Mediacom: Phone, High-Speed Growth As Basic Video Drops

Mediacom Communications reported 2nd quarter results with a net loss of $6.6 million in the quarter, versus net income of $5.7 million in Q2 2006. The company added 18,000 revenue generating units (RGUs, or the number of individual products sold to subscribers) while losing the same number of basic video subscribers in the quarter.

Lower-than-anticipated quarterly results led the company to lower its year-end revenue a percentage point (from 8-9% growth to 7-8% growth) and similarly adjust its 2007 cash flow guidance (AOIBDA, or adjusted operating income before depreciation and amortization) to 6-7% from 7-8% growth.

Mediacom also reported negative free cash flow of $2.7 million in the quarter—versus positive free cash flow of $824,000 in 2Q06—and about $3.1 billion in outstanding debt.

Chairman and CEO Rocco B. Commisso said in a statement, "Given the recent turbulence in the credit markets, we are pleased to report that in this quarter, we attained our lowest level of financial leverage since early 2001, and we maintain a strong financial position with $800 million of unused and available long-term credit commitments."

The company attributed the quarterly softness to seasonal subscriber losses that hit hardest when students finished their school years in June, and to selling a system in Le Mars and Orange City, Iowa, and acquiring another for a net loss of about 3,300 subscribers.

Quarterly operating expenses increased 9.6% to cover programming costs and customer service. Overall revenue for the quarter was $324.7 million, a 7.4% increase from $302.4 milllion in 2Q06, while operating income increased 1.9% to $61 million and AOIBDA increased 3.8% to $119.3 million. Its AOIBDA margin decreased to 36.7% from 38% in the year-ago quarter.

Average monthly revenue per subscriber (ARPU) increased 12% year-over-year to $80 in 2nd quarter, a 6.9% increase over 1st quarter. Total customer relationships dropped by 17,000 (to 1.4 million) from the first quarter of this year, while RGUs increased 18,000 over the previous quarter to 2.6 million.

Video revenues, which account for about 70% of Mediacom’s total revenue, increased 1.6% to $226 million, despite losing 18,000 basic video subscribers in the quarter (compared with a basic video sub loss of 22,000 in 2Q06). Average monthly video revenue per subscriber increase 5.9% from 2Q06 to $55.69, primarily due to incremental revenue from DVRs and HDTV.

Digital video subscribers increased by 2,000 (.4%) to 532,000, for a digital penetration rate of 39.6% on June 30, compared with 38.9% on March 31. The company commented on today’s earnings call that it could, if necessary, deliver up to 40 HD channels to compete with DirecTV’s high-def ramp-up starting next month.

High-speed Internet customers increased by 13,000 to 613,000 in 2nd quarter, for a HSD penetration of 21.6% on June 30 (flat versus first quarter but up from 18.3% penetration in 2Q06). HSD revenues increased 19.6% to $69.4 million.

Telephone customers increased 21,000 (17%) in the quarter to 144,000, for a phone penetration rate of 5.9%, while phone revenues increased 126% to $13.3 million in 2nd quarter. The company is testing a single-line  phone offering for business customers, which will expand to a multi-line commercial line test in the 4th quarter.