Cable One, Inc. — Q1 2021 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Cable One provides data, video and voice services across 21 states, serving approximately 988,000 customer relationships. Results include Valu-Net, acquired in July 2020, and exclude the Anniston system divested in October 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $341.3 million | $321.2 million | +6.2% |
| Operating income | $102.3 million | $92.7 million | +10.4% |
| Net income | $68.6 million | $69.3 million | -1.1% |
| Diluted earnings per share | $11.19 | $12.05 | -7.1% |
| Adjusted EBITDA (non-GAAP) | $180.4 million | $157.7 million | +14.4% |
| Operating cash flow | $164.0 million | $118.5 million | +38.4% |
| Capital expenditures | $71.9 million | $64.8 million | +11.0% |
Operating cash flow less capital expenditures was approximately $92.1 million, versus $53.7 million in Q1 2020 (calculated from reported figures). Operating margin was approximately 30.0% versus 28.9%; net margin was approximately 20.1% versus 21.6% (calculated).
At March 31, 2021, cash and cash equivalents were $1.537 billion, current assets $1.613 billion and current liabilities $225.4 million. Total debt, including current maturities and before discounts and issuance costs, was approximately $3.111 billion; long-term debt carrying value was $3.039 billion. The company had $459 million available under its revolving facility and reported compliance with all debt covenants. The elevated cash balance reflects, in part, March convertible-note proceeds.
Material changes and operating trends
- Revenue growth was led by residential data, up 18.5% to $183.6 million, and business services, up 4.3% to $60.4 million. Residential data subscribers rose 12.0% year over year; data ARPU increased 6.0% to $77.24.
- Residential video revenue fell 10.9% to $76.0 million as video subscribers declined 17.0%; residential voice revenue fell 15.7% to $10.5 million. Total video PSUs were down 17.0% and voice PSUs down 10.5% year over year.
- Operating expenses excluding depreciation and amortization declined 4.2%, primarily due to lower programming costs. SG&A rose 9.8%, reflecting acquisition-related, health insurance, labor and system-conversion costs; lower bad-debt expense partly offset the increase.
- Interest expense increased 26.3% to $23.6 million, primarily due to higher swap settlement expense and additional debt. Net income was broadly flat as higher operating income was offset by increased interest and taxes. The effective tax rate was 20.4%, versus 8.5%, largely because a $7.0 million CARES Act-related tax benefit recorded in Q1 2020 did not recur.
- Q1 financing included $920 million of convertible notes ($575 million due 2026 at 0.000% and $345 million due 2028 at 1.125%), generating $895.2 million net proceeds. Their initial conversion price was $2,275.83 per share; conversion may result in dilution or cash obligations, depending on settlement elections and circumstances.
Outlook, commentary and risks
- Management gave no specific numerical financial guidance in the provided filing text. It expects long-term growth in residential data and business services, continued video and voice declines, and further investment in network capacity, fiber expansion and DOCSIS 3.1. Sparklight TV, an IPTV offering, began launching in 2021.
- Management said pandemic-related customer growth supported residential data revenue and expects that benefit to continue in 2021 at a slower pace. It cautioned about uncertainty in customer growth, bad debt and whether expense reductions will persist.
- On May 3, 2021, after quarter-end, Cable One completed the acquisition of Hargray’s remaining equity interests for cash at an implied $2.2 billion enterprise value. The transaction was funded with cash and an $800 million seven-year Term Loan B-4; the filing said purchase accounting was not yet complete.
- Risks highlighted include competition, rising programming and retransmission costs, acquisition integration and leverage, variable-rate debt and LIBOR transition, potential convertible-note cash settlement or dilution, and execution of the new ERP system. The company reported no material legal proceedings and no material changes to previously disclosed contractual obligations, apart from an $11 million increase to Wisper-related letters of credit. It assessed the risk of a Wisper performance failure as remote.
Important facts for investors to verify
- Hargray’s final purchase accounting, integration results, and effect on leverage, interest costs and cash generation.
- Whether residential data and business-services growth can offset continuing video and voice subscriber losses.
- Adjusted EBITDA and cash-flow trends alongside higher capital expenditure needs; Adjusted EBITDA is non-GAAP and is not cash available for discretionary use.
- Convertible-note conversion, dilution and potential cash-settlement exposure, and the company’s debt capacity following the Hargray acquisition.
- ERP implementation outcomes and exposure to variable interest rates, LIBOR transition and the Wisper letters of credit.