Q2 In Line For Mediacom

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Higher capital expenditures tied to a telephone network upgrade helped push free cash flow down more than 50% at Mediacom Communications in the second quarter, but the mid-size operator managed to report new services growth that helped it meet analysts' expectations.
Revenue at the Middletown, N.Y.-based MSO was up 3.7% to $377 million and adjusted operating income before depreciation and amortization increased just 2.1% to $139.7 million. Free cash flow declined 50.9 % to $14 million, mainly on a $9.8 million increase in capital expenditures and a $7.8 million net change in certain working capital accounts.
In a research note, Miller Tabak media analyst David Joyce wrote that the financial metrics matched his estimates, although free cash flow was far below his target. However, Joyce wrote that the shortfall may be mostly related to timing as the MSO accelerated capex spending for the telephone upgrade.
In a conference call with analysts, Mediacom chief financial officer Mark Stephan said the capex increases were due in part to Mediacom's efforts to migrate away from a third party infrastructure for its phone service. In the second quarter, that project accounted for about 20% of total capex. He added that additional spending will spill over into the first half of 2011.
The transition to its own phone network will start next week and last until the first quarter of 2011 and will allow Mediacom to provide a more robust commercial service, the company said.
Basic subscriber losses continued to hound the small-market MSO in the quarter, as about 18,000 basic video customers fell off the rolls. While that was up from the 15,000 basics shed last year, it was offset by stronger additions in advanced services. High-speed data customers rose by 10,000 (compared to 6,000 last year) and phone customer increased by 17,000 (compared to 8,000 last year). Digital cable subscribers rose by 6,000 in the quarter, versus a gain of 8,000 in the same period in 2009.
On the call, executive vice president of operations John Pascarelli said that the bulk of the basic customer losses were single-product video subscribers, lured away by aggressive promotions from satellite competitors. Mediacom has intensified its efforts to attract price conscious customers to a two- or three-product bundle. Pascarelli said so far, 57% of customers are taking the 2-product plan, with 20% taking all three. Mediacom also started the Mediacom Value Plan (MVP) about three months ago to lock in customers to one or two-year contracts, with greater discounts for the longer commitment. Pascarelli said so far about 60% of customers have taken the 2-year deals.
There was no new news regarding chairman and CEO Rocco Commisso's proposal to take the company private. Commisso, who founded Mediacom in 1995, made an offer on June 1 to purchase the remaining shares he didn't already own for $6 each. Commisso already owns about 40% of Mediacom's equity and 87% of its voting shares. Last month Mediacom named independent board members Thomas Reifenheiser and Natale Ricciardi to a special committee to evaluate the proposal. In his brief comments during the conference call, Commisso said that the evaluation process is continuing.

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