Earnings: Virgin Mobile USA Beats Expectations; Stock Rises

imageVirgin Mobile USA (NYSE: VM) reported its Q3 financial results today, which is the first period that includes results from Helio, the struggling MVNO that the company bought from EarthLink and SK Telecom (NYSE: SKM) in August. The company easily beat its expectations in the quarter, by reporting net service revenues of $305 million, adjusted EBITDA of $27.5 million and a net customer loss of 3,267 subscribers. The company had been forecasting net service revenues of up to $295 million, adjusted EBITDA of up to $24 million, and net adds, ranging between a 20,000 loss and a 20,000 gain. VMUSA’s CEO Dan Schulman said: “Our business performed well in the third quarter. We were able to increase gross customer additions by 8 percent year over year, while our continued operational discipline allowed us to once again overperform in Adjusted EBITDA, growing by 61 percent versus Q3 2007 and improving our Adjusted EBITDA margin by 330 basis points.” In after hours trading, the company’s stock jumped 24 cents or 25 percent to $1.20 a share.

Release | Earnings Call | Transcript (via Seeking Alpha)

Other highlights after the jump

Economic impacts: VMUSA’s net service revenue for the first nine months of 2008 was $900.2 million, dropping 4 percent from $933.5 million in the same period in 2007. Net service revenue for Q3 and the first nine months were impacted by the economy, as well as usage trends toward lower cost alternatives such as text messaging.

Net income: Virgin Mobile USA’s net income for the quarter was $4.1 million, compared to a net loss of $7.4 million for the year-ago period. Net income for Q3 included minority interest expense of $4.4 million, which did not exist in the comparable period in 2007.

ARPU and Churn: At the end of Q3, the company had 5.2 million customers, a 6 percent increase over the year-ago period reflecting the purchase of Helio. Churn in Q3 was 5.5 percent, compared with 4.9 percent in the same period in 2007. Average revenue per user (ARPU) in Q3 was $20.19, reflecting a 2 percent decline from the prior year’s third quarter and an increase of 5 percent sequentially. ARPU benefited from the launch of the hybrid plans and the new higher cost plans as well as the Helio acquisition.

New products launched: In Q3, the company closed acquisition of Helio, launched the Shuttle, their first EV-DO phone with integrated Helio data services, and rolled out new service plans, and was able to increase hybrid customers to 47 percent of gross customer additions.

Outlook: In Q4, the company expects net adds in the range of 60,000 to 100,000; net service revenues in the range of $310 – $320 million; adjusted EBITDA between $105 and $130 million, excluding about $15 million of one-time costs associated with Helio and the transition to IBM IT outsourcing. For the full year, adjusted earnings per share for the full year is expected to be between 3 cents and 7 cents a share, including the costs associated with Helio and IBM.