Residential Subscriber Trends Improved throughout Q4;
Highest January Customer Relationship Net Adds in Five Years
Grew Business Services Revenue Over 20% for the Year
Drove 14% Growth in Residential High-speed Data Revenue
Raised Regular Quarterly Dividend by 15% to $0.75 per Share ($3.00 per Share Annualized)
Increased Full-year 2013 Adjusted Diluted EPS by 15% to $6.61
Full-year 2013 Diluted EPS Comparability Impacted by 2012 AWS Spectrum and Clearwire Gains
Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its fourth quarter and full year ended December 31, 2013.
Time Warner Cable Chairman and CEO Rob Marcus said: “I’m really excited about the progress we made in Q4 and the significantly better trends we’re driving as we enter 2014. We are geared up to manage this company for the long haul. We’ve got the right assets and a talented, passionate and motivated team aligned around a thoughtful plan. We are executing well and we’ve started the year with meaningful operating momentum.”
SELECTED FINANCIAL RESULTS
- Full-year revenue grew 3.4% year over year, driven primarily by growth of 21.6% in business services revenue and 14.4% in residential high-speed data revenue.
- Fourth-quarter 2013 average monthly revenue per residential customer relationship (ARPU) grew 2.2% to $106.03, which is the highest rate of growth since the first quarter of 2012. Residential high-speed data ARPU increased 12.4% to $46.21.
- During 2013, total return of capital (dividends and share repurchases) increased 28% to $3.3 billion. Since inception of the share repurchase program in November 2010 through December 31, 2013, TWC has repurchased over 25% of its outstanding shares for $7.5 billion at an average price of $82.51 per share.
- Residential subscriber performance improved sequentially each month during Q4 and continued to improve in January.
- TWC now offers residential high-speed data speeds of 100 Mbps in several cities and regions, including Los Angeles, Kansas City and Hawaii. Residential wideband high-speed data subscribers (which includes the 30, 50, 75 and 100 Mbps tiers) more than doubled year over year to 910,000 subscribers.
- TWC’s first generation cloud-based guide with an advanced VOD portal was installed on 2.8 million set-top boxes at year end.
- As of December 31, 2013, TWC’s video customers had access to 183 HD channels on average.
- TWC expanded its WiFi initiative, finishing 2013 with 30,000 TWC WiFi® access points. Through the Cable Wi-Fi® network, most TWC high-speed data customers now have access to more than 200,000 hotspots across the U.S.
- Time Warner Cable ended 2013 with 44,000 IntelligentHome customers, an increase of 32,000 subscribers during the year. IntelligentHome is now offered virtually throughout the Company’s footprint.
- The TWC TV® app is now available on the Amazon Kindle Fire™ platform, in addition to Apple™ iOS and Android™ tablets and smartphones, Roku™ Streaming Players, Samsung™ Smart TVs and Xbox 360™ video game consoles, and on PC and Mac computers via www.twctv.com. TWC TV® features up to 300 linear channels and over 4,000 hours of VOD programming on all TWC TV® app platforms in the home and up to 24 live channels and 1,200 hours of VOD content from 40 networks outside of the home.
- During the fourth quarter, TWC added 16,000 commercial buildings to its network, ending the year with connectivity to 860,000 commercial buildings.
- On December 31, 2013, the Company acquired DukeNet – a regional fiber optic network company primarily serving the Carolinas – for $572 million in cash (including the repayment of debt), net of cash acquired and capital leases assumed. With the acquisition of DukeNet, TWC ended 2013 with 14,000 cell towers installed on its network.
DETAILED FINANCIAL RESULTS
Revenue for the fourth quarter of 2013 grew 1.7% from the fourth quarter of 2012 to $5.6 billion. Residential services revenue increased 0.1% year over year to $4.6 billion, business services revenue grew 19.6% to $616 million, advertising revenue declined 11.2% to $278 million and other revenue grew 28.8% to $103 million.
Full-year 2013 revenue increased 3.4% year over year to $22.1 billion. Residential services revenue grew 1.2% to $18.4 billion, business services revenue increased 21.6% to $2.3 billion, advertising revenue decreased 3.2% to $1.0 billion and other revenue increased 50.6% to $387 million.
Residential services revenue
For both the fourth quarter and full year, 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, for the full year of 2013, was reduced by approximately $15 million of subscriber credits issued in the third quarter in connection with a temporary blackout of Showtime resulting from a dispute with CBS) and lower 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 fewer voice subscribers.
Business services revenue
For both the fourth quarter and full year, business services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in cell tower backhaul and Metro Ethernet revenue.
For both the fourth quarter and full year, the decline in advertising revenue was primarily due to lower political advertising revenue, partially offset by growth in non-political advertising revenue (primarily associated with advertising inventory sold on behalf of other video distributors). Political advertising revenue was $7 million and $28 million in the fourth quarter and full year of 2013, respectively, compared to $60 million and $114 million for the fourth quarter and full year of 2012, respectively.
Other revenue increased for both the fourth quarter and full year as a result of fees received from distributors of the Company’s two Los Angeles regional sports networks, which were launched on October 1, 2012.
Revenue for the full year also benefited from two additional months of Insight revenue, which is discussed further in Note 2 to the accompanying consolidated financial statements.
Fourth-quarter 2013 Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) increased 1.6% from the fourth quarter of 2012 to $2.0 billion driven by revenue growth, partially offset by a 1.7% increase in operating expenses. In particular, employee costs were up 5.6% to $1.2 billion, video programming expenses grew 0.7% to $1.2 billion, marketing costs increased 4.4% to $189 million, voice costs were down 28.2% to $112 million and other operating costs increased 5.1% to $682 million.
Full-year 2013 Adjusted OIBDA increased 2.0% from 2012 to $8.0 billion. The year-over-year increase in Adjusted OIBDA was driven by revenue growth, partially offset by a 4.3% increase in operating expenses. For the full year, employee costs were up 7.3% to $4.9 billion, video programming expenses grew 3.5% to $4.8 billion, marketing costs increased 3.5% to $676 million, voice costs were down 9.8% to $554 million and other operating costs increased 6.7% to $2.5 billion. Full-year 2013 operating costs include the impact of two additional months of Insight operating expenses.
In both the fourth-quarter and full-year 2013:
- Employee costs were up primarily due to an increase in headcount and higher compensation costs per employee (primarily related to business services). Employee medical costs increased $8 million and $45 million for the fourth quarter and full year of 2013, respectively.
- Video programming costs grew primarily 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 7.7% year over year to $33.70 for the fourth quarter of 2013 and 8.0% to $33.62 for the full year of 2013, primarily driven by contractual rate increases and the carriage of new networks. For the full years of 2013 and 2012, programming costs were reduced by approximately $20 million and $40 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.
- Voice costs were down primarily as a result of 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. Average monthly voice costs per voice subscriber declined 25.7% year over year to $7.37 for the fourth quarter of 2013 and 10.7% to $8.94 for the full year of 2013.
- Other operating costs increased as a result of costs associated with the Los Angeles regional sports networks and advertising inventory sold on behalf of other video distributors, as well as increases in a number of categories, including facilities costs, partially offset by a decrease in procurement-related consulting costs.
Fourth-quarter 2013 Operating Income increased slightly primarily due to higher Adjusted OIBDA, partially offset by higher merger-related and restructuring costs. Full-year 2013 Operating Income increased primarily due to higher Adjusted OIBDA, partially offset by an increase in amortization expense, primarily as a result of two additional months of Insight costs.
Fourth-quarter 2013 Net Income Attributable to TWC Shareholders was $540 million, or $1.92 per basic common share and $1.89 per diluted common share, compared to $513 million, or $1.70 per basic common share and $1.68 per diluted common share, in the prior year quarter. Full-year 2013 net income attributable to TWC shareholders was $2.0 billion, or $6.76 per basic common share and $6.70 per diluted common share, compared to $2.2 billion, or $6.97 per basic common share and $6.90 per diluted common share, in the prior year.
Fourth-quarter Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain tax matters and other items affecting the comparability of TWC’s results for 2013 and 2012 (detailed in Note 1 to the accompanying consolidated financial statements), were $520 million and $1.82, respectively, for the fourth quarter of 2013 compared to $479 million and $1.57, respectively, for the fourth quarter of 2012. These increases were primarily due to higher Operating Income and lower interest expense, net.
Full-year Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS, which exclude 2012 investment-related gains (SpectrumCo, LLC and Clearwire Corporation), certain tax matters and other items detailed in Note 1, were $1.9 billion and $6.61, respectively, for 2013 compared to $1.8 billion and $5.75, respectively, for 2012. These increases were primarily due to higher Operating Income and lower interest expense, net, partially offset by higher income tax provision.
Additionally, Adjusted Diluted EPS for the fourth quarter and full year of 2013 benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program.
Adjusted OIBDA less Capital Expenditures for the full year of 2013 totaled $4.8 billion, a 1.1% increase over the full year of 2012, primarily due to higher Adjusted OIBDA, partially offset by higher capital expenditures. Capital Expenditures were $3.2 billion in 2013.
Free Cash Flow for the full-year 2013 increased 2.1%, or $54 million, to $2.6 billion due mainly to higher cash provided by operating activities, partially offset by an increase in capital expenditures (primarily driven by the expansion of the Company’s network to additional residences, commercial buildings and cell towers). Cash Provided by Operating Activities for the full-year 2013 was $5.8 billion, a 4.1% increase from $5.5 billion in 2012. This increase was primarily due to 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 $24.5 billion as of December 31, 2013, increased from $23.5 billion as of December 31, 2012, as the cash used for share repurchases, dividend payments and the acquisition of DukeNet 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 $868 million and $3.3 billion to shareholders during the fourth quarter and full year of 2013, respectively. Share repurchases totaled $683 million, or 5.4 million shares of common stock, during the fourth quarter of 2013 and totaled $2.5 billion, or 24.0 million shares of common stock, during the full year of 2013. As of December 31, 2013, $2.9 billion remained under the Company’s share repurchase authorization. Time Warner Cable also paid regular dividends of $185 million and $758 million during the fourth quarter and full year of 2013, respectively.
Residential Customer Relationships decreased by 85,000 to 14.4 million, driven by losses early in the quarter related to the programming disputes with CBS and Journal Communications. Residential customer relationships, video, high-speed data and voice subscriber trends all improved sequentially throughout the quarter. In December, the Company added residential customer relationships, and residential video, high-speed data and voice net additions (declines) were better than in December 2012.
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 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 8:00 am ET on Thursday, January 30, 2014. To listen to the call, visit www.twc.com/investors.
FORWARD LOOKING STATEMENTS AND DISCLAIMERS
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities. This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Time Warner Cable intends that all such statements be covered by the safe harbor provisions of the federal securities laws. Statements herein regarding future financial and operating results and any other statements about future expectations constitute “forward-looking statements.” These forward-looking statements may be identified by words such as “believe,” “expects,” “anticipates,” “projects,” “intends,” “should,” “estimates” or similar expressions. 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. More detailed information about these factors may be found in filings by Time Warner Cable with the U.S. Securities and Exchange Commission (“SEC”), 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.
Time Warner Cable expects to file a proxy statement with the SEC and to provide any definitive proxy statement to its security holders. INVESTORS AND SECURITY HOLDERS OF TIME WARNER CABLE ARE URGED TO READ THIS DOCUMENT AND ANY OTHER DOCUMENTS FILED BY TIME WARNER CABLE WITH THE SEC CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders will be able to obtain free copies of the definitive proxy statement (when available) and any other documents filed with the SEC by Time Warner Cable through the web site maintained by the SEC at http://www.sec.gov.
CERTAIN INFORMATION REGARDING PARTICIPANTS
Time Warner Cable and certain of its directors and executive officers may be deemed to be participants in a solicitation under the rules of the SEC. Security holders may obtain information regarding the names, affiliations and interests of Time Warner Cable’s directors and executive officers in Time Warner Cable’s Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on February 15, 2013, and its proxy statement for the 2013 Annual Meeting, which was filed with the SEC on April 4, 2013. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of these participants in any proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will also be included in any proxy statement and other relevant materials to be filed with the SEC if and when they become available.
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