Q4 2019 Earnings Call
on the
And a front 2019 was an active year in January 2019. We acquired clear Wave Communications which expanded our fiber footprint and Enterprise business segment, then in October. We finalized our purchase of Fidelity Communications data video and voice business. Both companies aren't excellent fit in many ways infidelities case. We share similar strategies customer demographics and products. Meanwhile clearwave has a premier fiber Network that further enables us to supply customers with enhanced Business Services Solutions wage go through our numbers later in the call. Keep in mind that we are reporting on our Consolidated results, including clearwave and Fidelity unless otherwise noted
Looking ahead to 2020. We will continue to follow our balanced strategy to deploy cash and grow the business as we said before that entails a combination of looking for Broadband related acquisition investment opportunities in rural markets as well as capital projects intended to drive long-term growth.
Please to have once again delivered a quarter of strong performance, including year-over-year increases in total revenues of 18.1% and adjusted ebitda of 24% or adjusted it on margin increased 240 basis points year-over-year to 49.7% for the fourth quarter of 2019. These results illustrate that our long-term business strong and focused execution continue to consistently deliver both top-line and adjusted ebitda growth as well as expanding margins while we expect to see continued merging expansion over time. We do not anticipate that it will necessarily be consistent quarter-to-quarter as we make further operational and strategic Investments.
We experienced an 18.9% increase in quarterly residential h s t revenues driven by a 15.7% increase in residential hsd units off together with a 2.6% increase in residential hs-crp, excluding a acquired operations residential unit and our food growth was 3.6% and 4.6% respectively leading to a residential hsd Revenue growth of 8.7% quarterly revenues from Business Services were up 41.6% year-over-year or 10.2% excluding the impact of clearwave infidelity were very proud of the work. Our business services team is doing to achieve these results.
Before about our pricing and packaging changes that were implemented at the beginning of 2019 which were designed to help fuel growth through customer choice. We continue to see customer need for Reliable value price inflexible HST service and are simplified pricing and packaging has exceeded our expectations and serving that need in the fourth quarter. Our average data usage per customer increase more than 30% versus the prior-year to roughly 350 gigabytes a month during that same period are $40 unlimited data option increased to nearly 20% of new spellings and customers are self-selecting into our $65 200 h s d t r at a rate of almost two-to-one vs are $55 starter. The impact of our customers choosing these plans combined with their value proposition has caused a decrease in our turn rates and improves subscriber growth.
With a full year new pricing and packaging behind us excluding Fidelity or residential organic growth accelerated from 2.7% in 2018 to 3.6% in 2019 and arpu grew 5.1% without any service or modem rental related hsd rate adjustments.
As mentioned previously we are wrapping up our new wave integration efforts. We have spent the past two and half years learning and applying the best practices of our combined companies including upgrading plan with integrating systems and aligning programming and other agreements in the coming months. We will begin mapping existing customers on Legacy new age pricing and packaging over to spark light packages. We expect this change to continue to grow new waves are a few contribution throughout twenty-twenty and into twenty Twenty-One while it is possible. We will also see a short-term increase in turn off. Additionally. We are planning to complete our spark light rebooting number to new-wave markets and twenty20 a big thank you goes out to all of our Associates of Albanese integration efforts as integration were both lines down and new ways. We are excited to build on what we have learned and begin similar efforts in our Fidelity markets.
On the topic of fidelity integration planning has begun in Earnest and we anticipate spending up to forty million of incremental capital and realizing approximately.
15 million to 400 cost energy over the next three years as we've mentioned previously Fidelity's business model closely mirrors out of cable one. So we anticipate a relatively seamless transition as we integrate in standardized our networks with that said we will continue to work closely with our Fidelity Associates to gain insight into their best practices and accelerate the assimilation of companies before I turn the call over to Steven. I'd like to take a moment to welcome Jim overmyer our new senior vice president of marketing and sales. He joins us from Charter Communications where he served as vice president of marketing since 2011 with more than 20 years of experience and branding consumer marketing Sales Management and Market differentiation on confident. He will be a truck just a Sit as we work to strengthen our competitive advantage and now see them will provide more details on our fourth quarter results. Thanks, Julie the fourth quarter of 2019.
Once again produce solid Financial results revenues for the quarter worth 318.8 million compared to 269.9 million in the prior-year quarter of representing an 18.1% increase did not mention. This increase was fueled by a residential hsd Revenue increase of 18.9% and a business service Revenue increase of 41.6% excluding clearwave and Fidelity operations. Total revenue wage increase 3.5% year-over-year. Net income in the fourth quarter was 53.6 million net income per share on a fully-diluted basis was $9.32 per share wage expenses were a hundred three point four million or 32.5% of revenues in the fourth quarter compared to ninety one point eight million or 34% of revenues in the prior-year quarter a hundred fifty basis point Improvement off selling General and administrative expenses were sixty four point seven million or 20.3% of revenues in the fourth quarter of compared to fifty seven point six million or 21.4% of revenues in the prior-year wage.
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I just believe it was 158.3 Million for the fourth quarter and increased 24% from 127.6 million in the prior-year quarter. Our adjusted ebitda margin increased to 6:40 basis points you over here going from 47.3% to 49.7% Keep in mind that this is inclusive of a full quarter of fidelity operations.
Capital expenditures totaled $80 million for the fourth quarter of 2019 which includes 21.9 million related to clearwave and Fidelity operations here today. We spent two hundred sixty two point four million Catholics, which equates to 46.1% has a percentage of adjusted ebitda and 22.5 is a percentage of revenues when excluding the incremental Capital expenditures related to the new wage and clear with Integrations. Our Capital expenditures were 40.4% of adjusted ebitda in 19.7% of revenues in the fourth quarter of 2019. We paid 12.9 million in dividends to shareholders.
From a liquidity standpoint. We had a
Approximately $125 million of cash on hand as of December 31st, and we continue to generate significant free cash flow a quarter end. Our debt balance was approximately 1.8 billion consisting of Term Loan. No wings over all our debt the last quarter annualized adjusted ebitda after netting cash on hand against debt. Was it 2.6 times providing us with ample liquidity. We also have 343.3 million available for borrowing under a revolving credit facility as of your end as I mentioned on our last call on October 1st. We do the full amount of our four hundred fifty million delayed draughts on a and use the proceeds together with cash on hand to fund the Fidelity acquisition, which also closed on October 1st. The purchase price was 531.4 million in cash after a customary post closing adjustments month.
A few other items I wanted to discuss before we take questions first. I wanted to make note of the timing of our rate changes our annual video rate adjustment, which was implemented in February of last year will not be implemented until March this year. Well, most of our contracted programming and retransmission expense increases took effect on January 1st in both years, we expect these timing differences will impact the comparability of the first quarter results both mentally and year-over-year. However, we do not believe it will have an effect on our full-year adjusted ebitda growth second is we think about future Capital expenditures, we expect Capital intensity associated with running a business to decline at the same time. We believe that our highest returns and therefore our most compelling use of capital comes from building fiber and expanding the network to drive additional growth in 2019. We sent approximately $29 million related to network expansion and we hope to grow that number in 2020 furthermore. We expect to deploy incremental integration capital for our recent acquisitions and will likely have to do so in connection with possible future. Yep.
Activity as well.
Given that the expansion opportunities in Immigration Capital are not consistent from quarter-to-quarter and nearly a year going forward. We will not be providing a projection of our Capital intensity lastly off of m&a. We are actively exploring the variety of transaction that include both Acquisitions and strategic Investments. This includes looking at not only purchasing but also partnering with companies in our space as it means to former employee capital and expand the business and we maintain the flexibility to use cash debt or Equity financing depending on the situation.
Sarah we're not ready for questions.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press star then to you at this time. We will pause momentarily to assemble our roster.
Our first question comes from Philip Cusick with JPMorgan, please go ahead.
Gus, thanks Steven, you stole a couple of my questions there at the end. Um, the the $65 plans & unlimited you saw an ice pick up on those. Can you please give us the mix of customers coming in on even higher plans? And what's the percent of the base taking unlimited today?
Yeah, Phillips Julie. The the short answer is no I can't over in terms of new selling over 60% or taking higher plan. So that means either $65.80 or $125, but I don't I don't have to break out and we don't show the break out of each individual tear off and unlimited. I what was your question on unlimited? Just how what percent of the base is taking unlimited today is over 20% right now we have about half of our customers on the new plans and we're working at my grading the existing customers those on Legacy Cabo and new ways totally on to the new packaging pricing. So when that happens, we'll have a number.
Okay.
Understood and and why delay the video price increase. Is there something other than just a you know, sort of regular way business. Is anything changing?
No, it's just a matter of when we passed along our rate adjustment. We are doing it in a way that is conscientious of our customers pocketbooks to the extent possible begin with the programmers are passing along to us and given retrans happens. Basically on December 31st. We feel like we can't get good numbers together before then as well as the migrations the rate migrations that we talked about where we're taking existing customers that are not on our new packaging both in Legacy Cabo and a new wave and moving them to the new pricing and packaging which took priority over the video rate adjustment.
Understood and lastly going back to capex. You said that the capital intensity should come down in terms of it. Sounds like a regular way, you know life. Yep, and should we assume that that's in terms of dollars as well.
Well, I mean, I think that one's harder to say they'll just because of the nature of we keep adding onto the business. So, you know, if you really want to talk about the Legacy Cable ONE then I think you could make the argument that has a purpose as a dollar amount tied to that. But I think those numbers are getting harder to track the more things we had into the total.
Understood. Thanks guys.
For next question comes from Brandon is full with keybanc capital markets, please. Go ahead.
Thanks couple of questions that you mentioned the subscriber base and sort of Legacy cable on a NuWave accelerating year-over-year. Can you give us a sense? You know, if you expect that acceleration to continue in the next year, I think you did call out some potential turn and then maybe just along those lines. There's obviously different footprints that you've added to the portfolio over the the last couple of years. Can you talk to us a little bit about the differences in turn profiles and how you might be able to drive turn of a higher turn Market down to maybe a lower turn Market wage.
Sure, Brandon.
I think that well, I think exactly what I said the new pricing and packaging is helping to fuel growth. So to the extent that we move more and more of our based off that platform you will continue to see that growth. That is my expectation in terms of potential turn that was related specifically to Legacy New Wave transitioning to the new pricing and packaging in many cases New Wave has bundles that are being offered basically a cost and that's not something that is sustainable. So those folks will see rate adjustments that might not be palpable. Our goal is to save the HM customer on those but we expect that there might be some churn and looking at touring across the properties. I'm not going to get into specifics, but I will say that in Legacy Club.
Our turn is incredibly low.
New wave as it becomes more and more like cable one starts to mirror that Fidelity may experience higher turn in a short run as their policies and procedures come in line with Cable ONE related to collections for example, does that help with?
Our next question comes from Steve and bison with wolf research, please go ahead. Good afternoon. Just a couple for me the later video price increase. Can you talk a little bit about the size? I know history you tried to push through the entirety of your programming cost increase cuz that's still the idea.
Yes, exactly easy one and then have you thought about something like a Comcast Flex product for years the only customers either to increase the rate of acquisition or to just provide additional value that you might be able to charge for.
We thought about it Stefan. I think right now our focus is on on growing the business and maybe we can you know, we have we have friends at Comcast and we've talked to them and say they launched it off. We're going to wait and see how that goes. I think we're having to do anything that might get us in a place like exists on video where we are not in control destiny.
Understood and then lastly that was interesting commentary at the end regarding m&a and then also the Strategic investment any color on what those might look like is this kind of like connectivity via backpack or additional fiber build any kind of help on but it's kind of out there. I guess. I think we're always looking to expand our Network that can be things like fiber to the tower. It can be finding an anchor tenant in you know near near net. That's not existing that I think there's all kinds of ways to expand your footprint most of them including putting fiber in the ground and from that using that fiber to to get more customers and I think you know any and all and with you know, lots of markets through Twenty-One States. We see lots of opportunities for that and really not that dissimilar from what clearwaves whole business model is off and continuing to look for things like that is that but that specifically around the Strategic investment piece.
Yeah, that's great. Thanks for the color.
Please go ahead. Hey, good afternoon. Yeah, it's clay clay on for corrected a look. We've seen wow in Google Drive videos or a point at which you would consider dropping your videos off a virtual alternative and said
it's not our intention to to drop video at this time. It's been a nice mix for us as video declines in in revenues not the cash flows with the revenues going down and filling the bucket back up with high-speed data and business services how we deliver that product might change in the future, but with no no plans right now to drop video out, right?
Okay. Thanks.
Our next question comes from John Conroy with JK media hype ask you a couple of somewhat naive questions, cuz I'm not all that close to a g company, but when was the last explicit price increase on hsd and when my next one day say it again, please October 2015 fifteen. Yes, and I assume there's no plans for this year.
Not at this time. No, we we're getting
Our next question comes from Griffin with moffettnathanson.
we're getting some nice growth. Yeah through through unit growth and arpu growth at this point in time. But that is that is always a possibility if Dean warranted wage clearly, we invest significantly in capacity and allowing customers to use more and more and data usage continues to grow up. And so, you know it logically at some point you recoup that but we've been able to to grow without to this point. Why shouldn't Broadband unit growth? Excuse me be higher than three three and a half percent given your education is 15 to 18 points below other cable companies is as simply because of your demographics.
No, it's because of our strategy we have a I guess what we think is a simply saying we can't cash flows not subs and we had a lifetime value orientation around our subscriber growth. So we don't go for every subscriber and therefore it's we don't believe it's a pure market share game.
Okay.
Q one little aside I was at the meeting in New York years ago and Tom might presented that slide presentation and why it's all about I high speed data and business services kudos to him five or six years later Wall Street has caught on and off as far as cable companies are concerned investors couldn't care less about a video because they look at your margins which are ten points higher or 13 points higher than a cable companies. So I don't know if Tom is resting in the Sun, but you can tell them one investor says kudos to you.
I saw him last week and we we talked about it every time we meet.
Thanks a lot. That's all I have.
Thank you. Our next question comes from Frank Lutheran with Raymond James, please go ahead.
Hey.
This is Rob one for Frank. Actually, are you guys interested in any of the spectrum? Thank you.
Yeah, I think a little obviously monitor what's going on there don't I don't think at this point we would call ourselves a bitter, but definitely keep watching what's going on with all the various functions and different kinds of the, you know government type programs as well. So great. Thanks.
This concludes our question-and-answer session. I would like to turn the conference back over to Julie Lawless for any closing remarks. Thank you Sarah. I want to thank all of our Associates for another wage order and year. We appreciate everyone joining us for today's call and we look forward to speaking to you again next quarter. Thanks all.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.