Good afternoon. Thank you for attending today's Cable One Fourth Quarter and Full-Year 2022 Results Call. My name is Jason, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Jordan Morkert.

Good afternoon, and welcome to Cable One's fourth quarter and full-year 2022 earnings call. We are 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 a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles or GAAP. 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. During today's call, whenever we refer to fourth quarter results on an adjusted basis, we are excluding Cable America. The operations contributed to Clearwave Fiber and the other operations we divested in 2022, and whenever we refer to full-year results on an adjusted basis, we are excluding Hargray, Cable America, and the Clearwave operations, we contributed to Clearwave Fiber. Joining me on today's call is our President and CEO, Julie Laulis; and Todd Koetje, our CFO. With that, let me turn the call over to Julie.

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. Our fourth quarter and full-year financial results reached new highs in revenues, adjusted EBITDA and margins. We expect continued opportunities for growth, given that the long-term secular drivers of demand for digital connectivity are more present than ever before, is our purpose-driven associates relentless focus on delivering our strategy that ultimately enables us to compete and win. Our full-year results produced a 6.2% year-over-year increase in total revenues, an 8.6% year-over-year increase in adjusted EBITDA, and an 11.3% year-over-year increase in adjusted EBITDA less capital expenditures. Our adjusted EBITDA margin improved to 110 basis points year-over-year to 53.4%. For the fourth quarter, on an adjusted basis, our total revenues increased by 1%. Residential broadband revenue grew by 5.1% and our business services revenue grew by 4.6%. On a consolidated basis, our Q4 adjusted EBITDA margin set another record at 54.8%, and our adjusted EBITDA less capital expenditures increased by 9.5%. Our sustained success is a result of our people, products and disciplined investments. Looking ahead, we have every confidence in continued long-term growth as we execute against our ongoing strategy focused on connectivity and staying ahead of consumer trends. Looking first at our residential Internet service, when excluding the operations we divested earlier this year, we added approximately 15,000 customers over the past 12 months. On a sequential quarterly basis, we saw a decrease of approximately 1,700 customers. As we shared during the third quarter, macroeconomic trends caused a slowdown in new home creation and move activity that resulted in a corresponding slowdown in gross connects. This trend, which continued in the fourth quarter, along with new competitors in select markets adversely impacted our customer count. We remain encouraged by retention of our base with…

Thanks, Julie. Starting with revenue. Total revenues for the fourth quarter of 2022 were $425.5 million compared to $432.6 million in the fourth quarter of 2021, a 1.6% decrease. The decrease was primarily due to the contribution of operations to Clearwave Fiber at the beginning of the year and other divestitures during 2022. On an adjusted basis, our total revenues increased by 1% for Q4. Residential Internet revenue grew by 5.1% and business services revenue grew by 4.6%. Operating expenses were $112.6 million or 26.5% of revenues in the fourth quarter of 2022 compared to $119.9 million or 27.7% of revenues in the comparable quarter of the prior year, a 120 basis point improvement. Selling, general and administrative expenses were $85.7 million for the fourth quarter of 2022 compared to $94.9 million in the prior year quarter. These expenses were 20.1% of revenues in the fourth quarter of 2022 compared to 21.9% of revenues in Q4 2021, a 180 basis point improvement. Our income from operations for the fourth quarter increased $17.4 million or 14.3% year-over-year. In the fourth quarter, we recognized a net loss of $77.2 million or $13.38 per share. This was driven largely by a $128.8 million non-cash loss on the revaluation of our MBI options, along with a one-time $22.9 million deferred income tax expense due to the adoption of unitary filing position for state income tax purposes. Adjusted EBITDA was $233.2 million for the fourth quarter, an increase of 3.5% when compared to 2021. Our adjusted EBITDA margin for the fourth quarter of 2022 was 54.8%, a 270 basis point improvement compared to the prior year. For the full-year, adjusted EBITDA was $911.9 million, an increase of 8.6% when compared to 2021. Our adjusted EBITDA margin for the full-year 2022 was 53.4%, a 110 basis…

[Operator Instructions] Our first question is from Phil Cusick with JPMorgan. Your line is now open.

Hi. This is Nick on for Phil. Thanks for taking the question. I was wondering if you could update us on your thoughts on the mobile offering. A lot of your peers and competitors have been outlining mobile and broadband strategies as a primary growth driver from here. So is there anything that you've been seeing in your markets that would suggest that you would explore converged bundle further? Thanks.

Hey, Nick. It's Julie. I think we've spoken to this a bit in the past. Would we look at a mobile offering? Yes. We've explored the economics multiple times, and we'll keep an open mind about it. Right now, we're focused on the business that we think we do best. We don't hear from our customers that they're clamoring for yet another provider of wireless service at this time. Anything you want to add?

Yes. And I would add, Nick, it's Todd, that when you think about the value proposition of that converged product, it's in both, the data and the mobile being reliable services. And in many of our rural markets, wireless reliability is actually not where it needs to be yet for us to consider them.

Got it. Thank you both.

Our next question comes from Greg Williams with Cowen. Your line is now open.

Great. Thanks for taking my question. First one, just on ARPU. It ticked up nicely this quarter over last quarter, where in the third quarter was a little more flattened. You alluded to an equipment fee up $2. Is that across the entire base? So as I think about next year, you can see a 2% plus ARPU uptick overall, given that everyone is going to be charged two extra dollars. Second question is just helping us through the margins through 2023. I think they're up 270 bps year-over-year in 2022. But there's a lot of moving parts, whether it's inflation, hard rate, the video exit broadband mix. And then you mentioned the next-gen WiFi platform. I imagine there's some costs into that. And then, of course, you have cost leverage you can pull. So if you can help me with the margin trajectory year-over-year that would be great? Thanks.

I'll start with ARPU. So the modem adjustment which took place in November was in Sparklight for customers who rent equipment from us versus have their own modem, which is the majority – the large majority of our customers in Sparklight. But the ARPU that you see in the fourth quarter is driven primarily from organic migration to higher tiers. I mean, when you're selling in at 500-plus speeds at 53% and one in three people are taking gig and it's not just selling, it's migrations of existing customers as well. That is what is driving the ARPU. The modem adjustment was actually very small in the quarter. So will you see more of that next year, meaning this year now yes, the answer to that. But the vast amount of the ARPU is driven by customer choice. They are valuing our reliable product. You see the data use is continuing to grow and folks equate that with – well, our packages have tied together speed and data. And so they are moving up to get a service that they feel serves them best. And by the way, ARPU increased in competitive and non-competitive markets, both.

And Greg, I'll address the margin question that you had, and we can unpack it more if you'd like. But I mean there's a couple of things there. Obviously, the history of Cable One and our proven track record of being a very cost-effective operator is something that we are extremely focused on and always have been and always will be, and looking at cost-efficient delivery of our product. When you think about, obviously, where our product mix shift is, the higher growth, higher-margin residential data business services continues to be an organic driver of that improved margin, along with, obviously, than things like execution of our integration strategy and where we continue to take costs out of the business there, where we continue to take cost out of the business on what is still but even smaller video product where the programming expenses are a meaningful benefit to us in terms of our margin there. We've had a few things, as you said, that are moving around health insurance. I think for everybody has moved up a little bit that offsets that. Our software platform costs are up a little bit even though we're staying very focused on that. We had some system conversion costs that were in 2021 that aren't in 2022 related to some large platform migrations. Those are some of the key factors that have been driving the margins. But I will tell you that we fully expect and are confident we can continue to drive that margin higher.

Well – and I think part of the reason is we actually track and measure what percentage of our margin shift is coming from the mix shift versus our continuous improvement mindset and projects. So that is something we track. So it helps keep our eye on the ball.

Got it. Thank you.

Thank you.

Our next question comes from Frank Louthan with Raymond James. Your line is now open.

Great, thank you. Can you give us an update on the financial progress of the joint venture, you made some statistics at the Analyst Day last year, if you can update that from year end, that’d be great? And then just conceptually, where do you – what do you think you can do to get back to a more sustainable positive broadband subscriber growth going forward? Is that just a function of more of the housing market and those sort of macro factors? Or is there anything that you can do that you can see that on the horizon? Thanks.

So Frank, I'm going to start with the sustainable growth question. And the first one, I'm not sure you broke up a little bit. You asked something about an update on statistics from Investor Day, but which statistics?

An update on the joint venture on the Clearwave. You gave some financial metrics at the Investor Day, anything from year-end on that so we can see how that progress is going back.

Got it. Okay. All right. So sustainable growth. So we had a marginal loss in the fourth quarter, and you all need to know that, that was not taken lightly by our team here, especially after the rest of the year showed growth. We are missing connects. And as you know, moves and household starts are lower, but we have to have a conversation as well about what's going on with competition. If we start that conversation, competition is not a monolith for us, especially when you look like Cable One. We are geographically dispersed throughout 24 states, and our average market size is about 20,000 customers or about 58,000 homes past. So that gives you some context to what these places look like. Our overall competition for folks that provide over 100 megs is about 36% of our footprint, so still relatively small. When we think about fixed wireless, the folks, if we look at the unlimited service offering, that's available in less than 35% of our footprint as well. Fiber competitors are available in about 25% of the footprint. So again, trying to give you some context, what do we look like and what does the competition look like? Why am I doing that? Because I assume that some of these connects have gone to a competitor. We do have third-party competitive intelligence that shows that the win share of T-Mobile is lower in carbon footprint than it is, they're not national average, for example. But that still doesn't negate the fact that some of these connects are likely going to them. So our job, quite honestly, is to get connects, but not at any price, not at any cost. So what that means is we need to be appropriately responsive to competitors. But mostly, it means doing…

Yes, that's very helpful. And on the JV?

And Frank, it's Todd. On the JV side, obviously, the Clearwave Fiber JV was effective 1/1 of 2022. So we will now as we look forward, starting anniversary now, the performance of that in ours. But the momentum in that business is going extremely well. As you know, and as we've discussed extensively one of the great benefits of that transaction was we had an extremely proven operational leadership team, Day Zero. We didn't have to go and find a new team and that team from Hargray that's running that has built out operationally a great leadership bench, the accelerated pace at which they're expanding in those markets has been very impressive. The disciplined market selection, where they're obviously focused in building out over weaker under-invested network operators has proven to be very successful. And it's really our opportunity to participate in some of this accelerated expansion, and do so with an extremely well-capitalized JV.

All right. Great. Thank you very much.

Our next question comes from Craig Moffett with SVB. Your line is now open.

Hi. Thank you. Two questions, if I could. First, I wonder if you could just go back to the conversation you were having a few minutes ago about broadband ARPU. You noted that fixed wireless broadband offerings tend to be less reliable and weaker, but they are very, very price aggressive at the moment, particularly in more rural markets where the carriers seemingly have a bit more capacity and a longer runway. Does that change at all your thinking about the rate at which broadband ARPU in your markets can grow? Or do you think that your broadband ARPU will be largely unaffected by those offerings? And then second, I wonder if you could just talk a bit about your decision to start phasing out linear video. And in particular, how much capacity you will get back from that phase out for offering higher-speed broadband services. And over what kind of time frame are we going to see that across the whole footprint.

Thanks for bringing up that question, Craig. I should have actually spoken to it, so I appreciate it. First of all, again, fixed wireless broadband doesn't have their offering available in the majority of our footprint. That being said, although our ARPU is high, and I know that you're aware of this, our prices are not. We've only had two prices for entry-level service since I've been CEO. It was $55 for our 100 meg product, which we migrated to a 200 meg product last year because the majority are, in a way, the majority of customers are choosing speeds well above that 100 meg product. So right now, $65 is our price for our 200 meg product at this time even though the ARPU is meaningfully higher. And that is because customers are choosing. I think that shows the price elasticity that this product has. Now that being said, it doesn't mean that, as I mentioned, that looking at different pricing and packaging and a marketing approach isn't in our sights. Linear video. I don't know that if you want the technicalities of what we're getting in terms of capacity, that is not something I can speak to I'm not sure if you can or not.

Yes, Craig. It’s Todd. We definitely look at our strategy of deemphasizing video. We are obviously a first mover in that. And predominantly, the strategy was driven by the reclamation of that spectrum for data. And we continue to kind of move down that path. It's a little bit a matter of when, not if, in terms of full reclamation of that from the QAM linear video side, and that's part of our road map for technological innovation of going to DOCSIS 4.0, higher speeds, more symmetrical speeds and being able to reclaim that meaningful megahertz of spectrum from the linear video.

What's fun about that too that is that, I was listening to the customer...

Sorry, say that again?

No, I was just going to say it's a reasonable guess that's around 480 or so megahertz of spectrum dedicated to video today.

That's the part I was trying to figure out.

It's less than that.

Less. Okay.

But when we do our 860 immediately goes to 1 gigahertz in terms of what you're able to just dedicate to data.

And what I was saying is I was listening to customer calls last week and a customer who had converted to Sparklight TV not only was using Sparklight TV, but for the first time in his life was doing other streaming services and having a blast, which again bodes really well for our HSD product.

Okay, thank you for that. That's going to be interesting to watch.

Our next question is from Brandon Nispel with KeyBanc. Your line is now open.

Two capital related questions for you, and thanks for taking the questions. CapEx, Todd, is clearly running pretty hot. I mean $400 million. And I think you had guided us for it to be lower in fourth quarter, and it was obviously up. But I think at the end of the day, what we're all wondering is what are we getting out of this. We don't really see it from like a new homes pass standpoint. And so I guess I'm really trying starting to want to understand like where the returns are from this investment. And then just on the share repurchase program, you utilized the vast majority of the $0.5 billion authorization. What are your thoughts around doing a larger authorization? Or are you trying to position the company to delever to acquire mega broadband? Thanks.

Yes, Brandon. So on the capital side, we've kind of talked about is that quarterly run rate for 2022 was plus or minus in that 100, it was a little higher in certain quarters as we were navigating supply chain challenges and making sure we had access to equipment, making sure we are giving our team, the tools and resources to continue to expand. And that was a little bit higher as you look at the quarter here, but I would still say that quarterly run rate is a good estimate. We're still out in some cases, 12, 18 months on certain elements of equipment, but it's definitely getting better from what it was a year-ago at this time, when it was anybody's guess, right? But – so we will be able to manage that around that number. I think what I've also outlined to you and to many others is a lot of that capital that we've been investing is in already preparing the road map to 40. We're not in this incremental as we go to 40, that is all of that investment. That's what we've already been investing in and spending on as it relates to network architecture and spacing of that. And we don't have, obviously, the generally available equipment yet for 40, which will be later this year and implementation in early 2024. But the element of making sure the network is ready is where you've already seen a lot of that proactive investment. And then thirdly, as we continue to think about in-home health and equipment around the advanced WiFi CPE, we are actively and very proactively investing in that as well because we see the highly retentive conversions of that as it relates to customer satisfaction and customer retention, with that higher end…

Thank you.

You bet.

Our next question is from Steven Cahall with Wells Fargo. Your line is open.

Thank you. And I joined a little late. So apologies if you've been through all these already. Maybe first, just on competition. Just any sense if the increased pace you talked about of 100 megabit and fiber competition, is changing or if that two percentage points per quarter is kind of a decent outlook for how it will continue to pace throughout the year. And I'm just wondering, as you think about competition increasing, do you think that, that was the reason for the more challenged net adds that you saw in Q4? And is that something that you would expect to persist throughout 2023? Then I have a couple of follow-ups.

Okay. I honestly wouldn't use the two points per quarter because what we've been reporting on is what we know. And as we get better tools, we update that information. So for example, we now can use the FCC broadband maps in order to see exactly where competition is. Maybe we weren't counting them. We counted them on one side of the street and not the other side of the street. And so this is just us doing our due diligence on getting what we have where, I think once we get set, which I'd say we probably pretty much are now, then maybe we could start tracking it in that form and fashion. But I don't think that we can draw conclusions that that what you've seen is because there's been an increase in competition. I think it's just us being able to curate and put the numbers down on a spreadsheet, quite honestly. Why are we challenged in net adds, I think your question was something like is it increasing competition. And even in markets that don't have competition, Steve, we're seeing some compression on connects. So I don't think it's that. I think I'm not – I don't have my head in the sand. I do think that there's folks that will take a low-priced option from whomever might be offering it. We've been able to maintain our highly profitable customer base. But again, even in markets that are not competitive, there just aren't a lot of moves or household formation going on right now.

Yes. Steve, we've really seen the ground truth in our local markets around where they were overindexing on new home construction, new builds, contractors basically saying we're still going, but we're just on pause, right? I mean rate environment, buyer conviction in the last six months, we all know changed meaningfully when the Fed's changed meaningfully.

Yes. That's really helpful. And then kind of related, do you think about trying to lean a little harder into ARPU in this environment just to try to reaccelerate some of the residential broadband revenue component?

I think ideally, we take a balanced approach. I mean our ambition is to be the most trusted broadband provider. And we're not going to abuse that trust with parent price hikes if we can add value and drive ARPU, you bet. But ideally, it will be a balanced approach.

Great. And then sorry if I missed...

And Steve, you might not have heard earlier when Julie was – no I was going to say, you might have missed earlier when Julie was talking a lot about the migration and the customer choice and the demand curve associated with the speed and the reliability, which is really driving that ARPU, but I can unpack that further with you offline.

Yes, that would be great. And then just on OpEx, it looked like savings was pretty significant in the fourth quarter. Any expectation that we can think about for how you might be managing OpEx or an OpEx growth rate to think about for 2023?

Yes, we did address that as well, but I talked a lot about both the OpEx being driven by the meaningful amount of savings around the programming and the franchise fees as our video product continues to be deemphasized, offset a little bit by some of the higher health insurance, which I think a lot of folks have been navigating but still 120 basis point improvement on OpEx. And it's something that we have a really, really close eye on the ball as it relates to that. And in addition to SG&A, where we saw almost a 200 basis point improvement driving margins as we continue to think that we can expand margins even from here.

And then lastly, on the MDI write-down, does that have any impact on how we should think about the call and put options. And is there any way that you're thinking about those call and put options at this point?

No. That's the Monte Carlo simulation that we have to go through annually on the option value. It's annually revisited last year when they did it. Obviously, valuations were higher, so that gets taken into account risk-free rates and discount rates get taken into account, and that's obviously meaningfully higher with where the Fed moved market multiples, but also even the leverage on that business when that was run last year, it was prior to their dividend, which you guys will recall, we took our share of – at the end of 2021 on December 31. So things like that go into it, but it's non-cash. It moves around a lot. I don't look at it as something that is – how you should be looking at the normalized earnings of the business or an indication of whether we will or won't look to transact on that. Our interest in MBI and our alignment with MBI as great partners has always been because the business is doing extremely well. They are higher growth business. They're lower penetrated than us. They're more rural than us. They have an amazing leadership team. And so we will stay very close with them as it relates to how we think about the long-term partnership.

Great. Thank you. And sorry for making you repeat yourself a little bit.

No, that's all right. Don't worry about it.

That's all we have for today. So I'll pass the call back over to the management team.

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

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.