Knology encouraged by second quarter results

Merged services over-builder Knology today announced second quarter revenues of $37.87 million, a 9% increase over the first quarter of this year and a 37% gain year over year.

However, the West Point, Ga.-based company posted a net loss of $27.12 million, which was flat compared to first quarter 2002, but an improvement over the $30.81 million loss it reported for the second quarter of last year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) was up slightly from the first quarter, to $4.7 million from $3.54 million, but a significant improvement over the $701,000 EBITDA loss posted for second quarter 2001.

The results were tempered by an ongoing restructuring of Knology Broadband, the company’s wholly owned subsidiary, which is rolling out converged voice, video and data services across the company’s footprint in the southeastern United States. Knology Broadband lost $29.31 million during the second quarter, on top of the $29.961 million lost in the first quarter of this year.

While these losses caused the company to rein in some activities, Knology executives were pleased with the overall results.

“We exercised very tight controls on our capital expenditures. We backed away from certain marketing promotions that we had planned and we operated with a reduced sales force in some of our markets,” said Rodger Johnson, Knology’s president and CEO.

Even so, the company added 11,000 high-speed Internet connections “in a quarter where we see seasonally higher churn,” Johnson added.

While the parent company, with $14.5 million in available funding, has the cash to remain in business through the third quarter, the broadband subsidiary requires a successful restructuring to continue beyond “the next several months,” said Rob Mills, the company’s chief financial officer.

“The organization was somewhat distracted by the restructuring activities and the uncertainties surrounding what the restructuring means to our company,” Mills said.

Both Johnson and Mills labeled the second quarter a success, led by the customer additions in its high-speed (1.5 Mb/s) Internet product and a recently introduced 128 Kb/s always-on product aimed at dial-up customers.

“We made great progress with our passive optical network [PON] product which we rolled out to help us open up more business accounts and drive a higher RPU (revenue per user) as a result,” said Johnson. He added that Knology now has 16 PON accounts delivering $30,000 in monthly revenues and another 50-plus prospects “in our pipeline.”

Knology also trialed video-on-demand and interactive TV during the quarter and increased digital penetration to 23.5%.

“Our bundle continues to sell well, with 60.5% of our RGUs [revenue generating units] now part of a two- or-three part [services] bundle,” said Johnson. “Of special significance, we ended the quarter with more than 100,000 telephone lines.”

Nevertheless, he concluded, “I’d be less than candid if I didn't acknowledge there’s been some overhang caused by our restructure activity.”

That activity should be completed in the third quarter, both Johnson and Mills said.