Virgin Mobile USA released its full year and fourth quarter earnings, showing some promising results for the second half of last year. Total operating revenue was up by 6.7 percent for 2008 compared to 2007, and net income increased by 88 percent to $7.95 million. The big news from Virgin last year was its merger with Helio, which was brought up in relation to two things in the earnings…an increased ARPU and a reduction in Virgin’s debt levels by $57 million, which reduced interest payments, helped with cash flow and generally looks good in these times. In the conference call CEO Dan Schulman emphasised that Virgin would be focusing on attracting quality customers, specifically long-term customers on its hybrid plans which bring a faster return on the acquisition costs. “[We] will not focus on marginal customers, even at the expense of quantity.”
Highlights after the jump, including details from the call.
Full Year 2008: For the full year total operating revenue was $1.32 billion, a 6.7 percent increase compared to the full year 2007 result of $1.24 billion). Adjusted EBITDA was $101.2 million in 2008, compared to $99.7 million in 2007. Virgin also broke out its adjusted EBITDA excluding transition and restructuring costs, which came in at $115.22 million for 2008. Net income was $7.945 million in 2008, compared to $4.218 million in 2007. ARPU for the full year was $20.30 per month, which fell from $21.24 per month in 2007. It’s worth noting that the low point was the second quarter when ARPU was $19.49, and it has increased since then.
Fourth Quarter 2008: Operating revenue for the fourth quarter 2008 was $347.08 million, a 16.9 percent increase year-on-year from $296.78 million in Q4 07. Virgin posted a net loss for the quarter of $4.42 million, a sharp reduction on the net loss of $14.71 million it posted in the final quarter of 2007. Adjusted EBITDA was $12.59 million compared to $9.77 million a year earlier, and adjusted EBITDA excluding transition and restructuring costs was $17.99 million in Q4 08. The quarter saw transitioning and restructuring costs of about $2.9 million in relation to the acquisition of Helio and $2.5 million related to outsourcing IT services to IBM. ARPU in the fourth quarter was $21.14 compared to $20.36 for the same period a year earlier.
Earnings Call: Some of the things that came out of the earnings call include that headcount was reduced by 10 percent as Helio was integrated into Virgin, and Virgin’s customers sent 1.1 billion SMS in December, a 175 percent increase year-on-year and a 30 percent increase sequentially. There was also a lot made of the rapid growth of “hybrid customers” (which have monthly plans without a contract), which comprised 23 percent of Virgin’s base in May, rising to 30 percent at the end of 2008. About half of the gross additions in January were on hybrid plans. The important part here is that hybrid customers tend to have almost twice the ARPU than traditional pre-paid customers. In the question time Schulman noted that the hybrid market was growing at double digit rates, and there would also be some lowering of general ARPU due to the recession. “We’re beginning to see a transition of substitution from voice to text messaging, that can have a dampening effect on overall ARPU on the prepaid side…we’re fine with people trying to optimise,” he said, noting that with the substitution of a text message for a few-minutes long conversation people are more satisfied with the service and churn rates come down. “Even if there’s a dampening effect on ARPU if they stay with us for 1,2,3 months longer that’s a benefit”. Also, the costs for handsets were coming down because of the scale Virgin has achieved.
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