Insight Stumbles, Vows to Bounce Back in 2004


After reporting its second consecutive disappointing quarter, Insight Communications Co. vowed a return to double-digit growth next year.

Basic subscribers were down by 2,200 customers in the third quarter, after a loss of 13,000 basic subscribers in the previous period.

While third-quarter revenue rose 11% to $228.4 million, operating cash flow rose just 6% — below most analysts' expectations — to $98.5 million. It was also the second straight quarter of 6% operating cash-flow growth.

While Insight CEO Michael Willner told analysts on a conference call that he was disappointed, he said he believed the MSO has identified the causes of the shortfall and is addressing them.

"I have no doubt that this company is already positioned to return to importantly higher cash-flow growth next year," Willner said.

COO Dinesh Jain, appointed to that post last month, blamed the shortfall in operating cash flow growth on increased competition from direct-broadcast satellite, the basic-subscriber decline and a failure to market basic service.

DirecTV Inc. added rebroadcast local stations in Insight's biggest market, Louisville, Ky. — which represents about 25% of its subscriber base — at the tail end of the second quarter, around the same time Insight was implementing a rate increase.

Jain said Insight will refocus its marketing efforts on retaining basic customers and concentrating on the cable value proposition.

"What we have to do is make a change from being builders of this infrastructure to being sellers of multiple services to a diverse customer base," Jain said on the call. "Primarily, that means changing our focus somewhat from being very focused on technology alone to a new focus looking much more at marketing and customer service."

As expected, Insight revised 2003 operating cash-flow guidance down to a range of 7.5% and 8% from 11.5% and 13%.

Fulcrum Global Partners analyst Richard Greenfield called the results "abysmal" in a research report and said he was surprised that Insight's financials were so poor, given that revenue results were in line with expectations and digital, data and telephony subscribers exceeded his forecasts.

On the bright side, Insight added 23,500 digital subscribers in the quarter — its best performance in six quarters — and added 29,000 high-speed data customers in the period for its best quarter ever. Insight also added 7,100 telephony customers, finishing with 49,300 subscribers.

Driving digital additions were Insight's rollouts of video-on-demand and subscription VOD services in most of its markets. Jain said that in the quarter, the digital disconnect rate was 20% lower, attributable mainly to increased usage of VOD.

Insight's share price rose 24 cents on Oct. 29, to $10.06.