Shares of Leap Wireless International Inc fell 3 percent on Thursday after the company said it may be able to sell only half the iPhones it has committed to buying from Apple Inc, potentially setting it back by $450 million over three years.
Leap, a provider of wireless services to cost-conscious customers, did not sell as many iPhones as it had hoped in the fourth quarter. It said that overall customer additions were hurt by general softness in the prepaid sector and phone prices were higher than many consumers could pay.
If the company continues to sell iPhones at its current rate, it could cost $100 million to buy more phones than it needs for the first year of its contract which ends in June, Leap said in its quarterly report filed with the U.S. Securities and Exchange Commission on Monday.
If sales remain below Leap's order commitment to Apple, it could be on the hook for a total of $450 million worth of unsold iPhones for the first three years of the agreement, the company said in the filing.
Leap said it believes it can meet its obligations to Apple over the life of the agreement as it hopes to boost iPhone sales with initiatives such as expanded device leasing and financing programs and working with Apple on promotions.
Investors already shaved 8 percent off Leap shares when it reported quarterly results on Feb 20.
They pushed the stock down again on Thursday after BTIG analyst Walter Piecyk highlighted the iPhone-related warning in a research blog published on Wednesday afternoon.
"We believe this would be incremental to the cash burn that we already forecast for the company," Piecyk said.
Under the terms of its current agreement with Apple, Leap would have to buy about $150 million more iPhones in mid-2014 than its current purchase rate would require and $200 million more in mid-2015, the company said in the filing.
Spokesman Gregory Lund said it is possible that Apple could agree to revise requirements or extend the term of Leap's purchase commitment but noted that its current financial projections do not assume such a change.
Leap shares were down 3.2 percent at $5.38 on the Nasdaq on Thursday afternoon.