Yesterday after market close, Leap Wireless International Inc. (LEAP) declared second-quarter 2010 financial results that fell below our expectations. The company suffered net subscriber loss in the reported quarter contrary to the consensus opinion of net subscriber addition. Consequently, the share price of Leap Wireless plunged 56 cents (4.84%) to $11 in the after market trade on NASDAQ.
Quarterly total revenue was $633.5 million, up 6% year over year but well below the Zacks Consensus Estimate of $671 million. Service revenue was $597 million, up 10.2% year over year. Equipment revenue was a little above $36.5 million, down 34.5% year over year.
Net loss, in the second quarter of 2010, was $18.2 million or a loss of 24 cents per share compared with a net loss of $62.8 million or 89 cents per share in the prior-year quarter. Quarterly net loss of 24 cents per share was also higher than the Zacks Consensus Estimate of a loss of 23 cents per share.
Quarterly gross margin was 54.7% compared with 52.7% in the prior-year quarter. In the second quarter of 2010, operating income was $49.2 million, up 87.1% year over year. Quarterly adjusted OIBDA was $172 million, up 24.8% year over year. In the reported quarter, adjusted OIBDA was 29% of service revenue compared with 25% in the year-ago quarter.
During the first half of 2010, Leap Wireless generated $204.4 million of cash from operations compared with $143.8 million in the prior-year period. Capital expenditure, in the same period was $200.1 million compared with $458.7 million in the year-ago period.
At the end of the second quarter of 2010, Leap Wireless had more than $550.2 million of cash & marketable securities compared with $564.2 million at the end of fiscal 2009. Total debt, at the end of the reported quarter, was over $2,740.4 million compared with $2,743.3 million at the end of fiscal 2009. At the end of the second quarter of 2010, the debt-to-capitalization ratio was 0.63 compared to 0.62 at the end of fiscal 2009.
Subscriber Statistics
During second-quarter 2010, Leap Wireless suffered 111,718 net subscriber loss compared to a net subscriber addition of 202,767 during the prior-year quarter. Total subscriber base, at the end of the reported quarter, was 5,288,157, an improvement of 16.5% year over year. The quarterly churn rate was 5% compared with 4.4% in the year-ago quarter. Average revenue per unit, in the second quarter of 2010, was $37.61 compared with $40.73 in the year-ago quarter. Quarterly cost per gross addition was $215 compared with $201 in the prior-year quarter.
We maintain our Neutral recommendation for Leap Wireless. Currently it is a Zacks #3 Rank (Hold) stock.
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