Cable One, Inc.

Good afternoon and welcome to the Cable I first quarter 2021 earnings call. All participants will be in a listening mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Stephen Cochran. Please go ahead.

Stephen Cochran Thank you, Chad. Good afternoon and welcome to Cable One's first quarter 2021 earnings call. We're glad to have you join us as we review our results. Before we proceed, I'd like to remind you that today's discussion may contain forward-looking statements relating to future events that involve risks and uncertainties. You can find factors that could cause Cable 1's actual results to differ materially from the forward-looking statements discussed during today's call, in today's earnings release, and in our recent SEC filings. Cable 1 is under no obligation and expressly disclaims any obligation except as required by law to update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise. Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release and on our website at ir.cable1.net. Joining me on today's call is our president and CEO, Julie Lawless. With that, let me turn the call over to Julie.

Thank you, Stephen, and good afternoon, everyone. We appreciate you joining us for today's call. Before getting into our results, I want to welcome our more than 800 Hargrave colleagues who are now Cable 1 associates. The acquisition of Hargrave closed on May 3rd, and we are extremely excited to have Hargrave as part of the Cable 1 family of brands. I'd also like to take a moment to welcome Megan Detz, our new Senior Vice President of Human Resources, who comes to us from Hargrave. Megan is a valuable addition to the Cable One leadership team. She brings extensive experience in successfully guiding, motivating, and integrating teams in fast-paced, high-growth companies. She will provide unique insight into Hargrave's culture and initiatives as we begin the process of bringing our two companies together. We will get into more details on the acquisition later in the call. I'll begin by reviewing some highlights and important events from the quarter before handing the call over to Stephen for a full recap of our financial performance. We are pleased to have once again delivered a quarter of robust customer and financial growth. In the first quarter, revenues increased by 6.2%. compared to prior year quarter. Adjusted EBITDA increased by 14.4% and adjusted EBITDA margin improved 380 basis points to 52.9%. The record-breaking residential HSD customer growth we and others in the industry experienced in 2020 has led to conjecture about whether last year was predominantly a pull forward versus a more sustainable long-term trend. It is still early in 2021, but so far, customer growth has remained resilient. In the first quarter of 2021, we added 22,000 residential high-speed internet customers on a sequential basis versus 19,000 in the first quarter of 2020. On a year-over-year basis, that reflects an additional 86,000 residential HSD customers, or 12% growth. And that figure also excludes the roughly 17,000 residential data customers as of March 31st, 2020, that we contributed to Hargrave, and 5,000 customers acquired from ValueNet in July of 2020. From the beginning of 2020 until now, our HSD penetration has increased nearly 500 basis points from 33.2% to 38.1%, highlighting how far we have come as well as the significant growth opportunity that remains available for us to capture. While it is reasonable to believe that residential HSD customer gains will eventually revert back to historical trends of stronger growth in the first and third quarters of the year, our healthy customer ads have continued so far in the second quarter of 2021. In fact, our April customer growth was our best month of 2021. Given the pandemic surge in 2020, We believe that comparing 2021 customer additions to pre-pandemic 2019 figures provides important context when gauging growth. In this vein, note that in the single month of April 2021, residential HSD customer ads were significantly higher than during the entire second quarter of 2019. Residential HSE demand not only remained strong as far as net additions, but also increased for higher-tier product offerings as well. Sell-in for packages with a download speed greater than 100 megs increased from about 70% in the fourth quarter of 2020 to approximately 78% in the first quarter of 2021. That, along with other contributing factors, such as an increased take rate of our unlimited data plan, as well as migration of existing customers into higher tiers, contributed to our 6% year-over-year residential data ARHU growth. As a reminder, we haven't had a rate increase on our legacy systems since the fall of 2015, and we actually decreased price on our higher tiers at the start of 2019 compared when we launched our new pricing and packaging across the legacy footprint. Business services revenues began to show positive momentum this quarter, with growth of 4.3% year-over-year and 5.8% on an organic basis after taking into account our Anacin divestiture and ValueNet acquisitions. Businesses are reopening, and thanks to our seasoned sales associates, robust network, and extensive suite of products, We continue to be optimistic about our rebounding growth in this area. We are particularly proud of this team for proactively seeking to partner with government and local entities to provide connectivity in rural communities. Our recently committed construction of a fiber optic network for Crown King School in Crown King, Arizona is one of our latest examples. This effort is just one piece of a larger project for the Yavapai County Education Service Agency that will deliver high-speed internet to more than 72 schools and libraries and 100 businesses within Yavapai County. Prior to our build, Crown King School had access to just 5 megabits per second internet service, a speed well below FCC bandwidth recommendations for schools and libraries. Table 1 was also recently awarded a $1.4 million grant in partnership with the Arkansas Rural Connect Program to construct an all-fiber network delivering symmetrical speeds of up to 1 gigabit for residential customers and up to 5 gigabits for business customers in the rural communities of Ogden and Wilton. Both partnerships illustrate our steadfast commitment to bridging the rural broadband divide in the communities across our footprint. As an update, residential and business data growth for the businesses in which we have minority investments also accelerated sequentially, as these companies added approximately 25,700 new customers in the first quarter of 2021. These customers are not reported in our results, but they demonstrate the continued demand for high-quality HSD services, as well as the shared commitment of our strategic partners. Also, keep in mind that hard gray net ads are included in that figure and that a partial quarter of hard gray results will be reflected in our second quarter 2021 financials. Turning to our network. As a result of our continued investment in upgrades targeted at expanding capacity, our downstream plant utilization improved meaningfully from the prior year. Although average data usage increased 29% year-over-year to just over 500 gigabits per month, our downstream traffic at peak improved from 28% utilization to 20%, and upstream utilization remained steady at 18%. It is rewarding to know that we met the unprecedented surge in Internet usage throughout the pandemic, and we're continuing to plan and invest as we expect to remain prepared for the future needs of our residential and business customers. The integration of Fidelity continues with plant upgrades throughout the small cities and large towns Fidelity serves, most recently in our Missouri and Arkansas markets. Despite the disruptions of the past year, we are still on schedule operationally and ahead of the original run rate cost synergy estimates laid out at the time of the acquisition. Recently, we reached another milestone as we successfully migrated all Fidelity associates onto technical platforms that connect Fidelity associates to internal Cable 1 tools. Earlier this week, we completed our acquisition of the remaining equity interest in Hargrave that we did not already own. We appreciate the efforts of Hargrave's management team, who worked diligently with us over the past several months. Our combined company of more than 3,500 associates now serves more than 1.1 million customers across 24 states. We believe Hargrave's fast-growing markets, like-minded strategy, and commitment to providing fast and reliable internet service to rural markets make it a natural fit with Cable 1, while at the same time providing a platform for future organic and inorganic growth in the Southeast. As integration planning continues, we are excited to build on what we have learned from our prior acquisitions. We will work closely with our Hargrave associates to gain insight into their best practices in order to seamlessly combine both companies. We are very encouraged by the reception we have received thus far. As a reminder, we anticipate realizing approximately $45 million in estimated annual run rate synergies over the next three years. As the communities we serve continue to feel the impacts from COVID-19, we are proud to participate in the FCC's Emergency Broadband Benefit Program. Through this program, eligible households participating in that program will receive up to $50 off their monthly bill based on their current internet service and equipment rental, or up to $75 off for customers who live on qualifying tribal land. Alongside this effort to ensure our customers stay connected to their loved ones, work, and school, we have kept in place other COVID-19 relief measures, including providing free public Wi-Fi hotspots across our footprint, a 15 megabit service for $10 per month for the first three months to help low-income families, and our partnership with ACA Connects and the Education Superhighway for the K-12 Bridge to Broadband Initiative which helps school districts and states provide internet access for students in low-income households. In addition to our COVID-19 relief measures, we are pleased to support Title I schools in Arizona, Idaho, Illinois, Louisiana, Mississippi, Missouri, and Texas this year through our Chromebooks for Kids initiative, now in its eighth consecutive year. We recently donated 500 Chromebooks for the 2021-2022 school year to help bridge the digital divide for underprivileged children by providing computers to schools that lacked funding. Supporting nonprofit organizations in our communities remains a priority as they work tirelessly to provide services to individuals and families during a time when the need is greater than ever. With the launch of Cable One Charitable Giving Fund last month, We will provide grants to nonprofit organizations throughout our markets, concentrating on the areas of education and digital literacy, hunger relief, and community development. And now, Stephen.