Leap Wireless International Management Discusses Q2 2012 Results - Earnings Call Transcript

Leap Wireless International (LEAP)

Q2 2012 Earnings Call

August 06, 2012 5:00 pm ET

Executives

Amy Wakeham

Stewart Douglas Hutcheson - Chief Executive Officer, President and Director

Jerry Elliott

Analysts

Philip Cusick - JP Morgan Chase & Co, Research Division

Simon Flannery - Morgan Stanley, Research Division

Richard H. Prentiss - Raymond James & Associates, Inc., Research Division

Timothy K. Horan - Oppenheimer & Co. Inc., Research Division

James G. Moorman - S&P Equity Research

Jonathan Chaplin - Crédit Suisse AG, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter 2012 Leap Wireless International Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to the host for today's call, Ms. Amy Wakeham, Vice President of Investor Relations and Corporate Communications. Please proceed.

Amy Wakeham

Yes. Thanks, George. Good afternoon, everyone. Thanks for joining us, and welcome to Leap's Second quarter 2012 Conference Call. This call, along with the presentation slides, is being webcast live and together with our earnings release, will be available on our corporate website shortly after the completion of the live call. The results and data we discuss today reflect the consolidated results of Leap, its subsidiaries and joint venture partners for the periods indicated. We will discuss certain non-GAAP measures. For a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, please see the notes to the financial statements in today's earnings release, or visit our Financial Reports page on our website. As a reminder, statements about expected future events and financial results are forward-looking and subject to risks and uncertainties. Our actual results may differ materially. Please refer to the risk factors detailed in our SEC filings for further discussions. For anyone listening to a taped or webcast replay or viewing a written transcript of our second quarter call, please note that all information presented is current only as of today's date, August 6, 2012. The company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events or otherwise.

On the call today to discuss our second quarter results are Doug Hutcheson, Leap's President and Chief Executive Officer; and Jerry Elliott, Leap's Chief Financial Officer. Following our prepared remarks, the call operator will come back on the line for the Q&A portion of the call, and then Doug will return for a few closing remarks.

I'd now like to turn the call over to Doug.

Stewart Douglas Hutcheson

Welcome, and thank you for joining us today. Over the past several months, Leap has been planning and implementing a transition in our business that we believe is fundamentally necessary and will significantly advance our strategy, strengthen our competitiveness and improve our financial performance. This transition is based upon 2 elements: First, over the second half of this year, we will introduce a number of new products, plans and services, and we'll make changes to improve customer experience. Second, we have been looking and continue to look at all options to drive free cash flow, improve margins and optimize the value of our lower performing assets. To some extent, second quarter's results reflect and we expect third quarter results will reflect that we're already in the middle of this transition. Operationally, customer additions did not meet our expectations for reasons we'll explain later in the call. On the financial side, our progress has produced some of the best results in terms of OIBDA and margins, although more progress is essential on this front.

We'll discuss those results in detail shortly, but before I do, I'd like to take a step back to provide you with an overview of how we're looking at our business and responding to the evolving marketplace. As you know, 2 years ago, we refocused our business to provide attractive all-inclusive plans with sophisticated devices such as smartphones and advanced services such as Muve Music that operate over a fast nationwide network. Following that transition, we made dramatic improvements in the business and we continue to believe that it's fundamentally the right strategy. In fact, while we're making some important refinements to our strategy, a lot of what we're seeing in the marketplace is telling us that we're on the right path and need to keep moving forward, albeit with improved execution.

Over the coming weeks, you're going to see a significant upgrade of our higher ARPU service plans to provide more alternatives and value at different price points. We'll also be making improvements to our customer experience and adding more high-quality desirable handsets. Looking to the holidays, you will see the introduction of 4G devices and services as we expand our 4G network capabilities. We also intend to focus on maintaining our competitive position for entry-level customers by expanding our lifeline programs to provide attractive programs to financially challenged consumers, importantly, without meaningfully discounting the overall profitability around these plans. At the same time, we remain focused on improving cash flows and financial performance. We are tightening our focus in our national retail channels, limiting the number of doors and focusing our marketing spend. In addition, we're reducing 2012 capital expenditures by approximately $80 million, principally by managing 3G network capacity investments.

Also, as we roll out LTE, we are continuing to explore cost effective ways to deliver 4G services, including by deploying facilities-based coverage and by entering into partnerships and joint ventures with other carriers. We're also expanding a review of alternatives to drive cash flow and realize value from our assets.

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