Leap Wireless (LEAP), which operates under the “Cricket” brand, reported a first-quarter 2010 net loss per share of 90 cents, wider than the Zacks Consensus Estimate for a loss of 66 cents. The net loss increased 35% year-over-year to $68 million on account of higher operating costs and interest expenses. The carrier posted a net loss of $47.4 million, or 74 cents a share a year ago.
Revenue, OIBDA & Expense
Consolidated revenues increased 11.4% year-over-year to $654 million, edging past the Zacks Consensus Estimate of $653 million. The annualized revenue growth was fuelled by a 13.8% increase in service revenues that reached $584.8 million. Growth in service revenues reflects the company’s new market launches and customer adoption of its Cricket Broadband service.
Consolidated adjusted OIBDA grew 27.1% year-over-year to $123 million, while operating expenses increased 9.4% year-over-year to $647.4 million, in part, due to higher depreciation and amortization charges. Increased debt level elevated interest expenses, which climbed 44% year over year.
ARPU, Churn & Subscribers
ARPU (average revenue per user) declined to $37.96 from $42.21 a year-ago, as customers signed up for the carrier’s low-priced Cricket Broadband and Cricket PAYGo services. Churn rose to 4.5% from 3.3% in the prior-year quarter due to the combined effect of cut-throat competition and a challenging economy. An aggressive price war in the prepaid space has forced the incumbent carriers to prune plan prices.
Net subscriber additions in the quarter were 445,768, down 9.5% from 492,753 customers added in the year-ago quarter. At the end of the quarter, Leap’s customer base reached approximately 5.4 million, up 24.5% year over year.
Financial Condition
The company generated $93.6 million of cash from operations and spent $107.2 million towards capital expenditure, resulting in a negative free cash flow of $13.6 million. Leap exited the quarter with $173 million in cash and cash equivalents and $2.74 billion in total debt.
Outlook
Leap has not released its quarterly and annual financial forecasts for 2010. However, it expects churn to remain higher than historical levels due to stiff competition, while ARPU is expected to remain under pressure in the upcoming quarters.
The carrier recently revamped its Cricket service plans and launched nationwide voice and text coverage addressing 277 million people. Moreover, Leap formed a joint venture with prepaid operator Pocket Communications to boost wireless services in South Texas.
Leap Wireless remains one of the lowest-cost wireless service providers in the US, which enables it to roll out a range of cheap service plans that start as low as $30 per month. The company has strategized to expand coverage in urban and suburban markets and avoid less-populated areas, which help it to keep infrastructural costs low.
However, Leap Wireless is operating in an intensely competitive low-cost prepaid wireless market. Besides competing head-to-head with MetroPCS (PCS), the company remains challenged by the competing service plans of its larger rivals Sprint Nextel (S) and America Movil’s (AMX) Tracfone.
Leap also faces challenges from Tier-1 carriers that offer bundled packages and are upgrading their networks to advanced 4G technologies. The carrier is exploring opportunities for a potential sale or merger with a rival operator ,with MetroPCS being a potential suitor.
While Leap is well positioned to benefit from the improving fundamentals of the US prepaid market, we remain cautious about the decelerating subscriber growth as well as the company’s high debt exposure, which is expected to be exacerbated by the ongoing business expansion initiatives.
Read the full analyst report on “LEAP”
Read the full analyst report on “PCS”
Read the full analyst report on “S”
Read the full analyst report on “AMX”
Zacks Investment Research
