Adjusted EBITDA of $99.2 million grew 107% for the Full Year 2007; Net
income of $4.2 million
WARREN, N.J., March 12 /PRNewswire-FirstCall/ --
Fourth Quarter 2007 Highlights
* Adjusted EBITDA of $9.3 million, an improvement of $32.8 million
from ($23.5) million in Q4 2006
* Churn of 5.1%
* Net service revenue of $293.6 million, up 8% from Q4 2006
* Net loss of ($14.7) million, up from ($44.9) million in Q4 2006
* Pro forma loss per share of ($0.28)
* As reported loss per share of ($0.30)
* $3.6 million of free cash flow, up from ($39.7) million in Q4 2006
Full Year 2007 Highlights
* Surpassed 5 million subscribers as of year end
* Churn of 4.9%
* Net service revenue of $1.2 billion, up 20% from FY 2006
* As reported diluted earnings per share of $0.08
* $11.2 million of free cash flow, up from ($73.3) million for FY 2006
Virgin Mobile USA, Inc. (NYSE: VM), a leading national provider of
wireless communications services and plans without annual contracts, today
reported its financial and operational results for the fourth quarter and
full year ended December 31, 2007.
(Logo: http://www.newscom.com/cgi-bin/prnh/20070613/VIRGINMOBILE )
"2007 was a year of substantial growth for Virgin Mobile USA," said Dan
Schulman, Chief Executive Officer, Virgin Mobile USA. "We grew our customer
base to nearly 5.1 million, net service revenues 20% to over $1.2 billion,
and Adjusted EBITDA over 100% to $99.2 million. Most importantly, 2007 was
our first year of profitability, with net income of $4.2 million generating
a pro forma earnings per share of $0.06.
"Our results for the full year reflect a clear focus on attracting and
retaining customers who deliver a strong return on investment. We
maintained a disciplined customer acquisition strategy; while competitors
were aggressively lowering prices in the fourth quarter to impact gross
adds, we chose not to pursue what historically have proven to be low-value,
low-tenure customers. This focus on the value of our customers, combined
with the low, predictable cost structure of the MVNO business model, allows
us both growth and profitability in a competitive retail environment."
Schulman continued, "We think we have one of the most attractive value
propositions in the market, and that our business is well-positioned for
the future. Throughout our five-year operating history, we have driven
industry innovation by consistently reinventing our consumer offer. We will
continue to simplify and evolve our product and service offers to better
serve our more than five million customers and to generate increasing
demand."
Overview and Basis of Presentation
The financial results for all periods 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. In connection with the IPO,
the Company, Virgin Mobile USA, LLC and certain other entities completed an
internal reorganization. As part of the reorganization, Virgin Mobile USA
LLC converted to a limited partnership and changed its name to Virgin
Mobile USA L.P. (the "Operating Partnership"). On October 16, 2007, Virgin
Mobile USA, Inc. and certain selling stockholders sold 27,500,000 shares of
Virgin Mobile USA, Inc. Class A common stock at $15.00 per share. The net
proceeds from the IPO to the Company were approximately $352.7 million
after deducting underwriting commissions and discounts of $23.7 million,
estimated offering expenses of $7.4 million. The Company used $136 million
of the IPO proceeds to pay Sprint Nextel for a portion of Sprint Nextel's
limited liability company interests in Virgin Mobile USA, LLC that the
company purchased in connection with the reorganization and IPO. The
remaining net proceeds of $216.7 million were used to (1) repay $150
million of outstanding borrowings and $0.8 million of accrued interest
under the senior secured credit facility and (2) repay $45 million of
indebtedness and $0.6 million of accrued interest owed to Sprint Nextel
under the subordinated secured revolving credit facility. Subsequent to the
IPO, the remaining net proceeds of approximately $20 million were used for
general corporate purposes. Prior to the IPO, Virgin Mobile USA, Inc. had
not engaged in any business or other activities except in connection with
its formation and the reorganization transactions described in its
prospectus, dated October 10, 2007. Virgin Mobile USA is also presenting
its earnings per share on a pro forma basis which converts the historical
weighted average number of units of limited liability company interests in
Virgin Mobile USA, LLC outstanding, to common stock based on a conversion
rate used in the reorganization and reflects the shares issued in the IPO
as outstanding for all periods presented.
This press release uses several financial performance metrics,
including Adjusted EBITDA, Adjusted EBITDA margin, ARPU, CCPU, CPGA and
free cash flow, 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 communication 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.
Key Financial & Operating Results for the Fourth Quarter and Full Year 2007
Virgin Mobile USA, Inc.
Unaudited
Three Months Ended Fiscal Year Ended
December 31, December 31,
2007 2006 2007 2006
Net Service Revenue $293,581 $271,046 $1,227,045 $1,020,055
Total Operating Revenue 326,529 298,099 1,312,935 1,110,579
Operating Income (2,635) (31,295) 57,801 17,507
Net (loss) income (14,713) (44,908) 4,218 (36,941)
Adjusted EBITDA 9,321 (23,493) 99,244 47,884
Adjusted EBITDA Margin 3.2% (8.7)% 8.1% 4.7%
Earnings (loss) per common
share - basic(1) $(0.30) $(1.74) $0.13 $(1.45)
Earnings (loss) per common
share - diluted(1) $(0.30) $(1.74) $0.08 $(1.45)
Pro Forma Earnings (loss) per
common share - diluted(1) $(0.28) $(0.85) $0.06 $(0.71)
Interest expense - net 11,611 13,189 53,391 52,180
Capital Expenditures 9,299 12,046 28,443 34,453
(1) The calculation of basic and diluted earnings (loss) per share and
pro forma diluted earnings (loss) per share converts the historical
weighted average number of units of limited liability company
interests in Virgin Mobile USA, LLC outstanding for the periods ended
December 31, 2007 and 2006 to common stock based on a conversion rate
used in the reorganization. In addition, the pro forma basic and
diluted earnings (loss) per share reflects the shares issued in the
IPO as if they were outstanding for all periods presented.
Virgin Mobile USA, Inc.
Unaudited
Three Months Ended Fiscal Year Ended
December 31, December 31,
2007 2006 2007 2006
Gross Additions 957,541 1,293,541 3,384,460 3,013,781
Churn 5.1% 5.6% 4.9% 4.8%
Net Customer Additions 209,669 613,752 511,796 729,313
EOP Customers 5,085,886 4,574,090 5,085,886 4,574,090
ARPU $20.14 $22.16 $21.02 $21.48
CCPU $11.56 $14.20 $12.84 $13.15
CPGA $120.87 $96.43 $111.71 $120.55
Free Cash Flow (in thousands) $3,563 $(39,701) $11,206 $(73,327)
During the fourth quarter 2007, Virgin Mobile USA's net service revenue
increased 8% versus the prior year period to $293.6 million. Virgin Mobile
USA's net service revenue for the full year 2007 increased 20% to $1.2
billion. This was driven by growth in the customer base, as well as by a
28% increase in data service revenues during the full year of 2007 as
compared to 2006.
Adjusted EBITDA in the fourth quarter of 2007 grew to $9.3 million,
compared to an Adjusted EBITDA loss of ($23.5) million in the fourth
quarter 2006. Adjusted EBITDA for the year ended December 31, 2007
increased by 107%, to $99.2 million, compared to $47.9 million in the full
year 2006, with Adjusted EBITDA margin of 8.1% for the full year 2007. This
primarily resulted from growth in customers and service revenue, as Virgin
Mobile USA continued to realize the benefits of its increasing scale.
Virgin Mobile USA's net income for the year ended December 31, 2007 was
$4.2 million, compared to net loss of ($36.9) million for the same period
in 2006. Virgin Mobile USA reported a net loss for the fourth quarter 2007
of ($14.7) million, compared to a net loss of ($44.9) million for the
fourth quarter 2006. Improvement in net loss for the fourth quarter and
profitability for the year were related to the Company's increasing scale,
the strategic decision not to invest in cut price handsets, and an
amendment made to an agreement with Virgin Mobile's network partner,
locking in network rates for 2007 and 2008. This amendment also resulted in
a fourth quarter 2007 benefit to net income from the reversal of an accrual
made throughout the year for anticipated Sprint network rate adjustments.
Virgin Mobile USA achieved its first full year of profitability in
2007, reporting pro forma diluted earnings per share of $0.06, compared to
a pro forma loss per share of ($0.71) in the full year 2006. The passing of
the profitability inflection point reflects Virgin Mobile USA's larger
customer base, and Virgin Mobile USA expects to produce strong
profitability growth in 2008. Pro forma loss per share for the fourth
quarter 2007 was ($0.28), compared to a pro forma loss per share of ($0.85)
in the fourth quarter 2006. As reported, diluted earnings per share for the
year ended December 31, 2007 was $0.08 per share, compared to a net loss
per share of ($1.45) for the full year 2006. Net loss per share for the
fourth quarter 2007 was ($0.30) compared to a net loss per share of ($1.74)
for the fourth quarter 2006.
Free cash flow for the year totaled $11.2 million, an increase of $84.5
million from the full year 2006. Free cash flow for the fourth quarter 2007
was $3.6 million, an increase of $43.3 million over the fourth quarter
2006. Strong improvements in free cash flow are the result of the Company's
increasing scale and ongoing low capital needs. Capital expenditures for
the full year 2007 were $28.4 million, compared to $34.5 million for the
full year 2006.
In October 2007, Virgin Mobile USA, Inc. successfully completed its
initial public offering, using $195 million of proceeds to repay debt under
its senior secured credit facility and subordinated secured revolving
credit facility, significantly delevering the Company. As a result, under
the terms of those loan agreements to which Virgin Mobile USA is currently
subject, Virgin Mobile USA's interest payments and debt amortization are
expected to significantly decline going forward. Interest expense for the
fourth quarter was $11.6 million. Interest expense for the year ended
December 31, 2007 was $53.4 million. As adjusted to reflect the debt
repayments related to the IPO, pro forma interest expense for 2007 would
have been $38.8 million, or reduced by 27%.
John Feehan, Chief Financial Officer of Virgin Mobile USA commented,
"By successfully completing our IPO during the fourth quarter, we now have
a stronger, more flexible balance sheet, which dovetails with our low,
variable- cost model resulting in a financially stronger company. This
improved structure resulted in positive free cash flow for the full year
2007 of $11.2 million, an increase of $84.5 million from the full year
2006. We believe our low capital needs, scalable model and enhanced balance
sheet will allow us to continue to generate growing profitability and free
cash flow."
Key Metric Performance Review for the Fourth Quarter and Full Year 2007
Gross customer additions, or new Virgin Mobile USA customers who
activated their accounts during the fourth quarter of 2007, totaled
958,000, down from 1,294,000 in the fourth quarter 2006. This decline was
primarily attributable to the strategic decision by Virgin Mobile USA
management not to participate in the practice of temporary, aggressive
handset pricing engaged by competitors in the holiday season, instead
choosing to maintain a long-term focus on return on investment.
For the full year, gross customer additions totaled 3,384,000, up 12%
from 3,014,000 in the prior year. Overall increase in gross customer
additions reflected the strong growth of "hybrid" plans, as well as demand
for Virgin Mobile USA's affordable handsets, including the success of the
high-end Wild Card launched in October 2007. Launched in June 2006, Virgin
Mobile's hybrid plans allow its customers to pay in advance for monthly
buckets of minutes, offering all the convenience of a postpaid plan without
an annual contract. Hybrid customers continued to grow as a percentage of
the total gross customer additions and as a percentage of Virgin Mobile
USA's total base, representing 29% of gross customer additions in 2007 and
22% of end-of-period subscribers as of December 31, 2007. Gross customer
addition quarterly trends will continue to reflect the seasonality of the
Company's business, with the highest level of gross additions typically
occurring in the fourth quarter.
The Company's cost per gross addition (CPGA) for the fourth quarter
2007 was $120.87, compared to CPGA of $96.43 in the fourth quarter 2006,
due in part to lower total gross customer additions in the fourth quarter
2007. CPGA for the full year 2007 was $111.71, down 7% from $120.55 for
2006. The full year decline in CPGA was the result of Virgin Mobile USA's
increased handset cost efficiencies as the Company has gained scale, as
well as its ability to successfully combat bulk buying.
Fourth quarter 2007 average monthly customer turnover, or churn,
declined to 5.1% from 5.6% in the fourth quarter 2006. Churn for the full
year was 4.9%, up slightly from 4.8% during the prior year. During the
fourth quarter 2007, Virgin Mobile USA added 209,669 net new customers to
its base, compared to 613,752 in the fourth quarter 2006. As of December
31, 2007, the Company had approximately 5.1 million customers, an increase
of 11% over the same period December 31, 2006. Virgin Mobile USA added
511,796 net new customers to its base during the full year 2007, a decrease
of 30% compared to the same period in 2006. This decrease was attributable
to the size of Virgin Mobile's customer base, the aforementioned aggressive
pricing by competition during the fourth quarter, and declining consumer
spending.
Average revenue per user (ARPU) for the fourth quarter was $20.14,
reflecting a decline from the prior year's fourth quarter ARPU of $22.16.
This decline was the result of lowered customer usage of the traditional
prepaid plans, which the Company attributes to an overall decline in
consumer spending. For the full year 2007, ARPU was $21.02, versus $21.48
in 2006. ARPU strength continues to be driven primarily by sales of Virgin
Mobile USA's hybrid plans, which was offset in part by declining usage on
the traditional prepaid side within a challenging economic environment.
Outlook
The Company believes that the economic conditions that affected the
consumer market and the wireless industry in the fourth quarter will
continue to impact 2008. Nonetheless, Virgin Mobile USA's management
believes that its significant experience in delivering strong results in a
historically competitive industry will enable it to successfully position
the Company through the current macroeconomic conditions. Additionally, the
Company's lean and variable cost structure, combined with an improved
capital structure, provides Virgin Mobile USA the opportunity to produce
profitable results even in a challenging economic environment.
2008
* Virgin Mobile USA believes that, while the strong value and flexibility
of its handsets and service plans may increase demand for its products
during challenging economic times, its customers may also reduce usage
because of personal budget constraints. Due to this possibility, the
Company expects net service revenues for 2008 to be broadly in line
with net service revenues for 2007.
* Adjusted EBITDA for the full year 2008 is expected to be $105 to $130
million.
* Compared to the full year 2007 pro forma earnings per share, EPS growth
is expected to be more than 200%, or $0.19 to $0.35 per share.
* Capital expenditures are expected to be approximately $30-$35 million
for the year.
* Free cash flow for 2008 is expected to be in the range of $45 to
$65 million.
First Quarter 2008
* Net customer additions for the first quarter are expected to be in the
range of 5,000 - 20,000.
* Net service revenues for the first quarter are expected to be in the
range of $293 - $303 million.
* Adjusted EBITDA for the first quarter is expected to be in the range of
$22 - $25 million.
* EPS of $0.01 to $0.04.
Recent Highlights
* In the fourth quarter, Virgin Mobile USA surpassed the 5 million
customer mark -- reaching 5 million subscribers in just over 5 years
of operation.
* Virgin Mobile USA launched the Wild Card handset, a dual-screen
messaging phone that features a full QWERTY keyboard, Bluetooth(R)
Wireless, high-res camera, web browser and pre-loaded features like
Headliner, Virgin Mobile's mobile music magazine -- all for just
$99.99. At the same time, Virgin Mobile USA added Unlimited Messaging
(including text, picture, email and/or IM) for $19.99 per month to
its portfolio.
* Wild Card continues to be a significant contributor to Virgin Mobile
USA subscriber growth and revenue, as data usage for Wild Card
customers is more than triple that of our average subscriber. Wild
Card helps to improve profitability and increase the lifetime value of
a customer, and allows data services to emerge as a significant growth
driver.
* With the launch of Studio V, Virgin Mobile USA customers can not only
customize their phones with self-created wallpaper and ringtones, they
can also sell their creations on the Virgin Mobile website and use
payments received as credit towards airtime.
* On behalf of its pro-social initiative, The RE*Generation, Virgin
Mobile USA participated in a campaign with Congress to designate
November 2007 as National Homeless Youth Awareness Month and generated
a series of activities to focus attention on this national crisis.
* Virgin Mobile USA just launched Flare, our second phone from LG
Electronics, and our first with a Spanish-language interface.
* Virgin Mobile USA continues to expand on the success of Sugar Mama, our
innovative mobile advertising activity that lets customers earn airtime
for engaging with like-minded brands. Currently, more than 650,000
Virgin Mobile USA customers use Sugar Mama, collectively earning more
than 23.7 million minutes of free airtime.
* Virgin Mobile USA recently announced the dates for the third year of
its annual rock event. The upcoming Virgin Mobile Festival will take
place in Baltimore, Maryland on August 9-10, 2008. The complete lineup
for the festival will be announced in early April.
* On select Virgin Mobile USA phones, access controls for Surf the Web
have been added, allowing that feature to be disabled by parents
concerned about the content kids can access on cell phones with web
browsing.
Earnings Conference Call
Virgin Mobile USA will host a conference call Wednesday, March 12th,
2008 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 888.354.3598 (toll-free domestic) or 706.643.8861 (international);
passcode: 37431006. 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 800.642.1687 (toll-free domestic) or 706.645.9291
(international); passcode: 37431006. The webcast will be archived on Virgin
Mobile USA's web site for 30 days after the call at
http://investorrelations.virginmobileusa.com .
About Virgin Mobile USA, Inc.
Virgin Mobile USA (NYSE: VM) offers more than five million customers
control, flexibility and choice in wireless service, rich data content and
innovative products without annual contracts. Voice pricing plans range
from monthly options with unlimited nights and weekends to by-the-minute
offers, allowing consumers to adjust how and what they pay according to
their needs. Virgin Mobile USA's full slate of smart, stylish and
affordable handsets, including the Wild Card, Super Slice and Cyclops, are
available at top retailers in more than 40,000 locations nationwide and
online at http://www.virginmobileusa.com , with Top-Up cards available at
more than 140,000 locations.
J.D. Power and Associates ranked Virgin Mobile highest in customer
satisfaction among wireless prepaid services in both 2006 and 2007, and its
customers report a 94% satisfaction rate. Virgin Mobile contributes profits
from downloadable content to The RE*Generation, its pro-social initiative
to help homeless youth, and provides postage-paid return envelopes in every
new package for customers to recycle old phones. Virgin Mobile USA's
national coverage is powered by the nationwide Sprint PCS network.
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.
Media Contact: Investor Contact:
Jayne Wallace Erica Bolton
Virgin Mobile USA Virgin Mobile USA
908-607-4014 908-607-4108
jayne.wallace@virginmobileusa.com erica.bolton@virginmobileusa.com
Virgin Mobile USA, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
As of December 31,
2007 2006
Assets
Current assets:
Cash and cash equivalents $19 $8
Accounts receivable, less allowances of
$610 and $471 57,956 70,961
Due from related parties 321 12,301
Other receivables 14,613 15,103
Inventories 137,364 90,815
Prepaid expenses and other current assets 19,722 26,188
Total current assets 229,995 215,376
Property and equipment 154,162 126,324
Accumulated depreciation and amortization (108,249) (74,796)
Property and equipment, net 45,913 51,528
Other assets 6,131 10,043
Total assets $282,039 $276,947
Liabilities and Stockholders' deficit
Current liabilities:
Accounts payable $111,753 $95,243
Due to related parties 56,486 41,569
Book cash overdraft 2,045 34,769
Accrued expenses 73,142 96,465
Deferred revenue 128,125 127,434
Current portion of long-term debt 32,669 37,029
Total current liabilities 404,220 432,509
Long-term debt 244,037 423,500
Related party debt 45,000 58,000
Other liabilities 3,981 7,417
Total non-current liabilities 293,018 488,917
Commitments and contingencies
Stockholders' deficit:
Common stock:
Class A common stock, par value $0.01
per share - 200,000,000 shares authorized
and 53,136,839 shares, net of 13,251
treasury shares and 25,682,187 shares
issued and outstanding at December 31,
2007 and 2006, respectively 532 257
Class C common stock, par value $0.01
per share - 999,999 shares authorized
and 115,062 shares issued and
outstanding at December 31, 2007
and 2006 1 1
Class B common stock, par value $0.01
per share - 1 share authorized, issued
and outstanding at December 31, 2007
and 2006
Additional paid-in-capital 340,382 112,750
Accumulated deficit (754,860) (759,078)
Accumulated other comprehensive
(loss) income (1,254) 1,591
Total stockholders' deficit (415,199) (644,479)
Total liabilities and stockholders' deficit $282,039 $276,947
Virgin Mobile USA, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
Operating revenue
Net service revenue $293,581 $271,046 $1,227,045 $1,020,055
Net equipment revenue 32,948 27,053 85,890 90,524
Total operating revenue 326,529 298,099 1,312,935 1,110,579
Operating expenses
Cost of service
(exclusive of depreciation
and amortization) 76,224 87,786 349,555 299,130
Cost of equipment 133,106 130,093 425,263 378,981
Selling, general and
administrative
(exclusive of depreciation
and amortization) 111,576 107,687 446,708 401,964
(Gain) loss from litigation (4,000) (15,384)
Depreciation and amortization 8,258 7,828 33,608 28,381
Total operating expenses 329,164 329,394 1,255,134 1,093,072
Operating income (loss) (2,635) (31,295) 57,801 17,507
Other expense (income)
Interest expense - net 11,611 13,189 53,391 52,180
Other (income) expense 146 424 (129) 2,268
Total other expense 11,757 13,613 53,262 54,448
Income (loss) before provision
for income taxes (14,392) (44,908) 4,539 (36,941)
Provision for income taxes 321 321
Net income (loss) (14,713) (44,908) 4,218 (36,941)
Other comprehensive(loss)
income:
Unrealized (loss) gain on
interest rate swap (1,144) 143 (2,845) 1,131
Total comprehensive (loss)
income $(15,857) $(44,766) $1,373 $(35,810)
Basic and diluted loss per
share information:
Earnings (loss) per common
share - basic $(0.30) $(1.74) $0.13 $(1.45)
Earnings (loss) per common
share - diluted $(0.30) $(1.74) $0.08 $(1.45)
Weighted average common shares
outstanding - basic 48,364 25,797 31,495 25,497
Weighted average common shares
outstanding - diluted 48,364 25,797 53,211 25,497
Virgin Mobile USA, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Year Ended December 31,
2007 2006
Operating Activities
Net income (loss) $4,218 $(36,941)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 33,608 28,381
Loss from asset disposal 450
Amortization of deferred financing costs 3,643 4,021
Non-cash charges for stock-based
compensation and stock issuance 7,423 9,024
Non-cash charges associated with barter
transactions (3,195)
Non-cash cost of royalties and services 693 2,692
Provision for bad debts 202 375
Changes in assets and liabilities:
Accounts receivable 12,803 (2,787)
Due from related parties 11,980 (547)
Other receivables (2,504) (9,053)
Inventories (46,549) (46,413)
Prepaid expenses and other assets 6,885 (8,471)
Accounts payable 16,510 17,475
Due to related parties 15,136 (14,347)
Deferred revenue 691 31,036
Accrued expenses and other liabilities (25,540) (10,124)
Net cash provided by (used in) operating
activities 39,649 (38,874)
Investing Activities
Capital expenditures (28,443) (34,453)
Net cash used in investing activities (28,443) (34,453)
Financing Activities
Net change in book cash overdraft (32,724) 34,769
Repayment of long-term debt (183,794) (37,000)
Net change in related party debt (13,000) 58,000
Financing fees (1,013)
Net proceeds from public offering of
Class A common stock 352,672
Proceeds paid to a stockholder for
a portion of Virgin Mobile USA, L.P. (136,010)
Return of capital to stockholders (8)
Proceeds from exercise of options 1,669
Net cash provided by financing activities (11,195) 54,756
Net (decrease) increase in cash and cash
equivalents 11 (18,571)
Cash and cash equivalents at beginning of year 8 18,579
Cash and cash equivalents at end of year $19 $8
Supplemental disclosure of cash flow
information:
Cash paid for interest $51,451 $52,328
Non-cash activities
Contributions by stockholders $1,255 $ 2,692
Equity earned by stockholders $ 8,079
Conversion of SARs to equity $906
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 and free cash flow. 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 (i) 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 (ii) 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
communication industry defines these metrics in precisely the same way, we
believe that these metrics as we use them facilitate comparisons with other
wireless communication providers. These metrics should not be considered
substitutes for any performance metric determined in accordance with GAAP.
Gross additions represent the number of new customers that activated an
account during a period, unadjusted for churn in the same period. In
measuring gross additions, we begin with account activations and exclude
retailer returns, customers who have reactivated and fraudulent
activations. 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 that
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 that disconnect from our service is calculated as the total
number of customers that 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
divided by the number of days in that period. Churn includes those
pay-by-the-minute customers whom 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 whom we automatically
disconnect when they have not paid their monthly recurring charge for 150
days (except for such monthly customers 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 that 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 as it represents the last date upon which a customer who
replenishes his or her account is still permitted to retain the same phone
number. This calculation is 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 and end-of-period customers are used to measure
the growth of our business, to forecast our future financial performance
and to gauge the marketplace acceptance of our offerings. Net customer
additions represent the number of new customers that activated an account
during a period, 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, income tax expense, depreciation and amortization, non-cash
compensation expense, equity issued to a member, debt extinguishment costs
and expenses of Bluebottle USA Investments, L.P. prior to the IPO. Adjusted
EBITDA margin is calculated as Adjusted EBITDA divided by Net service
revenue. We believe Adjusted EBITDA is a useful tool in evaluating
performance because it eliminates items related to taxes, non-cash charges
relating to depreciation and amortization as well as items relating to both
the debt and equity portions of our capital structure. Adjustments relating
to interest expense, income tax expense, and depreciation and amortization
are each customary adjustments in the calculation of supplemental measures
of performance. We believe such adjustments are meaningful because they are
indicators of our core operating results, and our management uses them to
evaluate our business. Specifically, our management uses them in its
calculation of compensation targets, preparation of budgets and evaluations
of performance. Similarly, we believe that the exclusion of non-cash
compensation expense provides investors with a more meaningful indication
of our performance as these non-cash charges relate to the equity portion
of our capital structure and not our core operating performance. This
exclusion is also consistent with how we calculate the measures we use for
determining certain bonus compensation targets, preparing budgets and other
internal purposes. Finally, we believe that the exclusion of equity issued
to a member and debt extinguishment costs in 2006 is appropriate because
these charges relate to the debt and equity portions of our capital
structure and are not expected to be incurred in future periods.
The following table illustrates the calculation of Adjusted EBITDA and
Adjusted EBITDA margin and reconciles Adjusted EBITDA to net income (loss)
which we consider to be the most directly comparable GAAP financial
measure.
Three Months Ended Fiscal Year Ended
December 31, December 31,
(In thousands, except 2007 2006 2007 2006
Adjusted EBITDA Margin) (Unaudited) (Unaudited)
Net income (loss) $(14,713) $(44,908) $4,218 $(36,941)
Plus:
Depreciation and
amortization 8,258 7,828 33,608 28,381
Interest expense 11,611 13,189 53,391 52,180
Income tax expense 321 321
Non-cash compensation
expense 3,844 253 7,423 2,563
Bluebottle USA
Investments L.P.
expenses prior to
the IPO 145 283 232
Debt extinguishment
costs 1,469
Adjusted EBITDA $9,321 $(23,493) $99,244 $47,884
Net service revenue $293,581 $271,046 $1,227,045 $1,020,055
Adjusted EBITDA margin 3.2% (8.7)% 8.1% 4.7%
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
the period 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.
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 Fiscal Year Ended
(In thousands, except December 31, December 31,
number of months and 2007 2006 2007 2006
ARPU) (Unaudited) (Unaudited)
Net service revenue $293,581 $271,046 $1,227,045 $1,020,055
Divided by weighted
average number of
customers 4,858 4,078 4,864 3,957
Divided by number of
months in the period 3 3 12 12
ARPU $20.14 $22.16 $21.02 $21.48
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 (i) cost of
service (exclusive of depreciation and amortization), excluding cost of
service associated with initial customer acquisition, (ii) general and
administrative costs, excluding any marketing, selling, and distribution
expenses associated with initial customer acquisition, non-cash
compensation expense and Bluebottle USA Investments L.P. general and
administrative expenses prior to the IPO, (iii) net loss on equipment sold
to existing customers, (iv) cooperative advertising expenses in support of
existing customers and (v) other (income) expense, excluding 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. 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 communication 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 Fiscal Year Ended
December 31, December 31,
(In thousands, except number of 2007 2006 2007 2006
months and CCPU) (Unaudited) (Unaudited) Cost of service (exclusive of
depreciation and amortization) $76,224 $87,786 $349,555 $299,130
Less: Cost of service
associated with initial
customer acquisition (586) (954) (2,261) (1,968)
Add: General and administrative
expenses (excluding Bluebottle
USA Investments L.P.
expenses prior to the IPO(1)) 79,582 74,087 338,548 288,414
Less: Non-cash compensation
expense (3,843) (253) (7,423) (2,563)
Add: Net loss on equipment
sold to existing customers 16,604 13,242 69,026 38,042
Add: Cooperative advertising
expenses in support of
existing customers 344 (576) 2,348 2,362
Add: Other (income) expense,
net of debt extinguishment
costs and Bluebottle USA
Investments L.P. 146 424 (135) 799
Total CCPU costs $168,471 $173,756 $749,658 $624,216
Divided by weighted average
number of customers 4,858 4,078 4,864 3,957
Divided by number of months in
the period 3 3 12 12
CCPU $11.56 $14.20 $12.84 $13.15
(1) Bluebottle USA Investments L.P. expenses were: $0 and $277 for the
three months and fiscal year ended December 31, 2007 respectively, and
$145 and $232 for for the three months and fiscal year ended December
31, 2006, 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
(i) selling expenses, (ii) net loss on equipment sales (cost of equipment
less net equipment revenue), excluding the net loss on equipment sold to
existing customers, (iii) equity issued to a member, (iv) cooperative
advertising in support of existing customers, and (v) 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 companies.
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 Fiscal Year Ended
December 31, December 31,
2007 2006 2007 2006
(In thousands, except CPGA) (Unaudited) (Unaudited)
Selling expenses $31,994 $33,455 $107,883 $113,318
Add: Cost of equipment 133,106 130,093 425,263 378,981
Less: Net equipment revenue (32,948) (27,053) (85,890) (90,524)
Less: Net loss on equipment
sold to existing customers (16,604) (13,242) (69,026) (38,042)
Less: Cooperative advertising
in support of existing customers (344) 576 (2,348) (2,362)
Add: Cost of service associated
with initial customer
acquisition 586 954 2,261 1,968
Total CPGA costs $115,790 $124,783 $378,143 $363,339
Divided by gross additions 958 1,294 3,385 3,014
CPGA $120.87 $96.43 $111.71 $120.55
Free cash flow is calculated as net cash provided by (used in)
operating activities less capital expenditures. Free cash flow is a
non-GAAP financial measure that indicates cash generated by our business
after operating expenses and capital expenditures. We believe this measure
helps to (i) evaluate our ability to satisfy our debt and meet other
mandatory payment obligations, (ii) measure our ability to pursue growth
opportunities, and (iii) determine the amount of potential cash which may
potentially be available to stockholders in the form of stock repurchase
and/or dividends. 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 internally for a variety of purposes, including managing our
projected cash needs.
The following table illustrates the calculation of free cash flow and
reconciles free cash flow to cash flow from operations which we consider to
be the most directly comparable GAAP financial measure.
Three Months Ended Fiscal Year Ended
December 31, December 31,
2007 2006 2007 2006
(In thousands) (Unaudited) (Unaudited)
Calculation of free cash flow:
Net cash provided by (used
in) operating activities $12,862 $(27,655) $39,649 $(38,874)
Less:
Capital expenditures 9,299 12,046 28,443 34,453
Free cash flow $3,563 $(39,701) $11,206 $(73,327)
Pro Forma Earnings Per Share (Unaudited). Virgin Mobile USA is
presenting its earnings per share on a pro forma basis to reflect its IPO,
which took place in October 2007.
The calculation of pro forma basic and diluted earnings (loss) 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 to common stock based on a conversion rate used in the
reorganization. Shares issued in the IPO are assumed to be outstanding for
all periods presented.
Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
(Unaudited) (Unaudited)
Net income (loss) $(14,713) $(44,908) $4,218 $(36,941)
Weighted average shares
outstanding - diluted 48,364 25,797 53,211 25,497
Adjustments for proforma
weighted average shares:
Increase in common
shares outstanding if
IPO occurred on
January 1, 2006 4,370 26,800 21,146 26,800
Sprint ownership in
Virgin Mobile USA, L.P.
converted in shares of
common stock (8,672)
Proforma Weighted average
shares outstanding
- diluted 52,734 52,597 65,685 52,297
Earnings (loss) per
share - diluted $(0.30) $(1.74) $0.08 $(1.45)
Proforma earnings
(loss) per share
- diluted $(0.28) $(0.85) $0.06 $(0.71)
(1) The calculation of basic and diluted earnings (loss) per share and
pro forma diluted earnings (loss) per share converts the historical
weighted average number of units of limited liability company
interests in Virgin Mobile USA, LLC outstanding for the periods ended
December 31, 2007 and 2006 to common stock based on a conversion rate
used in the reorganization. In addition, the pro forma basic and
diluted earnings (loss) per share reflects the shares issued in the
IPO as if they were outstanding for all periods presented.
| |
SOURCE Virgin Mobile USA, L.P.
 back to top
Related links:
http://www.virginmobileusa.com
http://investorrelations.virginmobileusa.com
Photo Notes:http://www.newscom.com/cgi-bin/prnh/20070613/VIRGINMOBILE
AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
CONTACT:
Media, Jayne Wallace, +1-908-607-4014,
jayne.wallace@virginmobileusa.com, or Investors, Erica Bolton,
+1-908-607-4108, erica.bolton@virginmobileusa.com, both of Virgin
Mobile USA
| |
|
