Attached files
| file | filename |
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| 8-K - CURRENT REPORT - LEAP WIRELESS INTERNATIONAL INC | d8k.htm |
 Building
Value July 7, 2011
Exhibit 99.1 |
 2
Presentation of Financial and Other Important Information
Presentation of Financial Information Historical financial and
operating data in this presentation reflect the consolidated results of Leap Wireless International, Inc. (the “Company” or “Leap”) and its subsidiaries and
consolidated joint ventures for the periods indicated. The term “voice services”
refers to the Company’s Cricket Wireless, Muve Music™ and Cricket PAYGo™ service offerings, and the term
“broadband services” refers to the Company’s Cricket Broadband service.
This presentation includes financial information prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”), as well as other financial measures referred
to as non-GAAP. The non-GAAP financial measures, which include Average Revenue Per User (ARPU),
Cost Per Gross Customer Addition (CPGA), Cash Cost Per User (CCU) and adjusted operating income
before depreciation and amortization (OIBDA), should be considered in addition to, but
not as substitutes for, the information prepared in accordance with GAAP. For definitions of
these non-GAAP financial measures and reconciliations to the most comparable GAAP measures,
please see the information under the heading “Financial Reports – Non-GAAP
Financial Measures” in the Investor Relations section of Leap’s corporate website (investor.leapwireless.com).
Proxy Solicitation
In connection with the solicitation of proxies, Leap filed with the SEC on June
28, 2011 a definitive proxy statement and has filed and will file other relevant documents concerning the
proposals to be presented at Leap’s 2011 Annual Stockholders’ Meeting (the “2011
Annual Meeting”). Leap also mailed the definitive proxy statement to its stockholders. In addition, Leap
files annual, quarterly and special reports, proxy and information statements and other
information with the SEC. Leap’s stockholders are urged to read the proxy statement and other
information because they contain important information about Leap and the proposals to be
presented at the 2011 Annual Meeting. These documents are available for free at the SEC’s
website (www.sec.gov) or from Leap (www.leapwireless.com). The contents of the websites
referenced herein are not deemed to be incorporated by reference into the proxy statement.
Leap and its directors, executive officers and certain employees may be deemed to be
participants in the solicitation of proxies from Leap’s stockholders in connection with the election of
directors and other matters to be proposed at Leap’s 2011 Annual Meeting. Information
regarding the interests, if any, of these directors, executive officers and specified employees is
included in the definitive proxy statement filed by Leap with the SEC. Forward-Looking
Statements
This presentation contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements reflect management’s current
expectations based on currently available operating, financial and competitive information, but
are subject to risks, uncertainties and assumptions that could cause actual results to differ
materially from those anticipated in or implied by the forward-looking statements. Our
forward-looking statements include our discussions about our expected, future financial performance,
including as a result of our current and future product and service plan offerings, future
plans to transition to LTE and expected contributions from management and Leap’s proposed slate
of nominees to the board of directors and are generally identified with words such as
“believe,” “think”, “expect,” “estimate,” “intend,” “seek,” “anticipate,” “continue,” “plan,” “will,” “could,”
“should,” “may” and similar expressions. Risks, uncertainties and
assumptions that could affect our forward-looking statements include, among other things: our ability to attract and retain
customers in an extremely competitive marketplace; the duration and severity of the current
economic downturn in the United States and changes in economic conditions, including interest
rates, consumer credit conditions, consumer debt levels, consumer confidence, unemployment
rates, energy costs and other macro-economic factors that could adversely affect demand for
the services we provide; the impact of competitors’ initiatives; our ability to
successfully implement product and service plan offerings, expand our retail distribution and execute effectively
on our other strategic activities; our ability to obtain and maintain roaming and wholesale
services from other carriers at cost-effective rates; our ability to maintain effective internal control
over financial reporting; our ability to attract, integrate, motivate and retain an experienced
workforce, including members of senior management; future customer usage of our wireless
services, which could exceed our expectations, and our ability to manage or increase network
capacity to meet increasing customer demand; our ability to acquire additional spectrum in the
future at a reasonable cost or on a timely basis; our ability to comply with the covenants in
any credit agreement, indenture or similar instrument governing any of our existing or future
indebtedness; our ability to effectively integrate, manage and operate our new joint venture in
South Texas; failure of our network or information technology systems to perform according
to expectations and risks associated with the upgrade or transition of certain of those
systems, including our billing system; and other factors detailed in the section entitled “Risk Factors”
included in our periodic reports filed with the SEC, including our Quarterly Report on Form
10-Q for the quarter ended March 31, 2011, filed with the SEC on May 6, 2011.
All forward-looking statements included in this presentation should be considered in the
context of these risks. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. In light of
these risks and uncertainties, the forward-looking events and circumstances discussed in this
presentation may not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements. Investors and prospective investors are cautioned
not to place undue reliance on our forward-looking statements. |
 •
Executive Overview
•
Industry Perspective –
Rapid Growth of Prepaid
•
Business Update –
On Trajectory to Grow Stockholder Value
•
Board of Directors –
Experienced and Independent
•
Pentwater Proposal and Proxy Contest –
Opportunistic and Non-Compliant
•
Conclusion –
Vote FOR
Leap’s nominees on the WHITE Proxy Card
3
Agenda |
 •
Leap
implemented
significant
changes
in
2010
to
better
position
business
-
Simple, all-inclusive service plans
-
New device portfolio, including smartphones
-
Nationwide voice and data coverage
-
Additions to senior management to better align with customers and improve execution
-
Completion of significant back-office system enhancements
•
Changes
delivered
dramatic
improvements
in
operating
performance,
positioning
Leap
for
improved
financial results and increased stockholder value
-
Customer churn at lowest levels in nearly a decade, with voice churn of 2.8% in 1Q11
-
Smartphones and accompanying $55 service plan comprised approximately 40% of our sales mix at
1Q11, with customer upgrades and migrations continuing at unprecedented rates
-
Significant improvements in average revenue per user (ARPU), driven by adoption of smartphones
and higher-revenue service plans
-
Board and management continuing to implement initiatives to further momentum and position the
Company for the future
•
Leap stock up ~65%
since August 4, 2010, after new initiatives were presented at Leap’s Analyst Day
•
Leap
is
led
by
an
experienced
and
independent
Board
of
Directors
4
Executive Overview –
Leap
Keep
Leap
on
track
for
improved
stockholder
value
–
vote
FOR
Leap’s
nominees
on
the
WHITE
proxy
card |
 •
Pentwater
lacks
any
strategy
for
the
Company
beyond
actions
Leap
is
already
pursuing
•
Pentwater
is
interested
only
in
short-term
profit
–
and
has
sold
~40%
of
its
Leap
holdings
since
announcing proxy fight
•
What Pentwater Didn’t Do
-
Discuss operational proposals/suggestions with the Company prior
to initiating proxy fight
-
Disclose all material information when nominating directors
-
Commence
action
in
Delaware
for
months
after
being
informed
on
March
31
that
they
didn’t
comply
with
Bylaws
-
Ask for a waiver under Leap’s NOL preservation plan to purchase 5% or more of Leap
stock •
What Pentwater Did Do
-
Submitted
non-compliant
nomination
one
day
before
end
of
notice
period
-
Sold
~40%
of
its
position
in
Leap
in
the
three
months
after
announcing
proxy
fight,
including
selling
on
day
they
filed initial proxy statement
-
Established
short
position
covering
more
than
1.6M
Leap
shares,
equal
to
~67%
of
its
2.4M
shares
held
as
of
6/20/11
•
Votes
for
Pentwater
will
not
be
counted
absent
contrary
Delaware
court
judgment
5
Executive Overview –
Pentwater Capital Management
st
Keep
Leap
on
track
for
improved
stockholder
value
–
vote
FOR
Leap’s
nominees
on
the
WHITE
proxy
card |
 INDUSTRY
PERSPECTIVE Rapid Growth of Prepaid
6 |
 7
•
Innovative, leading prepaid wireless carrier in U.S.
with ~6 million customers
•
Nation’s 7th largest wireless carrier
•
Offers unlimited voice, text and data services and
national coverage under Cricket brand; flat rates and
no contracts
•
Targets young, ethnically diverse and value
conscious
customer base –
among the fastest growing market
segments
•
Leverages industry-leading cost structure to provide
services at prices below most competitors
•
Holds spectrum licenses in 35 of top 50 U.S. markets
•
Offers nationwide service via existing network and
strategic roaming partnerships
Leap Snapshot –
Prepaid Wireless Industry Leader |
 2006
– 2013E
CAGR:
14%
3%
Prepaid
Postpaid
Prepaid
% of total
19%
33%
Share of Net Adds (%)
Subscribers (M)
Source: Oppenheimer Communications and Internet Infrastructure Report, March 8, 2011
8
27%
Prepaid Segment Drives Wireless Industry Growth |
 •
Wireless subscribers increasingly using
devices for data services, internet access
and mobile applications
•
Mobile data traffic in North America
expected to grow 80% annually through
2015
Explosive Growth of Mobile-Only Internet Users
Smartphone Opportunity for Prepaid Carriers
•
To date, smartphones
have been sold
predominantly to higher-end customers
•
With increased adoption of data services
and smartphones
by the mass market,
significant opportunity exists for prepaid
carriers
9%
10%
26%
42%
Leap
MetroPCS
Verizon
AT&T
Number of Users in North America (M)
4Q10 Smartphone Penetration
9
2.6
55.6
2010
2015
E
Source:
Morgan
Stanley
Equity
Research.
MetroPCS
penetration
is
a
Morgan
Stanley
research
estimate
Source: Cisco Visual Networking Index: Global Mobile Data Forecast, February 2011
Smartphones
are a Significant Opportunity for Prepaid |
 Leap Has
Increased ARPU Near Highest In Industry 10
Prepaid ARPU ($)
Leap
Sprint
T-Mobile
1Q10
1Q11
MetroPCS
3.4%
% Increase
Tracfone
Source: Company Filings, Morgan Stanley Equity Research. Leap includes mobile broadband
metrics. |
 Leap Has
Significantly Lowered Churn to Best in Industry 1Q10
1Q11
Prepaid Churn (%)
4.5
3.7
3.6
5.7
6.8
3.1
3.1
4.1
4.4
6.7
MetroPCS
Leap
Sprint
Increase /
Decrease (bps)
T-Mobile
Tracfone
Source: Company Filings, Morgan Stanley Equity Research. Leap churn includes Cricket
broadband service. 11
140
130
60
10
50 |
 BUSINESS
UPDATE On Trajectory to Grow Stockholder Value
12 |
 Significant
Business Initiatives in 2010 to Meet Evolving Customer Needs
13
•
Introduced all-inclusive, unlimited
nationwide voice and broadband
service plans
•
Eliminated activation fees and
telecommunications taxes to
improve customer experience
•
Experienced significant customer
adoption and migration to new
service plans
•
Introduced robust, new line-up of
affordable devices, including
smartphones, touchscreens, feature
phones and broadband devices
•
Increasing customer demand for new
smartphones driving selection of
higher-revenue service plans and
increased ARPU
•
Entered into nationwide roaming
agreements to allow nationwide product
and service offerings
•
Entered into nationwide wholesale
agreement to supplement 95M CPOP
network with Sprint’s nationwide 3G
network
•
Agreements improve competitive
position and strengthen brand, attract
new customers and enhance and
expand nationwide retail distribution
New Plans
New Devices
Nationwide Reach |
 Other Key
Initiatives Furthering Leap Performance •
Transitioned executive management team to more closely align with customers and improve
execution -
Appointed new EVP/COO to lead customer focused support organizations
-
Appointed new EVP, Field Operations and appointed three area presidents to improve field
execution -
Added other senior management leaders focused on vision and execution
•
Fundamentally
overhauled
back-office
systems
-
Replaced billing, inventory and point-of-sale systems
-
Significantly improved planning, forecasting, supply chain and procurement capabilities
•
Continued management of balance sheet for liquidity and growth
-
Refinanced
$1.1B
of
senior
unsecured
debt
to
2020,
reducing
cash
interest
expense
by
$10M
annually
-
Recently issued $400M of senior notes to provide additional working capital for growth
initiatives •
Entered into key strategic transactions
-
Formed new joint venture in South Texas, acquiring ~323,000 former customers of Pocket
Communications to create Leap’s most deeply-penetrated market
-
Acquired complete ownership and control of Cricket markets in Chicago, Southern Wisconsin and
Oregon -
Transactions improved competitive position by increasing our strength and scale while
expanding offerings to customers •
Better utilization of spectrum resources
-
Entered into agreement to swap 10-MHz of unused spectrum in exchange for 10-MHz of
additional spectrum in 7 existing Cricket markets
•
Developed and launched unique Muve Music
service
-
Unlimited music-download service designed specifically for mobile devices
-
Will provide Leap with differentiated product in nationwide, mass-merchant retail
channels 14
TM |
 New Initiatives
Driving Churn Down … 15
•
1Q11 churn reached lowest level in
almost 10 years:
–
Consolidated churn of 3.1%, improving
140 basis points Y-O-Y
–
1Q11 voice churn of 2.8%, improving
170 basis points Y-O-Y
•
Churn improvements direct result of
changes management implemented:
–
All-inclusive pricing
–
Smartphones at affordable prices
–
Nationwide voice and data coverage
•
Believe lower levels of churn signal
productive, structural business change
–
May experience some near-term
moderation in churn improvement
Voice Churn
2011
2010
2008
Y-O-Y Change in Voice Churn
Worse
Better
2010
2011 |
 …
And Improving ARPU …
16
Average Revenue Per User
2010
2011
•
ARPU increased over $1 Y-O-Y and
Q-O-Q due to:
–
Improved device portfolio
–
All-inclusive service plans
–
Improved voice churn
•
Expect ARPU improvements to
continue in coming quarters due
to:
–
Increased smartphone penetration
–
Higher Broadband ARPU and
potential Muve Music uptake |
 $123.0
…
Putting Leap On Trajectory for
Improved Financial Performance
17
2011
2010
$5.1
($27.0)
($18.1)
$614.6
$636.6
$678.4
Operating Income
(Loss)
Adjusted OIBDA
$107.0
$112.5
(1)
Broadband Services
Adjusted OIBDA
(Investment)
Voice Services
Adjusted OIBDA
($ in millions)
Service Revenues
1Q
1Q
4Q
•
Q-O-Q improvements in service
revenues due to:
Subscriber growth
Uptake of higher-ARPU service
plans
•
Y-O-Y decrease in adjusted OIBDA
reflects:
All-in-monthly pricing which
eliminated ~$130M of annual
revenue from late/other fees
Investments in equipment subsidy
and product cost to support
transition to smartphones and
national coverage
•
Beginning to benefit from cost
leverage
•
Expect adjusted OIBDA margin
improvement in the coming quarters
(1) Includes one-time ~$3M expense associated with South Texas joint venture
Note: Minor calculation differences in reported numbers due to rounding
Adjusted OIBDA |
 18
Expect positive voice net additions in 2Q11 and voice gross additions closer to 2Q10 reported
levels Expect decrease in number of Broadband customers
Expect adjusted OIBDA margin improvement from 1Q11 to 2Q11
Expect ARPU improvements to continue at pace similar to recent improvements
Churn expected to follow 2008 patterns but at reduced levels
-
2Q11 Update: Y-O-Y churn improvement in 2Q11, with improvement moderated
CPGA –
Expect sales & marketing spending levels to remain similar quarter over quarter
Expect to have over 100,000 Muve Music customers soon
Expect Cash Cost Per User (CCU) to flatten or decline from 1Q11 to 2Q11
Outlook Discussed at 1Q11 Earnings Conference Call
Current 2Q11
Outlook
Upgrade activity and associated cost expected to decline seasonally in 2Q11
Cost Per
Gross
Customer
Addition
(CPGA)
–
Expect
device
subsidy
expense
to
increase
due
to
change
in
dealer
compensation
-
2Q11 Update: Increased subsidy expense in 2Q11 will also reflect successful promotional
activity in the quarter Positive Trends Continuing |
 Strategic
Initiatives Driving Growth in Voice Customers 19
Ground-breaking music service
•Unlimited access to millions of
full-track songs and ringtones that reside
on mobile device, as part of $55/month service plan
•Will provide Leap with differentiated
product in national retail Marketing efforts are resonating with customers
•Expanding appeal to all value-conscious consumers
Leap’s retail presence is growing
•Expanding distribution in
Cricket-branded stores and national retail
•Expect significant portion of retail
expansion in time for holiday selling
season
Improved offerings increase competitive position
•Robust phone lineup, wide variety of
plans and nationwide coverage Improved
Customer
Awareness
Expanded
Branded
Distribution
Competitive
Devices, Service
Plans & Coverage
Expansion of
Unlimited Music
Product |
 MVNO Agreement
– Rapid Path to Nationwide Scale
•
National retail playing increasingly
important role in prepaid wireless
-
Scale becoming a competitive advantage
•
MVNO agreement with Sprint entered
into in August 2010 provides Leap with
nationwide reach and scale
-
Rapid, efficient means for Leap to gain
major presence in national retail
-
Provides more cost-effective path to
launching service in additional markets
•
Launch expected in second half of 2011
•
Facilitates launch of Muve Music
nationwide
20 |
 Optimizing our
Network for Multiple Product Opportunities
Utilizing Data Network Capacity
(1)
(1)
Capacity calculation is based on current and expected data product usage and performance and is
subject to change.
•
Continue to see strong demand
for data services due to
continued strength of
smartphone service plans
•
Expanding and managing
network capacity through:
-
Device mix, market-level focus
-
Network management
initiatives
-
Additional equipment and cell
sites
-
Potential for session-based
data
•
Consumer trends driving strong
uptake in smartphones and other
higher-ARPU services
-
Opportunity to generate
significant cash flow
Approximate capacity usage as of 1Q11
4Q10 Capacity Forecast
1Q11 Capacity Forecast |
 Strategically
Implementing LTE to Support Next Phase of Growth
22
Leap’s LTE implementation being managed through gradual ramp-up and
phased
to
be
in
place
when
costs
of
LTE
devices
reach
attractive
levels
for
our
customers
Industry Milestones
Leap is launching its own LTE network beginning in 2011 and
expects to supplement its LTE facilities coverage through roaming arrangements
2013
2013
2012
2012
2011
2011
2010
2010
Device costs begin hitting
broadly appealing
consumer price points
Integrated LTE
devices introduced
Integrated LTE
chipset available
First LTE smartphone
launches
First LTE
markets in the
U.S.
Expected growth of
4G on prepaid
Leap Milestones
Leap launches
R&D market
Expected launch of first
Leap LTE trial market
Expected Leap commercial LTE deployment |
 23
“Leap executed well by driving growth mainly
through smartphone adoption while containing
opex. Despite upcoming seasonal net add
softness in 2Q and 3Q, we expect the benefits
of rising ARPU to translate into EBITDA
margin expansion
from 17% in 1Q11 to 22%
in 4Q11.”
-
Deutsche Bank, 5/6/11
“We expect continued success in existing markets plus
ramping execution in new markets will allow Leap to
generate
a
16%+
EBITDA
CAGR
2011-2014,
which
at
the current 2012E EBITDA multiple leaves the company, in our
view, among the most attractively valued growth-based
investments in our coverage universe.”
-
Bank of America Merrill Lynch, 5/5/11
“We believe that given the high ASPs for LTE handsets coupled
with the painfully slow smartphone experience of 1xRTT speeds,
Metro finds itself between a rock and a hard place. Leap, on the
other
hand,
might
have
found
itself
in
a
sweet
spot,
where
it could take advantage of falling 3G handset prices and leverage
smartphone growth (and the Android platform) to grow EBITDA
and margins faster than consensus anticipates in 2012.”
-
Citadel, 5/25/11
“We believe the increased smartphone
penetration coupled with the All-
Inclusive plan will continue to improve
churn; as such, we are
trimming 2011E churn by 20 bps to 3.6%.”
-
RBC Capital, 5/6/11
“Leap showed solid execution of its
turnaround
strategy
that began back in
August ’10. While we continue to believe Leap
has good potential, in the near term, its go-to-
market strategy is still in transition and is
carrying substantial near term costs. LEAP’s
focus on smart phones is beginning to
show benefits in ARPU, churn, and
subscriber
growth.”
-
SunTrust, 5/6/11 |
 BOARD OF
DIRECTORS Experienced and Independent
24 |
 Leap’s
Independent Slate of Nominees 25 |
 Leap’s
Commitment to Good Corporate Governance 26
All directors (other than CEO) are independent under NASDAQ rules; all have
alignment of interests with stockholders
Wide range of relevant operational and financial expertise represented
Non-executive Chairman of the Board
Directors are elected annually
Each board committee composed entirely of independent directors
Company has adopted and disclosed Corporate Governance Guidelines
All directors attended more than 75% of Board and committee meetings in 2010
|
 Leap’s
Board Continually Looks To Deliver Increased Value To Stockholders
•
In 2007, Leap engaged in discussions with MetroPCS following its unsolicited public
offer –
Board determined Metro’s offer allocated disproportionate synergy value to Metro and
offered essentially no premium to Leap stockholders
–
Leap and Metro’s discussions also limited by Leap’s 4Q07 restatement and
FCC-mandated M&A “quiet period” for spectrum auction
participants •
In
2008
and
2009,
Leap
approached
Metro
regarding
possible
joint
opportunities,
including
partnerships
to
own/operate
certain
markets
–
but
significant
discussions
did
not
develop
•
Leap
also
engaged
in
discussions
with
AWS
spectrum
holders
and
others
regarding
strategic and operating opportunities
•
In
2010,
Leap
undertook
comprehensive
review
of
strategic
alternatives
to
build
stockholder
value
–
Board added additional independent directors to help oversee process and ensure broad
perspective –
Appointed Special Committee of independent directors to oversee review
–
Special Committee and its financial advisors initiated discussions with numerous parties
regarding potential strategic opportunities, including MetroPCS
–
Leap also began developing important new product and service plan offerings, which it believed
would significantly improve operational performance
–
Special Committee and Board unanimously determined to pursue Leap’s current operational
strategy, rolled out in 2010, which has yielded significant results
27 |
 •
Leap’s
compensation
program
tied
to
corporate
performance,
aligning
interests
of
management with those of stockholders
–
Substantial majority of total compensation opportunity consists of annual cash bonus and
long-term equity, which are tied to corporate and individual performance
–
2010 was period of continued, intense competition within wireless industry and ongoing
transition in Leap’s business, as new initiatives were implemented to improve
competitive positioning and operational performance
–
Because many of Leap’s new initiatives were introduced in 2H10, they did not
significantly impact full-year 2010 results but are now leading to improved
financial and operational performance •
Compensation
earned
by
senior
management,
including
CEO,
reflects
transition
of
Leap’s
business
and
responsible
executive
compensation
program
–
No increases in CEO’s $750K base salary or annual target bonus in 2010 or 2011, which
were significantly below 50th percentile
provided by peer companies
–
CEO recommended that he receive no cash bonus award for 2010
based upon Company’s business
transition and expected near-term business performance
–
More than
two-thirds
of CEO’s total compensation for 2010 consisted of
long-term equity
compensation,
primarily
consisting
of
performance-vested
restricted
shares
with
vesting
tied
to
stock
price appreciation
–
Remaining executive officers received no increase to 2010 or 2011 base salaries, cash bonus
awards well- below target bonus levels and equity compensation consisting primarily
of performance-vested restricted shares
28
Responsible Executive Compensation Program |
 PENTWATER
PROPOSAL AND PROXY CONTEST
Opportunistic and Non-Compliant
29 |
 •
Since announcing proxy fight, Pentwater has sold almost 40% of its shares
(even selling on
day it filed its initial proxy statement)
•
Established short position covering more than 1.6M Leap shares, equal to ~67% of its
2.4M shares held as of 6/20/11
•
Announced public proxy fight without first discussing operational proposals or
suggestions with the Company
(and promptly started selling as stock price rose)
•
Waited until end of nomination period
to attempt to nominate directors
•
Did not comply
with bylaw requirements
•
Failed
to
disclose
material
facts
about
Pentwater
and
its
nominees,
including that
one
nominee is related to Pentwater portfolio manager and true size of its short position
•
Has
offered
only
backward-looking
critiques
with
no
specific
strategy
for
the
Company
beyond what management is already doing
30
Pentwater Interested Only In Short-Term Profits
Pentwater Capital Management is an opportunistic investor with no long-term
commitment to Leap and interests that differ from other stockholders
|
 •
Leap welcomes stockholder input
on all topics, including director nominations
•
Leap’s
bylaws
designed
to
provide
fairness
and
transparency,
allowing
stockholders
to
fully
evaluate nominees’
independence and qualifications
•
Pentwater’s
nominations
did
not
comply
with
bylaws
in
critical
respects
going
to
heart
of
transparency, independence and alignment of stockholder interests:
-
Failed
to
disclose
that
one
nominee
is
father
of
a
Pentwater
portfolio
manager
and
nature
of
agreements/understandings between nominees and Pentwater
-
Failed
to
adequately
disclose
that
its
ownership
position
in
Leap
common
stock
was
substantially
hedged
by
put options
-
Failed
to
disclose
whether
it
had
formed
group
with
other
activist
investors
who
have
recently
acquired
Leap
common stock and who have acted in concert with Pentwater in past
•
Shares
voted
for
Pentwater
nominees
will
not
be
counted
at
the
Annual
Meeting
absent
contrary
judgment by Delaware courts
•
We
believe
Leap’s
advance
notice
bylaws
are
fair
and
reasonable
and
similar
to
bylaws
of
many
other companies
including:
-
Allstate Corp., Boeing, eBay, Home Depot, FTI Consulting Inc., Fortune Brands, Hewlett
Packard, Gilead Sciences, Inc., Juniper Networks, McGraw-Hill, PepsiCo, Safeway,
Texas Instruments, United Continental Holdings, and VMWare
31
Leap’s Bylaws Ensure Disclosure of
Material Information and Overall Fairness |
 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2/5/10
5/17/10
8/24/10
12/1/10
3/9/11
6/20/11
Cumulative
Ownership
(Millions of shares)
Pentwater’s Actions Are Opportunistic and
Reveal Weak Long-Term Commitment to Leap
Pentwater’s Short-Term Interest in Leap
Not Aligned with Other Stockholders
Shares traded based on Pentwater proxy statement dated June 30, 2011
10/15/10: Pentwater sold
1.04M shares in one day
From 3/15/11 to 6/20/11
Pentwater sold 37%
of its Leap shares
32
•
Pentwater did not own any
Leap shares
as recently as one
year ago
•
Has actively traded in and
out of stock
over last 17
months
•
Sold 1.4M shares
in the three
months prior to its initial proxy
statement filing –
~40% of its
position
•
Even on 6/20/11 (date of
Pentwater’s initial proxy filing)
sold 20,000 shares
•
Had short positions covering
more than 1.6M Leap shares
as recently as 6/20/11
Pentwater held
zero shares
February 5, 2010 –
June 20, 2011
8/3/10: Investor Day
3/10/11: Announced Proxy Fight
(1) |
 •
Lacks any strategy
for the Company beyond actions Leap already pursuing
•
Comments
are
backward-looking;
ignore
Leap’s
strong
position
today,
recent strong operating performance and prospects for improved performance
in 2011 and beyond
•
Nominees do not have same level of experience/expertise
as directors
they are trying to replace
•
Criticisms
of
Leap’s
corporate
governance
are
mis-informed
and
inaccurate
33
Pentwater’s Actions Are Ill-timed, Mis-informed and
Would Not Benefit Leap’s Stockholders
Pentwater
appears
to
be
interested
in
only
short-term
profit
–
and
has
sold
~40% of its Leap holdings since announcing proxy contest |
 Pentwater’s Claims …
versus the Reality –
Governance
Pentwater’s Claims
Reality
34
Leap’s Board lacks strong
corporate governance and
perspective
Leap adopted “poison pill”
to
entrench management and
stifle the voices of
stockholders
Leap’s 2010 executive
compensation was
unreasonable
•
All
directors
elected
on
annual
basis
•
All directors
NASDAQ-independent
(other
than
CEO),
with
wide
range of
operational and financial expertise
•
Board
expanded
to
eight
in
2009
to
bring
additional
skills
and perspectives
•
Two
new
candidates
bring
highly
relevant
skills
and
expertise
to
help Leap
at this stage of growth
•
MHR’s 19.8% stake aligns its interests with other stockholders.
Unlike Pentwater,
MHR
has
never
reduced
its
stake
or
ever
shorted
Leap’s
stock
•
Tax benefit preservation plan adopted to deter potential “ownership
change”
under tax laws that would jeopardize ~$2B of Leap’s NOLs
•
Board
kept
Plan
in
place
only
as
long
as
necessary
to
protect
NOLs
•
Due to 3-year lookback under tax law, threat to NOLs decreased
and Board
terminated Plan on June 16, 2011 –
before Pentwater filed its initial proxy
statement
•
2010 executive
compensation
responsible
and
appropriate
in
light
of corporate
performance and business transition
•
No
increase
to
2010
or
2011
base
salaries,
no
cash
bonus
award
for
CEO
and awards well below target bonus levels for other executives, and equity
compensation
primarily
in
performance-vested
restricted
shares |
 Pentwater’s Claims …
versus the Reality –
Strategic Transactions
Leap’s Board is entrenched, not
open to a strategic transaction
and should not have rejected
MetroPCS’
proposal to merge
with Leap in September 2007
Pentwater’s Claims
Reality
35
•
Leap’s
Board
continually
looks
for
opportunities
to
deliver
increased
value
to
stockholders; management has regularly stated that it sees the logic of further
consolidation
in the industry
•
In
2007,
Leap
entered
discussions
with
Metro
following
its
unsolicited
public
offer
Discussions
limited
by
Leap’s
4Q07
restatement
and
FCC-mandated
M&A
"quiet
period"
for
spectrum
auction
participants
•
In 2008 and 2009,
Leap approached Metro regarding possible joint
opportunities,
including
partnerships
to
own/operate
certain
markets
–
but
significant discussions did not develop
•
Leap also engaged in
discussions with AWS spectrum holders and others
regarding strategic and operating opportunities
•
In
2010,
Leap
undertook
comprehensive
strategic
review
and
initiated
discussions with numerous parties, including Metro
Board
added
additional
independent
directors
to
help
oversee
process
and
ensure
broad
perspective
After
comprehensive
review,
Special
Committee
and
Board
unanimously
determined
to
pursue Leap’s current operational strategy, rolled out in 2010, which has yielded
significant results |
 Pentwater’s Claims …
versus the Reality –
Operations
•
Leap
introduced
all-inclusive
service
plans
in
response
to
customer
demand
as soon as possible within constraints of prior customer billing
system
•
Leap
has
experienced
strong
customer
adoption
and
migration
to
new
plans
Mis-timed move to an all-in
pricing model
Pentwater’s Claims
Reality
36
Emphasizing and poorly
executing
a faulty broadband
strategy
•
Leap
deployed
a
3G
strategy
focused
on
increasing
demand
for
data
services
-
Led initially with broadband due to attractive device pricing
-
Consumers now transitioning rapidly
to smartphones as prices decline
•
Broadband
strategy
provided
Leap
a
well
positioned
network
generating
positive
OIBDA
•
As
a
result
of
slow
LTE
adoption,
competitors
now
forced
to
substantially
increase
3G
activities
•
Returns
building
on
Leap's
successful
3G
investment
-
3G investment well-timed
-
Broadband created the opportunity for return in smartphone margins
|
 Pentwater’s Claims …
and the Reality –
Operations cont.
Pentwater’s Claims
Reality
37
Mis-managing handset
inventory
Mis-management of cost
structure relative to
competitors
•
Some
momentum
lost
in
mid-2010,
but
issues
addressed
through
senior
management changes and more robust back-office systems and forecasting
•
Leap’s
underlying
cost
structure
is
similar
to
MetroPCS
when
adjusted
for relative market penetration
-
Recurring costs per unit (such as non-product network costs) are sensitive to
customer penetration
-
G&A spend similar when aligned with MetroPCS’
reporting format (which
excludes customer care and billing). See appendix
o
Leap focused on minimizing absolute spend despite challenges associated with
managing approximately three times as many discrete markets
-
Higher CPGA costs reflect direct-channel focus
-
Device subsidy costs are lower due, in part, to lower indirect dealer
compensation costs associated with higher direct sales mix
o
Headcount
reflects
acquisition
of
former
Pocket
markets,
greater
number
of
discrete markets and higher number of direct stores |
 CONCLUSION
Vote FOR
Leap’s Nominees on the WHITE
Proxy Card
38 |
 •
Leap led by strong, experienced Board and management team that are creating
stockholder value
with strategy delivering results
-
Dramatic
operating
performance
improvements
from
new
business
initiatives,
positioning
Leap
for
improved financial performance and increased stockholder value
-
Changes in executive team and new back-office systems in 2010 improve execution
-
Additional
plans
in
place
to
build
on
momentum
through
expanded
focus
on
value-conscious
customers and expanded nationwide distribution
•
Pentwater only interested in short-term profit
–
Pentwater has already sold ~40% of its Leap holdings since announcing proxy contest
–
Had short positions covering more than 1.6M shares as recently as 6/20/11
•
Pentwater’s
actions
are
ill-timed,
misinformed
and
would
not
benefit
Leap’s
stockholders
-
Pentwater lacks any strategy for the Company beyond actions Leap
already pursuing
-
Pentwater did not comply with Bylaws and their proposals don’t stack up against
management’s on-going execution
•
Pentwater is not the right choice
39
Leap’s Directors Are Creating Stockholder Value and
Committed to Company’s Long-Term Success
Do not jeopardize Leap’s positive momentum –
vote FOR
Leap’s nominees on the WHITE proxy card |
 APPENDIX
40 |
 •
Frequency of future advisory votes on executive compensation
–
Leap’s
Board
recommends
annual
advisory
vote
•
Stock option exchange program
–
Exchange
of
“underwater”
employee
options
for
lesser
number
of
replacement
options
with
exercise price equal to current FMV
–
Members
of
Leap’s
board
and
executive
officers
will
not
be
allowed
to
participate
–
Only options with exercise price of $30 or higher are eligible for exchange (well exceeds
closing prices of Leap common stock for prior 52-week period)
–
Black-Scholes value of new options will be substantially less than value of surrendered
options; exchange will not result in incremental accounting cost
–
Replacement
options
will
be
subject
to
three
years
of
additional
vesting
–
Options exchanged will be returned to plans for future grants
•
Ratification of selection of PWC as Leap’s independent registered accounting firm for
FY’11
41
Other 2011 Annual Meeting Agenda Items |
 Leap SG&A
Comparable to Metro 42
•
Leap SG&A comparable to Metro SG&A on apples-to-apples comparison
•
Leap includes Customer Care and Billing expense in reported SG&A; Metro does not
-
Bar charts shown above eliminate $33.7M of Leap 1Q11 Customer Care and Billing expense to
align with Metro SG&A reporting methodology
•
Leap sells greater percentage of handsets in Company-owned stores. Leap Selling Cost
reflects expenses related to larger number of retail stores and retail store
employees G&A
Selling Cost |