Leap Q2 Loss Widens - Analyst Blog

By Zacks Equity Research,

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Leap Wireless International Inc. ( LEAP ) declared grim financial results for the second quarter of 2013, with both the top and bottom lines missing the Zacks Consensus Estimate. Additionally, Leap Wireless suffered a significant net subscriber loss. Consolidated customer churn rate was 4.3% compared with 4.4% in the prior-year quarter.

Reported net loss in the second quarter of 2013 was $163.1 million or a loss per share of $2.09 compared with a net loss of $41.6 million or a loss of 54 cents per share in the prior-year quarter. However, adjusted net loss per share of $1.15 was significantly higher than the Zacks Consensus Estimate of a loss of 94 cents. Quarterly cash cost per user (primarily indicating carrier subsidy for new smartphone) was $27.79, up 21.3% year over year.

Quarterly total revenue was $731.5 million, down 7% year over year and also below the Zacks Consensus Estimate of $736 million. Service revenues were $678.5 million, down 9.7% year over year. Equipment revenues were $53 million, up 49.3% year over year.

Quarterly gross margin was 40.8% compared with 45.6% in the prior-year quarter. Operating loss was $9.5 million compared with an operating profit of $31.9 million in the prior-year quarter. Adjusted OIBDA was $148.8 million, down 22% year over year. Adjusted OIBDA was 22% of the service revenue compared with 25% in the year-ago quarter.

During the second quarter of 2013, Leap Wireless generated $10.6 million of cash from operations compared with $15.2 million in the prior-year quarter. Free cash flow was negative $38.3 million compared with negative $250.2 million in the year-ago quarter. At the end of the second quarter, Leap Wireless had over $913.1 million of cash and marketable securities compared with $675 million at the end of 2012. Total debt, at the end of the reported quarter, was over $3,620 million compared with $3,298.5 million at the end of 2012. Debt-to-capitalization ratio was 0.96 compared with 0.88 at the end of 2012.

Subscriber Statistics

During the reported quarter, Leap Wireless lost 364,268 net customers against 289,270 customers in the year-ago quarter. Total subscriber base, at the end of the second quarter of 2013 was 5,031,930 exhibiting a 16% year-over-year drop. ARPU was $44.89 up 7.8% year over year. Quarterly cost per gross addition increased 30.7% year over year to $387. Leap Wireless lost 255,132 net customers for its wireless segment against 142,779 customers in the year-ago quarter. Quarterly wireless churn rate was 3.6% compared with 3.3% in the year-ago quarter. Wireless subscriber base was 4,381,735 exhibiting a 12.9% year-over-year drop.   

Our Take

The prepaid wireless market in the U.S. is intensely competitive as most low cost carriers like Boost Mobile and Virgin Mobile services of Sprint Corporation ( S ) and Tracfone of America Movil SAB ( AMX ) are continuously offering attractive plans for its subscribers. Apart from these low cost players, telecom giants like AT&T, Inc. ( T ) and Verizon Wireless are targeting the prepaid market segment, which we believe may further intensify competition going forward.

Leap Wireless currently has a Zacks Rank #3 (Hold).

AMER MOVIL-ADR (AMX): Free Stock Analysis Report

LEAP WIRELESS (LEAP): Free Stock Analysis Report

SPRINT CORP (S): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AMX , LEAP , S , T

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