Cable One, Inc.

Good afternoon, ladies and gentlemen. Thank you for joining today's Cable One third quarter 2022 earnings call. My name is Tia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Jordan Merkert. Please go ahead.

Good afternoon, and welcome to Cable 1's third quarter 2022 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. Table 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, or GAP. Reconciliations 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, and Todd Cucci, our CFO. With that, let me turn the call over to Julie.

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. our third quarter 2022 results reflect the fundamentals of a growing and resilient business, a business that is also in the midst of a unique environment. As a reminder, our results for this quarter do not include the operations of ClearWave Fiber, Hargrave Managed IT, or the Hargrave Tallahassee operations, which we divested or contributed to new partnerships earlier this year. Additionally, This quarter includes the operations of Cable America, which we acquired in December 2021. When excluding these operations for Q3, our total revenues increased by 1.4%, residential broadband revenue grew by 5.7%, and our business services revenue grew by 5%. In total, our adjusted EBITDA margin remained high at 52.9%, and our adjusted EBITDA less capital expenditures increased significantly by 24.6%. Our strategy, the rural markets in which we operate, our high capacity network, and our purpose-led associates drive our solid results quarter after quarter. Digging into that a little further, our HSD and business services revenues continue to show consistent growth through a mix of increasing units in ARPU, driven by adoptions of higher tier services, other value added features, and an occasional rate adjustment, a clear indication of the valuable nature of our products. Our rural markets mitigate against the speed and volume of competition that providers in more dense urban and suburban markets are experiencing. Our network has been carefully engineered to economically accommodate not only the faster speeds we're seeing demand for, but also to provide the significant runway for continuously climbing data usage. These factors cement our confidence that we are providing a critically important product to our customers and communities that will lead to continued long-term growth. Finally, Our associates will always be one of our true differentiators. They live and work in our communities, and that means providing exceptional service is personal to them. This unique approach to serving our customers positions us as the trusted broadband provider in our markets, engendering loyalty and, by extension, increasing customer retention. While we continue to see the resilient demand for our services, We are, however, navigating changing environments. In addition to a slowdown in consumer move activity across our footprint, small businesses are experiencing the pressures that traditionally come with a weakening economic environment. And widespread sentiment about our industry has turned negative over growing concerns about looming competition and the cost of network upgrades. We will cover these topics as we go through the call today. Looking first at our residential internet service, we added approximately 30,000 customers on a year-over-year basis for 3.2% growth. On a sequential quarterly basis, we grew by 1,800 customers. While move activity across the MSO has been soft through the year, this quarter we saw a dramatic decrease that has resulted in a corresponding slowdown in growth connects. Our customer churn, however, continues to outperform pre-pandemic trends. Our residential internet ARPU for the third quarter increased by 2.5% year-over-year. As discussed last quarter, we believe our ARPU can grow at a faster pace in the future as customers continue to demonstrate their desire for higher speeds and data, and we continue to explore and introduce value-added services to our product offering. In the third quarter, Our sell-in for packages with a download speed of 300 megs or higher increased by over 500 basis points from approximately 59% of our total customers to 64%. And gig sell-in accelerated once again from 28% to nearly 32%. Customer growth, the continuing increase in data consumption, and the demand for more robust Internet service all serve as a testament to the need for fast and reliable connectivity in our markets and a positive long-term outlook. Our results also demonstrate that we can continue to grow our residential broadband business despite new entrants into the broadband category. As of the end of third quarter, 33% of our markets had a wired competitor offering residential broadband download speeds of 100 megs or higher. This represents a relatively low percentage of our overall footprint. We have successfully overcome market competition throughout our company's history. For context, we competed against DSL in essentially 100% of our footprint in the past. Back then, our products were at parity, and we leveraged our local associates, our rural market know-how, and worked to improve our product offerings in order to grow. My confidence in our ability to continue this type of growth over the long term continues today for the same reasons. We will also continue to keep an eye on fixed wireless competitive activity, but adoption in our markets remains low. While there is potential for near-term disruption, as we believe this could be a viable alternative for DSL and other lower quality technologies, we have already experienced customers returning to Sparklight for our premium, reliable, wired service. Moving to business services, when excluding the operations we divested earlier this year and those of Cable America, we experienced revenue growth of 5%. While macroeconomic headwinds give some indications that there are some strains on small businesses, We feel our services are mission critical to the customers we serve and are confident in delivering growth over the long term. As mentioned earlier, another constant in our business has been the growth in customer data usage. Our average data usage grew 19% from the same quarter of 2021, reaching a new high at just over 580 gigabits per month. We now have nearly one out of every five customers using more than a terabyte of data on a monthly basis with downstream usage outpacing upstream at a ratio of over 15 to one. At the same time, we have maintained significant capacity on our network with downstream and upstream utilization during peak hours never exceeding 22%. A network I'd like to highlight over which more than 95% of our customer data travels on fiber versus coax. This continued growth and demand sets the stage for the enhanced service offerings we are preparing to roll out at the beginning of next year and beyond. For residential customers, we have successfully tested multi-kig download speeds and upload speeds that would be in excess of 10 times faster compared to our flagship speed tier. As we roll out this next generation of service offerings, we do not anticipate any material increase in our annual capital expenditures since this investment has been part of our roadmap all along. Related to our network, our long-standing pivot away from video to focus on high-speed data and business services has us working to harvest linear video spectrum from our existing network through the launch of Internet Protocol TV. and allocating the resulting capacity to the growing demand for our broadband services. As we go through this transition, we anticipate a continuation of accelerated video losses. Over the long term, we expect this effort to reduce our capital outlays for video services and enable us to continue to advance down our strategic path. Transitioning to integration and deconsolidation activities This quarter, our teams made excellent progress on the integration activities underway across our multiple brands. Most recently, in October, we partnered with the ClearWave Fiber team and successfully migrated customers onto their own billing platform, further empowering the ClearWave Fiber management team to execute on their strategy of accelerating market expansion in new and existing markets. To date, Our fidelity acquisition has significantly exceeded our three-year EBITDA targets, with more upside as integration activities continue. As a reminder, due to the strong performance at Fidelity and the large opportunity with Hargrave, we made the tactical decision to pivot our primary focus to the integration of Hargrave Communications, which also continues to progress along our scheduled roadmap. Switching gears, We continue to leverage technology and process improvement to further elevate our customer experience. I'd like to highlight some ways in which we are seamlessly and more efficiently servicing our customers, including the recent launch of our automated field maintenance program and our automated truckload recommendation engine. The automated field maintenance program monitors our plant and creates work orders prior to a customer experiencing an issue. This further improves the reliability of our service while driving efficient routing for our internal workforce who are increasingly shifting from reactive to proactive maintenance of our network. Our automated truck roll recommendation engine is a unique machine learning system that analyzes cable modem signals to determine if a customer's device is not performing optimally and cannot be fixed via remote troubleshooting. This new process enables our associates and customers to bypass time-consuming steps in the process and move directly to an on-site technician. These are just two examples of the many transformative opportunities we will bring to market in the near future, making the lives of our customers and associates better and further enabling Cable 1 to provide differentiated service and successfully compete over the long term. Looking at our unconsolidated investments, in total, residential and business data customers grew by approximately 9,200, or 2%, on a sequential basis from Q2 of 2022. This does not include the operations of Metronet or Reach. These strong results continue to demonstrate the success of our simple strategy of providing reliable broadband services to an expanding area of rural America via partnership with some of the best and most proven business and financial leaders across the communications industry. Our newest strategic growth partner is Ziply Fiber, a leading fiber-based broadband provider serving communities across Washington, Oregon, Idaho, and Montana. Todd will be providing additional detail about our investment in Ziply in his remarks. Before handing the call over to Todd, I'd like to mention a few other notable events from the quarter. We are honored to have been named to PC Magazine's list of top 10 fastest internet service providers in the nation for the second consecutive year. This recognition is further confirmation that our continued network investment is enabling us to meet the rising demand for broadband capacity and to provide the backbone for technological advances as the number of Internet of Things connected devices continues to increase. Pivoting to charitable giving and keeping with our values, which are do right by those we serve, drive progress and lend a hand, Cable One Associates raised nearly $50,000 earlier this fall for Feed My Starving Children, a nonprofit organization committed to providing food to schools, orphanages, medical clinics and feeding programs in 70 countries around the world to break the cycle of poverty. As part of this same effort, Cable One donated an additional $10,000 to support local food banks in the markets we serve. In addition to these donations, we are proud to share that we recently awarded $125,000 in grants to nonprofit organizations across our footprint through our Cable One Charitable Giving Fund. In the two years since its inception, this fund has awarded more than 120 grants totaling nearly half a million dollars to support nonprofit organizations in building strong and vibrant communities, improving quality of life, and making a positive difference in the cities and towns where we live and work. And now, Todd, who will provide a full recap of our third quarter financial performance.