Cable company Cable One (CABO 1.81%) reported its second-quarter results before the market opened on Aug. 8. The acquisition of NewWave Communications provided a boost to the top and bottom lines, and business services revenue continued to grow. Only two months' worth of NewWave revenue was included in Cable One's results, so the third quarter will be the first to benefit from the full impact of the acquisition. Here's what investors need to know about Cable One's second-quarter results.
Cable One: The raw numbers
|
Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$241.0 million |
$204.6 million |
17.8% |
|
Net income |
$28.6 million |
$26.6 million |
7.5% |
|
Earnings per share |
$4.97 |
$4.62 |
7.6% |
Data source: Cable One.
Image source: Getty Images.
What happened with Cable One this quarter?
- Revenue rose 16.2% compared to the first quarter.
- Cable One's acquisition of NewWave Communications, an all-cash $735 million transaction, closed on May 1 and brought the company's total primary service units up to 1.2 million, spread across 21 states. Second-quarter results include two months' worth of revenue from NewWave.
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 26.8% year over year to $113.3 million. Excluding NewWave and a $5.1 million expense reduction due to a change in accounting estimates related to capitalized labor costs, adjusted EBITDA would have risen 8.4% year over year.
- Net income, adjusted for NewWave and the expense reductions, would have been $23.4 million, down 12% year over year.
- Residential data revenue increased 19.9% year over year to $103.2 million. Excluding the $10.7 million contribution from NewWave, revenue would have been up 7.4%.
- Business services revenue rose 32.9% year over year to $32.5 million. Excluding the $4.7 million contribution from NewWave, revenue would have been up 13.9%.
- Residential video revenue rose 14.7% year over year to $84.9 million, while residential voice revenue rose 4.3% year over year to $11.4 million. Advertising sales slumped 9.8% to $6 million.
- The number of homes passed rose 28.7% year over year to 2.13 million. Excluding the 446,000 gained from NewWave, the number of homes passed would have increased by 1.7%.
- The total customer count jumped 22.1% year over year, but declined by 0.7% excluding NewWave.
- Average revenue per user increased 1.7% for residential data, 10.1% for residential video, 1.6% for residential voice, and 8.3% for business services.
- The number of employees rose 24.3% year over year thanks to the NewWave acquisition. Excluding the acquisition, the employee count would have declined by 4.2%.
What management had to say
Cable One President and CEO Julie Laulis commented on the second quarter: "Our second quarter once again yielded strong results as we continue to execute our strategy, with legacy Cable ONE demonstrating top line revenue growth, higher Adjusted EBITDA and industry leading margins. We also are excited about our acquisition of NewWave, and its results are now contributing to our success."
The company detailed its liquidity and capital resources post-acquisition in its earnings press release:
At June 30, 2017, the Company had $89.8 million of cash and cash equivalents on hand, compared to $138.0 million at December 31, 2016. The Company's debt balance, excluding unamortized debt issuance costs, was $1.2 billion, which included $750 million of term loan borrowings in connection with the NewWave acquisition, at June 30, 2017 and $545.3 million at December 31, 2016. The Company also had $197.2 million available for borrowing under its revolving credit facility as of June 30, 2017.
Looking forward
The NewWave acquisition provided a major boost to Cable One's revenue, but the balance sheet added quite a bit of debt in the process. Interest costs jumped 56% year over year during the second quarter, although additional revenue from the acquisition was enough to overcome this and produce a higher net income.
Excluding the one-time boost, Cable One continues to lose residential customers. The total number of residential primary service units declined by 4.8% year over year during the second quarter, excluding NewWave. Growth in business services, as well as rising per-customer revenue, should help drive revenue higher despite weakness in the residential segment.
