Cable One Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 10 speakers on the call.

Operator

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cable 1 Third Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

I would now like to turn the call over to Jordan Morkert, Vice President of Investor Relations. Please go

Speaker 1

ahead. Good afternoon, and welcome to Cable One's Q3 2020 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 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.

Speaker 1

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 GAAP. 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.

Speaker 1

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.

Speaker 2

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. Before we get into 3rd quarter results, I'd like to touch on a few unique strengths of our business. More than a decade ago, we strategically pivoted our focus from linear video to broadband connectivity and business services, well in advance of our peers. Since that time, we have made significant investments in our network with the intent of anticipating and exceeding the evolving connectivity needs of our customers and communities.

Speaker 2

Fast forward to today, and we are proud to have engineered a robust and reliable network with enough capacity to handle up to 5 times our customers' current peak usage, as well as a growing set of service offerings for residential customers and businesses of all sizes. Equally as important is the footprint in which we deliberately chose to operate, which consists primarily of small cities and large towns across rural America. We continue to enjoy the relatively less competitive environment in these markets, and our position is further solidified by our incumbent status, enabling ongoing network upgrades at a fraction of the cost of new entrants. Above all, Our strength lies with our dedicated associates, the majority of whom live and work in the communities we serve. Our associates are deeply invested in ensuring their cities and towns thrive, not just because it's good for business, But because they have a personal stake in driving progress and making a positive difference in their communities.

Speaker 2

They are the driving force behind our unique culture and consequently our tangible results. These are just a few key differentiators that reinforce our confidence in the long term future of Cable 1. Looking ahead, we see significant runway for expanding our broadband reach and we recognize the need to strike the right balance between ARPU and subscriber growth. As part of our forward looking vision, we will continue to assess the next generation products and services based on insights into customer needs. Our sights are set on continuing to compete fiercely, while capturing new and profitable market segments.

Speaker 2

We are confident this strategy will position us to grow well into the future. Concurrently, we are navigating the final stages of decline in our video product. Having predicted this decline over a decade ago, We have less exposure to the video business today. As we draw down on our remaining video subscribers, We are preparing for an environment without a video business, including planning for a reduction in our remaining non programming support costs. It's with these foundational strengths and forward looking strategies in mind that we share our latest performance results.

Speaker 2

In the Q3, we delivered residential broadband revenue growth of 5.8% from the prior year, While our commercial Internet business grew even more rapidly, adjusted EBITDA growth of 2.4% from the prior year with a margin expansion of 180 basis points to 54.7 percent. Capital expenditure decrease of 22.6 percent year over year, resulting in adjusted EBITDA less CapEx of $152,200,000 an increase of 22.6 percent year over year. In the 3rd quarter, We demonstrated strong free cash flow conversion as a result of multiple years of efficient capital investment and significant network capacity, even in a more muted economic environment. Looking at residential broadband, We saw a decrease of approximately 1300 customers in the Q3 as compared to the Q2 of 2023. While we continue to experience the side effects of a subdued home move environment and some competitive pressures, There were signs of improvement as our overall connects increased relative to the past three quarters, coupled with churn continuing near pre pandemic lows.

Speaker 2

As I mentioned at the top of the call, one of our best opportunities over the long term Is driving higher broadband penetration in our markets. We are better aligning ourselves to this growth opportunity by supplementing our prioritization of premium customers with a focus on new customer segments within our existing footprint. In practice, This could mean ongoing product enhancements at higher price points for our premium customers, while targeting unique product offers and service models to more value conscious customers to grow this segment profitably. For example, during the last month of the quarter, we introduced a short term promotion of $25 for 100 megs designed to attract value focused market segments. That test promotion drove incremental new connects, while we sell the vast majority of new connects by product tiers with faster speeds and higher price points than the promotional offer.

Speaker 2

We will continue to test and learn while targeting different market segments, maintaining a methodical approach that prioritizes profitable long term results. Our high sell in underscores the sustained demand for our premium speed tiers, a key factor in the 6.5% year over year increase in residential broadband ARPU. While pleased with this ARPU growth, our priority is a balance of subscribers and ARPU with a current focus on expanding our subscriber base. Turning to Business Services, revenues fell slightly by 0.4% year over year. When excluding for video and phone, the connectivity side of the business is strong, showing growth in the quarter that outpaced even that of our residential broadband revenue.

Speaker 2

Despite facing economic pressures related to higher Our business services team continues to showcase resilience. Amid these challenges, our teams are relentlessly committed to evolving our data and fiber offering, streamlining our operations and setting new standards and customer satisfaction through white glove service. As an illustration of our proactive approach, we are in advanced stages to upgrade wholesale fiber networks to 10 gigabits with several customers, a strategic move designed to extend contracts and boost long term revenues. Moreover, with the recent launch of Business Wi Fi Plus, we are reinforcing our commitment to using technology to enhance customer experiences. An always on mesh WiFi solution tailored for small to medium sized businesses, Business WiFi Plus guarantees uninterrupted coverage, keeping businesses and their customers securely connected while delivering optimal speed and performance.

Speaker 2

Moving to a key driver of our success, Our dependable advanced network infrastructure, we continue to see and meet the strong appetite for data with average customer demand reaching an all time high of 6 46 gigabytes per month. Equally telling, More than 20% of our residential customers now exceeded terabyte of usage each month, an increase of 18% from the same period last year. Our average network utilization during peak hours remains steady with downstream and upstream of 20% 19%, respectively. Ample network capacity enabled by years of network investments fuel our confidence in our ability to stay well ahead of the consumption curve in a highly capital efficient manner. Looking at wired competition, While we see competition continue to grow, in a majority of our markets, we do not compete against an Internet service provider that offers 100 meg speeds or higher.

Speaker 2

Regardless of speeds or technology, we operate with a mindset that every market is highly competitive. We will meet that competition by turning the focus to our customers and our communities, ensuring we provide the trusted service our customers have indicate that net adds may have peaked. As previously indicated, we have not experienced a material impact to our customer churn due to mobile fixed wireless competition. There likely is some impact to net adds as switchers from DSL For new entrants, try fixed wireless as an initial solution. In the long run, we are confident that our fixed network will maintain superiority in terms of both speed and reliability, while also delivering a substantial cost advantage relative to the significant capacity it can generate.

Speaker 2

With that said, we are well positioned to meet the growing data demands of customers efficiently and economically now and in the future. In the Q3, We continue to execute against our digital transformation and integration roadmaps. The expansion of our advanced customer contact center platform in Sparklight, following its initial launch in the Fidelity footprint, is driving greater efficiencies for our associates, enhancing performance across all key contact center metrics, including time to answer, service levels and associate productivity. We saw similar efficiencies for our Fidelity and Cable America brands as we transition them onto our financial ERP, moving us one step closer to a unified platform for all brands. These ongoing platform consolidations reducing costs and enhancing operational efficiencies by merging overlapping systems into a single coherent structure.

Speaker 2

As we move closer to full integration of our brands, we continue to evaluate all opportunities to increase agility and eliminate pain points in pursuit of associate and customer goodness. We also remain committed to assessing the various government funding opportunities. We're exploring underserved areas adjacent to our markets where our current infrastructure offers a significant edge for network extension. Our strategy is twofold. We opportunistically pursue grants that aligns with our return on investment criteria and advocate for allocating public resources to genuinely unserved or underserved communities.

Speaker 2

We recently demonstrated this commitment in one of our states, where we defeated an attempt to provide government subsidies in an area where we already provide robust upstream and downstream bandwidth. Turning to our unconsolidated investments. Residential and business data customers collectively expanded by roughly 12,800 or 2.7 percent sequentially from Q2 of 2023. These figures do not include the activities of MetroNet or Ziply, where our investments are less significant. These results are a testament to the effectiveness of the straightforward strategy employed by our seasoned business partners, delivering premium broadband services across rural America.

Speaker 2

Before handing the call over to Todd, I'd like to take a moment to welcome Matthew Armstrong, who was recently appointed to the newly created role of Senior Vice President, Residential Services. Earlier this fall, we restructured Residential Services as a business unit similar to the business services side of the house. Matthew is responsible for the overall strategy and day to day operations of the Residential Services division, which includes Marketing, Brand and Communications. Matthew previously worked at Cable 1 from 2010 to 2014. In his prior role as Vice President of Strategic Planning and Finance, he led the pivotal effort to shift Cable 1's focus to residential Internet and Business Services and Away From Video.

Speaker 2

Before coming back to Cable 1, Matthew worked at several start up ventures, including serving as Co Founder and CEO of a startup in San Francisco. I'm confident he will be a tremendous asset as we double down on our work to grow subscribers and strengthen our competitive advantage. As disclosed earlier this week, we recently implemented Other key changes to our leadership team that align with our focus on customer growth, digital transformation and a superior customer and associate experience. And now, Todd, who will provide a full recap of our Q3 financial performance.

Speaker 3

Thanks, Julie. Starting with revenue, total revenues The Q3 of 2023 were $420,300,000 compared to $424,700,000 Q3 of 2022, a 1% decrease. The decrease was primarily due to a continued decline in lower margin residential and business Video Revenues. The growth of our foundational product lines in residential and commercial broadband continue to propel our business forward. As the demand for reliable high speed broadband expands across all customer segments, so does confidence in our continued success and ability to strike the right long term balance between subscriber and ARPU growth.

Speaker 3

For Q3 2023, Our residential data revenues expanded 5.8% year over year when compared to Q3 2022. Despite a decline of 0.4% in our total business services revenues year over year, data services within this segment meaningful growth in the quarter. This growth is noteworthy as our reported business services still encompasses video and voice revenues bearing similarities to our residential segment dynamics. Operating expenses were $109,700,000 or 26.1 percent of revenues in the Q3 of 2023 compared to $120,500,000 or 28.4 percent of revenues in the comparable quarter of the prior year, a 230 basis point improvement, driven largely by a $14,800,000 decrease in video programming and franchise costs. Selling, general and administrative expenses were $92,700,000 for the Q3 of 2023 compared to $86,000,000 in the prior year quarter.

Speaker 3

SG and A as a percentage of revenue was 22.1% for the Q3 of 2023 compared to 20.3% for Q3 of 2022. The year over year increase was primarily driven by increased labor and marketing expense. Adjusted EBITDA was $230,000,000 for the 3rd quarter, an increase of 2.4% when compared to the Q3 of 2022. Our adjusted EBITDA margin for the Q3 of 2023 was 54.7%, a 180 basis improvement compared to the prior year quarter and a sequential increase of 20 basis points as we continue to drive growth and our higher margin advanced broadband products. Capital expenditures totaled $77,800,000 for the Q3 of 2023, which equates to 33.8 percent of adjusted EBITDA compared to $100,500,000 or 44.7 percent in the prior year quarter.

Speaker 3

During the Q3, we invested $9,500,000 of CapEx for new market expansion initiatives and $4,000,000 for integration activities. Our year over year decrease in capital expenditures stemmed from our strategic working capital optimization initiatives and our proactive long term network investment strategy. Adjusted EBITDA less capital expenditures was $152,200,000 for the Q3 of 2023, an increase of 22.6% from the prior year quarter and 1.6% on a sequential quarterly basis as we benefit from ongoing capital efficiency and strong free cash flow conversion. As we continue to evolve and adapt to our changing landscape, Our approach to capital allocation remains grounded at our core principles. We invest prudently in state of the art, reliable broadband infrastructure and expanding our reach in and around the areas we already serve.

Speaker 3

We will also continue to balance strategic acquisition and investment opportunities with a very disciplined and long term oriented balance sheet management philosophy. In the Q3 of 2023, we distributed 16 point $7,000,000 in dividends, and we repurchased nearly 24,000 shares of our common stock for $16,500,000 We also repaid $54,600,000 of debt in the quarter, dollars 50,000,000 of which was a voluntary repayment of our outstanding revolver balance. Subsequent to quarter end, we repaid an incremental $50,000,000 in debt, bringing this voluntary reduction to $150,000,000 in the last 5 months. As of September 30, we had approximately $240,000,000 of cash and cash equivalents on hand. Our debt balance was approximately $3,700,000,000 consisting of approximately $1,800,000,000 in term loans, $920,000,000 in convertible notes, dollars 650,000,000 in unsecured notes, dollars 388,000,000 of revolver borrowings $5,000,000 of finance lease liabilities.

Speaker 3

We also had $612,000,000 available for additional borrowings under our $1,000,000,000 committed revolving credit facility. Our weighted average cost of debt for the quarter was just under 4.3%. Our net leverage ratio was 3.8 times and the vast majority of our borrowings are either fixed issuance or have been synthetically fixed under long term contracts, considerably mitigating our exposure to the prevailing rate environment. As mentioned in last quarter's call, Our equity investment in Whisper was redeemed for total cash proceeds of nearly $36,000,000 and our investment in the TriStar SPAC was divested for total cash Proceeds of nearly $21,000,000 during the Q3. Our investment strategy remains focused on pursuing opportunities in rural broadband that delivered growth and returns exceeding our benchmarks and aligning with many of the brightest minds and proven operators within the communications sector.

Speaker 3

We're committed to long term value creation with these investments, whether through strategic monetization or future integrations. Finally, as a reminder, we've posted trending sheets on our Investor Relations website, making it easier to see several quarters' worth of sequential changes in many of our key operating and financial metrics. All figures are presented on a consolidated as reported basis. With that, we are now ready for questions.

Operator

Thank you. Question. Your first question comes from the line of Brandon Nispel with KeyBanc Capital Markets. Please go ahead.

Speaker 4

Great. Thanks for taking the question. Julie, question for you. HST penetration has now declined for, I think, 4 consecutive quarters. Can you maybe outline what your thoughts are in terms of the longer term opportunity and how you plan to sort of address getting subscribers back going through new pricing, packaging, promotional offers.

Speaker 4

And then hopefully you could I was hoping you could talk a little bit more about how the quarter progressed From an HSD net add perspective, you mentioned the promotional offer around 100 megs for $25 Could you sort of talk about what led to that decision? And if you care to opine on how 4Q is trending, that would be great. Thanks.

Speaker 2

You got it, Brandon. So I can't comment on how others track their homes passed, But we are incredibly fastidious about it. And so as Homes Past goes up, even if we keep our subscribers the same Or grow slightly, the penetration will drop. And the Homes Past database gets updated When we have new build extensions, for example, or if we have edge out opportunities, then you can imagine in those edge out areas that the homes come on or are put into the database and the billing platform, way before they have the opportunity to be sold. So over time, I would Expect to see the penetration from that issue resolve itself.

Speaker 2

In terms of what we see as a long term opportunity for penetration growth. We think there is an abundant runway for us to grow penetration and we are working on that with vigor. You asked, I think, about commentary around new growth. And I think about the work that we've done in the past, Say 2.5 months specifically where we are just crazily focused on fiercely competing, I mean fiercely. Approaching the entire footprint on a market segmentation basis, meaning that We'll break apart different markets and customer types within those markets, as well and address them in a very tailored manner.

Speaker 2

And we're just, I guess, in short, realigning ourselves around growth. We've talked in recent quarters about realigning ARPU and growth. And Obviously, those are the 2 important levers. And right now, we are focused on the growth There was an acceleration as we got closer to the end of the quarter and into the 4th quarter in Connects. And I attribute that to us being willing to experiment and be very agile and try different tactics And those are bearing fruit.

Speaker 2

And so I feel quite positive about our 4th quarter.

Speaker 4

Thanks for taking the questions.

Operator

Thank you. Your next question comes from the line of Phil Cusick with JPMorgan. Please go ahead.

Speaker 5

Hey, guys. This is Nick on for Phil. Thanks for taking the question. I know you guys have touched On how fixed wireless hasn't really been a churn issue. But I was hoping you could touch on the kind of churn you may see from fiber and fiber over builders entering your markets.

Speaker 5

And to that extent, when you have visibility into an over builder in your market, How do you evaluate what your competitive response might be, whether that's promotions more on the gross ad front or maybe something more targeted for retention of the base. Thanks.

Speaker 2

So I think your first question was overall about churn from competition regardless of where it comes from. We do track competition by competitors. So our folks code in the reason why someone would Choose to leave us. So we have that on a granular level to the extent that human beings don't make errors. I'm not sure what your question was specifically about fiber churn, but let me Then to the next part and then you can clarify and we can go back at it.

Speaker 2

But how do we evaluate the response in a holistic way? I mean, it depends on how big the market is, where it's situated, what the economy is like in that marketplace. Who's the Over Builder. How are they financed? What are their pricing points?

Speaker 2

What do our notes look in those areas. I mean, we have an amazing network, but that isn't to say that some of our markets aren't in the process of being rebuilt, Upgraded would be a more correct term. So it's a holistic walk around the whole issue sort of evaluation. And what was What do you need to hear about the pipeline of the results churn?

Speaker 5

Yes. I mean, just obviously, you guys say with fixed wireless, you're not seeing much churn in your base. But in terms of fiber competition, are you seeing material churn when an overbuilder enters the market? And how are you worried about trying to promote and maybe lock down and retain your sub base in Markets.

Speaker 2

Yes. Okay. I got you. I got you. Thanks for that clarification.

Speaker 2

Okay. So let's start with overall churn is at pre pandemic lows. So our churn is very low. Now I'm talking about the entire MSO and that is inclusive of markets that are competitive. So that just tells you, I mean, common sense would tell you in a competitive market and some like highly competitive markets that you would lose customers.

Speaker 2

Yet overall, our churn is incredibly low. So, just starting from that point. In competitive markets, obviously, people are enamored with choice. I personally have called customers that have left us for other providers and talked to them and said, I am not trying to sell you. I simply want your input.

Speaker 2

Why did you leave us? And what could we have done differently? And honestly, at least in that small sample, it was really about a choice like trying something different. Hey, Haven't had problems. I don't think my price is going to be lower, but I thought I would try this out because there was a direct salesperson on my doorstep.

Speaker 2

Typically, we have had competition for honestly decades. I've been with the company over 24 years. And I can think of 1 market place that had a fiber overbuilder come in and a traditional HFC overbuilder come in and we lost customers to begin with. That lasted for a period of time and then things normalized and we began to grow again. I don't know if that's what it's going to look like in the future or not, but certainly that has been our experience in the past.

Speaker 5

Got it. Thanks for the color. And if I could just push my luck here, is anything you can give us on maybe the magnitude of net adds in the quarter

Speaker 2

On the 100 meg offer? Net adds, no. But I can tell you that the 100 meg offer was an initiative aimed at value conscious customers. While we don't lose our existing Customers by and large to fixed wireless broadband, they are targeting their customers and bundling them at a low price. So we went to market with this.

Speaker 2

Our connects were robust and the majority far and away 2 thirds of the customers connected at higher speed, higher priced tiers than that 100 megs for $25 So it was basically a call to action. The phones rang and then Cable elected into higher tiers.

Speaker 5

Got it. Thanks, Julie.

Operator

Thank you. Your next question comes from the line of Greg Williams with TD Cowen. Please go ahead.

Speaker 6

Thanks for taking my questions. Julie, you noted that wireline competition is increasing.

Speaker 7

I I was hoping you could put a

Speaker 6

finer point on it. In the past, you noted 25% of your footprint had a wireline 1 gig offer. If I could flip that to fixed wireless as well, I think you said 35%, which includes the Farleys footprint within your footprint. What are those numbers today as an update to that? And where do you think that could ultimately end up?

Speaker 6

I think about Verizon launching the BC category C band into rural areas and it could be in your markets. And then second question is just on the segmentation success you're having by going downstream and the $25 offer. And how you can sort of justify that tactically. I think you said

Speaker 5

on your scripted remarks that

Speaker 6

you can now offer premium services, a premium customer. So Could you hike up sort of prices on the high end to help justify the business case on the low end? Just helping us understand the ARPU impacts overall of these offers. Thanks.

Speaker 2

So related to wireline competition, the majority of our markets Do not have a wired competitor that can offer 100 megs or more, The majority.

Speaker 6

Okay.

Speaker 2

Fixed wireless, T Mo, our overlap with Chemo right now is 36% of the marketplace. Verizon is, I think 16%. I'd have to look it up real quick. Yes, 12. 12 right now for them.

Speaker 2

Our success in what you call downstream and I would call value conscious customers, I think the 100 meg offer is an example of that. And I think that we're going to be trying other things as well. But we will only do so To the extent that what we're offering is a profitable package. We're focused on delivering profitability over the long term, not doing something reactive In the short term, that would hurt us for the long term. We do the marketplace is showing really interesting dichotomies I think in that we see definite price elasticity on the higher end products through research and actually selling them.

Speaker 2

I mean, they just keep buying more and more and we had a rate adjustment this year and they're So buying more and there's not churn. But then again, you have this really large response to the $100 meg $25 offer. And It's almost like there's a polarization on both sides. So again, I think we have Surgical, I think we have to call it personalized broadband. I mean, we have to take The market segmentation approach that I talked about in order to really drive new growth.

Speaker 6

Thank you.

Operator

Thank you. Your next question comes from the line of Frank Louthan with Raymond James. Please go ahead.

Speaker 7

Great. Thank you. And maybe I missed this in the call, but the $25 offer, when did that Sorry in the quarter and is that kind of the way you'll be able to get to positive subs for the year? And then can Can you give us a little color on the nature of the homes that you're passing? You're adding quite a few each quarter.

Speaker 7

Are these competitive areas? Are they just kind of filling in holes in your And what's your expectation for penetration in those homes longer term? Can those areas you're targeting get better penetration than your base or will lower how should we think about it? Thanks.

Speaker 2

Yes. That's a good question, Frank. So the $25 offer started at the beginning of October. It was a promotion. September?

Speaker 2

I'm trying to think. Okay, September. Sorry, I don't we're in November now. I'm all off. I can't keep my time straight since COVID, I apologize.

Speaker 2

So beginning of September, it was supposed to and at the end of September, but we had literally like we were overwhelmed. Our phones were ringing off the hook. So and we didn't see any detriment To that point, in other words, people weren't buying the $25 offer. So that wasn't a concern. And From what we saw, they weren't churning.

Speaker 2

So we extended it through the end of October and then it sunset it. So that promo is gone. We'll go back to regular pricing. I don't that isn't our one trick pony to ride In order to get growth, I don't think it was just an example that we could draw attention by flagging a low price and the marketplace. And in terms of our homes passed, it is we have Not all of our markets because boy that sure would be nice, but a subset of our markets that have newbuild extensions in them.

Speaker 2

Those are starting to slow down a teeny bit with the economy and the high interest rates. So newbuild is part of that, what I call newbuild. Market expansion, call it Edge Out, Is another piece of that where we have, if we can service an area that has a competitor that isn't taking good care of customers and community. You could read that to mean they're charging really high prices or their services aren't reliable and we can service them off of an existing system site ahead end. We will overbuild those areas.

Speaker 2

So that is what those homes past reflect. And just a note on high prices, because I mentioned it. Just because our ARPU is high does not mean that our prices to our customers are high. Those That ARPU is driven by customer choice at far and away like gig sell in of 37%, for example, or add ons that they are choosing to take. Our base rate is a value.

Speaker 2

I would Suggest that anyone living in a metropolitan area would not be able to get our pricing. What do I expect the penetration to be in those homes fast? I Expected to be in a market expansion scenario to be at least 40%. And in our new build areas, I would expect it to mirror the penetration of that Welcome. Thank

Operator

you. Your next question comes from the line of Craig Moffett with MoffettNathanson. Please go ahead.

Speaker 8

Hi, thanks. Two quick questions if I could. First, I wonder if you could just reflect on wireless again. I know you've Said that it was 2 quarters ago that it wasn't part of your plan, but it's been such a large part of what the other cable operators are doing. I'm wondering if you're Kind of still interested in at least exploring wireless options.

Speaker 8

And then second, I wonder if you could just talk about the trajectory of capital intensity As you think about DOCSIS 4 and plant upgrades, how low could capital intensity go or how much further could it come down?

Speaker 3

Hey, Craig, it's Todd. Good afternoon. On the wireless side, We've talked about this before. I don't think anybody would disagree that the 2 primary connectivity mediums for consumers We'll be very reliable fixed broadband that we provide and then very reliable wireless mobile connectivity. We Do evaluate it.

Speaker 3

There's plenty of folks in the space that have launched that we monitor very closely that We evaluate both the performance as well as in the wireless ads as well as what that would Potentially due to improve on the data side of the equation and those are very important elements of that. As we've also said in the past important elements of Customer satisfaction and how we want our customer experience to be is, very, very reliable connectivity. And we also continue to monitor how that reliability will improve from a wireless and a mobile perspective in our markets, Yes, we do feel like that's an extremely important catalyst as we continue to look at that. But nothing right now that says economically or from a customer demand perspective, but that's a product we have to have. From a capital intensity perspective, It's a sequential quarter of decline in CapEx.

Speaker 3

We've talked about some of the shorter term elements associated with that, which was our working capital optimization strategies that we can continue to execute upon. Some of the slower builds that gives us a little bit more efficiency there and some of the integration and upgrade investments that we've been making that can start to taper a little bit. But longer term, we've talked about Our capital intensity as a percentage of our EBITDA being in that mid to high 30% area.

Speaker 5

Got it. Thank you.

Operator

Thank you. Your next question comes from the line of Steven Cahall with Wells Fargo. Please go ahead.

Speaker 9

Thank you. Julie, thanks for all the commentary on how you're Thinking about balancing ARPU growth and subscriber growth, I think that's the biggest one that we're debating as well. I was wondering if We could go a little deeper into it about just how you're looking to deploy some of the tactics that you talked about. So we saw the new more inexpensive program at the end of Q3. Last year net adds started to kind of slip negative in Q4.

Speaker 9

It was unexpected sequentially from Q3. As you deploy these new tactics, do you think you could start to get back to positive net ad growth By the Q4, we should be thinking about that as a little more of just your long term trend and long term strategy. And then secondly, the ACP program is having some political debate around it. I'm just wondering if you can shed any light as to if you have any material customer exposure to ACP and if you do, if you have some contingency plans for ways to keep engaged with those customers should it change. Thank you.

Speaker 2

Yes. So The end of the third quarter was a success in my mind and that continues. I expect to grow in the 4th quarter period. ACP, We only have 35,000 customers, given we have over a 1000000 customers. And those customers We're customers of ours before.

Speaker 2

They just are using the $35 or $75 of their own Treblelands to supplement what they're paying for. So even if it goes away, Our number of customers is minimal and I think they'll still be customers and maybe they'll downgrade, but I think they'll still be customers.

Speaker 3

Steve, I would add, there's maybe always political jockeying around things like that, especially as we head into an election year. I would Be pretty surprised if broadband for all demographics and for all Customers is something that gets a meaningful amount of adjustment to it, maybe some tweaks here and there. But we do not feel like we have a lot of exposure as it relates to the repayment of that with that very small subset that Julie alluded to.

Speaker 2

Thank you. Thank you.

Operator

Thank you. Ladies and gentlemen, at this time, there are no further questions. I will now turn the call back over to Julie Lawless for closing remarks. Please go ahead.

Speaker 2

Thank you, Eric. So as we wrap up, I just want to extend a heartfelt thank you to our Cable 1 associates. It is their commitment that really sets us apart in providing exceptional neighborly service. And additionally, for those that are interested, Todd and Jordan will represent Cable 1 at the upcoming Raymond James and Wolf Conferences this December in New York. We welcome the opportunity to engage with many of you there.

Speaker 2

Thank you everyone for your time and attention today. We Appreciate your continued support and interest in Cable 1.

Operator

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect your lines.

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Key Takeaways

  • Cable One’s strategic pivot to broadband connectivity over a decade ago has resulted in a network capable of handling up to five times current peak usage and a low-competition footprint in small cities across rural America.
  • In Q3 2023, residential broadband revenue grew 5.8% year-over-year and adjusted EBITDA increased 2.4% with a 180 basis-point margin expansion to 54.7%, while capital expenditures fell 22.6%, driving a 22.6% rise in adjusted EBITDA minus CapEx.
  • Residential broadband net adds declined by about 1,300 subscribers in Q3 due to a sluggish home-move environment, but churn remains near pre-pandemic lows and targeted promotions (e.g., $25 for 100 Mbps) helped accelerate connects and drove a 6.5% ARPU increase.
  • Business services revenue was essentially flat (down 0.4% year-over-year), but when excluding legacy video and phone, connectivity offerings showed strong growth, bolstered by fiber upgrades to 10 Gbps and the launch of Business WiFi Plus.
  • The company reports minimal churn from fixed wireless competition and notes that in most markets no wired competitor offers ≥100 Mbps, while peak network utilization remains around 20%, underlining ample capacity for future demand.
AI Generated. May Contain Errors.
Earnings Conference Call
Cable One Q3 2023
00:00 / 00:00