Hello, everyone, and welcome to the Cable One Third Quarter 2021 Earnings Call. My name is Bethany, and I'll be coordinating this call for you today. [Operator Instructions] I will now hand the call over to your host, Steven Cochran, Chief Financial Officer at Cable One. Steven, over to you.

Thank you, Bethany. Good afternoon, and welcome to Cable One's Third Quarter 2021 Earnings Call. We're glad to have you join us as we review our results. Before we proceed, I would like to remind you that today's discussion contains 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 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 the discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles or GAAP. Reconciliation 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. The third quarter now marks the 22nd consecutive quarter in which we have delivered strong year-over-year results. Revenues increased by 26.9% compared to the prior year quarter. Adjusted EBITDA increased by 26.4%, and adjusted EBITDA margin was 51.2%. On a year-over-year basis, and excluding the impact of Hargray operations, which were acquired on May 1, revenues and adjusted EBITDA increased by 5.6% and 12.5%, respectively, and adjusted EBITDA margin was 53.3%, which is a 320-basis-point increase over prior year. I'm incredibly proud of the solid growth our team continues to deliver from one quarter to the next, particularly with the added challenges presented by the pandemic. Our consistency is a direct result of executing a unique data-centric strategy, the core competencies that we have built up around that strategy and our people, who continue to execute and are truly the backbone of our success. We believe this consistency is sustainable as a result of both the organic and inorganic growth opportunities that lie ahead. While there are many aspects of our company that make us unique, I'd like to take a moment to highlight just a few of our key differentiators. Since our early days, we have intentionally chosen to operate in small cities and large towns across rural America, where we consistently provide measurably better products and services than alternative providers. Within our rural market demographics, only 25% of our competitors provide broadband service with download speeds of 100 megs or higher. Despite this advantage, we operate as if every market is highly competitive setting ourselves apart from our competition by creating an exceptional local customer experience that includes reliable, high-speed, value-based broadband services. Due to our strategic pivot from linear video years in…

Thanks, Julie. Now let's turn to our results. Revenues for the third quarter of 2021 were $430.2 million compared to $339 million in the prior year quarter, a 26.9% increase. This increase, which included $78.4 million of revenues from Hargray operations was fueled by a residential HSD revenue increase of 26% and a business services revenue increase of 44.2%. To give a sense of our growth, when excluding both Hargray and Anniston operations, we would have seen third quarter total revenue increased by 6.8%; residential HSD revenue increased by 12.9%; and business service revenue increased by 8.4%. Residential HSD customers grew by approximately $151,000 or 19.2% year-over-year. approximately 110,000 residential data PSUs came to Cable One in the Hargray acquisition. Of these, approximately 19,000 were contributed to Hargray in the Anniston Exchange in October of 2020. Similar to most peers in the industry, we suggest that earlier this year that our HSD net gains in 2021 would likely return to 2019 levels. But our third quarter once again outperformed the same period in 2019. In fact, if we exclude the customers added at the time of the closing of each of our various acquisitions, through three quarters of this year, we have more than doubled our 2019 organic customer growth and nearly tripled 2018. Operating expenses were $121.7 million or 28.3% of revenues in the third quarter compared to $107.3 million or 31.7% of revenue in the prior year quarter, a 340-basis-point improvement driven largely by a decrease in programming and labor cost. Selling and general and administrative expenses were $95.1 million for the third quarter of 2021 compared to $62.6 million in the prior year quarter. These expenses were 22.1% of revenues in the third quarter of 2021 compared to 18.5% of revenues in the prior year quarter. The…

Thank you [Operator Instructions] Our first question comes from Steven Cahall from Wells Fargo. Please go ahead.

Thanks Steve, you sounded pretty confident on the pace of residential broadband net adds year-to-date being more than 2 times 2019. And I think your penetration passing is really still only around 35%. So I'm just trying to think, is that low double-digit millions that you're doing in terms of quarterly net adds, something that you feel like is sustainable for the periods ahead? Is that a good run rate for us to think about?

Repeat what you said as the run rate because I didn't catch that.

Yes, low double digits, so $10 million, $12 million, something in that sort of range as an organic number.

You mean thousand, correct?

Yes. Sorry, sorry.

So we have not given guidance other than to say that we think things trend back toward 2019. We felt good about our ability to continue to deliver hiring. Our residential broadband penetration is closer to 39%. I think sometimes the numbers get mixed because people look at our total homes passed, which include business service passings as well. But in totality, I think we continue to see higher growth rates than what we did pre-pandemic, and we feel really good about that and the ability to continue to drive toward that.

Great. And then your residential ARPU data growth was about 5%, I think, in the quarter, and I think 6% is where you were in the first half of the year. Anything we should read into that? Is that the mix effect from the Hargray's integration? Or just any other thoughts on residential data ARPU? Thanks.

Yes. I mean I think there is a I mean, clearly, there's a decent amount of noise in that number, just given the impact of Hargray coming in and Anniston leaving from last year when you look truly at just the year-over-year. I think what we are continuing to see is a pretty consistent mid-single-digit ARPU increase on the HSD product.

It actually is intentional as we've been playing with the levers of growth unit growth versus ARPU and trying to balance both of those for the good long-term sustainable growth and value in the minds of our customers. One of the things that we've been doing for a while now is experimenting with pricing and promotions around our unlimited, and that is having an effect on that as well. But I wouldn't read too much into it. It's strong growth, and we can lever it up or down as we see fit. Remember, we have not done a service increase in the legacy system since 2015.

Yes, great thank you.

The next question comes from Brandon Nispel at KeyBanc Capital Markets. your line is now open.

Great I wanted to see if you had any more color on the potential joint venture that came out in the 8-K yesterday. And specifically, could you give us percentage of capital you're spending today on fiber, which we would think of as sort of going with that JV? And then just on the expense side, where do you see margins going? How much ability do you have to toggle things like SG&A going forward? Thanks.

Sure. So I will hit the first one on the partnership. I mean I think so I think there's a question of what gets removed from our numbers versus what is incremental opportunity that we would have tried to figure out how we take on internally. And so what this I think this partnership allows us to do is accelerate even beyond where we're at today. So I think the numbers we gave earlier were in the low-50 millions of dollars that we've spent year-to-date, which would lead us toward another quarter spending at that level, call it, $70 million just to if we just added on. We similarly did the same thing in the fourth quarter that we did in the third. And so we will be able to reduce that number. We won't completely [indiscernible] that number because we will still do some level of expansion within our footprint. What we see more is a great platform or two great platforms to actually have the ability to go and really accelerate and saw a challenge in being able to do that because to put an organization like that in place, is a lot of people, a lot of expense, a lot of capital and was both going to negatively impact our margins as well as our free cash flow, if we tried to truly go after it. Additionally, there's a focus issue, too. It takes a lot of people and a lot of leadership and our ability to leverage a leadership team that we're really comfortable with already and then to be able to leverage their history to go and pull a team together to be 100% focused on this and allowed this to set outside a public arena and to go operate as a stand-alone company and then think about down the road the opportunity to bring it back into the company when it's a matured business.

Related to the margin question. And while we don't give guidance, what I can tell you, Brandon, and I think by virtue of spending time with us. We have, what I call, a discipline of focus, and Steven just referenced that. And it ties into a continuous improvement mentality. And we believe that we can constantly be making things incrementally better. And I think you see that in our results over the long term. I would expect that we would continue to drive toward this.

Yes. And Brandon, and specific as it relates to this quarter, I think one thing we also don't do is, we don't we don't very intentionally try to manage the quarters per se. We are very focused on looking at year-over-year and making sure that in any given year, that we're seeing margin expansion take place. And that's why we gave the year-to-date number and focused on the 320-basis-point improvement we've had in the first nine months compared to the last the first nine months of last year. And while any given quarter we may see ups and downs in that, we feel really good about the long-term trajectory of that.

Okay. Thank you.

[Operator Instructions] Our next question comes from Frank Louthan at Raymond James.

Great thank you Just curious, if you saw any impact from EBB in the quarter, if you can talk to that? And any thoughts on those customers going forward? And then I've got a follow-up.

So we have approximately 10,000 EBB customers at this point in time. The number of EBB customers coming on, on a daily basis has stayed fairly consistent. The vast majority of the EBB customers are existing customers. And they are taking the opportunity to use these new found funds to increase their broadband speeds that is, they're taking higher tiers. It has not been a large driver of new customers for us.

Okay. Great thank you. And looking forward, have you seen any changes in the demographic trends with some of your gross adds? Some of your peers have seen drop offs in lower income, folks that were more regular in the gross adds. Have you seen any changes in those types of trends?

Actually, no. Steve and I were just talking about it this morning. I took a look at it. And we our customers now look like our customers before. We have a just tiniest slight uptick in lower-income customers, which I actually would expect given how we have marketed in the past and the demographics of our market. But we do not see that which you heard I believe chatter talk about. But it makes sense. We're different.

Great. Thank you very much.

We have no further questions in the queue. So I'll hand the call back to Steven and Julie for any closing remarks.

Thank you, Bethany. We appreciate everyone joining us for today's call and look forward to speaking with you all again next quarter. Thanks.

This concludes today’s conference call. Thank you for joining. You may now disconnect your lines.