Record Q3 Subscriber Performance, Including Best Ever Q3 Customer Relationship Net Additions
Aggressive Operating and Capital Investments Continued to Drive Dramatic Improvements in Customer Service and Operating Performance
Accelerating Revenue Growth of 3.6%
NEW YORK, October 29, 2015 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its third quarter ended September 30, 2015.
Time Warner Cable Chairman and CEO Rob Marcus said: “I’m very excited about the operating momentum reflected in our third-quarter results. Subscriber growth was the strongest in years; revenue growth accelerated; and we continued to make significant investments in our network, equipment, products and customer service. Our ongoing transformation is a testament to the strength of our operating plan and the commitment of our entire team – all 55,000 employees – who work tirelessly every day to make Time Warner Cable an even better company."
SELECTED CONSOLIDATED FINANCIAL RESULTS
- Third-quarter 2015 revenue grew 3.6% year over year with Business Services revenue up 15.5% and Residential Services revenue up 2.6%.
- Third-quarter Adjusted OIBDA was nearly $2.0 billion – a 3.6% decrease year over year as a result of continued aggressive investments, as well as higher programming costs and pension expense. Excluding the $28 million increase in pension expense, Adjusted OIBDA declined 2.2%.
- Higher depreciation expense from “TWC Maxx” and other investments also reduced third-quarter Operating Income to $1.0 billion.
- Record third-quarter residential subscriber performance:
- Residential video net declines of 7,000 – best third quarter since 2006
- Residential high-speed data net additions of 232,000 – best third quarter since 2006
- Residential voice net additions of 237,000 – best third quarter since 2007
- Residential triple play net additions of 218,000 – best third quarter since 2007
- Residential customer relationship net additions of 147,000 – best third quarter ever and first positive third-quarter net additions since 2008
- Residential video net declines of 7,000 – best third quarter since 2006
- Capital expenditures of $3.5 billion for the first nine months of 2015 reflect customer relationship growth, as well as 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 in mid-April, Kansas City in August and Dallas in October and is well underway in Raleigh, San Antonio, Charlotte and Hawaii. Also, the rollout of TWC Maxx has recently begun in Wilmington and Greensboro and will begin in San Diego in the fourth quarter.
- TWC continued to upgrade customer premise equipment to improve its customers’ experience. In the first nine months of 2015, TWC deployed 8.3 million new set-top boxes, digital adapters and advanced modems in customers’ homes.
- TWC continued to upgrade customer premise equipment to improve its customers’ experience. In the first six months of 2015, TWC deployed nearly 5.6 million new set-top boxes, digital adapters and advanced modems in customers’ homes.
- During the first nine months of 2015, TWC further grew its serviceable Business Services opportunity by adding 50,000 commercial buildings to its network.
- Investments in network reliability and customer care continued to contribute to meaningful year-over-year residential operational improvements in the third quarter.
- 11% decrease in care calls per customer relationship.
- 16% reduction in repair-related truck rolls per customer relationship.
- 98% on-time percentage for customer appointments within the Company’s industry-leading one-hour appointment arrival window.
- 11% improvement in first-visit problem resolution.
CONSOLIDATED REVENUE AND PROFITABILITY RESULTS
Revenue for the third quarter of 2015 increased 3.6% year over year as a result of revenue growth at the Residential Services and Business Services segments, partially offset by a decline in advertising revenue at the Other Operations segment.
Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the third quarter of 2015 decreased 3.6% driven by a 7.7% year-over-year increase in operating expenses, partially offset by revenue growth.
The increase in operating expenses was primarily due to higher programming, employee, maintenance and content costs, partially offset by a decline in bad debt expense. The increase in employee costs reflects the Company’s continued investments in sales and marketing, technical operations and customer care initiatives and a $28 million increase in pension expense. The increase in content costs was driven by higher content costs at SportsNet LA, a regional sports network carrying the Los Angeles Dodgers’ baseball games and other sports programming.
Operating Income for the third quarter of 2015 decreased 13.0% primarily due to higher depreciation expense and lower Adjusted OIBDA. Merger-related costs for the third quarters of 2015 and 2014 were $41 million and $48 million, respectively, and restructuring costs were $3 million and a net $2 million reversal, respectively.
DETAILED SEGMENT RESULTS
Selected Residential Services Financial Results
Residential Services revenue increased as a result of growth in high-speed data and voice revenue, partially offset by a decrease in video revenue.
- The increase 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 voice revenue increased due to growth in voice subscribers offset, in part, by lower average revenue per subscriber.
- Residential video revenue decreased due to a year-over-year decline in video subscribers, as well as a decrease in average revenue per subscriber primarily the result of lower programming tier and transactional video-on-demand revenue, partially offset by growth in video equipment rental and premium network revenue.
Residential Services Adjusted OIBDA decreased driven by a 6.4% increase in operating costs, partially offset by the increase in revenue discussed above. The increase in operating costs resulted from higher programming, sales and marketing, technical operations and customer care costs. Employee costs (which are included in each category, as applicable) were impacted by a $14 million increase in pension expense.
- 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) grew 7.5% 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 8.9% year over year to $42.43 for the third quarter of 2015, primarily driven by contractual rate increases.
- Sales and marketing costs increased 8.8% to $408 million primarily due to increased sales-related employee costs as a result of higher compensation costs per employee and increased headcount related to the Company’s subscriber growth initiatives.
- Technical operations costs were up 7.7% to $390 million primarily due to higher headcount and increased maintenance costs, reflecting subscriber growth, as well as the Company’s continued investments to improve the customer experience.
- Customer care costs increased 5.7% to $186 million primarily due to higher compensation costs per employee and increased headcount, reflecting subscriber growth, as well as the Company’s continued investments to improve the customer experience.
- Other operating costs decreased 2.2% to $181 million primarily due to lower bad debt expense, partially offset by increases in a number of other categories.
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 wholesale transport revenue (including cell tower backhaul revenue).
The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 17.0% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee (including a $5 million increase in pension expense) as well as growth in programming and marketing costs.
Business Services Subscriber Metrics
Selected Other Operations Financial Results
Advertising revenue decreased primarily due to lower political advertising revenue, which was $5 million in the third quarter of 2015 compared to $26 million in the third quarter of 2014.
Other revenue increased primarily due to affiliate fees from the Residential Services segment.
The decrease in Adjusted OIBDA was driven by an 11.3% increase in operating costs and expenses, primarily related to higher content costs associated with SportsNet LA. Employee costs were impacted by a $2 million increase in pension expense.
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 increased 7.2% to $763 million for the third quarter of 2015, primarily driven by higher compensation costs per employee (including a $7 million increase in pension expense) and increased maintenance and insurance expense.
CONSOLIDATED NET INCOME
Net Income Attributable to TWC Shareholders was $437 million, or $1.53 per basic and diluted common share, for the third quarter of 2015 compared to $499 million, or $1.77 per basic common share and $1.76 per diluted common share, for the third quarter of 2014.
Net income attributable to TWC shareholders decreased primarily due to a decrease in Operating Income, partially offset by a decrease in income tax provision.
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 $464 million and $1.62, respectively, for the third quarter of 2015 compared to $527 million and $1.86, respectively, for the third quarter of 2014.
SELECTED BALANCE SHEET AND CASH FLOW INFORMATION
Free Cash Flow for the first nine months of 2015 was $1.3 billion compared to $1.5 billion in the first nine months of 2014, due mainly to an increase in capital expenditures, partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $3.5 billion for the first nine months of 2015, increased due to customer relationship growth, as well as 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 nine months of 2015 was $4.7 billion, a 3.7% increase from the first nine months of 2014. This increase was primarily driven by a change in working capital requirements and lower net interest and net income tax payments, partially offset by a decrease in Adjusted OIBDA.
Net Debt, which totaled $22.2 billion as of September 30, 2015, decreased from December 31, 2014 as Free Cash Flow and the proceeds from the settlement of certain terms of an agency agreement with Verizon Wireless 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, October 29, 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., including its proposed merger with Charter Communications, 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.
Bobby Amirshahi (212) 364-8292
Eric Mangan (212) 364-8297
Tom Robey (212) 364-8218