Leap Wireless International, Inc. (LEAP), a leading provider of innovative and value-driven wireless communications services, today reported operational and financial results for the three and six months ended June 30, 2012. Service revenues for the second quarter of 2012 increased 6.7 percent over the prior year quarter to $751.3 million. The Company reported $190.8 million of adjusted operating income before depreciation and amortization (OIBDA) for the second quarter, an 18.8 percent increase over the prior year quarter. Second quarter 2012 operating income was $31.6 million compared to operating income of $12.3 million for the second quarter of 2011.
The Company reported approximately 493,000 gross customer additions for the second quarter of 2012 and approximately 289,000 net customer losses. Net customer losses were comprised of approximately 205,000 voice customers and 84,000 broadband customers. Customer churn for the second quarter of 2012 was 4.4 percent. In-footprint voice churn excluding PAYGo customers was essentially flat year-over-year at 3.4 percent.
"We are pleased to have delivered the Company's best-ever quarterly adjusted OIBDA, which drove an adjusted OIBDA margin increase of 260 basis points over the prior year and 850 basis points over first quarter 2012," said Doug Hutcheson, Leap's president and chief executive officer. "Second quarter customer results, however, were softer than anticipated. The Company's plan for the balance of 2012 is designed to position us to capture customer growth and improve operational performance. Over the coming weeks, we will be announcing significant enhancements to our higher-ARPU service plans to provide more alternatives and value at different price points. We'll also be making improvements to our customer experience and adding more desirable, high-quality handsets.
"At the same time, we remain focused on improving cash flows and financial performance. We are tightening our focus in our national retail channel by narrowing the number of retail locations and our marketing spend. In addition, we are reducing 2012 capital expenditures by approximately $80 million, principally by managing 3G network capacity investments, and are exploring cost-effective alternatives to deliver 4G services as we roll out LTE. We are also continuing to review alternatives to drive additional cash flow and value from our assets."
Discussion of Financial and Operational Results for the Quarter
End-of-period customers for the second quarter of 2012 were approximately 5,903,000, a 2.7 percent increase from end-of-period customers for the second quarter of 2011.
The Company reported a net loss of approximately 289,000 customers for the second quarter of 2012, compared to a net loss of approximately 103,000 customers for the second quarter of 2011.
Voice net customer losses reflect approximately 191,000 net voice customers lost inside Cricket's own network footprint and approximately 14,000 net voice customers lost outside of Cricket's network footprint. Voice customer losses reflect lower gross additions, promotional activities that did not perform as expected and higher churn levels.
Broadband net customer losses of approximately 84,000 customers reflect the Company's planned shift of network usage to higher-ARPU smartphones.
Customer churn for the second quarter of 2012 was 4.4 percent, compared to 4.2 percent for the second quarter of 2011.
Voice customer churn for the second quarter of 2012 was 4.0 percent, compared to 3.6 percent for the comparable period of the prior year, reflecting higher churn levels in certain national retail channels.
Broadband customer churn for the second quarter of 2012 was 10.3 percent, compared to 9.9 percent for the comparable period of the prior year reflecting the planned shift of network usage to higher-ARPU smartphones.
57 percent of the Company's new handset sales in the second quarter of 2012 were for smartphones and Muve Music-enabled devices and approximately 9 percent of the Company's voice customer base upgraded their handsets during the quarter.
Service Revenues and ARPU
Service revenues for the second quarter increased to $751.3 million, a 6.7 percent increase over the comparable period of the prior year, primarily due to a 3.9 percent increase in weighted-average customers and continued uptake of the Company's higher-ARPU service plans.
ARPU for the second quarter of 2012 was $41.64, an increase of $1.49 over the comparable period of the prior year. The year-over-year increase in ARPU primarily reflects continued penetration of higher-value service plans, offset in part by the effect of certain customer retention activities.
Operating Expenses, Adjusted OIBDA & Financial Metrics
Adjusted OIBDA for the second quarter of 2012 was $190.8 million, an increase of 18.8 percent over the comparable period of the prior year. The year-over-year increase primarily reflects growth in the Company's service revenues.
Second quarter 2012 operating income was $31.6 million, compared with operating income of $12.3 million for the comparable period of the prior year. The year-over-year increase in operating income resulted primarily from growth in the Company's service revenues, offset by increased depreciation and amortization expense primarily associated with network upgrades.
CCU for the second quarter of 2012 increased 4.9 percent over the prior year quarter to $22.91, primarily because of higher product costs, costs associated with the transition of the Company's supply chain vendor and upfront expenses related to cost reduction initiatives.
CPGA for the second quarter of 2012 increased by 17.9 percent over the prior year quarter to $296, reflecting a year-over-year decrease in gross customer additions and costs associated with national retail channels.
Net loss attributable to common stockholders for the second quarter of 2012 was $41.6 million, or $0.54 per diluted share, compared to a net loss attributable to common stockholders of $65.2 million, or $0.85 per diluted share, for the second quarter of 2011.
Capital expenditures during the second quarter of 2012 were $119.1 million.
Updated Business Outlook
Total capital expenditures for 2012 are expected to be between $530 million and $560 million, including spending for the deployment of next-generation LTE network technology.
The Company currently plans to offer next-generation LTE network technology services over the next two to three years to customers in at least two-thirds of its network footprint.
The Company plans to cover approximately 21 million POPs with LTE network technology in 2012.
The Company continues to explore cost-effective ways to deliver LTE services to its customers, including by deploying facilities-based coverage and/or by entering into possible partnerships or joint ventures with others.
Aggregate capital expenditures for LTE deployment are expected to be less than $10 per covered POP.
Other Business & Operational Highlights
Introduced the iPhone4 and iPhone4S in company-owned stores and select dealers in nearly 60 Cricket markets.
Announced agreements to exchange spectrum between T-Mobile, Leap and their venture partners.
Introduced the BlackBerry Curve 9350 Smartphone.
Appointed Jerry Elliott as executive vice president and chief financial officer.