Hello, and welcome to the Time Warner Cable Second Quarter 2014 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 2014 Second Quarter Earnings Conference Call. This morning, we issued a press release detailing our 2014 second quarter results. Before we begin, there are several items I need to cover. First, we refer to certain non-GAAP measures. 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 and trending schedules. Second, today's conference call 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 the statements herein due to various factors, which are discussed in detail in our SEC filings. 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. Third, the quarterly growth rates disclosed on this conference call are on a year-over-year basis, unless otherwise noted as sequential. Fourth, today's press release, trending schedules and presentation slides are available on our website at twc.com/investors. And finally, following the prepared comments by CEO, Rob Marcus; and CFO, Artie Minson, Rob, Artie, and COO, Dinni Jain, will be available to answer your questions. With that covered, I'll thank you and turn the call over to Rob. Rob?

Thanks, Tom, and good morning, everyone. Before I get started, I do want to acknowledge that this is our first earnings call since Glenn's passing, and I want to thank everyone for the outpouring of support and kind words. Needless to say, we all miss him. Time Warner Cable delivered another very good quarter. Subs were strong, ARPU growth accelerated and we made terrific progress on our strategic and operating initiatives. In short, we're delivering on the plan that we laid out back in January and I feel very good about the business. I again want to commend our team for remaining laser-focused on executing our operating plan, while at the same time, working to secure government approvals and planning for the integration with Comcast and Charter. Since announcing the deal, we have been steadfast in our commitment to running the business as if we were running it for the long haul. No easy task, given the many transaction-related distractions, but our team has really risen to the challenge, and I couldn't be prouder of their efforts. This quarter, we built on subscriber momentum that really began at the end of last year. And after a first quarter that marked our best subscriber performance in many years, our second quarter subscriber performance was nearly as impressive. In fact, it was our best second quarter in 4 years. Residential ARPU growth accelerated, and business services and ad sales continued to perform well. For some time now, we've been talking about prioritizing reliability, customer service and product differentiation in ways that matter to our customers. This quarter, we made great strides in all of these areas. Perhaps the most high-profile manifestation of these customer-focused priorities is our TWC Maxx program, our effort to transform the Time Warner Cable experience with faster Internet,…

Thanks, Rob, and good morning, everyone. As Rob indicated, we continued to perform well in Q2. We posted our strongest second quarter subscriber metrics in years, and we performed right in line with our previously announced financial expectations for Q2, with very strong sequential growth in revenue and adjusted OIBDA. Let me walk you through the Q2 highlights, starting with our subscriber performance, which was strong despite the typical second quarter headwinds. On the residential side, we lost 34,000 customer relationships in Q2, which is the lowest decline in residential CRs in a Q2 in 5 years. In business services, we added 21,000 CRs, the best quarterly CR performance ever for business services. The Q2 residential CR performance was driven by across-the-board sales channel improvements in connects, with churn essentially flat year-over-year. The flat churn is particularly impressive, considering that this year, all customers eligible for a rate increase received their increase in early Q2, so the investments we have made in retention in the last year continue to bear fruit. Residential video net declines at 152,000 was still higher than we'd like, but represent the best for a second quarter in 3 years. Bundling performance was strong. Residential Triple Play net adds at 42,000 put us at 124,000 Triple Play net adds year-to-date through June. This is a dramatic improvement from last year when he had lost over 100,000 Triple Play subs in the first 6 months of 2013. The improvement in Triple Play trends was driven by much stronger Triple Play connect volume and significant improvements in upgrading doubles to triples, as well as lower churn. You'll recall that we have spent a lot of energy over the last few years in-sourcing our phone operations. And as a result, we've reduced our phone costs under $4.50 per line…

Thanks, Artie. We're ready now to begin the Q&A portion of the call. First question, please?

Our first question comes from John Hodulik of UBS.

It's Lisa Friedman for John. I just wanted to ask about the strength in the subscriber metrics this quarter. Was this really bringing in more new subs? And are you seeing less telco or satellite competition? Or was this more on the retention side? Or was it some of both?

Lisa, this is Rob. So the most part of the strength we saw year-over-year in subscriber performance this quarter was on the gross adds side. We had strength really across all of our sales channels. And churn or disconnect volume was more or less flat in the quarter, which was actually, from our perspective, a positive story, given that we did do our rate increase at the beginning of the quarter, and we were still able to hold churn flat. So that's essentially what's going on.

Our next question is from Tom Eagan of Telsey.

I was hoping you could give us a little bit of a breakdown on the operations by market or by competitor. So for example, in L.A., have you seen satellite customers move to TWC to get the sports channel? And then against Verizon's FiOS, their video adds were certainly an improvement quarter-over-quarter. Have you seen anything in your markets there?

Tom, let me try to address the 2 specific markets that you referred to. It's always hard to attribute subscriber performance to any one factor, but it is the case that our Pac west market, which includes L.A., did perform the best of all of our markets on a year-over-year basis in video. So to the extent one correlates that with the availability of SportsNet LA, I guess you can make that connection. I would hesitate to be too firm about that connection. The -- in terms of FiOS markets in New York City in particular, good news story here, and it's been one that's -- we've reported on for a couple of few quarters now, which is that our churn in FiOS markets actually declined year-over-year in Q2. So we're handling the competition very well.

Next question comes from James Ratcliffe of Buckingham Research Group.

Following up on the Dodgers a little bit. Can you give us any color on what the arbitration structure is likely to look like? Would it be just price or could an arbitrator set up specific structures such as -- essentially on an a la carte basis? And would it be, I guess, baseball-style arbitration where you both make an offer and decide between the 2? Or would the arbitrator be able to choose the midpoint? And secondly, based on that arbitration results, if those come in differently than your current internal charge, will that mean that the internal charge for Dodgers would be adjusted within TWC?

James, the reality is on all of those questions, it's a little premature to speculate. We only first got the request from various members of Congress to submit to arbitration earlier this week, and we've simply agreed to the concept in the interest of getting Dodgers games to fans as soon as possible. The actual process, the details of who would arbitrate and what elements of the contract they'd arbitrate I think remain to be seen. The key point right now is it takes 2 parties to actually have an arbitration. And so far, none of the other distributors have expressed a willingness to do what it takes to get the games to fans quickly. So I think it's all a little premature to talk about.

Great. Just one on the gross adds strengths in the quarter. Do you think this is taking share? Or are you seeing overall improvement year-on-year in sort of the addressable market?

I think it's clear that we continue to take share in the HSD market. I assume, although, honestly, I have not seen recent stats, that the market does continue to grow, though, in addition to that, on the HSD side. Video market, we know what the story is there. I think there's no new news continuation of previous trends.

Next question comes from Mike McCormack of Jefferies.

It's Scott Goldman on for Mike. I guess a couple of questions. One, I wonder if you could give us a little bit more detail around what you guys are seeing in the Maxx markets. Obviously, you decided to accelerate Austin. So clearly, you're seeing some real benefits in those markets. Maybe some information on usage or monetization of VOD and that type of stuff in those markets. And then, secondly, maybe if you can just give us a little refresher just on the rate increases you did take, sort of what percentage of the base received those and what the size of that rate looked like in -- that we should pull through into 3Q?

Okay. Scott, let me start on the Maxx markets and then Artie will do the rate increases. The reality is it's a little early to make much of customer feedback on the Maxx benefits. When we say we're pleased with the way the process is going, we're really pleased with the process by which we're effectuating the All Digital conversion and the process of upgrading speeds. It's much more of an internal operational measurement that we're looking at than it is a customer satisfaction measurement. We have every confidence that the changes we're making in the Maxx markets will, in fact, ultimately lead to customer satisfaction improvements. But it's just we -- the sample size is too small. And the period of time that customers have been enjoying the new benefits is too short to draw really conclusive data at this point.

And Scott, on the rate increases, let me give you some additional background. What we did this year is we went to what we called a unified rate increase strategy. So rather than have a rate increase for video up 1 point and maybe later in the year, have an HSD increase, we went on a customer basis. Meaning, we went to singles, doubles and triples, and they got one increase for the year. So I think, as we've referenced in our remarks, we're really pleased that the overall churn was essentially flat, despite really hitting what was on the rate increases was about -- to about 1/3 of our base, got the rate increases. We did do an equipment charge -- a small equipment charge to about another 1/3 of the base. So all-in, about 2/3 of the base was hit. As far as your question as to what that will do for the rest of the year, it pretty much had a full quarter impact in Q2. So there's not an incremental pickup in Q3 because we had a full quarter impact in Q2.

Next question is from Marci Ryvicker of Wells Fargo.

With the FOX and Time Warner Inc. news out there, it feels like there's going to be some consolidation in content, at least at some point in time. I don't know if you've thought about how that impacts the distributors, if at all. That's my first question. And secondly, we read somewhere that there were some comments coming out of, Rob, I think, about potentially a delayed closing for the Comcast transaction, just basically due to all the other things that are in front of the regulatory agents. I don't know if you want to comment on that on this call

Sure. Let me take the second one first. I, from time to time, communicate with our employees via a blog. And in that blog, I recently talked about the process for gaining approvals for the merger with Comcast. And what I said, which I think was taken somewhat out of context, was that given the transactions that have already been announced, given the net neutrality, NPRM, and given the pending spectrum auction, as well as any other transactions that might occur that have been speculated about, there's an awful lot on the FCC's plate. And while some could argue that, that might put a strain on their resources, we're still planning for a closing at the end of the year subject to obtaining all those approvals. So I don't really have anything more to add to the timing than has been previously said by Comcast. That was just sort of something taken out of context in the communication I made to employees. And I think that's a reasonable assessment. There's an awful lot of work for the FCC to do, and they've got a finite amount of resources. With respect to FOX and Time Warner, both of those companies are tremendous companies. I don't mean in size, but tremendous in terms of capability today. They deliver great content, and they're already strong and we know what that meant for programming costs for distributors. I really don't anticipate that changing with any consolidation that might occur. I think the trends are what they are, and that's probably all that it's reasonable to say.

Next question is Matthew Harrigan of Wunderlich Securities.

I was curious if you could comment on how robust your network would be, both in the Maxx markets and the non-Maxx markets for 4K when that finally takes off, particularly for sports when you have to do compression on a real-time basis, and it's pretty demanding. And then secondly, when you look at the transition in the Maxx markets, do you think you're going to get a lot of benefits from reduced customer transactions and ultimately, you know cost savings, as well as improving your unit performance?

So let me first comment on the robustness of the network for future products, and then I'll ask Dinni to talk about the potential for reduced transactions. We feel very good about the state of our network and all of the efforts we're making to roll out Maxx, we think, set ourselves up for DOCSIS 3.1, which could deliver even much faster Internet speeds than we're delivering via the Maxx program, when that technology becomes available over the next couple of years. We're clear in spectrum, which is positive for all products. So the bottom line is, whether it's the delivery of 4K video or the delivery of faster Internet speeds, we feel like our network has the capability to grow with customer demand. So I feel very good about the state of the plan. The -- in fact, the network investments we're making to deploy Maxx are actually precursors to what it would take to roll out DOCSIS 3.1 down the road. So again, we feel very good about the state of the plan. Dinni?

Yes. Matthew, I'm not sure I fully understand what you mean by reduction of transactions. But I think one thing that happens when you're able to increase the quality of the products that you're offering, speed, for instance, or put in multi-tuner DVRs -- the more that you're able to give your customers, the less you tend to hear from them. So I think that we would believe that the number of times customers would call in, for instance, would go down, the more that we roll Maxx out. I'm not sure that's what you meant, though, by your question.

That's what exactly what I meant. Sorry if it was unclear.

Next question is Tuna Amobi of S&P Capital IQ. Tuna N. Amobi - S&P Capital IQ Equity Research: So, Rob, I was wondering if you can give us an update on your cloud initiatives, cloud DVR, I think. I think Comcast seems to be pretty well ahead on that. I know you guys have some plans in the second half. Have you started to see any impacts on -- from that product in the markets that you've launched it already? And if so, can you also help us to kind of quantify that to the extent that you can?

Yes. Tuna, I actually hit this in my prepared remarks, but I'll say it again. We've rolled out our first-generation cloud-based guide to now 6 million set-top boxes. And I think from the very first days that we rolled it out, the feedback was very, very positive. The great news that we experienced this quarter is that it's actually now starting to impact VOD usage, which is one of the things we expected to occur because of the much more user-friendly VOD portal that's part of that guide. And the benefits we're seeing are particularly on the free on-demand site, but the idea that customers have an easier time finding the stuff that's in our VOD library is very encouraging. And when you couple that with plans we have during the course of this year to expand the VOD library to as much as 75,000 hours of content, I think you see sort of a great confluence of capabilities. The bigger library and the better navigation capability is bound to make whatever we're seeing now kind of supercharged for a better overall experience. So all very, very positive. Now in terms of the development of the second-generation cloud-based guide, that continues to be in beta. The feedback is positive, and it's something that we'll see in front of customers at the end of this year and in front of a significant number of customers during the course of next year. Tuna N. Amobi - S&P Capital IQ Equity Research: Okay, that's very helpful. Separately, I have to ask you, Rob, really quick. What's your preliminary reaction in the Supreme Court decision on Aereo? I mean, does that play into your overall long-term kind of view of how the cable industry is positioned?

Yes. The truth of the matter is that I don't think it significantly impacts anything in our strategic plan or our product roadmaps. The one thing that I will say is, separate apart from the specific Aereo product, we were closely watching the case to see if it provided any greater clarity on the legality of remote storage DVRs, of cloud-based DVRs. And we didn't really get much in the way of incremental clarity there. So I think the answer is not much of an impact, no.

Our last question comes from Frank Louthan of Raymond James. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: You talked a little bit about success of the app you have. How are you marketing that? And then what has Comcast said about the success of that platform? Is it something that they're taking a look at as well to continue?

Frank, the app is something that we're communicating with our customers about on a regular basis. And based on the increases in usage we've seen over the time that the apps have been out there, I think awareness is growing. And the great news is that satisfaction with our video product is improving as well as a result of that greater usage and greater awareness. So we're going to continue to broaden the number of platforms that the app is available on and increase the amount of content that's available via the apps. And we're believers, and it's hard for me to comment on exactly what Comcast's plans are. But I -- if you view their IP video products, I think we're more or less on the same page. I'd argue that, at this point, ours is a more robust offering, but I think we're philosophically aligned on this. Frank G. Louthan - Raymond James & Associates, Inc., Research Division: Can you give us sort of any color on sort of the capital savings or potential overall SAC [ph] impact from these kind of products versus the traditional set-tops?

Yes. At this point, we're still looking at this as a complementary offering in addition to set-top box in the home to give the customer more flexibility. Over time, we've talked about this before, it's conceivable that we'll have substitution of leased set-top boxes with customer-owned IP-enabled devices. And I still think that that's true, but it's hard to know exactly how much capital we'll save over time as a result of that. This is really more about responding to customer demand and driving customer satisfaction than it is about saving capital, although it may actually benefit the economics of the business as well. I think that's the last question. So I'm just going to take a couple of seconds to wrap up. I feel very good about the quarter. We've made great strides in improving the health of our operations. Subs were strong, ARPU growth accelerated and we're doing really great things to improve the customer experience. And the Comcast integration process is going very smoothly, and we continue to be very excited about the combination of our 2 companies. So I think that's all we have for you this quarter. Thanks for joining us, and we'll speak to you again later in the year.

Thanks, Rob, and thanks, everyone, for joining us. To give you a little advanced notice, Time Warner Cable's next quarterly conference call, which will reflect our third quarter 2014 results, will be held on Thursday, October 30, 2014, at 8:30 a.m. Eastern time. Have a great day.

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