Cable ONE Inc.

10/02/2024 | Press release | Distributed by Public on 10/02/2024 04:40

Amendment to Quarterly Report Form 10 Q/A

cabo-20240331
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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(s) 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. YesþNo o
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). YesþNo o
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 þ Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ
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 April 26, 2024
Common stock, par value $0.01
5,619,075
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EXPLANATORY NOTE
This Amendment No. 1 to the Cable One, Inc. ("Cable One," "us," "our," "we" or the "Company") Quarterly Report on Form 10-Q/A ("Form 10-Q/A" or "Amended First Quarter 2024 Quarterly Report") amends and restates certain information included in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2024, which was filed with the U.S. Securities and Exchange Commission (the "SEC") on May 3, 2024 (the "Original First Quarter 2024 Quarterly Report"). The Company's consolidated financial statements for the years ended December 31, 2023 and 2022 have been amended and restated within an amended Annual Report on Form 10-K/A for the year ended December 31, 2023 filed with the SEC on October 1, 2024 (the "2023 Form 10-K/A") and the Company's condensed consolidated financial statements for the three and six months ended June 30, 2024 will be restated within an amended Quarterly Report on Form 10-Q/A for the period ended June 30, 2024. All material restatement information will be included in the amended reports, and we do not intend to separately amend other filings that we have previously filed with the SEC.
As previously announced in the Company's Current Report on Form 8-K filed with the SEC on September 24, 2024, subsequent to the issuance of the Company's condensed consolidated financial statements as of and for the three and six months ended June 30, 2024, the Company identified an error in the equity method accounting for its partial ownership of Clearwave Fiber LLC, a joint venture in which the Company contributed certain fiber operations (including certain fiber assets of Hargray (as defined under "Cautionary Statement Regarding Forward-Looking Statements") and a majority of the operations of Delta Communications, L.L.C.) and certain unaffiliated third-party investors contributed cash to a newly formed entity ("Clearwave Fiber"). Specifically, the Company did not appropriately allocate the losses generated by Clearwave Fiber amongst the joint venture partners after considering the liquidation preference and preferred return feature of the equity units held by the third-party investors.
As a result, equity method investment loss was understated, income tax provision was overstated and net income was overstated in the Company's consolidated statements of operations and comprehensive income for the periods described below, which had a corresponding impact on the related consolidated balance sheet and consolidated statement of stockholders' equity items. There was no impact to the Company's consolidated statement of cash flows except for the presentation of net income offset by the respective adjustments to reconcile net income to net cash provided by operating activities. Additionally, there was no impact to the Company's previously reported revenues, capital expenditures, cash flows from operating activities or Adjusted EBITDA (as defined and described in "Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Use of Adjusted EBITDA").
On September 23, 2024, the Audit Committee of the Board of Directors of the Company (the "Audit Committee"), in consultation with management, concluded that the following previously issued consolidated financial statements and other information of the Company should no longer be relied upon:
•the audited consolidated financial statements for the fiscal years ended December 31, 2023 and December 31, 2022 contained within the Annual Reports on Form 10-K for such years (and the associated audit report of the Company's independent registered public accounting firm); and
•the unaudited condensed consolidated financial statements contained within the Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2022, September 30, 2022, March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024 and June 30, 2024.
Items Amended in this Filing
This Amended First Quarter 2024 Quarterly Report sets forth the Company's Original First Quarter 2024 Quarterly Report, as amended, in its entirety. Except as required to reflect the restated amounts, related disclosures and updates to the Company's assessment of internal control over financial reporting ("ICFR") and disclosure controls and procedures ("DCPs"), there were no changes to any other parts of the Original First Quarter 2024 Quarterly Report, and this Amended First Quarter 2024 Quarterly Report does not reflect events occurring after the date of the Original First Quarter 2024 Quarterly Report. Unless otherwise noted, references herein such as "as of the date of this Quarterly Report" refer to May 3, 2024, the original filing date of the Original First Quarter 2024 Quarterly Report.
The Company is filing this Amended First Quarter 2024 Quarterly Report in order to amend the following items of the Original First Quarter 2024 Quarterly Report:
•Cautionary Statement Regarding Forward-Looking Statements
•Part I, Item 1.Condensed Consolidated Financial Statements
•Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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•Part I, Item 4.Controls and Procedures
•Part II, Item 6. Exhibits
The exhibit list included in "Part II, Item 6. Exhibits"herein has been amended to contain currently dated certifications from the Company's Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and filed as Exhibits 31.1, 31.2 and 32.
In accordance with applicable SEC rules, this Amended First Quarter 2024 Quarterly Report also includes an updated signature page.
Refer to note 1 "Description of Business and Basis of Presentation"and note 4 "Equity Investments"in the notes to the condensed consolidated financial statements on this Form 10-Q/A for additional information, including a summary of the impacts of these adjustments.
Control Considerations
Management concluded that the Company's ICFR was not effective as of December 31, 2023, and the Company's DCPs were not effective as of December 31, 2023 and March 31, 2024 due to a material weakness in ICFR. Specifically, there was a lack of an effectively designed control activity related to the evaluation of the capital structure of equity method investments when determining the proportionate share of earnings or losses to recognize. See "Part 1, Item 4. Controls and Procedures."
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CABLE ONE, INC.
FORM 10-Q/A
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
1
Item 1.
Condensed Consolidated Financial Statements
1
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
25
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.
Controls and Procedures
36
PART II: OTHER INFORMATION
38
Item 1.
Legal Proceedings
38
Item 1A.
Risk Factors
38
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
38
Item 3.
Defaults Upon Senior Securities
38
Item 4.
Mine Safety Disclosures
38
Item 5.
Other Information
38
Item 6.
Exhibits
39
SIGNATURES
40
References herein to "Cable One," "us," "our," "we" or the "Company" refer to Cable One, Inc., together with its wholly owned subsidiaries.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Amended First Quarter 2024 Quarterly Report 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, acquisitions and strategic investments, market expansion plans, dividend policy, capital allocation, financing strategy, 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, which are discussed in our 2023 Form 10-K/A:
•rising levels of competition from historical and new entrants in our markets;
•recent and future changes in technology, and our ability to develop, deploy and operate new technologies, service offerings and customer service platforms;
•our ability to continue to grow our residential data and business data revenues and customer base;
•increases in programming costs and retransmission fees;
•our ability to obtain hardware, software and operational support from vendors;
•risks that we may fail to realize the benefits anticipated as a result of our purchase of the remaining interests in Hargray Acquisition Holdings, LLC ("Hargray") that we did not already own (the "Hargray Acquisition");
•risks relating to existing or future acquisitions and strategic investments by us;
•risks that the implementation of our new enterprise resource planning system and billing systems disrupt business operations;
•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;
•risks related to the restatement of our consolidated financial statements included in our 2023 Form 10-K/A and for other periods impacted by the restatement identified in our Current Report on Form 8-K filed with the SEC on September 24, 2024, and any potential litigation or investigation related to such restatement;
•our ability to maintain effective ICFR and DCPs, including our ability to remediate any existing material weakness in our ICFR and the timing of any such remediation, as well as our ability to reestablish effective DCPs;
•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;
•changes in government subsidy programs;
•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 continue to rise, causing our obligations to service our variable rate indebtedness to increase significantly;
•risks associated with our convertible indebtedness;
•our ability to continue to pay dividends;
•provisions in our charter, by-laws and Delaware law that could discourage takeovers and limit the judicial forum for certain disputes;
•adverse economic conditions, labor shortages, supply chain disruptions, changes in rates of inflation and the level of move activity in the housing sector;
•pandemics, epidemics or disease outbreaks, such as the COVID-19 pandemic, have, and may in the future, disrupt our business and operations, which could materially affect our business, financial condition, results of operations and cash flows;
•lower demand for our residential data and business data products;
•fluctuations in our stock price;
•dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances;
•damage to our reputation or brand image;
•our ability to retain key employees (whom we refer to as associates);
•our ability to incur future indebtedness;
•provisions in our charter that could limit the liabilities for directors; and
•the other risks and uncertainties detailed from time to time in our filings with the SEC, including but not limited to those described under "Risk Factors" in our 2023 Form 10-K/A.
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.
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PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
As Restated
(dollars in thousands, except par values) March 31, 2024 December 31, 2023
Assets
Current Assets:
Cash and cash equivalents $ 210,733 $ 190,289
Accounts receivable, net 60,530 93,973
Prepaid and other current assets 76,042 58,116
Total Current Assets 347,305 342,378
Equity investments 1,016,274 1,038,024
Property, plant and equipment, net 1,784,847 1,791,120
Intangible assets, net 2,579,969 2,595,892
Goodwill 928,947 928,947
Other noncurrent assets 81,895 63,149
Total Assets $ 6,739,237 $ 6,759,510
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 140,589 $ 156,645
Deferred revenue 27,079 27,169
Current portion of long-term debt 19,018 19,023
Total Current Liabilities 186,686 202,837
Long-term debt 3,574,116 3,626,928
Deferred income taxes 950,953 950,919
Other noncurrent liabilities 174,608 169,556
Total Liabilities 4,886,363 4,950,240
Commitments and contingencies (refer to note 15)
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; 6,175,399 shares issued; and 5,619,098 and 5,616,987 shares outstanding as of March 31, 2024 and December 31, 2023, respectively)
62 62
Additional paid-in capital 615,039 607,574
Retained earnings 1,782,187 1,761,667
Accumulated other comprehensive income (loss) 55,019 36,745
Treasury stock, at cost (556,301 and 558,412 shares held as of March 31, 2024 and December 31, 2023, respectively)
(599,433) (596,778)
Total Stockholders' Equity 1,852,874 1,809,270
Total Liabilities and Stockholders' Equity $ 6,739,237 $ 6,759,510
See accompanying notes to the condensed consolidated financial statements.
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CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
As Restated
Three Months Ended March 31,
(dollars in thousands, except per share data) 2024 2023
Revenues $ 404,312 $ 421,894
Costs and Expenses:
Operating (excluding depreciation and amortization) 106,512 112,161
Selling, general and administrative 90,390 86,745
Depreciation and amortization 85,641 85,428
(Gain) loss on asset sales and disposals, net 1,907 5,456
Total Costs and Expenses 284,450 289,790
Income from operations 119,862 132,104
Interest expense, net (35,784) (37,222)
Other income (expense), net (7,115) 1,353
Income before income taxes and equity method investment income (loss), net 76,963 96,235
Income tax provision 17,577 18,501
Income before equity method investment income (loss), net 59,386 77,734
Equity method investment income (loss), net (22,036) (31,137)
Net income $ 37,350 $ 46,597
Net Income per Common Share:
Basic $ 6.65 $ 8.15
Diluted $ 6.46 $ 7.85
Weighted Average Common Shares Outstanding:
Basic 5,618,745 5,718,745
Diluted 6,026,462 6,128,594
Unrealized gain (loss) on cash flow hedges and other, net of tax $ 18,274 $ (17,942)
Comprehensive income $ 55,624 $ 28,655
See accompanying notes to the condensed consolidated financial statements.
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CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
(Unaudited)
(dollars in thousands, except per share data) Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other
Comprehensive Gain (Loss)
Treasury Stock, at cost
Total Stockholders' Equity
Shares Amount
Balance at December 31, 2023 (Restated) 5,616,987 $ 62 $ 607,574 $ 1,761,667 $ 36,745 $ (596,778) $ 1,809,270
Net income (Restated)
- - - 37,350 - - 37,350
Unrealized gain (loss) on cash flow hedges and other, net of tax - - - - 18,274 - 18,274
Equity-based compensation - - 7,465 - - - 7,465
Issuance of equity awards, net of forfeitures 4,439 - - - - - -
Withholding tax for equity awards (2,328) - - - - (2,655) (2,655)
Dividends paid to stockholders ($2.95 per common share)
- - - (16,830) - - (16,830)
Balance at March 31, 2024 (Restated) 5,619,098 $ 62 $ 615,039 $ 1,782,187 $ 55,019 $ (599,433) $ 1,852,874
(dollars in thousands, except per share data) Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other
Comprehensive Gain (Loss)
Treasury Stock, at cost
Total Stockholders' Equity
Shares Amount
Balance at December 31, 2022 (Restated) 5,766,011 $ 62 $ 578,154 $ 1,603,345 $ 50,031 $ (494,680) $ 1,736,912
Net income (Restated)
- - - 46,597 - - 46,597
Unrealized gain (loss) on cash flow hedges and other, net of tax - - - - (17,942) - (17,942)
Equity-based compensation - - 5,585 - - - 5,585
Issuance of equity awards, net of forfeitures (6,111) - - - - - -
Repurchases of common stock (56,766) - - - - (41,751) (41,751)
Withholding tax for equity awards (3,132) - - - - (2,180) (2,180)
Dividends paid to stockholders ($2.85 per common share)
- - - (16,498) - - (16,498)
Balance at March 31, 2023 (Restated) 5,700,002 $ 62 $ 583,739 $ 1,633,444 $ 32,089 $ (538,611) $ 1,710,723
See accompanying notes to the condensed consolidated financial statements.
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CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
As Restated
Three Months Ended March 31,
(in thousands) 2024 2023
Cash flows from operating activities:
Net income $ 37,350 $ 46,597
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 85,641 85,428
Non-cash interest expense, net 2,217 2,317
Equity-based compensation 7,465 5,585
Write-off of debt issuance costs - 3,340
Change in deferred income taxes (5,751) (651)
(Gain) loss on asset sales and disposals, net 1,907 5,456
Equity method investment (income) loss, net 22,036 31,137
Fair value adjustments 7,154 (4,852)
Changes in operating assets and liabilities:
Accounts receivable, net 33,443 28,234
Prepaid and other current assets (14,211) (26,220)
Accounts payable and accrued liabilities (9,910) (14,004)
Deferred revenue (90) 648
Other (2,501) (1,228)
Net cash provided by operating activities 164,750 161,787
Cash flows from investing activities:
Capital expenditures (65,887) (96,106)
Change in accrued expenses related to capital expenditures (5,894) (4,745)
Purchase of wireless licenses (625) -
Proceeds from sales of property, plant and equipment 2,434 137
Net cash used in investing activities (69,972) (100,714)
Cash flows from financing activities:
Proceeds from long-term debt borrowings - 638,000
Payment of debt issuance costs - (7,898)
Payments on long-term debt (54,849) (643,164)
Repurchases of common stock - (41,751)
Payment of withholding tax for equity awards (2,655) (2,180)
Dividends paid to stockholders (16,830) (16,498)
Net cash used in financing activities (74,334) (73,491)
Change in cash and cash equivalents 20,444 (12,418)
Cash and cash equivalents, beginning of period 190,289 215,150
Cash and cash equivalents, end of period $ 210,733 $ 202,732
Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest $ 32,842 $ 33,914
Cash paid for income taxes, net of refunds received $ 26,399 $ 43,386
See accompanying notes to the condensed consolidated financial statements.
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CABLE ONE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (AS RESTATED)
Description of Business.Cable One is a fully integrated provider of data, video and voice services to residential and business customers in 24 Western, Midwestern and Southern U.S. states. As of March 31, 2024, Cable One provided services to approximately 1.1 million residential and business customers, of which approximately 1,066,000 subscribed to data services, 133,000 subscribed to video services and 115,000 subscribed to voice services.
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 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 2023 Form 10-K/A.
The December 31, 2023 year-end balance sheet data presented herein was derived from the Company's audited consolidated financial statements included in the 2023 Form 10-K/A, but does not include all disclosures required by GAAP. The Company's interim results of operations may not be indicative of its future results.
Certain reclassifications have been made to prior period amounts to conform to the current year presentation. Refer to note 13 for further details.
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.
Restatement.The Company amends and restates its condensed consolidated financial statements due to an error in the equity method accounting for its partial ownership of Clearwave Fiber. Refer to note 4 for additional information on this investment. Specifically, the Company did not appropriately allocate the losses generated by Clearwave Fiber amongst the joint venture partners after considering the liquidation preference and preferred return feature held by the third-party investors. As a result, equity method investment loss was understated, income tax provision was overstated and net income was overstated in the Company's condensed consolidated statements of operations and comprehensive income, which had a corresponding impact on the related consolidated balance sheet and consolidated statement of stockholders' equity items. There was no impact to the Company's condensed consolidated statement of cash flows except for the presentation of net income offset by the respective adjustments to reconcile net income to net cash provided by operating activities.
The impact of the correction of the error on the condensed consolidated financial statements as of and for the three months ended March 31, 2024 and 2023 is as follows:
Condensed Consolidated Balance Sheets
As of March 31, 2024
(dollars in thousands) As Reported Adjustment As Restated
Equity investments $ 1,117,220 $ (100,946) $ 1,016,274
Total assets $ 6,840,183 $ (100,946) $ 6,739,237
Deferred income taxes $ 978,032 $ (27,079) $ 950,953
Total liabilities $ 4,913,442 $ (27,079) $ 4,886,363
Retained earnings $ 1,856,054 $ (73,867) $ 1,782,187
Total stockholders' equity $ 1,926,741 $ (73,867) $ 1,852,874
Total liabilities and stockholders' equity $ 6,840,183 $ (100,946) $ 6,739,237
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As of March 31, 2023
(dollars in thousands) As Reported Adjustment As Restated
Equity investments $ 1,191,217 $ (42,366) $ 1,148,851
Total assets $ 6,879,347 $ (42,366) $ 6,836,981
Deferred income taxes $ 964,553 $ (10,476) $ 954,077
Total liabilities $ 5,136,734 $ (10,476) $ 5,126,258
Retained earnings $ 1,665,334 $ (31,890) $ 1,633,444
Total stockholders' equity $ 1,742,613 $ (31,890) $ 1,710,723
Total liabilities and stockholders' equity $ 6,879,347 $ (42,366) $ 6,836,981
Condensed Consolidated Statements of Operations and Comprehensive Income
Three Months Ended March 31, 2024
(dollars in thousands, except per share data) As Reported Adjustment As Restated
Income tax provision $ 21,108 $ (3,531) $ 17,577
Income before equity method investment income (loss), net $ 55,855 $ 3,531 $ 59,386
Equity method investment income (loss), net $ (8,513) $ (13,523) $ (22,036)
Net income $ 47,342 $ (9,992) $ 37,350
Comprehensive income $ 65,616 $ (9,992) $ 55,624
Net Income per Common Share:
Basic $ 8.43 $ (1.78) $ 6.65
Diluted $ 8.11 $ (1.65) $ 6.46
Three Months Ended March 31, 2023
(dollars in thousands, except per share data) As Reported Adjustment As Restated
Income tax provision $ 22,295 $ (3,794) $ 18,501
Income before equity method investment income (loss), net $ 73,940 $ 3,794 $ 77,734
Equity method investment income (loss), net $ (16,514) $ (14,623) $ (31,137)
Net income $ 57,426 $ (10,829) $ 46,597
Comprehensive income $ 39,484 $ (10,829) $ 28,655
Net Income per Common Share:
Basic $ 10.04 $ (1.89) $ 8.15
Diluted $ 9.62 $ (1.77) $ 7.85
Condensed Consolidated Statements of Stockholders' Equity
As of and For the Three Months Ended March 31, 2024
(dollars in thousands) As Reported
Adjustment
As Restated
Net income $ 47,342 $ (9,992) $ 37,350
Retained earnings $ 1,856,054 $ (73,867) $ 1,782,187
Total stockholders' equity $ 1,926,741 $ (73,867) $ 1,852,874
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As of and For the Three Months Ended March 31, 2023
(dollars in thousands) As Reported
Adjustment
As Restated
Net income $ 57,426 $ (10,829) $ 46,597
Retained earnings $ 1,665,334 $ (31,890) $ 1,633,444
Total stockholders' equity $ 1,742,613 $ (31,890) $ 1,710,723
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2024
(dollars in thousands) As Reported
Adjustment
As Restated
Net income $ 47,342 $ (9,992) $ 37,350
Change in deferred income taxes $ (2,220) $ (3,531) $ (5,751)
Equity method investment (income) loss, net $ 8,513 $ 13,523 $ 22,036
Net cash provided by operating activities $ 164,750 $ - $ 164,750
Three Months Ended March 31, 2023
(dollars in thousands) As Reported
Adjustment
As Restated
Net income $ 57,426 $ (10,829) $ 46,597
Change in deferred income taxes $ 3,143 $ (3,794) $ (651)
Equity method investment (income) loss, net $ 16,514 $ 14,623 $ 31,137
Net cash provided by operating activities $ 161,787 $ - $ 161,787
The following footnotes have been updated to reflect the restated amounts:
•Note 1. "Description of Business and Basis of Presentation"
•Note 4. "Equity Investments"
•Note 12. "Income Taxes"
•Note 14. "Net Income Per Common Share"
Segment Reporting. Accounting Standards Codification 280 - Segment Reportingrequires the disclosure of factors used to identify an entity's reportable segments. Based on the Company's chief operating decision maker's review and assessment of the Company's operating performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions to allocate resources and deploy capital, are organized and managed on a consolidated basis. Accordingly, management has identified one operating segment, which is its reportable segment, under this organizational and reporting structure.
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 Issued But Not Yet Adopted Accounting Pronouncements. In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires additional disclosures around tax rate reconciliations, income taxes payments and other tax-related information. The ASU is effective for annual periods beginning after December 15, 2024 and can be applied on either a prospective or retrospective basis. The Company currently plans to adopt ASU 2023-09 in the first quarter of 2025 on a prospective basis and expects the adoption of the updated guidance to result in the additional disaggregation of certain tax information within the Company's income tax footnote disclosure.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting. The ASU requires additional disclosures regarding a reportable segment's financial information in which the reportable segment is regularly provided to the chief operating decision marker. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods
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beginning after December 15, 2024. The Company currently plans to adopt ASU 2023-07 in the first quarter of 2025 on a retrospective basis and expects the adoption of the updated guidance to result in additional segment-related footnote disclosures within the notes to the consolidated financial statements.
2. REVENUES
Revenues by product line and other revenue-related disclosures were as follows (in thousands):
Three Months Ended March 31,
2024 2023
Residential:
Data $ 235,820 $ 242,697
Video 60,358 70,286
Voice 8,561 9,748
Business:
Data 56,640 54,606
Other 19,185 21,654
Other 23,748 22,903
Total revenues $ 404,312 $ 421,894
Franchise and other regulatory fees $ 6,391 $ 7,101
Deferred commission amortization $ 1,496 $ 1,303
Business other revenues include business video, voice and other ancillary service revenues. Other revenues are comprised primarily of regulatory revenues, advertising sales, late charges and reconnect fees.
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. 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.
Deferred commission amortization expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Current deferred revenue liabilities consist of refundable customer prepayments, up-front charges and installation fees. As of March 31, 2024, 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 $27.2 million of current deferred revenue at December 31, 2023, $21.6 million was recognized during the three months ended March 31, 2024. Noncurrent deferred revenue liabilities consist of up-front charges and installation fees from business customers.
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3. OPERATING ASSETS AND LIABILITIES
Accounts receivable consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Trade receivables $ 48,689 $ 72,076
Other receivables(1)
16,283 26,006
Less: Allowance for credit losses (4,442) (4,109)
Total accounts receivable, net $ 60,530 $ 93,973
(1)Balances include amounts due from Clearwave Fiber for services provided under a transition services agreement of $3.8 million and $3.7 million as of March 31, 2024 and December 31, 2023, respectively. The balances also include $7.4 million and $11.4 million of receivables from the federal government under the Secure and Trusted Communications Networks Reimbursement Program as of March 31, 2024 and December 31, 2023, respectively.
The changes in the allowance for credit losses were as follows (in thousands):
Three Months Ended March 31,
2024 2023
Beginning balance $ 4,109 $ 3,191
Additions - charged to costs and expenses 2,652 2,491
Deductions - write-offs (3,763) (3,451)
Recoveries collected 1,444 1,494
Ending balance $ 4,442 $ 3,725
Prepaid and other current assets consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Prepaid repairs and maintenance $ 14,084 $ 2,596
Software implementation costs 2,186 1,812
Prepaid insurance 2,145 3,507
Prepaid rent 3,546 2,227
Prepaid software 10,280 9,762
Deferred commissions 5,461 5,371
Interest rate swap asset 28,226 24,511
Prepaid income tax payments 5,963 5,470
All other current assets 4,151 2,860
Total prepaid and other current assets $ 76,042 $ 58,116
Other noncurrent assets consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Operating lease right-of-use assets $ 9,704 $ 10,650
Deferred commissions 9,891 9,793
Software implementation costs 7,548 7,115
Debt issuance costs 2,901 3,087
Debt investment 2,261 2,228
Assets held for sale - 889
Interest rate swap asset 44,797 24,453
All other noncurrent assets 4,793 4,934
Total other noncurrent assets $ 81,895 $ 63,149
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Accounts payable and accrued liabilities consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Accounts payable $ 37,280 $ 45,025
Accrued programming costs 17,691 18,453
Accrued compensation and related benefits 19,410 20,149
Accrued sales and other operating taxes 11,764 14,518
Accrued franchise fees 2,521 2,952
Deposits 6,025 5,954
Operating lease liabilities 3,139 3,391
Accrued insurance costs 5,160 5,167
Cash overdrafts 6,542 12,058
Interest payable 12,294 6,340
Income taxes payable - 2,579
All other accrued liabilities 18,763 20,059
Total accounts payable and accrued liabilities $ 140,589 $ 156,645
Other noncurrent liabilities consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Operating lease liabilities $ 6,104 $ 6,768
Accrued compensation and related benefits 8,362 8,847
Deferred revenue 13,831 15,066
MBI Net Option (as defined in note 4)(1)
143,560 136,360
All other noncurrent liabilities 2,751 2,515
Total other noncurrent liabilities $ 174,608 $ 169,556
(1)Represents the net value of the Company's call and put options associated with the remaining equity interests in MBI (as defined in note 4), consisting of liabilitiesof $25.3 million and $118.3 million, respectively, as of March 31, 2024 and liabilities of $15.2 million and $121.2 million, respectively, as of December 31, 2023. Refer to notes 4 and 9 for further information on the MBI Net Option (as defined in note 4).
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4. EQUITY INVESTMENTS (AS RESTATED)
The carrying value of the Company's equity investments consisted of the following (dollars in thousands):
As Restated
March 31, 2024 December 31, 2023
Ownership Percentage Carrying Value Ownership Percentage Carrying Value
Cost Method Investments
MetroNet(1)
<10% $ 7,000 <10% $ 7,000
Nextlink(2)
<20% 77,245 <20% 77,245
Point Broadband(3)
<10% 42,623 <10% 42,623
Visionary(4)
<10% 8,822 <10% 8,822
Ziply(5)
<10% 50,000 <10% 50,000
Others <10% 14,212 <10% 13,926
Total cost method investments $ 199,902 $ 199,616
Equity Method Investments
Clearwave Fiber(6)
~57%(7)
$ 250,732
~58%(7)
$ 272,453
MBI(8)
45% 565,640 45% 565,955
Total equity method investments
$ 816,372 $ 838,408
Total equity investments $ 1,016,274 $ 1,038,024
(1)MetroNet Systems, LLC, a fiber internet service provider ("MetroNet").
(2)AMG Technology Investment Group, LLC, a wireless internet service provider ("Nextlink").
(3)Point Broadband Holdings, LLC, a fiber internet service provider ("Point Broadband").
(4)Visionary Communications, Inc., an internet service provider ("Visionary").
(5)Northwest Fiber Holdco., LLC, a fiber internet service provider ("Ziply").
(6)A joint venture transaction in which the Company contributed certain fiber operations (including certain fiber assets of Hargray and a majority of the operations of Delta Communications, LLC) and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber.
(7)Represents the Company's percentage ownership of the total outstanding equity units in Clearwave Fiber. The Company's ownership interest in Clearwave Fiber is in the form of common equity units and the ownership interest in Clearwave Fiber of the unaffiliated third-party investors is in the form of convertible preferred equity units. The convertible preferred equity units held by the unaffiliated third-party investors are subject to a specified preferred return in relation to the common equity units held by the Company. As a result of the economic and other attributes of the various classes of equity units in Clearwave Fiber, the Company's percentage ownership of the total outstanding equity units in Clearwave Fiber may differ from its economic interest in Clearwave Fiber.
(8)The Company holds a call option to purchase all but not less than all of the remaining equity interests in Mega Broadband Investments Holdings LLC, a data, video and voice services provider ("MBI") that the Company does not already own between January 1, 2023 and June 30, 2024. Certain investors in MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the "MBI Net Option") are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI's equity value, MBI's and the Company's equity volatility, MBI's and the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA" and as adjusted, "Adjusted EBITDA") volatility, risk adjusted discount rates and the Company's cost of debt, among others. The final MBI purchase price allocation resulted in $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option liability was $143.6 million and $136.4 million as of March 31, 2024 and December 31, 2023, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 9 for further information on the MBI Net Option.
The carrying value of MBI exceeded the Company's underlying equity in MBI's net assets by $486.8 million and $487.5 million as of March 31, 2024 and December 31, 2023, respectively.
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Equity method investment income (losses), which increase (decrease) the carrying value of the respective investment, and are recorded on a one quarter lag, along with certain other operating information, were as follows (in thousands):
As Restated
Three Months Ended March 31,
2024 2023
Equity Method Investment Income (Losses)
Clearwave Fiber $ (21,721) $ (28,854)
MBI(1)
(315) (2,403)
Wisper(2)
- 120
Total $ (22,036) $ (31,137)
Other Income (Expense), Net
Mark-to-market adjustments(3)
$ 46 $ 12,833
MBI Net Option change in fair value $ (7,200) $ (7,980)
(1)The Company identified a $186.6 million difference between the fair values of certain of MBI's finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company's 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended March 31, 2024, the Company recognized $2.2 million of its proportionate share of MBI's net income and $2.5 million of its proportionate share of basis difference amortization. For the three months ended March 31, 2023, the Company recognized $0.8 million of its proportionate share of MBI's net income and $3.2 million of its proportionate share of basis difference amortization.
(2)Wisper ISP, LLC, a wireless internet service provider ("Wisper"). In July 2023, the Company redeemed its equity investment in Wisper.
(3)The amount for the three months ended March 31, 2023 included a $12.3 million non-cash mark-to-market gain on the Company's investment in Point Broadband as a result of an observable market transaction in Point Broadband's equity.
The carrying value of the Company's equity investments without readily determinable fair values are determined based on fair valuations as of their respective acquisition dates. The Company assesses each equity investment for indicators of impairment on a quarterly basis. No impairments were recorded for any of the periods presented.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Cable distribution systems $ 2,522,275 $ 2,491,903
Customer premise equipment 393,625 380,820
Other equipment and fixtures 375,261 376,847
Buildings and improvements 139,993 140,063
Capitalized software 74,470 70,928
Construction in progress 170,219 188,774
Land 16,564 13,641
Right-of-use assets 10,599 10,789
Property, plant and equipment, gross 3,703,006 3,673,765
Less: Accumulated depreciation and amortization (1,918,159) (1,882,645)
Property, plant and equipment, net $ 1,784,847 $ 1,791,120
The Company classified $0.9 million of property, plant and equipment as held for sale as of December 31, 2023. Such assets are included within other noncurrent assets in the condensed consolidated balance sheet. These assets were sold during the three months ended March 31, 2024 for total proceeds of $2.3 million, resulting in the recognition of a $1.4 million gain on the sale.
Depreciation and amortization expense for property, plant and equipment was $69.1 million and $67.3 million for the three months ended March 31, 2024 and 2023, respectively.
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6. GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill was $928.9 million as of both March 31, 2024 and December 31, 2023. The Company has not historically recorded any impairment of goodwill.
Intangible assets consisted of the following (dollars in thousands):
March 31, 2024 December 31, 2023
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
Customer relationships
13.5 - 17
$ 784,381 $ 311,717 $ 472,664 $ 784,381 $ 295,817 $ 488,564
Trademarks and trade names
2.7 - 4.2
11,846 9,309 2,537 11,846 8,782 3,064
Wireless licenses
10 - 15
4,794 572 4,222 4,169 451 3,718
Total finite-lived intangible assets $ 801,021 $ 321,598 $ 479,423 $ 800,396 $ 305,050 $ 495,346
Indefinite-Lived Intangible Assets
Franchise agreements $ 2,100,546 $ 2,100,546
Total intangible assets, net $ 2,579,969 $ 2,595,892
Intangible asset amortization expense was $16.5 million and $18.2 million for the three months ended March 31, 2024 and 2023, respectively.
The future amortization of existing finite-lived intangible assets as of March 31, 2024 was as follows (in thousands):
Year Ending December 31, Amount
2024 (remaining nine months) $ 49,628
2025 61,182
2026 55,668
2027 51,787
2028 48,188
Thereafter 212,970
Total $ 479,423
Actual amortization expense in future periods may differ from the amounts above as a result of intangible asset acquisitions or divestitures, changes in useful life estimates, impairments or other relevant factors.
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7. DEBT
The carrying amount of long-term debt consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Senior Credit Facilities (as defined below) $ 2,050,787 $ 2,105,348
Senior Notes (as defined below) 650,000 650,000
Convertible Notes (as defined below) 920,000 920,000
Finance lease liabilities 4,873 5,160
Total debt 3,625,660 3,680,508
Less: Unamortized debt discount (10,956) (12,025)
Less: Unamortized debt issuance costs (21,570) (22,532)
Less: Current portion of long-term debt (19,018) (19,023)
Total long-term debt $ 3,574,116 $ 3,626,928
Senior Credit Facilities.Prior to February 22, 2023, the Company had in place the third amended and restated credit agreement among the Company and its lenders, dated as of October 30, 2020 (as amended prior to February 22, 2023, the "Credit Agreement") that provided for senior secured term loans in original aggregate principal amounts of $700.0 million maturing in 2025 (the "Term Loan A-2"), $250.0 million maturing in 2027 (the "Term Loan B-2"), $625.0 million maturing in 2027 (the "Term Loan B-3") and $800.0 million maturing in 2028 (the "Term Loan B-4"), as well as a $500.0 million revolving credit facility maturing in 2025 (the "Revolving Credit Facility" and, together with the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 and the Term Loan B-4, the "Senior Credit Facilities"). The Revolving Credit Facility also gives the Company the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.
On February 22, 2023, the Company entered into the fourth amended and restated credit agreement with its lenders to amend and restate the Credit Agreement (as amended and restated, the "New Credit Agreement") to, among other things, (i) increase the aggregate principal amount of commitments under the Revolving Credit Facility by $500.0 million to $1.0 billion; (ii) extend the scheduled maturity of the Revolving Credit Facility from October 2025 to February 2028; (iii) upsize the outstanding principal amount under the Term Loan B-3 by $150.0 million to $757.0 million (the "TLB-3 Upsize"); (iv) extend the scheduled maturities of the Term Loan B-2 and the Term Loan B-3 from October 2027 to October 2029 (subject to adjustment as described in the notes to the table below summarizing the Company's outstanding term loans as of March 31, 2024); (v) increase the fixed spreads on the Term Loan B-2 and the Term Loan B-3 from 2.00% to 2.25%; and (vi) transition the benchmark interest rate for the Revolving Credit Facility, the Term Loan B-2 and the Term Loan B-3 from LIBOR to SOFR plus a 10 basis point credit spread adjustment. Except as described above, the New Credit Agreement did not make any material changes to the principal terms of the Term Loan B-2, the Term Loan B-3, the Term Loan B-4 or the Revolving Credit Facility. Upon the effectiveness of the New Credit Agreement, the Company drew $488.0 million under the Revolving Credit Facility and, together with the net proceeds from the TLB-3 Upsize, repaid all $638.3 million aggregate principal amount of its outstanding Term Loan A-2. In July 2023, the Company transitioned the benchmark interest rate for the Term Loan B-4 from LIBOR to SOFR plus a credit spread adjustment that ranges from approximately 11.4 basis points to 42.8 basis points based on the interest period elected.
As of March 31, 2024, the interest margins applicable to the Senior Credit Facilities are, at the Company's option, equal to either SOFR or a base rate, plus an applicable margin equal to, (i) with respect to the Revolving Credit Facility, 1.25% to 1.75% plus a 10 basis point credit spread adjustment for SOFR 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 (as defined in the New Credit Agreement), (ii) with respect to the Term Loan B-2 and the Term Loan B-3, 2.25% plus a 10 basis point credit spread adjustment for SOFR loans and 1.25% for base rate loans and (iii) with respect to the Term Loan B-4, 2.0% plus an approximately 11.4 to 42.8 basis point credit spread adjustment based on the interest period elected for SOFR loans and 1.0% for base rate loans.
The Company repaid $150.0 million of the outstanding Revolving Credit Facility borrowings during 2023. In February 2024, the Company repaid an additional $50.0 million of the outstanding Revolving Credit Facility borrowings, reducing the outstanding balance to $288.0 million as of March 31, 2024.
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Refer to the table below summarizing the Company's outstanding term loans as of March 31, 2024 and note 11 to the Company's audited consolidated financial statements included in our 2023 Form 10-K/A for further details on the Senior Credit Facilities.
As of March 31, 2024, the Company had approximately $1.8 billionof aggregate outstanding term loans and $288.0 million of borrowings and $712.0 million available for borrowing under the Revolving Credit Facility. A summary of the Company's outstanding term loans as of March 31, 2024 is as follows (dollars in thousands):
Instrument
Draw Date(s)
Original Principal
Amortization
Per Annum(1)
Outstanding Principal
Final Scheduled
Maturity Date
Final Scheduled
Principal Payment
Benchmark Rate
Fixed Margin
Interest Rate
Term Loan B-2 1/7/2019 $ 250,000 1.0% $ 237,500
10/30/2029(2)
$ 223,750 SOFR + 10.0 bps 2.25% 7.68%
Term Loan B-3
6/14/2019
10/30/2020
2/22/2023
325,000
300,000
150,000
1.0% 747,287
10/30/2029(2)
704,695 SOFR + 10.0 bps 2.25% 7.68%
Term Loan B-4 5/3/2021 800,000 1.0% 778,000 5/3/2028 746,000 SOFR + 11.4 bps 2.00% 7.44%
Total $ 1,825,000 $ 1,762,787 $ 1,674,445
(1)Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary SOFR breakage provisions).
(2)The final maturity date of the Term Loan B-2 and the Term Loan B-3, in each case, will adjust to May 3, 2028 if greater than $150.0 million aggregate principal amount of the Term Loan B-4 (together with any refinancing indebtedness in respect of the Term Loan B-4 with a final maturity date prior to the date that is 91 days after October 30, 2029) remains outstanding on May 3, 2028.
Senior Notes.In November 2020, the Company issued $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the "Senior Notes"). The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the "Senior Notes Indenture"), among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. ("BNY"), as trustee.
At any time and from time to time prior to November 15, 2025, the Company may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of their principal amount, plus the "make-whole" premium described in the Senior Notes Indenture and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, the Company may redeem some or all of the Senior Notes at any time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, the Company may redeem up to 40% of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash proceeds from one or more equity offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.
Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), the Company is required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
Convertible Notes.In March 2021, the Company issued $575.0 million aggregate principal amount of 0.000% convertible senior notes due 2026 (the "2026 Notes") and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the "2028 Notes" and, together with the 2026 Notes, the "Convertible Notes," and the Convertible Notes collectively with the Senior Notes, the "Notes"). The terms of the 2026 Notes and the 2028 Notes are each governed by a separate indenture dated as of March 5, 2021 (collectively, the "Convertible Notes Indentures" and together with the Senior Notes Indenture, the "Indentures"), in each case, among the Company, the guarantors party thereto and BNY, as trustee.
The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of the Company's common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock).
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The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of the Company's common stock or a combination thereof is at the election of the Company. Prior to the close of business on the business day immediately preceding December 15, 2025, the 2026 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2025, holders may convert their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. Prior to the close of business on the business day immediately preceding December 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2027, holders may convert their 2028 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. If the Company undergoes a "fundamental change" (as defined in the applicable Convertible Notes Indenture), holders of the applicable series of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes of such series at a purchase price equal to 100% of the principal amount of the Convertible Notes of such series to be repurchased, plus accrued and unpaid interest to, but not including, the fundamental change repurchase date.
The Company may not redeem the 2026 Notes prior to March 20, 2024 and it may not redeem the 2028 Notes prior to March 20, 2025. No "sinking fund" is provided for the Convertible Notes. On or after March 20, 2024 and prior to December 15, 2025, the Company may redeem for cash all or any portion of the 2026 Notes, at its option, and on or after March 20, 2025 and prior to December 15, 2027, the Company may redeem for cash all or any portion of the 2028 Notes, at its option, in each case, if the last reported sale price per share of common stock has been at least 130% of the conversion price for such series of Convertible Notes then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Convertible Notes of such series to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.
In addition, following a "make-whole fundamental change" (as defined in the applicable Convertible Notes Indenture) or if the Company delivers a notice of redemption in respect of any Convertible Notes of a series, in certain circumstances, the conversion rate applicable to such series of Convertible Notes will be increased for a holder who elects to convert any of such Convertible Notes in connection with such a make-whole fundamental change or convert any of such Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.
The carrying amounts of the Convertible Notes consisted of the following (in thousands):
March 31, 2024 December 31, 2023
2026 Notes 2028 Notes Total 2026 Notes 2028 Notes Total
Gross carrying amount $ 575,000 $ 345,000 $ 920,000 $ 575,000 $ 345,000 $ 920,000
Less: Unamortized discount (5,862) (5,094) (10,956) (6,610) (5,415) (12,025)
Less: Unamortized debt issuance costs (160) (144) (304) (180) (153) (333)
Net carrying amount $ 568,978 $ 339,762 $ 908,740 $ 568,210 $ 339,432 $ 907,642
Interest expense on the Convertible Notes consisted of the following (dollars in thousands):
Three Months Ended March 31,
2024 2023
2026 Notes 2028 Notes Total 2026 Notes 2028 Notes Total
Contractual interest expense $ - $ 970 $ 970 $ - $ 970 $ 970
Amortization of discount 748 321 1,069 740 318 1,058
Amortization of debt issuance costs 20 9 29 20 9 29
Total interest expense $ 768 $ 1,300 $ 2,068 $ 760 $ 1,297 $ 2,057
Effective interest rate 0.5 % 1.5 % 0.5 % 1.5 %
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General.The Notes are senior unsecured obligations of the Company and are guaranteed by the Company's wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain capital market debt of the Company in an aggregate principal amount in excess of $250.0 million.
Each Indenture contains covenants that, among other things and subject to certain exceptions, limit (i) the Company's ability to consolidate or merge with or into another person or sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) and (ii) the ability of the guarantors to consolidate with or merge with or into another person. The Senior Notes Indenture also contains a covenant that, subject to certain exceptions, limits the Company's ability and the ability of its subsidiaries to incur any liens securing indebtedness for borrowed money.
Each Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, default in payment of principal or interest, breach of other agreements or covenants in respect of the relevant Notes by the Company or any guarantors, failure to pay certain other indebtedness at final maturity, acceleration of certain indebtedness prior to final maturity, failure to pay certain final judgments, failure of certain guarantees to be enforceable and certain events of bankruptcy, insolvency or reorganization; and, in the case of each Convertible Notes Indenture, failure to comply with the Company's obligation to convert the relevant Convertible Notes under the applicable Convertible Notes Indenture and failure to give a fundamental change notice or a notice of a make-whole fundamental change under the applicable Convertible Notes Indenture.
Unamortized debt issuance costs consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Revolving Credit Facility portion:
Other noncurrent assets $ 2,901 $ 3,087
Term loans and Notes portion:
Long-term debt (contra account) 21,570 22,532
Total $ 24,471 $ 25,619
The Company recorded debt issuance cost amortization of $1.1 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively, within interest expense in the condensed consolidated statements of operations and comprehensive income. The Company capitalized $7.7 million and wrote-off $3.3 million of debt issuance costs during the three months ended March 31, 2023 in connection with the entry into the New Credit Agreement.
The future maturities of outstanding borrowings as of March 31, 2024 were as follows (in thousands):
Year Ending December 31, Amount
2024 (remaining nine months) $ 13,683
2025 18,244
2026 593,244
2027 18,244
2028 1,391,244
Thereafter 1,586,128
Total $ 3,620,787
The Company has entered into a letter of credit agreement with MUFG Bank, Ltd. ("MUFG") which provides for an additional $75.0 millionletter of credit issuing capacity. As of March 31, 2024, $10.5 million of letters of credit issuances 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 1.00% per annum.
The Company was in compliance with all debt covenants as of March 31, 2024.
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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 rates on its variable rate SOFR debt. Changes in the fair values of the interest rate swaps are reported through other comprehensive income 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 to interest expense.
A summary of the significant terms of the 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(2)
3/7/2019 3/11/2019 3/11/2029 $ 850,000 Receive one-month SOFR, pay fixed Monthly 2.595%
Swap B(3)
3/6/2019 6/15/2020 2/28/2029 350,000 Receive one-month SOFR, pay fixed Monthly 2.691%
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.
(2)Swap A was amended effective February 28, 2023 to transition the reference rate from LIBOR to SOFR, resulting in the fixed base rate changing from 2.653% to 2.595%.
(3)Swap B was amended effective March 1, 2023 to transition the reference rate from LIBOR to SOFR, resulting in the fixed base rate changing from 2.739% to 2.691%.
The combined fair values of the Company's interest rate swaps are reflected within the condensed consolidated balance sheets as follows (in thousands):
March 31, 2024 December 31, 2023
Assets:
Current portion:
Prepaid and other current assets $ 28,226 $ 24,511
Noncurrent portion:
Other noncurrent assets 44,797 24,453
Total interest rate swap asset $ 73,023 $ 48,964
Stockholders' Equity:
Accumulated other comprehensive income $ 55,210 $ 36,936
The combined effect of the Company's interest rate swaps on the condensed consolidated statements of operations and comprehensive income was as follows (in thousands):
Three Months Ended March 31,
2024 2023
Interest (income) expense $ (8,243) $ (5,644)
Unrealized gain (loss) on cash flow hedges, gross $ 24,059 $ (23,352)
Less: Tax effect (5,785) 5,410
Unrealized gain (loss) on cash flow hedges, net of tax $ 18,274 $ (17,942)
The Company does not hold any derivative instruments for speculative trading purposes.
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9. FAIR VALUE MEASUREMENTS
Financial Assets and Liabilities. The Company has estimated the fair values of its financial instruments as of March 31, 2024 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 March 31, 2024 were as follows (in thousands):
March 31, 2024
Carrying Amount
Fair Value
Fair Value Hierarchy
Assets:
Cash and cash equivalents:
Money market investments $ 126,317 $ 126,317 Level 1
Other noncurrent assets (including current portion):
Interest rate swap asset $ 73,023 $ 73,023 Level 2
Liabilities:
Long-term debt (including current portion):
Term loans $ 1,762,787 $ 1,749,566 Level 2
Revolving Credit Facility $ 288,000 $ 285,120 Level 2
Senior Notes $ 650,000 $ 505,375 Level 2
Convertible Notes $ 920,000 $ 763,600 Level 2
Other noncurrent liabilities:
MBI Net Option $ 143,560 $ 143,560 Level 3
Money market investments are held primarily in U.S. Treasury securities and registered money market funds and are valued using a market approach based on quoted market prices (level 1). Money market investments with original maturities of three months or less are included within cash and cash equivalents in the condensed consolidated balance sheets. 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 2). The fair value of the term loans, Revolving Credit Facility, Senior Notes and Convertible Notes are estimated based on market prices for similar instruments in active markets (level 2). The fair value of the MBI Net Option is measured using Monte Carlo simulations that use inputs considered unobservable and significant to the fair value measurement (level 3).
The assumptions used to determine the fair value of the MBI Net Option consisted of the following:
March 31, 2024 December 31, 2023
Cable One MBI Cable One MBI
Equity volatility 41.0 % 29.0 % 40.0 % 30.0 %
EBITDA volatility 10.0 % 10.0 % 10.0 % 10.0 %
EBITDA risk-adjusted discount rate 8.0 % 8.5 % 7.5 % 8.5 %
Cost of debt 9.5 % 8.5 %
The Company regularly evaluates each of the assumptions used in establishing the fair value of the MBI Net Option. Significant changes in any of these assumptions could result in a significantly lower or higher fair value measurement. A change in one of these assumptions is not necessarily accompanied by a change in another assumption. Refer to note 4 for further information on the MBI Net Option.
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.
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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. Assets acquired, including identifiable intangible assets and goodwill, and liabilities assumed in acquisitions are recorded at fair value on the respective acquisition dates, subject to potential future measurement period adjustments. Nonfinancial assets are subject to fair value adjustments when there is evidence that impairment may exist. No material impairments were recorded during the three months ended March 31, 2024 or 2023.
10. STOCKHOLDERS'EQUITY
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 556,301 held at March 31, 2024 include shares repurchased under the Company's share repurchase programs and shares withheld for withholding tax, as described below.
Share Repurchase Program.On May 20, 2022, the Company's board of directors (the "Board") authorized up to $450.0 million of share repurchases (with no cap as to the number of shares of common stock) (the "Share Repurchase Program"). The Company had $143.1 million of remaining share repurchase authorization under the Share Repurchase Program as of March 31, 2024. Additional 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 Company first became publicly traded in 2015 through March 31, 2024, the Company has repurchased 646,244 shares of its common stock at an aggregate cost of $556.9 million. The Company did not repurchase any of its common stock during the three months ended March 31, 2024.
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 cover the applicable statutory minimum amount of employee withholding taxes, which the Company then pays to the taxing authorities in cash. The amounts remitted during the three months ended March 31, 2024 and 2023 were $2.7 million and $2.2 million, for which the Company withheld 2,328 and 3,132 shares of common stock, respectively.
11. EQUITY-BASED COMPENSATION
Our stockholders approved the Cable One, Inc. 2022 Omnibus Incentive Compensation Plan (the "2022 Plan") at the annual meeting of stockholders held May 20, 2022. The 2022 Plan provides for grants of incentive stock options, non-qualified stock options, restricted stock awards, SARs, restricted stock units ("RSUs"), performance restricted stock units ("PRSUs"), cash-based awards, performance-based awards, dividend equivalent units ("DEUs" and, together with restricted stock awards, RSUs and PRSUs, "Restricted Stock") and other stock-based awards, including deferred stock units and superseded and replaced the Amended and Restated Cable One, Inc. 2015 Omnibus Incentive Compensation Plan. Directors, officers, employees and consultants of the Company are eligible for grants under the 2022 Plan as part of the Company's long-term incentive compensation programs. At March 31, 2024, 334,922 shares were available for issuance under the 2022 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. The Company's equity-based compensation expense, included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income, was as follows (in thousands):
Three Months Ended March 31,
2024 2023
Restricted Stock $ 7,303 $ 5,210
SARs 162 375
Total $ 7,465 $ 5,585
The Company recognized excess tax shortfalls of $1.5 million and $1.2 million during the three months ended March 31, 2024 and 2023, respectively. The deferred tax asset related to all outstanding equity-based awards was $5.0 million and $7.4 million as of March 31, 2024 and December 31, 2023, respectively.
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Restricted Stock. A summary of Restricted Stock activity during the three months ended March 31, 2024 is as follows:
Restricted Stock
Weighted Average Grant Date
Fair Value Per Share
Outstanding as of December 31, 2023 91,432 $ 952.33
Granted 89,108 $ 578.96
Forfeited (3,545) $ 868.74
Vested and issued (14,806) $ 1,378.88
Outstanding as of March 31, 2024 162,189 $ 710.09
Vested and deferred as of March 31, 2024 5,781 $ 861.58
At March 31, 2024, there was $59.7 million of unrecognized compensation expense related to Restricted Stock, which is expected to be recognized over a weighted average period of 2.0 years.
The significant inputs and resulting weighted average grant date fair value for market-based award grants were as follows:
2024 2023
Risk-free interest rate 4.0 % 4.1 %
Expected volatility 35.4 % 39.1 %
Simulation term (in years) 2.99 years 2.99 years
Weighted average grant date fair value $ 603.73 $ 774.30
Stock Appreciation Rights. A summary of SARs activity during the three months ended March 31, 2024 is as follows:
Stock Appreciation Rights
Weighted Average Exercise Price
Weighted Average Grant Date
Fair Value
Aggregate Intrinsic Value
(in thousands)
Weighted Average
Remaining Contractual Term
(in years)
Outstanding as of December 31, 2023 35,491 $ 1,093.30 $ 269.69 $ - 5.1
Forfeited (500) $ 1,540.92 $ 373.12
Outstanding as of March 31, 2024 34,991 $ 1,086.91 $ 268.22 $ - 4.8
Exercisable as of March 31, 2024 31,491 $ 1,000.62 $ 243.29 $ - 4.6
At March 31, 2024, there was $1.0 million of unrecognized compensation expense related to SARs, which is expected to be recognized over a weighted average period of 0.7 years.
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12. INCOME TAXES (AS RESTATED)
The Company's effective tax rate was 22.8% and 19.2% for the three months ended March 31, 2024 and 2023, respectively. The increase in the effective tax rate was due primarily to a decrease in income tax benefits of $2.5 million resulting from lower equity method investment net losses in the current quarter.
13. OTHER INCOME AND EXPENSE
The reclassification of interest and investment income from other income to interest expense, net, in the condensed consolidated statement of operations and comprehensive income has been reflected in prior period amounts to conform to the current year presentation.
Other income (expense) consisted of the following (in thousands):
Three Months Ended March 31,
2024 2023
MBI Net Option fair value adjustment $ (7,200) $ (7,980)
Write-off of debt issuance costs - (3,340)
Mark-to-market adjustments and other(1)
85 12,673
Other income (expense), net $ (7,115) $ 1,353
(1)Amount for the three months ended March 31, 2023 includes a $12.3 million non-cash mark-to-market gain on the Company's investment in Point Broadband as a result of an observable market transaction in Point Broadband's equity.
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14. NET INCOME PER COMMON SHARE (AS RESTATED)
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. The 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 equity-based compensation awards if such inclusion would be dilutive, calculated using the treasury stock method, and any common shares to be issued upon conversion of the Convertible Notes, calculated using the if-converted method.
The computation of basic and diluted net income per common share was as follows (dollars in thousands, except per share amounts):
As Restated
Three Months Ended March 31,
2024 2023
Numerator:
Net income - basic $ 37,350 $ 46,597
Add: Convertible Notes interest expense, net of tax 1,551 1,543
Net income - diluted $ 38,901 $ 48,140
Denominator:
Weighted average common shares outstanding - basic 5,618,745 5,718,745
Effect of dilutive equity-based compensation awards(1)
3,469 5,601
Effect of dilution from if-converted Convertible Notes(2)
404,248 404,248
Weighted average common shares outstanding - diluted 6,026,462 6,128,594
Net Income per Common Share:
Basic $ 6.65 $ 8.15
Diluted $ 6.46 $ 7.85
Supplemental Net Income per Common Share Disclosure:
Anti-dilutive shares from equity-based compensation awards(1)
64,541 25,313
(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.
(2)Based on a conversion rate of 0.4394 shares of common stock per weighted $1,000 principal amount of Convertible Notes outstanding during all periods presented.
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15. 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 condensed consolidated balance sheets.
As of March 31, 2024, with the exception of debt payments (refer to note 7 for the updated future maturities of outstanding borrowings table), there have been no material changes to the contractual obligations previously disclosed in the 2023 Form 10-K/A.
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.
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, and 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 Company's operations are extensively regulated by the Federal Communications Commission (the "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.
Equity Investments.The Company has certain obligations with respect to certain of its equity investments. Refer to note 4 for further information.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Amended First Quarter 2024 Quarterly Report and the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations," both of which are contained in our 2023 Form 10-K/A. Our results of operations and financial condition discussed herein may not be indicative of our future 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.
Restatement
As previously discussed under the heading "Explanatory Note," we are restating our previously issued condensed consolidated financial statements and related notes for the three months ended March 31, 2024. Refer to note 1 in the notes to the condensed consolidated financial statements for additional information.
This "Management's Discussion and Analysis of Financial Condition and Results of Operations"does not substantively amend, update or change any disclosures or analysis contained in the Original First Quarter 2024 Quarterly Report, and accordingly, does not reflect any information or events occurring after May 3, 2024, the filing date of the Original First Quarter 2024 Quarterly Report, or modify or update those disclosures affected by events that occurred at a later date or facts that subsequently became known to us, except to the extent they are otherwise required to be included and discussed herein. The "Results of Operations" section within this "Management's Discussion and Analysis of Financial Condition and Results of Operations"has been updated to reflect the restatement.
Overview
We are a leading broadband communications provider committed to connecting customers and communities to what matters most. We strive to deliver an effortless experience by offering solutions that make our customers' lives easier, and by relating to them personally as our neighbors and local business partners. Powered by our fiber-rich infrastructure, the Cable One family of brands provides residential customers with a wide array of connectivity and entertainment services, including Gigabit speeds, advanced Wi-Fi and video. For businesses ranging from small and mid-market up to enterprise, wholesale and carrier, we offer scalable, cost-effective solutions that enable businesses of all sizes to grow, compete and succeed. We believe the services we provide are critical to the development of new businesses and drive economic growth in the non-metropolitan, secondary and tertiary markets that we serve in 24 Western, Midwestern and Southern states. As of March 31, 2024, approximately 74% of our customers were located in seven states: Arizona, Idaho, Mississippi, Missouri, Oklahoma, South Carolina and Texas. We provided services to approximately 1.1 million residential and business customers out of approximately 2.8 million homes passed as of March 31, 2024. Of these customers, approximately 1,066,000 subscribed to data services, 133,000 subscribed to video services and 115,000 subscribed to voice services.
We generate substantially all of our revenues through three primary product lines. Ranked by share of our total revenues through the first three months of 2024, they are residential data (58.3%), business data (14.0%) and residential video (14.9%). The profit margins, growth rates and/or capital intensity of these three primary product lines vary significantly due to competition, product maturity and relative costs.
We focus on growing our higher margin businesses, namely residential data and business data services. Our strategy acknowledges the industry-wide trends of declining profitability of video services and declining revenues from residential voice services. The declining profitability of video services is due primarily to increasing programming costs and retransmission fees and competition from other streaming content providers, and the declining revenues from residential voice services are due primarily to the increasing use of wireless voice services instead of residential voice services. Separately, we have also historically focused on retaining customers who are likely to produce higher relative value over the life of their service relationships with us, are less attracted by discounting, require less support and churn less. This strategy has focused on increasing Adjusted EBITDA, driving higher margins and delivering attractive levels of Adjusted EBITDA less capital expenditures over the long-term.
Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above have impacted, and are expected to further impact, our three primary product lines in the following ways:
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•Residential data. We have experienced significant growth in residential data customers and revenues since 2013 and we expect growth for this product line to continue over the long-term. We believe upgrades made in our broadband capacity, our ability to offer higher access speeds than many of our competitors, the reliability and flexibility of our data service offerings, our Wi-Fi support service and continuously growing data usage by consumers and their demand for higher speeds will enable us to continue to grow average monthly revenue per unit ("ARPU") from our existing customers over the long-term and capture additional market share. Our broadband plant generally consists of a fiber-to-the-premises or hybrid fiber-coaxial network with ample unused capacity, and we offer our data customers internet products at some of the fastest speeds available in our markets. We believe that the capacity and reliability of our networks exceeds that of our competitors in most of our markets and best positions us to meet the continuously increasing consumption demands of customers. We experienced elevated growth in residential data revenues during the first two years of the COVID-19 pandemic, which has subsided in recent quarters due in part to macroeconomic headwinds and competition in certain areas of our footprint.
•Business data. We have experienced significant growth in business data customers and revenues since 2013. We attribute this growth to our strategic focus on increasing sales to business customers and our efforts to attract enterprise business customers. We expect to experience continued growth in business data customers and revenues over the long-term. Margins for products sold to business customers have remained attractive, which we expect will continue.
•Residential video.Residential video service is an increasingly fragmented business, with programming costs and retransmission fees continuing to escalate in the face of a proliferation of streaming content alternatives. We intend to continue our strategy of focusing on the higher-margin businesses of residential data and business data while de-emphasizing our video business. As a result of our video strategy, we expect that residential video customers and revenues will continue to decline. We offer Sparklight®TV, an internet protocol-based ("IPTV") video service that allows customers with our Sparklight TV app to stream our video channels from the cloud. This transition from linear to IPTV video service enables us to reclaim bandwidth, freeing up network capacity to increase data speeds and capacity across our network.
We continue to experience increased competition, particularly from telephone companies; fiber, municipal and cooperative overbuilders; fixed wireless access data providers; and over-the-top video providers. Because of the levels of competition we face, we believe it is important to make investments in our infrastructure. In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive revenue and Adjusted EBITDA expansion. We continue to invest capital to, among other things, increase fiber density and coverage, expand our footprint, increase plant and data capacity, enhance network reliability and improve the customer experience. We have rolled out multi-Gigabit download data service to certain markets and currently offer Gigabit download data service to nearly all of our homes passed. We have deployed DOCSIS 3.1, which, together with Sparklight TV, further increases our network capacity and enables future growth in our residential data and business data product lines.
We expect to continue to devote financial resources to infrastructure improvements in existing and newly acquired markets as well as to expand high-speed data service in areas adjacent to our existing network. We believe these investments are necessary to continually meet our customers' needs and remain competitive. The capital enhancements associated with acquisitions include rebuilding low-capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 4.0; consolidating back office functions such as billing, accounting and service provisioning; migrating products to Cable One platforms; and expanding our high-capacity fiber network.
Our primary goals are to continue growing residential data and business data revenues, to increase profit margins and to deliver strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures over the long-term. To achieve these goals, we intend to continue our disciplined cost management approach, remain focused on customers with expected higher relative value, supplement our growth by targeting a broader scope of incremental customers, including those who are more value-conscious, combat competitive threats in our markets through more targeted pricing and product offerings and follow through with further planned investments in broadband plant upgrades, including the deployment of DOCSIS 4.0 capabilities and new data service offerings for residential and business customers. We also plan to seek broadband-related acquisition and strategic investment opportunities in rural markets in addition to the pursuit of organic growth through market expansion projects. Given our strategic focus on our higher margin residential data and business data product lines, we assess our level of capital expenditures relative to Adjusted EBITDA, unlike others in our industry who may compare their capital expenditures to revenues due to their much larger video customer bases.
In recent years, we have made investments in several broadband-centric providers serving non-urban markets that follow various strategies similar to our own. Such strategic investments capitalize on opportunities that may not have existed under a full ownership model, allow us to participate more aggressively in the fiber expansion business and may potentially provide future acquisition or investment opportunities, while allowing our management team to focus on our core business and without burdening our cash flow.
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Results of Operations (As Restated)
Key Performance Measures Summary (As Restated)
The following table summarizes certain key measures of our results of operations (dollars in thousands):
As Restated
Three Months Ended March 31,
2024 2023 $ Change % Change
Revenues $ 404,312 $ 421,894 $ (17,582) (4.2) %
Total costs and expenses $ 284,450 $ 289,790 $ (5,340) (1.8) %
Income from operations $ 119,862 $ 132,104 $ (12,242) (9.3) %
Net income $ 37,350 $ 46,597 $ (9,247) (19.8) %
Cash flows from operating activities $ 164,750 $ 161,787 $ 2,963 1.8 %
Cash flows from investing activities $ (69,972) $ (100,714) $ 30,742 (30.5) %
Cash flows from financing activities $ (74,334) $ (73,491) $ (843) 1.1 %
Adjusted EBITDA(1)
$ 217,052 $ 228,774 $ (11,722) (5.1) %
Capital expenditures $ 65,887 $ 96,106 $ (30,219) (31.4) %
(1)Adjusted EBITDA is a non-GAAP measure. See "Use of Adjusted EBITDA" below for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income.
Primary Service Units ("PSUs") and Customer Counts
Selected subscriber data for the periods presented was as follows (in thousands, except percentages):
As of March 31, Annual Net Gain (Loss)
2024 2023 Change % Change
Residential data PSUs 967.4 966.0 1.4 0.1 %
Residential video PSUs 125.6 157.6 (31.9) (20.3) %
Residential voice PSUs 76.0 87.7 (11.7) (13.4) %
Total residential PSUs 1,168.9 1,211.2 (42.3) (3.5) %
Business data PSUs 99.1 97.5 1.6 1.6 %
Business video PSUs 7.7 9.5 (1.8) (19.0) %
Business voice PSUs 39.2 40.6 (1.4) (3.4) %
Total business services PSUs 146.0 147.6 (1.6) (1.1) %
Total data PSUs 1,066.4 1,063.5 2.9 0.3 %
Total video PSUs 133.3 167.0 (33.7) (20.2) %
Total voice PSUs 115.2 128.3 (13.1) (10.2) %
Total PSUs 1,314.9 1,358.8 (43.9) (3.2) %
Residential customer relationships 999.8 1,007.4 (7.6) (0.8) %
Business customer relationships 102.6 101.8 0.8 0.8 %
Total customer relationships 1,102.4 1,109.2 (6.8) (0.6) %
Homes passed 2,794.9 2,719.7 75.3 2.8 %
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In recent years, our customer mix has shifted away from double- and triple-play packages combining data, video and/or voice services, which is in line with our strategy of focusing on our higher margin residential data and business data product lines. This is largely because some video customers have defected to direct broadcast satellite services and over-the-top offerings and households continue to discontinue residential voice services. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers.
Use of Nonfinancial Metrics and ARPU
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 generally 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, PSUs 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.
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 ARPU values represent the applicable residential service revenues (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 the number of months in the period, except that for any PSUs added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the pro-rated average number of PSUs during such period. Business services ARPU values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by the number of months in the period, except that for any business customer relationships added or subtracted as a result of an acquisition or divestiture 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.
Comparison of Three Months Ended March 31, 2024 to Three Months Ended March 31, 2023
Revenues
Revenues by service offering for the three months ended March 31, 2024 and 2023, together with the percentages of total revenues that each item represented for the periods presented, were as follows (dollars in thousands):
Three Months Ended March 31,
2024 2023 2024 vs. 2023
Revenues % of Total Revenues % of Total $ Change % Change
Residential data $ 235,820 58.3 % $ 242,697 57.5 % $ (6,877) (2.8) %
Residential video 60,358 14.9 % 70,286 16.7 % (9,928) (14.1) %
Residential voice 8,561 2.1 % 9,748 2.3 % (1,187) (12.2) %
Business data 56,640 14.0 % 54,606 12.9 % 2,034 3.7 %
Business other 19,185 4.7 % 21,654 5.1 % (2,469) (11.4) %
Other 23,748 5.9 % 22,903 5.4 % 845 3.7 %
Total revenues $ 404,312 100.0 % $ 421,894 100.0 % $ (17,582) (4.2) %
Residential data service revenues decreased $6.9 million, or 2.8%, due primarily to a 2.7%decrease in ARPU as a result of the implementation of targeted pricing and product offerings in certain markets, including amongst value-conscious customers, partially offset by an increase in residential data subscribers.
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Residential video service revenues decreased $9.9 million, or 14.1%, due primarily to a decrease in residential video subscribers, partially offset by a rate adjustment enacted during the three months ended March 31, 2024.
Residential voice service revenues decreased $1.2 million, or 12.2%, due primarily to a decrease in residential voice subscribers.
Business data revenues increased $2.0 million, or 3.7%, due primarily to an increase in business data subscribers.
Business other revenues decreased $2.5 million, or 11.4%, due primarily to a decrease in business video subscribers.
ARPU for the indicated service offerings for the three months ended March 31, 2024 and 2023 were as follows:
Three Months Ended March 31, 2024 vs. 2023
2024 2023 $ Change % Change
Residential data $ 81.33 $ 83.58 $ (2.25) (2.7) %
Residential video $ 154.86 $ 142.29 $ 12.57 8.8 %
Residential voice $ 36.75 $ 36.23 $ 0.52 1.4 %
Business services $ 246.28 $ 250.01 $ (3.73) (1.5) %
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $106.5 million for the three months ended March 31, 2024 and decreased $5.6 million, or 5.0%, compared to the three months ended March 31, 2023. The decrease in operating expenses was primarily attributable to $9.2 million of lower programming costs as a result of video customer losses, partially offset by higher rent expense of $1.2 million, network backbone costs of $1.0 million and software costs of $0.9 million. Operating expenses as a percentage of revenues were 26.3% and 26.6% for the three months ended March 31, 2024 and 2023, respectively.
Selling, general and administrative expenses were $90.4 million for the three months ended March 31, 2024 and increased $3.6 million, or 4.2%, compared to the three months ended March 31, 2023. The increase in selling, general and administrative expenses was primarily attributable to$3.4 million of higher marketing costs. Selling, general and administrative expenses as a percentage of revenues were 22.4% and 20.6% for the three months ended March 31, 2024 and 2023, respectively.
Depreciation and amortization expense was $85.6 million for the three months ended March 31, 2024 and increased $0.2 million, or 0.2%, compared to the three months ended March 31, 2023. Depreciation and amortization expense as a percentage of revenues was 21.2% and 20.2% for the three months ended March 31, 2024 and 2023, respectively.
Interest Expense, Net
Interest expense, net, was $35.8 million for the three months ended March 31, 2024 and decreased $1.4 million, or 3.9%, compared to the three months ended March 31, 2023. The decrease in net interest expense was due primarily to higher interest and investment income.
Other Income (Expense), Net
Other expense, net, was $7.1 million for the three months ended March 31, 2024 and consisted primarily of a $7.2 million non-cash loss on fair value adjustment associated with the MBI Net Option.Other income, net, was $1.4 million for the three months ended March 31, 2023 and consisted primarily of a $12.3 million non-cash mark-to-market gain on the investment in Point Broadband, partially offset by a $8.0 million non-cash loss on fair value adjustment associated with the MBI Net Option and $3.3 million of debt issuance costs written off in connection with the entry into the New Credit Agreement.
Income Tax Provision (As Restated)
Income tax provision was $17.6 million and $18.5 million for the three months ended March 31, 2024 and 2023, respectively, and our effective tax rate was 22.8% and 19.2% for the three months ended March 31, 2024 and 2023, respectively. The increase in the effective tax rate was due primarily to a decrease in income tax benefits of $2.5 million resulting from lower equity method investment net losses in the current quarter.
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Equity Method Investment Income (Loss), Net (As Restated)
Equity method investment loss, net, was $22.0 million for the three months ended March 31, 2024 and consisted of our $21.7 million and $0.3 million proportionate share of net losses from our Clearwave Fiber and MBI investments, respectively. Equity method investment loss, net, was $31.1 million for the three months ended March 31, 2023 and consisted primarily of our $28.9 million and $2.4 million proportionate share of net losses from our Clearwave Fiber and MBI investments, respectively.
Net Income (As Restated)
Net income was $37.4 million for the three months ended March 31, 2024 compared to $46.6 million for the three months ended March 31, 2023.
Unrealized Gain (Loss) on Cash Flow Hedges and Other, Net of Tax
Unrealized gain on cash flow hedges and other, net of tax was $18.3 million for the three months ended March 31, 2024 compared to a $17.9 million unrealized loss for the three months ended March 31, 2023. The $36.2 millionchange was due to smaller increases in forward interest rates for the three months ended March 31, 2024compared to the prior year period.
Use of Adjusted EBITDA (As Restated)
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, the most directly comparable GAAP financial measure.
Adjusted EBITDA is defined as net income plus net interest expense, income tax provision, depreciation and amortization, equity-based compensation, severance and contract termination costs, acquisition-related costs, net (gain) loss on asset sales and disposals, system conversion costs, net equity method investment (income) loss, net other (income) expense and other unusual items, as provided in the reconciliation tables below. 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 the New Credit Agreement and the Senior Notes Indenture to determine compliance with the covenants contained in the New Credit Agreement and the ability to take certain actions under the Senior Notes Indenture. Adjusted EBITDA is also a significant performance measure that we have used in connection with our incentive compensation programs. 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.
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As Restated
Three Months Ended March 31, 2024 vs. 2023
(dollars in thousands) 2024 2023 $ Change % Change
Net income $ 37,350 $ 46,597 $ (9,247) (19.8) %
Plus: Interest expense, net 35,784 37,222 (1,438) (3.9) %
Income tax provision 17,577 18,501 (924) (5.0) %
Depreciation and amortization 85,641 85,428 213 0.2 %
Equity-based compensation 7,465 5,585 1,880 33.7 %
Severance and contract termination costs 1,103 - 1,103 NM
Acquisition-related costs 389 201 188 93.5 %
(Gain) loss on asset sales and disposals, net 1,907 5,456 (3,549) (65.0) %
System conversion costs 685 - 685 NM
Equity method investment (income) loss, net 22,036 31,137 (9,101) (29.2) %
Other (income) expense, net 7,115 (1,353) 8,468 NM
Adjusted EBITDA $ 217,052 $ 228,774 $ (11,722) (5.1) %
NM = Not meaningful.
Financial Condition: Liquidity and Capital Resources
Liquidity
Our primary funding requirements are for our ongoing operations, capital expenditures, potential acquisitions and strategic investments, payments of quarterly dividends and share 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, make 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.
As part of our 45% minority equity interest in MBI, we acquired the right, but not the obligation, to purchase all but not less than all of the remaining equity interests in MBI that we do not already own between January 1, 2023 and June 30, 2024 (the "Call Option"). Investors affiliated with GTCR LLC, a private equity firm based in Chicago, have the right, but not the obligation, to sell (and to cause all members of MBI other than us to sell) to us and, in such case, we are obligated to purchase all but not less than all of the direct and indirect equity interests in MBI that we do not already own between July 1, 2025 through September 30, 2025 (the "Put Option"). The purchase price payable upon the exercise of the Call Option or the Put Option, as applicable, will be calculated under a formula based on a multiple of MBI's adjusted EBITDA as specified in the definitive documentation governing our investment in MBI. We have not yet obtained the capital that we believe will be necessary to pay the purchase price if either the Call Option or the Put Option are exercised. At this time, we do not expect to exercise the Call Option.
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The following table shows a summary of our net cash flows for the periods indicated (dollars in thousands):
Three Months Ended March 31, 2024 vs. 2023
2024 2023 $ Change % Change
Net cash provided by operating activities $ 164,750 $ 161,787 $ 2,963 1.8 %
Net cash used in investing activities (69,972) (100,714) 30,742 (30.5) %
Net cash used in financing activities (74,334) (73,491) (843) 1.1 %
Change in cash and cash equivalents $ 20,444 $ (12,418) $ 32,862 NM
Cash and cash equivalents, beginning of period 190,289 215,150 (24,861) (11.6) %
Cash and cash equivalents, end of period $ 210,733 $ 202,732 $ 8,001 3.9 %
NM = Not meaningful.
The $3.0 million year-over-year increase in net cash provided by operating activitieswas primarily attributable tofavorable changes in working capital, partially offset by a decrease in Adjusted EBITDA.
The $30.7 million decrease in net cash used in investing activities from the prior year period was due primarilyto a $29.1 million decrease in cash paid for capital expenditures and $2.3 million of proceeds from the sale of certain buildings held for sale during the first quarter of 2024.
The $0.8 million increase in net cashused in financing activities from the prior year period was due primarily to a $41.8 million increase in net debt repayments, and higher withholding taxes for equity awards, partially offset by $41.8 million of share repurchases during the first quarter of 2023 that did not recur.
On May 20, 2022, our Board authorized up to $450.0 million of share repurchases (with no cap as to the number of shares of common stock). We had $143.1 million of remaining share repurchase authorization under the Share Repurchase Program as of March 31, 2024. Additional 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 we first became publicly traded in 2015 through March 31, 2024, we have repurchased 646,244 shares of our common stock at an aggregate cost of $556.9 million. We may, from time to time, continue to opportunistically repurchase shares depending on the trading price of our common stock, market conditions and other factors. We did not repurchase any shares during the three months ended March 31, 2024.
We currently expect to continue to pay comparable quarterly cash dividends on shares of our common stock, subject to approval of the Board. During the first quarter of 2024, the Board approved a quarterly dividend of $2.95 per share of common stock, which was paid on March 8, 2024, resulting in a total dividend distribution of $16.8 million.
Financing Activity
Senior Credit Facilities
Prior to February 22, 2023, the Credit Agreement provided for the Term Loan A-2, the Term Loan B-2, the Term Loan B-3, the Term Loan B-4 and the Revolving Credit Facility. The Revolving Credit Facility gives us the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.
On February 22, 2023, we amended and restated the Credit Agreement to, among other things, (i) increase the aggregate principal amount of commitments under the Revolving Credit Facility by $500.0 million to $1.0 billion; (ii) extend the scheduled maturity of the Revolving Credit Facility from October 2025 to February 2028; (iii) upsize the outstanding principal amount under the Term Loan B-3 by $150.0 million to $757.0 million; (iv) extend the scheduled maturities of the Term Loan B-2 and the Term Loan B-3 from October 2027 to October 2029 (subject to adjustment as described in the notes to the table below summarizing our outstanding term loans as of March 31, 2024); (v) increase the fixed spreads on the Term Loan B-2 and the Term Loan B-3 from 2.00% to 2.25%; and (vi) transition the benchmark interest rate for the Revolving Credit Facility, the Term Loan B-2 and the Term Loan B-3 from LIBOR to SOFR plus a 10 basis point credit spread adjustment. Except as described above, the New Credit Agreement did not make any material changes to the principal terms of the Term Loan B-2, the Term Loan B-3, the Term Loan B-4 or the Revolving Credit Facility. Upon the effectiveness of the New Credit Agreement, we drew $488.0 million under the Revolving Credit Facility and, together with the net proceeds from the TLB-3 Upsize, repaid all $638.3 million aggregate principal amount of our outstanding Term Loan A-2. In July 2023, we transitioned the benchmark interest rate for the Term Loan B-4 from LIBOR to SOFR plus a credit spread adjustment that ranges from approximately 11.4 basis points to 42.8 basis points based on the interest period elected.
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As of March 31, 2024, the interest margins applicable to the Senior Credit Facilities are, at our option, equal to either SOFR or a base rate, plus an applicable margin equal to, (i) with respect to the Revolving Credit Facility, 1.25% to 1.75% plus a 10 basis point credit spread adjustment for SOFR 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 (as defined in the New Credit Agreement), (ii) with respect to the Term Loan B-2 and the Term Loan B-3, 2.25% plus a 10 basis point credit spread adjustment for SOFR loans and 1.25% for base rate loans and (iii) with respect to the Term Loan B-4, 2.0% plus an approximately 11.4 to 42.8 basis point credit spread adjustment based on the interest period elected for SOFR loans and 1.0% for base rate loans.
We repaid $150.0 million of the outstanding Revolving Credit Facility borrowings during 2023. In February 2024, we repaid an additional $50.0 million of the outstanding Revolving Credit Facility borrowings, reducing the outstanding balance to $288.0 million as of March 31, 2024. In April 2024, we repaid another $50.0 million of the outstanding Revolving Credit Facility borrowings, further reducing the outstanding balance to $238.0 million.
As of March 31, 2024, we had approximately $1.8 billionof aggregate outstanding term loans and $288.0 millionof borrowings and $712.0 million available for borrowing under the Revolving Credit Facility. A summary of our outstanding term loans as of March 31, 2024 is as follows (dollars in thousands):
Instrument
Draw Date(s)
Original Principal
Amortization Per Annum(1)
Outstanding Principal
Final Scheduled
Maturity Date
Final Scheduled
Principal Payment
Benchmark Rate
Fixed Margin
Interest Rate
Term Loan B-2 1/7/2019 $ 250,000 1.0% $ 237,500
10/30/2029(2)
$ 223,750 SOFR + 10.0 bps 2.25% 7.68%
Term Loan B-3
6/14/2019
10/30/2020
2/22/2023
325,000
300,000
150,000
1.0% 747,287
10/30/2029(2)
704,695 SOFR + 10.0 bps 2.25% 7.68%
Term Loan B-4 5/3/2021 800,000 1.0% 778,000 5/3/2028 746,000 SOFR + 11.4 bps 2.00% 7.44%
Total $ 1,825,000 $ 1,762,787 $ 1,674,445
(1)Payable in equal quarterly installments (expressed as a percentage of the original principal amount and subject to customary adjustments in the event of any prepayment). All loans may be prepaid at any time without penalty or premium (subject to customary SOFR breakage provisions).
(2)The final maturity date of the Term Loan B-2 and the Term Loan B-3, in each case, will adjust to May 3, 2028 if greater than $150.0 million aggregate principal amount of the Term Loan B-4 (together with any refinancing indebtedness in respect of the Term Loan B-4 with a final maturity date prior to the date that is 91 days after October 30, 2029) remains outstanding on May 3, 2028.
Senior Notes
In November 2020, we completed the offering of $650.0 million aggregate principal amount of Senior Notes due 2030. The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of our existing and future wholly owned domestic subsidiaries that guarantees our obligations under our New Credit Agreement or that guarantees certain capital markets debt of ours or a guarantor in an aggregate principal amount in excess of $250.0 million.
Convertible Notes
In March 2021, we completed the Convertible Notes offering of $575.0 million aggregate principal amount of 2026 Notes and $345.0 million aggregate principal amount of 2028 Notes. The Convertible Notes are senior unsecured obligations of ours and are guaranteed by our wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain of our Notes in an aggregate principal amount in excess of $250.0 million. The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes do not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of our common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock). The initial conversion price of each of the 2026 Notes and the 2028 Notes represents a premium of 25.0% over the last reported sale price of $1,820.83 per share of our common stock on March 2, 2021. The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of our common stock or a combination thereof is at our election.
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Other Debt-Related Information
Unamortized debt issuance costs consisted of the following (in thousands):
March 31, 2024 December 31, 2023
Revolving Credit Facility portion:
Other noncurrent assets $ 2,901 $ 3,087
Term loans and Notes portion:
Long-term debt (contra account) 21,570 22,532
Total $ 24,471 $ 25,619
We recorded debt issuance cost amortization of $1.1 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively, within interest expense in the condensed consolidated statements of operations and comprehensive income. During 2023, we capitalized $7.7 million and wrote-off $3.3 million of debt issuance costs during the three months ended March 31, 2023 in connection with the entry into the New Credit Agreement.
The unamortized debt discount associated with the Convertible Notes was $11.0 millionand $12.0 million as of March 31, 2024 and December 31, 2023, respectively. We recorded debt discount amortization of $1.1 million for both the three months ended March 31, 2024 and 2023 within interest expense in the condensed consolidated statements of operations and comprehensive income.
We have entered into a letter of credit agreement with MUFG which provides for an additional $75.0 millionof letter of credit issuing capacity, of which $10.5 millionwas utilized as of March 31, 2024.
We were in compliance with all debt covenants as of March 31, 2024.
We are party to two interest rate swap agreements to convert our interest payment obligations with respect to an aggregate of $1.2 billion of our variable rate SOFR indebtedness to a fixed rate. Under the first swap agreement, with respect to a notional amount of $850.0 million, our monthly payment obligation is determined at a fixed base rate of 2.595%. Under the second swap agreement, with respect to a notional amount of $350.0 million, our monthly payment obligation is determined at a fixed base rate of 2.691%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but each may be terminated prior to the scheduled maturity at our election or that of the financial institution counterparty under the terms provided in each swap agreement. We recognized income of $8.2 million and $5.6 million on interest rate swaps during the three months ended March 31, 2024 and 2023, respectively, which were reflected within interest expense in the condensed consolidated statements of operations and comprehensive income.
Refer to notes 11 and 13 to our audited consolidated financial statements included in the 2023 Form 10-K/A. and notes 7 and 8 to the condensed consolidated financial statements in this Amended First Quarter 2024 Quarterly Report for further details regarding our financing activity, outstanding debt and interest rate swaps.
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Capital Expenditures
We have significant ongoing capital expenditure requirements as well as capital enhancements associated with acquired operations and the expansion of our high-capacity network. We are entering the final year of capital enhancements associated with acquired operations, which has been focused on upgrading any remaining low-capacity markets and migrating products and billing systems to Cable One platforms. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.
Our capital expenditures by category for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
Three Months Ended March 31,
2024 2023
Customer premise equipment(1)
$ 3,629 $ 21,325
Commercial(2)
8,235 7,227
Scalable infrastructure(3)
8,534 15,859
Line extensions(4)
15,262 9,707
Upgrade/rebuild(5)
8,231 21,815
Support capital(6)
21,995 20,173
Total $ 65,887 $ 96,106
(1)Customer premise equipment includes costs incurred at customer locations, including installation costs and customer premise equipment (e.g., modems and set-top boxes).
(2)Commercial includes costs related to securing business services customers and PSUs, including small and medium-sized businesses and enterprise customers.
(3)Scalable infrastructure includes costs not related to customer premise equipment to secure growth of new customers and PSUs or provide service enhancements (e.g., headend equipment).
(4)Line extensions include network costs associated with entering new service areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).
(5)Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial cable networks, including betterments.
(6)Support capital includes costs associated with the replacement or enhancement of non-network assets due to technological and physical obsolescence (e.g., non-network equipment, land, buildings and vehicles) and capitalized internal labor costs not associated with customer installation activities.
Contractual Obligations and Contingent Commitments
As of March 31, 2024, with the exception of debt payments (refer to note 7 of the condensed consolidated financial statements in this Amended First Quarter 2024 Quarterly Report for the updated future maturities of outstanding borrowings table), there have been no material changes to the contractual obligations and contingent commitments previously disclosed in the 2023 Form 10-K/A.
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.
There have been no material changes to our critical accounting policy and estimate disclosures described in our 2023 Form 10-K/A.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from changes in market rates and prices. There have been no material changes to the market risk disclosures described in the 2023 Form 10-K/A other than as set forth below.
As of March 31, 2024, we had $650.0 million, $575.0 million and $345.0 million aggregate principal amount of the Senior Notes, 2026 Notes and 2028 Notes, respectively, outstanding. Although the Senior Notes and 2028 Notes are based on fixed rates and the 2026 Notes do not bear interest, changes in interest rates could impact the fair market value of such notes. As of March 31, 2024, the fair market values of the Senior Notes, 2026 Notes and 2028 Notes were $505.4 million, $503.1 million and $260.5 million, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's management is responsible for establishing and maintaining adequate DCPs (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). DCPs 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. DCPs 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 March 31, 2024 of the effectiveness of the design and operation of the Company's DCPs pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on the Company's evaluation at the time the Original First Quarter 2024 Quarterly Report was filed, the Company's Chief Executive Officer and Chief Financial Officer had concluded that the Company's DCPs were effective as of March 31, 2024. Subsequent to that evaluation and as a result of the material weakness in the Company's ICFR discussed below, the Company's Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2024, the Company's DCPs were not effective in ensuring information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
The Company did not design and maintain effective controls over its accounting for equity method investments. Specifically, it lacked an effectively designed control activity related to the evaluation of the capital structure of equity method investments when determining the proportionate share of earnings or losses to recognize. This material weakness resulted in the restatement of the Company's consolidated financial statements for the years ended December 31, 2023 and 2022 as well as each of the interim periods within the years ended December 31, 2023 and 2022, excluding the first quarter of 2022, and condensed consolidated financial statements for the three months ended March 31, 2024. Additionally, this material weakness could result in misstatements of our equity method investments, proportionate share of earnings or losses and related accounts in our interim or annual consolidated financial statements and disclosures that would result in a material misstatement that would not be prevented or detected.
Remediation Plan for Material Weakness
Upon identification of the material weakness, management developed a remediation plan, which included designing and implementing a new control activity to fully evaluate the capital structures of equity method investments in its determination of the proportionate share of earnings or losses to recognize. Management believes these measures will remediate the identified material weakness. However, the material weakness will not be considered remediated until the remediation plan has been implemented and there has been sufficient time for the Company to conclude through testing that the controls are operating effectively. As the Company's management, under the oversight of the Audit Committee, continues to evaluate and improve the Company's ICFR, management may decide to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures identified.
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Changes in Internal Control over Financial Reporting
There has been no change in the Company's ICFR (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company's ICFR.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in our 2023 Form 10-K/A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 March 31, 2024 were as follows (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)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to 31, 2024(2)
2,328 $ 541.35 - $ 143,104
February 1 to 29, 2024 - $ - - $ 143,104
March 1 to 31, 2024 - $ - - $ 143,104
Total 2,328 $ 541.35 -
(1)On May 20, 2022, the Company's Board authorized up to $450.0 million of share repurchases (with no cap as to the number of shares of common stock), which was announced on May 23, 2022 (the "Share Repurchase Program"). The authorization does not have an expiration date. The Company had $143.1 million of remaining share repurchase authorization under the Share Repurchase Program as of March 31, 2024. Additional 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)Includes shares withheld from associates to satisfy estimated tax withholding obligations in connection with the vesting of restricted stock and/or exercises of SARs under the Company's incentive compensation plans. The average price paid per share for the common stock withheld was based on the closing price of the Company's common stock on the applicable vesting or exercise measurement date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any "non-Rule 10b5-1 trading arrangement" (as defined in Item 408(c) of Regulation S-K).
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ITEM 6. EXHIBITS
Exhibit Number
Description
31.1
Principal Executive Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
Principal Financial Officer Certification required by Rules 13a-14 and 15d-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
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Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
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/A for the quarter ended March 31, 2024, formatted in Inline XBRL (included within the Exhibit 101 attachments).
* Filed herewith.
** Furnished herewith.
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SIGNATURES
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: October 1, 2024
By:
/s/ Todd M. Koetje
Name: Todd M. Koetje
Title: Chief Financial Officer
Date: October 1, 2024
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