CABLE ONE, INC. The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of and for the year endedDecember 31, 2020 and the related "Management's Discussion and Analysis of Financial Condition and Results of Operations," both of which are contained in our 2020 Form 10-K. Our results of operations and financial condition discussed herein may not be indicative of our future results and trends. Throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations," all totals, percentages and year-over-year changes are calculated using exact numbers. Minor differences may exist due to rounding. Any discussion of consolidated results or performance for the three months endedMarch 31, 2021 is inclusive of the Valu-Net operations, which were acquired onJuly 1, 2020 , and excludes the Anniston System, which was divested onOctober 1, 2020 . Overview We are a fully integrated provider of data, video and voice services in 21 Western, Midwestern and Southern states as ofMarch 31, 2021 . We provided these broadband services to residential and business customers in approximately 950 communities as ofMarch 31, 2021 . The markets we serve are primarily non-metropolitan, secondary and tertiary markets, with approximately 80% of our customers located in seven states as ofMarch 31, 2021 :Arizona ,Idaho ,Illinois ,Mississippi ,Missouri ,Oklahoma andTexas . Our biggest customer concentrations are in theMississippi Gulf Coast region and in the greaterBoise, Idaho region. We provided service to approximately 988,000 residential and business customers out of approximately 2.3 million homes passed as ofMarch 31, 2021 . Of these customers, approximately 880,000 subscribed to data services, 252,000 subscribed to video services and 122,000 subscribed to voice services as ofMarch 31, 2021 . We generate substantially all of our revenues through three primary product lines. Ranked by share of our total revenues through the first three months of 2021, they are residential data (53.8%), residential video (22.3%) and business services (data, voice and video: 17.7%). The profit margins, growth rates and/or capital intensity of these three primary product lines vary significantly due to competition, product maturity and relative costs. We focus on growing our higher margin businesses, namely residential data and business services. Beginning in 2013, we began our shift away from our prior concentration on growing revenues through subscriber retention and maximizing customer primary service units ("PSUs"). We adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. The declining profitability of residential video services is due primarily to increasing programming costs and retransmission fees and competition from other content providers, and the declining revenues from residential voice services are due primarily to the increasing use of wireless voice services instead of residential voice services. Separately, we have also focused on retaining customers who are likely to produce higher relative value over the life of their service relationships with us, are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted EBITDA, Adjusted EBITDA less capital expenditures and margins.
Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above and the COVID-19 pandemic have impacted, and are expected to further impact, our three primary product lines in the following ways:
? Residential data. We have experienced growth in residential data customers and
revenues every year since 2013, and that growth accelerated during the 12
months ended
our associated responses. During 2020, we organically added over 50% more
residential data customers than we did during the four-and-a-half-year period
between our
2019. We expect growth for this product line to continue over the long-term as
upgrades in our broadband capacity, our ability to offer higher access speeds
than many of our competitors, the reliability and flexibility of our data
service offerings and our Wi-Fi support service will enable us to capture
additional market share from both data subscribers who use other providers as
well as households in our footprint that do not yet subscribe to data services
from any provider.
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? Residential video. Residential video service is an increasingly costly and
fragmenting business, with programming costs and retransmission fees continuing
to escalate in the face of a proliferation of streaming content alternatives.
We intend to continue our strategy of focusing on the higher-margin businesses
of residential data and business services while de-emphasizing our residential
video business. As a result of our video strategy, we expect that residential
video customers and revenues will decline further in the future. In 2021, we
began the launch of Sparklight® TV, an internet protocol-based ("IPTV") video
service that allows customers to stream our video channels from the cloud
through a new app. This transition from linear to IPTV video service will
enable us to reclaim bandwidth, freeing up network capacity to increase data
speeds and capacity across our network.
? Business services. We have experienced significant growth in business data
customers and revenues, and we expect this growth to continue over the
long-term. We attribute this growth to our strategic focus on increasing sales
to business customers and our efforts to attract enterprise business customers.
Margins for products sold to business customers have remained attractive, which
we expect will continue.
We continue to experience increased competition, particularly from telephone
companies, cable and municipal overbuilders, over-the-top ("OTT") video
providers and direct broadcast satellite ("DBS") television providers. Because
of the levels of competition we face, we believe it is important to make
investments in our infrastructure. In addition, a key objective of our capital
allocation process is to invest in initiatives designed to drive revenue and
Adjusted EBITDA expansion. More than 50% of our total capital expenditures since
2017 were focused on infrastructure improvements that were intended to grow
these measures. We continue to invest capital to, among other things, increase
our plant and data capacities as well as network reliability. As of March 31,
2021 , we offered Gigabit data service to approximately 97% of our homes passed.
We are also deploying DOCSIS 3.1, which, together with Sparklight TV, will
further increase our network capacity and enable future growth in our
residential data and business services product lines.
We expect to continue to devote financial resources to infrastructure
improvements in existing and newly acquired markets as well as to expand
high-speed data service in areas where our consortium was designated the winning
bidder for the FCC 's Rural Digital Opportunity Fund Phase I auction. We believe
these investments are necessary to continually meet our customers' needs and to
remain competitive. The capital enhancements associated with recent acquisitions
include rebuilding low capacity markets; reclaiming bandwidth from analog video
services; implementing 32-channel bonding; deploying DOCSIS 3.1; converting back
office functions such as billing, accounting and service provisioning; migrating
products to legacy Cable One platforms; and expanding our high-capacity fiber
network.
Our primary goals are to continue growing residential data and business services
revenues, to increase profit margins and to deliver strong Adjusted EBITDA and
Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to
continue our disciplined cost management approach, remain focused on customers
with expected higher relative value and follow through with further planned
investments in broadband plant upgrades, including the deployment of DOCSIS 3.1
capabilities and new data service offerings for residential and business
customers. At the same time, we intend to continue balancing the impact of the
COVID-19 pandemic on our business, associates, customers and other stakeholders.
We also plan to continue seeking broadband-related acquisition and strategic
investment opportunities in rural markets in addition to pursuing organic growth
through market expansion projects.
Our recent acquisitions and strategic investments include:
? On
ownership interest in Nextlink, a wireless internet service provider, for
$27.2 million .
? On
headquartered in
at the time of the acquisition. We paid a purchase price of
cash on a debt-free basis.
? On
Wisper, a wireless internet service provider, for total consideration of
million.
? On October 1, 2020 , we contributed the assets of the Anniston System to
diluted basis, in
Anniston System had approximately 19,000 residential data subscribers at the
time of the transaction.
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? On
data, video and voice services provider, for $574.9 million in cash.
? On
did not already own for a cash purchase price that implied a
total enterprise value for
Hargray Acquisition was financed with cash on hand and the net proceeds from
the Term Loan B-4. The Hargray Acquisition expanded our presence in the
experience and expertise in fiber expansion.
COVID-19 Update
The actions we took in response to the COVID-19 pandemic did not have any
notable negative impact on our results for the first quarter of 2021, due
primarily to the resumption of billing late charges, reconnect fees and data
overage fees as well as the normalization of labor costs in the fourth quarter
of 2020. We experienced a positive impact on residential data revenues for the
three months ended March 31, 2021 as a result of retaining a significant number
of residential data customers acquired during 2020 and continued growth of
residential data customers during the period, and we expect that there will
continue to be a positive impact on 2021 residential data revenues from these
factors, albeit at a slower pace during the remainder of 2021. However, we
continue to face various uncertainties related to the impact of the COVID-19
pandemic on the overall economy and our business, including whether we will be
able to sustain continued customer growth, our level of bad debt expense and if
some of the expense reductions realized during the second half of 2020 and
during the three months ended March 31, 2021 will continue or if those expenses
will return to more normal levels given the fluid situation regarding
pandemic-related restrictions across the country.
We continue to monitor the evolving situation caused by the COVID-19 pandemic,
and we may take further actions required by governmental authorities or that we
determine are prudent to support the well-being of our associates, customers,
suppliers, business partners and others. The degree to which the COVID-19
pandemic impacts our operations, business, financial results and financial
condition will depend on future developments, which are highly uncertain,
continuously evolving and in many cases cannot be predicted. This includes, but
is not limited to, the duration and spread of the pandemic, its severity, the
efficacy of vaccines (particularly with respect to emerging strains of the
virus), the actions to contain the virus or treat its impact, potential
legislative or regulatory efforts to impose new requirements on our data
services and how quickly and to what extent normal social, economic and
operating conditions can resume.
Refer to the section entitled "Risks Factors" in the 2020 Form 10-K for additional risks we face due to the COVID-19 pandemic.
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Results of Operations
PSU and Customer Counts
Selected subscriber data for the periods presented was as follows (in thousands,
except percentages):
As of March 31, Annual Net Gain (Loss)
2021 2020 Change % Change
Residential data PSUs 799 713 86 12.0
Residential video PSUs 239 288 (49 ) (17.0 )
Residential voice PSUs 87 102 (15 ) (14.6 )
Total residential PSUs 1,125 1,103 22 2.0
Business data PSUs 81 79 2 2.6
Business video PSUs 13 15 (2 ) (16.1 )
Business voice PSUs 35 35 1 1.5
Total business services PSUs 129 129 0 0.1
Total data PSUs 880 793 88 11.0
Total video PSUs 252 303 (51 ) (17.0 )
Total voice PSUs 122 136 (14 ) (10.5 )
Total PSUs 1,254 1,232 22 1.8
Residential customer relationships 902 836 65 7.8
Business customer relationships 86 85 1 0.8
Total customer relationships 988 921 66 7.2
In recent years, our customer mix has shifted, causing subscribers to move from
triple-play packages combining data, video and voice services to single and
double-play packages. This is largely because some residential video customers
have defected to DBS services and OTT offerings and households continue to
discontinue residential voice service. In addition, we have focused on selling
data-only packages to new customers rather than cross-selling video to these
customers. Meanwhile, the COVID-19 pandemic and our responses to it have
accelerated this customer mix shift.
Use of Nonfinancial Metrics and Average Monthly Revenue per Unit ("ARPU")
We use various nonfinancial metrics to measure, manage and monitor our operating
performance on an ongoing basis. Such metrics include homes passed, PSUs and
customer relationships. Homes passed represents the number of serviceable and
marketable homes and businesses passed by our active plant. A PSU represents a
single subscription to a particular service offering. Residential bulk
multi-dwelling PSUs are classified as residential and are counted at the
individual unit level. Business voice customers who have multiple voice lines
are counted as a single PSU. A customer relationship represents a single
customer who subscribes to one or more PSUs.
We believe homes passed, PSU and customer relationship counts are useful to
investors in evaluating our operating performance. Similar measures with similar
titles are common measures used by investors, analysts and peers to compare
performance in our industry, although our measures of homes passed, PSUs and
customer relationships may not be directly comparable to similarly titled
measures reported by other companies.
We use ARPU to evaluate and monitor the amount of revenue generated by each type
of service subscribed to by customers and the contribution to total revenues as
well as to analyze and compare growth patterns. Residential ARPU values
represent the applicable residential service revenues (excluding installation
and activation fees) divided by the corresponding average of the number of PSUs
at the beginning and end of each period, divided by the number of months in the
period, except that for any PSUs added or subtracted as a result of an
acquisition or divestiture occurring during the period, the associated ARPU
values represent the applicable residential service revenues (excluding
installation and activation fees) divided by the pro-rated average number of
PSUs during such period. Business services ARPU values represent business
services revenues divided by the average of the number of business customer
relationships at the beginning and end of each period, divided by the number of
months in the period, except that for any business customer relationships added
or subtracted as a result of an acquisition or divestiture occurring during the
period, the associated ARPU values represent business services revenues divided
by the pro-rated average number of business customer relationships during such
period.
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We believe ARPU is useful to investors in evaluating our operating performance. ARPU and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of ARPU may not be directly comparable to similarly titled measures reported by other companies.
Comparison of Three Months Ended
Revenues
Revenues increased
Revenues by service offering for the three months endedMarch 31, 2021 and 2020, together with the percentages of total revenues that each item represented for the periods presented, were as follows (dollars in thousands): Three Months Ended March 31, 2021 2020 2021 vs. 2020 Revenues % of Total Revenues % of Total $ Change % Change Residential data$ 183,605 53.8$ 154,990 48.3$ 28,615 18.5 Residential video 76,017 22.3 85,322 26.6 (9,305 ) (10.9 ) Residential voice 10,477 3.1 12,427 3.9 (1,950 ) (15.7 ) Business services 60,362 17.7 57,862 18.0 2,500 4.3 Other 10,801 3.1 10,595 3.2 206 1.9 Total revenues$ 341,262 100.0$ 321,196 100.0$ 20,066 6.2
Residential data service revenues increased
Residential video service revenues decreased
Residential voice service revenues decreased
Business services revenues increased$2.5 million , or 4.3%, due primarily to organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers. Total business customer relationships increased 0.8% year-over-year.
ARPU for the indicated service offerings for the three months ended
Three Months Ended March 31, 2021 vs. 2020
2021 2020 $ Change % Change
Residential data $ 77.24 $ 72.86 $ 4.38 6.0
Residential video $ 103.86 $ 96.75 $ 7.11 7.3
Residential voice $ 39.59 $ 40.07 $ (0.48 ) (1.2 )
Business services $ 235.30 $ 226.78 $ 8.52 3.8
Costs and Expenses
Operating expenses (excluding depreciation and amortization) were $101.5 million
for the three months ended March 31, 2021 and decreased $4.5 million , or 4.2%,
compared to the three months ended March 31, 2020 . The decrease in operating
expenses was primarily attributable to a $6.0 million reduction in programming
expenses, partially offset by $1.2 million of additional expenses related to
Valu-Net operations. Operating expenses as a percentage of revenues were 29.7%
and 33.0% for the three months ended March 31, 2021 and 2020, respectively.
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Selling, general and administrative expenses were$69.0 million for the three months endedMarch 31, 2021 and increased$6.2 million , or 9.8%, compared to the three months endedMarch 31, 2020 . The increase in selling, general and administrative expenses was primarily attributable to increases of$2.4 million in acquisition-related costs,$1.8 million in health insurance costs,$1.7 million in labor and other compensation-related costs and$1.0 million in system conversion costs, partially offset by a$1.5 million decrease in bad debt expense. Selling, general and administrative expenses as a percentage of revenues were 20.2% and 19.6% for the three months endedMarch 31, 2021 and 2020, respectively. Depreciation and amortization expense was$68.5 million for the three months endedMarch 31, 2021 and increased$3.3 million , or 5.0%, compared to the three months endedMarch 31, 2020 . Depreciation and amortization expense as a percentage of revenues was 20.1% and 20.3% for the three months endedMarch 31, 2021 and 2020, respectively. We recognized a net gain on asset sales and disposals of$0.1 million and$5.6 million for the three months endedMarch 31, 2021 and 2020, respectively. The three months endedMarch 31, 2020 included a$6.6 million non-cash gain on the sale of certain tower properties. Interest Expense Interest expense was$23.6 million for the three months endedMarch 31, 2021 and increased$4.9 million , or 26.3%, compared to the three months endedMarch 31, 2020 , driven primarily by higher interest rate swap settlement expense and additional outstanding debt, partially offset by lower interest rates. Other Income (Expense), Net Other income, net, of$8.1 million for the three months endedMarch 31, 2021 consisted primarily of a$5.6 million non-cash gain on fair value adjustment associated with the MBI Net Option and$3.2 million of investment and interest income, partially offset by$0.7 million of financing cost write-offs, including costs associated with the termination of bridge loan commitments originally received to finance a portion of the Hargray Acquisition purchase price. Other income, net, of$1.7 million for the three months endedMarch 31, 2020 consisted of interest and investment income. Income Tax Provision Income tax provision was$17.7 million for the three months endedMarch 31, 2021 and increased$11.3 million , or 174.2%, compared to the three months endedMarch 31, 2020 . Our effective tax rate was 20.4% and 8.5% for the three months endedMarch 31, 2021 and 2020, respectively. The increases in the income tax provision and the effective tax rate were due primarily to$7.0 million of income tax benefits attributable to the NOL carryback provision of the CARES Act from the first quarter of 2020 that did not recur. Net Income Net income was$68.6 million for the three months endedMarch 31, 2021 compared to$69.3 million for the three months endedMarch 31, 2020 , a decrease of$0.7 million .
Unrealized Gain (Loss) on Cash Flow Hedges and Other, Net of Tax
Unrealized gain on cash flow hedges and other, net of tax was$55.5 million for the three months endedMarch 31, 2021 compared to an unrealized loss of$84.6 million for the three months endedMarch 31, 2020 due primarily to a projected increase in LIBOR in future years. Use of Adjusted EBITDA We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below, the most directly comparable GAAP financial measure. 26
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Adjusted EBITDA is defined as net income plus interest expense, income tax
provision, depreciation and amortization, equity-based compensation, (gain) loss
on deferred compensation, acquisition-related costs, (gain) loss on asset sales
and disposals, system conversion costs, rebranding costs, equity method
investment (income) loss, other (income) expense and other unusual items, as
provided in the following table. As such, it eliminates the significant non-cash
depreciation and amortization expense that results from the capital-intensive
nature of our business as well as other non-cash or special items and is
unaffected by our capital structure or investment activities. This measure is
limited in that it does not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues and our cash cost of
debt financing. These costs are evaluated through other financial measures.
We use Adjusted EBITDA to assess our performance. In addition, Adjusted EBITDA
generally correlates to the measure used in the leverage ratio calculations
under the Third Amended and Restated Credit Agreement and the Senior Notes
Indenture to determine compliance with the covenants contained in the Third
Amended and Restated Credit Agreement and the ability to take certain actions
under the Senior Notes Indenture. Adjusted EBITDA is also a significant
performance measure used by us in our annual incentive compensation program.
Adjusted EBITDA does not take into account cash used for mandatory debt service
requirements or other non-discretionary expenditures, and thus does not
represent residual funds available for discretionary uses.
Three Months Ended March 31, 2021 vs. 2020
(dollars in thousands) 2021 2020 $ Change % Change
Net income $ 68,582 $ 69,326 $ (744 ) (1.1 )
Plus: Interest expense 23,581 18,674 4,907 26.3
Income tax provision 17,715 6,460 11,255 174.2
Depreciation and amortization 68,530 65,279 3,251 5.0
Equity-based compensation 4,127 3,221 906 28.1
(Gain) loss on deferred compensation 27 (227 ) 254 (111.9 )
Acquisition-related costs 4,370 2,017 2,353 116.7
(Gain) loss on asset sales and disposals, net (120 ) (5,621 ) 5,501 (97.9 )
System conversion costs 1,051 48 1,003 NM
Rebranding costs 44 268 (224 ) (83.6 )
Equity method investment (income) loss, net 568 - 568 NM
Other (income) expense, net (8,100 ) (1,734 ) (6,366 ) NM
Adjusted EBITDA $ 180,375 $ 157,711 $ 22,664 14.4
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NM = Not meaningful. We believe that Adjusted EBITDA is useful to investors in evaluating our operating performance. Adjusted EBITDA and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies.
Financial Condition: Liquidity and Capital Resources
Liquidity
Our primary funding requirements are for our ongoing operations, capital
expenditures, potential acquisitions and strategic investments, payments of
quarterly dividends and share repurchases. We believe that existing cash
balances, our Senior Credit Facilities and operating cash flows will provide
adequate support for these funding requirements over the next 12 months.
However, our ability to fund operations, make capital expenditures, make future
acquisitions and strategic investments, pay quarterly dividends and make share
repurchases depends on future operating performance and cash flows, which, in
turn, are subject to prevailing economic conditions and to financial, business
and other factors, including the impact of the COVID-19 pandemic, some of which
are beyond our control.
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A summary of our net cash flows for the periods indicated was as follows
(dollars in thousands):
Three Months Ended March 31, 2021 vs. 2020
2021 2020 $ Change % Change
Net cash provided by operating
activities $ 163,993 $ 118,500 $ 45,493 38.4
Net cash used in investing activities (66,698 ) (76,017 ) 9,319 (12.3 )
Net cash provided by financing
activities 865,094 74,140 790,954 NM
Change in cash and cash equivalents 962,389 116,623 845,766 NM
Cash and cash equivalents, beginning of
period 574,909 125,271 449,638 NM
Cash and cash equivalents, end of period
NM
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NM = Not meaningful. The$45.5 million year-over-year increase in net cash provided by operating activities was primarily attributable to an increase in Adjusted EBITDA of$22.7 million , an increase in tax refunds received and favorable changes in accounts receivable and accounts payable and accrued liabilities. The$9.3 million decrease in net cash used in investing activities from the prior year period was due primarily to a$6.1 million decrease in cash paid for capital expenditures and the issuance of a$3.5 million note receivable in the prior year that did not recur. The$791.0 million increase in net cash provided by financing activities from the prior year period was due primarily to$895.2 million of net proceeds from the offering of the Convertible Notes (the "Convertible Notes Offering") in the first quarter of 2021, partially offset by$100.0 million of borrowings in the prior year period that did not recur. OnJuly 1, 2015 , the Board authorized up to$250.0 million of share repurchases (subject to a total cap of 600,000 shares of our common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through the end of the first quarter of 2021, we have repurchased 210,631 shares of our common stock at an aggregate cost of$104.9 million . No shares were repurchased during the three months endedMarch 31, 2021 .
We currently expect to continue to pay quarterly cash dividends on shares of our
common stock, subject to approval of the Board. During the first quarter of
2021, the Board approved a quarterly dividend of
Financing Activity Credit Facility The Third Amended and Restated Credit Agreement provides for the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 and the Revolving Credit Facility. The Revolving Credit Facility also gives us the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility. We have issued letters of credit totaling$33.0 million under the Revolving Credit Facility on behalf of Wisper to guarantee its performance obligations under anFCC broadband funding program. The fair value of the letters of credit approximates face value based on the short-term nature of the agreements. We would be liable for up to the total amount outstanding under the letters of credit if Wisper were to fail to satisfy all or some of its performance obligations under theFCC program. Wisper pledged certain assets in favor of us as collateral for issuing the letters of credit, which pledge was terminated in the third quarter of 2020 at the same time that we closed an equity investment in Wisper, and Wisper has guaranteed and indemnified us in connection with such letters of credit. As ofMarch 31, 2021 , we have assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, no liability has been accrued within the condensed consolidated balance sheet. Total letter of credit issuances under the Revolving Credit Facility totaled$41.0 million and bore interest at a rate of 1.63% per annum. 28
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As ofMarch 31, 2021 , we had$1.5 billion of aggregate outstanding term loans and$459.0 million available for borrowing under the Revolving Credit Facility. A summary of our outstanding term loans as ofMarch 31, 2021 is as follows (dollars in thousands): Final Balance Original Amortization Outstanding Maturity Due Upon Benchmark Applicable Interest Instrument Draw Date Principal Per Annum(1) Principal Date Maturity Rate Margin(2) Rate
Term Loan A-2 5/8/2019(3)
1.50 % 1.61 %
10/1/2019(3)
Term Loan B-2 1/7/2019 250,000 1.0 % 245,000 10/30/2027 228,750 LIBOR 2.00 % 2.11 %
Term Loan B-3 6/14/2019(5) 625,000 1.0 % 617,833 10/30/2027 577,472 LIBOR 2.00 % 2.11 %
10/30/2020(5)
Total $ 1,575,000 $ 1,535,189 $ 1,282,829 --------------------------------------------------------------------------------
(1) Payable in equal quarterly installments (expressed as a percentage of the
original principal amount and subject to customary adjustments in the event
of any prepayment). All loans may be prepaid at any time without penalty or
premium (subject to customary LIBOR breakage provisions). (2) The Term Loan A-2 interest rate spread can vary between 1.25% and 1.75%,
determined on a quarterly basis by reference to a pricing grid based on our
Total Net Leverage Ratio (as defined in the Third Amended and Restated Credit
Agreement). All other applicable margins are fixed.
(3) On
reset.
(4) Per annum amortization rates for years one through five following the October
30, 2020 refinancing date are 2.5%, 2.5%, 5.0%, 7.5% and 12.5%, respectively.
(5) On
additional $300.0 million was drawn.
On May 3, 2021 , we amended the Third Amended and Restated Credit Agreement to
provide for the new seven-year Term Loan B-4 in an aggregate principal amount of
$800.0 million . The interest margin applicable to the Term Loan B-4 is, at our
option, equal to either LIBOR or a base rate, plus an applicable margin equal to
2.0% for LIBOR loans and 1.0% for base rate loans. The Term Loan B-4 may be
prepaid at any time without penalty or premium (subject to customary LIBOR
breakage provisions), except for any prepayment within six months of the funding
date in connection with certain repricing transactions, which will be subject to
a 1.0% prepayment premium. The Term Loan B-4 benefits from certain "most favored
nation" pricing protections and is not subject to the financial maintenance
covenants under the Third Amended and Restated Credit Agreement. The Term Loan
B-4 amortizes in equal quarterly installments at a rate (expressed as a
percentage of the original principal amount) of 1.0% per annum (subject to
customary adjustments in the event of any prepayment), with the outstanding
balance due upon maturity.
Senior Notes
In November 2020 , we completed the Senior Notes Offering of $650.0 million
aggregate principal amount of Senior Notes due 2030. The Senior Notes bear
interest at a rate of 4.00% per annum payable semi-annually in arrears on May
15th and November 15th of each year, beginning on May 15, 2021 . The Senior Notes
are required to be guaranteed on a senior unsecured basis by each of our
existing and future wholly owned domestic subsidiaries that guarantees our
obligations under our Senior Credit Facilities or that guarantees certain
capital markets debt of ours or a guarantor in an aggregate principal amount in
excess of $250.0 million .
Convertible Notes
In March 2021 , we completed the Convertible Notes Offering of $575.0 million
aggregate principal amount of 2026 Notes and $345.0 million aggregate principal
amount of 2028 Notes. The net proceeds from the Convertible Notes Offering were
$895.2 million after deducting initial purchaser discounts and other offering
costs and expenses. We used the net proceeds from the Convertible Notes Offering
for general corporate purposes, including to finance a portion of the purchase
price in connection with the Hargray Acquisition. The Convertible Notes are
senior unsecured obligations of ours and are guaranteed by our wholly owned
domestic subsidiaries that guarantee the Senior Credit Facilities or that
guarantee certain of our Notes in an aggregate principal amount in excess of
$250.0 million . The 2026 Notes do not bear regular interest, and the principal
amount of the 2026 Notes do not accrete. The 2028 Notes bear interest at a rate
of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in
arrears on March 15th and September 15th of each year, beginning on September
15, 2021 , unless earlier repurchased, converted or redeemed. The 2026 Notes are
scheduled to mature on March 15, 2026 , and the 2028 Notes are scheduled to
mature on March 15, 2028 . The initial conversion rate for each of the 2026 Notes
and the 2028 Notes is 0.4394 shares of our common stock per $1,000 principal
amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial
conversion price of $2,275.83 per share of common stock). The initial conversion
price of each of the 2026 Notes and the 2028 Notes represents a premium of 25.0%
over the last reported sale price of $1,820.83 per share of our common stock on
March 2, 2021 . The Convertible Notes are convertible at the option of the
holders. The method of conversion into cash, shares of our common stock or a
combination thereof is at our election.
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Other Debt-Related Information
We were in compliance with all debt covenants as of
We recorded debt issuance cost amortization of$1.1 million for both the three months endedMarch 31, 2021 and 2020 within interest expense in the condensed consolidated statements of operations and comprehensive income.
Unamortized debt issuance costs consisted of the following (in thousands):
March 31, 2021 December 31, 2020
Revolving Credit Facility portion:
Other noncurrent assets $ 3,083 $ 3,249
Term loans and Notes portion: Long-term debt (contra account) 21,753 21,897 Total$ 24,836 $ 25,146 We are party to two interest rate swap agreements to convert our interest payment obligations with respect to an aggregate of$1.2 billion of our variable rate LIBOR indebtedness to a fixed rate. Under the first swap agreement, with respect to a notional amount of$850.0 million , our monthly payment obligation is determined at a fixed base rate of 2.653%. Under the second swap agreement, with respect to a notional amount of$350.0 million , our monthly payment obligation is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but each may be terminated prior to the scheduled maturity at our election or that of the financial institution counterparty under the terms provided in each swap agreement. We recognized losses of$7.6 million and$2.1 million during the three months endedMarch 31, 2021 and 2020, respectively, which were reflected in interest expense within the condensed consolidated statements of operations and comprehensive income.
In
Refer to notes 10 and 12 to our audited consolidated financial statements included in the 2020 Form 10-K and notes 8, 9 and 16 to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for further details regarding our financing activity, outstanding debt and interest rate swaps.
Capital Expenditures We have significant ongoing capital expenditure requirements as well as capital enhancements associated with acquired operations, including rebuilding low capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 3.1; converting back office functions such as billing, accounting and service provisioning; migrating products to legacyCable One platforms; and expanding our high-capacity fiber network. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities. 30
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Our capital expenditures by category for the three months ended
Three Months Ended March 31,
2021 2020
Customer premise equipment(1) $ 17,346 $ 15,671
Commercial(2) 8,640 10,828
Scalable infrastructure(3) 15,725 9,279
Line extensions(4) 5,756 4,476
Upgrade/rebuild(5) 15,662 12,345
Support capital(6) 8,724 12,158
Total $ 71,853 $ 64,757 --------------------------------------------------------------------------------
(1) Customer premise equipment includes costs incurred at customer locations,
including installation costs and customer premise equipment (e.g., modems and
set-top boxes). (2) Commercial includes costs related to securing business services customers and
PSUs, including small and medium-sized businesses and enterprise customers. (3) Scalable infrastructure includes costs not related to customer premise
equipment to secure growth of new customers and PSUs or provide service
enhancements (e.g., headend equipment). (4) Line extensions include network costs associated with entering new service
areas (e.g., fiber/coaxial cable, amplifiers, electronic equipment,
make-ready and design engineering). (5) Upgrade/rebuild includes costs to modify or replace existing fiber/coaxial
cable networks, including betterments. (6) Support capital includes costs associated with the replacement or enhancement
of non-network assets due to technological and physical obsolescence (e.g.,
non-network equipment, land, buildings and vehicles) and capitalized internal
labor costs not associated with customer installation activities.
Contractual Obligations and Contingent Commitments
As ofMarch 31, 2021 , except for the$11.0 million increase to the letters of credit issued on behalf of Wisper to guarantee its performance obligations under anFCC broadband funding program, there have been no material changes to the contractual obligations and contingent commitments previously disclosed in the 2020 Form 10-K.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or financing arrangements with special-purpose entities.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
An accounting policy is considered to be critical if it is important to our results of operations and financial condition and if it requires management's most difficult, subjective and complex judgments in its application.
There have been no material changes to our critical accounting policy and estimate disclosures described in our 2020 Form 10-K.
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