Raising 2013 Free Cash Flow Guidance to $2.5 Billion
Increased Remaining Share Repurchase Authorization to $4.0 Billion
Grew Business Services Revenue by over 20% for the 13th Consecutive Quarter
Drove 12.5% Growth in Residential High-speed Data Revenue
Increased Adjusted Diluted EPS 14% to $1.69 and Diluted EPS 15% to $1.64
Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its second quarter ended June 30, 2013.
“Time Warner Cable continues to build significant shareholder value by investing in rapidly expanding Business Services and by revitalizing our Residential Services operations,” said Glenn Britt, Chairman and CEO. “I am pleased with our progress in operations and expect to see the benefits in the second half of the year and in 2014.”
SELECTED FINANCIAL RESULTS
- Total Company revenue grew 2.7% year over year, driven primarily by growth of 21.8% in business services revenue and 12.5% in residential high-speed data revenue.
- Average monthly revenue per residential customer relationship (ARPU) grew 1.2% to $105.21.
- Capital expenditures in the first half totaled $1.6 billion, consistent with the Company’s plans for full-year capital spending of $3.2 billion.
- In the second quarter, Time Warner Cable repurchased 6.6 million shares of its common stock, bringing total repurchases since program inception to more than 81 million shares. In the first half of 2013, the Company returned more than 120% of Free Cash Flow to shareholders.
- Free Cash Flow in the first half of 2013 was $1.4 billion. The Company is raising its expectation for full-year Free Cash Flow to approximately $2.5 billion.
- Residential wideband high-speed data subscribers (which includes the 30, 50, 75 and 100 Mbps tiers) more than doubled year over year to 608,000 subscribers.
- The Company continued to make progress with its Wi-Fi initiative; Aggressive deployment in New York City increased total access points to 19,000.
- Time Warner Cable has IntelligentHome available in approximately 80% of its footprint and has 24,000 customers. Second quarter net additions were the strongest since its launch.
- Time Warner Cable announced new versions of its popular TWC TV product for the Roku Streaming Player, Samsung Smart TVs and Microsoft’s Xbox. These new apps are designed to enable customers to enjoy Time Warner Cable’s video product on millions of customer-owned devices.
- The Company completed the operational integration of the former Insight systems in the second quarter.
- Business services reached a milestone in the quarter, delivering backhaul service to more than 10,000 cell towers.
DETAILED FINANCIAL RESULTS
Revenue for the second quarter of 2013 increased 2.7% from the second quarter of 2012 to $5.6 billion. Residential services revenue increased 0.3% to $4.6 billion and business services revenue grew 21.8% to $565 million, while advertising revenue decreased 1.9% to $260 million and other revenue grew 60.3% to $93 million.
Residential services revenue
Residential services revenue growth was primarily driven by an increase in high-speed data revenue, partially offset by declines in video and voice revenue.
- The growth in residential high-speed data revenue was the result of an increase in average revenue per subscriber, primarily due to an increase in equipment rental charges and a greater percentage of subscribers purchasing higher-priced tiers of service, as well as growth in high-speed data subscribers.
- Residential video revenue decreased driven by declines in video subscribers and transactional video-on-demand revenue, partially offset by price increases and a greater percentage of subscribers purchasing higher-priced tiers of service.
- Residential voice revenue decreased due to a decline in average revenue per subscriber and lower voice subscribers.
Business services revenue
Business services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in cell tower backhaul revenue.
Advertising revenue decreased primarily due to a decline in political advertising revenue, partially offset by growth in revenue from advertising inventory sold on behalf of other video distributors.
Other revenue increased primarily as a result of fees from distributors of the Company’s two Los Angeles regional sports networks, which were launched on October 1, 2012.
Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the second quarter of 2013 increased 1.3% from the second quarter of 2012 to $2.0 billion. The increase was driven by revenue growth, partially offset by a 3.5% increase in operating expenses.
Operating expenses grew primarily due to higher employee costs, video programming expenses and marketing expenses, as well as the costs associated with the Company’s Los Angeles regional sports networks and the advertising inventory sold on behalf of other video distributors, both of which are included in other direct operating costs in cost of revenue.
- Employee costs were up 6.3% to $1.2 billion primarily due to an increase in headcount (primarily related to business services) and higher compensation costs per employee, as well as $10 million of executive severance costs. Employee medical costs increased $16 million.
- Video programming expenses grew 3.7% to $1.2 billion due to an increase in average monthly video programming costs per video subscriber, offset in part by a decline in video subscribers. Average monthly video programming costs per video subscriber increased 8.5% year-over-year to $33.54 for the second quarter of 2013, primarily driven by contractual rate increases and the carriage of new networks, partially offset by a decline in transactional video-on-demand. For the second quarter of 2012, video programming costs were reduced by approximately $15 million due to changes in cost estimates for programming services carried during contract negotiations, changes in programming audit reserves and certain contract settlements.
Operating Income for the second quarter of 2013 increased 4.1% from the second quarter of 2012 to $1.2 billion driven by a decrease in depreciation expense and higher Adjusted OIBDA. The decrease in depreciation expense was primarily due to certain assets acquired in the 2006 transactions with Adelphia Communications Corporation and Comcast Corporation that were fully depreciated as of July 31, 2012, partially offset by the impact of an increase in shorter-lived distribution system and capitalized software assets.
Adjusted OIBDA less Capital Expenditures for the first six months of 2013 totaled $2.4 billion, a 4.6% decrease over the first six months of 2012, due to higher capital expenditures (primarily driven by growth in scalable infrastructure and business services line extensions), partially offset by higher Adjusted OIBDA. Capital Expenditures were $1.6 billion for the first six months of 2013.
Net Income Attributable to TWC Shareholders was $481 million, or $1.65 per basic common share and $1.64 per diluted common share, for the second quarter of 2013 compared to $452 million, or $1.44 per basic common share and $1.43 per diluted common share, for the second quarter of 2012.
Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain items affecting the comparability of TWC’s results for 2013 and 2012 detailed in Note 1 to the accompanying consolidated financial statements, were $497 million and $1.69, respectively, for the second quarter of 2013 compared to $466 million and $1.48, respectively, for the second quarter of 2012. These increases were primarily due to higher Operating Income, partially offset by a higher income tax provision. Adjusted Diluted EPS for the second quarter of 2013 also benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program.
Free Cash Flow for the first six months of 2013 decreased 9.7% to $1.4 billion from $1.5 billion in the first six months of 2012, due mainly to an increase in capital expenditures, partially offset by higher cash provided by operating activities. Cash Provided by Operating Activities for the first six months of 2013 was $2.9 billion, a 0.9% increase from the first six months of 2012. This increase was driven by higher Adjusted OIBDA, lower net interest payments and a change in working capital requirements, partially offset by an increase in net income tax payments.
Net Debt and Mandatorily Redeemable Preferred Equity, which totaled $23.5 billion as of June 30, 2013, decreased from December 31, 2012, as Free Cash Flow, the decrease in the fair value of debt subject to interest rate swaps and the impact of a favorable change in exchange rates on foreign currency denominated debt were partially offset by the cash used for share repurchases and dividend payments.
RETURN OF CAPITAL
Time Warner Cable returned $829 million to shareholders during the second quarter of 2013. Share repurchases during the second quarter of 2013 totaled $638 million or 6.6 million shares of common stock. Time Warner Cable also paid a regular dividend of $0.65 per share of common stock, $191 million in aggregate, during the second quarter of 2013.
Non-GAAP Financial Measures
The Company refers to certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), including OIBDA, Adjusted OIBDA, Adjusted OIBDA less capital expenditures, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow. Refer to Note 3 to the accompanying consolidated financial statements for a discussion of the Company’s use of non-GAAP financial measures.
About Time Warner Cable
Time Warner Cable Inc. (NYSE: TWC) is among the largest providers of video, high-speed data and voice services in the United States, connecting more than 15 million customers to entertainment, information and each other. Time Warner Cable Business Class offers data, video and voice services to businesses of all sizes, cell tower backhaul services to wireless carriers and enterprise-class, cloud-enabled hosting, managed applications and services. Time Warner Cable Media, the advertising arm of Time Warner Cable, offers national, regional and local companies innovative advertising solutions. More information about the services of Time Warner Cable is available at www.twc.com, www.twcbc.com and www.twcmedia.com.
Additional details on financial and subscriber metrics are included in the Trending Schedules and Presentation Slides posted on the Company’s Investor Relations website at www.twc.com/investors.
Information on Conference Call
Time Warner Cable’s earnings conference call can be heard live at 8:30 am ET on Thursday, August 1, 2013. To listen to the call, visit www.twc.com/investors.
Caution Concerning Forward-Looking Statements
This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological, strategic and/or regulatory factors, and other factors affecting the operations of Time Warner Cable Inc. More detailed information about these factors may be found in filings by Time Warner Cable Inc. with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Time Warner Cable is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
Justin Venech (212) 364-8242
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