Mediacom Communications Corp. reported revenue growth of 12.7 percent and cash flow growth of 12.2 percent for the second quarter, the MSO's first reporting period after it more than doubled its size by acquiring 800,000 subscribers from AT&T Broadband.
The final phase of the AT&T deal closed on July 18 with Mediacom's $1.79 billion acquisition of 706,000 subscribers in Georgia, Illinois, Iowa and Missouri. In total, Mediacom acquired 800,000 customers from AT&T in those four states for $2.1 billion.
Mediacom had originally agreed to buy 838,000 customers from AT&T for $2.2 billion, but Ma Bell could only deliver 800,000 subscribers.
Excluding the AT&T acquisitions, Mediacom's revenue rose 7 percent and cash flow was up 8 percent.
Mediacom chairman Rocco Commisso told analysts that prior to the sale, AT&T had stopped marketing its service in the systems his company purchased.
"They really did not grow the business in the second quarter; they did not invest in capital expenditures," he said. "The [purchase] price reduction is related to the capital expenditures they didn't make."
But Commisso said he expected to make up a large part of the difference — especially the 12,000 or so subscribers that were lost due to seasonality, mainly college students and vacationers.
"We're ahead of the game," Commisso said. "The seasonal subscribers that we think will come on board come September, in the 12,000 range, will be there. The promotional subs they had that caused the purchase price reduction, we hope, over time, to make them full-time customers."
Deutsche Bank Alex Brown cable and satellite analyst Karim Zia said Mediacom should be able to make up those subscribers, given recent industry trends.
"We've been seeing across the industry a pretty significant seasonal subscriber-growth pattern," Zia said.
Commisso hopes to attract and retain those customers through an aggressive digital and high-speed data rollout. Although high-speed data growth was slow in the first half — only 2,000 new data customers were added — that was mainly due to Mediacom's shift in service providers from ISP Channel to Excite@Home Solutions, Commisso said.
ISP Channel, in which Mediacom was a major investor and customer, closed shop on Dec. 31.
Commisso said Mediacom had delayed launching and marketing high-speed data service during the service-provider transition.
"These deliberate actions costs us revenue, cash flow and customers through the second quarter," Commisso said.
With the transition complete, data additions are now picking up steam. The company averages 850 new cable-modem customers per week.
Digital subscribership rose by 13,000 customers in the quarter, to 66,000 from 53,000.
Mediacom predicted that it would have 315,000 to 325,000 digital-cable customers and 115,000 to 125,000 data customers by year-end.
Revenue for the quarter was $93.1 million, up from $82.6 million in the same period last year. Cash flow was $43.7 million for the period, up from $39 million last year.
Now that the AT&T acquisitions have been completed, Mediacom has revised its revenue and cash-flow guidance for the second half of the year.
Second-half revenues should be $424 million to $432 million, Mediacom said. Pro forma cash flow should be $179 million to $182 million.
Zia said previous Wall Street estimates for second-half revenue were about $450 million and cash-flow estimates were between $185 million and $190 million. But those estimates were based on Mediacom getting the additional 38,000 subscribers from AT&T.
Leaving out those subscribers — which would have provided about $4 million in cash flow and $12 million in revenue for the half — brings the estimates to the level that Mediacom announced, he said.
Second-half capital expenditures should rise to $200 million, up from previous guidance of $165 million to $175 million. The increase is mainly for additional upgrades to the systems acquired from AT&T.
Investors did not react well to the news, driving Mediacom's stock down by $2.10 per share, or 12 percent, to $15 each on Aug. 10.
Zia said the downturn was an overreaction by investors confused by the revised revenue and cash-flow guidance.
"If you look at the impact of these 38,000 subscribers, it reconciles the difference," Zia said.