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Jonathan, David, John and I have just finished the all employee meeting out here in Walnut Creek in which we shared some significant decisions that we have made about how the company can move forward most successfully.
2007 was a year in which we set the stage for a new strategic direction for the company by achieving more than 5 million customers, $100M in adjusted EBITDA, our first year of profitability and successfully completing the IPO. Since the end of last year, we have been working with the Board to define our vision and to begin implementing a strategic outlook that will support future growth. This will require some key changes in our operating model that impact many of us in the company, so I want to share these decisions with you and the compelling reasons for making them.
First however, I want to give you my perspective on our stock performance and our current status as a public company. Virgin Mobile USA is profitable, and we expect to show strong growth in EBITDA, earnings per share and free cash flow this year. The market’s negative reaction after our Q4 and 2007 earnings call was because our revenue and EBITDA growth did not meet the street’s expectations. It is not a reflection of the facts that demonstrate the increasing financial strength of our company. We are being prudent in our estimates for 2008 because we recognize these are tough economic times and we expect them to continue for some time. We continue to be committed to long-term growth and delivering the level of results that will lead to a very different market valuation. The Board recognizes our achievements and strongly supports our plans.
For us to achieve this growth and this level of results we have two clear goals. We need to continue to become more integrated and flexible so that we improve our customers’ experience through a better integrated portfolio of services and are able to respond more rapidly to the market than our competitors. We also need to relentlessly focus on improving our bottom line by finding new more efficient ways to work and leveraging our scale.
In the context of these goals, we announced today that we will be consolidating the company into one location in Warren NJ and that this transition will be complete by Q1 2009. We believe this will help us drive better integration and dramatically improve the company’s productivity and cost structure. As part of this move, we will be fully outsourcing IT to IBM by the end of Q3 this year. We will be integrating the Handset and Care HQ teams into NJ and anticipate that the transition for Care HQ will be completed by the end of Q3 this year and for the Handset team by Q1 2009. We will be finalizing the detailed transition plans over the next several weeks.
All companies regularly review outsourcing as a matter of course nowadays and in fact the most major telecoms and wireless companies do outsource all or significant parts of IT. Outsourcing IT will allow us to access and leverage IBM’s broad range of capabilities that it is just not possible for us to re-create internally. It will also significantly reduce our operating costs which will allow us to reinvest more in the company’s growth in the years ahead. We are going to need to update and expand our systems significantly over the next few years, well beyond the range of current projects like the new rating platform and EVDO, and it will become cost prohibitive for us to do that in-house on the timeframe the market will demand of us. Leveraging a partnership with IBM will allow us to take advantage of their investments in R&D, disaster recovery and new technologies and wireless products.
The first stage in the transition will be to finalize details of the contract with IBM which we expect to do by May and they will be sending out data questionnaires next week and be on-site starting to meet with our team the week of March 31. After the contract is finalized there will be a four-month transition period with IBM staff working alongside Virgin Mobile teams.
We anticipate 30-40 IT employees will be offered jobs in IBM’s San Ramon office, continuing to work on Virgin Mobile’s systems and that IBM will make these offers over the next two months. IBM is also always looking for good talent and other IT employees will be able to apply for any open positions in IBM. We want everyone to stay and stay focused through the transition, and also to support everyone in finding a new opportunity, if they do not move to IBM, so we are implementing a range of programs including completion bonuses, severance packages, accelerated vesting of all RSUs, outplacement support, and in some cases relocation support.
This process will take some time, and I want to reinforce that nothing will begin to change for several months. Helping everyone through this difficult period is a priority, along with staying focused on running the business. We’ll have all of the detailed transition planning done by May 15 and will share more information as soon as possible as we go through the process. If you are directly affected by these changes, by tomorrow you will receive more detailed individual information on the bonuses, severance and benefits you will receive if you stay with the company and help maintain a smooth transition.
We have been fortunate to have had an incredible team of talented and experienced professionals in WC. They built the infrastructure and foundation for launching the company and being able to successfully grow to scale and profitability, and they have always been active partners in shaping the best direction for the business. We have all worked hard alongside each other, and I have a great respect for the WC teams and have developed strong friendships with many. This is a forward-looking decision based on the new and different challenges we will need to overcome in the years ahead, and, there is an overwhelming case that this is the right decision for the long-term growth and success of the company.
Jonathan, David, John and I will be meeting with all of the individuals and teams over the next few days to talk in more detail about why we are doing this and how the transition will work and it means for each of you. We are all always available to answer questions and concerns, so please reach out to me or one of them, and we’ll work hard to keep everyone updated as we go forward.
Best,
Dan
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