Virgin Media Inc. (VMED) reported strong financial results for the first quarter of 2011, easily beating the Zacks Consensus Estimates. In the previous quarter, average monthly churn rate was 1.2%, remaining same year over year. However, those who still opted for Virgin Media’s services have shown their preference for the company’s high-margin bundled services with super fast broadband offerings.

Another major growth area is the company’s next-generation TV services. At the end of the first quarter of 2012, Virgin Media installed TiVo Inc. (TIVO) developed next-generation Internet-connected TV platform for approximately 677,100 customers, which is 18% of the company’s total installed TV base. In the first quarter, the company added net 242,000 Internet TV customers. Paying TV customer base grew by 50,600 in the last quarter. The company is gradually rolling out 100 Mbps broadband services.

Net income from continuing operations, in the first quarter of 2012, was approximately $11.2 million or 3 cents per share compared with a net income of $7.3 million or 2 cents per share in the prior-year quarter. First quarter adjusted EPS of 37 cents handily beats the Zacks Consensus Estimate of 30 cents. Quarterly total revenue of approximately $1,610 million was up 2.4% year over year, almost in line the Zacks Consensus Estimate of $1,612 million.

Quarterly cost of sales was $667 million, up1.4% year over year. Selling, General, and Administrative expense was $340.5 million, up 9.1% year over year. Quarterly operating expense was $1,400.5 million, up 0.4% year over year. Quarterly operating income was $209.4 million, up 18.4% year over year.

During the first quarter of 2012, Virgin Media generated approximately $339.4 million of cash from operations, down 21.9% year over year. Free cash flow in the reported quarter was around $44.8 million, down 74.1% year over year.

At the end of the first quarter of 2012, Virgin Media had approximately $225.8 million of cash and cash equivalents compared with $472.4 million at the end of 2011. Total outstanding debt, at the end of the last quarter, was around $9,249.1 million compared with $9,206.6 million at the end of 2011. At the end of the first quarter of 2012, debt-to-capitalization ratio was 0.92 compared with 0.90 at the end of 2011.

Consumer Products

During the first quarter of 2012, Virgin Media added 113,700 net new consumer products, which raised its total consumer product base to 14,047,800. Net consumer product addition for Broadband segment was 72,800, resulting in total subscriber base of 12,071,500. Within the Broadband segment, over 850,000 customers subscribed to either 30 Mbps or higher services. Currently, this figure constitutes 20% of total cable Broadband subscribers. More than 250,000 customers are using 50 Mbps tier or higher tier services.

Net consumer product deletion for Non-Cable segment was 23,200, resulting in total consumer product base of 388,300. Net consumer product addition for Mobile segment was 64,100 and total consumer product base of 1,588,000. The company’s bundled service offerings received increasing market traction. At the end of the previous quarter, triple-play and quad-play penetration climbed 64% and 15% year over year, respectively.

Subscriber Statistics

During the first quarter of 2012, Virgin Media gained 21,200 Cable subscribers. Total Cable subscriber base as of March 31, 2012 was 4,826,800, up 0.13% year over year. Net subscriber deletion for the non-Cable segment was 15,200. Total non-Cable subscriber base as of March 31, 2012 was 233,000, down 14.6% year over year. Net subscriber addition in the Mobile segment was 64,100. Total Mobile subscriber base as of March 31, 2012 was 1,588,000, up 25.7% year over year.

Consumer Segment

Quarterly total revenue of the Consumer segment was approximately $1,337.3 million, up 1.5% year over year. Within the segment, Cable revenue was $1,085.3 million, up 1.8% year over year. ARPU (average revenue per user) of Cable services inched up 1.7% year over year to $75.1 in the reported quarter. Mobile revenue was around $221.6 million, up 1.2% year over year. ARPU of Mobile services inched up nearly 1.8% year over year to $25.4 in the reported quarter. Non-Cable revenue was $30.4 million, down 6.4% year over year.

Business Segment

Business segment revenue, in first-quarter 2012, was nearly $272.6 million, up 7.1% year over year. Within this segment, the high-margin Retail data revenue was $127.7 million, up 22% year over year. Retail voice revenue was $59.8 million, down 3.9% year over year. LAN solutions revenue was $15.4 million, remaining same year over year. Wholesale data revenue was $58.1 million, down 13.6% year over year. Wholesale voice revenue was $11.7 million, up 102.8% year over year.

Recommendation

We maintain our long-term Neutral recommendation on Virgin Media. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

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