Leap Wireless (LEAP) reported fourth-quarter 2009 results with a net loss per share of 82 cents exceeding the Zacks Consensus Estimate of 65 cents. Net loss increased 17.2% year-over-year to $64 million on account of higher operating expenses and lower subscriber growth. The carrier, which operates under the “Cricket” brand, posted a net loss of $54.6 million or 82 cents a year ago.

For full year 2009, net loss climbed 59% year-over-year to $239.5 million or $3.30 per share, exceeding the Zacks Consensus Estimate of a loss of $3.10 and the year-ago quarter loss of $2.21. The current Zacks Consensus Estimate for 2010 net loss is 98 cents.

Leap’s shares fell 16 cents (or 1.08%) to $14.63 in after-hours trading on February 25 following the lower-than-expected quarterly results.

Revenue, OIBDA & Expense

Consolidated revenues for the quarter increased 15.5% year-over-year to $599.3 million, but missed the Zacks Consensus Estimate of $633 million. The annualized revenue growth was fueled by a 19.3% increase in service revenue that reached $547 million (91% of total sales). Growth in service revenue reflects the company’s successful new market launches and customer acceptance of its Cricket Broadband service.

For full year 2009, revenue grew 21.7% year-over-year to $2.38 billion, falling short of the Zacks Consensus Estimate of $2.42 billion. The current Zacks Consensus Estimate for 2010 revenue is $2.75 billion. Consolidated adjusted OIBDA for the quarter grew 42.5% year-over-year to $129.5 million, while operating expenses increased 15% year-over-year to $593 million.

ARPU, Churn & Subscriber

Reported ARPU of $38.66 represents a decline from $42.44 reported in the year-ago quarter, impacted by increased customer deactivations and the carrier’s competitive pricing measures. Churn rose to 4.7% from 3.8% registered in the prior-year quarter, partly due to competition and rising unemployment in key customer segments.

Net subscriber additions in the quarter were 297,743, down 22.7% from 385,292 customers added in the year-ago quarter. At the end of the quarter, total customer base reached approximately 4.95 million, up 29 % year-over-year.

Financial Condition

The company generated $284.3 million of cash from operations in 2009 and spent $699.5 million in capital expenditures (including $122 million in the fourth quarter), resulting in a negative free cash flow of $415.2 million. Leap exited 2009 with $175 million in cash and cash equivalent and $2.74 billion in total debt.

Outlook

The company has not released financial forecasts for 2010. However, it expects churn to remain higher than historical levels in the near term due to stiff competition. Moreover, ARPU is expected to remain under pressure in the upcoming quarters. Nevertheless, Leap plans to launch several initiatives in the coming weeks to boost performance and improve customer retention.

The company plans to revamp its service plans and launch several 3G handsets in 2010 Incorporatedluding Blackberry and Android smartphones. Leap recently formed a joint venture with prepaid operator Pocket Communications to boost wireless services in South Texas.

Leap Wireless remains one of the lowest-cost wireless service providers in the U.S., which enables it to roll out a range of cheap service plans that start as low as $30 per month. The company has strategized to expand coverage in urban and suburban markets and avoid less-populated areas which help it to keep infrastructural costs low.

However, Leap Wireless is operating in an intensely competitive low-cost prepaid wireless market. Besides competing directly with MetroPCS (PCS), the company remains challenged by the competitive service plans of its larger rivals, especially Sprint Nextel’s (S) $50 monthly unlimited plan and $45 plan from America Movil’s (AMX) Tracfone.

Leap faces challenges from top-tier carriers that offer bundled packages to customers and are upgrading their networks to advanced 4G technologies. The carrier is exploring opportunities for a potential sale or merger with a rival operator. Leap has hired Goldman Sachs (GS) and Morgan Stanley (MS) as advisors to evaluate strategic options and find a potential suitor.

We remain concerned about the decelerating subscriber growth levels as well as the company’s high debt exposure, which is expected to be exacerbated by the ongoing business expansion initiatives.

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