Cable One, Inc. — 2020 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020, filed February 25, 2021. Cable One provides residential and business data, video and voice services in 21 states, primarily in non-metropolitan markets. It served approximately 969,000 customer relationships and passed about 2.3 million homes at year-end. Results include acquired operations from their respective acquisition dates; year-over-year comparisons are therefore affected by acquisitions.
Financial and operating results
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $1,325.2 million | $1,168.0 million | +13.5% |
| Operating income | $469.4 million | $310.5 million | +51.2% |
| Net income | $304.4 million | $178.6 million | +70.4% |
| Diluted earnings per share | $51.27 | $31.12 | +64.8% |
| Adjusted EBITDA (non-GAAP) | $674.1 million | $569.0 million | +18.5% |
| Cash from operating activities | $574.4 million | $491.7 million | +16.8% |
| Capital expenditures | $293.2 million | $262.4 million | +11.8% |
- Revenue mix: residential data $669.5 million (+22.3%); residential video $332.9 million (-0.7%); business services $234.7 million (+14.7%); residential voice $47.6 million (+9.4%). Management attributed $105.5 million of the total revenue increase to incremental acquired operations.
- Operating expenses, excluding depreciation and amortization, were 31.6% of revenue versus 33.3% in 2019; selling, general and administrative expenses were 19.3% versus 21.0%. Depreciation and amortization rose 22.6% to $265.7 million.
- Reported operating income and net income include an $82.6 million non-cash gain from the Anniston System exchange. Other expense included a $17.5 million non-cash fair-value loss on MBI-related options. The effective tax rate was 20.1%, down from 23.6%, including a $13.0 million CARES Act tax benefit.
- Cash and cash equivalents were $574.9 million at year-end, compared with $125.3 million in 2019. Operating cash flow less capital expenditures was approximately $281.1 million, calculated from the reported figures.
- Total debt was approximately $2.20 billion, including $1.54 billion of term loans and $650 million of 4.00% senior notes due 2030. The revolving facility had $470.4 million available, alongside $29.6 million of letters of credit. The company reported compliance with debt covenants. Current liabilities were $221.6 million versus current assets of $672.8 million.
- The company paid $56.6 million in dividends during 2020; its fourth-quarter dividend was $2.50 per share. No shares were repurchased during 2020.
Material changes versus the prior comparable period
- Residential data subscribers increased 11.8% to 777,000; total data subscribers rose 10.8% to 857,000. Total customer relationships increased 6.8% to 969,000.
- Video subscribers fell 17.1% to 260,000 and voice subscribers fell 10.7% to 124,000. Residential video revenue declined slightly despite subscriber losses, partly reflecting rate changes and acquired revenue.
- Data and business services increased to 68.2% of revenue, from 64.4% in 2019. Residential data and business services had substantially higher Adjusted EBITDA margins than residential video, though the filing does not provide their precise margin percentages.
- Acquisitions and investments materially changed the balance sheet and cash flows. These included Valu-Net, a $574.9 million investment for 45% of MBI, and minority investments in Nextlink, Wisper and Hargray. Equity investments totaled $807.8 million at year-end.
Outlook, commentary, risks and unusual items
- Management’s stated priorities are growing residential data and business services, investing in broadband capacity and reliability, controlling costs, and pursuing rural-market acquisitions and expansion. Gigabit service was available to approximately 97% of homes passed; initial DOCSIS 3.1 deployment was expected to be substantially complete in 2021.
- Management expects residential data growth to continue over the long term, but anticipated a slower pace than the unusually strong 2020 growth. It expects video customers and revenue to decline further. Sparklight TV, an IPTV service announced in 2021, is intended to free network capacity for data services.
- COVID-19 reduced 2020 Adjusted EBITDA by $17.6 million, primarily through $12.3 million of lower revenue and $5.3 million of higher labor and other costs. Management said these impacts were largely over by the fourth quarter; stronger-than-usual data customer growth more than offset them. Ongoing uncertainty includes customer retention, bad debt and the duration of pandemic effects.
- Subsequent to year-end, Cable One agreed to acquire the remaining approximately 85% of Hargray, implying $2.2 billion enterprise value, subject to approvals and closing conditions. The company anticipated closing in the second quarter of 2021 and described a financing plan involving cash, new debt and/or equity; $900 million of bridge commitments had been obtained, and approximately $689 million of Hargray debt could be assumed.
- Material risks include competition from fiber, cable, wireless/5G and streaming providers; rising programming and retransmission costs; regulation and franchise renewals; cyber and network-security incidents; acquisition integration and financing; variable-rate debt; and COVID-19 uncertainty. A potential future MBI purchase obligation is also significant: Cable One’s call option is exercisable in 2023–2024, and a put option could require purchase of the remaining interests in 2025. The company said it had not yet obtained the capital it believed necessary if either option is exercised.
- The filing provides no numeric full-year 2021 revenue, earnings or cash-flow guidance. The new ERP system, delayed amid pandemic-related resource challenges, remained targeted for implementation by summer 2021.
Investor facts to verify
- How much of 2020 revenue, EBITDA and subscriber growth was organic versus attributable to acquisitions, and whether 2020 data additions are retained.
- Underlying earnings and cash generation excluding the $82.6 million Anniston gain and other material non-recurring or fair-value items.
- Funding, leverage and expected returns for the Hargray acquisition, including regulatory approval and integration progress.
- Potential funding requirements and purchase-price sensitivity for the MBI call and put options.
- Debt exposure to interest rates and refinancing needs; validate liquidity after acquisitions, capital spending and dividends.
- Progress on DOCSIS 3.1, IPTV deployment and ERP implementation, alongside video churn, programming-cost trends and competition.