Good day, and welcome to the Cable One First Quarter 2020 Earnings Report 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, CFO. Please go ahead.

Thank you, Ailey. Good afternoon and welcome to Cable One’s first quarter 2020 earnings call. We appreciate you joining us today. 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 I want to thank all associates, shareholders, analysts and bankers who are taking time to join us during these unprecedented times. I [indiscernible] off by mentioning our associates as I am both proud and humbled by the opportunity to work side-by-side with them each and every day. Words cannot express my gratitude for all they have done during this turbulent time. Our associates have worked tirelessly to serve our communities throughout the COVID19 pandemic and once again the passion and commitment they've shown for our customers and our company are simply remarkable. From the onset of this crisis, our primary focus has been on the health and safety of our associates and their families. We've instituted multiple initiatives to ensure our associates are taking care of so that they in turn can continue to take care of our customers. As part of our pandemic response our risk associates and those who needed to work remotely to care for their children were able to work from home almost immediately, quickly followed by more than 90% of our corporate and call center associates. For those it was critical to continued operations who are unable to perform their jobs from home, we implemented rigorous new safety protocols and procedures based on national and local guidelines. In addition, we implemented Purpose Pay, a 25% premium to hourly-based pay for associates who are asked to leave their homes in support of our company's purpose. To reduce financial uncertainty for our associates and allow flexibility in caring for their families during this stressful time, we enhance our Time Out program. That included providing up to 80 hours of additional emergency paid time off for our associates to care for themselves, for their family members. For associates in need of more…

Thanks Julie. The first quarter of 2020 produced solid financial results. Revenues for the first quarter were $231.2 million compared to $278.6 million in the prior year quarter representing a 15.3% increase. This increase was fueled by residential HST revenue increase of 19.4% and business services revenue increase of 22.7%. Excluding Fidelity operations, total revenue increased 3.8% year-over-year. Net income in the first quarter was $69.3 million, net income per share on a fully diluted basis was $12.05 per share. Operating expenses were $105.9 million or 33% of revenues in the first quarter compared to $94.5 million or 33.9% of revenues in the prior quarter, a 90 basis point improvement. Selling, general and administered expenses were $62.9 million or 19.6% of revenues in the first quarter compared to $61.4 million or 22.1% of revenues in the prior year quarter a 250 basis point improvement. Adjusted EBITDA was $157.7 million for the first quarter and increased to 18.5% from the prior year quarter. Our adjusted EBITDA margin increased 130 basis points year-over-year going from 47.8% to 49.1%. Capital expenditures totaled $64.8 million for the first quarter of 2020, which equates to 41.1% of adjusted EBITDA and 20.2% of revenues and includes $8 million related to Fidelity operations. In the first quarter of 2020 we paid $12.8 million in dividends to shareholders. From a liquidity standpoint, we borrowed $100 million under our revolving credit facility during the first quarter for general corporate purposes including four potential and completed small acquisitions and investments. We had approximately $242 million of cash on hand as of March 31 and we continue to generate significant free cash flow. By the quarter end our balance was approximately $1.9 billion consisting of term loans, revolver borrowings and finance lease liabilities and we had $221.3 million available for additional…

We'll now begin the question-and-answer session. [Operator instructions] Our first question comes from Philip Cusick with JPMorgan.

Hi, this is Sebastiano on for Phil. Just had a quick question Julie or Stephen if you could perhaps quantify the number of subs that are either on the FCC pledge or the $15 megabit offer that's currently in the market and for that 15 Mb offer, have you seen any substrate down or is this kind of more for you on new acquisition side.

As far as the 15 Mg plan goes, we have less than 2% selling to that plan. The people that are calling us and there are quite a lot of them were going online on to our shopping cart are seeking out higher level plans 200 Mgs or more. So a very little take rate on the 15 Mg plan. As far as commenting on how many people are covered under the FCC Americans Connected Plan that all of our customers. We're committed to not assessing our late fee or just connecting any residential or business customer until the pledge period ends at the end of June.

Just kind of following up on that, is there a number of subs perhaps that have gone into late payment or in arrears? Any color on that.

Sure. It's hard to say who exactly have been in arrears because there are customers that pay us right over and then there's customer that pay when they get reminders that they are about to be disconnected but that being said, we have about 10,000 more accounts that are past due at this stage than we ordinarily would have.

Okay. That's hopeless and then Steven just mentioning on the M&A aspect, I think you mentioned two small acquisitions or Letter of Credit in small investment. Were they both fixed wireless and then just on that, have you seen an uptick perhaps since last quarter you touched on perhaps willing to do some JV or small type investments. Have you seen an uptick in the COVID environment or any color on that would be great. Thanks very much.

Yeah so I said, both of these I would say fall into that investment bucket. Neither one of these were acquisitions we're just making joint venture investments in these two fixed wireless companies that we mentioned. And so they were both underway before they started. I don't think that we've seen any near-term impact. I think what will come down the road I think is to be determined, but I would say we had a variety of things in process and most of those in process have continued but nothing new is popping up yet. I think there is probably still some level of waiting to see what the markets are going to do from a debt standpoint and another before certain people jump in with opportunities.

Our next question comes from Gregory Williams with Cowen and Co.

Great. Thanks for taking my question. So it sounds like of the last question is very little sell on the low-end plans. So when you we talk about our second quarter you seen thus far in terms that you say that churn is extremely low in your pay for our gross ads are still strong because you're still allowing home which variables are there and if I could ask you one just on the ARPU and the ARPU impacts you're raising with the data overage fees, can you help characterize that and what that impact could be maybe fine tune out may be perhaps how many subscribers typically go over?

Hi Craig, it's Julie. So our churn based on our canvassing for HSD is incredibly low in the industry and of course it's even lower because we're not disconnecting anyone for nonpayment. So yes, churn is very low. With that being said, obviously we've already talked about the number of installations that are happening on a weekly basis are record breaking almost each and every week. On the terms of ARPU I think I couldn't quite get stuff was wavering a little bit but the second part of your question seem to be around how many people typically go over our data guidelines. And something that isn’t something that we publicly address specifically, but what I can tell you is far and away than majority and I mean the majority of people, do not go over our data guidelines. The majority of people don't even know they exist because they stay comfortably underneath of them. But there is a small percentage that do go over. And for those, either they can upgrade into a higher level plan with more data or possibly take our unlimited option where they'll pay for the additional gigs, their choice.

Yes. And Greg, just one thing I'd add to the first question you asked about because we're not able to go into homes, we are still doing installs even though we're not able to go into homes. And I think that's one of the places where I think our team has just been fantastic in their way to figure out how to do installs without going in the home and the amount of customer self-installation and figuring out ways to install people even though we don't have a drop-down there. It's been awfully impressive to be able to do the volume. Yes. And then on the other question, too, is there's the question Julie mentioned about, well, we have very few people who go over. We probably have more people go over, but we don't really think of that as lost revenue now because they wouldn't have been going over historically. So even though we gave them that, if you think about the progression, there's not a huge amount of lost revenue associated with that, although we'd be giving up revenue for the fact that usage has spiked in the short term.

But it was the right thing to do.

Our next question comes from Craig Moffett with Moffett Nathanson.

Hi, Two things, One, I know you've talked about it a lot, but I just want to make sure I'm perfectly clear, when you talk about the headwinds from the lack of usage overages and what have you, are you suggesting that the that overall broadband ARPU will be sequentially negative next quarter or year-over-year negative next quarter? Or just that it will be those will be meaningful headwinds relative to prior years? And then, I guess, second, you've talked a little bit about M&A, but I guess given the dislocations and everything from operations to the credit markets, is this an opportunity for you to try to find perhaps smaller cable operators that may be more eager to sell given the financial environment?

Sure. I would say on the first question, since we don't give guidance, we wouldn't really say what the forward looks like, all we would say is that it will be less than it would have been without it. And I think the one thing we said was that we had a $2 million impact of all of those things in the first quarter, which really wasn't until the second half of March. And so that's really only kind of a half a month impact. So all things added together, you could say is a $4 million to $5 million month impact at the max. And then that's offset by the higher growth that we've had and the incremental revenue that we'll get from more customers and more activity. And then on the M&A front, yes, we absolutely think that there will be some opportunities that present themselves. And that's where we think having a balance sheet like we have should put us in good position, and we want to make sure that we're in great both financial and operational perspective, being ready to take advantage of those opportunities when they present themselves.

Thank you. Our next question comes from Kyle Evans with Stephens.

Hi, thanks for taking my questions. It's been almost 1.5 years since you closed on Clearwave. Could you give us an update on how that's kind of flowing through the rest of the business and what you've learned over that 1.5 years? And then you've had two questions that are focused on kind of the sell-side of potential M&A. Could you give us an update on what you're seeing from maybe the private equity infrastructure firm side in terms of their level of interest in doing acquisitions?

Do you want me to hop in for you?

Sure. Yes.

So Clearwave is a wonderful acquisition. The folks there are I don't want to say they're untouched by pandemic because, certainly, they are, but they continue to complete installations at an accelerated rate ever since we took ownership of them. We have allowed them the capital in order to set up a second construction site, if you will, a hub. They've hired up not quite double the staff, and they are building more square footage at a cheaper rate than ever before. They are continuing, and actually, the Sparklight business folks are as well, to sell enterprise businesses throughout this pandemic. We could tell you stories that would really warm your heart. I mean you can imagine what the who is coming to us during these periods of time and asking for service. So Clearwave is doing very well throughout the pandemic.

And then on the M&A side, I mean, obviously, we see them as potential competition. But clearly, private equity and infrastructure continue to remain interested in the space. There's probably a variety of transactions, some that were underway before it happened and literally, the deals were done and they just had to close. And most of those have found a way to closing, even though it sounds like financing was probably a tougher piece down the stretch than they thought it was going to be going into it. There was other, I would say, smaller transactions that have managed to go through the process and continue to get done. And then there's other transactions where I think they just decided to take a pause. But in talking to private equity groups and talking to infrastructure funds, I think they seem as interested in ever in the space because they see value in it. I think especially those infrastructure funds who made to move into just telecommunication networks in general, I think a lot of them are faring much better than others who hadn't. And so I think this is only strengthening the position that our types of networks are truly core infrastructure and infrastructure-like assets.

One quick follow-on. You mentioned that you expected a seamless integration of Fidelity and no change to your three-year time line. Are there some milestones that we should be looking for along the way so that we know you're on track?

I'm not sure there's anything that we would actually tell you. But no, I'm just...

We've already integrated payroll and benefits. We're imminently connecting networks together. All the checklist applies, on things we did with some of the others.

Yes. The integration team led by Eric Lardy has done such a great job in getting prepared. I mean you can tell so many lessons were learned through the new wave process and so many things that just haven't become issues. And some of it also helped by the fact of just the timing of the Viacom contract. And so many things that we were able to realize sooner in this process because of the time frame we had to close. But I would say we're very well down the road of that. And honestly, the bigger pieces will be spending the capital on the upgrade networks piece of that. So the integration CapEx is the piece that will take over the three-year time frame, but a lot of the heavy lifting on the expense side is well underway.

Thank you. Our next question comes from Frank Louthan with Raymond James.

Great, thank you very much. Talk to me a little bit about the impact on your SMB business, how you're looking at that kind of going forward, what the sales funnel looks like through this quarter, and what sort of percentage of your customer base there are more at risk and so forth. And then with the interest in the WISPs, is that something you have further interest in, in wireless and looking ahead, some of the wireless license auctions that are coming up?

Well, I'll start from reverse, I guess. With regard to WISPs, Frank, we are agnostic on the technology that will deliver broadband into rural America, so we consider that our sort of space, and so whatever it takes to bring people the connectivity that they need. So I'd say, yes, let's see, first part, SMB, we talked about SMB representing about half of our total business services revenues. And just recently so this will be after the first quarter, most recent counts are 1% of our reoccurring revenues have been either paused or asked to be downgraded to a lower level of service. How this turns out is I mean this is another time where I'm very thankful to see geographically diverse. I mean we have states that are already open and are doing okay. We have states that have had very little health effect from this pandemic, not that it's going to stay that way, but so far, they're operating just fine. So the variability across our states is quite wide. How it turns out is the thing we are going to be watching very closely.

Yes. And the only thing I would add is on the business side, clearly, there's some businesses that are closed and so the sales funnel related to that piece becomes tougher. At the same time, there's a lot of businesses that need more capacity. They got there are people working from home, so everyone will be being in school districts trying to teach through that process. And so with all of that that creates additional bandwidth needs. And so our we have our sales teams focused on any and all of that and trying to make sure that where there's demand, we're meeting that demand. And when businesses open back up, that we're there to either turn them back on or turn them up for the first time.

And while I won't talk to it relative to normal, I saw their results from last month, and I was quite astonished at what they were able to do.

Great, thank you very much.

Our next question comes from Norman Kramer with Kramer Investments.

Hello, good afternoon. I have a couple of questions. First, I'm unfamiliar with the term fixed wireless, so I'm wondering if you could explain, please, what that business means exactly, in other words, what type of business it is. And you had mentioned doing several smaller acquisitions. What size of an acquisition would you consider smaller, either in terms of subscribers or revenues? Or whatever color you could give on that would be great. And lastly, you did not mention service extensions further out on your network. So do you have anything you might add there?

Sure. So on the first question of fixed wireless. Fixed wireless is basically services throughout the country that are generally referred to as a WISP, wireless Internet service providers. That is basically, for the most part, a point-to-point type internet service that's done wirelessly, and especially in very low density areas where building to those is not economical. And so as we think about it, Julie mentioned earlier the 950 communities we have across 21 states, all outside of those very small communities are still thousands and thousands of homes all around us that the density themselves wouldn't justify building out to, but still need Internet service. And their choices generally are either a low-level DSL or a satellite service of some sort or fixed wireless, and we think fixed wireless is an interesting technology. We're not going to be in the satellite space. We're obviously not going to be in the DSL space. And so that leaves the opportunity to still provide those customers that surround our communities with the technology that still provides a broadband-level service. And that technology continues to improve, and we've worked on both deploying it ourselves in a handful of markets, but then also making investments in these companies that have been doing it for a period of time, both for the learning as far as with the value creation opportunities that these small companies themselves have. And so that's the nature of what we're looking at in those. From a small investment standpoint, some of it really comes down to I would tell you that we probably think of anything from $5 million to $20 million in EBITDA is probably what we would consider small. Once you get over $20 million of EBITDA, it's at least not small anymore. It may not be…

Okay, that's very, very helpful. Thank you.

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

Okay, great, thank you for taking the question. Okay. Great. I guess two, if I could. One for Julie. Julie, in your prepared remarks, you sort of alluded to evaluating your existing data plans. I was hoping you could elaborate on that and what it might mean in terms of your ability to offer unlimited data and/or change around the pricing structure that you have currently. Second, for Steven, I was hoping you could provide us some stats. I think similar to what we're trying to get at is sort of a percentage of the base that typically receives an overage on a monthly basis, same thing with the unlimited data product. And then I'm not sure if you said it, but could you share with us the percentage of sales that were self-install during the quarter?

Brandon, it's Julie. So yes, obviously well, first of all, we evaluate our data plan guidelines every year. And I don't mean we just do it annually, we're watching it all the time, but we've made adjustments here to fore on an annual basis. Clearly, we have a situation now where we don't mean to penalize customers for going over data plans. We set data plans that are that make sense for the majority of far and away, the majority of customers in that plan. With the shift in usage, we think it's only prudent to take a look at that data and try to triangulate what would be fair and normal under these new circumstances. That modeling and that process is going on now. We saw data utilization consumption that is grow through the first quarter, through April, all the way through the beginning of May. And now it seems to be settling down and actually going back down. Now that's probably people are starting to maybe go back to work, schools are starting to close their season, so that makes sense. That modeling is ongoing. I can't tell you what they're going to be because I don't even know what they're going to be because we're still modeling it. We do have unlimited data. We have that option. It's currently available to customers for $40 a month. So any plan can opt in to unlimited. And in fact, we sell that in about 20% of the time. 20% of the time, our new customers coming in the door will take that option. Our pricing and packaging, what we in plan called flex, started last January, and it's working very well. We don't I don't think we have a reason at all to change our pricing and packaging at this time. Data guidelines, yes, pricing and packaging no. Currently, we have over 65% of the folks coming in the door opting for a plan that is 200-megs or higher. And the churn is incredibly and even pre-COVID, the churn was incredibly low, which tells us that the satisfaction with those plans and the value of those plans is right sized. So other than redoing the guidelines, I think we're good to go.

And then on the other side, as far as the stats around...

Well, I can talk about self-install.

Yes, go ahead.

So self-install went up 20% first quarter of 2019 to first quarter of 2020, and that won't be a surprise to any of us, right? And self-installs are only available in Legacy CABO at this point in time, neither NewWave or Fidelity have them.

Yes. And then on the other we're not going to break out the variety that gets to that $4 million to $5 million a month because we can talk about overages, but overages would be compared to what they were historically to what they are now, so how much of that is really lost revenue versus just revenue you could have had additionally. And so I think that's kind of the guidance we'll give around the incremental/cost and lost revenue. I do say that our commercial our business services VP wanted to make sure we mentioned that April sales were actually higher this year than they were last year, which I think is a good sign of businesses in the markets we serve.

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

Thank you, Riley. All, we appreciate your time today. Let me leave you with a few closing thoughts. Now, as always, we are living our purpose, promise and values. We strive to keep our customers connected to what matters, including their families, their children's education and their ability to earn a living. We are fully committed to this mission. I want to close again thanking each of our associates for their tireless efforts to fulfill our purpose and serve our customers with essential connectivity during these uncertain times. We appreciate everyone joining us for today's call, and we look forward to speaking with you again next quarter. Thank you.

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