Leap Reports Results for Second Fiscal Quarter of 2002
~Company Reduces Consolidated EBITDA Loss by more than 50%, Continues to Improve in Non-Selling Cash Costs per User~
SAN DIEGO – July 24, 2002 –Leap Wireless International, Inc. (Nasdaq: LWIN), an innovator of wireless communications services, today reported results for the second quarter of fiscal year 2002 and updated its business outlook and status on vendor covenants for the remainder of the year. Leap ended the quarter with approximately 1.452 million Cricket customers, up from 1.387 million customers as of March 31, 2002. Leap offers Cricket, its unlimited local wireless service, in 40 markets in 20 states stretching from New York to California.
Key consolidated financial performance measures for the second fiscal quarter of 2002 were:
· Total revenues for Leap’s operations were $151.1 million, an increase of $10.9 million over the $140.2 million reported for the previous quarter. Service revenue rose to $144.4 million, an increase of $16.4 million over that reported for the first fiscal quarter of 2002.
· Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) loss for Leap was $32.0 million, a decrease of $33.9 million from the adjusted EBITDA loss of $65.9 million reported for the previous quarter. The adjusted EBITDA loss of $65.9 million for the first quarter of 2002 excludes the gain on the sale of a wireless license of $0.4 million. Of the EBITDA loss reported for Leap during the second quarter of 2002, $24.1 million was attributable to its Cricket business.
· Leap’s net loss for the second quarter was $158.6 million, or $4.23 per share, $0.66 per share less than its adjusted net loss of $181.1 million, or $4.89 per share reported for the first quarter of 2002. The adjusted net loss of $181.1 million for the first quarter of 2002 excludes the gain on the sale of a wireless license of $0.4 million and excludes a one-time income tax expense of $15.9 million resulting from Leap’s previously announced adoption of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Leap adopted SFAS No. 142 on January 1, 2002. Accordingly, amortization of goodwill and wireless licenses ceased as of that date because they are indefinite lived intangible assets.
· Leap’s total cash and cash equivalents, unrestricted investments, and remaining deposit on Auction #35 as of June 30, 2002 were $219.7 million.
· Leap’s property and equipment, net of depreciation, rose to $1,223.9 million at June 30, 2002, an increase of $17.2 million over that reported at March 31, 2002.
“During the second quarter, we were successful in meeting challenges facing our business, particularly in relation to the mitigation of fraud and the control of operating costs,” said Harvey P. White, Leap’s chairman and CEO. “However, these improvements in the operational security of our business and the aggressive dealer incentives launched by traditional wireless carriers, particularly late in the quarter, contributed to our slower than expected customer growth and the overall results we are reporting for the quarter. Our Cricket service has continued to grow and operate in a space complementary to both traditional cellular and PCS carriers and landline service providers, and we continue to have one of the lowest operating cost structures in the industry.”
“As we look to the future, the unsettled nature of the wireless market, decreased consumer confidence in the economy, and the other issues facing the telecom industry in general have created a level of uncertainty that affects our ability to predict future subscriber growth,” continued White. “Keeping this in mind, and based on the results of the second quarter, we have adjusted our business outlook for the remainder of the year. Our one year and older markets in aggregate were EBITDA positive for the quarter, and we continue to expect to be EBITDA positive on a consolidated basis for the fourth quarter of 2002. We expect to manage our business to be in compliance with all covenants contained within our vendor financing agreements for the remainder of 2002. We
believe that we have a strong future based on a solid business model and a strong team of industry veterans to execute on our plans.”
“We believe that Cricket service is, and will continue to be, distinctively differentiated in the marketplace,” said Susan G. Swenson, Leap’s president and chief operating officer. “We are penetrating a new market for wireless service and the team is focused on ensuring that Cricket’s value and comfortable predictability is understood by customers in our markets. We are committed to sustainable and rational growth which attracts loyal customers who will continue to contribute to bottom-line results.”
Cricket Operational Highlights:
Operational highlights from the second fiscal quarter of 2002 include:
· Overall non-selling cash costs per user (CCU) for Leap’s consolidated business was approximately $22.
· Billed average revenue per user per month (ARPU) was approximately $38.37.
· Overall cost per gross customer addition (CPGA) was approximately $316, including both the effects of a slower rate of gross customer additions and the impact of the fraud mitigation programs the Company implemented during the second quarter.
· Overall consolidated churn for the Company’s 40 Market Plan was approximately 4.6%.
· Average minutes of use across all of Leap’s markets were 1,175minutes per month.
Leap also reported the following second quarter results for its 20 mature markets, which have been in operation for one-year or more and together represent approximately 50 percent of the Company’s potential customers covered under its 40 Market Plan:
· Aggregate EBITDA margin, based on service revenue, was approximately 15 percent at the market level.
· Aggregate earnings before interest, taxes, depreciation, amortization, and marketing (EBITDAM) margin, based on service revenue, was greater than 55 percent at the market level.
· Penetration of the 12.8 million potential customers covered by Cricket networks in these markets was approximately 6.8 percent.
· Combined churn was approximately 4.7 percent.
Other Highlights:
· Product Development – During the second quarter, the Company launched its new unlimited text messaging services in 30 markets. After the end of the second quarter, the Company completed the launch of text messaging in all remaining markets. In July, Leap launched Spanish language billing, a major step in the Company’s strategy to provide a full Spanish language support infrastructure to better serve its Spanish speaking customers.
· Spectrum – As part of its ongoing effort to maximize shareholder value through the sale of excess spectrum, Leap signed a definitive agreement to sell 15 MHz of its wireless operating license in Casper, Wyoming to Union Telephone Company for an undisclosed amount. Upon the completion of this transaction and another previously announced spectrum transaction, Leap will not have spectrum in the Casper market. The sale is subject to customary conditions, including approval from the Federal Communications Commission (FCC). Leap currently owns wireless licenses covering approximately 53.5 million potential customers (2002 population estimate).
Business Outlook
Today, Leap provided guidance for fiscal year 2002 with respect to its 40 Market Plan. The following forward-looking statements are based on management’s current expectations for future results and do not include the effect of further significant expansion of new services or the expansion of Cricket service to new markets. These expectations are based on current information, which management has assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. The unsettled nature of the wireless market, decreased consumer confidence in the economy, and the other issues facing the telecom industry in general have created a level of uncertainty that affects the Company’s ability to predict future subscriber growth. The following forward-looking statements are qualified by that fact and speak only of management’s views as of the date of this release. Leap does not undertake any obligation to update this information from this date. Actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with Leap’s business. Factors that could cause actual results to differ from these forward-looking statements include those described later in this release.
Leap expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings Leap may reiterate the current published Business Outlook. At the same time, Leap will keep its Earnings Release publicly available on its web site, leapwireless.com . In response to the Securities and Exchange Commission’s Regulation FD, Leap will publish its Business Outlook, based on current expectations, in conjunction with its quarterly earnings release and conference call. Leap will not provide further material guidance on analysts’ financial models beyond the information provided in its earnings releases and conference calls.
Leap now expects to achieve the following consolidated results for fiscal year 2002:
· Total customers under Leap’s 40 Market Plan are expected to grow to between 1.7 and 1.8 million by the end of the year.
· Consolidated churn across all markets is expected to be approximately 4.0 percent.
· Cumulative gross revenue, including service and equipment revenue, is expected to be between approximately $650 and $670 million.
· Overall CPGA is expected to be between approximately $250 and $260.
· Consolidated cash cost per user, including Leap corporate expenses, is expected to be less than $20 for the fourth quarter.
· Network operations cost per minute of use are expected to be less than $0.01 per minute.
· Consolidated EBITDA loss for Leap’s entire business is expected to be approximately $100 million. Consolidated EBITDA is expected to be positive for the fourthquarter of fiscal year 2002.
· Capital expenditures for Leap’s 40 Market Plan are expected to be approximately $400 million for fiscal year 2002.
Leap expects to manage its business to remain in compliance with all covenants contained within its vendor financing facilities for 2002 and expects to be unlevered free cash flow (defined as EBITDA minus capital expenditures, income taxes and changes in working capital) positive in the first half of fiscal year 2003.
Conference Call Note
Leap will hold a conference call to discuss these results today at 11:00 a.m. ET, Wednesday, July 24, 2002. Forward-looking and other material information may also be discussed during this call and a live broadcast will be available online at www.leapwireless.com.
To listen to the call, please go to the Web site at least 15 minutes prior to the start time to register, download and install any necessary audio software. An online replay is planned to follow shortly after the live conference call and will be available until August 15, 2002. The telephonic rebroadcast will be available approximately two hours after the completion of the call and will be available until close of business on July 31, 2002. Interested parties can access the rebroadcast by dialing 706-645-9291 and entering the reservation number 4734609 followed by the # key. For persons who do not have access to the Internet and who wish to listen to the live conference call, please contact Leap’s Investor Relations department at 858-882-9021 for the telephone access number. |
