Disappointing 2Q, Friday for Insight

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Insight Communications Co. Inc. stock was hammered Friday after the company
reported disappointing second-quarter results.

Insight shares were down nearly 8% ($1.07) in afternoon trading to $12.55
each. The MSO reported revenue growth of 11% to $223 million in the second
quarter and operating cash-flow growth of about 6% to $94.5 million, all below
analysts’ expectations.

The New York-based MSO also reported that it lost 13,000 subscribers in the
period, mainly due to seasonal disconnects as students leave school and
snowbirds leave home for summer residences.

Despite the declines, Insight said it still expects to finish the year with
basic-subscriber growth of 1%.

In a research report, Credit Suisse First Boston LLC cable analyst Lara
Warner wrote that subscriber growth for advanced services was below her
estimates across the board.

For the quarter, Insight reported digital-subscriber gains of 4,800 (versus
Warner’s estimate of 9,900), high-speed-data additions of 11,200 (compared with
her estimate of 15,000) and telephony additions of 4,500 (versus Warner’s
estimate of 6,300).

Insight also missed Warner’s operating-cash-flow-growth expectations by a
full two percentage points -- 7.8% compared with the actual quarterly growth of
5.8%.

Warner wrote that while the second quarter is seasonally weak for most MSOs,
Insight was hit particularly hard because of its high exposure to colleges.

Insight said the slower growth in telephone subscribers was mainly due to
delays in rolling out the service in the first half of the year. However,
president and chief operating officer Kim Kelly said telephony subscribers are
expected to rise in the second half of the year.

Insight offers telephony service via a joint venture with Comcast Corp.,
which the Philadelphia-based MSO inherited from its acquisition of AT&T
Broadband.

On a conference call with analysts, Insight CEO Michael Willner said the
company agreed to slow down the telephony-installation process in the first half
of the year, as Comcast was "getting its hands around the telephony
business."

Although Comcast took over AT&T Broadband in November, Kelly said, "The
real heart of the transition happened in the second half, as Comcast moved off
of AT&T legacy back-office systems to their own systems and, in that
transition, there were holdups in terms of actually being able to do installs
and then some operational issues in terms of completing installs."

Insight said it is basically done with its rebuild program and, as a result,
it lowered capital-expenditure guidance for the full year to $200 million from
$220 million.

On the bright side, the MSO increased its average revenue per
unit by $5.47 per month to $57.10 from $51.63 in the second quarter of last
year.

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