Q3 2019 Earnings Call
The last six months, our leadership team was able to spread out and visit each fidelity market October onest today, we closed the transaction.
With this cooperation we were able to accomplish some day one achievements such as moving all fidelity associates onto our HRS system immediately.
This type of execution is encouraging and we believe we are off to a great start.
And now Stephen will provide more details on our third quarter results.
Thanks Julie.
The third quarter 2019, once again produced strong financial results revenues for the third quarter were 285 million compared to 268.3 million in the prior year quarter, representing a 6.2% increase as Julie mentioned the increase was fueled by a residential HSD revenue increase of 8.2% and the business services revenue.
Increase of 28%, excluding clearly of operations total revenues increased 3.6% year over year.
Net income in the third quarter was 49.8 million net income per share on a fully diluted basis was $8.68 per share.
Operating expenses were 94.9 million or 33.3% of revenues in third quarter compared to 92 million or 34.3% of revenues in the prior year quarter 100 basis point improvement.
Selling general and administrative expenses were $58.9 million or 20.7% of revenues in the third quarter compared to $59.4 million or 22.2% of revenues in the prior year quarter 150 basis point person, a 150 basis point improvement.
Adjusted EBITDA was $140 million for the third quarter, an increased 14.1% from 122.7 million in the prior year quarter.
Or our adjusted EBITDA margin increased 340 basis points year over year going from 45.7% to 49.1%.
Capital expenditures totaled 65.8 million and 68.3 million for the third quarter of 2019 in 2018, respectively.
Included in the current quarter were 6 million of capital expenditures related to clear way of operations.
Year to date capital expenditures as a percentage of adjusted EBITDA and revenues were 42.9% and 20.8% respectively in line with our expectations.
In the third quarter of 2019, we paid 12.8 million in dividends to shareholders.
From a liquidity standpoint, we had approximately $146 million of cash on hand as of September Thirtyth, and we continue to generate significant free cash flow.
At quarter end, our debt balance was approximately 1.3 billion consisting of term loan borrowings.
Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was at 2.1 times, providing us with ample liquidity. We also had $343.3 million available for borrowing under our revolving credit facility as of quarter end.
On October Onest, we drew the full amount of the 450 million delayed draw term loan a established in the second quarter and use the proceeds together with the cash on hand to fund the Fidelity acquisition, which also closed on October Onest.
The purchase price was 525.9 million in cash subject to customary adjustments.
We anticipate spending up to $40 million in incremental capital over the next three years in order to integrate and standardize the network as previously disclosed we expect to realize approximately 15 million in estimated run rate cost synergies within the next three years.
Earlier today, we filed an investor presentation with the FCC, which is also posted on our IR site and get US some of the key financial and operating statistics for the acquired Fidelity operations.
Similar to clear way, we do not expect to separately report on fidelity results going forward.
After giving effect to the transaction and including Fidelitys 2019 year to date annualized adjusted EBITDA of approximately 47 million the net debt to adjusted EBITDA leverage ratio at the end of the third quarter would have been 2.8 times, where they total debt balance of approximately 1.8 billion and the cash balance of approximately 66 million.
We are pleased with another strong quarter and excited about the opportunities. The fidelity provides as we work to integrate their operations into our own.
Sarah we're now ready for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then queue at this time, we'll pause momentarily to assemble a roster.
Our first question comes from Philip Cusick with JP Morgan. Please go ahead.
Hey, guys. Thanks.
I guess to start let's talk about the rebranding costs to seems to be a lot of questions on that.
The 3 billion pulled out was that incremental to your typical run rate of marketing. Thanks.
Yes. The lifestyle. We originally said that we would spend between 911 million on the rebrand for legacy cable won and new wave and we spent about 60% of that so far right on schedule.
And you said, you'll finish that spending in early 2020.
In 2020.
Okay and then.
In terms of the spending I'm surprised that.
Given that you were spending a lot of money in marketing a year ago and that drove the Threeq you sub numbers in 18 that the rebranding spent didnt have any impact on Threeq you subs this quarter, how should we think about that.
Well the rebranding it is about brand not acquisition. So it is spending money on thing you know everywhere from office redesigned to uniforms to on air getting people to understand that cable one is now spark light and what.
To spark light Lou.
And thats across all of our lines of business from you know broadband to business services, where really I think makes a big impact in advertising sales as well Phil I thought your question was going to be well you spent a lot less in marketing this year and you added the same number of customers Thats really impressive so maybe that's not really.
Question [laughter], yes that that was definitely my question.
[laughter] well, Okay last one on this topic and that'll they go but but the when we pull that out the margin growth sequentially was really strong. So is this a good run rate sort of jumping off period going forward or is there anything else going on that would make this at bill. Thank you Nice I think what we would say is.
We've continued to see margins expand as we've continued to execute on the business strategies and we expect that to continue there is always one offs in any given quarter and timing of things. So for instance in the first quarter when programming rate increase has happened before you do your.
Rate adjustments for customers those things impact margins. So there's always timing, but as we think about the long term, which is the way we look at it we see margins continuing to increase overtime and this is reflective of that for acquisitions that were acquisitions, which will bring something in that when infidelity has lower margins and that will impact.
As we continue to migrate them towards our business model.
Okay. Thanks, very much guys.
The next question comes from Zacks Silver with B. Riley FBR. Please go ahead.
Okay, great. Thanks for taking the question.
On the new wave usage base billing front, so rolling that out this quarter I guess, how should we think about.
The ARPU trajectory based on the rollout of that did I mean, if they're going to be sort of a sharp acceleration there or is it going to be more muted and more like that trend that we've seen.
Zachan, Julie I think what well see and it did just roll out its very last week at the quarter. So we're not ready to start seeing your results throughout the fourth quarter is exactly what we've said we're going to continue to live new wave to look like cable line.
So you would expect to see their rps, which have been steadily getting closer to ours.
Become more so.
Okay, and then more high level, one just yes.
We continue to get sort of fixed and wireless industry convergence wondering if we can get your updated thoughts around how you sort of view the opportunity to bundle wireless into your offering through and NVNO relationship like charter and Comcast and our teams are doing.
Well my first thought is I'm not sure if they want to comment about it at all.
I don't think that the NVNO model right now is something that we find a large interest and given the margins and the amount of work and growth in opportunities that we have with our existing business right now, but we are always leaning into and learning from others.
And I guess.
Well thank you.
It makes sense and then last one for me just on the unlimited plan penetration any update you can give on that how is that trending accelerating decelerating a hard number would be great.
Yeah, well so all the number I'll give you is still over 10%. It is slightly accelerating I think the interesting thing that I took note of is that the higher BT that consumer takes the higher the percentage of unlimited selling but that is to say.
If you take aren't getting service.
The percentage of customers that take a limited there is the highest of any consumer group just just an interesting fact away.
Got it interesting okay. Thanks Julie.
You're welcome.
Our next question comes from Steven Bison with Wolfe Research. Please go ahead.
Good evening, so with fidelity close this is I think the first time and why you haven't had something pending can you update us on your use of cash and how many more fidelitys you might see up there. If you were defined corrective acquisitions.
Sure I think you know we would.
We're always out looking trying to find what's next I'm definitely didn't spend a lot of time. This summer necessarily looking at that because we were a 100% focused on the integration process I'd say, we're further along on this one than we would've been on say, where new wave was one because of the size of new wave well relative to cable one at the time and then the size of fidelity relative to what gave us.
One is today and so the fact that we got kind of a jump start on this one combined with that allows us to probably be in position to move more quickly than we did last time, but you know so we believe we'll be looking but you know.
We really just started that process again.
Okay, and yeah, if something doesn't jump off the screen that you're right away any update on capital return policy dividends share repurchases.
Yeah, I think our I think our capital policy is pretty set which is we're opportunistic whenever it comes to share repurchases and we.
Claim to have a very predictive dividend and so I think I would tell you that we value the flexibility of our balance sheet and the opportunity knowing the amount of opportunities that are out there we value the flexibility of our balance sheet more than just trying to maximize the perfect level of leveraged at this point so understood and then I guess lastly, the system can be.
Version costs can you remind us how much longer those should be in there and essential dollar amount.
Yes, I think what the run rate you see is probably going to be consistent through the middle of next year.
Great. Thanks unrelated good.
The next question comes from Craig EMA fit with 2000 and for please go ahead.
Yes, Hi, I I just stay with this question of of acquisitions for a second Steve.
How do you think about your capacity to do acquisitions now that I'm, having had some success with a string of them you know what what kind of size and frequency do you think you can bite off.
I'm.
Assuming you can find that targets, who are willing to take the currency and how it just operationally and what kind of pace do you think you'd be able to maintain.
Well I think I think one the first part to the question you asked as part of Yours is the most relevant part is what becomes available and then I am I think we will have an increasing capacity to be able to do more just because we get bigger and the deal sizes become less of the total company and we get better at an all the time because of what we're learning so I think from that standpoint.
Our pay should be able to increase assuming theres opportunities that present themselves. You know a lot of these things are not in our control based on where private equities are families or other things decided to do but that doesn't mean, we won't be a you know.
The payment to try and find the next right thing for cable one and so so yeah. It's we feel like it's an important part of what we do our base business as our base business and were operators at the core and I think we.
Our <unk>, we're very successful in the execution side of that and so the thought of being able to go and bring more into that and continued to execute what we really like so we definitely look at this is incremental not the business plan on the business plan as what we execute on every day.
And is there a sense that you could do something larger at this point do you know having done relatively small ones. At this point you know if there is there a sense that you've now sort of proven the model to be able to do a deal that ER with larger sized acquisitions.
I think it's probably more about looking at each and every deal in figuring out how it fits into our company part of part of the beauty of what we've done as they've been a nice size to where we can take it we can apply what we do and it doesn't get in you know it doesn't interrupt running the business data and so so so it could we we definitely have the debt capacity we have those.
Kinds of things, but I think it will always be an organizational conversation to figure out where does it fit and how does it fit into our 10 year plan not you know what's it going to do for the next quarter.
Alright, Thanks, that's helpful.
Sure.
Our next question comes from Frank Lucinda with Raymond James. Please go ahead.
Great. Thank you just wanted to touch base on some of their your lower price broadband products whats. The current take rate with is and how you feel about marketing knows and then.
Just curious on on various platform do you have got native on your set top boxes or are you promoting or pushing streaming services like Netflix up whether you have ordinary considering adding any others. Thanks.
Hey, Frank its Julie our lowest price broadband service.
Has very low levels of take great very low levels, we do market it but what we find just when people call in the.
The price of the next level package up for the value on what you got seems to draw people into that next level to the starter package, which is 100 make package. So the take rate, even though we market it tends to be very loud.
In terms of marketing platforms on her set top boxes, we don't really spent.
Any money marketing video, but having said that we have a worked with training our people to be sort of like cost year service. So if a customer calls in and they are maybe frustrated with the constant video service what they're looking for particular thing we will talk to them about.
What they like to watch Yeah, we will suggest of T T platforms for them.
In fact, if you go into our office and She's City. For example, you might see several of them advertised and in the lobby and God is so that a conversation can be had with our associates, helping direct them to the video service that works best for them and it doesn't have to be hours.
The next question comes from Brandon This fall with Keybanc capital markets. Please go ahead.
Okay, great. Thanks for taking my questions. Julie question for you what are the steps that you need to take to make fidelity look like legacy cable one and how long do you think that would take and then maybe you could talk about the customer growth rates.
Fidelity that would be great and one for Stephen I'm, you mentioned synergies from New live programming I was wondering if you could talk more about that and maybe a dollar amount.
And then.
Fidelity synergies, what our immediate and what you have to wait for thanks.
Thanks Brandon.
For a fidelity a if if you take a look at the Jack that was posted where we're talking about and integration time period of approximately three years.
And you know fidelity is a fantastic acquisition for US we will do the this is very similar things that we do with new way, we will be working on integrating their network with ours will be spending time with them to learn and best practices from them and and and coming up with a new.
Cabo way of doing things, we will work on having their revenues in ARPU is not ours their margins match hours their costs not ours and all of those will take about three years in terms of their customer growth rate I don't think.
A place I'm going to go right now thanks.
Yeah, So and your questions to me Brendan on the synergies yeah, we're not going to give specifics on the programming realignment savings that came from the other than to say that it fell within what we had originally guided towards the total amount of synergies and that we feel very comfortable that as this is kind of the last piece of that that we more than realized.
We said, we were going to and as it relates to the fidelity timing. It's one of those it's really kind of spread over the three years. There's a handful that come just from a combination of some of the most senior executives are moving on and synergy savings that come from that in their own programming realignment that took place right. After close and so there's a decent amount that have.
And things that we'll be able to roll on to contracts of ours, whether it's from a bandwidth standpoint or insurance or all of those kinds of system related.
And then over time, the rest of it as it starts as we start to make changes I'm basically taking the best practices of whatever we do and what they do and move the company forward from there. So I would say they they'll come in reasonably even over the three years with a decent a decent kickstart right off the bat with some of the initial.
Savings that happened right at the beginning of those of October .
This concludes our question and answer session I would like to turn the conference back over to Julie's all that's for any closing remarks.
Thank you Sarah I want to thank all of our associates for another great quarter. We appreciate everyone joining us for today's call and look forward just speaking with you again in 2020. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.