Video services

TWC Goes Out With a Bang

Time Warner Cable may be going away soon, but at least it's going away in style.

In what was very likely its last earnings report as an independent entity, Time Warner Cable Inc. (NYSE: TWC) notched robust subscriber and revenue gains across the board in the first quarter. Most notably, TWC added 21,000 new video subscribers, an impressive 314,000 high-speed data subscribers and 236,000 new residential customers overall as its capital upgrade, sales and marketing and customer service investments continue to bear fruit.

As a result, Time Warner Cable's all-but-certain new owner, Charter Communications Inc. , will inherit a much healthier company than the one it originally started pursuing three years ago. By just about every measure, TWC is in much better shape than it has been in years. (See Wheeler Recommends Charter Deals.)

"We noted last quarter that the turnaround at TWC was entering its final phase," said Wall Street analyst Craig Moffett, a principal at MoffettNathanson LLC , in a note to investors today. "Today they can close the book saying the turnaround is effectively complete. Charter is inheriting a much stronger company than it purchased more than a year ago."

On their earnings call Thursday morning, Time Warner Cable executives accepted numerous plaudits from financial analysts for resuscitating what appeared to be a terminally ill cable company just three years ago. They noted, however, that the turnaround of the second-largest US MSO is still far from complete and has actually just begun.

For example, responding to a baseball-analogy question from Moffett, TWC COO Dinni Jain characterized the company as still just in the third inning of its return from the abyss. "I'm not really sure if it's the top or the bottom of the third," Jain said. While "we feel very good about" starting the positive momentum, particularly in customer service, he said, there are "a lot more" improvements to make over the next few years, particularly on the sales and marketing side. "It doesn't take just one or two years," he noted.

Nevertheless, Time Warner Cable officials expressed pride that they will be handing over a much healthier cable operation to Charter sometime next month, if all goes as planned. "I think we have many more similarities with Charter than differences now," Jain said. "I think they'll be very pleased with our momentum."

In a reflection of that momentum, TWC boosted its video subscriber total once again, after closing out 2015 with its first annual gain in many years. As a result, the company wrapped up the quarter with about 30,000 more video customers than a year ago.

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Similar to Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable enjoyed a broadband bonanza in the winter quarter, lifting its customer total to nearly 13 million. That's up more than 1 million subs from a year earlier.

Even on the formerly languishing voice end of the business, TWC scored strong gains. The MSO netted 178,000 phone subscribers in the quarter, raising its total to almost 6.5 million, up about 16% from a year earlier.

Time Warner Cable also maintained its growth trajectory on the business services side, generating $886 million in commercial revenue for the quarter, up more than 13% from $781 million a year earlier. That puts the MSO on track to clear at least $3.6 billion in commercial revenue this year, which would be up from $3.3 billion in 2015.

As a result of this momentum, TWC's bottom line also improved markedly in the first quarter. The company's overall revenue climbed 7.2% on a year-over-year basis to nearly $6.2 billion and its profitability, as measured by total adjusted OIBDA, margins and earnings per share, rose as well even as its capital spending showed no signs of slowing down.

"If there had been a missing piece of the puzzle, it was profitability," Moffett wrote. "Now, even profitability is showing solid growth."

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

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