UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019March 31, 2020
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-36863
Cable One, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
| 13-3060083 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
| ||
210 E. Earll Drive, Phoenix, Arizona |
| 85012 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(602) 364-6000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | 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 |
| Common stock, par value $0.01 |
FORM 10-Q
Item 1. | Condensed Consolidated Financial Statements | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
Item 4. | 26 | |
| ||
| ||
PART II: OTHER INFORMATION | ||
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
Item 5. | 28 | |
Item 6. | Exhibits | 29 |
| ||
| ||
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, dividend policy, financial results and financial condition as well as anticipated impacts from the COVID-19 pandemic on the Company and future responses. 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’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 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; |
● | the effects of any acquisitions and strategic investments by us; |
● | risks that our rebranding may not produce the benefits expected; |
● | damage to our reputation or brand image; |
● | 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; |
● | our ability to incur future indebtedness; |
● | fluctuations in our stock price; |
● | our ability to continue to pay dividends; |
● | dilution from equity awards and potential stock issuances in connection with acquisitions and strategic investments; |
● | provisions in our charter, by-laws and Delaware law that could discourage takeovers; 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 2019 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.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTSFINANCIAL STATEMENTS
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except par values) | June 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | ||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 102,283 | $ | 264,113 | $ | 241,894 | $ | 125,271 | ||||||||
Accounts receivable, net | 30,340 | 29,947 | 35,386 | 38,452 | ||||||||||||
Income taxes receivable | 2,693 | 10,713 | 16,028 | 2,146 | ||||||||||||
Prepaid and other current assets | 20,400 | 13,090 | 24,476 | 15,619 | ||||||||||||
Total Current Assets | 155,716 | 317,863 | 317,784 | 181,488 | ||||||||||||
Property, plant and equipment, net | 977,398 | 847,979 | 1,210,306 | 1,201,271 | ||||||||||||
Intangible assets, net | 1,035,210 | 953,851 | 1,301,228 | 1,312,381 | ||||||||||||
Goodwill | 355,347 | 172,129 | 429,597 | 429,597 | ||||||||||||
Other noncurrent assets | 25,781 | 11,412 | 39,444 | 27,094 | ||||||||||||
Total Assets | $ | 2,549,452 | $ | 2,303,234 | $ | 3,298,359 | $ | 3,151,831 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 102,817 | $ | 94,134 | $ | 131,119 | $ | 136,993 | ||||||||
Deferred revenue | 23,078 | 18,954 | 24,886 | 23,640 | ||||||||||||
Current portion of long-term debt | 17,153 | 20,625 | 28,935 | 28,909 | ||||||||||||
Total Current Liabilities | 143,048 | 133,713 | 184,940 | 189,542 | ||||||||||||
Long-term debt | 1,280,637 | 1,142,056 | 1,805,700 | 1,711,937 | ||||||||||||
Deferred income taxes | 263,245 | 242,127 | 295,732 | 303,314 | ||||||||||||
Interest rate swap liability | 175,524 | 78,612 | ||||||||||||||
Other noncurrent liabilities | 99,614 | 9,980 | 25,572 | 26,857 | ||||||||||||
Total Liabilities | 1,786,544 | 1,527,876 | 2,487,468 | 2,310,262 | ||||||||||||
Commitments and contingencies (refer to note 14) | ||||||||||||||||
Stockholders' Equity | ||||||||||||||||
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding) | - | - | ||||||||||||||
Common stock ($0.01 par value; 40,000,000 shares authorized; 5,887,899 shares issued; and 5,706,812 and 5,703,402 shares outstanding as of June 30, 2019 and December 31, 2018, respectively) | 59 | 59 | ||||||||||||||
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding) | - | - | ||||||||||||||
Common stock ($0.01 par value; 40,000,000 shares authorized; 5,887,899 shares issued; and 5,724,857 and 5,715,377 shares outstanding as of March 31, 2020 and December 31, 2019, respectively) | 59 | 59 | ||||||||||||||
Additional paid-in capital | 45,001 | 38,898 | 54,419 | 51,198 | ||||||||||||
Retained earnings | 902,615 | 850,292 | 1,036,877 | 980,355 | ||||||||||||
Accumulated other comprehensive loss | (63,135 | ) | (96 | ) | (152,783 | ) | (68,158 | ) | ||||||||
Treasury stock, at cost (181,087 and 184,497 shares held as of June 30, 2019 and December 31, 2018, respectively) | (121,632 | ) | (113,795 | ) | ||||||||||||
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 | ) | ||||||||||||
Total Stockholders' Equity | 762,908 | 775,358 | 810,891 | 841,569 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 2,549,452 | $ | 2,303,234 | $ | 3,298,359 | $ | 3,151,831 | ||||||||
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
(dollars in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | ||||||||||||||||||
Revenues | $ | 285,650 | $ | 268,414 | $ | 564,255 | $ | 534,175 | $ | 321,196 | $ | 278,605 | ||||||||||||
Costs and Expenses: | Costs and Expenses: | |||||||||||||||||||||||
Operating (excluding depreciation and amortization) | 95,688 | 91,783 | 190,206 | 186,522 | 105,928 | 94,518 | ||||||||||||||||||
Selling, general and administrative | 60,103 | 54,196 | 121,546 | 105,145 | 62,884 | 61,443 | ||||||||||||||||||
Depreciation and amortization | 54,835 | 49,033 | 108,679 | 97,811 | 65,279 | 53,844 | ||||||||||||||||||
Loss on asset disposals, net | 910 | 2,734 | 2,013 | 9,368 | ||||||||||||||||||||
(Gain) loss on asset sales and disposals, net | (5,621 | ) | 1,103 | |||||||||||||||||||||
Total Costs and Expenses | 211,536 | 197,746 | 422,444 | 398,846 | 228,470 | 210,908 | ||||||||||||||||||
Income from operations | 74,114 | 70,668 | 141,811 | 135,329 | 92,726 | 67,697 | ||||||||||||||||||
Interest expense | (18,516 | ) | (14,953 | ) | (36,612 | ) | (29,676 | ) | (18,674 | ) | (18,096 | ) | ||||||||||||
Other income (expense), net | (9,632 | ) | 882 | (7,830 | ) | 1,499 | ||||||||||||||||||
Other income, net | 1,734 | 1,802 | ||||||||||||||||||||||
Income before income taxes | 45,966 | 56,597 | 97,369 | 107,152 | 75,786 | 51,403 | ||||||||||||||||||
Income tax provision | 9,571 | 12,812 | 22,235 | 22,714 | 6,460 | 12,664 | ||||||||||||||||||
Net income | $ | 36,395 | $ | 43,785 | $ | 75,134 | $ | 84,438 | $ | 69,326 | $ | 38,739 | ||||||||||||
Net Income per Common Share: | Net Income per Common Share: | |||||||||||||||||||||||
Basic | $ | 6.41 | $ | 7.70 | $ | 13.24 | $ | 14.83 | $ | 12.17 | $ | 6.83 | ||||||||||||
Diluted | $ | 6.35 | $ | 7.65 | $ | 13.13 | $ | 14.73 | $ | 12.05 | $ | 6.78 | ||||||||||||
Weighted Average Common Shares Outstanding: | Weighted Average Common Shares Outstanding: | |||||||||||||||||||||||
Basic | 5,673,669 | 5,687,095 | 5,673,893 | 5,694,774 | 5,697,904 | 5,674,120 | ||||||||||||||||||
Diluted | 5,730,238 | 5,722,869 | 5,723,296 | 5,732,634 | 5,755,059 | 5,716,585 | ||||||||||||||||||
Deferred loss on cash flow hedges and other, net of tax | $ | (33,970 | ) | $ | - | $ | (63,039 | ) | $ | 1 | ||||||||||||||
Comprehensive income | $ | 2,425 | $ | 43,785 | $ | 12,095 | $ | 84,439 | ||||||||||||||||
Unrealized loss on cash flow hedges and other, net of tax | $ | (84,625 | ) | $ | (29,069 | ) | ||||||||||||||||||
Comprehensive income (loss) | $ | (15,299 | ) | $ | 9,670 | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Treasury | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Comprehensive | Stock, | Stockholders’ | 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 | Shares | Amount | Capital | Earnings | Loss | at cost | Equity | ||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 | 5,699,330 | $ | 59 | $ | 41,919 | $ | 877,644 | $ | (29,165 | ) | $ | (121,422 | ) | $ | 769,035 | |||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 5,715,377 | $ | 59 | $ | 51,198 | $ | 980,355 | $ | (68,158 | ) | $ | (121,885 | ) | $ | 841,569 | |||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | 36,395 | - | - | 36,395 | - | - | - | 69,326 | - | - | 69,326 | ||||||||||||||||||||||||||||||||||||||||||
Deferred loss on cash flow hedges and other, net of tax | - | - | - | - | (33,970 | ) | - | (33,970 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on cash flow hedges and other, net of tax | - | - | - | - | (84,625 | ) | - | (84,625 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | - | - | 3,082 | - | - | - | 3,082 | - | - | 3,221 | - | - | - | 3,221 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of equity awards, net of forfeitures | 7,495 | - | - | - | - | - | - | 13,252 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Withholding tax for equity awards | (13 | ) | - | - | - | - | (210 | ) | (210 | ) | (3,772 | ) | - | - | - | - | (5,796 | ) | (5,796 | ) | ||||||||||||||||||||||||||||||||||||
Dividends paid to stockholders ($2.00 per common share) | - | - | - | (11,424 | ) | - | - | (11,424 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 5,706,812 | $ | 59 | $ | 45,001 | $ | 902,615 | $ | (63,135 | ) | $ | (121,632 | ) | $ | 762,908 | |||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||
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 March 31, 2018 | 5,732,441 | $ | 59 | $ | 30,750 | $ | 759,004 | $ | (351 | ) | $ | (89,552 | ) | $ | 699,910 | |||||||||||||
Net income | - | - | - | 43,785 | - | - | 43,785 | |||||||||||||||||||||
Equity-based compensation | - | - | 2,506 | - | - | - | 2,506 | |||||||||||||||||||||
Issuance of equity awards, net of forfeitures | 1,616 | - | - | - | - | - | - | |||||||||||||||||||||
Repurchases of common stock | (30,717 | ) | - | - | - | - | (20,261 | ) | (20,261 | ) | ||||||||||||||||||
Withholding tax for equity awards | (3 | ) | - | - | - | - | (2 | ) | (2 | ) | ||||||||||||||||||
Dividends paid to stockholders ($1.75 per common share) | - | - | - | (10,005 | ) | - | - | (10,005 | ) | |||||||||||||||||||
Balance at June 30, 2018 | 5,703,337 | $ | 59 | $ | 33,256 | $ | 792,784 | $ | (351 | ) | $ | (109,815 | ) | $ | 715,933 | |||||||||||||
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, 2018 | 5,703,402 | $ | 59 | $ | 38,898 | $ | 850,292 | $ | (96 | ) | $ | (113,795 | ) | $ | 775,358 | |||||||||||||
Lease accounting standard adoption cumulative adjustment | - | - | - | 8 | - | - | 8 | |||||||||||||||||||||
Net income | - | - | - | 75,134 | - | - | 75,134 | |||||||||||||||||||||
Deferred loss on cash flow hedges and other, net of tax | - | - | - | - | (63,039 | ) | - | (63,039 | ) | |||||||||||||||||||
Equity-based compensation | - | - | 6,103 | - | - | - | 6,103 | |||||||||||||||||||||
Issuance of equity awards, net of forfeitures | 12,717 | - | - | - | - | - | - | |||||||||||||||||||||
Repurchases of common stock | (5,984 | ) | - | - | - | - | (5,073 | ) | (5,073 | ) | ||||||||||||||||||
Withholding tax for equity awards | (3,323 | ) | - | - | - | - | (2,764 | ) | (2,764 | ) | ||||||||||||||||||
Dividends paid to stockholders ($4.00 per common share) | - | - | - | (22,819 | ) | - | - | (22,819 | ) | |||||||||||||||||||
Balance at June 30, 2019 | 5,706,812 | $ | 59 | $ | 45,001 | $ | 902,615 | $ | (63,135 | ) | $ | (121,632 | ) | $ | 762,908 | |||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Treasury | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Comprehensive | Stock, | Stockholders’ | 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 | Shares | Amount | Capital | Earnings | Loss | at cost | Equity | ||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 5,731,442 | $ | 59 | $ | 28,412 | $ | 728,386 | $ | (352 | ) | $ | (80,058 | ) | $ | 676,447 | |||||||||||||||||||||||||||||||||||||||||
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 | - | - | - | 84,438 | - | - | 84,438 | - | - | - | 38,739 | - | - | 38,739 | ||||||||||||||||||||||||||||||||||||||||||
Changes in pension, net of tax | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized loss on cash flow hedges and other, net of tax | - | - | - | - | (29,069 | ) | - | (29,069 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Equity-based compensation | - | - | 4,844 | - | - | - | 4,844 | - | - | 3,021 | - | - | - | 3,021 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of equity awards, net of forfeitures | 15,693 | - | - | - | - | - | - | 5,222 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock | (34,028 | ) | - | - | - | - | (22,556 | ) | (22,556 | ) | (5,984 | ) | - | - | - | - | (5,073 | ) | (5,073 | ) | ||||||||||||||||||||||||||||||||||||
Withholding tax for equity awards | (9,770 | ) | - | - | - | - | (7,201 | ) | (7,201 | ) | (3,310 | ) | - | - | - | - | (2,554 | ) | (2,554 | ) | ||||||||||||||||||||||||||||||||||||
Dividends paid to stockholders ($3.50 per common share) | - | - | - | (20,040 | ) | - | - | (20,040 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 | 5,703,337 | $ | 59 | $ | 33,256 | $ | 792,784 | $ | (351 | ) | $ | (109,815 | ) | $ | 715,933 | |||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
(in thousands) | 2019 | 2018 | 2020 | 2019 | ||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 75,134 | $ | 84,438 | $ | 69,326 | $ | 38,739 | ||||||||
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 | 108,679 | 97,811 | 65,279 | 53,844 | ||||||||||||
Amortization of debt issuance cost | 2,409 | 2,012 | ||||||||||||||
Amortization of debt issuance costs | 1,106 | 1,118 | ||||||||||||||
Equity-based compensation | 6,103 | 4,844 | 3,221 | 3,021 | ||||||||||||
Write-off of debt issuance costs | 4,207 | 110 | ||||||||||||||
Increase in deferred income taxes | 11,647 | 9,559 | 20,108 | 7,102 | ||||||||||||
Loss on asset disposals, net | 2,013 | 9,368 | ||||||||||||||
(Gain) loss on asset sales and disposals, net | (5,621 | ) | 1,103 | |||||||||||||
Changes in operating assets and liabilities, net of effects from acquisitions: | ||||||||||||||||
(Increase) decrease in accounts receivable, net | 901 | (4,351 | ) | |||||||||||||
Decrease in income taxes receivable | 8,020 | 12,318 | ||||||||||||||
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 | (6,999 | ) | (7,206 | ) | (8,857 | ) | (8,341 | ) | ||||||||
Increase (decrease) in accounts payable and accrued liabilities | 5,004 | (15,439 | ) | (13,789 | ) | 1,442 | ||||||||||
Increase (decrease) in deferred revenue | (198 | ) | 3,783 | |||||||||||||
Increase in deferred revenue | 1,246 | 820 | ||||||||||||||
Other, net | (4,426 | ) | (645 | ) | (2,703 | ) | (3,356 | ) | ||||||||
Net cash provided by operating activities | 212,494 | 196,602 | 118,500 | 104,378 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchase of business, net of cash acquired | (356,917 | ) | - | - | (356,917 | ) | ||||||||||
Capital expenditures | (110,488 | ) | (90,868 | ) | (64,757 | ) | (46,627 | ) | ||||||||
Decrease in accrued expenses related to capital expenditures | (5,410 | ) | (2,517 | ) | (8,238 | ) | (7,751 | ) | ||||||||
Proceeds from sales of property, plant and equipment | 6,998 | 1,569 | 518 | 6,326 | ||||||||||||
Issuance of note receivable | (3,540 | ) | - | |||||||||||||
Net cash used in investing activities | (465,817 | ) | (91,816 | ) | (76,017 | ) | (404,969 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of long-term debt | 825,000 | - | ||||||||||||||
Proceeds from long-term debt borrowings | 100,000 | 250,000 | ||||||||||||||
Payment of debt issuance costs | (11,671 | ) | (2,131 | ) | - | (2,410 | ) | |||||||||
Payments on long-term debt | (691,180 | ) | (5,633 | ) | (7,260 | ) | (4,531 | ) | ||||||||
Repurchases of common stock | (5,073 | ) | (22,556 | ) | - | (5,073 | ) | |||||||||
Payment of withholding tax for equity awards | (2,764 | ) | (7,201 | ) | (5,796 | ) | (2,554 | ) | ||||||||
Dividends paid to stockholders | (22,819 | ) | (20,040 | ) | (12,804 | ) | (11,395 | ) | ||||||||
Change in cash overdraft | - | (5,455 | ) | |||||||||||||
Net cash provided by (used in) financing activities | 91,493 | (63,016 | ) | |||||||||||||
Net cash provided by financing activities | 74,140 | 224,037 | ||||||||||||||
Increase (decrease) in cash and cash equivalents | (161,830 | ) | 41,770 | 116,623 | (76,554 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 264,113 | 161,752 | 125,271 | 264,113 | ||||||||||||
Cash and cash equivalents, end of period | $ | 102,283 | $ | 203,522 | $ | 241,894 | $ | 187,559 | ||||||||
Supplemental cash flow disclosures: | ||||||||||||||||
Cash paid for interest, net of capitalized interest | $ | 34,687 | $ | 27,924 | $ | 17,152 | $ | 9,421 | ||||||||
Cash paid for income taxes, net of refunds received | $ | 3,001 | $ | 1,293 | $ | (930 | ) | $ | (59 | ) | ||||||
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. Cable One Inc., together with its wholly owned subsidiaries (collectively, “Cable One,” “us,” “our,” “we” or the “Company”) 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. As of June 30, 2019,March 31, 2020, Cable One provided service to 818,579approximately 921,000 residential and business customers, of which 681,762approximately 793,000 subscribed to data services, 308,493303,000 subscribed to video services and 123,672136,000 subscribed to voice services.
On January 8, 2019, the Company acquired Delta Communications, L.L.C. (“Clearwave”) for a purchase price of $358.8 million in cash on a debt-free basis. Refer to note 2 for details on this transaction and note 7 for details on the related financing.
On March 31,October 1, 2019, the Company entered into a definitive agreement withacquired Fidelity Communications Co. to acquire its’s data, video and voice business and certain related assets (collectively, “Fidelity”) for $525.9a purchase price of $531.4 million in cash subjecton a debt-free basis. Refer to customary post-closing adjustments. Fidelity is a cable operator that provides residential and business services to customers throughout greater Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. Cable One and Fidelity share similar strategies, customer demographics and products. Accordingly, the Company believes the acquisition of Fidelity offers it opportunitiesnote 2 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 all-cash transaction is expected to be funded through a combination of cashdetails on hand, revolving credit facility capacity and proceeds from new indebtedness. The transaction is subject to customary closing conditions and is expected to be completed early in the fourth quarter of 2019.these transactions.
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 Securities and Exchange Commission (the “SEC”).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 Company’s Annual Report on2019 Form 10-K for the fiscal year ended -K.
The December 31, 2018 (2019 the “2018 Form 10-K”).
The December 31, 2018 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 20192018 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 Standard Codification (“ASC”) 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. The Company’s operations 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'sCompany’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. Accordingly, management has identified one1 reportable segment.
Use of Estimates.The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates and underlying assumptions.
Recently Adopted Accounting Pronouncements.In JuneAugust 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.2018-07,Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No.2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and also simplifies the application of hedge accounting under GAAP. The ASU was effective January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No.2016-02,Leases (Topic 842). ASU 2016-02 requires lessees to record substantially all of their leases on the balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability with the exception of short-term leases. The Company is required to classify each separate lease component as an operating or a finance lease at the lease commencement date. Initial measurement of the ROU asset and lease liability is the same for both operating and finance leases, however, expense recognition and amortization of the ROU asset differs. Operating leases reflect lease expense on a straight-line basis similar to previous operating leases while finance leases reflect a front-loaded expense pattern similar to previous capital leases. The Company adopted the updated guidance on January 1, 2019.
With respect to the adoption of ASU 2016-02, the Company elected the “Comparatives Under 840 Option” approach to transition. Under this method, financial information related to periods prior to adoption is as originally reported under ASC 840 - Leases. Upon adoption on January 1, 2019, the Company recorded ROU assets of $14.9 million and lease liabilities of $13.3 million. The adoption of this guidance did not have a material impact on Company’s consolidated financial statements.
ASU 2016-02 provides several optional practical expedients in transition. The Company elected the lessee and lessor transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs.
The Company also made certain lessee accounting policy elections, including a short-term lease exception policy, permitting the exclusion of short-term leases (leases with terms of 12 months or less) from the recognition requirements of ASU 2016-02, and an accounting policy to account for lease and non-lease components as a single component for all classes of assets, permitting common area maintenance, real estate taxes, fiber network power charges and routine maintenance fees to be combined with the associated lease component. The portfolio approach, which allows a lessee to account for its leases at a portfolio level, was elected for certain equipment and fiber leases in which the difference in accounting for each asset separately would not have been materially different from accounting for the assets as a combined unit. As a lessee, the Company also elected the practical expedient not to reevaluate whether any expired or existing land easements are, or contain, leases.
The Company provides residential and business customers with certain hardware to deliver data, video and voice services. As a lessor, the Company elected the practical expedient not to separate lease components from the associated non-lease component for all classes of assets. The Company concluded the non-lease components would otherwise be accounted for under the new revenue recognition standard and both the timing and pattern of transfer are the same for the non-lease components and associated lease component based on the interrelated nature of the services provided and the underlying leased hardware and, if accounted for separately, the lease component would be classified as an operating lease.
Refer to note 6 for the requisite disclosures regarding the amount, timing and any uncertainty regarding lease-related cash flows.
Recently Issued But Not Yet Adopted Accounting Pronouncements. In August 2018, the FASB issued ASU No.2018-15,Intangibles – Goodwill and Other – Internal-UseInternal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That IsThat Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation, setup and other upfront costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing such costs incurred to develop or obtain internal-use software. The ASU specifies which costs are to be expensed 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. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. The Company is currently evaluating its methodadopted the updated guidance on January 1, 2020 on a prospective basis. The adoption of adoptionthis ASU has resulted in the capitalization of $2.7 million of costs that would have been expensed as well asincurred under previous guidance, which will be amortized over the expected impact on itslife 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.
In June 2016, the FASB issued ASU No.2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires companies to recognize an allowance for expected lifetime credit losses through earnings concurrent with the recognition of a financial asset measured at amortized cost. The estimate of expected credit losses is required to be adjusted each reporting period over the life of the financial asset. The ASU was effective January 1, 2020 and required adoption on a modified retrospective basis. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
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. 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, 20192020, and requires awith early adoption permitted. Certain provisions must be adopted on prescribed retrospective, modified retrospective adoption approach.and prospective bases, while other provisions may be adopted on either a retrospective or modified retrospective basis. The Company does not expect ASU 2016-13 to have a materialis currently evaluating its timing and method, where applicable, of adoption as well as the expected impact on its consolidated financial statements upon adoption, but it may have an impact in the future.statements.
2. CLEARWAVE ACQUISITIONACQUISITIONS
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, the Company acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. The Company funded theIllinois for a purchase price of $358.8 million with cash on hand and the additional 7-year incremental term “B” loan borrowings described in note 7.million. The Clearwave acquisition provides the Company with a premier fiber network within its existing footprint, further enables the Company 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.
The Company accounted for the Clearwave acquisition as a business combination pursuant to ASC
In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that was available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The preliminary measurements of fair value set forth herein are subject to change and such changes could be material. The Company expects to finalize the valuation as soon as practicable but no later than one year from the acquisition date. No measurement period adjustments occurred during the three months ended June 30, 2019.
The following table summarizes the current allocation of the Clearwave 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 | $ | 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 | 4,322 | |||
Deferred income taxes | 30,104 | |||
Other noncurrent liabilities | 5,057 | |||
Total Liabilities Assumed | $ | 41,611 | ||
Net assets acquired | $ | 175,612 | ||
Purchase price consideration | 358,830 | |||
Goodwill recognized | $ | 183,218 | ||
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.
Acquired identifiable intangible assets consist
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 following (dollarsFidelity purchase price consideration as of the acquisition date, reflecting all measurement period adjustments recorded in2019 (in thousands):
Preliminary Fair Value | Preliminary Useful Life (in years) | |||||||
Customer relationships | $ | 83,000 | 17 | |||||
Trademark and trade name | $ | 6,700 | Indefinite | |||||
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 residual value was assigned to the acquired customer relationships.
The acquisition produced $183.2 million of goodwill, increasing the Company’s goodwill balance from $172.1 million at December 31, 2018 to $355.3 million at June 30, 2019. Goodwill represents the excess of the purchase price consideration over the fair value of the underlying net assets acquired and largely results from expected future synergies from combining operations as well as an assembled workforce, which does not qualify for separate recognition. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis. Goodwill arising from the Clearwave acquisition is not deductible for tax purposes.
Formeasurement period adjustments were recorded during the three months ended JuneMarch 31, 2020. The measurement period will end on September 30, 2019, 2020.the Company recognized revenues
3. REVENUES
The Company’s revenues by product line were as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
Residential | ||||||||||||||||||||||||
Data | $ | 132,824 | $ | 122,471 | $ | 262,635 | $ | 242,330 | $ | 154,990 | $ | 129,812 | ||||||||||||
Video | 84,033 | 87,462 | 167,836 | 176,219 | 85,322 | 83,802 | ||||||||||||||||||
Voice | 10,705 | 10,504 | 20,329 | 21,176 | 12,427 | 9,624 | ||||||||||||||||||
Business services | 49,759 | 38,485 | 96,903 | 76,177 | 57,862 | 47,143 | ||||||||||||||||||
Advertising sales | 4,750 | 5,916 | 9,479 | 11,158 | ||||||||||||||||||||
Other | 3,579 | 3,576 | 7,073 | 7,115 | 10,595 | 8,224 | ||||||||||||||||||
Total revenues | $ | 285,650 | $ | 268,414 | $ | 564,255 | $ | 534,175 | $ | 321,196 | $ | 278,605 | ||||||||||||
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 $5.9$6.3 million and $4.1 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $10.0 million and $8.2 million for the six months ended June 30, 2019,and 2018, 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 $29.9$31.6 million and $29.8$32.3 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Deferred commissions totaled $8.0$8.9 million and $7.8$8.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, and were included within prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets. Commission amortization expense was $0.9$1.4 million and $1.0 million for both the three months ended June 30, 2019March 31, 2020 and 2018 and $1.9 million and $1.7 million for the six months ended June 30, 2019,and 2018, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. Deferred commissions of $3.1$3.7 million included within prepaid and other current assets in the condensed consolidated balance sheet as of June 30, 2019March 31, 2020 are expected to be amortized over the next 12 months.
Current deferred revenue liabilities, consisting of refundable customer prepayments, up-front charges and installation fees, were $23.1$24.9 million and $19.0$23.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. As of June 30, 2019,March 31, 2020, 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 $19.0$23.6 million of current deferred revenue at December 31, 2018,2019, nearly all$21.7 million was recognized during the sixthree months ended June 30, 2019.March 31, 2020. Noncurrent deferred revenue liabilities, consisting of up-front charges and installation fees from business customers, were $4.8$6.1 million and $2.8$5.5 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, and were included within other noncurrent liabilities in the condensed consolidated balance sheets.
4. OPERATING ASSETS AND LIABILITIES
Accounts receivable consisted of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Trade receivables | $ | 34,646 | $ | 33,467 | ||||
Other receivables | 3,737 | 6,186 | ||||||
Less: Allowance for credit losses | (2,997 | ) | (1,201 | ) | ||||
Total accounts receivable, net | $ | 35,386 | $ | 38,452 | ||||
The following table shows the change in the allowance for credit losses during the periods presented (in thousands):
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Beginning balance | $ | 1,201 | $ | 2,045 | ||||
Additions - charged to costs and expenses | 2,118 | 1,570 | ||||||
Deductions | (2,271 | ) | (4,754 | ) | ||||
Recoveries of amounts previously written off | 1,949 | 2,090 | ||||||
Ending balance | $ | 2,997 | $ | 951 | ||||
Prepaid and other current assets consisted of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Prepaid repairs and maintenance | $ | 7,196 | $ | 551 | ||||
Prepaid insurance | 847 | 1,548 | ||||||
Prepaid rent | 3,035 | 1,499 | ||||||
Prepaid software | 4,621 | 4,672 | ||||||
Deferred commissions | 3,654 | 3,586 | ||||||
All other current assets | 5,123 | 3,763 | ||||||
Total prepaid and other current assets | $ | 24,476 | $ | 15,619 | ||||
Other noncurrent assets consisted of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Operating lease right-of-use assets | $ | 15,275 | $ | 16,924 | ||||
Investments | 7,806 | 206 | ||||||
Deferred commissions | 5,252 | 5,042 | ||||||
Note receivable | 3,540 | - | ||||||
Debt issuance costs | 2,288 | 2,427 | ||||||
All other noncurrent assets | 5,283 | 2,495 | ||||||
Total other noncurrent assets | $ | 39,444 | $ | 27,094 | ||||
Accounts payable and accrued liabilities consisted of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Accounts payable | $ | 25,131 | $ | 36,351 | ||||
Accrued programming costs | 19,615 | 19,620 | ||||||
Accrued compensation and related benefits | 13,259 | 23,189 | ||||||
Accrued sales and other operating taxes | 9,637 | 9,501 | ||||||
Accrued franchise fees | 3,662 | 4,201 | ||||||
Subscriber deposits | 6,495 | 6,550 | ||||||
Operating lease liabilities | 4,218 | 4,601 | ||||||
Interest rate swap liability | 26,448 | 11,045 | ||||||
Accrued insurance costs | 6,670 | 6,174 | ||||||
Cash overdrafts | 4,737 | 5,801 | ||||||
All other accrued liabilities | 11,247 | 9,960 | ||||||
Total accounts payable and accrued liabilities | $ | 131,119 | $ | 136,993 | ||||
Other noncurrent liabilities consisted of the following (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Operating lease liabilities | 10,048 | 11,146 | ||||||
Accrued compensation and related benefits | 6,390 | 7,154 | ||||||
Deferred revenue | 6,061 | 5,514 | ||||||
All other noncurrent liabilities | 3,073 | 3,043 | ||||||
Total other noncurrent liabilities | $ | 25,572 | $ | 26,857 | ||||
5.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
June 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | |||||||||||||
Cable distribution systems | $ | 1,593,313 | $ | 1,421,820 | $ | 1,820,201 | $ | 1,779,964 | ||||||||
Customer premise equipment | 227,278 | 220,571 | 271,856 | 266,190 | ||||||||||||
Other equipment and fixtures | 413,364 | 406,011 | 453,467 | 444,799 | ||||||||||||
Buildings and leasehold improvements | 103,520 | 100,625 | ||||||||||||||
Buildings and improvements | 115,254 | 113,331 | ||||||||||||||
Capitalized software | 97,790 | 94,801 | 102,794 | 99,988 | ||||||||||||
Construction in progress | 75,536 | 69,163 | 81,552 | 93,352 | ||||||||||||
Land | 12,252 | 11,946 | 13,350 | 13,361 | ||||||||||||
Right-of-use assets | 5,358 | - | 10,268 | 10,187 | ||||||||||||
Property, plant and equipment, gross | 2,528,411 | 2,324,937 | 2,868,742 | 2,821,172 | ||||||||||||
Less accumulated depreciation | (1,551,013 | ) | (1,476,958 | ) | ||||||||||||
Less: Accumulated depreciation and amortization | (1,658,436 | ) | (1,619,901 | ) | ||||||||||||
Property, plant and equipment, net | $ | 977,398 | $ | 847,979 | $ | 1,210,306 | $ | 1,201,271 | ||||||||
Depreciation and amortization expense for property, plant and equipment was $50.6$54.1 million and $46.0$49.7 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $100.3 million and $92.1 million for the six months ended June 30, 2019,and 2018, respectively.
In January 2019, the remaininga portion of the Company'sCompany’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. The property’s carrying value of $4.6 million was included within other noncurrent assets in the condensed consolidated balance sheet as assets held for sale at December 31, 2018.
5.6. GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill was $355.3 million and $172.1$429.6 million at both June 30, 2019March 31, 2020 and December 31, 2018, respectively. The increase related to goodwill recognized upon the acquisition of Clearwave in January 2019. The Company has notnothistorically recorded any impairment of goodwill.
Intangible assets (excluding goodwill) consisted of the following (dollars in thousands):
June 30, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 2,891 | $ | 36 | $ | 2,927 | $ | 2,887 | $ | 40 | 1 | – | 25 | $ | 2,927 | $ | 2,927 | $ | - | $ | 2,927 | $ | 2,895 | $ | 32 | |||||||||||||||||||||||||||||
Customer relationships | 14 | – | 17 | 243,000 | 27,141 | 215,859 | 160,000 | 19,047 | 140,953 | 14 | – | 17 | 362,000 | 48,341 | 313,659 | 362,000 | 37,470 | 324,530 | |||||||||||||||||||||||||||||||||||||||||
Trademark and trade name | 2.7 | 1,300 | 1,056 | 244 | 1,300 | 813 | 487 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Finite-Lived Intangible Assets | $ | 247,227 | $ | 31,088 | $ | 216,139 | $ | 164,227 | $ | 22,747 | $ | 141,480 | |||||||||||||||||||||||||||||||||||||||||||||||
Trademarks and trade names | 2.7 | – | 3 | 4,300 | 1,802 | 2,498 | 4,300 | 1,552 | 2,748 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total finite-lived intangible assets | $ | 369,227 | $ | 53,070 | $ | 316,157 | $ | 369,227 | $ | 41,917 | $ | 327,310 | |||||||||||||||||||||||||||||||||||||||||||||||
Indefinite-Lived Intangible Assets | Indefinite-Lived Intangible Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Franchise agreements | $ | 812,371 | $ | 812,371 | $ | 978,371 | $ | 978,371 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Trademark and trade name | 6,700 | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Indefinite-Lived Intangible Assets | $ | 819,071 | $ | 812,371 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trade name | 6,700 | 6,700 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total indefinite-lived intangible assets | $ | 985,071 | $ | 985,071 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total intangible assets, net | $ | 1,301,228 | $ | 1,312,381 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible asset amortization expense was $4.2$11.2 million and $3.0$4.1 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $8.3 million and $5.7 million for the six months ended June 30, 2019,and 2018, respectively.
As of June 30, 2019,March 31, 2020, the future amortization of existing finite-lived intangible assets was as follows (in thousands):
Year Ending December 31, | Amount | Amount | |||||||
2019 (remaining six months) | $ | 8,357 | |||||||
2020 | 16,319 | ||||||||
2020 (remaining nine months) | $ | 33,281 | |||||||
2021 | 16,318 | 39,059 | |||||||
2022 | 2022 | 16,315 | 34,314 | ||||||
2023 | 2023 | 16,313 | 27,845 | ||||||
2024 | 23,083 | ||||||||
Thereafter | Thereafter | 142,517 | 158,575 | ||||||
Total | Total | $ | 216,139 | $ | 316,157 | ||||
Actual amortization expense in future periods may differ from the amounts above as a result of new intangible asset acquisitions or divestitures, changes in useful life estimates, impairments or other relevant factors.
As a lessee, the Company has operating leases for buildings, equipment, data centers, fiber optic networks and towers and finance leases for certain buildings and fiber optic networks. These leases have remaining lease terms ranging from under 1 year to 24 years, with some including an option to extend the lease for up to 15 additional years and some including an option to terminate the lease within 1 year.
As a lessor, the Company has operating leases for the use of its fiber optic networks, towers and customer premise equipment. These leases have remaining lease terms ranging from under 1 year to 8 years, with some including a lessee option to extend the leases for up to 5 additional years and some including an option to terminate the lease within 1 year.
Significant judgment is required when determining whether a fiber optic contract contains a lease, defining the duration of the lease term and selecting the discount rate.
|
|
|
|
|
|
As of June 30, 2019, additional operating leases that have not yet commenced were not material.
Lessee Financial Information. The Company’s ROU assets and lease liabilities consisted of the following (in thousands):
June 30, 2019 | ||||
ROU Assets | ||||
Property, plant and equipment, net: | ||||
Finance leases | $ | 5,163 | ||
Other noncurrent assets: | ||||
Operating leases | $ | 15,618 | ||
Lease Liabilities | ||||
Accounts payable and accrued liabilities: | ||||
Operating leases | $ | 4,214 | ||
Current portion of long-term debt: | ||||
Finance leases | $ | 153 | ||
Long-term debt: | ||||
Finance leases | $ | 3,187 | ||
Other noncurrent liabilities: | ||||
Operating leases | $ | 11,231 | ||
Total: | ||||
Finance leases | $ | 3,340 | ||
Operating leases | $ | 15,445 | ||
The components of the Company’s lease expense were as follows (in thousands):
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Finance lease expense: | ||||||||
Amortization of ROU assets | $ | 101 | $ | 210 | ||||
Interest on lease liabilities | 64 | 132 | ||||||
Operating lease expense | 1,284 | 2,462 | ||||||
Short-term lease expense | 228 | 472 | ||||||
Variable lease expense | 31 | 98 | ||||||
Total lease expense | $ | 1,708 | $ | 3,374 | ||||
Finance lease expense is included within depreciation and amortization expense and interest expense, and operating lease expense is included within operating expenses and selling, general and administrative expenses in the condensed consolidated statement of operations and comprehensive income.
Supplemental lessee financial information is as follows (dollars in thousands):
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Finance leases - financing cash flows | $ | 399 | $ | 555 | ||||
Finance leases - operating cash flows | $ | 64 | $ | 132 | ||||
Operating leases - operating cash flows | $ | 1,331 | $ | 2,560 | ||||
ROU assets obtained in exchange for new lease liabilities: | ||||||||
Finance leases | $ | 524 | $ | 1,101 | ||||
Operating leases (1) | $ | 2,100 | $ | 7,082 | ||||
|
|
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
As of June 30, 2019, the future maturities of existing lease liabilities were as follows (in thousands):
Year Ending December 31, | Finance Leases | Operating Leases | |||||||
2019 (remaining six months) | $ | 135 | $ | 2,553 | |||||
2020 | 401 | 4,500 | |||||||
2021 | 412 | 3,384 | |||||||
2022 | 423 | 2,508 | |||||||
2023 | 429 | 2,191 | |||||||
Thereafter | 3,705 | 2,272 | |||||||
Total | 5,505 | 17,408 | |||||||
Less present value discount | (2,165 | ) | (1,963 | ) | |||||
Lease liability | $ | 3,340 | $ | 15,445 | |||||
As of December 31, 2018, the Company’s outstanding operating lease obligations under the previous accounting guidance were as follows (in thousands):
Year Ending December 31, | Operating Leases | ||||
2019 | $ | 1,767 | |||
2020 | 1,219 | ||||
2021 | 911 | ||||
2022 | 398 | ||||
2023 | 204 | ||||
Thereafter | 299 | ||||
Total | $ | 4,798 | |||
Lessor Financial Information.The Company’s lease income, which is included within revenues in the condensed consolidated statements of operations and comprehensive income, was as follows (in thousands):
Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | |||||||
Lease income relating to lease payments | $ | 139 | $ | 258 | ||||
As of June 30, 2019, the future maturities of existing lease receivables were as follows (in thousands):
Year Ending December 31, | Operating Leases | ||||
2019 (remaining six months) | $ | 312 | |||
2020 | 411 | ||||
2021 | 248 | ||||
2022 | 45 | ||||
2023 | 33 | ||||
Thereafter | 78 | ||||
Total | $ | 1,127 | |||
As of June 30, 2019, the current and noncurrent portions of operating lease receivables were $0.5 million and $0.6 million, respectively, and were included within accounts receivable, net and other noncurrent assets in the condensed consolidated balance sheet, respectively.
7. DEBT
The carrying amount of long-term debt consisted of the following (in thousands):
June 30, 2019 | December 31, 2018 | |||||||
Notes (as defined below) | $ | - | $ | 450,000 | ||||
Senior Credit Facilities (as defined below) | 1,314,375 | 730,000 | ||||||
Lease liabilities | 3,340 | 251 | ||||||
Total debt | 1,317,715 | 1,180,251 | ||||||
Less unamortized debt issuance costs | (19,925 | ) | (17,570 | ) | ||||
Less current portion | (17,153 | ) | (20,625 | ) | ||||
Total long-term debt | $ | 1,280,637 | $ | 1,142,056 | ||||
March 31, 2020 | December 31, 2019 | |||||||
Senior Credit Facilities (as defined below) | $ | 1,845,965 | $ | 1,753,045 | ||||
Finance lease liabilities | 5,844 | 5,943 | ||||||
Total debt | 1,851,809 | 1,758,988 | ||||||
Less: Unamortized debt issuance costs | (17,174 | ) | (18,142 | ) | ||||
Less: Current portion of long-term debt | (28,935 | ) | (28,909 | ) | ||||
Total long-term debt | $ | 1,805,700 | $ | 1,711,937 | ||||
Notes. OnThe June 17, 2015, second amended and restated credit agreement among the Company issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022 (the “Notes”). The Notes were jointly and severally guaranteed on a senior unsecured basis by each of the subsidiaries that guarantee the Senior Credit Facilities (as defined below). The Notes were scheduled to mature on June 15, 2022 and interest was payable on June 15th and December 15th of each year. The indenture governing the Notes provided for early redemption of the Notes, at the option of the Company, at the prices and subject to the terms specified in the indenture.
On June 15, 2019, the Company redeemed all $450 million aggregate principal amount of outstanding Notes. In conjunction with the redemption, the Company incurred a $6.5 million call premium and wrote off the remaining $3.8 million debt issuance cost associated with the Notes. These amounts are recorded within other income (expense), net in the condensed consolidated statement of operations and comprehensive income.
Senior Credit Facilities. On June 30, 2015, the Company entered into a Credit Agreementits lenders (the “Credit Agreement”) among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, and the other agents party thereto, which providedprovides for a 5-year revolving credit facility in an aggregate principal amount of $200 million (the “Original Revolving Credit Facility”).
On May 1, 2017, the Company and the lenders amended and restated the Credit Agreement (the “Amended and Restated Credit Agreement”) and the Company incurred $750 million of senior secured term loans (the “2017 New Loans”), the proceeds of which were used, together with cash on hand, to finance the acquisition of NewWave Communications (“NewWave”), repay in full the then-existing term loans and pay related fees and expenses. The 2017 New Loans consist of a 5-year term “A” loan in an original aggregate principal amountamounts of $250$700 million (the “Term Loan A-1”2”) and a 7-year term “B” loan in an original aggregate principal amount of, $500 million (the “Term Loan B-1”).
On January 7, 2019, the Company entered into Amendment No.2 to the Amended and Restated Credit Agreement (“Amendment No.2”) with CoBank, ACB (“CoBank”), as lender, and JPMorgan, as administrative agent, and incurred a new 7-year incremental term “B” loan in an aggregate principal amount of $250$250 million (the “Term Loan B-2”), the proceeds of which were used to finance, in part, the Clearwave acquisition.
On April 12, 2019, the Company entered into Amendment No.3 to the Amended and Restated Credit Agreement (“Amendment No.3”) with CoBank, as lender, and JPMorgan, as administrative agent, to provide for a new delayed draw incremental term “B” loan in an aggregate principal amount of $325 million (the “Term Loan B-3”). The Term Loan B-3 was drawn in full on June 14, 2019.
The Term Loan B-3 as well as a $350 million revolving credit facility that will mature on January 7, 2026 and may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). The interest rate applicable to the Term Loan B-3 is equal to, at the Company’s option, LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The principal amount of the Term Loan B-3 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 balance due upon maturity.
On May 8, 2019, 2024 (the Company entered into a Second Restatement Agreement with JPMorgan, as administrative agent, and the lenders party thereto, to amend and restate the Amended and Restated Credit Agreement (the “Second Restatement Agreement”). The Second Restatement Agreement provides for a new senior secured term “A” loan in an aggregate principal amount of $250 million (the “Term Loan A-2”), a new senior secured delayed draw term “A” loan in an aggregate principal amount of $450 million (the “Delayed Draw Term Loan A-2”) and a new $350 million senior secured revolving credit facility (the “New Revolving“Revolving Credit Facility” and, together with the Term Loan A-2, the Delayed Draw 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 Second Restatement Agreement did not alter the principal terms of the Company’s previously established Term Loan B-1, Term Loan B-2 or Term Loan B-3.
A portion of the proceeds from the Term Loan A-2, the Term Loan B-3 and the New Revolving Credit Facility together with cashalso 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 note 9 to the Company’s audited consolidated financial statements included in the 2019 Form 10-K for further details on hand, were used to refinance the OriginalCompany’s Senior Credit Facilities.
In January 2020, the Company issued letters of credit totaling $22.0 million under the Revolving Credit Facility and Term Loan A-on behalf of a 1,third-party entity to guarantee such entity’s 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 to redeemparty has pledged certain assets in favor of the Notes andCompany as collateral for other general corporate purposes.issuing the letters of credit. The Company intendswould be liable for up to use$22.0 million if the remaining proceeds, togetherthird party were to fail to satisfy all or some of its performance obligations under the FCC program. As of March 31, 2020, the Company has assessed the likelihood of non-performance associated with proceeds from the Delayed Draw Term Loan A-2guarantee to be remote, and cash on hand, to financetherefore, 0 liability has been accrued within the acquisition of Fidelity and for other general corporate purposes.condensed consolidated balance sheet.
The Term Loan A-In 2March 2020, and Newthe Company borrowed $100 million under the Revolving Credit Facility will mature on May 8, 2024 (unless certain of the Company’s existing indebtedness remainsfor general corporate purposes, including for potential small acquisitions and investments. The entire balance was outstanding after certain specified dates, in which case the final maturity date of both facilities will be an earlier date as specified in the Second Restatement Agreement).
The principal amount of the Term Loan A-2 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year following the closing date, 2.5% per annum for the second year following the closing date, 5.0% per annum for the third year following the closing date, 7.5% per annum for the fourth year following the closing date and 12.5% per annum for the fifth year following the closing date (in each case subject to customary adjustments in the event of any prepayment or in the event the Delayed Draw Term Loan A-2 is drawn), with the balance due upon maturity.
The Delayed Draw Term Loan A-2 will be available in a single drawing until February 8, 2020. Any loans under the Delayed Draw Term Loan A-2 will have the same terms as, and will constitute one class of term loans with, the loans under the Term Loan A-2 described above. The Company is required to pay a ticking fee, which accrues at a per annum rate of 0.30% on the average daily undrawn portion of the Delayed Draw Term Loan A-2 accruing during the period commencing on June 15, 2019 up to, but excluding, the date on which the lender’s commitments under the Delayed Draw Term Loan A-2 terminate.
The Senior Credit Facilities are guaranteed by the Company’s wholly owned subsidiaries (the “Guarantors”) and are secured, subject to certain exceptions, by substantially all of the assets of the Company and the Guarantors.
The Senior Credit Facilities may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions).
The interest margins applicable to the Senior Credit Facilities are, at the Company’s option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A-2, Delayed Draw Term Loan A-2 and New Revolving Credit Facility, 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on the Company’s total net leverage ratio, (ii) with respect to the Term Loan B-1, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any day thereafter, 1.75% for LIBOR loans and 0.75% for base rate loans, and (iii) with respect to the Term Loan B-2 and Term Loan B-3, 2.0% for LIBOR loans and 1.0% for base rate loans.
The Company may, subject to certain specified terms and provisions, obtain additional credit facilities of up to $600 million under the Second Restatement Agreement plus an unlimited amount so long as, on a pro forma basis, the Company’s First Lien Net Leverage Ratio (as defined in the Second Restatement Agreement) is no greater than 3.0 to 1.0.
The Company was in compliance with all debt covenants as of June 30, 2019.
As of June 30, 2019, outstanding borrowings under the Term Loan A-2, Term Loan B-1, Term Loan B-2 and Term Loan B-3 were $250.0 million, $490.0 million, $249.4 million and $325.0 million, respectively, and bore interest at rates ranging from 3.91% to 4.41%a rate of 2.43% per annum. annum as of March 31, 2020. Letter of credit issuances under the New Revolving Credit Facility totaled $5.5$28.7 million at March 31, 2020 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, the Company had $344.5$1.8 billion of aggregate outstanding term loans and Revolving Credit Facility borrowings and $221.3 million available for additional borrowing under the New Revolving Credit Facility at June 30, 2019.Facility.
In connection withA summary of the financing transactions duringCompany’s outstanding term loans as of 2019,March 31, 2020 the Company incurred $12.4 million of debt issuance costs, of which $11.7 million was capitalized. The Company also wrote-off $4.2 million of existing unamortized debt issuance costs, including the $3.8 million associated with the Notes. 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 | |||||||||||||||||||
Term Loan A-2 | 5/8/2019 | $ | 700,000 |
| Varies(4) | $ | 689,652 | 5/8/2024 | $ | 513,945 | LIBOR | 1.50% | 2.49% | |||||||||||||||
| 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 | 1/7/2019 | 250,000 | 1.0% | 247,500 | 1/7/2026 | 233,125 | LIBOR | 2.00% | 2.99% | |||||||||||||||||||
Term Loan B-3 | 6/14/2019 | 325,000 | 1.0% | 322,563 | 1/7/2026 | 303,875 | LIBOR | 2.00% | 2.99% | |||||||||||||||||||
Total | $ | 1,775,000 | $ | 1,745,965 | $ | 1,517,195 | ||||||||||||||||||||||
(1) | Payable in equal quarterly installments (expressed as a percentage of the original aggregate principal amount). 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 Credit Agreement). All other applicable margins are fixed. |
(3) | On May 8, 2019, $250 million was drawn. On October 1, 2019, an additional $450 million was drawn. |
(4) | Per annum amortization rates for years one through five following the closing date are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively. |
The Company recorded $1.3 million and $1.0 million of debt issuance cost amortization of $1.1 million for both the three months ended June 30, 2019March 31, 2020 and 2018,2019 respectively, and $2.4 million and $2.0 million for the six months ended June 30, 2019 and 2018, respectively. These amounts are reflected within interest expense in the condensed consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled $22.6$19.5 million and $17.6$20.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, of which $2.7$2.3 million and $0$2.4 million are reflected within other noncurrent assets, respectively, and $19.9$17.2 million and $17.6$18.1 million are reflected as reductions to long-term debt, respectively, in the condensed consolidated balance sheets, respectively.sheets.
As of June 30, 2019,March 31, 2020, the future maturities of outstanding debt, excluding lease liability payment obligations,borrowings were as follows (in thousands):
Year Ending December 31, | Amount | ||||
2019 (remaining six months) | $ | 8,500 | |||
2020 | 17,000 | ||||
2021 | 20,125 | ||||
2022 | 26,375 | ||||
2023 | 35,750 | ||||
Thereafter | 1,206,625 | ||||
Total | $ | 1,314,375 | |||
Year Ending December 31, | Amount | |||
2020 (remaining nine months) | $ | 21,241 | ||
2021 | 37,106 | |||
2022 | 54,677 | |||
2023 | 81,033 | |||
2024 | 1,109,158 | |||
Thereafter | 542,750 | |||
Total | $ | 1,845,965 | ||
The Company was in compliance with all debt covenants as of March 31, 2020.
8. INTEREST RATE SWAPS
The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest expense on its variable rate LIBOR debt. Under the first swap agreement, with respect to a notional amount of $850 million, the Company’s monthly payment obligation is determined at a fixed base rate of 2.653% beginning in March 2019. Under the second swap agreement, which is a forward-starting interest rate swap with respect to a notional amount of $350 million, the Company’s 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 may be terminated prior to their scheduled maturity at the election of the Company or the financial institution counterparty as provided in each swap agreement. The Company does not hold any derivative instruments for speculative trading purposes. As of June 30, 2019, the Company’s interest rate swap liabilities were recorded at their combined fair value of $83.7 million, with the current and noncurrent portions reflected in accounts payable and accrued expenses and other noncurrent liabilities, respectively, within the condensed consolidated balance sheet.
Changes in the fair values of the interest rate swaps are reported through other comprehensive income (loss) 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 (loss) to interest expense. Losses
A summary of $45.1 million ($34.0 million netthe significant terms of tax) and $83.7 million ($63.0 million netthe 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 | |||||||||||
Swap A | 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% | ||||||||||
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 tax) were recorded through other comprehensive lossthe Company’s interest rate swaps are reflected within the condensed consolidated balance sheets as follows (in thousands):
March 31, 2020 | December 31, 2019 | |||||||
Liabilities: | ||||||||
Current portion: | ||||||||
Accounts payable and accrued liabilities | $ | 26,448 | $ | 11,045 | ||||
Noncurrent portion: | ||||||||
Interest rate swap liability | $ | 175,524 | $ | 78,612 | ||||
Total | $ | 201,972 | $ | 89,657 | ||||
Stockholders’ Equity: | ||||||||
Accumulated other comprehensive loss | $ | 152,185 | $ | 67,556 | ||||
The combined effect of the Company’s interest rate swaps on the condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2019, respectively. is as follows (in thousands):
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Interest expense | $ | 2,084 | $ | 68 | ||||
Unrealized loss on cash flow hedges, gross | $ | (112,315 | ) | $ | (38,586 | ) | ||
Less: Tax effect | 27,686 | 9,517 | ||||||
Unrealized loss on cash flow hedges, net of tax | $ | (84,629 | ) | $ | (29,069 | ) | ||
The Company expects that $7.0 milliondoes not hold any derivative instruments for speculative trading purposes.
9. FAIR VALUE MEASUREMENTS
Financial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of June 30, 2019March 31, 2020 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.
The carrying amounts, fair values and related fair value hierarchy levels of the Company’s financial assets and liabilities as of June 30, 2019March 31, 2020 were as follows (dollars in thousands):
June 30, 2019 | March 31, 2020 | |||||||||||||||||
Carrying | Fair | Fair Value | Carrying | Fair | Fair Value | |||||||||||||
Amount | Value | Hierarchy | Amount | Value | Hierarchy | |||||||||||||
Assets: | ||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||
Money market investments | $ | 53,574 | $ | 53,574 | Level 1 | $ | 211,344 | $ | 211,344 | Level 1 | ||||||||
Commercial paper | $ | 30,007 | $ | 29,820 | Level 2 | $ | 10,047 | $ | 9,962 | Level 2 | ||||||||
Liabilities: | ||||||||||||||||||
Long-term debt, including current portion, excluding debt issuance costs: | ||||||||||||||||||
Senior Credit Facilities | $ | 1,314,375 | $ | 1,306,131 | Level 2 | |||||||||||||
Other noncurrent liabilities, including current portion: | ||||||||||||||||||
Long-term debt (including current portion): | ||||||||||||||||||
Term loans | $ | 1,745,965 | $ | 1,712,242 | Level 2 | |||||||||||||
Revolving Credit Facility borrowings | $ | 100,000 | $ | 100,000 | Level 2 | |||||||||||||
Other noncurrent liabilities (including current portion): | ||||||||||||||||||
Interest rate swaps | $ | 83,672 | $ | 83,672 | Level 2 | $ | 201,972 | $ | 201,972 | Level 2 | ||||||||
Money market investments are 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(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(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 Seniorterm loans and the Revolving Credit Facilities isFacility borrowings are estimated based on market prices for similar instruments in active markets (Level(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(level 2).
The Company’s deferred compensation liability was $2.5 million and $3.0 million at June 30, 2019 and December 31, 2018, respectively. The current portion of this liability is included within accounts payable and accrued liabilities and the noncurrent portion is included within other noncurrent liabilities in the condensed consolidated balance sheets. This liability represents the market value of participant balances in a notional investment account that is comprised primarily of mutual funds, whose value is based on observable market prices. However, since the deferred compensation liability is not exchanged in an active market, it is classified as Level 2 in the fair value hierarchy.
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. The assetsAssets acquired, including identifiable intangible assets and goodwill, and liabilities assumed in the Clearwave acquisition wereacquisitions are recorded at fair value on the respective acquisition date of January 8, 2019, dates, subject to potential future measurement period adjustments discussed in note 2.adjustments. Nonfinancial assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded during the sixthree months ended June 30, 2019March 31, 2020 or 2018.2019.
10. 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 163,042 held at March 31, 2020 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 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 June 30, 2019,March 31, 2020, the Company had repurchased 210,631 shares of its common stock at an aggregate cost of $104.9 million. During the six months ended June 30, 2019, the Company repurchased 5,984 shares at an aggregate cost of $5.1 million. NoNaN shares were repurchased during the three months ended June 30, 2019.March 31, 2020.
Tax Withholding for Equity 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 paycover the applicable statutory minimum amount of employee withholding taxes. Thetaxes, which the Company then pays to the applicable statutory minimum amount of withholding taxestaxing authorities in cash. The amounts remitted during the three and sixmonths ended June 30, March 31, 2020 and 2019were $0.2$5.8 million and $2.8$2.6 million, for which the Company withheld 133,772 and 3,3233,310 shares of common stock, respectively. Treasury shares of 181,087 held at June 30, 2019 include such shares withheld for withholding tax.
11. 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 other stock-based awards, including performance stock units and deferred stock units. Directors, officers and employees 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 June 30, 2019,March 31, 2020, 185,696151,367 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-based compensation expense was $3.1$3.2 million and $2.5$3.0 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $6.1 million and $4.8 million for the six months ended June 30, 2019,and 2018, respectively, and was included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income. The Company recognized an income tax benefit of $2.7$5.2 million related to equity-based compensation awards during the sixthree months ended June 30, 2019.March 31, 2020. The deferred tax asset related to all outstanding equity-based compensation awards was $3.6$3.1 million as of June 30, 2019.March 31, 2020.
Restricted Stock Awards. Restricted shares, RSUs and DEUs are collectively referred to as “restricted stock.” A summary of restricted stock activity during the sixthree months ended June 30, 2019March 31, 2020 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, 2018 | 40,876 | $ | 610.88 | |||||||||||||
Outstanding as of December 31, 2019 | 38,873 | $ | 728.77 | |||||||||||||
Granted | 12,001 | $ | 843.68 | 9,985 | $ | 1,533.78 | ||||||||||
Forfeited | (3,334 | ) | $ | 691.57 | (5,207 | ) | $ | 735.85 | ||||||||
Vested and issued | (10,989 | ) | $ | 487.83 | (10,332 | ) | $ | 668.01 | ||||||||
Outstanding as of June 30, 2019 | 38,554 | $ | 711.44 | |||||||||||||
Outstanding as of March 31, 2020 | 33,319 | $ | 987.75 | |||||||||||||
Vested and unissued as of June 30, 2019 | 5,678 | $ | 527.85 | |||||||||||||
Vested and deferred as of March 31, 2020 | 5,678 | $ | 527.85 | |||||||||||||
Equity-based compensation expense for restricted stock was $1.9$2.5 million and $1.6$1.8 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $3.7 million and $3.0 million for the six months ended June 30, 2019,and 2018, respectively. At June 30, 2019,March 31, 2020, there was $12.9$18.6 million of unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted average period of 1.5 years.
Stock Appreciation Rights. A summary of SARSARs activity during the sixthree months ended June 30, 2019March 31, 2020 is as follows:
Stock Appreciation Rights | Weighted Average Exercise Price | Weighted Average Grant Date Fair | Aggregate Intrinsic Value (in thousands) | Weighted Average Remaining Contractual Term (in years) | Stock Appreciation Rights | Weighted Average Exercise Price | Weighted Average Grant Date Fair | Aggregate Intrinsic Value (in thousands) | Weighted Average Remaining Contractual Term (in years) | |||||||||||||||||||||||||||||||
Outstanding as of December 31, 2018 | 90,605 | $ | 550.60 | $ | 122.29 | $ | 24,673 | 7.2 | ||||||||||||||||||||||||||||||||
Outstanding as of December 31, 2019 | 90,410 | $ | 676.41 | $ | 153.90 | $ | 73,419 | 7.5 | ||||||||||||||||||||||||||||||||
Granted | 24,500 | $ | 832.36 | $ | 196.52 | $ | - | 9.5 | - | $ | - | $ | - | $ | - | - | ||||||||||||||||||||||||
Exercised | (13,420 | ) | $ | 512.94 | $ | 111.54 | (12,798 | ) | $ | 521.25 | $ | 113.27 | $ | 13,333 | - | |||||||||||||||||||||||||
Forfeited | (979 | ) | $ | 422.31 | $ | 87.22 | (6,141 | ) | $ | 828.40 | $ | 194.44 | ||||||||||||||||||||||||||||
Outstanding as of June 30, 2019 | 100,706 | $ | 625.41 | $ | 142.12 | $ | 54,943 | 7.8 | ||||||||||||||||||||||||||||||||
Outstanding as of March 31, 2020 | 71,471 | $ | 691.13 | $ | 157.69 | $ | 68,103 | 7.4 | ||||||||||||||||||||||||||||||||
Vested and exercisable as of June 30, 2019 | 23,099 | $ | 505.19 | $ | 109.01 | $ | 15,379 | 6.8 | ||||||||||||||||||||||||||||||||
Exercisable as of March 31, 2020 | 36,446 | $ | 564.37 | $ | 125.09 | $ | 39,349 | 6.5 | ||||||||||||||||||||||||||||||||
The grant date fair value of the Company’s SARs is measured using the Black-Scholes valuation model. The weighted average inputs used in the model for grants awarded during the six months ended June 30, 2019 were as follows:
| ||||
|
| |||
|
| |||
| ||||
|
| |||
Equity-based compensation expense for SARs was $1.2$0.7 million and $0.9$1.2 million for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and $2.4 million and $1.8 million for the six months ended June 30, 2019,and 2018, respectively. At June 30, 2019,March 31, 2020, there was $8.6$5.7 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a weighted average period of 1.21.4 years.
12. INCOME TAXES
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss (“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 20.8%8.5% and 22.6%24.6% for the three months ended June 30, 2019March 31, 2020 and 2018, respectively, and 22.8% and 21.2% for the six months ended June 30, 2019,and 2018, respectively. The decrease in the effective tax rate for the three months ended June 30, 2019 compared to the same quarter in the prior yearwas primarily related to a $1.7$7.0 million income tax benefit attributable to the NOL carryback provision of the CARES Act, a $4.2 million increase in income tax benefits attributable to equity-based compensation awards partially offset byand a $1.2$1.1 million decrease in income tax benefits attributable to state effective tax rate changes. The increase in the effective tax rate for the six months ended June 30, 2019 compared to the prior year period primarily related to a $2.1 million decrease in income tax benefitsexpenses attributable to state effective tax rate changes.
13. 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. DilutedThe 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 equityequity-based compensation awards if such inclusion would be dilutive, calculated using the treasury stock method.
The following table sets forth the computation of basic and diluted net income per common share (in(dollars in thousands, except share and per share amounts):
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income | $ | 36,395 | $ | 43,785 | $ | 75,134 | $ | 84,438 | $ | 69,326 | $ | 38,739 | ||||||||||||
Denominator: | ||||||||||||||||||||||||
Weighted average common shares outstanding - basic | 5,673,669 | 5,687,095 | 5,673,893 | 5,694,774 | 5,697,904 | 5,674,120 | ||||||||||||||||||
Effect of dilutive equity-based awards (1) | 56,569 | 35,774 | 49,403 | 37,860 | ||||||||||||||||||||
Effect of dilutive equity-based compensation awards (1) | 57,155 | 42,465 | ||||||||||||||||||||||
Weighted average common shares outstanding - diluted | 5,730,238 | 5,722,869 | 5,723,296 | 5,732,634 | 5,755,059 | 5,716,585 | ||||||||||||||||||
Net income per common share: | ||||||||||||||||||||||||
Net Income per Common Share: | ||||||||||||||||||||||||
Basic | $ | 6.41 | $ | 7.70 | $ | 13.24 | $ | 14.83 | $ | 12.17 | $ | 6.83 | ||||||||||||
Diluted | $ | 6.35 | $ | 7.65 | $ | 13.13 | $ | 14.73 | $ | 12.05 | $ | 6.78 | ||||||||||||
(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 of anti-dilutive equity-based compensation awards totaled |
14. 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 consolidated balance sheets. As of March 31, 2020, there have been no material changes to the contractual obligations previously disclosed in the 2019 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, the Company issued letters of credit totaling $22.0 million in January 2020 on behalf of a third-party entity to guarantee such entity’s performance obligations under an FCC broadband funding program. As of March 31, 2020, 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.
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; invasion of privacy; trademark, copyright and patent infringement; violations of applicable wage and hour laws; statutory or common law claims involving current and former employees; and other matters. Although the outcomes of 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 Company’s Industry. The operation of a cable system isCompany’s operations are extensively regulated by the Federal Communications Commission (the “FCC”),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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS
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, financial results and financial condition. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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, 20182019 and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are contained in our 20182019 Form 10-K. Our results of operations for the six months ended June 30, 2019and financial condition discussed herein may not be indicative of our future results.results and trends.
Throughout this “Management’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.
Overview
We are a fully integrated provider of data, video and voice services in 21 Western, Midwestern and Southern states. We provide these broadband services to residential and business customers in more than 850950 communities. The markets we serve are primarily non-metropolitan, secondary and tertiary markets, with 78%79% of our customers located in seven states: Arizona, Idaho, Illinois, Mississippi, Missouri, Oklahoma and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We provided service to 818,579approximately 921,000 residential and business customers out of approximately 2.12.3 million homes passed as of June 30, 2019.March 31, 2020. Of these customers, 681,762approximately 793,000 subscribed to data services, 308,493303,000 subscribed to video services and 123,672136,000 subscribed to voice services.
We generate substantially all of our revenues through fivefour primary products. Ranked by share of our total revenues through the first sixthree months of 2019,2020, they are residential data (46.5%(48.3%), residential video (29.7%(26.6%), business services (data, voice and video – 17.2%18.0%), and residential voice (3.6%) and advertising sales (1.7%(3.9%). The profit margins, growth rates and capital intensity of our fivefour primary products vary significantly due to differences in 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 cash on a debt-free basis. The acquisition provides us with a premier fiber network within our existing footprint, further enables us to supply our customers with enhanced business services solutions and provides a platform to allow us to replicate Clearwave’s strategy in several of our other markets.
On March 31,October 1, 2019, we entered intoacquired Fidelity, a definitive agreement with Fidelity Communications Co.provider of connectivity services to acquire its data, video and voice business and certain related assets for $525.9 million in cash, subject to customary post-closing adjustments. Fidelity is a cable operator that provides residential and business services to customers throughout greater Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. Cable One and Fidelity share similar strategies, customer demographics and products. Accordingly, we believe the acquisitionWe paid a purchase price of Fidelity offers us opportunities for revenue growth and Adjusted EBITDA margin expansion as well as the potential to realize cost synergies. The all-cash transaction is expected to be funded through a combination of$531.4 million in cash on hand, revolving credit facility capacity and proceeds from new indebtedness. The transaction is subject to customary closing conditions and is expected to be completed early in the fourth quarter of 2019.a debt-free basis.
Prior to 2012,Beginning in 2013, we were focusedshifted our focus towards growing our higher margin businesses, namely residential data and business services, rather than our prior concentration on growing revenues through subscriber retention and growth in overallmaximizing customer primary service units (“PSUs”). Accordingly, our strategies consisted of, among others, offering promotional discounts to new and existing subscribers adding new services and to subscribers purchasing more than one service offering. Since 2012, we haveWe adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. We believe theThe declining profitability of residential video services is primarily due to increasing programming costs and retransmission fees and competition from other content providers, and the declining revenues from residential voice services are primarily due to the increasing use of wireless voice services instead of residential voice services. Beginning in 2013, we shifted our focus away from maximizing customer PSUs and towards growing our higher margin businesses, namely residential data and business 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 a high expected lifetime value (“LTV”), whous, are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted EBITDA, Adjusted EBITDA less capital expenditures and margins (refer to the section entitled “Use of Adjusted EBITDA” for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure).
Theour recent acquisitions and the COVID-19 pandemic, the trends described above have impacted our four largestprimary product lines in the following ways:
● | Residential data. We have experienced growth in |
● | 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 |
● | Residential voice. We have experienced declines in residential voice customers as a result of |
● | Business services. We have experienced significant growth in business data |
We continue to experience increased competition, particularly from telephone companies, cable and municipal overbuilders, over-the-top (“OTT”) video providers and direct broadcast satellite (“DBS”) television providers. Because of the levels of competition we face, we believe it is important to make investments in our infrastructure. We elevatedIn addition, a key objective of our capital investments between 2012allocation process is to invest in initiatives designed to drive revenue and 2018Adjusted 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 and reliability, launch all-digital video services (which has made available approximately half of average plant bandwidth for data services) and increase data capacity by moving from four-channel bonding to 32-channel bonding (to enable our 1as well as network reliability. We offer Gigabit per second download speed data service GigaONE®). 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 devotingto devote financial resources to infrastructure improvements, including in certain of the new markets we have acquired, in the NewWave and Clearwave transactions, 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, launching all-digitalmarkets; reclaiming bandwidth from analog video services,services; implementing 32-channel bonding,bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning,provisioning; migrating products to Cable One platformsplatforms; 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 industrial engineering-drivendisciplined cost management approach, remain focused on customers with high LTVexpected 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.
COVID-19 Update
We represent a part of the United States’ critical infrastructure, 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 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 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.
In addition, in an effort to help ease the financial burden and provide continued connectivity for our customers and communities impacted 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.
Other actions taken by us beginning in March 2020 to assist customers and the communities we serve during the COVID-19 pandemic included discontinuing charging data overage fees; offering a low-cost 15 Megabit per second (“Mbps”) residential data plan for $10 per month through June 30, 2020 to help low-income families and those impacted by the pandemic, such as seniors and college students; donating $300,000 to support community relief efforts; and supporting various other local relief efforts.
For the three months ended March 31, 2020, the COVID-19 pandemic did not materially impact our results of operations.
We anticipate a larger-than-usual quarterly increase in new residential data customers and resulting revenues in the second quarter of 2020 stemming from the COVID-19 pandemic, offset by lower data overage fees, late charges and reconnect fees resulting from our actions in response to the pandemic as well as a negative impact on advertising and business services revenues resulting from the pandemic. In addition, we expect to incur higher labor, bad debt and other expenses for the second quarter of 2020 as a result of the pandemic and our associated response efforts.
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
Adoption of New Lease Accounting Standard
We adopted the new lease accounting standard, ASC 842 - Leases, effective January 1, 2019, using the “Comparatives Under 840 Option” approach to transition. The adoption resulted in the recognition of ROU assets and lease liabilities for substantially all leases within the condensed consolidated balance sheet. No prior period amounts were retroactively adjusted as a result of the adoption. Refer to notes 1 and 6 to the condensed consolidated financial statements for additional details.
PSU and Customer Counts
During the 12 months ended June 30, 2019, our total PSUs decreased 9,744, or 0.9%, compared to our total PSUs as of June 30, 2018. Residential data PSUs and business services PSUs increased 20,392, or 3.4%, and 10,057, or 9.7%, respectively, while residential video PSUs and residential voice PSUs decreased 30,277, or 9.4%, and 9,916, or 9.5%, respectively. Our total customer relationships increased 18,963, or 2.4%, year-over-year, with an increase of 12,130, or 1.7%, in residential customer relationships and an increase of 6,833, or 9.8%, in business customer relationships.
The following table provides an overview of selected customersubscriber data for the time periods specified:specified (in thousands, except percentages):
As of June 30, | Annual Net Gain/(Loss) | |||||||||||||||
2019 | 2018 | Change | % Change | |||||||||||||
Residential data PSUs | 612,626 | 592,234 | 20,392 | 3.4 | ||||||||||||
Residential video PSUs (1) | 293,237 | 323,514 | (30,277 | ) | (9.4 | ) | ||||||||||
Residential voice PSUs | 93,918 | 103,834 | (9,916 | ) | (9.5 | ) | ||||||||||
Total residential PSUs | 999,781 | 1,019,582 | (19,801 | ) | (1.9 | ) | ||||||||||
Business data PSUs (2) | 69,136 | 61,642 | 7,494 | 12.2 | ||||||||||||
Business video PSUs | 15,256 | 16,598 | (1,342 | ) | (8.1 | ) | ||||||||||
Business voice PSUs (3) | 29,754 | 25,849 | 3,905 | 15.1 | ||||||||||||
Total business services PSUs | 114,146 | 104,089 | 10,057 | 9.7 | ||||||||||||
Total data PSUs | 681,762 | 653,876 | 27,886 | 4.3 | ||||||||||||
Total video PSUs | 308,493 | 340,112 | (31,619 | ) | (9.3 | ) | ||||||||||
Total voice PSUs | 123,672 | 129,683 | (6,011 | ) | (4.6 | ) | ||||||||||
Total PSUs | 1,113,927 | 1,123,671 | (9,744 | ) | (0.9 | ) | ||||||||||
Residential customer relationships | 742,137 | 730,007 | 12,130 | 1.7 | ||||||||||||
Business customer relationships | 76,442 | 69,609 | 6,833 | 9.8 | ||||||||||||
Total customer relationships | 818,579 | 799,616 | 18,963 | 2.4 | ||||||||||||
|
|
|
|
|
|
As of March 31, | Annual Net Gain/(Loss) | |||||||||||||||
2020 | 2019 | Change | % Change | |||||||||||||
Residential data PSUs | 713 | 611 | 102 | 16.7 | ||||||||||||
Residential video PSUs | 288 | 305 | (17 | ) | (5.5 | ) | ||||||||||
Residential voice PSUs | 102 | 97 | 5 | 4.8 | ||||||||||||
Total residential PSUs | 1,103 | 1,013 | 90 | 8.9 | ||||||||||||
Business data PSUs | 79 | 67 | 12 | 18.4 | ||||||||||||
Business video PSUs | 15 | 16 | (1 | ) | (4.0 | ) | ||||||||||
Business voice PSUs | 35 | 29 | 6 | 21.5 | ||||||||||||
Total business services PSUs | 129 | 111 | 18 | 16.1 | ||||||||||||
Total data PSUs | 793 | 678 | 114 | 16.9 | ||||||||||||
Total video PSUs | 303 | 321 | (17 | ) | (5.4 | ) | ||||||||||
Total voice PSUs | 136 | 125 | 11 | 8.6 | ||||||||||||
Total PSUs | 1,232 | 1,124 | 108 | 9.6 | ||||||||||||
Residential customer relationships | 836 | 743 | 93 | 12.5 | ||||||||||||
Business customer relationships | 85 | 75 | 10 | 13.3 | ||||||||||||
Total customer relationships | 921 | 818 | 103 | 12.6 | ||||||||||||
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 more households have discontinuedcontinue to terminate residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers.
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 June 30, 2019March 31, 2020 to Three Months Ended June 30, 2018March 31, 2019
Revenues
Revenues increased $17.2$42.6 million, or 6.4%15.3%, due primarily to increases in residential data and business services and residential data revenues of $11.3$25.2 million and $10.4$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 residential data, the acquired Clearwave operations, a residential video rate adjustment, and the implementation of modem rental charges to certain business customers, partially offset by decreasesa 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 advertising sales revenues.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 June 30,March 31, 2020 and 2019, and 2018, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):
Three Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | 2020 | 2019 | 2020 vs. 2019 | |||||||||||||||||||||||||||||||||||||||||||
Revenues | % of Total | Revenues | % of Total | $ Change | % Change | Revenues | % of Total | Revenues | % of Total | $ Change | % Change | |||||||||||||||||||||||||||||||||||||
Residential data | $ | 132,824 | 46.5 | $ | 122,471 | 45.6 | $ | 10,353 | 8.5 | $ | 154,990 | 48.3 | $ | 129,812 | 46.6 | $ | 25,178 | 19.4 | ||||||||||||||||||||||||||||||
Residential video | 84,033 | 29.4 | 87,462 | 32.6 | (3,429 | ) | (3.9 | ) | 85,322 | 26.6 | 83,802 | 30.1 | 1,520 | 1.8 | ||||||||||||||||||||||||||||||||||
Residential voice | 10,705 | 3.7 | 10,504 | 3.9 | 201 | 1.9 | 12,427 | 3.9 | 9,624 | 3.5 | 2,803 | 29.1 | ||||||||||||||||||||||||||||||||||||
Business services | 49,759 | 17.4 | 38,485 | 14.3 | 11,274 | 29.3 | 57,862 | 18.0 | 47,143 | 16.9 | 10,719 | 22.7 | ||||||||||||||||||||||||||||||||||||
Advertising sales | 4,750 | 1.7 | 5,916 | 2.2 | (1,166 | ) | (19.7 | ) | ||||||||||||||||||||||||||||||||||||||||
Other | 3,579 | 1.3 | 3,576 | 1.4 | 3 | 0.1 | 10,595 | 3.2 | 8,224 | 2.9 | 2,371 | 28.8 | ||||||||||||||||||||||||||||||||||||
Total revenues | $ | 285,650 | 100.0 | $ | 268,414 | 100.0 | $ | 17,236 | 6.4 | $ | 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 June 30, 2019March 31, 2020 and 2018:2019:
Three Months Ended June 30, | 2019 vs. 2018 | Three Months Ended March 31, | 2020 vs. 2019 | |||||||||||||||||||||||||||||
2019 | 2018 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||||||
Residential data | $ | 71.80 | $ | 68.47 | $ | 3.33 | 4.9 | $ | 72.86 | $ | 70.80 | $ | 2.06 | 2.9 | ||||||||||||||||||
Residential video | $ | 93.43 | $ | 88.55 | $ | 4.88 | 5.5 | $ | 96.75 | $ | 90.54 | $ | 6.21 | 6.9 | ||||||||||||||||||
Residential voice (1), (2) | $ | 37.32 | $ | 33.22 | $ | 4.10 | 12.3 | |||||||||||||||||||||||||
Business services (2), (3) | $ | 218.77 | $ | 187.04 | $ | 31.73 | 17.0 | |||||||||||||||||||||||||
Residential voice (1) | $ | 40.07 | $ | 32.54 | $ | 7.53 | 23.1 | |||||||||||||||||||||||||
Business services (1) | $ | 226.78 | $ | 213.04 | $ | 13.74 | 6.4 | |||||||||||||||||||||||||
__________
|
|
| 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 | |
|
|
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 dataARPU values represent the applicable quarterly residential service revenues increased $10.4 million, or 8.5%,(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, except that for any new PSUs added as a result of organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential videoan acquisition occurring during the period, the associated ARPU values represent the applicable residential service revenues decreased $3.4 million, or 3.9%, due primarily to a 9.4% year-over-year decrease in residential video subscribers, partially offset by a rate adjustment beginning in February 2019.
Residential voice service revenues increased $0.2 million, or 1.9%, due primarily to certain passthrough fees that were historically reported on a net basis, partially offset(excluding installation and activation fees) divided by the impactpro-rated average number of a 9.5% year-over-year decrease in residential voice subscribers.
PSUs during such period. Business services ARPU values represent quarterly business services revenues increased $11.3 million, or 29.3%, due primarily to growth in our business data and voice services to small and medium-sized businesses and enterprise customers,divided by the acquired Clearwave operations and implementationaverage of modem rental charges to certain business customers during the first quarternumber of 2019. Total business customer relationships increased 9.8% year-over-year.at the beginning and end of each period, divided by three, except that for any new business customer relationships added as a result of an acquisition 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.
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $95.7$105.9 million infor the second quarter of 2019three months ended March 31, 2020 and increased $3.9$11.4 million, or 4.3%12.1%, compared to the second quarter of 2018. The increase was primarily attributable to additional expenses related to Clearwave operations and various other operating expenses.three months ended March 31, 2019. Operating expenses as a percentage of revenues were 33.5%33.0% and 33.9% for the secondthree months ended March 31, 2020 and 2019, respectively. The increase in operating expenses was due primarily to $11.0 million of additional expenses related to Fidelity operations. Operating expenses for the first quarter of 2019 compared to 34.2% for2020 reflect immaterial increases in labor costs and other operating expenses as a result of the year-ago quarter.COVID-19 pandemic.
Selling, general and administrative expenses were $60.1$62.9 million for the second quarter of 2019three months ended March 31, 2020 and increased $5.9$1.4 million, or 10.9%2.3%, compared to the second quarter of 2018. The increase was primarily attributable to higher rebranding, acquisition-related and other expenses incurred during the second quarter of 2019 as well as additional expenses related to Clearwave operations.three months ended March 31, 2019. Selling, general and administrative expenses as a percentage of revenues were 21.0%19.6% and 20.2%22.1% for the second quarter ofthree months ended March 31, 2020 and 2019, and 2018, respectively. Excluding the expenses associated with the Clearwave operations,The increase in selling, general and administrative expenses would have increased $4.7was primarily attributable to $6.3 million or 8.6%.of additional expenses related to Fidelity operations, partially offset by decreases of $3.2 million in acquisition-related costs and $1.5 million in health insurance costs. Selling, general and administrative expenses for the first quarter of 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.
Depreciation and amortization expense was $54.8$65.3 million for the second quarter of 2019three months ended March 31, 2020, including $10.8 million attributable to Fidelity operations, and increased $5.8$11.4 million, or 11.8%21.2%, including a $3.1 million increase attributablecompared to the Clearwave operations. The increase was due primarily to new assets placed in service since the second quarter of 2018 and additional depreciation and amortization related to the acquired Clearwave operations, partially offset by assets that became fully depreciated since the second quarter of 2018.three months ended March 31, 2019. As a percentage of revenues, depreciation and amortization expense was 19.2% for the second quarter of 2019 compared to 18.3% for the second quarter of 2018.
We recognized a $0.9 million net loss on asset disposals during the second quarter of 2019 compared to a $2.7 million net loss on asset disposals in the second quarter of 2018.
Interest Expense
Interest expense increased $3.6 million, or 23.8%, to $18.5 million, driven by additional outstanding debt20.3% and an increase in interest rates year-over-year.
OtherIncome (Expense), Net
We recognized other expense of $9.6 million during the second quarter of 2019, consisting primarily of a $6.5 million call premium related to the $450 million Notes redemption and $4.9 million of debt issuance cost write-offs and expenses associated with financing transactions, partially offset by interest and investment income. We recognized other income of $0.9 million during the second quarter of 2018, consisting primarily of interest income.
Income Tax Provision
The income tax provision decreased $3.2 million, or 25.3%. Our effective tax rate was 20.8% and 22.6% for the second quarter of 2019 and 2018, respectively. The decrease in the effective tax rate primarily related to a $1.7 million increase in income tax benefits attributable to equity-based compensation awards, partially offset by a $1.2 million decrease in income tax benefits attributable to state effective tax rate changes.
Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018
Revenues
Revenues increased $30.1 million, or 5.6%, due primarily to increases in business services and residential data revenues of $20.7 million and $20.3 million, respectively. The increase was the result of organic growth in our higher margin product lines of business services and residential data, the acquired Clearwave operations, a residential video rate adjustment and the implementation of modem rental charges to certain business customers, partially offset by decreases in residential video and voice and advertising sales revenues.
Revenues by service offering were as follows for the six months ended June 30, 2019 and 2018, together with the percentages of total revenues that each item represented for the periods presented (dollars in thousands):
Six Months Ended June 30, | ||||||||||||||||||||||||
2019 | 2018 | 2019 vs. 2018 | ||||||||||||||||||||||
Revenues | % of Total | Revenues | % of Total | $ Change | % Change | |||||||||||||||||||
Residential data | $ | 262,635 | 46.5 | $ | 242,330 | 45.4 | $ | 20,305 | 8.4 | |||||||||||||||
Residential video | 167,836 | 29.7 | 176,219 | 33.0 | (8,383 | ) | (4.8 | ) | ||||||||||||||||
Residential voice | 20,329 | 3.6 | 21,176 | 4.0 | (847 | ) | (4.0 | ) | ||||||||||||||||
Business services | 96,903 | 17.2 | 76,177 | 14.3 | 20,726 | 27.2 | ||||||||||||||||||
Advertising sales | 9,479 | 1.7 | 11,158 | 2.1 | (1,679 | ) | (15.0 | ) | ||||||||||||||||
Other | 7,073 | 1.3 | 7,115 | 1.2 | (42 | ) | (0.6 | ) | ||||||||||||||||
Total revenues | $ | 564,255 | 100.0 | $ | 534,175 | 100.0 | $ | 30,080 | 5.6 | |||||||||||||||
Average monthly revenue per unit for the indicated service offerings were as follows for the six months ended June 30, 2019 and 2018:
Six Months Ended June 30, | 2019 vs. 2018 | |||||||||||||||
2019 | 2018 | $ Change | % Change | |||||||||||||
Residential data (1) | $ | 71.58 | $ | 68.00 | $ | 3.58 | 5.3 | |||||||||
Residential video (1) | $ | 92.44 | $ | 87.58 | $ | 4.86 | 5.5 | |||||||||
Residential voice (1), (2) | $ | 34.91 | $ | 32.98 | $ | 1.93 | 5.9 | |||||||||
Business services (2), (3) | $ | 217.11 | $ | 186.51 | $ | 30.60 | 16.4 | |||||||||
|
|
|
|
Residential data service revenues increased $20.3 million, or 8.4%, as a result of organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.
Residential video service revenues decreased $8.4 million, or 4.8%, due primarily to a 9.4% year-over-year decrease in residential video subscribers, partially offset by a rate adjustment beginning in February 2019.
Residential voice service revenues decreased $0.8 million, or 4.0%, due primarily to a 9.5% year-over-year decrease in residential voice subscribers, partially offset by certain passthrough fees that were historically reported on a net basis.
Operating Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $190.2 million for the six months ended June 30, 2019 and increased $3.7 million, or 2.0%, compared to the year ago period. The increase was due primarily to additional expenses related to Clearwave operations and various other operating expenses. Operating expenses as a percentage of revenues were 33.7% for the first two quarters of 2019 compared to 34.9% for the first two quarters of 2018.
Selling, general and administrative expenses increased $16.4 million, or 15.6%, to $121.5 million. Selling, general and administrative expenses as a percentage of revenues were 21.5% and 19.7% for the six months ended June 30, 2019 and 2018, respectively. Excluding the expenses associated with the Clearwave operations, selling, general and administrative expenses would have increased $14.1��million, or 13.4%, due primarily to rebranding and acquisition-related costs incurred during the first two quarters of 2019 and higher marketing, equity-based compensation and insurance costs. Selling, general and administrative expenses as a percentage of revenues, excluding the impact of the Clearwave operations, would have been 21.6% for the six months ended June 30, 2019 compared to 19.7% for the six months ended June 30, 2018.
Depreciation and amortization expense increased $10.9 million, or 11.1%, including a $5.9 million increase attributable to the Clearwave operations. The increase was due primarily to new assets placed in service since the second quarter of 2018, including property, plant and equipment and finite-lived intangible assets acquired as part of the Clearwave acquisition, partially offset by assets that became fully depreciated since the second quarter of 2018. As a percentage of revenues, depreciation and amortization expense was 19.3% for the sixthree months ended June 30,March 31, 2020 and 2019, compared to 18.3% for the six months ended June 30, 2018.respectively.
We recognized a net lossgain on asset sales and disposals of $2.0$5.6 million induring the first two quarters of 2019three months ended March 31, 2020 compared to a net loss on asset sales and disposals of $9.4$1.1 million induring the first two quartersthree months ended March 31, 2019. The three months ended March 31, 2020 included a $6.6 million non-cash gain on the sale of 2018.certain tower properties. The first two quarters ofthree months ended March 31, 2019 included a $1.6 million gain on the sale of a non-operating property that housed our former headquarters, while the prior year period included more asset disposals.headquarters.
Interest Expense
Interest expense was $18.7 million for the three months ended March 31, 2020 and increased $6.9$0.6 million, or 23.4%3.2%, compared to $36.6 million,the three months ended March 31, 2019. The increase was driven primarily by additional outstanding debt and an increase in interest rates year-over-year.rate swap settlements, partially offset by lower interest rates.
Other Other Income (Expense), Net
We recognized other expenseOther income of $7.8$1.7 million duringand $1.8 million for the first two quarters ofthree months ended March 31, 2020 and 2019, consistingrespectively, consisted primarily of a $6.5 million call premium related to the $450 million Notes redemption and $4.9 million of debt issuance cost write-offs and expenses associated with financing transactions, partially offset by interest and investment income. We recognized other income of $1.5 million during the first two quarters of 2018, consisting primarily of interest 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, 2019 and 2020 to be carried back to each of 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 $0.5$6.2 million, or 2.1%.49.0%, compared to the three months ended March 31, 2019. Our effective tax rate was 22.8%8.5% and 21.2%24.6% for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively. The increasedecrease in the effective tax rate was due primarily to a $2.1$7.0 million income tax benefit attributable to the NOL carryback provision of the CARES Act, a $4.2 million increase in income tax benefits attributable to equity-based compensation awards and a $1.1 million decrease in income tax benefitsexpenses attributable to state effective tax rate changes.
tax
Unrealized loss on cash flow hedges and other, net of tax was $84.6 million for the three months ended March 31, 2020 and increased $55.6 million, or 191.1%, compared to the three months ended March 31, 2019 primarily due to higher unrealized losses on our interest rate swaps.
Use of Adjusted EBITDA
We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below.
Adjusted EBITDA is defined as net income plus interest expense, income tax provision, depreciation and amortization, equity-based compensation, severance expense, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on asset sales and disposals, system conversion costs, rebranding costs, other (income) expense and other unusual expenses, as provided in the tables below.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 outstanding Senior Credit Facilities to determine compliance with the covenants contained in the Second RestatementCredit Agreement. 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 June 30, | 2019 vs. 2018 | |||||||||||||||
(dollars in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Net income | $ | 36,395 | $ | 43,785 | $ | (7,390 | ) | (16.9 | ) | |||||||
Plus: Interest expense | 18,516 | 14,953 | 3,563 | 23.8 | ||||||||||||
Income tax provision | 9,571 | 12,812 | (3,241 | ) | (25.3 | ) | ||||||||||
Depreciation and amortization | 54,835 | 49,033 | 5,802 | 11.8 | ||||||||||||
Equity-based compensation | 3,082 | 2,506 | 576 | 23.0 | ||||||||||||
Severance expense | 15 | 377 | (362 | ) | (96.0 | ) | ||||||||||
Loss on deferred compensation | 78 | 600 | (522 | ) | (87.0 | ) | ||||||||||
Acquisition-related costs | 871 | - | 871 | NM | ||||||||||||
Loss on asset disposals, net | 910 | 2,734 | (1,824 | ) | (66.7 | ) | ||||||||||
System conversion costs | 777 | 1,327 | (550 | ) | (41.4 | ) | ||||||||||
Rebranding costs | 2,902 | - | 2,902 | NM | ||||||||||||
Other (income) expense, net | 9,632 | (882 | ) | 10,514 | NM | |||||||||||
Adjusted EBITDA | $ | 137,584 | $ | 127,245 | $ | 10,339 | 8.1 | |||||||||
|
Six Months Ended June 30, | 2019 vs. 2018 | |||||||||||||||
(dollars in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Net income | $ | 75,134 | $ | 84,438 | $ | (9,304 | ) | (11.0 | ) | |||||||
Plus: Interest expense | 36,612 | 29,676 | 6,936 | 23.4 | ||||||||||||
Income tax provision | 22,235 | 22,714 | (479 | ) | (2.1 | ) | ||||||||||
Depreciation and amortization | 108,679 | 97,811 | 10,868 | 11.1 | ||||||||||||
Equity-based compensation | 6,103 | 4,844 | 1,259 | 26.0 | ||||||||||||
Severance expense | 178 | 508 | (330 | ) | (65.0 | ) | ||||||||||
Loss on deferred compensation | 253 | 516 | (263 | ) | (51.0 | ) | ||||||||||
Acquisition-related costs | 6,094 | - | 6,094 | NM | ||||||||||||
Loss on asset disposals, net | 2,013 | 9,368 | (7,355 | ) | (78.5 | ) | ||||||||||
System conversion costs | 2,173 | 2,167 | 6 | 0.3 | ||||||||||||
Rebranding costs | 3,412 | - | 3,412 | NM | ||||||||||||
Other (income) expense, net | 7,830 | (1,499 | ) | 9,329 | NM | |||||||||||
Adjusted EBITDA | $ | 270,716 | $ | 250,543 | $ | 20,173 | 8.1 | |||||||||
|
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 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 and to fund the Fidelity acquisition.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, and acquisitions, 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, some of which are beyond our control.
During the first two quarters of 2019, our cash and cash equivalents decreased $161.8 million. At June 30, 2019, we had $102.3 million of cash on hand compared to $264.1 million at December 31, 2018. Our working capital was $12.7 million and $184.2 million at June 30, 2019 and December 31, 2018, respectively.
The following table shows a summary of our net cash flows for the periods indicated (dollars in thousands):
Six Months Ended June 30, | 2019 vs. 2018 | Three Months Ended March 31, | 2020 vs. 2019 | |||||||||||||||||||||||||||||
2019 | 2018 | $ Change | % Change | 2020 | 2019 | $ Change | % Change | |||||||||||||||||||||||||
Net cash provided by operating activities | $ | 212,494 | $ | 196,602 | $ | 15,892 | 8.1 | $ | 118,500 | $ | 104,378 | $ | 14,122 | 13.5 | ||||||||||||||||||
Net cash used in investing activities | (465,817 | ) | (91,816 | ) | (374,001 | ) | NM | (76,017 | ) | (404,969 | ) | 328,952 | (81.2 | ) | ||||||||||||||||||
Net cash provided by (used in) financing activities | 91,493 | (63,016 | ) | 154,509 | (245.2 | ) | ||||||||||||||||||||||||||
Net cash provided by financing activities | 74,140 | 224,037 | (149,897 | ) | (66.9 | ) | ||||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | (161,830 | ) | 41,770 | (203,600 | ) | NM | 116,623 | (76,554 | ) | 193,177 | NM | |||||||||||||||||||||
Cash and cash equivalents, beginning of period | 264,113 | 161,752 | 102,361 | 63.3 | 125,271 | 264,113 | (138,842 | ) | (52.6 | ) | ||||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 102,283 | $ | 203,522 | $ | (101,239 | ) | (49.7 | ) | $ | 241,894 | $ | 187,559 | $ | 54,335 | 29.0 | ||||||||||||||||
NM = Not meaningful. |
NetThe $14.1 million year-over-year increase in net cash provided by operating activities was $212.5 million and $196.6 million for the first two quarters of 2019 and 2018, respectively. The $15.9 million year-over-year increase was primarily attributable to an increase in Adjusted EBITDA of $20.2$24.6 million and lower cash paid for acquisition costs, partially offset by an increaseunfavorable change in accounts payable and accrued liabilities versus a decrease in the prior year, partially offset byand an increase in cash paid for interest and taxes as well as the Notes redemption call premium, acquisition-related costs and rebranding costs.interest.
NetThe $329.0 million decrease in net cash used in investing activities from the prior year period was $465.8due primarily to $356.9 million and $91.8 million forof cash outflows related to the Clearwave acquisition in the first two quartersquarter of 2019, and 2018, respectively. The $374.0partially offset by an $18.6 million increase in cash usedpaid for capital expenditures during the first quarter of 2020.
The $149.9 million decrease in net cash provided by financing activities from the prior year period was due primarily to the Clearwave acquisitionissuance of $250 million in new debt during the first quarter of 2019, and higher capital expenditures.
Net cash providedpartially offset by financing activities was $91.5a $100 million for the first two quarters of 2019 compared to net cash used in financing activities of $63.0 million for the first two quarters of 2018. The $154.5 million change in net cash flows from the prior year period was primarily a result of new debt incurredborrowing under our Revolving Credit Facility during the first two quartersquarter of 2019 and fewer share repurchases, partially offset by higher payments on long-term debt, including the Notes redemption, the refinancing of the $234.4 million Term Loan A-1 and the payment of debt issuance costs.2020.
On July 1, 2015, the Board authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of our common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through the end of the secondfirst quarter of 2019,2020, we have repurchased 210,631 shares of our common stock at an aggregate cost of $104.9 million. During the six months ended June 30, 2019, we repurchased 5,984 shares at an aggregate cost of $5.1 million. No shares were repurchased during the three months ended June 30, 2019.March 31, 2020.
We currently expect to continue to pay quarterly cash dividends on shares of our common stock, subject to approval of the Board. During the secondfirst quarter of 2019, the Board approved a quarterly dividend of $2.00 per share of common stock, which was paid on June 14, 2019. On August 6, 2019,2020, the Board approved a quarterly dividend of $2.25 per share of common stock, to bewhich was paid on SeptemberMarch 6, 2019 to holders of record as of August 20, 2019.2020.
Financing Activity
On June 17, 2015, we issued $450 million aggregate principal amount of 5.75% senior unsecured notes due 2022. The Notes were jointly and severally guaranteed on a senior unsecured basis by each of our subsidiaries that guarantee the Senior Credit Facilities. The Notes were scheduled to mature on June 15, 2022 and interest was payable on June 15th and December 15th of each year. The indenture governing the Notes provided for early redemption of the Notes, at our option, at the prices and subject to the terms specified in the indenture.
On June 15, 2019, we redeemed all $450 million aggregate principal amount of outstanding Notes. In conjunction with the redemption, we incurred a $6.5 million call premium and wrote-off the remaining $3.8 million debt issuance cost associated with the Notes.
On June 30, 2015, we entered into the Credit Agreement with the lenders party thereto, JPMorgan, as administrative agent, and the other agents party thereto, which provided for the Original Revolving Credit Facility in an aggregate principal amount of $200 million.
On May 1, 2017, we and the lenders entered into the Amended and Restated Credit Agreement and we incurred $750 million of 2017 New Loans, the proceeds of which were used, together with cash on hand, to finance the NewWave acquisition, repay in full the then-existing term loans and pay related fees and expenses. The 2017 New Loans consisted of the five-year Term Loan A-1 in an original aggregate principal amount of $250 million and the seven-year Term Loan B-1 in an original aggregate principal amount of $500 million.
On January 7, 2019, we entered into Amendment No. 2 with CoBank, as lender, and JPMorgan, as administrative agent, and incurred the new seven-year incremental Term Loan B-2 in an aggregate principal amount of $250 million, the proceeds of which were used to finance, in part, the Clearwave acquisition.
On April 12, 2019, we entered into Amendment No. 3 with CoBank, as lender, and JPMorgan, as administrative agent, to provide for the new delayed draw incremental Term Loan B-3 in an aggregate principal amount of $325 million. We drew the Term Loan B-3 in full on June 14, 2019.
The Term Loan B-3 will mature on January 7, 2026 and may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). The interest rate applicable to the Term Loan B-3 is equal to, at our option, LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The principal amount of the Term Loan B-3 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 balance due upon maturity.
On May 8, 2019, we entered into the Second Restatement Agreement with JPMorgan, as administrative agent, and the lenders party thereto, to amend and restate the Amended and Restated Credit Agreement. The Second Restatement Agreement provides for the $250 million aggregate principal amount Term Loan A-2, the $450 million aggregate principal amount Delayed Draw Term Loan A-2 and the $350 million New Revolving Credit Facility. The Second Restatement Agreement did not alter the principal terms of our previously established Term Loan B-1, Term Loan B-2 or Term Loan B-3.
A portion of the proceeds from the Term Loan A-2, the Term Loan B-3 and the New Revolving Credit Facility, together with cash on hand, were used to refinance the Original Revolving Credit Facility and Term Loan A-1, to redeem the Notes and for other general corporate purposes. We intend to use the remaining proceeds, together with proceeds from the Delayed Draw Term Loan A-2 and cash on hand, to finance the acquisition of Fidelity and for other general corporate purposes.
The Term Loan A-2 and New Revolving Credit Facility will mature on May 8, 2024 (unless certain of our existing indebtedness remains outstanding after certain specified dates, in which case the final maturity date of both facilities will be an earlier date as specified in the Second Restatement Agreement).
The principal amount of the Term Loan A-2 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 2.5% per annum for the first year following the closing date, 2.5% per annum for the second year following the closing date, 5.0% per annum for the third year following the closing date, 7.5% per annum for the fourth year following the closing date and 12.5% per annum for the fifth year following the closing date (in each case subject to customary adjustments in the event of any prepayment or in the event the Delayed Draw Term Loan A-2 is drawn), with the balance due upon maturity.
The Delayed Draw Term Loan A-2 will be available in a single drawing until February 8, 2020. Any loans under the Delayed Draw Term Loan A-2 will have the same terms as, and will constitute one class of term loans with, the loans under the Term Loan A-2 described above. We are required to pay a ticking fee, which accrues at a per annum rate of 0.30% on the average daily undrawn portion of the Delayed Draw Term Loan A-2 accruing during the period commencing on June 15, 2019 up to, but excluding, the date on which the lender’s commitments under the Delayed Draw Term Loan A-2 terminate.
The Senior Credit Facilities are guaranteed by the Guarantors and are secured, subject to certain exceptions, by substantially all of our and the Guarantors’ assets.
The Senior Credit Facilities may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions).
The interest margins applicable to the Senior Credit Facilities are, at our option, equal to either LIBOR or a base rate, plus an applicable margin equal to, (i) with respect to the Term Loan A-2, Delayed Draw Term Loan A-2 and New Revolving Credit Facility, 1.25% to 1.75% for LIBOR loans and 0.25% to 0.75% for base rate loans, determined on a quarterly basis by reference to a pricing grid based on our total net leverage ratio, (ii) with respect to the Term Loan B-1, (x) for any day on or prior to April 22, 2018, 2.25% for LIBOR loans and 1.25% for base rate loans and (y) for any day thereafter, 1.75% for LIBOR loans and 0.75% for base rate loans, and (iii) with respect to the Term Loan B-2, andthe Term Loan B-3 2.0%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 LIBOR loans and 1.0% for base rate loans.borrowing under the Revolving Credit Facility.
We may, subject to certain specified terms and provisions, obtain additionalIn January 2020, we issued letters of credit facilities of up to $600totaling $22.0 million under the Second Restatement Agreement plusRevolving Credit Facility on behalf of a third-party entity to guarantee such entity’s performance obligations under an unlimited amount so longFCC 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 on a pro forma basis, our First Lien Net Leverage Ratio iscollateral for issuing the letters of credit. We would be liable for up to $22.0 million if the third party were to fail to satisfy all or some of its performance obligations under the FCC program. As of March 31, 2020, we have assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, no greater than 3.0 to 1.0.liability has been accrued within the condensed consolidated balance sheet.
We were in compliance with all debt covenants as of June 30, 2019.
As of June 30, 2019, outstanding borrowingsIn March 2020, we borrowed $100 million under the Term Loan A-2, Term Loan B-1, Term Loan B-2Revolving Credit Facility for general corporate purposes, including for potential and Term Loan B-3 were $250.0 million, $490.0 million, $249.4 millioncompleted small acquisitions and $325.0 million, respectively,investments. The entire balance was outstanding and bore interest at rates ranging from 3.91% to 4.41%a rate of 2.43% per annum.annum as of March 31, 2020. Letter of credit issuances under the New Revolving Credit Facility totaled $5.5$28.7 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, we had $344.5$1.8 billion of aggregate outstanding term loans and Revolving Credit Facility borrowings and $221.3 million available for additional borrowing under the New Revolving Credit Facility at June 30, 2019.Facility.
In connection with the financing transactions during 2019, we incurred $12.4 millionA summary of debt issuance costs,our outstanding term loans as of which $11.7 million was capitalized. We also wrote-off $4.2 million of existing unamortized debt issuance costs, including the $3.8 million associated with the Notes. March 31, 2020 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 | |||||||||||||||||||
Term Loan A-2 | 5/8/2019 | $ | 700,000 |
| Varies(4) | $ | 689,652 | 5/8/2024 | $ | 513,945 | LIBOR | 1.50% | 2.49% | |||||||||||||||
| 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 | 1/7/2019 | 250,000 | 1.0% | 247,500 | 1/7/2026 | 233,125 | LIBOR | 2.00% | 2.99% | |||||||||||||||||||
Term Loan B-3 | 6/14/2019 | 325,000 | 1.0% | 322,563 | 1/7/2026 | 303,875 | LIBOR | 2.00% | 2.99% | |||||||||||||||||||
Total | $ | 1,775,000 | $ | 1,745,965 | $ | 1,517,195 | ||||||||||||||||||||||
(1) | Payable in equal quarterly installments (expressed as a percentage of the original aggregate principal amount). 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 our Total Net Leverage Ratio. All other applicable margins are fixed. |
(3) | On May 8, 2019, $250 million was drawn. On October 1, 2019, an additional $450 million was drawn. |
(4) | Per annum amortization rates for years one through five following the closing date are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively. |
We recorded $1.3 million and $1.0 million of debt issuance cost amortization of $1.1 million for both the three months ended June 30,March 31, 2020 and 2019 and 2018, respectively, and $2.4 million and $2.0 million for the six months ended June 30, 2019 and 2018, respectively. These amounts are reflected within interest expense in the condensed consolidated statements of operations and comprehensive income. Unamortized debt issuance costs totaled $22.6$19.5 million and $17.6$20.6 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, of which $2.7$2.3 million and $0$2.4 million are reflected within other noncurrent assets, respectively, and $19.9$17.2 million and $17.6$18.1 million are reflected as reductions to long-term debt, respectively, in the condensed consolidated balance sheets, respectively.sheets.
We were in compliance with all debt covenants as of March 31, 2020.
During the first quarter of 2019, we entered into 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 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 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 theirthe scheduled maturity at our election or that of the financial institution counterparty asunder the terms provided in each swap agreement. We recognized losses of $2.1 million and $0.1 million on interest rate swaps during the three months ended March 31, 2020 and 2019, respectively, which were reflected in interest expense within the condensed consolidated statements of operations and comprehensive income. Refer to note 8 to the condensed consolidated financial statements for additional details regarding our interest rate swaps.
Refer to notes 9 and 11 to our audited consolidated financial statements included in the 2019 Form 10-K and notes 7 and 8 to the condensed consolidated financial statements in the 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, launching all-digitalmarkets; reclaiming bandwidth from analog video services,services; implementing 32-channel bonding,bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning,provisioning; migrating products to Cable One platformsplatforms; and expanding our high-capacity fiber network. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.
We have adopted capital expenditure disclosure guidance as supported by the NCTA. These disclosures are not required under GAAP, nor do they impact our accounting for capital expenditures under GAAP. The amounts of capital expenditures reported in this Quarterly Report on Form 10-Q are calculated in accordance with NCTA disclosure guidelines.
The following table presents our capital expenditures by category in accordance with NCTA disclosure guidelines for the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 (in thousands):
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Customer premise equipment | $ | 24,854 | $ | 26,275 | $ | 15,671 | $ | 10,811 | ||||||||
Commercial | 11,519 | 3,750 | 10,828 | 6,134 | ||||||||||||
Scalable infrastructure | 21,715 | 18,880 | 9,279 | 10,975 | ||||||||||||
Line extensions | 11,964 | 7,309 | 4,476 | 3,163 | ||||||||||||
Upgrade/rebuild | 13,394 | 9,856 | 12,345 | 5,177 | ||||||||||||
Support capital | 27,042 | 24,798 | 12,158 | 10,367 | ||||||||||||
Total | $ | 110,488 | $ | 90,868 | $ | 64,757 | $ | 46,627 | ||||||||
Contractual Obligations and Contingent Commitments
As described inof March 31, 2020, except for the section entitled “Financing Activity,” we incurred the following additional indebtedness during 2019:
|
|
|
|
|
|
|
|
Except as disclosed above, asletters of June 30, 2019,credit totaling $22.0 million issued on behalf of a third party entity to guarantee such entity’s 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 20182019 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. With the exception of changes due to the adoption of the new lease accounting standard effective January 1, 2019 and the entry into interest rate swaps in the first quarter of 2019 discussed in notes 1 and 8, respectively, of the notes to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q, there
There have been no material changes to our critical accounting policy and estimate disclosures described in our 20182019 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. As of June 30, 2019,There have been no material changes to the Company’s market risk sensitive instruments consisted ofdisclosures described in the Senior Credit Facilities and the interest rate swaps, as each is described within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition: Liquidity and Capital Resources—Financing Activity.” None of these instruments were entered into for trading purposes and all instruments relate to the interest rate risk exposure category.
Outstanding borrowings under the Senior Credit Facilities, which bear interest, at the Company’s option, at a rate per annum determined by reference to either LIBOR or a base rate, in each case plus an applicable interest rate margin, were $1.3 billion at June 30, 2019. The Company has entered into interest rate swap agreements to effectively convert the variable rate interest to a fixed rate for $850 million, or 65%, of such outstanding debt. Based on the principal outstanding under the Senior Credit Facilities with exposure to LIBOR at June 30, 2019 and December 31, 2018, assuming, hypothetically, that the LIBOR applicable to the Senior Credit Facilities was 100 basis points higher, the Company’s annual interest expense would have increased $4.6 million and $7.3 million, respectively.Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management is responsible for establishing and maintaining adequate disclosure controls and procedures. 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 June 30, 2019,March 31, 2020 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 June 30, 2019.March 31, 2020.
Changes in Internal Control Over Financial Reporting
ThereAs 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, there has been no change in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2019March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
ThereExcept as set forth below, there have been no material changes to the risk factors previously disclosed in the 20182019 Form 10-K.
Risks Relating to Our Business
The recent COVID-19 pandemic has impacted our operations and could adversely affect our business, financial results and financial condition, the extent of which is uncertain and difficult to predict.
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 spread 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 part of the United States’ critical infrastructure, 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 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 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; 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-being of our associates, customers, suppliers, business partners and others.
As a result of the COVID-19 outbreak and 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 condition could be further adversely affected in a number of ways, including, but not limited to, the following:
● | further disruptions to our regular, ongoing operations and restrictions on our sales and marketing efforts, especially related to business services; |
● | interruptions to our engineering, design and implementation of plant and infrastructure as well as other important business activities; |
● | 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; |
● | 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; |
● | interruptions or delays receiving and limited availability of necessary hardware, software and operational supplies, equipment and support; |
● | 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; |
● | a fluctuation in interest rates that could result from market uncertainties; |
● | 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; |
● | a delay in the implementation of our new ERP system; |
● | potential legislative or regulatory efforts to impose new requirements on our data services; |
● | changes to the carrying value of our goodwill and intangible assets; and |
● | 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. |
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 certain 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 June 30, 2019March 31, 2020 (dollars in thousands, except per share data):
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
April 1 to 30, 2019 (2) | 11 | $ | 996.24 | - | $ | 145,081 | ||||||||||
May 1 to 31, 2019 (2) | 2 | $ | 1,080.75 | - | $ | 145,081 | ||||||||||
June 1 to 30, 2019 | - | $ | - | - | $ | 145,081 | ||||||||||
Total | 13 | $ | 1,009.24 | - | $ | 145,081 | ||||||||||
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 | - | ||||||||||||
(1) | On July 1, 2015, the Board authorized up to $250 million of share repurchases (subject to a total cap of 600,000 shares of 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) |
|
(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. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
Exhibit Number | Description |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
31.1 | |
| |
31.2 | |
| |
32 |
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). |
101.SCH | Inline XBRL Taxonomy Extension Schema Document.* |
|
|
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
|
|
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
|
|
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* |
|
|
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
104 | The cover page of this Quarterly Report on Form 10-Q for the quarter ended |
__________
* Filed herewith.
** Furnished herewith.
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) |
| ||
|
| ||
By: | /s/ Julia M. Laulis |
| |
| Name: | Julia M. Laulis |
|
| Title: | Chair of the Board, President and Chief Executive Officer |
|
Date: August 7, 2019May 11, 2020
By: | /s/ Steven S. Cochran |
| |
| Name: | Steven S. Cochran |
|
| Title: | Senior Vice President and Chief Financial Officer |
|
Date: August 7, 2019May 11, 2020
34