Q2 2020 Cable One Inc Earnings Call
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After today's presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the conference I Love to Mr., Stephen Cochran, Chief Financial Officer. Please go ahead Mr. Cochran.
Thank you actually.
Good afternoon, and welcome to get a one second quarter 2020 earnings call. We appreciate you joining us today.
Well. We proceed I would like to remind you that today's discussion may contain forward looking statements relating to future events expectations. You can find factors that could cause cable and actual results could differ materially from these projections listed in today's earnings release and in our recent filings.
Well one is under no obligation and expressly disclaims any obligation except as required by law.
Dave or alter its forward looking statements, whether as a result of new information feature.
It was.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at <unk> IR Dot Ketel one.
Joining me on today's call is our president and CEO do you live or what that let me turn the call over digitally.
Thank you Stephen good afternoon, I want to thank everyone for joining us for a second quarter earnings call.
Before discussing the quarter I watch a welcome our new associates from value.
And all fiber Internet service provider operating in Kansas. This transaction closed on July 1st and we're very excited.
He joined the cable I family of brands.
To begin to see them in our financial results, starting the third quarter.
In addition to value that we completed a few other industry. Since we last spoke with you will see them will highlight later in the call.
Our second quarter results headlights, the resiliency of our business model, especially in the face time with uncertainty like we're seeing now.
For the health and safety of our associates and community. We made deliberate choices that results that do not support going revenue and increasing cost.
Even with those negative elements impacting results, we grew our quarter over quarter revenues by 14.9% and our adjusted EBITDA by 18.6%, while increasing our adjusted EBITDA margin hundred 50 basis points to 49.7%.
To meet the increased demand from new residential data customers refocused our efforts on completing HFT already turned out for most of the second quarter.
We added more than 44000 residential HSD customers. So the answer the first quarter 2020, which excluded approximately 2000, new customers, who never paid off.
Our and our high risk purchase connection.
Year over year growth increased 23.7%.
The health crisis has reinforced the need for reliable value priced and flexible HST service.
We believe that as a result of years of investment and a commitment of our associates, our business was well positioned to handle the increased demand.
Meanwhile, our video lots of accelerated slightly in the quarter a trend that we recognized an adopted too many years ago or strategic shift to an HSD and business services centric model and able to study transition away from the video product and as reflected in our relatively low exposure today.
On the business services side, we saw continued revenue growth with quarter over quarter increases of 17.5%.
All the pandemic has caused some pressure on both existing and new sales just small business customers. It is also presented opportunities primarily among larger in enterprise businesses, where the need for superior Communications technology has increased.
During the second quarter, we increased the maximum speed of our caronna fiber offering for small and medium businesses from two gig to five gig symmetrical.
We continue to expand our E bond offering to additional markets.
Throughout the quarter number does not service the subscriber stuff restart it or upgraded services outpaced the approximately 630 customers representing less than 1% of our customer base that paused or downgraded their services.
We will continue to invest or products that fit our customers growing needs and work closely with small business owners, who have been adversely impacted by the crisis.
There are still many unknowns when considering the trajectory of a pandemic and its kill skating impacts on the economy, our associates and our customers.
I've been 19, and our associated response is once again caused us to forego some revenue an increase certain expenses negatively impacting adjusted EBITDA by nearly $15 million and the second quarter, but that was mostly offset by a residential HSD growth and reduced expenses and some other areas.
Data usage during the second quarter increased more than 52% year over year and over 13% sequentially to roughly 440 gigabits per month.
We noted last quarter that we were evaluating our existing data plans and we anticipated making adjustments based on that increased usage pattern.
Those changes went into effect on July 1st 2021, we revised the majority of our residential data plans to provide 50 to 300 gigabits of additional data depending on the plan at no additional charge.
With these enhancements we expect the vast majority of our residential customers will continue to stay within their data plans.
Our network remains well ahead of the consumption curve with peak usage, averaging less than 25% for downstream tropic unless that 17% per ton traffic as of the and the second quarter.
We remain steadfast and supporting our customers and community than me during the Cobot 19 pandemic earlier. This summer we announced our extension through the ended the year up in many of the release measures that we set in place during the first quarter as part of the FTC keep Americans connect to pledge, which ended on June thirtyth.
We're continuing to offer our 15 megabit residential HSD plan for $10 per month for the first three months of service through the end of this year.
This is designed to help low income families as well as those most impacted from Corona virus challenge.
Additionally, we're extending access to nearly 140 pre public was like hot spots across our footprint through the end of this year in order to keep individuals in communities connected during the crisis.
Other measures include working with residential and small business agent Dan Boyd customers go up in harms financially by the pandemic to keep them connected including waiting late fees through July 31st 2020, and offering flexible payment plans.
Partnering with community hospitals medical centers, and other essential institutions and addressing their unique broadband connection need some challenges and as I previously mentioned permanently boosting the data capacity for a majority of our residential data plans.
In keeping with our values our associates continue to respond to the needs within our communities by providing meals for first responders and healthcare workers I, suppose donating time and resources to local food banks and nonprofits. During this critical time for the seventh year in a row be donated hundreds of chromebooks title on school.
Across our footprint to help bridge the digital divide for students in schools with limited technology, and we recently gave more than $50000 to K through 12 schools in our markets for back to school supplies.
I said, that's on our first quarter call, but it bears repeating I am so we're very proud and humbled by our cable one team.
No matter what her 2020 has thrown our associates they ever named agile and responsive never taking their eyes off the ball, while taking care of each other our customers and our community.
Throughout the crisis, our primary focus that's going on the health and safety of our associates and their families and mid March we instituted multiple initiatives to protect our associates. So they have churn we're able to provide outstanding service our customers have come to expect from our.
This quarter reflects a full three month with our new operational procedures in place.
This includes more than 90% of our corporate and call Center Associates successfully working from home at this time and for the foreseeable future.
I was just don't rule is critical to operations, who are unable to perform their jobs from home following vigorous safety protocols and procedures based on federal state and local health guidelines.
In March we also began providing purpose pay a 25% premium to hourly pay to both associates asked to lead their homes in support of completing our promise to connect our customers to what matters.
Purpose pay will continue to be in place until early September at which time, we plan to wind down the program.
Additionally to reduce financial uncertainty and allows flexibility and caring for themselves or family members impacted by Cobot 19, we enhanced our associate time off program to provide up to 80 hours of additional emergency paid time off.
For associates and eat up more time emergency family will be provides an additional 10 weeks of job protected leave a two thirds regular okay.
These combined measures have proven critical and supporting our associates through an extremely difficult time, while still maintaining operations in order to keep our customers community connected.
Our cross functional incident management team has worked a round the clock over the past several months to monitor and modify operations on a market by market base.
And address the unique situations and conditions impacting our says you had been community as a result as ever sold this pandemic.
In addition to keeping our associates well informed the incident management team or anything constant contact with our leadership team, enabling us to make critical decisions and quickly in this rapidly changing environment.
After a brief pause due to the pandemic our rebrand new wave communications just Barclays is back on track, but the vast majority of activity is expected to be completed by year end.
Work to transition uniform trucks, and signage is well underway and we are excited to bring our new wave associates and customers hundreds of scar quite umbrella.
The integration of our Fidelity acquisition continues including recently announced plant upgrades in Missouri in Arkansas in order to bring fidelity up to cable one levels of service.
Additionally, we consolidated spark light and fidelity, Oklahoma operations under common local management.
Well not only allow for a more geographically efficient structure, but also let us continue to capitalize on best practice from both companies.
As we mentioned last quarter 93 year timeline to complete integration.
And we were fortunate to have a wall pre closing period to prepare.
That timetable coupled with the knowledge and experience gains from prior integration projects has resulted.
Being ahead of schedule.
Now Stephen will discuss our second quarter results as well as our financial position liquidity and leverage.
Thank you Julie.
The second quarter, and 2020 pretty strong financial results revenue for the second quarter were $328.3 million compared to $285.7 million.
Prior year quarter, representing a 14.9% increase this increase was fueled by a residential HSD revenue increase of 23.5% any business services revenue increased 17.5%, excluding fidelity operations total revenues increased 3.3% year over year.
Operating expenses were $106 million or 32.3% of revenues in the second quarter compared to $95.7 million for 33.5% of revenues in the prior year quarter 120 basis point improvement.
Selling general and administrative expenses were $65 million or 19.8% of revenues in the second quarter compared to $60.1 billion for 21% of revenues in the prior year quarter 120 basis point improvement as well.
This includes a significant increase in our bad debt reserve in Q2 to account for non paying customers that were committed not to disconnect as part of the Fccs keep Americans connected pledge.
Net income in the second quarter was $62.5 million and net income per share on a fully diluted basis was $10.63 per share.
Adjusted EBITDA was $163.2 million for the second quarter, an increased 18.6% from the prior year quarter.
Our adjusted EBITDA margin increased 150 basis points year over year going from 48.2% to 49.7%.
Capital expenditures totaled 78.7 million for the second quarter of 2020, which equates to 48.2% of adjusted EBITDA and 24% of revenues. We attributed the majority of our sequential increase in capital expenditures to labor and materials supporting elevated HST insulation and purchases to ensure we had.
What's supply chain.
In the second quarter of 2020, we paid 13.6 million in dividends to shareholders.
As announced earlier this week, we increased the quarterly dividend by 25 cents to $2.50 per share.
From a liquidity standpoint, we raised approximately $470 million in net proceeds any public equity offering during the second quarter.
Unfortunately, the proceeds were used to repay our outstanding hundred million dollars and revolver borrowings.
Expected the remainder for general corporate purposes, including acquisitions and strategic investments.
We had approximately $643 million of cash on hand as of June Thirtyth, and we continue to generate significant free cash flow.
At quarter end, our debt balance was approximately $1.7 billion, consisting of term loans and finance lease liabilities and we had $321.3 million available for additional borrowing under our revolver.
Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was at 1.7 times, providing us with ample liquidity.
Before taking questions I'd like to give an update on our recent acquisition and investment activity. We've had a busy few months working on several smaller strategic transactions.
As Julie mentioned earlier, we closed on the value net acquisition on July Onest debates purchase price was $38.4 million value that generated approximately $8.4 million in revenues in 2019 and their operations will be reflected our consolidated results starting with third quarter reporting.
During the second quarter. We also entered into an agreement to purchase approximately 40% of Whisper high SP, a fixed wireless broadband company.
Whisper was a significant winter and the connect America fund to auction, which I'll call Caf two for sure.
Across six day. It's currently served by cable one.
We partnered with Stephens capital partners, and Nathan Stueck, Whispers, founder who remains as largest owner.
We close this transaction in early July so that the investment and our related pro rata share of earnings for the third quarter will also be reflected in our third quarter funding.
Also during the second quarter, we acquired less than 10% interest and next link Internet another fixed wireless provider and cast to winter next linked operates in six states in which cable and also provide service Bill Baker, the founder majority owner and see if the company is our new partner and continues to run.
Good day to day business.
Given the ownership position in the investment has been reflected on our second quarter balance sheet at cost.
We believe the fixed wireless is a great compliment to our business and less dense areas surrounding our markets do the Caf two program, both whispering next point or expanding their networks and bringing broadband to unserved and underserved parts of America, given our rural broadband focus we feel that these companies are strategically aligned and will contribute to our value creation overtime.
Finally earlier in July it was announced that we entered into an agreement with hard great communications, whereby we will contribute our anniston, Alabama system to our great for minority equity interest in the company.
Hi, great, we'll be able to use its regional scale to further invest and began Austin market an area of the country in which we currently have limited presence.
Finally, as a result of the transaction, we will share hargraves growth, while increasing our opportunities for continued it investments.
We expect this transaction to close in the fall ending certain regulatory approvals other customary closing conditions.
Given that our ownership interest will be less than 20%, we will be recording this investment at cost as well.
As of June Thirtyth to 2020, Amisom had approximately 18000 residential HSD customers and generated last quarter annualized revenue of approximately $38 million.
We're looking forward to partnering with our management team led by CEO, Michael got thinker and the investment partners at the Pritzker organization Stephens capital partners and Redwood partners.
Plan to continue to follow our balanced strategy to deploy cash and grow the business as we said before that entails a combination of seeking broadband related acquisitions and investments opportunities in rural markets as well as capital projects intended to drive long term growth.
Lexi, we're now ready for questions.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble level stuff.
Your first question today comes from Greg Williams with Cowen. Please.
Go ahead.
Great. Thanks for taking my question first one just on ARPU. It looks like you posted a solid ARPU gains across the board I'm just trying to understand the sustainability of the ARPU strength, you mentioned a lot of customers taking faster speed, but at same time on July 1st you guys changed your rate card a little bit to provide some extra data and then Mike.
Second question you try to some good detail on the value not in Hargrave transactions.
How should I think of them from the perspective did they have similar margin profiles. Thanks.
I'll jump in on the ARPU and let Steven take the Oh Heartbreak question.
You're exactly right Greg.
Our sell in to higher levels of service.
In the past 100 Mag was our standard service that is no longer the case as we continue to sell in at higher level, 70% or more of new customers coming onboard.
Our electing to get service at a higher than 100 milligram level and those are obviously yet at higher rates now during the keep Americans connected pledge period, where it was pretty well no.
We were not sustain any overage feet. So that was something that cable on took on on its own behalf as well as no disconnects are selling for unlimited fell during that period, but the premium sell into higher tiers did not so it continues to drive the ARPU up recall.
Also that we did migrate new wave customers onto our flex pricing and packaging and so that was bringing new wave new waves ARPU up closer to cable one historical ARPU.
There is shows no signs of slowing down and I would expect stock.
Once we start.
Having our overage fees in effect the appeal of unlimited, we'll go back up.
As well.
And then on the on the margin question I mean value that obviously the smaller operator.
It doesn't have as high as margins as we do.
Good for a company their size their margins were good and so and we would anticipate the overtime with the scale on the areas, where we can help them that a those margins will align nicely with cable ones margins.
On an incident, we don't give system specific margins or even region specific margins.
But from a system standpoint, it looks a lot like the rest of the company.
Great. Thank you.
Thank you.
We have reached out allocated time for the question and answer session.
I would now like to turn the conference back carve it means Julie Moelis for any closing remarks.
Thank you waxy before handing the call I would like to take a moment to welcome Sharif Smith, the newest member of our board of directors and experienced and highly regarded attorney who is very familiar with our industry. Sharif is a valuable addition to our already exceptional board and we are eager to reap the benefits of her in.
Insight and our acumen.
In closing I went to say thank you to each of our associates for continuing to live out our company's purpose. During these turbulent times.
To provide communities the connectivity that richer and richer their world is more important than ever and I'm very grateful to be working alongside of all of you.
Thank you.
Thank you Ms. Lawless. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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