After having survived years of red ink, cable operator Knology Inc. (KNOL) is now forging its way to become a consistent net income producer. The company delivered solid results for the third quarter last week.
Knology offers video, voice, high-speed data and broadband carrier services to both residential and business customers in 12 markets -- 10 markets in the Southeastern U.S. and 2 in the upper Midwestern U.S. In addition to bundled package offerings, the company also offers unbundled services. A bundled service is a combination of two or more services like internet, phone and television.
Knology has its roots in The Interstate and Valley Telephone Company, which was founded in 1896. Knology was initially formed in 1994 by a telecommunications holding company ITC Holding Co. Inc and in 1999, merged with Interstate and Valley Telephone Co. Knology went public in December 2003, about a year after emerging from Chapter 11 bankruptcy protection, pricing its IPO at $9 per share.
Since 2003, the company's net loss attributable to stockholders has shrunk over the years, thanks to increasing revenue. Knology's net loss per share attributable to stockholders, which was $5.17 in 2003, narrowed to $3.19 in 2004, $2.33 in 2005, $1.41 in 2006, $1.25 in 2007 and $0.34 in 2008.
The company made its first-ever quarterly profit, registering earnings of $1.77 million or $0.05 per share in the third-quarter of 2007.
Knology, which reported six straight quarters of loss after its first-ever quarterly profit in the third-quarter of 2007, is just turning the corner to profitability. In the second-quarter ended June 30, 2009, the company posted GAAP net income of $1.33 million or $0.04 per share and non GAAP income of $2.9 million or $0.08 per share, on revenue of $107.9 million. The GAAP results included a non-cash charge related to the accounting treatment for the company's interest rate swaps.
For the third-quarter, whose results were reported last week, Knology posted a loss of $3.3 million or $0.09 per share wider than the year-ago quarterly loss of $2.8 million or $0.08 per share. However, excluding the non-cash charge related to the accounting treatment for the company's interest rate swaps, Knology posted a net income of $1.8 million or $0.05 per share for the third quarter of 2009, reversing the year-ago loss.
Knology derives revenues primarily from monthly charges for video, voice and Internet data services and other services principally broadband carrier services to residential and business customers.
According to the company, revenue has increased at a 32.9% annual compounded growth rate over 11 years from $18 million in 1998 to $410.2 million in 2008, fueled by increasing number of connections and increasing ARPU (average revenue per user).
In the recent third-quarter, Knology's revenue increased to $105.8 million, representing a 2.5% increase compared to the same period a year ago.
Video revenue contributes a major chunk to total revenue, followed by Voice revenue, Data revenue and other revenue. In the third-quarter of 2009, Video revenue made up 43.5% of total revenue; Voice revenue 30.5%; Data revenue 23% and other revenue accounted for 3%.
The average monthly revenue per connection increased slightly to $51.96 in the third-quarter of 2009 from $51.67 in the comparable year-ago quarter. Average monthly connection churn was 2.8%, consistent with churn of 2.8% for the same period a year before.
Driven by continued expansion, Knology has been able to increase the number of connections to 681,920 as of September 30, 2009 -- representing a 2% increase compared to last year, including 105,243 business connections. The company had only about 57,000 connections in 1997.
Being a consistent free cash flow contributor, Knology believes that its free cash flow profile of the business, along with a solid balance sheet, positions the company for continued growth in the future. Free cash flow at the end of September 30, 2009 was $14.3 million.
Subsequent to the third-quarter end, Knology agreed to acquire Private Cable Co., LLC, a provider of video, voice and data services to residential and business customers in Athens and Decatur, Alabama for $7.5 million cash. PCL Cable has been providing cable TV service to Athens since early 1995. The company launched High Speed Cable Modem service known as PCLNET in the summer of 1998. PCL Cable expanded its service area to include Decatur in recent years.
The deal, which is funded with cash on hand, is expected to be immediately accretive, before synergies, to Knology's EBITDA per share, free cash flow per share and overall enterprise valuation. The transaction is expected to close during the fourth quarter of 2009.
In order to better manage the existing maturities and further improve its balance sheet, the company obtained consent from its lenders on September 28 to amend its credit facility pursuant to which, certain term loan lenders have extended by two years the maturity date of an aggregate $397 million of term loans. The amendment also, among other modifications, increases the revolving credit facility to $35 million from $25 million.
Knology remains optimistic about its future growth, backed by strong financial performance, ongoing expansion of its market presence, accretive merger & acquisition opportunities and unique opportunity for high fill-in construction investment that allows the company to expand plant into new neighborhoods and generate high return on investment.
Shares of Knology have had a nice run since March and have nearly doubled year to date, to over $10.
Now that Knology is well on track in the process of righting its shaky financial ship, the stock may be worth keeping an eye on.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.