Cable One, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Figures below are in U.S. dollars; financial amounts are shown in millions unless noted. The company provides data, video and voice services across 24 states and reported approximately 1.1 million customers.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $424.7 | $430.2 | $1,280.5 | $1,173.2 |
| Operating income | $128.0 | $117.5 | $400.3 | $335.3 |
| Net income | $70.6 | $52.3 | $311.3 | $227.0 |
| Diluted EPS | $11.53 | $8.33 | $49.70 | $36.24 |
| Adjusted EBITDA | $224.6 | $220.5 | $678.6 | $614.1 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $569.8 | $530.3 |
Q3 revenue declined 1.3%, while operating income rose 9.0%. Nine-month revenue grew 9.1% and Adjusted EBITDA 10.5%. Operating margin was approximately 30.1% in Q3 and 31.3% for the nine-month period. Adjusted EBITDA margin was approximately 52.9% and 53.0%, respectively; Adjusted EBITDA is a non-GAAP measure.
Q3 revenue reflected growth in residential data (+6.3%) but declines in residential video (-10.0%), residential voice (-17.0%) and business services (-11.5%). The reported decrease was primarily attributed to Clearwave Fiber contributions and other divestitures, as well as lower video and voice revenue. For the nine months, acquired Hargray and CableAmerica operations contributed to growth; residential data revenue increased 14.1%.
Cash, debt and liquidity
- Cash and equivalents were $255.7 at September 30, 2022, down from $388.8 at year-end 2021. Current assets were $381.6 and current liabilities $268.8.
- Nine-month capital expenditures were $307.3, up from $282.0. Operating cash flow less capital expenditures was approximately $262.5; this is a simple calculation, not a company-defined free-cash-flow measure.
- Total debt carrying amount before discounts and issuance costs was $3,861.8, including $2,286.6 of term loans, $650.0 of senior notes and $920.0 of convertible notes. The revolver had $455.9 available after $44.1 of letters of credit.
- Interest expense rose 19.3% in Q3 and 18.7% for the nine months, principally from higher interest rates and, for the year-to-date period, debt outstanding. Two swaps cover $1.2 billion of variable-rate debt. The company reported covenant compliance.
- The company paid $49.8 in dividends during the first nine months and repurchased $307.0 of shares. Remaining authorization under the 2022 repurchase program was $288.1 at quarter-end.
Changes, outlook and risks
- Residential data remains the growth focus. Data subscribers increased 3.0% year over year, while total video subscribers declined 27.6% and total voice subscribers declined 10.0%. Management said data growth was returning to more normalized, pre-pandemic patterns.
- Management expects continued growth in residential data and business services, further declines in video customers and revenue, and ongoing investment in network capacity, fiber expansion and DOCSIS upgrades. No quantified financial guidance was provided.
- Results include unusual, non-cash items. Nine-month 2022 other income included an $88.1 gain from the fair-value adjustment of the MBI option; Q3 included a $2.8 loss. These items materially affect comparisons of reported net income. Nine-month results also included a $22.1 non-cash gain on the Clearwave Fiber contribution and an $8.3 non-cash loss on asset dispositions.
- The company held a 45% MBI interest and could exercise a call option from January 2023 through June 2024; if it does not, MBI investors may put the remaining interests to the company in 2025. Management said it had not obtained the capital it believes would be needed for a purchase. This is a potentially significant funding commitment.
- After quarter-end, Cable One reported investing $22.2 in Ziply in November 2022, against a commitment of up to $50.0; it expected to invest the remaining $27.8 within twelve months of September 30.
- Key risks include competition from fiber and other providers, rising interest rates and leverage, programming costs, labor and supply constraints, regulation, cyber and network security, and execution of acquisitions and technology upgrades. The filing reported no material change to previously disclosed risk factors and no legal proceeding expected to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings growth reflects ongoing operations versus MBI option fair-value changes and other non-cash or transaction items.
- Residential data subscriber, ARPU and revenue trends against continued video and voice declines, including the impact of divested operations.
- Debt-service sensitivity to higher rates, the amount and terms of variable-rate debt after swaps, and refinancing and maturity requirements.
- Potential purchase price and funding plan for the MBI option or put obligation.
- Capital expenditure needs, share repurchases and dividends relative to operating cash generation and liquidity.