Cable One, Inc. Q3 FY2024 Earnings Call

Hello, and welcome to the Cable One, Inc. Q3 2024 Earnings Call. All participants are in listen-only mode at this time. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Jordan Morkert, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to Cable One's Third Quarter 2024 Earnings Call. We're glad to have you join us as we review our results. Before we proceed, I would like to remind you that today's discussion contains forward-looking statements relating to future events that involve risks and uncertainties, including statements regarding future broadband revenue and customer growth, customer losses due to the end of the affordable connectivity program, future ARPU, future levels of wired competition, growth in carrier, wholesale and enterprise market segments, the future capabilities of our network anticipated benefits from AI, the timing and anticipated benefits of our new billing system implementation, capital expenditures, purchase price payable if the MBI put option is exercised in the anticipated timeline to consummate such transaction, our ability and sources of capital to fund the MBI put price and our future financial performance, capital allocation, dividend policy, leverage ratios and financing plans. You can find factors that could cause Cable One's actual results to differ materially from the forward-looking statements discussed during today's call, in today's earnings release and in our SEC filings, including our annual report on Form 10-K/A. 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 the U.S. generally accepted accounting principles or GAAP. 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; and Todd Koetje, our CFO. With that, let me turn the call over to Julie.

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. In the third quarter, we continued to execute on our phased plan for long-term broadband growth. As expected, residential ARPU stabilized and our customer base remained essentially unchanged after excluding the impact of customer losses from the expiration of the affordable connectivity program and minimal customer gains from a small acquisition in July. Business Broadband growth also accelerated, driven by rising demand across enterprise segments. Looking ahead, we are confident in our ability to grow broadband revenue over the long term. This confidence is rooted in insights we've gained with new go-to-market tactics, recent talent additions and organizational changes, new product offerings and the resilience of our highly secured network, which has maintained significant capacity amidst double-digit increases in data demand. This quarter also marked several significant milestones including advancements in digital transformation and expanded use of AI, a strategic rebranding and ongoing organizational alignment, all guided by a customer-first mindset. Before Todd reviews our financial performance in detail, I'll dive deeper into topics of broadband growth, product and network enhancements and strategic initiatives. I want to emphasize that despite the early stages of a phased plan for long-term growth, we remain confident that our steadfast approach will help us successfully navigate the evolving competitive landscape while delivering shareholder value. Starting with residential broadband, HSD subscribers were essentially flat for the quarter excluding the impact from the discontinuation of ACP, which ended in April. We were able to accomplish this despite the ongoing transition to our new billing system, which has required a suspension of price adjustments for more than a quarter, limiting our ability to make marketing adjustments to approximately 20% of our HSD customers. To support our growth and drive our strategy in the upcoming quarters, we've also made significant enhancements to our marketing team, which I will detail a bit later. Specific to the third quarter, while we saw a decrease of 3,400 customers on a sequential quarterly basis, discontinuation of the ACP program cost us 5,300 customers. I would also like to call out that while we took proactive measures to support our customers after ACP ended, which helped maintain our commitment to offer affordable services. We consciously avoided extreme tactics to retain customers at any cost. Looking ahead, we believe the accelerated churn due to the discontinuation of the program is behind us, and we will consider any further churn from this cohort as part of the normal customer life cycle. One example of how we're working to deliver affordable service to value-conscious customers is our pilot pay-as-you-go internet offering, a service tailored for residential customers who seek flexibility in managing their internet expenses, accessible through a user-friendly mobile app, it allows customers to purchase high-speed internet in increments as well as the freedom to adjust their speed as needed, ensuring they only pay for what they require. This product provides a true pay-as-you-go experience with no long-term commitments, contracts or extra fees for the customer and a lower cost basis for the company. This is a pilot program, and we are just starting to gather insights from it, which will inevitably lead to program evolution as we refine how to best serve this cohort of customers moving forward. As anticipated, our ARPU stabilized sequentially, and we expect this trend to continue for the remainder of the year. Notably, new customer selection of speed tiers of 600 megs or higher increased significantly by 900 basis points year-over-year and 300 basis points sequentially, reaching an all-time high of 62%. ARPU benefited from this higher sell-in as well as our ongoing refinement of competitive responses, promotional roll-offs and the successful implementation of our Pay Plus program. Turning to competitive dynamics, we believe there are early signs that competition is stabilizing. Specifically, we have observed more rational pricing from some of our competitors reflecting the economic realities of our markets. We believe the economics required for viable returns for wired operators in our markets effectively discourages long-term aggressive pricing strategies. Raw material costs, construction costs from challenging topography and limited labor resources also act as a barrier to new entrants in a host of our markets. Most importantly, our deep local knowledge gives us a competitive edge in these communities, enabling us to maintain a strong market position even in areas with elevated competition. Business Broadband continues to be an important driver of our long-term growth strategy, with revenues up 2.9% year-over-year, an acceleration from the previous quarter's year-over-year growth rate. We are observing significant demand across our carrier, wholesale and enterprise segments. These business segments are in earlier stages of growth and continue to show consistent progress. In all segments, we are taking action to improve our position, whether through pricing, customer experience or expansion into new product types. I would like to take a few minutes to elaborate on the importance of our strong network. Our senior leadership recently gathered at the National SCTE conference and the excitement around the future of HSD networks was palpable. Indeed, DOCSIS 4.0 makes the future brighter than ever as it will be able to deliver up to 10 gig speeds through intelligent, capital-efficient infrastructure. Future advancements promise even greater capabilities with speed potentially reaching 25 gigabits or more. Today, we offer gigabit speeds across our entire footprint with multi-gig capabilities available in over 40% of our markets. We plan to expand these products through all markets as we transition from linear video to IPTV, but our story isn't just about speed. Our network surpasses the performance and security of cellphone Internet competitors, positioning us to meet the growing data demands of our customers, now averaging 730 gigabits of data per month. Notably, 25% of our customers exceed 1 terabyte of usage per month, up from 21% last year. Even with this rising demand, our network peak utilization remains low at just 19% downstream and 18% upstream demonstrating our ability to support continued growth without capacity limitations or substantial increase in capital intensity. We also understand that seamless and secure connectivity within the home is essential. That's why we offer intelligent Wi-Fi designed to ensure customers enjoy the best possible online experience at all times. Our intelligent Wi-Fi continuously adapts to the users' needs, optimizing speed and ensuring secure connectivity even with a large number of devices online. This smarter network is part of our commitment to delivering technology that enhances our customers' day-to-day lives and even more exciting things lie ahead for our customers in a more adaptive era, but our network will become increasingly proactive and intuitive. We are laying the groundwork for this future by integrating AI, machine learning, data analytics and smart equipment into our infrastructure. We're investing in a network that anticipates the needs of our customers, delivering speed, reliability and adaptability that transforms the customer experience. These advancements position us not only to meet market demand but shape the future of broadband, but through our investment in multi-gig capabilities, intelligent Wi-Fi or cybersecurity solutions, we are committed to driving sustained growth through innovation, reliability, and an unwavering focus on our customers. As one example, we recently introduced a top-tier security package for $8 a month designed to protect our customers from a wide range of online threats, including viruses, malware, and phishing attacks. This package and others like it will create meaningful opportunity for ARPU growth while enhancing customer loyalty and retention. By aligning the interest of our customers and the company, we can create a more integrated and valuable experience for all stakeholders. Shifting to strategic initiatives, we plan to go live next week with our new billing system consolidating our Fidelity, Valu-Net and CableAmerica customers onto a single billing platform. This will dramatically streamline operations for associates and customers, accelerate product launches and strengthen our Sparklight brand presence. As we have noted previously, this enables us to retire more than 30 disparate software platforms yielding several million dollars in anticipated annual savings. Additionally, we successfully transitioned our Hargray brand to our financial ERP, streamlining our financial operations and decreasing costs. We have also made substantial progress in rebranding Fidelity, Hargray, and Valu-Net and CableAmerica to our Sparklight brand on our website and customer billing systems. Associates across the company are proudly wearing Sparklight uniforms and badges, and we are updating our vehicle wraps and signage as well, consolidating all customers under the Sparklight brand and packages leverages the strength of our brand across the footprint and secure efficiencies by fully integrating our operations. Collectively, these efforts are designed to drive operational excellence and create a unified brand experience, positioning us well for exciting growth opportunities ahead. Transitioning from operational enhancements to technological advancements, we're pleased to share a significant development in our approach to customer interactions. We've begun integrating an advanced AI module into our customer experience framework, representing the first phase of a broader strategy to transform our approach to improve customer interactions and drive greater efficiency. This AI-powered system allows us to harvest actionable customer insights enabling our leaders to gain a deeper understanding of our customer needs and continuously elevate the overall customer journey. We continue to recognize the importance of adding talent to our team to achieve our strategy. So I would like to welcome Tony Mokry as our new SVP of Residential Services. Tony brings more than 25 years of experience in the telecommunications industry to his new role. Before joining us at Cable One, he served as Vice President and Chief Marketing Officer at Cricket Wireless and AT&T subsidiary, where he led cross-functional teams to enhance brand awareness, identify market trends and drive revenue growth. Earlier in his career, Tony held several senior roles at AT&T, including Vice President of both states, where his leadership was instrumental in leading market share growth through innovative marketing strategies based on data-driven insights. Tony's addition complements the reorganization we announced last quarter, bringing expertise that will enhance our ability to serve customers, foster sustainable long-term growth and adapt to the evolving demands of today's competitive landscape. We are pleased with the new talent we've brought in across the organization. Their deep expertise strengthens our executive team and fortifies our strategic direction. Before turning the call over to Todd, I want to recognize the incredible dedication of our associates during this challenging hurricane season. Hurricane Helene, one of the deadliest to strike the U.S. in over 50 years, significantly affected communities in the Southeast, including our markets in South Carolina and Georgia. Fortunately, all of our associates and their families are safe and our exposure was limited. Our team swiftly restored services to more than 95% of the approximately 15,000 impacted Cable One customers within a week demonstrating remarkable resilience and commitment to our customers. And now, Todd will provide a recap of our third quarter financial performance and further discuss our outlook for the future.

Thanks, Julie. Starting off with revenue. For the third quarter of 2024, our total revenues were $393.6 million compared to $420.3 million in the third quarter of 2023. The year-over-year decrease was due primarily to lower residential data ARPU and continued attrition within our lower-margin product line. After declining sequentially over the first half of the year, residential data ARPU stabilized from Q2 to Q3. As Julie noted, we expect this to continue through the end of this year. Q3 residential data revenues decreased by $17.1 million or 6.9% year-over-year, driven by a 7.1% decrease in ARPU. This decline was due to targeted pricing and product strategies in specific markets to address select competitors, along with a focus on the valued customer segment, which generally has lower sell-in rates. Shifting to Business Services, third quarter business data revenues grew by $1.6 million or 2.9% compared to the same period last year. Business data PSUs grew by 1,100 over the past 12 months. This growth is fueled by strong demand across the carrier, wholesale and enterprise customer segments, which generate our highest revenues per customer and benefit from long-term contracts with high renewal rates. Operating expenses were $104.6 million. The decrease in expense was driven largely by a $7.6 million decrease in programming and franchise costs as well as our ongoing focus on optimizing cost structures within our labor base. Selling, general and administrative expenses were $88.4 million or 22.5% of revenues for the third quarter of 2024 compared to $92.7 million and 22.1% in the third quarter of last year. The decrease in expense was driven in large part by lower labor and other compensation-related costs due to organizational changes implemented during the second quarter, partially offset by increased expenses related to new platform implementations and rebranding. Net income was $44.2 million for the third quarter of 2024 compared to $30.3 million in the third quarter of 2023. Adjusted EBITDA was $213.6 million or 54.3% of revenues in Q3 2024 compared to $230 million or 54.7% of revenues in the prior year quarter. Our adjusted EBITDA margin improved 50 basis points on a sequential basis. Capital expenditures were $77 million in Q3 of this year compared to $77.8 million last year. During the third quarter of 2024, we invested approximately $7 million in new market expansion projects and $3 million in integration activities. Sequentially, our capital investment increased by $5.4 million primarily due to our ongoing investment in leading intelligent Wi-Fi technology, adjusted EBITDA less capital expenditures was $136.6 million in the third quarter of 2024, a $15.6 million or 10.2% decrease from the prior year. Year-to-date, our adjusted EBITDA less CapEx was $428.6 million, a 1.4% decrease from the comparable prior year period. We remain committed to a disciplined and balanced capital allocation strategy focused on 4 key areas: enhancing network and platform infrastructure, as Julie detailed earlier, capitalizing on organic growth opportunities within our existing markets, pursuing strategic inorganic growth opportunities, both investments and through acquisitions and a return of capital commitment that has been and will continue to be focused on debt repayment. As you may have seen recently, 2 of our investments, Metronet and Ziply have announced that they have entered into definitive agreements to sell their businesses. These transactions, which are slated to close in 2025 will yield attractive returns well in excess of our targeted annual parameters and provide pretax proceeds in excess of $100 million. In Q3, we distributed $17 million in dividends to shareholders and repaid $54.6 million of debt, including a $50 million voluntary repayment of our revolving credit facility. Our approach to capitalization and balance sheet management is guided by a conservative mindset, emphasizing disciplined debt repayment and a demonstrated ability to reduce leverage. Since early 2023, we have repaid nearly $400 million of debt, including $350 million of the initial $488 million drawn under our revolving credit facility. As of the end of the third quarter, we had approximately $227 million of cash and cash equivalents on hand and our debt balance was approximately $3.5 billion, consisting of approximately $1.8 billion in term loans, $920 million in convertible notes, $650 million in unsecured notes, $188 million of revolver borrowings and $5 million of finance lease liabilities. Our weighted average cost of debt for Q3 of 2024 was 4.16% with over 75% of our borrowings, either fixed issuance or synthetically fixed at underlying base rates that are approximately half of the prevailing floating rates. Our net leverage ratio on a last quarter annualized basis was at 3.85x, while our secured net leverage ratio was approximately 2x. After the end of Q3, with the support of many of our long-term loyal lenders in the banking community, we are able to successfully upsize our revolving credit facility by $250 million, bringing the total committed capacity to $1.25 billion. We also voluntarily repaid an additional $50 million under this facility after the end of the third quarter bringing total available liquidity to over $1.1 billion. As previously disclosed, the MBI put exercise window will occur in Q3 of next year. Based on MBI's past performance and current forecasts and certain estimates and assumptions, we estimate the price to acquire the remaining 55% of MBI that we do not already own if the put were exercised between approximately $760 million and $900 million and MBI's total net indebtedness at the time of acquisition pursuant to the put is estimated to be between $775 million and $825 million. Please note, these figures represent our current estimates and actual amounts may differ. MBI's total revenues for the 12 months ended September 30, 2024, were approximately $320 million, with approximately 225,000 residential and business data customers across a network footprint of approximately 675,000 passings. As we've said before, if the put option is exercised, we believe that our existing cash balances, the anticipated available capacity under our revolver at the time of the transaction and our operating cash flows will be sufficient to fund the purchase price without needing to raise additional incremental capital. Before we open it up for questions, I'd like to reiterate our commitment to executing a phased approach for sustainable long-term growth. Our strong network and dedicated team are key to this strategy, as we stay focused on maximizing our unique assets to provide seamless connectivity to an expanding customer base across our service areas. We are always working for you, we are making significant progress, and we're just getting started. Our commitment to all stakeholders remains unwavering. With that, we are now ready for questions.

Our first question comes from Sebastiano Petti from J.P. Morgan.

I have a couple of quick housekeeping questions and then a broader strategic question. Julie, could you clarify your comment about the billing system regarding the inability to change pricing packaging for 20% of your customer base? Does this have any financial or subscriber impacts for this quarter? Additionally, regarding the pay-as-you-go pilot, I know it is still in the pilot phase, but it might be dilutive to ARPU. Can you walk us through the considerations you are weighing as you test this? Lastly, looking at the broader ecosystem, we are noticing fiber consolidation and targeted convergent M&A from some wireless companies. Given CABO’s current strategic positioning, do you still believe it makes sense for CABO to act as a consolidator of rural cable, which has been the thought for several years? Is there a rationale for potentially becoming part of a larger enterprise?

Absolutely. Regarding the billing system, great questions, Sebastiano. It hasn't impacted customers or the company, except that during the transition of customers from one billing system to another, changes can't be made to the existing system. This means that marketing efforts are hindered, as rates cannot be adjusted for an extended period. In this case, everything was static in those billing systems while we transitioned multiple brands to Sparklight from mid-summer to now. If we needed to respond or make different changes, we were unable to because we were locked into those rates. This is a common challenge during a billing transition, and ideally, you would plan well ahead to avoid such issues. However, honestly, that was not the situation this time. Now, about the pay-as-you-go program, it’s a completely new initiative that I find quite innovative. There's nothing exactly like it in the market, and we anticipate learning a lot from it. We believe this program is perfect for value-conscious customers, especially those competing with cellphone internet services. It offers customers ultimate freedom, allowing them to sign up for a day or a month based on their needs or funds available, and they can adjust their speeds as required—having gig service one day and 300 meg the next. This isn't just for one type of service; we offer options at 100 meg, 300 meg, 500 meg, and 1 gig. Even value-conscious customers may opt for 1 gig service depending on their family's needs. As for your question about ARPU, it's too early to tell, but I can confirm that it is not dilute; the average ARPU from the new customers is higher than our entry-level price. We expect to learn and adapt as we go, and we are excited about this product. Regarding your last question about CABO's future as a consolidator or as part of a larger entity, that is somewhat speculative. We have a strong understanding of our markets, which average around 20,000 customers, and we are closely connected to them. We know how to operate in varied regions effectively, achieving efficiencies without consolidation. We aim to do good for our communities, customers, and associates, which makes us a natural aggregator. Looking forward, I could once predict our course five years into the future, but that ability is diminishing as the environment changes rapidly. So, let’s see what unfolds.

Our next question comes from the line of Craig Moffett from MoffettNathanson.

Julie, as I consider your broadband ARPU, I want to revisit a question I've often asked. How do you perceive the potential of wireless, especially with Tony joining us who has strong wireless expertise? You are increasingly facing competition from wireline providers that are offering converged bundles. Do you believe this is impacting your position in the market, or do you think it's not a significant part of the competition you encounter?

That's a good question that we consider frequently, Craig. We assess mobile at least twice a year and when we do, we take into account the needs and wants expressed by our customers in our specific market, as well as the financial implications of launching a product like that. I see us initiating a variety of projects and products that provide value to our customers and ultimately to our shareholders. I can recall times in the past when we didn't rush into certain products; we took the time to study them thoroughly, and that approach has proven beneficial. For instance, we were cautious with video on demand and home security, and while we didn't pursue those two products then, it doesn't mean we won't consider mobile. We are examining it even more closely, studying what our peers have done, but we need to clearly articulate the benefits for customers, the company, and shareholders before proceeding. I believe we are very open to various bundling options and are committed to exploring ways to combine items that deliver value to our customers, whether that involves products that easily connect to HSD, wireless, mobile, or possibly even video. We are open to possibilities.

Could I ask a quick follow-up? Do you believe that attractive wholesale rates for wireless are available to you, either directly or through the ACA, or are the current rates simply not attractive enough to make them compelling for you to offer at this time?

I think it's holistic. It's about what it can do in terms of generating revenue at what capital and operating cost as well as are there benefits related to churn, it's the whole picture.

Craig, we have the access. As Julie said, it's got to be evaluated through that lens of all of the other assumptions as well. But the access is there. I won't say the cost is extremely compelling. But over time, that also potentially could change.

Our next question comes from the line of Sam McHugh from BNP Paribas.

First one, just on ARPU. I know consensus next year has ARPU staying pretty stable relative to Q3 and then what's implied for Q4, but also has a big tick up in kind of residential net additions. Do you feel like you're getting in the right place now where you can get back to nice subscriber growth at the same time as delivering stable to maybe growing ARPU? That's the first question. And then secondly, just on fiber overlap. I know you've given us some numbers last quarter. I don't know if there's any update on how much fiber overlap you have in your footprint now?

Okay. Sam, it's Julie. Yes, ARPU has stabilized, and we anticipate it will remain stable through Q4. There have been several factors that influenced it, including our AutoPayPlus program, the end of promotions, and strong sell-in. Your question is a good one and one I’ve been considering. Can we move both levers simultaneously? In the past, that approach was relatively straightforward. Recently, if you observe our peers, they have primarily focused on one strategy at a time. I want to highlight that year-to-date, despite losses from ACP, we have seen growth in broadband and have stabilized ARPU. A few quarters ago, we discussed our shift in focus for '24 from a high lifetime value strategy to a growth strategy. In that context, we recognized that we would be targeting specific competitors in various markets, which would impact ARPU, but we have now stabilized it. We fully expect our broadband revenue to continue growing, as that is our main goal.

Sam, it's Todd. On the fiber overlap, we reported last quarter below 40% of the overall network, and that remains very consistent.

Our next question comes from the line of Gregory Williams from TD Cowen.

The first one is, Julia, you mentioned competition is stabilizing. And I think Todd sort of alluded to in that last answer. Is that in the fiber-to-the-home world and fixed wireless? Because in fixed wireless, we saw some of the carriers increasing their subtargets. And one of your peers, Altice said that they're seeing expansion of fixed wireless, but Charter's are saying it's peakish. So I'm curious, the competition is stabilizing for both technologies. And then the second question is just on the OpEx investments that you are doing. I think last time we talked, you expect them to mitigate in mid-2025 and I'm just wondering if that's still the case?

I'll take the first question; it's quite unusual. Regarding fiber and cell phone internet, what are we observing? Well, Todd mentioned the fiber overlap, and we've been analyzing and experimenting within the competitive landscape. This situation is beginning to feel quite routine for us. We're noticing cumulative effects from the changes we've implemented over the past few quarters. By this, I mean some of the most competitive markets are actually experiencing positive growth this quarter, even outperforming less competitive areas. We've been monitoring the markets where we've applied different strategies, such as rerating, to see how quickly they stabilize, recover from their peaks, and return to normal levels. It's fascinating to observe that some markets experience this as quickly as six months. This means we can capture a portion of the market before they revert to usual levels within that timeframe. Others take as long as 18 months. However, we believe we've noticed how spikes caused by new competitors have been subdued by our recent rerates. Additionally, we've reduced competitive disconnects by 14%, dropping from 324 to 323. We’re keeping an eye on our competitors’ responses. When we take actions, we're encouraged to see many of them raising their prices, indicating their need for returns. This is a fluid situation and we monitor it without necessarily following their lead. Ultimately, the competition has driven us to improve. When we discuss cellular internet customers or competitors—excuse me, my phone is ringing despite me trying to put it on do not disturb—we believe our pay-as-you-go offering and some of our new marketing strategies in development will enhance our position against this competitor. As for data usage, we have an average of 730 gigs this quarter, with 25% of our customers consuming a terabyte or more, which highlights our reliability as a wireline provider. Recently, we experienced our largest traffic incidents in two years due to the latest Call of Duty release, and eight out of the last ten months have seen traffic spikes linked to gaming and sports, indicating growth potential. This underscores the robustness of our network. Our churn rates are also lower than pre-pandemic levels, suggesting that our current customers aren't switching to cellular internet providers, except possibly due to some ACP losses we’ve experienced. They compete in the same space and impact Connect, which is a challenge we are addressing through various tactics, including our pay-as-you-go product.

Greg, it's Todd. I would just add on the churn. We made the comment last quarter, and I'd reiterate it again this quarter. Even with the ACP losses, we're at 5-year lows for churn or customer retention. So when you think about the increasing competitive environment, which is increasing, both on the wired and the cell phone internet, we believe that that's a very strong testimonial of our customer satisfaction and the long-term relationships we have with them. Less ACP, that number blew everything away relative to where that churn level is if you extract out the AC feature. You asked about the OpEx investments and the timetable. So just to address that, that is still consistently in that time frame of what has been late '24 and into the mid-2025 time frame.

Our next question comes from the line of Steven Cahall from Wells Fargo.

I guess first of all, the stabilization of ARPU that you saw on the quarter and the focus on driving towards broadband revenue growth over the long term and some positive trends around gig sell-in and data consumption. How do you think about your ability to get back into maybe a cadence of pricing power or price increases on the majority of the base? Is that something that you think could be on the horizon? Or is this something you think is going to take some time due to other issues? And I wonder how you've competitively benchmarked yourselves. One of your peers targets 3% to 4% ARPU growth annually. I'm just wondering what you think is different about maybe their customer footprint than yours that's contributed to some of this ARPU differential. And then the competitive stabilization seems constructive. I think you said that what you've seen is some more rational pricing. Any sense of what's happening on the build front? I'm wondering if that slowed down as well.

Regarding ARPU and pricing, I believe there is some price flexibility at the higher end, possibly just with a straightforward rate adjustment. However, if we can introduce additional value-added benefits, there's definitely potential for increases there. If we analyze our customer base, certain segments could certainly accommodate a rate increase. We implemented AutoPay, specifically the AutoPayPlus program, but only for a fraction of our customers. For some of those customers, this resulted in a rate change since they opted not to use ACH for paperless billing. This acted as an effective rate adjustment for them. Our family of brands, with about 350,000 customers in Sparklight, has not yet experienced this. Thus, it could appear as a rate adjustment if customers do not opt to mitigate it. Regarding the ARPU difference, this is straightforward. We pursued a high lifetime value strategy focusing on premium products, which led to lower penetration and consequently lower ARPUs. When we entered a more competitive environment, we anticipated a decrease in ARPU in those situations, while others, starting from a lower base, have room for growth. This was a deliberate strategy on our part.

And I think over time, where we continue to penetrate in that value segment, recall, it's really only about a year that we've really been more targeted to customer acquisition in that segment. And we had to really monitor and measure it very closely relative to not only the cost to install, the cost to serve, but also the retention of that customer to be able to evaluate the unit economics, the way that we would want from an accretive contribution perspective. And as I've mentioned in the past, correlation of that retention is very, very high to our premium customer base, which is very encouraging. And then over time, that base also has an opportunity for whether it be more organic upgrades or potential some price elasticity as well as Julie was alluding to.

But to be clear, we tried a lot of things in the past 9 months and not all of them worked, and we learned from those experiences.

On the topic of building, you asked about the competitive stabilization in this area. We've discussed access to capital and its costs. Currently, we see significant consolidation in the M&A environment with several large regional platforms. For these major players, particularly those with investment-grade ratings, the cost and access to capital won't be as problematic. However, the impact from these large companies is likely to be less significant for our smaller communities. For companies like Temos, Verizon, and BCE to effectively advance their building efforts, they will probably need to either upgrade or expand into larger markets, in our view.

All right. And that is all the time we have for questions today. So I'd like to turn it back over to Julie and the Cable One team for closing remarks.

Thank you, Jeremy. Before we conclude, I want to extend my sincere gratitude to our associates for their relentless efforts throughout our recent billing conversion. Your dedication around the clock and it literally has been around-the-clock is making this milestone possible, unlocking significant opportunities for the company's future. None of this would be achievable without your unwavering commitment. Thank you, and we look forward to speaking with you all again next quarter.

That does conclude today's presentation. Have a pleasant evening.