Warren, N.J. - Virgin Mobile USA, Inc., a leading national provider of wireless communications services without annual contracts, today reported its financial and operational results for the quarter ended March 31, 2008.

"We executed against our business plan in the first quarter, delivering a strong start to the year," said Dan Schulman, Chief Executive Officer, Virgin Mobile USA. "While the current economic environment presents challenges, our business performed above our expectations, producing strong profitability and cash flow, even as we increased our marketing spend by $7.5 million year over year, to support the launch of our new voice and data plans.

"We believe our new service plans, which will be in all of our channels by the end of the second quarter, represent some of the best value available to wireless consumers today. These offers provide compelling value and present a clear choice for consumers. Early indications are positive, with our monthly plans representing 38% of gross additions for the new offers in April, and average ARPU on the new monthly plans of approximately $40."

Schulman continued, "I'm also pleased we will be substantially increasing our retail footprint with both new and existing retail partners in the months ahead. These include increased expansion into independent wireless retail through American Wireless stores, our planned launch into over 900 new Sears locations, and increased penetration and retail space with our largest retail partner. We believe this expansion, in combination with the launch of our new offers, represents a strong incremental growth opportunity for Virgin Mobile USA in the second half of the year, and we remain confident in our estimates for the full year 2008."

Overview and Basis of Presentation:
The financial results for the three months ended March 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 2007 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 also, reflects the shares issued in the IPO as outstanding for 2007.

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.

(1) During the preparation of the Company's financial statements for the six months ended June 30, 2007, management identified errors in the Company's financial statements in the amount of $3.8 million and $(0.1) million to its net income for the three months ended March 31, 2007 and in total for the years ended December 31, 2004-2006, respectively. These errors were primarily the result of system interface failures for recovery fees for certain airtime taxes and regulatory charges and accrued revenues, which overstated net service revenue and overstated cost of service in each period for the years ended December 31, 2004-2006, and understated net service revenue and overstated cost of service for the three month period ended March 31, 2007. The Company corrected these errors through a restatement of its results for the three month period ended March 31, 2007. The impact of the out-of-period adjustments in 2007 were not material to the Company's financial results for the three months ended March 31, 2007. The interim results for the three months ended March 31, 2007 included herein reflect the out-of-period charges.

(2) The calculation of basic and diluted earnings per share and pro forma diluted earnings per share for 2007 converts the historical weighted average number of units of limited liability company interests in Virgin Mobile USA, LLC outstanding for the period ended March 31, 2007 to common stock based on a conversion rate used in the reorganization. In addition, the pro forma diluted earnings per share reflects the shares issued in the IPO as if they were outstanding for all of 2007.

During the first quarter 2008, Virgin Mobile USA's net service revenue was $303.8 million, a decrease of 5.8% versus the same period in 2007, reflecting the effect of current economic conditions on consumer behavior, as well as the Company's decision in the fourth quarter of 2007 not to invest in temporary, aggressive handset pricing engaged in by certain competitors. Adjusted EBITDA in the first quarter of 2008 was $28.7 million, compared to an Adjusted EBITDA of $41.7 million in the first quarter of 2007.

Revenues in the first quarter of 2007 benefited from the launch in the second half of 2006 of our hybrid monthly bucket plans, and Adjusted EBITDA in the first quarter 2007 also reflects $3.8 million E911 tax refunds and favorable settlements with taxing jurisdictions. The first quarter of 2007 also had a $4.9 million cost benefit due to the transition to consignment. Adjusted EBITDA for the first quarter of 2008 was also impacted by an incremental $7.5 million investment in marketing, to support the launch of the Company's new voice and data plans, as well as the impact of additional states subject to E911 tax in 2008.

Virgin Mobile USA's continued profitability reflects the growth of its customer base, and the Company expects to produce growth in profitability for the full year 2008. Net income for the quarter ended March 31, 2008 was $4.7 million, compared to net income of $19.2 million for the same period in 2007. Diluted earnings per share for the first quarter of 2008 were $0.07, compared to diluted earnings per share of $0.38 for the first quarter of 2007. Pro forma diluted earnings per share, which is the more relevant comparison to the first quarter of 2008 as it is adjusted to reflect the fully diluted share count following the Company's IPO, were $0.25 in the first quarter 2007. The decline in net income and earnings per share was due to factors related above, as well as a $2.1 million accrual for payments under the Company's tax receivable agreements. While net income declined from the first quarter 2007, the Company was able to produce continued profitability while increasing its marketing investment by an incremental $7.5 million year over year.

Free cash flow for the quarter totaled $10.4 million, a decline from $14.3 million from the first quarter of 2007. The primary driver of the decline in free cash flow in the first quarter 2008 was lower top up streams associated with a decline in consumer spending within the current economic environment, which was in line with Company expectations for the quarter. Capital expenditures for the first quarter of 2008 were $6.2 million, compared to $5.3 million for the first quarter of 2007, reflecting continuing investment, although at a lower level than the competition. Interest expense for the first quarter was $9.3 million, down from $13.6 million in the first quarter of 2007.

John Feehan, Chief Financial Officer of Virgin Mobile USA commented, "Our business performed well in the first quarter 2008, and we continue to generate strong cash flow to service our debt and fund the growth of our business. We believe there is a great deal of opportunity for growth in the second half of the year."

Key Metric Performance Review for the First Quarter 2008:
Gross customer additions, or new Virgin Mobile USA customers who activated their accounts during the first quarter of 2008, totaled 795,575, down from 881,756 in the first quarter 2007. Gross customer additions in the first quarter 2007 grew 42% year over year, benefiting from the launch in the second half of 2006 of the Company's hybrid monthly bucket plans.

The Company's cost per gross addition, or CPGA, for the first quarter 2008 was $115.59, compared to CPGA of $98.69 in the first quarter 2007. Higher CPGA in the first quarter of 2008 was related to an incremental spend of $7.5 million in marketing spend, related to the launch of the Company's new voice and data plans, introduced during the quarter. The increase was also due to a 45,000 unit increase in handset shipments to non-consignment channels at the end of quarter, as well as higher mix costs due to the popularity of the $99.99 Wild Card handset. While these phones have slightly higher CPGA, they also result in greater data usage, lower churn and increased return on investment.

First quarter 2008 average monthly customer turnover, or churn, was 5.1%, in line with Company estimates. As of March 31, 2008, the Company had over 5.1 million customers, an increase of 4.5% over March 31, 2007.

Average revenue per user, or ARPU, for the first quarter was $19.93, reflecting a decline from the prior year's first quarter ARPU of $22.41, as well as a stabilization of declining usage trends in the prepaid base experienced during the fourth quarter 2007. This decline was the result of lower customer usage of the traditional prepaid plans, which the Company attributes in part to a migration of its higher-spending prepaid customers to monthly hybrid offers. ARPU continues to be supported by sales of Virgin Mobile USA's monthly hybrid plans, which offset declining usage on the traditional prepaid side within a challenging economic environment.

Outlook:
Virgin Mobile USA's management believes 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, even as they continue to impact consumer and wireless products. 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 in a challenging economic environment.

2008:
Estimates for the full year 2008 remain unchanged from the guidance provided on March 12, 2008.

Second Quarter 2008:
Virgin Mobile USA's second quarter results are expected to reflect the seasonality of its business, in which churn tends to be higher due to higher gross adds in the seasonally strong fourth quarter, and revenues tend to be lower. In addition, in the second quarter the Company expects to ship incremental handsets to support its distribution expansion.

Recent Highlights:

In addition to the launch of the Company's new plans with benefits previously only available to postpaid customers including Roll Forward minutes and unlimited text & messaging, other highlights in the first quarter included:

In April, the Company announced David Messenger's role had been expanded to Chief Administrative and Corporate Development Officer.

Later this week, Virgin Mobile USA plans to launch its first handset by Samsung, a mid-tier phone called 'Slash', and will expand its partnership with Facebook to launch a unique new social networking application.

Courtesy: Virgin Mobile, USA

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Posted by Jigar Gondalia on 6 May, 2008 10:37:16 AM IST #