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Technology Stocks : Leap Wireless International (LWIN) -- Ignore unavailable to you. Want to Upgrade?

To: arun gera who wrote (1929)	4/24/2002 3:46:03 PM
From: J L Segal	Read Replies (1) \| Respond to of 2737

LWIN plummets due to identity theft (fraud) from dedalers: (REUTERS) UPDATE 2-Leap Wireless loss widens, shares plunge UPDATE 2-Leap Wireless loss widens, shares plunge (Adds analyst quotes, company comment, edits throughout, adds byline previous SAN DIEGO) By Yukari Iwatani CHICAGO, April 24 (Reuters) - Wireless operator Leap Wireless Inc. <LWIN.O> on Wednesday reported a wider quarterly loss on unexpectedly high customer acquisition costs which the company blamed on customer and dealer fraud. The bleak scenario pummeled Leap Wireless shares. They fell $2.51, or 23.9 percent, to $7.99 in afternoon trade after rising as high as $10.70 earlier in the morning. The stock was the sixth-biggest percentage loser on Nasdaq. Analysts attributed the sell-off to the company's statement on fraud and its implications in the higher-than-expected customer acquisition costs and wider-than-expected operating cash flow loss. "People were really expecting a nice, clean strong quarter," said Tim O'Neil, analyst with SoundView Technology. "They saw a great growth in subscribers, they saw a good (customer turnover rate), they saw good cost control on the cash cost per user, but all of a sudden there are questions on what really is the fraud, how did it occur, and can it be fixed." The company told analysts in a conference call that its cost to acquire each new customer was higher than expected due to fraud in its distribution channel as a result of identity theft or dealers who create phantom accounts to boost commissions. Leap Wireless said its cost to add each new customer was $246, flat with the fourth-quarter but much higher than the $225 to $235 analysts had expected. "We have taken very definite concrete and aggressive steps to control this particular issue and we believe that we will be successful going forward," Jim Seines, director of investor relations for Leap Wireless, said in an interview. Seines stressed that all wireless operators were susceptible to dealer and subscription fraud. A wireless company can become a victim of fraud when someone accesses its service illegally or when a dealer creates fake new accounts in order to receive a commission for them. FRAUD NOW UNDER CONTROL The company's adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), a loss of $65.9 million, was also wider than analysts had expected due to the expenses. Leap Wireless said the fraud issue was now under control, but it expected acquisition costs to be $220 to $225 per new customer for the year. Analysts pointed out that if expenses due to fraud continue, the company might miss the EBITDA loss targets it must meet under its vendor financing agreements. Still, Ben Abramovitz, analyst with Jefferies & Co., pointed out that the company's shares would not have dropped in value as dramatically if its shares hadn't risen steadily over the past several weeks. Since the end of February, Leap Wireless shares had more than doubled in value as of Tuesday's close. Leap, which is one of the fastest-growing wireless companies, was widely expected to report solid first-quarter results with strong subscriber growth despite the economic downturn. Leap said its consolidated first-quarter loss widened to $196.6 million, or $5.32 a share, from $114.4 million, or $3.88 a share, a year earlier. Excluding a gain on the sale of a portion of some wireless licenses and one-time income tax expenses, the latest loss was $4.89 a share. Analysts on average had expected a loss of $4.44, according to Thomson Financial/First Call, with estimates ranging from $3.99 to $5.01. Operating revenues for Leap's U.S. operations rose to $140.2 million from $36.8 million as the company added 268,000 net subscribers. A J.P. Morgan analyst had expected the addition of 255,000 subscribers. Leap said it expected to have at least 1.5 million customers by the end of the second quarter and at least 2 million by the end of the year. It expects positive operating cash flow for the fourth quarter and positive unlevered free cash flow in the first half of fiscal 2003. Unlevered free cash flow is defined as operating cash flow minus capital expenditures, income taxes and changes in working capital. ((--Yukari Iwatani, Chicago Equities News at 312 408 8787, chicago.equities.newsroom@reuters.com)) REUTERS * end of story *