Despite Shrinking Subscriber Base, Cable One Posts Strong Quarter

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Cable One (CABO -1.09%), a provider of video, voice, and data services, reported its third-quarter results after the market closed on Nov. 2. Both revenue and earnings grew, driven by strong growth in the company's residential data and business services segments. Cable One continues to lose voice and video subscribers, but higher revenue per subscriber across all segments is helping to offset a declining subscriber base. Here's what investors need to know about Cable One's third-quarter results.

Cable One: The raw numbers

Data source: Cable One Q3 earnings report.

What happened with Cable One this quarter?

Revenue growth was driven by residential data and business services.

• Residential data revenue rose 18.8% year over year to $86.8 million. It's now the largest segment for Cable One.
• Business services revenue increased by 13.2% year over year to $25.4 million.
• Residential video revenue slumped 9.1% to $73.8 million, residential voice revenue fell 12.3% to $10.5 million, and advertising sales dropped 11.2% to $6.5 million.
• The number of homes passed grew 1.1% year over year to 1.657 million.
• The total customer count declined by 1.4%, but the number of non-video customers rose 14.7%, accounting for 49% of all customers.
• The number of residential customers subscribing to data services rose 1.9% to 467 thousand, while video and voice suffered double-digit customer declines.
• The number of business customers rose 9.6% year over year to 50,689, driven by strong growth in data.
• Average monthly revenue per user increased in all segments.
• Adjusted EBITDA rose 12.6% year over year to $87.2 million.
• Adjusted EBITDA less capital expenditures increased by 28.2% year over year to $60.8 million.

What management had to say

Cable One CEO Tom Might pointed to a significant increase in the company's adjusted EBITDA margin:

Our strong financial performance generated over the past year continued in the third quarter. Our Adjusted EBITDA margins have increased more than 300 basis points from 39.1% to 42.4% during the last year, fueled by our residential HSD and Business Services revenue growth.

Cable One also provided trailing-12-month subscriber figures:

During the twelve months ended September 30, 2016, we had a reduction of 9,297 total customers, or 1.4%, due to a loss of 13,753 residential customers, representing a decline of 2.2%, partially offset by an increase of 4,456 business services customers, or 9.6%.

Looking forward

Operating expenses grew by just 1.9% during the third quarter, which allowed Cable One's bottom line to grow faster than revenue. The company's headcount was down 7.6% year over year, which helped to keep costs in check. Operating income surged nearly 30% year over year, with a higher tax rate reducing net income growth.

The general trends at Cable One remained the same during the third quarter. Video and voice subscribers are in decline, while high-value data and business services subscribers are on the rise. The net result is growing revenue and rising profits.