UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~(Mark~~(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36863

Cable One, Inc.

(Exact name of registrant as specified in its charter)

Delaware		13-3060083
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

210 E. Earll Drive, Phoenix, Arizona		85012
(Address of Principal Executive Offices)		(Zip Code)

(602) 364-6000

(~~Registrant~~’sRegistrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
(Do not check if a smaller reporting company)
		Emerging growth company	☐

~~Table of Contents~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the ~~issuer~~’sissuer’s classes of common stock as of the latest practicable date:

Description of Class	Shares Outstanding as of ~~November 3, 2017~~May 4, 2018
Common ~~Stock,~~stock, par value $0.01	~~5,729,380~~ 5,727,206

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CABLE ONE, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION	1

Item 1. Condensed Consolidated Financial Statements	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3129

Item 4. Controls and Procedures	3129

PART II: OTHER INFORMATION	3129

Item 1. Legal Proceedings	3129

Item 1A. Risk Factors	3130

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3230

Item 3. Defaults Upon Senior Securities	3230

Item 4. Mine Safety Disclosures	3230

Item 5. Other Information	3230

Item 6. Exhibits	3230

SIGNATURES	3332

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PART I: FINANCIAL INFORMATION

~~Item~~ ITEM 1. ~~Condensed~~ CCONDENSED ~~onsolidated~~CONSOLIDATED F~~inancial~~INANCIAL S~~tatements~~TATEMENTS

CABLE ONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except par value and share data)	September 30, 2017		December 31, 2016
	(Unaudited)
(in thousands, except par value and share data)					March 31, 2018			December 31, 2017
Assets
Current Assets:
Cash and cash equivalents	$	118,701	$	138,040	$	185,493		$	161,752
Accounts receivable, net		54,085		32,526		25,477			29,930
Income tax receivable		18,127		4,547
Prepaid assets		12,053		10,824
Income taxes receivable						16,782			21,331
Prepaid and other current assets						19,474			10,898
Total Current Assets		202,966		185,937		247,226			223,911
Property, plant and equipment, net		810,393		619,621		820,009			831,892
Intangibles, net		968,557		497,480		962,933			965,745
Goodwill		177,809		84,928		172,129			172,129
Other assets		5,508		9,305		11,489			10,955
Total Assets	$	2,165,233	$	1,397,271	$	2,213,786		$	2,204,632

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	101,310	$	82,703	$	98,379		$	117,855
Deferred revenue		37,158		22,190		17,780			15,008
Long-term debt - current portion		12,813		6,250
Current portion of long-term debt						15,938			14,375
Total Current Liabilities		151,281		111,143		132,097			147,238
Long-term debt		1,164,070		530,886		1,157,273			1,160,682
Deferred income taxes		298,324		276,297		212,864			207,154
Accrued compensation and other liabilities		25,934		24,434
Other liabilities						11,642			13,111
Total Liabilities		1,639,609		942,760		1,513,876			1,528,185

Commitments and contingencies (see Note 12)
Commitments and contingencies (refer to note 14)

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 5,728,358 and 5,708,223 shares outstanding as of September 30, 2017 and December 31, 2016, respectively)		60		59
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 5,732,441 and 5,731,442 shares outstanding as of March 31, 2018 and December 31, 2017, respectively)						59			59
Additional paid-in capital		25,590		17,669		30,750			28,412
Retained earnings		577,892		511,776		759,004			728,386
Accumulated other comprehensive loss		(441)		(446)		(351	)		(352	)
Treasury stock, at cost (159,541 and 179,676 shares held as of September 30, 2017 and December 31, 2016, respectively)		(77,477)		(74,547)
Treasury stock, at cost (155,458 and 156,457 shares held as of March 31, 2018 and December 31, 2017, respectively)						(89,552	)		(80,058	)
Total Stockholders' Equity		525,624		454,511		699,910			676,447
Total Liabilities and Stockholders' Equity	$	2,165,233	$	1,397,271	$	2,213,786		$	2,204,632

See accompanying notes to ~~unaudited~~ condensed consolidated financial statements.

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in thousands, except per share and share data)	2017		2016		2017		2016
(in thousands, except per share and share data)									2018			2017
Revenues	$	253,846	$	205,536	$	702,315	$	612,898	$	265,761		$	207,434
Costs and expenses
Operating (excluding depreciation and amortization)		91,894		75,631		245,026		227,731		94,739			69,083
Selling, general and administrative		51,968		48,807		148,695		136,182		50,949			46,385
Depreciation and amortization		45,580		36,218		130,875		105,600		48,778			39,536
(Gain) loss on disposal of assets		2,506		1,060		(3,180)		1,625
Total operating costs and expenses		191,948		161,716		521,416		471,138
(Gain) loss on disposal of assets, net										6,634			(6,146	)
Total costs and expenses										201,100			148,858
Income from operations		61,898		43,820		180,899		141,760		64,661			58,576
Interest expense		(14,019)		(7,529)		(33,408)		(22,633)		(14,723	)		(7,606	)
Other income (expense), net		278		4,329		243		5,023		617			287
Income before income taxes		48,157		40,620		147,734		124,150		50,555			51,257
Provision for income taxes		16,643		19,746		54,430		49,598
Income tax provision										9,902			19,144
Net income	$	31,514	$	20,874	$	93,304	$	74,552	$	40,653		$	32,113

Net income per common share:
Basic									$	7.13		$	5.66
Diluted									$	7.08		$	5.60
Weighted average common shares outstanding:
Basic										5,702,539			5,671,838
Diluted										5,742,648			5,730,901

Other comprehensive gain (loss), net of tax		1		28		5		83	$	1		$	2
Comprehensive income	$	31,515	$	20,902	$	93,309	$	74,635	$	40,654		$	32,115

Net income per common share:
Basic	$	5.55	$	3.65	$	16.43	$	12.96
Diluted	$	5.48	$	3.63	$	16.24	$	12.91
Weighted average common shares outstanding:
Basic		5,680,600		5,720,257		5,678,485		5,753,204
Diluted		5,753,910		5,755,161		5,745,783		5,776,504
Dividends declared per common share									$	1.75		$	1.50

See accompanying notes to ~~unaudited~~ condensed consolidated financial statements.

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

						Additional					Treasury			Accumulated Other			Total								Additional					Treasury			Accumulated Other			Total
	Common Stock					Paid-In		Retained			Stock,			Comprehensive			Stockholders’			Common Stock					Paid-In		Retained			Stock,			Comprehensive			Stockholders’
(in thousands, except share data)	Shares			Amount		Capital		Earnings			at cost			Loss			Equity
Balance at December 31, 2016		5,708,223		$	59	$	17,669	$	511,776		$	(74,547	)	$	(446	)	$	454,511
(in thousands, except share data)																				Shares			Amount		Capital		Earnings			at cost			Loss			Equity
Balance at December 31, 2017																					5,731,442		$	59	$	28,412	$	728,386		$	(80,058	)	$	(352	)	$	676,447
Net income		-			-		-		93,304			-			-			93,304			-			-		-		40,653			-			-			40,653
Changes in pension, net of tax		-			-		-		-			-			5			5			-			-		-		-			-			1			1
Equity-based compensation		-			-		7,921		-			-			-			7,921			-			-		2,338		-			-			-			2,338
Issuance of equity awards, net of forfeitures		24,292			1		-		-			-			-			1			14,077			-		-		-			-			-			-
Repurchases of common stock		(700	)		-		-		-			(399	)		-			(399	)		(3,311	)		-		-		-			(2,295	)		-			(2,295	)
Withholding tax for equity awards		(3,457	)		-		-		-			(2,531	)		-			(2,531	)		(9,767	)		-		-		-			(7,199	)		-			(7,199	)
Dividends paid to stockholders		-			-		-		(27,188	)		-			-			(27,188	)		-			-		-		(10,035	)		-			-			(10,035	)
Balance at September 30, 2017		5,728,358		$	60	$	25,590	$	577,892		$	(77,477	)	$	(441	)	$	525,624
Balance at March 31, 2018																					5,732,441		$	59	$	30,750	$	759,004		$	(89,552	)	$	(351	)	$	699,910

See accompanying notes to ~~unaudited~~ condensed consolidated financial statements.

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	93,304		$	74,552		$	40,653		$	32,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		130,875			105,600			48,778			39,536
Amortization of debt issuance costs		2,183			1,233
Amortization of debt issuance cost								970			400
Equity-based compensation		7,921			9,653			2,338			2,427
Write-off of debt issuance costs		613			-
Gain on sale of cable system		-			(4,165	)
Deferred income taxes		11,307			563
(Gain) loss on disposal of assets		(3,180	)		1,625
Change in deferred income taxes								5,710			(203	)
(Gain) loss on disposal of assets, net								6,634			(6,146	)
Changes in operating assets and liabilities:
Accounts receivable, net		(6,532	)		3,737			4,453			2,009
Income tax receivable		(13,580	)		-
Prepaid assets		884			(4,292	)
Income taxes receivable								4,549			4,547
Prepaid and other current assets								(8,576	)		(3,336	)
Accounts payable and accrued liabilities		(6,618	)		6,433			(11,663	)		(7,977	)
Deferred revenue		452			(460	)		2,772			527
Income taxes payable		-			(2,938	)		-			14,758
Other assets and liabilities, net		2,159			2,031			(1,926	)		(395	)
Net cash provided by operating activities		219,788			193,572			94,692			78,260

Cash flows from investing activities:
Purchase of business, net of cash acquired		(727,947	)		-
Capital expenditures		(128,830	)		(91,343	)		(41,019	)		(35,917	)
Change in accrued expenses related to capital expenditures		1,982			(17,706	)		(4,826	)		(1,143	)
Proceeds from sale of cable system, net		-			6,752
Acquisition of cable system		-			(760	)
Proceeds from sales of property, plant and equipment		11,334			377			226			10,075
Net cash used in investing activities		(843,461	)		(102,680	)		(45,619	)		(26,985	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		750,000			-
Payment of debt issuance costs		(15,224	)		-
Payments on long-term debt		(97,825	)		(2,512	)		(2,816	)		(1,254	)
Repurchases of common stock		(399	)		(56,141	)
Repurchases of common stock								(2,295	)		(399	)
Payment of withholding tax for equity awards		(2,531	)		-			(7,199	)		(331	)
Dividends paid to stockholders		(27,188	)		(25,874	)		(10,035	)		(8,579	)
Cash overdraft		(2,499	)		(1,863	)
Net cash provided by (used in) financing activities		604,334			(86,390	)
Change in cash overdraft								(2,987	)		(5,285	)
Net cash used in financing activities								(25,332	)		(15,848	)

Change in cash and cash equivalents		(19,339	)		4,502			23,741			35,427
Cash and cash equivalents, beginning of period		138,040			119,199			161,752			138,040
Cash and cash equivalents, end of period	$	118,701		$	123,701		$	185,493		$	173,467

Supplemental cash flow disclosures:
Cash paid for interest	$	20,437		$	14,781
Cash paid for income taxes	$	57,397		$	51,372
Cash paid for interest, net of capitalized interest							$	7,072		$	743
Cash paid for income taxes, net of refunds							$	35		$	42

See accompanying notes to ~~unaudited~~ condensed consolidated financial statements.

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CABLE ONE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

~~DESCRIPTION OF BUSINESS~~ ~~AND BASIS OF PRESENTATION~~

Description of Business. Cable One, Inc. (“Cable One” ~~or the “Company”~~) owns and operates cable systems that provide data, video and voice services to residential and commercial subscribers in 21 Western, Midwestern and Southern states of the United ~~States of America. Prior to July 1, 2015, Cable One operated as a wholly owned subsidiary of Graham Holdings Company (“GHC”).~~States. As of ~~September 30, 2017,~~ March 31, 2018, Cable One provided service to ~~637,653~~651,550 data customers, ~~370,713~~350,874 video customers and ~~135,515~~131,920 voice customers.

On May 1, 2017, Cable One completed the acquisition of all of the outstanding equity interests of RBI Holding LLC (“NewWave”) ~~and NewWave~~, which became a wholly owned subsidiary of Cable One. ~~Cable One paid a purchase price of $740.2 million in cash on a debt-free basis and subject~~Refer to ~~customary post-closing adjustments. See Note 2~~note 4 for details on ~~this transaction.~~the transaction and note 8 for details on the related financing.

Unless otherwise stated or the context otherwise indicates, all references in this Quarterly Report on Form ~~10-Q~~10-Q to “Cable One,” “us,” “our,” “we” or the ~~“Company”~~“Company” refer to Cable One, Inc. and its wholly owned subsidiaries.

Basis of Presentation. The ~~accompanying~~ condensed consolidated financial statements and accompanying notes thereto have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“GAAP”) for interim financial information; and (ii) the guidance of Rule ~~10-01~~10-01 of Regulation ~~S-X~~S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the Securities and Exchange Commission (the “SEC”). As permitted under such ~~rule,~~guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the ~~accompanying~~ condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows as of and for the periods presented herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form ~~10-K~~10-K for the fiscal year ended December 31, ~~2016.~~2017 filed with the SEC on March 1, 2018 (the “2017 Form 10-K”). The ~~Company’s interim results of operations may not be indicative of its future results.~~

~~The~~ December 31, ~~2016~~ 2017 year-end balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by GAAP.

~~Certain reclassifications have been made to prior period amounts to conform to the current~~ ~~period presentation.~~ The Company’s interim results of operations may not be indicative of its future results.

Principles of Consolidation. The ~~accompanying~~ condensed consolidated financial statements include the accounts of the Company, including its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting. Accounting Standard Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an ~~enterprise’s~~entity’s reportable segments. The Company’s operations are organized and managed on the basis of cable systems within its geographic regions. Each cable system derives revenues from the delivery of similar products and services to a customer base that is also similar. Each cable system deploys similar technology to deliver the Company’s products and services, operates within a similar regulatory environment, has similar economic characteristics and is managed by the Company’s chief operating decision maker as part of an aggregate of all cable systems. Management evaluated the criteria for aggregation under ASC 280 and believes that the Company meets each of the respective criteria set forth therein. Accordingly, management has identified one reportable segment.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates and underlying assumptions.

~~Change~~Revenue Recognition. The Company recognizes revenue in ~~Accounting Estimate.~~ Asaccordance with ASC 606 - Revenue from Contracts with Customers. Residential revenues are generated through subscriptions for data, video and voice services, which are sold individually and through bundles, typically at a ~~result of additional information available~~discounted rate on month to month terms, without penalty for cancellations. If a customer has bundled subscriptions, the sales price is allocated amongst the product lines based on the relative standalone selling prices charged to customers with unbundled service agreements. Business revenues are generated through subscriptions for data, video and voice services which are also sold individually and through bundles with varying contract terms ranging from ~~new systems and processes, the Company changed its accounting estimate related~~one month to the capitalization of certain internal labor and related costs associated with construction and customer installation activities beginning in the first quarter of 2017. Capitalized labor costs increased $6.2 million in the third quarter of 2017 compared to the third quarter of 2016 and $17.2 million for the nine months ended September 30, 2017 compared to the year ago period primarily as a result of the change in estimate.several years.

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The Company generally receives an allocation of scheduled advertising time as part of its distribution agreement with cable networks, which the Company sells to local, regional and national advertisers with terms that are generally less than one year. In most cases, the available advertising time is sold by the Company’s internal sales force. Since the Company is acting as principal in these arrangements, the advertising that is sold is reported as revenue on a gross basis. In cases where advertising time is sold by agencies, the Company is not acting as a principal and the advertising sold is reported net of agency fees. Advertising revenues are recognized when the commercials are aired.

The unit of account for ASC 606 is a performance obligation, which is a requirement within a contract to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, performance is satisfied. Our residential and business portfolio may include a single performance obligation or multiple performance obligations that are delivered in a similar pattern of transfer. Customers are billed for various services to which they subscribe based upon published or contracted rates for each service. For contracts with multiple performance obligations, the transaction price is allocated to each performance obligation based on the published or contracted rate. These performance obligations are generally satisfied over time as customers simultaneously receive and consume the benefits of the Company’s defined performance obligations. Advertising revenues are recognized at a point in time when the underlying performance obligation is complete.

The Company also incurs incremental internal costs to acquire residential and business customers, such as commission costs, and third-party costs to service specific contracts. These costs are capitalized as contract assets and amortized over the applicable period. For commissions, the amortization period is the average customer tenure, which was approximately five years for both residential and business customers. All other costs are amortized over the contract period.

Recently Adopted ~~and Issued~~ Accounting Pronouncements. In May 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2017-09,~~2017-09, Compensation – Stock Compensation (Topic ~~718)~~718): Scope of Modification Accounting. ASU ~~2017-09~~2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718. The ASU iswas effective ~~for all entities for interim and annual reporting periods beginning after December 15, 2017, with early~~January 1, 2018. The adoption ~~permitted. The Company is evaluating the impact~~ of ~~adopting~~ this guidance did not have a material impact on ~~its~~the Company’s consolidated financial ~~statements.~~statements, but may have an impact in the future.

In January 2017, the FASB issued ASU No. ~~2017-04~~,2017-04, Intangibles - Goodwill and Other (Topic ~~350)~~350): Simplifying the Test for Goodwill Impairment. ASU ~~2017-04~~2017-04 removes Step 2two of the ~~current~~previous goodwill impairment test under ASC 350 and replaces it with a simplified model. Under the simplified model, a goodwill impairment will be calculated as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. The amount of any impairment under the simplified model may differ from what would have been recognized under the ~~two-step~~previous two-step test. The ASU is effective for annual and any interim impairment tests performed for periods beginning after December 15, 2019, with early adoption permitted. The ~~provisions~~Company elected to early adopt the standard on January 1, 2018. The adoption of ~~ASU 2017-04 would~~ this guidance did not have ~~affected our last goodwill impairment assessment,~~a material impact on the Company’s consolidated financial statements, but ~~no assurance can be provided that the simplified testing methodology will not affect our goodwill impairment assessment~~may have an impact in the future.

In January 2017, the FASB issued ASU No. ~~2017-01,~~ 2017-01,Business Combinations (Topic ~~805)~~805): Clarifying the Definition of a Business. The purpose of the amendment is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ~~For public entities, the amendments in~~The ASU ~~2017-01 are~~was effective ~~for interim and annual reporting periods beginning after December 15, 2017.~~ January 1, 2018. The ~~Company is evaluating the impact~~adoption of ~~adopting~~ this guidance did not have an impact on ~~any future transactions.~~the Company’s consolidated financial statements as no asset acquisitions or business combinations have occurred since the effective date, but may have an impact in the future.

In August ~~201~~6, 2016, the FASB issued ASU No. ~~2016-15,~~2016-15, Statement of Cash Flows (Topic ~~230)~~230): Classification of Certain Cash Receipts and Cash Payments. The guidance clarifies the way in which certain cash receipts and cash payments should be classified onwithin the ~~statement~~consolidated statements of cash flows and also how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU ~~2016-15 is~~2016-15 was effective ~~for the first quarter~~January 1, 2018. The adoption of ~~2018, with early adoption permitted. The Company is evaluating the impact of adopting~~ this guidance ~~on its consolidated financial statements.~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. ASU 2016-09 was effective beginning in the first quarter of 2017. The Company will prospectively record a deferred tax benefit or expense associated with the difference between book and tax for equity-based compensation expense, which is expected to result in increased volatility to the Company’s income tax expense. The Company also established an accounting policy election to assume zero forfeitures for stock award grants and account for forfeitures when they occur, which prospectively impacts stock compensation expense. Other aspects of the adoption of ASU 2016-09 did not have a material impact on the classification of any cash flows within the Company’s consolidated ~~financial statements.~~statements of cash flows, but may have an impact in the future.

In ~~February 2016,~~ May 2014, the FASB issued ASU No. ~~2016-02,~~ ~~Leases (Topic 842)~~. ASU 2016-02 requires lessees to record most of their leases on the balance sheet, which will be recognized as a right-of-use asset and a lease liability. The Company will be required to classify each separate lease component as an operating or finance lease at the lease commencement date. Initial measurement of the right-of-use asset and lease liability is the same for operating and finance leases, however, expense recognition and amortization of the right-of-use asset differs. Operating leases will reflect lease expense on a straight-line basis similar to current operating leases. The straight-line expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right-of-use asset, which will be presented as a single line item in the operating expense section of the income statement. Finance leases will reflect a front-loaded expense pattern similar to the pattern for current capital leases. ASU 2016-02 is effective for the first quarter of 2019, with early adoption permitted. The Company is evaluating the impact of adopting this guidance~~on its consolidated financial statements.~~

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~~In May~~ 2014 ~~the FASB issued ASU No. 2014-09,~~ -09,Revenue from Contracts with Customers (Topic ~~606)~~606). ASU ~~2014-09~~2014-09 provides new guidance related to how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard ~~also expands the required disclosures~~provides a single principles-based, five step model to ~~include the disaggregation of revenue from~~be applied to all contracts with ~~customers into categories that depict how~~customers: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when each performance obligation is satisfied. The updated guidance also requires additional disclosures regarding the nature, timing and any uncertainty regarding potential revenue recognition.

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We adopted the updated guidance on January 1, 2018 on a full retrospective basis, which required us to reflect the impact of the updated guidance for all periods presented. Upon adoption, we also implemented changes in our presentation of certain revenues and expenses, which resulted in the deferral of all business installation revenues and residential and business commission expenses over a period of time instead of immediate recognition. The adoption of the new standard did not have a material impact on our consolidated results of operations or financial position for any period presented. Refer to note 3 for further details of the impact on the Company’s 2017 condensed consolidated financial statements and the requisite disclosures regarding the nature, timing and any uncertainty regarding potential revenue ~~and cash flows are affected by economic factors. During~~recognition.

Recently Issued But Not Yet Adopted Accounting Pronouncements. In February 2016, the FASB issued ~~additional interpretive guidance relating~~ASU No.2016-02,Leases (Topic 842). ASU 2016-02 requires lessees to record most of their leases on the balance sheet as a right-of-use asset and a corresponding lease liability. The Company will be required to classify each separate lease component as an operating or finance lease at the lease commencement date. Initial measurement of the right-of-use asset and lease liability is the same for both operating and finance leases, however, expense recognition and amortization of the right-of-use asset differs. Operating leases will reflect lease expense on a straight-line basis similar to current operating leases while finance leases will reflect a front-loaded expense pattern similar to current capital leases. ASU 2016-02 is effective for the first quarter of 2019, with early adoption permitted. The adoption of this update will result in an increase to the ~~standard which covered~~Company’s asset and liability balances due to new and existing operating leases being recorded on the ~~topics~~balance sheet. The Company continues to evaluate the impact of ~~principal versus agent considerations and identifying performance obligations and licensing. The standard is effective~~adopting this guidanceon its consolidated financial statements.

2.	REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As previously disclosed in note 2 to the Company’s consolidated financial statements included in the 2017 Form 10-K, the Company changed its accounting for the capitalization of certain internal labor and related costs associated with construction and customer installation activities commencing in the first quarter of ~~2018.~~2017. The ~~two permitted transition methods~~Company initially classified the entire change as a change in accounting estimate. During the fourth quarter of 2017, the Company determined that a portion of what had previously been reflected as a change in estimate should have been categorized as a change in accounting principle, a portion was determined to be the correction of an error and a portion remained a change in estimate. The changes determined to be a change in estimate or change in accounting principle were applied prospectively for all of 2017. The Company estimates that the change in principle resulted in a decrease in operating expenses (excluding depreciation and amortization) of approximately $3.8 million and $3.9 million, a decrease in selling, general and administrative expenses of approximately $0.1 million and $0.1 million and an increase in depreciation and amortization expense of $0.2 million and $0.7 million for the three months ended March 31, 2017 and March 31, 2018, respectively, compared to the results under the ~~standard are~~prior principle. Although the Company determined the error to be immaterial to its previously issued financial statements, the cumulative effect of the error would have been material if corrected in 2017. Therefore, as disclosed in the 2017 Form 10-K, the Company revised its historical financial statements to properly reflect the impact of the labor capitalization, including the related impact to depreciation expense and income taxes. In connection with this revision, the Company also corrected for other previously identified immaterial errors. The financial statements for the three months ended March 31, 2017 included in this Quarterly Report on Form 10-Q have been similarly revised to reflect the correction of these errors and should be read in conjunction with note 2 and note 17 in the 2017 Form 10-K.

The following tables present the effect of the revision on the condensed consolidated financial statements for the three months ended March 31, 2017 (in thousands, except per share data):

Three Months Ended March 31, 2017

As Reported

Adjustment

As Revised

Condensed Consolidated Statement of Operations and Comprehensive Income Information

Selling, general and administrative

45,733

523

46,256

Depreciation and amortization

38,404

1,132

39,536

Total costs and expenses

147,074

1,655

148,729

Income from operations

60,353

(1,655

)

58,698

Income before income taxes

53,034

(1,655

)

51,379

Income tax provision

19,819

(629

)

19,190

Net income

33,215

(1,026

)

32,189

Comprehensive income

33,217

(1,026

)

32,191

Net income per common share:

Basic

5.86

(0.18

)

5.68

Diluted

5.80

(0.18

)

5.62

Condensed Consolidated Statement of Cash Flows Information

Net income

33,215

(1,026

)

32,189

Depreciation and amortization

38,404

1,132

39,536

Accounts receivable, net

6,034

523

6,557

Change in deferred income taxes

472

(629

)

(157

)

Net cash provided by operating activities

78,260

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3.	ADOPTION OF NEW REVENUE RECOGNITION STANDARD

The Company adopted ASC 606 on January 1, 2018, using the full retrospective method, resulting in ~~which case~~a recasting of prior period consolidated financial statements. The impact of the ~~standard would be applied~~ASC 606 adoption on the 2017 condensed consolidated financial statements was as follows (in thousands, except per share data):

Condensed Consolidated Balance Sheet Information

December 31, 2017

As Reported

ASC 606

Adjustment

As Recasted

Assets

Current Assets:

Accounts receivable, net

51,141

(21,211

)

29,930

Prepaid and other current assets

8,160

2,738

10,898

Total Current Assets

242,384

(18,473

)

223,911

Other assets

6,179

4,776

10,955

Total Assets

2,218,329

(13,697

)

2,204,632

Liabilities and Stockholders' Equity

Current Liabilities:

Accounts payable and accrued liabilities

117,963

(108

)

117,855

Deferred revenue

38,266

(23,258

)

15,008

Total Current Liabilities

170,604

(23,366

)

147,238

Deferred income taxes

205,636

1,518

207,154

Other liabilities

9,991

3,120

13,111

Total Liabilities

1,546,913

(18,728

)

1,528,185

Stockholders' Equity

Retained earnings

723,354

5,032

728,386

Total Stockholders' Equity

671,416

5,031

676,447

Total Liabilities and Stockholders' Equity

2,218,329

(13,697

)

2,204,632

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	Three Months Ended March 31, 2017
	As Reported/ Revised ⁽¹⁾			ASC 606 Adjustment			As Recasted
Condensed Consolidated Statement of Operations and Comprehensive Income Information
Revenues	$	207,427		$	7		$	207,434
Costs and expenses
Selling, general and administrative		46,256			129			46,385
Total costs and expenses		148,729			129			148,858
Income from operations		58,698			(122	)		58,576
Income before income taxes		51,379			(122	)		51,257
Income tax provision		19,190			(46	)		19,144
Net income	$	32,189		$	(76	)	$	32,113

Net income per common share:
Basic	$	5.68		$	(0.02	)	$	5.66
Diluted	$	5.62		$	(0.02	)	$	5.60

Comprehensive income	$	32,191		$	(76	)	$	32,115

Condensed Consolidated Statement of Cash Flows Information
Net income	$	32,189		$	(76	)	$	32,113
Change in deferred income taxes		(157	)		(46	)		(203	)
Deferred revenue		425			102			527
Other assets and liabilities, net		(415	)		20			(395	)
Net cash provided by operating activities	$	78,260		$	-		$	78,260

⁽¹⁾Refer to note 2 for details regarding this revision.

The adoption of ASC 606 did not result in any changes to ~~each prior reporting period~~previously reported total cash flows from operations, financing or investing activities.

A summary of changes in timing and presentation to historical financials is presented below:

•

The decrease to total assets reflects a decrease in accounts receivable to remove amounts billed to customers for which the performance obligation has not been satisfied partially offset by the deferral of incremental costs (commissions paid) to obtain a contract which had been historically expensed immediately.

•

The net decrease in total liabilities reflects a decrease in deferred revenue to remove amounts billed to customers for which the performance obligation has not been satisified partially offset by the recognition of deferred revenue related to certain up-front fees collected from our business services customers which had been historically recognized when billed in addition to the tax effect of establishing deferred commissions and deferred revenue.

The change in revenues and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. The Company has substantially completed the review of its revenue arrangements and has concluded that the majority of its residential customer revenueexpenses is ~~not under an extended contract and will be evaluated on a month-to-month basis and, as such, the Company does not anticipate significant changes related~~due to revenue recognition for such customers. However, the Company expects that the standard will impact the timing of recognition of installation revenue related to its business contracts. In addition, the standard requires the deferral of ~~any contract acquisition costs, such as customer incentives,~~all business installation revenues and certain upfront fees and all residential and business commission ~~payments and discounts. The Company does not currently defer any contract acquisition costs, but will defer these costs in the future, which could have an impact on the timing~~expenses over a period of ~~operating expense~~time, instead of immediate recognition. The Company is currently in the process of evaluating which method of transition will be utilized and identifying and implementing changes to its process, policies and internal controls to meet the standard’s reporting and disclosure requirements.

24..

NEWWAVE ACQUISITION

On ~~January~~ ~~18,~~May 1, 2017, the Company ~~announced that it had entered into an Agreement and Plan~~acquired all of ~~Merger (the “Merger Agreement”)~~the outstanding equity interests in NewWave for $740.2 million in cash on a debt-free basis. Refer to ~~acquire NewWave from funds affiliated with GTCR LLC.~~note 8 for details regarding the financing of the transaction. NewWave was a cable operator providing data, video and voice services to residential and business customers throughout non-urban areas of Arkansas, Illinois, Indiana, Louisiana, Mississippi, Missouri and Texas. Cable One and NewWave shared similar strategies, customer demographics, and products. Accordingly, the acquisition of NewWave offers the Company opportunities for revenue growth and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) margin expansion as well as the potential to realize cost synergies. ~~The Company paid a purchase price of $740.2 million in cash and completed the transaction on May 1, 2017. See Note 6 for details regarding the financing of the acquisition.~~

~~The Company~~ ~~accounted for the NewWave acquisition as a business combination pursuant to ASC 805 -~~ ~~Business Combinations~~. Accordingly, acquisition costs are not included as components of consideration transferred, and instead are accounted for as expenses in the period in which the costs are incurred. During the three and nine months ended September 30, 2017, the Company incurred acquisition-related costs of $0.6 million and $5.3 million, respectively, which are included in Selling, general and administrative expenses within the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income.

~~In accordance with ASC 805,~~ the Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The adjustments described below were developed based on management's assumptions and estimates, including assumptions relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from NewWave based on preliminary estimates of fair value. The preliminary estimates of the fair values of consideration transferred and assets acquired and liabilities assumed are based on the information that was available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The preliminary measurements of fair value set forth herein are subject to change and such changes could be material. During the third quarter of 2017, the Company recorded a $0.9 million increase to Prepaid assets, a $1.2 million increase to Accounts payable and accrued liabilities and a $0.8 million reduction in purchase price consideration, resulting in a net decrease to recognized goodwill of $0.6 million. The Company expects to finalize the valuation as soon as practicable but no later than one year from the acquisition date. The following table summarizes the ~~provisional~~ allocation of the purchase price consideration as of the acquisition date, reflecting all measurement period adjustments recorded in 2017(in thousands):

	Provisional Allocation		Purchase Price Allocation
Assets
Assets Acquired
Cash and cash equivalents	$	12,220	$	12,220
Accounts receivable		15,027		15,027
Prepaid assets		2,113		2,286
Property, plant and equipment		192,234		192,234
Intangibles		476,300
Intangibles				476,300
Other assets		370		1,184
Total		698,264
Total Assets Acquired				699,251

Liabilities
Liabilities Assumed
Accounts payable and accrued liabilities		25,742		25,125
Deferred revenue		14,516		14,516
Deferred income taxes		10,720		6,644
Total		50,978
Total Liabilities Assumed				46,285

Net assets acquired		647,286
Net Assets Acquired				652,966
Purchase price consideration		740,166		740,166
Goodwill recognized	$	92,880
Goodwill Recognized			$	87,200

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~~Acquired intangible assets~~ ~~consist of~~No measurement period adjustments were recorded during the ~~following (dollars in thousands):~~three months ended March 31, 2018.

Provisional
Estimated
Fair Value

Provisional Estimated Weighted Average
Useful Life (in years)
Franchise agreements
$ 320,000
Indefinite
Customer relationships
$ 155,000 14
Trademark and trade name
$ 1,300 1

~~The total weighted average amortization period for the acquired intangibles is 13.9 years.~~

~~The acquisition produced $~~92.9 million of goodwill, increasing the Company’s goodwill balance to $177.8 million. Goodwill represents the excess of the purchase price consideration over the fair value of the underlying net assets acquired and largely results from expected future synergies from combining operations as well as an assembled workforce, which does not qualify for separate recognition. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis. Goodwill arising from the NewWave acquisition is deductible for tax purposes.

The Company recognized revenues of $47.5 million and $79.7 million and net income of $2.8 million and $4.9 million for the three and nine months ended September 30, 2017, respectively, relating to the NewWave operations, which included charges for the amortization of acquired intangible assets of $3.1 million and $5.2 million, respectively.

~~The following unaudited pro~~ forma condensed combined results of operations for the three and nine months ended September 30, 2017 and 2016 have been prepared as if the acquisition of NewWave had occurred on January 1, 2016 and include adjustments for depreciation expense, amortization of intangibles, interest expense from financing, non-recurring acquisition-related costs and the related aggregate impact on the provision for income taxes (in thousands, except per share data):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016
Revenues
$ 253,846 $ 250,644 $ 766,231 $ 747,593
Net income
$ 31,514 $ 18,558 $ 95,326 $ 66,028
Net income per common share:

Basic
$ 5.55 $ 3.24 $ 16.79 $ 11.48
Diluted
$ 5.48 $ 3.22 $ 16.59 $ 11.43

~~The unaudited pro forma~~ condensed combined results of operations is provided for informational purposes only and is not necessarily indicative of or intended to represent the results that would have been achieved had the NewWave acquisition been consummated as of January 1, 2016 or the results that may be achieved in the future.

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35..

REVENUES

The ~~Company~~’sCompany’s revenues by product line were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Residential
Data	$	109,340	$	86,797	$	302,696	$	256,267	$	118,487	$	90,201
Video		88,601		73,841		245,928		222,710		88,757		72,454
Voice		11,265		10,475		32,549		32,733		10,671		9,867
Business services		35,168		25,406		94,673		73,724		37,691		26,968
Advertising sales		5,885		6,460		17,477		20,079		5,241		5,622
Other		3,587		2,557		8,992		7,385		4,914		2,322
Total revenues	$	253,846	$	205,536	$	702,315	$	612,898	$	265,761	$	207,434

~~The amount of franchise~~Fees imposed on the Company by various governmental authorities are passed through monthly to the Company’s customers and are periodically remitted to authorities. These fees ~~recorded~~were $4.1 million and $3.5 million for the three months ended March 31, 2018 and 2017, respectively, and were reported in residential data, video and voice revenues on a gross basis with a corresponding operating expense because the Company is acting as a principal.

Other is comprised primarily of customer late charges, activation fees and reconnect fees.

A significant portion of our revenue is derived from customers who may cancel their subscriptions at any time without penalty. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from our existing customers. Revenue from customers with a contractually specified term and non-cancelable service period will be recognized over the term of the underlying contract, which generally ranges from one to five years.

Contract Liabilities. Timing of revenue recognition may differ from the timing of invoicing to customers. Residential and business services customers are invoiced for subscription services in advance of the service period. Deferred revenue liabilities, or contract liabilities, are recorded when the Company collects payments in advance of performing the services.

Current deferred revenue liabilities consisting primarily of refundable customer prepayments were $17.8 million and $15.0 million as of March 31, 2018 and December 31, 2017. Long-term deferred revenue liabilities consisting primarily of installation charges or up-front fees from business services customers, were $2.2 million and $3.1 million as of March 31, 2018 and December 31, 2017, respectively, and were included in other liabilities in the condensed consolidated balance sheet.

Contract Costs. The Company recognizes an asset for incremental costs of obtaining a contract with a customer. Accordingly, deferred commissions paid to obtain residential ~~video revenues above was~~ customers are recognized using a portfolio approach over a calculated average customer life. Deferred commissions were included in prepaid and other current assets and other assets in the condensed consolidated balance sheet and totaled $~~4.1~~7.7 million and ~~$3.6~~$7.5 million as of March 31, 2018 and December 31, 2017, respectively. Approximately $2.8 million of currently deferred commissions are expected to be amortized to selling, general and administrative expenses over the next 12 months.

Significant Judgments. The Company often provides multiple services to a customer. Provision of customer premise equipment, installation services, and additional service tiers may have a significant level of integration and interdependency with the subscription of data, video, voice, or connectivity services provided. Judgment is required to determine whether provision of customer premise equipment, installation services, and additional service tiers are considered distinct and accounted for separately, or not distinct and accounted for together with the subscription services.

The transaction price for a bundle of residential services is frequently less than the sum of the standalone selling prices of each individual service. The Company allocates these bundled services amongst the services to which the discount relates based on the relative standalone selling prices of those services. Standalone selling prices of the Company’s residential data and video services are directly observable, while standalone selling prices for the Company’s residential voice services are estimated using the adjusted market assessment approach which relies upon information from peers and competitors who sell residential voice services individually.

The Company also incurs incremental internal costs to acquire residential and business customers, such as commission costs, and third party costs to service specific contracts. These costs are capitalized as contract assets and amortized over the applicable period. For commissions, the amortization period is the average customer tenure. Amortized commission expense was $0.8 million and $0.7 million for the three months ended ~~September 30, 2017~~ March 31, 2018 and ~~2016,~~2017, respectively, and ~~$11.6 million~~was included in selling, general and ~~$10.7 million for~~administrative expenses within the ~~nine months ended September 30, 2017~~condensed consolidated statements of operations and ~~2016, respectively.~~comprehensive income.

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46..

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment ~~consist~~edconsisted of the following (in thousands):

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Cable distribution systems	$	1,257,762		$	1,048,790		$	1,347,100		$	1,329,451
Customer premise equipment		200,961			181,852			200,859			200,175
Other equipment and fixtures		379,205			359,957			382,017			378,968
Buildings and leasehold improvements		95,359			88,592			95,985			95,314
Capitalized software		88,651			83,815			94,852			89,773
Construction in progress		59,976			64,822			60,293			67,564
Land		11,593			9,612			11,565			11,585
Total property, plant and equipment		2,093,507			1,837,440
Less accumulated depreciation		(1,283,114	)		(1,217,819	)
Property, plant and equipment, gross								2,192,671			2,172,830
Less: Accumulated depreciation								(1,372,662	)		(1,340,938	)
Property, plant and equipment, net	$	810,393		$	619,621		$	820,009		$	831,892

Depreciation expense was ~~$42.5~~$46.0 million and ~~$36.2~~$39.5 million for the three months ended ~~September 30, 2017~~ March 31, 2018 and ~~2016, respectively, and $125.6 million and $105.6 million for the nine months ended September 30,~~ 2017, ~~and 2016,~~ respectively.

The Company's previous headquarters building and adjoining property were held for sale at December 31, 2016. In January 2017, the Company sold a portion of this property for ~~$10.1~~$10.1 million in gross proceeds and recognized a related gain of ~~$6.6~~$6.6 million. The remaining property’s carrying value of ~~$4.6~~$4.6 million is included in ~~Other~~other assets in the ~~Condensed Consolidated Balance Sheet~~condensed consolidated balance sheets as assets held for sale at ~~September 30,~~both March 31, 2018 and December 31, 2017.

57..

GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill at ~~September 30, 2017~~ both March 31, 2018 and December 31, ~~2016~~ 2017 was ~~$177.8~~$172.1 million and ~~$84.9~~reflected $87.2 million ~~respectively,~~of goodwill associated with the ~~increase attributable to the~~ NewWave ~~acquisition on May 1, 2017.~~acquisition. The Company ~~historically~~ has not historically recorded any impairment of goodwill.

Intangible assets (excluding goodwill) consisted of the following (dollars in thousands):

					September 30, 2017										March 31, 2018
	Useful				Gross				Net		Useful				Gross				Net
	Life				Carrying		Accumulated		Carrying		Life				Carrying		Accumulated		Carrying
	Range (years)				Amount		Amortization		Amount		Range (years)				Amount		Amortization		Amount
Amortized Intangible Assets
Finite-Lived Intangible Assets
Cable franchise renewals and access rights		1	-	25	$	4,138	$	3,863	$	275		1	-	25	$	3,828	$	3,643	$	185
Customer relationships			14		$	155,000	$	4,613	$	150,387			14		$	160,000	$	10,476	$	149,524
NewWave trademark and trade name			1		$	1,300	$	542	$	758
Indefinite-Lived Intangible Assets (Excluding Goodwill)
Trademarks and trade names													2.7		$	1,300	$	447	$	853
Indefinite-Lived Intangible Assets
Franchise agreements					$	817,137									$	812,371

December 31, 2017

Useful

Gross

Net

Life

Carrying

Accumulated

Carrying

Range (years)

Amount

Amortization

Amount

Finite-Lived Intangible Assets

Cable franchise renewals and access rights

4,138

3,886

252

Customer relationships

160,000

7,619

152,381

Trademarks and trade names

2.7

1,300

325

975

Indefinite-Lived Intangible Assets

Franchise agreements

812,137

Amortization expense was $2.8 million and less than $0.1 million for the three months ended March 31, 2018 and 2017, respectively.

911

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December 31, 2016

Useful

Gross

Net

Life

Carrying

Accumulated

Carrying

Range (years)

Amount

Amortization

Amount
Amortized Intangible Assets

Cable franchise renewals and access rights
1 - 25 $ 4,138 $ 3,794 $ 344
Indefinite-Lived Intangible Assets (Excluding Goodwill)

Franchise agreements
$ 497,136

As of March 31, 2018, the future amortization of intangible assets was as follows (in thousands):

Year Ending December 31,	Amount
2018 (remaining nine months)	$	8,984
2019		11,994
2020		11,477
2021		11,448
2022		11,437
Thereafter		95,222
Total	$	150,562

~~Amortization~~Actual amortization expense ~~was~~ $3.1 million and less than $0.1 million for the three months ended September 30, 2017 and 2016, respectively, and $5.2 million and less than $0.1 million for the nine months ended September 30, 2017 and 2016, respectively.in future periods may differ from these estimates as a result of new intangible asset acquisitions or divestitures, changes in useful lives, impairments or other relevant factors.

68..

LONG-TERM DEBT

The carrying amount of long-term debt ~~as of September 30, 2017 and December 31, 2016~~ consisted of the following (in thousands):

	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Notes	$	450,000		$	450,000		$	450,000		$	450,000
Senior Credit Facilities		747,188			95,000			741,563			744,375
Capital lease obligation		271			284			263			267
Total debt		1,197,459			545,284			1,191,826			1,194,642
Less unamortized debt issuance costs		(20,576	)		(8,148	)		(18,615	)		(19,585	)
Less current portion of long-term debt		(12,813	)		(6,250	)
Total Long-term debt	$	1,164,070		$	530,886
Less current portion								(15,938	)		(14,375	)
Total long-term debt							$	1,157,273		$	1,160,682

~~Senior Unsecured~~ Notes. On June 17, 2015, the Company issued ~~$450~~$450 million aggregate principal amount of 5.75% senior unsecured notes due 2022 (the “Notes”). The Notes mature on June 15, 2022 and interest is payable on June 15^th15th and December 15^th15th of each year.

The Notes have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state or other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and any other applicable securities laws. The Notes were offered in the United States only to persons reasonably believed to be qualified institutional buyers in reliance on the exemption from registration set forth in Rule 144A under the Securities Act and outside the United States to non-U.S. persons in reliance on the exemption from registration set forth in Regulation S under the Securities Act.

The Notes were issued pursuant to an indenture ~~(the “Indenture”)~~ dated as of June 17, ~~2015.~~2015 (the “Indenture”). The Indenture provides for early redemption of the Notes, at the option of the Company, at the prices and subject to the terms specified in the Indenture. The Indenture includes certain covenants relating to debt incurrence, liens, restricted payments, asset sales and transactions with affiliates, changes in control and mergers or sales of all or substantially all of the ~~Company~~’sCompany’s assets. The Indenture also provides for customary events of default (subject, in certain cases, to customary grace periods).

Senior Credit Facilities. On June 30, 2015, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and the other agents party thereto. The Credit Agreement provided for a ~~five-year~~five-year revolving credit facility in an aggregate principal amount of ~~$200~~$200 million (the “Revolving Credit Facility”) and a ~~five-year~~five-year term loan facility in an aggregate principal amount of ~~$100~~$100 million (the “Term Loan Facility” ~~and, together with the Revolving Credit Facility, the “Original Credit Facilities”~~). Concurrently with its entry into the Credit Agreement, the Company borrowed the full amount of the Term Loan ~~Facility (the “Term Loan”).~~

~~Borrowings under the~~ Original Credit Facilities bore interest, at the Company’s option, at a rate per annum determined by reference to either the London Interbank Offered Rate (“LIBOR”) or an adjusted base rate, in each case plus an applicable interest rate margin. The applicable interest rate margin with respect to LIBOR borrowings was a rate per annum between 1.50% and 2.25% and the applicable interest rate margin with respect to adjusted base rate borrowings was a rate per annum between 0.50% and 1.25%, in each case determined on a quarterly basis by reference to a pricing grid based upon the Company’s total net leverage ratio. In addition, the Company is required to pay commitment fees on any unused portion of the Revolving Credit Facility at a rate between 0.25% per annum and 0.40% per annum, determined by reference to the pricing grid.

~~Table of Contents~~

Facility. The Revolving Credit Facility also gives the Company the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility. ~~Letter of credit issuances under the Revolving Credit Facility of~~ $3.1 million at September 30, 2017 were held for the benefit of certain general and liability insurance matters and bore interest at a rate of 1.75% per annum. The Company had $196.9 million available for borrowing under the Revolving Credit Facility at September 30, 2017.

On May 1, 2017, the Company ~~entered into~~ ~~a Restatement Agreement (the “Restatement Agreement”) with JPMorgan, as administrative agent,~~ and the lenders ~~party thereto, pursuant to which the Company~~ amended and restated the Credit Agreement ~~(as so amended and restated, the~~(the “Amended and Restated Credit Agreement”) and incurred ~~$750~~$750 million of senior secured loans (the “New Loans”) which were used, together with cash on hand, to ~~(i)~~ finance the ~~transactions contemplated by the Merger Agreement, (ii)~~NewWave acquisition, repay in full the Term Loan Facility and ~~(iii)~~ pay related fees and expenses.

The New Loans consist of ~~(a)~~ a ~~five-year incremental~~five-year term “A” loan in an aggregate principal amount of ~~$250~~$250 million (the “Term Loan A”) and ~~(b)~~ a ~~seven-year incremental~~seven-year term “B” loan in an aggregate principal amount of ~~$500~~$500 million (the “Term Loan B” and, together with the Term Loan A and the Revolving Credit Facility, the “Senior Credit Facilities”)~~, which~~. The obligations under the Amended and Restated Credit Agreement are guaranteed by the Company’s wholly owned domestic subsidiaries and are secured, subject to certain exceptions, by substantially all assets of the Company and the guarantors.

Table of Contents

The interest margins applicable to the ~~New Loans under the Amended and Restated~~Senior Credit ~~Agreement~~Facilities are, at the Company’s option, equal to either ~~LIBOR~~the London Interbank Offered Rate (“LIBOR”) or a base rate, plus an applicable margin equal to, ~~(x)~~(i) with respect to the Term Loan A, ~~2.25%~~and the Revolving Credit Facility, 1.50% to ~~1.50%~~2.25% for LIBOR loans and ~~1.25%~~0.50% to ~~0.50%~~1.25% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on the Company’s total net leverage ratio and ~~(y)~~(ii) with respect to the Term Loan B, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any date after April 22, 2018, 1.75% for LIBOR loans and 0.75% for base rate loans. The Term Loan A may be prepaid at any time without premium and amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year after funding, 5.0% per annum for the second year after funding, 7.5% per annum for the third year after funding and 10.0% per annum for the fourth and fifth years after funding, with the outstanding balance due upon maturity. The Term Loan B amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum, with the outstanding balance due upon maturity. The Term Loan B is subject to a 1.0% prepayment ~~penalty~~premium if prepaid in connection with a “Repricing Transaction” (as defined in the Amended and Restated Credit Agreement) within six months of ~~funding,~~the effective date of the Repricing Amendment (as defined below), benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Amended and Restated Credit Agreement. Other than as set forth above, the New Loans are subject to terms substantially similar to those under the Credit Agreement.

~~As of~~ September 30, 2017, outstanding borrowings under the Term Loan A and Term Loan B were $248.4 million and $498.8 million, and bore interest at a rate of 3.07% per annum and 3.57% per annum, respectively.

In connection with the New Loans, the Company incurred $15.2 million in debt issuance costs, of which $0.6 million was written off during the quarter ended June 30, 2017. Unamortized debt issuance costs totaled ~~$20.6 million and $8.1 million at September 30, 2017 and December 31, 2016, respectively.~~

The Company may, subject to ~~the~~certain specified terms and ~~conditions of the~~ ~~Amended and Restated Credit Agreement,~~provisions, obtain additional credit facilities of up to ~~$425~~$425 million under the Amended and Restated Credit Agreement plus an unlimited amount so long as, on a pro forma basis, the Company’s First Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is no greater than 1.80 to 1.00. The Amended and Restated Credit Agreement contains customary representations, warranties and affirmative and negative covenants ~~including limitations on indebtedness, liens, restricted payments, prepayments~~as well as customary events of certain indebtedness, investments, dispositions of assets, restrictions on subsidiary distributions and negative pledge clauses, fundamental changes, transactions with affiliates and amendments to organizational documents.default. The Amended and Restated Credit Agreement also requires the Company to maintain specified ratios of total net ~~leverage~~indebtedness and first lien net ~~leverage~~indebtedness to consolidated operating cash flow. The Amended and Restated Credit Agreement also contains customary events of default, including non-payment of principal, interest, fees or other amounts, material inaccuracy of any representation or warranty, failureRefer to ~~observe or perform any covenant, default~~note 8 to the Company’s consolidated financial statements included in ~~respect of other material debt of~~ the Company and of its restricted subsidiaries, bankruptcy or insolvency, the entry against the Company or any of its restricted subsidiaries of a material judgment, the occurrence of certain ERISA events, impairment of the loan documentation and the occurrence of a change of control. 2017 Form 10-K for additional information.

~~Table of Contents~~

The Company was in compliance with all debt covenants as of ~~September 30, 2017.~~ March 31, 2018.

As of ~~September 30,~~ March 31, 2018, outstanding borrowings under the Term Loan A and Term Loan B were $245.3 million and $496.3 million, and bore interest at a rate of 4.06% per annum and 4.56% per annum, respectively. Letter of credit issuances under the Revolving Credit Facility totaled $3.1 million and the Company had $196.9 million available for borrowing under the Revolving Credit Facility at March 31, 2018.

The Company recorded $1.0 million and $0.4 million of debt issuance cost amortization for the three months ended March 31, 2018 and 2017, respectively. These amounts were reflected in interest expense in the condensed consolidated statements of operations and comprehensive income.

As of March 31, 2018, the future maturities of long-term debt were as follows (in thousands):

Years Ending December 31,	Amount
2017 (remaining months)	$	2,817
2018		14,392
Year Ending December 31,			Amount
2018 (remaining nine months)			$	11,575
2019		20,642		20,642
2020		26,892		26,892
2021		30,017		30,017
2022				180,017
Thereafter		1,102,699		922,683
Total	$	1,197,459	$	1,191,826

On April 23, 2018, the Company amended the Amended and Restated Credit Agreement. Debt issuance costs incurred for the repricing in connection with this amendment totaled $2.0 million. Refer to note 15 for further discussion of this amendment.

79..

FAIR VALUE MEASUREMENTS

~~The Company~~’s deferred compensation liabilities were $19.3 million and $18.2 million at September 30, 2017 and December 31, 2016, respectively. These liabilities are included in Accounts payable and accrued liabilities (forA three-level hierarchy is established by GAAP for disclosure of fair value measurements, based on the ~~current portion) and Accrued compensation and other liabilities (for the noncurrent portion)~~reliability of inputs used in the ~~Condensed Consolidated Balance Sheets. These liabilities represent~~valuation of an instrument as of the ~~market~~measurement date, as follows:

●	Level 1 – inputs to the valuation methodology are quoted prices for identical instruments in active markets.

●

Level 2 – inputs to the valuation methodology include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and inputs that are observable for the instrument, either directly or indirectly, and are significant to the fair value measurement.

Table of a participant’s balance in a notional investment account that is comprised primarily of mutual funds, which is based on observable market prices. However, since the deferred compensation obligations are not exchanged in an active market, they are classified as Level 2 inContents

●	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Financial Assets and Liabilities. The Company has estimated the fair value ~~hierarchy. Realized and unrealized gains (losses) on deferred compensation~~of its financial instruments as of March 31, 2018 using available market information or other appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented in the condensed consolidated financial statements are ~~included~~not necessarily indicative of the amounts the Company would realize in ~~operating income.~~a current market exchange.

The carrying amounts, ~~and~~ fair values and related fair value hierarchies of the ~~Company’s money market~~Company’s financial assets and ~~commercial paper investments and long-term debt (including the current portion) as of September 30, 2017~~liabilities were as follows (in thousands):

	September 30, 2017				March 31, 2018
	Carrying		Fair		Carrying		Fair		Fair Value
	Amount		Value		Amount		Value		Hierarchy
Assets:
Cash and cash equivalents:
Money market investments	$	25,038	$	25,038	$	21,508	$	21,508		Level 1
Commercial paper	$	84,879	$	84,856	$	144,699	$	144,612		Level 2
Long-term debt, including current portion:
Liabilities:
Long-term debt, including current portion:
Notes	$	450,000	$	471,375	$	450,000	$	459,000		Level 2
Senior Credit Facilities	$	747,188	$	747,188	$	741,563	$	741,563		-

Money market investments are included in ~~Cash~~cash and cash equivalents in the ~~Condensed Consolidated Balance Sheets.~~condensed consolidated balance sheets. Commercial paper investments with original maturities of 90 days or less are also included in ~~Cash~~cash and cash equivalents. These investments are primarily held in U.S. Treasury securities and registered money market funds. These investments were valued using a market approach based on the quoted market prices of the money market investments (Level 1)1) or inputs that include quoted market prices for investments similar to the commercial paper (Level 2)2). The fair value of the Notes was estimated based on market prices in active markets (Level 2)2). The fair value of the ~~New Loans was estimated~~Senior Credit Facilities is equal to the carrying value.

The Company’s deferred compensation liabilities were $17.6 million and $20.2 million at March 31, 2018 and December 31, 2017, respectively. The current portions of these liabilities are included within accounts payable and accrued liabilities and the noncurrent portions are included within other liabilities in the condensed consolidated balance sheets. These liabilities represent the market value of participants’ balances in a notional investment account that is comprised primarily of mutual funds, which is based on ~~discounting~~observable market prices. However, since the ~~remaining principal and interest payments using current~~deferred compensation obligations are not exchanged in an active market, ~~rates for similar debt (Level 2).~~ they are classified as Level 2 in the fair value hierarchy.

The carrying amounts of accounts receivable, accounts payable and other current assets and liabilities approximate fair value because of the short-term nature of these instruments.

Nonfinancial Assets and Liabilities. The Company’s nonfinancial assets such as property, plant and equipment, intangible assets and goodwill are not measured at fair value on a recurring basis. However, such assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded during the three months ended March 31, 2018 and 2017.

810..

TREASURY STOCK

Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the condensed consolidated financial statements.

Share Repurchase Program. On July 1, 2015, the Company’s board of directors (the “Board”) authorized up to ~~$250~~$250 million of share repurchases (subject to a total cap of 600,000 shares of ~~Company~~ common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through ~~September 30, 2017,~~ March 31, 2018, the Company had repurchased ~~165,633~~169,144 shares at an aggregate cost of ~~$73.1~~$75.6 million. ~~In 2017,~~ During the three months ended March 31, 2018, the Company repurchased ~~700~~3,311 shares at an aggregate cost of ~~$0.4 million, of which all occurred during the first quarter.~~$2.3 million.

1214

Table of Contents

Tax Withholding for Equity Awards. ~~Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the condensed consolidated financial statements.~~ Shares of common stock with a fair market value equal to the applicable statutory minimum amount of the employee withholding taxes due are withheld by the Company upon vesting of restricted stock and exercises of stock appreciation rights (“SARs”) to pay the applicable statutory minimum amount of employee withholding taxes and are considered common stock repurchases. The Company then pays the applicable statutory minimum amount of withholding taxes in cash. The ~~amounts~~amount remitted during the three ~~and nine~~ months ended ~~September 30, 2017 were $2.1 million and $2.5~~March 31, 2018 was $7.2 million, for which the Company withheld ~~2,791 and 3,457~~9,767 shares of common ~~stock, respectively.~~stock. Treasury shares of ~~159,541~~155,458 held at ~~September 30, 2017~~ March 31, 2018 include ~~the aforementioned~~such shares withheld for withholding tax.

911..

EQUITY-BASED COMPENSATION

~~On June 5, 2015, the Board adopted the Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “Original 2015 Plan”), which became effective July 1, 2015. On May 2, 2017, the Company’s stockholders approved the~~The Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the ~~“2015~~“2015 Plan”) provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, SARs, restricted stock units (“RSUs”), ~~which automatically terminated, replaced~~cash-based awards, performance-based awards, dividend equivalent units (“DEUs”), and ~~superseded the Original 2015 Plan, except that any outstanding~~other stock-based awards, ~~granted under the Original 2015 Plan will remain in effect pursuant to their terms. The 2015 Plan is designed to promote the interests of the Company~~including performance stock units and its stockholders by providing the employees and directors of the Company with incentives and rewards to encourage them to continue in the service of the Company and with a proprietary interest in pursuing the long-term growth, profitability and financial success of the Company. Any of the directors,deferred stock units. Directors, officers and employees of the Company and its affiliates are eligible ~~to be granted one or more~~for grants under the 2015 Plan as part of the ~~following types of awards under the 2015 Plan: (1)~~Company’s approach on long-term incentive ~~stock options, (2) non-qualified stock options, (3) restricted~~compensation.

Restricted stock awards (4) SARs, (5) restricted stock units (“RSUs”), (6) cash-based awards, (7) performance-based awards, (8) dividend equivalent rights and (9) other stock-based awards, including, without limitation, performance stock units and deferred stock units. The 2015 Plan includes the authoritygranted to ~~grant awards that~~employees are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended. Unless the 2015 Plan is sooner terminated by the Board, no awards may be granted under the 2015 Plan after May 2, 2027.

~~The 2015 Plan provides that, subject to certain adjustments for~~ specified corporate events, the maximum number of shares of Company common stock that may be issued under the 2015 Plan is 334,870, which is equal to the number of remaining shares of Company common stock available for future issuance under the Original 2015 Plan as of May 2, 2017, regardless of whether such shares were subject to outstanding awards as of such date, and no more than 329,962 shares may be issued pursuant to incentive stock options. At September 30, 2017, 316,549 shares were available for issuance under the 2015 Plan.

~~Restricted Stock Awards.~~ ~~The Company has granted restricted shares of Company common stock~~ subject to service-based vesting and certain awards are also subject to performance-based vesting ~~conditions to employees of the Company. Restricted share awards~~and generally cliff-vest on the ~~three-year~~three-year anniversary of the grant date or, for certain service-based awards, in four equal ratable installments beginning on the first anniversary of the grant ~~date (generally subject~~date. SARs granted to employees vest in four equal ratable installments beginning on the holder’s continued employment with the Company through the applicable vesting date), except in the case of awards made to individuals (i) whose equity awards issued by GHC were forfeited in connection with the Company’s spin-off (the “spin-off”) from GHC (the “Replacement Shares”), which Replacement Shares vested on December 12, 2016 (with certain exceptions as provided in the applicable award agreement), or (ii) who did not receive an equity award from GHC in 2015 in anticipationfirst anniversary of the ~~spin-off (the “Staking Shares”), which Staking Shares~~grant date. RSUs are ~~scheduled~~generally granted to cliff-vest on January 2, 2018. Performance-based restricted shares are or were subject to performance metrics related primarily to year-over-year or three-year cumulative growth in Adjusted EBITDA less capital expenditures or year-over-year growth in Adjusted EBITDA and capital expenditures as a percentage of total revenues. Restricted shares are subject to the terms and conditions of the Original 2015 Plan or the 2015 Plan (in the case of awards made on or following May 2, 2017) and are otherwise subject to the terms and conditions of the applicable award agreement.

~~The compensation arrangements for the Company~~’s non-employee directors as of September 30, 2017 provided that each non-employee director is entitled to an annual retainer of $75,000 in cash, plus an additional annual cash retainer for each non-employee director who serves as a committee chair or as lead independent director and approximately $125,000 in RSUs. Such RSUs will generally be granted on the date of the Company’s annual stockholders’ meeting and ~~will~~ vest on the earlier of the first anniversary of the grant date or the annual stockholders’ meeting date immediately following the grant ~~date, subject~~date. In January 2018, certain non-employee directors who elected to ~~the director’s continued service through~~defer all or a portion of their annual cash fees were granted RSU awards in lieu of such ~~vesting date. Settlement of~~fees, and such RSUs will bevest in full on the ~~form of one share~~date immediately preceding the date of the ~~Company’s common stock and~~2018 annual stockholders’ meeting. The settlement of these RSUs will follow vesting, unless the director has previously elected to defer such settlement until the earliest of his or her separation from service from the ~~Board. Any dividends~~Board, a date specified by the director or a change in control of the Company.

The 2015 Plan provides, that, subject to certain adjustments for specified corporate events, the maximum number of shares of common stock that may be issued under the 2015 Plan is 334,870. At March 31, 2018, 266,731 shares were available for issuance under the 2015 Plan.

Compensation expense associated with ~~RSUs granted prior~~equity based awards is recognized on a straight-line basis over the vesting period, with forfeitures recognized as incurred. Equity-based compensation expense of $2.3 million and $2.4 million for the three months ended March 31, 2018 and 2017, respectively, was included in selling, general and administrative expenses within the condensed consolidated statements of operations and comprehensive income. The Company recognized an income tax benefit of $2.4 million related to equity-based awards during the ~~2017 annual grant~~three months ended March 31, 2018. The deferred tax asset related to all outstanding equity-based awards was $2.7 million as of RSUs will be converted into Dividend Equivalent Units (“DEUs”), which will be delivered at the time of settlement of the associated RSUs. Commencing with the 2017 annual grant of RSUs, dividends associated with RSUs will be paid out in cash at the time of settlement. As of September 30, 2017, 3,178 RSUs, including DEUs, were vested and deferred.March 31, 2018.

~~Table of Contents~~

Restricted Stock Awards. Restricted shares, RSUs and DEUs are collectively referred to as “restricted stock.” A summary of restricted stock ~~activities~~ activity during the three months ended March 31, 2018 is as follows:

Weighted
Average

Grant Date

Restricted

Fair Value

Stock

Per Share
Outstanding as of December 31, 2016
38,425 $ 402.21
Granted
16,821 $ 631.10
Granted due to performance achievement
5,006 $ 433.66
Forfeited
(4,943 ) $ 437.17
Vested
(3,163 ) $ 415.39
Outstanding as of September 30, 2017
52,146 $ 473.61

Vested and unissued as of September 30, 2017
3,178 $ 436.37

				Weighted Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Outstanding as of December 31, 2017		51,290		$	472.89
Granted		11,039		$	707.20
Forfeited		(818	)	$	595.99
Vested		(24,171	)	$	391.19
Outstanding as of March 31, 2018		37,340		$	592.42

Vested and unissued as of March 31, 2018		3,185		$	436.93

Table of Contents

~~Compensation~~ ~~expense associated with restricted stock is recognized on a straight-line basis over the vesting period.~~ Equity-based compensation expense for restricted stock was ~~$2.2~~$1.4 million and ~~$5.5~~$1.7 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018 and 2017. At ~~September 30, 2017,~~ March 31, 2018, there was ~~$8.8~~$10.2 million of unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of ~~1.0~~1.7 years.

Stock Appreciation Rights. The Company has granted SARs to certain executives and other employees of the Company. The SARs are scheduled to vest in four equal ratable installments beginning on the first anniversary of the grant date (generally subject to the holder’s continued employment with the Company through the applicable vesting date). The SARs are subject to the terms and conditions of the Original 2015 Plan or the 2015 Plan (in the case of awards made on or following May 2, 2017) and will otherwise be subject to the terms and conditions of the applicable award agreement.

A summary of SAR activity during the three months ended March 31, 2018 is as follows:

Stock Appreciation Rights

Weighted
Average
Exercise
Price

Weighted
Average
Fair
Value

Aggregate Intrinsic
Value
(in thousands)

Weighted
Average Remaining Contractual
Term
(in years)
Outstanding as of December 31, 2016
136,000 $ 426.80 $ 88.07 $ 26,510 8.7
Granted
24,432 $ 632.15 $ 140.44 $ - 9.3
Exercised
(21,450 ) $ 422.31 $ 87.22
Forfeited
(11,652 ) $ 422.31 $ 87.22
Outstanding as of September 30, 2017
127,330 $ 467.37 $ 98.34 $ 32,437 8.2

Vested and exercisable as of September 30, 2017
39,673 $ 422.61 $ 87.29 $ 11,882 7.9

Stock

Appreciation

Rights

Weighted

Average

Exercise

Price

Weighted

Average

Grant

Date Fair
Value

Aggregate

Intrinsic

Value

(in thousands)

Weighted

Average

Remaining

Contractual

Term

(in years)

Outstanding as of December 31, 2017

102,458

477.62

100.91

23,173

8.1

Granted

12,500

707.17

169.54

9.8

Exercised

(11,157

)

432.23

89.73

Forfeited

(2,249

)

422.31

87.22

Outstanding as of March 31, 2018

101,552

512.09

110.89

18,116

8.1

Vested and exercisable as of March 31, 2018

15,795

482.94

102.51

3,225

7.8

The grant date fair value of the Company’s SARs ~~was~~is measured ~~based on~~using the Black-Scholes valuation model. The weighted average inputs used in the model for grants awarded during the ~~nine~~three months ended ~~September 30, 2017~~ March 31, 2018 were as follows:

	~~2017~~2018
Expected volatility		~~20.83~~22.53	%
Risk-free interest rate		~~2.13~~2.31	%
Expected term (in years)		6.25
Expected dividend yield		~~0.95~~0.98	%

~~Compensation expense associated with SARs is recognized on a straight-line basis over the vesting period.~~ Equity-based compensation expense for SARs was $0.9 million and ~~$2.4~~$0.7 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~ March 31, 2018. At ~~September 30, 2017,~~ March 31, 2018, there was ~~$8.2~~$7.9 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a weighted average period of ~~1.5~~1.3 years.

~~Table of Contents~~

~~Compensation~~ ~~Expense~~. Total equity-based compensation expense recognized was $3.1 million and $3.2 million for the three months ended September 30, 2017 and 2016, respectively, and $7.9 million and $9.7 million for the nine months ended September 30, 2017 and 2016, respectively, and was included in Selling, general and administrative expenses within the Condensed Consolidated Statements of Operations and Comprehensive Income. The Company recognized an income tax benefit of $2.0 million related to equity-based awards during the nine months ended September 30, 2017. The deferred tax asset related to all outstanding equity-based awards was $6.8 million as of September 30, 2017.

1012..

INCOME TAXES

The ~~Company~~’sCompany’s effective tax rate was ~~34.6%~~19.6% and ~~48.6%~~37.3% for the three months ended ~~September 30, 2017~~ March 31, 2018 and ~~2016, respectively, and 36.8% and 40.0% for the nine months ended September 30,~~ 2017, ~~and 2016,~~ respectively. The decrease in the effective tax rate for the three months ended ~~September 30, 2017~~ March 31, 2018 compared to the same quarter in the prior year primarily relates to ~~$4.1 million of~~a reduction in the Federal corporate income tax ~~adjustments associated with certain pre-spin-off items~~rate from 35% to 21% as a result of the 2017 Federal tax reform legislation and ~~a $0.7 million adjustment associated with a change in a state apportionment calculation recorded in the third quarter of 2016, coupled with $1.7~~$2.4 million of income tax benefits ~~primarily~~ attributable to equity-based compensation awards recorded during the three months ended March 31, 2018.

The Company recognized the income tax effects of the 2017 Federal tax reform legislation in its consolidated financial statements included in the ~~third quarter~~2017 Form 10-K in accordance with Staff Accounting Bulletin No.118, which provides SEC staff guidance for the application of ~~2017.~~ASC 740 – Income Taxes. As such, the Company’s financial results for 2017 reflected the income tax effects of the 2017 Federal tax reform legislation for which the accounting under ASC 740 was complete as well as provisional amounts for those specific income tax effects of the 2017 Federal tax reform legislation for which the accounting under ASC 740 was incomplete but a reasonable estimate could be determined. The ~~decrease~~Company has recognized the provisional tax impacts related to acceleration of depreciation and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements included in the ~~effective~~2017 Form 10-K. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the 2017 Federal tax ~~rate for~~reform legislation. The accounting is expected to be complete when the ~~nine months ended September 30,~~ Company’s 2017 ~~compared to the prior year period primarily relates to a net $2.6 million~~ Federal corporate income tax ~~adjustment mainly associated with certain pre-spin-off items recorded~~return is filed later in ~~2016 and $1.7 million of income tax benefits primarily attributable to equity-based awards recorded throughout 2017.~~2018.

Table of Contents

113.1.

NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing ~~the~~ net income ~~allocable to common stockholders~~ by the weighted average number of common shares outstanding during the period. Diluted net income per common share further includes any common shares available to be issued upon vesting or exercise of outstanding equity awards if such inclusion would be ~~dilutive.~~dilutive, calculated using the treasury stock method.

The following table sets forth the computation of basic and diluted net income per common share (in thousands, except share and per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Numerator:
Net income	$	31,514	$	20,874	$	93,304	$	74,552	$	40,653	$	32,113
Denominator:
Weighted average common shares outstanding - basic		5,680,600		5,720,257		5,678,485		5,753,204		5,702,539		5,671,838
Effect of dilutive equity awards⁽¹⁾		73,310		34,904		67,298		23,300		40,109		59,063
Weighted average common shares outstanding - diluted		5,753,910		5,755,161		5,745,783		5,776,504		5,742,648		5,730,901

Net income per share:
Net income per common share:
Basic	$	5.55	$	3.65	$	16.43	$	12.96	$	7.13	$	5.66
Diluted	$	5.48	$	3.63	$	16.24	$	12.91	$	7.08	$	5.60

⁽¹⁾⁽¹⁾

~~SARs outstanding that~~Equity-based awards whose impact is considered to be anti-dilutive under the treasury stock method were ~~not included in~~excluded from the diluted net income per share ~~calculation because the effect would have been~~calculation. The excluded number of anti-dilutive ~~were 2,669~~equity-based awards totaled 5,355 and 0443 for the three months ended ~~September 30, 2017~~ March 31, 2018 and ~~2016, respectively, and 2,354 and 12,787 for the nine months ended September 30,~~ 2017, ~~and 2016,~~ respectively.

114.2.

COMMITMENTS AND CONTINGENCIES

Litigation and Legal Matters. The Company is subject to complaints and administrative proceedings and is a defendant in various civil lawsuits that have arisen in the ordinary course of its business. Such matters ~~include:~~include contract disputes; actions alleging negligence; invasion of privacy; trademark, copyright and patent infringement; violations of applicable wage and hour laws; statutory or common law claims involving current and former employees; and other matters. Although the outcomes of the legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, management believes that there are no existing claims or proceedings that are likely to have a material effect on the Company’s business, financial condition, results of operations or cash flows. Also, based on currently available information, management is of the opinion that either future material losses from existing legal proceedings are not reasonably possible or that future material losses in excess of the amounts accrued are not reasonably possible.

~~Table of Contents~~

Regulation in the Cable Industry. The operation of a cable system is extensively regulated by the Federal Communications Commission (the “FCC”), some state governments and most local governments. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. The Telecommunications Act of 1996 altered the regulatory structure governing the nation’s communications providers. It removed barriers to competition in both the cable television market and the voice services market. Among other things, it reduced the scope of cable rate regulation and encouraged additional competition in the video programming industry by allowing telephone companies to provide video programming in their own telephone service areas. Future legislative and regulatory changes could adversely affect the Company’s operations.

15.

SUBSEQUENT EVENT

~~GHC Agreements.~~

On ~~June 16, 2015,~~ April 23, 2018, the Company entered into ~~several agreements with GHC that~~Amendment No.1 (the “Repricing Amendment”) to the Amended and Restated Credit Agreement. The Repricing Amendment amended the Amended and Restated Credit Agreement to, among other things, (i) decrease the applicable margin for the Term Loan B to 1.75% for LIBOR borrowings and 0.75% for base rate borrowings, (ii) reset the period during which a prepayment premium in respect of the Term Loan B may be required for a Repricing Transaction until six months after the effective date of the Repricing Amendment and (iii) reset the period during which the Term Loan B benefits from certain “most favored nation” pricing protections until 12 months after the effective date of the Repricing Amendment. Other than as set forth ~~the principal actions taken in connection with the spin-off~~above, all other material terms and ~~that govern the relationship~~provisions of the ~~parties following~~Senior Credit Facilities remain substantially the ~~spin-off, including a Separation and Distribution Agreement, a Tax Matters Agreement and an Employee Matters Agreement. The aggregate~~same. Debt issuance costs ~~and reimbursements paid to GHC totaled less than $0.1 million and $0.3 million~~incurred for the ~~three and nine months ended September 30, 2017, respectively.~~repricing totaled $2.0 million.

~~Table of Contents~~

~~Item 2.~~ ~~Management’s Discussion and Analysis of~~ ~~Financial Condition and~~ ~~Results of Operations~~

~~The following discussion and~~ analysis of our results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2016 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K as filed with the SEC on March 1, 2017. Our results of operations for the three and nine months ended September 30, 2017 may not be indicative of our future results.

~~Overview~~

~~Our Business~~

~~We are a fully integrated provider of data, video and voice~~ services in 21 Western, Midwestern and Southern states. We provide these broadband services to residential and business customers in more than 750 communities. The markets we serve are primarily non-metropolitan, secondary markets, with 77% of our customers located in seven states: Arizona, Idaho, Illinois, Mississippi, Missouri, Oklahoma and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We are the seventh-largest cable system operator in the United States based on customers and revenues in 2016, providing service to 796,110 residential and business customers out of approximately 2.1 million homes passed as of September 30, 2017. Of these customers, 637,653 subscribed to data services, 370,713 subscribed to video services and 135,515 subscribed to voice services.

~~We generate~~ substantially all of our revenues through five primary products. Ranked by share of our total revenues through the first nine months of 2017, they are residential data (43.1%), residential video (35.0%), business services (data, video and voice – 13.5%), residential voice (4.6%) and advertising sales (2.5%). The profit margins, growth rates and capital intensity of our five primary products vary significantly due to competition, product maturity and relative costs.

~~On May 1, 2017, we completed the acquisition of all of the outstanding equity interests of NewWave~~, and NewWave became a wholly owned subsidiary of ours. We paid a purchase price of $740.2 million in cash on a debt-free basis and subject to customary post-closing adjustments. See Note 2 of the Notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for details on this transaction. Our results of operations for the nine months ended September 30, 2017 include five months of NewWave operations following the completion of the acquisition.

~~Prior to 2012~~, we were focused on growing revenues through subscriber retention and growth in overall primary service units (“PSUs”). Accordingly, our strategies consisted of, among others, offering promotional discounts to new and existing subscribers adding new services and to subscribers purchasing more than one service offering. Since 2012, we have adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. We believe the declining profitability of residential video services is primarily due to competition from other content providers and increasing programming costs and retransmission fees, and the declining revenues from residential voice services is primarily due to the increasing use of wireless voice services in addition to, or instead of, landline voice service. Beginning in 2013, we shifted our focus away from maximizing customer PSUs and towards growing and maintaining our higher margin businesses, namely residential data and business services. Separately, we have also focused on retaining customers with a high expected lifetime value (“LTV”), who are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted EBITDA, Adjusted EBITDA less capital expenditures and margins (see “~~Use of Adjusted EBITDA~~~~” for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure).~~

~~The trends described above have impacted our four largest product lines in the following ways:~~

●

~~Residential data~~. We experienced growth in the number of, and revenues from, our residential data customers every year since 2013. We expect this growth to continue due to projected increases in the number of potential customers for us to serve, as there are still a number of households in our markets that do not subscribe to data services from any provider. We expect to capture a portion of these customers and anticipate capturing additional market share from existing data subscribers due to our recent upgrades in broadband capacity, our ability to offer higher access speeds than many of our competitors and our Wi-Fi support service.

Table of Contents

●

~~Residential video~~. Residential video service is a competitive and highly penetrated business. As we focus on the higher-margin businesses of residential data and business services, we are de-emphasizing our residential video business and, as a result, expect residential video revenues to decline in the future.

●

~~Residential voice~~. We have experienced declines in residential voice customers as a result of homes in the United States deciding to terminate their landline voice service and exclusively use wireless voice service. We believe this trend will continue because of competition from wireless voice service. Revenues from residential voice customers have declined over recent years, and we expect this decline will continue.

●

~~Business services~~. We have experienced significant growth in business data and voice customers and revenues and expect this to continue. We attribute this growth to our strategic focus shift on increasing sales to business customers. More recently, we have expanded our efforts to attract enterprise business customers. Margins in products sold to business customers have remained attractive, and we expect this trend to continue.

~~We continue to experience increased competition, particularly from telephone companies, cable overbuilders,~~ over-the-top (“OTT”) video providers and direct broadcast satellite (“DBS”) television providers. Because of the levels of competition we face, we believe it is important to make investments in our infrastructure. We made elevated levels of capital investments between 2012 and 2015 to increase our cable plant capacities and reliability, launch all-digital video services, which has freed up approximately three-fourths of average plant bandwidth for data services, and increase data capacity by moving from four-channel bonding to 32-channel bonding. We expect to continue devoting financial resources to infrastructure improvements, including in the new markets we acquired in the NewWave transaction, because we believe these investments are necessary to remain competitive.

Our goals are to continue to grow residential data and business services and to maintain profit margins to deliver strong Adjusted EBITDA. To achieve these goals, we intend to continue our industrial engineering-driven cost management, remain focused on customers with high LTV and follow through with further planned investments in broadband plant upgrades ~~and new data services offerings for residential and business customers.~~

Our business is subject to extensive governmental regulation. Such regulation has led to increases in our operational and administrative expenses. In addition, we could be significantly impacted by changes to the existing regulatory framework, whether triggered by legislative, administrative or judicial rulings. In 2015, the FCC used its Title II authority to regulate broadband internet access services through the Open Internet Order (the “Order”). According to the Order, the FCC will forbear from systematic rate regulation of internet access service at the subscriber level, which we believe will permit us to continue to manage data usage efficiently by establishing appropriate rates. However, the Order also imposes on all providers of broadband internet access service, including us, obligations that limit the ways certain types of traffic can be managed. In June 2016, the U.S. Court of Appeals for the D.C. Circuit upheld the Order in its entirety. On May 1, 2017, the U.S. Court of Appeals for the D.C. Circuit denied a petition for an ~~en banc~~ rehearing of the June 2016 decision upholding the Order. In September 2017, several parties, including the American Cable Association and NCTA – the Internet & Television Association (the “NCTA”), filed petitions for ~~certiorari~~ with the U.S. Supreme Court. Responses to the petitions are due in December 2017. In May 2017, the FCC issued a Notice of Proposed Rulemaking to revise the Open Internet rules previously adopted in the Order, and comments were filed by August 2017. Congress also has proposed legislation regarding the Open Internet rules. We cannot predict whether or when future changes to the regulatory framework will occur at the FCC, in Congress or in the courts. We also cannot predict whether or to what extent the rules as revised by the FCC, Congress or the courts may affect our operations or impose costs on our business.

~~Results of Operations~~

~~PSUs and~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ~~Customer Counts by Primary Products~~OF OPERATIONS

~~As of~~ September 30, 2017, our total PSUs increased 185,717 year-over-year, with increases in residential data, video and voice PSUs of 114,842, 38,271, and 10,785, respectively, and an increase in business PSUs of 21,819. Our total customer relationships increased 138,022, or 21.0%, year-over-year. The year-over-year increases were primarily attributable to new customers acquired as a result of the NewWave acquisition.

~~Table of Contents~~

~~The following table provides an overview of selected customer data for our cable systems for the time periods specified:~~

As of September 30,

Annual Net Gain/(Loss)

2017

2016

Change

% Change
Residential data PSUs
581,510 466,668 114,842 24.6
Residential video PSUs ⁽¹⁾
353,860 315,589 38,271 12.1
Residential voice PSUs
111,295 100,510 10,785 10.7
Total residential PSUs
1,046,665 882,767 163,898 18.6

Business data PSUs ⁽²⁾
56,143 43,905 12,238 27.9
Business video PSUs
16,853 13,797 3,056 22.1
Business voice PSUs ⁽³⁾
24,220 17,695 6,525 36.9
Total business PSUs
97,216 75,397 21,819 28.9

Total PSUs
1,143,881 958,164 185,717 19.4

Total residential customer relationships
731,099 607,399 123,700 20.4
Total business customer relationships
65,011 50,689 14,322 28.3
Total customer relationships
796,110 658,088 138,022 21.0

⁽¹⁾	Residential video PSUs include all basic residential customers who receive video services and may have one or more digital set-top boxes or cable cards deployed. Residential bulk multi-dwelling accounts are included in our video PSUs ~~at the individual unit level.~~

⁽²⁾	~~Business data PSUs include commercial accounts that receive data service via a cable modem and commercial accounts that receive broadband service optically via fiber connections.~~

⁽³⁾	~~Business voice customers who have multiple voice lines are only counted once in the PSU total.~~

The following table provides an overview of selected customer data for our legacy Cable One cable systems excluding the impact of PSUs and customers attained as a result of the NewWave acquisition for the time periods specified:

As of September 30,

Annual Net Gain/(Loss)

2017

2016

Change

% Change
Residential data PSUs
471,537 466,668 4,869 1.0
Residential video PSUs ⁽¹⁾
274,258 315,589 (41,331 ) (13.1 )
Residential voice PSUs
89,259 100,510 (11,251 ) (11.2 )
Total residential PSUs
835,054 882,767 (47,713 ) (5.4 )

Business data PSUs ⁽²⁾
47,525 43,905 3,620 8.2
Business video PSUs
13,002 13,797 (795 ) (5.8 )
Business voice PSUs ⁽³⁾
19,440 17,695 1,745 9.9
Total business PSUs
79,967 75,397 4,570 6.1

Total PSUs
915,021 958,164 (43,143 ) (4.5 )

Total residential customer relationships
593,388 607,399 (14,011 ) (2.3 )
Total business customer relationships
53,926 50,689 3,237 6.4
Total customer relationships
647,314 658,088 (10,774 ) (1.6 )

⁽¹⁾	Residential video PSUs include all basic residential customers who receive video services and may have one or more digital set-top boxes or cable cards deployed. Residential bulk multi-dwelling accounts are included in our video PSUs ~~at the individual unit level.~~

⁽²⁾	~~Business data PSUs include commercial accounts that receive data service via a cable modem and commercial accounts that receive broadband service optically via fiber connections.~~

⁽³⁾	~~Business voice customers who have multiple voice lines are only counted once in the PSU total.~~

~~In recent years, our customer mix has shifted, causing subscribers to move from triple-play packages to single and double-play~~ packages. This is because some residential video customers have defected to DBS and OTT offerings in lieu of video and more households have discontinued landline voice service. In addition, we have focused on selling data-only packages to new customers rather than on cross-selling video to these customers.

~~Table of Contents~~

Co~~mparison of Three Months~~ ~~Ended~~ ~~September 30, 2017~~ ~~to Three Months Ended~~ ~~September 30, 2016~~

~~Revenues~~

~~Revenues~~ increased $48.3 million, or 23.5%, due primarily to increases in residential data, residential video and business services revenues of $22.5 million, $14.8 million and $9.8 million, respectively. The increase was the result of the NewWave operations and organic growth in our higher margin product lines of residential data and business services. Revenues for the third quarter of 2017 were negatively impacted by approximately $1.6 million due to lost revenues from waived service offering charges associated with Hurricane Harvey.

~~Revenues by service offering were as follows for the three months ended~~ ~~September 30, 2017 and 2016, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):~~

Three Months Ended September 30,

2017

2016

2017 vs. 2016

% of

% of
$
%

Revenues

Revenues

Revenues

Revenues

Change

Change
Residential data
$ 109,340 43.1 $ 86,797 42.2 $ 22,543 26.0
Residential video
88,601 34.9 73,841 35.9 14,760 20.0
Residential voice
11,265 4.4 10,475 5.1 790 7.5
Business services
35,168 13.9 25,406 12.4 9,762 38.4
Advertising sales
5,885 2.3 6,460 3.2 (575 ) (8.9 )
Other
3,587 1.4 2,557 1.2 1,030 40.3
Total revenues
$ 253,846 100.0 $ 205,536 100.0 $ 48,310 23.5

~~Average monthly~~ ~~revenue per unit for the indicated service offerings were as follows for the three months ended September 30, 2017 and 2016:~~

Three Months Ended September 30,

2017 vs. 2016

2017

2016

$ Change

% Change
Residential data ⁽¹⁾
$ 62.49 $ 62.07 $ 0.42 0.7
Residential video ⁽¹⁾
$ 81.96 $ 76.85 $ 5.11 6.6
Residential voice ⁽¹⁾
$ 33.26 $ 34.18 $ (0.92 ) (2.7 )
Business services ⁽²⁾
$ 181.37 $ 168.80 $ 12.57 7.4

⁽¹⁾	~~Average monthly per unit values represent the applicable residential service revenues divided by the corresponding average of the number of PSUs at the beginning and end of each period.~~

⁽²⁾	~~Average monthly per unit values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period.~~

~~Revenues by~~ service offering, excluding the impact of revenues related to NewWave, were as follows for the three months ended September 30, 2017 and 2016, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):

Three Months Ended September 30,

2017

2016

2017 vs. 2016

% of

% of
$
%

Revenues

Revenues

Revenues

Revenues

Change

Change
Residential data
$ 93,317 45.2 $ 86,797 42.2 $ 6,520 7.5
Residential video
68,260 33.1 73,841 35.9 (5,581 ) (7.6 )
Residential voice
8,908 4.3 10,475 5.1 (1,567 ) (15.0 )
Business services
28,103 13.6 25,406 12.4 2,697 10.6
Advertising sales
5,496 2.7 6,460 3.2 (964 ) (14.9 )
Other
2,266 1.1 2,557 1.2 (291 ) (11.4 )
Total revenues
$ 206,350 100.0 $ 205,536 100.0 $ 814 0.4

~~Table of Contents~~

~~Average monthly revenue per unit, excluding the impact of revenues and customers~~ ~~attained as a result of the NewWave acquisition, were as follows for the three months ended September 30, 2017 and 2016:~~

Three Months Ended September 30,

2017 vs. 2016

2017

2016

$ Change

% Change
Residential data ⁽¹⁾
$ 65.74 $ 62.07 $ 3.67 5.9
Residential video ⁽¹⁾
$ 81.41 $ 76.85 $ 4.56 5.9
Residential voice ⁽¹⁾
$ 32.75 $ 34.18 $ (1.43 ) (4.2 )
Business services ⁽²⁾
$ 174.52 $ 168.80 $ 5.72 3.4

⁽¹⁾	~~Average monthly per unit values represent the applicable residential service revenues divided by the corresponding average~~ ~~of the number of PSUs at the beginning and end of each period.~~

⁽²⁾	~~Average monthly per unit values represent business services revenues divided by the average~~ ~~of the number of business customer relationships at the beginning and end of each period.~~

~~Residential data service~~ revenues increased $22.5 million, or 26.0%, due primarily to an increase in residential data customers of 24.6% year-over-year as a result of the NewWave operations and organic subscriber growth, a reduction in package discounting and increased subscriptions to premium tiers by residential customers.

~~Residential video service revenues~~ ~~increased $14.8 million, or 20.0%, due primarily to an increase in residential video customers of 12.1% as a result of the NewWave operations and a rate adjustment in the first quarter of 2017.~~

~~Residential voice service revenues~~ ~~increased $0.8 million, or 7.5%, due primarily to an increase in residential voice customers of 10.7% as a result of the NewWave operations.~~

~~Business services revenues increased~~ $9.8 million, or 38.4%, due primarily to the NewWave operations, growth in our business data and voice services to small and medium-sized businesses and enterprise customers and a rate adjustment for business video customers in the first quarter of 2017. Total business customer relationships increased 28.3% year-over-year. Overall, business services comprised 13.9% of our total revenues for the third quarter of 2017 compared to 12.4% of our total revenues for the third quarter of 2016.

~~Advertising sales revenues~~ ~~decreased $0.6 million, or 8.9%, due primarily to a decrease in political advertising and fewer video customers to be reached by advertising spots.~~

~~Other revenues~~ ~~increased $1.0 million, or 40.3%, due primarily to the NewWave operations.~~

~~Operating Costs and Expenses~~

~~Operating expenses (excluding depreciation and amortization) were~~ $91.9 million in the third quarter of 2017 and increased $16.3 million, or 21.5%, compared to the third quarter of 2016. Operating expenses as a percentage of revenues were 36.2% for the third quarter of 2017 compared to 36.8% for the year ago quarter. Additional operating expenses attributable to the NewWave operations were $24.2 million for the third quarter of 2017. This increase was partially offset by a $4.8 million decrease in labor costs associated with our change in accounting estimate for capitalized labor discussed in Note 1 of the Notes to our condensed consolidated financial statements, a $0.9 million decrease in backbone and internet connectivity fees, a $0.7 million decrease in programming costs resulting from fewer video subscribers and a $0.7 million decrease in contract labor.

~~Selling,~~ general and administrative expenses increased $3.2 million, or 6.5%, to $52.0 million. Selling, general and administrative expenses as a percentage of revenues were 20.5% and 23.7% for third quarter of 2017 and 2016, respectively. Additional selling, general and administrative expenses attributable to the NewWave operations were $5.9 million for the third quarter of 2017. We also had increases in deferred compensation expenses of $1.1 million and insurance costs of $1.0 million, which were offset by decreases in acquisition-related costs of $2.0 million and marketing costs of $1.3 million, as well as a $1.4 million decrease in labor costs associated with our aforementioned change in accounting estimate for capitalized labor.

~~Depreciation and amortization increased~~ $9.4 million, or 25.8%, including $12.2 million attributable to the NewWave operations. The increase was due primarily to new assets placed in service since the third quarter of 2016, including property, plant and equipment and amortized intangible assets acquired as part of the NewWave acquisition, partially offset by assets that became fully depreciated since the third quarter of 2016. As a percentage of revenues, depreciation and amortization expense was 18.0% for the third quarter of 2017 compared to 17.6% for the third quarter of 2016.

~~Table of Contents~~

We recognized a $2.5 million loss on disposal of assets for the third quarter of 2017, including $1.3 million associated with damage caused by Hurricane Harvey, compared to a $1.1 million net loss on disposal of assets for the year ago quarter.

~~Interest Expense~~

~~Interest expense~~ ~~increased $6.5 million, or 86.2%, due primarily to additional debt incurred to finance the NewWave acquisition.~~

~~Other Income~~ ~~(Expense)~~

~~Other~~ income of $0.3 million in the third quarter of 2017 was primarily attributable to interest income. Other income of $4.3 million in the third quarter of 2016 consisted of a net gain on the sale of a cable system and interest income.

~~Provision for Income Taxes~~

~~Provision for income taxes~~ decreased $3.1 million, or 15.7%. Our effective tax rate was 34.6% and 48.6% for the third quarter of 2017 and 2016, respectively. The decrease in our effective tax rate was due primarily to $4.1 million of income tax adjustments associated with certain pre-spin-off items and a $0.7 million adjustment associated with a change in a state apportionment calculation recorded in the third quarter of 2016, coupled with $1.7 million of income tax benefits primarily attributable to equity-based awards recorded in the third quarter of 2017.

~~Net Income~~

~~As a result of the factors~~ ~~described above, our net income was $31.5 million for the third quarter of 2017 compared to $20.9 million for the third quarter of 2016, an increase of 51.0%.~~

Co~~mparison~~ of ~~Nine Months Ended September 30, 2017~~ to ~~Nine Months Ended September 30, 2016~~

~~Revenues~~

~~Revenues increased~~ $89.4 million, or 14.6%, due primarily to increases in residential data, residential video and business services revenues of $46.4 million, $23.2 million and $20.9 million, respectively. The increase was the result of the NewWave operations since May 1, 2017 and organic growth in our higher margin product lines of residential data and business services, partially offset by decreases in residential voice and advertising revenues.

~~Revenues by service offering were as follows for the~~ ~~nine months ended September 30, 2017 and 2016, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):~~

Nine Months Ended September 30,

2017

2016

2017 vs. 2016

% of

% of
$
%

Revenues

Revenues

Revenues

Revenues

Change

Change
Residential data
$ 302,696 43.1 $ 256,267 41.8 $ 46,429 18.1
Residential video
245,928 35.0 222,710 36.3 23,218 10.4
Residential voice
32,549 4.6 32,733 5.4 (184 ) (0.6 )
Business services
94,673 13.5 73,724 12.0 20,949 28.4
Advertising sales
17,477 2.5 20,079 3.3 (2,602 ) (13.0 )
Other
8,992 1.3 7,385 1.2 1,607 21.8
Total revenues
$ 702,315 100.0 $ 612,898 100.0 $ 89,417 14.6

~~Table of Contents~~

~~Average monthly revenue per unit for the indicated service offerings were as follows for the~~ ~~nine months ended September 30, 2017 and 2016:~~

Nine Months Ended September 30,

2017 vs. 2016

2017

2016

$ Change

% Change
Residential data ⁽¹⁾
$ 63.25 $ 61.39 $ 1.86 3.0
Residential video ⁽¹⁾
$ 81.37 $ 74.37 $ 7.00 9.4
Residential voice ⁽¹⁾
$ 34.15 $ 34.39 $ (0.24 ) (0.7 )
Business services ⁽²⁾
$ 178.92 $ 167.05 $ 11.87 7.1

⁽¹⁾

Average monthly per unit values represent the applicable residential service revenues divided by the corresponding average of the number of PSUs at the beginning and end of each period, except that for any new PSUs added as a result of an acquisition occurring during the reporting period, the associated average monthly per unit values represent the applicable residential service revenues divided by the corresponding weighted average of the number of PSUs during such period.

⁽²⁾

Average monthly per unit values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, except that for any new business customer relationships added as a result of an acquisition occurring during the reporting period, the associated average monthly per unit values represent business services revenues divided by the weighted average of the number of business customer relationships during such period.

~~Revenues by~~ service offering, excluding the impact of revenues related to NewWave, were as follows for the nine months ended September 30, 2017 and 2016, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):

Nine Months Ended September 30,

2017

2016

2017 vs. 2016

% of

% of
$
%

Revenues

Revenues

Revenues

Revenues

Change

Change
Residential data
$ 275,932 44.3 $ 256,267 41.8 $ 19,665 7.7
Residential video
211,554 34.0 222,710 36.3 (11,156 ) (5.0 )
Residential voice
28,578 4.6 32,733 5.4 (4,155 ) (12.7 )
Business services
82,967 13.3 73,724 12.0 9,243 12.5
Advertising sales
16,817 2.7 20,079 3.3 (3,262 ) (16.2 )
Other
6,786 1.1 7,385 1.2 (599 ) (8.1 )
Total revenues
$ 622,634 100.0 $ 612,898 100.0 $ 9,736 1.6

~~Average monthly~~ ~~revenue per unit, excluding the impact of revenues and customers attained as a result of the NewWave acquisition were as follows for the nine months ended September 30, 2017 and 2016:~~

Nine Months Ended September 30,

2017 vs. 2016

2017

2016

$ Change

% Change
Residential data ⁽¹⁾
$ 65.19 $ 61.39 $ 3.80 6.2
Residential video ⁽¹⁾
$ 80.94 $ 74.37 $ 6.57 8.8
Residential voice ⁽¹⁾
$ 33.96 $ 34.39 $ (0.43 ) (1.3 )
Business services ⁽²⁾
$ 174.84 $ 167.05 $ 7.79 4.7

⁽¹⁾	~~Average monthly per unit values represent the applicable residential service revenues divided by the corresponding average~~ ~~of the number of PSUs at the beginning and end of each period.~~

⁽²⁾	~~Average monthly per unit values represent business services revenues divided by the average~~ ~~of the number of business customer relationships at the beginning and end of each period.~~

~~Residential data service revenues increased~~ $46.4 million, or 18.1%, due primarily to an increase in residential data customers of 24.6% year-over-year as a result of the NewWave operations and organic subscriber growth, a reduction in package discounting and increased subscriptions to premium tiers by residential customers.

~~Residential video service revenues~~ ~~increased $23.2 million, or 10.4%, due primarily to an increase in residential video customers of 12.1% as a result of the NewWave operations and a rate adjustment in the first quarter of 2017.~~

~~Residential voice service revenues decreased~~ ~~$0.2 million, or 0.6%, due primarily to a decrease in legacy Cable One voice customers of 11.2%, partially offset by increased customers as a result of the NewWave operations.~~

~~Business services revenues increased~~ $20.9 million, or 28.4%, due primarily to the NewWave operations, growth in our business data and voice services to small and medium-sized businesses and enterprise customers and a rate adjustment for business video customers in the first quarter of 2017. Total business customer relationships increased 28.3% year-over-year. Overall, business services comprised 13.5% of our total revenues for the nine months ended September 30, 2017 compared to 12.0% of our total revenues for the nine months ended September 30, 2016.

~~Table of Contents~~

~~Advertising sales revenues decreased~~ ~~$2.6 million, or 13.0%, due primarily to a decrease in political advertising and fewer video customers to be reached by advertising spots.~~

~~Other revenues~~ ~~increased $1.6 million, or 21.8%, due primarily to the NewWave operations.~~

~~Operating Costs and Expenses~~

~~Operating expenses (~~excluding depreciation and amortization) were $245.0 million for the nine months ended September 30, 2017 and increased $17.3 million, or 7.6%, compared to the year ago period. Operating expenses as a percentage of revenues were 34.9% for the first three quarters of 2017 compared to 37.2% for the first three quarters of 2016. Additional operating expenses attributable to the NewWave operations were $40.3 million since the acquisition date. This increase was partially offset by a $13.5 million decrease in labor costs associated with our aforementioned change in accounting estimate for capitalized labor, a $3.5 million decrease in programming costs resulting from fewer video subscribers, a $2.5 million decrease in backbone and internet connectivity fees, and lower group insurance and repairs and maintenance costs.

~~Selling, general and administrative expenses increased~~ $12.5 million, or 9.2%, to $148.7 million. Selling, general and administrative expenses as a percentage of revenues were 21.2% and 22.2% for the nine months ended September 30, 2017 and 2016, respectively. Additional selling, general and administrative expenses attributable to the NewWave operations were $10.7 million for the first three quarters of 2017. The remaining increase was due to higher acquisition-related costs of $2.1 million, deferred compensation costs of $1.7 million and severance costs of $1.5 million, partially offset by a $3.8 million decrease in labor costs associated with our aforementioned change in accounting estimate for capitalized labor.

~~Depreciation and amortization increased~~ $25.3 million, or 23.9%, including $20.1 million attributable to the NewWave operations. The increase was due primarily to new assets placed in service since the third quarter of 2016, including property, plant and equipment and amortized intangible assets acquired as part of the NewWave acquisition, partially offset by assets that became fully depreciated since the third quarter of 2016. As a percentage of revenues, depreciation and amortization expense was 18.6% for the nine months ended September 30, 2017 compared to 17.2% for the nine months ended September 30, 2016.

~~We recognized a net gain on disposal of assets of~~ $3.2 million for the first three quarters of 2017, primarily related to a gain recognized on the sale of a portion of a non-operating property that included our previous headquarters building, partially offset by a loss on fixed asset disposals, of which $1.3 million was associated with damage caused by Hurricane Harvey. In the first three quarters of 2016, we recognized a net loss of $1.6 million on disposals of assets.

~~Interest Expense~~

~~Interest expense~~ ~~increased $10.8 million, or 47.6%, due primarily to additional debt incurred to finance the NewWave acquisition.~~

~~Other Income (Expense)~~

~~Other~~ income for the nine months ended September 30, 2017 primarily consisted of interest income of $0.8 million, partially offset by a $0.6 million write-off of debt issuance costs related to the additional debt incurred to finance the NewWave acquisition. Other income of $5.0 million for the comparable year ago period consisted of a $4.3 million gain on the sale of a cable system, interest income and certain tax credits.

~~Provision for Income Taxes~~

~~Provision for income taxes increased~~ $4.8 million, or 9.7%. Our effective tax rate was 36.8% and 40.0% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective tax rate primarily relates to a net $2.6 million income tax adjustment mainly associated with certain pre-spin-off items recorded in 2016 and $1.7 million of income tax benefits primarily attributable to equity-based awards recorded throughout 2017.

~~Table of Contents~~

~~Net Income~~

~~As a result of the factors described above, our net income was~~ ~~$93.3 million for the nine months ended September 30, 2017 compared to $74.6 million for the nine months ended September 30, 2016.~~

~~Use of Adjusted EBITDA~~

~~We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to,~~ ~~not as superior to, or as a substitute for, net income reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below.~~

~~Adjusted EBITDA is defined as net income plus interest expense, provision for income taxes, depreciation and amortization, equity-based compensation expense,~~ severance expense, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on disposal of assets, other (income) expense, net, and other unusual operating expenses, as provided in the table below. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our business as well as other non-cash or special items and is unaffected by our 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 our cash cost of financing. These costs are evaluated through other financial measures.

~~We use Adjusted EBITDA to assess our performance. In addition, Adjusted EBITDA generally correlates to the~~ measure used in the leverage ratio calculation under our outstanding Senior Credit Facilities and Notes to determine compliance with the covenants contained in the Senior Credit Facilities and ability to take certain actions under the Indenture governing the Notes. For the purpose of calculating compliance with the leverage covenants in our debt instruments, we use a measure similar to Adjusted EBITDA, as presented. Adjusted EBITDA is also a significant performance measure used by us in our 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.

Three Months Ended
September 30,

2017 vs. 2016
(dollars in thousands)

2017

2016

$ Change

% Change
Net income ⁽¹⁾
$ 31,514 $ 20,874 $ 10,640 51.0

Plus: Interest expense
14,019 7,529 6,490 86.2
Provision for income taxes
16,643 19,746 (3,103 ) (15.7 )
Depreciation and amortization
45,580 36,218 9,362 25.8
Equity-based compensation expense
3,076 3,187 (111 ) (3.5 )
Severance expense
350 - 350 NM
(Gain) loss on deferred compensation
1,485 358 1,127 NM
Acquisition-related costs
557 2,512 (1,955 ) (77.8 )
(Gain) loss on disposal of assets
2,506 1,060 1,446 136.4
Other (income) expense, net
(278 ) (4,329 ) 4,051 (93.6 )

Adjusted EBITDA ⁽¹⁾
$ 115,452 $ 87,155 $ 28,297 32.5

Nine Months Ended
September 30,

2017 vs. 2016
(dollars in thousands)

2017

2016

$ Change

% Change
Net income ⁽¹⁾
$ 93,304 $ 74,552 $ 18,752 25.2

Plus: Interest expense
33,408 22,633 10,775 47.6
Provision for income taxes
54,430 49,598 4,832 9.7
Depreciation and amortization
130,875 105,600 25,275 23.9
Equity-based compensation expense
7,921 9,653 (1,732 ) (17.9 )
Severance expense
2,949 - 2,949 NM
(Gain) loss on deferred compensation
1,914 238 1,676 NM
Acquisition-related costs
5,280 3,056 2,224 72.8
(Gain) loss on disposal of assets
(3,180 ) 1,625 (4,805 ) NM
Other (income) expense, net
(243 ) (5,023 ) 4,780 (95.2 )

Adjusted EBITDA ⁽¹⁾
$ 326,658 $ 261,932 $ 64,726 24.7

NM ~~= Not meaningful.~~

⁽¹⁾

Net income and Adjusted EBITDA include NewWave operations and the favorable impact of a reduction in expense of $6.2 million and $17.2 million for the three and nine months ended September 30, 2017, respectively, due to a change in accounting estimate related to capitalized labor costs. Without the contribution from NewWave operations, net income would have increased 37.3% to $28.7 million and 18.5% to $88.4 million and Adjusted EBITDA would have increased 12.4% to $98.0 million and 13.7% to $297.9 million for the three and nine months ended September 30, 2017, respectively. Excluding both the NewWave operations and the change in accounting estimate related to capitalized labor, net income would have increased 18.8% to $24.8 million and 4.2% to $77.7 million and Adjusted EBITDA would have increased 5.3% to $91.8 million and 7.1% to $280.6 million for the three and nine months ended September 30, 2017, respectively.

~~Table of Contents~~

~~We believe Adjusted EBITDA is useful to investors in evaluating the operating performance of~~ the Company. Adjusted EBITDA and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies.

~~Financial Condition: Liquidity and Capital Resources~~

~~Liquidity~~

Our primary funding requirements are for our ongoing operations, planned capital expenditures, payments of quarterly dividends and share repurchases. We believe that existing cash balances, our Senior Credit Facilities and operating cash flows will provide adequate support for these funding requirements over the next 12 months. However, our ability to fund operations, make planned capital expenditures, pay quarterly dividends and make share repurchases depends on future operating performance and cash flows, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.

~~The following table shows a summary of our cash flows for the periods indicated (dollars in thousands):~~

Nine Months Ended September 30,

2017 vs. 2016

2017

2016

$ Change

% Change
Net cash provided by operating activities
$ 219,788 $ 193,572 $ 26,216 13.5
Net cash used in investing activities
(843,461 ) (102,680 ) (740,781 ) NM
Net cash provided by (used in) financing activities
604,334 (86,390 ) 690,724 NM
Change in cash and cash equivalents
(19,339 ) 4,502 (23,841 ) NM
Cash and cash equivalents, beginning of period
138,040 119,199 18,841 NM
Cash and cash equivalents, end of period
$ 118,701 $ 123,701 $ (5,000 ) (4.0 )

~~NM = Not meaningful.~~

~~During the~~ first three quarters of 2017, our cash and cash equivalents decreased $19.3 million. At September 30, 2017, we had $118.7 million of cash on hand compared to $138.0 million at December 31, 2016. Our working capital was $51.7 million and $74.8 million at September 30, 2017 and December 31, 2016, respectively.

Net cash provided by operating activities was $219.8 million and $193.6 million for the first three quarters of 2017 and 2016, respectively. The year-over-year increase in operating cash flow of $26.2 million was primarily attributable to an increase in Adjusted EBITDA of $64.7 million, partially offset by a $27.7 million difference in changes to net operating assets and liabilities, a $6.0 million increase in cash paid for taxes and a $5.7 million increase in cash paid for interest. The difference in changes in operating assets and liabilities primarily reflects changes in accounts receivable, income taxes receivable and accounts payable and accrued liabilities as a result of the timing of payments compared to the first three quarters of 2016.

Net cash used in investing activities was $843.5 million and $102.7 million for the first three quarters of 2017 and 2016, respectively. The increase of $740.8 million from the prior year period was due primarily to $727.9 million in net cash paid for the NewWave acquisition and a $17.8 million increase in cash paid for capital expenditures, partially offset by a $4.2 million increase in proceeds received for the sale of assets.

Net cash provided by financing activities was $604.3 million in the first three quarters of 2017 compared to net cash used in financing activities of $86.4 million for the first three quarters of 2016. The change was primarily attributable to $750.0 million of new debt incurred in connection with the NewWave acquisition, partially offset by the $97.8 million Term Loan repayment, the $15.2 million payment of debt issuance costs and a reduction in share repurchases of $55.7 million compared to the comparable prior year period.

~~Table of Contents~~

~~On July 1, 2015, the Board authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of our common stock).~~ Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through the end of the third quarter of 2017, we have repurchased 165,633 shares at an aggregate cost of $73.1 million. In first three quarters of 2017, we repurchased 700 shares at an aggregate cost of $0.4 million, of which all occurred during the first quarter. Additionally, we currently expect to continue to pay quarterly cash dividends on shares of our common stock, subject to approval of the Board. During the third quarter of 2017, the Board approved a quarterly dividend of $1.75 per share of common stock, which was paid on September 1, 2017.

~~Financing Activity~~

~~On June 17, 2015, we issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022. The Notes mature on June 15, 2022 and interest is payable on June 15~~^th ~~and December 15~~^th of each year. The Notes are jointly and severally guaranteed on a senior unsecured basis (the “Guarantees”) by each of our existing and future domestic subsidiaries that guarantee the Senior Credit Facilities (the “Guarantors”). The Notes are unsecured and senior obligations of the Company. The Guarantees are unsecured and senior obligations of the Guarantors. At our option, the Notes may be redeemed in whole or in part, at any time prior to June 15, 2018, at a price equal to 100% of the aggregate principal amount of the Notes plus accrued and unpaid interest, if any, to (but excluding) the redemption date plus a “make-whole” premium. We may also redeem the Notes, in whole or in part, at any time on or after June 15, 2018, at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the redemption date. Additionally, at any time prior to June 15, 2018, we may redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds from certain equity offerings at a price equal to 105.75% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to (but excluding) the redemption date. The Indenture includes certain covenants relating to debt incurrence, liens, restricted payments, assets sales and transactions with affiliates, changes in control and mergers or sales of all or substantially all of our assets.

~~On June 30, 2015, we entered into~~ the Credit Agreement among the Company, as borrower, the lenders party thereto, JPMorgan, as administrative agent, and the other agents party thereto. The Credit Agreement provided for a five-year Revolving Credit Facility in an aggregate principal amount of $200 million and a five-year Term Loan Facility in an aggregate principal amount of $100 million. Concurrently with our entry into the Credit Agreement, we borrowed the full amount of the Term Loan Facility. The obligations under the Original Credit Facilities were obligations of the Company and were guaranteed by our subsidiary, Cable One VoIP LLC (“Cable One VoIP”). The obligations under the Original Credit Facilities were secured, subject to certain exceptions, by substantially all of the assets of the Company and Cable One VoIP.

~~Borrowings under the~~ Original Credit Facilities bore interest, at our option, at a rate per annum determined by reference to either LIBOR or an adjusted base rate, in each case plus an applicable interest rate margin. The applicable interest rate margin with respect to LIBOR borrowings was a rate per annum between 1.50% and 2.25% and the applicable interest rate margin with respect to adjusted base rate borrowings was a rate per annum between 0.50% and 1.25%, in each case determined on a quarterly basis by reference to a pricing grid based upon our total net leverage ratio. In addition, we are required to pay commitment fees on any unused portion of the Revolving Credit Facility at a rate between 0.25% per annum and 0.40% per annum, determined by reference to the pricing grid.

~~The Revolving Credit Facility also gives us the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility. Letter of credit issuances~~ under the Revolving Credit Facility of $3.1 million at September 30, 2017 were held for the benefit of certain general and liability insurance matters and bore interest at a rate of 1.75% per annum. We had $196.9 million available for borrowing under the Revolving Credit Facility at September 30, 2017.

On May 1, 2017, we entered into the Restatement Agreement with JPMorgan, as administrative agent, and the lenders party thereto, pursuant to which we amended and restated the Credit Agreement and incurred $750 million of New Loans which were used, together with cash on hand, to (i) finance the transactions contemplated by the Merger Agreement, (ii) repay in full the Term Loan and (iii) pay related fees and expenses.

~~Table of Contents~~

~~The~~ New Loans consist of (a) a five-year Term Loan A in an aggregate principal amount of $250 million and (b) a seven-year Term Loan B in an aggregate principal amount of $500 million, which are guaranteed by our wholly owned subsidiaries and are secured, subject to certain exceptions, by substantially all assets of the Company and the guarantors.

The interest margins applicable to the New Loans under the Amended and Restated Credit Agreement are, at our option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (x) with respect to the Term Loan A, 2.25% to 1.50% for LIBOR loans and 1.25% to 0.50% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on our total net leverage ratio and (y) with respect to the Term Loan B, 2.25% for LIBOR loans and 1.25% for base rate loans. The Term Loan A may be prepaid at any time without premium and amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year after funding, 5.0% per annum for the second year after funding, 7.5% per annum for the third year after funding and 10.0% per annum for the fourth and fifth years after funding, with the outstanding balance due upon maturity. The Term Loan B amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum, with the balance due upon maturity. The Term Loan B is subject to a 1.0% prepayment penalty if prepaid within six months of funding, benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Amended and Restated Credit Agreement. Other than as set forth above, the New Loans are subject to terms substantially similar to those under the Credit Agreement.

As of September 30, 2017, outstanding borrowings under the Term Loan A and Term Loan B were $248.4 million and $498.8 million, and bore interest at a rate of 3.07% per annum and 3.57% per annum, respectively.

In connection with the New Loans, we incurred $15.2 million in debt issuance costs, of which $0.6 million was written off during the quarter ended June 30, 2017. Unamortized debt issuance costs totaled $20.6 million and $8.1 million at September 30, 2017 and December 31, 2016, respectively.

~~We were in compliance with all debt covenants as of September 30, 2017.~~

~~Capital Expenditures~~

~~We have significant ongoing capital expenditure requirements. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.~~

We have adopted capital expenditure disclosure guidance as supported by the NCTA. These disclosures are not required under GAAP, nor do they impact our accounting for capital expenditures under GAAP. The amounts of capital expenditures reported in this Quarterly Report on Form 10-Q are calculated in accordance with NCTA disclosure guidelines, which include assets acquired during the relevant periods.

~~The following table~~ ~~presents our major capital expenditure categories in accordance with NCTA disclosure guidelines for the nine months ended September 30, 2017 and 2016 (in thousands):~~

Nine Months Ended September 30,

2017

2016
Customer premise equipment
$ 24,907 $ 17,320
Commercial
7,077 5,046
Scalable infrastructure
30,811 32,645
Line extensions
10,381 6,943
Upgrade/rebuild
12,905 9,633
Support capital
42,749 19,756
Total
$ 128,830 $ 91,343

~~Table of Contents~~

~~Contractual Obligations and Contingent Commitments~~

~~The following is a summary of our contractual obligations~~ ~~as of September 30, 2017 (in thousands):~~

Years ending December 31,

Programming
Purchase
Commitments

Operating
Leases

Total Debt,
including
Capital Leases

Other
Purchase
Obligations⁽¹⁾

Total
2017 (remaining months)
$ 54,036 $ 579 $ 2,817 $ 7,186 $ 64,618
2018
182,335 1,794 14,392 21,212 219,733
2019
130,043 1,300 20,642 13,997 165,982
2020
62,756 909 26,892 7,494 98,051
2021
28,889 611 30,017 4,714 64,231
Thereafter
- 1,137 1,102,699 4,659 1,108,495
Total
$ 458,059 $ 6,330 $ 1,197,459 $ 59,262 $ 1,721,110

⁽¹⁾

Includes purchase obligations related to capital projects and other legally binding commitments. Other purchase orders made in the ordinary course of business are excluded from the table above. Any amounts for which we are liable under purchase orders are reflected in our ~~Condensed Consolidated Balance Sheet within Accounts payable and accrued liabilities.~~

Programming and content purchases represent contracts that we have with cable television networks and broadcast stations to provide programming services to our subscribers. The amounts included above represent estimates of the future programming costs for these contract requirements and commitments based on tier placement as of September 30, 2017 and estimated subscriber numbers applied to the per-subscriber rates contained in these contracts. Actual amounts due under such contracts may differ from the amounts above based on the actual subscriber numbers and tier placements. In addition, programming purchases sometimes occur pursuant to non-binding commitments, which are not reflected in the summary above.

~~Total~~ ~~debt relates to principal repayment obligations as defined by the agreements described in the “~~~~Financing Activity~~~~” section above and for capital leases.~~

~~The following items are not included as contractual obligations due to various factors discussed below. However, we incur these costs as part of our operations:~~

●

We rent utility poles used in our operations. Generally, pole rentals are cancellable on short notice, but we anticipate that such rentals will recur. Rent expense for pole attachments was $2.2 million and $1.4 million for the three months ended September 30, 2017 and 2016, respectively, and $5.6 million and $4.2 million for the nine months ended September 30, 2017 and 2016, respectively.

●

We pay franchise fees under multi-year franchise agreements based on a percentage of revenues generated from video service per year. Franchise fees and other franchise-related costs included in the Condensed Consolidated Statements of Operations and Comprehensive Income were $4.1 million and $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $11.6 million and $10.7 million for the nine months ended September 30, 2017 and 2016, respectively.

●

We have cable franchise agreements requiring the construction of cable plant and the provision of services to customers within the franchise areas. In connection with these obligations under existing franchise agreements, we obtain surety bonds or letters of credit guaranteeing performance to municipalities and public utilities and payment of insurance premiums. Such surety bonds and letters of credit as of September 30, 2017 and December 31, 2016 totaled $8.8 million and $5.1 million, respectively. Payments under these arrangements are required only in the event of nonperformance. We do not expect that these contingent commitments will result in any amounts being paid.

~~Off-Balance Sheet Arrangements~~

~~With the exception of~~ ~~contractual obligations, surety bonds and letters of credit noted above, we do not have any off-balance-sheet arrangements or financing activities with special-purpose entities.~~

~~Critical Accounting Policies and Estimates~~

~~The preparation of financial statements in conformity with GAAP requires management to make estimates~~, assumptions and judgments that affect the amounts reported in the financial statements. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

~~Table of Contents~~

~~An accounting policy is considered to be critical if it is important to our~~ results of operations and financial condition and if it requires management’s most difficult, subjective and complex judgments in its application. Except for the change in accounting estimate regarding labor capitalization as discussed in Note 1 of the Notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to the critical accounting policies and estimates included in our Annual Report on Form 10-K as filed with the SEC on March 1, 2017.

Cautionary Statement Regarding Forward-Looking Statements

This document 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 “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. 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:

●

~~the effect of our acquisition of NewWave on our ability to retain and hire key personnel and to maintain relationships with customers, suppliers and other business partners;~~

●

~~the potential diversion of senior management’s attention from our ongoing operations due to the acquisition of NewWave;~~

●

uncertainties as to our ability and the amount of time necessary to realize the expected synergies and other benefits of the acquisition of NewWave;

●

our ability to integrate NewWave’s operations into our own in an efficient and effective manner;

●

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

●

recent and future changes in technology;

●

our ability to continue to grow our business services product;

●

increases in programming costs and retransmission fees;

●

our ability to obtain hardware, software and operational support from vendors;

●

the effects of any new significant acquisitions by us;

●

adverse economic conditions;

●

the integrity and security of our network and information systems;

●

~~legislative~~the impact of possible security breaches and ~~regulatory efforts~~other disruptions, including cyber-attacks;

●

our failure to ~~impose new legal requirements on~~obtain necessary intellectual and proprietary rights to operate our ~~data services;~~business and the risk of intellectual property claims and litigation against us;

●

our ability to retain key employees;

●

changing and additional regulation of our data, video and voice services, including legislative and regulatory efforts to impose new legal requirements on our data services;

●

our ability to renew cable system franchises;

●

increases in pole attachment costs;

●

~~the failure to meet earnings expectations;~~changes in local governmental franchising authority and broadcast carriage regulations;

●

the ~~adequacy~~potential adverse effect of our ~~risk management framework;~~indebtedness on our business, financial condition or results of operations and cash flows;

●

the possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase significantly;

●

our ability to incur future indebtedness;

●

fluctuations in our stock price;

●

our ability to continue to pay dividends;

●

dilution from equity awards and potential stock issuances in connection with acquisitions;

●

provisions in our charter, by-laws and Delaware law that could discourage takeovers;

●

changes in our estimates of the impact of the 2017 Federal tax ~~and other laws and regulations;~~reform legislation;

●

changes in GAAP or other applicable accounting policies; and

●

the other risks and uncertainties detailed in the section titled ~~“Risk Factors”~~“Risk Factors” in our ~~Annual Report on~~2017 Form ~~10-K as filed with the SEC on March 1, 2017.~~10-K.

Any forward-looking statements made by us in this document 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.

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The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our 2017 Form 10-K. Our results of operations for the three months ended March 31, 2018 may not be indicative of our future results.

Overview

We are a fully integrated provider of data, video and voice services in 21 Western, Midwestern and Southern states. We provide these broadband services to residential and business customers in more than 750 communities. The markets we serve are primarily non-metropolitan, secondary markets, with 77% of our customers located in seven states: Arizona, Idaho, Illinois, Mississippi, Missouri, Oklahoma and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We are among the 10 largest cable system operators in the United States based on customers and revenues in 2017, providing service to 801,136 residential and business customers out of approximately 2.1 million homes passed as of March 31, 2018. Of these customers, 651,550 subscribed to data services, 350,874 subscribed to video services and 131,920 subscribed to voice services.

We generate substantially all of our revenues through five primary products. Ranked by share of our total revenues through the first three months of 2018, they are residential data (44.6%), residential video (33.4%), business services (data, voice and video – 14.2%), residential voice (4.0%) and advertising sales (2.0%). The profit margins, growth rates and capital intensity of our five primary products vary significantly due to differences in competition, product maturity and relative costs.

On May 1, 2017, we completed the acquisition of all of the outstanding equity interests of NewWave. We paid a purchase price of $740.2 million in cash on a debt-free basis, subject to customary post-closing adjustments. Our results of operations for the three months ended March 31, 2018 include the impact of NewWave operations while our comparable results for 2017 do not, as the acquisition was not completed until the second quarter of 2017.

Prior to 2012, we were focused on growing revenues through subscriber retention and growth in overall primary service units (“PSUs”). Accordingly, our strategies consisted of, among others, offering promotional discounts to new and existing subscribers adding new services and to subscribers purchasing more than one service offering. Since 2012, we have adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. We believe the declining profitability of residential video services is primarily due to increasing programming costs and retransmission fees and competition from other content providers and the declining revenues from residential voice services is primarily due to the increasing use of wireless voice services in addition to, or instead of, residential voice service. Beginning in 2013, we shifted our focus away from maximizing customer PSUs and towards growing and maintaining our higher margin businesses, namely residential data and business services. Separately, we have also focused on retaining customers with a high expected lifetime value (“LTV”), who are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted EBITDA, Adjusted EBITDA less capital expenditures and margins (refer to the section entitled “Use of Adjusted EBITDA” for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure).

The trends described above have impacted our four largest product lines in the following ways:

●

Residential data. We experienced growth in the number of, and revenues from, our residential data customers every year since 2013. We expect this growth to continue due to projected increases in the number of potential customers for us to serve, as there are still a number of households in our markets that do not subscribe to data services from any provider. We expect to capture a portion of these customers and anticipate capturing additional market share from existing data subscribers due to our continued upgrades in broadband capacity, our ability to offer higher access speeds than many of our competitors and our Wi-Fi support service.

●

Residential video. Residential video service is a competitive and highly penetrated business. As we focus on the higher-margin businesses of residential data and business services, we are de-emphasizing our residential video business and, as a result, expect residential video revenues to continue to decline in the future.

●

Residential voice. We have experienced declines in residential voice customers as a result of homes in the United States deciding to terminate their residential voice service and exclusively use wireless voice service. We believe this trend will continue because of competition from wireless voice service providers. Revenues from residential voice customers have declined over recent years, and we expect this decline will continue.

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●

Business services. We have experienced significant growth in business data and voice customers and revenues and expect this growth to continue. We attribute this growth to our strategic focus shift on increasing sales to business customers and our recently expanded efforts to attract enterprise business customers. Margins in products sold to business customers have remained attractive, and we expect this trend to continue.

We continue to experience increased competition, particularly from telephone companies, cable and municipal overbuilders, over-the-top (“OTT”) video providers and direct broadcast satellite (“DBS”) television providers. Because of the levels of competition we face, we believe it is important to make investments in our infrastructure. We made elevated levels of capital investments between 2012 and 2017 to increase our cable plant capacities and reliability, launch all-digital video services, which has freed up approximately half of average plant bandwidth for data services, and increase data capacity by moving from four-channel bonding to 32-channel bonding. We expect to continue devoting financial resources to infrastructure improvements, including in the new markets we acquired in the NewWave transaction, because we believe these investments are necessary to remain competitive. We expect to spend up to $50 million in 2018 and 2019, in addition to the $10 million spent in 2017, to enhance the acquired NewWave systems by rebuilding low capacity markets, launching all-digital video services, implementing 32-channel bonding to enable a 1 gigabit-per-second (“Gbps”) download speed product launch, converting back office functions such as billing, accounting and service provisioning and migrating products to legacy Cable One platforms.

Our goals are to continue to grow residential data and business services and to maintain profit margins to deliver strong Adjusted EBITDA. To achieve these goals, we intend to continue our industrial engineering-driven cost management, remain focused on customers with high LTV and follow through with further planned investments in broadband plant upgrades and new data services offerings for residential and business customers.

Our business is subject to extensive governmental regulation. Such regulation has led to increases in our operational and administrative expenses. In addition, we could be significantly impacted by changes to the existing regulatory framework, whether triggered by legislative, administrative or judicial rulings. In 2015, the FCC used its Title II authority to regulate broadband internet access services through the Open Internet Order (the “Order”), which imposed on all providers of broadband internet access service, including us, obligations that limit the ways certain types of traffic can be managed and prescribes certain additional disclosure requirements. The Order was upheld in the courts, but in September 2017, several parties, including the American Cable Association and NCTA – The Internet & Television Association (the “NCTA”), filed petitions for certiorari with the U.S. Supreme Court. Responses to the petitions were due May 4, 2018. However, in December 2017, the FCC rescinded the majority of the open internet rules previously adopted in the Order, with the exception of the disclosure requirements. Several parties have challenged the FCC’s new rules in Federal courts, and those appeals are pending. Congress and numerous states also have proposed legislation regarding net neutrality. Several states have adopted legislation that requires entities providing broadband internet access service in the state to comply with net neutrality requirements or prohibits state and local government agencies from contracting with internet service providers that engage in certain network management activities based on paid prioritization, content blocking or other discrimination. We cannot predict whether or when future changes to the regulatory framework will occur at the FCC, in Congress, at the state level or in the courts. We also cannot predict whether or to what extent the rules as revised by the FCC, Congress, the states or the courts may affect our operations or impose costs on our business.

Results of Operations

Revision of Previously Issued Financial Statements and Adoption of Revenue Recognition Standard

In conjunction with the error correction in the fourth quarter of 2017 associated with our historical accounting for certain categories of internal labor and related costs, we revised our historical financial statements to properly reflect the impact of the labor capitalization, including the related impact to depreciation expense and income taxes. As a result, the financial statements for the three months ended March 31, 2017 have been revised to reflect the error correction. Refer to note 2 to the condensed consolidated financial statements for additional details.

Further, we adopted the revenue recognition standard, ASC 606 - Revenue from Contracts with Customers, effective January 1, 2018, using the full retrospective method. The adoption resulted in the deferral of all business installation revenues and all residential and business commission expenses over a period of time, instead of immediate recognition. The financial statements for the three months ended March 31, 2017 have been recasted to reflect the impact of the revenue recognition standard adoption. Refer to note 3 to the condensed consolidated financial statements for additional details.

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PSU and Customer Counts

During the 12 months ended March 31, 2018, our total PSUs increased 190,462, or 20.2%, compared to our total PSUs as of March 31, 2017, with increases in residential data, video and voice PSUs of 114,623, 40,309, and 11,867, respectively, and an increase in business PSUs of 23,663. Our total customer relationships increased 140,168, or 21.2%, year-over-year. The year-over-year increases were primarily attributable to new customers acquired as a result of the NewWave acquisition.

The following table provides an overview of selected customer data for the time periods specified:

	As of March 31,				Annual Net Gain/(Loss)
	2018		2017		Change		% Change
Residential data PSUs		592,062		477,439		114,623		24.0
Residential video PSUs ⁽¹⁾		334,035		293,726		40,309		13.7
Residential voice PSUs		106,608		94,741		11,867		12.5
Total residential PSUs		1,032,705		865,906		166,799		19.3

Business data PSUs ⁽²⁾		59,488		45,888		13,600		29.6
Business video PSUs		16,839		13,461		3,378		25.1
Business voice PSUs ⁽³⁾		25,312		18,627		6,685		35.9
Total business PSUs		101,639		77,976		23,663		30.3

Total PSUs		1,134,344		943,882		190,462		20.2

Total residential customer relationships		733,576		608,515		125,061		20.6
Total business customer relationships		67,560		52,453		15,107		28.8
Total customer relationships		801,136		660,968		140,168		21.2

⁽¹⁾	Residential video PSUs include all basic residential customers who receive video services and may have one or more digital set-top boxes or cable cards deployed. Residential bulk multi-dwelling accounts are included in our video PSUs at the individual unit level.
⁽²⁾	Business data PSUs include commercial accounts that receive data service via a cable modem and commercial accounts that receive broadband service optically via fiber connections.
⁽³⁾	Business voice customers who have multiple voice lines are only counted once in the PSU total.

The following table provides an overview of selected customer data for our legacy Cable One cable systems excluding the impact of PSUs and customers from legacy NewWave cable systems for the time periods specified:

	As of March 31,				Annual Net Gain/(Loss)
	2018		2017		Change			% Change
Residential data PSUs		482,251		477,439		4,812			1.0
Residential video PSUs ⁽¹⁾		260,686		293,726		(33,040	)		(11.2	)
Residential voice PSUs		85,644		94,741		(9,097	)		(9.6	)
Total residential PSUs		828,581		865,906		(37,325	)		(4.3	)

Business data PSUs ⁽²⁾		49,976		45,888		4,088			8.9
Business video PSUs		12,756		13,461		(705	)		(5.2	)
Business voice PSUs ⁽³⁾		20,351		18,627		1,724			9.3
Total business PSUs		83,083		77,976		5,107			6.5

Total PSUs		911,664		943,882		(32,218	)		(3.4	)

Total residential customer relationships		599,006		608,515		(9,509	)		(1.6	)
Total business customer relationships		56,313		52,453		3,860			7.4
Total customer relationships		655,319		660,968		(5,649	)		(0.9	)

⁽¹⁾	Residential video PSUs include all basic residential customers who receive video services and may have one or more digital set-top boxes or cable cards deployed. Residential bulk multi-dwelling accounts are included in our video PSUs at the individual unit level.
⁽²⁾	Business data PSUs include commercial accounts that receive data service via a cable modem and commercial accounts that receive broadband service optically via fiber connections.
⁽³⁾	Business voice customers who have multiple voice lines are only counted once in the PSU total.

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In recent years, our customer mix has shifted, causing subscribers to move from triple-play packages combining data, video and voice services to single and double-play packages. This is largely because some residential video customers have defected to DBS services and OTT offerings in lieu of video and more households have discontinued residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers.

Comparison of Three Months Ended March 31, 2018 to Three Months Ended March 31, 2017

Revenues

Revenues increased $58.3 million, or 28.1%, due primarily to increases in residential data, residential video and business services revenues of $28.3 million, $16.3 million and $10.7 million, respectively. The increase was the result of the NewWave operations and organic growth in our higher margin product lines of residential data and business services.

Revenues by service offering were as follows for the three months ended March 31, 2018 and 2017, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):

	Three Months Ended March 31,
	2018				2017				2018 vs. 2017
			% of				% of		$			%
	Revenues		Revenues		Revenues		Revenues		Change			Change
Residential data	$	118,487		44.6	$	90,201		43.5	$	28,286			31.4
Residential video		88,757		33.4		72,454		34.9		16,303			22.5
Residential voice		10,671		4.0		9,867		4.8		804			8.1
Business services		37,691		14.2		26,968		13.0		10,723			39.8
Advertising sales		5,241		2.0		5,622		2.7		(381	)		(6.8	)
Other		4,914		1.8		2,322		1.1		2,592			111.6
Total revenues	$	265,761		100.0	$	207,434		100.0	$	58,327			28.1

Average monthly revenue per unit for the indicated service offerings were as follows for the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,				2018 vs. 2017
	2018		2017		$ Change			% Change
Residential data ⁽¹⁾	$	67.12	$	63.53	$	3.59			5.7
Residential video ⁽¹⁾	$	86.92	$	80.47	$	6.45			8.0
Residential voice ⁽¹⁾	$	32.84	$	34.18	$	(1.34	)		(3.9	)
Business services ⁽²⁾	$	187.40	$	172.87	$	14.53			8.4

⁽¹⁾	Average monthly revenue per unit values represent the applicable quarterly residential service revenues divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by three.
⁽²⁾	Average monthly revenue per unit values represent quarterly business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by three.

Revenues by service offering, excluding the impact of revenues related to legacy NewWave cable systems, were as follows for the three months ended March 31, 2018 and 2017, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):

	Three Months Ended March 31,
	2018				2017				2018 vs. 2017
			% of				% of		$			%
	Revenues		Revenues		Revenues		Revenues		Change			Change
Residential data	$	99,835		46.0	$	90,201		43.5	$	9,634			10.7
Residential video		69,457		32.0		72,454		34.9		(2,997	)		(4.1	)
Residential voice		8,993		4.1		9,867		4.8		(874	)		(8.9	)
Business services		30,283		13.9		26,968		13.0		3,315			12.3
Advertising sales		4,907		2.3		5,622		2.7		(715	)		(12.7	)
Other		3,674		1.7		2,322		1.1		1,352			58.2
Total revenues	$	217,149		100.0	$	207,434		100.0	$	9,715			4.7

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Average monthly revenue per unit, excluding the impact of revenues and customers related to legacy NewWave cable systems, were as follows for the three months ended March 31, 2018 and 2017:

	Three Months Ended March 31,				2018 vs. 2017
	2018		2017		$ Change		% Change
Residential data ⁽¹⁾	$	69.45	$	63.53	$	5.92		9.3
Residential video ⁽¹⁾	$	87.25	$	80.47	$	6.78		8.4
Residential voice ⁽¹⁾	$	34.44	$	34.18	$	0.26		0.8
Business services ⁽²⁾	$	180.79	$	172.87	$	7.92		4.6

⁽¹⁾	Average monthly revenue per unit values represent the applicable quarterly residential service revenues divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by three.
⁽²⁾	Average monthly revenue per unit values represent quarterly business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by three.

Residential data service revenues increased $28.3 million, or 31.4%, due primarily to an increase in residential data customers of 24.0% year-over-year as a result of the NewWave operations and organic subscriber growth, a modem rental rate adjustment in the first quarter of 2018, a reduction in package discounting and increased subscriptions to premium tiers.

Residential video service revenues increased $16.3 million, or 22.5%, due primarily to an increase in residential video customers of 13.7% as a result of the NewWave operations and a broadcast television surcharge increase in the first quarter of 2018.

Residential voice service revenues increased $0.8 million, or 8.1%, due primarily to an increase in residential voice customers of 12.5% as a result of the NewWave operations.

Business services revenues increased $10.7 million, or 39.8%, due primarily to the NewWave operations, growth in our business data and voice services to small and medium-sized businesses and enterprise customers and a rate adjustment for business video customers in the first quarter of 2018. Total business customer relationships increased 28.8% year-over-year. Overall, business services comprised 14.2% of our total revenues for the first quarter of 2018 compared to 13.0% of our total revenues for the first quarter of 2017.

Advertising sales revenues decreased $0.4 million, or 6.8%, due primarily to fewer legacy Cable One video customers to be reached by advertising spots.

Costs and Expenses

Operating expenses (excluding depreciation and amortization) were $94.7 million in the first quarter of 2018 and increased $25.7 million, or 37.1%, compared to the first quarter of 2017. Operating expenses as a percentage of revenues were 35.6% for the first quarter of 2018 compared to 33.3% for the year-ago quarter. Additional operating expenses attributable to the NewWave operations were $24.3 million for the first quarter of 2018. The remaining increase was due primarily to higher repairs and maintenance costs of $0.8 million, group insurance costs of $0.3 million and contract labor costs of $0.3 million. Excluding the impact of the NewWave operations, operating expenses would have been $70.4 million in the first quarter of 2018, an increase of $1.4 million, or 2.0%, compared to the first quarter of 2017. Operating expenses as a percentage of revenues, excluding the impact of the NewWave operations, would have been 32.4% in the first quarter of 2018 compared to 33.3% in the first quarter of 2017.

Selling, general and administrative expenses were $51.0 million for the first quarter of 2018 and increased $4.6 million, or 9.8%, compared to the first quarter of 2017. Selling, general and administrative expenses as a percentage of revenues were 19.2% and 22.4% for the first quarter of 2018 and 2017, respectively. Additional selling, general and administrative expenses attributable to the NewWave operations were $6.4 million for the first quarter of 2018. Excluding incremental expenses associated with the NewWave operations, selling, general and administrative expenses would have decreased $1.9 million, or 4.0%, to $44.5 million due to $1.5 million of acquisition-related costs and $1.3 million of severance costs incurred in the first quarter of 2017 that did not recur in 2018, partially offset by a $0.9 million increase in group insurance costs. Selling, general and administrative expenses as a percentage of revenues, excluding the impact of the NewWave operations, would have been 20.5% in the first quarter of 2018 compared to 22.4% in the first quarter of 2017.

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Depreciation and amortization expense was $48.8 million for the first quarter of 2018 and increased $9.2 million, or 23.4%, compared to the first quarter of 2017. The increase was due primarily to new assets placed in service since the first quarter of 2017, including property, plant and equipment and finite-lived intangible assets acquired as part of the NewWave acquisition, partially offset by assets that became fully depreciated since the first quarter of 2017. Depreciation and amortization expense related to the NewWave operations was $12.5 million for the first quarter of 2018. As a percentage of revenues, depreciation and amortization expense was 18.4% for the first quarter of 2018 compared to 19.1% for the first quarter of 2017.

We recognized a $6.6 million net loss on disposal of assets during the first quarter of 2018. In the first quarter of 2017, we recognized a $6.1 million net gain on disposal of assets, which primarily related to the sale of a non-operating property.

Interest Expense

Interest expense increased $7.1 million, or 93.6%, to $14.7 million due primarily to additional outstanding debt that was incurred in the second quarter of 2017 to finance the NewWave acquisition.

Income Tax Provision

The income tax provision decreased $9.2 million, or 48.3%. Our effective tax rate was 19.6% and 37.3% for the first quarter of 2018 and 2017, respectively. The decrease in the effective tax rate was due primarily to a reduction in the Federal corporate income tax rate from 35% to 21% as a result of the 2017 Federal tax reform legislation and $2.4 million of income tax benefits attributable to equity-based compensation awards recorded during the first quarter of 2018.

Use of Adjusted EBITDA

We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below.

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 disposal of assets, billing system conversion costs, other (income) expense, and other unusual operating expenses, as provided in the table below. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our business as well as other non-cash or special items and is unaffected by our 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 our cash cost of debt financing. These costs are evaluated through other financial measures.

We use Adjusted EBITDA to assess our performance. In addition, Adjusted EBITDA generally correlates to the measure used in the leverage ratio calculation under our outstanding Senior Credit Facilities and Notes to determine compliance with the covenants contained in the Senior Credit Facilities and ability to take certain actions under the Indenture governing the Notes. Adjusted EBITDA is also a significant performance measure used by us in our 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.

	Three Months Ended March 31,						2018 vs. 2017
(dollars in thousands)	2018			2017			$ Change			% Change
Net income ⁽¹⁾	$	40,653		$	32,113		$	8,540			26.6

Plus: Interest expense		14,723			7,606			7,117			93.6
Income tax provision		9,902			19,144			(9,242	)		(48.3	)
Depreciation and amortization		48,778			39,536			9,242			23.4
Equity-based compensation		2,338			2,427			(89	)		(3.7	)
Severance expense		-			1,254			(1,254	)		(100.0	)
(Gain) loss on deferred compensation		(84	)		90			(174	)		(193.3	)
Acquisition-related costs		-			1,482			(1,482	)		(100.0	)
(Gain) loss on disposal of assets, net		6,634			(6,146	)		12,780			(207.9	)
Billing system conversion costs		840			-			840			NM
Other (income) expense, net		(617	)		(287	)		(330	)		115.0

Adjusted EBITDA ⁽¹⁾	$	123,167		$	97,219		$	25,948			26.7

NM = Not meaningful.
⁽¹⁾ Net income and Adjusted EBITDA for the three months ended March 31, 2018 include NewWave operations. Without the contribution from NewWave operations, net income would have increased 17.7% to $37.8 million and Adjusted EBITDA would have increased 7.4% to $104.4 million for the three months ended March 31, 2018 compared to the prior year period.

We believe Adjusted EBITDA is useful to investors in evaluating our operating performance. Adjusted EBITDA and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies.

Financial Condition: Liquidity and Capital Resources

Liquidity

During the first quarter of 2018, our cash and cash equivalents increased $23.7 million. At March 31, 2018, we had $185.5 million of cash on hand compared to $161.8 million at December 31, 2017. Our working capital was $115.1 million and $76.7 million at March 31, 2018 and December 31, 2017, respectively.

The following table shows a summary of our cash flows for the periods indicated (dollars in thousands):

	Three Months Ended March 31,						2018 vs. 2017
	2018			2017			$ Change			% Change
Net cash provided by operating activities	$	94,692		$	78,260		$	16,432			21.0
Net cash used in investing activities		(45,619	)		(26,985	)		(18,634	)		69.1
Net cash used in financing activities		(25,332	)		(15,848	)		(9,484	)		59.8
Change in cash and cash equivalents		23,741			35,427			(11,686	)		(33.0	)
Cash and cash equivalents, beginning of period		161,752			138,040			23,712			17.1
Cash and cash equivalents, end of period	$	185,493		$	173,467		$	12,026			6.9

NM = Not meaningful.

Net cash provided by operating activities was $94.7 million and $78.3 million for the first quarter of 2018 and 2017, respectively. The year-over-year increase of $16.4 million was primarily attributable to an increase in Adjusted EBITDA of $25.9 million, partially offset by an unfavorable change in net operating assets and liabilities and a $6.5 million increase in cash paid for interest. The unfavorable change in net operating assets and liabilities primarily reflects changes to income taxes payable and prepaid and other assets as a result of the timing of payments compared to the first quarter of 2017.

Net cash used in investing activities was $45.6 million and $27.0 million for the first quarter of 2018 and 2017, respectively. The increase of $18.6 million from the prior year period was due primarily to an $8.8 million increase in cash paid for capital expenditures, of which $6.7 million related to NewWave operations, and $10.1 million of sales proceeds received from the sale of a non-operating property in 2017 that did not recur in 2018.

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Net cash used in financing activities was $25.3 million for the first quarter of 2018 compared to $15.8 million for the first quarter of 2017. The $9.5 million increase from the prior year period was due primarily to a $6.9 million increase in withholding tax payments for equity award vesting and exercise activities, a $1.9 million increase in share repurchases, a $1.6 million increase in debt principal repayments and a $1.5 million increase in dividend payments, partially offset by a decrease in the change in cash overdrafts due to the timing of payments.

On July 1, 2015, the Board authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of our common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through the end of the first quarter of 2018, we have repurchased 169,144 shares at an aggregate cost of $75.6 million. In first quarter of 2018, we repurchased 3,311 shares at an aggregate cost of $2.3 million.

We currently expect to continue to pay quarterly cash dividends on shares of our common stock, subject to approval of the Board. During the first quarter of 2018, the Board approved a quarterly dividend of $1.75 per share of common stock, which was paid on March 9, 2018.

Financing Activity

On June 17, 2015, we issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022. The Notes mature on June 15, 2022 and interest is payable on June 15th and December 15th of each year. The Notes are jointly and severally guaranteed on a senior unsecured basis (the “Notes Guarantees”) by each of our subsidiaries that guarantee the Senior Credit Facilities (the “Notes Guarantors”). In addition, if one of our subsidiaries becomes a guarantor in respect of the Senior Credit Facilities or certain other indebtedness, it is required to provide (subject to customary exceptions) a Notes Guarantee. The Notes are unsecured and senior obligations of the Company. The Notes Guarantees are unsecured and senior obligations of the Notes Guarantors.

The Notes were issued pursuant to the Indenture. The Indenture provides for early redemption of the Notes, at our option, at the prices and subject to the terms specified in the Indenture. The Indenture includes certain covenants relating to debt incurrence, liens, restricted payments, asset sales and transactions with affiliates, changes in control and mergers or sales of all or substantially all of our assets. The Indenture also provides for customary events of default (subject, in certain cases, to customary grace periods).

On June 30, 2015, we entered into the Credit Agreement with the lenders party thereto, JPMorgan, as administrative agent, and the other agents party thereto. The Credit Agreement provided for a five-year Revolving Credit Facility in an aggregate principal amount of $200 million and a five-year Term Loan Facility in an aggregate principal amount of $100 million. Concurrently with the entry into the Credit Agreement, we borrowed the full amount of the Term Loan Facility. The Revolving Credit Facility also gives us the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.

On May 1, 2017, we entered into the Amended and Restated Credit Agreement and incurred $750 million of New Loans which were used, together with cash on hand, to finance the NewWave acquisition, repay in full the Term Loan Facility and pay related fees and expenses.

The New Loans consist of the five-year Term Loan A in an aggregate principal amount of $250 million and the seven-year Term Loan B in an aggregate principal amount of $500 million. The obligations under the Amended and Restated Credit Agreement are guaranteed by our wholly owned domestic subsidiaries and are secured, subject to certain exceptions, by substantially all assets of the Company and the guarantors.

On April 23, 2018, we entered into the Repricing Amendment to the Amended and Restated Credit Agreement to, among other things, (i) decrease the applicable margin for the Term Loan B to 1.75% for LIBOR borrowings and 0.75% for base rate borrowings, (ii) reset the period during which a prepayment premium in respect of the Term Loan B may be required for a Repricing Transaction until six months after the effective date of the Repricing Amendment and (iii) reset the period during which the Term Loan B benefits from certain “most favored nation” pricing protections until 12 months after the effective date of the Repricing Amendment. Other than as set forth above, all other material terms and provisions of the Senior Credit Facilities remain substantially the same. Excluding the costs of the transaction, the interest rate reduction is expected to save the Company approximately $2.5 million annually in interest costs. Debt issuance costs incurred for the repricing totaled $2.0 million.

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The interest margins applicable to the Senior Credit Facilities are, at our option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A and the Revolving Credit Facility, 1.50% to 2.25% for LIBOR loans and 0.50% to 1.25% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on our total net leverage ratio and (ii) with respect to the Term Loan B, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any date after April 22, 2018, 1.75% for LIBOR loans and 0.75% for base rate loans. The Term Loan A may be prepaid at any time without premium and amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year after funding, 5.0% per annum for the second year after funding, 7.5% per annum for the third year after funding and 10.0% per annum for the fourth and fifth years after funding, with the outstanding balance due upon maturity. The Term Loan B amortizes quarterly at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum, with the outstanding balance due upon maturity. The Term Loan B is subject to a 1.0% prepayment premium if prepaid in connection with a Repricing Transaction within six months of the effective date of the Repricing Amendment, benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Amended and Restated Credit Agreement. Other than as set forth above, the New Loans are subject to terms substantially similar to those under the Credit Agreement.

We may, subject to certain specified terms and provisions, obtain additional credit facilities of up to $425 million under the Amended and Restated Credit Agreement plus an unlimited amount so long as, on a pro forma basis, our First Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is no greater than 1.80 to 1.00. The Amended and Restated Credit Agreement contains customary representations, warranties and affirmative and negative covenants as well as customary events of default. The Amended and Restated Credit Agreement also requires us to maintain specified ratios of total net indebtedness and first lien net indebtedness to consolidated operating cash flow. Refer to note 8 to the consolidated financial statements included in our 2017 Form 10-K for additional information.

We were in compliance with all debt covenants as of March 31, 2018.

As of March 31, 2018, outstanding borrowings under the Term Loan A and Term Loan B were $245.3 million and $496.3 million, and bore interest at a rate of 4.06% per annum and 4.56% per annum, respectively. Letter of credit issuances under the Revolving Credit Facility totaled $3.1 million and we had $196.9 million available for borrowing under the Revolving Credit Facility at March 31, 2018.

Capital Expenditures

We have significant ongoing capital expenditure requirements. In addition, we expect to spend up to $50 million in 2018 and 2019, in addition to the $10 million spent in 2017, to enhance the acquired NewWave systems by rebuilding low capacity markets, launching all-digital video services, implementing 32-channel bonding to enable a 1 Gbps download speed product launch, converting back office functions such as billing, accounting and service provisioning and migrating products to legacy Cable One platforms. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.

The following table presents our major capital expenditure categories in accordance with NCTA disclosure guidelines for the three months ended March 31, 2018 and 2017 (in thousands):

	Three Months Ended March 31,
	2018		2017
Customer premise equipment	$	12,000	$	6,161
Commercial		1,593		1,637
Scalable infrastructure		9,759		7,416
Line extensions		3,501		2,338
Upgrade/rebuild		4,474		5,493
Support capital		9,692		12,872
Total	$	41,019	$	35,917

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Contractual Obligations and Contingent Commitments

The following is a summary of our outstanding contractual obligations as of March 31, 2018 (in thousands):

Year ending December 31,	Programming Purchase Commitments ⁽¹⁾		Operating Lease Payments		Debt Payments ⁽²⁾		Other Purchase Obligations ⁽³⁾		Total
2018 (remaining nine months)	$	167,736	$	1,363	$	11,575	$	18,226	$	198,900
2019		167,707		1,392		20,642		15,947		205,688
2020		100,976		984		26,892		10,636		139,488
2021		32,739		720		30,017		5,823		69,299
2022		410		334		180,017		1,042		181,803
Thereafter		-		422		922,683		4,096		927,201
Total	$	469,568	$	5,215	$	1,191,826	$	55,770	$	1,722,379

⁽¹⁾	Programming purchase commitments represent contracts that we have with cable television networks and broadcast stations to provide programming services to our subscribers. The amounts included represent estimates of the future programming costs for these purchase commitments based on tier placement as of March 31, 2018 and the estimated subscriber numbers applied to the per-subscriber rates contained in these contracts. Actual amounts due under such contracts may differ from the amounts above based on the actual subscriber numbers and tier placements. In addition, programming purchases sometimes occur pursuant to non-binding commitments, which are not reflected in the amounts shown.
⁽²⁾	Debt payments include principal repayment obligations as defined by the agreements described in the Financing Activity section and for capital lease payment obligations.
⁽³⁾	Other purchase obligations includes purchase obligations related to capital projects and other legally binding commitments. Other purchase orders made in the ordinary course of business are excluded from the amounts shown. Any amounts for which we are liable under purchase orders are reflected in our condensed consolidated balance sheet within accounts payable and accrued liabilities.

We incur the following costs as part of our operations, however, they are not included within the contractual obligations table above for the reasons discussed below:

●

We rent space on utility poles in order to provide our services to certain subscribers. Generally, pole rentals are cancellable on short notice, but we anticipate that such rentals will recur. Rent expense for pole attachments was $2.2 million and $1.5 million for the three months ended March 31, 2018 and 2017, respectively.

●

We pay fees to franchise authorities under multi-year franchise agreements based on a percentage of revenues generated from video service each year. Franchise fees and other franchise-related costs included in both revenues and operating expenses within the condensed consolidated statements of operations and comprehensive income were $4.1 million and $3.5 million for the three months ended March 31, 2018 and 2017, respectively.

●

We have cable franchise agreements requiring the construction of cable plant and the provision of services to customers within the franchise areas. In connection with these obligations under existing franchise agreements, we obtain surety bonds or letters of credit guaranteeing performance to municipalities and public utilities and payment of insurance premiums. Such surety bonds and letters of credit as of March 31, 2018 and December 31, 2017 totaled $12.1 million and $12.0 million, respectively. Payments under these arrangements are required only in the remote event of nonperformance. We do not expect that these contingent commitments will result in any amounts being paid.

Off-Balance Sheet Arrangements

With the exception of the items discussed within the preceding “Contractual Obligations and Contingent Commitments” section, we do not have any off-balance sheet arrangements or financing arrangements with special-purpose entities.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

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An accounting policy is considered to be critical if it is important to our results of operations and financial condition and if it requires management’s most difficult, subjective and complex judgments in its application. With the exception of changes to our revenue recognition accounting policy due to the adoption of the new revenue recognition standard effective January 1, 2018 discussed in note 1 of the notes to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policy and estimate disclosures included in our 2017 Form 10-K.

~~Item~~ITEM 3. ~~Quantitative and Qualitative Disclosures About Market Risk~~ QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential ~~gain/~~gain or loss arising from changes in market rates and prices, such as interest rates. There have been no ~~significant~~material changes to our market risk disclosures included in ~~our Annual Report on~~the 2017 Form ~~10-K~~ ~~as filed with the SEC on March 1, 2017.~~10-K.

~~Item~~ITEM 4. ~~Controls and Procedures~~ CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The ~~Company~~’sCompany’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

As a result of the NewWave acquisition on May 1, 2017, ~~we have implemented~~the Company has incorporated internal controls over ~~financial reporting~~significant processes specific to ~~include consolidation~~the acquisition and to post-acquisition activities necessary for the integration of ~~NewWave and~~the combined company, including controls associated with acquisition-related accounting and ~~disclosures.~~related disclosures as well as the adoption of common financial reporting and internal control practices for the combined company. The NewWave operations utilize ~~separate information~~a different billing system and ~~accounting systems~~processes, for which the Company has designed and ~~processes. Our management is~~implemented new internal controls effective in the ~~process~~first quarter of ~~reviewing and evaluating the design and operating effectiveness of internal control over financial reporting relating~~2018.

Further, due to the ~~NewWave operations.~~adoption of the new revenue recognition standard effective January 1, 2018, the Company has designed and implemented additional internal controls over significant processes specific to the initial transition to the standard and to the ongoing recording, processing and reporting requirements underlying the new revenue recognition requirements.

Except as disclosed above, t~~here~~there has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2017~~March 31, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

~~Item~~ITEM 1. ~~Legal Proceedings~~ LEGAL PROCEEDINGS

None.

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~~Item~~ITEM 1A. ~~Risk Factors~~ RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in our ~~Annual Report on~~2017 Form ~~10-K as filed with the SEC on March 1, 2017.~~10-K.

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~~Item~~ITEM 2. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~ UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth certain information relating to the purchases of our common stock by us and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) under the Exchange Act during the three months ended ~~September 30, 2017~~March 31, 2018 (dollars in thousands, except per share data):

Period

Total Number
of Shares
Purchased

Average Price
Paid Per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)

Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
July 1 to 31, 2017
- $ - - $ 176,865
August 1 to 31, 2017 ⁽²⁾
1,291 $ 748.50 - $ 176,865
September 1 to 30, 2017 ⁽²⁾
1,500 $ 750.68 - $ 176,865
Total
2,791 $ 749.67 -

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to 31, 2018 ⁽²⁾		8,442	$	706.20		-	$	176,728
February 1 to 28, 2018 ⁽²⁾		152	$	706.03		-	$	176,728
March 1 to 31, 2018 ⁽³⁾		4,484	$	694.02		3,311	$	174,433
Total		13,078	$	699.47		3,311	$	174,433

⁽¹⁾

On July 1, 2015, the Board authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of ~~Company~~ common stock), which was announced on August 7, 2015. Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases is based on a number of factors, including share price and business and market conditions.

⁽²⁾	Represents shares withheld from employees to satisfy estimated tax withholding obligations in connection with the vesting of restricted shares ~~and~~and/or exercises of SARs under the 2015 Plan. The average price paid per share for the common stock withheld was based on the closing price of our common stock on the applicable vesting or exercise date.
⁽³⁾	Includes 1,173 shares withheld from employees to satisfy estimated tax withholding obligations in connection with exercises of SARs under the 2015 Plan. The average price paid per share for the common stock withheld was based on the closing price of our common stock on the applicable exercise date.

~~Item~~ITEM 3. ~~Defaults Upon Senior Securities~~ DEFAULTS UPON SENIOR SECURITIES

None.

~~Item~~ITEM 4. ~~Mine Safety Disclosures~~ MINE SAFETY DISCLOSURES

Not applicable.

~~Item~~ITEM 5. ~~Other Information~~ OTHER INFORMATION

Not applicable.

~~Item~~ ITEM 6. EXHIBITS6~~. Exhibits~~

Exhibit

Number

Description

10.1	Form of Stock Appreciation Right Award Agreement for grants beginning in 2018 (incorporated herein by reference to Exhibit 10.17 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).

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10.2	Form of Restricted Stock Award Agreement for performance-based restricted stock grants beginning in 2018 (incorporated herein by reference to Exhibit 10.18 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).

10.3	Form of Restricted Stock Award Agreement for time-based restricted stock grants beginning in 2018 (incorporated herein by reference to Exhibit 10.19 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).

10.4	Form of Non-Employee Director Restricted Stock Unit Award Agreement for grants in lieu of annual cash fees beginning in 2018 (incorporated herein by reference to Exhibit 10.20 to the Annual Report on Form 10-K of Cable One, Inc. filed on March 1, 2018).

10.5	Amendment No. 1, dated as of April 23, 2018, to the Credit Agreement among Cable One, Inc., the lenders or other financial institutions party thereto, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cable One, Inc. filed on April 23, 2018).

31.1	Principal Executive Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Principal Financial Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS	XBRL Instance Document.*

101.SCH	XBRL Taxonomy Extension Schema Document.*

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.*

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.*

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.*

* Filed herewith.

** Furnished herewith.

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SIGNATURES

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 thereunto duly authorized.

Cable One, ~~Inc~~.Inc. (Registrant)

By:	/s/ Julia M. Laulis
	Name:	Julia M. Laulis
	Title:	Chair of the Board, President and Chief Executive Officer

Date: ~~November 8, 2017~~May 9, 2018

By:

/s/ Kevin P. Coyle

Name:

Kevin P. Coyle

Title:

Senior Vice President and

Chief Financial Officer

D~~ate: November 8, 2017~~Date: May 9, 2018

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	Provisional Estimated Fair Value		Provisional Estimated Weighted Average Useful Life (in years)
Franchise agreements	$	320,000	Indefinite
Customer relationships	$	155,000		14
Trademark and trade name	$	1,300		1

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Revenues	$	253,846	$	250,644	$	766,231	$	747,593
Net income	$	31,514	$	18,558	$	95,326	$	66,028
Net income per common share:
Basic	$	5.55	$	3.24	$	16.79	$	11.48
Diluted	$	5.48	$	3.22	$	16.59	$	11.43

				Weighted Average
				Grant Date
	Restricted			Fair Value
	Stock			Per Share
Outstanding as of December 31, 2016		38,425		$	402.21
Granted		16,821		$	631.10
Granted due to performance achievement		5,006		$	433.66
Forfeited		(4,943	)	$	437.17
Vested		(3,163	)	$	415.39
Outstanding as of September 30, 2017		52,146		$	473.61

Vested and unissued as of September 30, 2017		3,178		$	436.37

	Stock Appreciation Rights			Weighted Average Exercise Price		Weighted Average Fair Value		Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Term (in years)
Outstanding as of December 31, 2016		136,000		$	426.80	$	88.07	$	26,510		8.7
Granted		24,432		$	632.15	$	140.44	$	-		9.3
Exercised		(21,450	)	$	422.31	$	87.22
Forfeited		(11,652	)	$	422.31	$	87.22
Outstanding as of September 30, 2017		127,330		$	467.37	$	98.34	$	32,437		8.2

Vested and exercisable as of September 30, 2017		39,673		$	422.61	$	87.29	$	11,882		7.9

	As of September 30,				Annual Net Gain/(Loss)
	2017		2016		Change		% Change
Residential data PSUs		581,510		466,668		114,842		24.6
Residential video PSUs ⁽¹⁾		353,860		315,589		38,271		12.1
Residential voice PSUs		111,295		100,510		10,785		10.7
Total residential PSUs		1,046,665		882,767		163,898		18.6

Business data PSUs ⁽²⁾		56,143		43,905		12,238		27.9
Business video PSUs		16,853		13,797		3,056		22.1
Business voice PSUs ⁽³⁾		24,220		17,695		6,525		36.9
Total business PSUs		97,216		75,397		21,819		28.9

Total PSUs		1,143,881		958,164		185,717		19.4

Total residential customer relationships		731,099		607,399		123,700		20.4
Total business customer relationships		65,011		50,689		14,322		28.3
Total customer relationships		796,110		658,088		138,022		21.0

	Three Months Ended September 30,				2017 vs. 2016
	2017		2016		$ Change			% Change
Residential data ⁽¹⁾	$	62.49	$	62.07	$	0.42			0.7
Residential video ⁽¹⁾	$	81.96	$	76.85	$	5.11			6.6
Residential voice ⁽¹⁾	$	33.26	$	34.18	$	(0.92	)		(2.7	)
Business services ⁽²⁾	$	181.37	$	168.80	$	12.57			7.4

Years ending December 31,	Programming Purchase Commitments		Operating Leases		Total Debt, including Capital Leases		Other Purchase Obligations⁽¹⁾		Total
2017 (remaining months)	$	54,036	$	579	$	2,817	$	7,186	$	64,618
2018		182,335		1,794		14,392		21,212		219,733
2019		130,043		1,300		20,642		13,997		165,982
2020		62,756		909		26,892		7,494		98,051
2021		28,889		611		30,017		4,714		64,231
Thereafter		-		1,137		1,102,699		4,659		1,108,495
Total	$	458,059	$	6,330	$	1,197,459	$	59,262	$	1,721,110

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 to 31, 2017		-	$	-		-	$	176,865
August 1 to 31, 2017 ⁽²⁾		1,291	$	748.50		-	$	176,865
September 1 to 30, 2017 ⁽²⁾		1,500	$	750.68		-	$	176,865
Total		2,791	$	749.67		-