Mediacom sees increase in high-speed growth: operator hits financial targets for fourth quarter

Cable World, Feb 25, 2002 by Mavis Scanlon

Unlike its larger brethren, Mediacom Communications will see new-customer growth pick up this year.

After adding about 23,000 new digital customers in the fourth quarter, or 1,800 a week, Mediacom forecasts it will add a total of 69,000 to 79,000 digital customers this year. While that's more than the 64,000 it added in 2001, it represents a slow weekly add rate compared with the fourth quarter. And after adding a total of 17,300 high-speed-data customers in the fourth quarter, to end the year with 112,300, Mediacom expects to accelerate additions of data customers. The company said it would add 68,000 to 78,000 data customers this year, up from 45,000 in 2001. Most of that growth is expected in the second half of the year.

Analysts and investors seemed heartened that the company hit all of its financial targets in the fourth quarter despite the Excite@Home debacle.

Mediacom, which had been a customer of High Speed Access before HSA discontinued data services, switched to Excite@Home, only to be hit when @Home declared bankruptcy late last year.

Mediacom essentially completed the transition of high-speed Internet customers on Feb. 19 and has farmed out some backbone service functions to AT&T Business Services. Rocco Commisso, Mediacom's chairman and CEO, said on the company's conference call last week that it is paying AT&T less than it paid Excite@Home and will retain greater control of the network.

"Mediacom's online model allows us to pick up right where we left off with @Home," Commisso said on the call.

"It was a monumental task to replicate the network connectivity. ISP platform and customer service functions, given the short time flame imposed by the bankruptcy court in shutting down the Excite@Home service," Commisso said in a statement.

Excluding a $10 million payment to Excite@Home to ensure service through February and expenses related to transition former Excite@Home customers and build its own network, Mediacom's operating cash flow increased 12.3%, to $90 million. Total revenue rose 4.6%, to $213.6 million, driven by increases in basic customers, rate increases and growth in new-service subscribers. Those results, which met analysts' expectations, are on a pro forma basis, accounting for the acquisitions of systems serving 800,000 customers in June and July from AT&T Broadband.

By improving the margins at those systems over the last half of 2001, Mediacom's management has demonstrated its prowess at integrating the rural properties with Mediacom's core systems and has set the stage for continuing improvements in the company's financial performance.

"We believe the [AT&T systems] continue to have significant upside potential and expect strong revenue and cash flow growth from these assets over the next couple of years," said Niraj Gupta, an analyst at Salomon Smith Barney, in a note to clients.

Investors responded positively as well, pushing shares of Mediacom up about 6%, or 86 cents, Wednesday. The stock closed at $14.85.

Mediacom expects cable revenue growth this year of 10% to 11%, to $923 to $931 million, on a pro forma basis, and growth in earnings before interest, taxes, depreciation and amortization of 16% to 17.5%, to $380 million to $385 million. Further cost synergies from the former AT&T systems should drive that growth.

The company is accelerating its plant upgrades and expects to be completed by June 2003, rather than at the end of 2003, as formerly expected.

Capital expenditures for 2002 should total $410 million to $430 million; at the end of this year 94% of Mediacom's cable plant should be upgraded to 550 megahertz or above.

MEDIACOM'S 2002 GUIDANCE

Revenue Growth                                    10% to 11%
EBITDA Growth                                   16% to 17.5%
Basic Subscriber Growth                                 0.5%
Digital Video Customers (Y/E)             390,000 to 400,000
Data Customers (Y/E)                      180,000 to 190,000
Capital Expenditures            $410 million to $430 million

SOURCE: MEDIACOM