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Virgin Media Inc. reported mixed financial results for the fourth quarter of 2012. In the reported quarter, average monthly churn rate was 1.1% compared with 1.3% in the year-ago quarter. Moreover, those who opted for Virgin Media’s services have shown their preference for the company’s high-margin bundled services with super fast broadband offerings. Virgin Media currently has a Zacks Rank #3 (Hold).
Another major growth area is the company’s next-generation TV services. At the end of the fourth quarter of 2012, Virgin Media installed TiVo Inc. (TIVO - Analyst Report) developed next-generation Internet-connected TV platform for approximately 1.33 million customers, which is 35% of the company’s total installed TV base. In the fourth quarter, the company added a net total 187,300 Internet TV customers. Pay-TV customer base grew by 59,900 in the last quarter. The company is gradually rolling out 100 Mbps broadband services.
Net income from continuing operations, in fourth-quarter 2012, was approximately $105.6 million or 39 cents per share compared with $75.8 million or 25 cents per share in the prior-year quarter. Quarterly earnings per share of 39 cents fell below the Zacks Consensus Estimate of 41 cents. On the revenue front, it moved up 1.6% year over year to $1,680 million and was also well above the Zacks Consensus Estimate of $1,633 million.
Quarterly cost of sales was $655.5 million, up 0.7% year over year. Selling, General, and Administrative expense were $309.7 million, remaining same year over year. Quarterly operating expense was $1,342.5 million, down 3.1% year over year. Quarterly operating income was $337 million, up 25.4% year over year.
During fiscal 2012, Virgin Media generated approximately $1,679.4 million of cash from operations, down 9.5% year over year. Free cash flow in fiscal 2012 was around $414.3 million, down 47.9% year over year.
At the end of fiscal 2012, Virgin Media had approximately $332.2 million of cash and cash equivalents compared with $472.4 million at the end of 2011. Total outstanding debt, at the end of fiscal 2012, was around $9,149.4 million compared with $9,577.3 million at the end of 2011. Debt-to-capitalization ratio was 0.65 at the end of 2012, compared with 0.90 at the end of 2011.
During the fourth quarter of 2012, Virgin Media gained 101,200 net new consumer Cable products, which raised its total consumer product base to 12,246,800. Net consumer product addition for Broadband segment was 62,700, resulting in total product base of 4,272,200. Within the Broadband segment, over 2.17 million customers subscribed to either 30 Mbps or higher services. Currently, this figure constitutes 51% of total cable Broadband subscribers. In the reported quarter, Virgin Media added a net 419,400 customers using superfast (30 Mbps or higher tier) broadband services.
In the fourth quarter, Virgin Media added 36,800 triple-play customers with a penetration rate of 64.9%. Net consumer product addition for Television segment was 17,100, resulting in total TV consumer product base of 3,795,500. Similarly, net consumer product addition for Telephony segment was 21,400, resulting in total Telephony consumer product base of 4,179,100. At the end of 2012, quad-play subscriber base increased 11% year over year to 774,600.
During the fourth quarter of 2012, Virgin Media gained a net 42,700 Cable subscribers. Total Cable subscriber base as of Dec 31, 2012 was 4,894,300, up 1.9% year over year. Net subscriber addition in the Mobile segment was 38,100. Total Mobile subscriber base as of Dec 31, 2012 was 1,708,900, up 12.1% year over year.
Quarterly total revenue of the Consumer segment was approximately $1,412.4 million, up 2.8% year over year. Within the segment, Cable revenue was $1,154.8 million, up 3.8% year over year. ARPU (average revenue per user) of Cable services increased 2.1% year over year to $78.94 in the reported quarter. Mobile revenue was around $231.2 million, up 0.6% year over year. ARPU of Mobile services declined 2.1% year over year to $24.44 in the reported quarter. Non-Cable revenue was $26.5 million, down 17.6% year over year.
Business segment revenue, in fourth-quarter 2012, was nearly $267 million, down 4.5% year over year. Within this segment, the high-margin Retail data revenue was $121.2 million, up 2.2% year over year. Retail voice revenue was $54.6 million, down 14% year over year. LAN solutions revenue was $13.6 million, remaining same year over year. Wholesale data revenue was $69.6 million, down 5.3% year over year. Wholesale voice revenue was $8.1 million, up 78.6% year over year.
Yesterday, in a significant strategic move, Virgin Media came out with a joint press statement with Liberty Global Inc. (LBTYA - Analyst Report), that the two companies have entered into an agreement par which, Liberty Global will acquire a 100% stake in Virgin Media in a cash and equity deal. The deal is implying a total consideration of approximately $15.8 billion or an enterprise value of nearly $23.3 billion.
Both the companies are expecting the deal to be completed by the second quarter of 2013 subject to customary regulatory approval. If this deal gets approved, then Virgin Media will become a formidable challenger to BSkyB, the largest pay-TV operator of the U.K. BSkyB is partially controlled by News Corp. (NWSA - Analyst Report).