TWC: Like a Flywheel

Despite recording what it says was its best quarter subscriber-wise ever, Time Warner Cable said that growth won’t translate into meaningful cash flow growth until 2016.

Time Warner Cable added 30,000 basic video subscribers in Q1, its first positive showing on that front in six years. In addition, the operator added 315,000 residential high-speed data customers (best since Q1 2007); 320,000 phone customers (best ever); 298,000 triple play additions (best ever) and 205,000 customer relationship net additions (best ever).

But getting to those numbers costs money, and TWC chief financial officer Artie Minson said on a conference call with analysts Thursday that as a result of higher capex requirements – as well as pension costs, additional costs from its Los Angeles Dodgers regional sports network deal and overall higher programming costs – cash flow in 2015 will be flat. Minson likened the TWC business to a flywheel, adding that while it may take extra energy to get it started, once it’s one the move, there is no stopping its forward motion.

“You have to spend to get the subscriber machine running,” Minson said. “But once its running like our flywheel is now, you’re in a great position to deliver strong, sustainable financial growth.”

And so far it is running pretty smoothly.

Minson predicted that adjusted OIBDA could hit about $9 billion in 2016, a nearly 10% increase over 2014.

The basic subscriber growth was well ahead of analysts’ expectations – consensus estimates were for  a gain of about 12,000 customers – but chief operating officer Dinni Jain said the growth did not come at the expense of other pay TV providers.

“It is tempting to look at this as a complete zero-sum game, that if were growing that absolutely means somebody else is not executing as well as they want to,” Jain said. “The reality is there are a lot of jump balls – every time a customer moves, every time a customer is looking to change. We’re winning a lot more of those jump balls than we were last year or the year before. We’re so focused on a lot of small things. ...Our Triple Play is not dissimilar from a lot of the others in the industry; we’re not particularly aggressive in promotions. What we are doing is executing very well. “

Chairman and CEO Rob Marcus deflected questions about whether the strong quarter means that TWC will try to resist the inevitable takeover offer from Charter in the wake of the terminated merger with Comcast, adding that the company is focused on growing the business and increasing shareholder value. But he did say that even as TWC was moving through the approval process for the Comcast deal, he urged employees not to take their eyes off the ball.

“While we were confident that [Comcast] transaction would be consummated, back in February of last year I gave our operating team very clear instructions: in the unlikely event this deal doesn’t close, be ready,” Marcus said. “… As I sit here today, I will tell you that our team surpassed my wildest expectations.”