Less than one year after turning its back on the public stock market and going private, Insight Communications showed the cable industry just one of the advantages that come with minimal Wall Street scrutiny: It can spend money without worrying about the effect on its stock price.
Insight, which completed a $710 million deal in December to take itself private, reported second quarter financial results Thursday, with revenue up a strong 12%. But Insight, which still reports its earnings because it has public debt, took a hit on the cash flow side – operating income before depreciation and amortization was down 4% in the quarter – primarily because it has been spending heavily to beef up its marketing and roll out voice over Internet protocol telephony service. Insight CEO Michael Willner said on a conference call with analysts that the eighth largest cable operator in the country had budgeted a cash flow decline as part of an overall plan to drive growth.
“Although that operating cash flow number may seem to be a bit out of line based on our top line growth, it was actually in line with our Q2 budget,” Willner said. He added that Insight also faced tough comparisons to its second quarter 2005, when a 15% uptick in OIBDA was fueled mainly by one-time gains.
Insight began ramping up marketing spending in the third quarter last year, efforts which are seeing positive results in subscriber growth, but have temporarily affected cash flow growth. That should change as expenditures are beginning to level off.
“As a result of these investments, we are very comfortable that we will resume OIBDA growth in the third quarter this year and continue our strong RGU growth as we go through to the end of the year,” Willner said.
Insight would not reveal just how much it is spending on marketing – another advantage of being privately held – but said that expenses in the quarter rose about $37.3 million, or 24%.
Insight already has about 107,000 circuit switched telephony customers and said it will begin rolling out VoIP service next month. It expects to have VoIP service available in the 70% of its footprint that does not have circuit switched service by early next year.
On the bright side, Insight had its best second quarter ever in terms of RGU growth – it added 34,600 RGUs, more than twice its previous best of 17,000. Insight also dramatically improved basic subscriber losses in the period, typically a tough one for the cable operator because it has a high exposure to college communities. Insight president adn chief operating officer Dinni Jain said on the call that typically Insight loses between 14,000 and 15,000 basic susbcriers in the second quarter as college students return home. This time, Insight lost just 4,300 basic customers, which Jain attributed to the stronger RGU growth.