Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cable One Third Quarter 2023 Earnings Call. [Operator Instructions]. I would now like to turn the call over to Jordan Morkert, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to Cable One's Third Quarter 2023 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 a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles or GAAP. The 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; 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. Before we get into third quarter results, I'd like to touch on a few unique strengths of our business. More than a decade ago, we strategically pivoted our focus from linear video to broadband connectivity and business services, well in advance of our peers. Since that time, we have made significant investments in our network with the intent of anticipating and exceeding the evolving connectivity needs of our customers and communities. Fast forward to today, and we are proud to have engineered a robust and reliable network with enough capacity to handle up to 5x our customers' current peak usage as well as a growing set of service offerings for residential customers and businesses of all sizes. Equally as important is the footprint in which we deliberately chose to operate, which consists primarily of small cities and large towns across rural America. We continue to enjoy the relatively less competitive environment in these markets, and our position is further solidified by our incumbent status, enabling ongoing network upgrades at a fraction of the cost of new entrants. Above all, our strength lies with our dedicated associates, the majority of whom live and work in the communities we serve. Our associates are deeply invested in ensuring their cities and towns thrive, not just because it's good for business, but because they have a personal stake in driving progress and making a positive difference in their communities. They are the driving force behind our unique culture and consequently, our tangible results. These are just a few key differentiators that reinforce our confidence in the long-term future of Cable One. Looking ahead, we see significant runway for expanding our broadband reach, and we recognize the need to strike…

Thanks, Julie. Starting with revenue. Total revenues for the third quarter of 2023 were $420.3 million compared to $424.7 million in the third quarter of 2022, a 1% decrease. The decrease was primarily due to a continued decline in lower-margin residential and business video revenues. The growth of our foundational product lines in residential and commercial broadband continue to propel our business forward. As the demand for reliable high-speed broadband expands across all customer segments, so does confidence in our continued success and ability to strike the right long-term balance between subscriber and ARPU growth. For Q3 2023, our residential data revenues expanded 5.8% year-over-year when compared to Q3 2022. Despite a decline of 0.4% in our total business services revenues year-over-year, data services within this segment experienced meaningful growth in the quarter. This growth is noteworthy as our reported business services still encompasses video and voice revenues, bearing similarities to our residential segment dynamics. Operating expenses were $109.7 million or 26.1% of revenues in the third quarter of 2023 compared to $120.5 million or 28.4% of revenues in the comparable quarter of the prior year, a 230 basis point improvement, driven largely by a $14.8 million decrease in video programming and franchise costs. Selling, general and administrative expenses were $92.7 million for the third quarter of 2023 compared to $86 million in the prior year quarter. SG&A as a percentage of revenue was 22.1% for the third quarter of 2023 compared to 20.3% for Q3 of 2022. The year-over-year increase was primarily driven by increased labor and marketing expense. Adjusted EBITDA was $230 million for the third quarter, an increase of 2.4% when compared to the third quarter of 2022. Our adjusted EBITDA margin for the third quarter of 2023 was 54.7%, a 180 basis point improvement compared to…

[Operator Instructions]. Your first question comes from the line of Brandon Nispel with KeyBanc Capital Markets.

Julie, a question for you. HSD penetration has now declined for, I think, 4 consecutive quarters. Can you maybe outline what your thoughts are in terms of the longer-term opportunity and how you plan to sort of address getting subscribers back going through new pricing packaging promotional offers? And then hopefully, you could -- I was hoping you could talk a little bit more about how the quarter progressed from an HSD net add perspective. You mentioned the promotional offer around 100 megs for $25. Could you sort of talk about what led to that decision? And if you care to opine on how 4Q is trending, that would be great.

You got it, Brandon. So I can't comment on how others track their homes passed, but we are incredibly fastidious about it. And so as homes passed goes up, even if we keep our subscribers the same or grow slightly, the penetration will drop. And the homes passed database gets updated when we have new build extensions, for example, or if we have edge out opportunities, and you can imagine in those edge out areas that the homes come on or are put into the database and the billing platform way before they have the opportunity to be sold. So over time, I would expect to see the penetration from that issue resolve itself. In terms of what we see as a long-term opportunity for penetration growth, we think there is an abundant runway for us to grow penetration, and we are working on that with vigor. You asked, I think, about commentary around new growth, and I think about the work that we've done in the past, say, 2.5 months, specifically, where we are just crazily focused on fiercely competing, I mean fiercely, approaching the entire footprint on a market segmentation basis, meaning that we'll break apart different markets and customer types within those markets as well and address them very -- in a very tailored manner. And we're just, I guess, in short, realigning ourselves around growth. We've talked in recent quarters about realigning ARPU and growth. And obviously, those are the 2 important levers. And right now, we are focused on the growth part, the growth in units. As far as the third quarter, it was -- there was an acceleration as we got closer to the end of the quarter and into the fourth quarter in connects, and I attribute that to us being willing to experiment and be very agile and try different tactics, and those are bearing fruit. And so I feel quite positive about our fourth quarter.

Your next question comes from the line of Phil Cusick with JPMorgan.

This is Nik on for Phil. I know you guys have touched on how fixed wireless hasn't really been a churn issue, but I was hoping you could touch on the kind of churn you may see from fiber and fiber overbuilders entering your markets. And to that extent, when you have visibility into an overbuilder in your market, how do you evaluate what your competitive response might be, whether that's promotions more on the gross add front or maybe something more targeted for retention of the base?

So I think your first question was overall about churn from competition regardless of where it comes from. We do track competition by competitors. So our folks code in the reason why someone would choose to leave us. So we have that on a granular level to the extent that human beings don't make errors. I'm not sure what your question was specifically about fiber churn, but let me spin to the next part, and then you can clarify and we can go back at it. But how do we evaluate the response in a holistic way? I mean it depends on how big the market is, where it's situated, what the economy is like in that marketplace. Who's the overbuilder? How are they financed? What are their pricing points? What do our nodes look like in those areas? And we have an amazing network, but that isn't to say that some of our markets aren't in the process of being rebuilt -- upgraded would be a more correct term. So it's a holistic walk around the whole issue sort of evaluation. And what was -- what do you need to hear...

Yes. I mean just obviously, you guys say, with fixed wireless, you're not seeing much churn in your base. But in terms of fiber competition, are you seeing material churn when an overbuilder enters a market? And how -- are you worried about trying to promote and maybe lock down and retain your sub base in those markets?

Yes. Okay. I got you. I got you. Thanks for that clarification. Okay. So let's just start with overall churn is at prepandemic lows. So our churn is very low. Now I'm talking about the entire MSO, and that is inclusive of markets that are competitive. So that just tells you -- I mean, common sense would tell you, in a competitive market and some like highly competitive markets, that you would lose customers. Yet overall, our churn is incredibly low. So just starting from that point. In competitive markets, obviously, people are enamored with choice. I personally have called customers that have left us for other providers and talked to them and said, I am not trying to sell you. I simply want your input. Why did you leave us? And what could we have done differently? And honestly, at least in that small sample, it was really about a choice, like trying something different. Hey, haven't had problems. I don't think my price is going to be lower, but I thought I would try this out because there was a direct salesperson on my doorstep. Typically, we have had competition for, honestly, decades. I've been with the company over 24 years, and I can think of one marketplace that had a fiber overbuilder come in and a traditional HFC overbuilder come in, and we lost customers to begin with. That lasted for a period of time, and then things normalized and we began to grow again. I don't know if that's what it's going to look like in the future or not. But certainly, that has been our experience in the past.

Got it. And if I could just push my luck here, anything you can give us on maybe the magnitude of net adds in the quarter from the 100 meg offer?

Net adds, no. But I can tell you that the 100 meg offer was an initiative aimed at value-conscious customers. While we don't lose our existing customers by and large to fixed wireless broadband, they are targeting their customers and bundling them at a low price. So we went to market with this. Our connects were robust and the majority, far and away, 2/3 of the customers connected at higher speed, higher priced tiers than that 100 megs for $25. So it was basically a call to action, the phones rang and then people elected into higher tiers.

Your next question comes from the line of Greg Williams with TD Cowen.

Julie, you noted that wireline competition is increasing. I was hoping you'd put a finer point on it. In the past, you noted 25% of your footprint had a wireline 1 gig offer. If I could flip that to fixed wireless as well, I think you said 35%, which includes fixed wireless as a footprint -- was in your footprint. What are those numbers today, as an update to that? And where do you think that could ultimately end up? I think about Verizon launching their BC category, C-band into rural areas, and it could be in your markets. And then second question is just on the presentation success you're having by going downstream and the $25 offer and how you can sort of justify that tactically. I think as you said on your scripted remarks that you can now offer premium service to the premium customer, so could you hike up sort of prices on the high end to help justify the business case in the low end? Just helping us understand the ARPU impact overall of these offers.

So related to wireline competition, the majority of our markets do not have a wired competitor that can offer 100 megs or more. The majority. Fixed wireless, T-Mo -- our overlap with T-Mo right now is 36% of the marketplace. Verizon is, I think 16%. I'd have to look it up real quick. Yes, 12%. 12% right now for them. Our success in what you call downstream and I would call value-conscious customers, I think the 100 meg offer is an example of that. And I think that we're going to be trying other things as well. But we will only do so to the extent that what we're offering is a profitable package. We're focused on delivering profitability over the long term, not doing something reactive in the short term that would hurt us for the long term. We do -- the marketplace is showing really interesting dichotomies, I think, in that we see definite price elasticity on the higher-end products through research and actually selling them. I mean they just keep buying more and more, and we had a rate adjustment this year and they're still buying more and there's no churn. But then again, you have this really large response to the 100 meg $25 offer. And it's almost like there's a polarization on both sides. So again, I think we have to be surgical, I think we have to, call it, personalized broadband. I mean we have to take the market segmentation approach that I talked about in order to really drive new growth.

Your next question comes from the line of Frank Louthan with Raymond James.

Great. And maybe I missed this in the call, but the $25 offer, when did that start in the quarter? And is that kind of the way you'll be able to get to positive subs for the year? And then can you give us a little color on the nature of the homes that you're passing? You're adding quite a few each quarter. Are these competitive areas? Are they just kind of filling in holes in your footprint? And what's your expectation for penetration in those homes longer term? Can those areas you're targeting get better penetration than your base? Or a little lower? How should we think about it?

Yes. That's a good question, Frank. So the $25 offer started at the beginning of October. It was a promotion -- September? I'm trying to think. Okay, September. Sorry, I don't -- we're in November now. I'm all off. I can't keep my time straight since COVID. I apologize. So beginning of September. It was supposed to end at the end of September, but we had literally -- like we were overwhelmed, our phones were ringing off the hook. So -- and we didn't see any detriment to that point. In other words, people weren't buying the $25 offer, so that wasn't a concern. And from what we saw, they weren't churning. So we extended it through the end of October and then it sunsetted. So that promo is gone and we're back to regular pricing. I don't -- that isn't a one-trick pony to ride in order to get growth, I don't think. It was just an example that we could draw attention by flagging a low price in the marketplace. And in terms of our homes passed, it is -- we have -- not all of our markets because, boy, that sure would be nice, but a subset of our markets that have new build extensions in them. Those are starting to slow down a teeny bit with the economy and the high interest rates, but -- so new builds, as part of that, what I call new build. Market expansion, call it edge out, is another piece of that, where we have -- if we can service an area that has a competitor that isn't taking good care of customers and community, you could read that to mean they're charging really high prices or their services aren't reliable, and we can service them off of an existing system site ahead and we will overbuild those areas. So that is what those homes passed reflect. And just a note on high prices because I mentioned it. Just because our ARPU is high, does not mean that our prices to our customers are high. Those -- that ARPU is driven by customer choice far and away. Like gig sell-in of 37%, for example, or add-ons that they are choosing to take. Our base rate is a value. I would suggest that anyone living in a metropolitan area would not be able to get our pricing. What do I expect the penetration to be in those homes passed? I expect it to be -- in a market expansion scenario, to be at least 40%. And in our new build areas, I would expect it to near the penetration of that particular system, which varies widely.

Your next question comes from the line of Craig Moffett with MoffettNathanson.

Two quick questions, if I could. First, I wonder if you could just reflect on wireless again. I know you've said that it was 2 quarters ago, that it wasn't part of your plan. But it's been such a large part of what the other cable operators are doing, I'm wondering if you're kind of still interested in at least exploring wireless options. And then second, I wonder if you could just talk about the trajectory of capital intensity. As you think about DOCSIS 4 and plant upgrades, how low could capital intensity go? Or how much further could it come down?

Craig, it's Todd. On the wireless side, we've talked about this before. I don't think anybody would disagree that the 2 primary connectivity mediums for consumers will be very reliable, fixed broadband that we provide, and then very reliable wireless mobile connectivity. We do evaluate it. There's plenty of folks in the space that have launched that we monitor very closely, that we evaluate both the performance as well as -- in the wireless ads as well as what that would potentially do to improve on the data side of the equation. And those are very important elements of that. As we've also said in the past, important elements of customer satisfaction and how we want our customer experience to be is very, very reliable connectivity. And we also continue to monitor how that reliability will improve from a wireless and a mobile perspective in our markets, because we do feel like that's an extremely important catalyst as we continue to look at that. But nothing right now that says economically or from a customer demand perspective that, that's a product we have to have. From a capital intensity perspective, it's a sequential quarter of decline in CapEx. We've talked about some of the shorter-term elements associated with that, which was our working capital optimization strategies that we can continue to execute upon. Some of the slower builds that gives us a little bit more efficiency there, and some of the integration and upgrade investments that we've been making that can start to taper a little bit. But longer term, we've talked about our capital intensity as a percentage of our EBITDA being in that mid- to high 30% area.

Your next question comes from the line of Steven Cahall with Wells Fargo.

Julie, thanks for all the commentary on how you're thinking about balancing ARPU growth and subscriber growth. I think that's the biggest one that we're debating as well. I was wondering if we could go a little deeper into it about just how you're looking to deploy some of the tactics that you talked about. So we saw the new, more inexpensive program at the end of Q3. Last year, net adds started to kind of flip negative in Q4. It was unexpected sequentially from Q3. As you deployed these new tactics, do you think you could start to get back to positive net add growth by the fourth quarter, or we should be thinking about that as a little more of just your long-term trend and long-term strategy? And then secondly, the ACP program is having some political debate around it. I'm just wondering if you can shed any light as to if you have any material customer exposure to ACP, and if you do, if you have some contingency plans for ways to keep engaged with those customers should it change.

Yes. So the end of the third quarter was a success in my mind and that continues. I expect to grow in the fourth quarter, period. ACP, we only have 35,000 customers, given we have over 1 million customers, teeny tiny. Teeny tiny. And those customers were customers of ours before. They just start using the $35 or $75 of their own Tribal lands to supplement what they're paying for. So even if it goes away, our number of customers is minimal. And I think they'll still be customers. Maybe they'll downgrade, but I think they'll still be customers.

Steve, I would add, there's maybe always political jockeying around things like that, especially as we head into an election year. I would be pretty surprised if broadband for all demographics and for all customers is something that gets a meaningful amount of adjustment to it. Maybe some tweaks here and there. But we do not feel like we have a lot of exposure as it relates to the repayment of that, with that very small subset that Julie alluded to.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I will now turn the call back over to Julie Laulis for closing remarks. Please go ahead.

Thank you, Eric. So as we wrap up, I just want to extend a heartfelt thank you to our Cable One associates. It is their commitment that really sets us apart in providing exceptional neighborly service. And additionally, for those that are interested, Todd and Jordan will represent Cable One at the upcoming Raymond James and Wolfe conferences this December in New York. We welcome the opportunity to engage with many of you there. Thank you, everyone, for your time and attention today. We appreciate your continued support and interest in Cable One.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.