Good evening, and welcome to the Cable One CABO Earnings Report Q3 2020 Conference Call. All participants will be in a listen-only mode. Operator Instructions After today's presentation, there will be an opportunity to ask questions. Operator Instructions Please note this event is being recorded. I would now like to hand the conference over to Mr. Steven Cochran. Please go ahead.

Thank you, Amanda. Good afternoon, and welcome to Cable One's third quarter 2020 earnings call. We appreciate you joining us today. Before we proceed, I would like to remind you that today's discussion may contain forward-looking statements relating to future events and expectations. You can find factors that could cause Cable One's actual results to differ materially from these projections listed in today's earnings release and in our recent SEC filings. All forward-looking statements are made as of the date of this call. Cable One is under no obligation and expressly disclaims any obligation, except as required by law, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.cableone.net. Joining me on today's call is our President and CEO, Julia Laulis. With that, let me turn the call over to Julie.

Thank you, Steven. Good afternoon to everyone joining us on our third quarter earnings call. It has been quite busy at Cable One since we last spoke to you. Like everyone else in Q3, we continue to deal with the effects of the COVID-19 pandemic on our associates and business. Moreover, some of our systems in the southeast were impacted by one of the most active hurricane seasons in recent history. Notwithstanding those challenges, we completed our previously announced acquisition of Valu-Net and minority interest in Wisper. We also announced that we will be entering into a partnership with Mega Broadband Investments, or MBI for short. Following the end of the quarter, we closed our minority investment in Hargray Communications through the contribution of our Anniston, Alabama system and we extended and upsized our credit facilities and priced $650 million of new 4% senior unsecured notes due 2030 that will provide us more financial flexibility going forward. Steven will get into more details on MBI and the debt transactions later in the call. While we've had 8 hurricanes and tropical storms hit our Texas, Louisiana and Mississippi systems in quick succession, we were very fortunate that our associates and their families remain safe. Our thoughts are with all of those who have been affected by and those who are still recovering from these storms. I want to take a moment to thank our associates who worked diligently throughout this hurricane season to prepare for the potential impacts and who took care of our customers and restored service as quickly as possible following the event. I also want to thank our customers for their patience while we made the repairs necessary to get their services back up and running swiftly. To support recovery efforts for residents of the impacted communities, Cable One donated $15,000 to the American Red Cross, which stepped in to assist with restoration and community assistance following the storms. Additionally, the company matched donations to the Cable One disaster relief fund, which was established to support company associates who are impacted by natural disasters. In true Cable One spirit, our team donated nearly $30,000 to assist their fellow associates in making needed repairs to their storm-damaged homes. Turning now to our performance. Our third quarter results reflected the continued success of our strategy. We believe that our business model and enhanced plans were poised to handle the recent accelerated demand. In addition, our associates who are unified by our shared purpose and values, followed through on our commitment to deliver essential connectivity services to the communities we serve. All of these factors, combined with our strategic acquisitions, resulted in quarter-over-quarter growth in revenues of 18.9%, adjusted EBITDA of 24.6% and adjusted EBITDA margin growth of 230 basis points to 51.4%. We continue to see robust need for reliable high-speed data service, reflected in both significantly elevated customer growth and data usage. In Q3, we added more than 26,000 residential HSD customers on a sequential basis, which included roughly 5,000 new Valu-Net customers, and our year-over-year growth increased to 26.7%. We experienced this increase during the period while we were gradually returning to our normal collection policies for nonpaying customers. Year-to-date, through the end of the third quarter, we organically added a record 84,000 residential HSD customers. To give some perspective on that year-to-date growth number, if we exclude our various acquisitions since 2015, we have organically added over 50% more customers in nine months of 2020 than we did over 4.5 years between our spin-off and the end of 2019. We are pleased to report that the number of customers either repaying their outstanding balances or agreeing to short-term payment plans exceeded our expectations. As a result, not only did we improve our customer net adds, but we reduced the larger-than-normal bad debt reserve we accrued for during the second quarter. Additionally, the businesses in which we have minority investments or have agreed to invest in grew by approximately 13,000 data customers in Q3. While these customers are not reported in our results, they do highlight our shared commitment to bridge the digital divide in rural communities and contribute to our value creation over time. Business service saw continued revenue growth of 17.3% quarter-over-quarter. As we have noted previously, the pandemic has led to both pressure and opportunity for our small business and enterprise customers, respectively. With our outside sales team working from home and technicians having limited ability to enter businesses, we have been adjusting and finding new ways to connect with service and win customers. With HSD more crucial than ever for businesses to stay connected, we are pleased to launch Internet backup to our business services product suite by the end of the year. This solution allows businesses to keep their internet service operating, including for mission-critical devices such as credit card and point-of-sale machines in the event of a major disaster, a construction-related fiber cut or simple power outage. We are excited about this product launch as well as upgrade opportunities for both existing and new customers. Our focus on improving business service back-office functions is bearing fruit as we experienced increased efficiencies through the automation of manual tests between our billing system and Salesforce CRM. This project, which will be wrapping up at the end of the fourth quarter, has helped us achieve enormous time savings with some order entry processes, and we will see more enhancements along the way. We will continue to work closely with our small business customers who need assistance to weather the current crisis. We know that small businesses are the lifeblood of many of our communities, so we strive to be flexible and supportive in keeping these customers connected. In the third quarter, the negative impact to adjusted EBITDA from reduced revenues and increased expense from COVID-19 and our associated responses dropped from nearly $15 million in the second quarter to roughly $3.3 million in the third quarter, which was more than offset by residential HSD growth. Average data usage during the third quarter increased by slightly more than 40% year-over-year to approximately 450 gigabits per month. As we announced last quarter, we increased a majority of our residential data plans as we resumed our standard service charges for customers exceeding those plans. This process resumed gradually throughout the quarter, and we expect the fourth quarter to revert to pre-pandemic levels. As a reminder, the vast majority of our customers continue to stay within their data plans. At the end of the third quarter, our network utilization remained low, with an average of 25% for downstream traffic during peak usage and 18% for upstream traffic. COVID has led to a notable change in customer behavior in which we are seeing increased utilization throughout the day rather than large shifts at peak periods. Supporting our customers and communities in need during the pandemic remains our top priority. As we mentioned on our last call, we have extended through the end of the year multiple relief measures that were set in place in the first quarter as part of the FCC's Keep America Connected pledge. In addition to the nearly 140 free public Wi-Fi hotspots that remain available across our footprint to keep our communities connected, we are continuing to offer our 15 megabit per second residential plan for $10 per month for the first three months of service. Designed to help low-income families as well as those most impacted from the coronavirus challenges, this plan will be available to customers through the end of this year. To further assist low-income families and students who are remote learning from home, Cable One recently signed on to participate in ACA Connects and Education SuperHighway's K-12 Bridge to Broadband initiative, which helps school districts and states provide internet access for students and low-income households. We realize that pandemic-related impacts will continue to be fluid and dynamic in the coming months, and our cross-functional incident management team remains at the ready and enabling us to make critical decisions and rapidly pivot in order to meet the needs of our associates, customers and communities. Before I hand it over to Steven, I want to reiterate my pride in our Cable One team. As we enter our eighth month of responding to this pandemic, it would be very easy and understandable to succumb to the fatigue and weariness many people are feeling. I can say with gratitude that despite the many challenges our associates have faced this year, they remain steadfast in their unwavering support of our promise to keep our customers connected to what matters most. I am truly honored to lead this team. And now, Steven will discuss our third quarter results as well as our financial position, liquidity and leverage.

Thanks, Julie. The third quarter of 2020 produced strong financial results. Revenues for the third quarter were $339 million compared to $285 million in the prior year quarter, representing an 18.9% increase. This increase was fueled by a residential HSD revenue increase of 29.9% and a business service revenue increase of 17.3%. Excluding Fidelity and Valu-Net operations, which I'll refer to as the acquired operations, total revenue increased 5.9% year-over-year; residential HSD revenue increased 16.9%; and business services revenue increased 5.7%. Operating expenses were $107.3 million or 31.7% of revenues in the third quarter compared to $94.9 million or 33.3% of revenues in the prior year quarter, a 160 basis point improvement. Selling, general and administrative expenses were $62.6 million or 18.5% of revenues in the third quarter compared to $58.9 million or 20.7% of revenues in the prior year quarter; a 220 basis point improvement. This includes a partial reversal of the enlarged bad debt reserve we established in Q2 as collections of receivables were better than originally estimated in the current environment. Net income in the third quarter was $66.3 million. Net income per share on a fully diluted basis was $10.96 per share. Adjusted EBITDA was $174.4 million for the third quarter and increased 24.6% from the prior year quarter. Our adjusted EBITDA margin increased 230 basis points year-over-year, going from 49.1% to 51.4%. Capital expenditures totaled $74.6 million for the third quarter of 2020, which equates to 42.8% of adjusted EBITDA. During the quarter, we invested nearly $14 million of CapEx into network expansion and integration activities, bringing our year-to-date total to over $32 million. In the third quarter of 2020, we paid $15.1 million in dividends to shareholders or $2.50 per share. From a liquidity standpoint, we had approximately $625 million of cash and cash equivalents on hand as of September 30th, and we continue to generate significant free cash flow. At quarter end, our debt balance was approximately $1.7 billion, consisting of term loans and finance lease liabilities. And we had $320.4 million available for additional borrowing under our revolver. Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was 1.6 times. Before taking questions, I'd like to give an update on our recent acquisition, investment and financing activity. In late September, Cable One announced a strategic partnership with MBI, whereby we will purchase an initial 45% minority interest in the company, currently estimated to cost approximately $574 million with the option to purchase the remaining interest beginning in 2023. MBI was formed through a series of acquisitions, including Buy Broadband, Northland Communications and the broadband assets of Eagle Communications, unified today under the Vive Broadband name. The company has a strong geographical and cultural fit with Cable One, built by some of the same management team from our NewWave acquisition and consisting of more than 200,000 high-speed data customers and passing approximately 640,000 homes as of September 30, 2020, with last quarter annualized revenues of $258 million. MBI checks off essentially all of the criteria we look for when evaluating strategic M&A. They operate primarily in Tier 2 and Tier 3 world markets, resulting in a similar competitive profile with a focus on and revenue mix from residential HSD and business services as well as low video penetration. We see this as another great opportunity for Cable One to deploy cash and grow the business alongside a partner that shares our vision to deliver broadband to rural markets across America. We plan to close our initial investment in MBI by the end of next week. Following the MBI announcement, we took the opportunity to review and improve our financial structure. We upsized our term loan B3 from approximately $321 million to $621 million, and we increased the borrowing capacity of our revolver from $350 million to $500 million. At the same time, we extended the maturities of our term loan A2 and revolver through 2025 and our term loan B2 and B3 through 2027. The proceeds from the upsized term loan B3, together with cash on hand, were used to repay our approximately $484 million of term loan B1, though scheduled to mature in May 2024. We also took advantage of favorable credit market conditions by pricing $650 million of new 10-year senior unsecured notes at a 4% annual coupon rate. The notes offering is expected to close on November 9, 2020, subject to customary closing conditions. And we expect to use the net proceeds from the offering for general corporate purposes, which may include acquisitions and strategic investments, including the MBI investment. As a reminder, we closed our Valu-Net acquisition at the beginning of Q3, and their numbers are fully reflected in the quarter, which contributed $3.2 million in revenue and approximately 5,000 residential HSD customers. Additionally, on October 1st, we completed our transaction with Hargray. So starting with the fourth quarter, Anniston will not be included in our operating results, which accounted for third quarter revenues of $9.4 million and 19,000 residential HSD subscribers. Amanda, we are now ready for questions.

Thank you. Operator Instructions Your first question comes from Phil Cusick from JPMorgan. Please go head. Pardon me, Phil, are you on mute? Please rejoin the queue. Your first question comes from Greg Williams from Cowen. Please go ahead.

Great, thanks. Steve, a question for you and some good color on Mega Broadband. But can you provide what they were posting an annualized EBITDA. I was coming up with the number around $112 million. Just wondering if I'm in the ballpark. And on the Mega Broadband deal structure, given the sort of bifurcated structure, it seems that it allows you some dry powder for additional M&A along the way before the 2023 call rights. Is that a fair characterization? Will you continue to execute deals? And what does the M&A landscape look like? And then another question just on fiber to the home. There's been a lot of buzz around fiber to the home specifically in rural areas, whether it's greenfield or telco brownfield, fixer uppers. You and AT&T noted a more aggressive tone in fiber. And are you seeing heightened pressure in your territory? Thanks.

Yes. So on MBI, we disclosed what we disclosed and are comfortable given as they're a private company, private equity owned. Clearly, you can kind of do the math on what logical EBITDA margins. I think the piece I would say is they're growing very quickly because they are – they brought a set of assets that had been probably under-invested in and under managed, and they've been executing a plan for a couple of years now. And so they're in that extreme growth stage. And so growing very nicely and I think very complementary to what we do, both from a geography standpoint as well as a type of operation standpoint. And yes, I think, clearly, part of our strategy to date has been strengthen our balance sheet, go find an acquisition, come from a position of strength and then finance it later. And so we were able to do that. And with the good markets in October, we're able to take advantage of kind of reloading our balance sheet. So we feel like we've got plenty of capacity to continue to be active. As far as the M&A landscape, I think that's – there's a lot going on out there right now. There's been a lot of deals have been done. I think we feel very fortunate to have been able to find transactions outside of processes, being creative with ownership groups who like what Cable One brings to the table. And we hope to continue to both leverage the relationships as well as leveraging Cable One and the culture that we have to be able to go and be an attractive alternative for people who are looking to either sell their company or find an investor to partner with in. Julie, do you?

Yes, sure. As it relates to fiber to the home, I think, first, it bears remembering that we also have fiber either in the ground or on the poles. We've been building everything with fiber for years now, anything on greenfield. And as far as pressure, I would say no, we have less than 10%, probably hanging around 8% of our total footprint that has fiber to the home available to them. So it is just not something that we've seen to date.

Great, thank you.

Thank you. Your next question comes from Zach Silver from B. Riley. Please go ahead.

Okay, great. Thanks for taking the question. First one for me is just similarly related on the other side of that with AT&T stopping their sales of DSL. Just wondering if you can – what's your sense of how big of an opportunity that is? And at the same time you have T-Mo, I think, rolling out pretty ambitious plans for their home Internet fixed wireless offering. How big of a competitive threat do you see that? And what markets are you expecting to see that in?

As far as the AT&T, as soon as we saw that was happening, we went and took a look. And the opportunity is about 80,000 homes is the footprint of overlap there. And our marketing people are on top of taking advantage of that situation. As it relates to T-Mobile, or any competitor, quite honestly, we are constantly scanning our local folks and making sure that we're on top of anything that's going on in our markets, whether it's builds or marketing or hiring. We like to think that we have a competitive mindset in that our reliable products and our above-average service will serve us well. So we'll watch T-Mobile and see what happens. Right now, the speeds that they're talking about is not something that's worrying us, but we would never count them out.

Great. Okay. And then the second one is just if the FCC does change to become a Democratic-controlled FCC. Can you give us some puts and takes about how you see the regulatory environment evolving for you guys over the next couple of years?

I can't even tell who won the election yet, but we're not going to crystal ball that. So, if – it's an if because we still don't know the outcome. But if the FCC goes Democratic, I would assume that they will work on bringing net neutrality back, which, overall, if you think about it, isn't a huge concern in that we have never throttled or prioritized traffic. We wouldn't do that. We don't do that. It's not good for our customers, therefore, it wouldn't be good for us. Therefore, the only thing hanging out there would be the specter of possible rate regulation. And I mean, the way it's looking right now is, if, in fact, the Senate stays Republican majority, even with a Democrat in the White House – I'm not the final authority on this, but my guess is that doesn't happen.

Got it. That makes sense. I think just one more if I could. Just on – you nibbled some CBRS licenses. Can you talk about the rationale for those licensed acquisitions?

Sure, the CBRS license was really for Wisper, our fixed wireless investment. There's some pretty specific rules around change of control. And once you file an application, the ability to have a change of control, and we were looking out between CBRS and RDOF and other things, realizing we had no real-time we could close the transaction because of various applications, and so we, ended up just being the entity that acquired them and then basically sell them to Wisper. So that's all that was really related to.

Got it. All right. Thanks, Steven. Thanks, Julia.

Thank you. Operator Instructions Your next question comes from Rob from Raymond James. Please go ahead.

Hi guys. This is Rob on for Frank here. So going forward, as it pertains to CBRS, is there any additional color you guys are willing to provide with respect to your plans for the CBRS spectrum? And then following up on that, could you give us an update on the lower-end product? I think it was like $15 a month plan, if that's still going? And if so, if we could get an update on how that's been performing relative to your other plans? Thank you.

Sure. So the CBRS is – it's more Wisper used as part of the fixed wireless technology, so that there's licensed spectrum there compared to most Wisps who are operating primarily on unlicensed spectrum so it just gives them more control and certainty of the business. And nothing specifically as it relates to Cable One for the CBRS auction. And on the low-end plan, I think we have sub-500 customers on it. So there definitely – it was there to meet a need. I don't know that we ever had more than 1,000 at any one point in time. Many came in, many of them upgraded services. And a good plan to have in place, but nothing that has been a remotely material part of our ads.

The bigger trend, and it was happening before COVID, but it accelerated, like so many other things during COVID, is people buying into plans above the 100 meg. So our 200 meg plan is now our flagship. That is to say more people have that plan than any other plan. And selling above the 100 meg level is 70%. So people are taking much faster speeds, not lower at this point in time.

Great. Thank you.

Thank you. Our next question comes from Evan Young from KBCM. Please go ahead. Pardon me Evan, are you on mute? Evan your line is live.

Hello.

Evan.

We can hear you.

Great. Sorry about that. It's Brandon, not Evan. Let's see. Julie, a question for you. Subscriber growth, obviously, it's been really strong. People are working from home, people are purchasing Internet. But one would have thought that in 2020, a lot of people would have already purchased Internet. So I'm curious in your thoughts and just in terms of where these subscribers are coming from. And is it helpful to share the stats on selling above 100 megs. Can you share your sell in on unlimited data? And then for, Steven, obviously, you've made a ton of investments in the last couple of months. How do you plan on helping investors understand the performance of some of these investments, given that a lot of them are going to be just minority interest? And then secondly, can you help us thinking think about how you're thinking about leverage on a pro forma basis as if you were considered the full owner of those assets? Thanks.

I'll jump on in. So yes, we've been – it's been interesting to see who's come in the door during COVID, why they came in the door. Because we have done research with them, their retention rates and their data usage rates. It's been a fascinating group to watch. I think we believe there would always come a time when people would need a more robust, reliable internet service in our markets. We did not know it would be pandemic-related. We kind of thought it would be a product that was driving it. But the folks that came in the door came from all walks of life. They were – they could have been previous fiber customers, DSL customers or cell-only customers, i.e., no broadband in the home ever. And they came to us for speed and reliability. We are also seeing anecdotally now, although our competitive researcher is also seeing moves into our area, and you probably read about folks moving to more rural areas and we're seeing a bit of an uptick there as well. So they came to us for speed, reliability and some of them are moving. They are – when they came in the door, they had a credit profile that looked very similar to our existing subscriber base. In terms of demographics, they were younger and they tended to have fewer children in the home. They are retaining, as a cohort, our services at a higher rate actually than our existing customers do. So they seem to have liked what they have found. Again, we said – people are selling into plans above the 100 meg tier or 75%. Our unlimited data is selling in at about half of what it was pre-COVID. And that makes sense for several reasons, I think. Number one, we gave away unlimited data for free for months during the heart of the pandemic. And number two, we have so many people coming in at the 200, 300 gig level that the unlimited data option is not as imperative as it once was. That being said, we're seeing it grow. And it may get back up to pre-pandemic levels. But it is the major contributor to our ARPU growth at this point in time.

And then on the deals, I think – Brandon, I think we're still working on exactly how we're going to communicate them. I think we've been very focused in the early stages of finding the opportunities, looking at them internally on how we think we can create value over time. And then figuring out how to best communicate that to our shareholders over time, while keeping in mind that these are private businesses and have their own plans and have their own competitors and things that they want to keep private. And so trying to find that right balance of how to tell the story about the investments and to allow them to run their businesses the way they want to run them. And we feel like we've partnered with really good teams who share our vision. And actually, one of the attributes that we like about these are the fact that a couple of them actually do have leverage and have more leverage than we do. So we're able to share in levered returns without us really putting our balance sheet at risk. None of that really done a pro forma of what that would look like because they're not – none of those are secured by Cable One at all. They all have their own facilities and are only secured by the assets they have. So we have no obligation to the debt at that level. And so we haven't really looked at it that way, but those businesses are north of 5 times leverage, which allows for higher equity returns in that environment without us really putting our balance sheet at risk at all to be able to do it. Does that answer your question?

Okay. Thank you. Sort of.

Well, at least I got a question this time. I think we increased our questions by 300%. Anyway. Well, Amanda, I think that's it.

Thank you. This does conclude our question-and-answer session. I'd now turn the conference back over to Julie.

Thank you, Amanda. I want to thank all of our associates for another great quarter and for their resiliency and dedication during these uncertain times. Thanks to everyone for joining us on today's call. We look forward to speaking to you again in the New Year.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.