Q4 2021 Cable One Inc Earnings Call
2% year over year increase in total revenues, a 24, 5% year over year increase in adjusted EBITDA and an adjusted EBITDA margin of 52, 3%, which was 140 basis point improvement year over year.
Our unique and at times Contrarian strategy has paid dividends as evidenced by our success since becoming a public publicly traded company in 2015.
<unk> because of our pivot from video to focus on broadband years in advance of our peers and unique because of our rural footprint, we choose to operate in.
And the way in which we approach acquisitions and investments.
All of this and more has resulted in strong financial results each year since 2015.
In 2021 demand for our residential HFC products continued to outpace pre pandemic trends exceeding our projections.
Driven by continued strong connect and low churn.
Strategic M&A activity, we added approximately 180000 residential HFC customers year over year, an increase of 23, 2%.
Excluding the acquisitions, we closed throughout the year, we added approximately 50000 residential HFC customers, representing an organic growth rate of six 4%.
While our expectation is that we will eventually return to pre pandemic growth rates, our HFC penetration rate of 38, 7% at year end illustrates not only how far we have come with the opportunities that still lie ahead.
As of January one.
Less than 28% of our markets had a competitor who offers residential broadband download speeds of 100 megs or higher.
This relatively small increase in competition across our footprint came about primarily as a result of our acquisition.
As I've said before we run our business as it is every market is highly competitive offering superior products and services and maintaining a local focus on customer needs.
During a time when some are pointing to an increasingly competitive broadband marketplace as a negative for all Internet service providers, we achieved our second best year in terms of organic customer flow.
Demand for our premium HFC products also reached a new high last year during the fourth quarter nearly four out of five new customers selected the speed tier at or above 200 mix.
Our gigabit product, which we began offering nearly six years ago is available across approximately 99% of the markets we serve.
Fell into this service has more than doubled from 2020 to over 14%. These.
These new sales combined with upgrades of our existing customers and the offering of unlimited data resulted in full year HFC ARPA growth of five 5% in 2021.
As demand for faster speeds continue to grow we continue to evaluate our suite of service offerings and make adjustments designed to better align with customer needs and behaviors.
Because our 200 Meg offering has become the most demanded plan nears.
The end of the first quarter, we will be discontinuing, our 100, Meg speed tier and migrating those customers to our 200 Meg speed tier.
At an initial increase of $5 more per month, we believe we are ensuring an experience that lives up to our customer's expectations, while also maintaining a great value proposition.
Turning to our network, although average data usage increased year over year to nearly 550 gigabits per month.
Our downstream and upstream utilization during peak hours with just 20% we understand how essential network reliability and these continued results are yet. Another example of our ongoing investment and commitment to providing a reliable customer experience.
As we look into business services. They look into business services showed that model of resilience with revenues, increasing each successive quarter in 2021, and finishing the year with growth of 31, 6% year over year.
At 8% when excluding both car great in Aniston operations.
I'd like to round out discussing another quarter of strong growth by turning to the results of our minority investments, where residential HFC and business data customers grew by approximately $13200 on a sequential basis from Q3.
While these new customers are not reported in our results. The continued growth of these businesses highlight the value of our strategic partners to cable one.
Keep in mind broadband net ads are now included in this figure.
Moving to M&A on December 30, we closed on our previously announced acquisition of cable America data video and voice provider in central Missouri for $113 $1 million in cash on a debt free basis.
As we bring cable America into our family of brands, we look forward to learning from our new associates as well as building on best practices from our prior integrations.
Additionally, at the beginning of January we closed on a joint venture transaction in which we contributed certain clear wave and hard grade fiber assets to a newly formed entity career with fiber.
Fiber intends to invest heavily in bringing fiber to the premise service to residential and business customers across its existing footprint and and near adjacent areas.
This new joint venture <unk> alone will not only have trusted leadership in equity partners to accelerate fiber to the premise investment opportunities that clearly fiber.
But we should also benefit from improved free cash flow at single one.
The time and effort spent on clearway fiber is directly correlated with our ongoing integration process for high grade. Our teams worked diligently throughout the quarter to identify resources and platforms best suited for the new entity as mentioned previously we believe this joint venture has the potential.
To accelerate cost savings associated with the higher grade integration.
While we are prioritizing hard great integration Fidelity remains ahead of our original run rate cost synergy estimates laid out at the time of the acquisition.
Before handing the call over to Stephen I'd like to thank associates across our family of brands for another outstanding year.
Together, we continue to face pandemic challenges manage unprecedented HFC growth and work to complete a multitude of projects all with an eye on improving the customer experience.
Our associates have no equal and fulfilling our purpose of keeping our customers and communities.
<unk> to what matters most.
Truly the heart of cable one and the reason for our ongoing success.
We continue to focus on creating a workplace in which our associates feel valued and included and we were honored that our associates recognize that commitment through our recent ranking on the Forbes list of America's Best midsize employers as well as in the results of our annual associate satisfaction survey.
Our associates gave highest marks were taking associate safety seriously and pride in working for cable one.
Sponsors to both surveys illustrate that our associates believe in our purpose and are committed to our organization and to serving the communities in which we live and work.
As a reminder.
Our upcoming Investor Day next Thursday March 3rd.
You'll hear even more from senior leadership and our lead independent director, Tom Gayner about cable one's rich history, what makes us different and the significant opportunities that still lie ahead.
And now Steven.
Thanks Julien.
Now, let's turn to our fourth quarter results revenues for the fourth quarter of 2021 were $432 6 million compared to $336 8 million.
Prior year quarter at 28, 5% increase the increase which included $77 $8 million of revenue from <unk> operations was fueled by residential HST increase of 27, 6% and a business services revenue increase of 46, 2%.
Excluding harder to operations, our fourth quarter total revenue increased by five 3%.
The revenues increased 11, 3% and business service revenues increased by eight 3%.
Residential hsp Psus grew by approximately 22000 on a sequential basis from the third quarter with approximately 14000 acquired in the cable acquisition.
Operating expenses were $119 $9 million or 27, 7% of revenues in the fourth quarter of 2021 compared to $99 4 million or 29, 5% of revenues in the prior year quarter.
80 basis point improvement driven largely by a decrease in programming costs.
Selling general and administrative expenses were $94 9 million for the fourth quarter of 2021 compared to $64 7 million.
In the prior year quarter. These expenses were 21, 9% of revenues in the fourth quarter of 2021 compared to 19, 2% of revenues in the prior year quarter.
Net income in the fourth quarter was $64 8 million, which included an $8 $9 million noncash loss on fair value adjustment associated with the call and put options to acquire the remaining equity interest in Mega broadband investments.
As a reminder, the MBIA options are subject to mark to market accounting on a quarterly basis until these options are exercised or expire.
Changes in the assumptions used to determine the fair values could increase or decrease the resulting valuation which in turn could cause significant nonoperating fluctuations in our GAAP financial results from one quarter to the next.
Net income per share on a fully diluted basis was $10 54 per share inclusive of the noncash loss just mentioned.
<unk> EBITDA was 22 was $225 3 million for the fourth quarter, an increase of 25, 9% from the prior year quarter or 7% when excluding the impact of hardware operations.
Alright, adjusted EBITDA margin was 52, 1% or 54% when excluding the impact of our operations.
Capital expenditures totaled $109 9 million for the fourth quarter of 2021, which equates to 48, 8% of adjusted EBITDA.
During the quarter, we invested $23 $6 million of Capex for network expansion and $7 million for integration activities, bringing our total for the year to $76 2 million and $16 $3 million respectively.
Adjusted EBITDA less capital expenditures was $115 $4 million for the fourth quarter and increased 11, 3% from the prior year quarter.
In the fourth quarter of 2021, we distributed $16 6 million in dividends to shareholders, bringing the total distributions for the year to $63 5 million.
From a liquidity standpoint, we had approximately $389 million of cash and cash equivalents on hand as of December 31.
We continued to generate significant free cash flow.
At quarter end, our debt balance was approximately $3 9 billion consisting of approximately $2 3 billion in term loans 900 $920 million in convertible notes $650 million in unsecured notes $6 million of finance lease liabilities. We also had approximately $460 million available for it.
There is no borrowings under our revolver as of December .
Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was three nine times as of December 31.
During the quarter. We also made three equity investments received a dividend and closed an acquisition.
On October one we made a $25 million investment for less than 10% equity interest in point broadband holdings LLC.
Hello, Internet services provider, serving residential and business customers in rural and suburban areas of 10 Eastern United States.
On the on October 18th we completed a minority equity investment for less than 10% ownership interest of Tri Starr acquisition. One Corp. A special purpose acquisition company for $20 8 million.
On November 5th we invested an additional $50 million in next link increasing our total investment from $27 two.
$2 million to $77 $2 million.
And then December 28, we received a 68 $7 million dividend related to our investment in MDI given their significant growth and deleveraging during our first year of ownership they were able to complete a dividend recapitalization, taking their leverage back to six two times.
And on December 30, as Julie discussed earlier, we acquired certain assets and assumed certain liabilities from cable America data video and voice services provider in central Missouri for $113 $1 million in cash on a debt free basis.
Additionally, as Julie mentioned on January one after the quarter ended we closed on the formation of Clearway fiber joint venture, which is intended to accelerate deployment of fiber internet to residents and businesses in the relevant markets.
As a reminder, clearway fiber will be consolidated from our operating financials, beginning with the first quarter of 2022, and our investments will be reflected in cable one's financials under the equity method of accounting.
The fourth quarter of 2021 revenue and Capex associated with the operations contributed to clearway fiber or approximately $7 8 million and $17 $2 million respectively.
A couple of 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 will be implemented in March this year, while most of our contracted programming and retransmission expense increases took effect on January one.
We expect these timing differences will impact.
First quarter results on a sequential basis. However, we do not believe it will have an effect on our full year adjusted EBITDA growth.
As part of our strategic focus on high speed data accounting Faq cash flows rather than customers in the fourth quarter of 2021, we made the tactical decision to begin unwinding, our bulk cable video offerings.
This decision not only prepares our network for the next generation of high speed data enhancement, but also eliminates the time and energy spent focusing on unprofitable product offering.
We expect this initiative to accelerate our video and customer losses through the first quarter of 2022, but ultimately have a positive impact on margins and adjusted EBITDA growth on.
On a sequential basis, our organic video subscriber net loss was approximately 21000 for the fourth quarter or 18000. If you include the impact from the cable America acquisition.
With that Elliot we are now ready for questions.
Thank you for our Q&A, if you would like a question. Please press star followed by one on your telephone Keypad now you changed your mind. Please press star followed by tube.
When preparing to ask a question. Please ensure your phone is on mute locally.
Our first question today comes from.
Okay.
And as open.
Hi, Thank you guys.
A couple of things just to follow up on first Julia can you talk again about fiber overlap.
Typically what what fiber providers that and what's the mix across your footprint. Thank you.
Yes.
Fiber overlap so in terms of total competition. So we have less than 28% overlap with anyone who is providing a service of 100 Meg or higher.
Actually.
Breaking that down further.
If you look at.
Overlap, where there are two or more providers to offer 100, megs or higher that percentage is around 5%.
For fiber to the home so incredibly low.
That typically for us.
Refers to AT&T with a teeny bit.
Centurylink.
And.
Thank you that answers your question, let me know.
Okay, So very little.
Fiber like in surgeon fiber overbuild any idea within the 28% was the fiber versus.
Fiber to the node.
Okay.
Sure. So I think our fiber homes passed is around 17%.
And so I think.
As Julie mentioned the majority of that is the telco that went to labor.
Small.
Small areas, where we have.
More I would call them more local intelligence and so we've had.
That honestly.
That makes up to 5% if you think about the 5% where we have two competitors in Fargo. We've had midcoast since 2014 and no debt that we've had grande since 2000.
That honestly it makes up the biggest chunk of homes passed that we have where theres two other providers.
There are smaller operators.
But most people probably haven't heard of that are competing in one off markets.
But given the nature of our 24 states that were spread across.
It's hard for a local insurgent to address a lot of our footprint.
Yes that makes sense and then.
Julie you talked about the 100, Mexico into 200, how big again.
Yes.
22% of our residential HFC customers.
And when are they going to be converted to 200 with respect of lenses.
At the end of the first quarter.
So we won't start seeing the impact on our financials.
No.
Okay.
And then finally.
Anything that commercial revenue was sort of flat sequentially I don't know if there was any sort of ins and outs there with all the deals going on or anything else.
Thank you.
Yeah, I mean honestly I think.
And looking at the year over year, we're still up.
8% and in an environment, where.
That business is coming back for US I think we saw increases each month each quarter throughout the year. So.
So.
I would have to compare notes what detail on exactly what youre looking at but we saw at least a relative to prior year increase each year.
Sorry, each quarter.
Sure.
Great. Okay. Thanks, guys.
Our next question comes from Craig Moffett from Moffett Nathanson. Please go ahead.
Hi, Thank you.
I don't want to steal too much of your Thunder from your analyst day next week, but.
Given that cable valuations in general have come off a bit.
Are you seeing any differences in the in the M&A market any more willingness from smaller.
Potential acquisition targets too.
<unk>.
To at least be more receptive.
Or is it.
Is the private market is still so strong that it makes it difficult for.
For companies to move off of high expectations.
Yes, I would say, it's kind of in this weird.
<unk> dynamic and that while cable valuations have pulled down the private market transactions have only gone up.
Gone up pretty substantially and so we.
We Fortunately have a nice pipeline of deals that are tied to the different investments that we made.
Continue to see opportunities, where someone's looking for a minority investor and so so we sold and who are looking for something different than just going and maximizing our selling out.
And those deals where its just truly selling out we're not all that competitive and transactions, whether they're looking for something unique.
That's where we that's where we.
We've had the ability to transact and we still see that opportunity existing but yes, theres a theres a much wider gap in valuation now than there was two years ago. When we started acquiring more aggressively.
And Stephen if I could ask a follow up because you mentioned.
Earlier in your remarks that.
Margins.
Would have been without hardware it would've been 53, five I think you said.
Which would suggest that you are still seeing a solid trajectory of margin improvement.
In.
The legacy I guess.
What I would call here at the legacy business.
Does that suggest that as you lap the <unk> acquisition that we should start to see a resumption in overall.
Margin increases again for 2022.
Yeah, I, absolutely think so Craig you've got a mix shift continuing to happen and then you have the.
You had several acquisitions that are in the process of being integrated and each time, we do that.
We make them look like us and so that is pulling the margin up and I would be remiss not to also mentioned our continuous improvement mindset, where every day day in and day out we're looking for ways to make our processes better for our associates and our customers.
No.
Usually results in savings as well.
Margin, Yeah, and just a reminder for everyone else when we announced the <unk> transaction, we announced that we wouldn't be realizing any synergies during 2021 that that would start in 2022 as the team was staying on to help us through the transition as it was kind of a quick close and so with both now getting to the start of 2022 combined with the clear way.
Our transaction, where we've got a number of people going over to be part of that entity as well.
We will start seeing we'll start seeing the margins related to our great pick up which will help the total margin growth as well.
Got it thank you.
Okay.
Our next question comes from Frank Louthan from Raymond James Your line is open.
Great. Thank you.
Besides the percentage of your territory currently have fiber you mentioned looming AT&T, yes, they're both targeting some more build looking out over the next couple of years, how do you see that impacting the fiber overlap. If we look out a couple of years what percentage of your territory do you think that theyre going to target.
Well certainly there has been a lot of press.
Jeff about everyone Nacho.
Major telcos are scrambling to build fiber.
Where in the U S. But I think it's important to reinforce that in 2021 was our strongest year in organic growth.
And two thirds of that growth came from <unk>, while a third of it came from lower churn. So we don't see a softening in our marketplace.
And we monitor competition down to the node or neighborhood level.
And given that our competitive profile has not changed.
Changed much I mean, we had thought when we were talking about the percent of any sort of competition or which is less than 28% for how much Scott fiber, which is up 17%.
Probably indicates that.
Our higher ROI hurdle rate.
Our market or.
Or maybe it's you know supply chain materials and labor that are holding people back I'm not sure what it is but we're not seeing it yet I'm not sure I can prognosticate when it's going to happen we watch for it carefully like I said down to the node level, but so far.
We're doing.
Well, yes, and I think.
<unk> is a good example, where.
They are selling the piece off to Apollo our overlap with the Apollo piece, which is probably going to be more quickly fiber is really small it's a small percentage of our overall overlap and of those homes. It's a really it's some of the smallest markets, we have in Indiana and Illinois.
And so then there's the question of what does lumen end up doing.
Like Julie said, we monitor it all we know the number is going to go up over time.
And we expect it to that being said.
38%, 39% penetration.
In a market, where there's two operators, we still have the opportunity to maintain our fair share and still grow from here and we think broadband usage is growing in our footprint and we think that.
As they continue to move up market will continue to get our share and.
It is at the end of day it is not.
It's all about service so there's technology and then their service they are taking care of customers Theres reputation and I think we've done a great job and all of these markets and Thats why.
We do well when we do face competition.
<unk> value based service for our customers get choice and having a strong.
Neighborly service, where we live right next door to our customers.
Has to be part of that foundation of our defense, but we do have.
Much more to our competitive playbook.
We need to bring it to bear.
Alright, great and one follow up.
Ongoing capital do you expect putting clear wave on an annual basis.
We don't.
There was 320 million funded.
The dividend will be funded with committed by the equity partners.
And we don't have any debt on that entity, yet and we certainly have that capacity, especially as the business grows and so we don't expect to that being said.
They will hopefully also be acquisitive and if they find other businesses that they can buy to deploy the capital more quickly.
And we have the opportunity to invest we certainly will have the right to.
Without the obligation.
So but in the interim.
Any way you are modeling it certainly shouldnt be thought that there is any.
Kind of annual contribution that has to go into that entity.
Alright, great. Thank you.
Our next question comes from Greg Williams from Cowen. Please go ahead.
Great. Thanks for taking my questions.
New video strategy, So I think it would be.
Coming more video agnostic than you even more before are you thinking about partnering partnering with the over the top platforms for your subscriber base that still looks for video or gross adds I would look for video second.
Second question is around the biotech funding and the <unk> have you given any thought to.
Participating in that program expanding our footprint.
And part and parcel to that the ACP program.
It sounds like it's a lot more permanent and EBV programs could be more attractive for you guys to look at in terms of targeting gross adds in the lower income cohorts I'm just wondering your interest in that.
Yes.
Hey.
So that hurt us.
Yes.
On the video side and the video partnering side when it comes to our strategy. This is truly related to bulk videos.
Whether it's.
Condos hotels those types of businesses, where we just we don't have a competitive product and it's not a financially viable business for us and so exiting out of that.
Isn't really changing our video strategy around residential.
We have the IP platform that we're kind of migrating people to to recover the broadband that being said, we certainly don't encourage people or try to.
To people to move into those packages.
If that's what the customer chooses and Thats. The operating we have we certainly have some of our investments that are doing different things. Some of them are doing Rev shares with other over the top providers those kinds of things and so on.
That's the process, we get to see how others do and what they like but currently we don't have any plans on going down that path.
Yeah and in government.
Those I heard I don't do it.
During the first part of your question sorry.
Vital funding absolutely we have been working on how to best.
Structure.
<unk>.
It caused us for how to go about it.
Yes.
Keep in mind that will be done at the state level.
More than likely.
We imagine that it will be both defensive and offensive in nature and as Stephen mentioned, we have partners who are already.
A couple of months.
Hey, guys.
<unk>.
So we plan to leverage their learning.
Structure that we put into place to capitalize on that funding where appropriate.
The ACP program. So we are transitioning our customers.
To that end.
And in the fourth quarter actually in 2021.
I jumped and customers. It wasn't it wasn't just one of the largest addition in terms of the quarter.
We still don't have.
Yes.
Carlson customers on <unk>.
ABB now ACP.
But we can pick up more in the fourth quarter, then we get to that.
Yes. It is.
It seemed to be ongoing it is lesser amount as you know.
We do track those customers very carefully.
To measure any potential impact from that at this point.
And time interestingly enough.
As far as that are coming on to that program.
Much like our.
Our non E&P customers.
In terms of demographics.
Got it thank you.
Next question Elliot.
Okay.
Do we have any more questions.
Yeah.
Hey, Thanks, Brandon I think your line's open.
Im open Michael Okay.
Great. Thanks.
I guess I'll just go I think I have two questions Julie Julie I guess could you give us an update more broadly on your go get that you have for synergies maybe update us on where you are with fidelity.
Yet and.
Similar type of questions for hard grade maybe cable America.
Second question is around the 200 100 to 200, Meg migration as well.
It sounds as if the 100, Meg product and discontinue but 200 becomes the new standard how are you thinking about.
The rest of your speed tiers right now because right now you are at 100 203 hundred megawatt range I'm curious, how you're thinking about.
That could be pricing provide their speed tiers.
Alright, great. So I'll start in reverse order.
Maybe that conclude in trying to answer the second.
So, yes, youre, absolutely correct, and then 200, Meg will become and quite honestly. It already is our standard offering that is the package that those customers.
Yes.
Service.
For us to provide to them.
We will still have.
Still the regular price of $65.
200 Meg.
100 gigs of data.
We will still have our next level of service, which is at $80 for 300, we are adding a 500.
90, which is.
You can probably tell us a nice price for someone can easily jump too from that Amy.
And in the process.
As we.
We did when we launched our flex pricing in 2019, we've actually lowered the price of our gig service and we've lowered the price of our unlimited.
And so by doing that we're giving customers value, we're giving them choice.
We've done the modeling and know that it will still result.
In our progress.
And then on synergies on the fidelity side.
We still have we still have some to realize what I would say that they're not getting realized in the near future. Because we're working on building conversion timing and those kinds of things that will bring the incremental that being said the growth they've had and the kind of synergy realization and the margin that they are.
Operating at right now is fantastic and so it will just be incremental upside when we do get there, but there are still certainly.
$2 million left in synergies related to that.
As I mentioned.
We disclosed that it would be $45 million, we really havent realized any of that yet.
We expect to start seeing those synergies in earnest right now and those will still certainly last over the next.
Two plus years as we go through all the different forms of integration both from a system standpoint.
A people standpoint, and call center standpoint, those kinds of things.
And then kind of America.
Small deal.
<unk> revenue for the fourth quarter of that was just under $20 million and so I think the way we think about that is.
It's a business that has low penetration to start with so there is the upside penetration opportunity in there is fairly quickly, giving it to kind of cable one margins and candidly should be higher than cable one margins just because they're it truly is just within one of our it's really within the fidelity operating region. So we should be able.
To take advantage of a lot of resources that are in place to help that allowed and obviously that combined with the fact that it was an asset deal and we got.
Step up for that.
We will get a nice tax benefit associated with well, which kind of lowers that multiple pretty nationally.
Got it if I could ask just one more.
Thank you Sir.
Capital that.
Can you guys give the capital that you spent that will be going with the CLIA waived JV and if you didn't could you help us sort of square away. Our model. So we can think about bridging to capex for 'twenty two.
Sure so.
The numbers that we did give was the number.
In the fourth quarter, which.
Was.
Okay.
$87 8 million so that was what the businesses were what they spent in the fourth quarter.
What I would say is when you look at our overall.
Capex in the amount we're spending on.
Expansion in general, we expect that number to move down to.
30 to $30 million to $40 million over time, there'll still be some volatility in that just based on all the government funding programs that are coming out and some of those are matched programs and so as we get opportunities and Thats certainly an opportunistic business, we're kind of building $30 million to $40 million of.
Within our footprint that we wanted to do with the ability to upsize that.
If opportunities present themselves so relative to the current year.
It's certainly a 30 plus million dollars 30 or $40 million decrease at least on a run rate basis going forward.
From the impact of the Capex and.
And to clarify the revenues from I'm, sorry, seven and cap with about 17, sorry.
I give the wrong number at $17 2 million for the fourth quarter.
And clearly it's not just <unk>.
We're spending that capital over and Theyre spending it certainly intend to accelerate their capital deployment.
Does that answer your question Brandon.
We've come to the end of our Q&A I'll now hand back to human illness for any final remarks.
Thank you Elliot we appreciate everyone joining us for today's call and we look forward to speaking with you at our upcoming Investor Day on Thursday March 3rd Thanks, everybody.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Okay.