Insight Suffers Q3 Loss
LR Cable News Analysis Alan Breznick, Cable/Video Practice Leader, Light Reading 11/9/2006
Insight, the nation's ninth largest MSO, absorbed a slightly higher net loss for the third quarter Wednesday as its capital expenditures and net interest expenses both spiked on a year-over-year basis. The company reported a net loss of $7.7 million for the quarter ended Sept. 30, a slight deterioration from its $7.4 million loss of a year ago.
Concluding its first summer as a privately owned company, Insight also recorded negative free cashflow of $4.2 million. That represents a reversal from the $30.7 million in positive cashflow that it generated during the same period a year earlier, when it was still publicly owned.
Speaking during the company's earnings conference call yesterday, Insight executives blamed the higher quarterly net loss and negative free cashflow on a mix of factors, including sharply greater capital expenditures on its broadband services infrastructure and digital cable set-top boxes. The New York City-based 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, which went private in a buyout by senior management in September 2005, suffered the financial reversals despite posting strong increases in revenues and operating income over the summer months. The company generated $318.1 million in overall revenue, up 14.0 percent from $279.0 million in the year-earlier period.
Talking to analysts, Insight vice chairman and CEO Michael Willner called the revenue gain "the highest I can remember." He said a quick check of company records showed that it was at least the biggest sales increase since 2003.
In another key financial metric, Insight reported that its adjusted operating income before depreciation and amortization (OIBDA) climbed to $124.9 million in the quarter. That's up 8.0 percent from $116.0 million in summer 2005.
Insight officials credited these gains to robust across-the-board subscriber increases and, in some cases, service price hikes. The company added 92,400 new revenue generating units (RGUs) in the quarter, which, while down slightly from the 98,200 new RGUs added in the year-earlier period, still represented its third strongest quarterly performance in the past five years.
"It was a terrific quarter for us," Willner said. "You can now begin to see a trend developing where we are significantly outperforming previous quarters in previous years."
Insight's broadband service produced the biggest subscriber gains once more, as the MSO signed up 44,800 new cable modem subscribers. While this total marked a slight drop from the 47,900 new cable modem customers that it netted in the summer of 2005, it still amounted to the company's second best summer performance in five years.
Thanks to this increase, Insight boosted its broadband customer count to 579,300, up from 439,200 a year earlier. It also raised its broadband penetration rate to 24.0 percent of service-ready homes passed, up from a relatively low 18.6 percent rate last September.
Insight president and COO Dinni Jain noted that the MSO long lagged behind the industry average for broadband penetration rates. With the latest gain, he said, Insight now slightly exceeds the cable average for the first time.
Moving on to video, Insight enlisted 25,500 digital cable subscribers, down a bit from 29,100 during the previous summer but once again its second-best performance in five years. Due to this gain, the MSO lifted its digital customer count to almost 600,000, giving it a healthy 47.6 percent digital take rate among its basic cable homes.
Even more notably, Insight registered its strongest quarter of basic cable growth in recent years. The MSO added 16,400 new basic video customers in the third quarter, after signing up 13,800 in the same period last year but shedding 4,300 subscribers during the spring.
With the latest increase, Insight now has more than 1.3 million basic subscribers, which translates to 53.7 percent penetration of its nearly 2.5 million homes passed. Jain noted that the MSO has added 62,000 basic cable customers over the last five quarters, after losing about 40,000 customers over the previous five.
In the cable telephony department, Insight netted 5,700 phone subscribers in the third quarter as it ramped up its relatively late rollout of VOIP service to its customer base. That's down from 7,400 new phone subscribers a year earlier, when the company was offering only its older circuit-switched technology to about 35 percent of its homes.
With this increase, Insight raised its phone customer total to 112,900. Company officials said they recently launched VOIP service in three more markets, including one earlier this week. It plans to complete the rollout to the rest of its markets by the end of March.
Despite the latest subscriber increase, Insight actually lowered its phone penetration to 11.2 percent of marketable homes, because it made its new VOIP product available to an additional 136,000 homes in the quarter. Between IP and circuit-switched technologies, it now offers phone service to just over 1 million of its homes passed.
— Alan Breznick, Site Editor, Cable Digital News