Cable One, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Cable One provides residential and business data, video and voice services across 24 states. Results include Hargray from its May 3, 2021 acquisition; reported year-over-year comparisons are therefore affected by the acquisition.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $430.2 million | $339.0 million | $1,173.2 million | $988.5 million |
| Operating income | $117.5 million | $96.1 million | $335.3 million | $279.6 million |
| Net income | $52.3 million | $66.3 million | $227.0 million | $198.2 million |
| Diluted EPS | $8.33 | $10.96 | $36.24 | $33.60 |
| Adjusted EBITDA (non-GAAP) | $220.5 million | $174.4 million | $614.1 million | $495.2 million |
| Operating cash flow | Not separately provided | Not separately provided | $530.3 million | $399.0 million |
| Capital expenditures | Not separately provided | Not separately provided | $282.0 million | $218.0 million |
Q3 revenue rose 26.9%, while net income fell 21.2%. Nine-month revenue rose 18.7% and net income rose 14.6%. Calculated operating margin was 27.3% in Q3 2021 versus 28.4% a year earlier, and 28.6% for the 2021 nine-month period versus 28.3%. Adjusted EBITDA margin was approximately 51.2% and 51.4% for the respective Q3 periods, and 52.3% versus 50.1% for the nine-month periods.
For the nine months, operating cash flow less capital expenditures was approximately $248.3 million, compared with $181.0 million in 2020. Cash and cash equivalents were $489.5 million at September 30, 2021, down from $574.9 million at year-end 2020. Current assets were $598.8 million and current liabilities $297.6 million, implying working capital of approximately $301.2 million.
Debt carrying value was $3.896 billion, including $2.320 billion of term loans, $650 million of 4.00% senior notes and $920 million of convertible notes. Cash-adjusted debt was approximately $3.407 billion. Cable One reported $458.6 million available under its revolving facility and compliance with all debt covenants. The company paid a Q3 dividend of $2.75 per share.
Material changes and management commentary
- The May 2021 Hargray acquisition cost approximately $2.0 billion in cash and was funded with cash on hand and new debt. Hargray contributed $78.4 million of Q3 revenue and $6.0 million of Q3 net income; its nine-month post-acquisition contribution was $129.0 million of revenue and $10.4 million of net income.
- Q3 revenue growth reflected Hargray and higher residential data and business services revenue. Nine-month residential data revenue increased 23.8% and business services revenue increased 26.7%; video and voice revenue declined 1.3% and 2.2%, respectively.
- Q3 other expense included a $25.6 million non-cash loss from remeasuring the MBI call/put option. Nine-month other expense included a $41.4 million option fair-value loss, partially offset by a $33.4 million non-cash gain from remeasuring the existing Hargray investment at acquisition.
- Higher interest expense, depreciation and amortization, and selling, general and administrative costs partly offset operating growth. The company reported $282.0 million of capital expenditures for the first nine months, focused on network capacity, upgrades, business growth and customer equipment.
- Management prioritizes residential data and business services, infrastructure investment and disciplined cost management. It expects residential video customers and revenue to continue declining, while pursuing data and business growth. Sparklight TV was available to approximately 40% of homes passed, with implementation expected to be complete by mid-2022.
- Management said COVID-19 had not notably harmed results in the first nine months; retained data customers and continued subscriber growth supported revenue. It cited uncertainty around customer growth, bad debt, expense normalization, labor and supply chains, inflation, and the pandemic’s course. No numerical financial guidance was provided.
Risks, contingencies and unusual items
- Substantial acquisition-related indebtedness increases exposure to adverse conditions and may constrain financing, investment, dividends and other actions. Variable-rate debt is partly hedged: a hypothetical 100-basis-point LIBOR increase would raise annual interest expense by $11.2 million as of September 30, 2021.
- Convertible notes may create dilution or require cash for repurchases or conversion settlement in specified circumstances. A $33.0 million letter of credit supports Wisper’s FCC program obligations; management considered non-performance remote and recorded no liability.
- Cable One implemented a new ERP system in Q2 2021. Hargray uses separate systems and processes, and the company is reviewing related internal-control design and effectiveness. Disclosure controls were deemed effective at September 30, 2021.
- Management reported no legal proceedings likely to have a material adverse effect based on available information, and no material impairments in the periods presented.
- After quarter-end, Cable One invested $25.0 million in Point Broadband, agreed to acquire CableAmerica assets for $113.0 million, and invested $20.8 million in Tristar Acquisition I Corp. The CableAmerica deal was expected to close before year-end, subject to customary conditions.
Important facts for investors to verify
- How much of reported revenue and Adjusted EBITDA growth reflects Hargray versus organic performance, and how Hargray integration and synergies are progressing.
- Debt, net leverage, refinancing and interest-rate exposure, including the potential cash or dilution effects of the convertible notes.
- Underlying subscriber trends and ARPU, especially residential data growth and ongoing video and voice declines; Hargray subscriber classifications were not yet fully aligned with Cable One’s methodology.
- Whether elevated capital spending translates into sustainable growth, and whether operating cash flow supports investment and dividends.
- Progress completing Sparklight TV deployment and integrating Hargray systems and controls, as well as closing and integrating CableAmerica.