Cable One, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; filed November 2, 2023. Cable One provides broadband, video and voice services in 24 U.S. states and reported one operating segment. At quarter-end it served about 1.1 million customer relationships across approximately 2.8 million homes passed.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $420.3 million | $424.7 million | $1,266.3 million | $1,280.5 million |
| Operating income | $132.5 million | $128.0 million | $399.7 million | $400.3 million |
| Net income | $39.5 million | $70.6 million | $152.1 million | $311.3 million |
| Diluted EPS | $6.81 | $11.53 | $25.81 | $49.70 |
| Adjusted EBITDA (non-GAAP) | $230.0 million | $224.6 million | $690.1 million | $678.6 million |
Q3 operating margin was approximately 31.5% versus 30.1%; Adjusted EBITDA margin was approximately 54.7% versus 52.9%. Margins are calculated from reported figures; Adjusted EBITDA is a non-GAAP measure.
- Revenue mix, Q3: Residential data $247.4 million (+5.8%); residential video $62.3 million (-22.6%); residential voice $9.1 million (-13.5%); business services $75.6 million (-0.4%). Data growth reflected higher-tier subscriptions, customer migrations to higher tiers and a Q2 rate adjustment.
- Cash flow, nine months: Operating cash flow was $511.5 million, down 10.2%; capital expenditures were $255.4 million, down 16.9%. Operating cash flow less capital expenditures was approximately $256.1 million. Cash increased by $24.5 million to $239.6 million.
- Liquidity and debt: At September 30, cash was $239.6 million and the $1.0 billion revolving facility had $388.0 million drawn and $612.0 million available. Debt carrying value, including current maturities, was approximately $3.699 billion. The company reported compliance with debt covenants. In October, it repaid a further $50 million of revolver borrowings.
- Capital returns: Nine-month share repurchases were $99.6 million; dividends paid were $49.5 million. The Q3 dividend was $2.95 per share. Remaining repurchase authorization at quarter-end was $143.1 million.
Material changes versus prior year
- Q3 revenue declined 1.0%, while operating income rose 3.5%; net income fell 44.1%. For the nine-month period, revenue declined 1.1%, operating income was nearly flat, and net income fell 51.1%.
- Residential video and voice subscriber losses continued: year-over-year video PSUs fell 26.3% and voice PSUs fell 10.6%. Residential data PSUs were down 0.4%; business data PSUs rose 2.3%.
- Lower programming and franchise costs associated with video subscriber losses helped reduce operating expenses. Q3 operating expense excluding depreciation and amortization fell 9.0%; SG&A rose 7.8%, including higher labor and marketing costs.
- Interest expense increased 19.2% in Q3 and 29.6% year to date, primarily reflecting higher rates. The 2023 credit agreement refinancing extended and increased revolving capacity and extended certain term-loan maturities; the company also transitioned specified debt and swaps from LIBOR to SOFR.
- Net income comparisons were affected by noncash valuation changes: Q3 included a $23.9 million loss on the MBI option, versus a $2.8 million loss a year earlier. Nine-month other expense included a $38.7 million MBI option loss, compared with an $88.1 million gain in 2022.
Outlook, commentary and risks
- The filing provides no specific numeric earnings or revenue guidance. Management expects residential data and business services to remain longer-term growth priorities, with continued investment in network capacity, fiber, DOCSIS 4.0 and customer experience. Management expects video customers and revenue to decline further and acknowledges subdued data growth amid macroeconomic headwinds and competition.
- Management said cash, the revolver and operating cash flow are expected to support funding needs over the next 12 months, while noting funding capacity depends on operating results and economic conditions. The company expects comparable quarterly dividends, subject to Board approval.
- Cable One owns 45% of MBI and has a call option to acquire the remaining interests through June 30, 2024; if not exercised, a put option may require purchase in July–September 2025. The company stated it had not obtained the capital it believes would be necessary for either purchase. The MBI option liability was $203.0 million at quarter-end and is based on significant valuation assumptions.
- Principal risks include competition from fiber, fixed wireless and other providers; ongoing video and voice attrition; higher interest rates and substantial indebtedness; regulation and franchise matters; cybersecurity and system risks; and the performance and valuation of equity investments. No material change to previously disclosed risk factors was reported. The company reported no legal proceedings expected to have a material adverse effect and no material impairment charges.
Important facts for investors to verify
- Whether residential data revenue growth and pricing can offset customer losses and continued declines in video and voice.
- Interest-rate exposure, debt maturities and available liquidity, including the effect of future borrowing costs.
- Potential MBI call or put exercise, its purchase-price calculation, and how Cable One would fund a transaction.
- The drivers and assumptions behind MBI option fair-value changes and Clearwave Fiber equity-method losses.
- Capital expenditure needs, dividend capacity and the pace of share repurchases relative to cash generation.