Q3 2021 Cable One Inc Earnings Call
Yeah.
Hello, everyone and welcome to the cable one third quarter 2021 earnings call. My name is Bethany and I'll be coordinating this cool for you today.
If you would like to register a question not Q&A you may do so by pressing star followed by one on your telephone keypad. If you change your mind you can press star two.
Now I'll hand, the call over to your host Steven Cochran, Chief Financial Officer at cable one Steven AVG.
Thank you Bethany.
Good afternoon, and welcome to cable one's third quarter 2021 earnings call. We're glad to have you join us as we review our results.
0.2 per cent.
On a year over year basis, and excluding the impact of Harbory operations, which were acquired on made first revenues and adjusted EBITDA increased by 5.6% and 12.5%, respectively and adjusted EBITDA margin was 53.3%, which is a 300.
20 basis point increase of a prior year.
I'm incredibly proud of the solid growth our team continues to deliver from one quarter to the next particularly with the added challenges presented by the pandemic.
Our consistency is a direct result of executing a unique data centric strategy. The core competencies that we have built up around that strategy.
And our people who continue to execute and are truly the backbone of our success.
We believe this consistency sustainable as a result of both the organic and inorganic growth opportunities that lie ahead.
While there are many aspects of our company that make us unique I'd like to take a moment to highlight just a few of our key differentiators.
Since our early days, we've intentionally chosen to operate in small cities and large towns across Rural America, where we consistently provide measurably better products and services than alternative providers.
Within our borough market demographics, only 25% of our competitors provide broadband service with download speeds of 100, Meg or higher.
Despite this advantage we operate as if every market is highly competitive setting ourselves apart from our competition by creating an exceptional local customer experience that includes reliable high speed value based broadband services.
Due to our strategic pivot from linear video years in advance of our peers today more than 70% of our revenue is driven by higher margin and predictable residential HST and business services, a favorable product mix that we feel continues to insulate us from the risks and under.
Lying trends and the low margin video marketplace.
Carpet grew by 5.1% year over year, driven by both upgrades and so I wanted to hire speed tiers. As we've mentioned before we have not increased our service rates and legacy systems. Since the fall of 2015, and we actually decreased prices on our higher tears at the start of 2019.
Selling for a gigabit speed chair, which we now offer across 98% of our footprint reached 14% for the quarter. As a reminder, we began launching gig service to residential customers as early as 2016, well before many of our industry counterparts.
Five years ago gig speeds were virtually unheard of in non urban markets across the us and we are proud to have been able to level the playing field for rural markets, where access to affordable high speed Internet is just as vital I've been more urban areas.
Gig speed is just the beginning of the story, though.
Through our HFC technology roadmap, we are implementing the upgrades needed for our network to bring multi gig symmetrical speeds to our markets and laying the groundwork for Kenji in the future.
In short we are building in network with the power and capacities to support the digital future of the 1 million plus customers. We serve extend broadband service to areas previously unserved or underserved in.
And ensure that we continue to stay well ahead of the consumer consumption curve.
As a result of our continued investment our network continues to perform well delivering the reliability and speed our customers have come to count on despite averaged data usage growing to 488 gigabit per month in the third quarter are downstream plant utilization during peak hours improved.
From from 19% to 17% and upstream utilization maintain below 20%.
Turning to business services are revenues continue to show positive momentum this quarter with growth of 44.2% year over year and eight 4% when excluding both hard great in Anniston operations as our product mix continues to shift away from video and phone towards SMB, an enterprise connectivity.
Our margins should continue to expand predictably.
To round out another quarter of strong growth, we turned to our minority investments where residential HST and business data customers grew by approximately 4700 on a sequential basis. While these customers are not reported in our results. These results highlight the value and shared commitment of our strategic partners.
Cable one.
And this potential joint venture cable one will receiving a majority equity interest in a newly formed company in exchange for contributing clear wave minuses Terra business and certain assets of hardware fiber, while our partners would make a significant cash investment to fund the accelerated growth. We are partnering with G. T. C. R. R.
Current partner in Mega broadband Stephens capital Clearway, its previous owner and our current partner and Whisper and the Pritzker organization Hargreaves previous owner, Michael got Denker, former chairman and CEO Heartbreak will serve as executive chair and David Armistead, former senior Vice President at Harvey.
<unk> will serve as CEO of the proposed Standalone company.
This venture would allow us to have a proven and dedicated team that can be hyper focused on accelerating market expansion in new and existing systems. This will also allow cable one's team to remain focused on our primary business increasing penetration rates integrating recently acquired companies and driving higher margins.
In greater free cash flow.
At this time the terms of the transaction remains subject to negotiation and the parties have not yet entered into any definitive agreements to consummate the joint venture. So they so there can be no assurance that the joint venture transaction will be completed.
Our confidence in our long term outlook remains on wavering the consistent strength of our results continues to give us confidence in our strategy and as we look to the future cable one will continue to do what we do best remain agile and execute at the highest level.
Before I hand, the call over to Stephen I want to briefly touch on a few other notable events for the quarter, starting with a big congratulations to all the associates across our family of brands Cable line was recently recognized by cable Fax magazine in their 2021 tops ops issue as the cable fax NSO.
M&A mover for our acquisition and integration work over the past several years, none of which could have been achieved without the dedication of each and every one of our associates.
In recognition of the tireless work our associates have put in over the past year and a half during the many challenges we faced we recently closed all offices across our family of brands for the first time in our history and gave our associates and additional paid days off we call. This <unk>.
This increase which included $78 $4 million of revenues from hardware operations was fueled by a residential <unk> revenue increase of 26% and a business services revenue increase of 44, 2%.
To get a sense of our growth when excluding both heart rate and Anniston operations, we would've seen third quarter total revenue increased by six 8%.
Residential HST revenue increased by 12, 9% and business service revenue increased by eight 4%.
Residential HSV customers grew by approximately 151000 or 19, 2% year over year, approximately 110000 residential data issues came to cable one and the <unk> acquisition.
Of these approximately 19000 were contributed to higher grade and the Anniston exchange in October of 2020.
Similar to most peers in the industry. We suggested earlier this year that our HFC net gains in 2021 would likely return to 2019 levels, but our third quarter. Once again outperforming the same period in 2019 in fact, if we exclude the customers added at the time of the closing of each of our various acquisitions through three quarters of this year.
We have more than doubled our 2019 organic customer growth and nearly tripled 2018.
Operating expenses were $121 7 million or 28, 3% of revenues in the third quarter compared to $107 3 million or <unk> 31, 7% of revenue in the prior year quarter a three.
Herman they're filled at fair value could increase or decrease the resulting valuation which in turn could cause significant non-operating fluctuations in our GAAP financial results from one quarter to the next.
Net income per share on a fully diluted basis was $8.33 per share inclusive of the non-cash loss just mentioned.
Adjusted EBITDA was $225 million for the third quarter, including $34.7 million from Hardener operations. This increased 26.4% from the prior year quarter.
Adjusted EBITDA margin was 51.2% or 52.8% women, excluding the impact of the hardware operations.
Capital expenditures totaled $129 million for the third quarter of 2021, which equates to 54.8% of adjusted EBITDA.
During the quarter, we invested $21.8 million of Capex in network expansion and $2.9 million for integration activities, bringing our total for the year to $52.6 million to $9.3 million respectively.
In addition to accelerated expansion capital R. Quarterly increase is largely driven by a proactive pull forward and spin to ensure we had materials to support our continued growth in the midst of concerns around supply chain delays.
All capital spin will vary from quarter to quarter overall, nothing has changed in our long term capital deployment strategy.
Adjusted EBITDA less capital expenditures was $99.6 million for the third quarter and was flat from the prior year quarter is driven by the increase Capex, we just discussed.
And the third quarter of 2021, we increased our quarterly dividend from $2.50 per share to $2.75 per share, resulting in a $16.6 million in dividends being distributed to shareholders during the quarter.
Confirm a liquidity standpoint, we had approximately 420 $490 million of cash and cash equivalents on hand as of September 30th and we continued to generate significant free cash flow.
At quarter end or that balance was approximately $3.9 billion consisting of approximately $2.3 billion in term loans $920 million in convertible notes $650 million, an unsecured notes and $6 million of finance lease liabilities.
Thanks, Steve you sounded pretty confident on the pace of residential broadband net adds a year to date being more than two times 2019, and I think your penetration.
Passing is really is still only around 35%. So I'm just trying to think is that low double digit millions that youre doing in terms of quarterly net adds something that you feel like is a sustainable for the periods ahead is that a good run rate for us to think about.
Repeat what you said is the runway run rate because it didn't I didn't catch that.
Yeah load up low double digits. So you know 10 to 12 million something something in that sort of range as an organic number you mean.
You mean thousand correct.
Oh, Yeah, sorry, sorry, yeah, Yeah, Alright long day.
Yeah.
Robin.
So.
We have not given guidance other than to say that you know we we.
Things trimmed back towards 2019, we felt good about our ability to continue to deliver hiring.
Our residential broadband penetration was closer to 39% I think sometimes the numbers getting mixed because people look at our total homes passed which include business service passengers as well, but but in totality.
I think I think.
Great. Thank you.
Sure.
Okay.
The next question comes from Brandon MISO at Keybanc capital markets. Brendan Your line is open.
Great.
I wanted to see if you had any more color on the potential.
Venture that came out in the 8-K yesterday and specifically could you give us percentage of capital you're spending today on fiber, which we would think of as sort of going with that JV.
And then just on the expense side.
Where do you see margins going how much ability do you have to toggle things like SG&A.
Where do you see margins going how much ability do you have to toggle things like SG&A.
You know going forward. Thanks.
Sure So I'll take the.
First one on the partnership I mean I think.
So I think there is a question of what gets removed from our numbers versus what is incremental opportunity that we would've tried to figure out how we take on internally and so what I think this partnership allows us to do is accelerate even beyond where we're at today. So I think that the numbers I gave earlier were in the low 50 millions of dollars that we've spent year to date, which.
And it ties into a continuous improvement mentality and we believe that we can constantly be making things incrementally better and and I think you'll see that in our results over the long term I would expect that we would continue to drive towards that.
And Brendan and specific as it relates to this quarter I think one thing. We also don't do is we don't we don't very intentionally tried to manage the quarters per se. We're very focused on looking at year over year, and making sure that in any given year that we're seeing margin expansion take place and that's why we gave the year to date number and focused on the 320 basis point improvement we've had.
Ed.
In the in the first nine months compared to last night, the first nine months of last year.
And while any given quarter, we may see ups and downs and that we feel really good about the long term trajectory of that.
Okay. Thank you.
Sure.
Another reminder, for participants to press Star followed by one on your telephone keypad to register your question.
Our next question comes from Frank Louthan Raymond James.
Your line is open.
Great. Thank you.
Just one just curious if you saw any any impact from edp in the quarter. If you can talk to that and any thoughts on those customers going forward and then I've got a follow up.
So we have approximately 10000 E b b customers at this point in time, the number of EBV customers coming on on a daily basis has stayed fairly consistent.
The vast majority of the EBT customers our existing customers.
And they are taking the opportunity to use these new found funds to increase their broadband speeds that is they're taking higher tiers. It has not been a large driver of new customers for us.
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