Good afternoon, and welcome to the Cable One First Quarter 2021 Earnings Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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, Chad. Good afternoon, and welcome to Cable One's first quarter 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 these forward-looking statements discussed during today's call and during 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, Julie Laulis. With that, let me turn the call over to Julie.

Thank you, Steven, 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 One associates. The acquisition of Hargray closed on May 3rd and we are extremely excited to have Hargray as part of the Cable One family of brands. I'd also like to take a moment to welcome Megan Detz our new Senior Vice President of Human Resources who comes to us from Hargray. Megan is a valuable addition to the Cable One 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 Hargray's culture and initiatives, as we begin the process of bringing our two 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 from the quarter, before handing the call over to Steven 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 HSD 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 first quarter of 2021, we added 22,000 residential high-speed Internet customers on a sequential basis versus 19,000 in the first quarter of 2020. On a year-over-year basis that reflects an additional 86,000 residential HSD…

Thanks, Julie. The first quarter of 2021 generated exceptional financial results. Revenues for the first quarter were $341.3 million, compared to $321.2 million in the prior year quarter, a 6.2% increase. This increase which included $3.2 million of revenue from Valu-Net's operations was fueled by a residential HSD revenue increase of 18.5% and a business services revenue increase of 4.3%. Meanwhile, first quarter 2020 revenues included $9.1 million from our divested Anniston operations. To give a sense of our year-over-year organic growth, when we exclude first quarter 2021 Valu-Net results and first quarter 2020 Anniston results, we would have seen first quarter total revenue increased by 8.3%, residential HSD revenue increased by 20.5% and business service revenue increased by 5.8%. Residential HSD customers grew by approximately 86,000 or 12% year-over-year, which as Julie mentioned, excluded approximately 17,000 from the Anniston system that were contributed to Hargray, and included 5000 that were acquired from Valu-Net. Operating expenses were $101.5 million or 29.7% of revenues in the first quarter, compared to $105.9 million or 33% of revenues in prior year quarter, a 330 basis point improvement. Selling, general and administrative expenses were $69 million for the first quarter of 2021, compared to $62.9 million in the prior year quarter. These expenses were 20.2% of revenues in the first quarter of 2021, compared to 19.6% of revenues in the prior year quarter. Net income in the first quarter was $68.6 million. Net income also included a $5.6 million non-cash gain from a fair value adjustment associated with the Mega Broadband Investments' call and put 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…

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] 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 One, so thank you for that. And on two-related questions actually to that. One 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 EBB plan yes we quickly scrambled a bunch of people, obviously, working very hard to fill the needs of the government and USAC. And I imagine that while not having a crystal ball that people who have our service will certainly consider upgrading since $50 of their bill will 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.

Thank you.

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 do you think is necessary? Can you give us an idea of where they are on the commercial side? They've got some network 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 million that is 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 One commercial business and learn from what they've done really well, as we combine the two teams together. And then, was there another question there Frank? No. Okay.

Well, just I'd love to characterize the fiber networks that they have on the commercial side. I mean, what are the -- 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 business?

Sure. So they have a -- I mean, they've got a pretty robust fiber network that's more of a – throughout a great deal of Georgia, going over into 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 past are 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 it 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 Fiber 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 funds. I know you guys overlap with AT&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 aggressive initiatives. Are you seeing or anticipating any encroachment on your space? And then the second question is more housekeeping. I think your SG&A intensity is up a little bit. Can you remind me what the costs are sort of increasing as volumes pick up in the reopening, as we think about SG&A comps in 2021 versus 2020? Thanks.

I'll start with the Fiber to the Home question. And so, we do -- our largest -- we pretty much split our footprint with AT&T and CenturyLink. We have less than 10% of our homes past have an overlap with Frontier, so that's not an overwhelming concern. AT&T does have fiber. I mean our footprint is -- 20% is competitive, with about 13% of that being Fiber to the Home and the majority of that would be AT&T. So we do know how to go up against AT&T where they have fiber. So do we see any other encroachment? No, but you 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 remaining competitive.

Yes. And then on the SG&A side, Greg, and this is all in the Q, so you can pull it from there as well. But one of the largest increases was $2.4 million related to M&A cost, as the Hargray transaction happened -- most of the work around that happened in the first quarter. We also had higher health cost by about $1.8 million, 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 $1.7 million higher in labor cost that, a lot of that is actually just tied to how we accrue for our bonus and that there was greatest bonus accrual this year's first quarter compared to last year's first quarter, when there was a lot more uncertainty about where we were going. And then lastly, $1 million in conversion costs -- system conversion costs tied to our ERP conversion that launched effective April 1.

Great. Thanks for the color.

The 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.

The April strength, sorry.

April. Yes. Sorry, Phil, I'm getting old, 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's 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 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 they're neighbors. And our growth is so far not slowing down.

Okay. And you talked before about what the uptake looks like on prices on plans above your basic price point. Can you update us on that?

On our packaging?

Yes.

I mean, our 100 meg service is $55 -- we have not had a --

No. I'm sorry. On…

The sell-in.

On the uptake above the -- yes, the sell-in above the $55. Thank you.

My apologies. So 78% in the first quarter of this year, 78% people sold in took tiers 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 digging 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 One's right now. Their ARPU, let me just put it that way. The prices and ARPUs are the same as legacy Cable Ones. I would expect the same thing to happen with Fidelity.

And the only thing, I would add to Fidelity is they're growing tremendously as well. And so we definitely have a mindset of don't fix what's not broken 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 Steven Cahall with Wells Fargo. Please go ahead.

Thanks. Maybe just first on the M&A front. After Hargray and a few recent acquisitions and some minority investments already in the pipe, do you expect to find more M&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 investment?

Well, I mean, I think we're always looking for opportunities to deploy our balance sheet and to grow on the strategy of broadband in rural markets and so we'll keep our eyes open for that. I think clearly with what we have with Hargray and what we have with Mega we've got large deals ahead of us. And so I would anticipate that the stuff we're – we'll get to see and we'll spend time on will either be investments in other businesses that set up things for the future, or smaller acquisitions that are more tuck-in in scale. So I consider both Mega and Hargray to be somewhat platform acquisitions and both substantive size that added both – 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 5G 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 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 as most of their usage is in their home going over our Wi-Fi networks.

Yeah. Thank you.

[Operator Instructions] The next question is from Brandon Nispel with KeyBanc Capital Markets. Please go ahead.

Great. Thanks for taking question. Steven one for you. Could you update us on what you expect from the contribution from – for Hargray either in the second quarter and the first full year of the acquisition? And then you mentioned a timing difference in the video rate increase in 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 contribute as 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 fourth quarter annualized numbers being. And obviously, they continue to grow nicely. So it's – you could extrapolate that out into what their contribution is going to be. It will be done effective May 1 essentially. So we'll get two 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 first nine months, just from the standpoint of we've got their team in place executing on a plan that was already in place. And we'll work to pull them in and integrate as we move into next year. But unlike Fidelity that had a lot of synergies very early, 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 1st rate increase that – with billing cycles really only gets you half a month's worth. So in the second quarter, we'll have obviously the full representation of that rate increase in the numbers.

Great. Thanks.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Julie Laulis 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.

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