2013-03-07 14:06:09 -
FOR IMMEDIATE RELEASE
ST. LOUIS (March 7, 2013) - Cequel Communications Holdings I, LLC ("Cequel," and
together with its subsidiaries, the "Company" or "Suddenlink") today
reported
financial and operating results for the fourth quarter and full year 2012.
"The fourth quarter capped off a tremendous year for our company," said
Suddenlink Chairman and CEO Jerry Kent. "We welcomed new partners. We generated
year-over-year revenue growth of 6.4% and Adjusted EBITDA growth of 8.8%,
excluding non-recurring expenses that were primarily associated with financing
and closing the acquisition. We also accelerated our generation of free cash
flow and grew customer relationships for the third consecutive year. As we
celebrate the tenth year of
our founding, the company is well positioned from a
financial and strategic perspective."
On November 15, 2012, Cequel Corporation acquired all of the outstanding common
equity interests in Cequel Communications Holdings, LLC, ("Cequel Holdings"),
our parent, pursuant to the purchase agreement, and all other equity interests
in Cequel Holdings (including preferred equity interests), and rights to
purchase equity interests in Cequel Holdings, were retired, redeemed or
otherwise terminated (the "Acquisition"). Cequel Corporation is owned by limited
partnerships affiliated with each of BC Partners Limited, ("BC Partners"), the
Canada Pension Plan Investment Board, ( "CPPIB") (together with BC Partners, the
"Sponsors"), and Jerald L. Kent, our Chairman and Chief Executive Officer,
Thomas P. McMillin, our Executive Vice President and Chief Operating Officer and
Mary E. Meduski, our Executive Vice President and Chief Financial Officer,
(collectively, the "Management Investors"). The total purchase price for the
Acquisition was approximately $2.485 billion, comprised of an aggregate of
approximately $1.92 billion of equity contributions by limited partnerships
affiliated with the Sponsors, a $65.1 million equity contribution by a limited
partnership affiliated with the Management Investors, and the remainder from
Cequel Holdings, funded from the net proceeds of the offering of $500 million of
6.375% Senior Notes due 2020 (the "October Notes") and cash on hand. The
purchase price, along with debt assumed in the transaction as of March
31, 2012, valued the Company at approximately $6.6 billion. Fourth quarter 2012
operating results were impacted by approximately $65.9 million of Acquisition
related expenses, consisting of approximately $19.9 million of compensation
expenses included in selling, general and administrative expense and $46.0
million of other Acquisition expenses included in other expense.
Fourth Quarter and Full Year 2012 Highlights
Operating results and metrics and year-over-year changes described below are
presented on a pro forma basis to include the acquisition of all of the issued
and outstanding capital stock of NPG Cable, Inc., Mercury Voice and Data Company
and NPG Digital Phone, Inc. (collectively, "NPG Cable") on April 1, 2011, and
contribution of all of the capital stock of Excell Communications, Inc.,
("Excell"), on November 15, 2012, and exclude the impact of immaterial asset
divestitures in 2012, as if those transactions had been consummated on January
1, 2011.
* Fourth quarter revenues of $525.6 million grew 7.1% compared to the fourth
quarter of the prior year. Revenues for the full year of 2012 of $2,061.0
million grew 6.4% compared to the full year of 2011.
* Excluding the impact of non-recurring expenses, Adjusted EBITDA (as defined
herein) for the fourth quarter and full year 2012 was $212.0 million and
$792.0 million, respectively, representing growth of 12.0% and 8.8%,
respectively, compared to the same periods in the prior year. Adjusted
EBITDA for the fourth quarter and full year 2012, including the impact of
non-recurring expenses, was $191.9 million and $763.1 million, respectively,
representing growth of 1.7% and 6.4%, respectively, compared to the same
periods in the prior year.
* Free Cash Flow (as defined herein) of $54.0 million for the fourth quarter
2012 grew $11.9 million compared to the fourth quarter 2011, an increase of
28.3%. Free Cash Flow for the full year of 2012 was $133.6 million compared
to $52.0 million for the full year of 2011, an increase of 157.1%.
* Total customer relationships were 1,371,700 at December 31, 2012, an
increase of 2,300 from December 31, 2011. RGUs were 3,522,500, an increase
of 119,700, or a 3.5% year-over-year.
* Total average monthly revenue per basic video customer ("ARPU") for the
fourth quarter was $143.44, an increase of 10.4% compared to the fourth
quarter of the prior year.
* Bundled residential customers represented 64.5% of total residential
customer relationships at December 31, 2012, an increase from 62.0% at
December 31, 2011, primarily from growth in triple play customer
relationships, which represented 24.9% of total residential customer
relationships at December 31, 2012, versus 23.5% at December 31, 2011.
* Non-video residential customers represented 18.0% of total residential
customer relationships at December 31, 2012, an increase of 13.8% compared
to the prior year.
* Advertising revenue increased 11.8% and 10.4% versus the fourth quarter and
full year of 2011, respectively, primarily from increased political
advertising, as well as increased automotive advertising.
* Commercial revenue grew 19.0% versus the fourth quarter of 2011, including
21.4% year-over-year growth in our commercial high-speed data and telephone
revenues on a combined basis. Commercial revenue grew 16.8% for the full
year 2012, including 22.0% year-over-year growth in our commercial high-
speed data and telephone revenue on a combined basis.
Fourth Quarter 2012 Compared to Fourth Quarter 2011
Fourth quarter 2012 revenues rose 7.1%, largely attributable to the increase in
residential high-speed Internet, telephone and advanced digital video revenues,
growth in revenues from our commercial business, including carrier services, and
growth in advertising revenue. Residential revenue growth resulted from
increases in the number of new telephone, high-speed Internet and digital video
customers, an increase in the penetration of existing customers for these
services, the impact of video and high-speed Internet rate increases, and
incremental service revenues from high definition television ("HDTV") and
digital video recoded ("DVR") services due to growth in customers purchasing
advanced video services during the trailing twelve months. Offsetting this
residential growth in part was a decrease in revenue due to basic video customer
losses, the impact of bundling and promotional discounts and digital customers
purchasing fewer digital tiers of service during the trailing twelve months.
Revenues for our commercial business grew due to increases in commercial high-
speed data and telephone customers and from increases in cell tower and backhaul
revenues from carrier customers. Advertising revenue increased primarily due to
growth in political advertising.
Video service revenues increased 2.5% due primarily to video rate increases,
higher broadcast retransmission and franchise fee revenue and customer growth in
our digital and advanced video services, including converter rental revenue for
high-definition and DVR capable digital converters. Offsetting this growth, in
part, were the year-over-year basic video customer losses and the impact of
digital customers purchasing fewer digital tiers of service on average.
High-speed Internet service revenues rose 13.2% due primarily to an increase in
residential high-speed Internet customers, growth in home networking revenues,
the impact of residential rate increases, growth in our commercial high-speed
data services to small and medium sized businesses and growth in carrier
services, including fiber to the tower, and optical Internet and transport
revenues.
Telephone service revenues grew 10.9% due primarily to an increase in
residential telephone customers and growth in our commercial telephone services
to small and medium sized businesses.
Advertising revenues increased 11.8% due largely to higher national and local
advertising sales revenue, from increased political and automotive advertising.
Other revenues increased 15.9% due primarily to increased commercial
installation revenue, wire maintenance revenue, security service revenue and
tower development revenue.
Our commercial lines of business, embedded in the video, high-speed Internet,
telephone service and other revenues, described above, are comprised of
commercial and bulk video, commercial high-speed data, fiber based on- and off-
net carrier services and commercial telephone. Commercial revenue totaled $68.8
million, or 13.1% of total revenue, in the fourth quarter of 2012, representing
growth of 19.0% versus the fourth quarter of 2011. Our commercial high-speed
data and telephone revenue grew 21.4% year-over-year on a combined basis.
Operating costs and expenses rose 10.5%, primarily due to higher programming
costs, including broadcast retransmission consent expenses, higher telephone
service expense, increased net compensation and employee related costs,
increased expenses associated with our ad sales business and increased non-
recurring expenses, offset in part by decreased marketing expense and decreased
third party labor expenses. The fourth quarter of 2012 includes $20.1 million of
non-recurring expenses, which consist of $19.9 million of compensation expenses
related to the Acquisition and $0.2 million related to other non-recurring
activities. The fourth quarter of 2011 includes approximately $0.5 million of
non-recurring expenses which are primarily associated with the integration of
NPG Cable.
Excluding the impact of non-recurring expenses described above, Adjusted EBITDA
for the fourth quarter 2012 would have been $212.0 million, an increase of
12.0% compared to the fourth quarter last year, with Adjusted EBITDA margin of
40.3%, a 170 basis point improvement from the fourth quarter 2011. Including
those non-recurring expenses, Adjusted EBITDA for the fourth quarter 2012 was
$191.9 million, an increase of 1.7% from the same quarter last year, resulting
in an Adjusted EBITDA margin of 36.5%.
Income from operations for the fourth quarter 2012 was $57.5 million, a decrease
of 28.9%, compared to $80.8 million for the fourth quarter 2011, due to
increases in depreciation and amortization expense, and the $20.1 million of
non-recurring expenses, primarily related to the Acquisition.
During the fourth quarter of 2012, we also recorded losses on the extinguishment
of debt of $18.9 million and other expenses of $46.0 million, which consist
entirely of Acquisition related expenses not included in the income from
operations described above. These other expenses included certain consent and
acknowledgement payments to debt holders, other financing expenses, legal
expenses and other transaction related expenses.
Net loss was $67.4 million for the fourth quarter 2012, compared to net income
of $6.5 million for the fourth quarter 2011. Net loss for the fourth quarter
2012 was impacted by the decrease in income from operations described above, the
loss on the extinguishment of debt and the other Acquisition related expenses
related to the Acquisition, none of which were present in 2011.
Full Year 2012 Compared to Full Year 2011
Revenues for 2012 rose 6.4%, largely attributable to the increase in residential
high-speed Internet, telephone and advanced digital video revenues, and growth
in revenues from our commercial business, including carrier services, and growth
in advertising revenue. Residential revenue growth resulted from increases in
the number of new telephone, high-speed Internet and digital video customers, an
increase in the penetration of existing customers for these services, the impact
of video and high-speed Internet rate increases, and incremental service
revenues from high definition television ("HDTV") and digital video recorder
("DVR") services as more customers purchased advanced video services from us.
Offsetting this residential growth in part was a decrease in revenue due to the
basic video customer losses, the impact of bundling and promotional discounts
and digital customers purchasing fewer digital tier of service. Revenues for our
commercial business grew due to increases in commercial high-speed data and
telephone customers and from increases in cell tower and backhaul revenues from
carrier customers. Advertising revenue increased primarily due to increased
political advertising.
Video service revenues increased 2.4%, due primarily to video rate increases,
higher broadcast retransmission revenue and customer growth in our digital and
advanced video services, including converter rental revenues for high-definition
and DVR capable digital converters, offset in part by the loss of basic video
customers and digital customers purchasing fewer digital tiers of service.
High-speed Internet service revenues increased 11.9%, due primarily to an
increase in residential high-speed Internet customers, growth in home networking
revenues, the impact of residential rate increases, growth in our commercial
high-speed data services to small and medium sized businesses and growth in
carrier services, including fiber to the tower, and optical Internet and
transport revenues.
Telephone service revenues increased 13.7%, due primarily to an increase in
residential telephone customers and growth in our commercial telephone services
to small and medium sized businesses.
Advertising revenues increased 10.4%, due to increased political and automotive
advertising.
Other revenues increased 7.5%, due primarily to increases in security service
revenue and commercial installation revenue.
Our commercial lines of business, embedded in the video, high-speed Internet,
telephone service revenues and other revenue described above, are comprised of
commercial and bulk video, commercial high-speed data, fiber based on- and off-
net carrier services and commercial telephone. Commercial revenue totaled $257.9
million, or 12.5% of total revenue, in 2012, representing growth of 16.8% versus
2011. Our commercial data and telephone revenue grew 22.0% year-over-year on a
combined basis.
Operating costs and expenses rose 6.5%, primarily due to higher programming
costs, including broadcast retransmission consent expenses, higher telephone
service expense, increased labor and employee related costs, increased expenses
associated with our ad sales business, increased marketing expenses and
increased non-recurring expenses, offset in part by decreased third party labor
expenses. Full year 2012 operating costs and expenses includes $28.9 million of
non-recurring expenses, which consist of $19.9 million of compensation expenses
related to the Acquisition, $8.2 million of compensation expense related to our
March and May 2012 equity distributions and $0.8 million related to other
miscellaneous non-recurring activities. Full year 2011 includes $10.5 million of
non-recurring expenses, which are primarily associated with the acquisition and
integration of NPG Cable and compensation expense related to our January 2011
equity distribution.
Excluding the impact of certain non-recurring expenses described above, Adjusted
EBITDA for 2012 would have been $792.0 million, an increase of 8.8% compared to
2011, with Adjusted EBITDA margin of 38.4%, an 80 basis point improvement from
the prior year. Including those non-recurring expenses, Adjusted EBITDA for
2012 was $763.1 million, an increase of 6.4% from 2011, resulting in an Adjusted
EBITDA margin of 37.0%.
Income from operations for 2012 was $326.2 million, an increase of 11.8%,
compared to $291.7 million for 2011 due to revenue increases year-over-year
outpacing operating, selling and administrative and depreciation and
amortization expense increases, offset partially by the increase in non-
recurring expenses described above.
During 2012, we also recorded losses on the termination of derivative
instruments of $6.6 million, losses on the extinguishment of debt of $33.1
million and other expenses of $46.0 million, which consist entirely of
Acquisition related expenses not included in the income from operations
described above. These other expenses included certain consent and
acknowledgement payments to debt holders, other financing expenses, legal
expenses and other transaction related expenses.
Net loss was $43.2 million for 2012, compared to a net loss of $13.1 million for
2011. Net loss for 2012 was impacted by loss on termination of derivative
instruments, loss on the extinguishment of debt and other expenses related to
the Acquisition, none of which were present in 2011, offset in part by the
growth in income from operations.
Key Operating Metrics
At December 31, 2012, Suddenlink served approximately 1.4 million residential
customers, and Suddenlink's RGUs were comprised of 1,211,200 basic video,
837,500 digital video, 1,002,100 residential high-speed Internet and 471,700
residential telephone customers. Suddenlink's 3.5 million RGUs as of December
31, 2012 increased 119,700, or 3.5%, over the prior year. In addition, as of
December 31, 2011, Suddenlink served approximately 51,900 commercial high-speed
data and 24,100 commercial telephone customers, not included in our RGU or
customer relationship totals.
Approximately 64.5% of Suddenlink's residential customers subscribe to bundled
services, compared to 62.0% a year ago. Approximately 342,200 of Suddenlink's
residential customers receive video, high-speed Internet and telephone services
as part of a triple play bundle, representing 24.9% of Suddenlink's total
residential customer relationships. Growth of 20,300 triple play customers from
the fourth quarter of 2011 represented an increase of 6.3%. Non-video
residential customers of approximately 246,800 at December 31, 2012 represent
18.0% of total residential customer relationships, and grew 13.8%.
Suddenlink's ARPU for the fourth quarter of 2012 was $143.44, an increase of
10.4% compared to the fourth quarter of 2011.
Basic video customers decreased by approximately 16,200 customers while digital
video customers increased by approximately 5,700 customers during the fourth
quarter of 2012. During 2012, basic video customers decreased by approximately
37,800, or 3.0%, while digital video customers increased by approximately
71,000, or 9.3%. Estimated basic penetration at December 31, 2012, was 39.8% of
estimated homes passed. Digital penetration to basic customers was 69.1%.
Residential high-speed Internet customers increased by approximately 8,100
during the fourth quarter of 2012, and increased 53,400, or 5.6%, during the
trailing twelve months. At December 31, 2012, estimated residential high-speed
Internet penetration was 33.9% of high-speed Internet capable homes passed.
During the fourth quarter of 2012, commercial high-speed data customers
increased by approximately 1,000. During 2012, commercial high-speed data
customers increased by approximately 4,600, or 9.7%. These commercial customers
are not included in total RGU counts.
Residential telephone customers grew by approximately 1,900 during the fourth
quarter of 2012, and 33,100, or 7.5%, during the twelve months ended December
31, 2012. At December 31, 2012, estimated residential telephone penetration was
18.8% of telephone capable homes passed. During the fourth quarter of 2012,
commercial telephone customers increased by approximately 1,500 customers, and
increased by approximately 6,000 over the twelve months ended December
31, 2012, or 33.1%. These commercial customers purchase 2.9 lines on average and
are not included in total RGU counts.
Liquidity and Capital Resources
The following discussion of liquidity and capital resources is presented on an
actual basis and does not include historical pro forma adjustments reflecting
the acquisition of NPG Cable in April 2011, the contribution of Excell in
November 2012 and the divestiture of immaterial assets in 2012.
At December 31, 2012, the Company had approximately $208.5 million of cash on
hand with $16.4 million of outstanding letters of credit, which reduced the
availability under our revolving credit facility to approximately $483.6
million.
Net cash provided by operating activities was $36.5 million for the three months
ended December 31, 2012, compared to $77.3 million for the three months ended
December 31, 2011. This reduction is due to transaction expenses related to the
Acquisition and the $50.3 million call premium paid in connection with our
December 2012 tender offer for a portion of the outstanding 8.625% Senior Notes
due 2017, offset in part by improved operating results.
Capital expenditures for the three months ended December 31, 2012 were $68.2
million, compared to $79.1 million for the three months ended December
31, 2011, and $348.8 million for 2012 compared to $368.0 million for 2011.
During 2013, we expect capital expenditures to be approximately $320.0 million
to $330.0 million.
Project Imagine, a significant three year bandwidth expansion plan we commenced
in late 2009, was completed as of September 30, 2012. We spent $208.6 million on
direct capital expenditures for Project Imagine over the three year period.
Total capital expenditures for Project Imagine over the three year period,
including success based capital expenditures, were consistent with the
previously announced guidance of $350.0 million for the entire program.
Free Cash Flow for the quarter and year ended December 31, 2012 was $54.0
million and $133.6 million, respectively, compared to $42.0 million and $52.0
million for the quarter and year ended December 31, 2011, respectively. The
increase in Free Cash Flow for the fourth quarter and full year of 2012 as
compared to the same periods in 2011 is due to improved operating results,
decreased capital expenditures, as Project Imagine was completed on September
30, 2012, and a decrease in cash interest expense.
During the fourth quarter of 2012, we completed several financing transactions.
On October 25, 2012, we issued $500.0 million aggregate principal amount of
Senior Notes. The October Notes were sold at an offering price of 100%. The
proceeds of the October Notes were placed in an escrow account. Upon
consummation of the Acquisition, the funds were released from escrow and used to
fund a portion of the Acquisition.
On December 28, 2012, we issued $1.0 billion aggregate principal amount of
additional Senior Notes (the "December Notes" and together with the October
Notes, the "2020 Notes"). The December Notes were sold at an offering price of
103%. The net proceeds from the sale of the December Notes were used to (i)
repurchase approximately $712.4 million aggregate principal amount of our
outstanding 8.625% Senior Notes due 2017 pursuant to a tender offer for such
notes, (ii) repay $160.0 million, representing all outstanding borrowings under
Suddenlink's revolving credit facility, and (iii) pay related costs, fees and
expenses and for working capital and general corporate purposes.
The Senior Secured Leverage Ratio (Consolidated Secured Debt to Adjusted Pro
Forma EBITDA) for Suddenlink as defined in and calculated in accordance with the
Credit Agreement was 2.65x at December 31, 2012.
The Total Leverage Ratio (Consolidated Total Debt to Adjusted Pro Forma EBITDA)
for Cequel, as defined in and calculated in accordance with the indenture (the
"Indenture") governing Cequel's 8.625% Senior Notes due 2017 was 6.19x at
December 31, 2012.
The Total Leverage Ratio (Consolidated Total Debt to Adjusted Pro Forma EBITDA)
for Cequel, as defined in and calculated in accordance with the indenture (the
"Indenture") governing Cequel's 6.375% Senior Notes due 2020 was 5.97x at
December 31, 2012.
Conference Call
As previously announced, the Company will host a conference call to discuss
its fourth quarter and full year results at 11:00 p.m. (Eastern Time) on
Thursday, March 7, 2013. The dial-in information for the earnings call is as
follows:
Within the United States 866-394-9561
International 281-312-0031
Password Cequel Communications
Conference ID 94373653
A replay of this earnings call will be available at the Investor Relations link
on the Company's website (suddenlink.com) shortly after the conclusion of the
call.
During the conference call, representatives of the Company may discuss and
answer one or more questions concerning the Company's business and financial
matters. The responses to these questions, as well as other matters discussed
during the call, may contain information that has not been previously disclosed.
Annual Report
The information in this press release should be read in conjunction with the
financial statements and footnotes contained in the Company's annual report for
the year ended December 31, 2012 which will be posted on the Company's website
(suddenlink.com) on March 7, 2013.
Current Report
A current report containing this earnings release will be posted on the
Company's website (suddenlink.com) shortly after the conference call on March
7, 2013.
Use of Non-GAAP Financial Measures
The Company uses certain measures that are not defined by Generally Accepted
Accounting Principles ("GAAP") to evaluate various aspects of its business.
Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures. Adjusted
EBITDA is a non-GAAP financial measure defined as net income/(loss), plus
interest expense, (benefit)/provision for income taxes, depreciation,
amortization, non-cash share based compensation expense, (gain)/loss on sale of
cable assets, loss on termination of derivative instruments, changes in fair
value of derivative instruments, other expenses and loss on extinguishment of
debt. Free Cash Flow is a non-GAAP financial measure defined as Adjusted EBITDA,
less capital expenditures and cash interest expense. Adjusted EBITDA and Free
Cash Flow may not be necessarily comparable to similarly titled measures of
other companies. Furthermore, Adjusted EBITDA and Free Cash Flow have
limitations as analytical tools and should not be considered in isolation from,
or as an alternative to, net income or loss, operating income, cash flow from
operations or other combined income or cash flow data prepared in accordance
with GAAP. A reconciliation of Net Loss to Adjusted EBITDA is provided in Table
9. A reconciliation of Net Cash from Operating Activities to Free Cash Flow is
provided in Table 10.
The Company believes that Adjusted EBITDA and Free Cash Flow provide information
useful to investors in assessing the Company's ability to fund operations,
service its debt and make additional investments from internally generated
funds. In addition, Adjusted EBITDA generally correlates to the covenant
calculations under the Credit Agreement.
Company Description
The Company, which does business as Suddenlink Communications, is the seventh
largest cable operator in the United States. Suddenlink makes its services
available over its advanced hybrid-fiber coaxial network to approximately 3.0
million homes in the United States as of December 31, 2012. Suddenlink serves
approximately 1.4 million customers as of December 31, 2012. The Company's
customer base is clustered geographically with approximately 96% of our basic
video customers located in the ten states of Texas, West Virginia, Louisiana,
Arkansas, North Carolina, Oklahoma, Arizona, Missouri, California and Ohio and
89% of our basic video customers located within our top 20 primary systems.
Suddenlink simplifies its customers' lives through one call for support, one
connection, and one bill for TV, Internet, telephone, and other services.
Cautionary Note Regarding Forward-Looking Statements
Some statements in this Press Release are known as "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements may relate to, among other things:
* competition for video, high-speed Internet and telephone customers;
* our ability to achieve anticipated customer and revenue growth and to
successfully introduce new products and services;
* our ability to complete our capital investment plans on time and on budget;
* the effects of economic conditions or other factors which may negatively
affect our customers' demand for our products or services;
* increasing programming costs and delivery expenses related to our products
and services;
* changes in consumer preferences, laws and regulations or technology that may
cause us to change our operational strategies;
* our ability to effectively integrate acquisitions and to maximize expected
operating efficiencies from our acquisitions;
* our substantial indebtedness;
* the restrictions contained in our financing agreements;
* our ability to generate sufficient cash flow to meet our debt service
obligations;
* fluctuations in interest rates which may cause our interest expense to vary
from quarter to quarter; and
* other risks and uncertainties, including those listed under the caption
"Risk Factors" in the Annual Report for the year ended December 31, 2012.
These forward-looking statements include, but are not limited to, statements
about our plans, objectives, expectations and intentions and other statements
contained in this Press Release that are not historical facts. When used in this
Press Release, the words "expects," "anticipates," "intends,"
"plans,"
"believes," "seeks," "estimates" and similar expressions are
generally intended
to identify forward-looking statements. Because these forward-looking statements
involve known and unknown risks and uncertainties, there are important factors
that could cause actual results, events or developments to differ materially
from those expressed or implied by these forward-looking statements, including
our plans, objectives, expectations and intentions and other factors. You should
not place undue reliance on such forward-looking statements, which are based on
the information currently available to the Company and speak only as of the date
on which this Press Release is posted on the Company's website
(www.suddenlink.com). The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. However, your attention is directed to
any further disclosures made on related subjects in the Company's subsequent
reports furnished to holders of the Notes.
Tables:
1 Consolidated Statements of Operations - three and twelve month periods
2 Pro Forma Consolidated Statements of Operations - three and twelve month
periods
3 Condensed Consolidated Balance Sheets
4 Condensed Consolidated Statements of Cash Flows
5 Capital Expenditures
6 Summary Operating Statistics
7 Pro Forma Summary of Operating Statistics
8 Calculation of Free Cash Flow
9 Reconciliation of Net Loss to Adjusted EBITDA
10 Reconciliation of Net Cash from Operating Activities to Free Cash Flow
11 Reconciliation of Cash Interest Expense
TABLE 1
Cequel Communications Holdings I, LLC
Consolidated Statements of Operations (unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, Percent December 31, Percent
---------------------- -----------------------
2012 2011 Change 2012 2011 Change
----------- ------------------ ----------- ------------------
Actual Actual Actual Actual
Revenues:
Video $ 280,350 $ 273,614 2.5% $ 1,123,430 $ 1,081,457 3.9%
High Speed
Internet 146,418 129,359 13.2% 561,531 493,159 13.9%
Telephone 48,792 43,985 10.9% 189,179 163,867 15.4%
Advertising Sales 24,770 22,209 11.5% 89,102 78,777 13.1%
Other 24,273 20,569 18.0% 91,542 83,476 9.7%
----------- ---------- ----------- -----------
Total Revenues 524,603 489,736 7.1% 2,054,784 1,900,736 8.1%
Costs and Expenses:
Operating
(excluding
depreciation
and amortization) 209,782 200,050 -4.9% 839,672 788,775 -6.5%
Selling, general
and administrative
(excluding non-
cash share
based compensation
expense) 122,914 100,226 -22.6% 452,092 405,303 -11.5%
----------- ---------- ----------- -----------
Operating costs and
expenses 332,696 300,276 -10.8% 1,291,764 1,194,078 -8.2%
----------- ---------- ----------- -----------
Adjusted EBITDA 191,907 189,460 1.3% 763,020 706,658 8.0%
----------- ---------- ----------- -----------
Adjusted EBITDA
Margin (a) 36.6% 38.7% 37.1% 37.2%
Depreciation and
amortization 131,211 107,159 -22.4% 432,206 415,486 -4.0%
Non-cash share
based
compensation
expense 2,168 512 -323.4% 3,344 2,106 -58.8%
Loss/(gain) on
sale of cable
assets 1,101 302 -264.6% 1,416 (736) 292.4%
----------- ---------- ----------- -----------
Income from
operations 57,427 81,487 -29.5% 326,054 289,802 12.5%
----------- ---------- ----------- -----------
Interest expense,
net (68,640) (70,882) 3.2% (287,002) (297,194) 3.4%
Loss on termination
of derivatives - - NM (6,565) - NM
Change in fair value
of derivatives 376 - NM - - NM
Other expenses (46,045) - NM (46,045) - NM
Loss on
extinguishment of
debt (18,945) - NM (33,147) - NM
----------- ---------- ----------- -----------
(Loss)/income before
income taxes (75,827) 10,605 815.0% (46,705) (7,392) -531.8%
Benefit/(provision)
for income taxes 8,379 (3,397) 346.7% 3,428 (7,585) 145.2%
----------- ---------- ----------- -----------
Net (loss)/income $ (67,448) $ 7,208 NM $ (43,277) $ (14,977) -189.0%
----------- ---------- ----------- -----------
(a) Represents Adjusted EBITDA as a percentage of total revenue.
TABLE 2
Cequel Communications Holdings I, LLC
Pro Forma Consolidated Statements of Operations (unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, Percent December 31, Percent
--------------------- -----------------------
2012 2011 Change 2012 2011 Change
---------- ------------------ ----------- -------------------
Pro- Pro-
Forma Forma Pro-Forma Pro-Forma
(b) (b) (b) (b)
Revenues:
Video $ 279,819 $ 273,043 2.5% $ 1,121,219 $ 1,094,560 2.4%
High Speed
Internet 146,117 129,065 13.2% 560,320 500,630 11.9%
Telephone 48,792 43,985 10.9% 189,179 166,336 13.7%
Advertising Sales 24,770 22,151 11.8% 89,037 80,617 10.4%
Other 26,098 22,520 15.9% 101,215 94,162 7.5%
---------- ---------- ----------- -----------
Total Revenues 525,596 490,764 7.1% 2,060,970 1,936,305 6.4%
Costs and Expenses:
Operating
(excluding
depreciation
and amortization) 210,314 201,067 -4.6% 843,549 806,128 -4.6%
Selling, general
and
administrative
(excluding non-
cash
share based
compensation
expense) 123,314 100,922 -22.3% 454,283 412,781 -10.1%
---------- ---------- ----------- -----------
Operating costs and
expenses 333,693 301,989 -10.5% 1,297,832 1,218,909 -6.5%
---------- ---------- ----------- -----------
Adjusted EBITDA 191,903 188,775 1.7% 763,138 717,396 6.4%
---------- ---------- ----------- -----------
Adjusted EBITDA
Margin (a) 36.5% 38.5% 37.0% 37.0%
Depreciation and
amortization 131,183 107,161 -22.4% 432,219 424,316 -1.9%
Non-cash share
based compensation
expense 2,168 512 -323.4% 3,344 2,106 -58.8%
Loss/(gain) on
sale
of cable assets 1,101 302 -264.6% 1,416 (736) 292.4%
---------- ---------- ----------- -----------
Income from
operations 57,451 80,800 -28.9% 326,159 291,710 11.8%
---------- ---------- ----------- -----------
Interest expense,
net (68,640) (70,882) 3.2% (287,002) (297,194) 3.4%
Loss on termination
of derivatives - - NM (6,565) - NM
Change in fair value
of derivatives 376 - NM - - NM
Other expenses (46,045) - NM (46,045) - NM
Loss on
extinguishment
of debt (18,945) - NM (33,147) - NM
---------- ---------- ----------- -----------
(Loss)/income
before
income taxes (75,803) 9,918 864.3% (46,600) (5,484) -749.8%
Benefit/(provision)
for
income taxes 8,379 (3,397) 346.7% 3,428 (7,585) 145.2%
---------- ---------- ----------- -----------
Net (loss)/income $ (67,424) $ 6,521 NM $ (43,172) $ (13,069) -230.3%
---------- ---------- ----------- -----------
(a) Represents Adjusted EBITDA as a percentage of total revenue.
(b) Pro forma to include the impact of the acquisition of NPG Cable on April
1, 2011, and contribution of all of the capital stock of Excell on November
15, 2012, and exclude the sale of NP3Now on June 1, 2012 and certain small cable
systems in Indiana and Illinois on December 31, 2012, as if those transactions
had been consummated on January 1, 2011.
TABLE 3
Cequel Communications Holdings I, LLC
Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
December 31, December 31,
2012 2011
-------------- -------------
ASSETS
Cash and cash equivalents $ 208,482 $ 128,663
Accounts receivable, net 181,783 167,539
Deferred tax asset 9,742 -
Prepaid expenses and other assets 19,267 18,580
-------------- -------------
Total current assets 419,274 314,782
Property, plant and equipment, net 1,893,067 1,396,367
Intangible assets, net 5,255,641 2,321,902
Other long-term assets, net 20,734 49,203
-------------- -------------
Total assets $ 7,588,716 $ 4,082,254
-------------- -------------
LIABILITIES AND MEMBER'S EQUITY
Accounts payable and accrued expenses $ 301,939 $ 223,075
Deferred revenue 138,465 130,072
Current portion of long-term debt 22,000 20,382
Other current liabilities 4,279 33,547
-------------- -------------
Total current liabilities 466,683 407,076
Long-term debt, less current portion 4,893,262 3,766,347
Deferred tax liabilities 697,011 26,980
Other long-term liabilities 5,645 9,310
-------------- -------------
Total liabilities 6,062,601 4,209,713
Total member's equity 1,526,115 (127,459)
-------------- -------------
Total liabilities and member's equity $ 7,588,716 $ 4,082,254
-------------- -------------
TABLE 4
Cequel Communications Holdings I, LLC
Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ------------------------
2012 2011 2012 2011
---------- ---------- ------------ -----------
Net cash provided by operating
activities $ 36,453 $ 77,349 $ 424,803 $ 460,086
Net cash used in investing
activities (74,607) (79,656) (359,178) (720,425)
Net cash provided by/(used in)
financing activities 102,123 (6,032) 14,194 99,317
---------- ---------- ------------ -----------
Increase/(decrease) in cash
and cash equivalents 63,969 (8,339) 79,819 (161,022)
Cash and cash equivalents,
beginning of period 144,513 137,002 128,663 289,685
---------- ---------- ------------ -----------
Cash and cash equivalents, end
of period $ 208,482 $ 128,663 $ 208,482 $ 128,663
---------- ---------- ------------ -----------
TABLE 5
Cequel Communications Holdings I, LLC
Capital Expenditures (unaudited)
(in thousands)
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- ------------------
2012 2011 2012 2011
-------- -------- --------- --------
Customer premise equipment $ 14,065 $ 10,267 $ 101,664 $ 103,785
Scalable infrastructure 5,355 9,948 32,120 46,974
Line extensions 1,410 1,396 7,541 7,007
Upgrade/rebuild 2,167 6,915 8,574 22,389
Commercial 9,131 10,025 35,505 31,954
Support capital 36,080 40,595 163,372 155,918
-------- -------- --------- --------
$ 68,208 $ 79,146 $ 348,776 $ 368,027
-------- -------- --------- --------
TABLE 6
Cequel Communications Holdings I, LLC
Summary Operating Statistics (unaudited)
Approximate as of:
Dec. 31, Sept. 30, Dec. 31,
2012 2012 2011
----------- ----------- ----------
Actual Actual Actual
----------- ----------- ----------
Revenue Generating Units (RGU):
Basic video customers (a) 1,211,200 1,230,300 1,252,200
Digital video customers (b) 837,500 832,600 767,300
Residential high-speed Internet customers
(c) 1,002,100 996,800 951,400
Residential telephone customers (d) 471,700 469,800 438,600
----------- ----------- ----------
Total RGUs (e) 3,522,500 3,529,500 3,409,500
Quarterly net customer additions (losses): Actual Actual Actual
----------- ----------- ----------
Basic video customers (19,100) 200 (16,100)
Digital video customers 4,900 24,900 13,700
Residential high-speed Internet customers 5,300 17,400 14,200
Residential telephone customers 1,900 7,100 12,500
----------- ----------- ----------
Total RGUs (e) (7,000) 49,600 24,300
Average Revenue per Unit (ARPU): Actual Actual Actual
----------- ----------- ----------
Pro forma average monthly revenue
per basic video customer (f) $ 142.83 $ 138.86 $ 129.31
Residential Customer Relationships: Actual Actual Actual
----------- ----------- ----------
Total customer relationships (g) 1,371,700 1,379,600 1,373,900
Double play relationships (h) 542,700 543,300 527,800
Double play penetration (i) 39.6% 39.4% 38.4%
Triple play relationships (j) 342,200 341,300 321,900
Triple play penetration (k) 24.9% 24.7% 23.4%
Total bundled customers (l) 884,900 884,600 849,700
Bundled penetration (m) 64.5% 64.1% 61.8%
Non-video customer relationships (n) 246,800 240,800 218,300
Non-video as a % of total
customer relationships (o) 18.0% 17.5% 15.9%
Estimated Customer Penetration: Actual Actual Actual
----------- ----------- ----------
Estimated basic penetration (p) 39.8% 40.4% 41.6%
Estimated digital penetration (q) 69.1% 67.7% 61.3%
Estimated residential high-speed
Internet penetration (r) 33.9% 33.7% 32.6%
Estimated residential telephone penetration
(s) 18.8% 19.0% 18.1%
Commercial Customers: Actual Actual Actual
----------- ----------- ----------
Commercial data (t) 51,900 51,000 47,400
Commercial telephone (u) 24,100 22,600 18,100
Commercial Customer Relationships: Actual Actual Actual
----------- ----------- ----------
Total customer relationships (v) 77,700 76,200 72,500
Double play relationships (w) 23,800 23,200 20,800
Double play penetration (x) 30.6% 30.4% 28.7%
Triple play relationships (y) 6,800 6,300 5,100
Triple play penetration (z) 8.8% 8.3% 7.0%
Total bundled customers (aa) 30,600 29,500 25,800
Bundled penetration (bb) 39.4% 38.7% 35.6%
TABLE 7
Cequel Communications Holdings I, LLC
Pro Forma Summary Operating Statistics (unaudited)
Approximate as of:
Dec. 31, Sept. 30, Dec. 31,
2012 2012 2011
---------------- ---------------- ---------------
Actual Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Revenue Generating Units
(RGU):
Basic video customers (a) 1,211,200 1,227,400 1,249,000
Digital video customers (b) 837,500 831,800 766,500
Residential high-speed
Internet customers (c) 1,002,100 994,000 948,700
Residential telephone
customers (d) 471,700 469,800 438,600
---------------- ---------------- ---------------
Total RGUs (e) 3,522,500 3,523,000 3,402,800
Quarterly net customer
additions (losses): Pro Forma (cc) Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Basic video customers (16,200) 200 (16,000)
Digital video customers 5,700 24,900 13,700
Residential high-speed
Internet customers 8,100 17,400 14,200
Residential telephone
customers 1,900 7,100 12,500
---------------- ---------------- ---------------
Total RGUs (e) (500) 49,600 24,400
Average Revenue per Unit
(ARPU): Pro Forma (cc) Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Pro forma average monthly
revenue
per basic video customer (f) $ 143.44 $ 139.69 $ 129.92
Customer Relationships: Actual Pro Forma (cc) Pro Forma (cc)
---------------- --------------------------------
Total customer relationships
(g) 1,371,700 1,375,300 1,369,400
Double play relationships (h) 542,700 542,100 526,500
Double play penetration (i) 39.6% 39.4% 38.4%
Triple play relationships (j) 342,200 341,300 321,900
Triple play penetration (k) 24.9% 24.8% 23.5%
Total bundled customers (l) 884,900 883,400 848,400
Bundled penetration (m) 64.5% 64.2% 62.0%
Non-video customer
relationships (n) 246,800 239,200 216,900
Non-video as a % of total
customer relationships (o) 18.0% 17.4% 15.8%
Estimated Customer
Penetration: Actual Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Estimated basic penetration
(p) 39.8% 40.5% 41.7%
Estimated digital penetration
(q) 69.1% 67.8% 61.4%
Estimated residential high-
speed
Internet penetration (r) 33.9% 33.8% 32.7%
Estimated residential
telephone penetration (s) 18.8% 19.0% 18.1%
Commercial Customers: Actual Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Commercial Internet (t) 51,900 50,900 47,300
Commercial telephone (u) 24,100 22,600 18,100
Commercial Customer
Relationships: Actual Pro Forma (cc) Pro Forma (cc)
---------------- ---------------- ---------------
Total customer relationships
(v) 77,700 76,600 72,300
Double play relationships (w) 23,800 23,200 20,700
Double play penetration (x) 30.6% 30.3% 28.6%
Triple play relationships (y) 6,800 6,300 5,100
Triple play penetration (z) 8.8% 8.2% 7.1%
Total bundled customers (aa) 30,600 29,500 25,800
Bundled penetration (bb) 39.4% 38.5% 35.7%
(a) Basic video customers include all residential customers who receive video
cable services. Also included are commercial or multi-dwelling accounts that
are converted to equivalent basic units ("EBUs") by dividing the total bulk
billed basic revenues of a particular system by the most prevalent retail rate
paid by non-bulk basic customers in that market for a comparable level of
service. This conversion method is consistent with methodology used in
determining costs paid to programmers. Our methodology of calculating the
number of basic video customers may not be identical to those used by other
companies offering similar services.
(b) Digital video customers include all basic video customers that have one or
more digital set-top boxes or cable cards in use.
(c) Residential high-speed Internet customers include all residential customers
who subscribe to our high-speed Internet service. Excluded from these totals
are all commercial high-speed data customers, including small and medium sized
commercial cable modem accounts and customers who take our scalable, fiber-based
enterprise network services.
(d) Residential telephone customers include all residential customers who
subscribe to our telephone service. Residential customers who take multiple
telephone lines are only counted once in the total. Excluded from these totals
are all commercial telephone customers.
(e) Total RGUs represents the sum of basic video, digital video, residential
high-speed Internet and residential telephone customers.
(f) Average revenue per basic video customer represents the total revenue for a
quarter, divided by three, divided by the average basic video customers for the
quarter.
(g) Residential customer relationships represent the number of residential
customers who pay for at least one level of service, encompassing video, high-
speed Internet or telephone services, without regard to the number of services
purchased. For example, a residential customer who purchases only high-speed
Internet service and no video service will count as one customer relationship,
and a residential customer who purchases both video and high-speed Internet
services will also count as only one customer relationship. Customer
relationships exclude EBUs.
(h) Residential double play customer numbers reflect residential customers who
subscribe to two of our core services (video, high-speed Internet and
telephone).
(i) Residential double play penetration represents double play customers as a
percentage of customer relationships.
(j) Residential triple play customer numbers reflect residential customers who
subscribe to all three of our core services (video, high-speed Internet and
telephone).
(k) Residential triple play penetration represents triple play customers as a
percentage of customer relationships.
(l) Total residential bundled customers represents the sum of residential double
play and residential triple play customers.
(m) Bundled penetration represents total bundled customers as a percentage of
customer relationships.
(n) Non-video customer relationships represents the number of residential
customers who receive at least one level of service, encompassing high-speed
Internet or telephone services, but do not receive video services
(o) Non-video as a % of total customer relationships represents non-video
customer relationships divided by total customer relationships.
(p) Estimated basic penetration is calculated as basic video customers divided
by the estimated total homes passed of the Company.
(q) Estimated digital penetration is calculated as digital video customers
divided by basic video customers.
(r) Estimated residential high-speed Internet penetration is calculated as
residential high-speed Internet customers divided by the estimated homes passed
of the Company where residential high-speed Internet service is currently
available.
(s) Estimated residential telephone penetration is calculated as residential
telephone customers divided by the estimated homes passed of the Company where
residential telephone service is currently available.
(t) Commercial high-speed data customers consist of commercial accounts that
receive high-speed Internet service via a cable modem and commercial accounts
that receive broadband service optically, via fiber connections. Commercial
high-speed data customers are not included in Total RGUs.
(u) Commercial telephone customers are commercial accounts that subscribe to our
telephone service. Commercial telephone customers are not included in Total
RGUs.
(v) Commercial customer relationships represent the number of commercial
customers who pay for at least one level of service, encompassing video, high-
speed data or telephone services, without regard to the number of services
purchased. For example, a commercial customer who purchases only high-speed data
service and no video service will count as one customer relationship, and a
commercial customer who purchases both video and high-speed data services will
also count as only one customer relationship. National carrier accounts are
excluded from customer relationships.
(w) Commercial double play customer numbers reflect commercial customers who
subscribe to two of our core services (video, high-speed data and telephone).
(x) Commercial double play penetration represents double play commercial
customers as a percentage of customer relationships.
(y) Commercial triple play customer numbers reflect commercial customers who
subscribe to all three of our core services (video, high-speed data and
telephone).
(z) Commercial triple play penetration represents triple play commercial
customers as a percentage of customer relationships.
(aa) Total commercial bundled customers represent the sum of commercial double
play and commercial triple play customers.
(bb) Bundled commercial penetration represents total bundled commercial
customers as a percentage of customer relationships.
(cc) Pro forma to include the contribution of all the capital stock of Excell on
November 15, 2012 and exclude the impact of the sale of NP3Now on June 1, 2012
and certain small cable systems in Indiana and Illinois on December 31, 2012,
where applicable, as if the transactions had been consummated on January
1, 2011.
TABLE 8
Cequel Communications Holdings I, LLC
Calculation of Free Cash Flow (unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- ----------------------
2012 2011 2012 2011
----------- ----------- ----------- ----------
Adjusted EBITDA $ 191,907 $ 189,460 $ 763,020 $ 706,658
Capital expenditures (68,208) (79,146) (348,776) (368,027)
Cash interest expense (69,741) (68,265) (280,602) (286,655)
----------- ----------- ----------- ----------
Free Cash Flow $ 53,958 $ 42,049 $ 133,642 $ 51,976
----------- ----------- ----------- ----------
TABLE 9
Cequel Communications Holdings I, LLC
Reconciliation of Net Loss to Adjusted EBITDA
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ----------------------
2012 2011 2012 2011
----------- --------- ----------- ----------
Net (loss)/income $ (67,448) $ 7,208 $ (43,277) $ (14,977)
Add back:
Interest expense, net 68,640 70,882 287,002 297,194
(Benefit)/provision for income
taxes (8,379) 3,397 (3,428) 7,585
Depreciation and amortization 131,211 107,159 432,206 415,486
Non-cash share based
compensation 2,168 512 3,344 2,106
Loss/(gain) on sale of cable
assets 1,101 302 1,416 (736)
Loss on termination of
derivative instruments - - 6,565 -
Change in fair value of
derivative instruments (376) - - -
Other expenses 46,045 - 46,045 -
Loss on extinguishment of debt 18,945 - 33,147 -
----------- --------- ----------- ----------
Adjusted EBITDA $ 191,907 $ 189,460 $ 763,020 $ 706,658
----------- --------- ----------- ----------
TABLE 10
Cequel Communications Holdin
