Mediacom Communications Reports Results For Second Quarter 2010

MEDIACOM COMMUNICATIONS CORPORATION (Nasdaq: MCCC) today reported financial results for the three and six months ended June 30, 2010. Mediacom Communications will hold a teleconference today at 10:30 a.m. Eastern Time to discuss its financial results. A live broadcast of the teleconference can be accessed through our web site at www.mediacomcc.com.

Second Quarter 2010 Financial Highlights
  • Revenues were $377.0 million, a 3.4% increase from the prior year period
  • Adjusted operating income before depreciation and amortization (“Adjusted OIBDA”) was $139.7 million, a 2.1% increase from the prior year period1
  • Operating income was $77.2 million, essentially flat compared to the prior year period
  • Revenue generating units (“RGUs”) grew 15,000 for the quarter and 91,000 year-over-year, representing a 3.1% annual gain
  • Free Cash Flow was $14.0 million, or $0.21 per basic share, compared to $28.5 million, or $0.42 per basic share, for the prior year period1

Second Quarter 2010 Financial Results

Revenues rose 3.4% from the prior year period, largely due to continued growth in high-speed data and, to a lesser extent, phone and advertising revenues, offset in part by lower video revenues. Average total monthly revenue per basic subscriber rose 8.9% to $102.59.
  • Video revenues declined 0.6%, primarily due to a lower number of basic subscribers, offset in part by video rate increases and continued growth in digital customers and digital video recorder and high-definition television services. We lost 18,000 basic subscribers, compared to a loss of 15,000 in the prior year period.We added 6,000 digital customers to end the quarter with 705,000, a 58.0% penetration of basic subscribers. Year-over-year, we gained 47,000 digital customers, a 7.1% growth rate.
  • High-speed data revenues rose 10.4%, mainly due to a year-over-year gain of 60,000 high-speed data customers, or 8.0%. We gained 10,000 high-speed data customers to end the quarter with 814,000, a 29.0% penetration of estimated homes passed.
  • Phone revenues grew 9.9%, largely due to a year-over-year increase of 50,000 phone customers, or 18.7%, offset in part by higher levels of discounted pricing. We gained 17,000 phone customers to end the quarter with 317,000, a 12.0% penetration of estimated marketable phone homes.
  • Advertising revenues rose 14.0%, primarily due to increased local advertising sales, largely a result of a rebound in automotive and political advertising sales.

_______________________________

* See Notes on Page 3 regarding Adjusted OIBDA and Free Cash Flow.

Total operating costs, which exclude non-cash, share-based compensation, rose 4.3% from the prior year period, principally due to higher programming expenses and, to a much lesser extent, increases in employee, phone service and marketing costs, offset in part by lower high-speed data delivery expenses.

Adjusted OIBDA grew 2.1% from the prior year period, while the Adjusted OIBDA margin declined to 37.0% from 37.5%. Operating income was essentially flat, as the increase in Adjusted OIBDA was mostly offset by higher depreciation and amortization.

Net loss was $3.8 million, or a loss of $0.06 per basic share, compared to net income of $34.4 million, or $0.51 per basic share, in the prior year period. The swing from net income in the prior year period to a net loss was principally the result of a $29.1 million loss on derivatives, as compared to a $26.0 million gain on derivatives, offset in part by a $14.5 million provision for income taxes, for the three months ended June 30, 2009.

Capital expenditures were $64.2 million for the three months ended June 30, 2010, compared to $54.4 million during the prior year period. The increase largely reflected greater investments in scalable infrastructure for our internal phone platform and, to a much lesser extent, for our high-speed data delivery system. This was offset in part by reduced outlays for customer premise equipment, network improvements and, to a lesser extent, network extensions. Capital expenditures for the three months ended June 30, 2010 represented 17.0% of total revenues, compared to 14.9% for the prior year period.

Free Cash Flow and Financial Position

Free Cash Flow decreased 50.9% to $14.0 million, or to $0.21 per basic share, for the three months ended June 30, 2010, primarily due to a $9.8 million increase in capital expenditures and a $7.8 million net change in certain working capital accounts, partly offset by the $2.8 million year-over-year increase in Adjusted OIBDA. For the six months ended June 30, 2010, Free Cash Flow decreased 23.0% to $44.8 million, or to $0.66 per basic share, largely as a result of a $12.8 million increase in capital expenditures and a $6.5 million net change in certain working capital accounts, partly offset by a $6.0 million rise in Adjusted OIBDA.
       
(in thousands, except per share data) Three Months EndedJune 30,

Six Months EndedJune 30,
2010   2009 Change 2010   2009 Change
Cash provided by operating activities $ 78,157 $ 82,896 (5.7 )% $ 166,805 $ 167,346 (0.3 )%
Capital expenditures   (64,150 )   (54,395 ) 17.9     (122,000 )   (109,173 ) 11.7  
Free Cash Flow $ 14,007   $ 28,501   (50.9 )% $ 44,805   $ 58,173   (23.0 )%
 
Free Cash Flow per basic share $ 0.21 $ 0.42 (50.0 )% $ 0.66 $ 0.79 (16.5 )%

Total Net Debt Outstanding 2 was $3.270 billion as of June 30, 2010, a $13.8 million decline from December 31, 2009. As of the same date, Net Debt Leverage 2 was 5.9 times, as compared to 6.0 times for the prior year period, and we had $716.0 million of unused lines, all of which could be borrowed and used for general corporate purposes, based on the terms and conditions of our debt arrangements

_______________________________

* See Notes on Page 3 regarding Total Net Debt Outstanding and Net Debt Leverage.

Recent Developments

New Financings

On April 23, 2010, we completed $850 million of new term loans with a final maturity of October 23, 2017, and extended the termination date to December 31, 2014, on $225 million of our revolving credit commitments. The net proceeds of these new term loans were largely used to repay certain existing term loans and the full balance of outstanding loans under our revolving credit facilities, and to pay related fees and expenses. As a result of the revolver extension, total commitments under our revolving credit facilities were reduced from $830 million to $735 million.

Going Private Proposal

On May 31, 2010, our Board of Directors received a non-binding proposal from our founder, Chairman and Chief Executive Officer, Rocco B. Commisso, for a going private transaction. The proposal contemplates the acquisition of all of the Class A and Class B shares of our common stock not already beneficially owned by Mr. Commisso at a price of $6.00 per share in cash.

Our Board of Directors appointed independent directors Thomas V. Reifenheiser and Natale S. Ricciardi to a special committee (the “Special Committee”) empowered to, among other things, consider the proposal. The Special Committee has retained financial and legal advisors to assist in its review of the proposed transaction.

Notes:

(1)
 

Adjusted OIBDA excludes non-cash, share-based compensation charges. See Table 6 for a reconciliation of Adjusted OIBDA to operating income, which is the most directly comparable GAAP measure. Free Cash Flow is defined as cash flows provided by operating activities less capital expenditures. For a reconciliation of Free Cash Flow to cash flows provided by operating activities, see the table on page 2. For more information on our use of Non-GAAP financial measures, see Table 8.

(2)

Total Net Debt Outstanding represents total debt less cash and cash equivalents. Net Debt Leverage represents the ratio of Total Net Debt Outstanding to Adjusted OIBDA (annualized for the most recently completed quarter).

About Mediacom:

Mediacom Communications is the nation’s eighth largest cable television company and one of the leading cable operators focused on serving the smaller cities in the United States, with a significant concentration in the Midwestern and Southeastern regions. Mediacom Communications offers a wide array of broadband products and services, including traditional and advanced video services such as digital television, video-on-demand, digital video recorders, high-definition television, as well as high-speed Internet access and phone service. For more information about Mediacom Communications, please visit www.mediacomcc.com.
Tables:
(1) Consolidated Statements of Operations–three month periods
(2) Consolidated Statements of Operations–six month periods
(3) Condensed Consolidated Balance Sheets
(4) Consolidated Statements of Cash Flows
(5) Capital Expenditure Data
(6) Reconciliation Data – Historical
(7) Summary Operating Statistics
(8) Use of Non-GAAP Financial Measures

Cautionary Statement Regarding Forward-Looking Statements:

You should carefully review the information contained in this Press Release and in other reports or documents that we file from time to time with the SEC.

In this Press Release, we state our beliefs of future events and of our future financial performance. In some cases, you can identify those so-called “forward-looking statements” by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will,” or the negative of those and other comparable words. These forward-looking statements are not guarantees of future performance or results, and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those we anticipate as a result of various factors, many of which are beyond our control. Factors that may cause such differences to occur include, but are not limited to:

  • increased levels of competition from existing and new competitors;
  • lower demand for our video, high-speed data and phone services;
  • our ability to successfully introduce new products and services to meet customer demands and preferences;
  • changes in laws, regulatory requirements or technology that may cause us to incur additional costs and expenses;
  • greater than anticipated increases in programming costs and delivery expenses related to our products and services;
  • changes in assumptions underlying our critical accounting policies;
  • the ability to secure hardware, software and operational support for the delivery of products and services to our customers;
  • disruptions or failures of network and information systems upon which our business relies;
  • our reliance on certain intellectual property;
  • our ability to generate sufficient cash flow to meet our debt service obligations;
  • fluctuations in short term interest rates which may cause our interest expense to vary from quarter to quarter;
  • volatility in the capital and credit markets, which may impact our ability to refinance future debt maturities or provide funding for potential strategic transactions, on similar terms as we currently experience; and
  • other risks and uncertainties discussed in this Press Release, our Annual Report on Form 10-K for the year ended December 31, 2009 and other reports or documents that we file from time to time with the SEC.

Statements included in this Press Release are based upon information known to us as of the date that this Press Release is filed with the SEC, and we assume no obligation to update or alter our forward-looking statements made in this Press Release, whether as a result of new information, future events or otherwise, except as required by applicable federal securities laws.
   
TABLE 1
Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)
 
Three Months EndedJune 30, Percent
2010   2009 Change
 

Video

$

232,158
$ 233,622 (0.6 )%
High-speed data 97,325 88,182 10.4
Phone 30,804 28,020 9.9
Advertising   16,721     14,671   14.0  
Total revenues $ 377,008   $ 364,495   3.4 %
 
Service costs $ 161,653 $ 153,836 5.1 %
SG&A expenses 68,687 66,874 2.7
Corporate expenses   7,014     6,950   0.9  
Total operating costs $ 237,354   $ 227,660   4.3 %
 
Adjusted OIBDA $ 139,654 $ 136,835 2.1 %
 
Non-cash, share-based compensation charges (1,897 ) (1,833 ) 3.5
Depreciation and amortization   (60,601 )   (57,940 ) 4.6  
Operating income $ 77,156 $ 77,062 0.1 %
 
Interest expense, net $ (51,883 ) $ (51,331 ) 1.1 %
(Loss) gain on derivatives, net (29,052 ) 25,951 NM
Gain on sale of cable systems, net (410 ) NM
Loss on early extinguishment of debt (1,234 ) NM
Other expense, net   (1,449 )   (2,361 ) (38.6 )
 
(Loss) income before income taxes $ (6,462 ) $ 48,911 NM
Benefit from (provision for) income taxes   2,622     (14,505 ) NM  
Net (loss) income $ (3,840 ) $ 34,406   NM  
 
Basic weighted average shares outstanding 68,119 67,435
Basic (loss) earnings per share $ (0.06 ) $ 0.51
 
Diluted weighted average shares outstanding 68,119 70,857
Diluted (loss) earnings per share $ (0.06 ) $ 0.49  
             
Adjusted OIBDA margin (a) 37.0 % 37.5 %
Operating income margin (b) 20.5 % 21.1 %
______________________________
(a)   Represents Adjusted OIBDA as a percentage of revenues.
(b) Represents operating income as a percentage of revenues.
   
TABLE 2
Consolidated Statements of Operations
(All amounts in thousands, except per share data)
(Unaudited)
 
Six Months EndedJune 30, Percent
2010   2009 Change
 
Video

$

461,130
$ 467,991 (1.5 %)
High-speed data 192,645 175,088 10.0
Phone 61,066 54,620 11.8
Advertising   30,846     27,234   13.3  
Total revenues $ 745,687   $ 724,933   2.9 %
 
Service costs $ 319,221 $ 306,598 4.1 %
SG&A expenses 134,651 132,587 1.6
Corporate expenses   13,858     13,830   0.2  
Total operating costs $ 467,730   $ 453,015   3.2 %
 
Adjusted OIBDA $ 277,957 $ 271,918 2.2 %
 
Non-cash, share-based compensation charges (3,772 ) (3,577 ) 5.5 %
Depreciation and amortization   (119,901 )   (116,708 ) 2.7  
Operating income $ 154,284 $ 151,633 1.7 %
 
Interest expense, net $ (101,510 ) $ (100,252 ) 1.3 %
(Loss) gain on derivatives, net (40,760 ) 24,280 NM
Gain on sale of cable systems, net 13,781 NM
Loss on early extinguishment of debt (1,234 ) NM
Other expense, net   (2,501 )   (4,826 ) (48.2 )
 
Income before income taxes $ 8,279 $ 84,616 (90.2 )%
Provision for income taxes   (3,601 )   (27,848 ) (87.1 )
Net income $ 4,678   $ 56,768   (91.8 )%
 
Basic weighted average shares outstanding 67,929 74,016
Basic earnings per share $ 0.07 $ 0.77
Diluted weighted average shares outstanding 71,690 77,241
Diluted earnings per share $ 0.07 $ 0.73  
           
Adjusted OIBDA margin (a) 37.3 % 37.5 %
Operating income margin (b) 20.7 % 20.9 %
______________________________
(a)   Represents Adjusted OIBDA as a percentage of revenues.
(b) Represents operating income as a percentage of revenues.
   
TABLE 3
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
 
June 30,

2010
December 31,

2009
ASSETS

Cash and cash equivalents

$

126,732
$ 80,916
Subscriber accounts receivable, net 89,502 86,337
Prepaid expenses and other assets 25,007 17,030
Deferred tax assets   22,959   22,616
Total current assets $ 264,200 $ 206,899
 
Property, plant and equipment, net 1,481,568 1,478,489
Intangible assets, net 2,017,926 2,019,178
Other assets, net 56,528 50,468
Deferred tax assets – non-current   218,753   222,695
Total assets $ 4,038,975 $ 3,977,729
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses $ 253,785 $ 268,575
Deferred revenue 57,281 56,996
Current portion of long-term debt   26,000   95,000
Total current liabilities $ 337,066 $ 420,571
 
Long-term debt, less current portion 3,371,000 3,270,000
Other non-current liabilities   57,949   22,130
Total liabilities   3,766,015   3,712,701
 
Total stockholders’ equity   272,960   265,028
Total liabilities and stockholders’ equity $ 4,038,975 $ 3,977,729
 
TABLE 4
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months EndedJune 30,
2010   2009
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 4,678 $ 56,768
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 119,901 116,708
Loss (gain) on derivatives, net 40,760 (24,280 )
Loss on early extinguishment of debt 1,234
Gain on sale of cable systems, net (12,148 )
Amortization of deferred financing costs 3,130 2,684
Share-based compensation 3,772 3,577
Deferred income taxes 3,601 27,848
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (3,165 ) (5,732 )
Prepaid expenses and other assets (6,377 ) (6,916 )
Accounts payable and accrued expenses and other current liabilities (719 ) 6,578
Deferred revenue 285 1,682
Other non-current liabilities   (295 )   577  
Net cash flows provided by operating activities $ 166,805   $ 167,346  
 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures $ (122,000 ) $ (109,173 )
Net cash flows used in investing activities $ (122,000 ) $ (109,173 )
 
CASH FLOWS USED IN FINANCING ACTIVITIES:
New borrowings $ 1,323,750 $ 513,875
Repayment of debt (1,291,750 ) (459,875 )
Net settlement of restricted stock units (1,126 ) (1,518 )
Repurchases of Class A common stock for cash (110,000 )
Proceeds from issuance of common stock in employee stock purchase plan 581 548
Financing costs (16,546 )
Other financing activities - book overdrafts   (13,898 )   460  
Net cash flows provided by (used in) financing activities $ 1,011   $ (56,510 )
Net increase in cash and cash equivalents 45,816 1,663
CASH AND CASH EQUIVALENTS, beginning of period   80,916     67,111  
CASH AND CASH EQUIVALENTS, end of period $ 126,732   $ 68,774  
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amounts capitalized $ 106,343   $ 102,156  
 
NON-CASH TRANSACTION – FINANCING:
Assets held for sale exchanged for Class A common stock $   $ 29,284  
 
TABLE 5
Capital Expenditure Data
(Dollars in thousands)
(Unaudited)

 
   

Six Months Ended

June 30,

2010

2009
Customer premise activity $ 51,045 $ 56,149
Commercial 3,721 3,640
Scalable infrastructure 49,628 20,750
Line extensions 3,235 4,981
Upgrade/Rebuild 8,849 14,504
Support capital 5,522 9,149
Total $ 122,000 $ 109,173
 
TABLE 6
Reconciliation Data – Historical
 
Reconciliation of Adjusted OIBDA to Operating Income
(Dollars in thousands)
(Unaudited)
 
Three Months Ended

June 30,
2010   2009
Adjusted OIBDA $ 139,654 $ 136,835
Non-cash, share-based compensation charges (1,897 ) (1,833 )
Depreciation and amortization   (60,601 )   (57,940 )
Operating income $ 77,156   $ 77,062  
 
Six Months Ended

June 30,
2010 2009
Adjusted OIBDA $ 277,957 $ 271,918
Non-cash, share-based compensation charges (3,772 ) (3,577 )
Depreciation and amortization   (119,901 )   (116,708 )
Operating income $ 154,284   $ 151,633  
     
TABLE 7
Summary Operating Statistics
(Unaudited)

 

 

 

June 30,

March 31,

June 30,

 

2010

2010

2009
 

Estimated homes passed
2,804,000 2,802,000 2,790,000
 

Total revenue generating units (RGUs)(a)
3,052,000 3,037,000 2,961,000
Quarterly RGU additions 15,000 56,000 7,000
 

Customer relationships(b)
1,343,000 1,346,000 1,378,000
 

Video
Basic subscribers 1,216,000 1,234,000 1,282,000
Quarterly basic subscriber additions (losses)

18,000

)

(4,000

)

(15,000

)
Digital customers 705,000 699,000 658,000
Quarterly digital customer additions 6,000 21,000 8,000

Digital penetration(c)
58.00 % 56.60 % 51.30 %
 

High-speed data
High-speed data customers 814,000 804,000 754,000
Quarterly high-speed data customer additions 10,000 26,000 6,000

High-speed data penetration(d)
29.00 % 28.70 % 27.00 %
 

Phone

Estimated marketable phone homes(e)
2,649,000 2,647,000 2,564,000
Phone customers 317,000 300,000 267,000
Quarterly phone customer additions 17,000 13,000 8,000

Phone penetration(f)
12.00 % 11.30 % 10.40 %
 

Average total monthly revenue per

basic subscriber(g)

$

102.59

$

99.43

$

94.22
_____________________________
(a)   Represents the total of basic subscribers, digital customers, data customers and phone customers at the end of each period.
(b) Represents the total number of customers that receive at least one level of service, encompassing video, data and phone, without regard to which service(s) customers purchase.
(c) Represents digital customers as a percentage of basic subscribers.
(d) Represents data customers as a percentage of estimated homes passed.
(e) Represents the estimated number of homes currently marketed for phone service.
(f) Represents phone customers as a percentage of estimated marketable phone homes.
(g) Represents average monthly revenues for the last three months of the period divided by average basic subscribers for such period.

TABLE 8

Use of Non-GAAP Financial Measures

“Adjusted OIBDA” and “Free Cash Flow” are not financial measures calculated in accordance with generally accepted accounting principles (“GAAP”) in the United States. We define Adjusted OIBDA as operating income before depreciation and amortization and non-cash, share-based compensation charges, and Free Cash Flow as cash flows provided by operating activities less capital expenditures. Adjusted OIBDA and Free Cash Flow have inherent limitations as discussed below.

Adjusted OIBDA is one of the primary measures used by management to evaluate our performance and to forecast future results. We believe Adjusted OIBDA is useful for investors because it enables them to assess our performance in a manner similar to the methods used by management, and provides a measure that can be used to analyze value and compare the companies in the cable industry. A limitation of Adjusted OIBDA, however, is that it excludes depreciation and amortization, which represents the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our business. Management utilizes a separate process to budget, measure and evaluate capital expenditures. In addition, Adjusted OIBDA also has the limitation of not reflecting the effect of our non-cash, share-based compensation charges. We believe that excluding share-based compensation allows investors to better understand our performance without the effects of these obligations that are not expected to be settled in cash. Adjusted OIBDA may not be comparable to similarly titled measures used by other companies, which may have different depreciation and amortization policies, as well as different share-based compensation programs.

Free Cash Flow is used by management to evaluate our ability to repay debt and return capital to stockholders and to facilitate the growth of our business with internally generated funds. A limitation of Free Cash Flow, however, is that it may be affected by the timing of our capital spending. We believe Free Cash Flow is useful for investors for the same reasons and provides measures that can be used to analyze value and compare companies in the cable television industry, although our measure of Free Cash Flow may not be directly comparable to similar measures reported by other companies.

Adjusted OIBDA and Free Cash Flow should not be regarded as alternatives to operating income or net income (loss) as indicators of operating performance, or to the statement of cash flows as measures of liquidity, nor should they be considered in isolation or as substitutes for financial measures prepared in accordance with GAAP. We believe that operating income is the most directly comparable GAAP financial measure to Adjusted OIBDA, and that net cash flows provided by operating activities is the most directly comparable GAAP financial measure to Free Cash Flow.

For historical reconciliations of these measures to their most directly comparable GAAP financial measures, please visit the Investor Relations site, under “Reconciliation Tables,” at mediacomcc.com.

Copyright Business Wire 2010

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