Good afternoon, and welcome to the Cable 1 First Quarter 2021 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Stephen Cochran.
Please go ahead.
Thank you, Chad. Good Good afternoon, and welcome to Cable One's Q1 2021 earnings call. We're glad to have you join us as we review our results. Before we proceed, I'd like to remind you that today's discussion may contain forward looking statements relating to future events that involve risks and uncertainties. You can find factors that could cause Cable One's actual results to differ materially from the forward looking statements discussed during today's call, in today's earnings release and and in our recent SEC filings.
Cable 1 is under no obligation and expressly disclaims any obligation, except as required law to update or alter its forward looking statements whether as a result of new information, future events or otherwise. Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U. S. Generally Accepted Accounting Principles. Reconciliations of non GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release and on our website at ir.
Cable1.pet. Joining me on today's call is our President and CEO, Julie Lawless. With that, let me turn the call over to Julie.
Thank you, Stephen, and good afternoon, everyone. We appreciate you joining us for today's call. Before getting into our results, I want to welcome our more than 800 Hargray colleagues who are now Cable 1 associates. The acquisition of Hargray closed on May 3rd, And we are extremely excited to have Hargray as part of the Cable 1 family of brands. I'd also like to take a moment to welcome Megan Depp, Our new Senior Vice President of Human Resources, who comes to us from Hargray.
Megan is a valuable addition to the Cable 1 leadership team. She brings extensive experience in successfully guiding, motivating and integrating teams in fast paced high growth companies. She will provide unique insight into Heart Rate's culture and initiatives as we begin the process of bringing our 2 companies together. We will get into more details on the acquisition later in the call. I'll begin by reviewing some highlights and important events Call.
Before handing the call over to Stephen for a full recap of our financial performance. We are pleased to have once again delivered a quarter of robust customer and financial growth. In the first quarter, Revenues increased by 6.2% compared to prior year quarter. Adjusted EBITDA increased by 14.4% And adjusted EBITDA margin improved 380 basis points to 52.9%. The record breaking residential HSP customer growth we and others in the industry experienced in 2020 has led to conjecture about whether last year was predominantly a pull forward versus a more sustainable long term trend.
It is still early in 2021, but so far customer growth has remained resilient. In the Q1 of 2021, we added 22,000 residential high speed Internet customers on a sequential basis versus $19,000 in the Q1 of 2020. On a year over year basis, that reflects an additional 86 1,000 residential HSD customers or 12% growth. And that figure also excludes Roughly 17,000 residential data customers as of March 31, 2020 that we contributed to Hargray and 5,000 customers acquired from ValuNet in July of 2020. From the beginning of 2020 until now, Our HSD penetration has increased nearly 500 basis points from 33.2% to 38.1%, highlighting how far we have come as well as the significant growth opportunity that remains available for us to capture.
While it is reasonable to believe that residential HSD customer gains will eventually revert back to historical trends A stronger growth in the 1st and third quarters of the year, our healthy customer adds have continued so far in the Q2 of 2021. In fact, Our April customer growth was our best month of 2021. Given the pandemic surge in 2020, We believe that comparing 2021 customer additions to pre pandemic 2019 figures provides important context when gauging growth. In this vein, note that in the single month of April 2021, residential HSD customer adds were significantly higher than during the entire Q2 of 2019. Residential HFC demand not only remained strong as call.
Net additions, but also increased for higher tier product offerings as well. Selling for packages with a download speed greater than 100 megs increased from about 70% in the Q4 of 2020 to approximately 78% in the Q1 of 2021. That, along with other contributing factors, such as an increased take rate of our unlimited data plan, as well as migration of As a reminder, we haven't had a rate increase on our legacy systems since the fall of 2015 And we actually decreased price on our higher tiers at the start of 2019 when we launched our new pricing and packaging across the legacy footprint. Business services revenues began to show positive momentum this quarter with growth of 4.3% year over year and 5.8% on an Organic basis after taking into account our Aniston divestiture and ValuNet acquisition. Businesses are reopening and thanks to our seasoned sales associates, robust network and extensive suite of products, We continue to be optimistic about our rebounding growth in this area.
We are particularly proud of this team for proactively seeking Call. Partner with government and local entities to provide connectivity in rural communities. Our recently committed construction of a fiber optic network for Crown King School and Crown King Arizona is one of our latest examples. This effort is just one piece of a larger project with the Yavapai County Education Service Agency that will deliver high speed Internet to more than 72 schools and libraries and 100 businesses within Yavapai County. Prior to our build, Crown King School had access to just 5 megabits per second Internet service, a speed well below FCC bandwidth recommendations for schools and libraries.
Cable 1 was also recently awarded a $1,400,000 grant in partnership with the Arkansas Rural Connect Program to construct an all fiber network delivering symmetrical speeds of up to 1 gigabit for residential customers and up to 5 gigabits for business customers in the rural communities of Ogden and Walton. Both partnerships illustrate our steadfast commitment to bridging the rural broadband divide in the communities across our footprint. As an update, residential and business data growth for the businesses in which we have minority investments also accelerated sequentially as these companies added approximately 25,700 new customers in the Q1 of 2021. These customers are not reported in our results, but they demonstrate Continued demand for high quality HSD services as well as the shared commitment of our strategic partners. Also keep in mind that hard gray net adds are included in that figure and that a partial quarter of hard gray results will be reflected in our 2nd quarter 2021 Financials.
Turning to our network. As a result of our continued investment in upgrades targeted call. Our downstream plant utilization improved meaningfully from the prior year. Although average data usage increased 29% Year over year to just over 500 gigabits per month, our downstream traffic at peak improved from 28% utilization to 20% and upstream utilization remained steady at 18%. It is rewarding to know that we met the surge in Internet usage throughout the pandemic and we're continuing to plan and invest as we expect to remain prepared for the future needs of our residential and business customers.
The integration of Fidelity continues with plant upgrades throughout the Small cities and large towns Fidelity serves, most recently in our Missouri and Arkansas markets. Despite the disruptions of the past year, We are still on schedule operationally and ahead of the original run rate cost synergy estimates laid out at the time of the acquisition. Recently, we reached another milestone as we successfully migrated all Fidelity Associates onto technical platforms that connect Fidelity Associates to internal Cable 1 tools. Earlier this week, we We completed our acquisition of the remaining equity interest in Hargrave that we did not already own. We appreciate the efforts of Hargrave's management team who worked diligently with us over the past several months.
Our combined company of more than 3,500 associates Now serves more than 1,100,000 customers across 24 states. We believe Heartbreak's fast growing markets, Like minded strategy and commitment to providing fast and reliable Internet service to rural markets make it a natural fit with Cable 1, while at the same time providing a platform for future organic and inorganic growth in the Southeast. As integration planning continues, we are excited to build on what we have learned from our prior acquisitions. We will work closely with our Hargray associates to gain insight into their best practices in order to seamlessly combine both companies. We are very encouraged by the reception we have received thus far.
As a reminder, we anticipate realizing approximately $45,000,000 in estimated annual run rate synergies over the next 3 years. As the communities we serve continue to feel the impacts from COVID-nineteen, we are proud to participate in the FCC's Emergency Broadband Benefit Program. Through this program, eligible households participating in that program will receive up to $50 off their monthly bill based on their current Internet service and equipment rental or up to $75 off for customers who live on qualifying tribal landings. Alongside this effort to ensure our customers stay connected To their loved ones, work and school, we have kept in place other COVID-nineteen release measures, including Providing free public Wi Fi hotspots across our footprint, a 15 megabit service for $10 per month for the 1st 3 months to help low income families and our partnership with ACA Connects And the education superhighway for the K-twelve Bridge to Broadband initiative, which helps school districts and states provide Internet access for students in low income households. In addition to our COVID-nineteen relief measures, we are pleased to support Title 1 call.
Schools in Arizona, Idaho, Illinois, Louisiana, Mississippi, Missouri and Texas this year through our Chromebooks for Kids initiative, now in its 8th consecutive year. We recently donated 500 Chromebooks for the 2021 2022 school year to help bridge the digital divide for underprivileged children by providing computers to schools that lacked funding. Supporting nonprofit organizations in our communities remains a priority as they work tirelessly to provide services to individuals and families During a time when the need is greater than ever, with the launch of Cable 1 Charitable Giving Fund last month, we will provide grants to non profit organizations throughout our markets, concentrating on the areas of education and digital literacy, hunger relief and community development. And now, Stephen.
Thanks, Julie. The Q1 of 2021 generated exceptional financial results. Revenues for the Q1 were $341,300,000 compared to $321,200,000 in the prior year quarter, a 6.2% increase. This increase, which included $3,200,000 of revenue from ValuNet's operations, was fueled by a residential HSD revenue increase of 18.5 percent and a business services revenue increase of 4.3%. Meanwhile, 1st quarter 2020 revenues included $9,100,000 from our divested Anniston operations.
To give a sense of our year over year organic call. When we exclude Q1 2021 Valuenet results and Q1 2020 Anniston results, we would have seen Q1 total revenue increased by 8.3 Residential HSB customers grew by approximately 86,000 or 12% year over year, which as Julie mentioned, excluded approximately call. Dollars 17,000 from the Anniston system that were contributed to Hardray and included $5,000 that were acquired from ValuNet. Operating expenses were $101,500,000 or 29.7 percent of revenues in the 1st quarter compared to $105,900,000 or 33 percent of in prior year quarter, a 330 basis point improvement. Selling, general and administrative expenses were $69,000,000 for the Q1 of stock compared to $62,900,000 in the prior year quarter.
These expenses were 20.2 percent of revenues in the Q1 of 2021 compared to call. 19.6 percent of revenues in the prior year quarter. Net income in the Q1 was $68,600,000 Net income also included a $5,600,000 non cash gain from a fair value adjustment associated with the Mega Broadband Investments call input options we discussed last quarter. As a reminder, these options are subject to mark to market accounting on a quarterly basis. Until these options are exercised or expire, any changes in the assumptions used to determine their fair value could increase or decrease the resulting valuation, which in turn could cause significant non Operating fluctuations are GAAP financial results from 1 quarter to another.
Net income per share on a fully diluted basis was 11.19 Our organic Q1 adjusted EBITDA declined from the 4th quarter as we paid the increased cost of programming at the start of the year while our video rate adjustment was not fully recognized until the Q2. But in 2021, as yet another indication of the diminishing impact video has on our business, revenue and adjusted EBITDA increased sequentially despite the timing mismatch. Capital expenditures totaled $71,900,000 for the Q1 of 2021, which equates to 39.8 percent of adjusted EBITDA. During the quarter, we invested $11,500,000 of CapEx for network expansion and $4,000,000 for integration activities. Adjusted EBITDA less capital expenditures was $108,500,000 for the Q1, an increase 16.7% from the prior year quarter.
In the Q1 of 2021, we paid $15,100,000 in dividends to shareholders. In March 2021, we issued $575,000,000 of 0 percent convertible notes due 2026 and 345 dollars of 1.8 convertible notes due 20.28. The net proceeds of the offerings were $895,200,000 after deducting initial purchase or discounts and other offering costs and expenses. From a liquidity standpoint, we had approximately $1,500,000,000 of cash and cash call. On hand as of March 31, and we continue to generate significant free cash flow.
At quarter end, our debt balance was approximately $3,100,000,000 consisting of approximately 1 $5,000,000,000 in term loans, dollars 650,000,000 in unsecured notes, dollars 920,000,000 in convertible notes and finance lease liabilities. We We also had $459,000,000 available for additional borrowing under our revolver at March 31. Overall, our debt to last quarter annualized adjusted EBITDA after netting cash on hand against debt was 2.2x as of March 31. As Julia already mentioned, earlier this week, we closed our purchase of the remaining approximately 85% of equity interest in Hargray that we didn't already own. The transaction implied a $2,200,000,000 total enterprise value for 100 percent of Hargray on a cash free and debt free basis.
The acquisition was funded with cash on hand, including the proceeds from the convertible notes and the net proceeds from the new $800,000,000 incremental Term Loan B. Following the closing of the Hargray transaction and the term loan B financing, we had approximately $3,900,000,000 in total debt outstanding and approximately $400,000,000 of available cash and approximately $460,000,000 of undrawn revolver capacity. Based on the current LIBOR rates, the projected annual interest expense on our outstanding debt is approximately $107,000,000 with approximately 71% being Fixed rate debt, a weighted average duration of approximately 6.5 years and a weighted average interest rate of approximately 2.7 call. Chad, we're now ready for questions.
Thank you very much. We will now begin the question and answer session. And the first question will be from Craig Moffett with MoffettNathanson. Please go ahead.
Hi, thank you. First, Julie, I just want to acknowledge and appreciate all that you talked about for the work that you're doing to close the digital divide At Cable 1, so thank you for that. And on two related questions actually to that. 1, It's a little hard to tell exactly what your organic footprint growth is, but I know a lot of your peers are fairly aggressively Pursuing edge outs and that sort of thing. Can you just talk about what your expectations are for Footprint expansion organically and then separately, how you would think about participating In any funds that would come from the government if indeed we get a Jobs Act infrastructure plan.
And then second, if you could also just comment on your expectations for the stimulus plan. I see you've already got A page on your website for potential applicants, if you could just talk about what you're expecting to see from that and what you've done to prepare?
Sure. Thanks for recognizing what our associates are working hard to do in these Communities in small cities and large towns, Craig. As far as Edge Outs, I don't know how much I would want to divulge about what our plans are. If you think about it, wherever we're edging out, there is some other provider. There's really no place In the United States where there isn't a telco, another fiber provider, another cable co offering services, What I would say is if it fits our profile, if it is a small city, large town, if they have a Need for a more robust, more reliable Internet service, That's something that we would consider, but I don't think we want to tip our hat to anyone about where we might be planning services in the future, quite honestly.
As far as the EVB plan, yes, we quickly scrambled a bunch of people, obviously working very hard to Fulfill the needs of the government and USAC. And I imagine that, while I'm not having a crystal ball that People who have our service will certainly consider upgrading since $50 of their bill We'll be paid for by the government. Keep in mind, our 100 meg service is $55 a month. So it will be quite easy to upgrade to either our 200 meg service or our 300 meg service. But It's quite possible that we will draw some people into the service for the first time for folks to try a reliable, hardwired Broadband service because of this opportunity.
And the next question will come from Frank Louthan with Raymond James. Please go ahead.
Great. Can you walk us through the next steps with Hargray? What sort of incremental investment you think is necessary? And can you give us an idea of Where they are on the commercial side, they've got some networks throughout the Southeast, outside of the territory. How should we think about that as an opportunity going forward?
Sure. So I think from an incremental investment standpoint on a from a relative purchase price standpoint, this one is pretty low. I think we're guessing that it's somewhere in the $30,000,000 It's much more just alignment in common technology from a capital standpoint, incremental that will be spent over a few years. But for the most part, it's a Very well invested network, a lot of fiber in the network. And commercial is a really important part of their business, given that they came from a more ILEC background, The same way Fidelity did, commercial was always part of their services and they've been a big player in that.
So it's an important part of their business and we're excited To both build our the existing Cable 1 commercial business and learn from what they've done really well as we combine the 2 teams together. And then, was there another question there, Frank? No.
Well, I'd just love to characterize the fiber networks that they Av on the commercial side, what are they how much fiber they have outside of the network and how can you capitalize on that and what your thinking is for that part of the
Sure. So they have a I mean, they've got a pretty robust fiber network that's it's more of a throughout a great deal of Georgia going over North Florida, with the acquisition of Anniston from us, increased their Alabama presence, working its way over towards Atlanta. 40% of their Customers are 40% of their homes faster actually served with fiber to the home. So it's a very deep fiber network and Both from a commercial standpoint and a residential standpoint. So we definitely and they've been making a lot of investments in Over the last few years, definitely under the Pritzker ownership, there's been a lot of investments made that we feel very fortunate to get the chance to monetize over time.
All right. I see their trucks running around here. So all right. Thanks a lot.
Sure.
The next question will be from Greg Williams with Cowen. Please go ahead.
Great. Thanks for taking my questions. First question is on Cyber to the home, over the last few months at Analyst Days and earnings calls, it seems like some of these telcos are indeed at fever pitch. In addition, PE and Infrastructure Fund, I know you guys overlap with AT and T, who's been pretty vocal about it, and CenturyLink maybe to a much, much lesser degree. But I think Frontier also, overlaps in your federated territories and last Friday they came out with some Are you seeing or anticipating any encroachment on your space?
And then the second question is more housekeeping. I think your SG and A intensity is up a little bit. Can you remind me what costs are sort of increasing as volumes pick up in the reopening, as we think about SG and A comps in 'twenty one versus 'twenty?
I'll start with the fiber to the home question. And so We do our largest we pretty much split our footprint with AT and T and CenturyLink. We have less Less than 10% of our homes passed have an overlap with Frontier, so that's not an overwhelming concern. AT and T does have fiber. I mean, our footprint is 20% is competitive with about Where they have fiber.
So do we see any other encroachment? No, but you can believe that we track them Very carefully and then just to track where anyone is coming into the marketplace, not just The ones that we've mentioned so far. But then we turn the focus on ourselves and our associates, our customers and our community, and we make sure that we are Providing a service of value and that means the speeds that people need, the reliability that customers need And getting service from their neighbors, quite honestly. We think that's the most important part to remain competitive.
Yes. And then on the SG and A side, Greg, and this is all in the queue, so you can pull it from there as well. But One of the largest increases was $2,400,000 related to M and A costs as the Hargray transaction happened all Most of the work around that happened in the Q1. We also had higher health costs by about $1,800,000 which really tied to the fact that The second half of last year's first quarter was when we saw a lot of people stop going to the doctor with Anything other than COVID related issues. And so that was a bit of a catch up.
We also had about $1,700,000 higher in labor costs. A lot That is actually just tied to how we accrue for our bonus and that was the greatest bonus accrual this year's Q1 compared to last year's Q1 when there was a lot more Uncertainty about where we were going. And then lastly, dollars 1,000,000 in conversion costs, system conversion costs tied to our ERP conversion that Launched effective April 1.
Great. Thanks for the color.
Next question is from Phil Cusick with JPMorgan. Please go ahead.
Hi, guys. Thanks. Julie, maybe you can go again into that April strength. What have been the drivers there? Is that stimulus money?
And how has May been so far?
All I heard was drivers. I don't know. Drivers of what?
Drivers of the April growth.
Oh, okay.
The April strength, sorry.
April, yes, sorry, Phil. I'm getting a little, my hearing must be going. April continues what we've seen quite honestly from about from the start of COVID, quite honestly. I mean, it just It has not let up. The same things that have been in play since mid March, April of last year are continuing to drive growth.
We see people call. Coming to us from literally everywhere, and I mean everywhere. It could be cell only, it could be DSL, and it is DSL. But it's also fiber to the home. We have people being drawn to us for needs.
They need a fast network. They need A network with a lot of throughput. They need a network that is reliable, and they need people that take care of them in a way that feels Like their neighbors and our growth is so far not slowing down.
Okay. And you talked before about what the uptake looks like on prices or plans above your basic Price point, can you update us on that?
On our packaging? I mean, our 100 meg service is 55. We have not Had
a No, I'm sorry. On the uptick above the yes, the sell in above the $55,000,000 Thank you.
My apologies. So 78% in the Q1 of this year, 78% people sold in, took peers above 100 megs. Currently, our total subscriber base, 59% of them are above 100 megs. So it's not just selling that's driving the higher take rate on tiers, but current folks upgrading as well.
That's great. And then maybe last thing, just dig into the Fidelity integration A little bit. What do you expect on pricing integration? Have you done that yet?
We have not done that yet, And I would expect exactly what we saw out of NewWave. NewWave's prices are exactly the same as Cable 1's right now. Their ARPUs, let me just put it that way. Their prices And ARPUs are the same as legacy Cable 1s. I would expect the same thing to happen with Fidelity.
And the only thing I would add to Elegy is there growing tremendously as well. And so we definitely have a mindset of don't fix what's not broke. And so we will work through it, But no rush to need to do anything, that's for sure.
Got it. Thanks to both of you.
The next question will come from Stephen Cahall with Wells Fargo. Please go ahead.
Thanks. And maybe just first on the M and A front. After Hargreaves and a few recent acquisitions and some minority investments already in the pipe, do You expect to find more M and A opportunities in the pipeline for the next few years? Or should we expect the next couple of years to be more about integration, Organic growth and some of those bets that you've already made through the minority investments.
Well, I mean, I think we're always I think clearly with what we have with Hardray and what we have with Mega, we've got large deals ahead of us. And so I would anticipate that the stuff We'll get to see and we'll spend time on. We'll either be investments in other businesses that set up things for the future or smaller acquisitions that are more Tuck in scale. So I consider both MEGA and Hargreay to be somewhat platform acquisitions And both substantive size that added a lot to our company in general. And we'll continue to look for other opportunities to Fill in the gaps, but needless to say that our footprint is now bigger, so things that are tuck in might not have been tuck in before, But are now things that we can look at.
So, we'll continue to explore those, but definitely wouldn't anticipate large transactions.
Thanks. And then a competitive one because it's one we've heard a lot from investors. We're getting asked whether or not you See T Mobile's fixed wireless product as being a meaningful point of risk. I thought that data point you just gave about 59% of the base above 100 meg was very helpful. Can you just help us contextualize what you think fixed wireless is going to mean for your market and whether you see it as an incremental competitive threat?
Certainly, stay very close to what T Mobile is doing, but also understand that they need to do the investment in 5 gs in order to take care of their own customers and their own cellular network. The needs of customers are clearly being driven by much higher data use rates And I really think this product will be able to provide in the long run. And I see it as At least half friend, as they will need backhaul. So, not overly concerned, but again, keep our eyes on them and then Turn the focus back in on ourselves and making sure that we are providing what our customers need.
And Steve, I'd say that the 200 meg Point is really important as far as the speed side of it, but just as importantly as the average customer using over 500 gigs a month and just the ability to have a Network that supports that kind of usage. I mean, keep in mind, we're carrying a lot of the mobile players' traffic over our networks already. Most of their usage is in their home going over our Wi Fi networks.
Thank
The next question is from Brandon Nispel with KeyBanc Capital Markets. Please go ahead.
Great. Thanks for taking the question. Stephen, one for you. Could you update us on what you expect from the contribution from For Hargray, either in the Q2 or in the 1st full year of the acquisition. And then you mentioned a timing difference in the video rate increase and your Expense increase, could you elaborate more on that?
What would have EBITDA margins been had they been matched? Thanks.
Got it. So on the first question, needless to say, we won't give guidance on what they're going to call. We don't give guidance in general. But what I will say is you can go back and look at what we talked about their 4th quarter annualized numbers being and obviously They continue to grow nicely. So it's you could extrapolate that out into what their contribution It will be done effective May 1 essentially, so we'll get 2 months of it in the second quarter and then obviously for the full Second half of the year.
I would say in this transaction in particular, we're not expecting a lot of synergies in the 1st 9 months From the standpoint of we've got their team, their team in place executing on a plan that was already in place. And we'll work to Follow them in and integrate as we move into next year. But unlike Fidelity that had a lot of synergies very This will be definitely spread more over the time and a little bit more back end loaded comparatively speaking. And on the rate side of it, I mean, I'm not sure I could answer exactly what margins would have been without it. All I would say is we had Basically, a half a month's worth of rate increase on the video side in the quarter as we do a March 1 rate increase that with Billing cycles really only gets you a half a month's worth.
So in the second quarter, we'll have obviously the full
Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Julie Lawless for any closing remarks.
Thank you, Chad. I want to again thank our associates for all they have done and continue to do for our company and for our customers. We appreciate everyone joining us for today's call and look forward to speaking with you again next quarter. Thank you.
Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.