Virgin Media Inc. reported strong financial results for the third quarter of 2012, beating the Zacks Consensus Estimates. In the previous quarter, average monthly churn rate was 1.4% compared with 1.7% 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.
Another major growth area is the company’s next-generation TV services. At the end of the third quarter of 2012, Virgin Media installed TiVo Inc. (TIVO - Analyst Report) developed next-generation Internet-connected TV platform for approximately 1.14 million customers, which is 30% of the company’s total installed TV base. In the third quarter, the company added net 205,900 Internet TV customers. Paying TV customer base grew by 52,200 in the last quarter. The company is gradually rolling out 100 Mbps broadband services.
Net income from continuing operations, in third-quarter 2012, was approximately $195.7 million or 65 cents per share compared with a net loss of $116.6 million or a loss of 38 cents per share in the prior-year quarter. Quarterly adjusted earnings per share of 47 cents easily beat the Zacks Consensus Estimate of 42 cents. Third quarter total revenue of around $1,623 million was up 2.8% year over year and well above the Zacks Consensus Estimate of $1,596 million.
Quarterly cost of sales was $637 million, up 0.4% year over year. Selling, General, and Administrative expense was $318.6 million, up 0.9% year over year. Quarterly operating expense was $1,339 million, down 2.7% year over year. Quarterly operating income was $284.3 million, up 40.2% year over year.
During the first nine months of 2012, Virgin Media generated approximately $1,275.6 million of cash from operations, down 5.5% year over year. Free cash flow in the first nine months of 2012 was around $371.5 million, down 37.3% year over year.
At the end of the third quarter of 2012, Virgin Media had approximately $179.1 million of cash and cash equivalents compared with $472.4 million at the end of 2011. Total outstanding debt, at the end of the reported quarter, was around $9,149.4 million compared with $9,206.6 million at the end of 2011. At the end of the third quarter of 2012, debt-to-capitalization ratio was 0.92 compared with 0.90 at the end of 2011.
During the third quarter of 2012, Virgin Media gained 77,000 net new consumer Cable products, which raised its total consumer product base to 12,145,600. Net consumer product addition for Broadband segment was 56,900, resulting in total product base of 4,209,500. Within the Broadband segment, over 1.8 million customers subscribed to either 30 Mbps or higher services. Currently, this figure constitutes 42% of total cable Broadband subscribers. More than 837,500 customers are using 50 Mbps tier or120 Mbps tier services. In the previous quarter, Virgin Media added a net 452,900 customers using superfast (30 Mbps or higher tier) broadband services.
Net consumer product addition for Television was 10,700, resulting in total Cable TV consumer product base of 3,778,400. Similarly, net consumer product addition for Telephony was 9,400, resulting in total Cable Telephony consumer product base of 4,157,700. Net consumer product addition for Mobile segment was 29,000 and total consumer product base of 1,670,900. The company’s bundled service offerings received increasing market traction. At the end of the previous quarter, triple-play and quad-play penetration climbed 64.7% and 15.6% respectively of the total customer’s base.
During the third quarter of 2012, Virgin Media gained a net 39,500 Cable subscribers. Total Cable subscriber base as of September 30, 2012 was 4,851,600, up 1.3% year over year. Net subscriber deletion for the non-Cable segment was 14,700. Total non-Cable subscriber base as of September 30, 2012 was 203,900, down 22% year over year. Net subscriber addition in the Mobile segment was 29,000. Total Mobile subscriber base as of September 30, 2012 was 1,670,900, up 17.6% year over year.
Quarterly total revenue of the Consumer segment was approximately $1,357 million, up 1.6% year over year. Within the segment, Cable revenue was $1,113.1 million, up 2.9% year over year. ARPU (average revenue per user) of Cable services increased 1.8% year over year to $76.97 in the reported quarter. Mobile revenue was around $216.1 million, down 3.1% year over year. ARPU of Mobile services declined 3.3% year over year to $23.25 in the reported quarter. Non-Cable revenue was $27.8 million, down 11.1% year over year.
Business segment revenue in the third-quarter 2012, was nearly $266.3 million, up 9.5% year over year. Within this segment, the high-margin Retail data revenue was $123.2 million, up 12.6% year over year. Retail voice revenue was $51.7 million, down 13.3% year over year. LAN solutions revenue was $11.7 million, down 22.1% year over year. Wholesale data revenue was $71.9 million, up 36% year over year. Wholesale voice revenue was $7.9 million, up 25% year over year.
We maintain our long-term Neutral recommendation on Virgin Media. Currently, it holds a short-term Zacks #2 Rank (Buy) on the stock.