Time Warner Cable (TWC)

Q4 2011 Earnings Call

January 26, 2012 8:30 am ET

Executives

Robert D. Marcus - President and Chief Operating Officer

Irene M. Esteves - Chief Financial Officer and Executive Vice President

Glenn A. Britt - Chairman and Chief Executive officer

Tom Robey -

Analysts

Stefan Anninger - Crédit Suisse AG, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

Presentation

Operator

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Hello, and welcome to Time Warner Cable's Fourth Quarter 2011 and Full Year Results Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'll turn the call over to Mr. Tom Robey, Senior Vice President of Time Warner Cable Investor Relations. Thank you, you may begin.

Tom Robey

Great. Thanks, Candy, and good morning, everyone. Welcome to Time Warner Cable's 2011 fourth quarter and full year earnings conference call. This morning, we issued 2 press releases, 1 detailing our 2011 fourth quarter and full year results and the other announcing the reload of our share repurchase authorization and an increase in our regular quarterly dividend.

Before we begin, there are some items I want to cover. First, we refer to certain non-GAAP measures including operating income before depreciation and amortization or OIBDA. In addition, we referred to adjusted OIBDA and adjusted OIBDA less capital expenditures. Definitions and schedules setting out reconciliations of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and our trending schedules.

Second, today's announcement includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are based on management's current expectations and 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 various factors, including economic, business, competitive, technological, strategic and/or regulatory changes that could affect our business. These factors are discussed in detail in Time Warner Cable's SEC filings, 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 in fact, expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Third, today's comments on our outlook for 2012 do not include the impact of our pending acquisition of Insight Communications and the expected sale of AWS Spectrum by SpectrumCo.

And finally, today's press releases, trending schedules, the presentation slides for Mr. Marcus and Ms. Estevez, and the related reconciliation schedules are available on our company's website at timewarnercable.com/investors. A replay of today's call will be available beginning approximately 2 hours after the call has ended and will run through midnight, Eastern Time, January 30.

With that covered, I'll thank you and turn the call over to Glenn. Glenn?

Glenn A. Britt

Good morning, and thanks for joining us today. Time Warner Cable capped off 2011 with a strong performance in the fourth quarter. We grew revenues of 4% and adjusted OIBDA almost 9% on a year-over-year basis. These results were driven by our focus on improved top line performance and tighter cost management, even as we invested in new growth opportunities.

Business services continued to be our biggest success story, aided by the NaviSite acquisition. We accelerated the year-over-year revenue growth rate to 37% in the fourth quarter. And even without NaviSite, business services revenue was up 25%, making Q4 the highest growth quarter of the year. In residential services, we returned phone net adds to positive territory. We drove strong broadband net additions and we continue to make incremental progress in stemming video subscriber losses. On the ad sales front, I'm particularly proud of the fact that we were able to match our full year 2010 revenues, even without the benefit of election year political spending.

We returned $3.3 billion to our shareholders in 2011, $642 million in dividends and the remainder in share repurchases. Together, these equaled almost 120% in free cash flow. Not bad. As you saw in this morning's announcements, we are increasing our dividend by 17%. At yesterday's closing price, that equates to a dividend yield of 3.2%, which is higher than 80% of the companies in the S&P 500 Index. And consistent with our balance sheet strategy, our board has replenished our share repurchase authorization.

As we entered 2012, I'd like this share some of our priorities for the year ahead. First, we plan to continue our aggressive growth in business services by expanding product offerings, growing our sales force, improving productivity and increasing our serviceable footprint. This means continued investment, both in people and in capital. But remember, business services capital spending remains a fairly small part of the total. We're also focused on growing our core residential services through more aggressive in targeting sales and marketing and, improved customer experience and continued product innovation. That sounds like a lot. It is. The marketplace for residential services is dynamic, both in terms of customer expectations and the competitive environment. In addition, the audience is bifurcating. One group is extremely price-conscious, perhaps due in part to the ongoing economic malaise. The other group is willing and able to pay for more features and service. We've already focused more attention on products and services that best meet each group's needs rather than pursuing traditional one-size-fits-all solutions. Next, we expect to drive ad sales revenue growth by capturing political spending and by expanding our third-party rep deals. In 2012, we're planning to launch and support new business initiatives and product enhancements. These include the Los Angeles Orsen [ph], Wi-Fi and IntelligentHome, which is our home security monitoring service. In addition, we expect to implement our recently announced Verizon Wireless deal. As always, we will make capital investments in our infrastructure to enable future growth and allow for the continued best-in-class delivery of our products and services. Projects include expansion of our content delivery network, which powers our IP video capability, our 2 international head ends, completion of DOCSIS 3.0 deployment, and conversion to all-digital in more cities. We expect to be able to accomplish this while maintaining the capital spending over the last 2 years, that is between $2.9 billion and $3 billion, which represents a continued decline in capital intensity. And last, but certainly not least, we expect to integrate and capture synergies related to the NaviSite and NewWave acquisitions which closed in 2011, and the Insight acquisition which we expect to close in the next few months. We're off to a very good start with both NaviSite and NewWave.

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