Best Ever Overall Subscriber Performance, Including First Quarter of Positive Video Net Additions Since 2009
Aggressive Operating and Capital Investments Driving Dramatic Improvements in Customer Service and Operating Performance
Solid Revenue Growth of 3.5% Benefitting From Best Organic Residential Revenue Growth in Over 3 Years
NEW YORK, April 30, 2015 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its first quarter ended March 31, 2015.
Time Warner Cable Chairman and CEO Rob Marcus said: “By almost any measure, Q1 was our best subscriber quarter ever. We’ve made significant investments to improve our customers’ experience and our operational performance, and they are paying off. We are a far stronger company than we were just five short quarters ago."
Marcus continued, “Our company has terrific assets, a world class team and a well-architected operating plan; I am confident we can drive meaningful growth and create even more value for our shareholders."
SELECTED CONSOLIDATED FINANCIAL RESULTS
- First-quarter 2015 revenue grew 3.5% year over year with Business Services revenue up 16.9% and Residential Services revenue up 2.1%, the highest year-over-year organic growth in over 3 years.
- First-quarter Adjusted OIBDA was $2.0 billion – up 0.8% year over year. Operating Income of $1.1 billion decreased 0.7% year over year.
- Demonstrated disciplined management of controllable costs; shared functions costs were flat year over year.
- Aggressive investments in technical operations and customer care, as well as higher programming costs and pension expense, moderated Adjusted OIBDA growth.
- Record first-quarter residential subscriber performance:
- Residential video net additions of 30,000 – first positive quarterly net additions since the first quarter of 2009
- Residential high-speed data net additions of 315,000 – best quarter since the first quarter of 2007
- Residential voice net additions of 320,000 – best quarter ever
- Residential triple play net additions of 298,000 – best quarter ever
- Residential customer relationship net additions of 205,000 – best quarter ever
- First-quarter capital expenditures of $1.1 billion reflect the Company’s continued accelerated investment in “TWC Maxx,” improved customer experience and network expansion.
- TWC Maxx, including “all digital” conversion and Internet speeds of up to 300 Mbps, was completed in Austin, Texas in mid-April and is well underway in Kansas City, Dallas and San Antonio. In addition, TWC Maxx is on track to be deployed in Charlotte, Hawaii, Raleigh and San Diego in 2015.
- TWC continued to upgrade customer premise equipment to improve its customers’ experience. In the first quarter, TWC deployed nearly 2.4 million new set-top boxes, digital adapters and advanced modems in customers’ homes.
- During the first quarter, TWC further grew its serviceable Business Services opportunity by adding nearly 12,000 commercial buildings to its network.
- Investments in network reliability and customer care contributed to meaningful year-over-year operational improvements in the first quarter.
- 650,000 fewer repair calls to TWC call centers year over year.
- Care center service levels improved 23%.
- 15% reduction in repair-related truck rolls per customer relationship.
- 97% on-time percentage for customer appointments within the Company’s industry-leading one-hour appointment window.
- First-visit problem resolution improved by 13%.
CONSOLIDATED REVENUE AND PROFITABILITY RESULTS
Revenue for the first quarter of 2015 increased 3.5% year over year as a result of revenue growth at the Business Services and Residential Services segments.
Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the first quarter of 2015 increased 0.8% driven by revenue growth, partially offset by a 5.0% year-over-year increase in operating expenses.
The increase in operating expenses was primarily due to higher programming, employee, maintenance and bad debt expense; partially offset by declines in marketing costs and voice costs. The increase in employee costs reflects the Company’s continued investments in sales and marketing, technical operations and customer care initiatives and a $26 million increase in pension expense, partially offset by a $27 million decrease in employee medical costs (as a result of changes in estimates of previously established employee medical accruals and lower claims activity) and lower shared functions personnel cost.
Operating Income for the first quarter of 2015 decreased 0.7% primarily due to higher depreciation expense, partially offset by lower merger-related and restructuring costs and higher Adjusted OIBDA. Merger-related and restructuring costs for the first quarter of 2015 included $24 million of Comcast merger-related costs (consisting of employee retention costs of $14 million and advisory and legal fees of $10 million) and $2 million of restructuring costs primarily associated with employee terminations.
DETAILED SEGMENT RESULTS
Selected Residential Services Financial Results
Residential Services revenue increased as a result of an increase in high-speed data revenue, partially offset by decreases in video and voice revenue.
- The growth in residential high-speed data revenue was the result of growth in high-speed data subscribers, as well as an increase in average revenue per subscriber primarily due to increases in prices and equipment rental charges and a greater percentage of subscribers purchasing higher-priced tiers of service.
- Residential video revenue decreased primarily due to a year-over-year decline in video subscribers (despite positive video subscriber net additions in the first quarter of 2015), partially offset by an increase in average revenue per subscriber primarily as a result of price increases and higher premium network revenue.
- Residential voice revenue decreased due to lower average revenue per subscriber offset, in part, by growth in voice subscribers.
Residential Services Adjusted OIBDA decreased driven by a 6.0% increase in operating costs, partially offset by the increase in revenue discussed above. The increase in operating costs resulted from higher programming, technical operations, customer care and other operating costs, partially offset by lower sales and marketing costs.
- Programming costs (which include intercompany expense from the Other Operations segment for programming costs associated with the Company’s Los Angeles Lakers’ regional sports networks, local sports, news and lifestyle channels and SportsNet LA, a regional sports network carrying the Los Angeles Dodgers’ baseball games and other sports programming) grew 8.5% to $1.4 billion primarily due to an increase in average monthly programming costs per video subscriber, partially offset by a year-over-year decline in video subscribers. Average monthly programming costs per residential video subscriber grew 12.2% year over year to $42.28 for the first quarter of 2015, primarily driven by contractual rate increases and the carriage of new networks (including SportsNet LA, which launched on February 25, 2014).
- Technical operations costs were up 6.0% to $355 million primarily due to headcount growth and increased maintenance costs, reflecting the Company’s continued investments to improve the customer experience.
- Customer care costs increased 9.9% to $189 million primarily due to headcount growth, reflecting the Company’s continued investments to improve the customer experience.
- Other operating costs increased 9.6% to $183 million primarily due to higher bad debt expense and small increases in other miscellaneous expenses, partially offset by a decline in voice costs. Voice costs decreased $12 million driven by the in-sourcing of voice transport, switching and interconnection services.
- Sales and marketing costs decreased 3.6% to $371 million primarily due to lower marketing expense, partially offset by increased sales-related employee costs as a result of higher compensation costs per employee and headcount growth.
Residential Services Subscriber Metrics
Selected Business Services Financial Results
Business Services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in cell tower backhaul revenue (which included certain early termination fees).
The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 13.5% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee.
Business Services Subscriber Metrics
Selected Other Operations Financial Results
Advertising revenue decreased primarily due to lower political advertising revenue, as well as overall softness in the television advertising market. Political advertising revenue was $2 million in the first quarter of 2015 compared to $11 million in the first quarter of 2014.
Other revenue increased primarily due to affiliate fees from the Residential Services segment.
The decrease in Adjusted OIBDA was driven by a 3.5% increase in operating costs and expenses, primarily related to higher content costs associated with the Los Angeles Lakers’ regional sports networks.
Operating costs associated with broad “corporate” functions (e.g., accounting and finance, information technology, executive management, legal and human resources) or functions supporting more than one reportable segment that are centrally managed (e.g., facilities, network operations, vehicles and procurement) as well as other activities not directly attributable to a reportable segment were $727 million for both the first quarters of 2015 and 2014. Shared functions operating costs were flat primarily as increased maintenance expense was offset by lower costs as a result of operating efficiencies, including decreased employee-related expense.
CONSOLIDATED NET INCOME
Net Income Attributable to TWC Shareholders was $458 million, or $1.60 per basic common share and $1.59 per diluted common share, for the first quarter of 2015 compared to $479 million, or $1.71 per basic common share and $1.70 per diluted common share, for the first quarter of 2014.
Net income attributable to TWC shareholders decreased primarily due to an increase in income tax provision and a decrease in Operating Income (driven by an increase in depreciation expense), partially offset by a decrease in interest expense
Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain items affecting the comparability of TWC’s results for 2015 and 2014 detailed in Note 2 to the accompanying consolidated financial statements, were $474 million and $1.65, respectively, for the first quarter of 2015 compared to $503 million and $1.78, respectively, for the first quarter of 2014.
SELECTED BALANCE SHEET AND CASH FLOW INFORMATION
Free Cash Flow for the first three months of 2015 decreased 35.3% to $407 million from $629 million in the first three months of 2014, due mainly to an increase in capital expenditures (primarily customer premise equipment and scalable infrastructure), partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $1.1 billion for the first three months of 2015, increased primarily due to the Company’s investments (including TWC Maxx) to improve network reliability, upgrade older customer premise equipment and expand its network to additional residences, commercial buildings and cell towers. Cash Provided by Operating Activities for the first three months of 2015 was $1.5 billion, a 7.9% increase from the first three months of 2014. This increase was primarily driven by lower working capital requirements and net interest payments, as well as higher Adjusted OIBDA.
Net Debt, which totaled $22.7 billion as of March 31, 2015, decreased from December 31, 2014 as Free Cash Flow more than offset the cash used for dividends.
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 net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow. Refer to Note 4 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 sales 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 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, April 30, 2015. 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 Report 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.
Bobby Amirshahi (212) 364-8292
Eric Mangan (212) 364-8297
Tom Robey (212) 364-8218