UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One) |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number:
Cable One, Inc.
(Exact name of registrant as specified in its charter)
| | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| | |
(Address of Principal Executive Offices) | (Zip Code) |
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | | |
Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:
Description of Class | Shares Outstanding as of April 29, 2022 |
Common stock, par value $0.01 |
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION | 1 | |
Item 1. | Condensed Consolidated Financial Statements | 1 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 34 |
Item 4. | Controls and Procedures | 34 |
PART II: OTHER INFORMATION | 35 | |
Item 1. | Legal Proceedings | 35 |
Item 1A. | Risk Factors | 35 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35 |
Item 3. | Defaults Upon Senior Securities | 35 |
Item 4. | Mine Safety Disclosures | 35 |
Item 5. | Other Information | 35 |
Item 6. | Exhibits | 36 |
SIGNATURES | 37 |
References herein to “Cable One,” “us,” “our,” “we” or the “Company” refer to Cable One, Inc., together with its wholly owned subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” that involve risks and uncertainties. These statements can be identified by the fact that they do not relate strictly to historical or current facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business, strategy, acquisitions and strategic investments, dividend policy, financial results and financial condition. Forward-looking statements often include words such as “will,” “should,” “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance in connection with discussions of future operating or financial performance. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by us or on our behalf. Important factors that could cause our actual results to differ materially from those in our forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors, which are discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”):
● |
the duration and severity of the COVID-19 pandemic and its effects on our business, financial condition, results of operations and cash flows; |
● |
rising levels of competition from historical and new entrants in our markets; |
● |
recent and future changes in technology; |
● |
our ability to continue to grow our business services products; |
● |
increases in programming costs and retransmission fees; |
● |
our ability to obtain hardware, software and operational support from vendors; |
● |
risks that we may fail to realize the benefits anticipated as a result of our purchase of the remaining interests in Hargray Acquisition Holdings, LLC (“Hargray”) that we did not already own (the “Hargray Acquisition”); |
● |
risks relating to existing or future acquisitions and strategic investments by us; |
● |
risks that the implementation of our new enterprise resource planning system disrupts business operations; |
● |
the integrity and security of our network and information systems; |
● |
the impact of possible security breaches and other disruptions, including cyber-attacks; |
● |
our failure to obtain necessary intellectual and proprietary rights to operate our business and the risk of intellectual property claims and litigation against us; |
● |
legislative or regulatory efforts to impose network neutrality and other new requirements on our data services; |
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additional regulation of our video and voice services; |
● |
our ability to renew cable system franchises; |
● |
increases in pole attachment costs; |
● |
changes in local governmental franchising authority and broadcast carriage regulations; |
● |
the potential adverse effect of our level of indebtedness on our business, financial condition or results of operations and cash flows; |
● |
the restrictions the terms of our indebtedness place on our business and corporate actions; |
● |
the possibility that interest rates will rise, causing our obligations to service our variable rate indebtedness to increase significantly; |
|
● | the transition away from the London Interbank Offered Rate ("LIBOR") and the adoption of alternative reference rates; |
● |
risks associated with our convertible indebtedness; |
● |
our ability to continue to pay dividends; |
● |
provisions in our charter, by-laws and Delaware law that could discourage takeovers and limit the judicial forum for certain disputes; |
● |
adverse economic conditions, labor shortages, supply chain disruptions and changes in rates of inflation; |
|
● | lower demand for our residential data and business services; |
● |
fluctuations in our stock price; |
● |
dilution from equity awards, convertible indebtedness and potential future convertible debt and stock issuances; |
● |
damage to our reputation or brand image; |
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our ability to retain key employees (whom we refer to as associates); |
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our ability to incur future indebtedness; |
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provisions in our charter that could limit the liabilities for directors; and |
● |
the other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”), including but not limited to those described under "Risk Factors" in our 2021 Form 10-K. |
Any forward-looking statements made by us in this document speak only as of the date on which they are made. We are under no obligation, and expressly disclaim any obligation, except as required by law, to update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CABLE ONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except par values) | March 31, 2022 | December 31, 2021 | ||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net | ||||||||
Income taxes receivable | ||||||||
Prepaid and other current assets | ||||||||
Total Current Assets | ||||||||
Equity investments | ||||||||
Property, plant and equipment, net | ||||||||
Intangible assets, net | ||||||||
Goodwill | ||||||||
Other noncurrent assets | ||||||||
Total Assets | $ | $ | ||||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Deferred revenue | ||||||||
Current portion of long-term debt | ||||||||
Total Current Liabilities | ||||||||
Long-term debt | ||||||||
Deferred income taxes | ||||||||
Interest rate swap liability | ||||||||
Other noncurrent liabilities | ||||||||
Total Liabilities | ||||||||
Commitments and contingencies (refer to note 16) | ||||||||
Stockholders' Equity | ||||||||
Preferred stock ($ par value; shares authorized; issued or outstanding) | ||||||||
Common stock ($ par value; shares authorized; shares issued; and and shares outstanding as of March 31, 2022 and December 31, 2021, respectively) | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Treasury stock, at cost ( and shares held as of March 31, 2022 and December 31, 2021, respectively) | ( | ) | ( | ) | ||||
Total Stockholders' Equity | ||||||||
Total Liabilities and Stockholders' Equity | $ | $ |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended |
||||||||
March 31, |
||||||||
(dollars in thousands, except per share data) |
2022 |
2021 |
||||||
Revenues |
$ | $ | ||||||
Costs and Expenses: |
||||||||
Operating (excluding depreciation and amortization) |
||||||||
Selling, general and administrative |
||||||||
Depreciation and amortization |
||||||||
(Gain) loss on asset sales and disposals, net |
( |
) | ||||||
(Gain) loss on sale of business |
( |
) | ||||||
Total Costs and Expenses |
||||||||
Income from operations |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Other income (expense), net |
||||||||
Income before income taxes and equity method investment income (loss), net |
||||||||
Income tax provision |
||||||||
Income before equity method investment income (loss), net |
||||||||
Equity method investment income (loss), net |
( |
) | ||||||
Net income |
$ | $ | ||||||
Net Income per Common Share |
||||||||
Basic |
$ | $ | ||||||
Diluted |
$ | $ | ||||||
Weighted Average Common Shares Outstanding: |
||||||||
Basic |
||||||||
Diluted |
||||||||
Unrealized gain on cash flow hedges and other, net of tax |
$ | $ | ||||||
Comprehensive income |
$ | $ |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Additional | Accumulated Other | Treasury | Total | |||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Stock, | Stockholders’ | |||||||||||||||||||||||
(dollars in thousands, except per share data) | Shares | Amount | Capital | Earnings | Loss | at cost | Equity | |||||||||||||||||||||
Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
Net income | - | - | - | - | - | |||||||||||||||||||||||
Unrealized gain on cash flow hedges and other, net of tax | - | - | - | - | - | |||||||||||||||||||||||
Equity-based compensation | - | - | - | - | - | |||||||||||||||||||||||
Issuance of equity awards, net of forfeitures | ||||||||||||||||||||||||||||
Repurchases of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
Withholding tax for equity awards | ( | ) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||
Dividends paid to stockholders ($ per common share) | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Additional | Accumulated Other | Treasury | Total | |||||||||||||||||||||||||
Common Stock | Paid-In | Retained | Comprehensive | Stock, | Stockholders’ | |||||||||||||||||||||||
(dollars in thousands, except per share data) | Shares | Amount | Capital | Earnings | Loss | at cost | Equity | |||||||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
Net income | - | - | - | - | - | |||||||||||||||||||||||
Unrealized gain on cash flow hedges and other, net of tax | - | - | - | - | - | |||||||||||||||||||||||
Equity-based compensation | - | - | - | - | - | |||||||||||||||||||||||
Issuance of equity awards, net of forfeitures | ||||||||||||||||||||||||||||
Withholding tax for equity awards | ( | ) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||
Dividends paid to stockholders ($ per common share) | - | - | - | ( | ) | - | - | ( | ) | |||||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, | ||||||||
(in thousands) | 2022 | 2021 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Non-cash interest expense | ||||||||
Equity-based compensation | ||||||||
Write-off of debt issuance costs | ||||||||
Change in deferred income taxes | ||||||||
(Gain) loss on asset sales and disposals, net | ( | ) | ||||||
Gain on sale of business | ( | ) | ||||||
Equity method investment (income) loss, net | ( | ) | ||||||
Fair value adjustments | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | ||||||||
Income taxes receivable | ||||||||
Prepaid and other current assets | ( | ) | ( | ) | ||||
Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
Deferred revenue | ( | ) | ||||||
Other | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities: | ||||||||
Cash paid for debt and equity investments | ( | ) | ||||||
Capital expenditures | ( | ) | ( | ) | ||||
Change in accrued expenses related to capital expenditures | ||||||||
Proceeds from sales of property, plant and equipment | ||||||||
Net cash used in investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt borrowings | ||||||||
Payment of debt issuance costs | ( | ) | ||||||
Payments on long-term debt | ( | ) | ( | ) | ||||
Repurchases of common stock | ( | ) | ||||||
Payment of withholding tax for equity awards | ( | ) | ( | ) | ||||
Dividends paid to stockholders | ( | ) | ( | ) | ||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
Increase (decrease) in cash and cash equivalents | ( | ) | ||||||
Cash and cash equivalents, beginning of period | ||||||||
Cash and cash equivalents, end of period | $ | $ | ||||||
Supplemental cash flow disclosures: | ||||||||
Cash paid for interest, net of capitalized interest | $ | $ | ||||||
Cash paid for income taxes, net of refunds received | $ | ( | ) | $ | ( | ) |
See accompanying notes to the condensed consolidated financial statements.
CABLE ONE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business. Cable One is a fully integrated provider of data, video and voice services to residential and business customers in
On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray in exchange for an approximately
On December 30, 2021, the Company acquired certain assets and assumed certain liabilities from Cable America Missouri, LLC, a data, video and voice services provider in central Missouri ("CableAmerica"), for $
On January 1, 2022, the Company closed a joint venture transaction in which the Company contributed certain fiber operations (including certain fiber assets of Hargray and a majority of the operations of Delta Communications, L.L.C. ("Clearwave")) (the "Clearwave Fiber Contribution") and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber LLC ("Clearwave Fiber"). The operations contributed by the Company generated approximately
Basis of Presentation. The condensed consolidated financial statements and accompanying notes thereto have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“GAAP”) for interim financial information; and (ii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the SEC. As permitted under such guidance, certain notes and other financial information normally required by GAAP have been omitted. Management believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations and cash flows as of and for the periods presented herein. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the 2021 Form 10-K.
The December 31, 2021 year-end balance sheet data presented herein was derived from the Company’s audited consolidated financial statements included in the 2021 Form 10-K, but does not include all disclosures required by GAAP. The Company’s interim results of operations may not be indicative of its future results.
Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company, including its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Segment Reporting. Accounting Standards Codification ("ASC") 280 - Segment Reporting requires the disclosure of factors used to identify an entity’s reportable segments. Based on the Company’s chief operating decision maker’s review and assessment of the Company’s operating performance for purposes of performance monitoring and resource allocation, the Company determined that its operations, including the decisions to allocate resources and deploy capital, are organized and managed on a consolidated basis. Accordingly, management has identified
Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates and underlying assumptions.
Recently Adopted Accounting Pronouncements. In November 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires additional disclosure around the type of any government assistance received and its impact on the consolidated financial statements. The Company adopted the updated guidance in the first quarter of 2022. The adoption did not have a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires entities to apply existing revenue recognition guidance when recognizing and measuring contract assets acquired and contract liabilities assumed in a business combination. The Company adopted the updated guidance in the first quarter of 2022. The adoption did not have a material impact on the Company's consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR and other reference rates that are to be discontinued. The ASU may be adopted at any time through December 31, 2022. The Company currently holds certain debt and interest rate swaps that reference LIBOR. The Company plans to adopt ASU 2020-04 when the contracts underlying such instruments are amended as a result of reference rate reform. The Company is currently evaluating the expected impact of the adoption of this guidance on its consolidated financial statements.
2. ACQUISITIONS
The Company accounts for certain acquisitions as business combinations pursuant to ASC 805. In accordance with ASC 805, the Company uses its best estimates and assumptions to assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date based on the information that is available as of the acquisition date. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed for each acquisition, however, preliminary measurements of fair value for each acquisition are subject to change during the measurement period, and such changes could be material. The Company expects to finalize the valuation after each acquisition as soon as practicable but no later than one year after the acquisition date.
Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from anticipated synergies and intangible assets that do not qualify for separate recognition, including an assembled workforce, noncontractual relationships and other agreements. As an indefinite-lived asset, goodwill is not amortized but rather is subject to impairment testing on at least an annual basis.
Acquisition costs incurred by the Company are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred $
The following acquisitions occurred during the periods presented:
CableAmerica. On December 30, 2021, the Company acquired certain assets and assumed certain liabilities of CableAmerica, a data, video and voice services provider in central Missouri, for a preliminary purchase price of $
Acquired identifiable intangible assets associated with the CableAmerica acquisition consisted of the following (dollars in thousands):
Useful Life |
||||||||
Fair Value |
(in years) |
|||||||
Customer relationships |
$ | |||||||
Trademark and trade name |
$ | |||||||
Franchise agreements |
$ | Indefinite |
Customer relationships and franchise agreements were valued using the multi-period excess earnings method (“MPEEM”) of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future earnings before interest, taxes, depreciation and amortization (“EBITDA” and as adjusted, “Adjusted EBITDA”) margins, future capital expenditures and appropriate discount rates. No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is
The CableAmerica acquisition resulted in the recognition of $
Hargray. On May 3, 2021, the Company acquired the remaining approximately
The following table summarizes the allocation of the Hargray purchase price consideration as of the acquisition date, reflecting immaterial measurement period adjustments (in thousands):
Initial Purchase Price Allocation |
Measurement Period Adjustments |
Purchase Price Allocation |
||||||||||
Assets Acquired |
||||||||||||
Cash and cash equivalents |
$ | $ | $ | |||||||||
Accounts receivable |
( |
) | ||||||||||
Income taxes receivable |
||||||||||||
Prepaid and other current assets |
||||||||||||
Property, plant and equipment |
( |
) | ||||||||||
Intangible assets |
||||||||||||
Other noncurrent assets |
||||||||||||
Total Assets Acquired |
||||||||||||
Liabilities Assumed |
||||||||||||
Accounts payable and accrued liabilities |
||||||||||||
Deferred revenue (short-term portion) |
||||||||||||
Current portion of long-term debt |
( |
) | ||||||||||
Long-term debt |
( |
) | ||||||||||
Deferred income taxes |
||||||||||||
Other noncurrent liabilities |
||||||||||||
Total Liabilities Assumed |
||||||||||||
Net assets acquired |
||||||||||||
Purchase price consideration(1) |
( |
) | ||||||||||
Goodwill recognized |
$ | $ | ( |
) | $ |
(1) |
Consists of approximately $ |
Acquired identifiable intangible assets associated with the Hargray Acquisition consisted of the following (dollars in thousands):
Useful Life |
||||||||
Fair Value |
(in years) |
|||||||
Customer relationships |
$ | |||||||
Trademark and trade name |
$ | |||||||
Franchise agreements |
$ | Indefinite |
Customer relationships and franchise agreements were valued using the MPEEM of the income approach. Significant assumptions used in the valuations include projected revenue growth rates, customer attrition rates, future EBITDA margins, future capital expenditures and appropriate discount rates. No residual value was assigned to the acquired customer relationships, trademark and trade name or franchise agreements. The customer relationships are amortized on an accelerated basis commensurate with future anticipated cash flows. The trademark and trade name are amortized on a straight-line basis. The total weighted average amortization period for the acquired finite-lived intangible assets is
The Hargray Acquisition resulted in the recognition of $
3. REVENUES
Revenues by product line and other revenue-related disclosures were as follows (in thousands):
Three Months Ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
Residential: |
||||||||
Data |
$ | $ | ||||||
Video |
||||||||
Voice |
||||||||
Business services |
||||||||
Other |
||||||||
Total revenues |
$ | $ | ||||||
Franchise and other regulatory fees |
$ | $ | ||||||
Deferred commission amortization |
$ | $ |
Other revenues are comprised primarily of regulatory revenues, advertising sales, late charges and reconnect fees.
Fees imposed on the Company by various governmental authorities, including franchise fees, are passed through on a monthly basis to the Company’s customers and are periodically remitted to authorities. As the Company acts as principal, these fees are reported in video and voice revenues on a gross basis with corresponding expenses included within operating expenses in the condensed consolidated statements of operations and comprehensive income.
Deferred commission amortization expense is included within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Current deferred revenue liabilities consist of refundable customer prepayments, up-front charges and installation fees. As of March 31, 2022, the Company’s remaining performance obligations pertain to the refundable customer prepayments and consist of providing future data, video and voice services to customers. Of the $
4. OPERATING ASSETS AND LIABILITIES
Accounts receivable consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Trade receivables |
$ | $ | ||||||
Other receivables |
||||||||
Less: Allowance for credit losses |
( |
) | ( |
) | ||||
Total accounts receivable, net |
$ | $ |
The changes in the allowance for credit losses were as follows (in thousands):
Three Months Ended March 31, |
||||||||
2022 |
2021 |
|||||||
Beginning balance |
$ | $ | ||||||
Additions - charged to costs and expenses |
||||||||
Deductions - write-offs |
( |
) | ( |
) | ||||
Recoveries collected |
||||||||
Ending balance |
$ | $ |
Prepaid and other current assets consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Prepaid repairs and maintenance |
$ | $ | ||||||
Software implementation costs |
||||||||
Prepaid insurance |
||||||||
Prepaid rent |
||||||||
Prepaid software |
||||||||
Deferred commissions |
||||||||
All other current assets |
||||||||
Total prepaid and other current assets |
$ | $ |
Other noncurrent assets consisted of the following (in thousands):
March 31, 2022 | December 31, 2021 | |||||||
Operating lease right-of-use assets | $ | $ | ||||||
Deferred commissions | ||||||||
Software implementation costs | ||||||||
Debt issuance costs | ||||||||
Debt investment | ||||||||
Assets held for sale | ||||||||
All other noncurrent assets | ||||||||
Total other noncurrent assets | $ | $ |
Accounts payable and accrued liabilities consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Accounts payable |
$ | $ | ||||||
Accrued programming costs |
||||||||
Accrued compensation and related benefits |
||||||||
Accrued sales and other operating taxes |
||||||||
Accrued franchise fees |
||||||||
Deposits |
||||||||
Operating lease liabilities |
||||||||
Interest rate swap liability |
||||||||
Accrued insurance costs |
||||||||
Cash overdrafts |
||||||||
Equity investment payable(1) |
||||||||
Interest payable |
||||||||
All other accrued liabilities |
||||||||
Total accounts payable and accrued liabilities |
$ | $ |
(1) |
Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). In March 2022, the Company funded $ |
Other noncurrent liabilities consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Operating lease liabilities |
$ | $ | ||||||
Accrued compensation and related benefits |
||||||||
Deferred revenue |
||||||||
MBI Net Option (as defined in note 5)(1) |
||||||||
All other noncurrent liabilities |
||||||||
Total other noncurrent liabilities |
$ | $ |
(1) |
Represents the net value of the Company’s call and put options associated with the remaining equity interests in MBI (as defined in note 5), consisting of an asset of $ |
5. EQUITY INVESTMENTS
On May 4, 2020, the Company made a minority equity investment for a less than
On May 3, 2021, the Company acquired the remaining approximately
On January 1, 2022, the Company closed a joint venture transaction in which the Company contributed certain fiber operations (including certain fiber assets of Hargray) and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber. The operations contributed by the Company generated approximately
The carrying value of the Company’s equity investments without readily determinable fair values are determined based on fair valuations as of their respective acquisition dates. As Tristar is publicly traded, the carrying value of the Company's Tristar investment is remeasured to fair value on a quarterly basis using market information.
The carrying value of the Company's equity investments consisted of the following (dollars in thousands):
Ownership |
March 31, |
December 31, |
||||||||
Percentage |
2022 |
2021 |
||||||||
Cost Method Investments |
||||||||||
Nextlink |
<20% |
$ | $ | |||||||
Point Broadband |
<10% | |||||||||
Tristar |
<10% |
|||||||||
Others |
<10% |
|||||||||
Total cost method investments |
$ | $ | ||||||||
Equity Method Investments |
||||||||||
Clearwave Fiber |
|
$ | $ | |||||||
MBI(1) |
|
|||||||||
Wisper |
|
|||||||||
Total equity method investments |
$ | $ | ||||||||
Total equity investments |
$ | $ |
(1) |
The Company holds a call option to purchase all but not less than all of the remaining equity interests in MBI that the Company does not already own between January 1, 2023 and June 30, 2024. If the call option is not exercised, certain investors in MBI hold a put option to sell (and to cause all members of MBI other than the Company to sell) to the Company all but not less than all of the remaining equity interests in MBI that the Company does not already own between July 1, 2025 and September 30, 2025. The call and put options (collectively referred to as the “MBI Net Option”) are measured at fair value using Monte Carlo simulations that rely on assumptions around MBI’s equity value, MBI’s and the Company’s equity volatility, MBI’s and the Company’s EBITDA volatility, risk adjusted discount rates and the Company’s cost of debt, among others. The final MBI purchase price allocation resulted in $ |
The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by approximately $
Equity method investment income (losses), which increase (decrease) the carrying value of the respective investment, and which are recorded on a one quarter lag, and the change in fair value of the MBI Net Option were as follows (in thousands):
Three Months Ended March 31, |
||||||||
2022 |
2021 |
|||||||
Equity Method Investment Income (Loss) |
||||||||
MBI(1) |
$ | $ | ( |
) | ||||
Wisper |
||||||||
Total |
$ | $ | ( |
) | ||||
Other Income (Expense), Net |
||||||||
MBI Net Option change in fair value |
$ | $ |
(1) |
The Company identified a $ |
The Company assesses each equity investment for indicators of impairment on a quarterly basis.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
March 31, 2022 | December 31, 2021 | |||||||
Cable distribution systems | $ | $ | ||||||
Customer premise equipment | ||||||||
Other equipment and fixtures | ||||||||
Buildings and improvements | ||||||||
Capitalized software | ||||||||
Construction in progress | ||||||||
Land | ||||||||
Right-of-use assets | ||||||||
Property, plant and equipment, gross | ||||||||
Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
Property, plant and equipment, net | $ | $ |
The Company contributed $
The Company classified $
Depreciation and amortization expense for property, plant and equipment was $
7. GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill was $
Intangible assets consisted of the following (dollars in thousands):
March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||
Useful Life | Gross | Net | Gross | Net | |||||||||||||||||||||||
Range | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||||
(in years) | Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||||
Finite-Lived Intangible Assets | |||||||||||||||||||||||||||
Customer relationships | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Trademarks and trade names | |||||||||||||||||||||||||||
Wireless licenses | |||||||||||||||||||||||||||
Total finite-lived intangible assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
Indefinite-Lived Intangible Assets | |||||||||||||||||||||||||||
Franchise agreements | $ | $ | |||||||||||||||||||||||||
Trade names | |||||||||||||||||||||||||||
Total indefinite-lived intangible assets | $ | $ | |||||||||||||||||||||||||
Total intangible assets, net | $ | $ |
The $
Intangible asset amortization expense was $
The future amortization of existing finite-lived intangible assets as of March 31, 2022 was as follows (in thousands):
Year Ending December 31, | Amount | |||
2022 (remaining nine months) | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
Thereafter | ||||
Total | $ |
Actual amortization expense in future periods may differ from the amounts above as a result of intangible asset acquisitions or divestitures, changes in useful life estimates, impairments or other relevant factors.
8. DEBT
The carrying amount of long-term debt consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Senior Credit Facilities (as defined below) |
$ | $ | ||||||
Senior Notes (as defined below) |
||||||||
Convertible Notes (as defined below) |
||||||||
Finance lease liabilities |
||||||||
Total debt |
||||||||
Less: Unamortized debt discount |
( |
) | ( |
) | ||||
Less: Unamortized debt issuance costs |
( |
) | ( |
) | ||||
Less: Current portion of long-term debt |
( |
) | ( |
) | ||||
Total long-term debt |
$ | $ |
Senior Credit Facilities. The Company has in place a credit agreement (the "Credit Agreement") that provides for senior secured term loans in original aggregate principal amounts of $
Instrument |
Draw Date(s) |
Original Principal |
Amortization Per Annum(1) |
Outstanding Principal |
Final Maturity Date |
Final Scheduled Principal Payment |
Benchmark Rate |
Applicable Margin(2) |
Interest Rate |
||||||||||||||||
Term Loan A-2 |
5/8/2019(3) 10/1/2019(3) |
$ | Varies(4) |
$ | 10/30/2025 |
$ | LIBOR |
|
|
||||||||||||||||
Term Loan B-2 |
1/7/2019 |
|
10/30/2027 |
LIBOR |
|
|
|||||||||||||||||||
Term Loan B-3 |
6/14/2019(5) 10/30/2020(5) |
|
10/30/2027 |
LIBOR |
|
|
|||||||||||||||||||
Term Loan B-4 |
5/3/2021 |
|
5/3/2028 |
LIBOR |
|
|
|||||||||||||||||||
Total |
$ | $ | $ |
(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 |
(3) |
On May 8, 2019, $ |
(4) |
Per annum amortization rates for years one through five following October 30, 2020 are |
(5) |
On June 14, 2019, $ |
Senior Notes. In November 2020, the Company issued $
At any time and from time to time prior to November 15, 2025, the Company may redeem some or all of the Senior Notes for cash at a redemption price equal to
Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), the Company is required to offer to repurchase the Senior Notes at
Convertible Notes. In March 2021, the Company issued $
The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2028 Notes bear interest at a rate of
The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of the Company’s common stock or a combination thereof is at the election of the Company. Prior to the close of business on the business day immediately preceding December 15, 2025, the 2026 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2025, holders may convert their 2026 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. Prior to the close of business on the business day immediately preceding December 15, 2027, the 2028 Notes will be convertible at the option of the holders only upon the satisfaction of specified conditions and during certain periods. On or after December 15, 2027, holders may convert their 2028 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the relevant maturity date. If the Company undergoes a “fundamental change” (as defined in the applicable Convertible Notes Indenture), holders of the applicable series of Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes of such series at a purchase price equal to
The Company may not redeem the 2026 Notes prior to March 20, 2024 and it may not redeem the 2028 Notes prior to March 20, 2025. No “sinking fund” is provided for the Convertible Notes. On or after March 20, 2024 and prior to December 15, 2025, the Company may redeem for cash all or any portion of the 2026 Notes, at its option, and on or after March 20, 2025 and prior to December 15, 2027, the Company may redeem for cash all or any portion of the 2028 Notes, at its option, in each case, if the last reported sale price per share of common stock has been at least
In addition, following a “make-whole fundamental change” (as defined in the applicable Convertible Notes Indenture) or if the Company delivers a notice of redemption in respect of any Convertible Notes of a series, in certain circumstances, the conversion rate applicable to such series of Convertible Notes will be increased for a holder who elects to convert any of such Convertible Notes in connection with such a make-whole fundamental change or convert any of such Convertible Notes called (or deemed called) for redemption during the related redemption period, as the case may be.
The carrying amounts of the Convertible Notes consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
2026 Notes |
2028 Notes |
Total |
2026 Notes |
2028 Notes |
Total |
|||||||||||||||||||
Gross carrying amount |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Less: Unamortized discount |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Less: Unamortized debt issuance costs |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net carrying amount |
$ | $ | $ | $ | $ | $ |
Interest expense on the Convertible Notes consisted of the following (dollars in thousands):
Three Months Ended March 31, |
||||||||||||||||||||||||
2022 |
2021 |
|||||||||||||||||||||||
2026 Notes |
2028 Notes |
Total |
2026 Notes |
2028 Notes |
Total |
|||||||||||||||||||
Contractual interest expense |
$ | - | $ | $ | $ | - | $ | $ | ||||||||||||||||
Amortization of discount |
||||||||||||||||||||||||
Amortization of debt issuance costs |
||||||||||||||||||||||||
Total interest expense |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Effective interest rate |
% | % | % | % |
General. The Notes are senior unsecured obligations of the Company and are guaranteed by the Company’s wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain capital market debt of the Company in an aggregate principal amount in excess of $250.0 million.
Each Indenture contains covenants that, among other things and subject to certain exceptions, limit (i) the Company’s ability to consolidate or merge with or into another person or sell or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries (taken as a whole) and (ii) the ability of the guarantors to consolidate with or merge with or into another person. The Senior Notes Indenture also contains a covenant that, subject to certain exceptions, limits the Company’s ability and the ability of its subsidiaries to incur any liens securing indebtedness for borrowed money.
Each Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, default in payment of principal or interest, breach of other agreements or covenants in respect of the relevant Notes by the Company or any guarantors, failure to pay certain other indebtedness at final maturity, acceleration of certain indebtedness prior to final maturity, failure to pay certain final judgments, failure of certain guarantees to be enforceable and certain events of bankruptcy, insolvency or reorganization; and, in the case of each Convertible Notes Indenture, failure to comply with the Company’s obligation to convert the relevant Convertible Notes under the applicable Convertible Notes Indenture and failure to give a fundamental change notice or a notice of a make-whole fundamental change under the applicable Convertible Notes Indenture.
Unamortized debt issuance costs consisted of the following (in thousands):
March 31, 2022 |
December 31, 2021 |
|||||||
Revolving Credit Facility portion: |
||||||||
Other noncurrent assets |
$ | $ | ||||||
Term loans and Notes portion: |
||||||||
Long-term debt (contra account) |
||||||||
Total |
$ | $ |
The Company recorded debt issuance cost amortization of $
The future maturities of outstanding borrowings as of March 31, 2022 were as follows (in thousands):
Year Ending December 31, |
Amount |
|||
2022 (remaining nine months) |
$ | |||
2023 |
||||
2024 |
||||
2025 |
||||
2026 |
||||
Thereafter |
||||
Total |
$ |
The Company was in compliance with all debt covenants as of March 31, 2022.
9. INTEREST RATE SWAPS
The Company is party to two interest rate swap agreements, designated as cash flow hedges, to manage the risk of fluctuations in interest rates on its variable rate LIBOR debt. Changes in the fair values of the interest rate swaps are reported through other comprehensive income until the underlying hedged debt’s interest expense impacts net income, at which point the corresponding change in fair value is reclassified from accumulated other comprehensive income to interest expense.
A summary of the significant terms of the Company’s interest rate swap agreements is as follows (dollars in thousands):
Entry | Effective | Maturity | Notional | Settlement | Settlement | Fixed | |||||||||
Date | Date | Date(1) | Amount | Type | Frequency | Base Rate | |||||||||
Swap A | 3/7/2019 | 3/11/2019 | 3/11/2029 | $ | Receive one-month LIBOR, pay fixed | Monthly | | ||||||||
Swap B | 3/6/2019 | 6/15/2020 | 2/28/2029 | Receive one-month LIBOR, pay fixed | Monthly | | |||||||||
Total | $ |