Cable One, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request refers to 2022 Q4, this filing is an annual report; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Unless noted otherwise, figures below compare full-year 2022 with full-year 2021. Dollar amounts are in millions.
Business context
Cable One provides residential and business data, video and voice services across 24 Western, Midwestern and Southern states. At year-end it served about 1.11 million customer relationships across 2.70 million homes passed. Its strategy prioritizes higher-margin residential data and business services over video and voice.
Financial and operating metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,706.0 | $1,605.8 | +6.2% |
| Operating income | $539.0 | $456.6 | +18.1% |
| Net income | $234.1 | $291.8 | -19.8% |
| Diluted EPS | $38.06 | $46.49 | -18.1% |
| Adjusted EBITDA | $911.9 | $839.3 | +8.6% |
| Operating cash flow | $738.0 | $704.3 | +4.8% |
| Capital expenditures | $414.1 | $391.9 | +5.7% |
| Cash and cash equivalents at year-end | $215.2 | $388.8 | -44.7% |
Derived from reported figures, operating margin was approximately 31.6%, net margin 13.7%, and Adjusted EBITDA margin 53.4%. Operating cash flow less capital expenditures was approximately $323.9 million; this is a simple calculation, not company-defined free cash flow.
- Revenue mix: Residential data $934.6 million (+11.8%; 54.8% of revenue); residential video $325.2 million (-4.3%; 19.1%); business services $305.3 million (-1.1%; 17.9%); residential voice $43.1 million (-9.3%); other $97.9 million (+32.1%).
- Customer trends: Residential data PSUs rose 0.7% to 963,700. Total video PSUs fell 30.4% to 181,500, and voice PSUs fell 11.5% to 132,100. Total customer relationships declined 3.5% to 1.11 million.
- Costs and margins: Total costs and expenses increased 1.5%, slower than revenue growth. Operating expenses were 27.6% of revenue versus 28.4% in 2021; SG&A was 20.5% versus 21.6%. Programming and franchise fees declined $26.6 million, partly offsetting acquired-operation costs and higher labor, fuel, health and professional expenses.
- Interest, taxes and unusual items: Interest expense rose 21.4% to $137.7 million amid higher debt and rates. The effective tax rate rose to 33.7% from 13.6%, including a $22.9 million deferred tax expense from state tax revaluation and the nonrecurrence of a prior-year Hargray-related tax benefit. Other expense included a $40.7 million noncash loss on the MBI net option. The Clearwave Fiber contribution produced a $22.1 million noncash gain; asset dispositions included an $8.3 million noncash loss.
- Debt and liquidity: Reported debt carrying amount was $3.85 billion, including $2.27 billion of term loans, $650 million of senior notes and $920 million of convertible notes. Cash was $215.2 million; debt less cash was approximately $3.63 billion, before other adjustments. The company reported $500 million of undrawn revolving capacity at year-end and compliance with debt covenants. Current assets were $346.7 million versus current liabilities of $244.2 million.
Material changes and capital allocation
- Revenue growth included $96.8 million from acquired operations; organic data growth and pricing also helped, while Clearwave operations contributed to Clearwave Fiber in 2022 and video and voice revenues declined. Accordingly, reported growth is not wholly organic.
- On January 1, 2022, Cable One contributed certain fiber operations to Clearwave Fiber for an approximately 58% equity interest valued at $440 million. The contributed operations represented about 3% of consolidated revenue in the fourth quarter of 2021.
- Capital expenditures were $414.1 million, with investment directed toward network capacity, reliability, fiber expansion and customer equipment. The company reported investing nearly $1.1 billion in its network over the preceding three years.
- During 2022, the company repurchased 294,062 shares for $353.3 million and paid $66.3 million in dividends. The board approved a $2.85-per-share quarterly dividend for payment in March 2023, subject to its usual conditions.
- After year-end, a February 22, 2023 credit agreement amendment increased revolving commitments from $500 million to $1.0 billion and extended the revolver maturity to 2028. The company drew $488 million and, with proceeds from an upsized term loan, repaid the $638.3 million Term Loan A-2 balance.
Outlook, risks and contingencies
- Management expects long-term growth in residential data and business services, while anticipating further decline in video customers and revenue. It plans continued network investment, including symmetrical Gigabit service in select markets by the end of 2023 and DOCSIS 4.0 deployment beginning in 2024. These are plans, not quantified financial guidance.
- Management said residential data growth was returning to more normalized, pre-pandemic patterns. Competition from fiber overbuilders, telephone companies, municipal/cooperative networks, fixed wireless and streaming providers could pressure subscriber growth, pricing or video economics.
- Higher interest rates are a material exposure given variable-rate debt. The filing estimates that a 100-basis-point increase in applicable LIBOR would raise annual interest expense by $10.7 million, after considering the disclosed debt exposure. Some debt and swaps were subsequently transitioned toward SOFR under the February 2023 refinancing.
- Cable One has a 45% interest in MBI and a call option to acquire the remaining interests between January 2023 and June 2024. If it does not exercise the call, certain investors can require a purchase in 2025 under the put option. The company had not obtained the capital it believed necessary to fund a purchase; the purchase price is formula-based and not specified as a clear amount here.
- Other important risks include acquisition integration and realization of Hargray benefits, debt covenants and refinancing capacity, convertible-note cash settlement or dilution, privacy and cybersecurity incidents, vendor and supply-chain dependence, franchise renewal, pole-attachment costs, and possible changes to broadband regulation and subsidies.
- Contractual obligations totaled $4.26 billion, including $3.84 billion of debt payments and estimated programming commitments of $287.9 million. The filing says legal proceedings in the ordinary course are not expected to have a material adverse effect. A $22 million letter of credit issued for Wisper’s FCC obligations is guaranteed and indemnified by Wisper; management assessed the risk of nonperformance as remote.
Most important facts for investors to verify
- How much of revenue and Adjusted EBITDA growth came from acquired operations, pricing and the Clearwave Fiber transaction versus ongoing organic growth.
- Whether residential data subscriber growth and ARPU can continue as post-pandemic trends normalize and competition expands.
- The effect of video subscriber losses and programming costs on revenue, cash generation and the economics of the company’s deliberate video de-emphasis.
- Current debt balances, borrowing costs and liquidity after the February 2023 refinancing, including the funding implications of the MBI call or put option.
- The sustainability of dividends and repurchases alongside capital expenditure needs, debt service and potential strategic investments.
- The sensitivity of reported net income to tax-rate changes and noncash fair-value movements, especially the MBI net option valuation.