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LEAP's Q3 Loss Wider than Expected

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Leap Wireless International Inc. declared grim financial results for the third quarter of 2013, with both the top and the bottom line missing the Zacks Consensus Estimate. Additionally, Leap Wireless suffered a significant net subscriber loss.

Reported net loss in the third quarter of 2013 was $185.4 million or a loss per share of $2.37 compared with a net profit of $25 million or 32 cents per share in the prior-year quarter. However, the figure was significantly wider than the Zacks Consensus Estimate of a loss of $1.14. Quarterly cash cost per user (primarily indicating carrier subsidy for new smartphone) was $31.64, up 31.3% year over year.

Quarterly total revenue was $694 million, down 10.3% year over year and slightly below the Zacks Consensus Estimate of $695 million. Service revenues came in at $646.3 million, down 10.5% year over year. Equipment revenues were $47.7 million, down 8.3% from the year-ago quarter.

Quarterly gross margin was 35.3% compared with 39.3% in the prior-year quarter. Operating loss was $83.4 million against an operating profit of $81.4 million in the prior-year quarter. Adjusted OIBDA was $78 million, down 40.7% year over year. Adjusted OIBDA was 12.1% of the service revenues compared with 18.2% in the year-ago quarter.

During the third quarter of 2013, Leap Wireless generated $71.7 million of cash from operations compared with $210.5 million in the prior-year quarter. Free cash flow was a negative $25 million compared with a negative $218.1 million in the year-ago quarter. At the end of the third quarter, Leap Wireless had over $909.2 million of cash and marketable securities compared with $675 million at the end of 2012. Total debt was over $3,368.2 million compared with $3,298.5 million at the end of 2012. Debt-to-capitalization ratio was 1.00 versus 0.88 at the end of 2012.

Subscriber Statistics

During the reported quarter, Leap Wireless lost 196,045 net customers against 268,984 customers in the year-ago quarter. Total subscriber base, at the end of the third quarter of 2013 was 5,643,430 exhibiting a 17.6% year-over-year drop. ARPU was $45.45 against $41.94 in the prior-year quarter. Quarterly cost per gross was $319 as against $310 in the comparable earlier -year quarter. Consolidated customer churn rate was 4% compared with 4.8% in the prior-year quarter. Leap Wireless lost 139,636 net customers at its wireless segment against 181,573 customers in the year-ago quarter. Quarterly wireless churn rate was 3.5% compared with 4.2% in the year-ago quarter. Wireless subscriber base was stood at 4,242,096 exhibiting a 12.5% year-over-year drop fall.   

Our Take

The prepaid wireless market in the U.S. is intensely competitive as most low-cost carriers like Sprint Corporation (S - Free Report) and America Movil SAB (AMX - Free Report) are continuously offering attractive plans like Boost Mobile, Virgin Mobile and Tracfone. Apart from these players, telecom giants like AT&T, Inc. (T - Free Report) 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 #2 (Buy).

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