Virgin Mobile USA, Inc. (NYSE: VM), a leading national provider of wireless communications services, today reported its financial and operational results for the three and six months ended June 30, 2009.
Second quarter 2009 highlights:
-- Net service revenue of $290.0 million compared to $293.8 million in
the second quarter of 2008
-- Adjusted EBITDA of $43.9 million compared to $32.3 million in the
second quarter of 2008, up 36%; Adjusted EBITDA excluding transition and
restructuring expenses was $45.0 million compared to $33.4 million in the
second quarter of 2008, up 35%(1)
-- Net income of $21.8 million compared to net income of $5.5 million in
the second quarter of 2008, up 296%
-- Earnings per diluted share of $0.23 compared to $0.07 in the second
quarter of 2008, up 229% year over year; Adjusted earnings per diluted
share of $0.27(1); compared to earnings per diluted share of $0.08(1) in
the second quarter of 2008, up 238%
First half 2009 highlights:
-- Net service revenue of $608.1 million compared to $600.8 million in
the first half of 2008
-- Adjusted EBITDA of $93.4 million compared to $61.0 million in the
first half of 2008, up 53%; Adjusted EBITDA excluding transition and
restructuring expenses was $97.6 million compared to $62.1 million in the
first half of 2008, up 57%(1)
-- Net income of $40.9 million compared to net income of $10.3 million in
the first half of 2008, up 299%
-- Earnings per diluted share of $0.42 compared to $0.16 in the first
half of 2008, up 163% year over year; Adjusted earnings per diluted share
of $0.51 compared to $0.17 in the first half of 2008, up 200%(1)
-- Free cash flow of $29.0 million compared to $29.2 million in the first
half of 2008
(1) Excludes transition and restructuring expenses related to the acquisition of Helio, the outsourcing of IT services to IBM and workforce reductions totaling $1.2 million and $4.2 million for the three and six months ended June 30, 2009, respectively and $1.1 million for the three and six months ended June 30, 2008. Adjusted earnings per share also excludes the amortization of intangibles associated with the acquisition of Helio. Adjustments to earnings per share are net of noncontrolling interest and taxes.
"Our financial results in the first half of the year have exceeded our expectations," said Dan Schulman, Chief Executive Officer, Virgin Mobile USA. "We grew Adjusted EBITDA excluding transition and restructuring expenses by 57% to $98 million in the first half of 2009, producing Free cash flow of more than $29 million. We continue to exceed our financial expectations and remain confident in our guidance for Adjusted EBITDA and Free cash flow for the full year 2009."
"Our stated strategy is to focus on growing our highly profitable hybrid customer base. We made strong progress against this goal in the second quarter. Hybrid gross adds grew from 55% of total gross adds in Q1 to 63% in Q2, resulting in 20% year over year growth in total hybrid gross customer additions in the first half of 2009," continued Schulman. "The growth of our hybrid customers, who have more than 15x the lifetime value of our average pay-by-the-minute customers, has been supported by the launch of our new service plans throughout the second quarter. Our new $49.99 Unlimited offer has been particularly successful, representing 21% of all gross adds in May and June. We expect continued hybrid growth with the plans now fully deployed into retail in Q3.
"Supporting this strategic customer focus is the sale of higher-priced handsets, which are associated with higher data usage, better churn, and significantly higher lifetime value. Our sales of handsets priced at $50 and above leapt to 25% of total sales from 15% in just one quarter, reflecting the success of our strategy and our commitment to high quality growth."
Overview and Basis of Presentation
Financial results for Helio are included in Virgin Mobile USA's results beginning on August 22, 2008. This press release uses several financial performance metrics, including Adjusted EBITDA, Adjusted EBITDA margin, Average Revenue Per User (ARPU), Cash Cost Per User (CCPU), Cost Per Gross Addition (CPGA), Free cash flow, Adjusted EBITDA excluding transition and restructuring expenses and Adjusted EBITDA margin excluding transition and restructuring expenses, Adjusted EPS excluding the amortization of intangibles associated with the acquisition of Helio and Adjusted EPS excluding the amortization of intangibles associated with the acquisition of Helio, and transition and restructuring expenses which are not calculated in accordance with generally accepted accounting principles in the United States, or GAAP. The Company believes that these non-GAAP financial metrics are helpful in understanding its operating performance from period to period and, although not every wireless company uses these metrics or defines these metrics in the same way, the Company believes that these metrics as used by Virgin Mobile USA facilitate comparisons with other wireless service providers. These metrics should not be considered substitutes for any performance metrics determined in accordance with GAAP. For a reconciliation of non-GAAP financial measures, please refer to the section entitled "Definition of Terms and Reconciliation of Non-GAAP Financial Measures" included at the end of this release.
Key Financial & Operating Results for the Second Quarter of 2009
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
($ in thousands, except per
share amounts) (Unaudited) (Unaudited)
Net service revenue $ 289,965 $ 293,824 $ 608,064 $ 600,814
Total operating revenue 307,565 319,864 644,853 649,881
Operating income 30,890 19,981 67,098 36,584
Net income 21,825 5,506 40,885 10,255
Adjusted EBITDA 43,852 32,321 93,395 61,023
Adjusted EBITDA margin 15.1% 11.0% 15.4% 10.2%
Adjusted EBITDA, excluding
transition and restructuring
expenses(1) 45,022 33,372 97,593 62,074
Adjusted EBITDA margin,
excluding transition and
restructuring expenses (1) 15.5% 11.4% 16.0% 10.3%
Net income attributable to
Virgin Mobile USA, Inc. per
common share - basic $ 0.26 $ 0.07 $ 0.47 $ 0.16
Net income attributable to
Virgin Mobile USA, Inc. per
common share - diluted $ 0.23 $ 0.07 $ 0.42 $ 0.16
Adjusted earnings per common
share - diluted(1) $ 0.26 $ 0.07 $ 0.48 $ 0.16
Adjusted earnings per share
excluding amortization of
intangible assets, and
transition and restructuring
expenses - diluted(1) $ 0.27 $ 0.08 $ 0.51 $ 0.17
Interest expense - net 5,120 7,933 10,707 17,272
Capital expenditures 7,572 9,364
(1) Excludes transition and restructuring expenses related to the
acquisition of Helio, the outsourcing of IT services to IBM and
workforce reductions totaling $1.2 million and $4.2 million for the
three and six months ended June 30, 2009, respectively and $1.1 million
for the three and six months ended June 30, 2008. Adjusted earnings per
share also excludes the amortization of intangibles associated with the
acquisition of Helio. Adjustments to earnings per share are net of
noncontrolling interest and taxes. The three and six months ended
June 30, 2008 did not have amortization of intangibles.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Gross additions 535,558 728,370 1,165,817 1,523,945
Churn 5.3% 5.6% 5.0% 5.3%
Net customer additions (269,239) (111,273) (402,531) (93,501)
End-of-period customers 4,977,779 4,992,385 4,977,779 4,992,385
ARPU $ 18.98 $ 19.49 $ 19.54 $ 19.82
CCPU $ 12.12 $ 11.87 $ 12.46 $ 12.05
CPGA $ 113.65 $ 113.38 $ 108.82 $ 114.53
Free cash flow (in thousands) $ 29,029 $ 29,209
During the second quarter of 2009, Virgin Mobile USA's net service revenue was $290.0 million, down 1% versus the same period in 2008. Virgin Mobile USA's net service revenue in the first half of 2009 was $608.1 million, up 1% compared to $600.8 million in the first half of 2008. Net service revenue in the second quarter was impacted by customer optimization as customers migrated to lower priced plans, including migrations to our new $49.99 unlimited plan. These migrations of higher-priced unlimited customers to the new unlimited plan are expected to be completed by the end of the year. Net service revenue in the second quarter was also impacted by the ongoing consumer shift from minutes to messaging, which was offset by growth in data revenue. Data revenue in the second quarter of 2009 was 22% of net service revenue, up from 18% in the second quarter of 2008.
Adjusted EBITDA in the second quarter of 2009 was $43.9 million compared to $32.3 million in the second quarter of 2008, up 36%. Adjusted EBITDA excluding transition and restructuring expenses in the second quarter of 2009 was $45.0 million, an increase of 35% compared to Adjusted EBITDA excluding transition and restructuring expenses of $33.4 million in the second quarter of 2008. Adjusted EBITDA margin was 15.1% in the second quarter of 2009, up from 11.0% in the second quarter of 2008. Adjusted EBITDA margin excluding transition and restructuring expenses was 15.5% in the second quarter of 2009, up from 11.4% in the second quarter of 2008.
Adjusted EBITDA in the first half of 2009 was $93.4 million compared to $61.0 million in the first half of 2008, up 53%. Adjusted EBITDA excluding transition and restructuring expenses was $97.6 million, up 57% compared to $62.1 million in the first half of 2008. Adjusted EBITDA margin excluding transition and restructuring expenses was 16.0% in the first half of 2009, up from 10.3% in the second quarter of 2008. Virgin Mobile USA's strong profitability and margin improvements in the second quarter and first half of 2009 benefited from the Company's goal of focusing on high-quality customer additions, which provide fewer but significantly more profitable gross customer additions. Adjusted EBITDA in the second quarter and first half of 2009 also benefited from cost-cutting initiatives implemented in the second half of 2008 and lower per unit network costs. The Company's new plans launched during the second quarter are performing well, with 21% of all gross customer additions adopting the $49.99 unlimited voice plan in May and June, compared with 3% average adoption of the previously available unlimited plan.
Virgin Mobile USA's net income in the second quarter of 2009 was $21.8 million, up 296% from net income of $5.5 million in the second quarter of 2008. Net income in the first half of 2009 was $40.9 million, up 299% compared with $10.3 million in the first half of 2008. Adjusted earnings per diluted share excluding amortization of intangible assets and transition and restructuring expenses were $0.27 in the second quarter of 2009 compared to $0.08 in the second quarter of 2008. Earnings per diluted share in the second quarter of 2009 benefited from planned cost efficiencies in the business, including improved per unit network costs. Virgin Mobile USA's profitability in the first half of 2009 also benefited from a 38% reduction in net interest expense when compared with the first half of 2008, which was partly the result of repayments to outstanding debt related to the acquisition of Helio.
Free cash flow totaled $29.0 million in the first half of 2009, compared to $29.2 million in the first half of 2008. The Company continues to experience positive Free cash flow due to ongoing cost efficiencies implemented in the business, and expects to grow full year Free cash flow in the range of 75% to 114% year over year. Capital expenditures in the first half of 2009 were $7.6 million compared to $9.4 million in the first half of 2008.
In 2008, Virgin Mobile USA acquired Helio and, in conjunction with the acquisition, made changes to its capital structure, including a significant reduction in the Company's outstanding debt, which the Company believes improved its structure and outlook. Net interest expense in the second quarter of 2009 was $5.1 million, down 35% from $7.9 million in the second quarter of 2008. For the first half of 2009, net interest expense was $10.7 million, down 38% from $17.3 million in the first half of 2008. Net debt has decreased from $255 million as of December 31, 2008 to $230 million as of June 30, 2009(1).
John Feehan, Chief Financial Officer of Virgin Mobile USA, commented, "We are executing well against our 2009 strategy to grow Adjusted EBITDA, Free cash flow, and high quality hybrid customers. I am particularly pleased with the strong culture of cost discipline we have instilled throughout the organization, which contributed to the 53% growth in Adjusted EBITDA in the first six months of 2009."
(1) Net debt is equal to total debt (including related party debt) minus cash
Key Metric Performance Review for the Second Quarter of 2009
Gross customer additions (or new Virgin Mobile USA customers who activated their accounts) during the second quarter of 2009 totaled 535,558, compared to gross customer additions of 728,370 in the second quarter of 2008. The year over year decline in gross customer additions was a result of intensified competition and the Company's strategic focus on high lifetime value customer acquisition. During the second quarter, Virgin Mobile USA reduced the volume of lower priced handsets in its sales channels, which resulted in fewer, but higher value, gross customer additions. Gross customer additions of hybrid plans in the first half of 2009 grew 20% compared to the first half of 2008.
Virgin Mobile USA's cost per gross addition (CPGA) for the second quarter of 2009 was $113.65, compared to CPGA of $113.38 in the second quarter of 2008. CPGA for the first half of 2009 was $108.82 compared to $114.53 in the first half of 2008. CPGA in the first half of 2009 reflects cost efficiencies in sales and marketing, as well as continued handset cost improvements.
The Company's cash cost per user (CCPU) for the second quarter of 2009 was $12.12, compared to $11.87 in the second quarter of 2008. CCPU in the first half of 2009 was $12.46 compared to $12.05 in the first half of 2008. CCPU in the second quarter of 2009 was higher due to the continued growth of our hybrid plans as well as an increase in usage associated with Helio. CCPU in the second quarter and first half of 2009 included approximately $1.2 million and $4.2 million, respectively, in transition and restructuring expenses, an increase from $1.1 million in the second quarter and first half of 2008.
Churn, or average monthly customer turnover, for the three months ended June 30, 2009 was 5.3%, a 30 basis point improvement over the same period in 2008. Customer churn is seasonally highest in the second quarter as the Company begins to experience turnover from the fourth quarter holiday selling season, which has traditionally been Virgin Mobile USA's strongest quarter for gross adds. As of June 30, 2009, Virgin Mobile USA had approximately 5.0 million customers.
Average revenue per user (ARPU) for the second quarter of 2009 was $18.98, down 3% from ARPU of $19.49 in the second quarter of 2008, and a decrease of 5% from $20.08 in the first quarter of 2009. ARPU for the first half of 2009 was $19.54 compared to $19.82 for the first half of 2008, down 1%. The decline in ARPU was a result of accelerated migrations of our $79.99 unlimited customers to our new $49.99 unlimited offer, launched during the quarter. While these immediate price downs have a near-term impact to ARPU as customers migrate, Virgin Mobile USA expects this to be more than offset by broader adoption of these high ARPU plans going forward. The $49.99 unlimited offer represented 21% of gross customer additions in May and June, and these customers have an initial ARPU of approximately $56. ARPU in the second quarter was also affected by the ongoing wireless industry trend of the replacement of voice minutes with messaging. The average monthly messaging rate at Virgin Mobile USA grew by 4% in the second quarter of 2009 over the first quarter of 2009. In the second quarter of 2009, data was 22% of total net service revenue, compared to 18% in the second quarter of 2008. Early in the second quarter, Virgin Mobile USA launched its innovative new "Texter's Delight" plans, one of which offers unlimited texting for $19.99 with 10-cent voice minutes. The adoption of these plans is trending well and these customers are showing significantly higher ARPUs and margins than our traditional pay-as-you-go customers.
Outlook
Full Year 2009
Virgin Mobile USA's strategic focus on high-quality customer growth, along with its strong cost discipline, have led to a strong financial performance thus far in 2009. The Company remains confident in its guidance for both Adjusted EBITDA and Free cash flow for the full year 2009.
Recent highlights
-- Launched our first product extension in Broadband2Go, the first
prepaid nationwide broadband device being offered exclusively at Best Buy
Mobile.
-- Announced the Company's first annual rock festival being offered with
a twist - tickets will be free. The event, "Virgin Mobile FreeFest," will
take place on August 30, 2009 and feature Blink 182, Weezer and Franz
Ferdinand, among other acts. An extensive "Free I.P." program has also
been established, providing the now "free'd out" tickets to people who
register and volunteer at a homeless youth shelter.
-- Introduced a new Samsung handset, the Mantra.
-- Debuted Opera Mini and Connect, two new features on no-annual-contract
phones that were previously only available on contract handsets. Opera Mini
provides a rich mobile Internet experience; Connect allows customers to add
and log-in their social networking sites to see all updates on a dashboard.
Both of these are designed to improve the overall customer experience.
-- Launched "Totally Unlimited Calling for $49.99" and our innovative new
"Texter's Delight" plans, offering unlimited texts with 10-cent voice
minutes for $19.99.
-- Introduced the only unemployment plan in the wireless industry, with
"Pink Slip Protection" offering three months of free service to our
eligible customers who lose their jobs while using our services, subject to
certain conditions.
-- Improved contract plans for families, adding $175/month All-In plan
with 4,000 shared anytime minutes that include unlimited messaging and data
services; a $50 A La Carte plan that includes 600 shared anytime minutes
with unlimited mobile-to-mobile calling; and an additional 200 shared
anytime minutes added to the current $100/month A La Carte plan.
-- Launched Google Maps on select prepaid phones.
Earnings Conference Call
Virgin Mobile USA will host a conference call Monday, August 10, 2009 at 8:00 A.M. (EDT) with access available via Internet and telephone. Investors and analysts may participate in the live conference call by dialing 1-888-354-3598 (toll-free domestic) or 1-706-643-8861 (international); passcode: 19184676. Please register at least 10 minutes before the conference call begins. A replay of the call will be available for one week via telephone starting approximately two hours after the call ends. The replay can be accessed at 1-800-642-1687 (toll-free domestic) or 1-706-645-9291 (international); passcode: 19184676. The webcast will be archived on Virgin Mobile USA's web site after the call at http://investorrelations.virginmobileusa.com/ [1].
About Virgin Mobile USA, Inc.
Virgin Mobile USA, Inc. (NYSE: VM), through its operating company Virgin Mobile USA, L.P., offers millions of customers control, flexibility and choice through Virgin Mobile's Plans Without Annual Contracts, with coverage powered by the Nationwide Sprint PCS Network.
Virgin Mobile USA is known for its award-winning customer service, with more than 90% of its customers reporting satisfaction. Virgin Mobile USA service recently announced its Pink Slip Protection program, which provides eligible monthly plan customers who lose their jobs and become eligible for state unemployment benefits free service for up to three months*. Its full slate of smart, stylish and affordable handsets are available at approximately 40,000 top retailers nationwide and online at http://www.virginmobileusa.com/ [2], with Top-Up cards available at almost 150,000 locations. Virgin Mobile USA also offers unlimited all-in contract plans with advanced devices like the Ocean 2.
*Subject to certain terms and conditions
Safe Harbor Statement
This press release contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures, and assumptions and other statements contained in this document that are not historical facts. When used in this press release, words such as "anticipate," "believe," "estimate," "expect," "intend," "plan" and "project" and similar expressions, as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance, and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties discussed in our filings with the Securities and Exchange Commission, or SEC, copies of which are available on our investor relations website at http://investorrelations.virginmobileusa.com/ [1] and on the SEC website at http://www.sec.gov/ [3]. We neither intend nor assume any obligation to update these forward-looking statements, which speak only as of their dates.
Links:
[1] http://investorrelations.virginmobileusa.com/
[2] http://www.virginmobileusa.com/
[3] http://www.sec.gov/