Charter Communications, Inc. (CHTR) Q2 2012 Earnings Report, Transcript and Summary

Hello and welcome to the Time Warner Cable's Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'll turn the call over to Mr. Tom Robey, Senior Vice President of Time Warner Cable Investor Relations. Thank you. You may begin.

Thanks, Candy, and good morning, everyone. Welcome to Time Warner Cable's 2012 Second Quarter Earnings Conference Call. This morning, we issued a press release detailing our 2012 second quarter results. Before we begin, there are a couple of items I want to cover. First, we refer to certain non-GAAP measures, including operating income before depreciation and amortization or OIBDA. In addition, we refer to adjusted OIBDA, adjusted OIBDA less capital expenditures and adjusted diluted earnings per share. Definitions and schedules setting out reconciliations of these historical non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release or our trending schedules. Second, today's announcement includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management's current expectations and beliefs and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by statements herein due to various factors, including economic, business, competitive, technological, strategic and/or regulatory changes that could affect our business. These factors are discussed in detail in Time Warner Cable's SEC filings, including its most recent annual report on Form 10-K and quarterly reports on Form 10-Q. Time Warner Cable is under no obligation to, and in fact expressly disclaims any such obligation, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. And third, today's comments do not include the impact of the expected sale of AWS spectrum by SpectrumCo. Finally, today's press release, trending schedules, presentation slides and related reconciliation schedules are available on our company's website at twc.com/investors. A replay of today's call will be available beginning approximately 2 hours after the call has ended and will run through midnight, Eastern Time, August 6. With that covered, I'll thank you and turn the call over to Glenn. Glenn?

Good morning, and thanks for joining us. We had another good quarter, with more than 9% revenue growth. In that, we benefited from continued strong performance in residential, high-speed data and business services, from rising political advertising, and from our recent acquisition of Insight Communications. Quarterly adjusted OIBDA topped $2 billion for the first time, and you'll notice that we stepped up the pace of our share repurchase program. In fact, we've now bought back more than $4 billion of Time Warner Cable stock since the inception of the program. And that means we've retired over 15% of our outstanding shares. We've been able to deliver these steady results in an environment that remains extremely challenging. Competitive activity remains intense, unemployment is unfortunately stubbornly high and the housing market is still sluggish. Despite all that, we remain focused on meeting our customers' needs, both now and in the future, to continue the operational excellence and investment in our people, products, marketing and physical infrastructure. I feel very good about our competitive and financial position, and I'm pleased that we're on track to deliver on all of our guidance for the full year. Having said that, I'll turn the call over to Rob and then Irene for more details. Rob?

Thanks, Glenn, and good morning, everyone. Overall, I'm very pleased with our performance this quarter. As Glenn mentioned, residential high-speed data, business services and ad sales were standouts, but I'm also enthusiastic about the many initiatives we're pursuing to enable us to perform even better. I'll walk you through some of them in a moment, but first a word on the environment in which we're operating. The economic climate remains pretty tough. Improvement in employment and occupied housing has been slow and sporadic, resulting in continued pressure on a lot of consumers. Competitive intensity hasn't really changed much either. We did see a spike in DISH advertising spending and some especially rich U-verse promotions in the quarter as well as continued aggressive competition from FiOS in the roughly 12% of our footprint in which it is marketed. Against that backdrop, our overall subscriber performance was pretty solid, with strong interest HSD and voice connects, offset by soft video connects and the usual seasonal spike in disconnects across all products. The details of our Q2 subscriber net adds are shown on Slide 3 of the presentation materials. Consistent with our customer acquisition strategy in the first quarter, we continue to target triple plays and HSD single plays, and again, we met with success on both fronts. With triple play promotions priced at $89 and $99, we drove a more than 30% year-over-year increase in triple play connects, and we continue to have success in migrating existing single and double plays to triples. The resulting second quarter triple play net adds of 54,000 were 40% better than last year. Our strong triple play performance again drove better phone connects on a year-over-year basis, resulting in second quarter residential voice net adds of 45,000, also a 40% jump from last year's second quarter. In HSD, single play connect performance, coupled with our strong triple play results, yielded second quarter residential HSD net adds of 59,000. That's the third consecutive quarter of year-over-year improvement. Second quarter HSD single play connects were up 28% year-over-year, and notably, the monthly recurring revenue from newly-connected HSD singles was up almost 7% year-over-year. And our HSD subscriber mix continued to improve as well. Our Turbo, Extreme and Ultimate tiers together garnered 157,000 net adds and now comprise over 21% of our high-speed data customer base. Video exhibited the usual seasonal weakness in Q2. We had a net loss of 169,000 residential video subs, mostly analog singles. Video net loss was greater than last year's second quarter due to a falloff in video connects. While, in part, this reflects our emphasis on acquiring HSD subscribers, I think we can do better here, and in a few moments I'll cover some of the initiatives we've got under way. DVR net adds of 36,000 were 83,000 better than in the year ago quarter, driven by our triple play promotions and the availability of Whole Home DVR. Despite the rich DVR promotions in recent quarters, we generated more revenue per DVR in this year's Q2 than we did in last year's. Before leaving subscriber performance, I want to give you some sense of what's been happening so far in the third quarter and then discuss a change to our approach to these kinds of intra-quarter subscriber updates in the future. First, let me say that subscriber performance in this first several weeks of Q3 looks more or less like Q3 last year across each of the 3 residential products. As usual, I'll caveat this update by reminding you that we're still early in the quarter, and a lot of third quarter seasonal connect activity typically occurs in the August and September back-to-school period. Now, let me explain why we plan to stop providing such updates. Over the last several years, in an effort to be as transparent as possible, we've adopted the unique practice of providing as many as 2 or 3 subscriber updates per quarter, on our earnings calls and then at the various conferences in which we participate. Too often, these updates have elicited reactions that were out of proportion with the actual significance of the data we provided. Subscriber activity can be extremely volatile over short time periods, and week-to-week trends are heavily influenced by routine events like when we reconnect a particular seasonal bulk account. So after consulting with many of our shareholders, we've concluded that our practice of providing intra-quarter subscriber updates just isn't helpful. To ease the transition, we'll keep providing these updates for the remainder of this year. Beginning in the fourth quarter -- beginning on our fourth quarter earnings call next January, we plan to stop providing intra-quarter subscriber information. As always, we remain committed to best-in-class disclosure practices, and we believe this change is consistent with that commitment. With that covered, let me turn to some of the many initiatives that our operating teams are focusing on, starting with our recent acquisition. The Insight integration continues to proceed very well. As we indicated last quarter, we are already paying TWC rates for the programming in former -- programming in the former Insight systems, generating substantial cost savings. In addition, we completed the closing of Insight's New York City headquarters in June. In the coming quarters, our teams will continue the detailed work of realizing additional operating efficiencies. The bottom line is that we remain very confident that we will achieve the synergies we identified at the time of the announcement. In our legacy operations, we've made significant strides in how we get, keep and grow customer relationships. We're continuing to refine our marketing messaging under the Enjoy Better banner, and we're spending our marketing dollars more wisely and better exploiting the power of our cross-channel ad inventory. On the sales front, we're encouraged by early results from our direct sales ramp and improvements in our inbound sales call centers. And we're also enthusiastic about our efforts to improve customer retention. We're consolidating retention centers and reengineering the way that our reps handle retention calls. We're also making it a lot easier to buy our services. Increasingly, consumers want to buy our services online, so we've launched a new and improved mobile e-commerce app and will soon effect a makeover of the entire twc.com website. In Q2, 19% of total TSU connects came through our online channels as compared with 12% a year ago. As we've discussed on prior calls, we're also taking steps to make the installation of our services more convenient for customers. Through our Easy Connect program, we're now enabling self-installation of a broader range of products. With conveniently packaged self-installation kits available either in our stores or by mail, along with detailed, easy-to-follow instructions, customers can install our services on their schedule and save installation fees in the process. Our early results have been terrific. 19% of total connects in June were self-installs, up from 14% before we started the program. And we're working hard to make service calls easier, too. I reported to you in January that we had gone to 2-hour appointment windows in most cities. We're now in the process of tightening that further to 1-hour windows in many of our markets. And in an increasing number of cities, we're scheduling 15-minute appointment windows for the first appointment of each shift. And so that customers can better plan their schedules, we're providing an estimate of how long we think the tech will be in their homes. We're also continually improving our products. As we've discussed for some time, we have a multipronged approach to enhancing our video user interface. We started by enabling live linear video on iOS and Android-based devices. Then, we introduced a video portal for Macs and PCs. Shortly, we'll enable VOD on all these platforms. Over the last 60 days, we deployed a new set-top box guide throughout the East region, including New York City a couple of weeks ago. After taking a break for the Olympics, we'll continue to roll it out across the West. The new guide, which features a new color scheme and better graphics, makes both navigation and search a lot easier to use. The feedback has been overwhelmingly positive. And further navigation enhancements are in the works, including a genre-based, national channel lineup scheduled for implementation later this year and a next-generation cloud-based guide in development for deployment next year in conjunction with the roll out of IP set-top boxes and new video gateway devices. On the broadband side, we're giving customers more choice with Internet Essentials, a plan that enables customers who use less capacity to save money. We extended availability of Internet Essentials to Dallas and Austin in June, and we expect to accelerate deployment across most of our footprint in the second half of the year. High-end users were equally well positioned. We now have DOCSIS 3.0 deployed across nearly our entire footprint, giving us a lot more flexibility to crank speed when and where we need to. We're also delivering more value to subscribers to our standard and above Internet tiers. For no additional charge, they can use our expanding network of WiFi Hotspots. At last count, there were almost 5,000 WiFi access points in L.A. And the WiFi collaboration we announced in May will enable customers to access more than 30,000 Hotspots deployed by other MSOs. We continue to drive really impressive growth in business services. As laid out at the start of the year, we continue to hire and train new sales and sales support personnel. And at the same time, we're proactively connecting new buildings to our network. We continue to gain share among small business customers, and services targeted at midsized businesses are hitting their stride. Together, dedicated Internet access and Metro Ethernet generated $77 million of revenue and accounted for around 45% of business services organic HSD growth in the second quarter. They now comprise about 35% of total business services HSD revenue. In cell tower backhaul, we've now got about 8,500 towers on the network, and we have a healthy backlog under contracts. And NaviSite has the potential to take us into entirely new markets. Finally, with half of the year behind us, we're very pleased with the performance of our ad sales business. Through extensive planning and relationship building over the last several years, we're taking an increased share of political advertising dollars than we have in the past. That, together with the benefits of our third-party rep deals and a real rebound in the auto category, is fueling robust growth. We're extremely excited about our prospects as we enter the height of the election season. So in summary, we delivered a solid quarter, and our team is focused on the right things, improving critical processes and filling competitive gaps, and we're making a lot of progress. Thank you. And with that, I'll turn it over to Irene to discuss our financials.

Thanks, Rob, and good morning, everyone. I'll start with our second quarter highlights on Slide 4. We grew second quarter revenue 9% over Q2 '11, and business services revenue grew 29%. Residential revenue increased 7%, and advertising revenue was up 18%. Excluding the impact of acquisitions, total revenue was up 3%. Total adjusted OIBDA grew 10% in the quarter, reflecting our strong revenue growth and higher adjusted OIBDA margin, and operating income increased 7%. We generated free cash flow of $824 million, and excluding the impact of bonus depreciation, free cash flow was up over 38%. Diluted earnings per share increased 15% to $1.43, and adjusted diluted EPS, which excludes certain items affecting comparability, grew 23% to $1.48. We returned $617 million or 75% of our free cash flow to shareholders through paying cash dividends of $177 million and repurchasing $440 million of our common stock. At quarter end, our reported leverage ratio was 3.22x our last 12 months adjusted OIBDA. Including normal adjustments and adjusting for a full year of Insight, we are virtually at our 3.25 leverage ratio target. And with half of the year behind us, we remain on track to meet or exceed all elements of our full year financial guidance. Before we get into the presentation, let me remind you that any comments that I make about the remainder of 2012 will not include the sale of the AWS spectrum by SpectrumCo, which is not yet closed. And as I mentioned last quarter, we are quickly integrating Insight into our existing operations, so I'll give you some color on the impact the acquisition had on revenue, but it's hard to provide much detail beyond that. However, we're confident of our ability to achieve total annual synergies of $100 million. Let's turn right into the financial results on the next slide. The second quarter revenue increased 9% year-over-year to $5.4 billion, with total ARPU per customer relationship increasing 3% to over $117 per month. Of our total revenue growth of $460 million, $305 million came from acquisitions. Of the $155 million of organic growth, $73 million of growth came from business services, $55 million from residential services and $29 million from advertising. Moving on to Slide 6, business services revenue was up $103 million or 29%. And excluding the impact of acquisitions, business services grew 20%, our ninth consecutive quarter of at least 20% growth. In addition, we continue to see the mix of our growth shifting to more stable end user-driven revenue from less predictable wholesale transport. Organic business HSD revenue increased about 22%, driven by growth in shared and dedicated Internet access as well as Metro Ethernet. And organic business voice revenue increased 50% driven by subscriber growth, while wholesale transport revenue, including cell tower backhaul, was up 10%. So we are well on our way to achieving total business services revenue growth at the upper end of the 25% to 30% zone this year. For residential services, let's start with revenue on Slide 7. Second quarter revenue grew 7%. Excluding the impact from acquisitions, revenue grew 1.3%, led by a robust 7% growth in HSD, while phone revenue was flat and video revenue was down 1%. In addition to driving subscriber volume, we remain focused on driving revenue and profit per household. Our residential ARPU per customer relationship increased to $103.92 in the second quarter, up 1.8% from last year's second quarter. Flipping to Slide 8, overall second quarter residential HSD revenue growth was driven by subscriber increases and a 2.2% improvement in residential HSD ARPU, as well as the acquisition of Insight. This was the 13th consecutive quarter of residential HSD ARPU improvement. The ARPU improvement reflects the continued benefit from price increases and an improved HSD subscriber mix as we migrate subscribers to higher priced tiers of service. At quarter end, Turbo and Wideband subscribers comprised over 21% of our historical TWC residential HSD customer base, up from 17% a year ago and just 9% 3 years ago. And turning to Slide 9, the improvement in overall second quarter residential video revenue was driven by the additional revenue from acquired systems. Excluding acquisitions, video revenue was down 1% as the decline in video subscribers was only partially offset by the year-over-year ARPU improvement. And total video ARPU increased 2.4%, driven by price increases, more favorable video subscriber mix, increased equipment rentals and an increase in DVR revenue. These factors were partially offset by a decline in premium channel and video-on-demand revenue per sub. Moving to Slide 10, total second quarter residential voice revenue improvement was driven by subscriber growth, including subscribers from acquisitions, which is partially offset by a 2.6% decrease in ARPU. Overall second quarter advertising revenue of $265 million increased 18% or $40 million. 45% of the growth came from political advertising. But excluding political advertising, we're still up 10%, driven by the acquisition of Insight and ad rep deals, where we sell advertising for other distributors. Given our success today, we expect ad revenue growth in the 15% to 20% range this year, driven in part by political spending in the second half of the year. Now let's turn to Slide 12, second quarter adjusted OIBDA grew 10%, and our margin increased 30 basis points. The improvement primarily reflects growth in higher margin advertising and business service revenue. The second quarter operating expense grew 9% compared to last year. Employee costs were up 11%, but excluding the impact from acquisitions, employee costs were up 29% in business services and 2% in the rest of the company. Programming expense increased 6% in aggregate and 3.7% on a per subscriber basis. The increase in total programming expense was driven primarily by contractual rate increases and the acquisition of Insight, which were partially offset by the organic decline in video subscribers and by net programming adjustments that reduced programming expense in the second quarter by about $15 million. Given this lower-than-anticipated growth in the first half of 2012, we now expect the increase in programming costs per sub in 2012 to be between 6% and 7%. Voice costs were up about 5% from a year ago, driven primarily by the increase in subscribers, including the new subscribers from the Insight acquisition. Residential voice costs per sub per month in Q2 were around $9, which was down about 9% from Q2 '11, reflecting the benefits from the insourcing of voice support functions that we've talked about for some time now. We don't expect this to change materially in the second half of the year since we're not planning to migrate large numbers of additional subs until 2013. And you'll remember, we started to see the savings from migrations in the second quarter of last year, so don't expect much further variance versus prior year in the back half of this year. Our net bad debt expense increased $15 million, reflecting higher collection expense in the acquisition of Insight. During the second quarter, we continue to invest in new initiatives, including our WiFi buildout, our new home monitoring product IntelligentHome, and our L.A. RSNs. In Q2, the combined net cost from these initiatives were approximately $20 million. This compares to $15 million in new initiatives in the second quarter of 2011, primarily related to mobile HSD and IntelligentHome. For the first half of 2012, these net costs totaled $30 million. We plan to continue investing in WiFi and IntelligentHome, and we expect to launch our L.A. RSNs in the fourth quarter. Overall, we still expect our 2012 net cost from these new initiatives to be in the range of $100 million to $150 million. The lion's share of this is expected in the fourth quarter, consistent with the start of the NBA season. Moving on to Slide 13, our second quarter operating income rose 7% to over $1.1 billion, reflecting higher adjusted OIBDA that was partially offset by the incremental Insight depreciation and amortization that we told you about on our last earnings call. Our operating income margin contracted 40 basis points to 21.1%, reflecting $89 million of Insight-related depreciation and amortization expense and a $12 million increase in merger-related and restructuring costs. We incurred $13 million of restructuring costs in the quarter and $23 million in the first half of the year as well as $8 million in merger-related costs in the second quarter and $43 million in the first half of the year. We expect to incur about $25 million in additional merger-related costs during the remainder of this year. We also expect the impact of the Insight acquisition and the roll-off of some Adelphia assets in July to impact depreciation and amortization expense during the second half of 2012, as detailed in Slide 13. For the full year 2012, including the lower programming expense forecast and investments behind our new initiatives, we still expect to generate operating income growth of around 10%. Turning to the next slide, second quarter diluted earnings per share increased 15% to $1.43, and adjusted diluted EPS, which excludes a number of items affecting comparability that are detailed in Note 1 to our press release, increased about 23% to $1.48. Looking forward, we still expect the 2012 full year reported diluted EPS, including Insight, will be in the upper range of $5.25 to $5.50. And turning to capital spending on Slide 15. Our capital spending in the 6 months of the year was $1.4 billion, a 4% increase from the first half of 2011. CapEx as a percentage of revenue was 13.5%, a slight decline from the first half of last year. Residential advertising and other capital spending was 12% of revenue, and business services CapEx was 29.5%. Second quarter CapEx was up less than 2% to $712 million, including Insight CapEx in 2012. Total business services capital expenditures in the second quarter were $143 million, a 21% increase from 2011. More than half of the CapEx was attributable to line extensions and expanding our cell tower backhaul footprint. Line extensions were up 29% from the second quarter of last year. Residential advertising and other capital expenditures declined 2% from 2011. The year-over-year decline was due primarily to lower scalable infrastructure, partially offset by higher support capital. The lower scalable infrastructure was related to the timing of spend, and the increase in support capital was driven by the investment in our new National Data Center in Charlotte and the production facilities for L.A. RSNs. Although residential advertising and other CPE did not change much year-over-year, the mix of the spend did. Not surprisingly, set-top box capital declined as a percent of CPE, while modem spend was a greater proportion. We still expect the capital intensity, excluding the impact of Insight, will continue to decline, with full year capital spending in the $2.9 billion to $3 billion range, consistent with the levels of the last 2 years. As we told you last quarter, we expect Insight to add about $150 million of capital expenditures to that range in 2012. Moving on to Slide 16, free cash flow for the first half of 2012 was $1.5 billion compared to $1.7 billion in the first half of 2011. And recall that the first half of '11 had free cash flow benefits from about $450 million of bonus depreciation-related tax savings. This compares to approximately $50 million of net incremental taxes this year related to the reversal of past year's bonus depreciation. Excluding bonus depreciation, free cash flow for the year-to-date was up 23.5%, primarily due to higher adjusted OIBDA that was partially offset by higher interest payments, changes in working capital and CapEx. Free cash flow for the second quarter was $824 million compared to $815 million in 2011. The year-over-year increase in free cash flow was driven by higher adjusted OIBDA that was largely offset by changes in working capital and higher interest payments. Before we move on to our capital returns, let's look to Slide 17, which you'll remember has been quite popular last few quarters, as a reminder that we expect cash taxes to increase in 2012 due to the decrease of bonus depreciation from 100% to 50% in the economic stimulus legislation and reversal of bonus depreciation from prior years. Excluding the impact of the bonus depreciation, we're still expecting 2012 free cash flow to grow in the 20% to 25% range. Due to historically low interest rates, our pension fund is currently underfunded as of the end of second quarter. In the past, we've made contribution to our pension plan in the second half of the year to keep it nearly fully funded by year-end. So while we are likely to make pension contributions later this year, the amounts of such contributions would be dependent on a variety of factors, including current and expected interest rates, asset performance and the funding status at year-end, as well as management's judgment. And let's move on to our capital return slide. We ended the quarter with net debt and preferred equity totaling $24.3 billion, a $2.7 billion increase from year-end 2011. And our reported leverage ratio was 3.22x our last 12 months adjusted OIBDA. Including the normal adjustments, which includes the increase in underfunded pension obligations and adjusted for a full year of Insight, our leverage ratio is virtually at 3.25. In the second quarter, we returned 75% of free cash flow or $617 million in total to shareholders, $440 million in share repurchases and $177 million in dividends. And given the 168 million of share repurchases in July, we have now repurchased a total of $4.1 billion of our shares, resulting in the retirement of over 15% of our outstanding shares since we launched the repurchase program in November of 2010. We continue to expect to return more than 100% of free cash flow to shareholders through dividends and share repurchases for the full year 2012, assuming the absence of any significant acquisition or other strategic event. So in summary, we delivered another good quarter and remain on track to meet or exceed all elements of our full year financial guidance. Thank you, and with that, I'll turn it over to Tom for the Q&A portion of the call.

Thanks, Irene. Candy, we're ready to begin the Q&A portion of the conference call. [Operator Instructions] Thanks. First question, please.

Our first question is Doug Mitchelson, Deutsche Bank.

This is, I guess, a jump-ball question on programming costs. I know this has been a Firebrand topic in Pay TV, but in looking at your list of renewals, it looks like you've completed a healthy majority of your deals. You've had some station group retrans and Fox News renewals recently. But I don't see much coming up the next couple of years. Do I have that right? Is there not much coming up between now and the end of 2013?

John, this is Glenn. Yes. We, of course, have not made a practice disclosing details of what deals come up, when. But I think it's safe to say, we've done a lot of long-term renewals, and we don't have a lot of big things coming up in the next year or so. So, yes, you're right.

And so then, I guess, that would translate into sort of specific question for Rob, your confidence level in being able to maintain flat or up margins for the rest of this year and next year, how do you feel about that at this stage?

For a long time now, we've kind of described the margin picture qualitatively as being the product of an improving mix of revenues from a margin perspective; in other words, greater proportion of our revenues coming from commercial, which has higher margins, greater proportion of our residential revenues coming from HSD, which has better margins than video, and that being somewhat offset by a consistent contraction in video margins. I don't anticipate that trend changing materially, and I think we have enough puts and takes to feel comfortable. But our margin trajectory is not going to change all that much over the next year.

And I think as we've mentioned before, there's a number of initiatives, and Rob mentioned a few of them, where we're continually looking for efficiency benefits to offset some of the other cost increases that we have talked about.

Next question, Philip Cusick, JPMorgan. Philip Cusick - JP Morgan Chase & Co, Research Division: I guess, for Rob, you talked about the July time frame being about similar to last year. And I respect the decision to not give sort of guidance or updates going forward, but given that telco seem to be backing off a little bit and raising prices on video, do you anticipate a period where business starts to improve year-over-year in terms of trajectory? Or really, should we be waiting for updated guides and boxes and IP guide next year?

There's been an awful lot of talk about changing practices amongst our competitors. And the reality, while not getting into the specifics, is that competition remains pretty intense in the marketplace. So I would not sort of make any expectations based on some overall decline in competitive intensity in the market. Notwithstanding that, we have a lot of concerted efforts under way to improve our overall subscriber performance, including video. And that includes, as you point out, product enhancements but also enhancements in our marketing and our customer experience as well as logistical practices like doing a better job in our sales and retention areas. So we're hard at work in improving video results, but I don't anticipate that changes in competitive practices are going to be the biggest driver of that. Philip Cusick - JP Morgan Chase & Co, Research Division: And if I can follow up, are you seeing any sort of change in the trajectory of housing growth versus a year ago?

Nothing that's meaningful enough to translate into a change in subscriber performance yet.

Next question is Jessica Reif Cowen, Bank of America.

Could you -- would you provide an update on 2 initiatives that I didn't hear you mention on the call and prepared comments, home monitoring and also the Verizon JV?

Sure. I'll take both of those, Jessica. On IntelligentHome, I think as of the end of the quarter, we had something like 7,000 IntelligentHome customers. We've got a very deliberate plan of attack on launching that product, and we've only rolled it out in a handful of markets. And the game plan really is to refine our approach, both from a product perspective and also from a sales perspective, before we roll it out to other cities. So we really want to get it right before we go broad with it. We feel pretty good about the response. We think we're getting the knack of selling it, it's a somewhat different sales process than some of our other products, maybe a little bit more heavily dependent on direct sales rep involvement. But we're feeling good about the product, and we do intend to roll it out in the coming quarters. We just want to get the process right before we do. On Verizon Wireless, we're active in the symmetrical or reciprocal agency agreements in about 11 markets. I think we're in 189 Verizon Wireless stores now. The number of actual sales is still small, but again, I think the opportunity there is big, and we're excited about it.

What's the ARPU in home monitoring?

I'll tell you what the product set is, and we can take it from there. Generally speaking, after an initial setup fee of about $99, if you buy the base product in a bundle, it generally is in the mid-$30 range, say, $33 to $35. The initial cost upfront varies depending on the equipment the customer buys. And we're actually in the process, in Q3, of launching a whole lot of ancillary products that go along with the base product. So let's just take a base service as being a touchscreen, coupled with a number of sensors, door and window, and a motion detector. On top of that, you can add cameras, both outdoor and indoor. We're introducing a carbon monoxide tester, sensor. So there are a lot of things you can add on for additional upfront costs. But the recurring revenue is in the mid-30s.

If I can jump in on this, I think we always tend to deal with what we know about. So home monitoring now is seen as home security. But at the risk of sounding a little dreamy -- there's a lot going on in health care. And I don't think we have fully begun to understand the implications of the health care act or how that's going to change behavior. But I think it's going to lead to a lot of opportunities for monitoring of health conditions, reporting back to hospitals and doctors, and all sorts of things that are just a glimmer right now. But I have a feeling that's going to be bigger over time than just home security.

Next question is Stefan Anninger, Crédit Suisse. Stefan Anninger - Crédit Suisse AG, Research Division: I was wondering if you could provide a bit more detail and color on your video product improvement roadmap and where the priorities may be? Are you mostly focused on your cloud-based guide or the roll out of Gateways or TV Everywhere, for example? And then perhaps you could talk about your optimism about those improvements might do for your overall subscriber performance? I guess, what I'm trying to get at is, is it too much to expect that those improvements can help to overcome some of the competitive and economic headwinds that you're currently facing?

You want me to take that, Glenn?

Yes, maybe we'll both jump in. Go ahead.

Okay. Okay. So I think the answer to your question, Stefan, is all of the above. We're hard at work on improving the value proposition of our video product. We've talked a lot over the last several quarters about making our video product available on various customer-owned devices, ranging from iOS devices to Android devices and game consoles and other customer-owned devices as well. And I think we continue to make progress on that, both in terms of expanding the number of devices, as well as enhancing the experience that customers enjoy when they're using those devices. Later this year, we're going to add to our linear channel lineup on iOS and Android with a VOD offering. So we continue to chug away on that front, and we're excited about it. In terms of the traditional set-top box-based experience, I spent a little time in my remarks talking about improvements we're making in the guide, both here and now on existing deployed set-top boxes, but also for next-generation equipment. And we do plan to have available IP set-top boxes next year. I think we'll have the first Gateway device actually later this year. And we've talked about that before, the Gateway is a pretty powerful DVR-plus. It'll have 6 tuners, 1 terabyte of storage, it'll have the DOCSIS 3.0 modem, as well as the ability to transcode content from QAM-based video into IP so that it can be consumed by IP devices, including the IP set-tops that I describe. As far as the breadth of content we're talking about, we're continually enhancing, not only the quantity and quality of the VOD product we've got, but the ease that customers have in actually navigating through that content. So I think we've got a lot of things in the works. You mentioned TV Everywhere; we're hard at work on expanding the programmers with whom we have out-of-home rights. So you'll see more to come on that front as well.

Now, if I can just jump in, I think this all fits in the -- under the rublet [ph] that we talked about before, the 4 Anys, A-N-Y-S, and that's access to any content on any device, at any time, any place. And we believe strongly that today's technology allows that, we just need to implement it in ways that work on our plant and also get the rights to do that. So all the things that Rob talked about really fit within that. Obviously, you have to have great navigation within that. But I would remind you that the basic product we've been selling, packages of TV networks, is really enormously successful. It's, depending on which numbers you look at, it's in something like 90% of the homes in the U.S. So it's a very powerful thing. We're making it better. But let's not forget that fundamental thing, there's very few products that, that many homes buy, that's discretionary. So that's the underlying strength of what we're doing. But yes, we're making it better.

And I guess to answer the tag-on question, tag-along question, we wouldn't be investing in these improvements if we didn't think that providing greater value to customers ultimately enhanced our competitive position.

Next question is Craig Moffett, Bernstein. Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division: I'll try to squeeze in 2 here, if I can. First, Rob, I know how competitive you are. As you look at the results at Comcast and their greater success in -- particularly in the video product, I'm sure it has to sort of get the competitive juices flowing. Can you talk more about where that is on your priority list? And what are the levers that you think you can pull to improve the results in basic video?

Yes. So let me start by saying, I don't really want to take anything away from Comcast performance, they had a nice quarter. And I think the fact that both we and they posted really good results this quarter probably speaks most to the fact that we're in a terrific business, so that's point number one. Second, I always sort of shy away from these comparisons between the 2 of us on any particular metrics given that there are differences in our disclosure practices. It's really hard to draw significant conclusions from a lot of the individual metrics that we report on. I think if you take a step back and look at our 2 businesses at the highest level, I think we still have higher video penetration. I think we have higher HSD penetration as well, as a matter of fact. And we certainly have higher business services revenue relative to the size of our footprint. So it's not shocking, at least to me, that while they're in a phase of sort of catching up to those numbers that I just described, that they might grow a little bit faster in any one quarter as opposed to another. The truth is, I want to win, but I want to win relative to the guys we're facing in the markets that we're competing with. So all of the initiatives I described in my prepared remarks really relate to our performing even better than we have been, independent of any comparisons you might make to Comcast. So we're hard at work on product, we're hard at work improving our marketing. I think we've made great strides there. We're definitely doing things on the customer service side to make doing business with us easier and better. And we're always trying to improve on logistical things like improving sales processes and retention processes. So you're right in characterizing me as competitive. I absolutely want to win. And I think we're initiating the right processes to get there.

Next question is from Tuna Amobi, S&P Capital IQ. Tuna N. Amobi - S&P Equity Research: I guess for Glenn, it seems to me that we're going to have another down quarter for the Pay TV market, on the video side, given the companies that have reported so far, including DIRECTV today. So I guess this could, again, reignite the debate on cord cutting and actually what's going on in the overall environment. So I'm wondering if you had any thoughts on that, where that potentially -- what it might take to get to an inflection point where the video losses could kind of be moderated and maybe potentially sustainable? And I have a follow-up.

Thanks, Tuna. Really nothing much has changed on that front. I'd remind you that this quarter is traditionally a soft quarter across all of the subscriber metrics. And in fact, the seasonality has been that way for the entire 40 years that I've been on the business. People, in the summer, move; colleges disconnect; and all the things that happen; and then in late August, September, they come back. So that happens every year and is happening this year. There are obviously, anecdotally, some cord cutting, the numbers for that are still quite small, as they have been, and all the studies still say that. We actually think a bigger issue in the market is that there's a group of customers that are in really serious financial shape. They've been out of work for a long time, we read about that from the press. And some of them can't afford the video package even though they want it. And that's why we keep having these heated negotiations with programmers. I think that is a much more serious issue than cord cutting, but we keep an eye on it. Tuna N. Amobi - S&P Equity Research: Okay, fair enough. Just a quick clarification for Irene. On the $100 million synergies that you referenced on Insight, is most of that going to be mostly achieved this year? And if you can maybe provide some color whether mostly cost related or revenue would be helpful.

Sure, Tuna. First of all, all of the synergies that we've identified in the $100 million is our cost savings, so we're fairly conservative in estimating what the synergies would be for this business. And about 1/3 of them come from programming, 1/3 of them from basically closing down the headquarters and making those changes, and the final 1/3 from many different places throughout the P&L. And the first 2 are primarily done. The 1/3, programming costs, almost all of them virtually are under our new lower programming contracts. And the New York headquarters building was closed, and we severed a number of folks during that process. So 2/3 of the savings are pretty much booked, and we're working through the final 1/3 of those savings.

Next question is Ben Swinburne, Morgan Stanley.

I wanted to ask, just a follow-up to Irene, on the cost side in the quarter and then just one for Glenn. Was there anything on the programming cost side besides picking up inside synergies that led to the change both in Q2 and the outlook? And then, was there anything in the sequential increase in SG&A, it was up about $60 million, Q1 to Q2, beyond just a full quarter of Insight? And then, Glenn, at the cable show, you commented about sort of the future of the video business without set-tops and generally about embracing consumers bringing their own devices. And I know Microsoft's next XBox, I believe, is sort of a whole home DVR intended to kind of allow subscribers to no longer have equipment from Time Warner Cable. And you seem to be supportive of that migration from a sort of capital efficiency perspective. But it seems like your peers in the industry and some of your competitors are more reluctant, I guess, worried about losing control of the customer and losing ability to upsell additional services. I wondered if you could just maybe address that point again today for us since it's, I think, a big topic as we look out to what Apple might do in the space.

I can start with the answer to your expense question. On the programming side, we did have $15 million of adjustments of contracts that were adjusted during the quarter based on new estimates, and so that had an impact on the quarters. But also, we're just looking forward to what contracts we have left versus the contracts which we already have in place and any new, and that's what brought us to the conclusion that our guidance maybe was a little bit high, and that's the reason that we brought it down. And as far as SG&A, if you take out the impact of Insight, SG&A was up about 5%. And that was really the S part of the SG&A, which is sales in the business services group. We're impressively building our sales capability as well as capital improvement in that group to really drive sales there.

Okay, Ben, on the set-top set of questions, I think the broad way to look at it is that over some number of years, we will migrate to all-IP technology. Whatever the merits of that from an engineering sense, all things IP are the standard that the world is building devices to. So that's the standard we're going to end up migrating to, until something better comes along. An important part of our business is managing those migrations for consumers just as we migrated from various forms of analog to digital and what have you over the years. So that's a broad view. One of the things that, that enables is the use of all these consumer devices that people are buying that are enormously powerful in a computing sense and that know how to process things that are using IP standards. So I think it would be silly for us not to take advantage of those devices, and consumers actually expect it. When you think about it, the only reason we have set-tops now is that the traditional TV sets could not display all of our services without them. And in fact, it wasn't all that many years ago when we didn't have set-tops because our product was relatively simple, one way delivery of analog signals and all the TVs could get that other than encrypted Pay TV signals. So in a way, this is -- we're going back to the past, we're going back to the future, whatever we're doing. If you look at the cable in 1980s, there weren't a lot of set-tops, and I think we're going back to that over time. There most certainly is a disagreement within the industry about the importance of controlling the user interface. And I'm perhaps at one extreme, where I think it is not the sole reason that people buy our service. And we think that allowing people to get the very best experience is key competitively. So if somebody wants to use the interface that comes with one device versus another, that's fine. We're always going to have ours, and hopefully it'll be good and people will want it. But if there's a better one, as long as they buy video from us, I don't really care. Again, there is disagreement about that from other companies, you're right.

We have Richard Greenfield, BTIG.

I'll actually just, if you don't mind, ask 2. With DTV now losing subs, it's abundantly clear that video is a pretty mature business. It seems like it increases the importance of your data business and specifically of driving data ARPU. Could you just discuss how you're getting people to higher priced, higher speed broadband? I think, Rob, you said you had 21% of the base. I assume most of that though is still on just one step-up versus the big step-up. And I'm curious how you keep pushing people to the much higher priced product, where you have a pretty fat margin, I would presume? And then the second question, could you just -- with Google Fiber having rolled out or beginning the process, could you just discuss how we think about what it would cost you to increase broadband speed to 10 or 20 times what you're currently delivering? How material is that cost? I realized it's not near term in nature, but as you look at over the next few years, what would it cause you to go 10 or 20 times faster than you're currently delivering speed today?

So, Rich, I don't think it's new news that the video business is mature or maturing. And I also don't think it's new news, for us at least, that our real opportunity for residential growth rests with our high-speed data product. We've been postulating that, that's the case for some time now. And I think it's evident in our approach to marketing, where we've highlighted a combination of triple plays and really getting noncustomers to subscribe to our HSD product, which we think is advantaged in the marketplace. As part of that approach, we certainly not only want to get new HSD customers, but we want to move them up to higher tiers of service. And the way we've typically done that is to market the benefits of higher speed services, meaning the better experience customers can have doing the things they want to do with our highest speed tiers. I know you took note of our first Enjoy Better advertisement, which highlighted the fact that Netflix and Call of Duty would be better with our robust broadband offering. That's the mindset that informs our marketing efforts. In addition to that, of course, we're coupling that with interesting packaging that makes it attractive for customers to subscribe to higher tiers of HSD service. So earlier in the year, we featured a combination of Wideband plus TV Essentials at an attractive price for customers who are what I would call broadband biased, so they cared less about the video product, more about broadband. Right now, we're out in the market with a Turbo plus Broadcast, Basic combination, which has actually gotten a lot of traction. So we're going to continue to play around with packaging approaches, but the goal always is to move customers upmarket, as you say. The one thing I do want to mention, I mentioned it briefly in our prepared remarks, we're increasingly rolling out WiFi, which is yet another value add for customers who take higher tiers of service. So I think there's a lot of different prongs to this strategy, but you're right on it, HSD is where our residential future resides.

Rich, let me jump in on the Google Fiber question. And I made note of what Brian Roberts said yesterday about this. Yes, there's a lot of efforts going on around the country to see what we could do as a society with more bandwidth in kind of a laboratory sense. I view the Google effort as that. I think there's a bunch of not-for-profits working on the same thing. And I think that's good for our business. We have a wonderful infrastructure, we have bandwidth, we have a way to go much faster with DOCSIS 3.0 by adding video channel -- adding 6 major [ph] channels to the offering. And the more the people figure out how to use broadband, the better off we're going to be. So I think this is a good thing, not a bad thing, that people are trying to figure out how to use this technology.

Thanks, Rich. And thanks, everyone, for joining us. To give you a little bit of advance notice, our next quarterly earnings conference call, which will reflect third quarter 2012 results, will be on Wednesday, October 31, 2012, at 8:30 a.m. Eastern Time. Have a great day.

Thank you. That does conclude today's conference. You may disconnect at this time.