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Time Warner Cable Drops 128,000 Video Subs

Time Warner Cable's cable TV rolls shrank in the second quarter by 128,000 -- slightly more than Wall Street anticipated -- while the MSO saw a 35% surge in business services revenue and added 54,000 residential broadband customers.

The operator's second-quarter revenue was $4.94 billion, up 4.4% year over year, which was in line with analyst expectations. Net income for the three months ended June 30 was $421 million ($1.24 per diluted share), beating Wall Street forecasts and up 23% from the year-ago period.

"Time Warner Cable continued to perform well in the second quarter, driven by very strong results in business services and higher residential ARPU," Time Warner Cable CEO Glenn Britt said in announcing the earnings Thursday. "We also continued to generate strong free cash flow while still investing in our core business, allowing us to return more than $1 billion to our shareholders."

Free cash flow in the second quarter climbed 42.7% year over year, to $815 million. For the first six months, TWC's free cash flow -- essentially the cash left over after capital expenditures and interest payments -- was up from the first half of 2010, which the operator said was due mainly to higher cash from operating activities and lower capital expenditures.

Residential services revenue increased 2.5% year-over-year to $4.30 billion. As of the end of June, TWC had 14.45 million total residential customer relationships, down 74,000 sequentially. The MSO particularly suffered with lost single-play subscribers, which declined 91,000 from the first quarter.

During the second quarter of 2011, Time Warner Cable acquired cable systems that resulted in an increase of 6,000 residential video subscribers; those subscribers were not included in the reported 128,000 net video losses (a decline of 130,000 residential subs offset by a 2,000-sub net gain in the business segment).

Video programming expenses grew 4.1% to $1.1 billion due to contractual rate increases and increased retransmission consent expenses, the company said.

Time Warner Cable's business services revenue increased 34.7%, to $361 million, while the MSO said employee costs for its business services unit increased 34.4%.

TWC said the business services revenue growth was due primarily to increases in voice and high-speed data subscribers, an increase in cell tower backhaul revenue and the $230 million acquisition of hosting services provider NaviSite, which closed April 21 and contributed $26 million of revenue during the second quarter.

Advertising revenue grew 4.2% to $225 million. The operator said the year-over-year increase was attributable to ad inventory sold on behalf of other video distributors -- including Verizon FiOS -- partially offset by a decline in political advertising revenue.

The MSO's capital spending in the second quarter dropped 4.9%, to $700 million. Capex for the first half of 2011 is down 7.4%, to $1.36 billion.

Time Warner Cable returned over $1 billion to shareholders during the quarter, while share repurchases during the second quarter totaled $863 million (11.5 million shares of common stock). As of the end of the quarter, approximately $1.8 billion remained under the company's share repurchase authorization.