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Cable ONE Reports First Quarter 2019 Results

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PHOENIX–(BUSINESS WIRE)–Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable ONE”) today
reported financial and operating results for the quarter ended March 31,
2019.

First Quarter 2019 Highlights:

  • Total revenues were $278.6 million in the first quarter of 2019
    compared to $265.8 million in the first quarter of 2018, an increase
    of 4.8%. Residential data revenues increased 8.3% and business
    services revenues increased 25.1% year-over-year.
  • Net income was $38.7 million in the first quarter of 2019, a decrease
    of 4.7% year-over-year. Adjusted EBITDA(1) was $133.1
    million, an increase of 8.0% year-over-year. Net profit margin was
    13.9% and Adjusted EBITDA margin(1) was 47.8%.
  • Net cash provided by operating activities was $104.4 million in the
    first quarter of 2019, an increase of 10.2% year-over-year. Adjusted
    EBITDA less capital expenditures(1) was $86.5 million in
    the first quarter of 2019, an increase of 5.1% year-over-year.
  • Residential data primary service units (“PSUs”) grew approximately
    11,000, or 1.8%, in the first quarter of 2019 compared to the fourth
    quarter of 2018. Residential data PSUs grew approximately 19,000, or
    3.3%, year-over-year.
  • In January 2019, the Company completed the acquisition of Clearwave
    Communications, a facilities-based service provider that owns and
    operates a high-capacity fiber network offering dense regional
    coverage in Southern Illinois (“Clearwave”).

Other Highlights:

  • In April 2019, the Company announced that it had entered into an
    agreement with Fidelity Communications Co. to acquire its data, video
    and voice business and certain related assets (collectively,
    “Fidelity”) for $525.9 million in cash, subject to customary
    post-closing adjustments.
  • Following the end of the first quarter, the Company established a new
    $325.0 million senior secured delayed draw term loan B-3 facility (the
    “Term Loan B-3”), a new $350.0 million senior secured revolving credit
    facility (the “Revolving Credit Facility”), a new $250.0 million
    senior secured term loan A facility (the “Term Loan A”) and a new
    $450.0 million senior secured delayed draw term loan A facility (the
    “Delayed Draw Term Loan A” and, together with the Term Loan B-3, the
    Revolving Credit Facility and the Term Loan A, the “New Credit
    Facilities”). The Company applied certain of the net proceeds from the
    New Credit Facilities to refinance its previous senior secured
    revolving credit facility and senior secured term loan A facility in
    May 2019, and it intends to use the remaining net proceeds of the New
    Credit Facilities, together with cash on hand, to redeem its
    outstanding 5.75% senior unsecured notes due 2022 (the “Notes”) on or
    after June 15, 2019 when the call premium steps down, to finance the
    pending Fidelity acquisition and for other general corporate purposes.
(1)    

Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EBITDA less
capital expenditures are defined in the section of this press
release entitled “Use of Non-GAAP Financial Measures.”
Adjusted EBITDA and Adjusted EBITDA less capital expenditures are
reconciled to net income, Adjusted EBITDA margin is reconciled to
net profit margin and Adjusted EBITDA less capital expenditures is
also reconciled to net cash provided by operating activities.
Refer to the “Reconciliations of Non-GAAP Measures” tables
within this press release.

 

First Quarter 2019 Financial Results Compared to First Quarter 2018

Revenues increased $12.8 million, or 4.8%, to $278.6 million for the
first quarter of 2019, including a $6.1 million contribution from
Clearwave operations. The remaining increase was driven primarily by
residential data and business services revenue growth, partially offset
by decreases in residential video and voice and advertising sales
revenues. For the first quarter of 2019 and 2018, residential data
revenues comprised 46.6% and 45.1% of total revenues and business
services revenues comprised 16.9% and 14.2% of total revenues,
respectively.

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Operating expenses (excluding depreciation and amortization) were $94.5
million in the first quarter of 2019 compared to $94.7 million in the
first quarter of 2018. As a percentage of revenues, operating expenses
were 33.9% for the first quarter of 2019 compared to 35.6% for the
year-ago quarter.

Selling, general and administrative expenses were $61.4 million for the
first quarter of 2019 and increased $10.5 million, or 20.6%, compared to
the first quarter of 2018. The increase was primarily attributable to
acquisition-related costs incurred during the first quarter of 2019, an
increase in marketing costs and additional expenses related to Clearwave
operations. Selling, general and administrative expenses as a percentage
of revenues were 22.1% and 19.2% for the first quarter of 2019 and 2018,
respectively.

Depreciation and amortization expense was $53.8 million for the first
quarter of 2019 and increased $5.1 million, or 10.4%, compared to the
first quarter of 2018. The increase was due primarily to new assets
placed in service since the first quarter of 2018 and additional
depreciation and amortization related to Clearwave operations, partially
offset by assets that became fully depreciated since the first quarter
of 2018. The Company recognized $1.1 million and $6.6 million of net
losses on asset disposals during the first quarter of 2019 and 2018,
respectively. The first quarter of 2019 included a gain on the sale of a
non-operating property that housed the Company’s former headquarters,
while the prior year quarter included more asset disposals.

Interest expense increased $3.4 million, or 22.9%, to $18.1 million,
driven by additional outstanding debt and an increase in interest rates
year-over-year.

Income tax provision was $12.7 million in the first quarter of 2019
compared to $9.9 million in the prior year quarter. The increase
primarily related to a $1.4 million decrease in income tax benefits
attributable to equity-based compensation and a $0.9 million increase in
income tax expenses attributable to state effective tax rate changes
during the first quarter of 2019.

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Net income was $38.7 million in the first quarter of 2019 compared to
$40.7 million in the prior year quarter.

Adjusted EBITDA was $133.1 million and $123.3 million for the first
quarter of 2019 and 2018, respectively, an increase of 8.0%. Capital
expenditures totaled $46.6 million and $41.0 million for the first
quarter of 2019 and 2018, respectively. Adjusted EBITDA less capital
expenditures for the first quarter of 2019 was $86.5 million, an
increase of $4.2 million, or 5.1%, from the prior year quarter.

Liquidity and Capital Resources

At March 31, 2019, the Company had $187.6 million of cash and cash
equivalents on hand compared to $264.1 million at December 31, 2018. The
Company’s debt balance was approximately $1.4 billion and $1.2 billion
at March 31, 2019 and December 31, 2018, respectively. The Company also
had $195.9 million available for borrowing under its revolving credit
facility as of March 31, 2019.

During the first quarter of 2019, the Company repurchased 5,984 shares
for $5.1 million and paid $11.4 million in dividends to stockholders.

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In January 2019, the Company borrowed $250.0 million of new term B-2
loans maturing in January 2026 to finance, in part, the Clearwave
acquisition. In April 2019, the Company established the new $325.0
million Term Loan B-3 maturing in January 2026, and on May 8, 2019, the
Company entered into the new $350.0 million Revolving Credit Facility,
$250.0 million Term Loan A and $450.0 million Delayed Draw Term Loan A
described above, each maturing in May 2024. This press release is not,
and shall not be deemed to be, a notice of optional redemption of the
Notes.

During the first quarter of 2019, the Company also entered into two
interest rate swap agreements in order to convert the Company’s interest
payment obligations with respect to an aggregate of $1.2 billion of the
Company’s variable rate LIBOR indebtedness to a fixed rate. Under the
first swap agreement, with respect to a notional amount of $850.0
million, the Company’s monthly payment obligation is determined at a
fixed base rate of 2.653% beginning in March 2019. Under the second swap
agreement, which is a forward-starting interest rate swap with respect
to a notional amount of $350.0 million, the Company’s monthly payment
obligation beginning in June 2020 is determined at a fixed base rate of
2.739%. Both interest rate swap agreements are scheduled to mature in
the first quarter of 2029 but may be terminated prior to their scheduled
maturity at the election of the Company or the financial institution
counterparty as provided in each swap agreement.

Conference Call

Cable ONE will host a conference call with the financial community to
discuss results for the first quarter of 2019 on Thursday, May 9, 2019,
at 5 p.m. Eastern Time (ET).

Shareholders, analysts and other interested parties may register for the
conference in advance at http://dpregister.com/10131059.
Those unable to pre-register may join the call via the live audio
webcast on the Cable
ONE Investor Relations
website or by dialing 1-844-378-6483 (Canada:
1-855-669-9657/International: 1-412-542-4178) shortly before 5 p.m. ET.

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A replay of the call will be available from Thursday, May 9, 2019 until
Thursday, May 23, 2019 on the Cable
ONE Investor Relations
website.

Additional Information

The information in this press release should be read in conjunction with
the condensed consolidated financial statements and notes thereto
contained in the Company’s Quarterly Report on Form 10-Q for the period
ended March 31, 2019, which will be posted on the “SEC Filings” section
of the Cable ONE Investor Relations website at ir.cableone.net when it
is filed with the U.S. Securities and Exchange Commission (the “SEC”).
Investors and others interested in more information about Cable ONE
should consult the Company’s website, which is regularly updated with
financial and other important information about the Company.

Certain amounts in the tables within this press release may not foot due
to rounding.

Use of Non-GAAP Financial Measures

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The Company uses certain measures that are not defined by generally
accepted accounting principles in the United States (“GAAP”) to evaluate
various aspects of its business. Adjusted EBITDA, Adjusted EBITDA
margin, Adjusted EBITDA less capital expenditures and capital
expenditures as a percentage of Adjusted EBITDA are non-GAAP financial
measures and should be considered in addition to, not as superior to, or
as a substitute for, net income, net profit margin or net cash provided
by operating activities reported in accordance with GAAP. Adjusted
EBITDA and Adjusted EBITDA less capital expenditures are reconciled to
net income, Adjusted EBITDA margin is reconciled to net profit margin
and capital expenditures as a percentage of Adjusted EBITDA is
reconciled to capital expenditures as a percentage of net income.
Adjusted EBITDA less capital expenditures is also reconciled to net cash
provided by operating activities. These reconciliations are included in
the “Reconciliations of Non-GAAP Measures” tables within this
press release.

“Adjusted EBITDA” is defined as net income plus interest expense, income
tax provision, depreciation and amortization, equity-based compensation,
severance expense, (gain) loss on deferred compensation,
acquisition-related costs, (gain) loss on asset disposals, system
conversion costs, rebranding costs, other (income) expense and other
unusual operating expenses, as provided in the “Reconciliations of
Non-GAAP Measures
” tables within this press release. As such, it
eliminates the significant non-cash depreciation and amortization
expense that results from the capital-intensive nature of the Company’s
business as well as other non-cash or special items and is unaffected by
the Company’s capital structure or investment activities. This measure
is limited in that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues
and the Company’s cash cost of debt financing. These costs are evaluated
through other financial measures.

“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by total
revenues.

“Adjusted EBITDA less capital expenditures,” when used as a liquidity
measure, is calculated as net cash provided by operating activities
excluding the impact of capital expenditures, interest expense, income
tax provision, changes in operating assets and liabilities, change in
deferred income taxes and other unusual operating expenses, as provided
in the “Reconciliations of Non-GAAP Measures” tables within this
press release.

“Capital expenditures as a percentage of Adjusted EBITDA” is defined as
capital expenditures divided by Adjusted EBITDA.

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The Company uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted
EBITDA less capital expenditures and capital expenditures as a
percentage of Adjusted EBITDA to assess its performance, and it also
uses Adjusted EBITDA less capital expenditures as an indicator of its
ability to fund operations and make additional investments with
internally-generated funds. In addition, Adjusted EBITDA generally
correlates to the measure used in the leverage ratio calculations under
the Company’s credit facilities and senior unsecured notes to determine
compliance with the covenants contained in the credit agreement and the
ability to take certain actions under the indenture governing the notes.
Adjusted EBITDA and capital expenditures are also significant
performance measures used by the Company in its annual incentive
compensation program. Adjusted EBITDA does not take into account cash
used for mandatory debt service requirements or other non-discretionary
expenditures, and thus does not represent residual funds available for
discretionary uses.

The Company believes Adjusted EBITDA, Adjusted EBITDA margin and capital
expenditures as a percentage of Adjusted EBITDA are useful to investors
in evaluating the operating performance of the Company. The Company
believes that Adjusted EBITDA less capital expenditures is useful to
investors as it shows the Company’s performance while taking into
account cash outflows for capital expenditures and is one of several
indicators of the Company’s ability to service debt, make investments
and/or return capital to its shareholders.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less capital
expenditures, capital expenditures as a percentage of Adjusted EBITDA
and similar measures with similar titles are common measures used by
investors, analysts and peers to compare performance in the Company’s
industry, although the Company’s measures of Adjusted EBITDA, Adjusted
EBITDA margin, Adjusted EBITDA less capital expenditures and capital
expenditures as a percentage of Adjusted EBITDA may not be directly
comparable to similarly titled measures reported by other companies.

About Cable ONE

Cable One, Inc. (NYSE: CABO) is a leading broadband communications
provider serving more than 800,000 residential and business customers in
21 states. Cable ONE provides consumers with a wide array of
connectivity and entertainment services, including high-speed internet
and advanced Wi-Fi solutions, cable television and phone service. Cable
ONE Business provides scalable and cost-effective products for
businesses ranging in size from small to mid-market, in addition to
enterprise, wholesale and carrier customers.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This communication may contain “forward-looking statements” that involve
risks and uncertainties. These statements can be identified by the fact
that they do not relate strictly to historical or current facts, but
rather are based on current expectations, estimates, assumptions and
projections about the Company’s industry, business, financial results
and financial condition. Forward-looking statements often include words
such as “will,” “should,” “anticipates,” “estimates,” “expects,”
“projects,” “intends,” “plans,” “believes” and words and terms of
similar substance in connection with discussions of future operating or
financial performance. As with any projection or forecast,
forward-looking statements are inherently susceptible to uncertainty and
changes in circumstances. The Company’s actual results may vary
materially from those expressed or implied in its forward-looking
statements. Accordingly, undue reliance should not be placed on any
forward-looking statement made by the Company or on its behalf.
Important factors that could cause the Company’s actual results to
differ materially from those in its forward-looking statements include
government regulation, economic, strategic, political and social
conditions and the following factors:

  • uncertainties as to the timing of the anticipated acquisition of
    Fidelity and the risk that the transaction may not be completed in a
    timely manner or at all;
  • the possibility that any or all of the various conditions to the
    consummation of the anticipated acquisition of Fidelity may not be
    satisfied or waived, including failure to receive any required
    regulatory approvals (or any conditions, limitations or restrictions
    placed in connection with such approvals);
  • the effect of the announcement or pendency of the Fidelity transaction
    on the Company’s and Fidelity’s ability to retain and hire key
    personnel and to maintain relationships with customers, suppliers and
    other business partners;
  • risks related to management’s attention being diverted from the
    Company’s ongoing business operations;
  • uncertainties as to the Company’s ability and the amount of time
    necessary to realize the expected synergies and other benefits of the
    Fidelity transaction;
  • the Company’s ability to integrate Fidelity’s operations into its own;
  • rising levels of competition from historical and new entrants in the
    Company’s markets;
  • recent and future changes in technology;
  • the Company’s ability to continue to grow its business services
    products;
  • increases in programming costs and retransmission fees;
  • the Company’s ability to obtain hardware, software and operational
    support from vendors;
  • the effects of any new significant acquisitions by the Company;
  • risks that the Company’s rebranding may not produce the benefits
    expected;
  • adverse economic conditions;
  • the integrity and security of the Company’s network and information
    systems;
  • the impact of possible security breaches and other disruptions,
    including cyber-attacks;
  • the Company’s failure to obtain necessary intellectual and proprietary
    rights to operate its business and the risk of intellectual property
    claims and litigation against the Company;
  • the Company’s ability to retain key employees;
  • legislative or regulatory efforts to impose network neutrality and
    other new requirements on the Company’s data services;
  • additional regulation of the Company’s video and voice services;
  • the Company’s ability to renew cable system franchises;
  • increases in pole attachment costs;
  • changes in local governmental franchising authority and broadcast
    carriage regulations;
  • the potential adverse effect of the Company’s level of indebtedness on
    its business, financial condition or results of operations and cash
    flows;
  • the possibility that interest rates will rise, causing the Company’s
    obligations to service its variable rate indebtedness to increase
    significantly;
  • the Company’s ability to incur future indebtedness;
  • fluctuations in the Company’s stock price;
  • the Company’s ability to continue to pay dividends;
  • dilution from equity awards and potential stock issuances in
    connection with acquisitions;
  • provisions in the Company’s charter, by-laws and Delaware law that
    could discourage takeovers; and
  • the other risks and uncertainties detailed from time to time in the
    Company’s filings with the SEC, including but not limited to its
    latest Annual Report on Form 10-K as filed with the SEC.

Any forward-looking statements made by the Company in this communication
speak only as of the date on which they are made. The Company 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, subsequent events or otherwise.

     
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
(Unaudited)
 
Three Months Ended March 31,

(dollars in thousands, except per share data)

2019       2018      

$ Change

      % Change
Revenues:
Residential data $ 129,812 $ 119,859 $ 9,953 8.3 %
Residential video 83,802 88,760 (4,958 ) (5.6 )%
Residential voice 9,624 10,671 (1,047 ) (9.8 )%
Business services 47,143 37,688 9,455 25.1 %
Advertising sales 4,729 5,241 (512 ) (9.8 )%
Other   3,495     3,542     (47 ) (1.3 )%
Total Revenues 278,605 265,761 12,844 4.8 %
Costs and Expenses:
Operating (excluding depreciation and amortization) 94,518 94,739 (221 ) (0.2 )%
Selling, general and administrative 61,443 50,949 10,494 20.6 %
Depreciation and amortization 53,844 48,778 5,066 10.4 %
Loss on asset disposals, net   1,103     6,634     (5,531 ) (83.4 )%
Total Costs and Expenses   210,908     201,100     9,808   4.9 %
Income from operations 67,697 64,661 3,036 4.7 %
Interest expense (18,096 ) (14,723 ) (3,373 ) 22.9 %
Other income, net   1,802     617     1,185   192.1 %
Income before income taxes 51,403 50,555 848 1.7 %
Income tax provision   12,664     9,902     2,762   27.9 %
Net income $ 38,739   $ 40,653   $ (1,914 ) (4.7 )%
 
Net Income per Common Share:
Basic $ 6.83   $ 7.13   $ (0.30 ) (4.2 )%
Diluted $ 6.78   $ 7.08   $ (0.30 ) (4.2 )%
Weighted Average Common Shares Outstanding:
Basic 5,674,120 5,702,539 (28,419 ) (0.5 )%
Diluted 5,716,585 5,742,648 (26,063 ) (0.5 )%
 
Deferred gain (loss) on cash flow hedges and other, net of tax $ (29,069 ) $ 1   $ (29,070 ) NM
Comprehensive income $ 9,670   $ 40,654   $ (30,984 ) (76.2 )%
 
NM = Not meaningful.
 
 
 
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 

(dollars in thousands, except par values)

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                March 31, 2019           December 31, 2018
Assets
Current Assets:
Cash and cash equivalents $ 187,559 $ 264,113
Accounts receivable, net 28,410 29,947
Income taxes receivable 4,658 10,713
Prepaid and other current assets   21,742     13,090  
Total Current Assets 242,369 317,863
Property, plant and equipment, net 965,396 847,979
Intangible assets, net 1,039,427 953,851
Goodwill 355,347 172,129
Other noncurrent assets   21,698     11,412  
Total Assets $ 2,624,237   $ 2,303,234  
 
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 92,216 $ 94,134
Deferred revenue 24,096 18,954
Current portion of long-term debt   24,892     20,625  
Total Current Liabilities 141,204 133,713
Long-term debt 1,385,475 1,142,056
Deferred income taxes 269,816 242,127
Other noncurrent liabilities   58,707     9,980  
Total Liabilities   1,855,202     1,527,876  
 
Stockholders’ Equity
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none
issued or outstanding)
Common stock ($0.01 par value; 40,000,000 shares authorized;
5,887,899 shares issued; and 5,699,330 and 5,703,402 shares
outstanding as of March 31, 2019 and December 31, 2018, respectively)
59 59
Additional paid-in capital 41,919 38,898
Retained earnings 877,644 850,292
Accumulated other comprehensive loss (29,165 ) (96 )
Treasury stock, at cost (188,569 and 184,497 shares held as of March
31, 2019 and December 31, 2018, respectively)
  (121,422 )   (113,795 )
Total Stockholders’ Equity   769,035     775,358  
Total Liabilities and Stockholders’ Equity $ 2,624,237   $ 2,303,234  
 
 

Contacts

Trish Niemann
Corporate Communications Director
602-364-6372

Steven Cochran
Chief Financial Officer
602-364-6210

Read full story here

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