Executive Summary / Key Takeaways

• Cable One is executing a multiyear phased plan to pivot from a high-value, lower-penetration strategy to one focused on broader customer segments and sustained broadband revenue and subscriber growth, particularly in residential and business data.
• Despite a challenging Q1 2025 marked by unusual churn events and lower connects, management expresses confidence that these headwinds are temporary and expects stronger performance through the remainder of the year, targeting residential broadband revenue growth in 2025.
• The company's network, leveraging HFC and ongoing DOCSIS 4.0 deployment, provides significant capacity and reliability, enabling competitive speeds (Gigabit across the footprint, Multi-Gig in over 40% of markets) and supporting new service offerings like Intelligent Wi-Fi and SecurePlus.
• Recent strategic actions, including the suspension of the quarterly dividend to accelerate debt reduction and fund organic growth initiatives, alongside the amended MBI partnership and investment monetizations, are aimed at strengthening the balance sheet and enhancing financial flexibility to support the growth strategy and manage future obligations.
• Key initiatives like the rollout of FlexConnect and Internet Lift, coupled with refined customer acquisition strategies and operational efficiencies from unified systems, are expected to drive connects and ARPU improvement, underpinning the outlook for growth in a competitive landscape characterized by fiber overbuilders and fixed wireless providers.

Setting the Scene: A Niche Player's Evolution in a Shifting Landscape

Cable One, Inc. ($CABO) operates as a prominent broadband communications provider, primarily serving residential and business customers across 24 states, predominantly in non-metropolitan, secondary, and tertiary markets. With approximately 1.1 million total customers as of March 31, 2025, the company has historically differentiated itself by focusing on a strategy centered around high lifetime value (LTV) customers, offering premium services that yielded high average revenue per unit (ARPU). This approach, while contributing to strong margins, often resulted in lower penetration rates compared to larger, more urban-focused peers.

However, the telecommunications landscape is undergoing rapid transformation. Increased competition from traditional telephone companies deploying fiber, municipal and cooperative overbuilders, and the emergence of fixed wireless data providers are challenging the status quo across markets, including those historically less contested. In response, Cable One has embarked on a multiyear phased plan, signaling a strategic pivot. The company is now actively targeting a broader spectrum of incremental customers, including those who are more value-conscious, aiming to drive deeper penetration and achieve sustained profitable growth. This shift acknowledges the evolving competitive dynamics and consumer demands, particularly the industry-wide trend of declining profitability in traditional video services and residential voice.

Cable One's strategic response is multifaceted, focusing on enhancing its core broadband offerings, optimizing operations, and pursuing targeted growth initiatives. The company's business model is heavily weighted towards data services, with residential data accounting for 59.1% of total revenues and business data contributing 15.1% in the first quarter of 2025. These segments are highlighted as higher-margin businesses and are central to the company's growth aspirations. The residential video and voice segments, representing 13.3% and 1.9% of Q1 2025 revenues respectively, continue to see subscriber and revenue declines, aligning with the company's strategy to de-emphasize these lower-margin product lines.

The Competitive Arena: Positioning and Response

The competitive environment for Cable One is characterized by rising intensity. While larger national players like Comcast (CMCSA), Charter Communications (CHTR), AT&T (T), and Verizon (VZ) operate on a significantly larger scale, their strategies and technological deployments directly influence the broader market and, increasingly, Cable One's footprint. Cable One faces direct challenges from incumbent LECs expanding fiber networks and new fiber overbuilders entering its markets. Additionally, fixed wireless offerings from mobile operators present an alternative, particularly for value-conscious customers.

Compared to national giants, Cable One's strength lies in its deep local presence and community-focused approach. While larger competitors benefit from economies of scale that can lead to lower operating costs per unit (e.g., Comcast's estimated 15-20% lower operating cost per subscriber compared to CABO), Cable One aims to leverage its neighborly service and tailored offerings to foster stronger customer loyalty and retention. Management notes that churn levels remain historically low, even in the current competitive environment, which they view as a testament to their customer satisfaction and relationships.

Financially, while larger peers like Comcast and Charter boast significantly higher revenue bases and cash flow generation, Cable One has historically demonstrated strong profitability margins within its niche. In Q1 2025, Cable One reported an Adjusted EBITDA margin of 53.3%. While this is slightly down from 53.7% in Q1 2024, it reflects the impact of revenue declines and increased SG&A, rather than a fundamental collapse in profitability. For context, while direct margin comparisons vary by business mix, Cable One's focus on high-margin data services positions it favorably within its operational scope. For instance, its TTM Gross Profit Margin stands at 74.57%, indicating strong cost control relative to revenue generation.

Cable One's strategic response to competition involves targeted pricing and product offerings, particularly aimed at value-conscious segments and directly competing with alternatives like cell phone internet. The company is also investing in network upgrades and expansion to maintain a competitive edge in speed and reliability. Management believes that the economics of building and operating networks in their rural markets, influenced by factors like construction costs and labor availability, may temper the long-term aggression of some new entrants, potentially stabilizing the competitive landscape over time.

Technology as a Differentiator and Growth Engine

At the heart of Cable One's ability to compete and pursue its growth strategy is its network infrastructure. The company primarily operates a hybrid fiber-coaxial (HFC) network, complemented by fiber-to-the-premises deployments. This network is designed with ample unused capacity, a critical factor in meeting the continuously increasing data demands of consumers, which averaged 730 gigabits per month per home in Q3 2024, with 25% of customers exceeding 1 terabyte. Management highlights that even with this rising usage, network peak utilization remains low (19% downstream, 18% upstream in Q3 2024), demonstrating significant headroom.

Cable One has been proactive in upgrading its network capabilities. It has deployed DOCSIS 3.1 technology and has begun the deployment of DOCSIS 4.0. These advancements are crucial for increasing network capacity and enabling future growth in data services. The company currently offers Gigabit download data service to all of its passings and has rolled out multi-Gigabit download service to over 40% of its markets. The transition from traditional linear video to the internet protocol-based Sparklight TV is also strategic, freeing up bandwidth on the network for data services.

Beyond raw speed and capacity, Cable One is focusing on enhancing the in-home experience and network intelligence. The deployment of Intelligent Wi-Fi, powered by eero, is a key initiative aimed at improving customer satisfaction and retention by ensuring seamless connectivity within the home. The company also recently introduced SecurePlus, a security package available for $8 a month or as part of the Ultimate WiFi bundle ($24.99/month). Adoption of SecurePlus increased by 15% since the start of 2025, and 17% of new customers chose the Ultimate WiFi bundle in Q1 2025, indicating customer demand for these value-added services.

The strategic intent behind these technological investments and product enhancements is clear: to build a network that is not just reliable and high-capacity, but also adaptive and intelligent. By integrating data analytics and potentially AI (as seen in their internal AI-driven churn propensity model), Cable One aims to proactively address potential issues and enhance the customer experience, thereby strengthening its competitive moat against rivals whose offerings may lack the same level of localized service and in-home optimization. For investors, this focus on technological evolution translates into the potential for continued ARPU expansion through premium services and bundles, improved customer retention reducing churn costs, and a more resilient network capable of supporting future demand growth without disproportionate capital intensity.

Recent Performance and Operational Momentum

Cable One's first quarter 2025 results reflected both the ongoing strategic transition and some specific headwinds. Total revenues decreased by 5.9% year-over-year to $380.6 million. This decline was primarily driven by a 4.5% decrease in residential data revenues and a 15.8% decrease in residential video revenues. Residential data performance was impacted by a 1.1% decrease in both subscribers and ARPU. Management attributed the ARPU decrease to targeted pricing and product offerings, including those for value-conscious customers, and promotional offers.

Operating expenses (excluding depreciation and amortization) saw a favorable decrease of 6.3% year-over-year, totaling $99.9 million. This was largely due to lower programming and franchise costs resulting from video subscriber losses and a decrease in labor costs. However, selling, general, and administrative (SG&A) expenses increased by 5.6% to $95.4 million, driven by higher equity-based compensation, system conversion costs, and health insurance expenses.

The combined effect of lower revenues and increased SG&A led to a decrease in income from operations, which fell by 20.2% to $95.7 million. Net income saw a significant year-over-year decline, dropping from $37.4 million in Q1 2024 to $2.6 million in Q1 2025. This was heavily influenced by a substantial increase in the noncash equity method investment loss, which totaled $57.0 million in Q1 2025, including a $28.0 million non-cash impairment charge related to the Clearwave Fiber investment. The effective tax rate also saw a dramatic decrease to 0.3% in Q1 2025, primarily due to tax benefits from these higher equity method investment losses and a reduction in the blended state tax rate.

Despite the challenging top-line and bottom-line figures in Q1 2025, management emphasized that the residential broadband customer decline was primarily due to lower-than-expected connects and unusual churn events, such as those related to billing system migration, fixed wireless tower shutdowns, and weather. They stated that these unusual churn factors are now behind them and that churn has already reverted to historically low levels. Furthermore, connects showed month-over-month improvement within the quarter, indicating progress in their acquisition efforts.

Operational initiatives continue to progress. The company has substantially completed the rebranding of acquired operations to the Sparklight brand and is migrating customers onto a unified billing system. These efforts are expected to streamline operations, improve efficiency, and enable more targeted marketing and product launches. The integration of AI into operations, such as the churn propensity model and call center analysis, is aimed at enhancing customer retention and operational efficiency.

Strategic Flexibility and Capital Allocation

Cable One is actively managing its capital structure and investment portfolio to support its strategic pivot and enhance financial flexibility. The company's primary funding requirements include ongoing operations, capital expenditures, potential acquisitions and strategic investments, and debt repayment. As of March 31, 2025, the company had $149.1 million in cash and cash equivalents and $977.0 million available under its $1.25 billion revolving credit facility.

A significant development is the amended strategic partnership with Mega Broadband Investments (MBI). The December 2024 amendment reinstated Cable One's call option to acquire the remaining equity interests and extended the put option held by other investors. The agreement included a $250 million net upfront cash payment to the other MBI members and involved $100 million of new MBI debt, both of which will reduce the final purchase price. Based on currently available information, the estimated purchase price for the remaining MBI equity is between $410 million and $510 million, with estimated MBI net indebtedness at the time of full ownership between $845 million and $895 million. Management believes existing liquidity and operating cash flows are sufficient to fund this potential acquisition without needing to raise additional incremental capital.

Cable One is also strategically monetizing certain equity investments. The pending sales of interests in Ziply and Metronet, along with the recent monetization of CTI Towers and another equity investment sale in Q1 2025 ($10.7 million proceeds, $3.2 million gain), are expected to generate well over $100 million in combined after-tax proceeds. These funds are earmarked for accelerated debt repayment and investment in organic growth initiatives.

In a notable shift in capital allocation strategy, Cable One announced the suspension of its quarterly cash dividend in the second quarter of 2025. This decision is projected to free up approximately $67 million annually, totaling over $200 million over the next three years. This capital will be redirected towards accelerated debt reduction, refinancing support, and investment in organic growth initiatives. This move underscores the company's commitment to fortifying its balance sheet and investing in its core business to drive long-term growth, while still leaving room for opportunistic share repurchases subject to achieving lower leverage levels.

Capital expenditures totaled $71.1 million in Q1 2025, an 8.0% increase year-over-year. These investments were allocated across customer premise equipment, commercial services, scalable infrastructure, line extensions, upgrade/rebuild projects, and support capital. The company has guided for total capital expenditures in the low $300s for the full year 2025, reflecting continued investment in network capacity, expansion, and efficiency.

As of March 31, 2025, Cable One's total debt stood at approximately $3.6 billion, with a net leverage ratio just north of 4 times on a last quarter annualized basis. The $575.0 million 0.00% Convertible Senior Notes due 2026 are now classified as current debt. Management expressed confidence that existing liquidity and free cash flow generation are sufficient to retire these notes without needing to access the capital markets, although they remain open to opportunistic financing. The company was in compliance with all debt covenants in Q1 2025 and expects leverage to decline and remain below 4 times pro forma for the potential MBI consolidation.

Outlook and Risks

Management's outlook for Cable One is centered on achieving residential broadband revenue growth in 2025 and long-term subscriber growth. This confidence is rooted in the belief that the operational headwinds experienced in Q1 2025 were temporary and that the foundational work laid in 2024, combined with specific initiatives underway in 2025, will yield positive results.

Key drivers for the expected growth include:

• Improved Connects: Plans to drive higher connects through a more effective acquisition engine, including targeted marketing for new products like FlexConnect and Internet Lift, and reengineering new build processes for better early penetration.
• ARPU Improvement: Expectation for ARPU to improve through the balance of the year, driven by higher sell-in of premium speed tiers, momentum from new offerings like SecurePlus and Ultimate WiFi, and promotional roll-offs.
• Operational Efficiencies: Benefits from the unified billing system, rebranding, and organizational changes are expected to enhance the ability to execute the growth strategy.

However, the path forward is not without risks. The competitive landscape remains dynamic, with potential impacts on subscriber acquisition and retention, as well as pricing power. While management sees signs of stabilization, aggressive actions by competitors could necessitate responses that impact financial performance. The successful execution of the growth strategy relies on the effectiveness of new product launches and marketing initiatives in attracting and retaining customers across different segments.

The company's debt level, while managed within stated targets and supported by strong cash flow generation, poses a risk, particularly in a rising interest rate environment (though partially mitigated by interest rate swaps). The potential MBI acquisition, while offering strategic benefits, introduces execution risk and the need to integrate operations effectively. Regulatory changes, including those related to broadband deployment and competition, could also impact operations and financial results.

Conclusion

Cable One is at a pivotal point, actively transitioning its strategy to pursue broader market penetration and renewed broadband growth in a competitive and evolving industry. While the first quarter of 2025 presented challenges reflected in declining revenues and net income, management views these as temporary setbacks influenced by specific, non-recurring factors and the ongoing implementation of strategic initiatives.

The core investment thesis rests on Cable One's ability to leverage its robust HFC/Fiber network, enhanced by ongoing DOCSIS 4.0 deployment and technological innovations like Intelligent Wi-Fi and SecurePlus, to deliver competitive, reliable broadband services. The strategic pivot towards targeting value-conscious customers with new product offerings like FlexConnect and Internet Lift, coupled with operational efficiencies from unified systems and a strengthened organizational structure, provides a credible path towards achieving residential broadband revenue and subscriber growth in 2025 and beyond.

The decision to suspend the dividend underscores a commitment to fortifying the balance sheet and reinvesting in the core business, providing significant capital for debt reduction and organic growth initiatives. While risks related to competition, debt, and execution remain, the company's proactive approach to managing its capital structure, monetizing non-core investments, and focusing on operational excellence positions it to pursue its growth objectives. For investors, the story of Cable One is one of strategic adaptation, aiming to translate its foundational strengths and targeted initiatives into sustainable long-term value in the dynamic broadband market.