Cablevision Systems Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 9.13 | About: Cablevision Systems (CVC)

Cablevision Systems (NYSE:CVC)

Q1 2013 Earnings Call

May 09, 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 - Vice Chairman and Chief Financial Officer

Kristin Aigner Dolan - President of Optimum Services and Director

Tad Smith - President of Local Media Group

Analysts

Benjamin Swinburne - Morgan Stanley, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Philip Cusick - JP Morgan Chase & Co, Research Division

Amy Yong - Macquarie Research

Jason B. Bazinet - Citigroup Inc, Research Division

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

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

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

Operator

Good morning. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cablevision First Quarter 2013 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Mr. 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 First Quarter 2013 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 first quarter 2013 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 5 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, please note that we are now reporting Optimum West as a discontinued operation in anticipation of the closing of its sale to Charter Communications. Financials for Bresnan Broadband Holdings, LLC will be available on our website at cablevision.com by Monday, May 13, and today's discussion will not include a discussion of Optimum West's first quarter results.

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

James L. Dolan

Thank you, Bret, and good morning. Our first quarter results are largely in line with our expectations, reflecting a significant improvement in customer metrics, as we recovered from the effects of Superstorm Sandy in the fourth quarter. We added more than 5,000 customer relationships in Optimum East, generated gains in both data and voice customers and experienced a very modest loss of video customers.

During our 2012 fourth quarter earnings call, we discussed our focus on improving our financial performance and returning the business to growth. However, we also pointed out that we expected to experience significant AOCF pressure in the first quarter, which is exactly what occurred.

First quarter 2013 total company revenue was slightly below the comparable 2012 period. AOCF declined 27%, principally reflecting a significant increase in programming and employee expenses. The first quarter does not reflect a full quarter's impact of the recent high-speed data price increase or any impact from the sports programming surcharge that was initiated on April 1. Second quarter results will reflect the impact of both of these price initiatives.

Our capital expenditures for the first quarter remained elevated, reflecting our continued investment in the improvement of our products and investment in our network infrastructure, in particular, our WiFi network. The quarter's decline in AOCF compliant with our capital investments resulted in a negative $52 million of free cash flow for the quarter.

As anticipated, we did not repurchase any shares during the first quarter. On May 7, the Board declared a $0.15 per share quarterly dividend, which is payable on June 14. In April, the final allocation of the VOOM litigation settlement proceeds was approved by the independent board committees of Cablevision and AMC Networks. We received an additional $175 million in cash, bringing our total share of the settlement to $525 million.

Last week, we announced that we have entered into a definitive agreement to sell substantially all the assets of our Clearview Cinemas business. The transaction is subject to certain closing conditions, including the receipt of landlord consent. We expect to close in the coming months. We also continue to work with Charter Communications to complete the sale of our Optimum West cable business, which is on track to close in the third quarter.

Finally, in April, we refinanced our principal senior secured credit facilities, taking advantage of this historically attractive interest rate environment and further extending our debt maturity profile. Gregg will provide further details related to this transaction.

Turning to operations. Products, service and operational improvements and enhancements continue to progress throughout the business. As I noted on our year-end conference call, 3 of our most important goals for 2013 are to strengthen our customer relationships, enhance service efficiency and improve data process and accountability throughout the organization. During the first quarter, we noted progress towards each of these goals as we began to implement a number of operational initiatives.

WiFi continues to be one of our main strategic initiatives. Our 80,000 Optimum WiFi access points have now been utilized by more than 1 million Optimum Online customers. We are continuing to expand our WiFi network and optimize coverage and capacity to enhance the user experience. We are already seeing increases in user traffic in these areas. DVR Plus has been rolled out across nearly the entire Optimum East footprint, and we are continuing to progress the deployment of our new Optimum program guide to our Scientific Atlanta cable box.

In April, we realigned our cable leadership structure in order to help Cablevision evolve into a more customer-focused organization and streamline our day-to-day management decision-making process. I believe this structure will drive further innovation and efficiency across our company and move us closer to our goals. I strongly believe that we have the right plan in place to keep this company on a path towards long-term success and to deliver greater value for our customers and for our shareholders.

With that, I will now turn the call over to our Chief Financial Officer, Gregg Seibert.

Gregg G. Seibert

Well, thank you, Jim, and good morning. As Jim noted, we added approximately 5,200 net new customers in the first quarter of 2013. We lost fewer than 4,700 net video subscribers and added approximately 23,000 high-speed data customers, as well as 23,000 voice customers, all exclusive of Optimum West.

Our first quarter subscriber networks reflect the resumption of our normal collection efforts and non-pay disconnect policy. During the first quarter, all delinquent accounts estimated at year end were either rectified or discontinued. In addition, we reduced the number of customers who we have been unable to contact after Superstorm Sandy and whose billing we have decided to suspend temporarily during the restoration of their homes.

Average revenue per video subscriber was $156.34 in the first quarter, an increase of $2.06 as compared with the prior year period. After adjusting for the impact of Sandy, RPS declined sequentially due to lower video and advertising revenue, partially offset by an increase in high-speed data revenue. The increase was due in part to the recently implemented $5 rate increase. Average revenue per customer relationship was $139.80 in the first quarter.

As compared with the prior year, cable revenue for the quarter decreased 0.7%, principally reflecting lower video and advertising revenue. This decline was largely offset by the impact of the high-speed data rate increase and continued customer growth in our data and voice products. Cable advertising revenue in the first quarter declined nearly 15% compared with last year's first quarter. The decline is due principally to lower automotive and pay-TV services spending.

Cable AOCF declined 23.1% in the first quarter as compared with the prior year period, reflecting a slight decline in net revenue; a 12% increase in programming costs; higher employee-related costs, including annual merit increases and other increases in non-executive compensation; nearly $8 million in expenses incurred related to Superstorm Sandy, primarily for additional network repair and maintenance costs; and a $7 million increase in fees related primarily to legal costs.

Cable's first quarter AOCF margin was 27.9%, down from 36.1% during the prior year quarter. Cable capital spending in the first quarter was $199 million, a $48 million increase compared to the same period in 2012. This increase includes investments in CPE, the buildout of our WiFi network and investments in support capital, including enhancements to our network-monitoring capabilities. A portion of the increase is attributable to the delay of certain initiatives from the fourth quarter as the result of Superstorm Sandy. We will continue to dynamically manage our capital spending throughout 2013, but we still expect an overall reduction in capital spend as compared with 2012.

At Lightpath, revenue increased 3.7% as compared with the first quarter last year. AOCF increased 6.5% over the prior year period. Other revenue decreased 5.4% and the AOCF deficit increased 26.8%, reflecting a decline in advertising revenues at Newsday and increased corporate costs.

Now turning to the company's financial position. The company's first quarter consolidated cash position was $244 million, and net debt was $9.2 billion, which excludes Bresnan. We have $1.19 billion undrawn and available under the $1.25 billion revolving credit facility at CSC Holdings at the end of the first quarter. At March 31, the company's consolidated net leverage ratio was 6.7x. The CSC Holdings Restricted Group leverage ratio was 4.2x.

In calculating our total company leverage ratio, AOCF is determined using the latest quarter annualized AOCF. As a result, our leverage ratios may continue to be volatile as they are more sensitive to changes in quarterly AOCF than they would be if our leverage was measured based on a trailing 12-month AOCF metric. As we work to return the business to overall AOCF growth, we'll continue to focus on opportunities to reduce our leverage.

In April, the company continued executing on its stated goal of extending debt maturities, increasing our financial flexibility and reducing our overall cost of capital by executing a number of financing transactions at CSC Holdings. We entered into a new $4.8 billion credit agreement to refinance our principal revolver in term loan facilities. The new credit agreement provides for a new revolving credit facility of $1.5 billion that matures in April 2018, which replaces the $1.25 billion facility that was scheduled to mature in March 2015. The new facility will increase our revolver capacity by $250 million and bears interest of LIBOR plus a spread ranging from 1.5% to 2.25% based upon our leverage ratio.

A new Term Loan A facility of approximately $959 million, that matures in April of 2018 and replaces the $908 million facility that was scheduled to mature in March 2015. The new facility will bear interest similar to the new revolving credit facility, again, based on our leverage ratio.

A new $2.35 billion Term Loan B facility that matures in April 2020 and replaces the $2.32 billion facility that was scheduled to mature in March 2016. The new facility bears interest of LIBOR plus 2.5% and will not be subject to a LIBOR floor. These transactions are expected to result in cash interest expense savings of approximately $16 million per year as compared to the previous credit facilities.

Turning to Cablevision share repurchase program. As Jim noted, we did not repurchase shares of Cablevision stock during the quarter. We continue to have more than $450 million of remaining stock repurchase authorization and intend to be opportunistic with regard to additional repurchases. I do want to reinforce, however, our goal of reducing leverage from current levels.

As Jim highlighted, we received an incremental $175 million from AMC Networks as part of the VOOM litigation settlement, which will be reflected in our second quarter results as discontinued operations. In addition, we expect to receive approximately $625 million in net cash proceeds in the third quarter in connection with the anticipated sale of Optimum West.

While we continue to face various headwinds, including the impact of rising programming costs, robust competition and the general economic environment, we anticipate double-digit sequential AOCF growth in the second quarter. The incremental impact of our price initiatives and expected improvement in advertising revenue and reductions in certain spending activity are all expected to contribute to this growth.

Operator, we're now prepared to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Ben Swinburne of Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I just wanted to clarify a couple of things. Gregg, the $15 million of cost related to Sandy and legal, those where in cable, correct?

Gregg G. Seibert

It was $8 million in the quarter in costs relating to Sandy.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. And the legal cost of $7 million, were those in cable or in other?

Gregg G. Seibert

The legal costs were in cable.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay, got it. And then the growth in the second quarter, you expected to see double-digit sequential growth off of the reported $378 million, right? That's the base we should use?

Gregg G. Seibert

Off of the reported AOCF for the company, yes.

Benjamin Swinburne - Morgan Stanley, Research Division

Got it. And then maybe just the last question, what are you guys seeing in the market in terms of the new Onyx guide rollout, and how that's impacting churn or customer reception? I know that's been a big product push for you guys. And is it completely deployed at this point?

Kristin Aigner Dolan

Kristin Dolan. We're still in the process of deploying it. The response continues to be good, but it's too early to see churn impacts on that.

Operator

Your next question comes from the line of Marci Ryvicker of Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Just a little about the Triple Play, and how you think about this. Has it weakened at all? And if you can maybe talk about if there's migration to high-speed data only, I don't know, in the recent past?

James L. Dolan

I think we still believe that the Triple Play delivers the most amount of value to our customers, and so it continues to be one of our primary purchasing options for our customers. We do -- we are seeing continued growth in high-speed data and significant increases in usage in high-speed data, which just reflects that the product itself is quite healthy.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Do you have a number that you can give us for the number of subs that are high-speed data only or a percentage?

Gregg G. Seibert

We actually haven't broken that out in the past, Marci, and I don't think that we're going to start now. But we are getting some more, but they tend to come in a double-play format. A lot of the people who are taking high-speed data without taking video are also taking telephone. And you see that in our reported numbers.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Got it. And just a strategic question. You surpassed MSG and Rainbow and recently sold Clearview and Bresnan, so how do you think about Newsday at this point?

Gregg G. Seibert

I think Newsday is a core asset for us. It's -- as you know, we hold it in a partnership with Tribune where we own 97% of that partnership. But Newsday, for us, is an important strategic asset, as it fits in with our cable operations and our focus on providing the best in local news coverage to our customers in conjunction with Newsday.

Operator

Your next question comes from the line of Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Gregg, I was hoping that you could just clarify some of the costs. You kind of mentioned them, but what was the growth rate in the employee cost, the programming cost and corporate? And what's the outlook for the rest of the year? And also on, I guess, the cost item. On CapEx, you said it would be down year-over-year. Can you put a range around that?

Gregg G. Seibert

We're not going to put a range around capital expenditures, Jessica. One of the reasons for the increase in the first quarter, as Jim pointed out in his comments, is the fact that we had CPE expenditures that had moved from the fourth quarter into the first quarter as a result of Superstorm Sandy, so we had a lot of additional converters, additional routers come in. We are taking some older fully depreciated boxes out of service and replacing those. So the CapEx in the first quarter was probably a little higher as a result of Sandy than it would have been otherwise. And in terms of the -- on the expense side, you were looking for specifically?

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Do you think -- I don't know, if the Q -- we haven't seen the Q yet, but yes, if you could just give us some color on the programming employee corporate world kind of cited in the press release as being higher.

Gregg G. Seibert

Yes. The programming costs were up roughly 12.8%, and that's a combination of contractual rate increases, and it also includes, of course, our new launch of the NFL network last year. In terms of the additional storm-related items, as I pointed out before, that was $8 million in additional repair, $8 million in additional legal fees and then there was a substantial portion in the higher salary category, which is a combination of the non-executive employee compensation program that we put in place, primarily at the beginning of the third quarter of last year and additional merit increases that ran through the organization this year.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And just the outlook for the balance of the year for kind of the big buckets?

Gregg G. Seibert

Well, I think what you're going to see on the programming side is that we get into the third and fourth quarter, we're going to have comparisons that are going to be a little bit more apples-to-apples, because we did add the NFL network in the third quarter of last year, but we ended up having some of the bigger programming contracts begin to kick in, in the third and fourth quarters of last year. But as, I think, we've pointed out on both our last call and as we've pointed out in the remarks here, programming costs are going to continue to be a double-digit increase for us for a period of time, certainly through the balance of this year and into next year. And to me, that's really the -- one of the primary drivers that we have to deal with. It's partially offset by the rate increases that we put in place, but it's difficult, actually, impossible to offset type of programming cost increases. But I think we and our brethren in this industry are facing just with rate increases. One of our other focuses has been operating efficiencies. But Jim mentioned in his comments, we're making strides in that area. And what we're really focused on is trying to provide a superior customer experience with less costs, and we are hopeful that as we go through the year, we'll be showing more results from those initiatives.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And can I just ask Jim something? We haven't asked you for a while about addressable advertising, and you guys took an early lead a few years ago. Where are you now in that product?

James L. Dolan

Well, I'm fortunate to have Tad Smith here who I -- through the -- I'm sure he could give you a better answer than me.

Tad Smith

With addressable advertising, we have done 2 things. One, we have moved the core skill group into the broader sales force, and we have dramatically raised our efforts cost, in fact, the whole landscape of our clients. So I'm actually very optimistic about that going forward, and the pipeline is robust.

Operator

Your next question comes from the line of Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Jim and Gregg, I wanted to take a step back and look at margin trends from sort of a bigger picture standpoint and telecom margins, the last couple of years for Cablevision, have dropped 10%. I'm looking at 1Q '13 versus 1Q '11, and for Time Warner Cable has only dropped 1% over that time frame. So a couple of years ago, you were 4% higher margins than Time Warner Cable, now you're 5% lower. So when the 2 of you have pretty similar telecom revenue exposure, pretty similar programming cost challenges,, when you look at your operations and look at how you're doing relative to peers, what explains what's happening with margins at CVC? And is there any efficiency opportunities that might kick in at some point?

Gregg G. Seibert

Maybe we can do here is I'll handle the specific margin component movement, and Jim will talk about efficiencies. Our actual decline year-over-year was 8.2%. It's been on relatively flat revenue, and it's been driven, first off, by higher programming costs, which are 3.5 points. That's a pretty significant move. Higher salaries and benefit expenses have been 3.3%, which is, again, the non-executive employee compensation review. We found ourselves last year in a position where we felt that we needed to make sure that we were competitive in the field and the people were being more than fairly treated, and we did that. We also had annual merit increases, again, primarily for non-executive employees and higher medical costs, which is an important part of the equation. We continue to provide a very attractive medical benefit programs, health benefit programs to our employees. And the other expense increases was really another 1.5 points, which is a combination of maintenance expenses and legal fees. And as I mentioned, Jim's been highly focused on finding operational efficiencies, so I'm going to turn it over to Jim.

James L. Dolan

So I think your question is about efficiencies. We began a process in the first quarter of last year to really overhaul how we process our customer transactions and how we handle our customer relationships. And we are now starting to see some fruits of those labors, although it's still early. We focused on how we handle our phones, how we roll our trucks, how customers get information from us, how we feed information back to them and it's been a significant change in how the company does business, and again, processes the customer relationship. Now I expect to see efficiencies out of that, most definitely. But at the same time, I also expect to see an improvement in customer satisfaction with quicker, more reliable service and information that's readily available for them. And in some cases, actually, gets fed back from us to them. So I think that we were probably high in terms of the expense category here over the last few years, and I think that was primarily due to not investing and reinvesting into that core part of our business. That's what we've done. That's why you see the expense growth. But now we should start to see some of the payoff.

Operator

Your next question comes from the line of Mike McCormack with Nomura Securities.

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

Maybe if you could just walk through, from a timing perspective, thinking about the Onyx guide rollout, network DVR, WiFi. Obviously, a lot of project work that's been weighing on margins as well, maybe yardstick on the timing to completion of some of those things? And how much of the 2Q AOCF improvement is based on some of that project work becoming finished versus Sandy coming off? And then, just lastly, a couple of your peers who identified MDU accounting issues. I'm just wondering if you guys have the same issue.

Gregg G. Seibert

Let me handle the accounting question in the second quarter in terms of Sandy first. As far as the MDUs, I think you're referring to something called an equivalent billing unit methodology for commercial customers. We do not bulk -- we do not count our bulk customers on an EBU basis. We count our bulk commercial customers, such as a hotel as one customer, but we don't count individual room units of the hotel. And when we look at a MDU such as an apartment building, we count each subscribing family unit within the building as one customer. We do not count the master account for the entire building as a customer. In terms of Q2 and Sandy, we don't anticipate having any impact from Sandy next quarter. So we have the $8 million roll-off, if you will, of expenses that comes out of this year. But what's really driving next quarter is what's been happening on the -- what's happening on the rate side, but the first quarter didn't reflect any impact from the $2.95 board surcharge, which has been added to our customers' bills. And as that flows through along with the full roll through of the $4.95 or $5 data piece that we put in, in the -- at the beginning of the year, those both have very positive impacts on the quarter.

James L. Dolan

On the program guide?

Kristin Aigner Dolan

So on the product side, the program guide, as we said, is continuing to roll out. We're coming near the end of that. WiFi, we crossed over 80,000 hotspots recently. And then DVR Plus, we're just finishing the rollout in New Jersey, which is the last service area, and we have over 300,000 customers on DVR Plus at this point.

Operator

Your next question comes from the line of Phil Cusick of JPMorgan.

Philip Cusick - JP Morgan Chase & Co, Research Division

A follow-up on Mike's question. Can you remind us how much of that $4.95 data increase you think we got in the quarter, maybe 1/3 give or take? And then help us think about the Clearview sale. Can you quantify at all how much you're getting there? And also I assume you're going to put that into discontinued ops in the second quarter. How much was that drag in 1Q?

Gregg G. Seibert

The plan is to put Clearview into discontinued operations in the second quarter. We did not meet the task at the end of the first quarter that was necessary to put it in then. Clearview, the main benefits to us of Clearview are basically reducing a loss that, that business has been producing. I'm not going to quantify the size of it. It's not material relative to the overall scale of the company's operations. But it also enables us to remove a layer of required capital expenditures this year. We would have had significant costs, capital costs involved in upgrading the Clearview theaters to make them fully digital. And that was just an expense that, from our perspective, we felt was better undertaken by a company that sees its long-term future in the operation of theaters. We're confident, we like the Bow Tie people. We think they operate very well. We're confident that we will have a high-quality theater circuit that's going to be still working within the Cablevision footprint, and we look forward to continuing a partnership with them. But again, Clearview is not especially material, but what it does is it removes both an earnings and a capital expenditure drain for us. And I misspoke on the $4.95 data increase, it was a $5 data increase that we put in as far as the roll-through. As far as the roll-through, it's hard for us to tell you exactly how that sequences. But one thing that you should not do is assume that on January 1, we put a $5 data rate increase in place that it impacts everybody in the same way. And I know you haven't assumed that. It basically rolls through with the billing cycle for the individual customer. And I'm sorry, was there a third part to the question?

Philip Cusick - JP Morgan Chase & Co, Research Division

That was it.

Operator

Your next question comes from the line of Amy Yong with Macquarie Capital.

Amy Yong - Macquarie Research

Two questions. Can you just talk about what your plans are for the proceeds coming in from VOOM, Clearview and Bresnan? And I guess given the commentary on debt payment, what kind of a leverage ratio would you be comfortable with before being a little bit more active on your buyback? And the second question is, the other line has been a drag on AOCF of about $200 million. So can you just give us a sense of pro forma for Clearview, what that would look like?

Gregg G. Seibert

Well, first of all, let's go to the leverage question. Obviously, I'm not happy with the leverage being up at 6.7x. But at the same time, given the interest rate environment and interest rates and the reception to our recent refinancing, we're quite comfortable with the overall balance sheet. We're going to continue to look at opportunities to reduce debt. For example, in the fourth quarter of last year, we used $275 million of the $325 million of proceeds from the VOOM litigation to pay down outstanding debt. Quarterly annualized AOCF remains the key driver of the leverage multiple. And as a result of that, our leverage ratio continues to be somewhat volatile. But with an expectation that AOCF will be increasing in the second quarter, you should see leverage organically come down. We have lots of opportunities to repay existing debt. We have 2 upcoming maturities, which are the 8 5/8% senior notes of '15, which become callable in September at 102 [ph]. I think you should assume those will not be outstanding much past their call date. And then there's also the 8 1/2% senior notes of '14, which have a make hold [ph] provision in them, and we will look at both of those securities as the proceeds come in from Bresnan. We've already received the extra $175 million from VOOM, but we're not going to make a decision in advance of receiving the proceeds as to how we'll apply them. We are focused on debt repayment. But the decision as to how to apply the proceeds of those transactions will be made when they're received and in the context of market conditions at the time. Amy, second half of your question?

Amy Yong - Macquarie Research

Can you just give us a sense of the other line? It's been a drag on AOCF of like $200 million. So pro forma for Clearview, what that line item would look like?

Gregg G. Seibert

Yes, Clearview is not going to dramatically move that line item for us. It’s -- the breakdown on other, it's not something that we provide, but the assets that are included in other include Newsday, News 12, our OMGFast asset in Florida, MSG Varsity and then corporate expenses on top of it. One thing we didn't discuss today is the fact that we have been in the process of rescaling MSG Varsity. We expect to see those expenses come down at this year, although there are some severance expenses associated, which have hit in the first quarter. But we're focused on the line, and we are working to try and bring expenses down.

Operator

Your next question comes from the line of Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

Mr. Seibert, regarding the dividend, if I take sort of the comments that you gave regarding AOCF sequential improvements and some of the debt refinancing benefits that you talked about, even if I assume that CapEx sort of glides lower, it seems like a fairly large portion of your free cash flow is being used to pay out the dividend. And I was just wondering if you could just provide some color. I mean, do you -- have you given any thought to sort of cutting the dividend or reducing the dividend, or do you think we're maybe mis-modeling things and there's more discretionary free cash there than we might think?

Gregg G. Seibert

Thanks, Jason. The real -- there's no question on the dividend. We had a robust discussion, as we always do, around the dividend at our recent board meeting, and there is a complete support for a continuation of the dividend at its current level. But I think you're right. We're looking at $40 million a quarter that we're paying out in the form of a dividend. We certainly did not earn that in the first quarter on a free cash flow basis. And going forward, it's not clear that we will consistently earn that over the next few quarters. But the reality is from a liquidity standpoint, we are receiving the proceeds from the Bresnan transaction that we expect to be, which should be in the neighborhood of $625 million plus whatever working capital and cash is in the company at the time of closing, plus a potential $21 million of recoveries on the Montana property tax side. We've received the additional $175 million from VOOM, and I think that, that liquidity gives us the comfort that even if we're in a period where we are not fully covering the dividend from a free cash flow perspective, I think the Board takes great comfort in that, and it's our belief and expectation that we will continue the dividend at its current level.

Operator

Your next question comes from the line of Vijay Jayant of ISI Group.

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

A question for Gregg first. If this big refinancing in the bank market, can you talk about why the bank market, given your ties to LIBOR which could be increasing over the next 5 years, you could probably turn out high-yield debt for a longer of period of time at very attractive rates. Is there any strategic reason to be in the bank market, I'm assuming it probably has tougher covenants, first? And second, broadly for Mr. Dolan. Given all these other obligations in other companies, can you talk about how much time does he get to spend at Cablevision on his operations?

James L. Dolan

I'll answer that one first. Too much. The -- I'm very, very focused on Cablevision, particularly at this period in time. And I'm constantly aware and working on the initiatives and on the strategic direction of the company. So it has -- it occupies not only a lot of my time but a lot of my thoughts.

Gregg G. Seibert

Yes. I'm going to add to Jim's commentary that, as we look at things like our initiatives to reduce calls in the business, our initiatives to reduce truck rolls in the business, that driving force behind that is all Jim's activity. We have a lot of good people working on those initiatives, but there's tremendous amount of drive in the business that's coming directly from the top. As far as the financing is concerned, love the rate on the Term Loan B, LIBOR plus 250 with no floor. We extended the maturities out fairly dramatically. Now we have a 2017 maturity tower now that's $1 billion. Prior to that, we had a multibillion dollar maturity tower in '15. The revolver's pushed out to '18. The Term Loan A is, for the most part, pushed out -- I'm sorry, Term Loan B is, for the most part, pushed out to 2020. And we have an awful lot of long-term debt, fixed-rate debt in our capital structure already. One of the issues we’ve had to grapple with over time has been, as we've refinanced debt, what maturities have we been able to take out and what's the cost been of taking those maturities out to be able to refinance. What I like about the term loans is that absent a very short soft call period, they're prepayable at par. So we have the opportunity should we decide to do so to go back to the long-term debt market. We may do that later this year, but we feel no pressure to do that. It's nice to have the cushion that we have now. And you did mention covenants. One thing that I didn't talk about in my earlier comments is that, on the bank deal that we have gone from 4 covenants to 2 covenants, and we have broadened the debt-to-cash flow covenant in the -- at the restricted group from 4.5x to 5x, so we have lots of flexibility under our covenants, and we consider the bank financing or then the loan financing to have been a great financing for us, so we appreciate the support of our banks and lenders and helping make that happen.

Operator

Your next question comes from the line of Bryan Kraft with Evercore Partners.

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

So a couple questions. One follow-up on the other expenses. How much did you have in there last year for the litigation? And now with that over, should we start to see some meaningful trending down in the other expenses, especially combined with what you mentioned, Gregg, on MSG Varsity? Also I wanted to see, Jim, if you could give us an update on where you think you are in getting WiFi or approval to do WiFi on the trains? And then just on the RSN fee, is that going to apply to all of your non-basic customers, even the promotional ones?

Gregg G. Seibert

First off, one thing I would like to clarify, because it was referred to as an RSN fee last quarter also. It's not an RSN fee. It is a sports surcharge. There's a, in our mind, a fairly significant difference definitionally between those 2 concepts. Just on the legal side for a second and on the other category, VOOM is actually treated as a discontinued operation. So you will not see -- you do not see any VOOM legal expenses in our numbers at this point. It's been treated as a discontinued operation. In fact, one of the -- on the legal side, one of the points that I mentioned earlier is that we have a fairly significant increase in legal expenses. We're involved in some significant litigation, and my expectation is that legal expenses will remain at an elevated level for us. Jim, I don't know if you want to comment on how we applied the sports surcharge to subscribers, and whether or not it was applied to promotional subscribers.

James L. Dolan

Kristin would know that.

Kristin Aigner Dolan

Yes. The majority of our customers received the increase.

James L. Dolan

But you're right, it's not just at RSN. The sports are going up across the board. And Tad can take us through the WiFi on the trains.

Tad Smith

Sure. WiFi on the trains is complicated. But not withstanding that, we are in active, productive, very positive conversations with the trains. And I had sort of hoped we'd get something by this call, but I am optimistic for the future.

Operator

Your final question comes from the line of Frank Louthan of Raymond James.

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

Looking at the business revenue, it slowed down a little bit sequentially, is some of that delay from Sandy with customers, are you seeing any impact in business from the macro? What is more of your view on the macro environment? Do you think that's going to hinder you from maybe getting back to upper single digits growth on the business side?

Gregg G. Seibert

Well, when you say the macro environment, if you mean the combination of the economy and the competitive environment, the competitive environment we're facing is a very significant competitive environment at this point. But this quarter, part of the revenue issue for us was our video revenues declined by $17 million. That was due to fewer video subscribers and a little bit of lower RPS due to a higher proportion of subscribers on offer. That part contributed probably $9 million to the decline. But we also had a decline in advertising revenue, which is, oftentimes, a significant delta for us. A lot of seasonality. The runoff of political from the fourth quarter hit that. And our hope is that, going forward, these issues will be offset by the higher rates that we put in place.

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

I was addressing really the Lightpath business on the enterprise side, yes.

Gregg G. Seibert

Oh, the Lightpath business. Yes, I'm sorry, I missed that, I missed that. Lightpath is basically, its growth has slowed. It’s a much more competitive market than it had been. What we're finding is that a lot of companies are grooming as a result of the economy. In fact, one of the big factors in the quarter is that one of our largest Lightpath customers made a decision to groom lines. They had a fairly significant presence in our footprint. And so that business is not growing at the rates that it has been in the past. Jim and I are working actively with the management there to make sure that we're doing everything possible to reinvigorate the Lightpath growth. We've also kept its capital down a bit, and that's another part of the equation. We would like to do with Lightpath is we'd like to see faster growth with less capital. That's the goal and the question is coming up with a plan to make sure that we can do that.

Thank you all.

Operator

Thank you. That concludes today's conference. You may now disconnect.

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Cablevision (CVC): Q1 EPS of -$0.06 misses by $0.12. Revenue of $1.52B (-0.8% Y/Y) misses by $0.12B. (PR)