Q2 2022 Cable One Inc Earnings Call

Strategy, which we initiated back in 2019 with our small investment in heart rate has become an important element of our long term capital allocation philosophy.

And afford to cable one with the opportunity to align with.

Trusted management teams and financial firms in the communications sector.

Through these partners, we were able to successfully accelerate our collective ambition of being the most trusted providers.

Solutions to small cities and large towns across America.

This quarter, we are excited to announce our most recent strategic growth capital investment and visionary broadband the leading fiber based broadband provider serving rural communities across Wyoming, Colorado and Montana.

Todd will provide more detail about our ship with visionary and other small transactions that were closed during the quarter in his remarks.

Okay.

Me.

Transitioning to integration activities. The team continues to execute multiple integration and deconsolidation program.

Meaning maintaining focus on speed to realizing synergies, while continuing to deliver on our commitment to our associates customers and communities.

While there will be near term integration costs, we are confident in the long term value of these new brands will create.

Despite a quarter that didn't live up to.

Patients.

<unk> about our future our strategic.

<unk> positioning over the past decade, which includes our data centric strategy in rural markets, where we choose to operate.

With the relentless execution of Orissa.

Continued to having meaningful impact on our business as well as the lives of the customers and communities we serve.

Before handing the call over to Todd I would like to share a few items from the quarter.

Absolutely.

The first is our recent donation of nearly 600 chromebooks.

11 title one schools across our footprint now in its ninth year of our Chromebooks for kids initiatives began simply augment technological resources in schools.

<unk> and our community.

Over the past several years, however, access to technology and has moved from being a luxury.

Fluke necessity and our goal is to help bridge the guidance schools that may not have.

To funding to support this effort.

We have nearly 3000 to schools in need.

As another example of supporting the communities, where we live and work. We're pleased to have recently been named by cable fax as the corporate social responsibility greater.

For our commitment to advancing education.

Strengthening communities and improving lives across our 24 state footprint among.

Among the efforts highlighted in this recognition was our charitable giving funds, which Italy awards $250000 in grants across our footprint.

Johnson trading support in the areas of education and digital literacy.

<unk> and community development.

Other efforts included the crowd for Kids initiative I mentioned previously our partnership with the Arbor Day Foundation, and keep America beautiful and last but not least the thousands of hours our associates spend each year volunteered their time and talent with nonprofit organizations and our.

Our associates' unwavering commitment to our customers and their passion for giving back to the communities we live in and serve.

Creating a unique culture that continues to flourish, even in times of growth and change and.

And now welcome Scott.

In addition, effective July one.

Provide a full recap of our financial performance.

[laughter].

Thanks, Julie I'm excited to be here with you all today before I begin I'd like to remind everyone that our second quarter 2022 results do not include operations contribute to clear waved fiber at the beginning of this year and the results for the second quarter of 2021 included just two months of hard great operations and <unk>.

Not yet include cable America operations.

Starting now with revenue total revenues for the second quarter of 2022 were $429 1 million compared.

Compared to $401 7 million in the second quarter of 2020, 168% increase.

It was fueled by a 12, 4% growth in residential Internet revenue.

When excluding heart rate and cable America as well as the impact of nuclear waste fiber deconsolidation residential Internet revenue growth was six 4% and business services revenue growth was seven 8% on a year over year basis.

While the deconsolidation of Clearway fiber was predominantly business services revenue, our remaining residential internet and business services operations still comprise over 72% of our total revenues.

Operating expenses were $118 4 million or 27, 6% of revenues in the second quarter of 2022 compared to $112 4 million or 28% of revenues in the comparable quarter of the prior year.

Selling general and administrative expenses were $98 million for the second quarter of 2022 compared to $88 million in the prior year quarter. These expenses were 21, 2% of revenues in the second quarter of 2022 compared to 21, 9% of revenues in Q2 2020.

One a 70 basis point improvement.

Net income in the second quarter was $69 2 million or $11 11 per share on a fully diluted basis.

Adjusted EBITDA was $227 $5 million for the second quarter, an increase of six 7% when compared to 2021.

Our adjusted EBITDA margin was 53%.

Please note that we do not provide adjusted EBITDA growth rates that exclude the impact of the Hartford and cable America acquisitions and nuclear waste fiber deconsolidation. This is due to the challenges in providing the required non-GAAP reconciliations when taking into account corporate allocations that were a part of Hargreaves financial statements in 2000.

'twenty one.

Capital expenditures totaled $107 $3 million for the second quarter of 2022, which equates to 47, 2% of adjusted EBITDA.

During the quarter, we invested $11 million of Capex for network expansion and $6 5 million for integration activities.

By continuing to leverage our scale and long term vendor relationships, we have the opportunity to bring forward approximately $9 million of incremental fiber and related broadband equipment purchases to support our ongoing growth initiatives.

While supply chain challenges persist, we feel good about current inventory levels and ongoing access we expect our pace of capital investment to temper throughout the balance of the year.

Adjusted EBITDA less capital expenditures was $122 million for the second quarter.

In the second quarter of 2000, 22022, we distributed $16 4 million in dividends to shareholders, we repurchased approximately 96000 shares for $122 million, bringing the total capital returned to shareholders during the quarter to $138 4 million.

Year to date, we have repurchased nearly 144000 shares for approximately $192 million.

Under the New board authorization approved during the quarter, we had approximately $403 million remaining for share repurchases at the end of the second quarter and we will continue to be opportunistic with how we allocate our capital.

Turning to our financial structure, while the increasing rate environment resulted in slightly higher interest expense for the quarter, we feel very well positioned from a balance sheet and liability management perspective, as we have been able to proactively take advantage of strong markets over the last couple of years locking in long term low cost and <unk>.

Nominally fixed rates across our capital structure and not to this great team and my predecessor.

From a liquidity standpoint, we had $280 million of cash and cash equivalents on hand as of June 30, and we continue 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 $920 million in convertible notes $650 million in unsecured notes and $5 million of finance lease liabilities.

Also at approximately $49 million available for additional borrowings under our revolver as of June 30th.

Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was at three nine times as of June 30.

During the quarter, we closed transactions.

As Julie discussed earlier.

We made a $7 $2 million equity investment and visionary broadband in partnership with GTR. We're excited to support this team with growth capital that is used to accelerate the strategy of bringing leading broadband solutions to underserved rural markets in Wyoming, Colorado and Montana.

On April 1st week, Tallahassee assets to Metro systems, and exchange for our combined cash and equity interest totaling $10 million.

First quarter two revenues associated with the operations contributed to Metronet were approximately $530000.

Finally on May 20, we divested hard grade managed service, which we considered noncore the first quarter 2022 revenues associated with hardware and manage it.

We're approximately $1 9 million.

Lastly, as mentioned on previous calls the second quarter, we unwound. The majority of our remaining bulk cable video offerings. While we estimate this initiative reduced video revenues by approximately $1 7 million in the second quarter of 2022 more importantly, it is helping to prepare our network for the next generation.

<unk> of high speed data enhancements. It is also reducing the amount of time and energy spent focusing on an unprofitable product offering and is expected to continue to improve our margins.

With that we are now ready for questions.

Absolutely we will now begin the question and answer.

Session.

I would like to ask a question. Please press star followed by one when you touch tone keypad.

If for any reason you would like to administer a question. Please press star followed by two again to ask a question press Star one.

As a reminder, if you are using.

Please remember to pick up your handset before asking your question.

We will pause briefly to allow questions to generate in Q.

The first question comes from the line of Steve <unk> with Wells Fargo. You May proceed.

Good evening. This is Dan <unk> on for Steve just had a quick question on fixed wireless.

Maybe for Julie if you can talk through the availability of fixed wireless in your footprint today and how you expect that to change in the near term I was just trying to assess whether your current growth is in the face of increased competition or if it hasn't quite yet picked up thank you.

You bet.

We have information.

And it is preliminary but that.

As it relates to <unk>.

Specifically, because we're seeing.

I don't want to say, absolutely, let's say virtually nothing related to Verizon.

T mobiles and start installed share.

And our footprint is essentially the same as <unk>.

Sure.

Mm wide footprint no I think most folks are.

<unk> that.

Fixed wireless will have more of an impact in world.

But to date that is not the case and installed share does not mean that that share.

<unk> from any other provider.

We have not seen.

Got a handful of extra churn is.

It remains quite low.

Record level.

So my guess would be that.

Gmail finding customers from DSL. It makes sense to me because we position ourselves as a premium product provider and so likely they are getting customers from.

Lower end of the tunnel.

Thank you and Dan I'll just add this is Todd we've mentioned this on the first quarter call in and some follow ups, but.

From a teammate perspective.

There are overlap of us as well.

Again from third party resources, approximately 40% to 50% so it's not even a full overlap of our markets.

Got it thank you.

I like our charters.

Idea that the fixed wireless.

Broadband customers are in a parking lot waiting to become high speed.

Yet customers of ours.

There are needs for deep.

They will.

Yes.

Thank you.

The next question comes from the line of Craig Moffett with Moffett.

You May proceed.

Thank you hi, Julie with with Altice, USA, saying formally now that they are conducting a process on sudden like I Wonder if you could just comment on your appetite for for a transaction of that size.

Hey, Craig its Todd.

Yes, I'd say consistent with our past practice as you know we don't comment on public M&A speculation.

But I will tell you right now we continue to be highly focused on.

On the integration and operational success of the brands that we have recently acquired and the great teams that we're partnering with.

Those opportunities.

Alright, I won't I won't try another roundabout way of asking it.

Let me switch then to the to the other obvious question, besides fixed wireless which is fiber and.

See if you could just update us a little bit on what youre seeing in terms of fiber.

<unk>.

Both in the rate at which the.

The fiber is expanding across your footprint and also what you see competitively when a new entrant comes in.

We're certainly hearing stories about the cost of fiber deployment.

Rising pretty rapidly with pressures on available labor and that sort of thing Im wondering if youre seeing that having any impact on the rate of fiber builds in your footprint.

I'll start off with that and Todd you feel free to add.

Yeah, Greg you're right.

Hey, we figure it any way the way we pencil it out we think that the.

Hi.

For example to overbuild ourselves with fibers up five times, the cost of going to docs.

And we know that.

But things that we have.

Nine months.

Coming in today.

We know what the labor market is like as well so.

We are watching.

Quickly.

And rollout fibre and tend to have some skepticism, especially with the newer entrants our biggest.

However, builders have been.

Legacy telcos.

<unk> and Centurylink, specifically and we do have a smattering of upstart.

Some challenge, but obviously nothing that hits all of US since we are a very diverse locations.

We ourselves.

Builders, so I don't know what they were.

We'll expect when they come into cable one market that I know how we.

We go into other markets.

I don't think that at this point in time.

We are seeing I know that we are.

High levels of churn from any separate titers, but.

Overall, I would expect that in time competition is going to waste.

It will come more slowly to our markets because of where we're situated and because we are not consolidated in one region.

But to date.

We're used to but we see it as a matter of fact going back and looking at 2019 compared to 2022.

We think that's a.

Our win share flow.

In line with actually slightly better than it was back then.

So so far.

Feeling good about our situation but.

Very focused on making sure that we are providing customers with a service that is incredibly reliable and that's absolutely.

So don't worry too much about any folks.

Incurring on our footprint.

Thanks, Julian I hope you feel better soon.

Thank you.

And Craig I'll add just a couple of things on that briefly but we've discussed in the past so our competitive landscape.

The fact that in Q1, we talked about approximately 30% of our markets do have a competitor that can provide over 100 megabits of speed that numbers moved up about a percentage point. So nominal move there we've talked about fiber overlay on our network, which is specific to your question.

And now it's about 20% in the first quarter were 21, 5% now so another nominal move up but not meaningful.

And then we importantly point out where there's more than two or more operators that number remains still very small.

At 6% across our market. So I think those are important factors.

When thinking about that as well.

We tend to think about the competition as Julie said is it's coming we fight every day down to the neighborhood.

As if its there, but its slower than its lower in our markets I don't know if it's because of maybe some of the the economics that you referenced in terms of the cost of fiber deployment, but I can tell you on time and on budget for those models is critically important and on time.

Labor and supplies is hard to predict right now we're seeing it.

And navigating through it and I know others are the penetration ramps for those are very critically important.

I know our competitive awareness is very high so we fight very hard against those.

And I would say then obviously the price at which you sell that service is kind of a third important leg of those stools, if you're going to have a successful business model.

The escalations of that price and we do think that that will continue as people look to both ours as others fiber deployments is a critical need.

That's not even mentioning the capital markets as I mentioned in my remarks, we feel really good about our position, but if you are raising capital out in the debt capital markets right now for those platforms.

It's not as easy as it was nine months ago.

Thanks, that's really helpful color I appreciate that.

You bet.

Okay.

Thank you.

The next question comes from the line of Brian <unk> with Raymond James You May proceed.

Great. Thank you.

I apologize I missed at the beginning of the call, but in the release. It says DNA was up a little bit partially due to bad debt can you comment on that or is that just the accountants being conservative or are you seeing any actual change in consumer behavior.

And then if you can comment on any capital you may be putting into the JV that you have this year, what the total amount that might be back.

Frank I'll take the first one in <unk>.

Julian.

Well I'll take the second one in terms of the capital in the JV and Julie can comment on the bad debt I'm happy to as well.

In terms of the JV as we've stated before that pre.

<unk> fiber JV I'm, assuming you're referencing with capitalized initially at the beginning of this year with $320 million of cash and do not have any anticipation of putting incremental capital into that business.

Outside of if there were to be meaningful M&A.

Opportunities that <unk> identified and.

In pursuit.

Yeah, and Frank Bad debt was up from.

Last year, but if again, if we compare back to 2019, it's actually lower.

19 levels, whether on a quarterly basis or a year to date basis.

So bad debt.

It's not a problem.

From the pandemic years, everything just sort of falling back into normal levels again.

That's the way I think about it.

Okay, Great. That's very helpful and I think you gave them.

The amount of the buyback authorization.

Optimization that was still up the end of the quarter can you update us on what it is.

To date.

We cannot.

After the quarter ended but at the time.

The quarter ended.

We did have that $403 million remaining and recall that the authorization.

That we approved and announced early in the second quarter was $450 million.

Alright.

Thanks.

Yeah.

Thank you.

The next question is from the line of Brandon <unk> with Keybanc Capital Bank you May proceed.

Great. Thank you for taking the questions I must be a little bit slow today, but could you just unpack.

<unk> organic HD net additions this quarter with the <unk>.

Best of the Tallahassee portfolio and then.

What are you seeing to date in the third quarter.

I caught some of what you said, Brandon, but not all of it.

Start with the.

Backwards.

Kurt.

Year to date again through.

Through the third quarter, meaning just July .

That is correct.

And typically.

August and September .

The year satellite.

Third quarter.

Well from.

From how July winds.

Thank you also said something about Tallahassee.

Yes, I can try to on that real quick.

Brandon on Tallahassee that was there were no residential customers that was all.

Business services that was that was divested.

Sorry, <unk> was all based services Tallahassee also was all bid services, which was contributed to metronet.

Does that help.

Yes, I think it does.

And then Todd I guess, and then and then on the pro forma.

Yes, the only thing on the pro forma Brandon I apologize I just spoke overview on the residential Internet service there was some adjustments.

Consistent with what we disclosed.

The first quarter call.

That were related to the clear waved fiber deconsolidation as well as cable America those would be the only pro forma adjustments. So we reported 41000 customers on a year over year basis, when adjusting for those two events is 35000 or three 8% growth.

Got it.

Alright sounds good I'll just jump back in queue. Thanks.

Yes.

Thank you again to ask a question. Please press star one.

There are no additional questions at this time I will pass it back to the management team for closing remarks.

Thank you Tia.

Yes.

Excuse me as always I would like to thank our associates for their incredible work on behalf of our customers in cable.

We appreciate everyone joining us for today's call and we look forward to seeing you again next quarter.

And I will both be attending that conference assuming negative COVID-19 tests.

Okay.

Next.

We hope to see many of you there.

Paul.

Okay.

Okay.

That concludes today's conference call. Thank you.

You may now disconnect your lines.

Yes.

Okay.

Yeah.