Leap Wireless reports lower than expected Q2 earnings, stock falls 10%

A poor second quarter has led Leap Wireless to tell Sprint that it will not be paying the carrier its $75 million for access to Sprint's network this year. The holding company, known best for its Cricket Wireless pre-paid carrier service,  points to provisions in its wholesale agreement as the reason why it does not have to make the payment to Sprint. Leap Wireless CEO Doug Hutcheson adds that he expects his company to end up paying Sprint a "significant majority" of the $75 million. The executive says that Sprint has not agreed to Leap's decision and both sides are in discussions. Sprint refused to comment. Remember, Leap is on the hook for $900 million that it spent for 3 years of offering the Apple iPhone 4S to its pre-paid customers.

Meanwhile, Leap reported its second quarter earnings and the numbers were under expectations which led to a 10% drop in the stock in after-hours trading. At $4.92, the shares are well off the 52 week high of $11.30. For the three month period, Leap lost 289,270 customers, nearly triple the amount lost last quarter. The quarter included less than one month of Apple iPhone 4S sales, which Leap's Cricket started offering in June. Apple's iconic smartphone may not have as much influence on Leap's numbers because being a pre-paid carrier, Cricket does not offer the device with a subsidy. For the three month period ending in June, Leap reported a 4.4% churn rate which it blamed partially on seasonal tendencies.

Leap had a second quarter loss of $41.6 million or 54 cents a share on revenue of $786.8 million. Wall Street was looking for a loss of 50 cents a share on revenue of $836.8 million. Last year, the company lost 85 cents a share or $58.4 million on $836.8 million in revenue. CFO Hutcheson said the results were "softer" than expected.

Leap CFO Jerry Elliott said in a conference call that the value of the company's wireless network is $3 billion, seven times more than the company's stock market value. The trick is getting the value of those assets unlocked. Sometimes that takes a takeover bid or another catalyst to force management to realize the hidden value. Back in February, rumors circulated that AT&T would buy Leap followed the next month by speculation that the company's suitor would be fellow pre-paid carrier MetroPCS. Collins Stewart LLC said a deal with AT&T was "highly unlikely" while a deal with MetroPCS  would be "fraught with challenges" according to Sanford C. Bernstein & Co.

source: Marketwatch via FierceWireless