Grew Business Services Revenue over 20% for the 14th Consecutive Quarter
Drove 14% Growth in Residential High-speed Data Revenue
Improved Residential Customer Relationship ARPU 2% to $105
Increased Adjusted Diluted EPS 20% to $1.69
Q3 2013 Diluted EPS Comparability Impacted by 2012 AWS Spectrum and Clearwire Gains
NEW YORK, NY, October 31, 2013 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its third quarter ended September 30, 2013.
Time Warner Cable Chairman and CEO Glenn Britt said: “As I leave the business after 41 years, I am proud of this company and its many accomplishments. We have tremendous opportunity ahead, and I have full confidence in Rob and his team.”
SELECTED FINANCIAL RESULTS
·Total Company revenue grew 2.9% year over year, driven primarily by growth of 20.5% in business services revenue and 14.2% in residential high-speed data revenue.
· Average monthly revenue per residential customer relationship (ARPU) grew 1.9% to $105.06 driven by robust growth in ARPU per new customer relationship.
·Adjusted OIBDA grew 3.0% year over year to $2.0 billion and Operating Income increased 6.0% to $1.2 billion.
·Adjusted Diluted EPS increased 19.9% to $1.69. Diluted EPS decreased 29.2% to $1.84, driven primarily by 2012 SpectrumCo and Clearwire-related gains.
·Capital expenditures in the first nine months totaled $2.4 billion, consistent with the Company’s expectation of full-year capital spending of $3.2 billion.
·Free Cash Flow in the first nine months of 2013 was $1.8 billion. The Company continues to expect full-year Free Cash Flow to be approximately $2.5 billion.
·Time Warner Cable repurchased 4.8 million shares of its common stock, bringing total repurchases since program inception to nearly 86 million shares. In the first nine months of 2013, the Company returned more than 130% of Free Cash Flow to shareholders.
·The Company announced its agreement to acquire DukeNet – a regional fiber optic network company primarily serving the Carolinas. The acquisition is expected to close during the first quarter of 2014.
·Subscriber activity in the quarter was negatively impacted by programming disputes with CBS and Journal Communications.
·Residential wideband high-speed data subscribers (which includes the 30, 50, 75 and 100 Mbps tiers) doubled year over year to 719,000 subscribers.
·The Company continued to expand its WiFi initiative; aggressive deployment in New York City increased total TWC WiFi™ access points to 24,000. Through the Cable WiFi® network, most TWC high-speed data customers have access to 200,000 hotspots across the U.S.
·At the end of the third quarter, Time Warner Cable had 32,000 IntelligentHome customers. The Company launched this service in New York City in October, expanding its availability to over 90% of the Company’s footprint.
DETAILED FINANCIAL RESULTS
Revenue for the third quarter of 2013 increased 2.9% from the third quarter of 2012 to $5.5 billion. Residential services revenue increased 0.7% to $4.6 billion and business services revenue grew 20.5% to $594 million, while advertising revenue decreased 4.2% to $253 million and other revenue grew 58.6% to $92 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 year-over-year growth in the number of high-speed data subscribers.
·Residential video revenue decreased driven by declines in video subscribers and premium network revenue (which was reduced by approximately $15 million of subscriber credits issued in connection with a temporary blackout of Showtime resulting from a dispute with CBS), 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 fewer voice subscribers.
Business Services Revenue
Business services revenue growth was primarily due to increases in the number of high-speed data and voice subscribers and growth in cell tower backhaul and Metro Ethernet revenue.
Advertising revenue decreased primarily due to declines in political advertising revenue.
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.
Adjusting Operating Income before Depreciation and Amortization ("Adjusted OIBDA") for the third quarter of 2013 increased 3.0% from the third quarter of 2012 to $2.0 billion. The increase was driven by revenue growth, partially offset by a 2.8% increase in operating expenses.
Operating expenses grew primarily due to higher employee costs, video programming expenses and marketing expenses, as well as costs associated with advertising inventory sold on behalf of other video distributors, partially offset by a decrease in voice costs.
·Employee costs were up 6.9% to $1.2 billion primarily due to an increase in headcount (primarily related to business services) and higher compensation costs per employee. Employee medical costs increased $8 million.
·Video programming expenses grew 2.8% 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 8.4% year over year to $34.10 for the third quarter of 2013, primarily driven by contractual rate increases and the carriage of new networks. For the third quarters of 2013 and 2012, video programming costs were reduced by approximately $10 million and $5 million, respectively, due to changes in cost estimates for programming services primarily resulting from contract negotiations, changes in programming audit reserves and certain contract settlements.
·Marketing expense increased 6.7% to $176 million and included the impact of increased spending due to the temporary blackouts resulting from the CBS and Journal Communications disputes.
·Voice costs were down 9.9% to $136 million, primarily due to a decrease in delivery costs per subscriber related to the in-sourcing of voice transport, switching and interconnection services, as well as a decline in voice subscribers.
Operating Income for the third quarter of 2013 increased 6.0% from the third quarter of 2012 to $1.2 billion driven by higher Adjusted OIBDA.
Adjusted OIBDA less Capital Expenditures for the first nine months of 2013 totaled $3.6 billion, a 1.5% decrease over the first nine 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 $2.4 billion for the first nine months of 2013.
Net Income Attributable to TWC Shareholders was $532 million, or $1.86 per basic common share and $1.84 per diluted common share, for the third quarter of 2013 compared to $808 million, or $2.64 per basic common share and $2.60 per diluted common share, for the third quarter of 2012.
Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude the 2012 SpectrumCo and Clearwire investment-related gains and certain other items affecting the comparability of TWC’s results for 2013 and 2012 detailed in Note 1 to the accompanying consolidated financial statements, were $489 million and $1.69, respectively, for the third quarter of 2013 compared to $438 million and $1.41, respectively, for the third quarter of 2012. These increases were primarily due to higher Operating Income and lower interest expense, net, partially offset by a higher income tax provision. Adjusted Diluted EPS for the third 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 nine months of 2013 decreased 6.7% to $1.8 billion from $2.0 billion in the first nine 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 nine months of 2013 was $4.2 billion, a 0.9% increase from the first nine months of 2012. This increase was driven by higher Adjusted OIBDA and lower pension plan contributions, partially offset by an increase in net income tax payments and a change in working capital requirements.
Net Debt and Mandatorily Redeemable Preferred Equity, which totaled $23.9 billion as of September 30, 2013, increased from December 31, 2012, as cash used for share repurchases and dividend payments exceeded Free Cash Flow and the decrease in the fair value of debt subject to interest rate swaps.
RETURN OF CAPITAL
Time Warner Cable returned $732 million to shareholders during the third quarter of 2013. Share repurchases during the third quarter of 2013 totaled $545 million or 4.8 million shares of common stock. Time Warner Cable also paid a regular dividend of $0.65 per share of common stock, $187 million in aggregate, during the third 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, October 31, 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.