Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable ONE”)
today reported financial and operating results for the quarter
ended September 30, 2019.
Third Quarter 2019 Highlights:
- Total revenues were $285.0 million in the third quarter of 2019
compared to $268.3 million in the third quarter of 2018,an increase
of 6.2%. Residential data revenues increased 8.2% and business
services revenues increased 28.0% year-over-year.
- Net income was $49.8 million in the third quarter of 2019, an
increase of 30.1%year-over-year. Adjusted EBITDA(1) was $140.0
million, an increaseof 14.1%year-over-year. Net profit margin was
17.5% and Adjusted EBITDA margin(1)was 49.1%.
- Net cash provided by operating activities was $122.7 million in
the third quarter of 2019, an increase of 10.5% year-over-year.
Adjusted EBITDA less capital expenditures(1) was $74.1 million in
the third quarter of 2019 compared to $54.4 million in the third
quarter of 2018.
- Residential data primary service units (“PSUs”) grew by nearly
21,000, or 3.5%, year-over-year and by nearly 6,400, or 1.0%,
sequentially.
Other Highlights:
- On October 1, 2019, the Company completed the acquisition of
the data, video and voice business and certain related assets of
Fidelity Communications Co. (collectively, “Fidelity”) for a base
purchase price of $525.9 million in cash, subject to customary
adjustments. The transaction was financed with cash on hand and the
net proceeds from the $450.0 million delayed draw term loan
established in the second quarter of 2019.
(1)
Adjusted EBITDA, Adjusted EBITDA margin
and Adjusted EBITDA less capital expenditures are defined in the
section of this press release entitled “Use of Non-GAAP Financial
Measures.” Adjusted EBITDA and Adjusted EBITDA less capital
expenditures are reconciled to net income, Adjusted EBITDA margin
is reconciled to net profit margin and Adjusted EBITDA less capital
expenditures is also reconciled to net cash provided by operating
activities. Refer to the “Reconciliations of Non-GAAP Measures”
tables within this press release.
Third Quarter 2019 Financial Results Compared to Third
Quarter 2018
Revenues increased $16.7 million, or 6.2%, to $285.0 million for
the third quarter of 2019, including a $7.0 million contribution
from Clearwave Communications (“Clearwave”) operations, which was
acquired in January 2019. The remaining increase was driven
primarily by organic residential data and business services revenue
growth, partially offset by decreases in residential video and
advertising sales revenues. For the third quarter of 2019 and 2018,
residential data revenues comprised 47.1% and 46.3% of total
revenues and business services revenues comprised 17.8% and 14.7%
of total revenues, respectively.
Operating expenses (excluding depreciation and amortization)
were $94.9 million in the third quarter of 2019 compared to $92.0
million in the third quarter of 2018. The increase was primarily
attributable to additional expenses related to Clearwave
operations, higher regulatory costs resulting from certain
passthrough fees that were historically reported on a net basis and
higher compensation and rent expenses, partially offset by lower
programming expenses. As a percentage of revenues, operating
expenses were 33.3% for the third quarter of 2019 compared to 34.3%
for the year-ago quarter.
Selling, general and administrative expenses were $58.9 million
for the third quarter of 2019 and decreased $0.6 million, or 1.0%,
compared to the third quarter of 2018. The decrease was primarily
attributable to lower marketing expenses, professional fees and
general and workers’ compensation insurance costs, partially offset
by higher rebranding expenses and acquisition-related costs as well
as additional expenses related to Clearwave operations. Selling,
general and administrative expenses as a percentage of revenues
were 20.7% and 22.2% for the third quarter of 2019 and 2018,
respectively.
Depreciation and amortization expense was $48.7 million for the
third quarter of 2019 and decreased $1.7 million, or 3.3%, compared
to the third quarter of 2018. The decrease was due primarily to
assets that became fully depreciated since the third quarter of
2018, partially offset by new assets placed in service since the
third quarter of 2018 and additional depreciation and amortization
related to Clearwave operations. The Company recognized $2.4
million and $3.1 million of net losses on asset disposals during
the third quarter of 2019 and 2018, respectively.
Interest expense increased $0.6 million, or 4.0%, to $16.1
million, driven primarily by additional outstanding debt and
interest rate swap settlements, partially offset by lower interest
rates on variable rate term loans, including loans used to redeem
the Company’s higher rate senior unsecured notes in the second
quarter of 2019.
Other income of $1.6 million and $1.5 million in the third
quarter of 2019 and 2018, respectively, consisted primarily of
interest and investment income.
Income tax provision was $15.8 million in the third quarter of
2019 compared to $11.0 million in the prior year quarter. The
effective tax rate was 24.1% and 22.4% for the third quarter of
2019 and 2018, respectively. The increase in the effective tax rate
primarily related to a decrease in income tax benefits attributable
to state effective tax rate changes, partially offset by an
increase in income tax benefits attributable to equity-based
compensation awards.
Net income was $49.8 million in the third quarter of 2019
compared to $38.3 million in the prior year quarter.
Adjusted EBITDA was $140.0 million and $122.7 million for the
third quarter of 2019 and 2018, respectively, an increase of 14.1%.
Capital expenditures totaled $65.8 million and $68.3 million for
the third quarter of 2019 and 2018, respectively. Adjusted EBITDA
less capital expenditures for the third quarter of 2019 was $74.1
million compared to $54.4 million in the prior year quarter.
Liquidity and Capital Resources
At September 30, 2019, the Company had $145.8 million of cash
and cash equivalents on hand compared to $264.1 million at December
31, 2018. The Company’s debt balance was approximately $1.3 billion
and $1.2 billion at September 30, 2019 and December 31, 2018,
respectively. The Company also had $343.3 million available for
borrowing under its revolving credit facility as of September 30,
2019.
The Company paid $12.8 million in dividends to stockholders
during the third quarter of 2019.
Conference Call
Cable ONE will host a conference call with the financial
community to discuss results for the third quarter of 2019 on
Thursday, November 7, 2019, at 5 p.m. Eastern Time (ET).
Shareholders, analysts and other interested parties may register
for the conference in advance at http://dpregister.com/10135869.
Those unable to pre-register may join the call via the live audio
webcast on the Cable ONE Investor Relations website or by dialing
1-844-378-6483 (Canada: 1-855-669-9657/International:
1-412-542-4178) shortly before 5 p.m. ET.
A replay of the call will be available from Thursday, November
7, 2019 until Thursday, November 21, 2019 on the Cable ONE Investor
Relations website.
Additional Information
The information in this press release should be read in
conjunction with the condensed consolidated financial statements
and notes thereto contained in the Company’s Quarterly Report on
Form 10-Q for the period ended September 30, 2019 (the “Third
Quarter 2019 Form 10-Q”), which will be posted on the “SEC Filings”
section of the Cable ONE Investor Relations website at
ir.cableone.net when it is filed with the U.S. Securities and
Exchange Commission (the “SEC”). Investors and others interested in
more information about Cable ONE should consult the Company’s
website, which is regularly updated with financial and other
important information about the Company.
Use of Non-GAAP Financial Measures
The Company uses certain measures that are not defined by
generally accepted accounting principles in the United States
(“GAAP”) to evaluate various aspects of its business. Adjusted
EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less capital
expenditures and capital expenditures as a percentage of Adjusted
EBITDA are non-GAAP financial measures and should be considered in
addition to, not as superior to, or as a substitute for, net
income, net profit margin, capital expenditures as a percentage of
net income or net cash provided by operating activities reported in
accordance with GAAP. Adjusted EBITDA and Adjusted EBITDA less
capital expenditures are reconciled to net income, Adjusted EBITDA
margin is reconciled to net profit margin and capital expenditures
as a percentage of Adjusted EBITDA is reconciled to capital
expenditures as a percentage of net income. Adjusted EBITDA less
capital expenditures is also reconciled to net cash provided by
operating activities. These reconciliations are included in the
“Reconciliations of Non-GAAP Measures” tables within this press
release.
“Adjusted EBITDA” is defined as net income plus interest
expense, income tax provision, depreciation and amortization,
equity-based compensation, severance expense, (gain) loss on
deferred compensation, acquisition-related costs, (gain) loss on
asset disposals, system conversion costs, rebranding costs, other
(income) expense and other unusual expenses, as provided in the
“Reconciliations of Non-GAAP Measures” tables within this press
release. As such, it eliminates the significant non-cash
depreciation and amortization expense that results from the
capital-intensive nature of the Company’s business as well as other
non-cash or special items and is unaffected by the Company’s
capital structure or investment activities. This measure is limited
in that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating
revenues and the Company’s cash cost of debt financing. These costs
are evaluated through other financial measures.
“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided
by total revenues.
“Adjusted EBITDA less capital expenditures,” when used as a
liquidity measure, is calculated as net cash provided by operating
activities excluding the impact of capital expenditures, interest
expense, income tax provision, changes in operating assets and
liabilities, change in deferred income taxes and other unusual
expenses, as provided in the “Reconciliations of Non-GAAP Measures”
tables within this press release.
“Capital expenditures as a percentage of Adjusted EBITDA” is
defined as capital expenditures divided by Adjusted EBITDA.
The Company uses Adjusted EBITDA, Adjusted EBITDA margin,
Adjusted EBITDA less capital expenditures and capital expenditures
as a percentage of Adjusted EBITDA to assess its performance, and
it also uses Adjusted EBITDA less capital expenditures as an
indicator of its ability to fund operations and make additional
investments with internally-generated funds. In addition, Adjusted
EBITDA generally correlates to the measure used in the leverage
ratio calculations under the Company’s credit facilities to
determine compliance with the covenants contained in the credit
agreement. Adjusted EBITDA and capital expenditures are also
significant performance measures used by the Company in its annual
incentive compensation program. Adjusted EBITDA does not take into
account cash used for mandatory debt service requirements or other
non-discretionary expenditures, and thus does not represent
residual funds available for discretionary uses.
The Company believes Adjusted EBITDA, Adjusted EBITDA margin and
capital expenditures as a percentage of Adjusted EBITDA are useful
to investors in evaluating the operating performance of the
Company. The Company believes that Adjusted EBITDA less capital
expenditures is useful to investors as it shows the Company’s
performance while taking into account cash outflows for capital
expenditures and is one of several indicators of the Company’s
ability to service debt, make investments and/or return capital to
its shareholders.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less
capital expenditures, capital expenditures as a percentage of
Adjusted EBITDA and similar measures with similar titles are common
measures used by investors, analysts and peers to compare
performance in the Company’s industry, although the Company’s
measures of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted
EBITDA less capital expenditures and capital expenditures as a
percentage of Adjusted EBITDA may not be directly comparable to
similarly titled measures reported by other companies.
About Cable ONE
Cable One, Inc. (NYSE: CABO) is a leading broadband
communications provider serving more than 900,000 residential and
business customers in 21 states through its SparklightTM and
Clearwave brands. Sparklight provides consumers with a wide array
of connectivity and entertainment services, including high-speed
internet and advanced Wi-Fi solutions, cable television and phone
service. Sparklight Business and Clearwave provide scalable and
cost-effective products for businesses ranging in size from small
to mid-market, in addition to enterprise, wholesale and carrier
customers.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This communication may contain “forward-looking statements” that
involve risks and uncertainties. These statements can be identified
by the fact that they do not relate strictly to historical or
current facts, but rather are based on current expectations,
estimates, assumptions and projections about the Company’s
industry, business, financial results and financial condition.
Forward-looking statements often include words such as “will,”
“should,” “anticipates,” “estimates,” “expects,” “projects,”
“intends,” “plans,” “believes” and words and terms of similar
substance in connection with discussions of future operating or
financial performance. As with any projection or forecast,
forward-looking statements are inherently susceptible to
uncertainty and changes in circumstances. The Company’s actual
results may vary materially from those expressed or implied in its
forward-looking statements. Accordingly, undue reliance should not
be placed on any forward-looking statement made by the Company or
on its behalf. Important factors that could cause the Company’s
actual results to differ materially from those in its
forward-looking statements include government regulation, economic,
strategic, political and social conditions and the following
factors, which are discussed in the Company’s latest Annual Report
on Form 10-K as filed with the SEC and the Third Quarter 2019 Form
10-Q to be filed with the SEC:
- the effect of the Fidelity transaction on the Company’s ability
to retain and hire key personnel and to maintain relationships with
customers, suppliers and other business partners;
- risks related to management’s attention being diverted from the
Company’s ongoing business operations;
- uncertainties as to the Company’s ability and the amount of
time necessary to realize the expected synergies and other benefits
of the Fidelity transaction;
- the Company’s ability to integrate Fidelity’s operations into
itsown;
- rising levels of competition from historical and new entrants
in the Company’s markets;
- recent and future changes in technology;
- the Company’s ability to continue to grow its business services
products;
- increases in programming costs and retransmission fees;
- the Company’s ability to obtain hardware, software and
operational support from vendors;
- the effects of any new significant acquisitions by the
Company;
- risks that the Company’s rebranding may not produce the
benefits expected;
- adverse economic conditions;
- the integrity and security of the Company’s network and
information systems;
- the impact of possible security breaches and other disruptions,
including cyber-attacks;
- the Company’s failure to obtain necessary intellectual and
proprietary rights to operate itsbusiness and the risk of
intellectual property claims and litigation against the
Company;
- the Company’s ability to retain key employees;
- legislative or regulatory efforts to impose network neutrality
and other new requirements on the Company’s data services;
- additional regulation of the Company’s video and voice
services;
- the Company’s ability to renew cable system franchises;
- increases in pole attachment costs;
- changes in local governmental franchising authority and
broadcast carriage regulations;
- the potential adverse effect of the Company’s level of
indebtedness on itsbusiness, financial condition or results of
operations and cash flows;
- the possibility that interest rates will rise, causing the
Company’s obligations to service itsvariable rate indebtedness to
increase significantly;
- the Company’s ability to incur future indebtedness;
- fluctuations in the Company’s stock price;
- the Company’s ability to continue to pay dividends;
- dilution from equity awards and potential stock issuances in
connection with acquisitions;
- provisions in the Company’s charter, by-laws and Delaware law
that could discourage takeovers; and
- the other risks and uncertainties detailed from time to time in
the Company’s filings with the SEC, including but not limited to
its latest Annual Report on Form 10-K as filed with the SEC and the
Third Quarter 2019 Form 10-Q to be filed with the SEC.
Any forward-looking statements made by the Company in this
communication speak only as of the date on which they are made. The
Company is under no obligation, and expressly disclaims any
obligation, except as required by law, to update or alter its
forward-looking statements, whether as a result of new information,
subsequent events or otherwise.
CABLE ONE, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended September
30,
(dollars in
thousands, except per share data)
2019
2018
$ Change
% Change
Revenues:
Residential data
$
134,320
$
124,089
$
10,231
8.2%
Residential video
80,999
84,583
(3,584)
(4.2)%
Residential voice
10,254
10,169
85
0.8%
Business services
50,662
39,567
11,095
28.0%
Advertising sales
5,054
6,288
(1,234)
(19.6)%
Other
3,702
3,572
130
3.6%
Total Revenues
284,991
268,268
16,723
6.2%
Costs and Expenses:
Operating (excluding depreciation and
amortization)
94,898
91,956
2,942
3.2%
Selling, general and administrative
58,861
59,439
(578)
(1.0)%
Depreciation and amortization
48,737
50,414
(1,677)
(3.3)%
Loss on asset disposals, net
2,362
3,140
(778)
(24.8)%
Total Costs and Expenses
204,858
204,949
(91)
(0.0)%
Income from operations
80,133
63,319
16,814
26.6%
Interest expense
(16,079)
(15,460)
(619)
4.0%
Other income, net
1,582
1,503
79
5.3%
Income before income taxes
65,636
49,362
16,274
33.0%
Income tax provision
15,801
11,048
4,753
43.0%
Net income
$
49,835
$
38,314
$
11,521
30.1%
Net Income per Common Share:
Basic
$
8.77
$
6.75
$
2.02
29.9%
Diluted
$
8.68
$
6.70
$
1.98
29.6%
Weighted Average Common Shares
Outstanding:
Basic
5,682,167
5,674,224
7,943
0.1%
Diluted
5,741,666
5,717,575
24,091
0.4%
Deferred gain (loss) on cash flow hedges
and other, net of tax
$
(28,066)
$
1
$
(28,067)
NM
Comprehensive income
$
21,769
$
38,315
$
(16,546)
(43.2)%
NM = Not meaningful.
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
(dollars in
thousands, except par values)
September 30, 2019
December 31, 2018
Assets
Current Assets:
Cash and cash equivalents
$
145,848
$
264,113
Accounts receivable, net
30,931
29,947
Income taxes receivable
1,761
10,713
Prepaid and other current assets
17,578
13,090
Total Current Assets
196,118
317,863
Property, plant and equipment, net
997,145
847,979
Intangible assets, net
1,030,993
953,851
Goodwill
358,014
172,129
Other noncurrent assets
26,057
11,412
Total Assets
$
2,608,327
$
2,303,234
Liabilities and Stockholders'
Equity
Current Liabilities:
Accounts payable and accrued
liabilities
$
113,397
$
94,134
Deferred revenue
22,567
18,954
Current portion of long-term debt
17,215
20,625
Total Current Liabilities
153,179
133,713
Long-term debt
1,278,110
1,142,056
Deferred income taxes
267,797
242,127
Other noncurrent liabilities
134,482
9,980
Total Liabilities
1,833,568
1,527,876
Stockholders' Equity
Preferred stock ($0.01 par value;
4,000,000 shares authorized; none issued or outstanding)
-
-
Common stock ($0.01 par value; 40,000,000
shares authorized; 5,887,899 shares issued; and 5,709,593 and
5,703,402 shares outstanding as of September 30, 2019 and December
31, 2018, respectively)
59
59
Additional paid-in capital
48,059
38,898
Retained earnings
939,602
850,292
Accumulated other comprehensive loss
(91,201)
(96)
Treasury stock, at cost (178,306 and
184,497 shares held as of September 30, 2019 and December 31, 2018,
respectively)
(121,760)
(113,795)
Total Stockholders' Equity
774,759
775,358
Total Liabilities and Stockholders'
Equity
$
2,608,327
$
2,303,234
CABLE ONE, INC.
RECONCILIATIONS OF NON-GAAP
MEASURES
(Unaudited)
Three Months Ended September
30,
(dollars in
thousands)
2019
2018
$ Change
% Change
Net income
$
49,835
$
38,314
$
11,521
30.1%
Net profit margin
17.5%
14.3%
Plus:
Interest expense
$
16,079
$
15,460
$
619
4.0%
Income tax provision
15,801
11,048
4,753
43.0%
Depreciation and amortization
48,737
50,414
(1,677)
(3.3)%
Equity-based compensation
3,058
2,418
640
26.5%
Severance expense
37
1,111
(1,074)
(96.7)%
Loss on deferred compensation
41
100
(59)
(59.0)%
Acquisition-related costs
1,228
10
1,218
NM
Loss on asset disposals, net
2,362
3,140
(778)
(24.8)%
System conversion costs
1,114
1,735
(621)
(35.8)%
Rebranding costs
3,246
423
2,823
NM
Other income, net
(1,582)
(1,503)
(79)
5.3%
Adjusted EBITDA
$
139,956
$
122,670
$
17,286
14.1%
Adjusted EBITDA margin
49.1%
45.7%
Less:
Capital expenditures
$
65,836
$
68,302
$
(2,466)
(3.6)%
Capital expenditures as a percentage of
net income
132.1%
178.3%
Capital expenditures as a percentage of
Adjusted EBITDA
47.0%
55.7%
Adjusted EBITDA less capital
expenditures
$
74,120
$
54,368
$
19,752
36.3%
NM = Not meaningful.
Three Months Ended September
30,
(dollars in
thousands)
2019
2018
$ Change
% Change
Net cash provided by operating
activities
$
122,691
$
111,015
$
11,676
10.5%
Capital expenditures
(65,836)
(68,302)
2,466
(3.6)%
Interest expense
16,079
15,460
619
4.0%
Amortization of debt issuance cost
(1,118)
(1,076)
(42)
3.9%
Income tax provision
15,801
11,048
4,753
43.0%
Changes in operating assets and
liabilities
(6,516)
(6,586)
70
(1.1)%
Change in deferred income taxes
(11,065)
(9,067)
(1,998)
22.0%
Loss on deferred compensation
41
100
(59)
(59.0)%
Acquisition-related costs
1,228
10
1,218
NM
Severance expense
37
1,111
(1,074)
(96.7)%
System conversion costs
1,114
1,735
(621)
(35.8)%
Rebranding costs
3,246
423
2,823
NM
Other income, net
(1,582)
(1,503)
(79)
5.3%
Adjusted EBITDA less capital
expenditures
$
74,120
$
54,368
$
19,752
36.3%
NM = Not meaningful.
CABLE ONE, INC.
OPERATING STATISTICS
(Unaudited)
As of September 30,
Year-Over-Year Change
2019
2018
Amount
%
Homes Passed
2,139,971
2,089,306
50,665
2.4%
Residential Customers
743,946
730,252
13,694
1.9%
Data PSUs
618,983
598,001
20,982
3.5%
Video PSUs
283,303
312,564
(29,261)
(9.4)%
Voice PSUs
91,097
101,443
(10,346)
(10.2)%
Total residential PSUs
993,383
1,012,008
(18,625)
(1.8)%
Business Customers
77,133
70,927
6,206
8.7%
Data PSUs
70,155
62,798
7,357
11.7%
Video PSUs
14,760
16,357
(1,597)
(9.8)%
Voice PSUs
29,998
26,529
3,469
13.1%
Total business services PSUs
114,913
105,684
9,229
8.7%
Total Customers
821,079
801,179
19,900
2.5%
Total non-video
523,016
472,367
50,649
10.7%
Percent of total
63.7%
59.0%
Data PSUs
689,138
660,799
28,339
4.3%
Video PSUs
298,063
328,921
(30,858)
(9.4)%
Voice PSUs
121,095
127,972
(6,877)
(5.4)%
Total PSUs
1,108,296
1,117,692
(9,396)
(0.8)%
Penetration
Data
32.2%
31.6%
0.6%
Video
13.9%
15.7%
(1.8)%
Voice
5.7%
6.1%
(0.4)%
Share of Third Quarter Revenues
Residential data
47.1%
46.3%
0.8%
Business services
17.8%
14.7%
3.1%
Total
64.9%
61.0%
3.9%
ARPU - Third Quarter
Residential data(1)
$
72.09
$
68.83
$
3.26
4.7%
Residential video(1)
$
93.42
$
88.45
$
4.97
5.6%
Residential voice(1), (2)
$
36.85
$
32.95
$
3.90
11.8%
Business services(2), (3)
$
219.92
$
187.69
$
32.23
17.2%
Number of Employees
2,300
2,249
51
2.3%
(1)
Average monthly revenue per unit (“ARPU”) values represent the
applicable quarterly residential service revenues (excluding
installation and activation fees) divided by the corresponding
average of the number of PSUs at the beginning and end of each
period, divided by three.
(2)
The increases in residential voice and business services ARPU from
the prior year were partially a result of certain passthrough fees
that were historically reported on a net basis. Residential voice
and business services ARPU for the third quarter of 2019 would have
been $33.11 and $215.83, respectively, if reported on a comparable
basis.
(3)
ARPU values represent quarterly business services revenues divided
by the average of the number of business customer relationships at
the beginning and end of each period, divided by three.
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