Time Warner Cable Reports 2013 Second-Quarter Results

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Updated

Time Warner Cable Reports 2013 Second-Quarter Results

Raising 2013 Free Cash Flow Guidance to $2.5 Billion


Increased Remaining Share Repurchase Authorization to $4.0 Billion

Grew Business Services Revenue by over 20% for the 13th Consecutive Quarter

Drove 12.5% Growth in Residential High-speed Data Revenue

Increased Adjusted Diluted EPS 14% to $1.69 and Diluted EPS 15% to $1.64

NEW YORK--(BUSINESS WIRE)-- Time Warner Cable Inc. (NYS: TWC) today reported financial results for its second quarter ended June 30, 2013.

"Time Warner Cable continues to build significant shareholder value by investing in rapidly expanding Business Services and by revitalizing our Residential Services operations," said Glenn Britt, Chairman and CEO. "I am pleased with our progress in operations and expect to see the benefits in the second half of the year and in 2014."

SELECTED FINANCIAL RESULTS

(in millions, except per share data;

2nd Quarter

Year-to-Date 6/30

unaudited)

Change

Change

2013

2012

$

%

2013

2012

$

%

Total Revenue

$

5,550

$

5,404

$

146

2.7

%

$

11,025

$

10,538

$

487

4.6

%

Adjusted OIBDA(a)

$

2,037

$

2,011

$

26

1.3

%

$

3,949

$

3,884

$

65

1.7

%

Operating Income

$

1,187

$

1,140

$

47

4.1

%

$

2,247

$

2,182

$

65

3.0

%

Diluted EPS(b)

$

1.64

$

1.43

$

0.21

14.7

%

$

2.98

$

2.63

$

0.35

13.3

%

Adjusted Diluted EPS(a)

$

1.69

$

1.48

$

0.21

14.2

%

$

3.10

$

2.78

$

0.32

11.5

%

Cash provided by operating activities

$

1,551

$

1,537

$

14

0.9

%

$

2,945

$

2,920

$

25

0.9

%

Capital expenditures

$

827

$

712

$

115

16.2

%

$

1,597

$

1,418

$

179

12.6

%

Free Cash Flow(a)

$

732

$

824

$

(92

)

(11.2

%)

$

1,393

$

1,542

$

(149

)

(9.7

%)

Return of capital(c)

$

829

$

617

$

212

34.4

%

$

1,684

$

1,149

$

535

46.6

%

(a)

Refer to Note 3 to the accompanying consolidated financial statements for definitions of Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow and below for reconciliations.

(b)

Diluted EPS represents net income per diluted common share attributable to TWC common shareholders.

(c)

Return of capital represents dividends paid and share repurchases and does not reflect the fees, commissions or other costs associated with the stock repurchase program.

QUARTERLY HIGHLIGHTS

  • Total Company revenue grew 2.7% year over year, driven primarily by growth of 21.8% in business services revenue and 12.5% in residential high-speed data revenue.

  • Average monthly revenue per residential customer relationship (ARPU) grew 1.2% to $105.21.

  • Capital expenditures in the first half totaled $1.6 billion, consistent with the Company's plans for full-year capital spending of $3.2 billion.

  • In the second quarter, Time Warner Cable repurchased 6.6 million shares of its common stock, bringing total repurchases since program inception to more than 81 million shares. In the first half of 2013, the Company returned more than 120% of Free Cash Flow to shareholders.

  • Free Cash Flow in the first half of 2013 was $1.4 billion. The Company is raising its expectation for full-year Free Cash Flow to approximately $2.5 billion.

  • Residential wideband high-speed data subscribers (which includes the 30, 50, 75 and 100 Mbps tiers) more than doubled year over year to 608,000 subscribers.

  • The Company continued to make progress with its Wi-Fi initiative; Aggressive deployment in New York City increased total access points to 19,000.

  • Time Warner Cable has IntelligentHome available in approximately 80% of its footprint and has 24,000 customers. Second quarter net additions were the strongest since its launch.

  • Time Warner Cable announced new versions of its popular TWC TV product for the Roku Streaming Player, Samsung Smart TVs and Microsoft's Xbox. These new apps are designed to enable customers to enjoy Time Warner Cable's video product on millions of customer-owned devices.

  • The Company completed the operational integration of the former Insight systems in the second quarter.

  • Business services reached a milestone in the quarter, delivering backhaul service to more than 10,000 cell towers.

DETAILED FINANCIAL RESULTS

Revenue for the second quarter of 2013 increased 2.7% from the second quarter of 2012 to $5.6 billion. Residential services revenue increased 0.3% to $4.6 billion and business services revenue grew 21.8% to $565 million, while advertising revenue decreased 1.9% to $260 million and other revenue grew 60.3% to $93 million.

(in millions; unaudited)

2nd Quarter

Year-to-Date 6/30(a)

Change

Change

2013

2012

$

%

2013

2012

$

%

Residential services revenue:

Video

$

2,674

$

2,797

$

(123

)

(4.4

%)

$

5,345

$

5,508

$

(163

)

(3.0

%)

High-speed data

1,424

1,266

158

12.5

%

2,830

2,465

365

14.8

%

Voice

517

539

(22

)

(4.1

%)

1,036

1,047

(11

)

(1.1

%)

Other

17

15

2

13.3

%

32

30

2

6.7

%

Total residential services revenue

4,632

4,617

15

0.3

%

9,243

9,050

193

2.1

%

Business services revenue:

Video

87

81

6

7.4

%

171

157

14

8.9

%

High-speed data

268

224

44

19.6

%

524

432

92

21.3

%

Voice

102

73

29

39.7

%

198

136

62

45.6

%

Wholesale transport

61

44

17

38.6

%

116

85

31

36.5

%

Other

47

42

5

11.9

%

93

83

10

12.0

%

Total business services revenue

565

464

101

21.8

%

1,102

893

209

23.4

%

Advertising revenue

260

265

(5

)

(1.9

%)

488

476

12

2.5

%

Other revenue

93

58

35

60.3

%

192

119

73

61.3

%

Total revenue

$

5,550

$

5,404

$

146

2.7

%

$

11,025

$

10,538

$

487

4.6

%

(a)

Revenue for the six months ended June 30, 2013 benefited from two additional months of Insight Communications Company, Inc. revenue, which is discussed further in Note 2 to the accompanying consolidated financial statements.

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 growth in high-speed data subscribers.

  • Residential video revenue decreased driven by declines in video subscribers and 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 lower voice subscribers.

Business services revenue

Business services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in cell tower backhaul revenue.

Advertising revenue

Advertising revenue decreased primarily due to a decline in political advertising revenue, partially offset by growth in revenue from advertising inventory sold on behalf of other video distributors.

Other 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.

Adjusted Operating Income before Depreciation and Amortization ("Adjusted OIBDA") for the second quarter of 2013 increased 1.3% from the second quarter of 2012 to $2.0 billion. The increase was driven by revenue growth, partially offset by a 3.5% increase in operating expenses.

Operating expenses grew primarily due to higher employee costs, video programming expenses and marketing expenses, as well as the costs associated with the Company's Los Angeles regional sports networks and the advertising inventory sold on behalf of other video distributors, both of which are included in other direct operating costs in cost of revenue.

  • Employee costs were up 6.3% to $1.2 billion primarily due to an increase in headcount (primarily related to business services) and higher compensation costs per employee, as well as $10 million of executive severance costs. Employee medical costs increased $16 million.

  • Video programming expenses grew 3.7% 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 8.5% year-over-year to $33.54 for the second quarter of 2013, primarily driven by contractual rate increases and the carriage of new networks, partially offset by a decline in transactional video-on-demand. For the second quarter of 2012, video programming costs were reduced by approximately $15 million due to changes in cost estimates for programming services carried during contract negotiations, changes in programming audit reserves and certain contract settlements.

Operating Income for the second quarter of 2013 increased 4.1% from the second quarter of 2012 to $1.2 billion driven by a decrease in depreciation expense and higher Adjusted OIBDA. The decrease in depreciation expense was primarily due to certain assets acquired in the 2006 transactions with Adelphia Communications Corporation and Comcast Corporation that were fully depreciated as of July 31, 2012, partially offset by the impact of an increase in shorter-lived distribution system and capitalized software assets.

(in millions; unaudited)

2nd Quarter

Year-to-Date 6/30

Change

Change

2013

2012

$

%

2013

2012

$

%

Adjusted OIBDA(a)

$

2,037

$

2,011

$

26

1.3

%

$

3,949

$

3,884

$

65

1.7

%

Adjusted OIBDA margin(b)

36.7

%

37.2

%

35.8

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