Cable One, Inc.

Hello everyone and welcome to the Cable One third quarter 2021 earnings call. My name is Bethany and I'll be coordinating this call for you today. If you would like to register a question at Q&A, you may do so by pressing star followed by one on your telephone keypad. If you change your mind, you can press star two. I will now hand the call over to your host, Stephen Cochran, Chief Financial Officer at Cable One. Stephen, over to you.

Thank you, Bethany. Good afternoon and welcome to Cable 1's third quarter 2021 earnings call. We're glad to have you join us as we review our results. Before we proceed, I would like to remind you that today's discussion contains 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 the discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles, or GAAP. Reconciliation of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release, or 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. The third quarter now marks the 22nd consecutive quarter in which we have delivered strong year-over-year results. Revenues increased by 26.9% compared to the prior year quarter, Adjusted EBITDA increased by 26.4%, and adjusted EBITDA margin was 51.2%. On a year-over-year basis, and excluding the impact of heart rate operations, which were acquired on May 1st, revenues and adjusted EBITDA increased by 5.6% and 12.5%, respectively, and adjusted EBITDA margin was 53.3%, which is a $320 basis point increase of a prior year. I'm incredibly proud of the solid growth our team continues to deliver from one quarter to the next, particularly with the added challenges presented by the pandemic. Our consistency is a direct result of executing a unique data-centric strategy, the core competencies that we have built up around that strategy, and our people who continue to execute and are truly the backbone of our success. We believe this consistency is sustainable as a result of both the organic and inorganic growth opportunities that lie ahead. While there are many aspects of our company that make us unique, I'd like to take a moment to highlight just a few of our key differentiators. Since our early days, we've intentionally chosen to operate in small cities and large towns across rural America where we consistently provide measurably better products and services than alternative providers. Within our rural market demographics, only 25% of our competitors provide broadband service with download speeds of 100 megs or higher. Despite this advantage, we operate as if every market is highly competitive, setting ourselves apart from our competition by creating an exceptional local customer experience that includes reliable high-speed, value-based broadband services. Due to our strategic pivot from linear video years in advance of our peers, today more than 70% of our revenue is driven by higher margin and predictable residential HSD and business services, a favorable product mix that we feel continues to insulate us from the risks and underlying trends in the low-margin video marketplace. Finally, we believe we are a natural aggregator of rural broadband assets across the US and have proven this with the 13 transactions we have successfully acquired or partnered on to date. With a balance sheet that is flexible by design, we are confident we will continue to identify accretive investments in the years to come. Speaking of acquisitions and investments, we would like to welcome our new associates from Cable America. We are very excited to have you join the Cable One family of brands when we close on this transaction and we will be discussing this exciting news as well as some of our other recent investments a bit later on the call. Provided that the environment around the pandemic is appropriate for travel, we hope to share even more color about what makes our business unique during our planned investor day tentatively scheduled for after our fourth quarter full year earnings release in the spring of 2022. Turning to our residential high-speed internet service, customer growth in Q3 remained well above pre-pandemic trends, driven by both connects and churn that significantly outperformed the same period in 2019. In the third quarter, we added nearly 13,000 residential HSD customers on a sequential basis, bringing our total HSD penetration to 38.8%. On a year-over-year basis, when excluding for both Hargrave and Aniston operations that were contributed to Hargrave in 2020, we added approximately 55,000 residential HSD customers. These results highlight not only how far we have come, but also the significant growth opportunities that lie ahead. Additionally, our residential HSD ARPU grew by 5.1% year-over-year, driven by both upgrades and sell-in to higher speed tiers. As we've mentioned before, we have not increased our service rates and legacy systems since the fall of 2015, and we actually decreased prices on our higher tiers at the start of 2019. Sell-in for our gigabit speed tier, which we now offer across 98% of our footprint, reached 14% for the quarter. As a reminder, we began launching gig service to residential customers as early as 2016, well before many of our industry counterparts. Five years ago, gig speeds were virtually unheard of in non-urban markets across the U.S., and we are proud to have been able to level the playing field for rural markets where access to affordable, high-speed Internet is just as vital as in more urban areas. Gig speed is just the beginning of the story, though. Through our HFC technology roadmap, we are implementing the upgrades needed for our network to bring multi-gig symmetrical speeds to our markets and laying the groundwork for 10G in the future. In short, we are building a network with the power and capacity to support the digital future of the 1 million-plus customers we serve, extend broadband service to areas previously unserved or underserved, and ensure that we continue to stay well ahead of the consumer consumption curve. As a result of our continued investment, our network continues to perform well, delivering the reliability and speed our customers have come to count on. Despite average data usage growing to 488 gigabit per month in the third quarter, our downstream plant utilization during peak hours improved from 19% to 17% and upstream utilization maintained below 20%. Turning to business services, our revenues continue to show positive momentum this quarter with growth of 44.2% year-over-year and 8.4% when excluding both Hargrave and Anniston operations. As our product mix continues to shift away from video and phone towards SMB and enterprise connectivity, our margins should continue to expand predictably. To round out another quarter of strong growth, we turn to our minority investments where residential HSD and business data customers grew by approximately 4,700 on a sequential basis. All these customers are not reported in our results. These results highlight the value and shared commitment of our strategic partners. Moving to integrations, We are pleased with the progress our teams are making in this area. On the Fidelity side, we've seen nearly 1,000 miles of plant upgrades completed since the acquisition as their operating metrics and margins continue moving up to sparklight levels. At Hargrave, our teams have been working diligently on our three-year integration roadmap, and we feel very good about the plan we are preparing to execute against. Hargrave is a great company with talented associates, who fit in very nicely at Cable One. Turning to M&A. In early October, we entered into an agreement to purchase Cable America's Missouri operations for $113 million in cash on a debt-free basis, subject to customary post-closing adjustments. Cable America is a high-speed internet, cable, and telephone service provider with approximately 14,000 HSD customers in rural markets throughout central Missouri. Due to its adjacency to our fidelity markets, as well as alignment with culture, growth, and competitive profile, we expect Cable America to be an excellent fit to our growing family of brands. The transaction is expected to be financed with cash on hand and closed prior to year end. On a related note, we believe a compelling use of our capital comes from building fiber and expanding the network to drive additional growth. We've realized great results in the markets we have expanded into thus far, and this quarter we spend our highest ever $21.8 million in network expansion, pulling forward materials purchased for future opportunities. While these internal efforts will continue, we've identified a potential joint venture transaction that we expect will both accelerate the growth trajectory of these new market build-outs while also improving the free cash flow and deleveraging profile of standalone Cable 1. In this potential joint venture, Cable One will receive a majority equity interest in the newly formed company in exchange for contributing ClearWave, minus its tower business, and certain assets of Hargrave Fiber, while our partners would make a significant cash investment to fund the accelerated growth. We are partnering with GTCR, our current partner in Mega Broadband, Stevens Capital, ClearWave's previous owner, and our current partner in Whisper, and the Pritzker Organization, Hargrave's previous owner. Michael Gotzenker, former chairman and CEO of Hargrave, will serve as executive chair, and David Armistead, former senior vice president at Hargrave, will serve as CEO of the proposed standalone company. This venture would allow us to have a proven and dedicated team that can be hyper-focused on accelerating market expansion in new and existing systems. This will also allow CableOne's team to remain focused on our primary business, increasing penetration rates, integrating recently acquired companies and driving higher margins and greater free cash flow. At this time, the terms of the transaction remain subject to negotiation and the parties have not yet entered into any definitive agreements to consummate the joint venture, so there can be no assurance that the joint venture transaction will be completed. Our confidence in our long-term outlook remains unwavering. The consistent strength of our results continues to give us confidence in our strategy, and as we look to the future, Cable 1 will continue to do what we do best, remain agile and execute at the highest level. Before I hand the call over to Stephen, I want to briefly touch on a few other notable events for the quarter, starting with a big congratulations to all the associates across our family of brands. Cable One was recently recognized by Cable Facts Magazine in their 2021 Top Ops issue as the Cable Facts MSO M&A mover for our acquisition and integration work over the past several years, none of which could have been achieved without the dedication of each and every one of our associates. In recognition of the tireless work our associates have put in over the past year and a half during the many challenges we've faced, We recently closed all offices across our family of brands for the first time in our history and gave our associates an additional paid day off. We called this Cable One Connect Day and created the day so that our associates could relax, recharge, and spend time connecting with their loved ones. While it's critical to keep our customers connected to what matters most, We know it's equally as important for our associates to care for themselves and those closest to them. Additionally, in recognition of the hard work of our frontline associates, we increased their 2021 bonus targets. Finally, I am pleased to share that later this month, we will be awarding more than $100,000 in grants to nonprofit organizations across our 24 state footprint through the company's charitable giving fund. which launched in January 2021. The Charitable Giving Fund, which annually awards $200,000 in grants to local nonprofit organizations in our markets, concentrates support in the areas of education and digital literacy, hunger relief, and community development. And now, Steven.