Virgin Media Inc. (VMED) reported solid financial results for the first quarter of 2011, driven by higher revenue, higher operating income, and customer’s preference toward the company’s bundled services. Already 65,000 customers have registered for Virgin Media’s next-generation TV platform developed by TiVo Inc. (TIVO). Furthermore, the company is on the verge of conducting trial runs for 1.5 Gbps broadband speed, the fastest broadband transmission rate in the world.
Quarterly total revenue of approximately $ 1,600 million was up 5.7% year over year outpacing the Zacks Consensus Estimate of $ 1,536 million. The increase was primarily due to significant growth in all four reporting segments, particularly strong growth in the Cable segment.
Net income from continuing operations, in the first quarter of 2011, was approximately $ 7.3 million or 2 cents per share compared with a net loss of $ 266.2 million or a loss of 82 cents per share in the prior-year quarter. However, quarterly adjusted (excluding special items) EPS was 3 cents, exactly in line with the Zacks Consensus Estimate.
Quarterly cost of sales was $ 670 million, up 9.1% year over year. Selling, General, and Administrative expense was $ 318 million, down 3.9% year over year. Total operating expense was $ 1,421 million, up 1.4% year over year. Quarterly operating income was $ 180.3 million, up 58.9% year over year.
During the first quarter of 2011, Virgin Media generated approximately $ 442.7 million of cash from operations, up 34.3% year over year. Quarterly free cash flow was around $ 162.8 million, up 117.7% year over year.
At the end of the first quarter of 2011, Virgin Media had approximately $ 786.8 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 $ 9,807.6 million compared with $ 9,518.9 million at the end of fiscal 2010. At the end of the first quarter of 2011, debt-to-capitalization ratio was 0.83 compared with 0.82 at the end of fiscal 2010.
Consumer Products
During the fourth quarter of 2010, Virgin Media added 128,600 net new consumer products, which raised its total consumer product base to 13,736,500. Net consumer product addition for Broadband segment was 45,600, resulting in total subscriber base of 4,332,600.
Within this Broadband segment, more than 860,000 customers subscribed to either 20 Mbps or 50 Mbps services. This figure is an improvement of 10.3% sequentially and at present constitutes 21% of total cable Broadband subscribers. Furthermore, a total of 150,000 customers are now using only 50 Mbps services, up 33% sequentially. The 100 Mbps network of Virgin Media, which offers fastest broadband speed in the U.K. now covers 2 million customers and will be available throughout the country by mid-2012.
Net consumer product addition for TV segment was 10,100 resulting in total consumer product base of 3,788,900. During the reported quarter, Virgin Media added 66,400 HD (High Definition) TV customers, leading to a total installed based of 1.5 million and HD TV penetration rate of 41%. Net consumer product addition for the Telephone segment was 20,300, resulting in total consumer product base of 4,351,600. Net consumer product addition for Mobile segment was 52,600, leading to total consumer product base of 1,263,400. The company’s bundled service offerings are receiving increasing market traction. At the end of the reported quarter, quad-play penetration climbed 12% year over year.
Subscriber Statistics
During the first quarter of 2011, Virgin Media added 20,200 Cable subscribers. Total Cable subscriber base as of March 31, 2011 was 4,820,300, up 1.2% year over year. Net subscriber deletion for the non-Cable segment was 4,000. Total non-Cable subscriber base as of March 31, 2011 was 272,700, up 0.8% year over year. Net subscriber addition in the Mobile segment was 52,600. Total Mobile subscriber base as of March 31, 2011 was 1,263,400, up 22.6% year over year.
Consumer Segment
Overall quarterly revenue of the Consumer segment was approximately $ 1,341.8 million, up 4.3% year over year. Within this segment, Cable revenue was $ 1,085.6 million, an improvement of 4.1% over the prior-year quarter. ARPU (average revenue per user) of Cable services increased nearly 2.6% year over year to $ 75.2 in the reported quarter. Average monthly Cable churn inched up 1.2% year over year.
Mobile revenue was around $ 223.2 million, up 3.8% year over year. ARPU of Mobile services increased nearly 8.3% year over year to $ 24 in the reported quarter. Non-Cable revenue was $ 33.1 million, up 7.3% year over year.
Business Segment
Overall, Business segment revenue, in the first quarter 2011, was nearly $ 259.3 million, up 13.7% year over year. Within this segment, the high-margin Retail data revenue was $ 10.6.6 million, up 18.9% year over year. Retail voice revenue was $ 63.4 million, down 6.2% year over year. LAN solutions revenue was $ 15 million, up 48.4% year over year. Wholesale data revenue was $ 68.5 million, up 34.2% year over year. Wholesale voice revenue was $ 5.9 million, up 39% year over year.
Recommendation
Virgin Media cited two positive factors for its future growth. These are (1) TiVo developed next-generation TV platform that will support on demand broadband video services and applications. (2) Gradual roll-out of ultra-fast 100 Mbps broadband network. 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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