Knology Says Investments Are Paying Off


Buying Sunflower Broadband and building out further within
existing markets drove Knology to revenue and cash-flow highs and positive earnings,
also helped by a “sticky” price increase.

Knology, which overbuilds cable operators
in many markets, posted first-quarter
revenue of $128 million, up 16% from
$110.1 million in the same period in 2010.

The October acquisition of Sunflower
Broadband contributed $12.4 million, but
even without the addition of the Kansasbased
operator, Knology increased revenue
by about 5%, in line with most cable
operators. Sunflower also helped push
cash flow to $47.4 million (up 26%), the highest level in Knology’s history.

Knology also has $12.2 million (33 cents per share) of net income in the quarter, versus a
loss of $815,000 (2 cents) a year ago.

“We have reached an inflection point for net income,” Knology chief financial officer Robert
Mills said on a call with analysts. “We expect to see these net income trends continue.”

Knology paid about $165 million for Sunflower, adding about 105,000 revenuegenerating
units in Douglas, Eudora and Lawrence counties in Kansas. It also signed a
definitive agreement to buy small tuck-in cable operations in Fort Gordon, Ga., and Troy,
Ala., for about $30 million in cash.

In existing markets, Knology has invested in extending to outlying neighborhoods
and is rolling out higher-speed Internet service (including a DOCSIS 3.0 product) in several

The so-called Edge Out program began in 2010 and buy the end of this year, Knology
will have spent about half of the $100 million earmarked for it, with results already being
demonstrated. The triple-play provider lost about 556 video customers in the first quarter,
but added 5,159 high-speed data and 2,126 voice subscribers.

Knology president Todd Holt said residential RGU additions of about 5,800 were split
evenly between gains from the Edge Out program and organic growth. Edge Out added
about 7,400 additional homes passed in the quarter and Knology averages about 2.7
RGUs for each new Edge Out customer.

A rate increase in the quarter helped drive average video revenue per unit (ARPU) up
about 6% to $55.49.

“The price increase was very sticky,” Holt said, but he didn’t specify
the size of the rate hike.

The results beat most of Miller Tabak media analyst David Joyce’s expectations,
falling a bit short on subscriber metrics (he had predicted a
gain of 3,000 video customers).

Joyce said strong video ARPU growth in the quarter — to $55.49
from. $52.48 a year ago — could indicate that Knology is “gaining
higher revenue-stream customers while losing more lower-value

“We’ve turned the corner on the video thing,” Knology chairman and
CEO Rodger Johnson’s take. “I’m very confident with everything being
back on track.”

He said that Knology went into the Edge Out program expecting a
40% rate of return on the $100 million investment. “I don’t see any reason
to back off of that,” he said. “There are probably more good Edge Out
opportunities that we haven’t identified.”