 10.4 percent, over the comparable period of the prior year, and $0.84, or 2.0 percent, from the third quarter of 2011. The year-over-year increase in ARPU primarily reflected increased customer acceptance of the Company’s smartphones, Muve Music devices and higher-value, “all-inclusive” service plans and increased service plan pricing for the Company’s broadband service.

Adjusted OIBDA and Operating Expenses

  • Adjusted OIBDA for the fourth quarter of 2011 was $135.1 million, an increase of 26.3 percent over the comparable period of the prior year, reflecting growth in service revenues, partially offset by increased equipment subsidy and increased product costs associated with uptake of Muve Music and higher-value service plans.
  • Fourth quarter 2011 operating loss was $3.5 million, compared with an operating loss of $27.0 million for the comparable period of the prior year. The year-over-year improvement in operating loss primarily resulted from the increase in adjusted OIBDA discussed above and an $8.3 million net gain on sale, exchange or disposal of assets, offset by increased depreciation and amortization expense associated with network and corporate platform upgrades.
  • Net loss attributable to common stockholders for the fourth quarter of 2011 was $84.4 million, or $1.10 per diluted share, compared to a net loss attributable to common stockholders of $249.4 million, or $3.28 per diluted share, for the fourth quarter of 2010. The year-over-year improvement in net loss was primarily driven by the improvement in operating performance, a decrease in accretion expense related to the redemption value of the Company’s joint ventures and lower income tax expense. In addition, in the fourth quarter of 2010, the Company recorded an expense related to the extinguishment of debt in connection with the Company’s November 2010 debt refinancing which contributed to the higher net loss in the fourth quarter of 2010.
  • CCU for the fourth quarter of 2011 increased 3.2 percent over the prior year quarter to $22.46, primarily due to increased telecommunications taxes and regulatory fees in connection with further customer migration to the Company’s “all-inclusive” service plans and increased product costs associated with the uptake of Muve Music and higher-value service plans, offset in part by successful cost management efforts. By the end of the fourth quarter of 2011, more than 90 percent of the Company’s customer base was on an “all-inclusive” service plan.
  • CPGA for the fourth quarter of 2011 increased by 13.9 percent over the prior year quarter to $238, reflecting increased device subsidy expense in connection with promotional activities and expenses associated with the launch of our national retail activities.

Capital Expenditures

  • Capital expenditures were $152.4 million for the fourth quarter of 2011 and $441.7 million for the full year.
  • Total capital expenditures for 2012 are expected to be between $600 million and $650 million, primarily to support the initial deployment of next-generation LTE network technology, the ongoing maintenance and development of the Company’s network and other business assets and other capital projects.
  • Annual capital expenditures for 2012 to support the ongoing maintenance and development of the Company’s network within its current footprint are expected to be in the mid-teens as a percentage of annual in-footprint 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. The Company plans to cover up to 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. 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 within its current footprint. 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.

Other Key Fourth Quarter Highlights

  • Launched six devices during the fourth quarter of 2011, including two new smartphones and the Company’s first tablet, the Samsung Galaxy Tab. The Huawei Mercury smartphone, launched in December, was selected for an Editor’s Choice award from PC Magazine, which called the device “the best prepaid smartphone in America right now.”
  • Announced that its innovative Muve Music service had gained over 500,000 customers in less than one year and has grown to become the second largest digital music subscription service in the U.S. With its inclusion on the Cricket Ascend II handset, Muve Music is now available on five Cricket phones. Muve Music won the “Hot for the Holidays Award” at the fall CTIA conference and debuted on two new distribution channels, including HSN and Amazon.com.
  • Introduced a suite of unique international calling products, including Mexico Local Number and Global Local Number, two new unlimited international calling plans that include unlimited global text and picture messaging. The Global Local Number product allows Cricket customers to set up a local number in more than 40 different countries including the U.S. and Mexico.
  • Launched the Company’s first 4G market with the introduction of LTE service in Tucson, Arizona in December.
  • Announced spectrum transactions with Verizon Wireless involving the sale by the Company and its designated entity Savary Island of excess wireless spectrum covering approximately 46 million POPs and the acquisition by the Company of a wireless license covering approximately 11 million POPs in the Chicago area, which will supplement the 10 MHz of spectrum the Company currently operates in Chicago to strengthen that market.
  • Launched the ‘Your Call’ promotional campaign to reinforce customers’ need for choice and control when making wireless purchases. The campaign includes television, radio, print, out-of-home and social media.
  • Partnered with Rebuilding Together to improve homes, schools, community centers and charities in St. Louis, Chicago, Philadelphia, Houston, Washington, DC and San Diego. Cricket employees volunteered to paint, landscape and refurbish facilities and homes as part of the Company’s commitment to assisting Rebuilding Together in its mission to serve low-income homeowners and communities by rehabilitating and revitalizing the safety and health of their homes and community buildings with critical repairs and updates.

“In the fourth quarter, we demonstrated further operational progress which continues to drive ongoing financial improvements,” said Walter Berger, Leap’s executive vice president and chief financial officer. “Adjusted OIBDA for the fourth quarter increased approximately 26 percent year over year, and we remain focused on driving further improvements. We also launched our first LTE network in Tucson, Arizona in December and expect to cover up to approximately 25 million POPs with LTE service by the end of 2012. We ended the year with approximately $750 million in available cash and short term investments to support the growth of our business and we expect further de-levering of our balance sheet in the coming quarters as top-line growth translates to bottom-line margin improvements. In addition, we and our Savary Island venture entered into spectrum transactions with Verizon that we expect will both enhance our spectrum position in a key market and result in the addition of more than $100 million in cash to our balance sheet.”

Conference Call Information

As previously announced, Leap management will host a conference call with live webcast at 5:00 p.m. EST / 2:00 p.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 1-800-768-2878 (domestic) or 1-212-231-2915 (international). No participant pass code number is required for this call. If listening via telephone, the accompanying presentation slides may be accessed by visiting http://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 10 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 approximately one year following the event. A telephonic replay will be available approximately two hours after the call’s completion and can be accessed by dialing 1-800-633-8284 (domestic) or 1-402-977-9140 (international) and entering reservation number 21575742.

About Leap

Leap provides innovative, high-value wireless services to a fast-growing, young and ethnically diverse customer base. With the value of unlimited wireless services as the foundation of its business, Leap pioneered its Cricket service. Cricket service is offered in 47 states and the District of Columbia, and the Company and its joint ventures hold licenses in 47 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, ARPU, 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 discussions about customer activity, the closing of spectrum transactions with Verizon Wireless and expected financial and operational performance and are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “will,” “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;
  • the duration and severity of the current economic downturn in the United States and changes in economic conditions, including interest rates, consumer credit conditions, consumer debt levels, consumer confidence, unemployment rates, energy costs 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 and service plan offerings, expand our retail distribution and execute effectively on our other strategic activities;
  • our ability to obtain and maintain roaming and wholesale services from other carriers at cost-effective rates;
  • our ability to maintain effective internal control over financial reporting;
  • our ability to attract, integrate, motivate and retain an experienced workforce, including members of senior management;
  • 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;
  • our ability to acquire additional spectrum in the future at a reasonable cost or on a timely basis;
  • our ability to comply with the covenants in any credit agreement, indenture or similar instrument governing any of our existing or future indebtedness;
  • our ability to effectively manage and operate our joint venture in South Texas;
  • 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; 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, 2011 filed with the SEC on November 3, 2011, and our Annual Report on Form 10-K for the year ended December 31, 2011, 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 included in this release speak only as of the date of this release. 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, Cricket Wireless, Cricket Clicks, Muve Music, MyPerks, Flex Bucket, Real Unlimited Unreal Savings and the Cricket “K” are U.S. registered trademarks of Cricket. In addition, the following are trademarks or service marks of Cricket: BridgePay, Cricket By Week, Cricket Choice, Cricket Connect, Cricket Nation, Cricket PAYGo, Muve, Muve Money, Muve First, Muve Headline, Cricket Crosswave, Seek Music, Cricket MyPerks and Cricket Wireless Internet Service. All other trademarks are the property of their respective owners.


                                      LEAP WIRELESS INTERNATIONAL, INC.
                                       CONSOLIDATED BALANCE SHEETS (1)
                                    (In thousands, except share amounts)
                                                                     December 31,   December 31,
                                                                     ------------   ------------
                                                                               2011          2010
                                                                               ----          ----
                                                                      (Unaudited)
    Assets
    Cash and cash equivalents                                           $345,243      $350,790
    Short-term investments                                               405,801        68,367
    Inventories                                                          116,957       104,241
    Deferred charges                                                      57,979        47,343
    Other current assets                                                 134,457        91,010
                                                                         -------        ------
       Total current assets                                            1,060,437       661,751
    Property and equipment, net                                        1,957,374     2,036,645
    Wireless licenses                                                  1,788,970     1,968,075
    Assets held for sale                                                 204,256            -
    Goodwill                                                              31,886        31,094
    Intangible assets, net                                                41,477        64,843
    Other assets                                                          68,290        72,415
                                                                          ------
       Total assets                                                   $5,152,690    $4,834,823
                                                                      ==========    ==========
    Liabilities and Stockholders'
     Equity
    Accounts payable and accrued
     liabilities                                                        $460,278      $346,869
    Current maturities of long-term
     debt                                                                 21,911         8,500
    Other current liabilities                                            256,357       221,077
                                                                         -------       -------
       Total current liabilities                                         738,546       576,446
    Long-term debt                                                     3,198,749     2,832,070
    Deferred tax liabilities                                             333,804       295,703
    Other long-term liabilities                                          172,366       114,534
                                                                         -------
       Total liabilities                                               4,443,465     3,818,753
                                                                       ---------     ---------
    Redeemable non-controlling
     interests                                                            95,910       104,788
                                                                          ------       -------
    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; 78,924,049 and 78,437,309
     shares issued and outstanding at
     December 31, 2011 and December
     31, 2010, respectively                                                  8         8
    Additional paid-in capital                                         2,175,436     2,155,712
    Accumulated deficit                                               (1,561,417)   (1,243,740)
    Accumulated other comprehensive
     loss                                                                   (712)         (698)
                                                                            ----
       Total stockholders' equity                                        613,315       911,282
                                                                         -------       -------
       Total liabilities and
        stockholders' equity                                          $5,152,690    $4,834,823
                                                                      ==========    ==========


                                    LEAP WIRELESS INTERNATIONAL, INC.
                                CONSOLIDATED STATEMENTS OF OPERATIONS (1)
                                  (In thousands, except per share data)

                                                 Three Months Ended                 Year Ended
                                                 ------------------                 ----------
                                                    December 31,                   December 31,
                                                    ------------                   ------------
                                                  2011                 2010           2011            2010
                                                  ----                 ----           ----            ----
                                            (Unaudited)        (Unaudited)   (Unaudited)
    Revenues:
    Service revenues                          $729,487             $636,586     $2,829,281      $2,482,601
    Equipment revenues                          37,913               71,450        241,850         214,602
                                                ------               ------        -------         -------
       Total revenues                          767,400              708,036      3,071,131       2,697,203
                                               -------              -------      ---------       ---------
    Operating expenses:
    Cost of service (exclusive
     of items shown separately
     below)                                    244,489              219,898        981,203         840,635
    Cost of equipment                          215,084              192,627        817,920         591,994
    Selling and marketing                       92,349              107,043        369,257         414,318
    General and administrative                  84,142               91,169        355,529         361,571
    Depreciation and
     amortization                              140,711              123,085        548,426         457,035
    Impairments and other
     charges                                     2,446                   -         26,770         477,327
                                                 -----                 ---         ------         -------
       Total operating expenses                779,221              733,822      3,099,105       3,142,880
    Gain (loss) on sale,
     exchange or disposal of
     assets, net                                 8,295               (1,197)         2,622          (5,061)
                                                 -----               ------          -----          ------
       Operating loss                           (3,526)             (26,983)       (25,352)       (450,738)
    Equity in net income of
     investees, net                                 31                  770          2,984           1,912
    Interest income                                 63                   76            245           1,010
    Interest expense                           (68,405)             (62,315)      (256,175)       (243,377)
    Other income (loss), net                        (2)                   2             (2)          3,209
    Loss on the extinguishment
     of debt                                        -              (54,558)            -         (54,558)
                                                  ---              -------           ---         -------
       Loss before income taxes                (71,839)            (143,008)      (278,300)       (742,542)
    Income tax expense                          (6,831)             (23,976)       (39,377)        (42,513)
                                                ------              -------        -------         -------
       Net loss                                (78,670)            (166,984)      (317,677)       (785,055)
    Accretion of redeemable
     non-controlling
     interests and
     distributions, net of tax                  (5,705)             (82,414)         3,050         (86,898)
                                                ------              -------                       -------
       Net loss attributable to
        common stockholders                   $(84,375)           $(249,398)     $(314,627)      $(871,953)
                                              ========            =========      =========       =========
    Loss per share
     attributable to common
     stockholders:
      Basic                                     $(1.10)              $(3.28)        $(4.11)        $(11.49)
                                                ======               ======         ======         =======
      Diluted                                   $(1.10)              $(3.28)        $(4.11)        $(11.49)
    Shares used in per share
     calculations:
      Basic                                     76,725               76,059         76,534          75,917
                                                ======               ======         ======          ======
      Diluted                                   76,725               76,059         76,534          75,917
                                                ======               ======         ======          ======


                                   LEAP WIRELESS INTERNATIONAL, INC.
                               CONSOLIDATED STATEMENTS OF CASH FLOWS (1)
                                             (In thousands)
                                                                     Year Ended December 31,
                                                                     -----------------------
                                                                       2011                 2010
                                                                       ----                 ----
                                                                 (Unaudited)
    Operating activities:
       Net cash provided by
        operating activities                                       $387,509             $312,278
                                                                   --------             --------
    Investing activities:
      Acquisition of a business                                        (850)             (40,730)
      Purchases of property and
       equipment                                                   (441,656)            (398,894)
      Change in prepayments for
       purchases of property and
       equipment                                                     (9,944)               1,412
      Purchases of and deposits
       for wireless licenses and
       spectrum clearing costs                                       (4,880)             (13,319)
      Proceeds from sale of
       wireless licenses and
       operating assets                                               5,070                   -
      Purchases of investments                                     (826,233)            (488,450)
      Sales and maturities of
       investments                                                  487,860              816,247
      Purchases of membership
       units of equity
       investments                                                       -                 (967)
      Dividend received from
       equity investee                                               11,606                   -
      Change in restricted cash                                        (948)                 749
         Net cash used in investing
          activities                                               (779,975)            (123,952)
                                                                   --------             --------
    Financing activities:
      Proceeds from issuance of
       long-term debt                                               396,772            1,179,876
      Repayment of long-term
       debt                                                         (23,589)          (1,118,096)
      Payment of debt issuance
       costs                                                         (7,269)              (1,308)
      Purchase of non-
       controlling interests                                             -              (77,664)
      Non-controlling interest
       contribution                                                      -                5,100
      Proceeds from issuance of
       common stock, net                                              1,346                1,535
      Proceeds from sales lease-
       back financing                                                25,815                   -
      Other                                                          (6,156)              (1,978)
                                                                                         ------
         Net cash provided by (used
          in) financing activities                                  386,919              (12,535)
                                                                    -------              -------
    Net increase (decrease) in
     cash and cash equivalents                                       (5,547)             175,791
    Cash and cash equivalents
     at beginning of period                                         350,790              174,999
                                                                                        -------
    Cash and cash equivalents
     at end of period                                              $345,243             $350,790
                                                                   ========             ========

    Supplementary disclosure
     of cash flow information:
      Cash paid for interest                                      $(229,034)           $(244,123)
      Cash paid for income taxes                                    $(3,079)             $(2,810)
    Non-cash investing
     activities
      Contribution of wireless
       licenses in exchange for
       an equity interest                                     $           -               $2,381
      Consideration provided for
       the acquisition of
       Pocket's business                                      $           -             $(99,894)
      Net wireless licenses
       received in exchange
       transaction                                                 $(20,649)       $           -
    Non-cash financing
     activities:
      Note assumed as
       consideration for
       purchase of remaining
       interest in joint
       venture                                              $           -        $45,500

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 operating results and financial position of Leap and its wholly-owned subsidiaries and consolidated joint ventures. The Company consolidates its non-controlling interest in Savary Island Wireless, LLC (Savary Island) in accordance with the authoritative guidance for the consolidation of variable interest entities because Savary Island is a variable interest entity and, among other things, the Company has entered into an agreement with Savary Island’s other member which establishes a specified purchase price in the event that it exercises its right to sell its membership interest to the Company. The Company consolidates STX Wireless, LLC in accordance with the authoritative guidance for consolidations based on the voting interest model. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

The following tables summarize operating data for the Company’s consolidated operations for the three months and years ended December 31, 2011 and 2010 (in thousands, except percentages):


                                             Three Months Ended December 31,
                                             -------------------------------
                                                                                                 Change from
                                                                                                                                 Prior
                                                                                                ------------
                                                                                                    Year
                                                                                                    ----
                                    % of 2011                          % of 2010
                                                  Service                                         Service
                           2011                  Revenues                2010                     Revenues         Dollars    Percent
                         ----       ----------            ----          ----------       -------            -------
                    (Unaudited)                  (Unaudited)
    Revenues:
    Service
     revenues         $729,487                            $636,586                                  $92,901             14.6%
    Equipment
     revenues           37,913                              71,450                                  (33,537)          (46.9)%
                                                       ------
       Total
        revenues       767,400                             708,036                                   59,364              8.4%
                       -------                         -------                             ------              ---
    Operating
     expenses:
    Cost of
     service
     (exclusive
     of items
     shown
     separately
     below)          244,489    33.5%        219,898      34.5%         24,591        11.2%
    Cost of
     equipment         215,084        29.5%             192,627          30.3%               22,457             11.7%
    Selling and
     marketing          92,349        12.7%             107,043          16.8%              (14,694)          (13.7)%
    General and
     administrative     84,142        11.5%              91,169          14.3%               (7,027)           (7.7)%
    Depreciation
     and
     amortization      140,711        19.3%             123,085          19.3%               17,626             14.3%
    Impairments
     and other
     charges             2,446         0.3%                  -             -  %              2,446                -  %
                         -----         ---                 ---           ---   ---           -----              ---   ---
       Total
        operating
        expenses       779,221       106.8%             733,822         115.3%               45,399              6.2%
    Gain (loss)
     on sale,
     exchange or
     disposal of
     assets, net       8,295     1.1%         (1,197)    (0.2)%         (9,492)    (793.0)%
                                                        ------
       Operating
        loss           $(3,526)      (0.5)%            $(26,983)        (4.2)%             $(23,457)          (86.9)%
                       =======       =====             ========         =====              ========           ======


                                                     Year Ended December 31,
                                                     -----------------------
                                                                                                     Change from
                                                                                                                                           Prior
                                                                                                    ------------
                                                                                                        Year
                                                                                                        ----
                                           % of
                                                           2011                               % of 2010
                                                        Service                                Service
                             2011                      Revenues                  2010        Revenues              Dollars         Percent
                          ----            --------                  ----      ----------        -------           -------
                     (Unaudited)
    Revenues:
    Service
     revenues         $2,829,281                                 $2,482,601                               $346,680           14.0%
    Equipment
     revenues            241,850                                    214,602                                 27,248           12.7%
                                                             -------
       Total
        revenues       3,071,131                                  2,697,203                                373,928           13.9%
                       ---------                            ---------                            -------             ----
    Operating
     expenses:
    Cost of
     service
     (exclusive
     of items
     shown
     separately
     below)         $981,203      34.7%      $840,635       33.9%     $140,568         16.7%
    Cost of
     equipment           817,920          28.9%                591,994           23.8%             225,926             38.2%
    Selling and
     marketing           369,257          13.1%                414,318           16.7%             (45,061)          (10.9)%
    General and
     administrative      355,529          12.6%                361,571           14.6%              (6,042)           (1.7)%
    Depreciation
     and
     amortization        548,426          19.4%                457,035           18.4%              91,391             20.0%
    Impairments
     and other
     charges              26,770           0.9%                477,327           19.2%            (450,557)          (94.4)%
                          ------           ---                 -------           ----             --------           ------
       Total
        operating
        expenses       3,099,105         109.5%              3,142,880          126.6%             (43,775)           (1.4)%
    Gain (loss)
     on sale,
     exchange or
     disposal of
     assets, net         2,622       0.1%          (5,061)     (0.2)%          7,683      (151.8)%
                           -----                                ------          -----                -----
       Operating
        loss            $(25,352)         (0.9    )%        $(450,738)        (18.2)%            $425,386           (94.4)%
                        ========          ====   ===         =========         ======             ========           ======

Total share-based compensation expense related to the Company’s share-based awards for the three months and years ended December 31, 2011 and 2010 was allocated to the consolidated statements of operations as follows (in thousands, except per share data):


                                                                 Year Ended December
                                    Three Months Ended                                   31,
                                    ------------------              --------------------
                                       December 31,
                                       ------------
                                    2011              2010        2011              2010
                                    ----              ----        ----              ----
                                (Unaudited)        (Unaudited)  (Unaudited)
    Cost of service                $(196)           $1,358      $1,734            $3,673
    Selling and marketing            917             1,267       1,985             5,781
    General and administrative     3,052             7,121      11,609            27,155
                                                    -----                       ------
       Share-based compensation
        expense                   $3,773            $9,746     $15,328           $36,609
                                  ======            ======     =======           =======
    Share-based compensation
     expense per share:
       Basic                       $0.05             $0.13       $0.20             $0.48
                                   =====             =====       =====             =====
       Diluted                     $0.05             $0.13       $0.20             $0.48
                                   =====             =====       =====             =====

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.

(1) Churn, which measures customer turnover, is calculated as the net number of customers that disconnect from our service divided by the weighted-average number of customers divided by the number of months during the period being measured. Customers who do not pay the first bill they receive following initial activation are deducted from our gross customer additions in the month in which they are disconnected; as a result, these customers are not included in churn. Customers of our Cricket Wireless and Cricket Broadband service are generally disconnected from service approximately 30 days after failing to pay a monthly bill. Cricket PAYGo customers generally have 60 days from the date they activated their account, were charged a daily or monthly access fee for service or last “topped-up” their account (whichever is later) to do so again, or they will have their account suspended for a subsequent 60-day period before being disconnected. The Company currently plans to modify its disconnection policies in mid-2012 to eliminate this subsequent 60-day grace period and disconnect customers who have not been charged an access fee or “topped-up” their account during the preceding 60 days. 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.

(2) ARPU is service revenues less pass-through regulatory fees and telecommunications taxes, divided by the weighted-average number of customers, divided by the number of months during the period being measured. Management uses ARPU to identify average revenue per customer, to track changes in average customer revenues over time, to help evaluate how changes in our business, including changes in our service offerings, affect average revenue per customer, and to forecast future service revenue. In addition, ARPU provides management with a useful measure to compare our subscriber revenue to that of other wireless communications providers. Customers of our Cricket Wireless and Cricket Broadband service are generally disconnected from service approximately 30 days after failing to pay a monthly bill. Cricket PAYGo customers generally have 60 days from the date they activated their account, were charged a daily or monthly access fee for service or last “topped-up” their account (whichever is later) to do so again, or they will have their account suspended for a subsequent 60-day period before being disconnected. The Company currently plans to modify its disconnection policies in mid-2012 to eliminate this subsequent 60-day grace period and disconnect customers who have not been charged an access fee or “topped-up” their account during the preceding 60 days. Therefore, because our calculation of weighted-average number of customers includes customers who have yet to disconnect service because they have either not paid their last bill or have not replenished or “topped up” their account, ARPU may appear lower during periods in which we have significant disconnect activity. We believe investors use ARPU primarily as a tool to track changes in our average revenue per customer and to compare our per customer service revenues to those of other wireless communications providers. Other companies may calculate this measure differently.

The following table reconciles total service revenues used in the calculation of ARPU to service revenues, which we consider to be the most directly comparable GAAP financial measure to ARPU (unaudited; in thousands, except weighted-average number of customers and ARPU):


                                                                 Year Ended December
                                       Three Months Ended                                        31,
                                       ------------------              --------------------
                                          December 31,
                                          ------------
                                       2011               2010        2011                 2010
                                       ----               ----        ----                 ----
    Service revenues               $729,487           $636,586  $2,829,281           $2,482,601
     Less pass-through
      regulatory fees and
      telecommunications taxes       (5,242)           (18,642)    (32,570)            (108,376)
                                     ------            -------     -------             --------
      Total service revenues used
       in the calculation of ARPU  $724,245           $617,944  $2,796,711           $2,374,225
    Weighted-average number of
     customers                    5,735,799          5,400,449   5,724,152            5,239,638
                                                    ---------                       ---------
     ARPU                            $42.09             $38.14      $40.72               $37.76
                                     ======             ======      ======               ======

(3) CPGA is selling and marketing expense (excluding applicable share-based compensation expense included in selling and marketing expense), and equipment subsidy (generally defined as cost of equipment less equipment revenue), less the net loss on equipment transactions and third-party commissions unrelated to customer acquisition, divided by the total number of gross new customer additions during the period being measured. The net loss on equipment transactions unrelated to customer acquisition includes the revenues and costs associated with the sale of wireless devices to existing customers as well as costs associated with device replacements and repairs (other than warranty costs which are the responsibility of the device manufacturers). Commissions unrelated to customer acquisition are commissions paid to third parties for certain activities related to the continuing service of customers. We deduct customers who do not pay the first bill they receive following initial activation from our gross customer additions in the month in which they are disconnected, which tends to increase CPGA because we incur the costs associated with a new customer without receiving the benefit of a gross customer addition. Management uses CPGA to measure the efficiency of our customer acquisition efforts, to track changes in our average cost of acquiring new subscribers over time, and to help evaluate how changes in our sales and distribution strategies affect the cost-efficiency of our customer acquisition efforts. In addition, CPGA provides management with a useful measure to compare our per customer acquisition costs with those of other wireless communications providers. We believe investors use CPGA primarily as a tool to track changes in our average cost of acquiring new customers and to compare our per customer acquisition costs to those of other wireless communications providers. Other companies may calculate this measure differently.

The following table reconciles total costs used in the calculation of CPGA to selling and marketing expense, which we consider to be the most directly comparable GAAP financial measure to CPGA (unaudited; in thousands, except gross customer additions and CPGA):


                                                                         Year Ended December
                                     Three Months Ended                                             31,
                                     ------------------                     --------------------
                                        December 31,
                                        ------------
                                     2011               2010               2011               2010
                                     ----               ----               ----               ----
    Selling and marketing
     expense                      $92,349           $107,043           $369,257           $414,318
     Less share-based
      compensation expense
      included in selling and
      marketing expense              (917)            (1,267)            (1,985)            (5,781)
     Plus cost of equipment       215,084            192,627            817,920            591,994
     Less equipment revenue       (37,913)           (71,450)          (241,850)          (214,602)
     Less net loss on equipment
      transactions and third-
      party commissions
      unrelated to customer
      acquisition               (65,890)       (68,729)      (261,672)      (145,728)
                                  -------            -------           --------           --------
      Total costs used in the
       calculation of CPGA       $202,713           $158,224           $681,670           $640,201
    Gross customer additions      850,386            758,785          2,991,352          3,219,485
                                                    -------                            ---------
    CPGA                             $238               $209               $228               $199
                                     ====               ====               ====               ====

(4) CCU is cost of service and general and administrative expense (excluding applicable share-based compensation expense included in cost of service and general and administrative expense) plus net loss on equipment transactions and third-party commissions unrelated to customer acquisition (which includes the gain or loss on the sale of devices to existing customers, costs associated with device replacements and repairs (other than warranty costs which are the responsibility of the device manufacturers) and commissions paid to third parties for certain activities related to the continuing service of customers), less pass-through regulatory fees and telecommunications taxes, divided by the weighted-average number of customers, divided by the number of months 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):


                                                                        Year Ended December
                                     Three Months Ended                                                31,
                                     ------------------                      --------------------
                                        December 31,
                                        ------------
                                     2011               2010                2011                 2010
                                     ----               ----                ----                 ----
    Cost of service              $244,489           $219,898            $981,203             $840,635
     Plus general and
      administrative expense       84,142             91,169             355,529              361,571
     Less share-based
      compensation expense
      included in the cost of
      service and general and
      administrative expense     (2,856)        (8,479)       (13,343)         (30,828)
     Plus net loss on equipment
      transactions and third-
      party commissions
      unrelated to customer
      acquisition                65,890         68,729        261,672          145,728
     Less pass-through
      regulatory fees and
      telecommunications taxes     (5,242)           (18,642)            (32,570)            (108,376)
                                   ------            -------             -------             --------
      Total costs used in the
       calculation of CCU        $386,423           $352,675          $1,552,491           $1,208,730
    Weighted-average number of
     customers                  5,735,799          5,400,449           5,724,152            5,239,638
                                                  ---------                               ---------
    CCU                            $22.46             $21.77              $22.60               $19.22
                                   ======             ======              ======               ======

(5) Adjusted OIBDA is a non-GAAP financial measure defined as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: gain/(loss) on sale, exchange or disposal of assets, net; impairments and other charges; and share-based compensation expense. Adjusted OIBDA should not be construed as an alternative to operating income (loss) or net income (loss) as determined in accordance with GAAP, or as an alternative to cash flows from operating activities as determined in accordance with GAAP or as a measure of liquidity.

In a capital-intensive industry such as wireless telecommunications, management believes that adjusted OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance. We use adjusted OIBDA as a supplemental performance measure because management believes it facilitates comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by backing out potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the items described above for which additional adjustments were made. While depreciation and amortization are considered operating costs under 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 facilitates internal comparisons of our historical operating performance, management also uses this metric for business planning purposes and to measure our performance relative to that of our competitors. In addition, we believe that adjusted OIBDA and similar measures are widely used by investors, financial analysts and credit rating agencies as measures of our financial performance over time and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

  • it does not reflect capital expenditures;
  • although it does not include depreciation and amortization, the assets being depreciated and amortized will often have to be replaced in the future and adjusted OIBDA does not reflect cash requirements for such replacements;
  • it does not reflect costs associated with share-based awards exchanged for employee services;
  • it does not reflect the interest expense necessary to service interest or principal payments on current or future indebtedness;
  • it does not reflect expenses incurred for the payment of income taxes and other taxes; and
  • other companies, including companies in our industry, may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Management understands these limitations and considers adjusted OIBDA as a financial performance measure that supplements but does not replace the information provided to management by our GAAP results.

The following table reconciles adjusted OIBDA to operating loss, which we consider to be the most directly comparable GAAP financial measure to adjusted OIBDA (unaudited; in thousands):


                                                              Year Ended December
                                   Three Months Ended                                         31,
                                   ------------------              --------------------
                                      December 31,
                                      ------------
                                    2011                2010       2011                 2010
                                    ----                ----       ----                 ----
    Operating loss               $(3,526)           $(26,983)  $(25,352)           $(450,738)
     Plus depreciation and
      amortization               140,711             123,085    548,426              457,035
                                                    -------                        -------
    OIBDA                       $137,185             $96,102   $523,074               $6,297
                                ========             =======   ========               ======
     Less (gain) loss on sale,
      exchange or disposal of
      assets, net                 (8,295)              1,197     (2,622)               5,061
     Plus impairments and other
      charges                      2,446                  -     26,770              477,327
     Plus share-based
      compensation expense         3,773               9,746     15,328               36,609
                                                      -----                         ------
    Adjusted OIBDA              $135,109            $107,045   $562,550             $525,294
                                ========            ========   ========             ========

SOURCE Leap Wireless International, Inc.


Source: PR Newswire