Cable One expanded profit margins to 46.4 percent in the second quarter of 2017, even as it continues to deemphasize video, losing 9,200 video and 2,600 data subscribers from its legacy operation.
“Cable One’s margins are now within shouting distance of 50 percent, the magic number touted by Altice as the holy grail of cable cost management,” MoffetNathanson analysts say.
The cable company completed its $735 million acquisition of NewWave on May 1, and NewWave has been contributing to financial results for Cable One for two months.
Net income for the combined company increased 7.3 percent year over year in the second quarter to $28.6 million. Total revenues grew by 17.8 percent to $241 million, primarily driven by a $32.2 million contribution from NewWave operations.
“Our second quarter once again yielded strong results as we continue to execute our strategy, with legacy Cable ONE demonstrating top line revenue growth, higher Adjusted EBITDA, and industry leading margins,” Cable One CEO Julie Laulis comments. “We also are excited about our acquisition of NewWave, and its results are now contributing to our success.”
Excluding NewWave operations, operating expenses actually decreased 10.2 percent to $68 million, while legacy revenue grew by 2.1 percent.
The Phoenix, Ariz.-based cable operator has been shifting away from its video business, decreasing customer care costs, and programming expenses tied to pay-TV. Video now only accounts for 42.6 percent of Cable One’s revenue. The company’s legacy TV customer base contracted to 284,695 in the second quarter, compared to 324,982 in 2016.
“Cable one has always argued that video carries far more cost than just programming,” MoffetNathanson analysts note. “They are proving themselves correct; the many input costs that support video (e.g. customer service and set top box-related repair and maintenance) are falling.”
Instead, the company is focused on higher margin sectors such as business services, which saw revenue jump 32.9 percent to $32.5 million.
While Cable One’s legacy subscriber base continues to shrink, and total customer relationships declined 1.4 percent year over year, the cable operator made up for its subscriber losses with increases in average revenue per video user (ARPU).
Residential video ARPU was up 9.5 percent to $80.47, which MoffetNathanson analysts observe is “a far higher growth rate than that of its peers.” Residential broadband ARPU was up 5.2 percent to $64.70.
