Leap Reports Results for Third Fiscal Quarter of 2001
(thanks to Cooters on the Moderated thread)
Cricket Customers Grow More Than a Quarter of a Million to 724,000; Leap Raises Guidance to at Least 1.1
Million Cricket Customers by Year End ~
SAN DIEGO, Oct. 24 /PRNewswire/ -- Leap Wireless International, Inc. (Nasdaq: LWIN), an innovator of voice
and information services, today reported results for the third quarter of fiscal year 2001. During the quarter, Leap
added more than one quarter million net new customers to its Cricket service bringing the total customers using
Cricket service to more than 724,000 at the end of the third fiscal quarter of 2001, representing a 90%
quarter-over- quarter increase in net additions. Leap, which pioneered Cricket, its flat- rate, all-you-can-talk local
wireless service, for the mass consumer market, ended the quarter with service offered in 25 markets across the
country.
(Photo: newscom.com )
"Cricket continued to outperform our expectations for customer growth despite the overall economic slowdown
during the quarter and the further softening of the retail environment that followed the September 11th terrorist
attacks. Strong results from our two largest markets, Phoenix and Denver, launched during the third quarter show
that Cricket achieves rapid penetration in large and small markets alike," said Harvey P. White, Leap's chairman
and CEO. "Further, we have seen strong subscriber growth continue into October. Our year to date performance,
combined with the growth anticipated from the markets we expect to launch in the fourth quarter, ha pocketbooks.
Cricket delivers a compelling value proposition that stands out from the pack and speaks to both current and
first-time wireless customers. From an operational perspective, we are pleased to have built an organization that not
only handles market launches smoothly and routinely, but has also proven its ability to increase penetration and
operate cost-effectively, regardless of market size. We continue to deliver one of the highest customer growth rates
at one of the lowest acquisition costs ever seen in the U.S. wireless industry. Our one year and older markets
continue to perform in line with our expectations and are further proof of the ongoing success of the Cricket
business model."
In order to clearly communicate its market growth, Leap has attached to this release a schedule of launched
markets and those planned to be launched as part of its 40 Market Plan. This schedule also provides a listing of the
licenses included in each Cricket market. The schedule shows Leap had launched 25 markets in 14 states at the
end of the third quarter and expects to have launched 40 markets in 20 states at the successful completion of its
plan. From now until further announcement, Leap will report its licensed and covered POPs based on 2001
population estimates as reported by Easy Analytic Software, Inc. (EASI).
Based on the financial resources available to the Company and expected revenue from the operation of the markets
defined within the 40 Market Plan, the Company believes it has the capital resources to fund its business while
completing the purchase of the licenses it won in Auction #35. However, Leap will need to refinance or reschedule
its vendor indebtedness prior to January 2003 or raise additional capital to fund a portion of the principal
amortization of its vendor indebtedness.
Given today's tight capital markets, White stressed that Leap plans to continue to grow its business prudently.
"Unlike most other wireless carriers, our Cricket business model is modular and scalable, and each market stands
on its own as a potential source of operating cash flow," said White. "We are growing our business market by
market, and that flexibility gives us an important advantage when it comes to financing growth. We expect to seek
additional financial resources to support the further expansion of our business when terms and conditions appear
favorable to the Company and its stakeholders. We also intend to continue pursuing opportunities to maximize the
value of our current spectrum portfolio."
Leap now owns or has rights to acquire licenses that include 76.8 million potential customers (2001 POPs) in 36
states, making it the seventh largest domestic wireless carrier in terms of licensed POPs. This includes licenses
covering 23.8 million potential customers (2001 POPs) on which Leap was the high bidder in FCC Auction #35
that ended in January 2001. Leap's high bids totaled approximately $350 million, or $14.73 per POP (2001
POPs), which was the lowest average price per POP among the ten most active bidders in the auction. The transfer
of these licenses is subject to FCC approval and requires settlement of the FCC's pending dispute with NextWave
Telecom, Inc.
Cricket Operational Highlights
Operational highlights from the third quarter of 2001 include:
-- Leap launched an additional five markets -- Phoenix, Ariz.; Fayetteville, Ark.; Denver, Colo.; Boise, Idaho; and
Dayton, Ohio -- bringing the total potential customers covered by Cricket service to approximately 19.5 million
(2001 POPs) at the end of the quarter.
After the end of the quarter, Leap launched Cricket service in Omaha, Neb. and Salem, Ore. and expects to launch
service in its Reno, Nev. and Toledo, Ohio markets on Oct. 25, 2001.
-- Billed average revenue per user per month (ARPU) across all of Leap's operational markets rose to
approximately $37, compared to the approximately $36 reported for the second quarter of 2001.
-- Overall cost per gross customer addition (CPGA), including pre-launch marketing expenses, was approximately
$243.
Leap also reported the following results for its one-year and older markets, Chattanooga and Nashville, Tenn.:
-- Combined churn for both markets declined to 3.5 percent.
-- Earnings before interest, taxes, depreciation, amortization, and marketing (EBITDAM) margin for both markets
combined continued to be over 50 percent.
-- Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin for both markets combined
continued to be over 10 percent.
-- Average minutes of use for the markets was consistent with historical customer usage patterns at approximately
1,100 minutes per month
Key financial performance measures for the third fiscal quarter, which reflect the significant growth of Cricket during
the quarter, are as follows:
-- Total operating revenues for Leap's U.S. operations were 66.7 million, an increase of $18.9 million over the
$47.8 million reported for the previous quarter. Service revenue rose to 57.2 million, an increase of 45 percent
over that reported for the second fiscal quarter of 2001.
-- Consolidated operating loss before interest, taxes, depreciation and amortization (EBITDA), was $85.3 million,
an increase from the EBITDA loss of $56.6 million reported for the previous quarter. Cricket's rapid growth during
the third quarter was the primary factor in the increase in the consolidated EBITDA loss during the third quarter,
which was in line with the Company's expectations.
-- Leap's consolidated net loss was $160.7 million or $4.43 per share, compared to a net loss of $128.5 million or
$3.91 per share in the prior quarter, also largely as a result of Cricket's rapid growth during the third quarter. Of the
$4.43 net loss per share reported in the third quarter, $0.39 was the result of Leap's share of losses for
PEGASO recognized under the equity method of accounting.
-- Leap's total cash and cash equivalents, investments, and deposits on pending wireless license acquisitions as of
Sept. 30, 2001 were 430.7 million.
-- Leap's property and equipment, net of depreciation, rose to 858.3 million at September 30, 2001, an increase of
$171.8 million over that reported at June 30, 2001.
Product Development Highlights
Slice Milestones -
-- During the third quarter, Leap expanded both the markets served and the content provided by Slice, the first
product offered by its subsidiary, the Telephone Entertainment Network, Inc. Slice service delivers short "voice
clips" of local news and events, movie reviews, sports, weather, traffic, bargains, and more directly to customers'
wireless phones before their local calls connect. During the third quarter, Leap launched Slice in two new markets,
Phoenix, Ariz., and Albuquerque, N.M., bringing the total markets in which this service is
offered to four, including Chattanooga and Nashville, Tenn., where Slice was launched in the second quarter of
2001.
-- Leap enhanced Slice by adding further personalization and on-demand updates to the service. With this
increased personalization, Slice customers can now choose from a wider variety of fun content categories -- from
movie and music reviews to kids and family. In addition, Slice customers can get traffic, weather, and local event
updates on demand with just a few simple keystrokes.
-- Leap signed an agreement between the Telephone Entertainment Network and Metro Networks, a
wholly-owned subsidiary of Westwood One, which is a leading provider of content and information. Westwood
One provides Leap with feeds of regularly updated local and national content for its Slice customers. The content
includes news, traffic,
weather and sports updates tailored to specific local markets. The agreement is designed to give Leap the
scalability, efficiency and cost-effectiveness of centralized news production, with the benefits
of a local reporting staff.
-- Leap added advertisers using Slice service to promote their businesses, ending the quarter with a total of 62
advertisers in the four markets served by this service. This list of advertisers included major national brands as well
as regional and local retail locations.
-- Leap also received its first subscriber based revenue from Slice, which is currently available to Cricket customers
for $2.95 per month after a 60-day free trial period. At the end of the third quarter, the average conversion rate of
customers after their 60-day free trial
was approximately 33 percent. Leap expects that the product enhancements to Slice that were implemented during
the third quarter will yield improved conversion rates by year-end.
"We believe Slice service will become a targeted, personalized advertising medium that combines the cost
effectiveness of radio with the targeted reach of direct mail," said Doug Hutcheson, Leap's senior vice president
strategic planning and product development. "The development of Slice and other innovative wireless services for
the mass consumer market is part of our game plan to use technology to build proprietary products."
Other Highlights
-- Spectrum -- During the third fiscal quarter, Leap, as part of its plan to maximize the value of its spectrum assets,
announced that it signed an agreement to sell 15 MHz of its spectrum in Salt Lake City and
Provo, Utah, to Cingular Wireless for $140 million in cash. Leap will retain 15 MHz of spectrum, which Leap
believes is adequate for its needs in this market. In October, the Federal Communications Commission (FCC)
approved the transfer of these licenses to Cingular
Wireless and Leap expects this sale to close in the fourth quarter.
-- International Operations -- PEGASO, the Mexican wireless company in which Leap has a 20% stake, reported
that its customer base grew to more than 791,000 at the end of September 2001. During the third quarter, Leap
invested an additional $10.5 million in PEGASO as part of the $29.4 million Leap chose to invest into the Mexican
wireless
carrier to support its future growth and working capital needs. This additional investment brings Leap's total
investment in PEGASO under this additional commitment to $20.5 million.
Business Outlook
The following forward-looking statements are based on management's current expectations for future results. 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 following forward-looking statements speak only of
management's views as of the date of this release and 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 at the end of this release.
Based on Leap's expectation for the continued growth of its existing Cricket markets and rapid uptake in newly
launched markets in the fourth quarter, Leap today announced it is raising its guidance for customer growth from
approximately 1 million to at least 1.1 million Cricket customers by the end of the fiscal year and it is adjusting its
revenue guidance such that gross revenue for the fourth quarter, including both equipment and service revenue, is
expected to be approximately $105 million. In total, Leap expects to end 2001 with Cricket customers in 38
markets covering 23 million covered potential customers (2001 POPs). Leap also expects to achieve the following
results in its domestic operations at the end of fiscal year 2001:
-- Overall CPGA for the year is expected to be approximately $230.
-- Cumulative capital expenditures are expected to be approximately 1.25 billion, reflecting the significant
investment Leap expects to make in the build-out of its markets to support their anticipated future growth.
Leap provided new guidance for fiscal year 2001 by stating that EBITDA losses for its 40 Market Plan are
expected to peak in the fourth quarter at approximately negative $120 million based on its 2001 Plan. Growth
beyond that plan would affect this guidance.
In addition, Leap expects its Cricket customer base under its 40 Market Plan to grow to approximately two million
Cricket customers in markets covering 25.2 million potential subscribers (2001 POPs) by year-end 2002. Leap
further expects its consolidated business as defined by this plan to turn EBITDA positive during 2002 and free cash
flow positive in the first half of 2003. Cumulative capital expenditures for Cricket at the end of 2002 are expected
to be approximately $1.5 billion.
Leap also reaffirmed its previous guidance for the performance of a typical Cricket market on a
"same-market-sales" basis as follows:
-- Penetration -- At the end of the first year of operation, Leap expects a typical Cricket market to have reached
approximately six to seven percent penetration of covered POPs. This penetration is expected to increase to nine to
10 percent at the end of the second year of
operation and thereafter to increase at a rate of approximately one percent per year with long-term penetration
being in the mid to high teens.
-- Minutes of Use -- Average MOU per user is expected to be approximately 900 to 1,100 minutes per month.
-- Churn -- Churn in one-year-old markets is expected to be between four to five percent and between three to
four percent in two-year-old markets. Churn in markets in their third year of operation is expected to be in line with
the industry average.
-- Earnings Before Interest, Taxes, Depreciation, Amortization, and Marketing -- At the end of the first year of
operation, Leap expects the EBITDAM margin of a typical Cricket market to be in the low to mid-20 percent
range based on service revenue. This margin is expected to increase to approximately 40 percent at the end of the
second year of operation and to the mid-50 percent range long term.
-- Earnings Before Interest, Taxes, Depreciation, and Amortization -- A typical Cricket market is expected to be at
EBITDA break-even based on service revenue after 12 to 15 months of operation. EBITDA margin, based on
service revenue, is expected to be approximately 20 percent
at the end of the market's second year of operation and in the mid-40 percent range long term. |
