Mixed Q1 For Cablevision


In its first full quarter since long-time chief operating officer Tom Rutledge abruptly left the company, Cablevision Systems beat analyst subscriber expectations soundly in the first quarter, while missing financial predictions by a wide margin.
The result was a precipitous fall in its stock price - down 7.9% ($1.16 each) to $13.54 per share Thursday - and questions whether the MSO has sacrificed financial growth for short-term subscriber gains.
Cablevision added 7,000 basic subscribers in the period, well ahead of consensus expectations of a loss of 7.400 subscribers, High speed data and phone customer additions of 42,000 each also soundly beat consensus estimates of 22,000 and 25,000 additions, respectively.
But the Bethpage, N.Y. missed the mark on revenue and adjusted operating cash flow growth, causing some analysts to wonder if Cablevision's past success is catching up with it.
Consolidated revenue grew just 0.2% to $1.7 billion and consolidated adjusted OCF declined by 7.6% to $513.5 million, soundly missing consensus of $547 million.
In a research note, ISI Group media analysts Vijay Jayant and Judah Rifkin wondered if the MSO sacrificed financial gains for short-term customer growth. The two analysts pointed to past aggressive promotions by the cable company - including a brief dalliance with a $70 triple play package - that may have had a negative impact on financials.
"In essence, we believe that in order to generate growth, Cablevision did exactly what investors didn't want: it was "giving away the farm" in order to post respectable (ok, outstanding sub additions)," Jayant and Rifkin wrote.
Sanford Bernstein cable and satellite analyst Craig Moffett, in a research report entitled "Cablevision: The Roof, The Roof is on Fire," wrote that the biggest surprise wasn't that Cablevision's results were sloppy, but that anyone could have expected anything different.
"After all, this is a company that has lost its President, its COO, its heads of marketing, technology, and ad sales, its one-time CFO, and a host of others in recent months," Moffett wrote. "It faces more competition than anyone in the business, has already squeezed most of the juice out of its territory with ultra-high penetration rates for all services, and it hasn't taken a price increase this year, leaving it levered almost entirely to subscriber growth in a saturated market."
Since last year, Cablevision has lost former cable operations president John Bickham, Rutledge, CFO Mike Huseby, marketing chief Jonathan Hargis, EVP of product management John Trierweiler, EVP of advanced platform sales Barry Frey, president and chief operating officer of media sales David Kline, EVP of corporate technology and engineering Jim Blackley and EVP of consumer operations Kathleen "Kip" Mayo.
"Certain roles have changed, some have expanded and others are no longer needed," Cablevision CEO James Dolan said on a conference call with analysts. "As a result some executives have departed the company, but we have also hired several senior executive who are bringing fresh ideas and a renewed energy to our efforts. These types of changes are inevitable as we continue to grow and transform the company. I have tremendous confidence in our management team and in our entire organization, I strongly believe we have the right plan in place to set this company on the path toward long term success, delivering greater value for our customers and for our shareholders."
Among those recent hires is former AT&T exec Greg McCastle, who replaced Kline, and former SeaChange International president Yvette Kanouff, who signed on as executive vice president of engineering, software design in March.
Dolan said there are no immediate plans to start a hiring spree.
"I plan on staying right where I am, in the operating role that I'm in, for some time; I would anticipate at least through this year and beyond," Dolan said. "We have a lot of work to do and I feel that I need to be right here to do it. I do not anticipate that I'm going to fill some of those positions that were vacated before."
Dolan has said that 2012 will be a year of investment for Cablevision, and he reiterated that point in Thursday's conference call, adding that the first quarter declines were in part a result of the decision to dedicate more resources to its infrastructure and to position the company for future growth. He added that Cablevision is on track to convert its network to all-digital later this year and is in the process of beefing up its Wi-Fi, mobile and TV2Go offerings. He added that the MSO will add more indoor and outdoor Wi-Fi hotspots throughout its footprint, as well as expanding its Android Smartphone app to include live television.
"The goal is to allow live television viewing on all the screens within our customers' homes," Dolan said.