Table of Contents
UNITED STATES
SECURITIESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20202021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-36863001-36863
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’s Registrant’Telephone Number, Including Area Code)s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | | Trading SymbolSymbol(s) | | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 | | CABO | | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 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 | ☐ |
| | | |
| | Emerging growth company | ☐ |
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’s classes of common stock as of the latest practicable date:
| Description of Class | Shares Outstanding as of April 30, 2021May 6, 2020 |
| Common stock, par value $0.01 | 5,728,3356,035,204 |
CABLE ONE, INC.
FORM 10-Q
TABLE OF CONTENTS
References herein to “Cable One,” “us,” “our,” “we” or the “Company” refer to Cable One, Inc., together with its wholly owned subsidiaries.
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 our industry, business, strategy, acquisitions and strategic investments, dividend policy, financial results and financial condition as well as anticipated impacts from, and our responses to, the COVID-19 pandemic on the Company and future responses.pandemic. 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, which are discussed in the Company’sour Annual Report on Form 10-K for the fiscal year ended December 31, 20192020 (the “2019“2020 Form 10-K”) and this Quarterly Report on Form 10-Q:
| | ● | the duration and severity of the COVID-19 pandemic and its effects on our business, financial condition, results of operations and cash flows; |
| | ● | 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 products; |
| | ● | increases in programming costs and retransmission fees; |
| | ● | our ability to obtain hardware, software and operational support from vendors; |
| | ● | risks that we may fail to realize the effectsbenefits anticipated as a result of any acquisitions and strategic investments by us;our purchase of the remaining interests in Hargray Acquisition Holdings, LLC (“Hargray”) that we did not already own (the “Hargray Acquisition”); |
| | ● | risks that our rebranding may not produce the benefits expected; |
| ●
| damagerelating to our reputationexisting or brand image;future acquisitions and strategic investments by us;
|
| | ● | risks that the implementation of our new enterprise resource planning (“ERP”) system disrupts business operations; |
| ●
| adverse economic conditions;
|
| | ● | the integrity and security of our network and information systems; |
| | ● | the impact of possible security breaches and other disruptions, including cyber-attacks; |
| | ● | our failure to obtain necessary intellectual and proprietary rights to operate our business and the risk of intellectual property claims and litigation against us; |
| ●
| our ability to retain key employees (who we refer to as associates);
|
| | ● | legislative or regulatory efforts to impose network neutrality and other new requirements on our data services; |
| | ● | additional regulation of our video and voice services; |
| | ● | our ability to renew cable system franchises; |
| | ● | increases in pole attachment costs; |
| | ● | changes in local governmental franchising authority and broadcast carriage regulations; |
| | ● | the potential adverse effect of our level of indebtedness on our business, financial condition or results of operations and cash flows; |
| | ● | the restrictions the terms of our indebtedness place on our business and corporate actions; |
| | ● | the possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase significantly; |
| | ● | risks associated with our ability to incur futureconvertible indebtedness; |
| ●
| fluctuations in our stock price;
|
| | ● | our ability to continue to pay dividends; |
| | ● | provisions in our charter, by-laws and Delaware law that could discourage takeovers and limit the judicial forum for certain disputes; |
| ● | adverse economic conditions; |
| ● | fluctuations in our stock price; |
| ● | dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances in connection with acquisitions and strategic investments;issuances; |
| ● | damage to our reputation or brand image; |
| ● | our ability to retain key employees (whom we refer to as associates); |
| ● | our ability to incur future indebtedness; |
| | ● | provisions in our charter by-laws and Delaware law that could discourage takeovers;limit the liabilities for directors; and |
| | ● | the other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including but not limited to in our 20192020 Form 10-K and this Quarterly Report on Form 10-Q. |
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, and expressly disclaim any obligation, except as required by law, to update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
PART I: FINANCIAL INFORMATION
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except par values) | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Assets | | | | | | | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 241,894 | | | $ | 125,271 | | | $ | 1,537,298 | | | $ | 574,909 | |
Accounts receivable, net | | 35,386 | | | 38,452 | | | 30,352 | | | 38,768 | |
Income taxes receivable | | 16,028 | | | 2,146 | | | 15,113 | | | 41,245 | |
Prepaid and other current assets | | | 24,476 | | | | 15,619 | | | | 30,239 | | | | 17,891 | |
Total Current Assets | | 317,784 | | | 181,488 | | | 1,613,002 | | | 672,813 | |
Equity investments | | | 807,093 | | | 807,781 | |
Property, plant and equipment, net | | 1,210,306 | | | 1,201,271 | | | 1,278,972 | | | 1,265,460 | |
Intangible assets, net | | 1,301,228 | | | 1,312,381 | | | 1,267,702 | | | 1,278,198 | |
Goodwill | | 429,597 | | | 429,597 | | | 430,543 | | | 430,543 | |
Other noncurrent assets | | | 39,444 | | | | 27,094 | | | | 34,953 | | | | 33,543 | |
Total Assets | | $ | 3,298,359 | | | $ | 3,151,831 | | | $ | 5,432,265 | | | $ | 4,488,338 | |
| | | |
Liabilities and Stockholders' Equity | | | | | | | | | | | | |
Current Liabilities: | | | | | | |
Accounts payable and accrued liabilities | | $ | 131,119 | | | $ | 136,993 | | | $ | 175,281 | | | $ | 174,139 | |
Deferred revenue | | 24,886 | | | 23,640 | | | 23,619 | | | 21,051 | |
Current portion of long-term debt | | | 28,935 | | | | 28,909 | | | | 26,500 | | | | 26,392 | |
Total Current Liabilities | | 184,940 | | | 189,542 | | | 225,400 | | | 221,582 | |
Long-term debt | | 1,805,700 | | | 1,711,937 | | | 3,038,754 | | | 2,148,798 | |
Deferred income taxes | | 295,732 | | | 303,314 | | | 391,921 | | | 366,675 | |
Interest rate swap liability | | 175,524 | | | 78,612 | | | 81,917 | | | 155,357 | |
Other noncurrent liabilities | | | 25,572 | | | | 26,857 | | | | 93,626 | | | | 100,627 | |
Total Liabilities | | | 2,487,468 | | | | 2,310,262 | | | | 3,831,618 | | | | 2,993,039 | |
| | | |
Commitments and contingencies (refer to note 14) | | | | | | |
Commitments and contingencies (refer to note 15) | | | | | | |
| | | |
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 5,724,857 and 5,715,377 shares outstanding as of March 31, 2020 and December 31, 2019, respectively) | | 59 | | | 59 | | |
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding) | | | 0 | | | 0 | |
Common stock ($0.01 par value; 40,000,000 shares authorized; 6,175,399 shares issued; and 6,034,609 and 6,027,704 shares outstanding as of March 31, 2021 and December 31, 2020, respectively) | | | 62 | | | 62 | |
Additional paid-in capital | | 54,419 | | | 51,198 | | | 539,713 | | | 535,586 | |
Retained earnings | | 1,036,877 | | | 980,355 | | | 1,281,667 | | | 1,228,172 | |
Accumulated other comprehensive loss | | (152,783 | ) | | (68,158 | ) | | (85,216 | ) | | (140,683 | ) |
Treasury stock, at cost (163,042 and 172,522 shares held as of March 31, 2020 and December 31, 2019, respectively) | | | (127,681 | ) | | | (121,885 | ) | |
Treasury stock, at cost (140,790 and 147,695 shares held as of March 31, 2021 and December 31, 2020, respectively) | | | | (135,579 | ) | | | (127,838 | ) |
Total Stockholders' Equity | | | 810,891 | | | | 841,569 | | | | 1,600,647 | | | | 1,495,299 | |
Total Liabilities and Stockholders' Equity | | $ | 3,298,359 | | | $ | 3,151,831 | | | $ | 5,432,265 | | | $ | 4,488,338 | |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
| | | Three Months Ended | | | Three Months Ended | |
| | | March 31, | | | March 31, | |
(dollars in thousands, except per share data) | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Revenues | | $ | 321,196 | | | $ | 278,605 | | | $ | 341,262 | | | $ | 321,196 | |
Costs and Expenses: | | |
Operating (excluding depreciation and amortization) | | 105,928 | | | 94,518 | | | 101,464 | | | 105,928 | |
Selling, general and administrative | | 62,884 | | | 61,443 | | | 69,042 | | | 62,884 | |
Depreciation and amortization | | 65,279 | | | 53,844 | | | 68,530 | | | 65,279 | |
(Gain) loss on asset sales and disposals, net | | | (5,621 | ) | | | 1,103 | | | | (120 | ) | | | (5,621 | ) |
Total Costs and Expenses | | | 228,470 | | | | 210,908 | | | | 238,916 | | | | 228,470 | |
Income from operations | | 92,726 | | | 67,697 | | | 102,346 | | | 92,726 | |
Interest expense | | (18,674 | ) | | (18,096 | ) | | (23,581 | ) | | (18,674 | ) |
Other income, net | | | 1,734 | | | | 1,802 | | |
Income before income taxes | | 75,786 | | | 51,403 | | |
Other income (expense), net | | | | 8,100 | | | | 1,734 | |
Income before income taxes and equity method investment income (loss), net | | | 86,865 | | | 75,786 | |
Income tax provision | | | 6,460 | | | | 12,664 | | | | 17,715 | | | | 6,460 | |
Income before equity method investment income (loss), net | | | 69,150 | | | 69,326 | |
Equity method investment income (loss), net | | | | (568 | ) | | | 0 | |
Net income | | $ | 69,326 | | | $ | 38,739 | | | $ | 68,582 | | | $ | 69,326 | |
| | | |
Net Income per Common Share: | | |
Basic | | $ | 12.17 | | | $ | 6.83 | | | $ | 11.41 | | | $ | 12.17 | |
Diluted | | $ | 12.05 | | | $ | 6.78 | | | $ | 11.19 | | | $ | 12.05 | |
Weighted Average Common Shares Outstanding: | | |
Basic | | 5,697,904 | | | 5,674,120 | | | 6,012,402 | | | 5,697,904 | |
Diluted | | 5,755,059 | | | 5,716,585 | | | 6,168,261 | | | 5,755,059 | |
| | | |
Unrealized loss on cash flow hedges and other, net of tax | | $ | (84,625 | ) | | $ | (29,069 | ) | |
Unrealized gain (loss) on cash flow hedges and other, net of tax | | | $ | 55,467 | | | $ | (84,625 | ) |
Comprehensive income (loss) | | $ | (15,299 | ) | | $ | 9,670 | | | $ | 124,049 | | | $ | (15,299 | ) |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | |
| | | | | | | | | | | | Additional | | | | | | | Other | | | Treasury | | Total | |
| | Common Stock | | AdditionalPaid-In | | Retained | | Accumulated Other Comprehensive | | TreasuryStock, | | TotalStockholders’ | | | Common Stock | | Paid-In | | Retained | | | Comprehensive | | | Stock, | | Stockholders’ | |
(dollars in thousands, except per share data) | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | at cost | | | Equity | | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | at cost | | | Equity | |
Balance at December 31, 2019 | | 5,715,377 | | | $ | 59 | | | $ | 51,198 | | | $ | 980,355 | | | $ | (68,158 | ) | | $ | (121,885 | ) | | $ | 841,569 | | |
Balance at December 31, 2020 | | | 6,027,704 | | | $ | 62 | | | $ | 535,586 | | | $ | 1,228,172 | | | $ | (140,683 | ) | | $ | (127,838 | ) | | $ | 1,495,299 | |
Net income | | - | | | - | | | - | | | 69,326 | | | - | | | - | | | 69,326 | | | - | | | 0 | | | 0 | | | 68,582 | | | 0 | | | 0 | | | 68,582 | |
Unrealized loss on cash flow hedges and other, net of tax | | - | | | - | | | - | | | - | | | (84,625 | ) | | - | | | (84,625 | ) | |
Unrealized gain (loss) on cash flow hedges and other, net of tax | | | - | | | 0 | | | 0 | | | 0 | | | 55,467 | | | 0 | | | 55,467 | |
Equity-based compensation | | - | | | - | | | 3,221 | | | - | | | - | | | - | | | 3,221 | | | - | | | 0 | | | 4,127 | | | 0 | | | 0 | | | 0 | | | 4,127 | |
Issuance of equity awards, net of forfeitures | | 13,252 | | | - | | | - | | | - | | | - | | | - | | | - | | | 10,398 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Withholding tax for equity awards | | (3,772 | ) | | - | | | - | | | - | | | - | | | (5,796 | ) | | (5,796 | ) | | (3,493 | ) | | 0 | | | 0 | | | 0 | | | 0 | | | (7,741 | ) | | (7,741 | ) |
Dividends paid to stockholders ($2.25 per common share) | | | - | | | | - | | | | - | | | | (12,804 | ) | | | - | | | | - | | | | (12,804 | ) | |
Balance at March 31, 2020 | | | 5,724,857 | | | $ | 59 | | | $ | 54,419 | | | $ | 1,036,877 | | | $ | (152,783 | ) | | $ | (127,681 | ) | | $ | 810,891 | | |
Dividends paid to stockholders ($2.50 per common share) | | | | - | | | | 0 | | | | 0 | | | | (15,087 | ) | | | 0 | | | | 0 | | | | (15,087 | ) |
Balance at March 31, 2021 | | | | 6,034,609 | | | $ | 62 | | | $ | 539,713 | | | $ | 1,281,667 | | | $ | (85,216 | ) | | $ | (135,579 | ) | | $ | 1,600,647 | |
| | Common Stock | | | Additional Paid-In | | | Retained | | | Accumulated Other Comprehensive | | | Treasury Stock, | | | Total Stockholders’ | |
(dollars in thousands, except per share data) | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | at cost | | | Equity | |
Balance at December 31, 2018 | | | 5,703,402 | | | $ | 59 | | | $ | 38,898 | | | $ | 850,292 | | | $ | (96 | ) | | $ | (113,795 | ) | | $ | 775,358 | |
Lease accounting standard adoption cumulative adjustment | | | - | | | | - | | | | - | | | | 8 | | | | - | | | | - | | | | 8 | |
Net income | | | - | | | | - | | | | - | | | | 38,739 | | | | - | | | | - | | | | 38,739 | |
Unrealized loss on cash flow hedges and other, net of tax | | | - | | | | - | | | | - | | | | - | | | | (29,069 | ) | | | - | | | | (29,069 | ) |
Equity-based compensation | | | - | | | | - | | | | 3,021 | | | | - | | | | - | | | | - | | | | 3,021 | |
Issuance of equity awards, net of forfeitures | | | 5,222 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Repurchases of common stock | | | (5,984 | ) | | | - | | | | - | | | | - | | | | - | | | | (5,073 | ) | | | (5,073 | ) |
Withholding tax for equity awards | | | (3,310 | ) | | | - | | | | - | | | | - | | | | - | | | | (2,554 | ) | | | (2,554 | ) |
Dividends paid to stockholders ($2.00 per common share) | | | - | | | | - | | | | - | | | | (11,395 | ) | | | - | | | | - | | | | (11,395 | ) |
Balance at March 31, 2019 | | | 5,699,330 | | | $ | 59 | | | $ | 41,919 | | | $ | 877,644 | | | $ | (29,165 | ) | | $ | (121,422 | ) | | $ | 769,035 | |
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | | | | | Additional | | | | | | | Other | | | Treasury | | | Total | |
| | Common Stock | | | Paid-In | | | Retained | | | Comprehensive | | | Stock, | | | Stockholders’ | |
(dollars in thousands, except per share data) | | Shares | | | Amount | | | Capital | | | Earnings | | | Loss | | | at cost | | | Equity | |
Balance at December 31, 2019 | | | 5,715,377 | | | $ | 59 | | | $ | 51,198 | | | $ | 980,355 | | | $ | (68,158 | ) | | $ | (121,885 | ) | | $ | 841,569 | |
Net income | | | - | | | | 0 | | | | 0 | | | | 69,326 | | | | 0 | | | | 0 | | | | 69,326 | |
Unrealized gain (loss) on cash flow hedges and other, net of tax | | | - | | | | 0 | | | | 0 | | | | 0 | | | | (84,625 | ) | | | 0 | | | | (84,625 | ) |
Equity-based compensation | | | - | | | | 0 | | | | 3,221 | | | | 0 | | | | 0 | | | | 0 | | | | 3,221 | |
Issuance of equity awards, net of forfeitures | | | 13,252 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Withholding tax for equity awards | | | (3,772 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (5,796 | ) | | | (5,796 | ) |
Dividends paid to stockholders ($2.25 per common share) | | | - | | | | 0 | | | | 0 | | | | (12,804 | ) | | | 0 | | | | 0 | | | | (12,804 | ) |
Balance at March 31, 2020 | | | 5,724,857 | | | $ | 59 | | | $ | 54,419 | | | $ | 1,036,877 | | | $ | (152,783 | ) | | $ | (127,681 | ) | | $ | 810,891 | |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
(in thousands) | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 69,326 | | | $ | 38,739 | | | $ | 68,582 | | | $ | 69,326 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | | 65,279 | | | 53,844 | | | 68,530 | | | 65,279 | |
Amortization of debt issuance costs | | 1,106 | | | 1,118 | | |
Non-cash interest expense | | | 1,432 | | | 1,106 | |
Equity-based compensation | | 3,221 | | | 3,021 | | | 4,127 | | | 3,221 | |
Increase in deferred income taxes | | 20,108 | | | 7,102 | | |
Write-off of debt issuance costs | | | 487 | | | 0 | |
Change in deferred income taxes | | | 7,131 | | | 20,108 | |
(Gain) loss on asset sales and disposals, net | | (5,621 | ) | | 1,103 | | | (120 | ) | | (5,621 | ) |
Changes in operating assets and liabilities, net of effects from acquisitions: | | | | | | |
Decrease in accounts receivable, net | | 3,066 | | | 2,831 | | |
(Increase) decrease in income taxes receivable | | (13,882 | ) | | 6,055 | | |
Increase in prepaid and other current assets | | (8,857 | ) | | (8,341 | ) | |
Increase (decrease) in accounts payable and accrued liabilities | | (13,789 | ) | | 1,442 | | |
Increase in deferred revenue | | 1,246 | | | 820 | | |
Other, net | | | (2,703 | ) | | | (3,356 | ) | |
Equity method investment (income) loss, net | | | 568 | | | 0 | |
Fair value adjustment | | | (5,560 | ) | | 0 | |
Changes in operating assets and liabilities: | | |
Accounts receivable, net | | | 8,416 | | | 3,066 | |
Income taxes receivable | | | 26,132 | | | (13,882 | ) |
Prepaid and other current assets | | | (12,348 | ) | | (8,857 | ) |
Accounts payable and accrued liabilities | | | (3,042 | ) | | (13,789 | ) |
Deferred revenue | | | 2,568 | | | 1,246 | |
Other | | | | (2,910 | ) | | | (2,703 | ) |
Net cash provided by operating activities | | | 118,500 | | | | 104,378 | | | | 163,993 | | | | 118,500 | |
| | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchase of business, net of cash acquired | | - | | | (356,917 | ) | |
Capital expenditures | | (64,757 | ) | | (46,627 | ) | | (71,853 | ) | | (64,757 | ) |
Decrease in accrued expenses related to capital expenditures | | (8,238 | ) | | (7,751 | ) | |
Change in accrued expenses related to capital expenditures | | | 5,004 | | | (8,238 | ) |
Proceeds from sales of property, plant and equipment | | 518 | | | 6,326 | | | 151 | | | 518 | |
Issuance of note receivable | | | (3,540 | ) | | | - | | | | 0 | | | | (3,540 | ) |
Net cash used in investing activities | | | (76,017 | ) | | | (404,969 | ) | | | (66,698 | ) | | | (76,017 | ) |
| | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from long-term debt borrowings | | 100,000 | | | 250,000 | | | 895,850 | | | 100,000 | |
Payment of debt issuance costs | | - | | | (2,410 | ) | | (1,291 | ) | | 0 | |
Payments on long-term debt | | (7,260 | ) | | (4,531 | ) | | (6,637 | ) | | (7,260 | ) |
Repurchases of common stock | | - | | | (5,073 | ) | |
Payment of withholding tax for equity awards | | (5,796 | ) | | (2,554 | ) | | (7,741 | ) | | (5,796 | ) |
Dividends paid to stockholders | | | (12,804 | ) | | | (11,395 | ) | | | (15,087 | ) | | | (12,804 | ) |
Net cash provided by financing activities | | | 74,140 | | | | 224,037 | | | | 865,094 | | | | 74,140 | |
| | | |
Increase (decrease) in cash and cash equivalents | | 116,623 | | | (76,554 | ) | |
Change in cash and cash equivalents | | | 962,389 | | | 116,623 | |
Cash and cash equivalents, beginning of period | | | 125,271 | | | | 264,113 | | | | 574,909 | | | | 125,271 | |
Cash and cash equivalents, end of period | | $ | 241,894 | | | $ | 187,559 | | | $ | 1,537,298 | | | $ | 241,894 | |
| | | |
Supplemental cash flow disclosures: | | | | | | | | | | | | |
Cash paid for interest, net of capitalized interest | | $ | 17,152 | | | $ | 9,421 | | | $ | 15,118 | | | $ | 17,152 | |
Cash paid for income taxes, net of refunds received | | $ | (930 | ) | | $ | (59 | ) | | $ | (15,586 | ) | | $ | (930 | ) |
See accompanying notes to the condensed consolidated financial statements.
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 is a fully integrated provider of data, video and voice services to residential and business subscribers in 21 Western, Midwestern and Southern U.S. states. Asstates as of March 31, 2020,2021. Cable One provided service to approximately 921,000988,000 residential and business customers, of which approximately 793,000880,000 subscribed to data services, 303,000252,000 subscribed to video services and 136,000122,000 subscribed to voice services.services as of March 31, 2021.
On January 8, 2019,July 1, 2020, the Company acquired Delta Communications, L.L.C.Valu-Net LLC, an all-fiber internet service provider headquartered in Kansas (“Clearwave”Valu-Net”), for a purchase price of $358.8 million in cash on a debt-free basis. On October 1, 2019, the Company acquired Fidelity Communications Co.’s data, video and voice business and certain related assets (collectively, “Fidelity”) for a purchase price of $531.4$38.9 million in cash on a debt-free basis. Refer to note 2 for details on these transactions.this transaction. Refer to note 5 for information on the Company’s equity investments completed during 2020.
On February 12, 2021, the Company and one of its indirect wholly owned subsidiaries entered into an Agreement and Plan of Merger, dated as of February 12, 2021, with Hargray and TPO-Hargray, LLC, as equityholders' representative, pursuant to which the Company agreed to acquire the remaining equity interests in Hargray that it did not already own. The equity interests to be acquired represented approximately 85% of Hargray on a fully diluted basis. On May 3, 2021, the Company completed the Hargray Acquisition. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness. Refer to note 16 for further details on this transaction.
Basis of Presentation. The 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 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the SEC. As permitted under such guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the 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 20192020 Form 10-K.
The December 31, 20192020 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 20192020 Form 10-K, but does not include all disclosures required by GAAP. 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 StandardStandards Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. TheBased on the Company’s chief operating decision maker’s review and assessment of the Company’s operating performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions to allocate resources and deploy capital, are organized and managed on the basis of operating systems within its geographic divisions. Each operating system derives revenues from the delivery of similar products and services to a customer base that is also similar. Each operating 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 operating systems within the Company’s material geographic divisions. Management evaluated the criteria for aggregation under ASC 280 and has concluded that the Company meets each of the respective criteria set forth therein.consolidated basis. Accordingly, management has identified 1one operating segment, which is its reportable segment.segment, under this organizational and reporting structure.
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.
Recently Adopted Accounting Pronouncements. In August 2018,2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 20182020-15,06, Intangibles – GoodwillDebt-Debt with Conversion and Other – Internal-Use SoftwareOptions (Subtopic 350470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Customer’s Accounting for Implementation Costs IncurredConvertible Instruments and Contracts in a Cloud Computing Arrangement That Is a Service Contractan Entity’s Own Equity. ASU 20182020-1506 alignssimplifies the requirementsaccounting for capitalizing implementation, setupcertain financial instruments with characteristics of both liabilities and other upfront costs incurred in a hosting arrangement that is a service contract withequity by reducing the requirements for capitalizing such costs incurrednumber of applicable accounting models, improving the decision usefulness and relevance of the information provided to develop or obtain internal-use software. The ASU specifies which costs arefinancial statement users. As it relates to be expensedconvertible instruments, this update amends existing guidance to reduce certain form-over-substance-based accounting conclusions, provides additional earnings per share guidance and which are to be capitalized, the period over which capitalized costs are to be amortized, the process for identifying and recognizing impairment and the proper presentation of such costs within the consolidated financial statements.improves disclosure effectiveness. The Company early adopted the updated guidanceASU 2020-06 on January 1, 20202021 on a prospective basis. The adoptionand accounted for the Convertible Notes (as defined and described in note 8) issued during the first quarter of this ASU has resulted in2021 under the capitalization of $2.7 million of costs that would have been expensed as incurred under previous guidance, which will be amortized over the life of the applicable hosting arrangement. Amortization of such costs will be included in operating or selling, general and administrative expenses upon implementation, rather than depreciation and amortization expense, within the consolidated financial statements.updated guidance.
In June 2016,December 2019, the FASB issued ASU No. 20162019-13,12, Financial Instruments – Credit LossesIncome Taxes (Topic 326740): Measurement of Credit Losses on Financial InstrumentsSimplifying the Accounting for Income Taxes. ASU 20162019-1312 requires companiesremoves certain exceptions related to recognize an allowance for expected lifetime credit losses through earnings concurrent withintraperiod tax allocations, foreign subsidiaries and interim reporting that are present within existing GAAP. The ASU also provides updated guidance regarding the recognitiontax treatment of certain franchise taxes, goodwill and nontaxable entities, among other items. In addition, ASU 2019-12 clarifies that the effect of a financial asset measured at amortized cost. The estimate of expected credit losses is required tochange in tax laws or rates should be adjusted each reportingreflected in the annual effective tax rate computation during the interim period overthat includes the life of the financial asset. The ASU was effectiveenactment date. Certain provisions must be adopted on prescribed retrospective, modified retrospective and prospective bases, while other provisions January 1, 2020may and required adoptionbe adopted on either a retrospective or modified retrospective basis. The Company adopted ASU 2019-12 on January 1, 2021 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.statements upon adoption.
Recently Issued But Not Yet Adopted Accounting Pronouncements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) and other reference rates expected to be discontinued at the end of 2021. The ASU may be adopted at any time through December 31, 2022. The Company currently holds certain debt and interest rate swaps that reference LIBOR. The Company plans to adopt ASU 2020-04 when the contracts underlying such instruments are amended as a result of reference rate reform, which is expected to occur prior to the end of 2021.reform. The Company is currently evaluating the expected impact of the adoption of this guidance on its consolidated financial statements.
In December 2019, the FASB issued ASU No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions related to intraperiod tax allocations, foreign subsidiaries and interim reporting that are present within existing GAAP. The ASU also provides updated guidance regarding the tax treatment of certain franchise taxes, goodwill and nontaxable entities, among other items. In addition, ASU 2019-12 clarifies that the effect of a change in tax laws or rates should be reflected in the annual effective tax rate computation during the interim period that includes the enactment date. The ASU is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. Certain provisions must be adopted on prescribed retrospective, modified retrospective and prospective bases, while other provisions may be adopted on either a retrospective or modified retrospective basis. The Company is currently evaluating its timing and method, where applicable, of adoption as well as the expected impact on its consolidated financial statements.
2. ACQUISITIONS | VALU-NET ACQUISITION |
The following table shows the change in carrying value of goodwill as a result of the Clearwave and Fidelity acquisitions during 2019 (in thousands):
| | | Goodwill | |
Balance at December 31, 2018 | | $ | 172,129 | |
Clearwave acquisition goodwill recognized | | | 185,885 | |
Fidelity acquisition goodwill recognized | | | 71,583 | |
Balance at December 31, 2019 | | $ | 429,597 | |
Clearwave.On January 8, 2019,July 1, 2020, the Company acquired Clearwave, a facilities-basedValu-Net, an all-fiber internet service provider that owns and operates a high-capacity fiber network offering dense regional coverageheadquartered in Southern IllinoisKansas, for a purchase price of $358.8$38.9 million. The Clearwave
Acquired identifiable intangible assets associated with the Valu-Net acquisition providesconsisted of the Company with a premier fiber network within its existing footprint, further enablesfollowing (dollars in thousands):
| | | Fair Value | | | Useful Life (in years) | |
Customer relationships | | $ | 7,700 | | | | 13.5 | |
Trademark and trade name | | $ | 800 | | | Indefinite | |
Franchise agreements | | $ | 11,200 | | | Indefinite | |
Customer relationships and franchise agreements were valued using the Companymulti-period excess earnings method of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, future earnings before interest, taxes, depreciation and amortization (“EBITDA” and as adjusted, “Adjusted EBITDA”) margins, future capital expenditures and an appropriate discount rate. No residual value was assigned to supply its customers with enhanced business services solutions and provides a platform to allow the Company to replicate Clearwave’s strategy in several of its other markets.acquired customer relationships.
The following table summarizes the allocation of the Clearwave purchase price consideration as of the acquisition date, reflecting all measurement period adjustments recorded in 2019 (in thousands):
| | | Purchase Price Allocation | |
Assets Acquired | | | | |
Cash and cash equivalents | | $ | 1,913 | |
Accounts receivable | | | 1,294 | |
Prepaid and other current assets | | | 311 | |
Property, plant and equipment | | | 120,472 | |
Intangible assets | | | 89,700 | |
Other noncurrent assets | | | 3,533 | |
Total Assets Acquired | | $ | 217,223 | |
| | | | | |
Liabilities Assumed | | | | |
Accounts payable and accrued liabilities | | $ | 2,128 | |
Deferred revenue, short-term portion | | | 4,322 | |
Deferred income taxes | | | 32,771 | |
Other noncurrent liabilities | | | 5,057 | |
Total Liabilities Assumed | | $ | 44,278 | |
| | | | | |
Net assets acquired | | $ | 172,945 | |
Purchase price consideration | | | 358,830 | |
Goodwill recognized | | $ | 185,885 | |
The measurement period ended on January 7, 2020, and no measurement period adjustments were recorded during 2020.
Fidelity. On October 1, 2019, the Company acquired Fidelity, a provider of data, video and voice services to residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas for a purchase price of $531.4 million. Cable One and Fidelity share similar strategies, customer demographics and products. The Fidelity acquisition provides 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 following table summarizes the allocation of the Fidelity purchase price consideration as of the acquisition date, reflecting all measurement period adjustments recorded in 2019 (in thousands):
| | | Preliminary Purchase Price Allocation | |
Assets Acquired | | | | |
Cash and cash equivalents | | $ | 4,869 | |
Accounts receivable | | | 3,691 | |
Prepaid and other current assets | | | 1,756 | |
Property, plant and equipment | | | 173,904 | |
Intangible assets | | | 288,000 | |
Other noncurrent assets | | | 1,895 | |
Total Assets Acquired | | $ | 474,115 | |
| | | | | |
Liabilities Assumed | | | | |
Accounts payable and accrued liabilities | | $ | 8,795 | |
Deferred revenue, short-term portion | | | 1,796 | |
Other noncurrent liabilities | | | 3,715 | |
Total Liabilities Assumed | | $ | 14,306 | |
| | | | | |
Net assets acquired | | $ | 459,809 | |
Purchase price consideration | | | 531,392 | |
Goodwill recognized | | $ | 71,583 | |
No measurement period adjustments were recorded during the three months ended March 31, 2020. The measurement period will end on September 30, 2020.
The Company’s revenuesRevenues by product line and other revenue-related disclosures were as follows (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Residential | | | | | | |
Data | | $ | 154,990 | | | $ | 129,812 | | | $ | 183,605 | | | $ | 154,990 | |
Video | | 85,322 | | | 83,802 | | | 76,017 | | | 85,322 | |
Voice | | 12,427 | | | 9,624 | | | 10,477 | | | 12,427 | |
Business services | | 57,862 | | | 47,143 | | | 60,362 | | | 57,862 | |
Other | | | 10,595 | | | | 8,224 | | | | 10,801 | | | | 10,595 | |
Total revenues | | $ | 321,196 | | | $ | 278,605 | | | $ | 341,262 | | | $ | 321,196 | |
| | | |
Franchise and other regulatory fees | | | $ | 6,152 | | | $ | 6,348 | |
Deferred commission amortization | | | $ | 1,468 | | | $ | 1,355 | |
Other revenues are comprised primarily of advertising sales, customer late charges and reconnect fees.
Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities. These fees were $6.3 million and $4.1 million for the three months ended March 31, 2020 and 2019, respectively. As the Company acts as principal, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within operating expenses in the condensed consolidated statements of operations and comprehensive income.
Other revenues are comprised primarily of advertising sales, customer late charges and reconnect fees.
Net accounts receivable from contracts with customers totaled $31.6 million and $32.3 million at March 31, 2020 and December 31, 2019, respectively.
Deferred commissions totaled $8.9 million and $8.6 million at March 31, 2020 and December 31, 2019, respectively, and were included within prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets. Commission amortization expense was $1.4 million and $1.0 million for the three months ended March 31, 2020 and 2019, respectively, and wasis included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Deferred commissions of $3.7 million included within prepaid and other current assets in the condensed consolidated balance sheet as of March 31, 2020 are expected to be amortized over the next 12 months.
Current deferred revenue liabilities consistingconsist of refundable customer prepayments, up-front charges and installation fees, were $24.9 million and $23.6 million at March 31, 2020 and December 31, 2019, respectively.fees. As of March 31, 2020,2021, the Company’s remaining performance obligations pertain to the refundable customer prepayments and consist of providing future data, video and voice services to customers. Of the $23.6$21.1 million of current deferred revenue at December 31, 2019,2020, $21.716.9 million was recognized during the three months ended March 31, 2020.2021. Noncurrent deferred revenue liabilities consistingconsist of up-front charges and installation fees from business customers, were $6.1 million and $5.5 million as of March 31, 2020 and December 31, 2019, respectively, and were included within other noncurrent liabilities in the condensed consolidated balance sheets.customers.
4. OPERATING ASSETS AND LIABILITIES | OPERATING ASSETS AND LIABILITIES |
Accounts receivable consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Trade receivables | | $ | 34,646 | | | $ | 33,467 | | | $ | 27,342 | | | $ | 32,795 | |
Other receivables | | 3,737 | | | 6,186 | | | 4,384 | | | 7,225 | |
Less: Allowance for credit losses | | | (2,997 | ) | | | (1,201 | ) | | | (1,374 | ) | | | (1,252 | ) |
Total accounts receivable, net | | $ | 35,386 | | | $ | 38,452 | | | $ | 30,352 | | | $ | 38,768 | |
The following table shows the changechanges in the allowance for credit losses during the periods presentedwere as follows (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Beginning balance | | $ | 1,201 | | | $ | 2,045 | | | $ | 1,252 | | | $ | 1,201 | |
Additions - charged to costs and expenses | | 2,118 | | | 1,570 | | | 643 | | | 2,118 | |
Deductions | | (2,271 | ) | | (4,754 | ) | |
Recoveries of amounts previously written off | | | 1,949 | | | | 2,090 | | |
Deductions - write-offs | | | (2,451 | ) | | (2,271 | ) |
Recoveries collected | | | | 1,930 | | | | 1,949 | |
Ending balance | | $ | 2,997 | | | $ | 951 | | | $ | 1,374 | | | $ | 2,997 | |
Prepaid and other current assets consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Prepaid repairs and maintenance | | $ | 7,196 | | | $ | 551 | | | $ | 9,517 | | | $ | 1,013 | |
Software implementation costs | | | 1,199 | | | 1,035 | |
Prepaid insurance | | 847 | | | 1,548 | | | 1,350 | | | 2,200 | |
Prepaid rent | | 3,035 | | | 1,499 | | | 2,830 | | | 1,471 | |
Prepaid software | | 4,621 | | | 4,672 | | | 5,921 | | | 4,544 | |
Deferred commissions | | 3,654 | | | 3,586 | | | 3,997 | | | 4,026 | |
All other current assets | | | 5,123 | | | | 3,763 | | | | 5,425 | | | | 3,602 | |
Total prepaid and other current assets | | $ | 24,476 | | | $ | 15,619 | | | $ | 30,239 | | | $ | 17,891 | |
Other noncurrent assets consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Operating lease right-of-use assets | | $ | 15,275 | | | $ | 16,924 | | | $ | 14,890 | | | $ | 13,408 | |
Investments | | 7,806 | | | 206 | | |
Deferred commissions | | 5,252 | | | 5,042 | | | 5,958 | | | 5,798 | |
Note receivable | | 3,540 | | | - | | |
Software implementation costs | | | 7,785 | | | 6,879 | |
Debt issuance costs | | 2,288 | | | 2,427 | | | 3,083 | | | 3,249 | |
All other noncurrent assets | | | 5,283 | | | | 2,495 | | | | 3,237 | | | | 4,209 | |
Total other noncurrent assets | | $ | 39,444 | | | $ | 27,094 | | | $ | 34,953 | | | $ | 33,543 | |
Accounts payable and accrued liabilities consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Accounts payable | | $ | 25,131 | | | $ | 36,351 | | | $ | 26,588 | | | $ | 22,686 | |
Accrued programming costs | | 19,615 | | | 19,620 | | | 21,330 | | | 20,279 | |
Accrued compensation and related benefits | | 13,259 | | | 23,189 | | | 18,698 | | | 26,467 | |
Accrued sales and other operating taxes | | 9,637 | | | 9,501 | | | 6,767 | | | 7,425 | |
Accrued franchise fees | | 3,662 | | | 4,201 | | | 3,243 | | | 4,021 | |
Subscriber deposits | | 6,495 | | | 6,550 | | |
Deposits | | | 6,441 | | | 6,300 | |
Operating lease liabilities | | 4,218 | | | 4,601 | | | 4,473 | | | 3,772 | |
Interest rate swap liability | | 26,448 | | | 11,045 | | | 30,504 | | | 30,646 | |
Accrued insurance costs | | 6,670 | | | 6,174 | | | 7,148 | | | 7,292 | |
Cash overdrafts | | 4,737 | | | 5,801 | | | 6,279 | | | 8,847 | |
Equity investment payable(1) | | | 13,387 | | | 13,387 | |
Interest payable | | | 11,096 | | | 4,128 | |
Amount due to Hargray(2) | | | 3,454 | | | 6,822 | |
All other accrued liabilities | | | 11,247 | | | | 9,960 | | | | 15,873 | | | | 12,067 | |
Total accounts payable and accrued liabilities | | $ | 131,119 | | | $ | 136,993 | | | $ | 175,281 | | | $ | 174,139 | |
(1) | Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). Refer to note 5 for details on this transaction. |
(2) | Consists of amounts due to Hargray in connection with transition services provided as part of the Anniston Exchange (as defined in note 5). Refer to note 5 for details on this transaction. |
8
Other noncurrent liabilities consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Operating lease liabilities | | 10,048 | | | 11,146 | | | $ | 9,541 | | | $ | 8,701 | |
Accrued compensation and related benefits | | 6,390 | | | 7,154 | | | 8,715 | | | 10,086 | |
Deferred revenue | | 6,061 | | | 5,514 | | | 4,654 | | | 4,981 | |
MBI Net Option (as defined in note 5)(1) | | | 67,750 | | | 73,310 | |
All other noncurrent liabilities | | | 3,073 | | | | 3,043 | | | | 2,966 | | | | 3,549 | |
Total other noncurrent liabilities | | $ | 25,572 | | | $ | 26,857 | | | $ | 93,626 | | | $ | 100,627 | |
(1) | Consists of the net value of the Company’s call and put options associated with the remaining equity interests in MBI, valued at $7.4 million and $75.2 million, respectively, as of March 31, 2021 and $0.7 million and $74.0 million, respectively, as of December 31, 2020. Refer to notes 5 and 10 for further information on the MBI Net Option. |
On May 4, 2020, the Company made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group, LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On July 10, 2020, the Company acquired a 40.4% minority equity interest in Wisper, a wireless internet service provider, for total consideration of $25.3 million. The Company funded $11.9 million of the total consideration for Wisper in 2020 PROPERTY, PLANT AND EQUIPMENTand expects to fund the remainder in 2021. On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray, a data, video and voice services provider, in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis (the “Anniston Exchange”) and recognized an $82.6 million non-cash gain. On November 12, 2020, the Company acquired a 45.0% minority equity interest in Mega Broadband Investments Holdings LLC, a data, video and voice services provider (“MBI”), for $574.9 million in cash.
The carrying value of the Company’s equity investments without readily determinable fair values were determined based on fair valuations as of their respective acquisition dates, and consisted of the following (dollars in thousands):
| | | Ownership Percentage | | | March 31, 2021 | | | December 31, 2020 | |
Cost Method Investments | | | | | | | | | | | |
Hargray(1) | | ~15% | | | $ | 113,165 | | | $ | 113,165 | |
Nextlink | | <10% | | | | 27,245 | | | | 27,245 | |
Others | | <10% | | | | 9,947 | | | | 10,066 | |
Total cost method investments | | | | | $ | 150,357 | | | $ | 150,476 | |
| | | | | | | | | | | | |
Equity Method Investments | | | | | | | | | | | |
MBI(2) | | 45.0% | | | $ | 629,464 | | | $ | 630,679 | |
Wisper | | 40.4% | | | | 27,272 | | | | 26,626 | |
Total equity method investments | | | | | $ | 656,736 | | | $ | 657,305 | |
| | | | | | | | | | | | |
Total equity investments | | | | | $ | 807,093 | | | $ | 807,781 | |
(1) | The Company calculated the fair value of Hargray’s total enterprise value using a hybrid of both the discounted cash flow method of the income approach and the guideline public company method of the market approach. Significant assumptions used in the valuation include projected revenue growth rates, future EBITDA margins, future capital expenditures and an appropriate discount rate. The enterprise value less Hargray’s debt and unamortized debt issuance costs was multiplied by Cable One’s minority equity interest percentage to determine the Hargray investment’s carrying value. The resulting non-cash gain was calculated as the difference between this carrying value and the book value of the Anniston System’s net assets, including its proportionate share of the Company’s franchise agreement and goodwill assets. The approximately 15% equity interest in Hargray is on a fully diluted basis. |
(2) | The Company holds a call option to purchase all but not less than all of the remaining equity interests in MBI that the Company does not already own between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the “MBI Net Option”) are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s equity value, MBI’s and the Company’s equity volatility, MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the Company’s cost of debt, among others. The final MBI purchase price allocation resulted in $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option liability was $67.8 million and $73.3 million as of March 31, 2021 and December 31, 2020, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 10 for further information on the MBI Net Option. |
The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by approximately $526.8 million and $529.7 million as of March 31, 2021 and December 31, 2020, respectively.
Equity method investment income (losses), which increase (decrease) the carrying value of the respective investment, and the change in fair value of the MBI Net Option were as follows (in thousands):
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Equity Method Investment Income (Loss) | | | | | | | | |
MBI(1) | | $ | (1,214 | ) | | $ | 0 | |
Wisper | | | 646 | | | | 0 | |
Total | | $ | (568 | ) | | $ | 0 | |
| | | | | | | | | |
Other Income (Expense), Net | | | | | | | | |
MBI Net Option change in fair value | | $ | 5,560 | | | $ | 0 | |
(1) | The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended March 31, 2021, the Company recognized $1.4 million of its pro rata share of MBI’s net income, which was more than offset by the Company’s $2.7 million pro rata share of basis difference amortization. |
The Company assesses each equity investment for indicators of impairment on a quarterly basis. No impairments were recorded for any of the periods presented.
6. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Cable distribution systems | | $ | 1,820,201 | | | $ | 1,779,964 | | | $ | 1,955,364 | | | $ | 1,916,048 | |
Customer premise equipment | | 271,856 | | | 266,190 | | | 288,966 | | | 283,831 | |
Other equipment and fixtures | | 453,467 | | | 444,799 | | | 467,685 | | | 463,469 | |
Buildings and improvements | | 115,254 | | | 113,331 | | | 118,896 | | | 117,367 | |
Capitalized software | | 102,794 | | | 99,988 | | | 112,635 | | | 107,107 | |
Construction in progress | | 81,552 | | | 93,352 | | | 98,663 | | | 89,488 | |
Land | | 13,350 | | | 13,361 | | | 13,411 | | | 13,293 | |
Right-of-use assets | | | 10,268 | | | | 10,187 | | | | 10,703 | | | | 10,314 | |
Property, plant and equipment, gross | | 2,868,742 | | | 2,821,172 | | | 3,066,323 | | | 3,000,917 | |
Less: Accumulated depreciation and amortization | | | (1,658,436 | ) | | | (1,619,901 | ) | | | (1,787,351 | ) | | | (1,735,457 | ) |
Property, plant and equipment, net | | $ | 1,210,306 | | | $ | 1,201,271 | | | $ | 1,278,972 | | | $ | 1,265,460 | |
Depreciation and amortization expense for property, plant and equipment was $54.1$58.0 million and $49.7$54.1 million for the three months ended March 31, 20202021 and 2019,2020, respectively.
In January 2019, a portion of the Company’s previous headquarters building and adjoining property was sold for $6.3 million in gross proceeds and the Company recognized a related gain of $1.6 million.
6.7. GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS |
The carrying amount of goodwill was $429.6$430.5 million at both March 31, 20202021 and December 31, 2019.2020. The Company has not historically recorded any impairment of goodwill.
10
Intangible assets consisted of the following (dollars in thousands):
| | | | | | | | March 31, 2020 | | December 31, 2019 | | | | | | March 31, 2021 | | December 31, 2020 | |
| | | Useful Life Range (in years) | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Useful Life Range (in years) | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Finite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Franchise renewals | | 1 | – | 25 | | | $ | 2,927 | | | $ | 2,927 | | | $ | - | | | $ | 2,927 | | | $ | 2,895 | | | $ | 32 | | |
Customer relationships | | 14 | – | 17 | | | 362,000 | | | 48,341 | | | 313,659 | | | 362,000 | | | 37,470 | | | 324,530 | | | 13.5 | – | 17 | | | $ | 369,700 | | | $ | 92,096 | | | $ | 277,604 | | | $ | 369,700 | | | $ | 81,865 | | | $ | 287,835 | |
Trademarks and trade names | | 2.7 | – | 3 | | | | 4,300 | | | | 1,802 | | | | 2,498 | | | | 4,300 | | | | 1,552 | | | | 2,748 | | | 2.7 | – | 3 | | | 4,300 | | | 2,802 | | | 1,498 | | | 4,300 | | | 2,552 | | | 1,748 | |
Wireless licenses | | | 10 | – | 15 | | | | 1,418 | | | | 30 | | | | 1,388 | | | | 1,418 | | | | 15 | | | | 1,403 | |
Total finite-lived intangible assets | | | | | | | $ | 369,227 | | | $ | 53,070 | | | $ | 316,157 | | | $ | 369,227 | | | $ | 41,917 | | | $ | 327,310 | | Total finite-lived intangible assets | | | $ | 375,418 | | | $ | 94,928 | | | $ | 280,490 | | | $ | 375,418 | | | $ | 84,432 | | | $ | 290,986 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indefinite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Indefinite-Lived Intangible Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Franchise agreements | | | | | | | | | | | $ | 978,371 | | | | | | | | $ | 978,371 | | | | | | | | | | | | $ | 979,712 | | | | | | | | $ | 979,712 | |
Trade name | | | | | | | | | | | | 6,700 | | | | | | | | | 6,700 | | |
Trade names | | | | | | | | | | | | | 7,500 | | | | | | | | | 7,500 | |
Total indefinite-lived intangible assets | | | | | | | | | | | | $ | 985,071 | | | | | | | | $ | 985,071 | | Total indefinite-lived intangible assets | | | | | $ | 987,212 | | | | | | | | $ | 987,212 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total intangible assets, net | | | | | | | | | | | $ | 1,301,228 | | | | | | | | $ | 1,312,381 | | Total intangible assets, net | | | | | | | $ | 1,267,702 | | | | | | | | $ | 1,278,198 | |
Intangible asset amortization expense was $11.2$10.5 million and $4.1$11.2 million for the three months ended March 31, 20202021 and 2019,2020, respectively.
As of March 31, 2020, theThe future amortization of existing finite-lived intangible assets as of March 31, 2021 was as follows (in thousands):
Year Ending December 31, | | Amount | | | Amount | |
2020 (remaining nine months) | | $ | 33,281 | | |
2021 | | 39,059 | | |
2021 (remaining nine months) | | | $ | 29,999 | |
2022 | | 34,314 | | | 35,528 | |
2023 | | 27,845 | | | 28,816 | |
2024 | | 23,083 | | | 23,886 | |
2025 | | | 21,962 | |
Thereafter | | | 158,575 | | | | 140,299 | |
Total | | $ | 316,157 | | | $ | 280,490 | |
Actual amortization expense in future periods may differ from the amounts above as a result of intangible asset acquisitions or divestitures, changes in useful life estimates, impairments or other relevant factors.
The carrying amount of long-term debt consisted of the following (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Senior Credit Facilities (as defined below) | | $ | 1,845,965 | | | $ | 1,753,045 | | | $ | 1,535,189 | | | $ | 1,541,621 | |
Senior Notes (as defined below) | | | 650,000 | | | 650,000 | |
Convertible Notes (as defined below) | | | 920,000 | | | 0 | |
Finance lease liabilities | | | 5,844 | | | | 5,943 | | | | 5,651 | | | | 5,466 | |
Total debt | | 1,851,809 | | | 1,758,988 | | | 3,110,840 | | | 2,197,087 | |
Less: Unamortized debt discount | | | (23,833 | ) | | 0 | |
Less: Unamortized debt issuance costs | | (17,174 | ) | | (18,142 | ) | | (21,753 | ) | | (21,897 | ) |
Less: Current portion of long-term debt | | | (28,935 | ) | | | (28,909 | ) | | | (26,500 | ) | | | (26,392 | ) |
Total long-term debt | | $ | 1,805,700 | | | $ | 1,711,937 | | | $ | 3,038,754 | | | $ | 2,148,798 | |
Senior Credit Facilities.The secondthird amended and restated credit agreement among the Company and its lenders, (the “Creditdated as of October 30, 2020 (as amended, the “Third Amended and Restated Credit Agreement”) provides for senior secured term loans in original aggregate principal amounts of $700$700.0 million maturing in 2025 (the “Term Loan A-2”), $500$250.0 million (the “Term Loan B-maturing in 1”2027), $250 million (the “Term Loan B-2”) and $325$625.0 million maturing in 2027 (the “Term Loan B-3”) as well as a $350$500.0 million revolving credit facility that will mature onmaturing in May 8, 2024 (2025the (the “Revolving Credit Facility” and, together with the Term Loan A-2, the Term Loan B-1, the Term Loan B-2 and the Term Loan B-3, the “Senior Credit Facilities”). 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. Refer to the table below summarizing the Company’s outstanding term loans and as of March 31, 2021, note 910 to the Company’s audited consolidated financial statements included in the 20192020 Form 10-K and note 16 in this Quarterly Report on Form 10-Q for further details on the Company’s Senior Credit Facilities.
In January 2020, theThe Company has issued letters of credit totaling $22.0$33.0 million under the Revolving Credit Facility on behalf of a third-party entityWisper to guarantee such entity’sits performance obligations under a Federal Communications Commission (“FCC”) broadband funding program. The fair value of the letters of credit approximates face value based on the short-term nature of the agreements. The third party has pledged certain assets in favor of the Company as collateral for issuing the letters of credit. The Company would be liable for up to $22.0 millionthe total amount outstanding under the letters of credit if the third partyWisper were to fail to satisfy all or some of its performance obligations under the FCC program. Wisper pledged certain assets in favor of the Company as collateral for issuing the letters of credit, which pledge was terminated in the third quarter of 2020 at the same time that the Company closed an equity investment in Wisper, and Wisper has guaranteed and indemnified the Company in connection with such letters of credit. As of March 31, 2020,2021, the Company has assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, 0 liability has been accrued within the condensed consolidated balance sheet.
In March 2020, the Company borrowed $100 million under the Revolving Credit Facility for general corporate purposes, including for potential small acquisitions and investments. The entire balance was outstanding and bore interest at a rate of 2.43% per annum as of March 31, 2020. Letter Total letter of credit issuances under the Revolving Credit Facility totaled $28.7$41.0 million at March 31, 20202021 and were held for the benefit of performance obligations under government grant programs and certain general and liability insurance matters and bore interest at a rate of 1.63% per annum.
As of March 31, 2020,2021, the Company had $1.8$1.5 billion of aggregate outstanding term loans and Revolving Credit Facility borrowings and $221.3$459.0 million available for additional borrowing under the Revolving Credit Facility.
A summary of the Company’s outstanding term loans as of March 31, 20202021 is as follows (dollars in thousands):
Instrument | | Draw Date | | Original Principal | | | Amortization Per Annum(1) | | | Outstanding Principal | | Final Maturity Date | | Balance Due Upon Maturity | | Benchmark Rate | | Applicable Margin(2) | | | Interest Rate | | | Draw Date | | Original Principal | | Amortization Per Annum(1) | | | Outstanding Principal | | Final Maturity Date | | Balance Due Upon Maturity | | Benchmark Rate | | Applicable Margin(2) | | | Interest Rate | |
Term Loan A-2 | Term Loan A-2 | 5/8/2019 | | $ | 700,000 | | | | Varies(4) | | | $ | 689,652 | | 5/8/2024 | | $ | 513,945 | | LIBOR | | 1.50% | | | 2.49% | | | 5/8/2019(3) | | $ | 700,000 | | Varies(4) | | | $ | 672,356 | | 10/30/2025 | | $ | 476,607 | | LIBOR | | 1.50 | % | | 1.61 | % |
| | | 10/1/2019(3) | | | | | | | | | | | | | | | | | | | 10/1/2019(3) | | | | | | | | | | | | | | | | | | | | | | |
Term Loan B-1 | 5/1/2017 | | 500,000 | | | 1.0% | | | 486,250 | | 5/1/2024 | | 466,250 | | LIBOR | | 1.75% | | | 2.74% | | |
Term Loan B-2 | Term Loan B-2 | 1/7/2019 | | 250,000 | | | 1.0% | | | 247,500 | | 1/7/2026 | | 233,125 | | LIBOR | | 2.00% | | | 2.99% | | | 1/7/2019 | | 250,000 | | | 1.0 | % | | 245,000 | | 10/30/2027 | | 228,750 | | LIBOR | | 2.00 | % | | 2.11 | % |
Term Loan B-3 | Term Loan B-3 | 6/14/2019 | | | 325,000 | | | 1.0% | | | | 322,563 | | 1/7/2026 | | | 303,875 | | LIBOR | | 2.00% | | | 2.99% | | | 6/14/2019(5) | | 625,000 | | | 1.0 | % | | 617,833 | | 10/30/2027 | | 577,472 | | LIBOR | | 2.00 | % | | 2.11 | % |
| | | | 10/30/2020(5) | | | | | | | | | | | | | | | | | | | | | | | |
Total | Total | | $ | 1,775,000 | | | | | | $ | 1,745,965 | | | | $ | 1,517,195 | | | | | | | | Total | | $ | 1,575,000 | | | | | | $ | 1,535,189 | | | | $ | 1,282,829 | | | | | | | |
(1) | Payable in equal quarterly installments (expressed as a percentage of the original aggregate principal amount)amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). |
(2) | The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid based on the Company’s Total Net Leverage Ratio (as defined in the Third Amended and Restated Credit Agreement). All other applicable margins are fixed. |
(3) | On May 8, 2019, $250250.0 million was drawn. On October 1, 2019, an additional $450$450.0 million was drawn. On October 30, 2020, the amortization schedule was reset. |
(4) | Per annum amortization rates for years one through five following the closingOctober 30, 2020 refinancing date are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively. |
(5) | On June 14, 2019, $325.0 million was drawn. On October 30, 2020, an additional $300.0 million was drawn. |
Senior Notes. In November 2020, the Company issued $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the “Senior Notes”). The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year, beginning on May 15, 2021. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the “Senior Notes Indenture”), among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (“BNY”), as trustee.
At any time and from time to time prior to November 15, 2025, the Company may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of their principal amount, plus the “make-whole” premium described in the Senior Notes Indenture and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, the Company may redeem some or all of the Senior Notes at any time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash proceeds from one or more equity offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), the Company is required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Convertible Notes. In March 2021, the Company issued $575.0 million aggregate principal amount of 0.000% convertible senior notes due 2026 (the “2026 Notes”) and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the “2028 Notes” and, together with the 2026 Notes, the “Convertible Notes,” and the Convertible Notes collectively with the Senior Notes, the “Notes”). The terms of the 2026 Notes and the 2028 Notes are each governed by a separate indenture dated as of March 5, 2021 (collectively, the “Convertible Notes Indentures” and together with the Senior Notes Indenture, the “Indentures”), in each case, among the Company, the guarantors party thereto and BNY, as trustee.
The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, beginning on September 15, 2021, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of the Company’s common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock).
The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of the Company’s common stock or a combination thereof is at the election of the Company. Prior to the close of business on the business day immediately preceding December 15, 2025, the 2026 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2025, holders may convert their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. Prior to the close of business on the business day immediately preceding December 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2027, holders may convert their 2028 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. If the Company undergoes a “fundamental change” (as defined in the applicable Convertible Notes Indenture), holders of the applicable series of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes of such series at a purchase price equal to 100% of the principal amount of the Convertible Notes of such series to be repurchased, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.
The Company may not redeem the 2026 Notes prior to March 20, 2024 and it may not redeem the 2028 Notes prior to March 20, 2025. No “sinking fund” is provided for the Convertible Notes. On or after March 20, 2024 and prior to December 15, 2025, the Company may redeem for cash all or any portion of the 2026 Notes, at its option, and on or after March 20, 2025 and prior to December 15, 2027, the Company may redeem for cash all or any portion of the 2028 Notes, at its option, in each case, if the last reported sale price per share of common stock has been at least 130% of the conversion price for such series of Convertible Notes then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes of such series to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.
In addition, following a “make-whole fundamental change” (as defined in the applicable Convertible Notes Indenture) or if the Company delivers a notice of redemption in respect of any Convertible Notes of a series, in certain circumstances, the conversion rate applicable to such series of Convertible Notes will be increased for a holder who elects to convert any of such Convertible Notes in connection with such a make-whole fundamental change or convert any of such Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.
The carrying amounts of the Convertible Notes consisted of the following (in thousands):
| | | March 31, 2021 | |
| | | 2026 Notes | | | 2028 Notes | | | Total | |
Gross carrying amount | | $ | 575,000 | | | $ | 345,000 | | | $ | 920,000 | |
Less: Unamortized discount | | | (14,872 | ) | | | (8,961 | ) | | | (23,833 | ) |
Less: Unamortized debt issuance costs | | | (385 | ) | | | (232 | ) | | | (617 | ) |
Net carrying amount | | $ | 559,743 | | | $ | 335,807 | | | $ | 895,550 | |
Interest expense on the Convertible Notes consisted of the following (dollars in thousands):
| | | Three Months Ended March 31, 2021 | |
| | | 2026 Notes | | | 2028 Notes | | | Total | |
Contractual interest expense | | $ | 0 | | | $ | 291 | | | $ | 291 | |
Amortization of discount | | | 222 | | | | 95 | | | | 317 | |
Amortization of debt issuance costs | | | 6 | | | | 2 | | | | 8 | |
Total interest expense | | $ | 228 | | | $ | 388 | | | $ | 616 | |
| | | | | | | | | | | | | |
Effective interest rate | | | 0.5 | % | | | 1.5 | % | | | 0 | |
General. The Notes are senior unsecured obligations of the Company and are guaranteed by the Company’s wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain capital market debt of the Company in an aggregate principal amount in excess of $250.0 million.
Each Indenture contains covenants that, among other things and subject to certain exceptions, limit (i) the Company’s ability to consolidate or merge with or into another person or sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) and (ii) the ability of the guarantors to consolidate with or merge with or into another person. The Senior Notes Indenture also contains a covenant that, subject to certain exceptions, limits the Company’s ability and the ability of its subsidiaries to incur any liens securing indebtedness for borrowed money.
Each Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, default in payment of principal or interest, breach of other agreements or covenants in respect of the relevant Notes by the Company or any guarantors, failure to pay certain other indebtedness at final maturity, acceleration of certain indebtedness prior to final maturity, failure to pay certain final judgments, failure of certain guarantees to be enforceable and certain events of bankruptcy, insolvency or reorganization; and, in the case of each Convertible Notes Indenture, failure to comply with the Company’s obligation to convert the relevant Convertible Notes under the applicable Convertible Notes Indenture and failure to give a fundamental change notice or a notice of a make-whole fundamental change under the applicable Convertible Notes Indenture.
Unamortized debt issuance costs consisted of the following (in thousands):
| | | March 31, 2021 | | | December 31, 2020 | |
Revolving Credit Facility portion: | | | | | | | | |
Other noncurrent assets | | $ | 3,083 | | | $ | 3,249 | |
Term loans and Notes portion: | | | | | | | | |
Long-term debt (contra account) | | | 21,753 | | | | 21,897 | |
Total | | $ | 24,836 | | | $ | 25,146 | |
The Company recorded debt issuance cost amortization of $1.1 million for both the three months ended March 31, 20202021 and 20192020 within interest expense in the condensed consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled $19.5 million and $20.6 million at March 31, 2020 and December 31, 2019, respectively, of which $2.3 million and $2.4 million are reflected within other noncurrent assets, respectively, and $17.2 million and $18.1 million are reflected as reductions to long-term debt, respectively, in the condensed consolidated balance sheets.
As of March 31, 2020, theThe future maturities of outstanding borrowings as of March 31, 2021 were as follows (in thousands):
Year Ending December 31, | | Amount | | | Amount | |
2020 (remaining nine months) | | $ | 21,241 | | |
2021 | | 37,106 | | |
2021 (remaining nine months) | | | $ | 19,298 | |
2022 | | 54,677 | | | 29,986 | |
2023 | | 81,033 | | | 47,008 | |
2024 | | 1,109,158 | | | 68,285 | |
2025 | | | 549,147 | |
Thereafter | | | 542,750 | | | | 2,391,465 | |
Total | | $ | 1,845,965 | | | $ | 3,105,189 | |
The Company was in compliance with all debt covenants as of March 31, 2020.2021.
In 8.March 2021, INTEREST RATE SWAPSthe Company terminated the $900.0 million of definitive bridge loan commitments that were originally received to finance a portion of the Hargray Acquisition purchase price.
The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest expenserates on its variable rate LIBOR debt. Changes in the fair values of the interest rate swaps are reported through other comprehensive income until the underlying hedged debt’s interest expense impacts net income, at which point the corresponding change in fair value is reclassified from accumulated other comprehensive income to interest expense.
A summary of the significant terms of the Company’s interest rate swap agreements is as follows (dollars in thousands):
| | | Entry Date | | Effective Date | | Maturity Date(1) | | Notional Amount | | Settlement Type | | Settlement Frequency | | Fixed Base Rate | | | Entry Date | | Effective Date | | Maturity Date(1) | | Notional Amount | | Settlement Type | | Settlement Frequency | | Fixed Base Rate | |
Swap A | | 3/7/2019 | | 3/11/2019 | | 3/11/2029 | | $ | 850,000 | | Receive one-month LIBOR, pay fixed | | Monthly | | 2.653% | | | 3/7/2019 | | 3/11/2019 | | 3/11/2029 | | $ | 850,000 | | Receive one-month LIBOR, pay fixed | | Monthly | | 2.653 | % |
Swap B | | 3/6/2019 | | 6/15/2020 | | 2/28/2029 | | | 350,000 | | Receive one-month LIBOR, pay fixed | | Monthly | | 2.739% | | | 3/6/2019 | | 6/15/2020 | | 2/28/2029 | | | 350,000 | | Receive one-month LIBOR, pay fixed | | Monthly | | 2.739 | % |
Total | | | | | | | | $ | 1,200,000 | | | | | | | | Total | | $ | 1,200,000 | | | | | | | |
(1) | Each swap may be terminated prior to the scheduled maturity at the election of the Company or the financial institution counterparty under the terms provided in each swap agreement. |
The combined fair values of the Company’s interest rate swaps are reflected within the condensed consolidated balance sheets as follows (in thousands):
| | | March 31, 2020 | | | December 31, 2019 | | | March 31, 2021 | | | December 31, 2020 | |
Liabilities: | | | | | | | | | | | | | | | | |
Current portion: | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | $ | 26,448 | | | $ | 11,045 | | | $ | 30,504 | | | $ | 30,646 | |
Noncurrent portion: | | | | | | | | | | | | | | | | |
Interest rate swap liability | | $ | 175,524 | | | $ | 78,612 | | | $ | 81,917 | | | $ | 155,357 | |
Total | | $ | 201,972 | | | $ | 89,657 | | | $ | 112,421 | | | $ | 186,003 | |
| | | |
Stockholders’ Equity: | | | | | | | | | |
Stockholders’ Equity: | | | | | | | | | |
Accumulated other comprehensive loss | | $ | 152,185 | | | $ | 67,556 | | | $ | 84,626 | | | $ | 140,090 | |
The combined effect of the Company’s interest rate swaps on the condensed consolidated statements of operations and comprehensive income iswas as follows (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Interest expense | | $ | 2,084 | | | $ | 68 | | | $ | 7,649 | | | $ | 2,084 | |
| | | |
Unrealized loss on cash flow hedges, gross | | $ | (112,315 | ) | | $ | (38,586 | ) | |
Unrealized (gain) loss on cash flow hedges, gross | | | $ | (73,582 | ) | | $ | 112,314 | |
Less: Tax effect | | | 27,686 | | | | 9,517 | | | | 18,118 | | | | (27,686 | ) |
Unrealized loss on cash flow hedges, net of tax | | $ | (84,629 | ) | | $ | (29,069 | ) | |
Unrealized (gain) loss on cash flow hedges, net of tax | | | $ | (55,464 | ) | | $ | 84,628 | |
The Company does not hold any derivative instruments for speculative trading purposes.
10.
9. FAIR VALUE MEASUREMENTS
| FAIR VALUE MEASUREMENTS |
FinancialFinancial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of March 31, 20202021 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 following fair value estimates are not necessarily indicative of the amounts the Company would realize in an actual market exchange.
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The carrying amounts, fair values and related fair value hierarchy levels of the Company’s financial assets and liabilities as of March 31, 20202021 were as follows (dollars in(in thousands):
| | | March 31, 2020 | | March 31, 2021 |
| | | Carrying | | Fair | | Fair Value | | Carrying | | Fair | | Fair Value |
| | | Amount | | | Value | | Hierarchy | | Amount | | | Value | | Hierarchy |
Assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents: | | | | | | | | | | | | | | | | | | |
Money market investments | | $ | 211,344 | | | $ | 211,344 | | Level 1 | | $ | 1,489,709 | | | $ | 1,489,709 | | Level 1 |
Commercial paper | | $ | 10,047 | | | $ | 9,962 | | Level 2 | |
Liabilities: | | | | | | | | | | | | | | | | | | |
Long-term debt (including current portion): | | | | | | | | | | |
Long-term debt (including current portion): | | Long-term debt (including current portion): | | | | | |
Term loans | | $ | 1,745,965 | | | $ | 1,712,242 | | Level 2 | | $ | 1,535,189 | | | $ | 1,527,513 | | Level 2 |
Revolving Credit Facility borrowings | | $ | 100,000 | | | $ | 100,000 | | Level 2 | |
Other noncurrent liabilities (including current portion): | | | | | | | | | | |
Senior Notes | | | $ | 650,000 | | | $ | 640,835 | | Level 2 |
Convertible Notes | | | $ | 920,000 | | | $ | 922,162 | | Level 2 |
Interest rate swap liability (including current portion): | | | | | | | | | | |
Interest rate swaps | | $ | 201,972 | | | $ | 201,972 | | Level 2 | | $ | 112,421 | | | $ | 112,421 | | Level 2 |
Other noncurrent liabilities: | | | | | | | | | | |
MBI Net Option | | | $ | 67,750 | | | $ | 67,750 | | Level 3 |
Money market investments are held primarily held in U.S. Treasury securities and registered money market funds and are valued using a market approach based on quoted market prices (level 1). Commercial paper is primarily held with high-quality companies and is valued using quoted market prices for investments similar to the commercial paper (level 2). Money market investments and commercial paper with original maturities of three months or less are included within cash and cash equivalents in the condensed consolidated balance sheets. The fair value of the term loans, Senior Notes and the Revolving Credit Facility borrowingsConvertible Notes are estimated based on market prices for similar instruments in active markets (level 2). Interest rate swaps are measured at fair value within the condensed consolidated balance sheets on a recurring basis, with fair value determined using standard valuation models with assumptions about interest rates being based on those observed in underlying markets (level 2). The fair value of the MBI Net Option is measured using Monte Carlo simulations that use inputs considered unobservable and significant to the fair value measurement (level 3).
The assumptions used to determine the fair value of the MBI Net Option consisted of the following:
| | | March 31, 2021 | | | December 31, 2020 | |
| | | Cable One | | | MBI | | | Cable One | | | MBI | |
Equity volatility | | | 29.0 | % | | | 30.0 | % | | | 28.0 | % | | | 30.0 | % |
EBITDA volatility | | | 10.0 | % | | | 10.0 | % | | | 10.0 | % | | | 10.0 | % |
EBITDA risk-adjusted discount rate | | | 5.5 | % | | | 7.0 | % | | | 5.0 | % | | | 6.5 | % |
Cost of debt | | | 4.0 | % | | | 0 | | | | 4.0 | % | | | 0 | |
The Company regularly evaluates each of the assumptions used in establishing the fair value of the MBI Net Option. Significant changes in any of these assumptions could result in a significantly lower or higher fair value measurement. A change in one of these assumptions is not necessarily accompanied by a change in another assumption. Refer to note 5 for further information on the MBI Net Option.
The carrying amounts of accounts receivable, accounts payable and other financial 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. Assets acquired, including identifiable intangible assets and goodwill, and liabilities assumed in acquisitions are recorded at fair value on the respective acquisition dates, subject to potential future measurement period adjustments. Nonfinancial 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, 20202021 or 2019.2020.
Equity Offering. In 10.May 2020, TREASURY STOCKthe Company completed a public offering of 287,500 shares of its common stock for total net proceeds of $469.8 million, after deducting underwriting discounts and offering expenses. The Company used a portion of the net proceeds to repay in full its outstanding borrowings of $100.0 million under the Revolving Credit Facility in May 2020 and it used the remainder for general corporate purposes, including for acquisitions and strategic investments.
Treasury Stock.Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the condensed consolidated financial statements. Treasury shares of 163,042140,790 held at March 31, 20202021 include shares repurchased under the Company’s share repurchase program and shares withheld for withholding tax, as described below.
Share Repurchase Program. On July 1, 2015, the Company’s board of directors (the “Board”) authorized up to $250$250.0 million of share repurchases (subject to a total cap of 600,000 shares of 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 March 31, 2020,2021, the Company had repurchased 210,631 shares of its common stock at an aggregate cost of $104.9 million. NaNNo shares were repurchased during the three months ended March 31, 2020.2021.
Tax Withholding for Equity Awards.Awards. At the employee’s option, shares of common stock are withheld by the Company upon the vesting of restricted stock and exercise of stock appreciation rights (“SARs”) to cover the applicable statutory minimum amount of employee withholding taxes, which the Company then pays to the taxing authorities in cash. The amounts remitted during the three months ended March 31, 20202021 and 20192020 were $5.8$7.7 million and $2.6$5.8 million, for which the Company withheld 3,7723,493 and 3,3103,772 shares of common stock, respectively.
11.12. EQUITY-BASED COMPENSATION | EQUITY-BASED COMPENSATION |
The Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”) provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, SARs, restricted stock units (“RSUs”), cash-based awards, performance-based awards, dividend equivalent units (“DEUs” and, together with restricted stock awards and RSUs, “Restricted Stock”) and other stock-based awards, including performance stock units and deferred stock units. Directors, officers, employees and employeesconsultants of the Company and its affiliates are eligible for grants under the 2015 Plan as part of the Company’s approach to long-term incentive compensation. At March 31, 2020,2021, 151,367106,986 shares were available for issuance under the 2015 Plan.
Compensation expense associated with equity-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the award, with forfeitures recognized as incurred. Equity-basedThe Company’s equity-based compensation expense, was $3.2 million and $3.0 million for the three months ended March 31, 2020 and 2019, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. income, was as follows (in thousands):
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Restricted Stock | | $ | 3,424 | | | $ | 2,506 | |
SARs | | | 703 | | | | 715 | |
Total | | $ | 4,127 | | | $ | 3,221 | |
The Company recognized an income tax benefitbenefits of $3.6 million and $5.2 million related to equity-based compensation awards during the three months ended March 31, 2020.2021 and 2020, respectively. The deferred tax asset related to all outstanding equity-based compensation awards was $3.1$3.2 million as of March 31, 2020.2021.
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Restricted Stock Awards.Stock. Restricted shares, RSUs and DEUs are collectively referred to as “restricted stock.” A summary of restricted stockRestricted Stock activity during the three months ended March 31, 20202021 is as follows:
| | | Restricted Stock | | | Weighted Average Grant Date Fair Value Per Share | | | Restricted Stock | | | Weighted Average Grant Date Fair Value Per Share | |
Outstanding as of December 31, 2019 | | 38,873 | | | $ | 728.77 | | |
Outstanding as of December 31, 2020 | | | 34,944 | | | $ | 1,037.83 | |
Granted | | 9,985 | | | $ | 1,533.78 | | | 9,763 | | | $ | 2,227.72 | |
Forfeited | | (5,207 | ) | | $ | 735.85 | | | (780 | ) | | $ | 1,268.13 | |
Vested and issued | | | (10,332 | ) | | $ | 668.01 | | | | (10,561 | ) | | $ | 829.79 | |
Outstanding as of March 31, 2020 | | | 33,319 | | | $ | 987.75 | | |
Outstanding as of March 31, 2021 | | | | 33,366 | | | $ | 1,446.46 | |
| | | |
Vested and deferred as of March 31, 2020 | | 5,678 | | | $ | 527.85 | | |
Vested and deferred as of March 31, 2021 | | | 5,338 | | | $ | 626.73 | |
Equity-based compensation expense for restricted stock was $2.5 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020,2021, there was $18.6$28.9 million of unrecognized compensation expense related to restricted stock,Restricted Stock, which is expected to be recognized over a weighted average period of 1.51.7 years.
Stock Appreciation Rights. A summary of SARs activity during the three months ended March 31, 20202021 is as follows:
| | | 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, 2019 | | | 90,410 | | | $ | 676.41 | | | $ | 153.90 | | | $ | 73,419 | | | | 7.5 | |
Granted | | | - | | | $ | - | | | $ | - | | | $ | - | | | | - | |
Exercised | | | (12,798 | ) | | $ | 521.25 | | | $ | 113.27 | | | $ | 13,333 | | | | - | |
Forfeited | | | (6,141 | ) | | $ | 828.40 | | | $ | 194.44 | | | | | | | | | |
Outstanding as of March 31, 2020 | | | 71,471 | | | $ | 691.13 | | | $ | 157.69 | | | $ | 68,103 | | | | 7.4 | |
| | | | | | | | | | | | | | | | | | | | | |
Exercisable as of March 31, 2020 | | | 36,446 | | | $ | 564.37 | | | $ | 125.09 | | | $ | 39,349 | | | | 6.5 | |
| | | 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, 2020 | | | 58,365 | | | $ | 866.54 | | | $ | 204.29 | | | $ | 79,446 | | | | 7.3 | |
Granted | | | 1,500 | | | $ | 2,227.72 | | | $ | 584.38 | | | $ | - | | | | 9.8 | |
Exercised | | | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | | - | |
Forfeited | | | (1,601 | ) | | $ | 834.92 | | | $ | 201.50 | | | | | | | | | |
Outstanding as of March 31, 2021 | | | 58,264 | | | $ | 902.45 | | | $ | 214.15 | | | $ | 54,615 | | | | 7.1 | |
| | | | | | | | | | | | | | | | | | | | | |
Exercisable as of March 31, 2021 | | | 32,187 | | | $ | 650.86 | | | $ | 148.65 | | | $ | 37,900 | | | | 6.2 | |
Equity-based compensation expense for SARs was $0.7 million and $1.2 million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020,2021, there was $5.7$6.3 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a weighted average period of 1.4 years.
The grant date fair value of the SARs is measured using the Black-Scholes valuation model. The weighted average inputs used in the model for grants awarded during the 12.three INCOME TAXESmonths ended March 31, 2021 were as follows:
| | Inputs | |
Expected volatility | | | 27.37 | % |
Risk-free interest rate | | | 0.54 | % |
Expected term (in years) | | | 6.25 | |
Expected dividend yield | | | 0.45 | % |
On
The Company’s effective tax rate was 20.4% and 8.5% for the three months ended March 27, 31, 2021 and 2020, respectively. The increase in the effective tax rate for the three months ended March 31, 2021 compared to the prior year period was related primarily to $7.0 million of income tax benefits attributable to the net operating loss (“NOL”) carryback provision of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response tofrom the COVID-19first pandemic. The CARES Act, among other things, permits net operating loss (“NOL”)quarter of 2020 that did not recur. That provision permitted NOL carrybacks to offset up to 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.
The Company’s effective tax rate was 8.5% and 24.6% for the
three18 months ended March 31, 2020 and 2019, respectively. The decrease in the effective tax rate was primarily related to a $7.0 million income tax benefit attributable to the NOL carryback provision
13.14. NET INCOME PER COMMON SHARE | NET INCOME PER COMMON SHARE |
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. The denominator used in calculating diluted net income per common share further includes any common shares available to be issued upon vesting or exercise of outstanding equity-based compensation awards if such inclusion would be dilutive, calculated using the treasury stock method, and any common shares to be issued upon conversion of the Convertible Notes, calculated using the if-converted method.
The following table sets forth the computation of basic and diluted net income per common share was as follows (dollars in thousands, except per share amounts):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Numerator: | | | | | | | | | | | | |
Net income | | $ | 69,326 | | | $ | 38,739 | | |
Net income - basic | | | $ | 68,582 | | | $ | 69,326 | |
Add: Convertible Notes interest expense, net of tax | | | | 462 | | | | 0 | |
Net income - diluted | | | $ | 69,044 | | | $ | 69,326 | |
| | | |
Denominator: | | | | | | | | | | | | |
Weighted average common shares outstanding - basic | | 5,697,904 | | | 5,674,120 | | | 6,012,402 | | | 5,697,904 | |
Effect of dilutive equity-based compensation awards (1) | | | 57,155 | | | | 42,465 | | | 40,443 | | | 57,155 | |
Effect of dilution from if-converted Convertible Notes(2) | | | | 115,416 | | | | 0 | |
Weighted average common shares outstanding - diluted | | 5,755,059 | | | 5,716,585 | | | 6,168,261 | | | 5,755,059 | |
| | | |
Net Income per Common Share: | | | | | | | | | | | | |
Basic | | $ | 12.17 | | | $ | 6.83 | | | $ | 11.41 | | | $ | 12.17 | |
Diluted | | $ | 12.05 | | | $ | 6.78 | | | $ | 11.19 | | | $ | 12.05 | |
| | | |
Supplemental Net Income per Common Share Disclosure: | | | | | |
Anti-dilutive shares from equity-based compensation awards(1) | | | 7,232 | | | 0 | |
(1) | Equity-based compensation awards whose impact is considered to be anti-dilutive under the treasury stock method were excluded from the diluted net income per common share calculation. The excluded number |
(2) | Based on a conversion rate of anti-dilutive equity-based compensation awards totaled 0 and 2,739 for0.4394 shares of common stock per weighted $1,000 principal amount of Convertible Notes outstanding during the three months ended March 31, 2020 2021.and 2019, respectively. |
14.15. COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES |
Contractual Obligations. The Company has obligations to make future payments for goods and services under certain contractual arrangements. These contractual obligations secure the future rights to various goods and services to be used in the normal course of the Company’s operations. In accordance with applicable accounting rules, the future rights and obligations pertaining to firm commitments, such as certain purchase obligations under contracts, are not reflected as assets or liabilities in the condensed consolidated balance sheets. As of March 31, 2020,2021, there have been no material changes to the contractual obligations previously disclosed in the 20192020 Form 10-K.
In addition, the Company incurs recurring utility pole rental costs and fees imposed by various governmental authorities, including franchise fees, as part of its operations. However, these costs are not included in the Company’s contractual obligations as they are cancellable on short notice, in the case of pole rental costs, or are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities, in the case of fees imposed by governmental authorities. The Company also has franchise agreements requiring plant construction and the provision of services to customers within the franchise areas. In connection with these obligations under existing franchise agreements, the Company obtains surety bonds or letters of credit guaranteeing performance to municipalities and public utilities and payment of insurance premiums. Payments under these arrangements are required only in the remote event of nonperformance. As discussed in note 7 to the condensed consolidated financial statements, theThe Company issued letters of credit totaling $22.0$33.0 million in January 2020 on behalf of a third-party entityWisper to guarantee such entity’sits performance obligations under an FCC broadband funding program. As of March 31, 2020,2021, the Company has assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, 0no liability has been accrued within the condensed consolidated balance sheet. Refer to note 8 for further details on this transaction.
Litigation and Legal Matters. The Company is subject to complaints and administrative proceedings and has been a defendant in various civil lawsuits that have arisen in the ordinary course of its business. Such matters include contract disputes; actions alleging negligence;negligence, invasion of privacy;privacy, trademark, copyright and patent infringement;infringement, and violations of applicable wage and hour laws; statutory or common law claims involving current and former employees; and other matters. Although the outcomes of any legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, the Company believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its business, financial condition, results of operations or cash flows.
Regulation in the CCompany’ompany’ss Industry. The Company’s operations are extensively regulated by 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. Future legislative and regulatory changes could adversely affect the Company’s operations.
On May 3, 2021, the Company amended the Third Amended and Restated Credit Agreement to provide for a new seven-year incremental term “B” loan in an aggregate principal amount of $800.0 million (the “Term Loan B-4”). The Term Loan B-4 was drawn in full in connection with the Hargray Acquisition.
The Term Loan B-4 is an obligation of the Company and is guaranteed by the Company's wholly owned subsidiaries that guarantee the other obligations under the Third Amended and Restated Credit Agreement. The Term Loan B-4 is secured, subject to certain exceptions, by substantially all of the assets of the Company and the guarantors under the Third Amended and Restated Credit Agreement.
The interest margin applicable to the Term Loan B-4 is, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term Loan B-4may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions), except for any prepayment within six months of the funding date in connection with certain repricing transactions, which will be subject to a 1.0% prepayment premium. The Term Loan B-4 benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Third Amended and Restated Credit Agreement. The Term Loan B-4 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum (subject to customary adjustments in the event of any prepayment), with the outstanding balance due upon maturity. The final maturity of the Term Loan B-4may be accelerated following an event of default under the Third Amended and Restated Credit Agreement. Other than with respect to maturity, amortization, prepayment premiums and pricing, the Term Loan B-4 contains terms that are substantially similar to the existing Term Loan B-2 and Term Loan B-3.
On May 3, 2021, the Company acquired the remaining equity interests in Hargray that it did not already own for a cash purchase price that implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. In connection with the closing of the Hargray Acquisition, the Company obtained the Term Loan B-4 and applied the associated net proceeds to, among other things, pay off Hargray’s existing credit facilities and pay associated transaction fees and expenses. The Hargray Acquisition expanded the Company’s presence in the Southeastern U.S. and is expected to enable the Company to capitalize on Hargray’s experience and expertise in fiber expansion. The initial accounting for the Hargray Acquisition is expected to be completed by the time the Quarterly Report on Form 10-Q for the period ended June 30, 2021 is filed with the SEC.
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ITEM 2. MANAGEMENT’SMANAGEMENT’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 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, 20192020 and the related “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are contained in our 20192020 Form 10-K. Our results of operations and financial condition discussed herein may not be indicative of our future results and trends.
Throughout this “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations,” all totals, percentages and year-over-year changes are calculated using exact numbers. Minor differences may exist due to rounding.
Any discussion of consolidated results or performance for the three months ended March 31, 2021 is inclusive of the Valu-Net operations, which were acquired on July 1, 2020, and excludes the Anniston System, which was divested on October 1, 2020.
Overview
We are a fully integrated provider of data, video and voice services in 21 Western, Midwestern and Southern states.states as of March 31, 2021. We provideprovided these broadband services to residential and business customers in more thanapproximately 950 communities.communities as of March 31, 2021. The markets we serve are primarily non-metropolitan, secondary and tertiary markets, with 79%approximately 80% of our customers located in seven states:states as of March 31, 2021: 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 provided service to approximately 921,000988,000 residential and business customers out of approximately 2.3 million homes passed as of March 31, 2020.2021. Of these customers, approximately 793,000880,000 subscribed to data services, 303,000252,000 subscribed to video services and 136,000122,000 subscribed to voice services.services as of March 31, 2021.
We generate substantially all of our revenues through fourthree primary products.product lines. Ranked by share of our total revenues through the first three months of 2020,2021, they are residential data (48.3%(53.8%), residential video (26.6%(22.3%), and business services (data, voice and video – 18.0%) and residential voice (3.9%video: 17.7%). The profit margins, growth rates andand/or capital intensity of our fourthese three primary productsproduct lines vary significantly due to competition, product maturity and relative costs.
On January 8, 2019, we acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. We paid a purchase price of $358.8 million in cashfocus on a debt-free basis. On October 1, 2019, we acquired Fidelity, a provider of connectivity services to residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. We paid a purchase price of $531.4 million in cash on a debt-free basis.
Beginning in 2013, we shifted our focus towards growing our higher margin businesses, namely residential data and business services, rather thanservices. Beginning in 2013, we began our shift away from our prior concentration on growing revenues through subscriber retention and maximizing customer primary service units (“PSUs”). We adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. The declining profitability of residential video services is due primarily due to increasing programming costs and retransmission fees and competition from other content providers, and the declining revenues from residential voice services are due primarily due to the increasing use of wireless voice services instead of residential voice services. Separately, we have also focused on retaining customers who are likely to produce higher relative value over the life of their service relationships with us, 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.
Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above and the COVID-19 pandemic have impacted, and are expected to further impact, our three primary product lines in the following ways:
● | Residential data. We have experienced growth in residential data customers and revenues every year since 2013, and that growth accelerated during the 12 months ended March 31, 2021, in part as a result of the COVID-19 pandemic and our associated responses. During 2020, we organically added over 50% more residential data customers than we did during the four-and-a-half-year period between our July 2015 spin-off from our former corporate parent and the end of 2019. We expect growth for this product line to continue over the long-term as upgrades in our broadband capacity, our ability to offer higher access speeds than many of our competitors, the reliability and flexibility of our data service offerings and our Wi-Fi support service will enable us to capture additional market share from both data subscribers who use other providers as well as households in our footprint that do not yet subscribe to data services from any provider. |
● | Residential video. Residential video service is an increasingly costly and fragmenting business, with programming costs and retransmission fees continuing to escalate in the face of a proliferation of streaming content alternatives. We intend to continue our strategy of focusing on the higher-margin businesses of residential data and business services while de-emphasizing our residential video business. As a result of our video strategy, we expect that residential video customers and revenues will decline further in the future. In 2021, we began the launch of Sparklight® TV, an internet protocol-based (“IPTV”) video service that allows customers to stream our video channels from the cloud through a new app. This transition from linear to IPTV video service will enable us to reclaim bandwidth, freeing up network capacity to increase data speeds and capacity across our network. |
● | Business services. We have experienced significant growth in business data customers and revenues, and we expect this growth to continue over the long-term. We attribute this growth to our strategic focus on increasing sales to business customers and our efforts to attract enterprise business customers. Margins for products sold to business customers have remained attractive, which we expect will 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. In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive revenue and Adjusted EBITDA expansion. More than 50% of our total capital expenditures since 2017 were focused on infrastructure improvements that were intended to grow these measures. We continue to invest capital to, among other things, increase our plant and data capacities as well as network reliability. As of March 31, 2021, we offered Gigabit data service to approximately 97% of our homes passed. We are also deploying DOCSIS 3.1, which, together with Sparklight TV, will further increase our network capacity and enable future growth in our residential data and business services product lines.
We expect to continue to devote financial resources to infrastructure improvements in existing and newly acquired markets as well as to expand high-speed data service in areas where our consortium was designated the winning bidder for the FCC’s Rural Digital Opportunity Fund Phase I auction. We believe these investments are necessary to continually meet our customers’ needs and to remain competitive. The capital enhancements associated with recent acquisitions include rebuilding low capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning; migrating products to legacy Cable One platforms; and expanding our high-capacity fiber network.
Our primary goals are to continue growing residential data and business services revenues, to increase profit margins (referand to deliver strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to continue our disciplined cost management approach, remain focused on customers with expected higher relative value and follow through with further planned investments in broadband plant upgrades, including the deployment of DOCSIS 3.1 capabilities and new data service offerings for residential and business customers. At the same time, we intend to continue balancing the impact of the COVID-19 pandemic on our business, associates, customers and other stakeholders. We also plan to continue seeking broadband-related acquisition and strategic investment opportunities in rural markets in addition to pursuing organic growth through market expansion projects.
Our recent acquisitions and strategic investments include:
| ● | On May 4, 2020, we made a minority equity investment for a less than 10% ownership interest in Nextlink, a wireless internet service provider, for $27.2 million. |
| ● | On July 1, 2020, we acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas with approximately 5,000 residential data subscribers at the time of the acquisition. We paid a purchase price of $38.9 million in cash on a debt-free basis. |
| ● | On July 10, 2020, we acquired an approximately 40% minority equity interest in Wisper, a wireless internet service provider, for total consideration of $25.3 million. |
| ● | On October 1, 2020, we contributed the assets of the Anniston System to Hargray in exchange for an approximately 15% equity interest, on a fully diluted basis, in Hargray, a data, video and voice services provider. The Anniston System had approximately 19,000 residential data subscribers at the time of the transaction. |
| ● | On November 12, 2020, we acquired a 45% minority equity interest in MBI, a data, video and voice services provider, for $574.9 million in cash. |
| ● | On May 3, 2021, we acquired the remaining equity interests in Hargray that we did not already own for a cash purchase price that implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The Hargray Acquisition was financed with cash on hand and the net proceeds from the Term Loan B-4. The Hargray Acquisition expanded our presence in the Southeastern U.S. and is expected to enable us to capitalize on Hargray’s experience and expertise in fiber expansion. |
COVID-19 Update
The actions we took in response to the COVID-19 pandemic did not have any notable negative impact on our results for the first quarter of 2021, due primarily to the resumption of billing late charges, reconnect fees and data overage fees as well as the normalization of labor costs in the fourth quarter of 2020. We experienced a positive impact on residential data revenues for the three months ended March 31, 2021 as a result of retaining a significant number of residential data customers acquired during 2020 and continued growth of residential data customers during the period, and we expect that there will continue to be a positive impact on 2021 residential data revenues from these factors, albeit at a slower pace during the remainder of 2021. However, we continue to face various uncertainties related to the impact of the COVID-19 pandemic on the overall economy and our business, including whether we will be able to sustain continued customer growth, our level of bad debt expense and if some of the expense reductions realized during the second half of 2020 and during the three months ended March 31, 2021 will continue or if those expenses will return to more normal levels given the fluid situation regarding pandemic-related restrictions across the country.
We continue to monitor the evolving situation caused by the COVID-19 pandemic, and we may take further actions required by governmental authorities or that we determine are prudent to support the well-being of our associates, customers, suppliers, business partners and others. The degree to which the COVID-19 pandemic impacts our operations, business, financial results and financial condition will depend on future developments, which are highly uncertain, continuously evolving and in many cases cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic, its severity, the efficacy of vaccines (particularly with respect to emerging strains of the virus), the actions to contain the virus or treat its impact, potential legislative or regulatory efforts to impose new requirements on our data services and how quickly and to what extent normal social, economic and operating conditions can resume.
Refer to the section entitled “Risks Factors” in the 2020 Form 10-K for additional risks we face due to the COVID-19 pandemic.
Results of Operations
PSU and Customer Counts
Selected subscriber data for the periods presented was as follows (in thousands, except percentages):
| | | As of March 31, | | | Annual Net Gain (Loss) | |
| | | 2021 | | | 2020 | | | Change | | | % Change | |
Residential data PSUs | | | 799 | | | | 713 | | | | 86 | | | | 12.0 | |
Residential video PSUs | | | 239 | | | | 288 | | | | (49 | ) | | | (17.0 | ) |
Residential voice PSUs | | | 87 | | | | 102 | | | | (15 | ) | | | (14.6 | ) |
Total residential PSUs | | | 1,125 | | | | 1,103 | | | | 22 | | | | 2.0 | |
| | | | | | | | | | | | | | | | | |
Business data PSUs | | | 81 | | | | 79 | | | | 2 | | | | 2.6 | |
Business video PSUs | | | 13 | | | | 15 | | | | (2 | ) | | | (16.1 | ) |
Business voice PSUs | | | 35 | | | | 35 | | | | 1 | | | | 1.5 | |
Total business services PSUs | | | 129 | | | | 129 | | | | 0 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | |
Total data PSUs | | | 880 | | | | 793 | | | | 88 | | | | 11.0 | |
Total video PSUs | | | 252 | | | | 303 | | | | (51 | ) | | | (17.0 | ) |
Total voice PSUs | | | 122 | | | | 136 | | | | (14 | ) | | | (10.5 | ) |
Total PSUs | | | 1,254 | | | | 1,232 | | | | 22 | | | | 1.8 | |
| | | | | | | | | | | | | | | | | |
Residential customer relationships | | | 902 | | | | 836 | | | | 65 | | | | 7.8 | |
Business customer relationships | | | 86 | | | | 85 | | | | 1 | | | | 0.8 | |
Total customer relationships | | | 988 | | | | 921 | | | | 66 | | | | 7.2 | |
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 and households continue to discontinue residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers. Meanwhile, the COVID-19 pandemic and our responses to it have accelerated this customer mix shift.
Use of Nonfinancial Metrics and Average Monthly Revenue per Unit (“ARPU”)
We use various nonfinancial metrics to measure, manage and monitor our operating performance on an ongoing basis. Such metrics include homes passed, PSUs and customer relationships. Homes passed represents the number of serviceable and marketable homes and businesses passed by our active plant. A PSU represents a single subscription to a particular service offering. Residential bulk multi-dwelling PSUs are classified as residential and are counted at the individual unit level. Business voice customers who have multiple voice lines are counted as a single PSU. A customer relationship represents a single customer who subscribes to one or more PSUs.
We believe homes passed, PSU and customer relationship counts are useful to investors in evaluating our operating performance. Similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measures of homes passed, PSUs and customer relationships may not be directly comparable to similarly titled measures reported by other companies.
We use ARPU to evaluate and monitor the amount of revenue generated by each type of service subscribed to by customers and the contribution to total revenues as well as to analyze and compare growth patterns. Residential ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by the number of months in the period, except that for any PSUs added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the pro-rated average number of PSUs during such period. Business services ARPU values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by the number of months in the period, except that for any business customer relationships added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent business services revenues divided by the pro-rated average number of business customer relationships during such period.
We believe ARPU is useful to investors in evaluating our operating performance. ARPU 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 ARPU may not be directly comparable to similarly titled measures reported by other companies.
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
Revenues
Revenues increased $20.1 million, or 6.2%, due primarily to increases in residential data and business services revenues of $28.6 million and $2.5 million, respectively, resulting from organic growth in these higher margin product lines, partially offset by decreases in organic residential video and residential voice revenues. The increase also included $3.2 million from Valu-Net operations.
Revenues by service offering for the three months ended March 31, 2021 and 2020, together with the percentages of total revenues that each item represented for the periods presented, were as follows (dollars in thousands):
| | | Three Months Ended March 31, | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2021 vs. 2020 | |
| | | Revenues | | | % of Total | | | Revenues | | | % of Total | | | $ Change | | | % Change | |
Residential data | | $ | 183,605 | | | | 53.8 | | | $ | 154,990 | | | | 48.3 | | | $ | 28,615 | | | | 18.5 | |
Residential video | | | 76,017 | | | | 22.3 | | | | 85,322 | | | | 26.6 | | | | (9,305 | ) | | | (10.9 | ) |
Residential voice | | | 10,477 | | | | 3.1 | | | | 12,427 | | | | 3.9 | | | | (1,950 | ) | | | (15.7 | ) |
Business services | | | 60,362 | | | | 17.7 | | | | 57,862 | | | | 18.0 | | | | 2,500 | | | | 4.3 | |
Other | | | 10,801 | | | | 3.1 | | | | 10,595 | | | | 3.2 | | | | 206 | | | | 1.9 | |
Total revenues | | $ | 341,262 | | | | 100.0 | | | $ | 321,196 | | | | 100.0 | | | $ | 20,066 | | | | 6.2 | |
Residential data service revenues increased $28.6 million, or 18.5%, due primarily to organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues decreased $9.3 million, or 10.9%, due primarily to a 17.0% year-over-year decrease in residential video subscribers, partially offset by a rate adjustment implemented in March 2021.
Residential voice service revenues decreased $2.0 million, or 15.7%, due primarily to a 14.6% year-over-year decrease in residential voice subscribers.
Business services revenues increased $2.5 million, or 4.3%, due primarily to organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers. Total business customer relationships increased 0.8% year-over-year.
ARPU for the indicated service offerings for the three months ended March 31, 2021 and 2020 were as follows:
| | | Three Months Ended March 31, | | | 2021 vs. 2020 | |
| | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Residential data | | $ | 77.24 | | | $ | 72.86 | | | $ | 4.38 | | | | 6.0 | |
Residential video | | $ | 103.86 | | | $ | 96.75 | | | $ | 7.11 | | | | 7.3 | |
Residential voice | | $ | 39.59 | | | $ | 40.07 | | | $ | (0.48 | ) | | | (1.2 | ) |
Business services | | $ | 235.30 | | | $ | 226.78 | | | $ | 8.52 | | | | 3.8 | |
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $101.5 million for the three months ended March 31, 2021 and decreased $4.5 million, or 4.2%, compared to the three months ended March 31, 2020. The decrease in operating expenses was primarily attributable to a $6.0 million reduction in programming expenses, partially offset by $1.2 million of additional expenses related to Valu-Net operations. Operating expenses as a percentage of revenues were 29.7% and 33.0% for the three months ended March 31, 2021 and 2020, respectively.
Selling, general and administrative expenses were $69.0 million for the three months ended March 31, 2021 and increased $6.2 million, or 9.8%, compared to the three months ended March 31, 2020. The increase in selling, general and administrative expenses was primarily attributable to increases of $2.4 million in acquisition-related costs, $1.8 million in health insurance costs, $1.7 million in labor and other compensation-related costs and $1.0 million in system conversion costs, partially offset by a $1.5 million decrease in bad debt expense. Selling, general and administrative expenses as a percentage of revenues were 20.2% and 19.6% for the three months ended March 31, 2021 and 2020, respectively.
Depreciation and amortization expense was $68.5 million for the three months ended March 31, 2021 and increased $3.3 million, or 5.0%, compared to the three months ended March 31, 2020. Depreciation and amortization expense as a percentage of revenues was 20.1% and 20.3% for the three months ended March 31, 2021 and 2020, respectively.
We recognized a net gain on asset sales and disposals of $0.1 million and $5.6 million for the three months ended March 31, 2021 and 2020, respectively. The three months ended March 31, 2020 included a $6.6 million non-cash gain on the sale of certain tower properties.
Interest Expense
Interest expense was $23.6 million for the three months ended March 31, 2021 and increased $4.9 million, or 26.3%, compared to the three months ended March 31, 2020, driven primarily by higher interest rate swap settlement expense and additional outstanding debt, partially offset by lower interest rates.
Other Income (Expense), Net
Other income, net, of $8.1 million for the three months ended March 31, 2021 consisted primarily of a $5.6 million non-cash gain on fair value adjustment associated with the MBI Net Option and $3.2 million of investment and interest income, partially offset by $0.7 million of financing cost write-offs, including costs associated with the termination of bridge loan commitments originally received to finance a portion of the Hargray Acquisition purchase price. Other income, net, of $1.7 million for the three months ended March 31, 2020 consisted of interest and investment income.
Income Tax Provision
Income tax provision was $17.7 million for the three months ended March 31, 2021 and increased $11.3 million, or 174.2%, compared to the three months ended March 31, 2020. Our effective tax rate was 20.4% and 8.5% for the three months ended March 31, 2021 and 2020, respectively. The increases in the income tax provision and the effective tax rate were due primarily to $7.0 million of income tax benefits attributable to the NOL carryback provision of the CARES Act from the first quarter of 2020 that did not recur.
Net Income
Net income was $68.6 million for the three months ended March 31, 2021 compared to $69.3 million for the three months ended March 31, 2020, a decrease of $0.7 million.
Unrealized Gain (Loss) on Cash Flow Hedges and Other, Net of Tax
Unrealized gain on cash flow hedges and other, net of tax was $55.5 million for the three months ended March 31, 2021 compared to an unrealized loss of $84.6 million for the three months ended March 31, 2020 due primarily to a projected increase in LIBOR in future years.
Use
Results of Adjusted EBITDAOperations
PSU and Customer Counts”
Selected subscriber data for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure).periods presented was as follows (in thousands, except percentages):
| | | As of March 31, | | | Annual Net Gain (Loss) | |
| | | 2021 | | | 2020 | | | Change | | | % Change | |
Residential data PSUs | | | 799 | | | | 713 | | | | 86 | | | | 12.0 | |
Residential video PSUs | | | 239 | | | | 288 | | | | (49 | ) | | | (17.0 | ) |
Residential voice PSUs | | | 87 | | | | 102 | | | | (15 | ) | | | (14.6 | ) |
Total residential PSUs | | | 1,125 | | | | 1,103 | | | | 22 | | | | 2.0 | |
| | | | | | | | | | | | | | | | | |
Business data PSUs | | | 81 | | | | 79 | | | | 2 | | | | 2.6 | |
Business video PSUs | | | 13 | | | | 15 | | | | (2 | ) | | | (16.1 | ) |
Business voice PSUs | | | 35 | | | | 35 | | | | 1 | | | | 1.5 | |
Total business services PSUs | | | 129 | | | | 129 | | | | 0 | | | | 0.1 | |
| | | | | | | | | | | | | | | | | |
Total data PSUs | | | 880 | | | | 793 | | | | 88 | | | | 11.0 | |
Total video PSUs | | | 252 | | | | 303 | | | | (51 | ) | | | (17.0 | ) |
Total voice PSUs | | | 122 | | | | 136 | | | | (14 | ) | | | (10.5 | ) |
Total PSUs | | | 1,254 | | | | 1,232 | | | | 22 | | | | 1.8 | |
| | | | | | | | | | | | | | | | | |
Residential customer relationships | | | 902 | | | | 836 | | | | 65 | | | | 7.8 | |
Business customer relationships | | | 86 | | | | 85 | | | | 1 | | | | 0.8 | |
Total customer relationships | | | 988 | | | | 921 | | | | 66 | | | | 7.2 | |
Excluding the effects of
In recent years, our recent acquisitionscustomer 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 and households continue to discontinue residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers. Meanwhile, the COVID-19 pandemic the trends described aboveand our responses to it have impacted our four primary product lines in the following ways:
●
| Residential data. We have experienced growth in residential data customers and revenues every year since 2013. We expect this growth to continue as our upgrades in broadband capacity, ability to offer higher access speeds than many of our competitors and Wi-Fi support service will enable us to capture additional market share from both data subscribers who use other providers as well as households in our footprint that do not yet subscribe to data services from any provider.
|
●
| Residential video. Residential video service is an increasingly costly and fragmenting business, with programming costs and retransmission fees continuing to escalate in the face of a proliferation of streaming content alternatives. For example, we are currently evaluating whether to renew our programming agreement with Turner Broadcasting, which expired on April 30, 2020. We intend to continue our strategy of focusing on the higher-margin businesses of residential data and business services while de-emphasizing our residential video business. As a result, we expect that residential video revenues from our existing customer base will decline further in the future.
|
●
| Residential voice. We have experienced declines in residential voice customers as a result of consumers in the United States deciding to terminate their residential voice services and exclusively use wireless voice services. 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.
|
●
| Business services. We have experienced significant growth in business data customers and revenues, and we expect this growth to continue over the long-term. We attribute this growth to our strategic focus on increasing sales to business customers and our efforts to attract enterprise business customers. Margins of products sold to business customers have remained attractive, which we expect will 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. In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive revenue and Adjusted EBITDA expansion. Over the last three years, more than 50% of our total capital expenditures have been focused on infrastructure improvements that were intended to grow these measures. We continue to invest capital to, among other things, increase our plant and data capacities as well as network reliability. We offer Gigabit data service to over 97% of our homes passed, and we have begun deploying DOCSIS 3.1 to further increase our network capacity and enable future growth in our residential data and business services product lines.
We expect to continue to devote financial resources to infrastructure improvements, including in certain of the new markets we have acquired, because we believe these investments are necessary to continually meet our customers’ needs and to remain competitive. The capital enhancements associated with acquired operations include rebuilding low capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning; migrating products to Cable One platforms; and expanding our high-capacity fiber network.
Our primary goals are to continue growing residential data and business services revenues, to increase profit margins and to deliver strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to continue our disciplined cost management approach, remain focused on customers with expected higher relative value and follow through with further planned investments in broadband plant upgrades, including the deployment of DOCSIS 3.1 capabilities and new data service offerings for residential and business customers. We also plan to continue seeking broadband-related acquisition and strategic investment opportunities in rural markets.accelerated this customer mix shift.
COVID-19 UpdateUse of Nonfinancial Metrics and Average Monthly Revenue per Unit (“ARPU”)
We represent a partuse various nonfinancial metrics to measure, manage and monitor our operating performance on an ongoing basis. Such metrics include homes passed, PSUs and customer relationships. Homes passed represents the number of the United States’ critical infrastructure,serviceable and our continued operation is essential to connectivity services that are vital during the COVID‐19 national emergency. At the same time, the spread of the COVID-19 pandemic has caused us to modify our operations, including restricting our technicians from entering customermarketable homes and businesses; closingbusinesses passed by our active plant. A PSU represents a single subscription to a particular service offering. Residential bulk multi-dwelling PSUs are classified as residential and are counted at the individual unit level. Business voice customers who have multiple voice lines are counted as a single PSU. A customer relationship represents a single customer who subscribes to one or limiting access to local offices and our corporate headquarters for associates, customers and others; limiting non-essential travel for associates; instituting an expanded work-from-home program, including enhancing our technological capabilities to support such efforts; implementing “purpose pay” to provide a 25% premium to base pay for certain associates who are required to leave their homes to perform their essential job functions; and establishing health protocols to protect our associates, customers and others.more PSUs.
In addition,We believe homes passed, PSU and customer relationship counts are useful to investors in an effortevaluating our operating performance. Similar measures with similar titles are common measures used by investors, analysts and peers to help ease the financial burdencompare performance in our industry, although our measures of homes passed, PSUs and provide continued connectivity for our customers and communities impactedcustomer relationships may not be directly comparable to similarly titled measures reported by the COVID-19 pandemic, beginning in March 2020, we initially committed to do the following for 60 days under the FCC’s Keep Americans Connected Pledge: waive late charges and suspend disconnection of data services for residential and business customers who are unable to pay their bill due to disruptions caused by the pandemic and open free Wi-Fi hotspots in local office parking lots and other public areas across our footprint for public use, which are now in place at more than 140 locations. These commitments are currently scheduled to continue through June 30, 2020.companies.
Other actions takenWe use ARPU to evaluate and monitor the amount of revenue generated by us beginning in March 2020each type of service subscribed to assistby customers and the communities we servecontribution to total revenues as well as to analyze and compare growth patterns. Residential ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by the number of months in the period, except that for any PSUs added or subtracted as a result of an acquisition or divestiture occurring during the COVID-19 pandemic included discontinuing charging data overage fees; offering a low-cost 15 Megabit per second (“Mbps”)period, the associated ARPU values represent the applicable residential data plan for $10 per month through June 30, 2020 to help low-income familiesservice revenues (excluding installation and those impactedactivation fees) divided by the pandemic,pro-rated average number of PSUs during such period. Business services ARPU values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by the number of months in the period, except that for any business customer relationships added or subtracted as seniors and college students; donating $300,000 to support community relief efforts; and supporting various other local relief efforts.a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent business services revenues divided by the pro-rated average number of business customer relationships during such period.
ForWe believe ARPU is useful to investors in evaluating our operating performance. ARPU 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 ARPU may not be directly comparable to similarly titled measures reported by other companies.
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
Revenues
Revenues increased $20.1 million, or 6.2%, due primarily to increases in residential data and business services revenues of $28.6 million and $2.5 million, respectively, resulting from organic growth in these higher margin product lines, partially offset by decreases in organic residential video and residential voice revenues. The increase also included $3.2 million from Valu-Net operations.
Revenues by service offering for the three months ended March 31, 2021 and 2020, together with the percentages of total revenues that each item represented for the periods presented, were as follows (dollars in thousands):
| | | Three Months Ended March 31, | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2021 vs. 2020 | |
| | | Revenues | | | % of Total | | | Revenues | | | % of Total | | | $ Change | | | % Change | |
Residential data | | $ | 183,605 | | | | 53.8 | | | $ | 154,990 | | | | 48.3 | | | $ | 28,615 | | | | 18.5 | |
Residential video | | | 76,017 | | | | 22.3 | | | | 85,322 | | | | 26.6 | | | | (9,305 | ) | | | (10.9 | ) |
Residential voice | | | 10,477 | | | | 3.1 | | | | 12,427 | | | | 3.9 | | | | (1,950 | ) | | | (15.7 | ) |
Business services | | | 60,362 | | | | 17.7 | | | | 57,862 | | | | 18.0 | | | | 2,500 | | | | 4.3 | |
Other | | | 10,801 | | | | 3.1 | | | | 10,595 | | | | 3.2 | | | | 206 | | | | 1.9 | |
Total revenues | | $ | 341,262 | | | | 100.0 | | | $ | 321,196 | | | | 100.0 | | | $ | 20,066 | | | | 6.2 | |
Residential data service revenues increased $28.6 million, or 18.5%, due primarily to organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues decreased $9.3 million, or 10.9%, due primarily to a 17.0% year-over-year decrease in residential video subscribers, partially offset by a rate adjustment implemented in March 2021.
Residential voice service revenues decreased $2.0 million, or 15.7%, due primarily to a 14.6% year-over-year decrease in residential voice subscribers.
Business services revenues increased $2.5 million, or 4.3%, due primarily to organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers. Total business customer relationships increased 0.8% year-over-year.
ARPU for the indicated service offerings for the three months ended March 31, 2021 and 2020 were as follows:
| | | Three Months Ended March 31, | | | 2021 vs. 2020 | |
| | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Residential data | | $ | 77.24 | | | $ | 72.86 | | | $ | 4.38 | | | | 6.0 | |
Residential video | | $ | 103.86 | | | $ | 96.75 | | | $ | 7.11 | | | | 7.3 | |
Residential voice | | $ | 39.59 | | | $ | 40.07 | | | $ | (0.48 | ) | | | (1.2 | ) |
Business services | | $ | 235.30 | | | $ | 226.78 | | | $ | 8.52 | | | | 3.8 | |
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $101.5 million for the three months ended March 31, 2021 and decreased $4.5 million, or 4.2%, compared to the three months ended March 31, 2020. The decrease in operating expenses was primarily attributable to a $6.0 million reduction in programming expenses, partially offset by $1.2 million of additional expenses related to Valu-Net operations. Operating expenses as a percentage of revenues were 29.7% and 33.0% for the three months ended March 31, 2021 and 2020, respectively.
Selling, general and administrative expenses were $69.0 million for the three months ended March 31, 2021 and increased $6.2 million, or 9.8%, compared to the three months ended March 31, 2020. The increase in selling, general and administrative expenses was primarily attributable to increases of $2.4 million in acquisition-related costs, $1.8 million in health insurance costs, $1.7 million in labor and other compensation-related costs and $1.0 million in system conversion costs, partially offset by a $1.5 million decrease in bad debt expense. Selling, general and administrative expenses as a percentage of revenues were 20.2% and 19.6% for the three months ended March 31, 2021 and 2020, respectively.
Depreciation and amortization expense was $68.5 million for the three months ended March 31, 2021 and increased $3.3 million, or 5.0%, compared to the three months ended March 31, 2020. Depreciation and amortization expense as a percentage of revenues was 20.1% and 20.3% for the three months ended March 31, 2021 and 2020, respectively.
We recognized a net gain on asset sales and disposals of $0.1 million and $5.6 million for the three months ended March 31, 2021 and 2020, respectively. The three months ended March 31, 2020 included a $6.6 million non-cash gain on the sale of certain tower properties.
Interest Expense
Interest expense was $23.6 million for the three months ended March 31, 2021 and increased $4.9 million, or 26.3%, compared to the three months ended March 31, 2020, the COVID-19 pandemic did not materially impact our results of operations.driven primarily by higher interest rate swap settlement expense and additional outstanding debt, partially offset by lower interest rates.
We anticipateOther Income (Expense), Net
Other income, net, of $8.1 million for the three months ended March 31, 2021 consisted primarily of a larger-than-usual quarterly increase in new residential data customers$5.6 million non-cash gain on fair value adjustment associated with the MBI Net Option and resulting revenues$3.2 million of investment and interest income, partially offset by $0.7 million of financing cost write-offs, including costs associated with the termination of bridge loan commitments originally received to finance a portion of the Hargray Acquisition purchase price. Other income, net, of $1.7 million for the three months ended March 31, 2020 consisted of interest and investment income.
Income Tax Provision
Income tax provision was $17.7 million for the three months ended March 31, 2021 and increased $11.3 million, or 174.2%, compared to the three months ended March 31, 2020. Our effective tax rate was 20.4% and 8.5% for the three months ended March 31, 2021 and 2020, respectively. The increases in the secondincome tax provision and the effective tax rate were due primarily to $7.0 million of income tax benefits attributable to the NOL carryback provision of the CARES Act from the first quarter of 2020 stemming fromthat did not recur.
Net Income
Net income was $68.6 million for the COVID-19 pandemic, offset by lower data overage fees, late chargesthree months ended March 31, 2021 compared to $69.3 million for the three months ended March 31, 2020, a decrease of $0.7 million.
Unrealized Gain (Loss) on Cash Flow Hedges and reconnect fees resulting from our actions in response to the pandemic as well as a negative impactOther, Net of Tax
Unrealized gain on advertising and business services revenues resulting from the pandemic. In addition, we expect to incur higher labor, bad debtcash flow hedges and other, expensesnet of tax was $55.5 million for the second quarterthree months ended March 31, 2021 compared to an unrealized loss of $84.6 million for the three months ended March 31, 2020 asdue primarily to a result of the pandemic and our associated response efforts.projected increase in LIBOR in future years.
We continue to monitor the rapidly evolving situation caused by the COVID-19 pandemic, and we may take further actions required by governmental authorities or that we determine are prudent to support the well-being of our associates, customers, suppliers, business partners and others. The degree to which the COVID-19 pandemic impacts our operations, business, financial results and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted. This includes, but is not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, potential legislative or regulatory efforts to impose new requirements on our data services and how quickly and to what extent normal economic and operating conditions can resume.
Refer to the section entitled “Risks Factors” in this Quarterly Report on Form 10-Q for additional risks we face due to the COVID-19 pandemic.
Results of Operations
PSU and Customer Counts
The following table provides an overview of selectedSelected subscriber data for the time periods specifiedpresented was as follows (in thousands, except percentages):
| | | As of March 31, | | | Annual Net Gain/(Loss) | | | As of March 31, | | | Annual Net Gain (Loss) | |
| | | 2020 | | | 2019 | | | Change | | | % Change | | | 2021 | | | 2020 | | | Change | | | % Change | |
Residential data PSUs | | 713 | | | 611 | | | 102 | | | 16.7 | | | 799 | | | 713 | | | 86 | | | 12.0 | |
Residential video PSUs | | 288 | | | 305 | | | (17 | ) | | (5.5 | ) | | 239 | | | 288 | | | (49 | ) | | (17.0 | ) |
Residential voice PSUs | | | 102 | | | | 97 | | | | 5 | | | 4.8 | | | | 87 | | | | 102 | | | | (15 | ) | | (14.6 | ) |
Total residential PSUs | | 1,103 | | | 1,013 | | | 90 | | | 8.9 | | | 1,125 | | | 1,103 | | | 22 | | | 2.0 | |
| | | |
Business data PSUs | | 79 | | | 67 | | | 12 | | | 18.4 | | | 81 | | | 79 | | | 2 | | | 2.6 | |
Business video PSUs | | 15 | | | 16 | | | (1 | ) | | (4.0 | ) | | 13 | | | 15 | | | (2 | ) | | (16.1 | ) |
Business voice PSUs | | | 35 | | | | 29 | | | | 6 | | | 21.5 | | | | 35 | | | | 35 | | | | 1 | | | 1.5 | |
Total business services PSUs | | 129 | | | 111 | | | 18 | | | 16.1 | | | 129 | | | 129 | | | 0 | | | 0.1 | |
| | | |
Total data PSUs | | 793 | | | 678 | | | 114 | | | 16.9 | | | 880 | | | 793 | | | 88 | | | 11.0 | |
Total video PSUs | | 303 | | | 321 | | | (17 | ) | | (5.4 | ) | | 252 | | | 303 | | | (51 | ) | | (17.0 | ) |
Total voice PSUs | | | 136 | | | | 125 | | | | 11 | | | 8.6 | | | | 122 | | | | 136 | | | | (14 | ) | | (10.5 | ) |
Total PSUs | | | 1,232 | | | | 1,124 | | | | 108 | | | 9.6 | | | | 1,254 | | | | 1,232 | | | | 22 | | | 1.8 | |
| | | |
Residential customer relationships | | 836 | | | 743 | | | 93 | | | 12.5 | | | 902 | | | 836 | | | 65 | | | 7.8 | |
Business customer relationships | | | 85 | | | | 75 | | | | 10 | | | 13.3 | | | | 86 | | | | 85 | | | | 1 | | | 0.8 | |
Total customer relationships | | | 921 | | | | 818 | | | | 103 | | | 12.6 | | | | 988 | | | | 921 | | | | 66 | | | 7.2 | |
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 and households continue to terminatediscontinue residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers. Meanwhile, the COVID-19 pandemic and our responses to it have accelerated this customer mix shift.
Nonfinancial Metrics and Average Monthly Revenue per Unit (“ARPU”)
We use various nonfinancial metrics to measure, manage and monitor our operating performance on an ongoing basis. Such metrics include homes passed, PSUs and customer relationships. Homes passed represents the number of serviceable and marketable homes and businesses passed by our active plant. A PSU represents a single subscription to a particular service offering. Residential bulk multi-dwelling PSUs are classified as residential and are counted at the individual unit level. Business voice customers who have multiple voice lines are counted as a single PSU. A customer relationship represents a single customer who subscribes to one or more PSUs.
We believe homes passed, PSU and customer relationship counts are useful to investors in evaluating our operating performance. Similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measures of homes passed, PSUs and customer relationships may not be directly comparable to similarly titled measures reported by other companies.
Comparison of Three Months Ended March 31, 2020 to Three Months Ended March 31, 2019
Revenues
Revenues increased $42.6 million, or 15.3%, due primarily to increases in residential data and business services revenues of $25.2 million and $10.7 million, respectively. The increase was primarily the result of the acquired Fidelity operations, organic growth in our higher margin product lines of residential data and business services and a residential video rate adjustment, partially offset by a decrease in organic residential video revenues. The impact of certain actions we took in response to the COVID-19 pandemic, including the discontinuation of data overage fees, waiving of late charges and offering of a low-cost 15 Mbps residential data plan, on residential and business services revenues was immaterial during the three months ended March 31, 2020.
Revenues by service offering were as follows for the three months ended March 31, 2020 and 2019, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):
| | | Three Months Ended March 31, | | | | | | | | | |
| | | 2020 | | | 2019 | | | 2020 vs. 2019 | |
| | | Revenues | | | % of Total | | | Revenues | | | % of Total | | | $ Change | | | % Change | |
Residential data | | $ | 154,990 | | | | 48.3 | | | $ | 129,812 | | | | 46.6 | | | $ | 25,178 | | | | 19.4 | |
Residential video | | | 85,322 | | | | 26.6 | | | | 83,802 | | | | 30.1 | | | | 1,520 | | | | 1.8 | |
Residential voice | | | 12,427 | | | | 3.9 | | | | 9,624 | | | | 3.5 | | | | 2,803 | | | | 29.1 | |
Business services | | | 57,862 | | | | 18.0 | | | | 47,143 | | | | 16.9 | | | | 10,719 | | | | 22.7 | |
Other | | | 10,595 | | | | 3.2 | | | | 8,224 | | | | 2.9 | | | | 2,371 | | | | 28.8 | |
Total revenues | | $ | 321,196 | | | | 100.0 | | | $ | 278,605 | | | | 100.0 | | | $ | 42,591 | | | | 15.3 | |
Residential data service revenues increased $25.2 million, or 19.4%, due primarily to the acquired Fidelity operations, organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues increased $1.5 million, or 1.8%, due primarily to the acquired Fidelity operations and a rate adjustment implemented in March 2020, whereas the prior year rate adjustment was implemented in February 2019, partially offset by a 13.9% year-over-year decrease in residential video subscribers, excluding Fidelity.
Residential voice service revenues increased $2.8 million, or 29.1%, due primarily to the acquired Fidelity operations and the recognition of certain passthrough fees that were historically reported on a net basis, partially offset by a 12.0% year-over-year decrease in residential voice subscribers, excluding Fidelity.
Business services revenues increased $10.7 million, or 22.7%, due primarily to the acquired Fidelity operations and organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers. Total business customer relationships increased 13.3% year-over-year.
The impact of COVID-19 and our responses on residential and business services revenues was immaterial for the three months ended March 31, 2020.
Average monthly revenue per unit (“ARPU”) for the indicated service offerings were as follows for the three months ended March 31, 2020 and 2019:
| | | Three Months Ended March 31, | | | 2020 vs. 2019 | |
| | | 2020 | | | 2019 | | | $ Change | | | % Change | |
Residential data | | $ | 72.86 | | | $ | 70.80 | | | $ | 2.06 | | | | 2.9 | |
Residential video | | $ | 96.75 | | | $ | 90.54 | | | $ | 6.21 | | | | 6.9 | |
Residential voice (1) | | $ | 40.07 | | | $ | 32.54 | | | $ | 7.53 | | | | 23.1 | |
Business services (1) | | $ | 226.78 | | | $ | 213.04 | | | $ | 13.74 | | | | 6.4 | |
__________
(1)
| The increases in residential voice and business services ARPU from the prior year were partially a result of certain passthrough fees that were historically reported on a net basis. Residential voice and business services ARPU for the three months ended March 31, 2020 would have been $35.24 and $223.03, respectively, if reported on a comparable basis.
|
We use ARPU to evaluate and monitor the amount of revenue generated by each type of service subscribed to by customers and the contribution to total revenues as well as to analyze and compare growth patterns. Residential ARPU values represent the applicable quarterly residential service revenues (excluding installation and activation fees) divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by three,the number of months in the period, except that for any new PSUs added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the pro-rated average number of PSUs during such period. Business services ARPU 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,the number of months in the period, except that for any new business customer relationships added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent business services revenues divided by the pro-rated average number of business customer relationships during such period.
We believe ARPU is useful to investors in evaluating our operating performance. ARPU 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 ARPU may not be directly comparable to similarly titled measures reported by other companies.
Comparison of Three Months Ended March 31, 2021 to Three Months Ended March 31, 2020
Revenues
Revenues increased $20.1 million, or 6.2%, due primarily to increases in residential data and business services revenues of $28.6 million and $2.5 million, respectively, resulting from organic growth in these higher margin product lines, partially offset by decreases in organic residential video and residential voice revenues. The increase also included $3.2 million from Valu-Net operations.
Revenues by service offering for the three months ended March 31, 2021 and 2020, together with the percentages of total revenues that each item represented for the periods presented, were as follows (dollars in thousands):
| | | Three Months Ended March 31, | | | | | | | | | |
| | | 2021 | | | 2020 | | | 2021 vs. 2020 | |
| | | Revenues | | | % of Total | | | Revenues | | | % of Total | | | $ Change | | | % Change | |
Residential data | | $ | 183,605 | | | | 53.8 | | | $ | 154,990 | | | | 48.3 | | | $ | 28,615 | | | | 18.5 | |
Residential video | | | 76,017 | | | | 22.3 | | | | 85,322 | | | | 26.6 | | | | (9,305 | ) | | | (10.9 | ) |
Residential voice | | | 10,477 | | | | 3.1 | | | | 12,427 | | | | 3.9 | | | | (1,950 | ) | | | (15.7 | ) |
Business services | | | 60,362 | | | | 17.7 | | | | 57,862 | | | | 18.0 | | | | 2,500 | | | | 4.3 | |
Other | | | 10,801 | | | | 3.1 | | | | 10,595 | | | | 3.2 | | | | 206 | | | | 1.9 | |
Total revenues | | $ | 341,262 | | | | 100.0 | | | $ | 321,196 | | | | 100.0 | | | $ | 20,066 | | | | 6.2 | |
Residential data service revenues increased $28.6 million, or 18.5%, due primarily to organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues decreased $9.3 million, or 10.9%, due primarily to a 17.0% year-over-year decrease in residential video subscribers, partially offset by a rate adjustment implemented in March 2021.
Residential voice service revenues decreased $2.0 million, or 15.7%, due primarily to a 14.6% year-over-year decrease in residential voice subscribers.
Business services revenues increased $2.5 million, or 4.3%, due primarily to organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers. Total business customer relationships increased 0.8% year-over-year.
ARPU for the indicated service offerings for the three months ended March 31, 2021 and 2020 were as follows:
| | | Three Months Ended March 31, | | | 2021 vs. 2020 | |
| | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Residential data | | $ | 77.24 | | | $ | 72.86 | | | $ | 4.38 | | | | 6.0 | |
Residential video | | $ | 103.86 | | | $ | 96.75 | | | $ | 7.11 | | | | 7.3 | |
Residential voice | | $ | 39.59 | | | $ | 40.07 | | | $ | (0.48 | ) | | | (1.2 | ) |
Business services | | $ | 235.30 | | | $ | 226.78 | | | $ | 8.52 | | | | 3.8 | |
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $105.9$101.5 million for the three months ended March 31, 20202021 and increased $11.4decreased $4.5 million, or 12.1%4.2%, compared to the three months ended March 31, 2019.2020. The decrease in operating expenses was primarily attributable to a $6.0 million reduction in programming expenses, partially offset by $1.2 million of additional expenses related to Valu-Net operations. Operating expenses as a percentage of revenues were 33.0%29.7% and 33.9%33.0% for the three months ended March 31, 2021 and 2020, and 2019, respectively. The increase in operating expenses was due primarily to $11.0 million
Selling, general and administrative expenses were $62.9$69.0 million for the three months ended March 31, 20202021 and increased $1.4$6.2 million, or 2.3%9.8%, compared to the three months ended March 31, 2019. Selling, general and administrative expenses as a percentage of revenues were 19.6% and 22.1% for the three months ended March 31, 2020 and 2019, respectively.2020. The increase in selling, general and administrative expenses was primarily attributable to $6.3 millionincreases of additional expenses related to Fidelity operations, partially offset by decreases of $3.2$2.4 million in acquisition-related costs, and $1.5$1.8 million in health insurance costs.costs, $1.7 million in labor and other compensation-related costs and $1.0 million in system conversion costs, partially offset by a $1.5 million decrease in bad debt expense. Selling, general and administrative expenses as a percentage of revenues were 20.2% and 19.6% for the first quarter ofthree months ended March 31, 2021 and 2020, reflect $0.8 million of additional expenses primarily attributable to increases in bad debt expense estimates, labor costs and community relief donations resulting from the COVID-19 pandemic.respectively.
Depreciation and amortization expense was $65.3$68.5 million for the three months ended March 31, 2020, including $10.8 million attributable to Fidelity operations,2021 and increased $11.4$3.3 million, or 21.2%5.0%, compared to the three months ended March 31, 2019. As2020. Depreciation and amortization expense as a percentage of revenues depreciationwas 20.1% and amortization expense was 20.3% and 19.3% for the three months ended March 31, 20202021 and 2019,2020, respectively.
We recognized a net gain on asset sales and disposals of $0.1 million and $5.6 million duringfor the three months ended March 31, 2021 and 2020, compared to a net loss on asset sales and disposals of $1.1 million during the three months ended March 31, 2019.respectively. The three months ended March 31, 2020 included a $6.6 million non-cash gain on the sale of certain tower properties. The three months ended March 31, 2019 included a $1.6 million gain on the sale of a non-operating property that housed our former headquarters.
Interest Expense
Interest expense was $18.7$23.6 million for the three months ended March 31, 2021 and increased $4.9 million, or 26.3%, compared to the three months ended March 31, 2020, driven primarily by higher interest rate swap settlement expense and additional outstanding debt, partially offset by lower interest rates.
Other Income (Expense), Net
Other income, net, of $8.1 million for the three months ended March 31, 2021 consisted primarily of a $5.6 million non-cash gain on fair value adjustment associated with the MBI Net Option and $3.2 million of investment and interest income, partially offset by $0.7 million of financing cost write-offs, including costs associated with the termination of bridge loan commitments originally received to finance a portion of the Hargray Acquisition purchase price. Other income, net, of $1.7 million for the three months ended March 31, 2020 consisted of interest and investment income.
Income Tax Provision
Income tax provision was $17.7 million for the three months ended March 31, 2021 and increased $0.6$11.3 million, or 3.2%174.2%, compared to the three months ended March 31, 2019. The increase2020. Our effective tax rate was driven primarily by additional outstanding debt20.4% and interest rate swap settlements, partially offset by lower interest rates.
Other Income
Other income of $1.7 million and $1.8 million8.5% for the three months ended March 31, 2020 and 2019, respectively, consisted primarily of interest and investment income.
Income Tax Provision
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carrybacks to offset up to 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 20192021 and 2020, to be carried back to each ofrespectively. The increases in the five preceding taxable years to generate a refund of previously paid income taxes.
Income tax provision was $6.5 million for the three months ended March 31, 2020 and decreased $6.2 million, or 49.0%, compared to the three months ended March 31, 2019. Our effective tax rate was 8.5% and 24.6% for the three months ended March 31, 2020 and 2019, respectively. The decrease in the effective tax rate waswere due primarily to a $7.0 million of income tax benefitbenefits attributable to the NOL carryback provision of the CARES Act from the first quarter of 2020 that did not recur.
Net Income
Net income was $68.6 million for the three months ended March 31, 2021 compared to $69.3 million for the three months ended March 31, 2020, a $4.2 million increase in income tax benefits attributable to equity-based compensation awards and a $1.1 million decrease in income tax expenses attributable to state effective tax rate changes.of $0.7 million.
Unrealized lossGain (Loss) on cash flow hedgesCash Flow Hedges and other, netOther, Net of taxTax
Unrealized lossgain on cash flow hedges and other, net of tax was $55.5 million for the three months ended March 31, 2021 compared to an unrealized loss of $84.6 million for the three months ended March 31, 2020 and increased $55.6 million, or 191.1%, compareddue primarily to the three months ended March 31, 2019 primarily due to higher unrealized losses on our interest rate swaps.a projected increase in LIBOR in future years.
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.below, the most directly comparable GAAP financial measure.
Adjusted EBITDA is defined as net income plus interest expense, income tax provision, depreciation and amortization, equity-based compensation, severance expense, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on asset sales and disposals, system conversion costs, rebranding costs, equity method investment (income) loss, other (income) expense and other unusual expenses,items, as provided in the following table. 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 calculations under our outstandingthe Third Amended and Restated Credit Agreement and the Senior Credit FacilitiesNotes Indenture to determine compliance with the covenants contained in the Third Amended and Restated Credit Agreement.Agreement and the ability to take certain actions under the Senior Notes Indenture. 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, | | | 2021 vs. 2020 | |
| (dollars in thousands) | | 2021 | | | 2020 | | | $ Change | | | % Change | |
Net income | | $ | 68,582 | | | $ | 69,326 | | | $ | (744 | ) | | | (1.1 | ) |
| | | | | | | | | | | | | | | | | |
Plus: Interest expense | | | 23,581 | | | | 18,674 | | | | 4,907 | | | | 26.3 | |
Income tax provision | | | 17,715 | | | | 6,460 | | | | 11,255 | | | | 174.2 | |
Depreciation and amortization | | | 68,530 | | | | 65,279 | | | | 3,251 | | | | 5.0 | |
Equity-based compensation | | | 4,127 | | | | 3,221 | | | | 906 | | | | 28.1 | |
(Gain) loss on deferred compensation | | | 27 | | | | (227 | ) | | | 254 | | | | (111.9 | ) |
Acquisition-related costs | | | 4,370 | | | | 2,017 | | | | 2,353 | | | | 116.7 | |
(Gain) loss on asset sales and disposals, net | | | (120 | ) | | | (5,621 | ) | | | 5,501 | | | | (97.9 | ) |
System conversion costs | | | 1,051 | | | | 48 | | | | 1,003 | | | | NM | |
Rebranding costs | | | 44 | | | | 268 | | | | (224 | ) | | | (83.6 | ) |
Equity method investment (income) loss, net | | | 568 | | | | - | | | | 568 | | | | NM | |
Other (income) expense, net | | | (8,100 | ) | | | (1,734 | ) | | | (6,366 | ) | | | NM | |
| | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 180,375 | | | $ | 157,711 | | | $ | 22,664 | | | | 14.4 | |
| | | Three Months Ended March 31, | | | 2020 vs. 2019 | |
(dollars in thousands) | | 2020 | | | 2019 | | | $ Change | | | % Change | |
Net income | | $ | 69,326 | | | $ | 38,739 | | | $ | 30,587 | | | | 79.0 | |
| | | | | | | | | | | | | | | | | |
Plus: Interest expense | | | 18,674 | | | | 18,096 | | | | 578 | | | | 3.2 | |
Income tax provision | | | 6,460 | | | | 12,664 | | | | (6,204 | ) | | | (49.0 | ) |
Depreciation and amortization | | | 65,279 | | | | 53,844 | | | | 11,435 | | | | 21.2 | |
Equity-based compensation | | | 3,221 | | | | 3,021 | | | | 200 | | | | 6.6 | |
Severance expense | | | - | | | | 163 | | | | (163 | ) | | | (100.0 | ) |
(Gain) loss on deferred compensation | | | (227 | ) | | | 175 | | | | (402 | ) | | | (229.7 | ) |
Acquisition-related costs | | | 2,017 | | | | 5,223 | | | | (3,206 | ) | | | (61.4 | ) |
(Gain) loss on asset sales and disposals, net | | | (5,621 | ) | | | 1,103 | | | | (6,724 | ) | | | NM | |
System conversion costs | | | 48 | | | | 1,396 | | | | (1,348 | ) | | | (96.6 | ) |
Rebranding costs | | | 268 | | | | 510 | | | | (242 | ) | | | (47.5 | )% |
Other income, net | | | (1,734 | ) | | | (1,802 | ) | | | 68 | | | | (3.8 | ) |
| | | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 157,711 | | | $ | 133,132 | | | $ | 24,579 | | | | 18.5 | |
NM = Not meaningful. Adjusted EBITDA and Adjusted EBITDA margin were negatively impacted to a small extent in the three months ended March 31, 2020 as a result of our responses to the COVID-19 pandemic, primarily resulting from the increased expenses discussed previously.
|
We believe that 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
Our primary funding requirements are for our ongoing operations, planned capital expenditures, potential acquisitions and strategic investments, 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, make future acquisitions and strategic investments, 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, including the impact of the COVID-19 pandemic, some of which are beyond our control.
The following table shows a
A summary of our net cash flows for the periods indicated was as follows (dollars in thousands):
| | | Three Months Ended March 31, | | | 2020 vs. 2019 | | | Three Months Ended March 31, | | | 2021 vs. 2020 | |
| | | 2020 | | 2019 | | $ Change | | % Change | | | 2021 | | 2020 | | $ Change | | % Change | |
Net cash provided by operating activities | | $ | 118,500 | | | $ | 104,378 | | | $ | 14,122 | | | 13.5 | | | $ | 163,993 | | | $ | 118,500 | | | $ | 45,493 | | | 38.4 | |
Net cash used in investing activities | | (76,017 | ) | | (404,969 | ) | | 328,952 | | | (81.2 | ) | | (66,698 | ) | | (76,017 | ) | | 9,319 | | | (12.3 | ) |
Net cash provided by financing activities | | | 74,140 | | | | 224,037 | | | | (149,897 | ) | | (66.9 | ) | | | 865,094 | | | | 74,140 | | | | 790,954 | | | NM | |
Increase (decrease) in cash and cash equivalents | | 116,623 | | | (76,554 | ) | | 193,177 | | | NM | | |
Change in cash and cash equivalents | | | 962,389 | | | 116,623 | | | 845,766 | | | NM | |
Cash and cash equivalents, beginning of period | | | 125,271 | | | | 264,113 | | | | (138,842 | ) | | (52.6 | ) | | | 574,909 | | | | 125,271 | | | | 449,638 | | | NM | |
Cash and cash equivalents, end of period | | $ | 241,894 | | | $ | 187,559 | | | $ | 54,335 | | | 29.0 | | | $ | 1,537,298 | | | $ | 241,894 | | | $ | 1,295,404 | | | NM | |
The $14.1$45.5 million year-over-year increase in net cash provided by operating activities was primarily attributable to an increase in Adjusted EBITDA of $24.6$22.7 million, an increase in tax refunds received and lower cash paid for acquisition costs, partially offset by an unfavorable changefavorable changes in accounts receivable and accounts payable and accrued liabilities and an increase in cash paid for interest.liabilities.
The $329.0$9.3 million decrease in net cash used in investing activities from the prior year period was due primarily to $356.9a $6.1 million of cash outflows related to the Clearwave acquisition in the first quarter of 2019, partially offset by an $18.6 million increasedecrease in cash paid for capital expenditures duringand the first quarterissuance of 2020.a $3.5 million note receivable in the prior year that did not recur.
The $149.9$791.0 million decreaseincrease in net cash provided by financing activities from the prior year period was due primarily to $895.2 million of net proceeds from the issuanceoffering of $250 millionthe Convertible Notes (the “Convertible Notes Offering”) in new debt during the first quarter of 2019,2021, partially offset by a $100$100.0 million borrowing under our Revolving Credit Facility duringof borrowings in the first quarter of 2020.prior year period that did not recur.
On July 1, 2015, the Board authorized up to $250$250.0 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 2020,2021, we have repurchased 210,631 shares of our common stock at an aggregate cost of $104.9 million. No shares were repurchased during the three months ended March 31, 2020.2021.
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 2020,2021, the Board approved a quarterly dividend of $2.25$2.50 per share of common stock, which was paid on March 6, 2020.5, 2021.
Financing Activity
Financing ActivityCredit Facility
The Third Amended and Restated Credit Agreement provides for the Term Loan A-2, the Term Loan B-1, the Term Loan B-2, the Term Loan B-3 and the Revolving Credit 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.
In January 2020, weWe have issued letters of credit totaling $22.0$33.0 million under the Revolving Credit Facility on behalf of a third-party entityWisper to guarantee such entity’sits performance obligations under an FCC broadband funding program. The fair value of the letters of credit approximates face value based on the short-term nature of the agreements. The third party has pledged certain assets in favor of us as collateral for issuing the letters of credit. We would be liable for up to $22.0 millionthe total amount outstanding under the letters of credit if the third partyWisper were to fail to satisfy all or some of its performance obligations under the FCC program. Wisper pledged certain assets in favor of us as collateral for issuing the letters of credit, which pledge was terminated in the third quarter of 2020 at the same time that we closed an equity investment in Wisper, and Wisper has guaranteed and indemnified us in connection with such letters of credit. As of March 31, 2020,2021, we have assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, no liability has been accrued within the condensed consolidated balance sheet.
In March 2020, we borrowed $100 million under the Revolving Credit Facility for general corporate purposes, including for potential and completed small acquisitions and investments. The entire balance was outstanding and bore interest at a rate of 2.43% per annum as of March 31, 2020. Letter Total letter of credit issuances under the Revolving Credit Facility totaled $28.7$41.0 million and were held for the benefit of performance obligations under government grant programs and certain general and liability insurance matters and bore interest at a rate of 1.63% per annum.
As of March 31, 2020,2021, we had $1.8$1.5 billion of aggregate outstanding term loans and Revolving Credit Facility borrowings and $221.3$459.0 million available for additional borrowing under the Revolving Credit Facility.
A summary of our outstanding term loans as of March 31, 20202021 is as follows (dollars in thousands):
Instrument | | Draw Date | | Original Principal | | | Amortization Per Annum(1) | | | Outstanding Principal | | Final Maturity Date | | Balance Due Upon Maturity | | Benchmark Rate | | Applicable Margin(2) | | | Interest Rate | | | Draw Date | | Original Principal | | Amortization Per Annum(1) | | | Outstanding Principal | | Final Maturity Date | | Balance Due Upon Maturity | | Benchmark Rate | | Applicable Margin(2) | | | Interest Rate | |
Term Loan A-2 | Term Loan A-2 | 5/8/2019 | | $ | 700,000 | | | | Varies(4) | | | $ | 689,652 | | 5/8/2024 | | $ | 513,945 | | LIBOR | | 1.50% | | | 2.49% | | | 5/8/2019(3) | | $ | 700,000 | | Varies(4) | | | $ | 672,356 | | 10/30/2025 | | $ | 476,607 | | LIBOR | | 1.50 | % | | 1.61 | % |
| | | 10/1/2019(3) | | | | | | | | | | | | | | | | | | | 10/1/2019(3) | | | | | | | | | | | | | | | | | | | | | | |
Term Loan B-1 | 5/1/2017 | | 500,000 | | | 1.0% | | | 486,250 | | 5/1/2024 | | 466,250 | | LIBOR | | 1.75% | | | 2.74% | | |
Term Loan B-2 | Term Loan B-2 | 1/7/2019 | | 250,000 | | | 1.0% | | | 247,500 | | 1/7/2026 | | 233,125 | | LIBOR | | 2.00% | | | 2.99% | | | 1/7/2019 | | 250,000 | | | 1.0 | % | | 245,000 | | 10/30/2027 | | 228,750 | | LIBOR | | 2.00 | % | | 2.11 | % |
Term Loan B-3 | Term Loan B-3 | 6/14/2019 | | | 325,000 | | | 1.0% | | | | 322,563 | | 1/7/2026 | | | 303,875 | | LIBOR | | 2.00% | | | 2.99% | | | 6/14/2019(5) | | 625,000 | | | 1.0 | % | | 617,833 | | 10/30/2027 | | 577,472 | | LIBOR | | 2.00 | % | | 2.11 | % |
| | | | 10/30/2020(5) | | | | | | | | | | | | | | | | | | | | | | | |
Total | Total | | $ | 1,775,000 | | | | | | $ | 1,745,965 | | | | $ | 1,517,195 | | | | | | | | Total | | $ | 1,575,000 | | | | | | $ | 1,535,189 | | | | $ | 1,282,829 | | | | | | | |
(1) | Payable in equal quarterly installments (expressed as a percentage of the original aggregate principal amount)amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). |
(2)(2)
| The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%, determined on a quarterly basis by reference to a pricing grid based on our Total Net Leverage Ratio.Ratio (as defined in the Third Amended and Restated Credit Agreement). All other applicable margins are fixed. |
(3) | On May 8, 2019, $250$250.0 million was drawn. On October 1, 2019, an additional $450$450.0 million was drawn. On October 30, 2020, the amortization schedule was reset. |
(4) | Per annum amortization rates for years one through five following the closingOctober 30, 2020 refinancing date are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively. |
(5) | On June 14, 2019, $325.0 million was drawn. On October 30, 2020, an additional $300.0 million was drawn. |
On May 3, 2021, we amended the Third Amended and Restated Credit Agreement to provide for the new seven-year Term Loan B-4 in an aggregate principal amount of $800.0 million. The interest margin applicable to the Term Loan B-4 is, at our option, equal to either LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term Loan B-4 may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions), except for any prepayment within six months of the funding date in connection with certain repricing transactions, which will be subject to a 1.0% prepayment premium. The Term Loan B-4 benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Third Amended and Restated Credit Agreement. The Term Loan B-4 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum (subject to customary adjustments in the event of any prepayment), with the outstanding balance due upon maturity.
Senior Notes
In November 2020, we completed the Senior Notes Offering of $650.0 million aggregate principal amount of Senior Notes due 2030. The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year, beginning on May 15, 2021. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of our existing and future wholly owned domestic subsidiaries that guarantees our obligations under our Senior Credit Facilities or that guarantees certain capital markets debt of ours or a guarantor in an aggregate principal amount in excess of $250.0 million.
Convertible Notes
In March 2021, we completed the Convertible Notes Offering of $575.0 million aggregate principal amount of 2026 Notes and $345.0 million aggregate principal amount of 2028 Notes. The net proceeds from the Convertible Notes Offering were $895.2 million after deducting initial purchaser discounts and other offering costs and expenses. We used the net proceeds from the Convertible Notes Offering for general corporate purposes, including to finance a portion of the purchase price in connection with the Hargray Acquisition. The Convertible Notes are senior unsecured obligations of ours and are guaranteed by our wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain of our Notes in an aggregate principal amount in excess of $250.0 million. The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes do not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, beginning on September 15, 2021, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of our common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock). The initial conversion price of each of the 2026 Notes and the 2028 Notes represents a premium of 25.0% over the last reported sale price of $1,820.83 per share of our common stock on March 2, 2021. The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of our common stock or a combination thereof is at our election.
Other Debt-Related Information
We were in compliance with all debt covenants as of March 31, 2021.
We recorded debt issuance cost amortization of $1.1 million for both the three months ended March 31, 20202021 and 20192020 within interest expense in the condensed consolidated statements of operations and comprehensive income.
Unamortized debt issuance costs totaled $19.5 million and $20.6 million at March 31, 2020 and December 31, 2019, respectively,consisted of which $2.3 million and $2.4 million are reflected within other noncurrent assets, respectively, and $17.2 million and $18.1 million are reflected as reductions to long-term debt, respectively, in the condensed consolidated balance sheets.following (in thousands):
| | | March 31, 2021 | | | December 31, 2020 | |
Revolving Credit Facility portion: | | | | | | | | |
Other noncurrent assets | | $ | 3,083 | | | $ | 3,249 | |
Term loans and Notes portion: | | | | | | | | |
Long-term debt (contra account) | | | 21,753 | | | | 21,897 | |
Total | | $ | 24,836 | | | $ | 25,146 | |
We were in compliance with all debt covenants as of March 31, 2020.
During the first quarter of 2019, we entered intoare party to two interest rate swap agreements in order to convert our interest payment obligations with respect to an aggregate of $1.2 billion of our variable rate LIBOR indebtedness to a fixed rate. Under the first swap agreement, with respect to a notional amount of $850$850.0 million, our monthly payment obligation is determined at a fixed base rate of 2.653%. Under the second swap agreement, which is a forward-starting swap with respect to a notional amount of $350$350.0 million, our monthly payment obligation beginning in June 2020 is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but each may be terminated prior to the scheduled maturity at our election or that of the financial institution counterparty under the terms provided in each swap agreement. We recognized losses of $2.1$7.6 million and $0.1$2.1 million on interest rate swaps during the three months ended March 31, 20202021 and 2019,2020, respectively, which were reflected in interest expense within the condensed consolidated statements of operations and comprehensive income. Refer
In March 2021, we terminated the $900.0 million of definitive bridge loan commitments that were originally received to note 8 tofinance a portion of the condensed consolidated financial statements for additional details regarding our interest rate swaps.Hargray Acquisition purchase price.
Refer to notes 910 and 1112 to our audited consolidated financial statements included in the 20192020 Form 10-K and notes 78, 9 and 816 to the condensed consolidated financial statements in thethis Quarterly Report on Form 10-Q for further details regarding our financing activity, outstanding debt and interest rate swaps.
Capital Expenditures
We have significant ongoing capital expenditure requirements as well as capital enhancements associated with acquired operations, including rebuilding low capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning; migrating products to legacy Cable One platforms; and expanding our high-capacity fiber network. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.
The following table presents our
Our capital expenditures by category for the three months ended March 31, 2021 and 2020 and 2019were as follows (in thousands):
| | | Three Months Ended March 31, | | | Three Months Ended March 31, | |
| | | 2020 | | | 2019 | | | 2021 | | | 2020 | |
Customer premise equipment | | $ | 15,671 | | | $ | 10,811 | | | $ | 17,346 | | | $ | 15,671 | |
Commercial | | 10,828 | | | 6,134 | | | 8,640 | | | 10,828 | |
Scalable infrastructure | | 9,279 | | | 10,975 | | | 15,725 | | | 9,279 | |
Line extensions | | 4,476 | | | 3,163 | | | 5,756 | | | 4,476 | |
Upgrade/rebuild | | 12,345 | | | 5,177 | | | 15,662 | | | 12,345 | |
Support capital | | | 12,158 | | | | 10,367 | | | | 8,724 | | | | 12,158 | |
Total | | $ | 64,757 | | | $ | 46,627 | | | $ | 71,853 | | | $ | 64,757 | |
(1) | Customer premise equipment includes costs incurred at customer locations, including installation costs and customer premise equipment (e.g., modems and set-top boxes). |
(2) | Commercial includes costs related to securing business services customers and PSUs, including small and medium-sized businesses and enterprise customers. |
(3) | Scalable infrastructure includes costs not related to customer premise equipment to secure growth of new customers and PSUs or provide service enhancements (e.g., headend equipment). |
(4) | Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering). |
(5) | Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments. |
(6) | Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles) and capitalized internal labor costs not associated with customer installation activities. |
Contractual Obligations and Contingent Commitments
As of March 31, 2020,2021, except for the $11.0 million increase to the letters of credit totaling $22.0 million issued on behalf of a third party entityWisper to guarantee such entity’sits performance obligations under an FCC broadband funding program, there have been no material changes to the contractual obligations and contingent commitments previously disclosed in the 20192020 Form 10-K.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or financing arrangements with special-purpose entities.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated 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.
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.
There have been no material changes to our critical accounting policy and estimate disclosures described in our 20192020 Form 10-K.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from changes in market rates and prices. There have been no material changes to the market risk disclosures described in the 20192020 Form 10-K.10-K other than as set forth below.
As of March 31, 2021, we had $575.0 million aggregate principal amount of 2026 Notes outstanding and $345.0 million aggregate principal amount of 2028 Notes outstanding. Although the Convertible Notes are based on a fixed rate, changes in interest rates could impact the fair market value of such notes. As of March 31, 2021, the fair market value of the Convertible Notes was $922.2 million.
ITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and ProceduresProcedures
The Company’s management is responsible for establishing and maintaining adequate disclosure controls and procedures.procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation as of March 31, 20202021 of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on the Company’s evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2020.2021.
Changes in Internal Control Over Financial Reporting
As a result of the acquisition of Fidelity on October 1, 2019, the Company has incorporated internal controls over significant processes specific to post-acquisition activities necessary for the integration of Fidelity, including controls associated with the adoption of common financial reporting and internal control practices for Fidelity effective January 1, 2020. The Fidelity operations utilize a different billing system and processes, for which the Company has designed and implemented new internal controls effective January 1, 2020.
Except as disclosed above, thereThere 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 March 31, 20202021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
None.
ITEM 1A.RISK FACTORS
Except as set forth below, there have been no material changes to the risk factors previously disclosed in the 20192020 Form 10-K.
Risks Relating to Our Business
Implementation of our new ERP system could disrupt business operations.
We implemented a new ERP system in the second quarter of 2021. The implementation has required and will continue to require significant investments of time, money and resources and may result in the diversion of senior management’s attention from our ongoing operations. Furthermore, the implementation has resulted and will continue to result in changes to many of our existing operational, financial and administrative business processes, including, but not limited to, our budgeting, purchasing, receiving, provisioning, servicing, accounting and reporting processes. The new ERP system has required and will continue to require both the implementation of new internal controls and changes to existing internal control frameworks and procedures. If technical problems or other significant issues arise in connection with the implementation or operation of the new ERP system, it could have a material negative impact on our operations, business, financial results and financial condition.
Risks Relating to Our BusinessIndebtedness
The recent COVID-19 pandemic has impactedWe have incurred substantial indebtedness, including in connection with various acquisitions, and the degree to which we are now leveraged may have a material adverse effect on our business, financial condition or results of operations and cash flows.
We currently have a substantial amount of indebtedness. This substantial amount of indebtedness could limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, strategic investments, debt service requirements, stock repurchases or other purposes. It may also increase our vulnerability to adverse economic, market and industry conditions (including the impact of the COVID-19 pandemic), limit our flexibility in planning for, or reacting to, changes in our business operations or to our industry overall, and place us at a disadvantage in relation to our competitors that have lower debt levels.
Our ability to make payments on and to refinance our indebtedness, including the debt incurred in connection with acquisitions, as well as any future debt that we may incur, will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors, some of which are beyond our control.
Our inability to raise funds necessary to repurchase, or settle conversions of, either series of the Convertible Notes, upon a fundamental change as described in the applicable Convertible Notes Indenture, may lead to defaults under such indenture and under agreements governing our existing or future indebtedness.
If we repurchase the Convertible Notes for cash, which holders may require upon a fundamental change as described in the applicable Convertible Note Indenture, or settle such Convertible Notes by cash or by a combination of cash and shares of our common stock in the event a holder elects to convert their Convertible Notes following a fundamental change, we will be required to make cash payments with respect to the Convertible Notes being converted or repurchased.
However, we may not have enough available cash or be able to obtain financing at the time we are required to make purchases of the Convertible Notes being surrendered or converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon conversion of Convertible Notes is limited by the agreements governing our existing indebtedness and may also be limited by law, by regulatory authority or by agreements that will govern our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the applicable Convertible Notes Indenture or to pay cash payable on future conversions of the Convertible Notes as required by such indenture would constitute a default under such indenture. A default under the applicable Convertible Notes Indenture or the fundamental change itself could also lead to a default under agreements governing our existing or future indebtedness (including the Third Amended and Restated Credit Agreement and the Senior Notes Indenture).
The conditional conversion feature of either series of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of either series of the Convertible Notes is triggered, holders of the applicable Convertible Notes will be entitled to convert such Convertible Notes at any time during specified periods at their option. If one or more holders elect to convert their Convertible Notes, we initially elect to satisfy our conversion obligations by combination settlement. In addition, in the future, we may elect to settle all of our conversion obligation through the payment of cash, which could adversely affect our business, financial results and financial condition,liquidity. In addition, even if holders do not elect to convert the extentConvertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which is uncertain and difficult to predict.would result in a material reduction of our net working capital.
Conversion of either series of the Convertible Notes will dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
The COVID-19 pandemic has significantly impacted the United States and other countries, which has resulted in international, Federal, state and local governments implementing numerous measures to try to reduce the spreadconversion of some or all of the virus that causes COVID-19, including travel restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns.
We represent a partConvertible Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the United States’ critical infrastructure, and our continued operation is essentialConvertible Notes. The Convertible Notes may from time to connectivity services that are vital duringtime in the COVID‐19 national emergency. Atfuture be convertible at the same time,option of their holders prior to their scheduled terms under certain circumstances. Any sales in the spreadpublic market of the COVID-19 pandemic has caused us to modify our operations, including restricting our technicians from entering customer homes and businesses; closing or limiting access to local offices and our corporate headquarters for associates, customers and others; limiting non-essential travel for associates; instituting an expanded work-from-home program, including enhancing our technological capabilities to supportcommon stock issuable upon such efforts; implementing “purpose pay” to provide a 25% premium to base pay for certain associates who are required to leave their homes to perform their essential job functions; establishing health protocols to protect our associates, customers and others; temporarily discontinuing charging data overage fees, waiving late charges and suspending disconnection of data services for residential and business customers who are unable to pay due to disruptions caused by the pandemic; and introducing a new lower-cost residential data plan. We may take further actions required by governmental authorities or that we determine are prudent to support the well-beingconversion could adversely affect prevailing market prices of our associates, customers, suppliers, business partners and others.
As a resultcommon stock. In addition, the existence of the COVID-19 outbreak andConvertible Notes may encourage short selling by market participants because the related responses by us and from governmental authorities, our operations have been impacted as described above, which has resulted, and we anticipate will continue to result, in reduced usage-based data, late charge, reconnect fee, advertising and business services revenues, increased expenses and diminished Adjusted EBITDA margins. Additionally, our business, financial results and financial conditionconversion of the Convertible Notes could be further adversely affected in a numberused to satisfy short positions or anticipated conversion of ways, including, but not limited to, the following:Convertible Notes into shares of our common stock could depress the price of our common stock.
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| further disruptions to our regular, ongoing operations and restrictions on our sales and marketing efforts, especially related to business services;
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| interruptions to our engineering, design and implementation of plant and infrastructure as well as other important business activities;
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| limitations on associate resources and availability, including in our call centers and among our technicians, due to health protocols, sickness, government restrictions, the desire of associates to avoid contact with large groups of people or other factors, which may further constrain capacity to respond to the increased demand for our products and services;
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| the potential further diversion of senior management’s attention in the event that key associates contract COVID-19 and, consequently, have limited ability or become unable to work;
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| interruptions or delays receiving and limited availability of necessary hardware, software and operational supplies, equipment and support;
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| possible further reductions of revenues, Adjusted EBITDA, and/or Adjusted EBITDA margin and increased expenses as well as greater difficulty in collecting customer receivables resulting from, among other things, our actions to assist customers and support our associates during the COVID-19 crisis;
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| a fluctuation in interest rates that could result from market uncertainties;
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| an increase in the cost of or the difficulty to obtain debt or equity financing, which could affect our financial condition or our ability to fund operations or future acquisition or investment opportunities;
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| a delay in the implementation of our new ERP system;
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| potential legislative or regulatory efforts to impose new requirements on our data services;
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| changes to the carrying value of our goodwill and intangible assets; and
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| an increase in regulatory restrictions or continued market volatility that could hinder our ability to execute our business strategies, including acquisitions and investments, as well as negatively impact our stock price.
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Additionally, the COVID-19 pandemic could negatively affect our internal control over financial reporting as a portion of our workforce is required to work from home. Accordingly, new processes, procedures and controls could be required to respond to changes in our business environment.
The potential effects of the COVID-19 pandemic may also impact many of our other risk factors previously disclosed in the 2019 Form 10-K. The degree to which the pandemic impacts our operations, business, financial results and financial condition will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth certainCertain information relating to common stock repurchases by the Company and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) under the Exchange Act during the three months ended March 31, 20202021 were as follows (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) | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |
January 1 to 31, 2020 (2) | | | 3,479 | | | $ | 1,536.47 | | | | - | | | $ | 145,081 | |
February 1 to 29, 2020 (2) | | | 131 | | | $ | 1,573.02 | | | | - | | | $ | 145,081 | |
March 1 to 31, 2020 (2), (3) | | | 462 | | | $ | 1,323.72 | | | | - | | | $ | 145,081 | |
Total | | | 4,072 | | | $ | 1,513.51 | | | | - | | | | | |
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) | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | |
January 1 to 31, 2021(2) | | | 3,314 | | | $ | 2,227.72 | | | | - | | | $ | 145,081 | |
February 1 to 28, 2021(2) | | | 179 | | | $ | 2,015.24 | | | | - | | | $ | 145,081 | |
March 1 to 31, 2021 | | | - | | | $ | - | | | | - | | | $ | 145,081 | |
Total | | | 3,493 | | | $ | 2,216.83 | | | | - | | | | | |
(1)(1)
| On July 1, 2015, the Board authorized up to $250$250.0 million of share repurchases (subject to a total cap of 600,000 shares of common stock), which was announced on August 7, 2015. The authorization does not have an expiration date. 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. |
(2) | Represents shares withheld from associates to satisfy estimated tax withholding obligations in connection with the vesting of restricted stock 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 the Company’s common stock on the applicable vesting or exercise measurement date. |
(3)
| Also includes 300 shares purchased by an executive officer of the Company that were not under the Company’s publicly announced share repurchase program (which should not be deemed to be an admission that such executive officer is, in fact, an affiliated purchaser of the Company). The average price paid per share for the common stock was based on the closing price of the Company’s common stock on the applicable purchase date.
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ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
Not applicable.
ITEM 6.EXHIBITS
Exhibit Number | Description |
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2.1 | Agreement and Plan of Merger, dated as of February 12, 2021, by and among Cable One, Inc., Hargray Acquisition Holdings, LLC, Lighthouse Merger Sub LLC, and TPO-Hargray, LLC, in its capacity as the equityholders’ representative (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Cable One, Inc. filed on February 16, 2021). |
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4.1 | Indenture, dated as of March 5, 2021, by and among Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 0.000% Convertible Senior Notes due 2026 (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K of Cable One, Inc. filed on March 8, 2021). |
ITEM 6. EXHIBITS
Exhibit
Number4.2
| DescriptionIndenture, dated as of March 5, 2021, by and among Cable One, Inc., the guarantors from time to time party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to the 1.125% Convertible Senior Notes due 2028 (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K of Cable One, Inc. filed on March 8, 2021).
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4.3 | Form of 0.000% Convertible Senior Notes due 2026 (included in Exhibit 4.1). |
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4.4 | Form of 1.125% Convertible Senior Notes due 2028 (included in Exhibit 4.2). |
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10.1 | FormAmendment No. 1, dated as of Stock Appreciation RightMarch 1, 2021, to the Third Amended and Restated Credit Agreement, for grants beginning indated as of October 30, 2020, among Cable One, Inc., certain of its wholly owned subsidiaries party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (incorporated herein by reference to Exhibit 10.2210.1 to the 2019Current Report on Form 10-K8-K of Cable One, Inc. filed on February 27, 2020)March 1, 2021).
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10.2 | FormAmendment No. 2, dated as of Restricted Stock AwardMay 3, 2021, to the Third Amended and Restated Credit Agreement, for performance-based restricted stock grants beginning indated as of October 30, 2020, among Cable One, Inc., certain of its wholly owned subsidiaries party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (incorporated herein by reference to Exhibit 10.2310.1 to the 2019Current Report on Form 10-K8-K of Cable One, Inc. filed on February 27, 2020)May 3, 2021).
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10.3 | Form of Restricted Stock Award Agreement for time-based proportional-vest restricted stock grants beginning in 2020 (incorporated herein by reference to Exhibit 10.24 to the 2019 Form 10-K filed on February 27, 2020).
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10.4
| Form of Restricted Stock Award Agreement for time-based cliff-vest restricted stock grants beginning in 2020 (incorporated herein by reference to Exhibit 10.25 to the 2019 Form 10-K filed on February 27, 2020).James A. Obermeyer Offer Letter dated January 22, 2020.*
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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.* |
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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.* |
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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 | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document.* |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
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101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
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104 | The cover page of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,2021, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
__________
* Filed herewith.
** Furnished herewith.
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. (Registrant) | |
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By: | /s/ Julia M. Laulis | |
| Name: | Julia M. Laulis | |
| Title: | Chair of the Board, President and Chief Executive Officer | |
Date: May 11, 20206, 2021
By: | /s/ Steven S. Cochran | |
| Name: | Steven S. Cochran | |
| Title: | Senior Vice President and
Chief Financial Officer | |
Date: May 11, 20206, 2021
