Knology: M&A likely to play continued role in company's growth

By Jennifer Lanning Drey

Savannah, Ga., Feb. 22 - Knology Inc. remains well positioned to look for accretive acquisitions and believes mergers and acquisitions will continue to play a role in the company's growth, M. Todd Holt, Knology's president, said Tuesday during the company's fourth-quarter and year-end earnings conference call.

"The M&A environment remains active, and our balance sheet, with strong liquidity and manageable leverage, along with our robust free cash flow and a more flexible credit facility, certainly allows us to continue to opportunistically look for accretive acquisitions," he said.

Knology ended 2010 with $54.6 million of cash and short-term investments after using roughly $48 million to partially fund its acquisition of Sunflower Broadband, which closed on Oct. 15.

The company increased its revolving credit facility to $50 million from $35 million when it closed the Sunflower transaction.

The revolver remains untouched and is in place as a liquidity cushion for the business, Holt said.

Repricing cuts interest costs

Holt also noted during Tuesday's call that subsequent to the end of the fourth quarter, Knology closed on a repricing transaction that reduced its annualized interest cost by $10 million.

In connection with the terms of the repricing, the credit facility was amended to increase the capacity of the incremental basket to $250 million from $200 million, and the term loan A was upsized $20 million.

"We feel very fortunate that the market allowed us to get this repricing done and drive the additional and incremental free cash flow," Holt said.

Knology reported fourth-quarter free cash flow of $13.3 million. For the full year, Knology generated $38.8 million of free cash flow.

Latest tuck-in acquisition

On the acquisition front, Knology also announced Tuesday that it has signed an agreement to acquire cable and broadband operations in Fort Gordon, Ga., and Troy, Ala., for $30 million in cash. The acquisition will be funded with $10 million of cash on hand and $20 million from the additional term loan A proceeds raised in connection with the debt repricing transaction completed on Feb. 18.

The transaction will result in a slightly lower net debt-to-EBTIDA leverage ratio for the company and is expected to close late in the second quarter, Holt said.

'Another good quarter'

Knology reported total revenue for the fourth quarter of $123.6 million, compared with revenue of $107.1 million for the same period a year ago.

Fourth-quarter adjusted EBTIDA was $43.7 million, versus adjusted EBITDA of $36.5 million in the fourth quarter of 2009.

"The fourth quarter represented another good quarter for Knology and capped off a very successful 2010 for us," Rodger Johnson, the company's chief executive officer, said during the call.

Knology is a West Point, Ga.-based provider of interactive communications and entertainment services.

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