Q2 2023 Cable One Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by my name is Erica.
And I am the conference operator today at this time I'd like to welcome everyone to the cable one second quarter 2023 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.
At this time I will be turning the call over to Jordan bar cart.
Good afternoon, and welcome to cable one's second quarter 2023 earnings call. We're glad to have you join us as we review our results before we proceed I would like to remind you that today's discussion contains forward looking.
It's related to future events that involve risks and uncertainties you can find factors that could cause cable one's actual results to differ materially from the forward looking statements discussed during today's call in today's earnings release and in our recent SEC filings cable one is under no obligation and expressly disclaims any.
Except as required by law to update or alter its forward looking statements, whether as a result of new information future events or otherwise.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U S generally accepted accounting principles or GAAP.
Conciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at IR Dot cable one.
During today's call whenever we refer to second quarter results on an adjusted basis, we are excluding certain noncore assets, we divested in the second quarter of 2022, which exclusively provided business services.
Joining me on today's call is our president and CEO , Julie Lewis and Todd <unk>, our CFO with that let me turn the call over to Julie.
Thank you Jordan and good afternoon, everyone. We appreciate you joining us for today's call.
Before jumping into our second quarter results I'd like to offer a couple of thoughts about our industry as a whole.
Despite the current headwinds, we and our peers.
The broadband business is strong and there is no industry, we'd rather be in.
We believe the long term demand for connectivity will persist weapon to the future fuel the opportunity for growth.
Fast and reliable Internet is critical for today's consumers and data usage continues to grow as the average cable one households, now relies on 'twenty connected devices in their homes slightly higher than the national average.
Connectivity business is growing and evolving and we are excited and ready for what the future will bring.
That said, we persist in navigating this choppy environment confident in our long term business and steadfast in the following fundamentals.
We have a strong competitive position, which will become even more firmly rooted as we focus on innovative ways of delivering greater value to our customers.
Yeah, we have a talented and entrepreneurial workforce of associates, who are neighbors to our customers and long term members of our community, enabling us to contribute to the economic development of the cities and towns we serve.
Now I will provide some highlights from the quarter before handing it over to Todd.
Our ongoing financial results are a testament to our solid roadmap, which focuses on delivering seamless connectivity and superior service to our customers.
In the second quarter, we delivered residential broadband revenue growth of five 8% from the prior year.
Business services revenue growth of one 6% on an adjusted basis with data services within this segment meaningfully outperforming this right.
Adjusted EBIT margin up 150 basis points from the prior year to 54, 5%, reflecting continued efficiency and product mix shift.
Greater capital efficiency, while continuing to increase our network capabilities and capacity.
Adjusted EBITDA less Capex was $149 $8 million, an increase of 24, 6% year over year.
The growth we experienced in both residential and business broadband was offset by lower revenue in video and voice services.
And then a decade ago, we correctly identified that the video subscription model this broken and strategically shifted our focus.
Hosting and significantly less exposure to that.
Turning to residential broadband the second quarter is historically, our toughest of the year due to seasonality.
Coupled with depressed how move activity a slowdown in some new builds and market competition, we continue to experience a low transaction environment ending.
Ending the quarter with a decrease of approximately 5900 customers on a sequential basis.
While the current environment has resulted in a slowdown in gross connects churn rates remain below pre pandemic levels.
These low churn levels include the impact of the attrition from our current rate adjustments and are a clear indication of our customers' appreciation of our consistent reliability and the value we provide to them.
Turning to residential broadband <unk>, we saw strong year over year growth of five 9%.
In the first half of 2023, we rolled out our first internet rate adjustments in eight years, which together with speed tier upgrades have been the primary drivers of our ARPA growth.
During the second quarter, a subset of customers across several rate plans and our spark late markets received a five dollar increase.
To show our appreciation to our loyal HFC customers, we increased download speeds across most of our high speed Internet plans and spark white markets in mid May.
Also increased speeds and a portion of our fidelity markets in the quarter.
The demand for higher speed tiers remains robust with selling a 500 megabits or higher at nearly 65%.
<unk> 755 basis points sequentially.
Cake sales and an all time high of nearly 40% in the quarter, an increase of 229 basis points sequentially.
Well beneath adoption levels demonstrate many of our customers are willing to pay for faster and more reliable products, we are modeling and testing new pricing and packaging and an effort to strike the right balance between subscriber growth and long term profitability across all demographics within our.
Towns and communities.
Our business services growth story on the commercial side continues.
On an adjusted basis, we drove business services revenue growth of one 6% year over year, despite inflationary pressures impacting existing businesses.
Well, it's new business creation.
Our services team is focused on executing on areas within our span of control and as a result, we are seeing strong demand and carrier wholesale and enterprise customer segments.
One example is a recently completed 29 million dollar expansion project, and Gila County, Arizona, which will help bridge the digital divide pretense school and eight library.
Area.
With funding from three agencies sparkling business extended its fiber network from the town of shallow in order to provide high speed internet to communities across the county.
At more than 200 route miles and nearly 29000 fiber miles much of it through solid granite. This is one of the largest single fiber E rate construction projects executed Vice Barclay.
This project also brings fiber network presence into a number of underserved communities in northern Arizona, where we will be able to offer both residential and business services and the future.
Over all wired competition in our markets continues to increase and may create some pressure in a subset of our markets are.
Our team is constantly innovating so that our customers have products and services that make their lives easier and a future proof network to support them well into the future our customers know they have a choice and they are choosing us for reliability and speed, which has been demonstrated quarter over quarter and our.
Low churn rates.
Looking at fixed wireless competitive activity or third party research indicates that the unlimited data plan offered by mobile service providers is available and approximately 40% of our markets today.
As mentioned on previous calls we anticipated that a portion of our historic win share from DSL customers would be willing to test out mobile fixed wireless.
Ultimately those customers would gravitate to wired broadband service as they recognize the need for greater speed and reliability.
We are now starting to see that play out as third party research shows that mobile fixed wireless share in several of our markets.
<unk> to decline.
That's I'll touch on in more detail in just a moment, we are continuously evolving our network to meet the long term needs of our customers and communities in line with our focus on being the most trusted Internet service provider in the markets we serve.
Ongoing capital efficient investment in our network is enabling us to compete aggressively for market share as we engineer and network that not only meets the current needs of our customers, but pushes beyond that as we lay the groundwork for DOCSIS four Plano and 10 gig.
As part of our ongoing network evolution, we recently activated high split technology in two markets, creating the capacity to offer one gig symmetrical service over HFC and multi gig download speeds.
We remain dedicated to our customer centric strategy of staying ahead of customers' needs as they continue to accelerate.
Indicative of the entrepreneurial as I mentioned earlier in our call. Our engineers have developed a unique device configuration using DOCSIS three one that has created 20% to 30% more capacity in the upstream than previously available on traditional low split.
<unk> hybrid fiber coax plant.
We are not aware of anyone in the industry currently optimizing upstream capacity in this way.
This is yet. Another example of how we are improving and extending the life of existing HFC facilities, while also creating additional capacity for HFC customers with very limited additional capex investment.
As I mentioned at the top of the call demand for data continues to reach new Heights, and we don't see growth slowing anytime soon.
Nearly 20% of our residential customers now exceed a terabyte of usage each month and increased 16% from the same period last year.
At the same time, our average network utilization during peak hours actually decreased driven by the ongoing upgrades we've made to the network.
During the second quarter average customer demand increased 11% from 550 gigs per month to 610 gigs per month versus the prior year quarter, yet downstream and upstream utilization during peak hours.
Kris from 21% for both the first quarter to 20% and 19% respectively.
Switching gears as we continue on our digital transformation journey, we are laser focused on driving greater efficiency and agility across our business with the ultimate goal of solving pain points and providing what we call goodness for our associates and customers.
Across our family of brands, our associates are fully engaged in evaluating our business holistically and identifying ways to streamline operations in ways that make the lives of our customers easier.
We are seeing this come to life through recent initiatives such as expanded SMS messaging advanced automated payment options and a consolidated and enhanced <unk> and chat platform all of which elevate our customer experience, while unleashing enterprise returns.
This means our associates can shift their focus to high value high impact work that drives growth across the business.
In keeping with our commitment to advance digital equity across our footprint. We are analyzing the historic amounts of government funding available to support broadband development throughout the U S, including more than 23 billion and recently announced Pete funding in the states.
Sure.
We'll take a thoughtful approach to grant funding applying for grants Opportunistically, where government funding permits us to expand our network and alignment with our overall network development strategy.
As importantly, we will continue to challenge government funded broadband projects that would duplicate our fully upgraded network to ensure that public dollars are directed to unserved and underserved communities.
Also in support of our digital equity efforts, we have a number of construction projects in various stages of completion that will bring much needed broadband service to unserved and underserved communities adjacent to our existing markets in Texas and Arizona.
We have spent decades investing in a robust and reliable network with the power and capacity to support the digital future of the 1 million plus customers. We currently serve we will continue to leverage that network to extend broadband service to previously unserved areas and underserved rural.
Communities in pursuit of our purpose of keeping our customers and communities connected to what matters most.
Positive momentum continued in the second quarter for unconsolidated investments, where we saw residential and business data customers grow by approximately 20500 or four 4%.
These figures include both acquired and organic growth, but they do not include the operations of Metro net whereas the play where we have less significant investments.
We are pleased with the solid results of these companies, which are successfully providing fast and reliable broadband services to rural America and are run by some of the best business and financial leaders in our industry.
Shortly after the end of the second quarter, we monetized, our equity stake and whisper fixed wireless which resulted in a healthy return of our initial investment.
Thank you to the team at west for for their role in our shared journey.
Later in the call Todd will provide further insights into our recent investment activities.
Before handing the call over there are a few events from the quarter that I'd like to touch on.
While a number of severe storms hit our markets in Missouri, Texas, Oklahoma, Mississippi, Indiana, and Louisiana in quick succession in mid June we were very fortunate that our associates and their families remain safe.
Thoughts are with all of those still recovering from the storms.
I want to take a moment to thank our associates, who took care of our customers and communities by working tirelessly to restore service as quickly as possible following the events.
I'd also like to share that we recently published our first corporate responsibility report on our Investor Relations website, which highlights our efforts in environmental stewardship.
Documents, and our associates and communities and fostering best practices across our business.
We invite you to explore this report to learn more about cable one's ESG practices.
We are pleased with our progress and remain committed to making ongoing measurable and positive impacts across our footprint.
And now Todd.
<unk>, who will provide a full recap of our second quarter financial performance.
Thanks, Julie starting with revenue total revenues for the second quarter of 2023 were $424 million compared to $429 1 million in the second quarter of 2020 to a one 2% decrease the decrease was primarily due to a continued decline.
Coin in low margin residential video and voice revenues as well as the impact of the divestiture of non core operations. During the second quarter of last year, which contributed $1 $1 million of business services revenue in Q2 2022.
On an adjusted basis total revenues were down by 9% year over year.
Our business continues to be driven by the growth of our highly profitable residential data and business services product lines for Q2 2023, our residential data revenues expanded five 8% year over year, when compared to Q2 2022, and our business services revenue grew.
By one 6% for the comparable period on an adjusted basis.
Data services within our business services segment meaningfully outpaced this growth given business services as reported still include video and voice revenues, which has similar characteristics to that of our residential segment.
Operating expenses were $112 $8 million or 26, 6% of revenues in the second quarter of 2023 compared to $118 $4 million or 27, 6% of revenues.
Terrible quarter of the prior year.
A 100 basis point improvement.
Driven largely by a $12 $6 million decrease in video programming costs.
Selling general and administrative expenses were $86 2 million for the second quarter of 2023 compared to $98 million in the prior year quarter.
SG&A as a percentage of revenue was 23% for the second quarter of 2023 compared to 21, 2% for Q2 of 2022 a.
A 90 basis point improvement.
Adjusted EBITDA was $231 3 million for the second quarter, an increase of one 7% when compared to the second quarter of 2022.
Adjusted EBITDA margin for the second quarter of 2023 was 54, 5%, a 150 basis point improvement compared to the prior year quarter and a sequential increase of 30 basis points as we continue to drive growth in our higher margin advanced broadband products.
Capital expenditures totaled $81 $5 million for the second quarter of 2023, which equates to 35, 2% of adjusted EBITDA compared to $173 million or 47, 2% in the prior year quarter.
During the second quarter, we invested $15 $1 million of Capex for new market expansion initiatives and $4 8 million for integration activities.
Our Q2 capital expenditure decrease was driven by a working capital optimization initiatives the meaningful amount of previously completed network upgrades and certain growth related factors.
We expect capital expenditures to normalize in the second half of the year as we continue to proactively invest in our network specifically customer growth initiatives.
Adjusted EBITDA less capital expenditures was $149 $8 million for the second quarter of 2023, an increase of 24, 6% from the prior year quarter and 13% on a sequential quarterly basis.
Both elements of this key cable one metric continue to improve.
Our capital allocation strategy remains consistent with our historic principles of proactive investment and highly reliable advanced broadband networks.
Attractive investments in organic extensions of these networks in and around our current geographies.
And strategic acquisitions or.
Our investments and other complementary rural broadband providers.
All balanced with a predictable return of capital strategy and a disciplined debt repayment philosophy.
In the second quarter of 2023, we distributed $16 $3 million in dividends and repurchased nearly 61000 shares of our common stock or one 1% of outstanding shares for $41 4 million.
We also repaid $54 $6 million of debt in the quarter.
$50 million of which was a voluntary repayment of our outstanding revolver balance.
As of June 30, we had approximately $161 million of cash and cash equivalents on hand.
Our debt balance was approximately $3 8 billion.
Consisting of approximately $1 8 billion in term loans $920 million in convertible notes $650 million unsecured notes $438 million of revolver borrowings and $5 million of finance lease liabilities.
We also had $562 million available for additional borrowings under our 1 billion committed revolving credit facility.
Our weighted average cost of debt for the quarter was just under four 3% our net leverage ratio was three nine times.
The vast majority of our borrowings are either fixed issuance or had been synthetically fixed under long term contracts considerably mitigating our exposure to the prevailing rate environment.
During the second quarter, we invested an additional $13 $9 million in ZIP leased fiber as part of our initial commitment, bringing our total investment to over $36 million.
We also made an additional nominal investment in visionary during the quarter, increasing our investment to $8 million.
As Julie mentioned in July after the quarter closed our equity investment in Whisper was redeemed for total cash proceeds of nearly $36 million and our investment in the Tri Starr Special purpose acquisition company was divested for total cash proceeds of nearly $21 million.
These investment monetization support our ability to reinvest in our core business growth.
Other select partnerships and further de lever our balance sheet.
Finally, starting this quarter, we posted trending sheets on our Investor relations website, making it easier to see several quarters worth of sequential changes in many of our key operating and financial metrics.
All figures are presented on a consolidated as reported basis.
Before turning the call over for questions I want to comment on recent media reporting and potential concerns about led covered copper cables used in the telecom industry.
For context, the vast majority of our plant consist of fiber or hybrid fiber coax cables with copper cable as representing only a small percentage of our overall footprint.
In response to the recent publicity we conducted an internal assessment of our network and did not identify any led covered cables.
With that we are now ready for questions.
Once again I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we would like to follow the policy of one question and one follow up.
We'll pause for a moment to compile the Q&A roster.
Our first question comes from Greg Williams of TD Cohen, Greg go ahead.
Great. Thank you just a question on the broadband subscriber trends.
On the 5900 loss how much do you think was seasonality and how much of that was a swing factor.
Conversely, then how much do you think an upswing or possibly see in the third quarter as you think about potential for ads to move back in positive.
Territory.
Hey, Greg it's truly great question.
Looking at last year's change from first quarter to second quarter.
Compared to this year this year's was less.
Doing any sort of precise comparisons.
Previous to that it becomes difficult because of pandemic, which did not follow a typical seasonality.
And M&A.
M&A and divestitures tours as well so what we saw in Q2 was less than the drop we saw last year. So I think it is highly correlated to seasonality.
As far as the third.
<unk>.
We don't give guidance as you know.
But yes.
Trends follow it should be a good quarter.
Got it thank you.
Our next question comes from the line of Craig Moffett from Moffett.
Nathan.
Craig go ahead.
Thank you.
First just one clarification, you said mobile fixed wireless share is beginning to decline did you mean to say that the numbers themselves are actually declining or the net adds are declining that is are they actually losing subscribers.
And then second more substantively.
I Wonder if you could just comment on your thinking about the MDI put call option that comes up in 2025.
Just.
How youre thinking about the cost and valuation and financing.
Great Greg It's Julie I'll take the first one I'll, let Todd take the second.
We do have a third party researcher to give us.
Their estimates on share by market place.
Share is quite low our coverage for both chemo and Verizon are approximately 40% of our footprint.
We noticed last quarter, but it was it was quite small and it became more pronounced.
This quarter that there are markets, where we are seeing that share as reported by this third party.
Going in reverse I can't comment on their net adds I don't I don't know what their net adds are they they we don't see them our churn rate is.
Spectacularly low and that includes.
Any losses to.
Competitors in certain markets. So that just tells you how incredibly low it really is.
So.
My supposition is that the majority the vast majority of any connects that they would get and that 40% of our footprint would be coming from.
So current DSL customers.
And it looks like.
Sure.
We're having some difficulty in some markets.
Okay. That's helpful. Thank you.
Hey, Craig.
Good afternoon, it's Todd on the MDI Bryan I know it covered this.
The first quarter call.
And we've had some conversations about that but just to reiterate and remind.
That is.
An investment that we made in 2020 that has provisions associated with cable one having the optionality.
Of buying in the remainder of this year that we do not own which is 55%.
That window opened early this year and runs through mid 2024.
Thats at a fixed multiple we don't disclose the multiple but it's a multiple at which based on market dynamics.
I wouldn't estimate.
Youll see us.
Affecting that as it relates to our commitment to <unk>.
Doing accretive transactions.
Is it.
Ben pertains to the Puds that you brought up that is in middle of 2025 from an election.
Likely late in 2025 from a.
Funding requirement, so we feel very comfortable and confident in our ability to prepare for that that business is performing extremely well everything as I've said in the past that we liked about that initial investment we continue to.
Like in terms of its growth rates.
Cash flow conversion its penetration.
It's rural competitive installation and the leadership team there that continues to do a fantastic job. So we're very close to our partner there we have multiple partnerships with lead TCR across our unconsolidated investment.
There is a lot of winning strategies associated with that in our opinion for our shareholders.
And I think that's the.
Consistent message that I delivered in the past if thats helpful.
Yes. Thank you.
Our next question comes from the line of Phil Cusick from J P. Morgan.
I'll go ahead.
Hi, guys. Thank you I.
I guess following up first on the wireless side, what was that overlap maybe a year ago versus the 20%.
And then in terms of your incoming customers are you seeing any signs that people are coming over from fixed wireless and any in any way faster or slower versus where they were a year ago and then second of all if I, Ken what's the exposure of.
Of the base to the price increase that you've done and how should we think about that impacting <unk> in the next couple of quarters. Thank you.
Great.
Julie.
I am not sure what fixed I think youre asking what.
Our overlap with T mobiles and Horizons Unlimited plan fixed wireless plan was a year ago.
And I am I don't have that number top of mind, but I, certainly will get it and send it over to you.
It would have been less.
But that I can't comment on how much left right.
As far as your follow on to that or are we getting an indication from connects that we are having that folks are coming to us from wireless in the answer to that is yes spa.
Specifically I can think of the health call that I was on with two of our systems and they were talking specifically about Scott can I quantify it for you we know, but yes, we have heard that some folks are coming to us from fixed wireless.
The rate adjustment is a great question because the rate adjustment was effective against about a third of our residential customers that $5 that we talked about.
Went to about a third of our customers who have not experienced a rate adjustment in over eight years.
And you know we are.
I'm very cautious about anything.
Anything that we do with our customers our customers are at the heart of our action because we test end market. We have a third party research firm that we touch customer perceptions with we do several price elasticity studies per year, and we felt like this was something that we could do without causing.
Harm and in fact, I think that is the case in.
In terms of the <unk> that we saw from that rate adjustment in this quarter. It was about equally from that adjustment and the continued.
Upgrading our folks to higher speed higher cost tiers of their own volition of their choice.
There will be more.
<unk> related to that adjustment in the third quarter. It did not all take place in the second quarter I hope that answers your questions.
Thank you if I could.
Maybe push a little bit harder on the fixed wireless within the 40% that you've identified today.
Anything different in terms of performance in the business either over the last year is fixed wireless is ramped up.
That you might be more volatile.
Okay.
The issue for US right now is just the everything has happened quite honestly since COVID-19 the whole world is different.
Listen Theres plenty of penetration opportunity in our markets plenty, we don't have a concern about.
<unk> are down versus pre pandemic historical levels, however that as in all markets. So that means in our competitive footprint and are non competitive footprint.
There is.
A dynamic that is at play that is not.
Just related to competition other things are going on it is the the economy. It is bad news related issue those sorts of things.
So.
And on that.
Go ahead.
I'm, sorry, Julien Bill, it's Todd I was just going to add to that because I think that really nails. It but when you think about what we just discussed as it relates to our ongoing trends and momentum in what the consumer demand curve looks like in the sell in rates and the adoption rates.
But we still remain very confident in is that we do not see a meaningful.
It's hard to describe if any but a meaningful amount of customers that are churning for that product, but to julie's point, if it's impacting us it's impacting us on the growth side of the equation in terms that are more benign connect activity.
Right, which is something that can be solved I think.
Thanks, again, and then Phil on the <unk> side, just to expand on Julie's last comment related to that.
She mentioned about the third.
In terms of that $5 recall as it relates to the very strong <unk> number that we reported for this quarter and the ongoing momentum there.
There are a couple of other components. There in addition to of course, the consumer adoption.
As it relates to those higher speed tiers and higher capacity.
It's also the $2 increase on the equipment that we enacted in Q4.
Still impacting on a year over year basis.
As well as.
The.
But the mix shift that I talked about the equipment and then.
$5 and then recall last year in May we did a five dollar increase but go ahead with a $10 increase apologies, but it came $5 for the first year and $5 in the second year. There were still a subset of those customers that got that second $5.
Got it thanks again.
The next question comes from the line of Stephen Cahill from Wells Fargo.
Steven go ahead.
Thank you.
Maybe first one on <unk>.
<unk> penetration.
How do you think about just growing your market potential subscribers I think your data penetration was down just a touch year on year, but I know the network has expanded.
Mostly how do you think about trying to get that penetration higher I think it would assuage some of the fears around net adds if there was this opportunity to push that up five or 10 percentage points to where some of the peers are or do you think theres something that kind of structurally makes your market a little different in that high <unk> or low <unk> penetration.
<unk> is a natural ceiling and then I've got a quick follow up.
Yeah.
Steven it's truly I do not think there is something structural in our markets that would preclude us from pushing penetration higher I think we're at a point in time, where you know we.
We are sort of white boarding how to do business because business is different than it's been in the past and so not doing some one off reactionary, but looking at a holistic a cohesive strategic plan to address now very specific market.
And customer segments, and I mean, all customer segments. So that we can get a fit between our overall pricing and packaging across those segments.
Perks et cetera, all based on deep conversations and insights from our customers.
It's worked for us to do and we can do it.
Yeah.
Great and then just digging into the <unk>.
Youre, probably going to take a question from every analyst about so should we think about the 6%.
Just kind of continuing into the third quarter, maybe until you start to lap the modem price increase.
Or it sounds like the up hearing is a pretty big piece of that and so I don't know if you continue to think that the up tearing tailwind in <unk> is going to continue or if that might have been a little more idiosyncratic to some of the changes you made in the second quarter. Thank you.
I don't think I will give.
We give guidance that's what I think it will be going forward only that it is we didn't do something in the second quarter in terms of the upgrading that I wouldn't imagine continuing.
As a matter of fact, the sell in is just a number that I would point to that continues to accelerate.
And in our markets by and large you're not doing mass media because we're just a tiny part of the DNA. So for us to do marketing. It really is sort of grassroots guerrilla marketing to get the word out and people are hearing about <unk> and it's a great value.
And I expect that to continue as well as the wash over from the rate adjustment both on that third of the customers.
And the modem adjustment as well now I would caution.
What we're looking at it as as I mentioned in.
Earlier that we're looking at striving to find a balance between unit growth and <unk> and balanced doesn't mean that everything is exactly the same thing about each lever is the same but that youre balancing the levers based on customers' perceptions.
So I would throw that out as a caution.
Thank you Julien.
Our next question comes from the line of Frank Loosen from Raymond James Frank Go ahead.
Great. Thank you can you talk to us a little bit about on the video side.
Losses slowed a little bit where do you think that sort of bottoms out and are you kind of hitting that that wall. We're stubborn.
Customers there and then what do you think is having the bigger impact on the sub trends currently for data is it is it household moves or is it competition or is it still a combination of both banks.
Yeah.
Todd might have more more to comment on but as it relates to video.
Frankly, we don't sell video.
Hello.
I mean, there is no in coming into the bucket it's Chuck.
Going out of the bucket.
Where do I see it going I mean, I think we.
It has been.
Pretty vocal about this for 10 years, now saying that customer.
Customers have a lot of other choices that quite honestly.
More economical for them.
Enforced to take a package that we're forced to take from programmers. So were pretty low in video penetration right now I think it continues to decline and.
It's of little risk to us.
It's.
FX revenue way more than it does EBITDA.
Subprime Brian .
Go ahead go ahead.
Go ahead, I'll just add on that.
<unk> side, and then you can go to the data side, but frankly.
Spot on.
It's a smaller base. So the percentage will probably start to decline a little bit when you are declining off a smaller base until it's the.
As we've discussed in the past that the wind not at the moment right. I mean, there is still a lot of revenue in it there's not a lot of margin in it but there is still some margin in it.
We're very focused on a strategy that makes the most sense for those customers first and foremost and in many cases the demographics associated with those customers are a little bit higher skewed on the elderly side, so transitioning them into a digital environment off that linear Qualm video is something that takes a little bit more hand holding than some of our.
Markets, which we're doing.
And we view that as an opportunity in many cases to continue to introduce.
Our data product or extend.
Additional services in our data ecosystem to those customers.
That's just a little bit of a timing dynamic.
And we wanted to make sure that as we're looking at the win not as dynamic that we're also.
Very proactively addressing that.
Cost allocation.
Yeah related to sub trends I mean, remember that we're very geographically dispersed and the size of our markets.
Which is about 18 K.
Homes passed so.
Any competitor that would affect us.
This is not the same as it might.
In fact, a more consolidated operator.
That being said it is uncanny.
Cannae that the same dynamics are happening related to come next specifically.
Both competitive footprints and footprints, where we literally have no one else providing a wired.
Product or even unwired.
100, megs or more so there is definitely another phenomenon at play.
And my guess is it is economic and moves related.
So it's it's both of those things.
Okay, great. Thank you.
Our final question comes from the line of Brandon <unk> from Keybanc capital market.
<unk> go ahead.
Great. Thank you thanks for taking the question.
I have a bunch of follow ups, Julie you mentioned <unk> would be a good quarter can you just handicap that for US is that positive net adds I would assume.
Secondly, you mentioned a third of your customers received a price increase but you also mentioned fidelity customers. So it was a third of the customer of the total customer base that got the price increase.
And then.
On that price increase you also mentioned it was in May is that a one five quarter benefit this quarter for a one month benefit.
<unk> builds on build in June and then my question was around.
Follow ups is really what.
Todd and with a low transaction environment would've thought things like truck rolls and customer care costs would actually be lower can you maybe give us an update in terms of your thoughts on opex trends for the rest of the year.
Yes.
Right.
Great Alright, so to clarify I did not say that third quarter would be.
Good quarter I think you said that third quarter is usually a good quarter.
Seasonally so.
That is my expectation that is what we're heading for we're putting a lot of effort into.
The back to school period, because it typically does bear fruit.
A third of the customers overall Brandon.
All the customers.
Third of all of our customers it happened in mid May.
So only a part of the second quarter without the benefit of that.
And I think your next question was for Todd related to Opex, which gosh, I thought was doing pretty well, but yes.
I like the 100 basis point improvement year over year sequentially, it's pretty flat on a percentage, which is what you might be pointing out Brandon.
And I would say the low transaction environment does offer us an opportunity to focus on some of the costs, both the opex as well as the Capex youll see that the Capex dynamics were meaningfully lower than run rate some of that timing on projects, but a lot of that as I mentioned in my prepared remarks.
And working capital optimization, and just some growth related dynamics.
On the Opex side also keep in mind is.
Quarter.
When we enact.
Our annual wage increases for our associates and we will continue to reiterate that our number one investment.
We'll be in our team and in our culture and we did have those roll through in the second quarter. So while you might have a little bit lower transaction environment. The opex driven by the annual wage increases offset that slightly.
Great. Thank you very much for taking all the questions.
We appreciate you.
That concludes our Q&A I will now turn the call over to Julie Lewis for closing remarks.
Julie it's yours. Thank you.
Thank you Erika I appreciate all your support today.
As always I want to thank our associates for their incredible work on behalf of our customers in cable one we appreciate everyone joining us for today's call and we look forward to speaking with you again next quarter. Thanks, everyone.
Ladies and gentlemen that concludes our call today. Thank you for joining you may now disconnect.
We look forward to speaking with you again next quarter. Thanks, everyone.