Cable One Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 10 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Erica, and I am the conference operator today. At this time, I'd like to welcome everyone to the Cable 1 Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. To thank you. At this time, I will be turning the call over to Jordan Warkert.

Speaker 1

Good afternoon, to turn the call over to the Cable 1 Second Quarter 2023 Earnings Call. We're glad to have you join us as we review our results. To 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. To 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, to turn the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for the call over to the operator for

Speaker 2

the call over to the

Speaker 1

operator for the call. To update or alter its forward looking statements, whether as a result of new information, future events or otherwise. To turn the call over to Mr. Rika. Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.

Speaker 1

S. Generally Accepted Accounting Principles to

Speaker 3

discuss our

Speaker 1

financial results for the Q4. Reconciliations of non GAAP financial measures discussed on this call to the most directly comparable GAAP measures to discuss our financial results and financial results. This concludes today's call to turn

Speaker 4

the call over to the operator.

Speaker 1

Whenever we refer to Q2 results on an adjusted basis, we are excluding certain non core assets we divested in the Q2 of 2022, to discuss our financial results, which exclusively provided business services. Joining me on today's call is our President and CEO, Julie Lawless and Todd Cucci, our CFO. To turn the call over to Julie.

Speaker 5

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. To before jumping into our Q2 results, I'd like to offer a couple of thoughts about our industry as a whole. To Despite the current headwinds we and our peers face, the broadband business is strong to And there is no industry we'd rather be in. We believe the long term demand for connectivity will persist well into the future, to thank you for joining us today.

Speaker 5

Fast and reliable Internet is critical for today's consumers to And data usage continues to grow as the average Cable 1 household now relies on 20 connected devices in their home, That said, we persist in navigating this choppy environment, confident in our long term business to remain steadfast in the following fundamentals. We have a strong competitive position, which will become even more firmly rooted to turn the call over to our customers. And We have a talented and entrepreneurial workforce of associates who are neighbors to our customers and long term members of our communities, to enabling us to contribute to the economic development of the cities and towns we serve. Now, to provide some highlights from the quarter before handing it over to Todd.

Speaker 2

To turn the call over to our

Speaker 5

financial results. Our ongoing financial results are a testament to our solid roadmap, which focuses on delivering seamless connectivity to provide an overview of our customers. In the Q2, we delivered residential broadband revenue growth to share with data services within this segment meaningfully outperforming this rate. Adjusted EBITDA margin up Greater capital efficiency, while continuing to increase our network capabilities and capacity to And adjusted EBITDA less CapEx was $149,800,000 to provide an increase of 24.6 percent year over year. The growth we experienced in both residential and business to introduce the call to the operator.

Speaker 5

More than a decade ago, We correctly identified that the video subscription model was broken and strategically shifted our focus, to turn the call over to the operator. Turning to residential broadband,

Speaker 2

to turn the call over to Eric.

Speaker 5

The Q2 is historically our toughest of the year due to seasonality. Coupled with depressed home move activity, to turn the call over to the operator.

Speaker 2

A slowdown in some newbuilds and

Speaker 5

market competition, we continue to experience a low transaction environment, to end the quarter with a decrease of approximately 5,900 customers on a sequential basis. To While the current environment has resulted in a slowdown in growth connects, our churn rates remain below pre pandemic levels. These low term levels include the impact of the attrition from our current rate adjustments and are a clear indication of our customers' appreciation

Speaker 2

to take a look at

Speaker 5

our consistent reliability and the value we provide to them. Turning to residential broadband ARPU, to We saw strong year over year growth of 5.9%. In the first half of twenty twenty three, to take a look at our first Internet rate adjustments in 8 years, which together with speed tier upgrades to have been the primary drivers of our ARPU growth. During the Q2, a subset of customers across several rate to thank our partners for participating in our Sparklight market received a $5 increase. To show our appreciation to our loyal HSD customers, We increased download speeds across most of our high speed Internet plans in Sparklight markets in mid May.

Speaker 5

We also increased speeds in a portion of our Fidelity markets in the quarter. The demand for higher speed tiers remains robust to with sell in of 500 megabits or higher at nearly 65%, increasing 7.55 basis points sequentially And gig sales at an all time high of nearly 40% in the quarter, an increase of 2 29 basis points sequentially. While these adoption levels demonstrate many of our customers are willing to pay for faster and more reliable products, to take a look at the progress we made in the quarter. We are modeling and testing new pricing and packaging in an effort to strike the right balance between subscriber growth to take a look at our outlook for 2019 and beyond. To Our business services growth story on the commercial side continues.

Speaker 5

On an adjusted basis, to turn the call over to Eric. We drove business services revenue growth of 1.6% year over year despite inflationary pressures to thank our employees for participating in the business as well as new business creation. The business services team is focused to introduce our next question and answer session. One example is a recently completed $29,000,000 to expand the expansion project in Hilla County, Arizona, which will help bridge the digital divide for 10 schools to provide an update on our website and our website to our website. With funding from 3 agencies, Sparklight Business extended its fiber network from the town of Show Low In order to provide high speed Internet to communities across the county at more than 200 route miles to turn the call over to John.

Speaker 5

In nearly 29,000 fiber miles, much of it through solid granite, this is one of the largest to Single fiber E Rate Construction Projects executed by Sparklight. This project also brings fiber network presence to introduce our next question. Thank you. Thank you. Thank you.

Speaker 5

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 5

Our next question comes from the line of to take a look at the future. Overall, wired competition in our markets continues to increase to And may create some pressure in a subset of our markets. Our team is constantly innovating so that our customers have products and services that make their lives easier and a future proof network to support them well into the future. To Our customers know they have a choice and they are choosing us for reliability and speed, which has been demonstrated quarter over quarter to take a look at our low churn rates. Looking at fixed wireless competitive activity, our 3rd party research to indicate that the unlimited data plan offered by mobile service providers is available in approximately 40% of our markets today.

Speaker 5

To As mentioned on the previous calls, we anticipated that a portion of our historic wind share from DSL customers to test out mobile fixed wireless. But ultimately, those customers would gravitate to wired broadband service to recognize a need for greater speed and reliability. We are now starting to see that play out to as third party research shows that mobile fixed wireless share in several of our markets is starting to decline. As I'll touch on in more detail in just a moment, we are continuously evolving our network to meet the long term needs of our customers and communities to be in line with our focus on being the most trusted Internet service provider in the markets we serve. Ongoing capital efficient investment in our network is enabling us to compete aggressively for market share to As we engineer a network that not only meets the current needs of our customers, but pushes beyond them as we lay the groundwork to For DOCSIS 4.010 gig.

Speaker 5

As part of our ongoing network evolution, we recently activated to highlight our high split technology in 2 markets, creating the capacity to offer 1 gig symmetrical service over HFC to thank our employees for their continued support and dedication to our customer centric strategy of staying ahead of customers' needs to continue to accelerate. Indicative of the entrepreneurialism I mentioned earlier in our call, to our engineers have developed a unique device configuration using DOCSIS 3.1 that has created 20% to 30% more capacity in the upstream than previously available on traditional low split hybrid fiber coax plant. We are not aware of anyone in the industry currently optimizing upstream capacity in this way. This is yet another example to highlight the progress of the company's progress. How we are improving and extending the life of existing HFC facilities, while also creating additional capacity for HFC customers to take a look at the results of the call, to Demand for data continues to reach new heights and we don't see growth slowing anytime soon.

Speaker 5

Nearly 20% of our residential customers to now exceed a terabyte of usage each month, an increase of 16% from the same period last year. To At the same time, our average network utilization during peak hours actually decreased, driven by the ongoing upgrades we've made to the network. To During the Q2, average customer demand increased 11% from 5.50 gigs to take a look at the numbers of the quarter. The numbers are to decrease from 21% for both in the Q1 to 20% 19% respectively. Switching gears.

Speaker 5

As we continue on our digital transformation journey, we are laser to focus on driving greater efficiencies and agility across our business with the ultimate goal of solving pain points and providing what we call goodness to For our associates and customers, across our family of brands, our associates are fully engaged in evaluating our business holistically in identifying ways to streamline operations in ways that make the lives of our customers easier. We are seeing this come to life through recent initiatives such as expanded SMS messaging, advanced automated payment options Any consolidated and enhanced IVR and chat platform, all of which elevate our customer experience while unleashing enterprise returns. This means our associates can shift their focus to high value, high impact work that drives growth across the business. In keeping with our commitment to advance digital equity across our footprint, we are analyzing the to provide a strong balance of government funding available to support broadband development throughout the U. S, including more than 23,000,000,000 to introduce our next question and answer session.

Speaker 5

We will take a thoughtful approach to grant funding, Applying for grants opportunistically where government funding permits us to expand our network in alignment with our overall network development strategy. Just as importantly, we will continue to challenge government funded broadband projects that would duplicate our fully upgraded network to ensure that public dollars are directed to unserved and underserved communities. To also in support of our digital equity efforts, we have a number of construction projects in various stages of completion that will bring much needed broadband service to unserved and underserved communities adjacent to our existing markets in Texas and Arizona. To We have spent decades investing in a robust and reliable network with the power and capacity to support the digital future to extend broadband service to previously unserved areas and underserved rural communities in pursuit of our purpose of keeping our customers and communities to be connected to what matters most. Positive momentum continued in the Q2 for our unconsolidated investments, to discuss our financial and business data customers grow by approximately 20,500 or 4.4%.

Speaker 5

To These figures include both acquired and organic growth, but they do not include the operations of MetroNet or Ziply, to discuss the progress we have in place. We are pleased with the solid results of these companies, which are successfully providing fast and reliable broadband to provide some services to rural America and are run by some of the best business and financial leaders in our industry. To Shortly after the end of the second quarter, we've monetized our equity state in Whisper Fiks wireless, to thank you for joining us today. Thank you to the team at Whisper for their role in our shared journey. To turn the call over to Todd, will provide further insights into our recent investment activities.

Speaker 5

To before handing the call over, there are a few events from the quarter that I'd like to touch on. While a number of severe storms to hit our markets in Missouri, Texas, Oklahoma, Mississippi, Indiana and Louisiana in quick succession in mid June. We were very fortunate that our associates and their families remain safe. Our thoughts are with all of those still recovering from these storms. To take a moment to thank our associates who took care of our customers and communities by working tirelessly to restore service as quickly as possible following the events.

Speaker 5

I'd also like to share that we recently published our first corporate responsibility report on our Investor Relations website, which highlights our efforts in environmental stewardship, to discuss our investments in our associates and communities and fostering best practices across our business. To take your questions. We invite you to explore this report to learn more about Cable 1's ESG practices. We are pleased with our progress to remain committed to making ongoing, measurable and positive impacts across our footprint. And now, Todd, who will provide a full recap of our 2nd quarter financial performance.

Speaker 2

To turn the call over to John.

Speaker 6

Thanks, Julie. Starting with revenue, total revenues for the Q2 of 2023 were $424,000,000 to discuss the Q2 of 2022, a 1.2% decrease. The decrease was primarily due to a continued decline in low margin residential video and voice revenues to As well as the impact of the divestiture of non core operations during the Q2 of last year, which contributed $1,100,000 of business to turn the call over to

Speaker 2

our operator for questions.

Speaker 6

Services revenue in Q2 2022. On an adjusted basis, total revenues were down by 0.9% to turn the call over to John. Our business continues to be driven by the growth of our highly profitable residential data and business services product lines. To turn the call over to our operator. For Q2 2023, our residential data revenues expanded 5.8% year over year to when compared to Q2 2022 and our business services revenue grew by 1.6% for the comparable period on an adjusted basis.

Speaker 6

Data Services within our Business Services segment meaningfully outpaced this growth, given Business Services as reported to discuss our financial results. Still includes video and voice revenues, which has similar characteristics to that of our residential segment. To Operating expenses were $112,800,000 or 26.6 percent of revenues to conclude our Q2 of 2023 compared to $118,400,000 or 27.6 percent of revenues to discuss our financial results in the comparable quarter of the prior year, a 100 basis point improvement, driven largely by a $12,600,000 decrease to discuss some of the key highlights of the to turn the call back to the Q2 of 2023 compared to $90,800,000 in the prior year quarter. SG and A as a percentage of revenue to provide a ninety basis point improvement. Adjusted EBITDA was $231,300,000 for the 2nd quarter, to turn the call over to Jim.

Speaker 6

An increase of 1.7% when compared to the Q2 of 2022. Our adjusted EBITDA margin for the Q2 of 2023 to and a sequential increase of 30 basis points as we continue to drive growth in our higher margin advanced broadband products. To Capital expenditures totaled $81,500,000 for the Q2 of 2023, which equates to 35 point 2% of adjusted EBITDA compared to $107,300,000 or 47.2% in the prior year quarter. To turn the call over to Eric. During the Q2, we invested $15,100,000 of CapEx for new market expansion initiatives and $4,800,000 for integration activities.

Speaker 6

Our Q2 capital expenditure decrease was driven by our working capital optimization initiatives, to discuss the meaningful amount of previously completed network upgrades and certain growth related factors. To We expect capital expenditures to normalize in the second half of the year as we continue to proactively invest in our network, to discuss our Q2 results. Adjusted EBITDA less capital expenditures was $149,800,000 to turn the call over to the Q2 of 2023, an increase of 24.6% from the prior year quarter and 13% on a sequential quarterly basis, to

Speaker 3

turn the call over

Speaker 6

to Eric. Our capital allocation strategy remains consistent with our historic to turn the call over to the operator. Thank you, sir. Thank you, sir. Thank you, sir.

Speaker 2

Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir.

Speaker 2

Thank you, sir. Thank you, sir. Thank you, sir.

Speaker 6

Thank you, sir. Thank you, sir. Thank you, sir. Thank you, to take a look at our current geographies and strategic acquisitions of or investments in to discuss our other complementary rural broadband providers, all balanced with a predictable return of capital strategy and a disciplined debt repayment

Speaker 2

philosophy. To turn the call over to Eric.

Speaker 6

In the Q2 of 2023, we distributed $16,300,000 in dividends and repurchased nearly to review our financial results for the Q1 of 2019. We also repaid $54,600,000 to We also repaid $54,600,000 of debt in the quarter, dollars 50,000,000 of which was a voluntary repayment to conclude our outstanding revolver balance. As of June 30, we had approximately $161,000,000 of cash to take a look at cash equivalents on hand. Our debt balance was approximately $3,800,000,000 consisting of approximately $1,800,000,000 in term loans, to and $5,000,000 of finance lease liabilities. We also had $562,000,000 available to for additional borrowing under our $1,000,000,000 committed revolving credit facility.

Speaker 6

Our weighted average cost of debt for the quarter was to turn the call over to Eric. Our net leverage ratio was 3.9 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. During the Q2, we invested an additional $13,900,000 in Ziffli Fiber as part of our initial commitment, bringing our total investment to over $36,000,000 We also made an additional nominal investment in Visionary during the quarter, increasing our investment to $8,000,000 to turn the call over to Julie. As Julie mentioned, in July after the quarter closed, our equity investment in Whispir was redeemed for total cash proceeds to turn the call

Speaker 2

over to Eric to

Speaker 6

discuss our financial results. And our investment in the TriStar Special Purpose Acquisition Company to discuss our financial results. Was divested for total cash proceeds of nearly $21,000,000 These investment monetizations to support our ability to reinvest in our core business growth, other select partnerships and further delever our balance sheet. To begin with the Q1 of 2019. Finally, starting this quarter, we've posted trending sheets on our Investor Relations website, to make it easier to see several quarters' worth of sequential changes in many of our key operating and financial metrics.

Speaker 6

To turn the call over to questions. To comment on recent media reporting of potential concerns about lead covered copper cables used in the telecom industry. To For context, the vast majority of our plant consists of fiber or hybrid fiber coax cables, With copper tables representing only a small percentage of our overall footprint. In response to the recent publicity, We conducted an internal assessment of our network and did not identify any lead covered cables.

Speaker 2

To

Operator

to to send the number 1 on your telephone keypad. We would like to follow the policy of 1 question and one follow-up. We will pause for a moment to compile the Q and A roster.

Speaker 2

To take

Operator

your questions. Our first question comes from Greg Williams of TD Cowen. Greg, go ahead.

Speaker 7

Great. Thank you. Just a question on the broadband subscriber trends. To On the 5,900 loss, how much do you think was seasonality? How much of that was a swing factor?

Speaker 7

Conversely then, how much do you think an upswing or pop will you see in the Q3 as you think about potential for ads to move back in positive territory? Thanks.

Speaker 5

Hey, Greg, it's Julie. Great question. Looking at last to share this year's change from Q1 to Q2 compared to this year. This year's was less. Doing any sort of precise comparisons, previous to that becomes difficult because of pandemic, which, did not follow typical seasonality And, M and A and divestitures as well.

Speaker 5

So what we saw in Q2 was less to discuss the drop we saw last year. So I think it is highly correlated to seasonality. As far as the 3rd to take a look at the Q1. We don't give guidance, as you know, but if

Operator

our next question comes from the line of Craig Moffett from MoffettNathanson. Craig, go ahead.

Speaker 8

Thank you. First, just one clarification. You said mobile fixed wireless share Is beginning to decline. Did you mean to say that the numbers themselves are actually declining or the net adds are declining? That is, are they actually Losing subscribers.

Speaker 8

And then second, more substantively, I wonder if you could just comment on your thinking about The MBI put call option that comes up in 2025, just how you're thinking about The cost and valuation and financing.

Speaker 5

Great. Craig, it's Julie. I'll take the first one. I'll let Todd take the second. We do have a 3rd party researcher who gives us their estimates on to share by marketplace.

Speaker 5

Share is quite low. Our coverage for both TEMO and Verizon are to take a look at the numbers of our footprint. We noticed last quarter, but it was quite small and it became more pronounced to take this quarter that there are markets where we are seeing that share as reported by this 3rd party Going in reverse. I can't comment on their net adds. I don't know what their net adds are.

Speaker 5

We don't see them. Our churn rate is to spectacularly low and that includes any losses to competitors in certain markets. So that just tells you how incredibly low it really is. So My supposition is that the majority, the vast majority of any connects that they would get in that 40% of our footprint Would be coming from DSL, current DSL customers. And it looks like that share that they're having some difficulty in some markets.

Speaker 2

Okay. That's helpful. Thank you.

Speaker 6

To Hey, Craig. Good afternoon. It's Todd. On the MBI front, I know I covered this in the Q1 call, And we've had some conversations about that. But just to reiterate and remind, that is to take an investment that we made in 2020 that has provisions associated with Cable 1 to discuss the question and answer session.

Speaker 6

Having the optionality of buying in the remainder of the share that we do not own, which is 55%, And that window opened early this year and runs through mid-twenty 24. That's at a fixed multiple. We don't disclose the multiple, But it's a multiple at which based on market dynamics, I wouldn't estimate, you'll see us Affecting that as it relates to our commitment to doing accretive transactions. As it then pertains to the put that you brought up that is in middle of 2025 from an election, likely late in 2025 From a funding requirement, so we feel very comfortable and confident in our ability to prepare for that. To That business is performing extremely well.

Speaker 6

Everything, as I've said in the past, that we liked about that initial investment, we continue to to like in terms of its growth rates, its cash flow conversion, its penetration, It's rural competitive insulation and the leadership team there that continues to do a fantastic job. So to We're very close to our partner there. We have multiple partnerships with GTCR across our unconsolidated investment. There's a lot of winning strategies to share some comments on the financial results associated with that and our opinion for our shareholders. And I think that's the consistent message that I've delivered in the past, if that's helpful.

Speaker 2

Yes. Thank you.

Operator

Our next question comes from the line of Phil Cusick from JPMorgan. To go ahead.

Speaker 3

Hi, guys. Thank you. I guess following up first on the wireless side, what was that overlap Maybe a year ago versus the 20%. And then in terms of your incoming customers, are you seeing any signs that people are coming over from Fixed wireless in any way, faster or slower versus where they were a year ago. And then second of all, if I can, what's The exposure of the base to the price increase that you've done and how should we think about that impacting ARPU on the next couple of quarters?

Speaker 3

To Thank you.

Speaker 5

Great. Thanks, Bill. It's Julie. I am not Sure. What fixed I think you're asking what our overlap with T Mobile's and Verizon's unlimited to and I am I don't have that number top of mind, but I certainly will get it and send it over to you.

Speaker 5

It would have been last, but I can't comment on how much last, right? As far as your follow on to that, are we getting an indication from K'nex that we are having That folks are coming to us from wireless and the answer to that is yes. Specifically, I can think of a to that I was on with 2 of our systems and they were talking specifically about that. Can I quantify it for you? No.

Speaker 5

But yes, we have heard to that some folks are coming to us from fixed wireless. The rate adjustment is a great question because The rate adjustment was affected against about a third of our residential customers. So that $5 that we talked about Went to about a third of our customers who had not experienced a rate adjustment in over 8 years. And we are very cautious about anything that we do with our customers. Our customers are at the part of our actions.

Speaker 5

We test end market. We have a third party research firm that we test customer perceptions with. We do several price elasticity studies per year, and we felt like this was something that we could do Without causing harm, and in fact, I think that is the case. In terms of the ARPU that we saw from that rate adjustment, In this quarter, it was about equally from that adjustment and the continued upgrading of folks to higher speed, higher cost tiers of their own volition, of their choice. There will be more ARPU related to that adjustment in the 3rd quarter.

Speaker 5

It did not all take place in the 2nd quarter. To I hope that answers your questions.

Speaker 3

Thank you.

Speaker 2

If I

Speaker 3

could maybe push a little bit harder on the fixed wireless. Within the 40% that you've identified today, Have you anything different in terms of performance in the business either over the last year as fixed wireless has ramped up or just in general that you might be more

Speaker 5

The issue for us right now is just to Everything has happened quite honestly since COVID, the whole world is different. There's listen, there's plenty of penetration opportunity in our markets, Plenty that we don't have a concern about. Our connects are down versus pre pandemic historical levels. However, That is in all markets. So that means in our competitive footprint and our non competitive footprint.

Speaker 5

So there is a dynamic that is at play that is not just related to competition. Other things are going on. It is the economy. It is the news related issue, those sorts of things. So beyond that, go ahead.

Speaker 6

I'm sorry, Julie. Bill, it's Todd. I was just going to add to that because I think that really nails it. But when you think about what we just discussed as it relates to our ongoing to take a look at trends and momentum in what the consumer demand curve looks like and the sell in rates and the adoption rates. What we to still remain very confident in is that we do not see a meaningful it's hard to describe if any, but a meaningful amount of customers That are churning for that product.

Speaker 6

But to Julie's point, if it's impacting us, it's impacting us on the growth side of the equation in terms of the more benign Connect activity.

Speaker 5

Right, which is something that can be solved, I think.

Speaker 6

Thanks again. And then Phil, on the ARPU side, Just to expand on Julie's last comment related to that. She mentioned about the 3rd In terms of that $5 recall as it relates to the very strong ARPU number that we reported for this quarter and the ongoing momentum there, There are a couple of other components there in addition to, of course, the consumer adoption, as it relates to those higher speed tiers and higher capacity. It's also the $2 increase on the equipment that we enacted in Q4 that's still impacting on a year over year basis to As well as the mix shift that I talked about, the equipment And then the $5 and then recall last year in May, we did a $5 increase, But it was a $10 increase, apologies, but it came $5 for the 1st year $5 in the 2nd year. There were still a subset of those customers that got that

Speaker 2

$2,500,000 Got it. Thanks again.

Operator

The next question comes from the line of Stephen Cahill from Wells Fargo. Stephen, go ahead.

Speaker 4

To Thank you. Maybe first one on penetration. How do you think about just growing your market of potential subscribers? I think your Data penetration was down just a touch year on year, but I know the network has expanded. But mostly how do you think about trying to get that penetration higher?

Speaker 4

I think it would assuage some of the fears around net adds if there was this opportunity to push that up 5 or 10 percentage points to where some of the peers are? Or Do you think there's something that kind of structurally makes your market a little different in that high 30s or low 40s penetration Is a natural ceiling. And then I've got a quick follow-up.

Speaker 5

Yes. Stephen, it's Julie. I do not think there's something to make sure that we're in a position where We are sort of white boarding how to do business because business is different than it's been in the past. And so Not doing some one off reactionary, but looking at a holistic, a cohesive strategic plan to address now very specific market and customer segments, and I mean all customer segments, So that we can get a fit between our overall pricing and packaging across those segments, offers, perks, etcetera, all based on deep conversations and insights from our customers. It's work for us to do and we can do it.

Speaker 4

Great. And then, just digging into the ARPU one, which I think You're probably going to get a question from every analyst about. So should we think about the 6% as kind of continuing into the Q3, maybe until you start to lap The modem price increase or it sounds like the up tiering is a pretty big piece of that. And so I don't know if you continue to think that the Tailwind in ARPU is going to continue or if that might have been a little more idiosyncratic to some of the changes you made in

Speaker 3

the 2nd quarter? Thank you.

Speaker 5

I don't think I will give guidance as to what I think it will be going forward, only that We didn't do something in the Q2 in terms of the upgrading that I wouldn't imagine continuing. As a matter of fact, the gig sell in is just a number that I would point to that continues to accelerate. And in our markets, by and large, you're not doing mass media because we're just a tiny part of the DMA. So for us to do marketing, it really is sort of grassroots and Growth marketing to get the word out and people are hearing about Gig and it's a great value And I expect that to continue as well as the washover from the rate adjustment both on that third of the customers And the modem adjustment as well. Now I would caution, we're looking at, As I mentioned in earlier that we're looking at striving to find a balance between Unit growth and ARPU.

Speaker 5

And balance doesn't mean that everything is exactly the same, that each lever is the same, but that you're balancing the levers based on to turn the meeting and perceptions. And so, I would throw that out as a caution.

Speaker 3

Thank you, Julie.

Operator

Our next question comes from the line of Frank Louthan from Raymond James. Frank, go ahead.

Speaker 1

Great. Thank you. Can you talk

Speaker 2

to us a little

Speaker 9

bit about on the video side, the losses to Slowed a little bit. Where do you think that sort of bottoms out? And are you kind of hitting that wall of more stubborn customers there? And then what do you think is having the bigger impact on the sub trends currently for data? Is it household moves or is it competition or still

Speaker 3

a combination of both? Thanks.

Speaker 5

Tom might have more to comment on. But as it relates to video, Frank, we don't sell video. So every I mean, there's no ins coming into the bucket. It's just out Going out of the bucket. Where do I see it going?

Speaker 5

I mean, I think we have been to be pretty vocal about this for 10 years now saying that customers have a lot of other choices That, quite honestly, are more economical for them than being forced to take a package that we're forced to take from programmers. So, I mean, we're pretty low in video penetration right now. I think it continues to decline and It's of little risk to us as it affects to revenue way more than it does EBITDA. Subtrans, I think

Speaker 3

Go ahead.

Speaker 5

No, go ahead.

Speaker 2

No, I

Speaker 6

was going to add on the video side and then you can go to the data side. But Frank, Julie is spot It's a smaller base, so the percentage will probably start to decline a little bit when you're declining off a smaller base until it's the as we've discussed in the past, The when not at moment, right? I mean, there is still a lot of revenue in it. There's not a lot of margin in it, but there's still some margin in it. And We're very focused on the strategy that makes the most sense for those customers first and foremost.

Speaker 6

And in many cases, the demographics associated with those customers are a little bit higher skewed on the elderly side. So transitioning them into a digital environment off that Liddy or qualm video is something that takes a little bit more handholding in some of our markets, which we're doing. And we view that as an opportunity in many cases to continue to introduce Our data product or extend additional services in our data ecosystem to those customers. But that's just a little bit of a timing dynamic. And we want to make sure that as we're looking at the win, not if dynamic that we're also Very proactively addressing the cost allocation.

Speaker 5

Yes. Related to sub trends, I mean, remember that we're very geographically dispersed and the size of our markets to take a look at the average is about 18 ks homes passed. So any competitor that would affect us It's not the same as it might affect a more consolidated operator. That being said, it's uncanny that the same dynamics are happening related to Connect specifically to take a look at the numbers in both competitive footprints and footprints where we literally have no one else providing a wired product or even unwired of 100 megs or more. So there's definitely another phenomenon at play And my guess is it is economic and moves related.

Speaker 5

So it's both of those things.

Speaker 1

Okay, great. Thank you.

Operator

Our final question comes from the line of Brandon Nispel from KeyBanc Capital Markets. Brandon, go ahead.

Speaker 7

Great. Thank you. Thanks for taking the question. I think I have a bunch of follow ups. To Julie, you mentioned 3Q would be a good quarter.

Speaker 7

Can you just handicap that for us? Is that positive net adds, I would assume? Secondly, you mentioned a third of your customers received the price increase, but you also mentioned Fidelity customers. So is a third Of the customer of the total customer base that got the price increase? And then on that price increase, you to mention it was in May.

Speaker 7

Is that a 1.5 quarter benefit this quarter or a 1 month benefit where it hit on bills on bills in June? And then my question, those are all follow ups, is really with for Todd and with the low transaction environment, would have thought things like truck rolls, Customer care costs would actually be lower. Can you maybe give us an update in terms of your thoughts on OpEx trends for the rest of the year?

Speaker 5

To Thank you. Great. All right. So to clarify, I did not say that Q3 would be a good quarter. I said that 3rd quarter is usually a good quarter, seasonally.

Speaker 5

So, that is my expectation. That is what we're heading for. We're putting a lot of effort into the back to school period because it typically does bear fruit. A third of the customers overall brand in, to So all the customers, third of all of our customers. It happened in mid May, so only a part of the second quarter got the benefit of that.

Speaker 5

To take your questions. And I think your next question was for Todd related to OpEx, which gosh, I thought was doing pretty well, but

Speaker 6

Yes. I like the 100 basis point improvement year over year. Sequentially, it's pretty flat on a percentage, which is what you might be pointing out, Brandon. And I would say the low transaction environment does offer us an opportunity to focus on some of the costs, both The OpEx as well as the CapEx, you'll see that the CapEx dynamics were meaningfully lower than run rate. Some of that timing on projects, But a lot of that, as I mentioned in my prepared remarks, around working capital optimization and just some growth related dynamics.

Speaker 6

On the OpEx side, also keep in mind that the second quarter is when we enact our to Annual wage increases for our associates and we will continue to reiterate that our number one investment always will be in our team And in our culture and we did have those roll through in the Q2. So while you might have a little bit lower transaction environment, to About the OpEx driven by the annual wage increases offset that slightly.

Speaker 7

Great. Thank you very much for taking all the questions.

Speaker 6

You bet. We appreciate you.

Operator

That concludes our Q and A. I will now turn the call over to Julie Lawless for closing remarks. Julie, it's yours.

Speaker 2

Thank

Speaker 5

you. Thank you, Erica. Appreciate all your support today. As always, I want to thank our associates for their incredible work on behalf of our customers in Cable 1. We appreciate everyone joining us for today's call, to speak with you again next quarter.

Speaker 5

Thanks everyone. To

Operator

turn the call over to the operator. Thank you.

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Earnings Conference Call
Cable One Q2 2023
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