After Privacy Bid, RCN Falls Flat in Q4

By Mike Farrell -- Multichannel News, 3/15/2010 7:31:00 AM

Just a few days after announcing it would go private after a $1.2 billion acquisition by ABRY Partners is completed later this year, RCN released its fourthquarter and year-end financial results, exceeding some analysts’ estimates but falling short on others.

RCN reported revenue of $190 million in the fourth quarter on March 9, up 1% from the same period in the prior year. Earnings before interest, taxes, depreciation and amortization increased 3% to $55 million in the period, and free cash flow was $7 million, fl at compared to the prior year.

For the full year, revenue increased 3% to $764 million and EBITDA rose 13% to $194 million. Free cash flow was $35.7 million, compared to a $3 million free-cashflow deficit in the prior year but far short of some analysts’ expectations of $44 million.

“For years, we have been positioning RCN to deliver strong free cash flow, and we are very proud to have generated approximately $1 per share in free cash flow during 2009,” RCN chief financial officer Michael Sicoli said in a statement. “We will continue our efforts to grow free cash flow by focusing on revenue growth and margin expansion, while maintaining a stable level of capital expenditures.”

Growth at its RCN Metro segment, which provides high-end optical network services to large enterprises, was stronger, with revenue up 9% in the quarter to $49 million and EBITDA up 27% to $17 million. For the year, RCN Metro reported revenue of $189 (up 11%) and EBITDA of $63.5 million, a 30% increase.

On the residential side, RCN lost about 3,000 video customers and 4,000 telephone customers, but added about 3,000 high-speed data subscribers during the quarter.

“In hindsight, the same trends we have seen for other cable operators hold true for RCN,” aid Miller Tabak media analyst David Joyce.

Joyce said that revenue and cash-flow growth on the residential side — which includes small business customers — was a little below his expectations for the quarter, while performance at the RCN Metro segment was a little better than expected.

The Metro business was a big reason for doing the ABRY deal, according to Joyce, who has said RCN had expressed a desire to expand Metro’s reach, but was wary of the reaction from Wall Street. While expanding the network could be funded through its own free cash flow, RCN believed that it would be easier to do so as a private company.

ABRY is expected to close the deal, which would give RCN shareholders $15 per share in cash and includes the assumption of about $737 million in debt in the second half of the year. According to the agreement, RCN has until April 10 to find a better deal.