Cable One, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Cable One provides broadband, video and voice services across 24 U.S. states, serving approximately 1.1 million customer relationships and passing 2.7 million homes and businesses. Results are unaudited and interim results may not indicate future performance.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $421.9 million | $426.7 million | Down 1.1% |
| Operating income | $132.1 million | $151.2 million | Down 12.6% |
| Net income | $57.4 million | $171.5 million | Down 66.5% |
| Diluted EPS | $9.62 | $26.85 | Down 64.2% |
| Adjusted EBITDA | $228.8 million | $226.5 million | Up 1.0% |
| Cash from operations | $161.8 million | $188.7 million | Down 14.3% |
| Capital expenditures | $96.1 million | $99.4 million | Down 3.4% |
Operating margin was approximately 31.3%, versus 35.4% a year earlier; Adjusted EBITDA margin was approximately 54.2%, versus 53.1%. Operating expenses excluding depreciation and amortization were $112.2 million, down 6.1%, while SG&A was $86.7 million, down 1.2%. Interest expense rose 36.8% to $41.2 million, primarily because of higher interest rates.
Revenue mix shifted toward data: residential data revenue increased 5.5% to $242.7 million, while residential video fell 17.0% to $70.3 million and residential voice fell 18.1% to $9.7 million. Business services revenue was nearly flat at $76.3 million. Total data subscribers increased 0.6% to 1.064 million; total video subscribers declined 29.8% to 167,000 and voice subscribers declined 10.4% to 128,000.
Cash, debt and liquidity
Cash and cash equivalents were $202.7 million at March 31, 2023, compared with $215.2 million at year-end 2022. Operating cash flow was lower year over year, primarily due to higher interest and tax payments and working-capital timing. Investing activities used $100.7 million, including $96.1 million of capital expenditures. Financing activities used $73.5 million; the quarter included $16.5 million of dividends and $41.8 million of share repurchases.
Total debt carrying value, including finance leases, was $3.844 billion, compared with $3.849 billion at year-end. The company reported $1.781 billion of term loans and $488 million drawn on its revolving facility, with $512 million available under the $1.0 billion facility. Management said cash, the revolver and operating cash flows should adequately support funding needs over the next 12 months. The company was in compliance with debt covenants at quarter-end.
In February 2023, Cable One amended and restated its credit agreement, increasing the revolving facility to $1.0 billion and extending its maturity to February 2028. It upsized Term Loan B-3 by $150 million and extended Term Loans B-2 and B-3 maturities to October 2029, subject to stated conditions. Proceeds and a $488 million revolver draw funded repayment of the $638.3 million Term Loan A-2. The company transitioned certain debt and swaps from LIBOR to SOFR; one remaining LIBOR-based debt instrument was expected to transition by June 30, 2023.
Material changes and unusual items
- Net income comparisons were affected by nonrecurring and fair-value items. Q1 2022 included an $84.6 million non-cash gain on the MBI Net Option and a $22.1 million non-cash gain on the Clearwave Fiber contribution. Q1 2023 included a $12.3 million non-cash mark-to-market gain on Point Broadband, partly offset by an $8.0 million non-cash MBI Net Option loss and $3.3 million of debt issuance costs written off.
- Equity-method investment results changed to a $16.5 million loss from $3.8 million of income, mainly reflecting Cable One’s $14.2 million share of Clearwave Fiber’s loss and lower MBI earnings.
- Residential data growth reflected customer upgrades to premium and higher-speed tiers. Lower video subscribers reduced programming expenses by $12.3 million, but property taxes and health insurance costs increased.
- Cash-flow hedge and other comprehensive results shifted to a $17.9 million after-tax loss from a $57.4 million gain, reflecting changes in forward interest rates.
Outlook, risks and contingencies
No specific numerical revenue, earnings or cash-flow guidance is provided in the filing. Management expects long-term growth in residential data and business services, continued decline in video customers and revenue, and ongoing investment in broadband infrastructure, including DOCSIS 4.0, network capacity and market expansion. It also expects to continue cost discipline and currently expects comparable quarterly cash dividends, subject to Board approval.
Management identified competition from cable, fiber, fixed wireless and streaming providers; declining video and voice demand; rising programming costs; higher interest rates and significant indebtedness; economic, labor and supply-chain conditions; regulatory and franchise requirements; and cybersecurity and network risks as factors that could affect results. Cable One holds a call option to acquire the remaining MBI interests through June 2024; if it is not exercised, MBI investors may put those interests to Cable One in 2025. Management stated it had not obtained the capital it believes would be required if either option is exercised. The company reported no legal matter expected, based on currently available information, to have a material adverse effect; no material changes to previously disclosed risk factors; and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether residential data growth and higher ARPU can offset continued video and voice subscriber losses and the slight decline in total revenue.
- How higher interest rates affect interest expense, cash generation and the cost of refinancing or servicing variable-rate debt; review the coverage and terms of the $1.0 billion revolver and SOFR-linked loans.
- Potential purchase price, funding requirements and timing associated with the MBI call and put options.
- Underlying performance of Clearwave Fiber and MBI, and the sensitivity of the MBI Net Option valuation to assumptions.
- Capital spending needs, share repurchases and dividend commitments relative to operating cash flow and debt obligations.