VMED Virgin Media Inc. (MM)

Virgin Media Inc. (VMED) reported strong financial results for the first quarter of 2013. In the reported quarter, average monthly churn rate was 1.1% compared with 1.2% in the year-ago quarter. Moreover, those who opted for Virgin Media’s services have shown 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 first quarter of 2013, Virgin Media installed TiVo Inc. (TIVO) developed next-generation Internet-connected TV platform for approximately 1.5 million customers, which is 40% of the company’s total installed TV base. In the reported quarter, the company added a net total of 171,900 Internet TV customers. The Pay-TV customer base grew by 13,700 in the last quarter, which is 87% of the company’s total installed TV base. The company is gradually rolling out 100 Mbps broadband services.

Net income from continuing operations, in first-quarter 2013, was approximately $211.8 million or 70 cents per share compared with $11.2 million or 3 cents per share in the prior-year quarter. On the revenue front, it moved up 3.6% year over year to $1,590 million.

Quarterly cost of sales was $651.8 million, up 2.5% year over year. Selling, General, and Administrative expense were $330.3 million, up 1.8% year over year. Quarterly operating expense was $1,361.4 million, up 2% year over year. Quarterly operating income was $228.5 million, up 14.4% year over year.

During the first quarter of 2013, Virgin Media generated approximately $466.7 million of cash from operations, up 44.3% year over year. Free cash flow in the reported quarter was around $200.7 million, jumped 370% year over year.

At the end of the first quarter of 2013, Virgin Media had approximately $485.9 million of cash and cash equivalents compared with $332.2 million at the end of 2012. Total outstanding debt, at the end of the reported quarter, was around $9,319.1 million compared with $9,149.4 million at the end of 2012. Debt-to-capitalization ratio was 0.64 at the end of the last quarter, compared with 0.65 at the end of 2012.

Consumer Products

During the first quarter of 2013, Virgin Media gained 24,500 net new consumer Cable products, which raised its total consumer product base to 12,271,300. Net consumer product addition for Broadband segment was 37,400, resulting in total product base of 4,309,600. Within the Broadband segment, over 2.5 million customers subscribed to either 30 Mbps or higher services. Currently, this figure constitutes 58% of total cable Broadband subscribers.

In the reported quarter, Virgin Media added a net 337,900 customers using superfast (30 Mbps or higher tier) broadband services. Net consumer product loss for Television segment was 13,400, resulting in total TV consumer product base of 3,782,100. Similarly, net consumer product addition for Telephony segment was 500, resulting in total Telephony consumer product base of 4,179,600. As on Mar 31, 2013, triple-play and quad-play subscriber penetration was 65% and 16% respectively.

Subscriber Statistics

During the first quarter of 2013, Virgin Media gained a net 8,600 Cable subscribers. Total Cable subscriber base as of Mar 31, 2013 was 4,902,900, up 1.6% year over year. Net subscriber addition in the Mobile segment was 35,100. Total Mobile subscriber base as of Mar 31, 2013 was 1,744,000, up 9.8% year over year.

Consumer Segment

Quarterly total revenue of the Consumer segment was approximately $1,340.6 million, up 5.2% year over year. Within the segment, Cable revenue was $1,106.9 million, up 7% year over year. ARPU (average revenue per user) of Cable services increased 5.2% year over year to $75.31 in the reported quarter. Mobile revenue was around $210.2 million, down 0.5% year over year. ARPU of Mobile services declined 2.4% year over year to $22.27 in the reported quarter. Non-Cable revenue was $23.6 million, down 18.4% year over year.

Business Segment

Business segment revenue, in first-quarter 2013, was nearly $249.2 million, down 4.1% year over year.

Latest Development

On Apr 15, Liberty Global Inc. (LBTYA) received European Union’s regulatory approval for its proposed acquisition of Virgin Media. On Feb 2013, Liberty Global decided to acquire a 100% stake in Virgin Media, in a cash and equity deal. The deal is worth around $15.8 billion or an enterprise value of nearly $23.3 billion. The deal is now being weighed by the U.S. regulator and is expected to be closed by the second quarter of 2013.

If this deal finally matures, then the merged entity will become a formidable challenger to BSkyB Group plc, the largest pay-TV operator of the U.K. BSkyB is partially controlled by News Corp. (NWSA).   

 
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