RCN Corporation (NASDAQ: RCNI) today announced second quarter 2010
results.
RCN Corporation is a leading provider of all-digital and
high-definition video, high-speed internet, and premium voice
services to residential and small-medium business customers, in
Philadelphia, Lehigh Valley (PA), New York, Boston, Chicago and
Washington D.C., as well as high-capacity transport services to
carrier and large enterprise customers.
"During the second quarter, RCN generated solid, consistent
levels of Revenue, EBITDA and Free Cash Flow," stated Peter D.
Aquino, President and Chief Executive Officer. "We continued to
make progress in our key customer-facing initiatives, rolling out
TiVo® Premiere from RCN HD DVR and DOCSIS 3.0, and RCN Metro
successfully launched its Xtreme Network in New York and New
Jersey. We remain focused on continued execution while we finalize
the process of closing our merger with an affiliate of ABRY
Partners."
Second Quarter Review
Following are highlights of second quarter 2010 results for
consolidated RCN and for the company's two reporting segments:
Residential/Small-Medium Business, comprised of the RCN and RCN
Business Services business units; and RCN Metro Optical
Networks.
Consolidated Results
-- Revenue. Total revenue of $195 million increased 1% from $192 million
in the second quarter of 2009 and increased 2% from the first quarter
of 2010.
-- EBITDA. EBITDA of $53 million decreased from $56 million in the second
quarter of 2009 and increased slightly from the first quarter of 2010.
Included in 2010 EBITDA results are costs related to the pending
acquisition of the company, including $1.3 million in the first quarter
of 2010 and $3.0 million in the second quarter of 2010. Excluding these
costs, EBITDA increased 2% from the second quarter of 2009 and 4% from
the first quarter of 2010, and EBITDA margin of 29% grew slightly from
the second quarter of 2009 and the first quarter of 2010. EBITDA is a
non-GAAP financial measure -- see "Non-GAAP Measures" below.
-- Capital Expenditures. Capital expenditures were $30 million, up from
$25 million in the second quarter of 2009 and $22 million in the first
quarter of 2010, driven primarily by the timing of certain investments
in the Residential/Small-Medium Business segment.
-- Free Cash Flow. Free cash flow was $10 million, compared to $10 million
in the second quarter of 2009 and $7 million in the first quarter of
2010. Free cash flow also included costs related to the pending
acquisition of the company, as noted above. Free cash flow is a non-GAAP
financial measure -- see "Non-GAAP Measures" below.
Residential/Small-Medium Business Segment
-- Revenue. Residential/Small-Medium Business revenue of $145 million was
comparable to $145 million in the second quarter of 2009 and increased
3% compared to the first quarter of 2010. Year-over-year revenue
comparisons reflect 8,000 fewer customers partially offset by an
increase in average revenue per customer ("ARPC") to $113.
-- EBITDA. Residential/Small-Medium Business EBITDA of $37 million
decreased from $40 million in the second quarter of 2009 and increased
from $36 million in the first quarter of 2010. Included in 2010 EBITDA
results are costs related to the pending acquisition of the company,
including $0.9 million in the first quarter of 2010 and $2.2 million in
the second quarter of 2010. Excluding these costs, EBITDA of $40 million
decreased 1% from the second quarter of 2009 and increased 6% from the
first quarter of 2010, and EBITDA margin of 27% decreased slightly from
the second quarter of 2009 and increased nearly 100 basis points from
the first quarter of 2010.
-- Capital Expenditures. Residential/Small-Medium Business capital
expenditures were $21 million, up from $16 million in the second quarter
of 2009 and $12 million in the first quarter of 2010, due primarily to
the timing of key investments, including DOCSIS 3.0, the launch of
TiVo® Premiere from RCN HD DVR, and selected footprint expansion.
-- Customers and RGUs. Residential/Small-Medium Business customers of
approximately 422,000 decreased 8,000 compared to the second quarter of
2009 and 4,000 compared to the first quarter of 2010, due in part to
continued tightening of credit standards for new customers in certain
markets. Total revenue generating units of approximately 886,000
decreased by 25,000 compared to the second quarter of 2009 and decreased
by 10,000 compared to the first quarter of 2010, as continued growth in
data RGUs was offset by a reduction in voice RGUs, consistent with
trends for highly-penetrated landline voice providers, and a decrease
in video RGUs, due to the customer trends noted above.
RCN Metro Optical Networks Segment
-- Revenue. RCN Metro revenue of $50 million increased 5% from $47 million
in the second quarter of 2009, and increased 1% from the first quarter
of 2010, driven primarily by continued growth in transport services as
well as growth in IP and colocation services.
-- EBITDA. RCN Metro EBITDA of $16 million increased slightly from the
second quarter of 2009 and decreased slightly from the first quarter of
2010. Included in 2010 EBITDA results are costs related to the pending
acquisition of the company, including $0.3 million in the first quarter
of 2010 and $0.8 million in the second quarter of 2010. Excluding these
costs, EBITDA increased 7% from the second quarter of 2009 and decreased
slightly from the first quarter of 2010, with EBITDA margin of 34%
growing nearly 100 basis points from the second quarter of 2009 and
declining by nearly 100 basis points from the first quarter of 2010.
-- Capital Expenditures. RCN Metro capital expenditures were $9 million,
flat from $9 million in the second quarter of 2009 and down from $10
million in the first quarter of 2010.
Reported Results
Revenue was $195 million in the second quarter of 2010, compared
to $192 million in the second quarter of 2009 and $190 million in
the first quarter of 2010. Net income was $3 million in the second
quarter of 2010, compared to a net loss of $9 million in the second
quarter of 2009 and net income of $5 million in the first quarter
of 2010. As reported previously, the swing to net income from net
loss is due primarily to lower depreciation expense, as certain
assets became fully depreciated during 2009.
Michael T. Sicoli, Chief Financial Officer, stated, "In the
second quarter, RCN generated strong levels of free cash flow
despite the inclusion of deal-related costs and increased
investments in capital expenditures. We are pleased with the
results to date of our decision to tighten up-front customer credit
standards in certain markets within our Residential/Small-Medium
Business segment, and we will expand the program to additional
markets during the third quarter to support our long-term
profitability."
Non-GAAP Measures
In addition to the results presented in accordance with
Generally Accepted Accounting Principles ("GAAP") throughout this
press release, RCN has presented non-GAAP financial measures, such
as EBITDA, EBITDA Margin, Free Cash Flow and ARPC. RCN believes
that these non-GAAP measures, viewed in addition to and not in lieu
of its reported GAAP results, provide useful information to
investors because they are an integral part of RCN's internal
evaluation of operating performance. In addition, they are measures
that RCN uses to evaluate management's effectiveness.
Reconciliations to comparable GAAP measures as well as definitions
begin on page 8. RCN's non-GAAP financial measures may not be
comparable to similarly titled measures presented by other
companies.
About RCN Corporation
RCN Corporation (NASDAQ: RCNI), www.rcn.com, is a competitive
broadband services provider delivering all-digital and
high-definition video, high-speed internet and premium voice
services to residential and small-medium business customers under
the brand names of RCN and RCN Business Services, respectively. In
addition, through its RCN Metro Optical Networks business unit, RCN
delivers fiber-based high-capacity transport services to large
commercial customers, primarily large enterprises and carriers,
targeting the metropolitan central business districts in the
company's geographic markets. RCN's primary service areas include
Washington, D.C., Philadelphia, Lehigh Valley (PA), New York City,
Boston and Chicago. (RCNI-Q)
RCN Forward-Looking Statements
This press release contains forward-looking statements regarding
future events and future performance of RCN that involve risks and
uncertainties that could materially affect actual results. This
information is qualified in its entirety by cautionary statements
and risk factors disclosure contained in certain of RCN's
Securities and Exchange Commission filings. For a description of
certain factors that could cause actual results to vary from
current expectations and forward-looking statements contained in
this press release, refer to documents that RCN files from time to
time with the Securities and Exchange Commission.
(Tables follow)
RCN CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2010 2009 2010 2009
--------- --------- --------- ---------
Revenues $ 194.6 $ 192.3 $ 384.7 $ 381.6
Costs and expenses:
Direct expenses 71.3 69.3 143.5 139.6
Selling, general and
administrative (including
stock-based compensation
expense) 72.6 69.6 140.5 138.7
Exit costs and restructuring
charges, net (0.2) -- (0.1) 0.3
Depreciation and amortization 37.8 50.9 74.7 99.6
--------- --------- --------- ---------
Operating income 13.2 2.5 26.2 3.4
Investment income -- 0.1 -- 0.3
Interest expense (9.7) (11.0) (19.4) (22.0)
Other (expense) income, net -- (0.2) 2.0 --
--------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes 3.5 (8.6) 8.7 (18.3)
Income tax expense 0.1 0.8 0.4 0.8
--------- --------- --------- ---------
Net income (loss) $ 3.5 $ (9.4) $ 8.4 $ (19.0)
========= ========= ========= =========
RCN CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
June 30, December 31,
2010 2009
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 37.4 $ 71.8
Short-term investments 43.0 15.1
Accounts receivable, net of allowance
for doubtful accounts 63.4 65.7
Prepayments and other current assets 16.9 14.7
------------- -------------
Total current assets 160.7 167.4
Property, plant and equipment, net of
accumulated depreciation 640.2 654.7
Goodwill 15.5 15.5
Intangible assets, net of accumulated
amortization 105.9 106.2
Long-term restricted investments 9.6 11.7
Deferred charges and other assets 14.3 15.1
------------- -------------
Total assets $ 946.0 $ 970.5
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses
related to trade creditors $ 64.3 $ 66.2
Accrued expenses and other liabilities 60.5 70.3
Current portion of long-term debt and
capital lease obligations 7.2 25.9
------------- -------------
Total current liabilities 132.0 162.4
Long-term debt and capital lease obligations,
net of current maturities 705.9 709.3
Other long-term liabilities 98.3 90.6
------------- -------------
Total liabilities 936.2 962.3
------------- -------------
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $0.01 per share 0.4 0.4
Additional paid-in-capital 460.7 454.2
Treasury stock (10.3) (6.4)
Accumulated deficit (394.7) (403.0)
Accumulated other comprehensive loss (46.3) (37.0)
------------- -------------
Total stockholders' equity 9.8 8.1
------------- -------------
Total liabilities and stockholders'
equity $ 946.0 $ 970.5
============= =============
RCN CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
For the six months ended
----------------------------
June 30, 2010 June 30, 2009
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 8.4 $ (19.0)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Non-cash stock-based compensation 5.7 4.5
Depreciation and amortization 74.7 99.6
Other, net 1.5 0.6
Net change in certain assets and
liabilities (7.8) (19.3)
------------- -------------
Net cash provided by operating
activities 82.3 66.3
Cash flows from (used in) investing
activities:
Additions to property, plant and equipment (65.1) (49.4)
Investment in intangibles (1.2) --
Increase in short-term investments (27.8) (0.1)
Proceeds from sale of assets 1.0 0.6
Decrease in restricted investments 2.1 3.7
------------- -------------
Net cash used in investing activities (91.0) (45.3)
Cash flows from (used in) financing
activities:
Payments of long-term debt, including
capital leases (22.2) (3.7)
Dividend payments (0.5) (0.6)
Cost of common shares repurchased (3.9) (5.7)
Proceeds from the exercise of stock options 0.9 --
------------- -------------
Net cash used in financing activities (25.7) (10.0)
Net (decrease) increase in cash and cash
equivalents (34.4) 11.0
Cash and cash equivalents at beginning of
the period 71.8 10.8
------------- -------------
Cash and cash equivalents at end of the
period $ 37.4 $ 21.8
============= =============
OPERATING RESULTS
RESIDENTIAL / SMALL BUSINESS SEGMENT
(unaudited)
-------------------------------------
Three months ended
-------------------------------------
June 30, March 31, June 30,
2010 2010 2009
(dollars in millions) ----------- ----------- -----------
Video $ 80.3 $ 78.0 $ 78.5
Data 36.7 34.5 35.8
Voice 24.7 25.3 27.4
Recip Comp/Other 3.3 3.2 3.5
----------- ----------- -----------
Total Revenue 145.0 140.9 145.1
Direct expenses 52.9 54.0 52.1
Selling, general and
administrative (1) 54.8 50.6 53.1
----------- ----------- -----------
EBITDA $ 37.4 $ 36.3 $ 39.9
EBITDA Margin 25.8% 25.8% 27.5%
Capital Expenditures $ 21.1 $ 12.2 $ 15.8
Key Metrics
(customers & RGUs in
thousands)
Video RGUs 356 361 368
Data RGUs 316 315 307
Voice RGUs 214 220 236
----------- ----------- -----------
Total RGUs 886 896 911
Customers 422 426 430
Average Revenue Per Customer $ 113 $ 109 $ 111
Digital Penetration 100% 100% 91%
OPERATING RESULTS
RCN METRO OPTICAL NETWORKS SEGMENT
(unaudited)
-------------------------------------
Three months ended
-------------------------------------
June 30, March 31, June 30,
2010 2010 2009
(dollars in millions) ----------- ----------- -----------
Transport Services $ 37.8 $ 37.6 $ 36.0
Data and Internet Services 1.9 1.8 1.1
Co-location 3.1 3.0 2.9
Leased Services 5.0 5.0 5.2
Installation and other 1.8 1.7 1.9
----------- ----------- -----------
Total Revenue 49.6 49.2 47.2
Direct expenses 18.4 18.2 17.1
Selling, general and
administrative (1) 15.2 14.4 14.5
----------- ----------- -----------
EBITDA $ 16.0 $ 16.7 $ 15.6
EBITDA Margin 32.2% 33.9% 33.0%
Capital Expenditures $ 9.2 $ 9.5 $ 9.2
(1) Excludes stock-based compensation expense
RCN Corporation
Non-GAAP Reconciliation
(1) EBITDA is defined as net income (loss) plus income tax
benefit (expense), other (expense) income net, (loss) gain on sale
of assets, interest expense, investment income, depreciation and
amortization, non-cash stock-based compensation expense and other
special items including impairments, exit costs and other charges.
EBITDA margin represents EBITDA divided by total revenues. We
believe that EBITDA provides useful information to investors
because it is an indicator of the strength and performance of our
ongoing business operations, including our ability to fund
discretionary spending such as capital expenditures and other
investments and our ability to incur and service debt. While
depreciation and amortization are considered operating costs under
generally accepted accounting principles, these expenses represent
non-cash current period allocation of costs associated with
long-lived assets acquired or constructed in prior periods. EBITDA
is a calculation commonly used as a basis for investors, analysts
and credit rating agencies to evaluate and compare the periodic and
future operating performance and value of companies within the
cable industry. EBITDA, as defined above, may not be similar to
EBITDA measures of other companies, is not a measurement under
accounting principles generally accepted in the United States and
should be considered in addition to, but not as a substitute for,
the information contained in our statements of operations.
For the three months ended
----------------------------------
June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
---------- ---------- ----------
Net income/(loss) $ 3.5 $ 4.9 $ (9.4)
Income tax expense 0.1 0.3 0.8
Other (income)/expense, net -- (2.0) 0.2
Interest expense 9.7 9.7 11.0
Investment income -- -- (0.1)
Depreciation and amortization 37.8 36.9 50.9
Non-cash stock-based compensation
expense 2.6 3.1 2.1
Exit costs & restructuring charges, net (0.2) -- --
---------- ---------- ----------
EBITDA $ 53.4 $ 53.0 $ 55.5
EBITDA Margin 27.4% 27.9% 28.9%
(2) Segment EBITDA is defined as operating income before
depreciation and amortization, non-cash stock-based compensation
expense, exit costs and restructuring charges. This measure
eliminates the significant level of non-cash depreciation and
amortization expense that results from the capital-intensive nature
of our businesses and from intangible assets recognized in business
combinations, as well as non-cash stock-based compensation and
other special items such as exit costs and other restructuring
charges. We use this measure to evaluate our consolidated operating
performance and the performance of our operating segments, and to
allocate resources and capital. It is also a significant
performance measure in our annual incentive compensation programs.
We believe that this measure is useful to investors because it is
one of the bases for comparing our operating performance with that
of other companies in our industries, although our measure may not
be directly comparable to similar measures used by other companies.
Because we use this metric to measure our segment profit or loss,
we reconcile it to operating income, the most directly comparable
financial measure calculated and presented in accordance with GAAP.
Segment EBITDA should not be considered as a substitute for
operating income (loss), net income (loss), net cash provided by
operating activities, or other measures of performance or liquidity
we have reported in accordance with GAAP.
RESIDENTIAL / SMALL BUSINESS
SEGMENT
----------------------------------
For the three months ended
----------------------------------
June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
---------- ---------- ----------
Operating income (loss) $ 6.9 $ 6.1 $ (4.0)
Exit costs and restructuring charges,
net (0.2) -- --
Depreciation and amortization 28.7 27.9 42.3
Non-cash stock-based compensation
expense 1.9 2.3 1.6
---------- ---------- ----------
EBITDA $ 37.4 $ 36.3 $ 39.9
EBITDA Margin 25.8% 25.8% 27.5%
RCN METRO OPTICAL NETWORKS SEGMENT
----------------------------------
For the three months ended
----------------------------------
June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
---------- ---------- ----------
Operating income $ 6.3 $ 6.9 $ 6.5
Depreciation and amortization 9.0 9.0 8.5
Non-cash stock-based compensation
expense 0.7 0.8 0.5
---------- ---------- ----------
EBITDA $ 16.0 $ 16.7 $ 15.6
EBITDA Margin 32.2% 33.9% 33.0%
(3) Average monthly revenue per customer, or ARPC, is an
industry metric that measures revenues, excluding commercial and
other residential revenue (consisting of dial-up and reciprocal
compensation) per period divided by the average number of customers
during that period. We believe that ARPC provides useful
information concerning the appeal of our service offerings and our
rate plans. ARPC, as defined above, may not be similar to ARPC
measures of other companies, is not a measurement under accounting
principles generally accepted in the United States and should be
considered in addition to, but not as a substitute for, the
information contained in our statements of operations.
For the three months ended
----------------------------------
June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
---------- ---------- ----------
Total Revenues $ 194.6 $ 190.1 $ 192.3
Less: Commercial Revenue (49.6) (49.2) (47.2)
Less: Other Residential Revenue (1.5) (1.7) (1.9)
---------- ---------- ----------
Customer Revenues 143.5 139.2 143.2
ARPC $ 113 $ 109 $ 111
(4) Free cash flow is defined as net cash from operating
activities, plus net cash from investing activities, activity in
short-term investments and restricted investments. We believe that
free cash flow provides useful information to investors, analysts
and our management about the cash generated by our core operations
after interest and our ability to fund scheduled debt maturities
and other financing activities. Free cash flow, as defined above,
may not be comparable to free cash flow measures of other
companies, is not a measurement under accounting principles
generally accepted in the United States and should be considered in
addition to, but not as a substitute for, the information contained
in our statements of cash flows.
For the three months ended
----------------------------------
June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
---------- ---------- ----------
Net cash provided by operating
activities $ 41.3 $ 41.0 $ 36.5
Change in accrued interest on
short-term investments -- -- 0.1
Net cash used in investing
activities (32.6) (58.4) (26.8)
Increase in short-term investments 3.0 24.9 --
Decrease in restricted investments (1.3) (0.8) --
---------- ---------- ----------
Free Cash Flow $ 10.4 $ 6.6 $ 9.9
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Contact: RCN Richard Ramlall SVP Strategic External Affairs and
Programming (703) 434-8430 Lippert/Heilshorn & Associates
Carolyn Capaccio (212) 838-3777 Email Contact
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