Entries in Earnings Review (29)


GCI Wireless Growth Disappoints in 3Q11

Consumer Wireless Growth Slows to 1%

Following a lackluster 2Q11 in which General Communications (Nasdaq:GNCMA) reported a net quarterly loss for the first time in two years, GCI management offered a rosier outlook for 3Q11, projecting wireless growth and citing the completion of its $88m fiber build. While the cableco did report improved top and bottom lines in 3Q11, GCI’s wireless segment failed to produce significant growth.

Quarterly revenue rose moderately for GCI, up 3.5% YoY from $171.5m to $177.7m in 3Q11, and its earnings showed similar improvement, up from $0.14 per share to $0.15 per share. High speed Internet services continue to generate growth for GCI, as its data revenue increased 15% YoY to $18.1m in 3Q11. The data gains offset a 10% YoY decline in quarterly voice revenue from $14.6m to $13.2m. GCI lost approximately 5.6k, or 7%, of its consumer access lines during the past twelve months.

The largest disappointment for GCI management in 3Q11 was the performance of its wireless segment, which GCI relies on for about 30% of its revenues. Its take from consumer wireless services in 3Q11 was up just 1% YoY, a period in which it invested in expanding and upgrading its networks. Meanwhile, wireless costs for the quarter were up 17% YoY, eating into its margins. In terms of subs, GCI added 2.9k consumer wireless connections over the past twelve months--a growth rate of 2%.

Ron Duncan, ceo of GCI, admitted that the underwhelming performance of its wireless segment in 3Q11 was disappointing. “Year over year (our overall) results are relatively flat and our overall performance is not as strong as we had expected. We are experiencing continued decreases in our wireline customer base, as consumers cut the cord and move to wireless, and growth in our wireless segment has been slower than anticipated.”

In other words, access line losses were expected, but so to was a subsequent jump in wireless subs and revenues as consumers replace their home phones with cell phones. It seems GCI customers are getting rid of their landlines, but they are not necessarily utilizing GCI as their wireless provider. Its main competitor, Alaska Communications (Nasdaq:ALSK), has launched its own 4G network, looking to secure its position as the top wireless provider in Alaska.

Duncan commented that there have been delays in the turn up of its new high speed wireless networks, which contributed to the lack of wireless growth. In September, the cableco launched 4G service in Anchorage, but it has planned 4G service launches in other Alaska communities that have yet to take place.

In addition to future 4G expansion, broadband growth provides GCI with expectations of improved performance in the near future. Construction of its $88 million TERRA microwave project, which will provide high speed broadband services to 10k residents in southwest Alaska, is “basically” complete according to the company. It expects to start generating revenues from this project by the end of the year.  


DirecTV Adds 327k U.S. Subs in 3Q11

Revenue Rises 14% YoY for DirecTV

As the U.S. cable providers continue to blame their declining video subs and revenues in 3Q11 on a lagging economy, DirecTV (Nasdaq:DTV) reversed course and turned in its largest third quarter subscriber gain in seven years this past quarter. The leading satellite provider reported a net addition of 327k customers in the U.S., fueled by the popularity of its Sunday NFL Ticket.

During the summer, when the status of the NFL season was in doubt, DirecTV decided to offer its NFL package to customers free of charge in 2011, if they signed up for a two-year contract. The offer proved popular, attracting nearly 1 million gross additions of customers in during the quarter. While it is giving away its NFL package free this year, DirecTV commented that it now has the opportunity to upsell these customers next year, creating potential for ARPU growth.

Overall, DirecTV grew its top line 14% YoY in 3Q11 to $6.8b, attributable to its customer gains and a 3.6% rise in ARPU. In addition to sub growth in the U.S., DirecTV added 574k net connections in Latin America as well—a market which also provided it with strong growth in 2Q11. Improved penetration of its premium services with new customers led to the jump in ARPU in the quarter. The take rate on DirecTV’s whole-home DVR  in 3Q11 was up to 40% from 30% YoY, while 65% of its new subs signed up for both HD and DVR services compared to 50% of new customers in 3Q10.

While DirecTV’s top line and video subscriber growth broke the downward trend set by cable providers this earnings season, it experienced the same rise in programming expenses as its cable rivals. Broadcast programming costs increased $660m, or 10% YoY, in 3Q11 at DirecTV. It also increased spending to acquire and retain customers by 10% YoY in 3Q11. Its operating margins fell 240 basis points YoY to 21.3% as a result of the rise in costs. Despite narrowed margins, its net income rose 8% in the quarter to $516m or 70 cents a share.

On the earnings call, DirecTV management opened up about the company’s outlook in future quarters and potential opportunities.

Patrick Doyle, DirecTV cfo, commented on the potential impact in 4Q11 of giving away the NFL Sunday Ticket for free: “The fact of the matter is because we have more NFL subs, there won't be a negative impact on revenue or ARPU in the fourth quarter. If anything, there will be a modest benefit.”

Ceo Michael White discussed a potential partnership with DISH Network down the road to get involved in wireless broadband: “The mobile wireless business is a really tough business. Just look at Sprint. Fixed broadband to the home is something no one's done in scale up to this point. But it's certainly something that we continue to think about and have done a lot of technical analysis on. And we'll continue to keep an open mind and, heck, I've said before, I’m willing to partner with anyone if it makes good sense for our shareholders and for our customers.”

In 3Q11, the new DirecTV subscribers sent a message to all media providers that programming, such as the NFL Ticket, can still get people to spend money, even in a down economy (albeit at a discounted price).    


Charter Narrows Loss with Internet Gains

Broadband at the Center of Charter’s Growth Strategy   

Charter Communications (Nasdaq:CHTR) posted a loss for the sixth consecutive quarter in 3Q11, but its bottom line showed improvement year over year. The cable provider lost $85m, or .79 a share in 3Q11, compared to $95m, or .84 a share in 3Q10. Charter’s gains were largely attributable to the improved performance of its commercial segment and to additions of residential Internet subscribers.

The cableco reported slight YoY revenue gains in 3Q11: 2.3% on an actual basis and 3% on a pro forma basis after factoring in its recent slew of acquisitions and divestures. Revenue from commercial services, which includes cellular backhaul and communications services for enterprise customers, jumped 19%, or $22m YoY. Charter added 22.9k commercial PSUs (primary service units) in 3Q11 from its small and medium sized business customers.

Charter experienced moderate 7% revenue growth in its residential Internet services during 3Q11; having added more than 185k high speed data subs since 3Q10. For the quarter, residential Internet services accounted for 24% of its top line, or $433m—up $29m from 3Q10. Elsewhere, video revenues slipped 2% YoY in 3Q11 to $902m.

Increasingly, Charter, the fourth largest cable provider in the U.S., is taking an Internet-first approach to marketing, branding and its overall business growth strategy. Ceo Mike Lovett even commented during the 3Q11 earnings call that within the company there is a mantra to think of themselves more as an ISP as opposed to a cable television provider.

The shift to an Internet-centric business focus is borne out through Charter’s strategic imperatives as laid out by Lovett during the call. Lovett stated that the company plans to “to lead with our superior Internet product in our sales, promotion, and branding efforts, to leverage our structural broadband advantage and create new customer relationships.”

Essentially Charter feels that while television is still key to its business, its Internet product is what will win customers and separate itself from the competition in the future. Charter comments that its data speeds are higher than its competitors’ speeds in a vast majority of its service areas and that 95% of its Internet customers have speeds of 12-mbps or higher.

Consistent with its broadband focus, Charter identifies improving Internet penetration in its non-video homes as its top priority looking ahead. Currently, only 10% of the households (700k houses) in Charter's footprint that are not Charter video customers choose it for Internet services. Interestingly, Charter does not emphasize improving the video penetration of these households, again indicating that Internet is its lead product.

In order to stem video subs losses, Charter aims to position its broadband Internet service as an enhancement to its television products. It offers its customers on-demand video content online through charter.net, and it recently announced a new online search and discovery feature that will integrate content from a variety of sources into one directory—including charter.net, Hulu, Netflix and other providers.

Rich DiGeronimo, Charter's svp of product and strategy, commented on the shift in television viewing habits and Charter’s strategy looking ahead. “Consumers are watching streaming video from a variety of content providers on multiple devices at an increasing rate. Charter is embracing this change in landscape. We're starting by expanding our online functionality, but this is just the beginning of our aspiration to deliver the best customer experience with all video content on all devices, everywhere our customers go."

Charter exhibits an awareness of the changing needs of its television customers and a willingness to embrace the trend to streaming and mobile video, but the question remains: how does a cable provider profit from this change? The shift to position itself as the best ISP with the fastest speeds for streaming content online is part of Charter’s strategy, but it still has a long way to go before returning to profitability.


Cablevision 3Q11 Earnings Drop 65%

Video Subs Fall 19k While Operating Costs Increase 17%

Cablevision (NYSE:CVC) was the second major U.S. cable provider to report its quarterly results this earnings season, and already some common threads are being laced throughout the cablecos’ discussions of their 3Q11 performances. Aggressive competition is impacting subscriber and top line growth, while rising programming costs are taking a toll on bottom lines.

For the quarter, Cablevision’s revenue was up around 9% YoY to $1.67b, but factoring in the impact of its Bresnan Cable acquisition, revenues were essentially flat, up only 1%. Its bottom line performance was even more disappointing, falling 65% YoY to $39.3m in 3Q11 from $112.1m in 3Q10. Revenues from Cablevision’s business services area, Optimum Lightpath, remained a bright spot for the company, as revenue from this segment jumped 6% YoY, to $77.5m in 3Q11.

Cablevision management attributed the lack of overall revenue growth to three main factors: aggressive competition from Verizon (NYSE:VZ), the inability to increase prices, and the lagging economy.

Verizon lowered prices for its FiOS services in Cablevision’s New York footprint starting in 2Q11, without requiring long term contracts to new customers. This move limited the ability of Cablevision to increase prices for its triple play packages and as a result its average revenue per video customer in New York slipped below $154 in the quarter. Thomas Rutledge, Cablevision coo, indicated the company held off on larger rate increases, sacrificing potential revenue gains in order to stabilize its subs.

Despite these efforts Cablevision lost 19k video subs in 3Q11, but added 17k high speed data subs and 38k voice lines. Amid continuing video losses and flat residential revenues, Cablevision remains optimistic for residential growth the future, eyeing the current satellite customers in its markets. Greg Seibert, evp and cfo of Cablevision, commented on potential areas for growth.

“Over the long-term I think the business still has a lot of growth in it, and in the areas where we thought there would be growth there is continued opportunity to sell a triple play package to residential customers who don’t buy it today. There is still a considerable amount of satellite penetration in our footprint which we think is an inferior product at its core and ultimately gives us a path to additional residential growth.”

In order to make its video and broadband services more attractive, Cablevision appears to be embracing the transition from the more traditional, living room, television viewer to the more flexible, on-the-go viewer.  In an attempt to benefit from the growing popularity of iPads, Cablevision launched an app for the tablet through which subscribers can use the iPad as an additional television screen in the house.  As of 3Q11, it had 500k customer devices connected to WiFi to enable mobile video.

While this value-added wireless strategy may attract and maintain customers, rising programming costs continue to eat into the profitability of Cablevision’s operations. Technical and operating expenses were up 17%, or $100m, YoY, leading to the 65% drop in earnings. Seibert spoke to the rising programming costs during the earnings call, pointing the finger at the broadcasters.

“It is an issue and it is an expensive part of our business, it is the single biggest cost item we have. And the fact that retransmission consent became necessary from the eyes of broadcasters, particularly after the ’08 recession, has been flowing through our business, and there was a large step up. I think that the overall rate of programming going forward will moderate to some extent naturally. But right now we are observing the collapse of the broadcast industry business model.”


Insight and Cablevision Report Lackluster Earnings

Video Losses and Mediocre Internet Adds Limit Growth

We are well into earnings season and it is abundantly clear that cablecos across the board experienced a bumpy ride in the second quarter. It has been the same of old story for cable providers of all sizes: lagging video subs and moderate Internet gains have translated into a period of low growth.

Aware of this trend, I was shocked yesterday to find Insight Communications announcing front and center on its website: 'Insight’s Aggressive Growth Plan Leads to Jump in Revenue.' The headline made more sense after the link directed me to an article written in March 2010. As a rule of thumb, it is probably not a good sign for a company that on the day it's set to report quarterly earnings, the best news it has to offer is over a year old.

For Insight ceo Michael Willner, March 2010 was a better time. 1Q10 marked Insight’s 5th straight quarter of over 10% YoY revenue growth, as it expanded its fiber optic network and added broadband customers at a rapid pace. Growth has since declined steadily in subsequent quarters, and in 2Q11 Insight grew revenue only 2% YoY to $270.5m. Insight also lost 2% of its customer base in 2Q11 as its broadband growth slowed, and the penetration of homes passed dropped for its phone, Internet and television services.

Insight’s lackluster 2Q11 earnings validate The Carlyle Group’s effort to sell its 42% stake in the company earlier this year. Carlyle, however, timed the exit from its investment poorly, with Insight well into its slowdown before Carlyle announced its auction. Better timing and Carlyle could have received an offer closer to the $4b price tag that it wanted in the deal.

Cablevision (NYSE:CVC), which at one point expressed interest in purchasing Carlyle’s ownership in Insight, also reported 2Q11 earnings this week. Let’s see if these results sound familiar… pro forma revenues up just under 2% YoY (to $1.69b), Internet adds lower than expected (5k), and video sub declines (23k). The same old song and dance, and yet the market reacted sharply to these results, driving down Cablevision’s share price 13%. For anyone paying attention to cable earnings over the past few weeks, these underwhelming results should not have come as a surprise.

While YoY revenue was up around 9.8% for Cablevision, nearly all of the increase was attributable to its acquisition of the Bresnan properties. Cablevision cfo Gregg Seibert suggested in the earnings call, that the current marketplace is not favorable for cable deals down the road.

“I don’t see anything on the immediate horizon in that regard (acquisitions). Given the disruption in the markets at this point in time, it would be very difficult to go out and ring-fence a transaction today. The high-yield markets locked up quite a bit over the last few months,” commented Seibert.

Without deals to rely on for “growth,” Cablevision is joining Comcast and other cablecos in pushing mobile video services in an effort to stabilize its television losses. Its new app for IPads and IPhones allows a customer to view on demand content from any room in their house. Through these apps Cablevision looks to better compete with over-the-top providers like Netflix and Hulu in the video on demand space. The free app will not directly provide incremental revenue, but management hopes it will make its video services more “sticky”—a universal goal for all cablecos heading into 3Q11.