Cable One, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Cable One provides residential and business data, video and voice services across 24 states. Results include Hargray and CableAmerica acquired operations, while excluding operations contributed to Clearwave Fiber beginning January 1, 2022. Acquisition and divestiture effects make year-over-year comparisons less representative of organic performance.
Financial and operating performance
- Revenue: $426.7 million, up $85.5 million (25.0%). Residential data revenue was $230.2 million (+25.4%) and business services revenue $76.5 million (+26.7%). Management attributed much of the increase to acquired operations; residential data growth also reflected subscriber gains, less discounting and premium-tier upgrades.
- Profit: Operating income was $151.2 million, versus $102.3 million. Net income was $171.5 million, versus $68.6 million; diluted EPS was $26.85, versus $11.19. Net income included an $84.6 million non-cash gain from revaluing the MBI purchase option and a $22.1 million non-cash gain on the Clearwave Fiber contribution. These items materially affect the comparison.
- Adjusted EBITDA: $226.5 million, up 25.6%; approximately 53.1% of revenue versus 52.9% a year earlier. This is a company-defined non-GAAP measure, not a substitute for GAAP results or cash flow.
- Cash flow and investment: Operating cash flow was $188.7 million. Capital expenditures were $99.4 million, up from $71.9 million; operating cash flow less capital expenditures was $89.3 million. Investing cash outflow was $109.6 million. Cash declined $20.6 million during the quarter to $368.2 million.
- Margins and costs: Operating expenses excluding depreciation and amortization were 28.0% of revenue, down from 29.7%; SG&A was 20.6%, versus 20.2%. Depreciation and amortization rose 28.3% to $87.9 million, primarily due to acquired operations.
- Debt and liquidity: Debt carrying value was $3.879 billion, compared with cash of $368.2 million. The company had $448.8 million available on its revolving facility and reported compliance with debt covenants. Current assets were $467.4 million and current liabilities $249.3 million. Interest expense rose 27.6% to $30.1 million, driven primarily by higher debt and interest rates.
- Capital returns: Cable One repurchased 47,800 shares for $69.7 million and paid $16.7 million in dividends ($2.75 per share) during the quarter.
- Customer trends: Total data PSUs rose 20.1% year over year; total video PSUs fell 5.5%. Residential data ARPU increased 3.5% to $79.96; business services ARPU rose 7.7% to $253.33.
Material changes and transactions
- The January 1 Clearwave Fiber joint venture received contributed fiber operations and third-party cash. Cable One retained an approximately 58% equity interest, valued at $440 million, and recognized a $22.1 million non-cash gain. The contribution reduced reported property, plant and equipment and removed the contributed operations from consolidated results.
- The MBI Net Option fair-value liability fell to $39.0 million from $123.6 million. Its $84.6 million fair-value gain was a major contributor to reported net income and is non-cash and valuation-sensitive.
- Equity investments totaled $1.177 billion at quarter-end, including Clearwave Fiber and MBI. The company invested an additional $5.4 million in Point Broadband during the quarter.
- On April 1, 2022, after quarter-end, Cable One contributed its Tallahassee system to MetroNet for an equity interest valued at $7.0 million and $7.0 million cash.
Outlook, risks and contingencies
- No numeric full-year revenue, earnings or cash-flow guidance is provided in the filing. Management expects to focus on residential data and business services growth, cost discipline, network upgrades and fiber expansion; it expects residential video customers and revenue to continue declining over time.
- Management said cash on hand, operating cash flow and revolving credit availability should support expected needs over the next 12 months, including operations, capital expenditures, dividends, buybacks and potential investments. Actual capacity depends on operating performance and other conditions.
- Cable One may be required to acquire the remaining MBI interests if the investors exercise their put option in 2025; the company said it has not obtained the capital it believes would be needed. A call option may be exercised during 2023–2024.
- Interest-rate exposure remains relevant: substantial term debt bears floating rates, although $1.2 billion of variable-rate debt is covered by swaps. The company also identified the LIBOR transition, competition, programming costs, supply-chain and labor pressures, regulation, cybersecurity, acquisition integration and indebtedness as risks.
- The company reported no material changes to previously disclosed contractual obligations or risk factors, no material litigation expected to adversely affect it, and no material asset impairments. Disclosure controls were assessed as effective at March 31, 2022.
Important facts for investors to verify
- How much of revenue and Adjusted EBITDA growth came from acquired operations versus organic growth, and how Clearwave’s contribution affects comparability.
- The sustainability of earnings excluding the $84.6 million MBI option gain and $22.1 million Clearwave transaction gain.
- Debt maturities, floating-rate exposure, covenant headroom and the potential funding requirement if the MBI put option is exercised.
- Whether elevated capital spending supports continued data and business-services growth and planned network upgrades.
- The pace of data subscriber and ARPU growth relative to video subscriber declines, competitive pressure and programming costs.
- The filing reports $448.8 million available under the revolver; verify ongoing availability after letters of credit and any subsequent borrowings.