Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Cablevision Systems (NYSE:CVC)

Q3 2012 Earnings Call

November 06, 2012 11:00 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

Analysts

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

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

James M. Ratcliffe - Barclays Capital, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Thomas W. Eagan - Canaccord Genuity, Research Division

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 Q3 2012 Earnings Conference Call. [Operator Instructions]

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

Bret Richter

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

Following a discussion of the company's third 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 6 of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow, or AOCF, to operating income.

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

James L. Dolan

Thank you, Bret, and good morning. Let me begin this morning by addressing last week's storm.

The storm cut a pathway of destruction up the entire East Coast, and our thoughts and prayers are with everyone who has been affected. In our Optimum East service area, we began our preparations before the storm hit, implementing a thorough response plan that included positioning resources where we believe they would be most needed. Many of the measures that we put in place were in response to lessons learned during Hurricane Irene.

We recently reviewed and revised all of our hurricane response plans and took numerous proactive steps prior to the storm, including deploying emergency staff, testing generators and stocking fuel and securing additional contract labor to assist in the recovery. As soon as it was safe for our people to get into the field, they began responding to service outages and they haven't stopped. However, the loss of electrical power was the primary cause of widespread disruptions of Optimum service, particularly in heavily impacted areas of Long Island, New Jersey, Connecticut and Westchester County. Our crews continue to restore Optimum service as quickly as possible as power returns to our customers.

Our data as of 8:00 a.m. this morning indicates that more than 2.7 million of our Optimum East customers have electrical power and also have their Optimum service, but approximately 535,000 Cablevision households still have no power.

Our Optimum WiFi hotspots have helped many of our customers to stay connected and we currently have approximately 47,000 hot spots operational across the tri-state region. Despite widespread power outages, more than 22,000 of our hotspots were accessible to our customers throughout the storm and during the days immediately following. Restoring service to our customers is our near singular focus right now. However, I realize that the primary purpose of this call is to review our third quarter results, so I'm going to now turn to briefly review the quarter and let Gregg provide some additional detail on our financials.

Despite the impact of seasonally slow -- a seasonally slow quarter in Optimum East, we added nearly 5,000 total Optimum customer relationships company-wide during the third quarter. In addition, we experienced net video subscriber losses that were nearly 50% lower than those experienced in the third quarter of 2011.

Total Optimum Online net additions rose by nearly 70% as compared with the third quarter of 2011. Third quarter net Optimum Voice additions were at a similar level to those achieved during the prior year period, despite a lower contribution from Optimum West.

Our financial performance continues to reflect the near-term impact of the operating and capital investments that we are making. Third quarter 2012 total company revenue grew 1.2% as compared with the third quarter of 2011. AOCF declined 6.6% versus the prior year period, primarily reflecting higher expenses in our core Cable business in the East.

There are a couple of factors that affect the year-over-year comparisons of these results. In the current year's third quarter, we reached a favorable settlement with one of our voice termination partners and in third quarter of 2011, our results reflect the impact of Hurricane Irene. Adjusting for these items, third quarter 2012 total company revenue increased 0.4% and consolidated AOCF declined 11.6% both as compared with the prior year period.

As expected, third quarter 2012 capital expenditures increased significantly as compared with third quarter of last year. This increased level of investment and higher operating cost impacted free cash flow which was $78 million for the quarter. We continue to be committed to our return of capital initiatives. We repurchased approximately 4 million shares of stock in the third quarter and on October 24, the board declared a $0.15 per share quarterly dividend, which is payable later this month.

Last month, we announced the resolution of the long-standing contractual dispute between VOOM and dish network. Gregg will have a few more words to say on this matter but suffice it to say, we are pleased with the settlement.

Finally, I'd like to address the recent press reports about our Optimum West business. As we have stated previously, we are confident in the prospects for growth at Optimum West and we are pleased with our progress to date. In recent weeks, a number of parties expressed their unsolicited interest in possibly acquiring Optimum West. While it's not been our intention to divest this valuable asset, based on the approaches that we received, we have decided to explore a potential transaction. Gregg will also have a little bit more to say regarding this matter.

Turning to operations. In October, we completed the conversion of the balance of our Optimum East analog customers to our digital service and we reached a major milestone when we rolled out our new Optimum program guide to hundreds of thousands of our customers' set-top boxes. We've completely reinvented the program guide to make everything about the Optimum experience better. The new guide has a redesigned look and feel and a faster and easier and more intelligent user interface. It allows viewers to search and easily access programming across live and on-demand channels, and it includes a variety of advanced tools that allows subscribers to customize their television experience. It also incorporates high-quality graphics and video, delivers fast tuning between channels, and provides significantly faster reboot times than our prior program guide.

The Optimum program guide is a very significant undertaking and I am very pleased that our initial set-top box rollout has begun.

During the third quarter, we released a new version of our DVR Plus user interface as well as a new and improved video search function. This new DVR Plus release incorporates several new features, including improved content management tools such as the ability to organize recorded content into folders. Our new search function, Search 2.0, allows customers to search programs using an improved full-screen keyboard, saving retrieved recent searches, access recommended and featured programmings -- programs and the search programs with similar cast members and directors.

In addition to enhancing our Optimum Video platform, we've successfully negotiated several new programming agreements in the past few months. We've completed new agreements with the NFL, Univision, CBS, the Disney and ESPN networks, NBC and Tribune. Through these agreements, we're expanding the programming available to our Optimum customers and providing them with more opportunities to access live and on-demand content, both within the home and outside of the home on multiple devices.

In addition to our video products, progress relating to our various other initiatives continues as well. We have now deployed more than 50,000 indoor and outdoor Optimum WiFi access points. In addition to adding coverage, we continue to invest to enhance the speed, capacity and connectivity of our WiFi network in order to meet the demand from the growing number of devices accessing our network.

Over 2 billion megabytes of data passed through our WiFi network in the third quarter, more than twice the amount as compared to the 2011 period.

Finally, in September, we relaunched the Optimum brand and unveiled our new Optimum logo. The Optimum brand relaunch focuses on our customers and the meaningful connections we enable through our Optimum products and technology, as well as our vision of providing the highest level of service through all of our customer connections.

Overall, I'm pleased with the progress we are making on our various operating initiatives. But more importantly, I'm extremely proud of the tremendous response efforts made by our employees and leadership team in the wake of last week's storm.

In addition to our field teams, network operations staff and customer service representatives who are responding admirably to our customers' needs, our local media properties have done an incredible job of keeping people informed and providing them with critical information across multiple platforms before, during and after the storm. I thank them all for their dedication to our customers and to our company.

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

Gregg G. Seibert

Thank you, Jim, and good morning, everyone. As Jim noted, we added approximately 5,000 net new customer relationships in the quarter as compared with the customer loss of nearly 15,000 in the comparable 2011 period. We also added approximately 28,000 high-speed data customers and 22,000 voice customers company-wide. We lost just under 9,600 net video subscribers company-wide in the third quarter. Again, this was approximately half of the 19,000 net video customer losses that we experienced in the third quarter of 2011.

Average revenue per video subscriber across all properties was $154.83 in the third quarter, an increase of $3.12 as compared with the prior year period. RPS declined a bit sequentially, reflecting lower pay-per-view usage and advertising revenue, partially offset by the favorable settlement with one of our voice termination partners. RPS, excluding the impact of the settlement, was $153.53.

Average revenue per customer relationship was $138.44 in the third quarter.

As compared with the prior year, total Cable rental for the quarter increased 1.4%, principally reflecting additional data and voice subscribers, higher advertising revenue and the impact of the voice termination settlement. This growth was partially offset by the year-over-year reduction in video subscribers, the absence of a rate increase and the impact of certain promotional pricing. Excluding the impact of the voice termination settlement, Cable revenue growth would have been 1/2 of 1%.

Total Cable advertising revenue in the third quarter was up over 12% compared with last year's third quarter. This growth reflects increased political spending in the quarter at both the national level as well as continued improvements in automotive and Pay TV services, partially offset by reduced financial sector advertising.

Total Cable AOCF declined 5.8% in the third quarter as compared to the prior year period. Excluding the impact of the voice termination settlement and the impact of Hurricane Irene, this decline would have been 10.7%.

Optimum East AOCF declined by 7.9%, reflecting higher programming costs and an increase in other operating expenses, primarily nonexecutive employee compensation. Excluding the impact of the voice settlement and the current year's third quarter and the impact of Hurricane Irene during last year's third quarter, Optimum East AOCF would've declined 12.9% compared to the prior year third quarter.

Optimum East's third quarter AOCF margin was 34.2%, down from 37.4% during the prior year quarter. We expect that the AOCF margin will continue to remain under pressure as we continue to absorb the impact of our operational initiatives and higher programming costs.

Turning to Optimum West. We gained approximately 1,500 video subscribers, 2,500 voice subscribers and 8,700 data subscribers in the third quarter of 2012. Total Optimum West customer relationships increased by approximately 6,200, driven primarily by an increase in data-only customers, including through a new returning student offer.

Average revenue per video subscriber for Optimum West was $141.19 in the third quarter, up nearly $12 since the third quarter of last year. Revenue was up 9.3% primarily due to higher video and data revenues and AOCF increased 23.4%. The AOCF margin for Optimum West was 35.6% in the third quarter.

As discussed on last quarter's call, in July, Optimum West received a favorable judgment relating to its dispute with the Montana Department of Revenue. The court determined that all disputed property tax assessments were invalid and it directed the Department of Revenue to refund the amounts under protest. The tax authority exercised its right to appeal this judgment in September. As you may recall, we made a protest payment of $5.5 million in the second quarter. Until the appeal is resolved, we expect to continue to make semiannual protest payments to the Montana Tax Authority. As such, we anticipate making another 2012 protest payment in the fourth quarter in the amount of approximately $4.6 million.

Total capital spending in the third quarter was $297 million, reflecting a $79 million increase at Optimum East as compared to 2011. This increase principally reflects investments in customer premise equipment and scalable infrastructure, primarily related to the digitization of our Cable network, the buildout of our WiFi network and our RS-DVR product.

Capital spending for Optimum West was $19 million in the quarter, $9 million less than in the third quarter of 2011. The decline primarily reflects lower spending in 2012 on the fiber ring connecting our Optimum West systems. The ring currently connects nearly 90% of our Optimum West subscribers and allows us to provide these customers with faster Internet speeds and over 100 channels of HD programming.

As we continue to execute our 2012 plan, we expect fourth quarter 2012 capital expenditures to be significantly higher than during the comparable 2011 period.

At Optimum Lightpath, revenue increased 4.9% as compared with the third quarter of last year. AOCF increased by 7.8% over the prior year period.

Turning to the company's financial position. Free cash flow from continuing operations for the third quarter was $78 million, a 9% decline from the prior year period. The company's third quarter consolidated cash position was $439 million and net debt was $10.3 billion. We had $1.19 billion undrawn and available under the $1.25 billion revolving credit facility at CSC Holdings.

In the third quarter, we executed a number of successful financing transactions, further extending our debt maturity profile. In September, we issued $750 million of 10-year 5.875% senior notes at Cablevision Systems Corporation. These notes carry the lowest fixed-rate at Cablevision or CSC Holdings in the company's history. The net proceeds were invested in CSC Holdings to facilitate the tender for approximately $400 million of its 8.5% senior notes due 2014 and 2015, as well as the repayment of $150 million of its Term Loan B-2 debt facility. The balance of the proceeds will be used for general corporate purposes.

In October, we refinanced Newsday's $525 million, 10.5% fixed-rate notes and it's $125 million floating rate notes priced at LIBOR plus 6.25% with a new $650 million term loan facility, priced at LIBOR plus 3.5%. This transaction is expected to result in significant interest expense savings over the 4-year term of the new credit facility.

In calculating our total company leverage, AOCF is determined using the latest quarter annualized AOCF. As a result, our leverage ratios continue to be somewhat volatile as they are more highly sensitive to changes in quarterly AOCF than they would be if our leverage were measured based on a trailing 12-month AOCF metric.

At September 30, the company's consolidated net leverage ratio was 5.1x. The CSC Holdings' restricted group leverage ratio was 3.6x. At quarter end, present and net debt was approximately $1 billion and $75 million was undrawn and available under its revolving credit facility. The leverage ratio for the quarter was 6.1x, down from the second quarter ratio of 6.5x.

Turning to Cablevision's stock repurchase program. As Jim noted, in the third quarter, we repurchased approximately 4 million shares of Cablevision stock for $61.1 million. This investment reflects a reduction of approximately 1.9% of outstanding Class A shares. From inception of the program through the end of the third quarter, we've repurchased 45.3 million Class A shares. As of the end of the third quarter, we had over $450 million of remaining stock repurchase authorization.

We are working with AMC Networks to finalize the allocation of the VOOM litigation settlement proceeds in accordance with the terms of our existing letter agreement with AMC and our related party transaction approval policy. At this time, we will not have any comments relating to the allocation of these proceeds between the 2 companies or the possible use of our portion of the settlement proceeds.

With regards to Clearview sentiments, we continue to explore potential strategic alternatives for the business. The process is ongoing and we have no further update at this time.

As Jim indicated, we are very confident in Bresnan's prospects for growth and we're very pleased with our progress to date. However, consistent with our approach of balancing our investable resources to the extent an attractive transaction is presented to us, we plan to pursue it. However, there can be no assurance that we will conclude a sale or go with the opportunity to continue to execute our business plan. Beyond this, we'll have no further comments on this matter at this time.

Finally, we have not yet estimated the full financial impact of last week's storm on our company. Suffice it to say that the impact could be significant.

Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Marci Ryvicker of Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

I have 2 questions. The first, Gregg, you mentioned the refinancings. Can you give us a sense as to what the annual interest expense savings could be on a run rate basis? And then the second question is about the competitive environment. Any comment there in terms of FiOS in Q2 versus Q3 and even Q4?

Gregg G. Seibert

I'll leave the FiOS obviously for Jim but Marci, on a run rate basis, I think we're looking at probably interest savings of around $40 million on a run rate basis. A lot of that coming as a result of the Newsday refinancing. But I think more importantly, what we've been doing is we've been continuing to issue our new paper up at Cablevision Systems Corp., up at the parent company. We've been using the proceeds from those financings to reduce the leverage and the amount of debt outstanding at our primary holding company -- I'm sorry, primary operating company, CSC Holdings, and so we brought our leverage at the operating company down to 3.6x, which I think has been a nice improvement for our overall balance sheet and capital structure.

James L. Dolan

As far as FiOS goes, we haven't seen much of any additional build in the marketplace. What we have seen is that for a short period of time, they raised their introductory rates. Now they've backed -- apparently that didn't work out very well for them, so they've now dropped their introductory rates again. But the bigger issue with that in terms of our competition is that they continue to extend those introductory rates beyond the introductory periods and that's how they hang on to their subs. I don't think that that's a sustainable model for them and that they will eventually need to go to regular pricing. But meanwhile, we're very much holding our own and I think that we will continue to do so.

Operator

Your next question comes from Doug Mitchelson of Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

A fun one for Jim and then I'll jump off. Jim, you mentioned you had a number of unsolicited bids for Optimum West. Are you seeing any similar interest in Optimum East and if you were to receive such interest, would you be willing to consider a sale as you are with Optimum West? So that's the first one.

James L. Dolan

Okay. Do you hear those chuckles in the background?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I sort of expected that, but still.

James L. Dolan

Okay. Well, what's your other question?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

To be fair though, if you did -- is there a level at which you received interest where you'd say -- you'd actually scratch your head and say hmm, maybe I would think about selling the main company at some point or is that sort of off the table at this phase since you're in an investment phase anyways?

James L. Dolan

Well, we are in an investment phase. But look, we're a public company and we operate in the benefit -- for the benefit of all of our shareholders. And so you can never say that you would just wouldn't listen. But at this time, we're really focused on what we're doing with the operation and making it into what we think we could be.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

All right, fair enough. The second, so you've had a bunch of programming cost step ups at the end of the last quarter going into the fourth quarter here. You've been asked about pricing all year because you didn't take prices here. Any updates on your thinking around timing and amount of price increases given the programming cost pressure that kicks in?

James L. Dolan

All I can tell you is that we're keeping our options open. We do not want to announce a rate increase on our investor call and as soon as we have something to say about it, we'll tell you.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I mean fair to say, I guess last year you had another storm and it's also tough to come back to folks after a storm. So probably the early -- was it fair to say the earliest you'd really -- can think about this would sort of be at the beginning of the year?

James L. Dolan

I'd just like to avoid the whole question, if I could.

Operator

Your next question comes from Jason Bazinet of Citi Investment Research.

Jason B. Bazinet - Citigroup Inc, Research Division

I understand you guys don't want to talk about the financial impact of the storm. I was just wondering if I could ask an operational question. You talked about the number of people that didn't have power and didn't have their Optimum service. Do you know of anyone that has power that can't get Optimum? In other words, is there potential for this to impact churn at all as we get to Q4 numbers?

James L. Dolan

Yes, we've been right on the heels of the power company but I mean, we're not right behind them. As they light up a grid, then we're able to go in and to repair the lines, et cetera. We're staying very close to them. So I don't think our customers are seeing a long lag between power coming on and cable service being restored where it's out. A good portion of our subscriber base just needs power, right? They're already up and some of them will have generators that are receiving service. But actually, I think the company has performed to its best level ever in the storm when it comes to restoring service right behind power. And so I'm -- you can never say exactly what the customer base is going to do, but I think that Cablevision has fared very, very well when it comes to that area.

Operator

Your next question comes from Craig Moffett of Sanford Bernstein.

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

And I'm going to stay with the storm topic if I could just a little bit. Can you just describe operationally, how are you handling the rebates in the quarter? Are customers going to have to call in for rebates or are you proactively going to rebate customers for the period in which they had no electricity or service? And then as we think about the financial impact of that, separated apart from the financial impact of overtime and repairs and maintenance, is there any way that you can sort of bound those for us? And then finally, what about losses to homes that simply don't exist? Are there any material changes to your homes pass that you expect as a result of the storm?

Gregg G. Seibert

Can I do the financial side and then we could turn to Kristen to talk about the customer...

James L. Dolan

You do the financial side, Kristin Dolan will do the customer rebate policy, and I'll do the homes that we don't know where they are anymore.

Gregg G. Seibert

Well on the financial side, Craig, it's very hard for us to bound it at this point in time. We had roughly $16 million in impact from Hurricane Irene. We certainly will have a substantially larger impact this time around, some of which will be covered by insurance, a substantial portion of which probably will not. So we're still in the process, as Jim has pointed out, of restoring service to our customers. And I'll also go back to Jason's question for a second. We have been publishing on our website for our customers, some very good information in terms of how many customers are out, how many are out as a result of not having power and how many are out as a result of our not yet restoring service behind the power coming back. And I think when you look at those numbers, that you'll find that we've done, I think, really an extraordinary job of following the power companies, as Jim was pointing out. Kristen, on the customer rebate front?

Kristin A. Dolan

Craig, so on the customer rebate front, we've let all of our customers know they do need to call us to have a credit. The reason we need to do that is because we actually have to calculate the amount of the credit based on the duration of their outage. So we're advising all customers that once they're back up, they can call us, we'll calculate the credit and we'll apply it.

James L. Dolan

And as far as homes lost, there's clearly going to be some that they -- along the shore communities, both on Long Island and in New Jersey. We don't know how many they were in constant contact with the power companies. They have told us that there are certain seaside communities that they are, at least at this point, have no plans to restore power for. So I could only guesstimate how many of them there will be, but there'll be some.

Operator

Your next question comes from Jessica Reif Cohen of Bank of America.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

If I could get you to change the topic a bit away from Sandy. Can we talk a little bit of that CapEx, how far are you through these 18 growth initiatives and can you give us any initial peek into 2013 CapEx and divide just -- what do you think the base maintenance CapEx will be?

Gregg G. Seibert

Well, Jessica, on base maintenance CapEx, we just don't provide guidance. What I will tell you is that in my prepared comments, I mentioned the fourth quarter capital expenditures should be significantly above the capital expenditures in the fourth quarter of last year. I think that when you take the storm impact on top of it, you can see even additional capital expenditures that are not necessarily related to the customer initiatives that we're putting in place here. And we've been in the process of continuing to do our budgeting and planning going forward, so we're just not in a position to provide additional guidance on the capital expenditure front.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Could you at least say how far you are through those 18 [indiscernible] budget – have you [indiscernible]?

James L. Dolan

Yes, Jessica, let me just -- I'll talk a little bit about it. We are just now, in this quarter, starting to see the impact of some of those initiatives. Maybe the most prominent one is the new programming guide, but there have been many, many that have been ongoing since the beginning of the year having to do with operational improvements that allow us to service our customers in a much better way. And actually, I will say that during the storm, I know you don't want to talk about the storm but during the storm, we were providing information to the power companies about where their power was on and where their power was off. And our whole -- and we focused very heavily on our data resources and about -- and our connectivity with our customer base and we're seeing -- we're starting to now see significant improvements and I believe that in the next year, you'll see a great deal of that actually impact the customers. They'll see significant improvement in their service, improvement in the products that they -- and so, we are getting through them. There are still more to go and we are, as Gregg said, we're not going to project into next year on a financial basis. But in terms of getting the work done, we've been getting the work done and I'm pleased with the progress we're making.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And then on Sandy, I mean, will most of the impact of the spend and the recognition of whatever the loss will be, will most of that, do you think, be Q4 or will some of that bleed into 2013?

Gregg G. Seibert

It certainly feels like it will all be in Q4. I shouldn't think -- never say all.

James L. Dolan

The one area where that could bleed into 2013 is the area that was brought up in the question before this which is the actual loss of homes, right? Where there's no home to service. We don't have a number on that yet, but I think pretty much everything else should be concentrated just in this quarter.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And just to Craig's question, the homes passed impact, are most of those homes you think seasonal homes? Meaning, do they usually go in seasonal packages?

James L. Dolan

Well, do you we have one?

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I don't go off seasonal anymore, because you can't get data.

James L. Dolan

Good for you. We haven't gotten into that and as I said, we don't exactly know where and which ones yet. So it's a little hard to tell whether they're seasonal or not.

Operator

Your next question comes from Michael McCormack of Nomura Securities.

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

Gregg, I know you talked about not wanting to delve into the use of cash of any potential asset sales but as you look forward from a delevering perspective, do you view just growing out of it with AOCF as the key method of delevering or is there a debt reduction opportunity? And then maybe for Jim, just thinking about the WiFi network that you built out, can you just delve into some of the opportunities in wireless, what your plans might be there?

Gregg G. Seibert

Yes, Mike, I think on the financial side as far as our capital structure is concerned, we've always been pretty opportunistic. So part of the strategy here will continue to be extending maturities, looking at redoing our bank deal at some point over the next year or so, continuing to push maturities out. So I think you could see us make a decision to use some of the AMC proceeds, the VOOM proceeds to pay down debt. But we really haven't made a determination at this point and we'll be opportunistic in the way that we use those funds.

James L. Dolan

As far as WiFi goes, Mike, we're continuing to expand and strengthen the network and what we really see with WiFi is a disruptive opportunity, an opportunity to bring to our customers a value that can't be duplicated by any other provider in the marketplace. And we will be certainly opportunistic about taking advantage of that opportunity. And right now, we were opportunistic during the storm by letting all of our customers know that even if you're not at home, if you're an Optimum customer, you could still connect and you could still get high-speed service. And we don't know what the effect of that is on the customer base, but we know that the folks out there that aren't our customers couldn't do that. And that's the real differentiator and we're going to keep pushing that initiative and pushing that advantage.

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

Is -- to that, Jim, this is a data-only product?

James L. Dolan

At this time we're focusing on data, but the conversion between data and voice is -- continues to happen. And so I couldn't predict in the future that you could have a data product that included voice.

Operator

Your next question comes from James Ratcliffe of Barclays.

James M. Ratcliffe - Barclays Capital, Research Division

Looking at OpEx on the Cable side, it looks like the year-on-year increase accelerated a little bit in 3Q versus 2Q. I know we won't get the program cost numbers 'til later, but should we read into that, that x programming, the spend is actually rising and give an idea of what that's actually going to? I know you've got the initiatives going on, but how much of this is kind of one time versus ongoing new run rate on the cost side?

Gregg G. Seibert

Well, we have certain initiatives that have been in place that have, in particular, affected a number of our members of our workforce. And there's disclosure about that in the last 10-Q and also additionally, there will be in the 10-Q to be filed here. So we've had to take steps in the business to support the initiatives that haven't only been relating to capital expenditures. So there is -- you are seeing in the margins the impact of some of those steps coming through in addition to programming costs. But I think the short answer is yes, we've put additional cost into the business in certain ways that we feel ultimately are going to in order of the long-term value of the company.

James M. Ratcliffe - Barclays Capital, Research Division

And sorry if I've missed this in the call earlier, in terms of possible impact of the Tribune dispute in the quarter, can you put some -- any quantification around that?

Gregg G. Seibert

There's -- I don't -- no impact.

Operator

Your next question comes from Ben Swinburne of Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

Gregg, I don't know if you'd want to talk about Bresnan and the contest -- the tax position. Remember before the deal, I think you were starting to become closer to be a full cash taxpayer and Bresnan helped extend that out. So any update on where we stand now and how a sale might impact that would be helpful. And Jim, can you just update us, you had a couple of big CapEx initiatives like all digital, the broadband upgrade and I think also potentially the railroad contracts. Can you just give us an update on those? Where we stand today?

James L. Dolan

Let me take those first. So we've completed the digitization of the entire network on East. So that is done. The broadband upgrade initiative is also finished and we are still working on the railroads.

Gregg G. Seibert

Good. And Ben, in terms of the financial impact of a potential Bresnan sale, let me sort of start with you've heard the numbers on Bresnan that we reported for this quarter, that the business is going gangbusters. So again, we've had these unsolicited indications, we're going to listen to them. But again, there's no assurance a transaction is going to take place here. That said, the tax benefits that we were receiving from Bresnan were not in the form of NOLs which just added to our NOL. It was basically an asset step-up and so, that was going to basically run through our financials over, let's say, at least an 8 to 10-year term. My tax guy is holding up 6 fingers across the table, so I would say over a 6-year term for both of them. But the more important event that could affect our NOL, which was $1.8 billion at the end of the quarter, will be the ultimate distribution of the proceeds from the VOOM litigation because certainly, some of the cash that we would expect to receive there would be taxable and would reduce the NOL. So that's the one thing that I would tell you we're factoring into your calculations on NOL.

Operator

Your next question comes from John Hodulik of UBS.

John C. Hodulik - UBS Investment Bank, Research Division

Just a couple more follow-ups on the effects of the storm. Maybe for Gregg, the potential cost associated with the storm potentially forced you to pull back a bit on the buyback or at least delay repurchases for a quarter or two. And then second of all, in terms of the new initiatives, does it delay the rollout of maybe the new programming guide or any other things that we've been working on?

Gregg G. Seibert

Well I think financially, in terms of the delay of the programming guide or anything like that, no. Although again, I'll leave that maybe to Jim and to Kirsten. But as far as the financial side on share repurchase, I think the question is how bad is the storm ultimately going to be for us financially. And as we've always said, our first priority is investing in our plant and our customers and then it's return of capital, but we certainly have to see how the storm settles out here before I can make any comment every one way or the other on that.

James L. Dolan

Are we slowing down on the guys?

Kristin A. Dolan

The only thing I would say on that, that just has me a little concerned is one of our buildings that houses our engineers is without power and it's not a power issue. It's some form of major WiFi issue that isn't easily fixed. So that might result in a slight delay because they can't work right now. But they've been redeployed to work on the overall plan issues anyway. So it might be slight, but we really don't have a sense just yet.

John C. Hodulik - UBS Investment Bank, Research Division

Right. But if it's just WiFi, it’s nothing more than a quarter or so?

Kristin A. Dolan

Yes.

Gregg G. Seibert

We're committed to the initiative...

James L. Dolan

I would think weeks, not quarters.

Operator

Your final question comes from Tom Eagan of Canaccord.

Thomas W. Eagan - Canaccord Genuity, Research Division

I also have 2 follow ups. You mentioned that you've signed a couple new program deals; ABC, CBS, NBC. Could you give us some kind of a sense of what this may do to your program costs for next year?

James L. Dolan

Well, it won't lower them. We can't -- we're not going to -- I don't think we released a percentage increase, et cetera.

Gregg G. Seibert

No, but they're going to continue to go up. And I think you'll see in the first year, some of these agreements you'd see more of an impact than you'll do over the remaining life of the agreements. Good. Thank you, operator. Thank you all.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cablevision Systems Management Discusses Q3 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts