Leap Reports First Quarter Results

Financial Results and Operating Metrics ⁽¹⁾
(Unaudited; in millions ⁽²⁾, except for customer data, operating metrics and per share amounts)

Three Months Ended March 31,

2013

2012

Change

Service revenues

$

684.6

$

774.0

(11.6)%

Total revenues

$

789.9

$

825.6

(4.3)%

Operating loss

$

(29.4)

$

(15.8)

86.1%

Adjusted OIBDA

$

121.1

$

130.5

(7.2)%

Adjusted OIBDA as a percentage of service revenues

18%

17%

—

Net loss

$

(109.6)

$

(94.3)

16.2%

Net loss attributable to common stockholders

$

(111.3)

$

(98.4)

13.1%

Diluted loss per share attributable to common stockholders

$

(1.43)

$

(1.28)

11.7%

Gross customer additions⁽³⁾

473,881

859,547

(44.9)%

Net customer additions (losses)

(93,037)

258,060

*

End of period customers

5,203,747

6,192,073

(16.0)%

Weighted-average customers

5,213,605

6,025,427

(13.5)%

Churn

3.6%

3.3%

—

End of period covered POPS

~96.2

~95.7

—

Average revenue per user (ARPU)

$

43.72

$

42.59

2.7%

Cash cost per user (CCU)

$

26.36

$

24.55

7.4%

Cost per gross addition (CPGA)

$

317

$

228

39.0%

Free cash flow

$

(0.8)

$

(111.0)

(99.3)%

Cash purchases of property and equipment

$

26.4

$

146.3

(82.0)%

Unrestricted cash, cash equivalents and short-term investments

$

667.1

$

636.7

4.8%

Core Wireless Metrics

Core wireless gross customer additions

392,984

631,912

(37.8)%

Core wireless net customer additions (losses)

(8,502)

163,613

*

Core wireless end of period customers

4,636,867

5,172,093

(10.3)%

Core wireless churn

2.9%

3.1%

—

*       

Percentage change not meaningful.

(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)

Minor calculation differences may exist in percentage changes due to rounding.

(3)

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

LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS ⁽¹⁾
(In thousands, except share amounts)

March 31,
2013

December 31,
2012

Assets

(Unaudited)

Cash and cash equivalents

$

526,734

$

515,550

Short-term investments

140,404

159,426

Inventories

102,028

121,601

Deferred charges

60,947

60,963

Other current assets

149,173

139,242

Total current assets

979,286

996,782

Property and equipment, net

1,628,827

1,762,090

Wireless licenses

2,090,654

1,947,333

Assets held for sale

—

136,222

Goodwill

31,886

31,886

Intangible assets, net

21,429

24,663

Other assets

80,548

68,284

Total assets

$

4,832,630

$

4,967,260

Liabilities and Stockholders' Equity

Accounts payable and accrued liabilities

$

287,862

$

396,110

Current maturities of long-term debt

4,000

4,000

Other current liabilities

289,469

216,880

Total current liabilities

581,331

616,990

Long-term debt, net

3,299,593

3,298,463

Deferred tax liabilities

397,429

385,111

Other long-term liabilities

166,828

169,047

Total liabilities

4,445,181

4,469,611

Redeemable non-controlling interests

63,519

64,517

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; 79,054,530 and 79,194,750 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively

8

8

Additional paid-in capital

2,182,912

2,182,503

Accumulated deficit

(1,858,301)

(1,748,694)

Accumulated other comprehensive loss

(689)

(685)

Total stockholders' equity

323,930

433,132

Total liabilities and stockholders' equity

$

4,832,630

$

4,967,260

LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ⁽¹⁾
(in thousands, except per share data)

Three Months Ended

March 31,

2013

2012

(Unaudited)

(Unaudited)

Revenues:

Service revenues

$

684,622

$

773,998

Equipment revenues

105,236

51,621

   Total revenues

789,858

825,619

Operating expenses:

Cost of service (exclusive of items shown separately below)

250,858

261,311

Cost of equipment

258,968

247,847

Selling and marketing

78,838

95,554

General and administrative

82,225

89,699

Depreciation and amortization

152,573

146,543

Impairments and other charges

735

—

   Total operating expenses

824,197

840,954

Gain (loss) on sale, exchange or disposal of assets, net

4,988

(468)

   Operating loss

(29,351)

(15,803)

Equity in net income (loss) of investees, net

(1,158)

193

Interest income

47

29

Interest expense

(64,725)

(67,042)

   Loss before income taxes

(95,187)

(82,623)

Income tax expense

(14,420)

(11,711)

   Net loss

(109,607)

(94,334)

Accretion of redeemable non-controlling interests and distributions, net of tax

(1,705)

(4,105)

   Net loss attributable to common stockholders

$

(111,312)

$

(98,439)

Loss per share attributable to common stockholders:

Basic

$

(1.43)

$

(1.28)

Diluted

$

(1.43)

$

(1.28)

Shares used in per share calculations:

Basic

77,714

77,025

Diluted

77,714

77,025

Other comprehensive loss:

  Net loss

$

(109,607)

$

(94,334)

  Net unrealized holding gains (losses) on investments and other

(3)

2

Comprehensive loss

$

(109,610)

$

(94,332)

LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ⁽¹⁾
(in thousands)

Three Months Ended March

31,

2013

2012

(Unaudited)

(Unaudited)

Operating activities:

   Net cash provided by operating activities

$

25,557

$

35,357

Investing activities:

Purchases of property and equipment

(26,362)

(146,314)

Change in prepayments for purchases of property and equipment

—

(1,940)

Purchases of wireless licenses and spectrum clearing costs

(335)

(976)

Proceeds from sales of wireless licenses and operating assets, net

321

855

Purchases of investments

(65,767)

(77,149)

Sales and maturities of investments

84,716

202,107

Net cash used in investing activities

(7,427)

(23,417)

Financing activities:

Repayment of long-term debt

(1,000)

—

Payment of debt issuance costs

(552)

—

Payments made to joint venture partners

(3,750)

(255)

Other

(1,644)

(1,010)

Net cash used in financing activities

(6,946)

(1,265)

Net increase in cash and cash equivalents

11,184

10,675

Cash and cash equivalents at beginning of period

515,550

345,243

Cash and cash equivalents at end of period

$

526,734

$

355,918

Supplementary disclosure of cash flow information:

Cash paid for interest

$

(11,209)

$

(21,372)

Net wireless licenses received in exchange transaction

(6,809)

—

Explanatory Notes to Financial Statements

(1)

The condensed 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 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 condensed consolidated financial statements.

The following table summarizes operating data for the Company's consolidated operations for the three months ended March 31, 2013 and 2012 (in thousands, except percentages):

Three Months Ended March 31,

Change from Prior Year

2013

% of 2013 Service Revenues

2012

% of 2012 Service Revenues

Dollars

Percent

(Unaudited)

(Unaudited)

Revenues:

Service revenues

$

684,622

$

773,998

$

(89,376)

(11.5)%

Equipment revenues

105,236

51,621

53,615

103.9%

Total revenues

789,858

825,619

(35,761)

(4.3)%

Operating expenses:

Cost of service

250,858

36.6%

261,311

33.8%

(10,453)

(4.0)%

Cost of equipment

258,968

37.8%

247,847

32.0%

11,121

4.5%

Selling and marketing

78,838

11.5%

95,554

12.3%

(16,716)

(17.5)%

General and administrative

82,225

12.0%

89,699

11.6%

(7,474)

(8.3)%

Depreciation and amortization

152,573

22.3%

146,543

18.9%

6,030

4.1%

Impairments and other charges

735

0.1%

—

—

735

*

Total operating expenses

824,197

120.4%

840,954

108.7%

(16,757)

(2.0)%

Gain (loss) on sale, exchange or disposal of assets, net

4,988

0.7%

(468)

(0.1)%

5,456

*

Operating loss

$

(29,351)

(4.3)%

$

(15,803)

(2.0)%

$

(13,548)

85.7%

          *Percentage change not meaningful.

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, and pay-in-advance customers who ask to terminate their service are disconnected when their paid service period ends. 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. 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. Our customers are generally disconnected from service after a specified period following their failure to either pay a monthly bill or replenish, or "top-up," their account. Because our calculation of weighted-average number of customers includes customers who are not currently paying for service but who have not yet been disconnected from service because they have not paid their last bill or have not replenished 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):

Three Months Ended

March 31,

2013

2012

Service revenues

$

684,622

$

773,998

Less pass-through regulatory fees and telecommunications taxes

(855)

(4,137)

Total service revenues used in the calculation of ARPU

$

683,767

$

769,861

Weighted-average number of customers

5,213,605

6,025,427

ARPU

$

43.72

$

42.59

(3)

CPGA is selling and marketing costs (excluding applicable share-based compensation expense or benefit 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). Third-party 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):

Three Months Ended

March 31,

2013

2012

Selling and marketing expense

$

78,838

$

95,554

Less share-based compensation expense included in selling and marketing expense

(111)

(23)

Plus cost of equipment

258,968

247,847

Less equipment revenue

(105,236)

(51,621)

Less net loss on equipment transactions and third-party commissions unrelated to customer acquisition

(82,072)

(96,097)

Total costs used in the calculation of CPGA

$

150,387

$

195,660

Gross customer additions

473,881

859,547

CPGA

$

317

$

228

(4)

CCU is cost of service and general and administrative costs (excluding applicable share-based compensation expense or benefit 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):

Three Months Ended

March 31,

2013

2012

Cost of service

$

250,858

$

261,311

Plus general and administrative expense

82,225

89,699

Less share-based compensation (expense) benefit included in cost of service and general and administrative expense

(2,003)

717

Plus net loss on equipment transactions and third-party commissions unrelated to customer acquisition

82,072

96,097

Less pass-through regulatory fees and telecommunications taxes

(855)

(4,137)

Total costs used in the calculation of CCU

$

412,297

$

443,687

Weighted-average number of customers

5,213,605

6,025,427

CCU

$

26.36

$

24.55

(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 or benefit. 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 GAAP, 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;

•     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):

Three Months Ended

March31,

2013

2012

Operating loss

$

(29,351)

$

(15,803)

Plus depreciation and amortization

152,573

146,543

OIBDA

$

123,222

$

130,740

Plus (gain) loss on sale, exchange or disposal of assets, net

(4,988)

468

Plus impairments and other charges

735

—

Plus share-based compensation expense (benefit)

2,114

(694)

Adjusted OIBDA

$

121,083

$

130,514

(6)

Free cash flow is a non-GAAP financial measure defined as net cash provided by operating activities less purchases of property and equipment. Free cash flow should not be considered as an alternative to net cash flow provided by operating activities as determined in accordance with GAAP or as a measure of liquidity.

Management believes that free cash flow provides useful information about the amount of cash available to us to fund ongoing operations and working capital needs, service our debt, satisfy our tax obligations, strengthen our balance sheet and make investments in our business. Management also believes that the presentation of free cash flow is relevant and useful for investors because it allows investors to evaluate cash generated from our underlying operations in a manner similar to that used by management. In addition, free cash flow is a primary measure used externally by investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to that of other companies in our industry.

Free cash flow 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. Free cash flow, as we calculate it, may not be comparable to similarly titled measures used by other companies. In addition, free cash flow (as a measure of liquidity) has certain limitations and does not represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

The following table reconciles free cash flow to net cash provided by operating activities, which we consider to be the most directly comparable GAAP financial measure to free cash flow (unaudited; in thousands):

Three Months Ended

March 31,

2013

2012

Net cash provided by operating activities

$

25,557

$

35,357

Less purchases of property and equipment

(26,362)

(146,314)

Free cash flow

$

(805)

$

(110,957)