Virgin Media Reports Mixed Quarter – Analyst Blog

Virgin Media Inc. (VMED) declared mixed financial results for the second quarter 2010. Quarterly total revenue of $1,446 million was up 7.1% year over year and mostly in line with the Zacks Consensus Estimate of $1,449 million. The year-over-year increase in revenue was primarily due to significant growth of all four reporting segments of the company.

 

The second quarter 2010 revenue growth was the highest for Virgin Media in the last four years, despite the fact that this quarter generally recognized as seasonally weakest quarter of the company.

 

Net loss in the second quarter of 2010 was $102.8 million or 32 cents per share compared with a net loss of $82.5 million of 26 cents per share in the prior-year quarter. Quarterly net loss of 32 cents per share was significantly higher than the Zacks Consensus Estimate of a loss of 20 cents per share. This was primarily due to an increase in interest expense and higher loss on debt extinguishment.

 

Quarterly cost of sales was $591.2 million, up 3.6% year over year. SG&A expense was $300.6 million, up 4.2% year over year. Total operating expenses was $1,327 million, down 0.7% year over year. Quarterly operating income was $119.4 million, up by a whopping 747% year over year.

 

During the quarter, Virgin Media generated approximately $554.6 million of cash from operations, up 12.9% year over year. Quarterly free cash flow was $163.4 million, up 37.3% year over year. 

 

At the end of the quarter, Virgin Media had approximately $622.4 million of cash and cash equivalents, down 3.6% from the end of fiscal 2009. At the end of the same quarter, total outstanding debt was around $9,079.5 million, up 1.3% from the end of fiscal 2009. At the end of the reported quarter, debt-to-capitalization ratio was 0.82 compared to 0.80 at the end of fiscal 2009.

 

 

Management has targeted a leverage ratio of net debt-to-operating cash flow of approximately 3.0x within the next 2 to 3 years. Virgin Media will try to achieve this target leverage ratio through strong free cash flow generation as well as certain capital optimization policies. Capital Optimization Policy will have two wings: (1) an initial capital return program of GBP 700 million, and (2) scheduled debt amortization of GBP 525 million within 2011 to 2013.

 

The board of directors of Virgin Media has authorized a share buyback program of GBP 375 million within the next 12 months. The rest GBP 325 million of the total GBP 700 million package will be used to repurchase the company’s existing convertible debts.

 

 

During the second quarter 2010, Virgin Media added 120,800 net new customers which raised its total customer base to 13,386,000. Net customer addition for Broadband segment was 28,100 resulted in total subscriber base of 4,207,800.

 

Within this Broadband segment, more than 650,000 customers subscribed to either 20 Mbps or 50 Mbps services. This figure is an improvement of 43% year over year and now constitutes 17% of total cable Broadband subscribers. 74,000 customers are now using only 50 Mbps services, up 28% sequentially.

 

Net customer addition for TV segment was 22,300 resulted in a total subscriber base of 3,751,900. During the reported quarter, Virgin Media added a record high 259,000 digital HD TV customers, leading to a total installed based of 1.2 million.

 

Net customer addition for Telephone segment was 4,100 resulted in total subscriber base of 4,329,700. Net customer addition for Mobile segment was 66,300 resulted in total subscriber base of 1,097,200.

 

The company’s bundled service offerings are getting increasing market traction. At the end of the second quarter 2010, triple-play penetration increased 62.4% year over year and quad-play penetration increased 11.3% year over year.

 

 

Overall quarterly revenue of the Consumer segment was approximately $1,217.3 million, up 7.1% year over year. Within this segment, Cable revenue was $984.6 million, an improvement of 6.4% over the prior-year quarter. ARPU (average revenue per user) from Cable services increased nearly 5% year over year to $68.8 in the reported quarter. Average monthly Cable churn remained stable year over year at 1.3%. Mobile revenue was around $204.5 million, up 6.9% year over year. Non-Cable revenue was $28.2 million, up 41.4% year-over-year.

 

 

Overall Business segment revenue, in the second quarter 2010, was more than $229 million, up 7.2% year over year. Within this segment, the high-margin Retail data revenue was $94.5 million, up 26.3% year over year. Retail voice revenue was $61.4 million, down 6.2% year over year. LAN solutions revenue was $14.6 million, flat year over year. Wholesale revenue was $58.7 million, also flat year over year.