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Cable One, Inc. (CABO)

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Cable One, Inc. (CABO)

Q1 2018 Earnings Conference Call

May 9, 2018 11:00 AM ET

Executives

Kevin Coyle – Senior Vice President and Chief Financial Officer

Julia Laulis – President and Chief Executive Officer

Analysts

Philip Cusick – JPMorgan

Frank Louthan – Raymond James

Stephan Bisson – Wells Fargo

Craig Moffett – MoffettNathanson

Presentation

Operator

Good day, and welcome to the Cable ONE Q1 2018 Earnings Conference Call. [Operator Instructions] Please note, today’s event is being recorded.

I would now like to turn the conference over to Kevin Coyle, CFO. Please go ahead, sir.

Kevin Coyle

Thank you, Rocco. Good morning. Welcome to Cable ONE’s First Quarter 2018 Earnings Call. We’re excited to have you with us this morning as we review our results. Before we proceed, I’d like to remind you that today’s discussion may contain forward-looking statements relating to future events and expectations. You can find factors that could cause Cable ONE’s actual results to differ materially from these projections listed in today’s press release and in our recent SEC filings. Cable ONE is under no obligation and, in fact, expressly disclaims any obligation to update its forward-looking statements whether as a result of new information, future events or otherwise.

Additionally, today’s remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles. 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. cableone.net.

Joining me on today’s call is our President and CEO, Julia Laulis. And with that, let me turn the call over to Julia.

Julia Laulis

Thank you, Kevin. Good morning, and thank you for joining us for our first quarter 2018 earnings call. These are interesting times for our industry, but I can’t say they are unexpected. Certainly, there are many paths to a solid long-term business. Our path began several years prior to our spinoff in the summer of 2015. It was around 2012 when we had identified what appeared to us to be inevitable trends for linear video service. Rather than fight them, we pivoted our focus to residential HSD and business services, which were continuing to grow and offered significantly higher margins.

We stopped counting video units and instead pursued cash flows. That strategic shift, coupled with the operational excellence of the Cable ONE team, has brought us to a place where we expect to sustainably grow adjusted EBITDA as well as adjusted EBITDA less CapEx in industry-leading ways. You may recall that at the time of the spin, we labeled ourselves contrarian success story based on our differentiated philosophy. Well, after seeing this quarter’s results, I am more confident than ever in Cable ONE’s long-term strategy. With that backdrop, I’d like to take a moment to share with you what our pivot has meant for legacy Cable ONE.

From an operational perspective, let’s look at where we were at the end of the first quarter of 2018 compared to 2012. Our video PSUs have dropped approximately 54%, but our residential HSD units have grown 12%, our business PSUs have grown almost 89% and our headcount is down 23% through process improvement and attrition. So what does that translate to from a financial perspective?

Comparing the 12 months ended March 31, 2018, to full year 2012, our bad debt has dropped 62%, OpEx is down 12% and total revenue has grown 5%. Now keep in mind that the majority of that revenue growth has come after the spin in 2015, which we believe shows that we’re past the tipping point of the strategy. We continue to see modest revenue growth, coupled with strong margins in the first quarter, which are key ingredients in our recipe for success.

Meanwhile, adjusted EBITDA continues to trend in the right direction, with margin up 1,130 basis points and adjusted EBITDA up 36% when comparing full year 2017 to 2012. Over the same period, we have reduced our capital expenditures by nearly 5%. We have made significant progress since 2012 based on a clear and focused strategy, and we positioned ourselves well to continue this solid performance.

With recent adjustments in how we go to market, we’re beginning to see the inflection point sharpen and the balance of rate and volume start to normalize. As we continue to grow and evolve, I’m excited for the future of Cable ONE. Before I get too far ahead of myself, I’d like to talk a bit more about the first quarter of 2018. The continued integration of NewWave Communications, or what we now call our Northeast Division, remained a primary focus during the quarter. Integration is going well and remains ahead of schedule. We are in the process of a billing system conversion, and we anticipate that will be completed by fall.

Migrating Northeast Division customers to the more robust legacy Cable ONE billing system will allow us to gain operational efficiencies, provide a more customer-friendly platform for those subscribers as well as reduce duplicate provisioning systems, all of which will generate savings. Over the next few quarters, we will continue to standardize policies and best practices across the Northeast Division and legacy Cable ONE in order to provide a consistent and seamless experience for our customers.

Despite operational changes as well as modification to business practices, we continue to see sustainable growth in the Northeast Division. We expect that as integration progresses, we will unlock synergies more quickly than originally anticipated. We mentioned some measures on our last call that we were putting in place to make the Northeast Division more closely resemble Cable ONE. These included a shortened, more disciplined collection cycle and a cessation of deep and lengthy discounts to name a few.

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