Good day, and welcome to the Cable One Earnings Report Q4 2019 Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steven Cochran. Please go ahead.

Thank you, Sarah. Good afternoon and welcome to Cable One’s fourth quarter and full year 2019 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 and expectations. You can find factors that could cause Cable One’s actual results to differ materially from these projections listed in today’s earnings release and in our recent SEC filings. Cable One is under no obligation and expressly disclaims any obligation, except as required by law, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, today’s remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. Generally Accepted Accounting Principles. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.cableone.net. Joining me on today’s call is our President and CEO, Julia Laulis. With that, let me turn the call over to Julia.

Thank you, Steven. Good afternoon and thank you for joining us for today’s call. I’ll kick off my remarks by sharing some highlights from 2019 before providing a look ahead to 2020. Then Steven will give a full recap of our financial performance. I’m exceptionally proud of our performance in 2019. It was a very busy year and I would like to take a moment to thank our associates, without their hard work and dedication, we would not have been able to accomplish so much this past year. To briefly recap some highlights, 2019 saw us rebrand our consumer-facing business from Cable One to Sparklight. This was not simply a name change, rather embodies our transformation from a traditional cable company to an HSD-centric provider that seamlessly connects customers to the things they care about most. We continue to work to further bridge the digital divide and rural communities across our footprint. As you may remember, in 2016, we launched gigabit speeds across our legacy Cable One footprint. In 2019, we deployed gig service in more than 200 communities in our NewWave markets and we now offer gig service to more than 97% of our homes passed. On the subject of NewWave, I’m pleased to share that we completed virtually all integration activities by the close of 2019, which was ahead of our original schedule. This sets us up nicely to realize additional adjusted EBITDA growth and margin expansion in those markets as we fully capture the run rate synergies from the acquisition. On the M&A front, 2019 was an active year. In January 2019, we acquired Clearwave Communications, which expanded our fiber footprint and enterprise business segment. Then in October, we finalized our purchase of Fidelity Communications, data, video and voice business. Both companies are an excellent fit in…

Thanks, Julia. The fourth quarter of 2019 once again, produced solid financial results. Revenues for the quarter were $318.8 million, compared to $269.9 million in the prior year quarter, representing an 18.1% increase. As Julia mentioned, this increase was fueled by a residential HSD revenue increase of 18.9% and a business service revenue increase of 41.6%. Excluding Clearwave and Fidelity operations, total revenue increased 3.5% year-over-year. Net income in the fourth quarter was $53.6 million. Net income per share on a fully diluted basis was $9.32 per share. Operating expenses were $103.4 million, or 32.5% of revenues in the fourth quarter, compared to $91.8 million, or 34% of revenues in the prior year quarter, a 150 basis point improvement. Selling, general and administrative expenses were $64.7 million, or 20.3% of revenues in the fourth quarter, compared to $57.6 million, or 21.4% of revenues in the prior year quarter, a 110 basis point improvement. Adjusted EBITDA was $158.3 million for the fourth quarter and increased 24% from $127.6 million in the prior year quarter. Our adjusted EBITDA margin increased 240 basis points year-over-year going from 47.3% to 49.7%. Keep in mind that this is inclusive of a full quarter of Fidelity operations. Capital expenditures totaled $86 million for the fourth quarter of 2019, which includes $21.9 million related to Clearwave and Fidelity operations. Year-to-date, we spent $262.4 million on CapEx, which equates to 46.1% as a percentage of adjusted EBITDA and 22.5% as a percentage of revenues. When excluding the incremental capital expenditures related to the NewWave and Clearwave integrations, our capital expenditures were 40.4% of adjusted EBITDA and 19.7% of revenues. In the fourth quarter of 2019, we paid $12.9 million in dividends to shareholders. From a liquidity standpoint, we had approximately $125 million of cash on hand as of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Philip Cusick with JPMorgan. Please go ahead.

Hey, guys. Thanks. Steven, you stole a couple of my questions there at the end. The $65 plans and unlimited, you saw a nice pick up on those. Can you give us the mix of customers coming in on even higher plans? And what’s the percent of the base taking unlimited today?

Yeah. Phil, it’s Julia. The short answer is, no, I can’t. Over – in terms of new sell-in, over 60% are taking higher plans, period. So that means either $65, $80 or $125. But I don’t have the breakout. And we don’t share the breakout of each individual tier. And unlimited – what was your question unlimited?

Just how – what percent of the base is taking unlimited today?

Well, the sell-in is over 20%. Right now we have about half of our customers on the new plans and we’re working at migrating the existing customers, both on legacy CABO and NewWave totally onto the new packaging pricing. So, when that happens, we’ll have a number.

Okay. Understood. And why delay the video price increase? Is there something other than just sort of regular way business? Is anything changing?

No. It’s just a matter of – when we passed along our rate adjustment, we are doing it in a way that is conscientious of our customers’ pocketbooks to the extent possible, given what the programmers are passing along to us. And given retrans happened basically on December 31, we feel like we can’t get good numbers together before then, as well as the migrations – the rate migrations that we talked about, where we’re taking existing customers that are not on our new packaging, both in legacy CABO and a NewWave. And moving them to the new pricing and packaging, which took priority over the video rate adjustment.

Understood. And lastly, going back to CapEx, you said that the capital intensity should come down in terms of – it sounds like sort of regular way of maintaining the network.

Yeah. So, the legacy business.

Yeah. And should we assume that that’s in terms of dollars as well?

Well, I mean, I think that one is harder to say. It’s just because of the nature of we keep adding on to the business. So, if you really want to talk about the legacy Cable One, then I think you could make the argument that as a percent – as a dollar amount tied to that, but I think those numbers are getting harder to track the more things we add into the total.

Understood. Thanks, guys.

Our next question comes from Brandon Nispel with KeyBanc Capital Markets. Please go ahead.

Thanks. Couple of questions. Julia, you mentioned the subscriber base in sort of legacy Cable One and NewWave accelerating year-over-year. Can you give us a sense if you expect that acceleration to continue into next year? I think you did call out some potential churn. And then maybe just along those lines, there is obviously different footprints that you’ve added to the portfolio over the last couple of years. Can you talk to us a little bit about the differences in churn profiles and how you might be able to drive churn of a higher churn market down to maybe a lower churn market? Thanks.

Sure, Brandon. I think that – well, I think exactly what I said, that the new pricing and packaging is helping to fuel growth. So, to the extent that we move more and more of our base to that platform, we will continue to see that growth. That is my expectation. In terms of potential churn, that was related specifically to legacy NewWave transitioning to the new pricing and packaging. In many cases, NewWave has bundles that are being offered basically at cost and that’s not something that is sustainable. So, those folks will see rate adjustments that you might not be palpable. Our goal is to save the HSD customer on those, but we expect that there might be some churn. And looking at churn across the properties, I’m not going to get into specifics, but I will say that in legacy Cable One, our churn is incredibly low. NewWave, as it becomes more and more alike Cable One, starts to mirror that. Fidelity may experienced higher churn in the short run as their policies and procedures come in line with Cable One-related to collections, for example. Does that help?

Great color. Thank you.

Our next question comes from Stephan Bisson with Wolfe Research. Please go ahead.

Good afternoon. Just a couple from me. The later video price increase, can you talk a little bit about the size? I know historically you try to push through the entirety of your programming cost increase. Is that still the idea?

Yes.

Exactly.

Easy one. And then, have you thought about something like a Comcast Flex product for your HSD-only customers either to increase the rate of acquisition or to just provide additional value that you might be able to charge for?

We’ve thought about it, Stephan. I think right now our focus is on growing the business and maybe we can – we have friends at Comcast and we’ve talked to them as they’ve launched it and we’re going to wait and see how that goes. I think we’re hesitant to do anything that might get us in a place like exists on video, where we are not in control of our destiny.

Understood. And then lastly, that was interesting commentary at the end regarding M&A and then also the strategic investments. Any color on what those might look like? Is this kind of what connectivity via back haul or additional fiber build? Any kind of help on but it’s kind of out there, I guess?

I think we’re always looking to expand our network. There can be things like fiber to the tower, it can be finding an anchor tenant. And then near-net, it’s not existing net, I think there’s all kinds of ways to expand your footprint, most of – putting fiber in the ground and from that using that fiber to get more customers. And so, I think any and all and let’s – lots of markets through 21 states. We see lots of opportunities for that, candidly not that dissimilar from what Clearwave’s whole business model is and continuing to look for things like that, is that – but that’s specifically around the strategic investment piece.

Yeah. That’s great. Thanks for the color.

Sure.

Our next question comes from Clay Griffin with MoffettNathanson. Please go ahead.

Hey, good afternoon. Yeah. It’s Clay on for Craig today. Look, we’ve seen WOW and Google drop videos. Is there a point at which you would consider dropping your video service and only offering a virtual alternative instead?

It’s not our intention to drop video at this time. It’s been a nice mix for us as video declines and the revenues, not the cash flows, but the revenues going down and we got with high-speed data in business services. How we deliver that product? It might change in the future, but no plans right now to drop video outright.

Okay. Thanks.

Our next question comes from John Kornreich with JK Media. Please go ahead.

Hi. Thank you. A couple of the somewhat naive questions, because I’m not all that close to your Company. But when was the last explicit price increase on HSD? And when you might mix…

October of 2015.

Say it again, please?

October of 2015.

2015?

Yes.

And I assume there is no plans for this year?

Not at this time, no.

Okay.

We are getting some nice growth through unit growth and ARPU growth at this point, but that is always a possibility if being warranted.

And clearly we invest significantly in capacity and allowing customers to use more and more and data usage continues to grow up. And so logically at some point you recoup that. But we’ve been able to grow without it to this point.

Why shouldn’t broadband unit growth, excuse me, be higher than 3%, 3.5% given your penetration is 15 points to 18 points below other cable companies? Is it simply because of your demographics?

No. It’s because of our strategy. We have a – I guess, what we think is certainly saying, we count cash flows not subs. And we have a lifetime value orientation around our subscriber growth. So, we don’t go for every subscriber and therefore, it’s – we don’t believe it’s a pure market share gain.

Okay. Thank you. One little aside, I was at the meeting in New York years ago, and Tom might presented that slide presentation on why it’s all about high-speed data and business services. Kudos to him, five or six years later, Wall Street has quote on and as far as cable companies are concerned, investors couldn’t care less about video, because they look at your margins, which are 10 points higher or 13 points higher than other cable companies. So, I don’t know if Tom is resting in the Sun, but you can tell them one investor says, kudos to you.

I saw him last week and we talk about it every time we meet.

Thanks a lot. That’s all I have.

Thank you.

Our next question comes from Frank Louthan with Raymond James. Please go ahead.

Hey, guys. This is Rob on for Frank actually. Are you guys interested in any of the CBRS spectrum? Thank you.

Yeah. I think we’ll obviously monitor what’s going on there. I don’t think at this point, we would call ourselves a bidder. But definitely keep watching what’s going on with all the various options and different kinds of government-type programs as well. So...

Great, thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Julia Laulis for any closing remarks.

Thank you, Sarah. I want to thank all of our associates for another great quarter and year. We appreciate everyone joining us for today’s call and we look forward to speaking to you again next quarter. Thanks, all.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.