SOURCE: RCN

RCN

November 03, 2009 07:00 ET

RCN Reports Third Quarter 2009 Results

Free Cash Flow of $11 Million Generated in Quarter; $29 Million YTD; Revenue of $192 Million, EBITDA of $56 Million, up 3% and 12% Y-o-Y, Respectively; EBITDA Margin Expands by Nearly 250 Basis Points Y-o-Y to Over 29%

HERNDON, VA--(Marketwire - November 3, 2009) - RCN Corporation (NASDAQ: RCNI) today announced third quarter 2009 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.

"We are executing very well against our 2009 objectives, building free cash flow to $29 million year-to-date while still fueling our business for future growth," stated Peter D. Aquino, President and Chief Executive Officer. "We have successfully managed through nearly a full year of economic uncertainty, and stayed on pace to expand margins, invest in product development, and make process improvements. In our residential business, Project Analog Crush(SM) is now complete in all of our metro markets and we are midway through our Lehigh Valley Crush. By year end, RCN will be the largest MSO in the country to be 100% digital, providing over 100 HD channels, an expansive VOD library, and a robust International tier, with channel capacity for future growth. In addition, the RCN/TiVo HD DVR remains on track for a first quarter 2010 launch, and we are accelerating our DOCSIS 3.0 deployment to address the huge SMB opportunity in RCN's metro markets. In the RCN Metro segment, we continue to capture demand for high capacity bandwidth from large carrier and enterprise customers, leveraging our position as a premier regional service provider with best-in-class Metro Ethernet and on-net fiber connectivity in 5 of the top 10 metro markets in the country."

Third Quarter Review

Following are highlights of third quarter 2009 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 $192 million increased 3% from $187 million
    in the third quarter of 2008 and was flat compared to $192 million in the
    second quarter of 2009.
--  EBITDA. EBITDA of $56.4 million increased 12% from $50 million in the
    third quarter of 2008 and increased 2% from $55.5 million in the second
    quarter of 2009.  EBITDA margin of 29% expanded by nearly 250 basis points
    from the third quarter of 2008 and 50 basis points from the second quarter
    of 2009.  EBITDA is a non-GAAP financial measure - see "Non-GAAP Measures"
    below.
--  Capital Expenditures. Capital expenditures were $34 million compared
    to $34 million in the third quarter of 2008 and $25 million in the second
    quarter of 2009.
--  Free Cash Flow.  Free cash flow was $11 million compared to negative
    $2 million in the third quarter of 2008 and $10 million in the second
    quarter of 2009.  Free cash flow is a non-GAAP financial measure - see "Non-
    GAAP Measures" below.
--  Share Repurchases. RCN repurchased nearly 85,000 shares of common
    stock during the third quarter at an average price of $6.94, or an
    aggregate value of $0.6 million.  To date, RCN has repurchased over 2.4
    million shares under its $25 million repurchase authorization, for an
    aggregate value of approximately $17 million, leaving approximately $8
    million remaining under the program.
    

Residential/Small-Medium Business Segment

--  Revenue. Residential/Small-Medium Business revenue of $144 million was
    flat compared to $144 million in the third quarter of 2008 and decreased 1%
    from $145 million in the second quarter of 2009.  Year-over-year revenue
    comparisons reflect the addition of 2,000 customers and flat average
    revenue per customer ("ARPC") of $111.
--  EBITDA. Residential/Small-Medium Business EBITDA of $40 million
    increased 9% from $37 million in the third quarter of 2008, and was flat
    compared to the second quarter of 2009.  EBITDA margin of 28% expanded by
    over 200 basis points from the third quarter of 2008 and approximately 25
    basis points from the second quarter of 2009.  Third quarter 2009 EBITDA
    includes $1.8 million in direct cost benefits related to the settlement of
    ordinary course network cost disputes.
--  Capital Expenditures. Residential/Small-Medium Business capital
    expenditures were $25 million, down from $27 million in the third quarter
    of 2008 and up from $16 million in the second quarter of 2009.
--  Customers, RGUs and Digital Penetration. Residential/Small-Medium
    Business customers of approximately 430,000 increased 2,000 compared to the
    third quarter of 2008 and were flat compared to the second quarter of 2009.
    Total revenue generating units of approximately 903,000 decreased by 12,000
    compared to the third quarter of 2008 and decreased by 8,000 compared to
    the second quarter of 2009, as continued growth in video and data RGU's was
    offset by a reduction in voice RGU's, consistent with trends for highly-
    penetrated landline voice providers.  Third quarter 2009 bundle rate and
    digital video penetration rate remained stable at 67% and 91%,
    respectively.
    

RCN Metro Optical Networks Segment

--  Revenue. RCN Metro revenue of $48 million increased 11% from $43
    million in the third quarter of 2008, and 2% from $47 million in the second
    quarter of 2009, driven primarily by continued strength in transport
    services as well as growth in data and Internet services.
--  EBITDA. RCN Metro EBITDA of $17 million increased 21% from $14 million
    in the third quarter of 2008 and 6% from $16 million in the second quarter
    of 2009.  EBITDA margin of 34% grew by nearly 300 basis points from the
    third quarter of 2008 and over 130 basis points from the second quarter of
    2009.  EBITDA and EBITDA margin increased primarily as a result of revenue
    growth and continued realization of synergies.
--  Capital Expenditures. RCN Metro capital expenditures were $9 million
    compared to $6 million in the third quarter of 2008 and $9 million in the
    second quarter of 2009.
    

Reported Results

Revenue increased to $192 million in the third quarter of 2009, compared to $187 million in the third quarter of 2008 and $192 million in the second quarter of 2009. Net loss was $6 million in the third quarter of 2009, compared to $15 million in the third quarter of 2008 and $9 million in the second quarter of 2009.

Michael T. Sicoli, Chief Financial Officer of RCN, stated, "Our strategy of investing to drive consistent revenue growth and margin expansion while maintaining a stable level of capital expenditures is delivering significant growth in free cash flow. Year to date, we have generated $29 million in free cash flow, a $38 million improvement compared to the same period in 2008. We will continue to focus on optimizing our balanced geographic and customer portfolio for growth and further strengthening our operational and financial flexibility. We remain on track to achieve our 2009 objectives of revenue and EBITDA growth and solid free cash flow generation."

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.

Third Quarter Conference Call

Management will conduct a conference call to discuss third quarter 2009 results today at 08:30 AM Eastern time. Please be sure to dial into the call 10 to 15 minutes before start time. The dial in number for the call is (877) 862-3628, conference ID: 34787863. The call is also being webcast with an accompanying slide presentation, which can be accessed at http://investor.rcn.com/events.cfm.

A replay of this conference call will be available from 9:30 AM today until 11:59 PM Eastern time on November 10. The dial in number for the replay is 706-645-9291; the conference ID is the same as above. The webcast and slides will also be archived on RCN's website.

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 data 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.

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

                                                For the three months ended
                                                --------------------------
                                                September 30, September 30,
                                                     2009          2008
                                                ------------  ------------

Revenues                                        $      191.9  $      187.1
Costs and expenses:
  Direct expenses                                       66.7          64.6
  Selling, general and administrative
   (including stock-based compensation expense)         70.9          74.7
  Exit costs and restructuring charges                   0.3           0.8
  Depreciation and amortization                         49.4          49.6
                                                ------------  ------------

Operating income (loss)                         $        4.7  $       (2.6)

Investment income                                         --           0.5
Interest expense                                       (10.4)        (12.6)
                                                ------------  ------------

Net loss                                        $       (5.7) $      (14.7)
                                                ============  ============




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

                                                September 30,  December 31,
                                                     2009          2008
                                                ------------  ------------
ASSETS

Current Assets:
     Cash and cash equivalents                  $       37.6  $       10.8*
     Short-term investments                             45.9          52.9*
     Accounts receivable, net of allowance for
      doubtful accounts                                 75.5          72.3
     Prepayments and other current assets               17.6          11.4
                                                ------------  ------------
          Total current assets                         176.6         147.4

Property, plant and equipment, net of
 accumulated depreciation                              660.9         718.0
Goodwill                                                15.5          15.5
Intangible assets, net of accumulated
 amortization                                          107.6         112.3
Long-term restricted investments                        11.7          15.4
Deferred charges and other assets                       15.2          16.8
                                                ------------  ------------
          Total assets                          $      987.5  $    1,025.5
                                                ============  ============



LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable and accrued expenses
      related to trade creditors                $       68.9  $       73.0
     Accrued expenses and other liabilities             79.8          82.5
     Current portion of long-term debt and capital
      lease obligations                                  7.4           7.4
                                                ------------  ------------
          Total current liabilities                    156.1         162.9

Long-term debt and capital lease obligations,
 net of current maturities                             729.7         735.3
Other long-term liabilities                             96.6         110.9
                                                ------------  ------------
          Total liabilities                            982.5       1,009.1
                                                ------------  ------------

Commitments and contingencies

Stockholders' Equity:
     Common stock, par value $0.01 per share             0.4           0.4
     Additional paid-in-capital                        452.2         451.2
     Treasury stock                                     (6.3)         (5.7)
     Accumulated deficit                              (399.1)       (374.4)
     Accumulated other comprehensive loss              (42.1)        (55.0)
                                                ------------  ------------
          Total stockholders' equity                     5.0          16.4
                                                ------------  ------------

          Total liabilities and stockholders'
           equity                               $      987.5  $    1,025.5
                                                ============  ============

* RCN has changed the classification of short-term securities totaling
$30.1 million at December 31, 2008 from cash and cash equivalents to
short-term investments to conform to the Company's policy.  While these
securities matured during the three months ended March 31, 2009, they had
original maturities of greater than three months at the time of purchase.




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

                                                 For the nine months ended
                                                  ------------------------
                                                September 30, September 30,
                                                     2009          2008
                                                  -----------  -----------
Cash flows from operating activities:
  Net loss from continuing operations             $     (24.7) $     (57.6)

Adjustments to reconcile net loss to net cash
 provided by operating activities:
  Non-cash stock-based compensation expense               6.6         11.5
  Depreciation and amortization                         148.7        148.7
  Other, net                                              2.4          1.4
    Net change in certain assets and other
     liabilities                                        (17.6)        (2.2)
                                                  -----------  -----------

      Net cash provided by operating activities         115.3        101.9

Cash flows from investing activities:
  Additions to property, plant and equipment            (87.5)      (111.9)
  Decrease in short-term investments                      7.1          7.7
  Proceeds from sales of fixed assets                     0.8          1.4
  Proceeds from sale of discontinued operations            --          2.5
  Decrease in restricted investments                      3.7          7.4
                                                  -----------  -----------

    Net cash used in investing activities               (76.0)       (92.9)

Cash flows from financing activities:
  Payments of long-term debt, including capital
   leases                                                (5.5)        (5.5)
  Dividend payments                                      (0.6)        (1.4)
  Cost of common shares repurchased                      (6.3)        (3.7)
  Other, net                                               --          0.3
                                                  -----------  -----------

    Net cash used in financing activities               (12.5)       (10.3)

  Net increase in cash and cash equivalents              26.9         (1.2)
  Cash and cash equivalents at beginning of the
   period                                                10.8         21.8
                                                  -----------  -----------

  Cash and cash equivalents at end of the period  $      37.6  $      20.6
                                                  ===========  ===========




      RESIDENTIAL / SMALL-MEDIUM BUSINESS SEGMENT OPERATING RESULTS

                                             For the three months ended
                                           -------------------------------
                                           September  June 30,   September
(dollars in millions)                      30, 2009     2009     30, 2008
                                           ---------  ---------  ---------

Video                                      $    78.6  $    78.5  $    74.9
Data                                            34.7       35.8       36.1
Voice                                           27.3       27.4       28.6
Recip Comp/Other                                 3.4        3.5        4.1
                                           ---------  ---------  ---------
      Total Revenue                            143.9      145.1      143.7

Direct expenses                                 49.5       52.1       48.9
Selling, general and administrative (1)         54.5       53.1       58.0
                                           ---------  ---------  ---------

EBITDA                                     $    39.9  $    39.9  $    36.7
EBITDA Margin                                   27.8%      27.5%      25.6%

Capital Expenditures                       $    25.4  $    15.8  $    27.3


Key Metrics
(customers & RGUs in thousands)

Video RGUs                                       367        368        366
Data RGUs                                        309        307        301
Voice RGUs                                       227        236        247
                                           ---------  ---------  ---------
Total RGUs (Excluding Digital)                   903        911        915

Customers                                        430        430        428
Average Revenue Per Customer               $     111  $     111  $     111
Digital Penetration                               91%        91%        78%




           RCN METRO OPTICAL NETWORKS SEGMENT OPERATING RESULTS

                                             For the three months ended
                                           -------------------------------
                                           September  June 30,   September
  (dollars in millions)                    30, 2009     2009     30, 2008
                                           ---------  ---------  ---------

Transport Services                         $    36.9  $    36.0  $    33.3
Data and Internet Services                       1.5        1.1        0.6
Colocation                                       2.9        2.9        3.0
Leased Services                                  5.1        5.2        4.9
Installation and Other                           1.6        1.9        1.6
                                           ---------  ---------  ---------
      Total Revenue                             48.0       47.2       43.4

Direct expenses                                 17.2       17.1       15.7
Selling, general and administrative (1)         14.3       14.5       14.0
                                           ---------  ---------  ---------

EBITDA                                     $    16.5  $    15.6  $    13.6
EBITDA Margin                                   34.3%      33.0%      31.5%

Capital Expenditures                       $     8.8  $     9.2  $     6.4


(1) Excludes stock-based compensation expense




                             RCN Corporation
                        Non-GAAP Reconciliations

(1) EBITDA

EBITDA is defined as net income (loss) plus income tax benefit (expense), other income (expense) net, 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.

CONSOLIDATED                                 For the three months ended
                                           -------------------------------
                                           September  June 30,   September
(dollars in millions)                      30, 2009     2009     30, 2008
                                           ---------  ---------  ---------
Net loss                                   $    (5.7) $    (9.4) $   (14.7)
Income tax expense                                --        0.8         --
Other expense, net                                --        0.3         --
Interest expense                                10.4       11.0       12.6
Investment income                                 --       (0.1)      (0.5)
Depreciation and amortization                   49.4       50.8       49.6
Non-cash stock-based compensation expense        2.1        2.1        2.6
Exit costs and restructuring charges             0.3         --        0.8
                                           ---------  ---------  ---------
EBITDA                                     $    56.4  $    55.5  $    50.4
  EBITDA Margin                                 29.4%      28.9%      26.9%



RESIDENTIAL / SMALL-MEDIUM BUSINESS          For the three months ended
                                           -------------------------------
                                           September  June 30,   September
(dollars in millions)                      30, 2009     2009     30, 2008
                                           ---------  ---------  ---------
Operating loss                             $    (2.4) $    (3.9) $    (8.1)
Depreciation and amortization                   40.5       42.2       42.3
Non cash stock-based compensation expense        1.6        1.6        2.0
Exit costs and restructuring charges             0.3         --        0.5
                                           ---------  ---------  ---------
EBITDA                                     $    39.9  $    39.9  $    36.7
  EBITDA Margin                                 27.8%      27.5%      25.6%


RCN METRO OPTICAL NETWORKS                   For the three months ended
                                           -------------------------------
                                           September  June 30,   September
(dollars in millions)                      30, 2009     2009     30, 2008
                                           ---------  ---------  ---------
Operating income                           $     7.1  $     6.5  $     5.4
Depreciation and amortization                    8.9        8.5        7.3
Non cash stock-based compensation expense        0.5        0.5        0.6
Exit costs and restructuring charges              --         --        0.4
                                           ---------  ---------  ---------
EBITDA                                     $    16.5  $    15.6  $    13.6
  EBITDA Margin                                 34.3%      33.0%      31.5%

(2) ARPC

Average monthly revenue per customer, or ARPC, is an industry metric that measures revenues, excluding Metro and other residential revenue (consisting of dial-up, reciprocal compensation and web hosting revenue) 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
                                           -------------------------------
                                           September  June 30,   September
(dollars in millions, except ARPC)         30, 2009     2009     30, 2008
                                           ---------  ---------  ---------
Total Revenues                             $   191.9  $   192.3  $   187.1
  Less:  Metro Revenue                         (48.0)     (47.2)     (43.4)
  Less:  Other Residential Revenue              (1.8)      (1.9)      (2.6)
                                           ---------  ---------  ---------
Customer Revenues                          $   142.1  $   143.2  $   141.1
ARPC                                       $     111  $     111  $     111

(3) Free Cash Flow

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, minus proceeds from discontinued operations. 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 nine
                                  For the three months ended   months ended
                                -------------------------------  ---------
                                September   June 30,  September  September
(dollars in millions)            30, 2009     2009     30, 2008   30, 2009
                                ---------  ---------  ---------  ---------
Net cash provided by operating
 activities                     $    49.0  $    36.5  $    42.3  $    15.3
Net cash used in investing
 activities                         (30.7)     (26.8)     (68.2)     (76.0)
(Decrease) increase in
 short-term investments              (7.2)       0.1       24.2       (7.1)
Decrease in restricted
 investments                           --         --         --       (3.7)
Change in accrued interest on
 short-term investments                --        0.1         --        0.1
                                ---------  ---------  ---------  ---------
Free Cash Flow                  $    11.0  $     9.9  $    (1.7) $    28.6

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