Time Warner Cable Rebounds From Merger Drama with Solid Q1 Video, Broadband Subscriber Gains

Despite all the drama surrounding the now-scrapped merger with Comcast, Time Warner Cable registered solid video and broadband subscriber gains in the first quarter.

CEO Rob Marcus declared it to be the company’s “best subscriber quarter ever” and touted the company’s much improved performance since February 2014 when the merger agreement with Comcast was struck. The $45.2 billion deal was dropped last week in the face of fierce opposition from regulators and consumer advocates.

Time Warner Cable said it registered 30,000 new residential video subscribers, marking its best net additions since the first quarter of 2009. Broadband subs grew by 315,000, the highest mark since 2007. Execs touted gains in residential and business services as well as triple-play traction that led to its highest net addition of telephone customers ever, with 320,000 signing on.

“We’re simply executing better across every facet of our business,” Marcus said during a conference call Thursday. “We are a far stronger company than we were just five short quarters ago. … We are as well positioned for the future as any company in our industry.”

Overall, TW Cable posted a 3.5% year-over-year gain in revenue to $5.7 billion. Net income fell to $458 million, from $479 million in the year-ago quarter. Execs noted that higher operating expenses, a 5% year-over-year hike, were driven largely by a $110 million spike in programming and content costs. TW Cable also took a $26 million charge for merger-related expenses.

Marcus would not address the burning question of whether TW Cable will still be a buyer or seller in the coming months now that the Comcast union is off the table. “We feel great about the operating health of our business now, guided by the same principles that have guided us heretofore — what is in the best interest of our shareholders. Period,” he said.

Charter Communications is said to be drafting a new bid to go after TW Cable again, after chasing the company in 2013 and early 2014, only to be out-maneuvered by Comcast. TW Cable’s stock price has been climbing since last Thursday, when word surfaced that Comcast would withdraw its acquisition offer. It opened Thursday at $157.71, up 6.6% from Thursday.

The strong operating results will spur speculation that TW Cable will resist new merger overtures in an effort to reap a better deal next year if its financial performance improves. Craig Moffett, a veteran cable analyst, wrote Thursday that “the odds of a deal just got incrementally lower” because of the operating gains.

Execs emphasized that the company has been investing heavily in technology and customer service improvements even while the merger was pending. Those investments have taken a toll on earnings this year — along with higher pension costs and the drain of the Dodgers regional sports channel in L.A. that has failed to gain carriage outside of TW Cable in Southern California region.

Growth for 2015 will be “flattish,” chief financial officer Arthur Minson said. This year is a “transitional year focused on subscriber growth to drive significant financial growth in 2016,” he said. Execs emphasized that the goal is to drive growth as much through volume gains rather than rate increases.

TW Cable execs also struck a skeptical note about whether the cable biz is really about to see the end of the bundle. Marcus cited the industry’s “obsessive interest in millennials at the expense of the broader base.” On the question of whether TW Cable will assemble a low-cost “skinny” bundle or pursue an OTT offering, “We don’t want to be pioneers on that. We’ll just be fast followers on that stuff,” said chief operating officer Dinesh Jain. He argued that the triple-play package of video, broadband and telephone service is a “simpler sale” to consumers.

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