After Privacy Bid, RCN Falls Flat in Q4


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.