SOURCE: Virgin Mobile USA
March 03, 2009 16:10 ET
Virgin Mobile USA Reports $115 Million in Adjusted EBITDA Excluding Transition and Restructuring Costs(1) for the Full Year 2008
WARREN, NJ--(Marketwire - March 3, 2009) - Virgin Mobile USA, Inc. (NYSE: VM), a leading
national provider of wireless communications services, today reported its
financial and operational results for the fourth quarter and full year
ended December 31, 2008.
Full year 2008 highlights(2):
-- End of period subscribers of 5.4 million, up 6% year over year
-- Total operating revenues of $1.3 billion, Net service revenues of $1.2
billion; both flat year over year
-- Adjusted EBITDA of $101.1 million; Adjusted EBITDA excluding
transition and restructuring costs of $115.2 million, up 16% year over
year(1)
-- Net income of $7.9 million versus net income of $4.2 million, up 88%
year over year
-- Diluted earnings per share of $0.13; Adjusted earnings per share of
$0.26(1) compared to pro forma earnings per diluted share of $0.06(3) for
2007
-- Free cash flow of $25.7 million up 130% from 2007; Unlevered free cash
flow of $57.8 million
Fourth quarter 2008 highlights(2):
-- Total operating revenues of $347.1 million, Net service revenues of
$326.7 million; up 5% and 10% year over year, respectively
-- Adjusted EBITDA of $12.6 million; Adjusted EBITDA excluding transition
and restructuring costs of $18.0 million, up 84% year over year(1)
-- Gross customer additions of 960,421, flat year over year
-- Net customer additions of 216,005, up 3% year over year
-- Net loss of ($4.4) million compared to net loss of ($14.7) million in
the fourth quarter 2007
-- Diluted loss per share of ($0.12); Adjusted net loss per share of
$(0.05); compared to pro forma loss per diluted share of ($0.28)(3) in the
fourth quarter of 2007
(1) Excludes transition and restructuring costs related to the acquisition
of Helio, the outsourcing of IT services to IBM and workforce reductions
totaling approximately $5.4 million in the fourth quarter and $14.1 million
in the full year 2008. Adjusted earnings (loss) per share also excludes the
amortization of intangibles associated with the acquisition of Helio.
Adjustments to earnings (loss) per share are net of minority interest and
taxes.
(2) All highlights include the impact of the acquisition of Helio, which
closed on August 22, 2008.
(3) Pro forma earnings (loss) per diluted share reflects the shares issued
in the IPO as outstanding for all of 2007.
"Our fourth quarter results reflect the positive benefits of the strategic
initiatives executed throughout the year," said Dan Schulman, Chief
Executive Officer, Virgin Mobile USA. "The popularity of our postpaid and
renewed hybrid service plans, launched midyear, contributed to growth in
ARPU in the second half of the year while reducing churn. The operational
efficiencies we've implemented have allowed us to grow Adjusted EBITDA in
the fourth quarter by 84% year over year, excluding transition and
restructuring costs from the acquisition of Helio and our outsourcing of IT
services to IBM."
Schulman continued, "During difficult economic times, we believe that our
service plans are even more relevant to consumers searching for value and
flexibility. Our full year results reflect the strength of our offer and
the resilience of our business model in this environment. In a challenging
year, we produced $115.2 million in Adjusted EBITDA excluding transition
and restructuring costs, and $25.7 million in free cash flow, reflecting
strong growth in both metrics. The intrinsic value of our service plans,
combined with our lean cost structure and our continued ability to
innovate, position us for continued growth in these metrics in 2009."
Overview and Basis of Presentation
Financial results for Helio are included in Virgin Mobile USA's results
beginning on August 22, 2008. The financial results for the fourth quarter
and full year ended December 31, 2007 presented in this release reflect the
retroactive consolidation of Virgin Mobile USA, Inc., Virgin Mobile USA,
L.P., and Bluebottle USA Investments L.P. Virgin Mobile USA, Inc. is a
holding company formed for the purpose of an initial public offering, or
IPO, that was completed on October 16, 2007. Virgin Mobile USA is also
presenting its earnings per share for the fourth quarter and full year
ended December 31, 2007 on a pro forma basis which reflects the shares
issued in the IPO as outstanding for all of 2007.
This press release uses several financial performance metrics, including
Adjusted EBITDA, Adjusted EBITDA margin, ARPU, CCPU, CPGA, free cash flow,
unlevered free cash flow, Adjusted EBITDA excluding transition and
restructuring costs and Adjusted EBITDA margin excluding transition and
restructuring costs, Adjusted earnings (loss) per share excluding the
amortization of intangibles and Adjusted earnings (loss) per share
excluding the amortization of intangibles, and transition and restructuring
costs which are not calculated in accordance with GAAP. The Company
believes that these non-GAAP financial metrics are helpful in understanding
its operating performance from period to period and, although not every
wireless company defines these metrics in the same way, believes that these
metrics as used by Virgin Mobile USA facilitate comparisons with other
wireless service providers. These metrics should not be considered
substitutes for any performance metrics determined in accordance with GAAP.
For a reconciliation of non-GAAP financial measures, please refer to the
section entitled "Definition of Terms and Reconciliation of Non-GAAP
Financial Measures" included at the end of this release.
Change in Accounting Principle
Effective December 31, 2008, we elected to change the method of accounting
for regulatory fees and tax surcharges, primarily Universal Service Fund,
or USF contributions from a net basis to a gross basis in the Statements of
Operations. As originally reported, we accounted for USF contributions on a
net basis such that the USF remittance to the government agencies was
recorded as cost of service and the surcharge collected from customers to
cover our costs and contributions was recorded as a reduction of cost of
service. We changed our accounting policy to account for USF contributions
on a gross basis such that USF collected from customers is recorded in net
service revenue and remittances to government agencies is recorded in cost
of service. This change in accounting policy increases both net service
revenue and cost of service by $13.3 million and $12.5 million during the
years ended December 31, 2008 and 2007, respectively. This change in
accounting policy does not change previously reported operating income
(loss) or net income (loss).
Key Financial & Operating Results for the Fourth Quarter and Full Year 2008
Three Months Ended
December 31, Year Ended December 31,
------------------------ ------------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
($ in thousands, except
per share amounts) (Unaudited) (Unaudited)
Net service revenue $ 326,677 $ 296,780 $ 1,235,870 $ 1,239,533
Total operating revenue 347,079 329,728 1,323,493 1,325,423
Operating income (2,681) (2,635) 47,989 57,801
Net income (4,417) (14,713) 7,945 4,218
Adjusted EBITDA 12,592 9,771 101,127 99,694
Adjusted EBITDA margin 3.9% 3.3% 8.2% 8.0%
Adjusted EBITDA
excluding transition
and restructuring
costs(1) 17,988 9,771 115,224 99,694
Earnings (loss) per
common share - basic $ (0.09) $ (0.30) $ 0.13 $ 0.13
Earnings (loss) per
common share - diluted $ (0.12) $ (0.30) $ 0.13 $ 0.08
Adjusted (loss)
earnings per common
share - diluted(1) $ (0.08) N/A $ 0.17 N/A
Adjusted (loss)
earnings per share
excluding amortization
of intangible assets,
and transition and
restructuring costs -
diluted(1) $ (0.05) N/A $ 0.26 N/A
Pro forma (loss)
earnings per common
share - diluted(2) N/A $ (0.28) N/A $ 0.06
Interest expense - net 6,532 11,611 30,709 53,391
Capital expenditures 18,773 28,443
(1) Excludes transition and restructuring costs related to the acquisition
of Helio, the outsourcing of IT services to IBM and workforce reductions
totaling approximately $5.4 million in the fourth quarter and $14.1 million
in the full year 2008. Adjusted earnings (loss) per share also excludes the
amortization of intangibles associated with the acquisition of Helio.
Adjustments to earnings (loss) per share are net of minority interest and
taxes.
(2) The calculation of pro forma (loss) earnings per diluted share reflects
the shares issued in the IPO as if they were outstanding for all of 2007.
Three Months Ended Year Ended
December 31, December 31,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Gross additions 960,421 957,541 3,305,857 3,384,460
Churn 4.8% 5.1% 5.2% 4.9%
Net customer additions 216,005 209,669 119,237 511,796
End-of-period customers 5,380,310 5,085,886 5,380,310 5,085,886
ARPU $ 21.14 $ 20.36 $ 20.30 $ 21.24
CCPU $ 13.99 $ 11.77 $ 12.74 $ 13.05
CPGA $ 101.93 $ 120.68 $ 108.68 $ 111.66
Free cash flow $ 25,720 $ 11,206
Unlevered cash flow $ 57,776 $ 62,657
During the fourth quarter of 2008, Virgin Mobile USA's net service revenue
was $326.7 million, an increase of 10% versus the same period last year.
Virgin Mobile USA's net service revenue in the year ended December 31, 2008
was $1.2 billion, consistent with net service revenue in the year ended
December 31, 2007. Net service revenue for 2008 benefited from the
acquisition of Helio as well as the accelerating adoption of our higher
value hybrid plans, particularly in the second half of the year.
Adjusted EBITDA in the fourth quarter of 2008 was $12.6 million. Adjusted
EBITDA excluding transition and restructuring costs in the fourth quarter
of 2008 was $18.0 million, an increase of 84% compared to Adjusted EBITDA
of $9.8 million in the fourth quarter of 2007. Transition and restructuring
costs in the fourth quarter of 2008 included approximately $2.9 million in
transition costs associated with the acquisition of Helio and approximately
$2.5 million of restructuring costs associated with the outsourcing of IT
services to IBM and costs related to a headcount reduction announced in
November 2008. Adjusted EBITDA margin was 3.9% in the fourth quarter of
2008. Adjusted EBITDA margin excluding transition and restructuring costs
was 5.5% in the fourth quarter of 2008, up from 3.3% in the fourth quarter
of 2007. Virgin Mobile USA continued to increase its profitability due to
ongoing operating cost efficiencies and the continued benefit from
favorable adjustments to our network costs.
In the year ended December 31, 2008 Adjusted EBITDA was $101.1 million.
Adjusted EBITDA excluding transition and restructuring costs in the year
ended December 31, 2008 was $115.2 million, an increase of 16% year over
year. Adjusted EBITDA margin in the year ended December 31, 2008 was 8.2%.
Adjusted EBITDA margin excluding transition and restructuring costs for the
year was 9.3%, compared to 8.0% in the year ended December 31, 2007.
Adjusted EBITDA margin excluding transition and restructuring costs
benefited from operational cost efficiencies implemented in the second half
of 2008, which are expected to produce continued operational benefits in
2009.
Virgin Mobile USA's net loss for the quarter ended December 31, 2008 was
($4.4) million, compared to a net loss of ($14.7) million for the fourth
quarter of 2007. Net income for the year ended December 31, 2008 was $7.9
million compared to $4.2 million for the year ended December 31, 2007. Net
income in 2008 was impacted by $2.4 million in minority interest expense
and $5.6 million incremental expense related to our tax receivable
agreements, neither of which existed in the prior year period. Virgin
Mobile USA was not a taxpayer prior to its initial public offering in
October of 2007.
Adjusted diluted loss per share excluding amortization of intangible assets
and transition and restructuring costs was ($0.05) in the fourth quarter of
2008 compared to diluted loss per share of ($0.30) for the fourth quarter
of 2007. Pro forma diluted earnings per share, which is adjusted to reflect
the shares issued in the IPO as outstanding for the entire period, was
($0.28) in the fourth quarter of 2007. Pro forma diluted loss per share in
the year ended December 31, 2007 was $0.06, compared with diluted earnings
per share excluding amortization of intangible assets and transition and
restructuring costs in the full year 2008 of $0.26, reflecting growth of
over 300% from 2007.
Free cash flow totaled $25.7 million in the year ended December 31, 2008,
up 130% from $11.2 million in the year ended December 31, 2007. The
increase in free cash flow is a result of the reduction throughout 2008 of
Virgin Mobile USA's senior secured loan and related interest expense
payments as well as ongoing cost efficiencies in Virgin Mobile USA's model.
Capital expenditures for the year ended December 31, 2008 were $18.8
million, compared to $28.4 million for the year ended December 31, 2007.
In 2008, Virgin Mobile USA acquired Helio and, in conjunction with the
acquisition, made changes to its capital structure which the Company
believes significantly improved its structure and outlook. In the year
ended December 31, 2008, Virgin Mobile USA reduced its debt to $267 million
from $324 million on December 31, 2007. Net interest expense in the year
ended December 31, 2008 was $30.7 million, down 42% from $53.4 million last
year.
John Feehan, Chief Financial Officer of Virgin Mobile USA, commented, "Our
business model produced excellent profitability and free cash flow in 2008,
as a result of our strong operational discipline and focus on continuing
improvement to our capital structure. With the improved liquidity from our
equity partners to support the business, we are well-positioned to continue
to invest in the business as well as produce growing free cash flow in
2009."
Key Metric Performance Review for the Fourth Quarter and Full Year 2008
Gross additions (or new Virgin Mobile USA customers who activated their
accounts) during the fourth quarter of 2008 totaled 960,421, compared to
gross customer additions of 957,541 in the fourth quarter of 2007. Gross
additions in the year ended December 31, 2008 were 3,305,857, down 2% from
3,384,460 in the full year 2007. The overall decrease in gross adds in 2008
was a result of the negative gross add performance in the first half of the
year in part due to the economic impact on customer spending. This was
mostly offset by the implementation and success of our new service plans
during the year. Hybrid plans in the fourth quarter of 2008 accounted for
48% of Virgin Mobile USA's gross adds.
The Company's cost per gross addition (CPGA) for the fourth quarter of 2008
was $101.93, compared to CPGA of $120.68 in the fourth quarter of 2007.
CPGA in the year ended December 31, 2008 was $108.68, compared to $111.66
for full year 2007. Virgin Mobile USA CPGA in the fourth quarter and in
the year ended December 31, 2008 benefited from improving handset costs and
a reduction in marketing spend following investments in its new service
plans during the first half of the year.
The Company's cash cost per user (CCPU) for the fourth quarter of 2008 was
$13.99 compared with $11.77 in the fourth quarter of 2007. CCPU in the
fourth quarter of 2008 was higher due to the first full quarter impact of
the acquisition of Helio. CCPU in the fourth quarter of 2008 was also
impacted by $5.4 million in transition and restructuring costs, which did
not exist in the fourth quarter of 2007. Despite these items and the
ongoing growth of hybrid plans in Virgin Mobile USA's customer base, CCPU
in the year ended December 31, 2008 was $12.74 versus $13.05 in 2007,
reflecting planned improvements to Virgin Mobile USA's operational expenses
in its core business.
Average monthly customer turnover, or churn for the three months ended
December 31, 2008 was 4.8%, a 30-basis point improvement from the same
period in 2007. Customer churn in the fourth quarter of 2008 benefited from
the success of our monthly hybrid plans, which provide incentives for
customers to top up within 30 days, as well as other new customer lifetime
management initiatives implemented in the second half of the year. Churn
in the year ended December 31, 2008 was 5.2%, compared with 4.9% in the
year ended December 31, 2007. As of December 31, 2008, the Company had
approximately 5.4 million customers, an increase of 6% over December 31,
2007, reflecting, in part, the acquisition of Helio.
Average revenue per user (ARPU) for the fourth quarter of 2008 was $21.14,
reflecting a 4% increase from ARPU of $20.36 in the fourth quarter of 2007,
and an increase of 3% from the third quarter of 2008. ARPU in the year
ended December 31, 2008 was $20.30, a 4% decline compared to $21.24 in the
year ended December 31, 2007. ARPU in the fourth quarter and full year
ended December 31, 2007 benefited from the launch of our revised hybrid
plans in the second quarter of 2008. The fourth quarter of 2008 marked the
second consecutive quarter of sequential growth in ARPU from $19.49 in the
second quarter and was the result of the impact of our recent acquisition
of Helio as well as continued adoption of the new hybrid plans.
Outlook
Virgin Mobile USA believes that the current economic environment is causing
a shift in the consumer mindset to a focus on value, which may make its
products and services more relevant to consumers in 2009. The current
economic environment is unpredictable and presents challenges for all
businesses. Within this environment, Virgin Mobile USA will continue to
focus on high quality hybrid customer additions and strong cash flow.
Virgin Mobile USA's management believes the operational initiatives it has
put in place in recent quarters, including new service plans, improved
handsets, increased distribution and operational cost savings, will enable
it to continue to produce positive business trends and position the Company
for growth in Adjusted EBITDA and free cash flow in 2009. These metrics
will be management's core focus for the year.
2009
-- Adjusted EBITDA is expected to be $110 - $125 million; Adjusted EBITDA
excluding transition and restructuring costs is expected to be $117 - $132
million.
-- Free cash flow is expected to be $35 - $45 million.
First Quarter 2009
-- Adjusted EBITDA is expected to be $30 - $35 million; Adjusted EBITDA
excluding transition and restructuring costs is expected to be $34 - $39
million.
-- Due to the timing of certain handset and other payments following the
holiday season, Free cash flow is expected to be ($10) - $0 million.
Recent highlights
-- Lowered international long distance rates to Latin America, Asia, and
other areas across the globe to offer customers rates as low as two cents
per minute.
-- Surveyed customers about how they are coping with economic
conditions. Over two-thirds of those surveyed feel that Virgin Mobile USA
saves them money.
-- Added new mobile content and features including two new youth-oriented
mobile Web sites produced by The Associated Press -- AP Entertainment and
CUBI -- "Can You Believe It?" and Slifter, a mobile shopping tool that
searches neighboring retail locations displaying price, availability and
product details.
-- Introduced Connect, a new social networking dashboard designed to give
quick and easy access to the latest updates from key social media and
networking sites, to our postpaid customers. Virgin Mobile USA plans to
introduce the same feature to its prepaid customers in Q2 2009.
-- Launched "Mobile Lounge," a Virgin Mobile USA customer-exclusive
mobile community available on the VirginXL storefront.
-- Provided customers with free streaming videos, available on their
Virgin Mobile handsets, of selected performances from 2008's Virgin Mobile
Festival.
In 2009, Virgin Mobile USA highlights include:
-- Announcing its title sponsorship of the highly anticipated Britney
Spears tour which kicks off tonight in New Orleans;
-- Launching the Ocean 2, Virgin Mobile USA's newest handset featuring a
host of 3G options, including easy and fast access to social networks and
popular applications such as Google Maps, Garmin Mobile, MySpace and
YouTube; and
-- Introducing a pink LG phone with sales proceeds going toward the Susan
G. Komen for the Cure®, the world's largest organization dedicated to
fighting breast cancer with Virgin Mobile USA and Best Buy committing to
donate a minimum of $150,000 to Susan G. Komen for the Cure's programs.
Earnings Conference Call
Virgin Mobile USA will host a conference call Tuesday, March 3, 2009 at
5:00 P.M. (ET) with access available via Internet and telephone. Investors
and analysts may participate in the live conference call by dialing
1-888-354-3598 (toll-free domestic) or
1-706-643-8861 (international); passcode: 83878229. Please register at
least 10 minutes before the conference call begins. A replay of the call
will be available for one week via telephone starting approximately two
hours after the call ends. The replay can be accessed at
1-800-642-1687 (toll-free domestic) or
1-706-645-9291 (international); passcode: 83878229. The webcast will be
archived on Virgin Mobile USA's web site after the call at
http://investorrelations.virginmobileusa.com/.
About Virgin Mobile USA, Inc.
Virgin Mobile USA, Inc. (NYSE: VM), through its operating company Virgin
Mobile USA, L.P., offers more than five million customers control,
flexibility and choice through Virgin Mobile's Plans Without Annual
Contracts and postpaid offerings through Helio By Virgin Mobile, with
national coverage for both powered by the Sprint PCS network.
Virgin Mobile USA is known for its award-winning customer service, was
recently rated the best prepaid wireless service for the fourth year in a
row in the Annual PC Magazine Readers' Choice Survey, with 90% of its own
customers reporting satisfaction with its service. Virgin Mobile USA
allows customers to earn free minutes in exchange for viewing advertising
content online through the innovative Sugar Mama program. Virgin Mobile
USA's full slate of smart, stylish and affordable handsets are available at
approximately 40,000 top retailers nationwide and online at
www.virginmobileusa.com, with Top-Up cards available at more than 140,000
locations. Helio's advanced devices like the Ocean 2 and unlimited All-in
voice plans can be explored at www.helio.com.
Safe Harbor Statement
This press release contains certain forward-looking statements and
information relating to us that are based on the beliefs of our management
as well as assumptions made by, and information currently available to, us.
These statements include, but are not limited to, statements about our
strategies, plans, objectives, expectations, intentions, expenditures, and
assumptions and other statements contained in this document that are not
historical facts. When used in this press release, words such as
"anticipate," "believe," "estimate," "expect," "intend," "plan" and
"project" and similar expressions, as they relate to us are intended to
identify forward-looking statements. These statements reflect our current
views with respect to future events, are not guarantees of future
performance, and involve risks and uncertainties that are difficult to
predict. Further, certain forward-looking statements are based upon
assumptions as to future events that may not prove to be accurate. Many
factors could cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
that may be expressed or implied by such forward-looking statements. The
potential risks and uncertainties that could cause actual results to differ
from the results predicted include, among others, those risks and
uncertainties discussed in our filings with the Securities and Exchange
Commission, copies of which are available on our investor relations website
at http://investorrelations.virginmobileusa.com/ and on the SEC website at
http://www.sec.gov/. We neither intend nor assume any obligation to update
these forward-looking statements, which speak only as of their dates.
Virgin Mobile USA, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)
(Unaudited)
As of December 31,
--------------------
2008 2007
--------- ---------
Assets
Current assets:
Cash and cash equivalents $ 12,030 $ 19
Accounts receivable, less allowances of $6,345 at
December 31, 2008 and $610 at December 31, 2007 64,737 57,956
Due from related parties 132 321
Other receivables 12,993 14,613
Inventories 132,410 137,364
Prepaid expenses and other current assets 21,563 19,722
--------- ---------
Total current assets 243,865 229,995
--------- ---------
Property and equipment, net 49,170 45,913
Acquired intangible assets 49,903 -
Goodwill 11,487 -
Other assets 12,643 6,131
--------- ---------
Total assets $ 367,068 $ 282,039
========= =========
Liabilities, minority interest, preferred stock and
stockholders' deficit
Current liabilities:
Accounts payable $ 96,365 $ 111,753
Due to related parties 55,838 56,486
Book cash overdraft - 2,045
Accrued expenses and other current liabilities 112,842 73,142
Deferred revenue 136,367 128,125
Current portion of long-term debt 26,395 32,669
--------- ---------
Total current liabilities 427,807 404,220
Non-current liabilities:
Long-term debt 170,779 244,037
Related party debt 70,000 45,000
Other liabilities 2,365 3,981
--------- ---------
Total liabilities 670,951 697,238
--------- ---------
Minority interest in consolidated subsidiaries 1,747 -
Series A convertible preferred stock, par value $0.01
and stated value $1,000 per share - 50,000 shares
authorized, and 50,000 shares issued and outstanding
at December 31, 2008, and 0 shares issued and
outstanding at December 31, 2007 50,000 -
Stockholders' deficit:
Common stock:
Class A common stock, par value $0.01 per share -
200,000,000 shares authorized, and 64,709,646 shares
issued and outstanding, net of 37,560 treasury shares
at December 31, 2008, and 53,136,839 shares issued and
outstanding, net of 13,231 treasury shares at
December 31, 2007 647 532
Class C common stock, par value $0.01 per share -
999,999 shares authorized, and 115,062 shares issued
and outstanding at December 31, 2008 and 2007. 1 1
Class B common stock, par value $0.01 per share - 1
share authorized, issued and outstanding at December
31, 2008 and 2007. - -
Additional paid-in-capital 390,637 340,382
Accumulated deficit (746,915) (754,860)
Accumulated other comprehensive loss - (1,254)
--------- ---------
Total stockholders' deficit (355,630) (415,199)
--------- ---------
Total liabilities, minority interest, preferred stock
and stockholders' deficit $ 367,068 $ 282,039
========= =========
Virgin Mobile USA, Inc.
Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------ ----------------------
2008 2007 2008 2007
-------- -------- ---------- ----------
Operating revenue
Net service revenue $326,677 $296,780 $1,235,870 $1,239,533
Net equipment revenue 20,402 32,948 87,623 85,890
-------- -------- ---------- ----------
Total operating revenue 347,079 329,728 1,323,493 1,325,423
Operating expenses
Cost of service (exclusive
of depreciation and
amortization) 107,628 79,423 367,104 362,043
Cost of equipment 118,479 133,106 426,249 425,263
Selling, general and
administrative (exclusive
of depreciation and
amortization) 109,124 111,576 433,051 446,708
Restructuring expense 2,461 - 8,972 -
Depreciation and amortization 12,068 8,258 40,128 33,608
-------- -------- ---------- ----------
Total operating expenses 349,760 332,363 1,275,504 1,267,622
-------- -------- ---------- ----------
Operating (loss) income (2,681) (2,635) 47,989 57,801
-------- -------- ---------- ----------
Other expense (income)
Interest expense 7,777 11,808 33,710 54,988
Interest income (1,245) (197) (3,001) (1,597)
-------- -------- ---------- ----------
Total interest expense - net 6,532 11,611 30,709 53,391
Other (income) expense (767) 146 5,686 (129)
-------- -------- ---------- ----------
Total other expense - net 5,765 11,757 36,395 53,262
-------- -------- ---------- ----------
(Loss) income before income tax
expense and minority interest (8,446) (14,392) 11,594 4,539
Income tax expense (3) 321 1,285 321
-------- -------- ---------- ----------
(Loss) income before minority
interest (8,443) (14,713) 10,309 4,218
Minority interest (4,026) - 2,364 -
-------- -------- ---------- ----------
Net (loss) income (4,417) (14,713) 7,945 4,218
Preferred stock dividends 750 - 1,083 -
-------- -------- ---------- ----------
Net (loss) income available to
common stockholders $ (5,167) $(14,713) $ 6,862 $ 4,218
======== ======== ========== ==========
Net (loss) income (4,417) (14,713) 7,945 4,218
Other comprehensive (loss)
income:
Unrealized gain (loss) on
interest rate swap 451 (1,144) 1,254 (2,845)
-------- -------- ---------- ----------
Total comprehensive (loss)
income $ (3,966) $(15,857) $ 9,199 $ 1,373
======== ======== ========== ==========
Basic and diluted (loss)
earnings per share
information:
(Loss) earnings per common
share - basic $ (0.09) $ (0.30) $ 0.13 $ 0.13
(Loss) earnings per common
share - diluted $ (0.12) $ (0.30) $ 0.13 $ 0.08
Weighted average common shares
outstanding - basic 56,938 48,364 53,873 31,495
Weighted average common shares
outstanding - diluted 64,351 48,364 65,972 53,211
Virgin Mobile USA, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Year Ended December 31,
----------------------
2008 2007
---------- ----------
Operating Activities
Net income $ 7,945 $ 4,218
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 40,128 33,608
Amortization of deferred financing costs 1,501 3,643
Non-cash charges for stock-based compensation
And stock issuance 12,409 7,423
Non-cash charges associated with barter
transactions 2,282 -
Non-cash cost of royalties and services - 693
Provision for bad debts 4,453 202
Write-offs of property and equipment 671 450
Minority interest 2,364 -
Changes in assets and liabilities:
Accounts receivable 6,913 12,803
Due from related parties 189 11,980
Other receivables 1,641 (2,504)
Inventories 12,580 (46,549)
Prepaid expenses and other assets (4,025) 6,885
Accounts payable (22,533) 16,510
Due to related parties (10,108) 15,136
Deferred revenue 1,723 691
Accrued expenses and other liabilities (13,640) (25,540)
---------- ----------
Net cash provided by (used in) operating activities 44,493 39,649
---------- ----------
Investing Activities
Cash acquired, net of acquisition costs 3,158 -
Capital expenditures (18,773) (28,443)
---------- ----------
Net cash used in investing activities (15,615) (28,443)
---------- ----------
Financing Activities
Net change in book cash overdraft (2,045) (32,724)
Repayment of long-term debt (79,532) (183,794)
Net change in related party debt 15,000 (13,000)
Net proceeds from public offering of Class A
common stock (290) 352,672
Proceeds paid to a stockholder for a portion of
Virgin Mobile USA, L.P. - (136,010)
Proceeds from issuance of Preferred Stock 50,000 -
Proceeds from exercise of options - 1,669
Other - (8)
---------- ----------
Net cash used in financing activities (16,867) 11,195
---------- ----------
Net increase in cash and cash equivalents 12,011 11
Cash and cash equivalents at beginning of year 19 8
---------- ----------
Cash and cash equivalents at end of year $ 12,030 $ 19
========== ==========
Definition of Terms and Reconciliation to Non-GAAP Financial Measures
This earnings press release includes several historical key performance
metrics used in the wireless communications industry to manage and assess
our financial performance. These metrics include gross additions, churn,
net customer additions, end-of-period customers, Adjusted EBITDA, Adjusted
EBITDA margin, average revenue per user, or ARPU, cash cost per user, or
CCPU, cost per gross addition, or CPGA, free cash flow, unlevered free cash
flow, Adjusted EBITDA excluding transition and restructuring costs and
Adjusted EBITDA margin excluding transition and restructuring costs,
Adjusted earnings (loss) per share excluding the amortization of
intangibles, and Adjusted earnings (loss) per share excluding the
amortization of intangibles, and transition and restructuring costs. Trends
in key performance metrics such as ARPU, CCPU and CPGA will depend upon the
scale of our business as well as the dynamics in the marketplace and our
success in implementing our strategies. These metrics are not calculated in
accordance with generally accepted accounting principles in the United
States, or GAAP. A non-GAAP financial metric is defined as a numerical
measure of a company's financial performance that (1) excludes amounts, or
is subject to adjustments that have the effect of excluding amounts, that
are included in the comparable measure calculated and presented in
accordance with GAAP in the statement of operations or statement of cash
flows; or (2) includes amounts, or is subject to adjustments that have the
effect of including amounts, that are excluded from the comparable measure
so calculated and presented. We believe that the non-GAAP financial metrics
that we use are helpful in understanding our operating performance from
period to period and, although not every company in the wireless
communications industry defines these metrics in precisely the same way, we
believe that these metrics as we use them facilitate comparisons with other
wireless communications providers. These metrics should not be considered
substitutes for any performance metric determined in accordance with GAAP.
Gross additions represents the number of new customers who activated an
account during a period or, in the case of postpaid, the number of new or
existing customers who entered into a new long-term contract (rather than
an extension of an existing contract), unadjusted for churn during the same
period. In measuring gross additions, we begin with account activations and
exclude returns, customers who have reactivated and fraudulent activations.
Returns include "remorse returns" for the postpaid business, within 30 days
of activation, and retailer returns for the prepaid business, with the
timing dependent on the retailer's policy. These adjustments are applied in
order to arrive at a more meaningful measure of our customer growth.
Churn is used to measure customer turnover on an average monthly basis.
Churn is calculated as the ratio of the net number of customers who
disconnect from our service during the period being measured to the
weighted average number of customers during that period, divided by the
number of months during the period being measured. The net number of
customers who disconnect from our service is calculated as the total number
of customers who disconnect less the adjustments noted under gross
additions above. These adjustments are applied in order to arrive at a more
meaningful measure of churn. The weighted average number of customers is
the sum of the average number of customers for each day during the period
being measured divided by the number of days in the period. For the prepaid
business, churn includes those pay-by-the-minute customers who we
automatically disconnect from our service when they have not replenished,
or "Topped-Up," their accounts for 150 days, as well as those monthly
customers who we automatically disconnect when they have not paid their
monthly recurring charge for 150 days (except for such monthly customers
who are engaged in a retention program or who replenish their account for
less than the amount of their monthly recurring charge and, according to
the terms of our monthly plans, may continue to use our services on a
pay-by-the-minute basis), and such customers who voluntarily disconnect
from our service prior to reaching 150 days since replenishing their
account or paying their monthly recurring charge. We utilize 150 days in
our calculation because it represents the last date upon which a customer
who replenishes his or her account is still permitted to retain the same
phone number. We also have a "service preserver" option which allows
customers to extend the 150-day period to one year by replenishing their
account using an annual top-up. In this case, we will automatically
disconnect their service if an additional top-up is not made within 415
days of the qualifying annual top-up. For the postpaid business, churn
includes those customers who either disconnect from our service voluntarily
or whose service we disconnect for nonpayment. These calculations are
consistent with the terms and conditions of our service offering. We
believe churn is a useful metric to track changes in customer retention
over time and to help evaluate how changes in our business and services
offerings affect customer retention. In addition, churn is also useful for
comparing our customer turnover to that of other wireless communications
providers.
Net customer additions represents the number of new customers who activated
an account during a period or, in the case of postpaid, the number of new
or existing customers who entered into a new long-term contract (rather
than an extension of an existing contract), adjusted for churn during the
same period.
End-of-period customers are the total number of customers at the end of a
given period.
Adjusted EBITDA is calculated as net income (loss) plus interest expense
(net), income tax expense, tax receivable agreements expense, depreciation
and amortization (including the amortization of intangibles associated with
our acquisition of Helio), write-offs of property and equipment, non-cash
compensation expense, minority interest, equity issued to a member, debt
extinguishment costs and expenses of Bluebottle USA Investments L.P. prior
to the completion of the IPO. Adjusted EBITDA excluding transition and
restructuring costs is calculated as Adjusted EBITDA (calculated as above)
plus transition and restructuring costs associated with the acquisition of
Helio, the outsourcing of IT services to IBM and the workforce reduction
taken in the fourth quarter of 2008. Beginning in the second quarter of
2008, we updated our definition of Adjusted EBITDA to exclude minority
interest and write-offs of property and equipment. Although these are all
necessary elements of our cost structure, they are customary adjustments in
the calculation of supplemental metrics. We believe Adjusted EBITDA and
Adjusted EBITDA excluding transition and restructuring costs are useful
tools in evaluating performance because they eliminate items which do not
relate to our core operating performance and provide an indicator which our
management uses to evaluate our business. Specifically, our management uses
Adjusted EBITDA and Adjusted EBITDA excluding transition and restructuring
costs in their calculation of compensation targets, preparation of budgets
and evaluations of performance.
We believe that analysts and investors use Adjusted EBITDA and Adjusted
EBITDA excluding transition and restructuring costs as a supplemental
measure to evaluate our company's overall operating performance and that
these metrics facilitate comparisons with other wireless communications
companies. However, Adjusted EBITDA and Adjusted EBITDA excluding
transition and restructuring costs have material limitations as an
analytical tool and should not be considered in isolation, as an
alternative to net income, operating income or any other measures derived
in accordance with GAAP, or as a substitute for analysis of our results as
reported under GAAP. The items we eliminate in calculating Adjusted EBITDA
and Adjusted EBITDA excluding transition and restructuring costs are
significant to our business: (1) interest expense is a necessary element of
our costs and ability to generate revenue because we incur interest expense
related to any outstanding indebtedness, (2) to the extent that we incur
income tax, it represents a necessary element of our costs and our ability
to generate revenue because ongoing revenue generation is expected to
result in future income tax expense, (3) depreciation and amortization are
necessary elements of our costs, (4) write-offs of property and equipment
eliminate non-productive assets from our balance sheet, reconciling it to
our earnings, (5) tax receivable agreements expenses are the costs related
to our tax receivable agreements, as they are reimbursements to the Virgin
Group, for the utilization of net operating loss carryforwards we received
as part of the IPO, and to Sprint Nextel, for the increase in tax basis
that will be allocated to us, (6) non-cash compensation expense is expected
to be a recurring component of our costs and we may be able to incur lower
cash compensation costs to the extent that we grant non-cash compensation,
(7) minority interest is the income related to the minority owners of
Virgin Mobile USA, L.P. and, therefore, not available to our common
stockholders, (8) expense resulting from equity issued to a member
represents an actual cost relating to a prior contractual obligation, and
(9) expenses associated with Bluebottle USA Investments L.P. prior to the
IPO. Furthermore, any measure that eliminates components of our capital
structure and the carrying costs associated with the property and equipment
on our balance sheet has material limitations as a performance measure.
Because Adjusted EBITDA and Adjusted EBITDA excluding transition and
restructuring costs are not calculated in the same manner by all companies,
they may not be comparable to other similarly titled measures used by other
companies.
Adjusted EBITDA margin and Adjusted EBITDA margin excluding transition and
restructuring costs are used to measure our Adjusted EBITDA performance
relative to our net service revenue so that we can gauge the performance of
Adjusted EBITDA normalized for the changing scale of our business. Adjusted
EBITDA margin is calculated by dividing Adjusted EBITDA by our net service
revenue.
The following table illustrates the calculation of Adjusted EBITDA,
Adjusted EBITDA margin, Adjusted EBITDA excluding transition and
restructuring costs and Adjusted EBITDA margin excluding transition and
restructuring costs and reconciles these metrics to net income which we
consider to be the most directly comparable GAAP financial measure.
Three Months Ended Year Ended
December 31, December 31,
--------------------- --------------------
2008 2007 2008 2007
(In thousands, except --------- ---------- --------- ---------
percentages) (Unaudited) (Unaudited)
Net income (loss) $ (4,417) $ (14,713) $ 7,945 $ 4,218
Plus:
Depreciation and amortization 12,068 8,258 40,128 33,608
Interest expense, net 6,532 11,611 30,709 53,391
Income tax expense (3) 321 1,285 321
Tax receivable agreements
(benefit) expense (764) - 5,616 -
Non-cash compensation expense 3,202 3,843 12,409 7,423
Write-offs of property and
equipment - 450 671 450
Bluebottle USA Investments
L.P. expenses prior to the IPO - 1 - 283
Minority Interest (4,026) - 2,364 -
--------- ---------- --------- ---------
Adjusted EBITDA $ 12,592 $ 9,771 $ 101,127 $ 99,694
Plus:
Restructuring Expense
(excluding non-cash items) 2,461 - 8,603 -
Helio transition expense 2,935 - 4,443 -
IBM transition expense - - 1,051 -
--------- ---------- --------- ---------
Adjusted EBITDA, excluding
transition and restructuring
expenses $ 17,988 $ 9,771 $ 115,224 $ 99,694
========= ========== ========= =========
Adjusted EBITDA margin
Adjusted EBITDA $ 12,592 $ 9,771 $ 101,127 $ 99,694
Net service revenue 326,677 296,780 1,235,870 1,239,533
--------- ---------- --------- ---------
Adjusted EBITDA margin 3.9% 3.3% 8.2% 8.0%
========= ========== ========= =========
Adjusted EBITDA, excluding
restructuring and transition
expenses margin
Adjusted EBITDA, excluding
restructuring and transition
expenses $ 17,988 $ 9,771 $ 115,224 $ 99,694
Net service revenue 326,677 296,780 1,235,870 1,239,533
--------- ---------- --------- ---------
Adjusted EBITDA, excluding
restructuring and
transition expenses margin 5.5% 3.3% 9.3% 8.0%
========= ========== ========= =========
Average revenue per user, or ARPU, is used to measure and track the average
revenue generated by our customers on a monthly basis. ARPU is calculated
as net service revenue for the period divided by the weighted average
number of customers for the period being measured, further divided by the
number of months in the period being measured. The weighted average number
of customers is the sum of the average customers for each day during that
period being measured divided by the number of days in that period. ARPU
helps us to evaluate customer performance based on customer revenue and
forecast our future service revenues. As discussed above, net service
revenue and ARPU now include the surcharge for USF collected from
customers, formerly recorded as a reduction in cost of service.
The following table illustrates the calculation of ARPU and reconciles ARPU
to net service revenue which we consider to be the most directly comparable
GAAP financial measure.
Three Months Ended Year Ended
December 31, December 31,
----------------------- -----------------------
2008 2007 2008 2007
----------- ----------- ----------- -----------
(In thousands, except (Unaudited) (Unaudited)
number of months and ARPU)
Net service revenue $ 326,677 $ 296,780 $ 1,235,870 $ 1,239,533
Divided by weighted average
number of customers 5,151 4,858 5,073 4,864
Divided by number of months
in the period 3 3 12 12
----------- ----------- ----------- -----------
ARPU $ 21.14 $ 20.36 $ 20.30 $ 21.24
=========== =========== =========== ===========
Cash cost per user, or CCPU, is used to measure and track our costs to
provide support for our services to our existing customers on an average
monthly basis. The costs included in this calculation are our (1) cost of
service (exclusive of depreciation and amortization), excluding cost of
service associated with initial customer acquisition, (2) general and
administrative expenses, excluding Bluebottle USA Investments L.P. general
and administrative expenses prior to the IPO, non-cash compensation
expenses and write-offs of property and equipment, (3) restructuring
expenses, (4) net loss on equipment sold to existing customers,
(5) cooperative advertising in support of existing customers and (6) other
expense (income), excluding tax receivable agreements expenses, debt
extinguishment costs and Bluebottle USA Investments L.P. These costs are
divided by our weighted average number of customers for the period being
measured, further divided by the number of months in the period being
measured. As discussed below under "Change in Accounting Principle," CCPU
now includes USF taxes on a gross basis, with the surcharge collected from
customers now reflected in ARPU. CCPU helps us to assess our ongoing
business operations on a per customer basis, and evaluate how changes in
our business operations affect the support costs per customer. Given its
use throughout the industry, CCPU also serves as a standard by which we
compare our performance against that of other wireless communications
companies.
The following table illustrates the calculation of CCPU and reconciles
total costs used in the CCPU calculation to cost of service, which we
consider to be the most directly comparable GAAP financial measure.
Three Months Ended Year Ended
December 31, December 31,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(in thousands, except number of
months and CCPU) (Unaudited) (Unaudited)
Cost of service (exclusive of
depreciation and
amortization) $ 107,628 $ 79,423 $ 367,104 $ 362,043
Less: Cost of service
associated with initial
customer acquisition (641) (586) (2,148) (2,261)
Add: General and
administrative expenses
(excluding Bluebottle
Investments L.P.
prior to the IPO)(1) 89,429 79,582 336,316 338,548
Add: Restructuring expense 2,461 - 8,972 -
Less: Non-cash
compensation expense (3,202) (3,843) (12,409) (7,423)
Less: Write-offs of
property and equipment - (155) (671) (155)
Add: Net loss on equipment
sold to existing
customers 20,154 16,604 77,656 69,026
Add: Cooperative
advertising expenses in
support of existing
customers 411 344 549 2,348
Add: Other expense
(income), net of debt
extinguishment costs
and Bluebottle USA
Investments L.P. (3) 146 70 (135)
--------- --------- --------- ---------
Total CCPU costs $ 216,237 $ 171,515 $ 775,439 $ 761,991
Divided by weighted average
number of customers 5,151 4,858 5,073 4,864
Divided by number of months in
the period 3 3 12 12
--------- --------- --------- ---------
CCPU $ 13.99 $ 11.77 $ 12.74 $ 13.05
========= ========= ========= =========
(1) There were no Bluebottle USA Investments L.P. expenses incurred during
2008. Bluebottle USA Investments L.P. expenses were $0 and $277 for
three months and the year ended December 31, 2007, respectively.
Cost per gross addition, or CPGA, is used to measure the cost of acquiring
a new customer. The costs included in this calculation are our (1) selling
expenses less cooperative advertising in support of existing customers,
(2) net loss on equipment sales (cost of equipment less net equipment
revenue), excluding the net loss on equipment sold to existing customers,
write-offs of property and equipment and equity issued to a member, and
(3) cost of service associated with initial customer acquisition. These
costs are divided by gross additions for the period being measured. CPGA
helps us to assess the efficiency of our customer acquisition methods and
evaluate our sales and distribution strategies. CPGA also allows us to
compare our average acquisition costs to those of other wireless
communications providers.
The following table illustrates the calculation of CPGA and reconciles the
total costs used in the CPGA calculation to selling expense, which we
consider to be the most directly comparable GAAP financial measure.
Three Months Ended Year Ended
December 31, December 31,
--------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
(In thousands, except CPGA) (Unaudited) (Unaudited)
Selling expenses $ 19,695 $ 31,994 $ 96,735 $ 107,883
Add: Cost of equipment 118,479 133,106 426,249 425,263
Less: Net equipment
revenue (20,402) (32,948) (87,623) (85,890)
Less: Write-offs of
property and equipment - (295) - (295)
Less: Net loss on
equipment sold to
existing customers (20,154) (16,604) (77,656) (69,026)
Less: Cooperative
advertising in
support of existing
customers (411) (344) (549) (2,348)
Add: Cost of service
associated with
initial customer
acquisition 641 586 2,148 2,261
--------- --------- --------- ---------
Total CPGA costs $ 97,848 $ 115,495 $ 359,304 $ 377,848
Divided by gross
additions 960 957 3,306 3,384
--------- --------- --------- ---------
CPGA $ 101.93 $ 120.68 $ 108.68 $ 111.66
========= ========= ========= =========
Free cash flow is calculated as net cash provided by operating activities
less capital expenditures. Unlevered free cash flow is calculated as free
cash flow plus interest payments. Free cash flow and unlevered free cash
flow are non-GAAP financial measures that indicate cash generated by our
business after operating expenses and capital expenditures and, in the case
of unlevered free cash flow, before interest payments. We believe these
measures help to (1) evaluate our ability to satisfy our debt and meet
other mandatory payment obligations, (2) measure our ability to pursue
growth opportunities, and (3) determine the amount of potential cash which
may potentially be available to stockholders in the form of stock
repurchase and/or dividends, subject to the terms and conditions of our
Senior Secured Credit Agreement. Given that our business is not capital
intensive, we believe this measure to be of particular relevance and
utility. We also use free cash flow and unlevered free cash flow internally
for a variety of purposes, including managing our projected cash needs.
The following table illustrates the calculation of free cash flow and
unlevered free cash flow and reconciles free cash flow and unlevered free
cash flow to cash provided by operating activities which we consider to be
the most directly comparable GAAP financial measure.
Year Ended December 31,
----------------------------
2008 2007
-------- --------
(in thousands) (Unaudited)
Net cash provided by operating activities $ 44,493 $ 39,649
Less:
Capital expenditures (18,773) (28,443)
-------- --------
Free cash flow 25,720 11,206
Add:
Cash paid for interest 32,056 51,451
-------- --------
Unlevered free cash flow $ 57,776 $ 62,657
======== ========
Pro Forma Earnings Per Share (Unaudited). Virgin Mobile USA is presenting
its earnings per share for 2007 on a pro forma basis to reflect its IPO,
which took place in October 2007.
The calculation of diluted earnings per share converts the historical
weighted average number of units of limited liability company interests in
Virgin Mobile USA, LLC outstanding as of January 1, 2007 for the three
months and year ended December 31, 2007, to common stock based on a
conversion rate used in the reorganization. Pro forma earnings per share
reflects shares issued in the IPO, which are assumed to be outstanding for
all of 2007.
Three months ended Year ended
December 31, 2007 December 31,2007
------------------- -------------------
(In thousands, except per share (Unaudited)
amounts)
Net income $ (14,713) $ 4,218
=================== ===================
Weighted average shares
outstanding - diluted 48,364 53,211
Adjustments for pro forma
weighted average shares:
Increase in common shares
outstanding if IPO
occurred on January 1, 2007 4,370 21,146
Sprint ownership in Virgin Mobile
USA, L.P. converted in shares
of commom stock - (8,672)
------------------- -------------------
Pro forma weighted average shares
outstanding - diluted 52,734 65,685
=================== ===================
(Loss) earnings per share -
diluted $ (0.30) $ 0.08
Pro forma (loss) earnings per
share - diluted $ (0.28) $ 0.06
Adjusted earnings per share. The Company is presenting adjusted earnings
per share which excludes the amortization of intangibles associated with
the acquisition of Helio which occurred on August 22, 2008 as well as
transition and restructuring costs associated with the acquisition of
Helio, the outsourcing of IT services to IBM and the workforce reduction
taken in the fourth quarter of 2008.
Three months ended Year ended
December 31, 2008 December 31, 2008
------------------- -------------------
(Unaudited)
Diluted (loss) earnings per
share - diluted $ (0.12) $ 0.13
Amortization of Intangibles
per share(1) 0.04 0.04
------------------- -------------------
Adjusted (loss) earnings per
share (0.08) 0.17
Restructuring expense(1) 0.01 0.05
Helio transition expense(1) 0.02 0.03
IBM transition expense(1) -- 0.01
Adjusted (loss) earnings per
share - diluted, excluding
amortization of
intangibles, and transition and ------------------- -------------------
restructuring costs $ (0.05) $ 0.26
=================== ===================
(1) Adjustment amounts are presented net of taxes and minority interest
share.
Web site: http://www.virginmobileusa.com/