Cablevision Systems Corporation (CVC)

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Cablevision Systems (CVC)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET

Executives

Bret Richter

James L. Dolan - Chief Executive Officer, President, Director, Chairman of Executive Committee and Chairman of Madison Square Garden

Gregg G. Seibert - Chief Financial Officer and Executive Vice President

Kristin A. Dolan - Senior Vice President and Director

David G. Ellen - Executive Vice President and General Counsel

Analysts

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Brian Russo - Deutsche Bank AG, Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Amy Yong - Macquarie Research

Bryan D. Kraft - Evercore Partners Inc., Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Vijay A. Jayant - ISI Group Inc., Research Division

Presentation

Operator

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cablevision Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Bret Richter, Senior Vice President of Financial Strategy and Development. Please go ahead, sir.

Bret Richter

Thank you. Good morning, and welcome to Cablevision's Fourth Quarter 2012 Earnings Conference Call. Joining me this morning are Jim Dolan, President and CEO of Cablevision; and Gregg Seibert, Vice Chairman and Chief Financial Officer.

Following a discussion of the company's fourth quarter 2012 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at cablevision.com.

Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results, and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call.

Let me point out that on Page 7 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow, or AOCF, to operating income. In addition, on Page 4, the company has provided details of certain items affecting the comparability of revenue, AOCF and operating income for the 3 months and 12 months ended December 31, 2012, to that of comparable periods in 2011.

I would now like to introduce Jim Dolan, President and CEO of Cablevision.

James L. Dolan

Thank you, Bret, and good morning. 2012 was a challenging year for Cablevision. We set out to implement a number of critical initiatives in support of 2 primary goals: one, to meet and more importantly, exceed the expectations of our existing customers; and two, to prove to those who are making choices about a new provider that no one offers better products or better service than Cablevision. Looking back, we made substantial progress towards these goals despite the ongoing challenges of a soft economy and strong competition. Then, in the fourth quarter, we were hit with Superstorm Sandy, the most dramatic weather event in the company's history.

Let me address Sandy's impact on our business. Almost 60% of our Optimum East customers had their services interrupted as a result of the storm. The vast majority of our service disruptions were related to power outages, and recovery from the storm was our #1 priority for weeks following the catastrophic event. We repaired over 450 miles of damaged cable at more than 16,000 locations. Approximately 90% of our 63 head end and hub locations lost commercial power and were transferred to generator, as many remained without commercial power for more than a week. In addition, we deployed more than 1,000 portable generators to power portions of our network until commercial power was restored.

Our fourth quarter and full year 2012 results reflect the impact of our recovery efforts, as well as the significant financial investments that we made throughout 2012 in support of our goals. The company's financial results also reflect a number of other items affecting the comparability to prior periods. The most significant of these items was the impact of Superstorm Sandy, which resulted in a reduction to fourth quarter 2012 AOCF of nearly $110 million. Each adjustment is highlighted in our earnings release, and Gregg will discuss them in more detail.

Adjusting for these items, fourth quarter total company revenue increased 0.3%, and consolidated AOCF declined 18.4%, each as compared with the prior year period; and full year total company revenue increased 0.4%; and consolidated AOCF declined 11.7%.

The storm also had significant negative impact on our customer metrics in the fourth quarter. In addition to the impact of lost and damaged homes, we offered our customers service credits, substantially curtailed our sales and advertising efforts and suspended our non-pay collection procedures and disconnect policy as we worked through the storm's impact. Despite all of this, in full year 2012, we reported higher combined net video data and voice customer additions than we did in 2011.

Capital expenditures increased by approximately $26 million compared with the fourth quarter of last year. This increased level of investment and storm-related costs contributed to negative free cash flow in the fourth quarter, resulting in full year free cash flow of $76 million compared with $583 million in 2011. We did not repurchase any shares during the fourth quarter as we assessed the overall impact of Sandy.

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