Leap Wireless International Inc.
) declared financial results for the third quarter of 2012, where
the bottom line topped the Zacks Consensus Estimates but the top
line marginally missed the same.
In the previous quarter, the company's customer churn rate was
4.8% compared with 3.8% in the prior-year quarter. Consequently,
in the after market trade on NASDAQ, the stock price of Leap
wireless increased 10 cents (1.87%) to $5.44.
Quarterly total revenue came in at $774 million, up 1.4% year
over year, but was slightly below the Zacks Consensus Estimate of
$775 million. Service revenue was nearly $722 million, up 0.7%
year over year. Equipment revenue was $52 million, up 13% year
Net profit, in the third quarter of 2012, was $25 million or
earnings per share of 32 cents compared to a net loss of $68.8
million or a loss of 90 cents per share in the prior-year
quarter. Profit from the sale of spectrum has driven the
bottom-line growth of the company. Quarterly earnings per share
of 32 cents were higher than the Zacks Consensus Estimate of a
loss of 47 cents. Quarterly cash cost per user (primarily
indicating carrier subsidy for new smartphone) was $24.11, up
4.4% year over year.
Quarterly gross margin was 45.6% compared with 43.8% in the
prior-year quarter. In the third quarter of 2012, operating
income was $81.4 million compared to an operating loss of $16.1
million in the prior-year quarter. Quarterly adjusted OIBDA was
$131.6 million, down 14.7% year over year. In the reported
quarter, adjusted OIBDA was 18% of the service revenue compared
with 22% in the year-ago quarter.
During the third quarter of 2012, Leap Wireless generated
$98.6 million of cash from operations compared with $166.5
million in the prior-year quarter. Free cash flow, in the
previous quarter, was a negative $7.7 million compared with $63.4
million in the year-ago quarter.
At the end of the third quarter of 2012, Leap Wireless had
over $623 million of cash and marketable securities compared with
$800 million at the end of the first nine months of 2012. Total
debt, at the end of the third quarter of 2012, was over $3,204.4
million compared with $3,198.7 million, at the end of 2011. At
the end of the third quarter of 2012, debt-to-capitalization
ratio was 0.86 compared with 0.84 at the end of the third quarter
During the third quarter of 2012, Leap Wireless lost around
268,984 net customers against a gain of 9,511 customers in the
year-ago quarter. In the last quarter, the company lost a total
of 239,000 wireless voice customers and 29,000 wireless broadband
subscribers. Total subscriber base, at the end of the third
quarter of 2012, was 5,633,819, exhibiting a 2.1% year-over-year
drop. Voice churn rate was 4.7% compared with 3.4% in the
year-ago quarter. ARPU in the reported quarter was $41.94, up
1.7% year over year. Quarterly cost per gross addition was $310,
up 30.3% year over year.
Leap Wireless offers quality service plans to its customers at
attractive rates. Continuous expansion of smartphone portfolio
(inclusive of new iPhone 5) coupled with popular muve music
service offerings will act as tailwinds for the company going
Despite such positive traits, we remain cautious about Leap
Wireless due to huge competitive pressure from other carriers
), Tracfone and
), which also offer such attractive plans. Furthermore, lower
margin due to higher subsidy associated with the launch of iPhone
5 coupled with highly leveraged balance sheet will continue to
act as headwinds for the company going forward.
We maintain our long-term Neutral recommendation on Leap
Wireless. Currently, the company has a short-term Zacks #3 Rank
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