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Mediacom Has Mixed Q4

Operator's Capex Expected To Rise For Digital Transition

By Mike Farrell -- Multichannel News, 2/26/2008 3:41:00 AM

Mediacom Communications stock dipped 6.5% (30 cents per share) to $4.31 each in early trading Tuesday, after the secondary market cable operator reported mixed fourth-quarter results.

Mediacom improved its basic customer losses in the period -- it shed 7,000 basic customers in the quarter, compared to a loss of 14,000 in the same period in 2006. But revenue and cash flow growth was below industry benchmarks. For the period, Mediacom reported revenue of $332.5 million (up 6.2%) and cash flow rose 7.7% to $119.5 million. For the year, revenue was up 6.9% to $1.3 billion and cash flow increased 4.2% to $463 million. Other larger cable operators routinely report 10% and above revenue and cash flow growth.

Perhaps more concerning to investors, Mediacom said it would increase capital spending in 2008 by between $20 million and $30 million, mainly to purchase equipment and for network improvements to comply with the Federal Communications Commission-mandated digital transition in February 2009.

But even with the increased capital spending, Mediacom said it expected to report positive free cash flow of $18 million for 2008. In 2007, the Middletown, N.Y.-based operator reported a free cash flow deficit of $3.6 million.

Mediacom added about 16,000 digital video customers; 20,000 phone customers and high-speed Internet customers increased by 22,000 in the period.

In a conference call with analysts, Mediacom chairman and CEO Rocco Commisso said that the first quarter will be a substantial improvement over the same period last year and evMediacom chairman and CEO Rocco Commissoen over the fourth quarter. He added that while some of that improvement is due to more favorable comparisons – last year’s first quarter was impacted by the three-month long retransmission consent fight Mediacom has with Sinclair Broadcasting Group, he said that the quarter should be marked by operational improvements as well.

“You are going to see an improvement over the fourth quarter and a dramatic improvement over the first quarter last year,” Commisso said, adding that last year Mediacom delayed most of its rate increases until the second quarter. This year the bulk of its rate increases were implemented in the first quarter.    

In a research note, Miller Tabak media analyst David Joyce wrote that the results were slightly below his expectations – he expected revenue of $335 million and cash flow of $121.8 million.

“The stock will be in the penalty box for awhile,” Joyce wrote in his research note. The analyst also lowered his rating on the stock to “neutral” from “buy” and reduced his 12-month price target on the stock to $6 per share from $7.50 each.

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