Earnings reports

Insight Cuts Loss With Record Sub Gain

Insight Communications Co. Inc. , concluding its first full year as a privately owned company, posted much smaller financial losses for the fourth quarter and all of 2006 as the company's record subscriber growth generated healthy increases in both revenues and adjusted earnings.

But Insight, the nation's ninth largest MSO with more than 1.3 million basic cable subscribers, still couldn't escape the red. Despite its strong revenue growth, the New York-based cable operator wound up losing $9.1 million in the fall quarter and $36.6 million for the entire year.

Coming up short on another financial measure, Insight also recorded negative free cashflow for both the fourth quarter and the year. The MSO reported $9.8 million and $22.4 million in negative cashflow for the quarter and year, respectively, reversing the $13.5 million in positive cashflow that it generated in 2005.

Speaking during the company's earnings call this morning, Insight executives blamed the continued losses and renewed negative free cashflow on a smattering of factors, including greater capital spending on their broadband pipes and digital cable set-top boxes. The company, which serves four Midwestern states, also cited higher net interest payments on its debt, higher programming costs, higher customer service costs, and some local tax changes in its service areas.

Insight officials insisted that big one-time items accounted for at least some of the increase in capital expenditures, including the switchover of the company's high-speed data services infrastructure from an outsourcing deal with AT&T Inc. (NYSE: T) to in-house operations, a network-wide upgrade in cable modem speeds, and its expanded rollout of VOIP service. "A lot of that is behind us," said Insight vice chairman and CEO Michael Willner.

Company executives also argued that about 80 percent of their capital spending last year contributed directly to their sizeable subscriber and revenue gains. "The vast, vast majority of that was related to growth," said John Abbot, executive VP and CFO of Insight.

Finishing the year strong, Insight added 70,300 revenue generating units (RGUs) in the fall quarter, down from its gain in the year-earlier period but still its second highest fourth-quarter haul ever. Breaking the RGUs down by product category, the MSO netted 4,000 basic cable, 23,900 digital video, 31,800 high-speed data, and 10,500 VOIP subscribers over the final three months of the year.

In another fall highlight, Insight more than doubled its VOIP service coverage over the past four months, extending IP telephony to eight more markets in Indiana and Illinois. With the expansion, the MSO now offers VOIP to more than 2 million of its nearly 2.5 million homes passed, up from about 850,000 homes at the end of September.

"We had a lot happening in Q4," said Insight president and COO Dinni Jain, noting that the company also hiked its fastest broadband downstream speeds to 10 Mbit/s during the fall. "Now that phone is rolled out, we look forward to equally fast growth in that area, too."

For the full year, Insight performed even better, easily breaking its 2005 record for cable subscriber growth. The MSO added 318,300 RGUs, up from 242,100 units in the prior year. The breakdown included 41,200 basic cable, 102,800 digital video, 140,800 cable modem, and 33,500 phone customers.

Largely as a result, Insight generated $331.5 million in revenue for the fall quarter, up a record 14.3 percent from $290.1 million in the year-earlier period. In another key financial metric, Insight reported that its adjusted operating income before depreciation and amortization (OIBDA) climbed to $135.5 million, up 11.1 percent from $112.0 million the year before.

For the full year, Insight reported $1.27 billion in revenue, up 13.0 percent from $1.12 billion in 2005. Adjusted OIBDA rose more modestly to $490.2 million, up 4.8 percent from $468.0 million in the previous year.

Insight, which went private in a buyout by senior management executives in September 2005, didn't provide any formal guidance figures for 2007. But MSO executives said they expect the strong subscriber and revenue gains to continue over the coming year. "The company is kicking on all cylinders now," CEO Willner said.

— Alan Breznick, Site Editor, Cable Digital News

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