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Tuesday June 22, 1:25 am Eastern Time
Company Press Release
SOURCE: Leap Wireless International, Inc.
Leap Wireless International Reports Results for Third Quarter - Significant Milestones Achieved During Third Quarter -
SAN DIEGO, June 22 /PRNewswire/ -- Wireless communications carrier Leap Wireless International, Inc. (Nasdaq: LWIN - news) today reported results for its third quarter which included strong subscriber growth in both its Mexican PCS project and U.S. service, Cricket, completion of the purchase of 100% of Chilesat PCS, and commercial launch of a wireless local loop system in the Saint Petersburg region of Russia. Leap reported that total subscribers had reached approximately 42,400 throughout its holdings. Subscriber growth at Chilesat PCS was slowed in the first half of the quarter by circumstances preceding the completion of its acquisition.
Leap's domestic wireless concept, Cricket, was launched in March using ChaseTel's existing Chattanooga infrastructure. As previously reported, ChaseTel had approximately 4900 subscribers who were offered the option of converting to the Cricket service. Approximately one-half chose to convert and are included in the 8,700 subscribers using the Cricket service at the end of the quarter. This brings Cricket's total penetration in the Chattanooga market to 2.8% after only one quarter of operation.
''The reported penetration rate and continued subscriber growth are confirming our belief that Cricket will change the way people communicate in their local area,'' said Harvey P. White, Chairman and CEO of Leap. ''We believe people will come to expect mobility and the freedom it brings as part of their lives all day, everyday, wherever they choose to communicate. We are confident Cricket's ''comfortable wireless'' service will also be enthusiastically adopted by consumers in future markets which we have targeted for Cricket's expansion.''
Cricket is operating pursuant to an agreement that provides that ChaseTel's management will control the business until Leap's pending acquisition of ChaseTel receives all necessary government approvals.
Aimed at the mass consumer market, Cricket's ''comfortable wireless'' plan offers unlimited local calls for one low, flat monthly rate. The Cricket plan requires subscribers to purchase a phone and make monthly service payments in advance. The service includes both incoming and outgoing calls, voice mail and caller ID, and is designed to make wireless communications simple, worry-free and affordable. Leap plans to offer prepaid long distance to Cricket subscribers in early July. The expansion of the Cricket network to Nashville, Tennessee is currently underway and is expected to launch there in November of this year. ''Cricket'' and ''comfortable wireless'' are service marks of Leap Wireless International, Inc.
Pending approval from the Federal Communications Commission (FCC), Leap expects to acquire ChaseTel's licenses in Tennessee, AirGate's licenses in North and South Carolina, and licenses in 36 other markets in which Leap was the winning bidder in the recent FCC reauction of PCS spectrum. The 36 reauction licenses cover 11.2 million potential customers (POPs) and are to be acquired for $18.7 million, or $1.66 per POP. Leap is also considering the purchase of additional spectrum outside the auction process. Leap Wireless' application to the FCC for the acquisition of AirGate's licenses has been opposed on the grounds that Leap does not qualify as a designated entity. This designation entitles small businesses to preferential pricing and payment terms when acquiring C- and F- block spectrum. Leap believes that it qualifies as a designated entity and that it meets all FCC requirements to obtain approval for the proposed license acquisitions. The FCC has not yet issued a report and order regarding these matters. Leap advanced $3.7 million in loans to ChaseTel in the third quarter, bringing the total to $29 million, including accrued interest. If the FCC approves Leap's acquisition of ChaseTel, these loans may be converted to equity.
Leap also announced progress on the international front for the third quarter. Chilesat Telefonia Personal S.A. (Chilesat PCS), which launched commercial services in September of 1998, reported that its subscriber base rose to 30,600 during the third quarter. On April 20, 1999, Leap Wireless increased its ownership interest in Chilesat PCS from 50% to 100%. Leap Wireless' Chilean subsidiary purchased 50% of Chilesat PCS from Telex-Chile, a Chilean telecommunications company, and its affiliate, Chilesat S.A., for $28 million and a $22 million non-interest bearing note from Chilesat PCS payable in three years. Leap is currently working to re-energize Chilesat PCS by strengthening its management team and resuming consumer acquisition and marketing efforts that were temporarily suspended during the acquisition.
''We are excited about the possibilities our recent acquisition of Chilesat PCS will bring to the Chilean marketplace. Our plans now are to increase our marketing efforts and to aggressively grow the business. We want to build our commitment in Chile to be the innovative wireless carrier that customers count on for quality, integrity, and service and we see a bright future for our nationwide PCS network,'' continued Mr. White.
Pegaso PCS, the Mexican carrier in which Leap holds approximately a 33% interest, reached almost 2800 subscribers in its first commercial market, Tijuana, at the end of the quarter. Leap's equity share of these subscribers is approximately 900. In May of 1999 Pegaso closed a working capital line of $100 million, bringing its total financial commitments to $1.1 billion in equity, working capital debt and vendor financing. This line, and equity committed to be contributed shortly, assure that Pegaso will have the funds to build and deploy the four major cities in Mexico this year. According to current plans, Monterrey, Guadalajara, and Mexico City will be added to the existing system and placed into commercial service this summer.
Metrosvyaz forms joint ventures with local Russian telecom operators for the financing, deployment, and operation of wireless local loop systems in the Russian Federation. In April 1999, Metrosvyaz launched commercial service with the first of its joint ventures in the Saint Petersburg area and reports that it had reached 270 subscribers by the end of May. Metrosvyaz is also in negotiation with 25 other local telecom operators, most of whom are state owned or controlled, and plans to launch commercial service with several of these operators by year end. Leap has committed $72.5 million in working capital out of a total $175 million committed to the projects for vendor financing and working capital. Operating plans are to raise another $325 million over the next two years to build out portions of all the joint ventures under consideration.
Orrengrove Investments owns a joint venture interest in companies established to develop domestic long distance, backhaul, and broadband services such as high speed internet access for the Russian market. A recent operational failure of third party equipment used to provide satellite transmission capacity has caused the service to be rerouted using terrestrial fiber. Accordingly, Orrengrove recorded a write-down of existing satellite-related assets in the third quarter of fiscal 1999 as described below. Further network expansion plans are being evaluated.
The condensed financial information for the Leap Wireless unconsolidated operating companies accounted for under the equity method is as follows: revenues for Leap Wireless operating companies for the third quarter of fiscal 99 rose to $2.9 million, a 165% increase from the prior quarter. No revenues were reported in the third quarter of 1998. Operating expenses for the Leap Wireless operating companies for the third quarter were $52.5 million, including a $16.9 million impairment loss recorded by Orrengrove and its subsidiaries due to a write-off of certain satellite related assets and a reduction to fair value of its license to carry long-distance traffic in Russia. The asset value of the license was impaired because of the loss of the satellite facilities and the current financial conditions in Russia. Operating expenses were $5.3 million in the third quarter of 1998. The significant increase in operating expenses was related primarily to increased network development activities and significant investment undertaken in the preparation and launching of network services by Leap Wireless' operating companies, primarily the Company's subsidiary in Mexico. Other expense, net was $4.7 million in the third quarter of 1999 compared to $2.0 in the third quarter of 1998. Net losses for Leap Wireless operating companies for the third quarter were $54.3 million compared to net losses of $7.2 million in the third quarter of 1998. The results of Leap's unconsolidated operating companies are, as of and for the three months ended March 31, a two-month reporting lag. Leap's share of the net losses of the operating companies was $36.2 million compared to $4.5 million in the third quarter of 1998.
Leap's general and administrative expenses increased to $6.2 million for the three months ended May 31, 1999 compared to $3.4 million for the same period in fiscal year 1998. The increase is attributable to increased staffing and business development activities related to creating a wireless operating company in the U.S. Leap's consolidated net loss for the third quarter of fiscal 99 was $42.2 million or $2.35 per share compared to a net loss of $7.9 million for the same period in 1998. These reported losses include Leap's share of the losses incurred by its operating companies and general and administrative expenses incurred directly by Leap.
About Leap Wireless International, Inc.
Headquartered in San Diego, California, Leap Wireless International is a wireless communications carrier that deploys, owns, and operates networks in domestic and international markets with strong growth potential. Through its operating companies, Leap has launched all-digital wireless networks in Chile, Mexico, the U.S., and Russia. Upon completion of Leap Wireless' pending U.S. asset acquisitions, Leap Wireless will have interests in existing and planned telecommunications systems covering 176.4 million potential customers, of which Leap's equity share is approximately 71.9 million. Leap Wireless is also seeking to acquire additional C-block spectrum as the high bidder for 36 licenses in the federal government's recently completed re-auction of broadband PCS spectrum. If granted final approval from the FCC, these licenses will raise Leap Wireless's potential customer base to 187.6 million, of which Leap's equity share will be 83.1 million. For more information about Leap Wireless, please call Investor Relations at 1-619-882-6222 or visit the company's web site at www.leapwireless.com.
This news release contains certain ''forward-looking statements,'' including statements regarding plans for the development, expansion, and financing of Leap Wireless' networks. Forward-looking statements, which are based upon certain assumptions and describe future plans and expectations of Leap, are generally identifiable by use of the words ''believe,'' ''expect,'' ''intend,'' ''plan,'' ''anticipate,'' ''project'' or similar expressions. The ability of the Company to predict actual results and future events is inherently uncertain. Important factors which may cause actual results to differ materially from the forward-looking statements contained herein include uncertainties regarding the costs and time required to complete large scale construction projects, competitive actions and responses in wireless telecommunications markets, and the future status of currently unsettled financial markets which have made it difficult for new ventures, especially in emerging markets, to raise capital. These and other relevant risks are described in the section entitled ''Risk Factors'' in the Company's fiscal year 1998 10-K and other documents filed with the Securities and Exchange Commission.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
May 31, 1999 August 31, 1998
ASSETS
Cash and cash equivalents $22,469 $--
Loans receivable from unconsolidated
wireless operating company - current -- 25,227
Other current assets 422 --
Total current assets 22,891 25,227
Property and equipment - net 2,700 --
Investments in unconsolidated
wireless operating companies 199,116 101,719
Loans receivable from unconsolidated
wireless operating companies 52,408 40,076
Other assets 17,437 6,838
Total assets $294,552 $173,860
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $7,239 $5,789
Loans payable to banks 16,657 9,000
Total current liabilities 23,896 14,789
Long-term debt 93,281 --
Other liabilities 716 --
Total liabilities 117,893 14,789
Stockholders' equity:
Preferred stock - authorized
10,000,000 shares; $.0001 par value,
no shares issued and outstanding -- --
Common stock - authorized
75,000,000 shares; $.0001 par value,
18,028,000 shares issued
and outstanding 2 --
Additional paid-in capital 288,654 --
Former parent capital -- 197,598
Deficit accumulated during
the development stage (109,281) (36,175)
Accumulated other comprehensive
income (loss) (2,716) (2,352)
Total stockholders' equity 176,659 159,071
Total liabilities and
stockholders' equity $294,552 $173,860
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
For the Period
Three Months Ended Nine Months Ended Sept. 1, 1995
May 31, May 31, (inception) to
1999 1998 1999 1998 May 31, 1999
Equity in net loss
of unconsolidated
wireless operating
companies $(36,159) $(4,490) $(62,004) $(7,470) $(73,377)
General and
administrative
expenses (6,216) (3,408) (14,764) (5,577) (40,410)
Interest income 2,522 -- 7,902 -- 8,745
Interest expense (2,326) -- (4,239) -- (4,239)
Net loss $(42,179) $(7,898) $(73,105) $(13,047) $(109,281)
Net loss per
common share $(2.35) $(4.11)
Weighted average
common shares
outstanding 17,927,984 17,786,376
SOURCE: Leap Wireless International, Inc.
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