Time Warner Cable Beats Expectations In Q1

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Time Warner Cable soundly beat analyst expectations in the first quarter, reporting a 5.4% rise in revenue and a 10.9% increase in cash flow, its first double-digit growth performance in that metric in two years.
"We're off to a great start for 2010," Time Warner Cable chairman and CEO Glenn Britt said on a conference call with analysts.
Revenue for the period was $4.4 billion compared to $4.2 billion a year ago, ahead of consensus estimates of about 4% growth. Adjusted operating income before depreciation and amortization was $1.7 billion, a 10.9% increase over the $1.5 billion in the same period in 2009 and soundly beating most analysts' predictions of 5% to 6% growth. It was the first quarter since the fourth quarter of 2007 that Time Warner Cable reported double-digit AOIBDA growth. Free cash flow increased 77.7% to $652 million.
While residential high-speed data and digital phone customers were on the rise (gaining 212,000 and 86,000, respectively, in the period) the main driver for the cash flow gains appears to be a big boost in high-margin advertising revenue (up 19% to $173 million in the quarter) and a 60.3% decline in bad debt expense. Time Warner Cable also lost about 42,000 basic video subscribers in the period.
Chief financial officer Rob Marcus said on the call that higher-speed Internet services, like its Road Runner Turbo and DOCSIS 3.0 services (which offer speeds up to 100 Megabits per second) were the primary drivers of TWC's data growth. Turbo accounted for 77,000 net additions and 1,000 for its DOCSIS 3.0 product and for the second quarter in a row, the percentage of subscribers who take the basic and lite tiers of service declined, Marcus said.
Chief operating officer Landel Hobbs said TWC had twice as many high-speed data additions than its two telco competitors (Verizon and AT&T) in its footprint.
He estimated that AT&T's U-Verse service is available in 20% of TWC's territory and Verizon FiOS is available in 10%.
On the video front, revenue was up 2.5% mainly due to rate increases in the quarter. But Hobbs said that Time Warner Cable is working hard on growing the video base by increasing the number of day-and-date movies available on demand (about two-thirds of movies on demand are day-and-date, he said) and boosting its HD capacity. Time Warner Cable systems now average about 100 HD channels each (in New York City, that number is 124 HD networks).
Hobbs said TWC also is beefing up its ethnic packages -- it expects to carry more than 100 Los Angeles Dodgers, Los Angeles Angels and Texas Rangers major league baseball games in local markets in Spanish this year. World Cup Soccer matches also will be available this summer on demand, he said. And DOCSIS 3.0, which is available in New York City, Dallas, Cincinnati, Buffalo and Syracuse, N.Y., will expand soon to Charlotte, N.C.

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