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Knology buys systems, posts revenue increase

February 22, 2011 By Mike Robuck

During this morning’s fourth-quarter and year-end earnings report, Knology announced it had picked up two additional systems in what it referred to as a “tuck-in acquisition.”

Yesterday, Knology signed a definitive agreement to buy cable and broadband operations in Fort Gordon, Ga., and Troy, Ala., for $30 million in cash. Knology said the two operations were contiguous with its existing operations. Knology didn’t say what company, or companies, sold the systems by deadline this morning.

After the deal passes the usual closing conditions and regulatory muster, Knology expects it to close late in the second quarter.

Knology said that the combined operations represented 21,000 connections, $15 million in annualized revenues and $5.5 million annualized EBITDA. Knology funded the acquisitions with $10 million it had on hand and $20 million from a debt re-pricing transaction.

On Friday, Knology closed a re-pricing transaction that reduced its annualized interest cost by approximately $10 million.

As for the fourth-quarter and year-end results, Knology’s purchase of Sunflower Broadband, which closed Oct. 15, led to both increased revenues and operating costs. Knology’s fourth-quarter results included two-and-a-half months of Sunflower operating activity, as well as the costs and expenses related to closing and financing the transaction.

Total revenue for the fourth quarter was $123.6 million, compared with revenue of $107.1 million for the same quarter a year ago and $112.9 million for the preceding third quarter. For the full year, Knology’s revenue increased 8 percent to $459.5 million.

Excluding its $165 million purchase of Lawrence, Kan.-based Sunflower Broadband, Knology’s revenue increased 5.5 percent in the quarter compared with the same quarter last year.

Knology reported EBITDA, as adjusted, of $43.7 million for the fourth quarter of 2010 and $159.1 million for the full year, representing growth of 19.7 percent and 10 percent respectively compared with 2009. Excluding the Sunflower transaction, EBITDA, as adjusted, increased 6.4 percent in the fourth quarter compared with the same period one year ago.

With noncash and one-time items, Knology’s net loss for the quarter was $13 million, or 35 cents per share, compared with net income of $866,000, or 2 cents per share, for the previous fourth quarter.

Knology ended 2010 with 766,361 connections, adding 65,885 net connections during the fourth quarter and 72,490 net connections for the full year. For the year, residential connections were up 62,472 units, or 10.6 percent, and business connections were up 10,018 units, or 9.5 percent.

The fourth-quarter and full-year connections included 70,524 connections acquired in the Sunflower deal. The Sunflower connections consisted of 27,669 video connections, 15,077 voice connections and 27,778 data connections.

Fourth-quarter additions included 24,036 video connections, 13,880 voice connections and 27,969 data connections.

For the year, the company added 33,839 high-speed Internet/data connections, 21,383 video connections and 17,268 voice connections.

Average monthly revenue per connection was $53.61 for the fourth quarter, compared with $51.93 in the fourth quarter of 2009. Average monthly revenue per connection by product for the fourth quarter was $73.37 for video, $40.10 for voice and $40.86 for data. Knology’s average monthly connection churn during the fourth quarter was 2.5 percent, compared with 2.4 percent for the same period one year ago.

“The fourth quarter of 2010 and the start of 2011 have been very active periods,” said Knology Chairman and CEO Rodger L. Johnson. “We were able to close the Sunflower transaction early in the fourth quarter to begin realizing the accretive nature of the acquisition, as well as coordinate the personnel integration related to the business combination. While the RGU growth level of our legacy business was somewhat soft in the fourth quarter, the financial health of the company remains very strong with the core business performing well in a tough economic environment.

“2010 was a significant year for the business, as we made meaningful investments in technology to expand our network capabilities, delivered positive results from the edge-out projects, and added additional scale and diversification to the business with the Sunflower acquisition.”

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