In his first earnings call as CEO of Time Warner Cable, Rob Marcus outlined the company’s operating plan going forward and further rebutted Charter Communications’ attempt to takeover the nation’s second-largest cable operator.
Time Warner Cable executives went to great lengths to refute Charter Communications’ position that the company was poorly managed and likely to see a further erosion of its subscriber base. Those assertions were made earlier in the month by Charter Communications chief operating officer John Bickham, and to a lesser extent, CEO Tom Rutledge, during a conference call after Time Warner Cable spurned Charter’s $132.50 per share offer, which was Charter’s third attempt.
On the call, Marcus reiterated that Time Warner Cable was still only interested in a $160 per share offer, with $100 in cash and $60 in Charter stock.
“As I said at the time, and I’ll say again today, Charter’s more recent bid to acquire TWC substantially undervalues our company,” Marcus said. “The headline value of the Charter proposal equates to roughly seven times our forward adjusted OBIDIA and it’s substantially below the multiples at which recent cable transactions have been completed. Moreover, as we’ll make clear this morning, the value offered by Charter falls way short of the value we can create by executing on our current operating plan.
“In short, we have terrific assets, a world class team and a well architected operating plant and we are confident in our ability to drive growth and create more value for our shareholders.”
Marcus used the conference call to state his case that Time Warner Cable could improve its operations and win back subscribers better than Charter Communications. Time Warner Cable posted a presentation that showed it had higher margins than Charter, offers more products and has a better business services division.
In order to speed up the roll out of its all-digital conversion project, along with replacing older equipment, Time Warner Cable said it would increase its capital expenditures to $3.7 billion-$3.8 billion over the next three years.
Time Warner Cable said this morning that it would start to convert its Los Angeles system to all-digital, after having already done so in New York City and other areas last year.
Further outlining its plan, Time Warner Cable said it expected to generate revenue of $25.7 billion, and adjusted operating income before depreciation and amortization of $9.4 billion, by 2016.
While Charter executives criticized Time Warner Cable’s customer service, Marcus said Time Warner Cable’s customer service initiatives over the past year, which include better customer education and one-hour service windows, “are yielding real improvements in customer satisfaction.”
On the technology front, Marcus said that Time Warner Cable’s cloud-based guide and user interface was in close to 3 million set-top boxes, and the feedback on the new UI “has been phenomenal.” Charter Communications is also in the process of rolling out a cloud-based user interface.
Marcus also pointed out that in the fourth quarter Time Warner Cable increased the VOD and linear content available on its IP-based TWC TV app, and added the Kindle Fire to its list of platforms that are now supported.
“At this point our IP video product is available on more platforms than any other MVPD app and usage continues to grow,” he said. “In December our customers used the TWC TV app on more than a million devices.”
In a similar vein as Comcast and Charter, Time Warner Cable will refresh its brand during the year and launch “TWC Maxx” in Los Angeles and New York City later this year. While the new brand name wasn't released, TWC Maxx is Time Warner Cable's internal name for revamping its services.
“With ‘TWC Maxx,’ we’re going to essentially reinvent the TWC experience market-by-market,” Marcus said. “We’ll triple Internet speeds for customers with our most popular tiers of service, add more community Wi-Fi, dramatically improve the TV product and, perhaps most importantly, we’ll set a high bar in our industry for differentiated exceptional customer service. We’re focused on providing the features and benefits that matter most to our customers.”
Time Warner Cable also will introduce a number of same-day appointments in the upgraded service areas.
Marcus also highlighted Time Warner Cable’s continued success in the business services sector, which was helped along by the hiring last year of former Cox Business exec Phil Meeks as the head of its business services.
“We continue to deliver outstanding results in business services with year-over-year revenue growth of more than $100 million yet again in the fourth quarter,” Marcus said. “We’re on track to reach at least $5 billion of annual business services revenue by 2018.
Even with the operations plan, new branding and improved subscriber metrics, MoffettNathanson Research analyst Craig Moffett questioned whether Time Warner Cable was doing enough to fend off Charter. With Comcast reportedly interested in backing Charter’s bid, in return for picking up TWC’s New York City, North Carolina, and New England systems from Charter, Moffett wrote in his report that Time Warner Cable was still very much in play and that a deal could possibly be reached at $140 per share.
“With just two weeks left for proxies to be filed, TWC’s board will either constructively engage or face a hostile tender and shareholder vote for a new slate of directors,” Moffett wrote. “With Comcast now reportedly in Charter’s camp, the stakes have risen; the incentive for shareholders to lobby for sale is now unmistakably greater than it was, and our informal read of shareholder sentiment is that the desire among TWC’s owners to consummate a deal has risen materially.
“Where previously we suspected that the most likely outcome was a successful rebuff by TWC’s board, now we’re not so sure.”
By the numbers
Time Warner Cable lost 217,000 residential video subscribers in the fourth quarter, which was a marked improvement over the 306,000 it lost in the third quarter but above Wall Street estimates of 206,200.
While the number of video customers lost in the third quarter was disturbing, Time Warner Cable also shed 24,000 data subscribers and 128,000 voice customers on the residential side. In the fourth quarter, Time Warner cable added 39,000 data subscribers and 1,000 voice customers.
“Customer relationships net adds improved sequentially in each month of the quarter and in December were solidly higher than they were year-over-year,” Marcus said “That positive momentum has continued into January of this year, so we’re starting off the new year strongly.
“I think its fair to say that the financial results we reported this morning came in a little ahead on almost every metric.”
Time Warner Cable's fourth-quarter net income increased 5 percent. In the fourth quarter, Time Warner Cable earned $540 million, or $1.89 per share compared to $513 million, or $1.68 per share, a year ago.
Total costs and expenses increased slightly to $4.4 billion from $4.34 billion while revenue rose 2 percent to $5.58 billion from $5.49 billion.
Average monthly revenue per residential customer relationship increased 2.2 percent to $106.03.
Time Warner Cable’s full-year net income declined 10 percent to $1.95 billion, or $6.70 per share, from $2.16 billion, or $6.90 per share, in the previous year. Annual revenue rose 3 percent to $22.12 billion from $21.39 billion.
Time Warner Cable increased its quarterly dividend by 15 percent to 75 cents per share, which it will pay on March 17 to shareholders of record on Feb. 28.