Mediacom Spies Cash-Flow Canaan

Mediacom Communications ( MCCC) enjoyed relative investor confidence Monday, while fellow cable operator Cablevision ( CVC) paved the way for the sector's slide.

Mediacom, the nation's eighth-largest operator of cable systems, told analysts it has a "clear and direct path" to achieving positive free cash flow from operations in the second half of 2003, encountering little of the skepticism that Cablevision provoked with similar statements last week.

Free cash flow -- or cash flow from operations after capital expenditures and interest expense have been subtracted -- has become the holy grail for cable investors increasingly worried that the billions that operators have spent on plant upgrades and debt service will never achieve the financial payoffs that operators have promised.

Paranoia

Concerns about free cash flow, along with Adelphia Communications ( ADELQ)-induced fears of misleading accounting, among other factors, have squashed cable stocks this year. Cablevision's shares fell 41 cents to $5.05 Monday, threatening a new 52-week low for the company and marking a 35% slide since the company's second-quarter results were announced last Thursday morning.

While shares of Charter Communications ( CHTR) and other operators were down Monday afternoon, Mediacom's shares -- already 75% off their 52-week highs -- rose 13 cents to $4.53.

For the second quarter ended June 30, Mediacom's reported revenue was $230.8 million, up 10.5% from the pro forma figure for the second quarter of 2001. Operating cash flow grew 20% to $95.9 million. Both figures beat company guidance given three months ago. Mediacom reiterated revenue and cash-flow guidance for the full year of 2002.

Among the several steps in its journey to free cash flow discussed on a conference call with analysts, Mediacom said it is cutting capital expenditures for 2002 by $20 million to a range of $390 million to $410 million. Capex will drop to $260 million in 2003 and go lower in years beyond that, says Mediacom Chief Financial Officer Mark Stephan.

Narrowing Net

Mediacom had one piece of bad news for investors: its inability to add net customers for its advanced digital video in the second quarter. The company is cutting its year-end subscriber forecast by 20,000 to a range of 370,000 to 380,000. It said that a price increase covering systems formerly owned by AT&T's ( T) AT&T Broadband had resulted in customer losses "somewhat higher than expected."

Saying that the company isn't as leveraged as some critics have claimed, Mediacom pointed out that it has unused credit facilities more than triple the size of its projected cash needs to reach free cash flow, and that 84% of its high-yield debt matures beyond 2010. Responding to a question from an analyst as to whether the company is considering going private, CEO Rocco Commisso said, "Clearly, it's something that we look at."

In an indication of the uphill battle that AOL Time Warner's ( AOL) America Online faces in its attempt to be offered on cable systems other than AOL Time Warner's, Commisso seemed in no hurry to offer high-speed Internet services on Mediacom's systems alongside the company's homegrown package. "We're not going to make the mistake that our industry has made in the past ... to give away incremental profitability to our programmers," said Commisso on the conference call. "We don't need anybody to come and tell us" how to operate a high-speed Internet business, he said.

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