SOURCE: RCN

RCN

May 06, 2010 07:30 ET

RCN Reports First Quarter 2010 Results

Revenue Reaches $190 Million; EBITDA Reaches $53 Million, Including Deal Costs of $1.3 Million; Free Cash Flow Steady at $7 Million

HERNDON, VA--(Marketwire - May 6, 2010) - RCN Corporation (NASDAQ: RCNI) today announced first 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.

"RCN's reported first quarter results demonstrated continued consistency in revenue, EBITDA, and free cash flow generation, including $1.3 million of deal costs absorbed to date," stated Peter D. Aquino, President and Chief Executive Officer. "During Q1, we continued to drive our key initiatives, including the testing, and now launch, of our industry leading TiVo® Premiere from RCN HD DVR. We began rolling this platform out in DC and NY, and will move to the rest of our markets by the summer. In addition, RCN Metro has launched its Xtreme Network in the New York/New Jersey market, providing financial institutions and other enterprises with an ultra low latency network to meet their requirements for speed and execution. Operationally, we are focused on continued execution as we work through the process to close our merger with an affiliate of ABRY Partners."

First Quarter Review

Following are highlights of first 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 $190 million increased slightly from
    $189 million in the first quarter of 2009 and was flat compared to the
    fourth quarter of 2009.
--  EBITDA. EBITDA of $53 million increased 1% from $52 million in the
    first quarter of 2009 and decreased 3% from $55 million in the fourth
    quarter of 2009. Included in first quarter 2010 EBITDA are costs of
    $1.3 million related to the pending acquisition of the company.
    Excluding these costs, EBITDA increased 4% from first quarter 2009 and
    decreased slightly from fourth quarter 2009, and EBITDA margin of 29%
    expanded by nearly 100 basis points from first quarter 2009 and was
    flat compared to fourth quarter 2009. EBITDA is a non-GAAP financial
    measure -- see "Non-GAAP Measures" below.
--  Capital Expenditures. Capital expenditures were $22 million, down from
    $26 million in the first quarter of 2009 and $41 million in the fourth
    quarter of 2009, primarily as a result of the completion of Project
    Analog Crush(SM) during 2009.
--  Free Cash Flow. Free cash flow was $7 million, compared to $8 million
    in the first quarter of 2009 and $7 million in the fourth quarter of
    2009. 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 $141 million
    decreased 2% from $144 million in the first quarter of 2009 and was
    flat compared to the fourth quarter of 2009. Year-over-year revenue
    comparisons reflect 3,000 fewer customers and a decrease in average
    revenue per customer ("ARPC") to $109.
--  EBITDA. Residential/Small-Medium Business EBITDA of $36 million
    decreased 4% from $38 million in both the first and fourth quarters of
    2009. Resi/SMB EBITDA includes $1 million of costs related to the
    pending acquisition of the company. Excluding these costs, EBITDA of
    $37 million decreased 1% from both the first and fourth quarters of
    2009, and EBITDA margin of 26% was flat compared to the first and
    fourth quarters of 2009.
--  Capital Expenditures. Residential/Small-Medium Business capital
    expenditures were $12 million, down from $19 million in the first
    quarter of 2009 and from $33 million in the fourth quarter of 2009, due
    primarily to the completion of Project Analog Crush(SM).
--  Customers and RGUs. Residential/Small-Medium Business customers of
    approximately 426,000 decreased 3,000 compared to both the first and
    fourth quarters of 2009, due in part to higher churn related to the
    completion of Project Analog Crush(SM), as well as the tightening of
    credit standards for new customers in certain markets. Total revenue
    generating units of approximately 896,000 decreased by 18,000 compared
    to the first quarter of 2009 and decreased by 3,000 compared to the
    fourth quarter of 2009, 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 slight decrease in video RGUs, due to
    the customer trends noted above.

RCN Metro Optical Networks Segment

--  Revenue. RCN Metro revenue of $49 million increased 8% from $46 million
    in the first quarter of 2009, and increased slightly from the fourth
    quarter of 2009, driven primarily by continued strength in transport
    services as well as growth in IP services.
--  EBITDA. RCN Metro EBITDA of $17 million increased 15% from $14 million
    in the first quarter of 2009 and decreased slightly compared to the
    fourth quarter of 2009. RCN Metro segment EBITDA includes $0.3 million
    of costs related to the pending acquisition of the company; excluding
    these costs, EBITDA increased 17% from the first quarter of 2009 and
    increased slightly from the fourth quarter of 2009 and EBITDA margin of
    35% grew by nearly 275 basis points from first quarter 2009 and was
    flat compared to fourth quarter 2009.
--  Capital Expenditures. RCN Metro capital expenditures were $10 million,
    up from $8 million in the first quarter of 2009 and $9 million in the
    fourth quarter of 2009, primarily due to an increase in success-based
    projects.

Reported Results

Revenue was $190 million in the first quarter of 2010, compared to $189 million in the first quarter of 2009 and $190 million in the fourth quarter of 2009. Net income was $5 million in the first quarter of 2010, compared to a net loss of $10 million in the first quarter of 2009 and a net loss of $4 million in the fourth quarter of 2009. The swing from net loss to net income is due primarily to lower depreciation expense, as certain assets became fully depreciated during 2009.

Michael T. Sicoli, Chief Financial Officer, stated, "In the first quarter of 2010, RCN continued to generate solid levels of free cash flow, inclusive of deal-related costs. In April 2010, pursuant to the excess cash flow sweep provision in our credit facility, we applied approximately half of our 2009 free cash flow, or $19 million, to debt reduction. We are also extremely pleased to report positive net income, another key milestone for RCN."

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)

                                                 For the three months ended
                                                  ------------------------
                                                   March 31,    March 31,
                                                     2010         2009
                                                  -----------  -----------

Revenues                                          $     190.1  $     189.2
Costs and expenses:
  Direct expenses                                        72.2         70.3
  Selling, general and administrative (including
   stock-based compensation expense)                     68.0         69.1
  Exit costs and restructuring charges, net                 -          0.3
  Depreciation and amortization                          36.9         48.5
                                                  -----------  -----------

Operating income                                         13.0          1.1

Investment income                                           -          0.3
Interest expense                                         (9.7)       (11.0)
Other income, net                                         2.0            -
                                                  -----------  -----------

Net income (loss), before income tax expense              5.2         (9.6)
Income tax expense                                        0.3            -
                                                  -----------  -----------

Net income (loss)                                 $       4.9  $      (9.6)
                                                  ===========  ===========





                    RCN CORPORATION AND SUBSIDIARIES
            UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                        (dollars in millions)

                                                   March 31,   December 31,
                                                     2010         2009
                                                  -----------  -----------
ASSETS

Current Assets:
  Cash and cash equivalents                       $      51.9  $      71.8
  Short-term investments                                 40.0         15.1
  Accounts receivable, net of allowance for
   doubtful accounts                                     59.1         65.7
  Prepayments and other current assets                   17.4         14.7
                                                  -----------  -----------
    Total current assets                                168.4        167.4

Property, plant and equipment, net of accumulated
 depreciation                                           646.3        654.7
Goodwill                                                 15.5         15.5
Intangible assets, net of accumulated amortization      105.3        106.2
Long-term restricted investments                         10.9         11.7
Deferred charges and other assets                        14.5         15.1
                                                  -----------  -----------
    Total assets                                  $     960.9  $     970.5
                                                  ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses related
   to trade creditors                             $      61.4  $      66.2
  Accrued expenses and other liabilities                 60.3         70.3
  Current portion of long-term debt and capital
   lease obligations                                     25.8         25.9
                                                  -----------  -----------
    Total current liabilities                           147.4        162.4

Long-term debt and capital lease obligations, net
 of current maturities                                  707.7        709.3
Other long-term liabilities                              92.9         90.6
                                                  -----------  -----------
    Total liabilities                                   947.9        962.3
                                                  -----------  -----------

Commitments and contingencies

Stockholders' Equity:
  Common stock, par value $0.01 per share                 0.4          0.4
  Additional paid-in-capital                            457.8        454.2
  Treasury stock                                         (7.0)        (6.4)
  Accumulated deficit                                  (398.1)      (403.0)
  Accumulated other comprehensive loss                  (40.1)       (37.0)
                                                  -----------  -----------
    Total stockholders' equity                           13.0          8.1
                                                  -----------  -----------

    Total liabilities and stockholders' equity    $     960.9  $     970.5
                                                  ===========  ===========





                    RCN CORPORATION AND SUBSIDIARIES
       UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (dollars in millions)

                                                 For the three months ended
                                                  ------------------------
                                                   March 31,    March 31,
                                                     2010         2009
                                                  -----------  -----------
Cash flows from operating activities:
  Net income (loss)                               $       4.9  $      (9.6)

Adjustments to reconcile net loss to net cash
 provided by operating activities:
  Non-cash stock-based compensation                       3.1          2.4
  Depreciation and amortization                          36.9         48.5
  Other, net                                              0.7          0.2
  Net change in certain assets and  liabilities          (4.6)       (11.7)
                                                  -----------  -----------

    Net cash provided by operating activities            41.0         29.8

Cash flows from investing activities:
  Additions to property, plant and equipment            (35.0)       (22.5)
  Increase in short-term investments                    (24.9)        (0.1)
  Proceeds from sale of assets                            0.7          0.5
  Decrease in restricted investments                      0.8          3.7
                                                  -----------  -----------

    Net cash used in investing activities               (58.4)       (18.4)

Cash flows from financing activities:
  Payments of long-term debt, including capital
   leases                                                (1.8)        (1.8)
  Dividend payments                                      (0.5)        (0.6)
  Cost of common shares repurchased                         -         (1.5)
  Proceeds from the exercise of stock options             0.4            -
  Purchase of treasury stock                             (0.6)           -
                                                  -----------  -----------

    Net cash used in financing activities                (2.5)        (4.0)

  Net (decrease) increase in cash and cash
   equivalents                                          (19.9)         7.4
  Cash and cash equivalents at beginning of the
   period                                                71.8         10.8
                                                  -----------  -----------

  Cash and cash equivalents at end of the period  $      51.9  $      18.1
                                                  ===========  ===========





                                                 OPERATING RESULTS
                                       RESIDENTIAL / SMALL BUSINESS SEGMENT
                                                    (unaudited)

                                         ---------------------------------
                                                Three months ended
                                         ---------------------------------
(dollars in millions)                    March 31,  December 31, March 31,
                                           2010        2009        2009
                                         ---------   ---------   ---------

Video                                    $    78.0   $    78.1   $    76.7
Data                                          34.5        34.3        36.1
Voice                                         25.3        25.8        27.3
Recip Comp/Other                               3.2         3.1         3.7
                                         ---------   ---------   ---------
    Total Revenue                            140.9       141.3       143.7

Direct expenses                               54.0        51.2        53.5
Selling, general and administrative (1)       50.6        52.4        52.4
                                         ---------   ---------   ---------

EBITDA                                   $    36.3   $    37.7   $    37.8
EBITDA Margin                                 25.8%       26.7%       26.3%

Capital Expenditures                     $    12.2   $    32.6   $    18.7

Key Metrics
(customers  & RGUs in thousands)

Video RGUs                                     361         364         366
Data RGUs                                      315         312         306
Voice RGUs                                     220         223         242
                                         ---------   ---------   ---------
    Total RGUs                                 896         899         914

Customers                                      426         429         429
Average Revenue Per Customer             $     109   $     108   $     110
Digital Penetration                            100%        100%         91%





                                                 OPERATING RESULTS
                                         RCN METRO OPTICAL NETWORKS SEGMENT
                                                    (unaudited)

                                         ---------------------------------
                                                Three months ended
                                         ---------------------------------
(dollars in millions)                    March 31,  December 31, March 31,
                                           2010        2009        2009
                                         ---------   ---------   ---------

Transport Services                       $    37.6   $    37.4   $    34.9
Data and Internet Services                     1.8         1.7         0.9
Colocation                                     3.0         3.1         2.9
Leased Services                                5.0         5.1         5.0
Installation & Other                           1.7         1.8         1.8
                                         ---------   ---------   ---------
    Total Revenue                             49.2        49.0        45.5

Direct expenses                               18.2        17.8        16.8
Selling, general and administrative (1)       14.4        14.2        14.3
                                         ---------   ---------   ---------

EBITDA                                   $    16.7   $    16.9   $    14.5
EBITDA Margin                                 33.9%       34.6%       31.8%

Capital Expenditures                     $     9.5   $     8.8   $     7.6

   (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
                              --------------------------------------------
                                March 31,     December 31,      March 31,
     (dollars in millions)        2010            2009            2009
                              ------------    ------------    ------------
     Net income/(loss)        $        4.9    $       (3.9)   $       (9.6)
     Income tax expense                0.3             0.3              --
     Other income, net                (2.0)             --              --
     Interest expense                  9.7            10.0            11.0
     Investment income                  --              --            (0.3)
     Depreciation and
      amortization                    36.9            44.6            48.5
     Non-cash stock-based
      compensation expense             3.1             3.6             2.4
     Exit costs &
      restructuring charges             --              --             0.3
                              ------------    ------------    ------------
     EBITDA                   $       53.0    $       54.6    $       52.3
       EBITDA Margin                  27.9%           28.7%           27.6%




(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
                              --------------------------------------------
                                March 31,     December 31,      March 31,
     (dollars in millions)        2010            2009            2009
                              ------------    ------------    ------------
     Operating income (loss)  $        6.1    $       (0.7)   $       (4.0)
     Exit costs and
      restructuring charges,
      net                               --              --             0.4
     Depreciation and
      amortization                    27.9            35.6            39.6
     Non-cash stock-based
      compensation expense             2.3             2.7             1.8
                              ------------    ------------    ------------
     EBITDA                   $       36.3    $       37.7    $       37.8
       EBITDA Margin                  25.8%           26.7%           26.3%




                                   RCN METRO OPTICAL NETWORKS SEGMENT
                              --------------------------------------------
                                       For the three months ended
                              --------------------------------------------
                                March 31,     December 31,      March 31,
     (dollars in millions)        2010            2009            2009
                              ------------    ------------    ------------
     Operating income         $        6.9    $        7.0    $        5.1
     Exit costs and
      restructuring charges,
      net                               --              --            (0.1)
     Depreciation and
      amortization                     9.0             9.0             8.9
     Non-cash stock-based
      compensation expense             0.8             0.9             0.6
                              ------------    ------------    ------------
     EBITDA                   $       16.7    $       16.9    $       14.5
       EBITDA Margin                  33.9%           34.6%           31.8%



(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
                              --------------------------------------------
                                March 31,     December 31,      March 31,
     (dollars in millions)        2010            2009            2009
                              ------------    ------------    ------------
     Total Revenues           $      190.1    $      190.3    $      189.2
       Less: Commercial
        Revenue                      (49.2)          (49.0)          (45.5)
       Less: Other
        Residential Revenue           (1.7)           (1.7)           (2.2)
                              ------------    ------------    ------------
     Customer Revenues               139.2           139.6           141.5
                              ------------    ------------    ------------
     ARPC                     $        109    $        108    $        110



(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
                              --------------------------------------------
                                March 31,     December 31,      March 31,
     (dollars in millions)        2010            2009            2009
                              ------------    ------------    ------------
     Net cash provided by
      operating activities    $       41.0    $       37.6    $       29.8
     Net cash (used in)
      provided by investing
      activities                     (58.4)            0.3           (18.4)
     Increase (decrease) in
      short-term investments          24.9           (30.7)            0.1
     Decrease in restricted
      investments                     (0.8)             --            (3.7)
                              ------------    ------------    ------------
     Free Cash Flow           $        6.6    $        7.1    $        7.7

Contact Information

  • Contact:

    RCN
    Richard Ramlall
    SVP Strategic External Affairs and Programming
    (703) 434-8430

    Lippert/Heilshorn & Associates
    Carolyn Capaccio
    (212) 838-3777
    Email Contact