Q1 2021 Cable One Inc Earnings Call
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To update or alter it's forward looking statements, whether as a result of new information future events or otherwise.
Additionally, today's remarks will include a discussion on certain financial measures that are not presented in conformity with us 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 and on our website at <unk> Dot cable one dot net.
Joining me on today's call as our President and CEO, Julie Wallace with that let me turn the call over to Julie.
Thank you and good afternoon, everyone. We appreciate you joining extra today's call. That's one of getting into I will well I want to welcome him more than 800, Hargrave colleague who are now cable one 114.
The acquisition of Hargrove closed on net and we are extremely exciting to have high grades part of the cable one family.
I'd also like to take a moment to welcome Megan debt, our new senior Vice President of human resources, who come to us from Hargrove.
Megan is a valuable addition to the cable one leadership team. She brings extensive experience and successfully guiding motivating and integrating team and fast paced high growth company.
She will provide unique insight into hardware culture and initiatives as we begin the process of bringing our queue company together.
We will get into more details on the acquisition later in the call.
I'll begin by reviewing some highlights an important events from the corner before handing the call over to Steven for a full recap of our price.
Financial performance.
We are pleased to have once again delivered a quarter of robust customer and financial growth.
And the first quarter revenues increased by 6.2% compared to prior year quarter. Adjusted EBITDA increased by 14, 4% and adjusted EBITDA margin improved 380 basis points to 52.9%.
The record breaking residential hsp customer growth, we and others in the industry experienced in 2020 has led to conjecture about whether last year was predominantly a pulse forward versus a more sustainable long term trend it.
It's still early in 2021, but so far customer growth has remained resilient.
In the first quarter of 2021, we added 22000 residential high speed Internet customers on a sequential basis versus 19000 in the first quarter of 2020.
On a year over year basis that reflects an additional 86000 residential HFC customers force 12% growth.
And that figure also excludes the roughly 17000 residential data customers as of March 31, 2020 that we contributed to Hog day and 5000 customers required from value net in July of 2020.
From the beginning of 2020 until now are HSC penetration has increased nearly 500 basis points from 33, 2% to $38 one per cent highlighting how far we've come as well as the significant growth opportunity that remains available for us to capture.
Oh, it is reasonable to believe that residential HFC customer gains will eventually revert back to historical trend a stronger growth in the first and third quarters of the year are healthy customer and have continued to far in the second quarter of 2021 in fact, our April customer growth with our best month of 2021.
Given the pandemic surge in 2020, we believe that comparing 2021 customer additions to pre pandemic 2019 figures provides important context engaging growth.
In this vein note that in a single month of April 2021, residential HFC customer ads were significantly higher than during the entire second quarter of 2019.
Residential HSC domain and not only remained strong as far as net additions, but also increase for higher tier product offerings as well selling for packages, where the download speed greater than 100, Meg increased from about 70% in the fourth quarter of 2022, approximately 78% in the first quarter of 2002.
21.
Along with other contributing factors such as in and greet increased take right of our unlimited data plan as well as migration of existing customers into higher tears contributed to our 6% year over year residents residential data <unk> growth.
As a reminder, we haven't had a rate increase on our legacy systems since the fall of 2015, and we actually decreased price on a higher tears at the start of 2019, when we launched our new pricing and packaging across the legacy footprint.
Business services revenues began to show positive momentum this quarter with growth of four 3% year over year and five 8% organic basis. After taking into account are innocent devotes divestiture and value net acquisition.
Business as a reopening and thanks to our seasons sales associates robust network and extensive suite of products. We continue to be optimistic about a rebounding growth in this area.
We are particularly proud of this team per proactively seeking to partner with government and local entities to provide connectivity in rural communities.
Ah recently committed construction of a fiber optic network for crowned King school and crowned King, Arizona with one of our latest examples. This effort. It's just one piece of a larger project with the Yavapai County Education services agency that will deliver high speed internet to more than 72 schools and libraries and one.
100 businesses within Yavapai County.
Prior to our build Crown King School had access to just five megabits per second Internet service, a speed well below FC.
<unk> bandwidth recommendations for schools and libraries.
Cable one was also recently awarded a 1.4 million dollar grant in partnership with the Arkansas World connect program to construct and all fiber network delivering symmetrical speeds of up to one gigabit per residential customers. After five gigabit per business customers in a rural communities have all been in Bolton both.
Partnerships illustrate are steadfast commitment to bridging the rural broadband defied and the communities across our footprint.
As an update residential and business day to growth for the businesses in which we have minority investments also accelerated sequentially as these companies.
Currently 25700, new customers in the first quarter of 2021.
These customers are not reported in a result, but they demonstrate that can can you demand for high quality HFC services as well as the share commitment of our strategic partners.
Also keep in mind that hardware net ads.
Are included in that figure and that is partial quarter of Hargrave results will be reflected in our second quarter 2021 financial.
Turning to our network.
As a result of our continued investment in upgrades targeted at expanding capacity are downstream plant utilization improved meaningfully from the prior year.
Although average day to usage increased 29% year over year to just over 500 gigabytes per month or downstream traffic at peak improved from 28% utilization 220 per cent and upstream utilization remains steady at 18%.
Is rewarding to know that we net precedented surge in internet usage throughout the pandemic and we're continuing to plan and invest as we expect to remain prepared for the future needs of a residential and business customers.
The integration of Fidelity continues with plant upgrades throughout the small cities and large town fidelity serves most recently in our Missouri and Arkansas market.
Fight the disruptions of the past year, we are still on schedule operationally and ahead of the original one right costs energy estimates laid out at the time of the acquisition recently, we reached another milestone as we successfully migrated all fidelity associates onto technical platforms that connect fidelity associate.
Two internal cable one tool.
Earlier this week, we completed our acquisition of the remaining equity interests and how great that we did not already one we appreciate the efforts of Hargraves management team, who work diligently with us over the past several months.
Our combined company of of more than 3500 associates now serves more than one 1 million customers across 24 states.
We believe higher grades fast growing market likeminded strategy and commitment to providing fast and reliable Internet service to rural markets make it a natural fit with cable one while at the same time, providing a platform for future organic and an organic growth in the southeast.
As integration planning continues we are excited to build on what we have learned from a prior acquisitions. We will work closely with our hargrave associates to gain insight into their best practices in order to seamlessly combines both companies.
Very encouraged by the reception we have received us far.
As a reminder, we anticipate realizing approximately $45 million an estimated annual boonmee synergies one.
For the next three years.
As the communities we serve continue to feel the impacts from COVID-19, we are proud to participate in the FCC's emergency broadband benefit program through this program eligible households, participating in that program will receive up to $50 off the monthly bill based on their current Internet service.
And equipment rental or up to $75 off per customers, who live on qualifying tribal lane.
Alongside this effort to ensure our customer stay connected to their loved ones from work and school, we have kept and placed other COVID-19 release measures, including pre.
Providing free public Wi Fi hotspots across our footprint.
15, Megabit service for $10 per month for the first three months to help low income families.
And our partnership with HDA connects and the education Super Highway for the K to 12 bridge to broadband initiative, which helps school districts and states provide internet access for students in low income households.
In addition to our COVID-19 relief measures. We are pleased to support title one schools in Arizona, Idaho, Illinois.
Anna Mississippi, Missouri, and Texas this year through our Chromebooks for Kids initiative now in its eighth consecutive year.
We recently donated 500 chromebooks for the 2021 2022 school year to help bridge the digital divide for underprivileged children by providing computers to schools that lacked funding.
Supporting nonprofit organizations in our communities remains a priority as they work tirelessly to provide services to individuals and families. During a time when the need is greater than ever with.
With the launch of cable one charitable giving from last month, we will provide grants to nonprofit organizations throughout our markets concentrating on the areas of education in digital literacy hunger relief and community development.
And now Steven.
Thanks Julie.
The first quarter of 2021 generated exceptional financial results revenues for the first quarter were $341.3 million compared to 320 $112 million and the prior year quarter six two per cent increase this increase which included $3 $2 million of revenue from value nets operations was fueled by a residential aged.
B revenue increase of $18 five per cent and in business services revenue increase of 4.3%. Meanwhile, first quarter of 2020 revenues included $911 million from our divested Amazon operations to give a sense of our year over year organic growth. When we exclude first quarter of 2021 value net results and first quarter.
2020 Aniston results, we would have seen first quarter total revenue increased by 8.3% residential HSV revenue increased by 25% and business services revenue increase my 518 per cent.
Residential hsp customers grew by approximately 86000 or 12% year over year, which is Julie mentioned excluded approximately 17000 from Amazon system that were contributed to harddrive and included 5000 the required from value.
Operating expenses were $101.5 million or $29 seven per cent of revenues and the first quarter compared to 105 $9 million or 33 per cent of revenues can prior year quarter of 330 basis points improvement.
Capital expenditures totaled $71 $9 million from the first quarter of 2021, which equates to 39, 8% of adjusted EBITDA.
During the quarter, we invested $11 $5 million of Capex for network expansion and $4 million per integration activities.
Adjusted EBITDA less capital expenditures was $108 $5 million for the first quarter and increased 16, 7% from the prior year quarter.
In the first quarter of 2021, we paid $15 $1 million in dividends to shareholders.
In March 2021, we issued $575 million of zero percent convertible notes due 2026 and $345 million of 1% convertible notes due 2028 day.
Net proceeds of the offerings were $895 $2 million after deducting initial purchase or discounts and other offering costs and expenses.
From a liquidity standpoint, we had approximately $1 $5 billion of cash and cash equivalents on hand as of March 31, and we continue to generate significant free cash flow at quarter end, our debt balance was approximately $3 $1 billion, consisting of approximately $1 5 billion in term loans $650 million in unsecured notes $920 million.
And convertible notes in finance lease liabilities.
We also had $459 million available for additional borrowings under our revolver at March 31.
Overall, our debt to last quarter annualized adjusted EBITDA after <unk>.
After netting cash on hand against debt was two two times as of March 31.
As Julie already mentioned earlier this week, we closed our purchase of the remaining approximately 85 per cent of equity interest in hardware that we didn't already own.
The transaction, implying a $2 2 billion total enterprise value for 100% of hard grade on a cash free and debt free basis. The acquisition was funded with cash on hand, including the proceeds from the convertible notes and the net proceeds from the new $800 million incremental term loan b.
Following the closing of the heart rate transaction and the term loan B financing, we had approximately $3 9 billion and total debt outstanding.
And approximately $400 million of available cash and approximately $460 million of Undrawn revolver capacity.
Based on the current LIBOR rates the projected annual interest expense on our outstanding debt is approximately $107 million with approximately 71% being fixed rate debt.
Weighted average duration of approximately six and a half years and a weighted average interest rate of approximately two 7% after giving effect to our existing swap transactions.
Chad, we're now ready for questions.
Thank you very much we will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
Draw your question.
Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
And the first question will be from Craig Moffett with Moffett Nathan. Please go ahead.
Hi, Thank you first Julie I just wanted to acknowledge and appreciate all that you talked about for the work that youre doing to close the digital divide at cable one so thank you for that.
And on a two related questions actually to that.
One.
It's a little hard to tell exactly what your organic footprint growth is.
But I know a lot of your peers are fairly aggressively pursuing edge outs and that sort of thing.
Can you just talk about what your expectations are for footprint expansion.
Organically and then separately.
How you would think about participating in.
Our funds that would come from the government. If indeed, we get a jobs Act infrastructure plan and then second if you could also just comment on.
Your expectations for the stimulus plan I see you've already got.
A page on your website or potential applicants. If you could just talk about what youre expecting to see from that and what you've done to prepare.
Sure.
Thanks, Thanks for recognizing what our associates are working hard to do in these communities and small cities and large towns Craig as far as the edge outs I don't know.
And how much I would want to divulge about what our plans are if you think about it wherever we're edging out there is some other provider there there's really no place.
In the United States, where there isn't a telco and other fiber provider and other cable co operating services, what I would say is it.
That's our profile if it is a small from a large town if they have a need for a more robust more reliable internet service.
That's something that we would consider but I don't think we want to tip, our hat to anyone about where we might be planning services in the future quite honestly.
As far as the EBITDA plan.
Yes, we quickly scrambled a bunch of people are obviously working very hard to consulting.
To fill the needs of the other government new Sac.
And I.
I imagine that I'm, not having a crystal ball that.
People, who have our services, we'll certainly consider upgrading since $50 there bill.
<unk> will be paid for by the government keep in mind, our 100, Meg service is $55 a month.
So it would be quite easy to upgrade to either our 200 Meg service on a 300 Meg service.
But it's quite possible that we will draw some people in queue to service for the first time for folks to try a reliable hard wired broadband service and because of the best opportunity.
Okay. Thank you.
And the next question will come from Frank Louthan with Raymond James. Please go ahead.
Yes.
Great can you walk us through the next steps with <unk>, what sort of incremental investment.
Necessary can you give us an idea of where they are on the commercial side they've got some network throughout southeast outside the territory as should we think about that as an opportunity going forward.
Sure. So I think from an incremental investment standpoint on that from a relative purchase price standpoint. This one is pretty low I think we're guessing that its somewhere in the $30 million that is much more just alignment and common technology from a capital standpoint incremental that will be spent over a few years, but for the most part.
Very well invested network a lot of fiber in the network.
And commercial is a really important part of their business given that it came from a more ILEC background. The same weighted did commercial was always part of their services and they've been a big player in that so.
It's an important part of their business and we're excited too.
To both build our existing cable one commercial business and learned from what they've done really well.
As we combine the two teams together.
And then the.
Was there another question there Frank.
Well I'll, just say broadly characterize the fiber networks that they have on the commercial side I mean, one of the how much fiber to have outside of the network and how can you capitalize on that.
What's your what your thinking is for that part of the business sure. So they have a I mean, they've got a pretty robust fiber network that's more of a throughout.
A great deal of Georgia going over into North Florida.
You know with the acquisition of Anniston from Us increase their Alabama presence.
Working its way over towards Atlanta, 40% of their.
Customers are at 40% of their homes Bachelor actually served with fiber to the home. So it's a very deep fiber network.
And.
Both from a commercial standpoint, and a residential standpoint, so so we definitely and they've been making a lot of investments in it over the last few years definitely under.
The Pritzker ownership Theres been a lot of investments made.
We feel very fortunate to get the chance to monetize over time.
Alright, let's see their touchdown and round here so.
Thanks, a lot.
Sure.
The next question will be from Greg Williams with Cowen. Please go ahead.
Great. Thanks for taking my questions first question is on fiber to the home.
Over the last few months at analyst day and earnings calls.
It seems like some of these telcos R&D at a fever pitch.
In addition to infrastructure funds I know you guys overlap with AT&T has been pretty vocal about it and Centurylink maybe to a much lesser degree I think frontier also overlapping you Federated territories and last Friday. They came out with some aggressive initiatives are you seeing or anticipating any encroachment on your space and then the second question is more housekeeping I think your <unk>.
They intend to be up a little bit can you remind me what costs are sort of increasing as volumes pick up in the reopening.
We think about SG&A comps in 'twenty one versus 'twenty.
Yes.
I'll start with the fiber to the home.
And question.
And so.
Our largest we pretty much split our footprint with AT&T and Centurylink, we have less than 10 per cent of our homestyle, Kevin overlap with firm tier so thats on an overwhelming concern.
TNT does have fiber I mean, our footprint.
Is.
20% is competitive with about 13% of that being fiber to the home and the majority of that would be AT&T. So we didn't know how to go up against AT&T.
Where they have fiber.
Do we see any other encroachment now, but you can you can believe that we track them very carefully and then.
And then just to track where where anyone is coming into the marketplace not just the ones that we've mentioned so far.
But then we turn to focus on ourselves.
And our associates, our customers and our community and we make sure that we are providing a service per value and that means the speeds that people need the reliability that customers need and getting service from their neighbors quite honestly, we think thats. The most important part to remaining competitive.
Yeah, and then on the SG&A side, Greg and this is all in the Q. So you can.
Pull it from there as well but.
One of the largest increases was $2 $4 million related to M&A cost as the hard great transaction happened almost a work around that happened in the first quarter. We also had.
Higher health costs by about 1 million eight what's really tied to the fact that.
The second half of last year's first quarter was when we just saw a lot of people stop going to the doctor.
With with anything other than COVID-19 related issues and so so that was a bit of a catch up we also had a.
About 1 million seven higher and labor costs that a lot of that is actually just tied to our how we accrue for our bonus and that was the greatest both bonus accrual. This years first quarter compared to last year's first quarter. When there was a lot more uncertainty about where we're going and then lastly, a $1 million in conversion cost system conversion costs tied to our ERP.
Inversion that.
Launched effective April one.
Great. Thanks for the color.
Sure.
Next question is from Phil Cusick with Jpmorgan. Please go ahead.
Hi, guys. Thanks.
Julie maybe you can go again into that April strength, what have been the drivers there is that stimulus money and.
And how much may have been so far.
All I heard was drivers I don't know drivers of what drivers that either drivers of the April growth Oh, the April strength sorry.
Yes, alright, so I'm getting a little from hearing must be Kelly [laughter].
April continues what we've seen quite honestly.
From about channel and from the start of COVID-19 quite honestly I mean, it just it has not let up.
Same things that have been in play since mid March April of last year are continuing to drive growth, we see people coming to us from <unk>.
From literally everywhere.
And I mean everywhere it could be so only it could be DSL and it is DSO.
It is also fiber to the home.
We have people being drawn to us.
For knee they need a fast network they need.
Network with a lot of throughput they need a network that is reliable.
We need people that take care of them and in a way that feels like.
Like their neighbors and our growth.
So far are not slowing down.
Okay, and you talked before about what the uptake looks like.
Prices are plans above your basic price point can you update us on that.
On our packaging.
<unk> got 100, Meg services 55, we have not had a real I'm sorry.
On the <unk> above or above.
Cell line above the 55, my apologies so 78% per in the first quarter of this year, 78% people sold and tears up Bob 100 Megs.
Currently our total subscriber base, 59% of them are above 100 megs.
It's not just selling thats driving the higher <unk>.
Great on tiers, but current folks upgrading as well.
That's great and then.
And then maybe last thing.
Just digging into the fidelity integration a little bit.
What do you expect on pricing integration have you done that yet.
We have not done that yet and I would expect exactly what we saw out of new ways new waves prices are exactly the same as cable one's right. Now there are two so let me just put it that way the prices again.
But at the same as our legacy cable one I would expect the same thing to happen with fidelity.
One thing I would add to fidelity as they're growing tremendously as well and so we definitely have a mindset of don't fix what's not broken and so we will work through it but no no rush to need to do anything thats for sure.
Got it thanks to value.
The next question will come from Steven Cahall.
Wells Fargo. Please go ahead.
Thanks, and maybe just first on the M&A front.
After her grades and a few recent acquisitions and minority investments already in the pipe do you expect to find more M&A opportunities in the pipeline for the next few years or should we expect the next couple of years to be more about integration organic growth and some of those bets that you've already made through the minority investments.
Well I mean, I think we're always looking for opportunities to deploy our balance sheet and to grow on the strategy of.
Broadband in rural markets and so we'll keep our eyes open for that I think clearly with what we have with <unk> and what we have with Mega.
We've got large deals ahead of us and so I would anticipate that this definitely or we'll get to see and we will spend time on will either be investments in other businesses that set up things for the future or smaller acquisitions that are more tuck in in scale. So.
I consider both mega and hardware to be somewhat platform acquisitions, and both substantive size that added both added a lot to our company in general.
And we'll continue to look for other opportunities to fill in filling the gaps, but needless to say that our footprint is now bigger so things that are tuck in.
It might not have been tuck in before but are now things that we can look at so we will continue to explore those but definitely wouldn't anticipate.
Large transactions.
Thanks, and then a competitive one because it's one we've heard a lot from investors.
We're getting asked whether or not you see T mobile or fixed wireless product as being a meeting per point of risk I thought that data point you just gave about 59% of the base above 100. Meg was very helpful. Can you just help us contextualize, what you think fixed wireless is going to mean for your market and whether you see it as an incremental competitive threat.
Okay.
Certainly.
You're very close to what T. Mobile is doing but also understand that they need to do the investment in <unk> in order to take care of their own customers and their own cellular network.
The needs of customers are clearly being driven by much higher data use rates then I really think this product will be able to provide in the long run and I see it as you know at least half friend.
They will need backhaul, so I'm not overly concerned, but again keep our eyes on them and then turn the focus back in on ourselves and making sure that we are providing what our customers need.
The 200 Meg point.
Point is really important as far as the speed side of it but just as importantly, as the average customer using over 500 gigs a month and just the ability to have a network that supports that kind of usage I mean keep in mind, we're carrying a lot of the <unk>.
Mobile players traffic over our networks already.
Most of the most other usages in their home.
Going over our Wi Fi networks.
Okay. Thank you.
Again, because you have a question. Please press Star then one.
The next question is from Brandon <unk> with Keybanc capital markets. Please go ahead.
Great. Thanks for taking the question Steven one for you could you could you update us on what you expect from the contribution from from hard great either in the second quarter and the first full year.
The acquisition and then you mentioned a timing difference in the video rate increase in your expense increase could you elaborate more on that what would what would have EBIT margin been had they been matched thanks.
Got it so on the first question.
Needless to say, we won't give guidance on what theyre going to contribute it as we don't give guidance in general, but what I will say is you can go back and look at what we talked about the fourth quarter annualized numbers being and obviously they continue to grow nicely. So.
You could you could extrapolate that out into what their contribution is going to be it will be done effective may versus essentially so we will get two months of it.
And the second quarter and then obviously for the full second half of the year I would say in this transaction in particular, we're not expecting a lot of synergies in the first nine months.
Just from the standpoint of we.
We've got their team their team in place executing on a plan that was already in place and we'll work to.
All of them in and integrate as we move into next year, but unlike fidelity to add a lot of synergies very early.
This will be definitely spread more over time, and a little bit more backend loaded compared comparatively speaking.
And on the right side of it.
I'm not sure I could answer exactly what margins would have been without at all I would say is we had basically a half a month's worth of rate increase on the video side in the quarter as we do a march 1st rate increase that with billing cycles really only gets you a half a month's worth.
So you know in the second quarter, we'll have obviously the.
For the full representation of that rate increase in the numbers.
Great. Thanks.
Sure.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Julie <unk> for any closing remarks.
Thank you Chad.
Once again, thank our associates for all they have done and continue to do for our company and for our customers. We appreciate everyone. Joining us for today's call and look forward to speaking with you again next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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