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Section 1: 8-K (FORM 8-K)

cabo20160729_8k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

___________________________

 

FORM 8-K

___________________________

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 3, 2016

___________________________

 

Cable One, Inc.

 

(Exact name of registrant as specified in its charter)

___________________________

 

Delaware

1-36863

13-3060083

(State or other jurisdiction of

incorporation or organization)

(Commission File Number)

(IRS Employer Identification No.)

 

210 E. Earll Drive, Phoenix, Arizona

85012

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (602) 364-6000

___________________________

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

   

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

   

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

   

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

 

Item 2.02     Results of Operations and Financial Condition.

 

On August 3, 2016, Cable One, Inc. (the “Company”) issued a press release relating to its unaudited financial results for the second quarter of 2016. A copy of this press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information contained in this Item 2.02 as well as in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

 

Item 9.01 Financial Statements and Exhibits.

 

Exhibit

 

Description

 

 

 

99.1

 

Press release issued by Cable One, Inc. on August 3, 2016.

  

 
 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

Cable One, Inc.

 

 

 

 

 

 

By:

/s/ Alan H. Silverman

 

 

 

Name:

Alan H. Silverman

 

 

 

Title:

Senior Vice President, General Counsel, Director of Administration and Secretary

 

 

Date: August 3, 2016

 

 
 

 

 

EXHIBIT INDEX

 

 

Exhibit

 

 

Description

 

 

 

99.1

 

Press release issued by Cable One, Inc. on August 3, 2016.

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Section 2: EX-99.1 (EXHIBIT 99.1)

ex99-1.htm

Exhibit 99.1

 

 

   

Cable ONE Reports Second Quarter 2016 Results

 

Second Quarter Net Income Increases 24.3% and Adjusted EBITDA Grows 14.6%

  

 

August 3, 2016 Phoenix, Arizona (BUSINESS WIRE) Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable ONE”) today reported financial and operating results for the three and six months ended June 30, 2016.

 

Key second quarter highlights:

 

 

Net income was $26.6 million, an increase of 24.3% compared to the second quarter of 2015. Adjusted EBITDA1 was $88.9 million, an increase of 14.6% year-over-year, with a net profit margin of 13.0% and an Adjusted EBITDA Margin1 of 43.5%.

     
 

Net cash provided by operating activities was $48.0 million, a decrease of 21.8% year-over-year. Free Cash Flow1 was $51.3 million, an increase of 28.1% compared to the second quarter of 2015.

     
 

Residential data revenues were $86.0 million, an increase of 18.7% year-over-year.

     
 

Business services revenues were $24.5 million, an increase of 12.0% year-over-year.

     
 

Residential data and business services revenues grew to 54.1% of total revenues compared to 46.6% in the second quarter of 2015.

     
 

Non-video customers grew to 48% of total customers from 40% in the second quarter of 2015.

  

“Our residential HSD and business services focus continues to produce strong results as we reach the midpoint of 2016,” said Tom Might, Chairman and CEO of Cable ONE. “Our revenue growth has turned positive, and our Adjusted EBITDA margins are among the best in the industry as our higher margin products have shown double digit revenue increases and video no longer dominates our revenues.”

 

1 Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are defined in the section of this press release entitled Use of Non-GAAP Financial Metrics.  Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are reconciled to net income in the Financial Results table of this press release, and Free Cash Flow is also reconciled to net cash provided by operating activities in the Reconciliation of Non-GAAP Measure table of this press release.

 

 
1

 

 

 

Financial Results

 

(Unaudited and $ in '000s, except per share data)

 
   

Three Months Ended June 30,

 
   

2016

   

2015

   

$ Change

   

% Change

 

REVENUES

                               

Residential Data

  $ 86,031     $ 72,477  1   $ 13,554       18.7 %

Residential Video

    74,016       86,227  1     (12,211 )     (14.2 )%

Residential Voice

    10,944       12,368  1     (1,424 )     (11.5 )%

Business Services

    24,491       21,870       2,621       12.0 %

Advertising Sales

    6,616       7,320       (704 )     (9.6 )%

Other

    2,459       2,436       23       0.9 %

Total Revenues

    204,557       202,698       1,859       0.9 %

COSTS AND EXPENSES

                               

Total Operating Costs and Expenses

    154,000       166,909       (12,909 )     (7.7 )%

Income from Operations

    50,557       35,789       14,768       41.3 %

Other (Expense), net

    (7,366 )     (963 )     (6,403 )     NM  

Income Before Income Taxes

    43,191       34,826       8,365       24.0 %

Provisions for Income Taxes

    16,558       13,391       3,167       23.7 %
                                 

NET INCOME

    26,633       21,435       5,198       24.3 %

Net Income per Common Share (Diluted)

  $ 4.62     $ 3.67     $ 0.95       25.9 %

Net Profit Margin

    13.0 %     10.6 %                
                                 

Plus:           Interest expense, net

    7,549       997       6,552       NM  

Provision for income taxes

    16,558       13,391       3,167       23.7 %

Depreciation and amortization

    34,689       35,435       (746 )     (2.1 )%

Equity- and pre-spin cash-based incentive compensation expense

    3,420       4,313       (893 )     (20.7 )%

(Gain) loss on deferred compensation

    100       (497 )     597       120.1 %

Other income

    (183 )     (34 )     (149 )     NM  

Loss on disposal of fixed assets

    157       500       (343 )     (68.6 )%

Billing system implementation costs

    -       2,058       (2,058 )     (100.0 )%

Adjusted EBITDA

    88,923       77,598       11,325       14.6 %

Adjusted EBITDA Margin

    43.5 %     38.3 %                
                                 

Less:           Capital expenditures

    37,628       37,563       65       0.2 %
                                 

Free Cash Flow

  $ 51,295     $ 40,035     $ 11,260       28.1 %

 


1

Certain residential data, video and voice service revenues for the three months ended June 30, 2015 have been reclassified to conform with the 2016 presentation.

  

 
2

 

 

Operating Statistics

 

As of June 30,

   

YOY Change

   
   

2016

   

2015

   

TOTAL

   

%

   

HOMES PASSED

    1,653,021       1,542,531       110,490       7.2 % 2
                                   

TOTAL CUSTOMERS

                                 

Total

    659,943       672,021       (12,078 )     (1.8 )%  

Non-video

    316,745       270,445       46,300       17.1 %  

Percent of Total

    48 %     40 %                  
                                   

RESIDENTIAL CUSTOMERS

    610,293       627,270       (16,977 )     (2.7 )%  

Data

    465,603       457,401       8,202       1.8 %  

Video

    324,982       385,136       (60,154 )     (15.6 )%  

Voice

    103,806       120,626       (16,820 )     (13.9 )%  

PSUs

    894,391       963,163       (68,772 )     (7.1 )%  
                                   

BUSINESS CUSTOMERS

    49,650       44,751       4,899       10.9 %  

Data

    42,714       39,635       3,079       7.8 %  

Video

    13,992       14,742       (750 )     (5.1 )%  

Voice

    17,134       18,116       (982 )     (5.4 )% 3

PSUs

    73,840       72,493       1,347       1.9 % 3
                                   

PENETRATION

                                 

Data

    30.8 %     32.2 %             (1.4 )%  

Video

    20.5 %     25.9 %             (5.4 )%  

Voice

    7.3 %     9.0 %             (1.7 )%  
                                   

SHARE OF SECOND QUARTER REVENUES

                           

Residential Data

    42.1 %     35.8 %             6.3 %  

Business Services

    12.0 %     10.8 %             1.2 %  

Total

    54.1 %     46.6 %             7.5 %  
                                   

ARPUs - SECOND QUARTER4

                                 

Residential Data

  $ 61.49     $ 52.85  5   $ 8.64       16.4 %  

Residential Video

  $ 74.59     $ 72.61  5   $ 1.98       2.7 %  

Residential Voice

  $ 34.55     $ 33.52  5   $ 1.03       3.1 %  

Business Services

  $ 166.61     $ 165.77     $ 0.84       0.5 %  

Total Customers

  $ 102.88     $ 100.09     $ 2.79       2.8 %  
                                   

ASSOCIATES

    1,932       2,086       (154 )     (7.4 )%  

 


2

Increase in homes passed was primarily attributable to converting data into a new billing system, which generally counts each unit in a multi-dwelling unit as one home passed; whereas our prior billing system generally counted each multi-dwelling unit as a single home passed.

3

Decrease in business voice customers and modest increase in business PSUs was primarily attributable to converting data into a new billing system, which counts each business customer relationship at a unique business address as a single customer; whereas our prior billing system calculated multiple relationships based on revenue generated at an address.

4

Calculated using average customer counts for the period.

5

Certain residential data, video and voice service revenues used in the calculation of average monthly revenue per unit for the three months ended June 30, 2015 have been reclassified to conform with the 2016 presentation.

  

 
3

 

 

Second Quarter 2016 Financial Results Compared to Second Quarter 2015

 

Revenues

 

Revenues increased $1.9 million, or 0.9%, due primarily to increases in residential data and business services revenues of $13.6 million and $2.6 million, respectively, as a result of the customer mix shift described above, partially offset by decreases in residential video and residential voice revenues of $12.2 million and $1.4 million, respectively. The declines in residential video and residential voice revenues were primarily attributable to residential video customer losses of 15.6% and residential voice customer losses of 13.9% for the 12 months ended June 30, 2016.

 

Residential data service revenues increased $13.6 million, or 18.7%, due primarily to a rate increase taken in the fourth quarter of 2015, an increase in residential data customers of 1.8% for the 12 months ended June 30, 2016, a reduction in package discounting and increased subscriptions to premium tiers by residential customers. Residential data service revenues now comprise 42.1% of our total revenues compared to 35.8% in 2015.

 

Residential video service revenues declined $12.2 million, or 14.2%, due primarily to residential video customer losses of 15.6%, partially offset by a broadcast television surcharge imposed in the second quarter of 2016.

 

Residential voice service revenues decreased $1.4 million, or 11.5%, due primarily to a decline in residential voice customers of 13.9% for the 12 months ended June 30, 2016 as more residential customers have discontinued landline voice service.

 

Business services revenues increased $2.6 million, or 12.0%, due primarily to growth in our business data and voice services to both small and medium-sized businesses and enterprise customers. Total business customer relationships increased 10.9% for the 12 months ended June 30, 2016. Overall, business services comprised 12.0% of our total revenues for the second quarter of 2016 compared to 10.8% of our total revenues for the second quarter of 2015.

 

Advertising sales revenues declined $0.7 million, or 9.6%, due primarily to the negative impact of decreased video customers on the number of viewers available to be reached by advertising spots.

 

Other revenues remained flat at approximately $2.4 million, due primarily to an increase in reconnect fees of $0.3 million, offset by a decrease in late charges and other miscellaneous revenue of $0.3 million.

 

Operating Costs and Expenses

 

Total operating costs and expenses declined $12.9 million, or 7.7%, due primarily to decreases in programming costs and certain selling, general and administrative expenses. In total, programming costs declined $3.0 million and non-programming operating expenses decreased $0.3 million. Selling, general and administrative expenses declined $8.9 million, or 17.0%, due primarily to decreases in processing costs for customer billing following the completion of our billing system conversion of $4.3 million; salaries, wages and benefits costs of $2.5 million; equity-based compensation of $0.6 million; and property taxes and pole rental expense of $0.5 million.

 

 
4

 

 

Other Expense, Net

 

Other expense, net increased $6.4 million, due primarily to interest expense of $7.5 million for the second quarter of 2016, which was attributable to the long-term debt we incurred in connection with our spin-off from our former parent. Interest expense was $1.0 million in the second quarter of 2015.

 

Net Income

 

Net income was $26.6 million for the second quarter of 2016, an increase of 24.3% compared to the second quarter of 2015, due primarily to the decreased operating costs and expenses described above and higher revenues from the increases in residential HSD and business services customers and the HSD rate increase taken in the fourth quarter of 2015, partially offset by higher interest and income tax expenses incurred during the quarter.

 

Adjusted EBITDA

 

Adjusted EBITDA of $88.9 million increased by 14.6%.

 

Capital Expenditures

 

Capital expenditures totaled $37.6 million in the second quarters of 2016 and 2015.

 

Liquidity

 

During the first half of 2016, our cash and cash equivalents decreased by $16.5 million versus the year ended December 31, 2015, and at June 30, 2016, we had approximately $102.7 million of cash on hand, compared to $119.2 million at December 31, 2015. The decrease in cash during the first half of 2016 was attributable primarily to cash payments for capital equipment, share repurchases, dividends and interest. We repurchased 25,933 shares under our stock repurchase program at an aggregate cost of $11.9 million during the quarter.

 

 

Operating Statistics

 

During the twelve months ended June 30, 2016, we had a reduction of 12,078 total customers, or 1.8%, due to a loss of 16,977 residential customers, representing a decline of 2.7%, partially offset by an increase of 4,899 business services customers, or 10.9%.

 

 

Conference Call

 

Cable ONE will host a conference call on Thursday, August 4, 2016 at 11 a.m. Eastern Time (“ET”) related to the contents of this press release.

 

Shareholders, analysts and other interested parties may register for the conference in advance at http://dpregister.com/10088032. 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 11 a.m. ET.

 

A replay of the call will be available from Friday, August 5, 2016 until Friday, August 19, 2016 on the Cable ONE Investor Relations website.

 

 
5

 

 

Additional Information Available on Website

 

The information in this press release should be read in conjunction with the financial statements and footnotes contained in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2016, 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”).

 

 

Use of Non-GAAP Financial Metrics

 

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 and Free Cash Flow are non-GAAP financial measures and should be considered in addition to, not as a substitute for, net income or net cash provided by operating activities reported in accordance with GAAP. These terms, as defined by Cable ONE, may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow are reconciled to net income in the Financial Results table of this press release. Free Cash Flow is also reconciled to net cash provided by operating activities in the Reconciliation of Non-GAAP Measure table of this press release.

 

“Adjusted EBITDA” is defined as net income plus net interest expense, provision for income taxes, depreciation and amortization, equity- and pre-spin cash-based incentive compensation expense, (gain) loss on deferred compensation, loss on disposal of fixed assets, other income and other unusual operating expenses, as defined in the Financial Results table of 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 financing. These costs are evaluated through other financial measures.

 

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

 

“Free Cash Flow” is defined as Adjusted EBITDA less capital expenditures when used as a performance measure. It is also calculated as net cash provided by operating activities excluding the impact of capital expenditures, interest expense, provision for income taxes, changes in operating assets and liabilities and other unusual operating expenses, as defined in the Reconciliation of Non-GAAP Measure table of this press release.

 

The Company uses Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow to assess its performance, and it also uses Free Cash Flow to assess its ability to fund operations and make additional investments with internally-generated funds. In addition, Adjusted EBITDA generally correlates to the leverage ratio calculation under the Company’s credit facilities and outstanding 5.75% senior unsecured notes due 2022 to determine compliance with the covenants contained in the facilities and notes. For the purpose of calculating compliance with leverage covenants, the Company uses a measure similar to Adjusted EBITDA, as presented. Adjusted EBITDA is also a significant performance measure used by the Company in its annual incentive compensation program.

 

 
6

 

 

The Company believes Adjusted EBITDA and Adjusted EBITDA Margin are appropriate measures for evaluating the operating performance of the Company. Adjusted EBITDA, Adjusted EBITDA Margin and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in the Company’s industry, although the Company’s measures of Adjusted EBITDA and Adjusted EBITDA Margin may not be directly comparable to similar measures reported by other companies.

 

The Company believes that Free Cash Flow is useful 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. The Company also believes that Free Cash Flow is one of several benchmarks used by investors, analysts and peers for comparison of performance in the Company’s industry, although its measure of Free Cash Flow may not be directly comparable to similar measures reported by other companies.

 

 

About Cable ONE

 

Cable One, Inc. (NYSE: CABO) is among the 10 largest cable companies in the United States. Serving nearly 700,000 customers in 19 states with high-speed Internet, cable television and telephone service, Cable ONE provides consumers with a wide range of the latest products and services, including wireless Internet service, high-definition programming and phone service with free, unlimited long-distance calling in the continental U.S.

 

Contacts:                         

 

Trish Niemann

Kevin Coyle

 

 

Public Relations Director

CFO

 

 

602-364-6372  

602-364-6505

 

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

 

This communication contains “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 cable industry and our business and financial results. Forward-looking statements often include words such as “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. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Important factors that could cause our actual results to differ materially from those in our forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors:

 

 

rising levels of competition from historical and new entrants in our markets;

 

recent and future changes in technology;

 

 
7

 

 
 

our ability to continue to grow our business services product;

 

increases in programming costs and retransmission fees;

 

our ability to obtain support from vendors;

 

the effects of any significant acquisitions by us;

 

adverse economic conditions;

 

the integrity and security of our network and information systems;

 

our ability to retain key employees;

 

legislative and regulatory efforts to impose new legal requirements on our data services;

 

changing and additional regulation of our data, video and voice services;

 

our ability to renew cable system franchises;

 

increases in pole attachment costs;

 

the failure to meet earnings expectations;

 

the adequacy of our risk management framework;

 

changes in tax and other laws and regulations;

 

changes in U.S. GAAP or other applicable accounting policies; and

 

the other risks and uncertainties detailed in the section titled “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC on March 7, 2016.

 

Any forward-looking statements made by us in this communication speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

  

 
8

 

 

Reconciliation of Non-GAAP Measure

 

   

Three Months Ended

 
   

June 30,

 

(in thousands)

 

2016

   

2015

 

Net cash provided by operating activities

  $ 48,041     $ 61,467  

Amortization of financing costs

    (405

)

    -  

Deferred income taxes

    660       5,875  

Changes in operating assets and liabilities

    16,603       (5,961

)

Interest expense

    7,549       997  

Provision for income taxes

    16,558       13,391  

Pre-spin cash-based incentive compensation expense

    -       302  

(Gain) loss on deferred compensation

    100       (497

)

Other income

    (183

)

    (34

)

Billing system implementation costs

    -       2,058  

Capital expenditures

    (37,628

)

    (37,563

)

Free Cash Flow

  $ 51,295     $ 40,035  

 

 

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