Virgin Mobile reports Q4?08 & full year 2008 results (USA)
Virgin Mobile USA, a leading national provider of wireless communications services, reported its financial and operational results for the fourth quarter and full year ended December 31, 2008.
Full year 2008 highlights:
- End of period subscribers of 5.4 million, up 6% year over year
- Total operating revenues of $1.3 billion, Net service revenues of $1.2 billion; both flat year over year
- Adjusted EBITDA of $101.1 million; Adjusted EBITDA excluding transition and restructuring costs of $115.2 million, up 16% year over year(1)
- Net income of $7.9 million versus net income of $4.2 million, up 88% year over year
- Diluted earnings per share of $0.13; Adjusted earnings per share of $0.26(1) compared to pro forma earnings per diluted share of $0.06(3) for 2007
- Free cash flow of $25.7 million up 130% from 2007; Unlevered free cash flow of $57.8 million
Fourth quarter 2008 highlights:
- Total operating revenues of $347.1 million, Net service revenues of $326.7 million; up 5% and 10% year over year, respectively
- Adjusted EBITDA of $12.6 million; Adjusted EBITDA excluding transition and restructuring costs of $18.0 million, up 84% year over year(1)
- Gross customer additions of 960,421, flat year over year
- Net customer additions of 216,005, up 3% year over year
- Net loss of ($4.4) million compared to net loss of ($14.7) million in the fourth quarter 2007
- Diluted loss per share of ($0.12); Adjusted net loss per share of $(0.05); compared to pro forma loss per diluted share of ($0.28)(3) in the fourth quarter of 2007
(1) Excludes transition and restructuring costs related to the acquisition of Helio, the outsourcing of IT services to IBM and workforce reductions totaling approximately $5.4 million in the fourth quarter and $14.1 million in the full year 2008. Adjusted earnings (loss) per share also excludes the amortization of intangibles associated with the acquisition of Helio. Adjustments to earnings (loss) per share are net of minority interest and taxes.
(2) All highlights include the impact of the acquisition of Helio, which closed on August 22, 2008.
(3) Pro forma earnings (loss) per diluted share reflects the shares issued in the IPO as outstanding for all of 2007.
“Our fourth quarter results reflect the positive benefits of the strategic initiatives executed throughout the year,” said Dan Schulman, Chief Executive Officer, Virgin Mobile USA. “The popularity of our postpaid and renewed hybrid service plans, launched midyear, contributed to growth in ARPU in the second half of the year while reducing churn. The operational efficiencies we’ve implemented have allowed us to grow Adjusted EBITDA in the fourth quarter by 84% year over year, excluding transition and restructuring costs from the acquisition of Helio and our outsourcing of IT services to IBM.”
Schulman continued, “During difficult economic times, we believe that our service plans are even more relevant to consumers searching for value and flexibility. Our full year results reflect the strength of our offer and the resilience of our business model in this environment. In a challenging year, we produced $115.2 million in Adjusted EBITDA excluding transition and restructuring costs, and $25.7 million in free cash flow, reflecting strong growth in both metrics. The intrinsic value of our service plans, combined with our lean cost structure and our continued ability to innovate, position us for continued growth in these metrics in 2009.”
During the fourth quarter of 2008, Virgin Mobile USA’s net service revenue was $326.7 million, an increase of 10% versus the same period last year. Virgin Mobile USA’s net service revenue in the year ended December 31, 2008 was $1.2 billion, consistent with net service revenue in the year ended December 31, 2007. Net service revenue for 2008 benefited from the acquisition of Helio as well as the accelerating adoption of our higher value hybrid plans, particularly in the second half of the year.
Adjusted EBITDA in the fourth quarter of 2008 was $12.6 million. Adjusted EBITDA excluding transition and restructuring costs in the fourth quarter of 2008 was $18.0 million, an increase of 84% compared to Adjusted EBITDA of $9.8 million in the fourth quarter of 2007. Transition and restructuring costs in the fourth quarter of 2008 included approximately $2.9 million in transition costs associated with the acquisition of Helio and approximately $2.5 million of restructuring costs associated with the outsourcing of IT services to IBM and costs related to a headcount reduction announced in November 2008. Adjusted EBITDA margin was 3.9% in the fourth quarter of 2008. Adjusted EBITDA margin excluding transition and restructuring costs was 5.5% in the fourth quarter of 2008, up from 3.3% in the fourth quarter of 2007. Virgin Mobile USA continued to increase its profitability due to ongoing operating cost efficiencies and the continued benefit from favorable adjustments to our network costs.
In the year ended December 31, 2008 Adjusted EBITDA was $101.1 million. Adjusted EBITDA excluding transition and restructuring costs in the year ended December 31, 2008 was $115.2 million, an increase of 16% year over year. Adjusted EBITDA margin in the year ended December 31, 2008 was 8.2%. Adjusted EBITDA margin excluding transition and restructuring costs for the year was 9.3%, compared to 8.0% in the year ended December 31, 2007. Adjusted EBITDA margin excluding transition and restructuring costs benefited from operational cost efficiencies implemented in the second half of 2008, which are expected to produce continued operational benefits in 2009.
Virgin Mobile USA’s net loss for the quarter ended December 31, 2008 was ($4.4) million, compared to a net loss of ($14.7) million for the fourth quarter of 2007. Net income for the year ended December 31, 2008 was $7.9 million compared to $4.2 million for the year ended December 31, 2007. Net income in 2008 was impacted by $2.4 million in minority interest expense and $5.6 million incremental expense related to our tax receivable agreements, neither of which existed in the prior year period. Virgin Mobile USA was not a taxpayer prior to its initial public offering in October of 2007.
Adjusted diluted loss per share excluding amortization of intangible assets and transition and restructuring costs was ($0.05) in the fourth quarter of 2008 compared to diluted loss per share of ($0.30) for the fourth quarter of 2007. Pro forma diluted earnings per share, which is adjusted to reflect the shares issued in the IPO as outstanding for the entire period, was ($0.28) in the fourth quarter of 2007. Pro forma diluted loss per share in the year ended December 31, 2007 was $0.06, compared with diluted earnings per share excluding amortization of intangible assets and transition and restructuring costs in the full year 2008 of $0.26, reflecting growth of over 300% from 2007.
Free cash flow totaled $25.7 million in the year ended December 31, 2008, up 130% from $11.2 million in the year ended December 31, 2007. The increase in free cash flow is a result of the reduction throughout 2008 of Virgin Mobile USA’s senior secured loan and related interest expense payments as well as ongoing cost efficiencies in Virgin Mobile USA’s model. Capital expenditures for the year ended December 31, 2008 were $18.8 million, compared to $28.4 million for the year ended December 31, 2007.
In 2008, Virgin Mobile USA acquired Helio and, in conjunction with the acquisition, made changes to its capital structure which the Company believes significantly improved its structure and outlook. In the year ended December 31, 2008, Virgin Mobile USA reduced its debt to $267 million from $324 million on December 31, 2007. Net interest expense in the year ended December 31, 2008 was $30.7 million, down 42% from $53.4 million last year.
John Feehan, Chief Financial Officer of Virgin Mobile USA, commented, “Our business model produced excellent profitability and free cash flow in 2008, as a result of our strong operational discipline and focus on continuing improvement to our capital structure. With the improved liquidity from our equity partners to support the business, we are well-positioned to continue to invest in the business as well as produce growing free cash flow in 2009.”
Key Metric Performance Review for the Fourth Quarter and Full Year 2008
Gross additions (or new Virgin Mobile USA customers who activated their accounts) during the fourth quarter of 2008 totaled 960,421, compared to gross customer additions of 957,541 in the fourth quarter of 2007. Gross additions in the year ended December 31, 2008 were 3,305,857, down 2% from 3,384,460 in the full year 2007. The overall decrease in gross adds in 2008 was a result of the negative gross add performance in the first half of the year in part due to the economic impact on customer spending. This was mostly offset by the implementation and success of our new service plans during the year. Hybrid plans in the fourth quarter of 2008 accounted for 48% of Virgin Mobile USA’s gross adds.
The Company’s cost per gross addition (CPGA) for the fourth quarter of 2008 was $101.93, compared to CPGA of $120.68 in the fourth quarter of 2007. CPGA in the year ended December 31, 2008 was $108.68, compared to $111.66 for full year 2007. Virgin Mobile USA CPGA in the fourth quarter and in the year ended December 31, 2008 benefited from improving handset costs and a reduction in marketing spend following investments in its new service plans during the first half of the year.
The Company’s cash cost per user (CCPU) for the fourth quarter of 2008 was $13.99 compared with $11.77 in the fourth quarter of 2007. CCPU in the fourth quarter of 2008 was higher due to the first full quarter impact of the acquisition of Helio. CCPU in the fourth quarter of 2008 was also impacted by $5.4 million in transition and restructuring costs, which did not exist in the fourth quarter of 2007. Despite these items and the ongoing growth of hybrid plans in Virgin Mobile USA’s customer base, CCPU in the year ended December 31, 2008 was $12.74 versus $13.05 in 2007, reflecting planned improvements to Virgin Mobile USA’s operational expenses in its core business.
Average monthly customer turnover, or churn for the three months ended December 31, 2008 was 4.8%, a 30-basis point improvement from the same period in 2007. Customer churn in the fourth quarter of 2008 benefited from the success of our monthly hybrid plans, which provide incentives for customers to top up within 30 days, as well as other new customer lifetime management initiatives implemented in the second half of the year. Churn in the year ended December 31, 2008 was 5.2%, compared with 4.9% in the year ended December 31, 2007. As of December 31, 2008, the Company had approximately 5.4 million customers, an increase of 6% over December 31, 2007, reflecting, in part, the acquisition of Helio.
Average revenue per user (ARPU) for the fourth quarter of 2008 was $21.14, reflecting a 4% increase from ARPU of $20.36 in the fourth quarter of 2007, and an increase of 3% from the third quarter of 2008. ARPU in the year ended December 31, 2008 was $20.30, a 4% decline compared to $21.24 in the year ended December 31, 2007. ARPU in the fourth quarter and full year ended December 31, 2007 benefited from the launch of our revised hybrid plans in the second quarter of 2008. The fourth quarter of 2008 marked the second consecutive quarter of sequential growth in ARPU from $19.49 in the second quarter and was the result of the impact of our recent acquisition of Helio as well as continued adoption of the new hybrid plans.
Outlook
Virgin Mobile USA believes that the current economic environment is causing a shift in the consumer mindset to a focus on value, which may make its products and services more relevant to consumers in 2009. The current economic environment is unpredictable and presents challenges for all businesses. Within this environment, Virgin Mobile USA will continue to focus on high quality hybrid customer additions and strong cash flow. Virgin Mobile USA’s management believes the operational initiatives it has put in place in recent quarters, including new service plans, improved handsets, increased distribution and operational cost savings, will enable it to continue to produce positive business trends and position the Company for growth in Adjusted EBITDA and free cash flow in 2009. These metrics will be management’s core focus for the year.
2009
– Adjusted EBITDA is expected to be $110 – $125 million; Adjusted EBITDA
excluding transition and restructuring costs is expected to be $117 – $132
million.
– Free cash flow is expected to be $35 – $45 million.
First Quarter 2009
– Adjusted EBITDA is expected to be $30 – $35 million; Adjusted EBITDA
excluding transition and restructuring costs is expected to be $34 – $39
million.
– Due to the timing of certain handset and other payments following the
holiday season, Free cash flow is expected to be ($10) – $0 million.
Recent highlights
– Lowered international long distance rates to Latin America, Asia, and
other areas across the globe to offer customers rates as low as two cents
per minute.
– Surveyed customers about how they are coping with economic
conditions. Over two-thirds of those surveyed feel that Virgin Mobile USA
saves them money.
– Added new mobile content and features including two new youth-oriented
mobile Web sites produced by The Associated Press — AP Entertainment and
CUBI — “Can You Believe It?” and Slifter, a mobile shopping tool that
searches neighboring retail locations displaying price, availability and
product details.
– Introduced Connect, a new social networking dashboard designed to give
quick and easy access to the latest updates from key social media and
networking sites, to our postpaid customers. Virgin Mobile USA plans to
introduce the same feature to its prepaid customers in Q2 2009.
– Launched “Mobile Lounge,” a Virgin Mobile USA customer-exclusive
mobile community available on the VirginXL storefront.
– Provided customers with free streaming videos, available on their
Virgin Mobile handsets, of selected performances from 2008′s Virgin Mobile
Festival.
In 2009, Virgin Mobile USA highlights include:
– Announcing its title sponsorship of the highly anticipated Britney
Spears tour which kicks off tonight in New Orleans;
– Launching the Ocean 2, Virgin Mobile USA’s newest handset featuring a
host of 3G options, including easy and fast access to social networks and
popular applications such as Google Maps, Garmin Mobile, MySpace and
YouTube; and
– Introducing a pink LG phone with sales proceeds going toward the Susan
G. Komen for the Cure®, the world’s largest organization dedicated to
fighting breast cancer with Virgin Mobile USA and Best Buy committing to
donate a minimum of $150,000 to Susan G. Komen for the Cure’s programs.
About Virgin Mobile USA, Inc.
Virgin Mobile USA, Inc. , through its operating company Virgin Mobile USA, L.P., offers more than five million customers control, flexibility and choice through Virgin Mobile’s Plans Without Annual Contracts and postpaid offerings through Helio By Virgin Mobile, with national coverage for both powered by the Sprint PCS network.
Virgin Mobile USA is known for its award-winning customer service, was recently rated the best prepaid wireless service for the fourth year in a row in the Annual PC Magazine Readers’ Choice Survey, with 90% of its own customers reporting satisfaction with its service. Virgin Mobile USA allows customers to earn free minutes in exchange for viewing advertising content online through the innovative Sugar Mama program. Virgin Mobile USA’s full slate of smart, stylish and affordable handsets are available at approximately 40,000 top retailers nationwide, with Top-Up cards available at more than 140,000 locations.
For more information, please visit www.virginmobile.in/
