Video services

TWC Enjoys Victory Lap in Quarterly Results

So who needs either Comcast or Charter right now?

Blowing away Wall Street's consensus estimates for subscriber increases, Time Warner Cable Inc. (NYSE: TWC) racked up its finest quarter yet for overall customer gains in the first three months of the year. In brash defiance of the industry skeptics who had all but buried the company just 16 months ago, the second largest US MSO registered its first quarterly video sub gains in six years and added droves of customers across the board, setting itself up for strong revenue gains later this year and next year.

In so doing, TWC greatly strengthened its case for remaining independent for at least a while, just a week after its proposed takeover by Comcast Corp. (Nasdaq: CMCSA, CMCSK) collapsed. At the very least, TW Cable likely succeeded in raising the price that its perennial suitor, Charter Communications Inc. , would have to shell out to acquire it. (See Is TWC Sitting in Catbird Seat Now?)

Following a string of quarters in 2013 and 2014 where it seemed like it could do nothing right, Time Warner Cable appeared to do almost nothing wrong in the first quarter. The MSO added 30,000 basic video subscribers (best since Q1 2009), 315,000 residential broadband subs (best since Q1 2007), 320,000 residential voice subs (best quarter ever), 298,000 triple-play subs (best quarter ever) and 205,000 overall customer relationships (best quarter ever).

What's more, TWC continued its robust growth in business services, connecting nearly 12,000 commercial buildings to its network as its business revenue climbed nearly 17% from a year earlier to $781 million in the quarter. Plus, the company reported strong gains on the customer service front, slashing repair calls by 650,000 on a year-over-year basis while cutting truck calls for repairs by 15% and markedly trimming its customer churn rate.

"By almost any measure, Q1 was our best subscriber quarter ever," crowed TWC Chairman & CEO Rob Marcus on the company's earnings call with analysts Thursday. "We are a far stronger company than we were just five short quarters ago."

Despite news reports that he plans to meet with Charter CEO Tom Rutledge next week to discuss a likely new takeover bid by Charter, Marcus repeatedly deflected analysts' questions about TWC's interest in being acquired. "We feel great about the spot we're in," he said. "We're pleased with the overall health of the business."

Instead, Marcus and his two chief lieutenants kept the call focused on TW Cable's operating improvements. Among other things, they noted that the MSO has now rolled out its "TWC Maxx" program to six markets, with another four slated to join them by the end of the year. Under this program, Time Warner Cable is upgrading each market to all-digital video transmission and broadband speeds as high as 300 Mbit/s, as well as carrying out various customer service improvements.

With nearly 2.4 million new set-top boxes, digital adapters and advanced cable modems now installed in customer homes as part of TWC Maxx, Time Warner Cable is aiming to have 40% to 50% of its 27 million homes-passed upgraded with new equipment by the end of the year. Marcus indicated that the pace of upgrades could pick up in 2016 as company officials keep gaining more experience with implementing TWC Maxx.

In response to questions, Marcus also said TWC scored video subscriber gains against its two leading telco rivals, AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), in the winter quarter. He noted that "connects are up and disconnects are down" in every market where it competes against AT&T's U-verse and Verizon's FiOS services.

In one of the few down notes of the earnings call, TWC officials acknowledged that the company's cash flow will remain flat this year because of higher capital spending, rising pension costs and higher regional sports network and other programming costs. But they insisted that today's higher capital and operational expenses will pay off in the near future as the new wave of subscribers generates higher revenues.

"You have to spend to get the subscriber machine running," said TWC CFO Artie Minson, likening the company's business to a flywheel. "But once it's running like our flywheel is now, you're in a great position to deliver strong, sustainable growth."

If all goes as planned, Minson said the company's adjusted operating income before depreciation and amortization (OIBDA) could hit $9 billion next year, up nearly 10% from its 2014 total.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

Phil_Britt 5/2/2015 | 5:23:47 PM
What Does This Mean for Charter With TWC numbers coming in so good, the company can command a higher price from Charter -- if an offer is made. The higher price may make Charter think twice about making an offer. Even though Charter would have a better chance in front of regulators than Comcast, the cost of making a convincing presentation in front of regulators is another consideration that may make Charter hesitate about any offer.
Mitch Wagner 5/1/2015 | 5:58:30 PM
Exciting time TWC is certainly in a completely different position than it was when the Comcast merger started. It's an exciting time for  the industry. The dissolution of that merger puts a lot of things back in play.
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