Virgin Media Inc. (VMED) reported weak financial results for the third quarter of 2011, which fell below the Zacks Consensus Estimates. In the previous quarter, average monthly churn rate was 1.7% compared with 1.6% in the prior-year quarter. However, those who still subscribes to Virgin Media’s services have shown their preference for the company’s high-margin bundled services.
Till now, Virgin Media installed TiVo Inc. (TIVO) developed next-generation Internet-connected TV platform for about 220,000 customers. In the third quarter, the company added net 127,200 Internet TV customers. The company is gradually rolling out 100 Mbps broadband services. Furthermore, in April 2011, Virgin Media conducted trial runs for 1.5 Gbps broadband speed, the fastest broadband transmission rate in the world.
Net loss from continuing operations, in the third quarter of 2011, was approximately $118.9 million or a loss of 39 cents per share compared with a net income of $67.4 million or 13 cents per share in the prior-year quarter.
However, quarterly adjusted EPS of a loss of 27 cents was significantly below the Zacks Consensus Estimate of an income of 15 cents. Quarterly total revenue of approximately $1,611.4 million was up 2.2% year over year, but fell below the Zacks Consensus Estimate of $1,647 million.
Quarterly cost of sales was $647.3 million, up 1.5% year over year. Selling, General, and Administrative expense was $322.3 million, up 2.3% year over year. Quarterly operating expense was $1,404.5 million, down 0.6% year over year. Quarterly operating income was $206.9 million, up 26.3% year over year.
During the first nine months of 2011, Virgin Media generated approximately $1,377.3 million of cash from operations, up 10.7% year over year. Free cash flow (cash flow from operations less capital expenditures) in the reported period was around $604.9 million, up 27.6% year over year.
At the end of the third quarter of 2011, Virgin Media had approximately $706.3 million of cash and cash equivalents compared with $758.1 million at the end of fiscal 2010. Total outstanding debt, at the end of the reported quarter, was around $9,393.5 million compared with $9,518.9 million at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.87 compared with 0.82 at the end of 2010.
New Capital Return Program
Virgin Media announced a fresh share buy-back program of GBP 250 million, in addition to GBP 625 million announced in July 2011. These capital return program will be completed by end 2012.
Consumer Products
During the third quarter of 2011, Virgin Media added 74,900 net new consumer products, which raised its total consumer product base to 13,827,700. Net consumer product addition for Broadband segment was 19,100, resulting in total subscriber base of 4,333,600.
Within the Broadband segment, nearly 1 million customers subscribed to either 20 Mbps or higher services. This figure at present constitutes 26% of total cable Broadband subscribers. Half a million customers are on 30 Mbps tier or higher tier, while a total of 187,000 customers are at present using 50 Mbps or higher tier services.
Net consumer product deletion for TV segment was 5,700 resulting in total consumer product base of 3,762,000. During the reported quarter, Virgin Media added 165,200 HD (High Definition) TV customers, leading to a total installed base of 1.8 million and HD TV penetration rate of 49%. Net consumer product deletion for the Telephone segment was 13,300, resulting in total consumer product base of 4,310,700.
Net consumer product addition for Mobile segment was 74,800, leading to total consumer product base of 1,421,400. The company’s bundled service offerings are receiving increasing market traction. At the end of the reported quarter, triple-play and quad-play penetration climbed 66% and 13.7% year over year, respectively.
Subscriber Statistics
During the third quarter of 2011, Virgin Media gained 6,300 Cable subscribers. Total Cable subscriber base as of September 30, 2011 was 4,790,600, up 0.2% year over year. Net subscriber deletion for the non-Cable segment was 5,100. Total non-Cable subscriber base as of September 30, 2011 was 261,300, down 4.6% year over year. Net subscriber addition in the Mobile segment was 74,800. Total Mobile subscriber base as of September 30, 2011 was 1,421,400, up 23.1% year over year.
Consumer Segment
Quarterly revenue of the Consumer segment was approximately $1,363.2 million, up 2.4% year over year. Within the segment, Cable revenue was $1,103.8 million, an improvement of 3.4% over the prior-year quarter. ARPU (average revenue per user) of Cable services increased nearly 3.2% year over year to $77.1 in the reported quarter.
Mobile revenue was around $227.5 million, down 1.6% year over year. ARPU of Mobile services inched up nearly 1.4% year over year to $24.5 in the reported quarter. Non-Cable revenue was $31.9 million, down 1.5% year over year.
Business Segment
Business segment revenue, in the third-quarter 2011, was nearly $248.2 million, up 1.2% year over year. Within this segment, the high-margin Retail data revenue was $111.7 million, up 13.5% year over year. Retail voice revenue was $60.8 million, down 8.5% year over year. LAN solutions revenue was $15.5 million, up 3.2% year over year. Wholesale data revenue was $53.8 million, down 4.3% year over year. Wholesale voice revenue was $6.5 million, down 1.7% 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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