Virgin Mobile USA (NYSE: VM), the prepaid wireless carrier which agreed to buy Helio from Earthlink (NSDQ: ELNK) and SK Telecom (NYSE: SKM), announced second-quarter results today, saying its weak performance was driven by changes in consumer spending and a poor economy. In the second quarter, it made a profit of $3.5 million on net service revenues of $291.4 million. Profits fell 50 percent and revenues fell 6 percent compared to the same period a year ago. Dan Schulman, Virgin Mobile’s CEO, said in a release: “The operational improvements we have put into place are beginning to pay off. While net revenues declined year over year due to general economic conditions and their resultant impact on consumer budgets, the benefits of our low fixed-cost model are reflected in our strong profitability and record free cash flow of $29.2 million.”
Highlights from the results after the jump
– Customer losses: The company said it lost 111,273 net customers during the period, recording a 5.6 percent churn (which was below company estimates). In the year ago period, the company only lost 53,424 net customers, but recorded a slightly higher churn at 5.7 percent.
– Total customers: Virgin Mobile had nearly 5 million customers at the end of the period, up 3.4 percent from 4.83 million in Q2 2007.
– ARPU: The company makes an average revenue per user of $19.32 a month, compared to the year ago period, when it was making $20.97 a month.
– New rate plans: The new plans, including a $79.99 unlimited calling plan, should lead to higher ARPU, Schulman said. Sales of the new unlimited plan are exceeding expectations and are among their most profitable offering.
Beats most forecasts: The company reported earnings per share of 7 cents on total revenues of $317 million, which is better than analyst expectations of $314 million and 2 cents, reports Barron’s. The company’s net service revenues of $291.4 million was in line with its own forecast of $285 million to $295 million. Virgin had adjusted EBITDA of $32.3 million in the quarter, better than its forecast of $19 million to $23 million.
Helio acquisition: As part of Virgin’s purchase of Helio, SK Telecom and and Virgin Group will invest a total of $50 million into the company to pay down debt. In addition, Virgin Mobile was able to reach a new agreement with Sprint (NYSE: S), it’s network partner, that will lead to an 8 percent reduction in the cost per minute in 2009. Sprint also agreed to pay Virgin up to $10 million for each gross customer addition. Schulman: “The acquisition of Helio offers an excellent opportunity to expand our addressable market into postpaid and significantly increase the value we can provide our customers through new data services and feature-rich handsets. The additional liquidity and improved capital structure anticipated from the deal will benefit our business financially and strategically, and we are looking forward to the closing of the transaction in the third quarter.”
Outlook: The company believes that there will be improvements in the second half of the year, and that they are positioned for growth in 2009. In the third quarter, net adds will range between a loss of 20,000 and a gain of 20,000 customers; Net service revenues are expected to be in line with second-quarter earnings, or about $285 to $295 million; Adjusted EBITDA is expected to be about 20 to 40 percent higher than last year, in the range of $20 to $24 million (In Q2, adjusted EBITDA was $32.3 million).
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