Leap Wireless International Inc. (LEAP) filed Quarterly Report for the period ended 2009-09-30.
Leap Wireless is a customer-focused company providing innovative mobile wireless services that are targeted to meet the needs of customers who are under-served by traditional communications companies. With a commitment to predictabilitysimplicity and value as the foundation of our businessLeap pioneered Cricket? servicea simple and affordable wireless alternative to traditional landline service. Cricket service offers customers unlimited anytime minutes within the Cricket calling area over a high-qualityall-digital CDMA network. Leap Wireless International Inc. has a market cap of $980.06 million; its shares were traded at around $12.66 with and P/S ratio of 0.5.
Highlight of Business Operations:
expanding existing market footprints and have launched additional markets, increasing the number of potential customers covered by our networks from approximately 27.7 million covered POPs as of December 31, 2005, to approximately 48.0 million covered POPs as of December 31, 2006, to approximately 53.2 million covered POPs as of December 31, 2007, to approximately 67.2 million covered POPs as of December 31, 2008 and to approximately 91.1 million covered POPs as of September 30, 2009. This network expansion, together with organic customer growth in our existing markets, has resulted in substantial additions of new customers, as our total end-of-period customers increased from 1.67 million customers as of December 31, 2005, to 2.23 million customers as of December 31, 2006, to 2.86 million customers as of December 31, 2007, to 3.84 million customers as of December 31, 2008 and to 4.66 million customers as of September 30, 2009. In addition, our total revenues have increased from $957.8 million for fiscal 2005, to $1.17 billion for fiscal 2006, to $1.63 billion for fiscal 2007 and to $1.96 billion for fiscal 2008, and from $1.44 billion for the nine months ended September 30, 2008 to $1.78 billion for the nine months ended September 30, 2009.
As our business activities have expanded, our operating expenses have also grown, including increases in cost of service reflecting the increase in customers, the costs associated with the launch of new products and markets and the broader variety of products and services provided to our customers; increased depreciation expense related to our expanded networks; and increased selling and marketing expenses and general and administrative expenses generally attributable to expansion into new markets, selling and marketing to a broader potential customer base, and expenses required to support the administration of our growing business. In particular, total operating expenses increased from $901.4 million for fiscal 2005, to $1.17 billion for fiscal 2006, to $1.57 billion for fiscal 2007 and to $1.91 billion for fiscal 2008, and from $1.40 billion for the nine months ended September 30, 2008 to $1.76 billion for the nine months ended September 30, 2009. During this period, we also incurred substantial additional indebtedness to finance the costs of our business expansion and acquisitions of additional wireless licenses. As a result, our interest expense has increased from $30.1 million for fiscal 2005, to $61.3 million for fiscal 2006, to $121.2 million for fiscal 2007 and to $158.3 million for fiscal 2008, and from $109.1 million for the nine months ended September 30, 2008 to $150.0 million for the nine months ended September 30, 2009.
Primarily as a result of the factors described above, our net income of $30.7 million for fiscal 2005 decreased to a net loss of $25.5 million for fiscal 2006, a net loss of $76.4 million for fiscal 2007 and a net loss of $143.4 million for the year ended December 31, 2008, and our net loss of $88.8 million for the nine months ended September 30, 2008 increased to a net loss of $174.0 million for the nine months ended September 30, 2009. We believe, however, that the significant initial costs associated with building out and launching new markets and further expanding our existing business will provide substantial future benefits as the new markets we have launched continue to develop, our existing markets mature and we continue to add subscribers and generate additional revenues.
Our wireless licenses in our operating markets are combined into a single unit of account for purposes of testing impairment because management believes that utilizing these wireless licenses as a group represents the highest and best use of the assets, and the value of the wireless licenses would not be significantly impacted by a sale of one or a portion of the wireless licenses, among other factors. Our non-operating licenses are tested for impairment on an individual basis. As of September 30, 2009, the carrying values of our operating and non-operating wireless licenses were $1,889.3 million and $30.0 million, respectively. An impairment loss is recognized on our operating wireless licenses when the aggregate fair value of the wireless licenses is less than their aggregate carrying value and is measured as the amount by which the licenses’ aggregate carrying value exceeds their aggregate fair value. An impairment loss is recognized on our non-operating wireless licenses when the fair value of a wireless license is less than its carrying value and is measured as the amount by which the license’s carrying value exceeds its fair value. Any required impairment loss is recorded as a reduction in the carrying value of the relevant wireless license and charged to results of operations. As a result of the annual impairment test of wireless licenses, we recorded an impairment charge of $0.6 million during the three and nine months ended September 30, 2009 and an impairment charge of $0.2 million during the three and nine months ended September 30, 2008 to reduce the carrying values of certain non-operating wireless licenses to their estimated fair values. No impairment charges were recorded for our operating wireless licenses as the aggregate fair values of these licenses exceeded the aggregate carrying value.
As of September 30, 2009, the aggregate fair value and carrying value of our individual operating wireless licenses was $2,388.5 million and $1,889.3 million, respectively. If the fair value of our operating wireless licenses had declined by 10% as of September 30, 2009, we would not have recognized any impairment loss. As of September 30, 2009, the aggregate fair value and carrying value of our individual non-operating wireless licenses was $36.6 million and $30.0 million, respectively. If the fair value of our non-operating wireless licenses had declined by 10% as of September 30, 2009, we would have recognized an impairment loss of approximately $1.7 million.
Although the average closing price of Leap common stock for the month of September was higher than the average closing price for the month of August, since September 30, 2009, the competition in markets in which we operate has intensified and the trading price of Leap common stock has been highly volatile, declining significantly below the level we considered in performing our annual impairment test. Since September 30, 2009, the closing price of Leap common stock has ranged from a high of $17.42 per share to a low of $13.03 per share, and the closing price of Leap common stock was $13.03 per share on November 5, 2009. If the trading price of Leap common stock were to continue to be adversely affected for a sustained period of time due to competition in the wireless telecommunications industry,
LEAP is in the portfolios of Bill Miller of Legg Mason Value Trust, Lee Ainslie of Maverick Capital, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.
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