Cable One Reports Fourth Quarter and Full Year 2020 Results

PHOENIX–(BUSINESS WIRE)–Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable One”) today reported financial and operating results for the quarter and year ended December 31, 2020.

Cable One completed the acquisitions of Fidelity Communications Co.’s data, video and voice business and certain related assets (collectively, “Fidelity”) on October 1, 2019 and Valu-Net LLC (“Valu-Net”) on July 1, 2020. The Company also completed the contribution of its Anniston, Alabama system (the “Anniston System”) to Hargray Communications, a data, video and voice services provider (“Hargray”) on October 1, 2020. For purposes of comparability of full year 2020 financial results with full year 2019 financial results below, the term “incremental operations” refers to the results of Fidelity for the first three quarters of 2020 (as the Company owned Fidelity for the fourth quarters of both 2020 and 2019) and the results of Valu-Net for the third and fourth quarters of 2020. In addition, the results discussed below and presented in the tables within this press release do not include the Anniston System since the date of its contribution to Hargray.

Fourth Quarter 2020 Highlights:

• Total revenues were $336.8 million in the fourth quarter of 2020 compared to $318.8 million in the fourth quarter of 2019, an increase of 5.7%. Residential data revenues increased 17.1% and business services revenues increased 3.4% year-over-year.

• Net income was $106.2 million in the fourth quarter of 2020, an increase of 98.2% year-over-year, including an $82.6 million pre-tax non-cash gain on sale of the Anniston System and a $17.5 million non-cash loss on a fair value adjustment associated with the call and put options discussed below. Adjusted EBITDA⁽¹⁾ was $178.9 million, an increase of 13.0% year-over-year. Net profit margin was 31.5% and Adjusted EBITDA margin⁽¹⁾ was 53.1%.

• Net cash provided by operating activities was $175.4 million in the fourth quarter of 2020, an increase of 12.0% year-over-year. Adjusted EBITDA less capital expenditures⁽¹⁾ was $103.7 million in the fourth quarter of 2020 compared to $72.3 million in the fourth quarter of 2019.

• Residential data primary service units (“PSUs”) grew by more than 82,000, or 11.8%, year-over-year, which excludes approximately 19,000 residential data PSUs from the Anniston System that were contributed to Hargray and includes approximately 5,000 residential data PSUs acquired in the Valu-Net acquisition. Business services PSUs were flat compared to the prior year.

• On October 1, 2020, the Company contributed the Anniston System in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis (the “Anniston Exchange”) and recognized an $82.6 million non-cash gain.

• On October 30, 2020, the Company amended and restated its credit agreement (the “Third Restatement Agreement”) to, among other things, upsize certain of its term loans by $300.0 million and its revolving credit facility capacity (the “Revolving Credit Facility”) by $150.0 million, extend the maturities of its term loans through 2025 to 2027 and extend the maturity of the Revolving Credit Facility to 2025. The Company used the net proceeds from the term loan upsizing, together with cash on hand, to repay all $483.8 million aggregate outstanding principal amount of its term “B-1” loan tranche (the “Term Loan B-1”).

• On November 9, 2020, the Company completed a private offering of $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the “Notes Offering”). The Company used a portion of the net proceeds from the Notes Offering to fund its investment in Mega Broadband Investments Holdings LLC, a data, video and voice services provider (“MBI”), and expects to use the remainder for general corporate purposes, which may include additional acquisitions and strategic investments.

• On November 12, 2020, the Company acquired a 45% equity interest in MBI for $574.9 million in cash (the “MBI Investment”). As part of the MBI Investment, the Company acquired a call option to purchase the remaining equity interests in MBI that it does not already own between January 1, 2023 and June 30, 2024, and certain investors in MBI have a put option to sell such remaining equity interests in MBI to the Company between July 1, 2025 and September 30, 2025.

Full Year 2020 Highlights:

• Total revenues were more than $1.3 billion in 2020 compared to nearly $1.2 billion in 2019, an increase of 13.5%. Residential data revenues increased 22.3% and business services revenues increased 14.7% year-over-year.

• Net income was $304.4 million in 2020, an increase of 70.4% year-over-year. Adjusted EBITDA was $674.1 million, an increase of 18.5% year-over-year. Net profit margin was 23.0% and Adjusted EBITDA margin was 50.9%.

• Net cash provided by operating activities was $574.4 million in 2020, an increase of 16.8% year-over-year. Adjusted EBITDA less capital expenditures was $380.9 million in 2020, an increase of 24.2% year-over-year.

Other Highlights:

• As part of its ongoing efforts to help ease the financial burden and provide continued connectivity for its customers and communities impacted by the COVID-19 pandemic, the Company extended through the end of 2021 multiple relief measures set in place in the first quarter of 2020. This includes providing free public Wi-Fi hotspots across its footprint and continuing to offer its 15 Megabit per second residential data plan for $10 per month for the first three months of service to help low-income families as well as those most impacted by COVID-19 challenges. The Company is also continuing to participate in the ACA Connects’ and EducationSuperHighway’s “K-12 Bridge to Broadband” initiative, which helps school districts and states provide internet access for students in low-income households.

• On February 12, 2021, the Company entered into a definitive agreement to acquire the equity interests in Hargray that it does not already own, which represent approximately 85% of Hargray on a fully diluted basis. The transaction implies a $2.2 billion total enterprise value for 100% of the equity interests of Hargray on a debt-free and cash-free basis. The Company intends to finance the transaction with a combination of existing cash resources and proceeds from new indebtedness (which may include revolving credit facility borrowings) and/or equity capital. The Company has received $900 million of definitive bridge loan commitments from JPMorgan Chase Bank, N.A. and Credit Suisse AG to finance a portion of the purchase price. The transaction is subject to certain regulatory approvals and other customary closing conditions and is expected to be completed during the second quarter of 2021.

Fourth Quarter 2020 Financial Results Compared to Fourth Quarter 2019

Revenues increased $18.0 million, or 5.7%, to $336.8 million for the fourth quarter of 2020, including $3.2 million from Valu-Net operations. The remaining increase was driven primarily by organic residential data, business services and other revenue growth, partially offset by decreases in organic residential video and residential voice revenues. For the fourth quarter of 2020 and 2019, residential data revenues comprised 52.3% and 47.1% of total revenues and business services revenues comprised 17.5% and 17.9% of total revenues, respectively.

Operating expenses (excluding depreciation and amortization) were $99.4 million in the fourth quarter of 2020 and decreased $4.0 million, or 3.9%, compared to the fourth quarter of 2019. The decrease in operating expenses was primarily attributable to a $4.8 million reduction in programming expenses, partially offset by $1.3 million of additional expenses related to Valu-Net operations. Operating expenses as a percentage of revenues were 29.5% and 32.5% for the fourth quarter of 2020 and 2019, respectively.

Selling, general and administrative expenses were $64.7 million for both the fourth quarter of 2020 and 2019. The fourth quarter 2020 amount included $0.9 million of expenses related to Valu-Net operations and higher professional services, labor, health insurance and rebranding costs that were offset by reductions in acquisition-related, bad debt and system conversion costs. Selling, general and administrative expenses as a percentage of revenues were 19.2% and 20.3% for the fourth quarter of 2020 and 2019, respectively.

Depreciation and amortization expense was $63.4 million for the fourth quarter of 2020 and increased $4.1 million, or 6.9%, compared to the fourth quarter of 2019. The increase was due primarily to new assets placed in service since the fourth quarter of 2019, partially offset by assets that became fully depreciated since the fourth quarter of 2019. Depreciation and amortization expense as a percentage of revenues was 18.8% and 18.6% for the fourth quarter of 2020 and 2019, respectively.

Interest expense increased $1.7 million, or 9.0%, to $20.8 million, driven primarily by additional outstanding debt and higher interest rate swap settlement expense, partially offset by lower interest rates.

Other expense, net, of $23.0 million for the fourth quarter of 2020 consisted of a $17.5 million non-cash loss on fair value adjustment associated with the call and put options to acquire the remaining equity interests in MBI, $6.2 million of debt issuance cost write-offs and $1.2 million of financing-related fees, partially offset by investment and interest income. Other income, net, of $1.3 million for the fourth quarter of 2019 consisted of investment and interest income.

The Company recognized an $82.6 million non-cash gain in the fourth quarter of 2020 in connection with the Anniston Exchange, which positively impacted income before income taxes and equity method investment earnings and net income.

Income tax provision was $41.1 million in the fourth quarter of 2020 compared to $17.2 million in the prior year quarter due primarily to an increase in income before income taxes and equity method investment earnings of $75.2 million. The Company’s effective tax rate was 28.2% and 24.3% for the fourth quarter of 2020 and 2019, respectively.

Net income was $106.2 million in the fourth quarter of 2020 compared to $53.6 million in the prior year quarter.

Adjusted EBITDA was $178.9 million and $158.3 million for the fourth quarter of 2020 and 2019, respectively, an increase of 13.0%. Capital expenditures for the fourth quarter of 2020 totaled $75.2 million compared to $86.0 million for the fourth quarter of 2019. Adjusted EBITDA less capital expenditures for the fourth quarter of 2020 was $103.7 million compared to $72.3 million in the prior year quarter.

Full Year 2020 Financial Results Compared to Full Year 2019

Revenues increased $157.2 million, or 13.5%, to more than $1.3 billion for 2020, driven primarily by $105.5 million from the incremental operations as well as organic residential data and business services revenue growth, partially offset by a decrease in organic residential video, residential voice and other revenues. For 2020 and 2019, residential data revenues comprised 50.5% and 46.9% of total revenues and business services revenues comprised 17.7% and 17.5% of total revenues, respectively.

Operating expenses (excluding depreciation and amortization) were $418.7 million for 2020 and increased $30.2 million, or 7.8%, compared to 2019. The increase in operating expenses attributable to the incremental operations was $34.8 million. Excluding the expenses associated with the incremental operations, operating expenses were $383.9 million for 2020, a decrease of $4.6 million, or 1.2%, compared to 2019. This decrease was due primarily to a $15.9 million reduction in programming expenses, partially offset by increases of $6.9 million in labor and other compensation-related costs due in part to actions the Company took in response to the COVID-19 pandemic and $3.9 million in repairs and maintenance costs. Operating expenses as a percentage of revenues were 31.6% for 2020 compared to 33.3% for 2019.

Selling, general and administrative expenses increased $10.0 million, or 4.1%, to $255.2 million for 2020. The increase in selling, general and administrative expenses attributable to the incremental operations was $20.5 million. Excluding the expenses associated with the incremental operations, selling, general and administrative expenses decreased $10.4 million, or 4.2%, to $234.7 million due primarily to reductions of $5.7 million in acquisition-related costs, $4.6 million in rebranding costs, $3.7 million in health insurance costs and $3.5 million in system conversion costs, partially offset by a $10.4 million increase in labor and other compensation-related costs. Selling, general and administrative expenses as a percentage of revenues were 19.3% and 21.0% for 2020 and 2019, respectively.

Depreciation and amortization expense increased $49.0 million, or 22.6%, which included $35.6 million attributable to the incremental operations. The remaining increase was due primarily to new assets placed in service since 2019, partially offset by assets that became fully depreciated since 2019. As a percentage of revenues, depreciation and amortization expense was 20.0% for 2020 compared to 18.6% for 2019.

Interest expense increased $1.9 million, or 2.6%, to $73.6 million, driven primarily by additional outstanding debt and interest rate swap settlements, partially offset by lower interest rates.

The Company recognized other expense, net, of $16.4 million in 2020, consisting of the $17.5 million fair value adjustment mentioned above, $6.2 million of debt issuance cost write-offs and $1.2 million of financing-related fees, partially offset by investment and interest income. The Company recognized other expense, net, of $4.9 million in 2019, consisting of a $6.5 million call premium related to the redemption of then-outstanding senior notes, $4.2 million of debt issuance cost write-offs and $0.7 million of financing-related fees, partially offset by interest and investment income.

The Company recognized an $82.6 million non-cash gain in 2020 in connection with the Anniston Exchange, which positively impacted income before income taxes and equity method investment earnings and net income.

Income tax provision was $76.3 million for 2020 and increased $21.1 million, or 38.2%, compared to 2019 due primarily to an increase in income before income taxes and equity method investment earnings of $145.5 million, partially offset by a $13.0 million increase in income tax benefits attributable to the net operating loss carryback provision of the Coronavirus Aid, Relief, and Economic Security Act. The Company’s effective tax rate was 20.1% and 23.6% for 2020 and 2019, respectively.

Net income was $304.4 million in 2020 compared to $178.6 million in 2019.

Adjusted EBITDA was $674.1 million and $569.0 million for 2020 and 2019, respectively, an increase of 18.5%. Capital expenditures totaled $293.2 million and $262.4 million for 2020 and 2019, respectively. Adjusted EBITDA less capital expenditures for 2020 was $380.9 million, an increase of $74.3 million, or 24.2%, from the prior year.

COVID-19 Impacts

The COVID-19 pandemic and the Company’s associated responses negatively impacted Adjusted EBITDA by $17.6 million during 2020, primarily during the second and third quarters. The negative impacts were driven by a $12.3 million decrease in revenues largely from the now-concluded suspensions of data overage fees, late charges and reconnect fees as well as diminished growth in business services revenues, coupled with $5.3 million of higher labor costs and other operating expenses, net of lower travel costs. These negative Adjusted EBITDA impacts were more than offset by a greater-than-usual gain in residential data customers in 2020 and the associated increase in residential data revenues.

The negative impacts associated with the actions the Company took in response to the pandemic largely ceased during the fourth quarter of 2020, due primarily to the resumption of billing late charges, reconnect fees and data overage fees as well as the normalization of labor costs. In addition, the Company expects there to be a positive impact on 2021 residential data revenues as a result of retaining a significant number of residential data customers acquired during 2020 as well as anticipated continued growth of residential data customers in 2021, albeit at a slower pace. However, the Company continues to face various uncertainties related to the impact of the COVID-19 pandemic on the overall economy and the Company’s business, including whether it is able to sustain continued customer growth, its level of bad debt expense and if some of the expense reductions realized during the second half of 2020 will continue or if those expenses will return to more normal levels given the fluid situation regarding pandemic-related restrictions across the country.

The Company continues to monitor the evolving situation caused by the COVID-19 pandemic, and it may take further actions required by governmental authorities or that it determines are prudent to support the well-being of its associates, customers, suppliers, business partners and others. The degree to which the COVID-19 pandemic impacts the Company’s operations, business, financial results and financial condition will depend on future developments, which are highly uncertain, continuously evolving and in many cases cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic, its severity, the efficacy of vaccines (particularly with respect to emerging strains of the virus), the actions to contain the virus or treat its impact, potential legislative or regulatory efforts to impose new requirements on the Company’s data services and how quickly and to what extent normal social, economic and operating conditions can resume.

Accordingly, the Company’s results and financial condition discussed herein may not be indicative of its future results and trends. Refer to the section entitled “Risks Factors” in the Company’s Annual Report on Form 10-K for the period ended December 31, 2020 (the “2020 Form 10-K”), when it is filed with the Securities and Exchange Commission (the “SEC”), for additional risks the Company faces due to the COVID-19 pandemic.

Liquidity and Capital Resources

At December 31, 2020, the Company had $574.9 million of cash and cash equivalents on hand compared to $125.3 million at December 31, 2019. The Company’s debt balance was $2.2 billion and $1.8 billion at December 31, 2020 and 2019, respectively. The Company had $470.4 million available for borrowing under the Revolving Credit Facility as of December 31, 2020.

The Company paid $15.1 million and $56.6 million in dividends to stockholders during the fourth quarter and full-year 2020, respectively.

On November 9, 2020, the Company completed the Notes Offering. The Company used a portion of the net proceeds from the Notes Offering to fund the MBI Investment and expects to use the remainder for general corporate purposes, which may include additional acquisitions and strategic investments.

On October 30, 2020, the Company entered into the Third Restatement Agreement to, among other things, (i) upsize its term “B-3” loan tranche (the “Term Loan B-3”) by $300.0 million (the “B-3 Upsize”) and extend the scheduled maturity of each of its term “B-2” loan tranche (the “Term Loan B-2”) and the Term Loan B-3 to October 30, 2027, (ii) increase the aggregate principal amount of commitments under the Revolving Credit Facility by $150.0 million to $500.0 million and extend the scheduled maturity of each of the Revolving Credit Facility and term “A-2” loan tranche (the “Term Loan A-2”) to October 30, 2025 and (iii) reset the amortization schedule of the Term Loan A-2 so that the Term Loan A-2 will amortize in equal quarterly installments following the date of the amendment and restatement at a rate (expressed as a percentage of the outstanding principal amount on October 30, 2020) of 2.5% per annum for each of the first two years, 5.0% per annum for the third year, 7.5% per annum for the fourth year and 12.5% per annum for the fifth year (in each case subject to customary adjustments in the event of any prepayment), with the balance due upon maturity. Except as described above, the Third Restatement Agreement did not make any material changes to the terms of the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 or the Revolving Credit Facility. The Company used the net proceeds from the B-3 Upsize, together with cash on hand, to repay all $483.8 million aggregate principal amount of its outstanding Term Loan B-1.

Conference Call

Cable One will host a conference call with the financial community to discuss results for the fourth quarter and full year 2020 on Thursday, February 25, 2021, at 5 p.m. Eastern Time (ET).

The conference call will be available via a live audio webcast on the Cable One Investor Relations website at ir.cableone.net or by dialing 1-844-378-6483 (Canada: 1-855-669-9657 or International: 1-412-542-4178). Participants should register for the webcast or dial in for the conference call shortly before 5 p.m. ET.

A replay of the call will be available from February 25, 2021 until March 11, 2021 at ir.cableone.net.

Additional Information Available on Website

The information in this press release should be read in conjunction with the consolidated financial statements and notes thereto contained in the 2020 Form 10-K, 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 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.

Use of Non-GAAP Financial Measures

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, net cash provided by operating activities or capital expenditures as a percentage of net income 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 t

Contacts

Trish Niemann

Senior Director, Corporate Communications

602-364-6372

patricia.niemann@cableone.biz

Steven Cochran

Chief Financial Officer

investor_relations@cableone.biz

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