Cable One, Inc. [CABO] Filings

10-Q 1 cabo20220930_10q.htm FORM 10-Q cabo20220930_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐	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: 001-36863

Cable One, Inc.

(Exact name of registrant as specified in its charter)

Delaware		13-3060083
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

210 E. Earll Drive, Phoenix, Arizona		85012
(Address of Principal Executive Offices)		(Zip Code)

(602) 364-6000

(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
Common Stock, par value $0.01		CABO		New York Stock Exchange

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. Yes ☑ No ☐

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). Yes ☑ No ☐

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.

Large accelerated filer	☑	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 ☐ No ☑

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 October 28, 2022
Common stock, par value $0.01	5,809,413

Table of Contents

CABLE ONE, INC.

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	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II: OTHER INFORMATION		38

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

SIGNATURES		40

References herein to “Cable One,” “us,” “our,” “we” or the “Company” refer to Cable One, Inc., together with its wholly owned subsidiaries.

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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;

●

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 continue to 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;

●

our ability to retain key employees (whom we refer to as associates);

●

our ability to incur future indebtedness;

●

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.

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PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CABLE ONE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in thousands, except par values)	*September 30, 2022*			*December 31, 2021*
Assets
Current Assets:
Cash and cash equivalents	$	255,719		$	388,802
Accounts receivable, net		61,468			56,253
Income taxes receivable		3,139			24,193
Prepaid and other current assets		61,249			31,705
Total Current Assets		381,575			500,953
Equity investments		1,185,936			727,565
Property, plant and equipment, net		1,659,769			1,854,104
Intangible assets, net		2,688,114			2,861,137
Goodwill		928,947			967,913
Other noncurrent assets		87,911			42,322
Total Assets	$	6,932,252		$	6,953,994

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities	$	193,497		$	203,387
Deferred revenue		23,611			26,851
Current portion of long-term debt		51,659			38,837
Total Current Liabilities		268,767			269,075
Long-term debt		3,767,677			3,799,500
Deferred income taxes		933,653			854,156
Interest rate swap liability		-			81,627
Other noncurrent liabilities		65,023			156,541
Total Liabilities		5,035,120			5,160,899

Commitments and contingencies (refer to note 16)

Stockholders' Equity
Preferred stock ($0.01 par value; 4,000,000 shares authorized; none issued or outstanding)		-			-
Common stock ($0.01 par value; 40,000,000 shares authorized; 6,175,399 shares issued; and 5,827,960 and 6,046,362 shares outstanding as of September 30, 2022 and December 31, 2021, respectively)		62			62
Additional paid-in capital		572,656			555,640
Retained earnings		1,718,120			1,456,543
Accumulated other comprehensive income (loss)		54,506			(82,795	)
Treasury stock, at cost (347,439 and 129,037 shares held as of September 30, 2022 and December 31, 2021, respectively)		(448,212	)		(136,355	)
Total Stockholders' Equity		1,897,132			1,793,095
Total Liabilities and Stockholders' Equity	$	6,932,252		$	6,953,994

See accompanying notes to the condensed consolidated financial statements.

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

	*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*
(dollars in thousands, except per share data)	*2022*			*2021*			*2022*			*2021*
Revenues	$	424,718		$	430,237		$	1,280,528		$	1,173,248
Costs and Expenses:
Operating (excluding depreciation and amortization)		120,487			121,657			358,299			335,473
Selling, general and administrative		86,018			95,103			264,571			252,160
Depreciation and amortization		87,222			92,600			263,564			246,045
(Gain) loss on asset sales and disposals, net		2,952			3,376			7,615			4,314
(Gain) loss on sales of businesses, net		-			-			(13,833	)		-
Total Costs and Expenses		296,679			312,736			880,216			837,992
Income from operations		128,039			117,501			400,312			335,256
Interest expense		(36,389	)		(30,495	)		(98,549	)		(83,023	)
Other income (expense), net		834			(22,833	)		96,960			(2,584	)
Income before income taxes and equity method investment income (loss), net		92,484			64,173			398,723			249,649
Income tax provision		21,891			13,029			86,165			22,129
Income before equity method investment income (loss), net		70,593			51,144			312,558			227,520
Equity method investment income (loss), net		14			1,111			(1,230	)		(531	)
Net income	$	70,607		$	52,255		$	311,328		$	226,989

Net Income per Common Share:
Basic	$	12.10		$	8.68		$	52.47		$	37.73
Diluted	$	11.53		$	8.33		$	49.70		$	36.24
Weighted Average Common Shares Outstanding:
Basic		5,836,731			6,019,517			5,933,372			6,015,450
Diluted		6,261,257			6,460,875			6,357,955			6,362,736

Unrealized gain on cash flow hedges and other, net of tax	$	47,251		$	9,506		$	137,301		$	48,952
Comprehensive income	$	117,858		$	61,761		$	448,629		$	275,941

See accompanying notes to the condensed consolidated financial statements.

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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*			*Gain*		*at cost*			*Equity*
Balance at June 30, 2022		5,916,571		$	62	$	566,796	$	1,664,176		$	7,255	$	(332,785	)	$	1,905,504
Net income		-			-		-		70,607			-		-			70,607
Unrealized gain on cash flow hedges and other, net of tax		-			-		-		-			47,251		-			47,251
Equity-based compensation		-			-		5,860		-			-		-			5,860
Issuance of equity awards, net of forfeitures		469			-		-		-			-		-			-
Repurchases of common stock		(89,000	)		-		-		-			-		(115,322	)		(115,322	)
Withholding tax for equity awards		(80	)		-		-		-			-		(105	)		(105	)
Dividends paid to stockholders ($2.85 per common share)		-			-		-		(16,663	)		-		-			(16,663	)
Balance at September 30, 2022		5,827,960		$	62	$	572,656	$	1,718,120		$	54,506	$	(448,212	)	$	1,897,132

						*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 June 30, 2021		6,036,582		$	62	$	544,992	$	1,372,724		$	(101,237	)	$	(135,696	)	$	1,680,845
Net income		-			-		-		52,255			-			-			52,255
Unrealized gain on cash flow hedges and other, net of tax		-			-		-		-			9,506			-			9,506
Equity-based compensation		-			-		5,428		-			-			-			5,428
Issuance of equity awards, net of forfeitures		8,443			-		-		-			-			-			-
Withholding tax for equity awards		(93	)		-		-		-			-			(177	)		(177	)
Dividends paid to stockholders ($2.75 per common share)		-			-		-		(16,633	)		-			-			(16,633	)
Balance at September 30, 2021		6,044,932		$	62	$	550,420	$	1,408,346		$	(91,731	)	$	(135,873	)	$	1,731,224

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						*Additional*					*Accumulated Other*			*Treasury*			*Total*
	*Common Stock*					*Paid-In*		*Retained*			*Comprehensive*			*Stock,*			*Stockholders’*
(dollars in thousands, except per share data)	*Shares*			*Amount*		*Capital*		*Earnings*			*Gain (Loss)*			*at cost*			*Equity*
Balance at December 31, 2021		6,046,362		$	62	$	555,640	$	1,456,543		$	(82,795	)	$	(136,355	)	$	1,793,095
Net income		-			-		-		311,328			-			-			311,328
Unrealized gain on cash flow hedges and other, net of tax		-			-		-		-			137,301			-			137,301
Equity-based compensation		-			-		17,016		-			-			-			17,016
Issuance of equity awards, net of forfeitures		17,025			-		-		-			-			-			-
Repurchases of common stock		(232,637	)		-		-		-			-			(307,031	)		(307,031	)
Withholding tax for equity awards		(2,790	)		-		-		-			-			(4,826	)		(4,826	)
Dividends paid to stockholders ($8.35 per common share)		-			-		-		(49,751	)		-			-			(49,751	)
Balance at September 30, 2022		5,827,960		$	62	$	572,656	$	1,718,120		$	54,506		$	(448,212	)	$	1,897,132

						*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		6,027,704		$	62	$	535,586	$	1,228,172		$	(140,683	)	$	(127,838	)	$	1,495,299
Net income		-			-		-		226,989			-			-			226,989
Unrealized gain on cash flow hedges and other, net of tax		-			-		-		-			48,952			-			48,952
Equity-based compensation		-			-		14,834		-			-			-			14,834
Issuance of equity awards, net of forfeitures		20,878			-		-		-			-			-			-
Withholding tax for equity awards		(3,650	)		-		-		-			-			(8,035	)		(8,035	)
Dividends paid to stockholders ($7.75 per common share)		-			-		-		(46,815	)		-			-			(46,815	)
Balance at September 30, 2021		6,044,932		$	62	$	550,420	$	1,408,346		$	(91,731	)	$	(135,873	)	$	1,731,224

See accompanying notes to the condensed consolidated financial statements.

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CABLE ONE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	*Nine Months Ended September 30,*
(in thousands)	*2022*			*2021*
Cash flows from operating activities:
Net income	$	311,328		$	226,989
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		263,564			246,045
Non-cash interest expense, net		7,124			6,730
Equity-based compensation		17,016			14,834
Write-off of debt issuance costs		-			2,131
Change in deferred income taxes		32,472			1,680
(Gain) loss on asset sales and disposals, net		7,615			4,314
(Gain) loss on sales of businesses		(13,833	)		-
Equity method investment (income) loss, net		1,230			531
Fair value adjustments		(88,020	)		41,390
Gain on step acquisition		-			(33,406	)
Changes in operating assets and liabilities:
Accounts receivable, net		(8,544	)		764
Income taxes receivable		21,054			21,019
Prepaid and other current assets		(14,848	)		(7,149	)
Accounts payable and accrued liabilities		25,107			4,216
Deferred revenue		(484	)		2,919
Other		9,012			(2,721	)
Net cash provided by operating activities		569,793			530,286

Cash flows from investing activities:
Purchase of business, net of cash acquired		-			(1,953,643	)
Cash paid for debt and equity investments		(25,075	)		-
Capital expenditures		(307,252	)		(282,024	)
Change in accrued expenses related to capital expenditures		3,985			12,666
Proceeds from sales of property, plant and equipment		3,609			282
Proceeds from sales of operations		9,227			-
Net cash used in investing activities		(315,506	)		(2,222,719	)

Cash flows from financing activities:
Proceeds from long-term debt borrowings		-			1,695,850
Payment of debt issuance costs		-			(13,741	)
Payments on long-term debt		(25,762	)		(21,683	)
Repurchases of common stock		(307,031	)		-
Payment of withholding tax for equity awards		(4,826	)		(8,035	)
Dividends paid to stockholders		(49,751	)		(46,815	)
Deposits received for asset construction		-			1,485
Net cash provided by (used in) financing activities		(387,370	)		1,607,061

Decrease in cash and cash equivalents		(133,083	)		(85,372	)
Cash and cash equivalents, beginning of period		388,802			574,909
Cash and cash equivalents, end of period	$	255,719		$	489,537

Supplemental cash flow disclosures:
Cash paid for interest, net of capitalized interest	$	83,602		$	69,450
Cash paid for income taxes, net of refunds received	$	18,497		$	(1,068	)

See accompanying notes to the condensed consolidated financial statements.

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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 24 Western, Midwestern and Southern U.S. states. Cable One provided service to approximately 1.1 million residential and business customers, of which approximately 1,062,000 subscribed to data services, 202,000 subscribed to video services and 136,000 subscribed to voice services, as of September 30, 2022.

On October 1, 2020, the Company contributed its Anniston, Alabama system (the “Anniston System”) to Hargray in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis. On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness. Refer to note 2 for further details on this transaction.

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 $113.1 million in cash on a debt-free basis. The all-cash transaction was financed with cash on hand. Refer to note 2 for further details on this transaction.

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 3% of Cable One's consolidated revenues for the three months ended December 31, 2021. The Company's approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. Clearwave Fiber is intended to accelerate deployment of fiber internet to residents and businesses in existing markets and near-adjacent areas, as well as to provide connectivity to unserved and underserved areas in such markets via fiber-to-the-premises service. Clearwave Fiber is reported on Cable One’s balance sheet under the equity method of accounting, with the proportionate share of its net income (loss) each period reflected within Cable One's operating results on a one quarter lag. Refer to note 5 for further details on this transaction and on the Company’s other equity investments.

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 one operating segment, which is its reportable segment, under this organizational and reporting structure.

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.

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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 - Business Combinations. 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 $0.3 million and $0.8 million of acquisition costs during the three months ended September 30, 2022 and 2021, respectively, and $2.8 million and $10.0 million of acquisition costs during the nine months ended September 30, 2022 and 2021, respectively. These costs are included in selling, general and administrative expenses within the Company’s condensed consolidated statements of operations and comprehensive income.

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 purchase price of $113.1 million on a cash-free and debt-free basis.

Acquired identifiable intangible assets associated with the CableAmerica acquisition consisted of the following (dollars in thousands):

			Useful Life
	Fair Value		(in years)
Customer relationships	$	15,400		14.0
Trademark and trade name	$	500		3.0
Franchise agreements	$	49,600	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 13.7 years.

The CableAmerica acquisition resulted in the recognition of $25.6 million of goodwill, which is deductible for tax purposes.

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Hargray. On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray, a data, video and voice services provider, that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis.

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	$	17,652	$	-		$	17,652
Accounts receivable		17,991		(62	)		17,929
Income taxes receivable		-		720			720
Prepaid and other current assets		8,006		-			8,006
Property, plant and equipment		457,158		(525	)		456,633
Intangible assets		1,592,000		-			1,592,000
Other noncurrent assets		4,636		2,940			7,576
Total Assets Acquired		2,097,443		3,073			2,100,516

Liabilities Assumed
Accounts payable and accrued liabilities		36,457		1,770			38,227
Deferred revenue (short-term portion)		8,462		-			8,462
Current portion of long-term debt		1,375		(1,375	)		-
Long-term debt		2,912		(2,912	)		-
Deferred income taxes		437,725		3,652			441,377
Other noncurrent liabilities		6,974		2,912			9,886
Total Liabilities Assumed		493,905		4,047			497,952

Net assets acquired		1,603,538		(974	)		1,602,564
Purchase price consideration⁽¹⁾		2,117,866		(756	)		2,117,110
Goodwill recognized	$	514,328	$	218		$	514,546

⁽¹⁾

Consists of approximately $2.0 billion of cash for the additional approximately 85% equity interest in Hargray that the Company did not already own and the $146.6 million May 3, 2021 fair value of the Company’s existing approximately 15% equity investment in Hargray. The Company recognized a $33.4 million non-cash gain within other income in the condensed consolidated statement of operations and comprehensive income upon the acquisition, representing the difference between the existing equity investment’s fair value and $113.2 million carrying value. The fair value of the existing investment was calculated as approximately 15% of the fair value of Hargray’s total equity value (determined using the discounted cash flow method of the income approach, less debt), excluding the impact of any synergies or control premium that would be realized by a controlling interest.

Acquired identifiable intangible assets associated with the Hargray Acquisition consisted of the following (dollars in thousands):

			*Useful Life*
	*Fair Value*		*(in years)*
Customer relationships	$	472,000		13.7
Trademark and trade name	$	10,000		4.2
Franchise agreements	$	1,110,000	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 13.5 years.

The Hargray Acquisition resulted in the recognition of $514.5 million of goodwill, which is not deductible for tax purposes.

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3. REVENUES

Revenues by product line and other revenue-related disclosures were as follows (in thousands):

	*Three Months Ended*				*Nine Months Ended*
	*September 30,*				*September 30,*
	*2022*		*2021*		*2022*		*2021*
Residential:
Data	$	233,834	$	219,942	$	697,317	$	611,196
Video		80,525		89,507		249,944		252,764
Voice		10,494		12,645		33,105		35,235
Business services		75,847		85,728		228,999		222,706
Other		24,018		22,415		71,163		51,347
Total revenues	$	424,718	$	430,237	$	1,280,528	$	1,173,248

Franchise and other regulatory fees	$	7,796	$	8,683	$	23,852	$	22,945
Deferred commission amortization	$	1,282	$	1,318	$	3,799	$	4,051

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 September 30, 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 $26.9 million of current deferred revenue at December 31, 2021, $23.9 million was recognized during the nine months ended September 30, 2022. Noncurrent deferred revenue liabilities consist of up-front charges and installation fees from business customers.

4. OPERATING ASSETS AND LIABILITIES

Accounts receivable consisted of the following (in thousands):

	*September 30, 2022*			*December 31, 2021*
Trade receivables	$	47,553		$	41,947
Other receivables		17,148			16,847
Less: Allowance for credit losses		(3,233	)		(2,541	)
Total accounts receivable, net	$	61,468		$	56,253

The changes in the allowance for credit losses were as follows (in thousands):

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2022*			*2021*				*2022*		2021⁽¹⁾
Beginning balance	$	3,255		$	2,843		$	2,541		$	1,252
Additions - charged to costs and expenses		2,979			2,190			6,774			4,812
Deductions - write-offs		(4,324	)		(3,580	)		(10,216	)		(7,931	)
Recoveries collected		1,323			1,340			4,134			4,660
Ending balance	$	3,233		$	2,793		$	3,233		$	2,793

⁽¹⁾	Additions include $1.4 million of additional reserves assumed in the Hargray Acquisition.

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Prepaid and other current assets consisted of the following (in thousands):

	*September 30, 2022*		*December 31, 2021*
Prepaid repairs and maintenance	$	5,321	$	4,788
Software implementation costs		1,349		1,199
Prepaid insurance		5,045		3,325
Prepaid rent		3,508		2,107
Prepaid software		7,540		6,982
Deferred commissions		4,444		4,295
Interest rate swap asset		18,994		-
Inventory		5,137		-
All other current assets		9,911		9,009
Total prepaid and other current assets	$	61,249	$	31,705

Other noncurrent assets consisted of the following (in thousands):

	*September 30, 2022*		*December 31, 2021*
Operating lease right-of-use assets	$	10,912	$	15,501
Deferred commissions		8,483		8,624
Software implementation costs		6,809		7,782
Debt issuance costs		2,073		2,576
Debt investment		2,072		-
Assets held for sale		1,032		3,819
Interest rate swap asset		54,305		-
All other noncurrent assets		2,225		4,020
Total other noncurrent assets	$	87,911	$	42,322

Accounts payable and accrued liabilities consisted of the following (in thousands):

	*September 30, 2022*		*December 31, 2021*
Accounts payable	$	39,684	$	35,716
Accrued programming costs		22,795		23,703
Accrued compensation and related benefits		31,680		34,731
Accrued sales and other operating taxes		15,826		12,872
Accrued franchise fees		4,039		4,397
Deposits		6,399		6,840
Operating lease liabilities		3,833		5,633
Interest rate swap liability		-		26,662
Accrued insurance costs		6,267		5,542
Cash overdrafts		17,207		11,517
Equity investment payable⁽¹⁾		3,087		13,387
Interest payable		11,001		5,172
Income taxes payable		14,177		-
All other accrued liabilities		17,502		17,215
Total accounts payable and accrued liabilities	$	193,497	$	203,387

⁽¹⁾	Consists of the unfunded portion of the Company’s equity investment in Wisper ISP, LLC (“Wisper”). The Company funded $10.3 million of the then outstanding investment payable to Wisper during the nine months ended September 30, 2022. Refer to note 5 for details on this investment.

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Other noncurrent liabilities consisted of the following (in thousands):

	*September 30, 2022*		*December 31, 2021*
Operating lease liabilities	$	6,352	$	9,098
Accrued compensation and related benefits		9,990		11,010
Deferred revenue		8,126		6,854
MBI Net Option (as defined in note 5)⁽¹⁾		35,520		123,620
All other noncurrent liabilities		5,035		5,959
Total other noncurrent liabilities	$	65,023	$	156,541

⁽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 $27.0 million and a liability of $62.5 million, respectively, as of September 30, 2022 and a liability of $17.8 million and a liability of $105.8 million, respectively, as of December 31, 2021. Refer to notes 5 and 10 for further information on the MBI Net Option (as defined in note 5).

5. EQUITY INVESTMENTS

On May 4, 2020, the Company made a minority equity investment for a less than 10% ownership interest in AMG Technology Investment Group, LLC, a wireless internet service provider (“Nextlink”), for $27.2 million. On July 10, 2020, the Company acquired a 40.4% minority equity interest in Wisper, a wireless internet service provider, for total consideration of $25.3 million. The Company has funded $22.2 million of the total consideration for Wisper. On October 1, 2020, the Company contributed the Anniston System to Hargray, a data, video and voice services provider, in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis and recognized an $82.6 million non-cash gain. On November 12, 2020, the Company acquired a 45.0% minority equity interest in Mega Broadband Investments Holdings LLC, a data, video and voice services provider (“MBI”), for $574.9 million in cash.

On May 3, 2021, the Company acquired the remaining approximately 85% equity interest in Hargray that it did not already own for an approximately $2.0 billion cash purchase price, which implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis, and recognized a $33.4 million non-cash gain as a result of the fair value remeasurement of the Company’s existing equity interest on the acquisition date. On October 1, 2021, the Company made a minority equity investment for a less than 10% ownership interest in Point Broadband Holdings, LLC, a fiber internet service provider ("Point Broadband"), for $25.0 million. On October 18, 2021, the Company completed a minority equity investment for a less than 10% ownership interest in Tristar Acquisition I Corp, a special-purpose acquisition company ("Tristar"), for $20.8 million. On November 5, 2021, the Company invested an additional $50.0 million to acquire preferred units in Nextlink, increasing its equity interest to approximately 17%.

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 Clearwave) and certain unaffiliated third-party investors contributed cash to a newly formed entity, Clearwave Fiber. The operations contributed by the Company generated approximately 3% of Cable One's consolidated revenues for the three months ended December 31, 2021. The Company's approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. The Company recognized a non-cash gain of $22.1 million associated with this transaction. On March 24, 2022, the Company invested an additional $5.4 million in Point Broadband, increasing its equity interest to approximately 7%. On April 1, 2022, the Company contributed its Tallahassee, Florida system to MetroNet Systems, LLC, a fiber internet service provider ("MetroNet"), in exchange for cash consideration of $7.0 million and an equity interest of less than 10% in MetroNet valued at $7.0 million. On June 1, 2022, the Company completed a minority equity investment for a less than 10% ownership interest in Visionary Communications, Inc., an internet service provider ("Visionary"), for $7.2 million. On September 6, 2022, the Company entered into a subscription agreement with Northwest Fiber Holdco, LLC, a fiber internet service provider ("Ziply"), under which the Company agreed to invest up to $50.0 million in Ziply for a less than 10% equity interest. The Company had not funded any of this commitment as of September 30, 2022.

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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*	*September 30,*		*December 31,*
	*Percentage*	*2022*		*2021*
Cost Method Investments
MetroNet	<10%	$	7,000	$	-
Nextlink	<20%		77,245		77,245
Point Broadband	<10%		30,373		25,000
Tristar	<10%		23,003		23,083
Visionary	<10%		7,190		-
Others	<10%		13,288		13,170
Total cost method investments		$	158,099	$	138,498

Equity Method Investments
Clearwave Fiber	~58%	$	425,525	$	-
MBI⁽¹⁾	45.0%		569,033		557,715
Wisper	40.4%		33,279		31,352
Total equity method investments		$	1,027,837	$	589,067

Total equity investments		$	1,185,936	$	727,565

⁽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 $630.7 million being allocated to the MBI equity investment and $19.7 million and $75.5 million being allocated to the call and put options, respectively. The MBI Net Option is remeasured at fair value on a quarterly basis. The carrying value of the MBI Net Option liability was $35.5 million and $123.6 million as of September 30, 2022 and December 31, 2021, respectively, and was included within other noncurrent liabilities in the condensed consolidated balance sheets. Refer to note 10 for further information on the MBI Net Option.

The carrying value of MBI exceeded the Company’s underlying equity in MBI’s net assets by approximately $499.6 million and $508.3 million as of September 30, 2022 and December 31, 2021, respectively.

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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 September 30,*						*Nine Months Ended September 30,*
	*2022*			*2021*			*2022*			*2021*
Equity Method Investment Income (Loss)
Clearwave Fiber	$	(3,550	)	$	-		$	(14,475	)	$	-
MBI⁽¹⁾		3,243			(132	)		11,318			(3,753	)
Wisper		321			1,243			1,927			3,222
Total	$	14		$	1,111		$	(1,230	)	$	(531	)

Other Income (Expense), Net
MBI Net Option change in fair value	$	(2,800	)	$	(25,600	)	$	88,100		$	(41,390	)

⁽¹⁾

The Company identified a $186.6 million difference between the fair values of certain of MBI’s finite-lived intangible assets and the respective carrying values recorded by MBI, of which $84.0 million was attributable to the Company’s 45% pro rata portion. The Company is amortizing its share on an accelerated basis over the lives of the respective assets. For the three months ended September 30, 2022, the Company recognized $6.4 million of its pro rata share of MBI’s net income and $3.2 million of its pro rata share of basis difference amortization. For the three months ended September 30, 2021, the Company recognized $3.8 million of its pro rata share of MBI’s net income and $4.0 million of its pro rata share of basis difference amortization. For the nine months ended September 30, 2022, the Company recognized $21.7 million of its pro rata share of MBI’s net income and $10.3 million of its pro rata share of basis difference amortization. For the nine months ended September 30, 2021, the Company recognized $6.8 million of its pro rata share of MBI’s net income and $10.6 million of its pro rata share of basis difference amortization.

The Company assesses each equity investment for indicators of impairment on a quarterly basis. No impairments were recorded for any of the periods presented.

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	*September 30, 2022*			*December 31, 2021*
Cable distribution systems	$	2,391,160		$	2,509,795
Customer premise equipment		334,663			320,937
Other equipment and fixtures		464,562			472,319
Buildings and improvements		136,926			142,754
Capitalized software		96,239			89,662
Construction in progress		212,395			172,706
Land		12,134			12,134
Right-of-use assets		11,310			11,241
Property, plant and equipment, gross		3,659,389			3,731,548
Less: Accumulated depreciation and amortization		(1,999,620	)		(1,877,444	)
Property, plant and equipment, net	$	1,659,769		$	1,854,104

The Company contributed $280.0 million of property, plant and equipment, net, to the Clearwave Fiber joint venture on January 1, 2022 and recognized a $22.1 million non-cash gain on the transaction. The Company divested $6.8 million of property, plant and equipment, net, in the dispositions of our Tallahassee, Florida system and certain other non-core assets during the three months ended June 30, 2022 and recognized an $8.3 million non-cash loss.

The Company classified $1.0 million of property, plant and equipment as held for sale as of September 30, 2022. Such assets are included within other noncurrent assets in the condensed consolidated balance sheet.

Depreciation and amortization expense for property, plant and equipment was $66.4 million and $69.3 million for the three months ended September 30, 2022 and 2021, respectively, and $201.2 million and $193.3 million for the nine months ended September 30, 2022 and 2021, respectively.

7. GOODWILL AND INTANGIBLE ASSETS

The carrying amount of goodwill was $928.9 million at September 30, 2022 and $967.9 million at December 31, 2021, with the decrease attributable to $39.9 million of goodwill divested in the Clearwave Fiber transaction on January 1, 2022 and $1.8 million of goodwill divested in other transactions during the three months ended June 30, 2022, partially offset by a $2.7 million increase in goodwill related to a measurement period adjustment associated with the Hargray Acquisition. The Company has not historically recorded any impairment of goodwill.

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Intangible assets consisted of the following (dollars in thousands):

September 30, 2022

December 31, 2021

Useful Life

Gross

Net

Gross

Net

Range

Carrying

Accumulated

Carrying

Accumulated

Carrying

(in years)

Amount

Amortization

Amount

Amortization