Virgin Media Outperforms

Virgin Media Inc. (VMED - Analyst Report) reported strong financial results for the fourth quarter of 2011, easily beating the Zacks Consensus Estimates. In the previous quarter, average monthly churn rate was 1.3%, remaining same year over year. However, those who still subscribe to Virgin Media’s services have shown their preference for the company’s high-margin bundled services with super fast broadband offerings.

Another major growth area is the company’s next-generation TV services. At the end of 2011, Virgin Media installed TiVo Inc. (TIVO - Analyst Report) developed next-generation Internet-connected TV platform for approximately 435,100 customers, which is 12% of the company’s total installed TV base. In the fourth quarter, the company added net 272,900 Internet TV customers. Paying TV customer base grew by 56,100 in the last quarter. 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 income from continuing operations, in the fourth quarter of 2011, was approximately $75.8 million or 25 cents per share compared with a net income of $55.3 million or 17 cents per share in the prior-year quarter. Fourth quarter EPS of 25 cents handily beats the Zacks Consensus Estimate of 22 cents. Quarterly total revenue of approximately $1,610 million was up 2% year over year, surpassing miles ahead of the Zacks Consensus Estimate of $1,302 million.

Quarterly cost of sales was $633.5 million, down 1.4% year over year. Selling, General, and Administrative expense was $309.9 million, up 2.8% year over year. Quarterly operating expense was $1,348.2 million, down 8.1% year over year. Quarterly operating income was $261.5 million, up 134.2% year over year.

During 2011, Virgin Media generated approximately $1,806.8 million of cash from operations, up 10.8% year over year. Free cash flow in 2011 was around $774.2 million, up 20.3% year over year. At the end of 2011, Virgin Media had approximately $472.4 million of cash and cash equivalents compared with $758.1 million at the end of 2010. Total outstanding debt, at the end of 2011 was around $9,206.6 million compared with $9,518.9 million at the end of 2010. At the end of 2011, debt-to-capitalization ratio was 0.90 compared with 0.82 at the end of 2010.

New Capital Return Program

In addition to share buy-back program of GBP 625 million announced in July 2011 and GBP 250 million announced in October 2011, Virgin Media announced a fresh share buy-back program of $250 million.

Consumer Products

During the fourth quarter of 2011, Virgin Media added 106,400 net new consumer products, which raised its total consumer product base to 13,934,100. Net consumer product addition for Broadband segment was 30,000, resulting in total subscriber base of 4,351,100. Within the Broadband segment, nearly 1.2 million customers subscribed to either 20 Mbps or higher services. Currently, this figure constitutes 28% of total cable Broadband subscribers. Nearly 700,000 customers are on 30 Mbps tier or higher tier, while nearly 200,000 customers are at present using 50 Mbps or higher tier services. In the last quarter, Virgin Media added a net 133,000 customers for 30 Mbps.  

Net consumer product addition for TV segment was 1,100 resulting in total consumer product base of 3,763,100. At the end of 2011, Virgin Media had a total installed base of 2.28 million HD TV customers and HD TV penetration rate of 60%. Net consumer product deletion for the Telephone segment was 14,700, resulting in total consumer product base of 4,296,000. Net consumer product addition for Mobile segment was 102,500, leading to total consumer product base of 1,523,900. The company’s bundled service offerings received increasing market traction. At the end of 2011, triple-play and quad-play penetration climbed 63.7% and 13.7% year over year, respectively.

Subscriber Statistics

During the fourth quarter of 2011, Virgin Media gained 15,000 Cable subscribers. Total Cable subscriber base as of December 31, 2011 was 4,805,600, up 0.1% year over year. Net subscriber deletion for the non-Cable segment was 13,100. Total non-Cable subscriber base as of December 31, 2011 was 248,200, down 10.3% year over year. Net subscriber addition in the Mobile segment was 102,500. Total Mobile subscriber base as of December 31, 2011 was 1,523,900, up 25.9% year over year.

Consumer Segment

Quarterly revenue of the Consumer segment was approximately $1,337.5 million, down 0.14% year over year. Within the segment, Cable revenue was $1,082.6 million, up 0.8% year over year. ARPU (average revenue per user) of Cable services inched up 0.7% year over year to $75.2 in the reported quarter. Mobile revenue was around $223.6 million, down 4.1% year over year. ARPU of Mobile services inched up nearly 2% year over year to $24.3 in the reported quarter. Non-Cable revenue was $31.3 million, down 3.9% year over year.

Business Segment

Business segment revenue, in the fourth-quarter 2011, was nearly $272.2 million, up 13.9% year over year. Within this segment, the high-margin Retail data revenue was $115.6 million, up 17.8% year over year. Retail voice revenue was $61.8 million, down 1% year over year. LAN solutions revenue was $12 million, up 16.9% year over year. Wholesale data revenue was $71.5 million, down 18.4% year over year. Wholesale voice revenue was $11.3 million, up 46.9% 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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