Cable One(CABO) - 2019 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements This section presents Cable One, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2019, including balance sheets, statements of operations, cash flows, and accompanying notes Condensed Consolidated Balance Sheets Total Assets increased to $2.55 billion from $2.30 billion at year-end 2018, driven by acquisitions, while Cash and cash equivalents decreased significantly to $102.3 million | Balance Sheet Items (in thousands) | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $102,283 | $264,113 | | Total Current Assets | $155,716 | $317,863 | | Property, plant and equipment, net | $977,398 | $847,979 | | Intangible assets, net | $1,035,210 | $953,851 | | Goodwill | $355,347 | $172,129 | | Total Assets | $2,549,452 | $2,303,234 | | Liabilities & Equity | | | | Total Current Liabilities | $143,048 | $133,713 | | Long-term debt | $1,280,637 | $1,142,056 | | Total Liabilities | $1,786,544 | $1,527,876 | | Total Stockholders' Equity | $762,908 | $775,358 | Condensed Consolidated Statements of Operations Revenues increased for both three and six-month periods ended June 30, 2019, while net income decreased due to higher operating and interest expenses | Income Statement (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--- | :--- | :--- | | Revenues | $285,650 | $268,414 | | Total operating expenses | $211,536 | $197,746 | | Operating income | $74,114 | $70,668 | | Net income | $36,395 | $43,785 | | Diluted EPS | $6.35 | $7.65 | | Income Statement (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Revenues | $564,255 | $534,175 | | Total operating expenses | $422,444 | $398,846 | | Operating income | $141,811 | $135,329 | | Net income | $75,134 | $84,438 | | Diluted EPS | $13.13 | $14.73 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased, but significant cash was used in investing activities, primarily for the Clearwave acquisition, resulting in a net decrease in cash | Cash Flows (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $212,494 | $196,602 | | Net cash used in investing activities | ($465,817) | ($91,816) | | Net cash provided by (used in) financing activities | $91,493 | ($63,016) | | Increase (decrease) in cash | ($161,830) | $41,770 | - The primary use of cash in investing activities was the purchase of a business (Clearwave) for $356.9 million, net of cash acquired[20] Notes to the Condensed Consolidated Financial Statements Notes detail significant events including the Clearwave and planned Fidelity acquisitions, adoption of new lease accounting standards, and debt refinancing activities - On January 8, 2019, the Company acquired Delta Communications, L.L.C. ("Clearwave") for a purchase price of $358.8 million in cash[25] - On March 31, 2019, the Company entered into a definitive agreement to acquire Fidelity Communications Co. for $525.9 million in cash, with the transaction expected to close in Q4 2019[26] - The company adopted the new lease accounting standard ASU 2016-02 on January 1, 2019, recording right-of-use (ROU) assets of $14.9 million and lease liabilities of $13.3 million upon adoption[35][36] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift towards higher-margin services, the impact of acquisitions on financial performance, and details liquidity, capital resources, and financing activities - The company's strategy has shifted away from maximizing primary service units (PSUs) towards growing higher-margin businesses, specifically residential data and business services[130] - Residential data and business services are expected to continue growing, while residential video and voice revenues are expected to continue declining due to industry trends and strategic de-emphasis[132][134][135][136] Results of Operations Revenues grew for both periods, driven by Business services and Residential data, offsetting declines in Residential video, while expenses increased due to acquisitions and rebranding Revenues by Service Offering (Three Months Ended June 30) | Service | 2019 Revenue (in thousands) | % of Total | 2018 Revenue (in thousands) | % of Total | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Residential data | $132,824 | 46.5% | $122,471 | 45.6% | 8.5% | | Residential video | $84,033 | 29.4% | $87,462 | 32.6% | (3.9)% | | Business services | $49,759 | 17.4% | $38,485 | 14.3% | 29.3% | | Total revenues | $285,650 | 100.0% | $268,414 | 100.0% | 6.4% | Revenues by Service Offering (Six Months Ended June 30) | Service | 2019 Revenue (in thousands) | % of Total | 2018 Revenue (in thousands) | % of Total | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Residential data | $262,635 | 46.5% | $242,330 | 45.4% | 8.4% | | Residential video | $167,836 | 29.7% | $176,219 | 33.0% | (4.8)% | | Business services | $96,903 | 17.2% | $76,177 | 14.3% | 27.2% | | Total revenues | $564,255 | 100.0% | $534,175 | 100.0% | 5.6% | Use of Adjusted EBITDA Adjusted EBITDA, a non-GAAP measure, increased 8.1% for both the three and six-month periods ended June 30, 2019, reflecting core operational profitability Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | Net income | $36,395 | $43,785 | (16.9)% | | Adjusted EBITDA | $137,584 | $127,245 | 8.1% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | Net income | $75,134 | $84,438 | (11.0)% | | Adjusted EBITDA | $270,716 | $250,543 | 8.1% | Financial Condition: Liquidity and Capital Resources Liquidity was impacted by the Clearwave acquisition, with significant debt refinancing activities including the redemption of $450 million senior notes and new term loan issuances - On June 15, 2019, the company redeemed all $450 million of its outstanding 5.75% senior unsecured notes due 2022, incurring a $6.5 million call premium[78][191] - The company entered into new credit agreements and amendments in 2019, incurring a $250 million Term Loan B-2, a $325 million Term Loan B-3, and establishing a new $250 million Term Loan A-2 and a $450 million Delayed Draw Term Loan A-2 to fund acquisitions and refinance existing debt[81][82][84] Capital Expenditures (Six Months Ended June 30, in thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Customer premise equipment | $24,854 | $26,275 | | Commercial | $11,519 | $3,750 | | Scalable infrastructure | $21,715 | $18,880 | | Support capital | $27,042 | $24,798 | | Total | $110,488 | $90,868 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $1.3 billion variable-rate debt, mitigated by interest rate swap agreements covering $850 million - The company's main market risk is from interest rate fluctuations on its $1.3 billion of variable-rate Senior Credit Facilities[220][221] - To manage interest rate risk, the company uses interest rate swaps, effectively fixing the rate on $850 million of its variable-rate debt[221] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019[224] - No changes occurred in the company's internal control over financial reporting during the quarter ended June 30, 2019, that materially affected, or are reasonably likely to materially affect, internal controls[225] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company reports no material legal proceedings - The company states "None" for legal proceedings[226] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2018 Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2018 Form 10-K[227] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its plan during Q2 2019, with $145.1 million remaining available for repurchases Share Repurchases (Q2 2019) | Period | Total Shares Purchased | Avg. Price Per Share | Purchased as Part of Plan | Approx. Value Remaining in Plan | | :--- | :--- | :--- | :--- | :--- | | April 2019 | 11 | $996.24 | 0 | $145,081,000 | | May 2019 | 2 | $1,080.75 | 0 | $145,081,000 | | June 2019 | 0 | - | 0 | $145,081,000 | | Total | 13 | $1,009.24 | 0 | $145,081,000 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments, officer certifications, and XBRL data files