Best Ever Customer Relationship Net Additions
Accelerated Revenuue Growth of 7.2%
Robust Adjusted OIBDA Growth of 8.2%
NEW YORK, April 28, 2016 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its first quarter ended March 31, 2016.
Time Warner Cable Chairman and CEO Rob Marcus said: “Our first-quarter results are the clearest indication yet that our efforts over the last 27 months are paying off. We have made our network more reliable, our products more compelling and our customer service far better. We’ve refined our marketing, enhanced our sales channels and strengthened our retention capability. All of that has driven robust customer growth, which in Q1 translated into very strong revenue and OIBDA growth. I couldn’t be prouder of what our talented, committed, passionate team has accomplished."
SELECTED CONSOLIDATED FINANCIAL RESULTS
- Revenue grew 7.2% for the first quarter – the highest first-quarter organic revenue growth in the last 8 years – driven by accelerated growth in Residential Services and strong growth in Business Services.
- Adjusted OIBDA was up 8.2% for the first quarter – the highest first-quarter organic Adjusted OIBDA growth in the last 6 years.
- Operating Income increased 5.6% to $1.1 billion for the first quarter and reflects higher depreciation expense from “TWC Maxx” and other capital investments.
- Strong first-quarter residential subscriber performance:
- Customer relationship net additions of 236,000
- Video net additions of 21,000
- High-speed data net additions of 314,000
- Voice net additions of 178,000
- Significant investment during the first quarter of 2016 to improve customer experience and expand network.
- TWC Maxx, including “all digital” conversion and Internet speed increases (up to 300 Mbps), continued in Hawaii, Wilmington, Greensboro and San Diego and was begun in Desert Cities, Kentucky, Hudson Valley, Syracuse and Ohio
- 2.6 million new set-top boxes, digital adapters and advanced modems deployed.
- 13,000 commercial buildings added to network
- Impressive year-over-year improvements in key residential customer service metrics continued in the first quarter:
- 9% decrease in care calls per customer relationship
- 16% reduction in repair-related truck rolls per customer relationship
- 99% on-time percentage for customer appointments within industry-leading one-hour appointment arrival windows
- 17% improvement in first-visit resolution.
CONSOLIDATED REVENUE AND PROFITABILITY RESULTS
Revenue for the first quarter of 2016 increased 7.2% year over year as a result of revenue growth at all segments.
Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the first quarter of 2016 increased 8.2% driven by revenue growth, partially offset by a 6.6% year-over-year increase in operating expenses.
The increase in operating expenses was primarily due to higher programming and employee 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, as well as a $26 million increase in employee medical costs (as a result of prior year changes in estimates of previously established employee medical accruals, partially offset by lower claims activity).
Operating Income for the first quarter of 2016 increased 5.6% primarily due to higher Adjusted OIBDA, partially offset by higher depreciation expense and merger-related costs. Merger-related costs for the first quarters of 2016 and 2015 were $35 million and $24 million, respectively, and restructuring costs were $5 million and $2 million, respectively.
DETAILED SEGMENT RESULTS
Selected Residential Services Financial Results
Residential Services revenue increased as a result of increases in high-speed data, video and voice revenue.
- Residential high-speed data revenue increased due to 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.
- The growth in residential video revenue was the result of an increase in average revenue per subscriber and growth in video subscribers. The increase in average revenue per subscriber was primarily the result of growth in video equipment rental and premium network revenue, partially offset by lower transactional video-on-demand, programming tier and DVR service revenue.
- Residential voice revenue increased due to growth in voice subscribers offset, in part, by lower average revenue per subscriber.
Residential Services Adjusted OIBDA increased driven by the increase in revenue discussed above, partially offset by a 6.2% increase in operating costs. The increase in operating costs resulted from higher programming, sales and marketing and technical operations costs, partially offset by a decrease in other operating 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 9.1% to $1.5 billion primarily due to an increase in average monthly programming costs per video subscriber. Average monthly programming costs per residential video subscriber grew 8.8% year over year to $46.00 for the first quarter of 2016, primarily driven by contractual rate increases.
- Sales and marketing costs increased 7.5% to $399 million primarily due to increased sales-related headcount and higher compensation costs per employee related to the Company’s subscriber growth initiatives, as well as higher marketing costs.
- Technical operations costs were up 5.6% to $375 million primarily due to increased headcount, higher compensation costs per employee and increased installation-related activities (reflecting subscriber growth and the Company’s continued investments to improve the customer experience).
- Customer care costs increased 4.8% to $198 million primarily due to ncreased headcount and higher compensation costs per employee (reflecting subscriber growth and the Company’s continued investments to improve the customer experience).
- Other operating costs decreased 13.7% to $158 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.
The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 15.9% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee, as well as growth in programming, voice and marketing costs.
Business Services Subscriber Metrics
Selected Other Operations Financial Results
Advertising revenue increased primarily due to growth in political advertising revenue, which was $11 million in the first quarter of 2016 compared to $2 million in the first quarter of 2015.
Other revenue increased primarily due to the recognition of approximately $20 million of revenue associated with the settlement of a contractual dispute, as well as an increase in affiliate fees from the Residential Services segment and other distributors of the Los Angeles Lakers’ regional sports networks and SportsNet LA.
The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 5.1% increase in operating costs and expenses, primarily related to higher costs associated with advertising inventory sold on behalf of other video distributors and an increase in 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 increased 5.0% year over year to $763 million for the first quarter of 2016. Shared functions operating costs increased primarily due to higher compensation costs per employee and increased insurance expense, partially offset by lower costs as a result of operating efficiencies.
CONSOLIDATED NET INCOME
Net Income Attributable to TWC Shareholders was $494 million, or $1.73 per basic common share and $1.72 per diluted common share, for the first quarter of 2016 compared to $458 million, or $1.60 per basic common share and $1.59 per diluted common share, for the first quarter of 2015.
Net income attributable to TWC shareholders increased primarily due to an increase in Operating Income, partially offset by an increase 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 2016 and 2015 detailed in Note 2 to the accompanying consolidated financial statements, were $518 million and $1.81, respectively, for the first quarter of 2016 compared to $474 million and $1.65, respectively, for the first quarter of 2015.
SELECTED BALANCE SHEET AND CASH FLOW INFORMATION
Free Cash Flow for the first three months of 2016 decreased 15.0% to $346 million from $407 million in the first three months of 2015, due mainly to an increase in capital expenditures, partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $1.3 billion for the first three months of 2016, 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 three months of 2016 was $1.6 billion, a 6.6% increase from the first three months of 2015. This increase was primarily driven by an increase in Adjusted OIBDA, partially offset by a change in working capital.
Net Debt, which totaled $21.2 billion as of March 31, 2016, decreased from December 31, 2015 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 16 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 28, 2016. 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 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