Internet, cable TV, and phone provider Cable One (NYSE: CABO) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 5.9% year on year to $380.6 million. Its non-GAAP profit of $12.58 per share was 3.1% above analysts’ consensus estimates.
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Cable One (CABO) Q1 CY2025 Highlights:
- Revenue: $380.6 million vs analyst estimates of $386.3 million (5.9% year-on-year decline, 1.5% miss)
- Adjusted EPS: $12.58 vs analyst estimates of $12.21 (3.1% beat)
- Adjusted EBITDA: $202.7 million vs analyst estimates of $206.2 million (53.3% margin, 1.7% miss)
- Operating Margin: 25.1%, down from 29.6% in the same quarter last year
- Free Cash Flow Margin: 11.9%, down from 24.5% in the same quarter last year
- Residential Data Subscribers: 1.04 million, down 21,700 year on year
- Market Capitalization: $926.9 million
StockStory’s Take
Cable One’s first quarter results reflected management’s focus on stabilizing subscriber trends in a more competitive landscape, as CEO Julia Laulis highlighted efforts to rebuild customer growth engines and recover from a decline in residential broadband subscribers. She attributed the quarter’s performance to lower-than-expected new customer additions and unusual churn events, such as disruptions from billing system migration and the shutdown of unprofitable fixed wireless towers, but noted that churn rates have since reverted to historically low levels. The company is now emphasizing a multiyear plan centered on new products, customer retention, and operational enhancements.
Looking forward, management outlined confidence in returning to broadband revenue growth in 2025, driven by an expanded product portfolio targeting value-conscious and underserved customers. Laulis emphasized the anticipated rollout of FlexConnect and Internet Lift offerings, along with a data-driven, disciplined approach to marketing and infrastructure investments. She also addressed the company’s decision to suspend its dividend, citing a need to accelerate debt reduction and reinvest in organic growth initiatives, while CFO Todd Koetje assured stakeholders that this move was not driven by debt covenant or liquidity concerns.
Key Insights from Management’s Remarks
Cable One’s management addressed the drivers behind the first quarter’s performance and set the stage for a strategic transformation. The main deviations from analyst expectations were attributed to subscriber losses and revenue headwinds, offset partially by emerging product successes and disciplined cost management.
- Churn and Connect Trends: Management reported customer losses tied to lower-than-expected new connects and several one-time churn events, including systems migration and weather disruptions. Churn rates have since returned to historically low levels, supported by an AI-driven churn propensity model.
- FlexConnect Launch: The pilot of FlexConnect, aimed at value-seeking customers as an alternative to cellphone internet, showed positive trends in both customer acquisition and average revenue per user. Aggressive marketing and expanded rollout are expected in the coming months.
- Internet Lift Pilot: Internet Lift, a new offering targeting income-eligible customers, is being piloted with early signs of incremental broadband revenue and minimal risk of cannibalization. Broader rollout is planned for upcoming quarters.
- Business Data Resilience: While residential revenues declined, the business data segment grew modestly. Carrier and enterprise fiber operations posted strong contract wins, expanding network reach and recurring revenue.
- Dividend Suspension and Capital Allocation: The company suspended its dividend to prioritize debt reduction and funding for organic growth. Management emphasized this was not due to financial distress, but a proactive strategy to strengthen the balance sheet and support future investments.
Drivers of Future Performance
Management expects future performance to hinge on product innovation, customer acquisition improvements, and disciplined capital management as competition intensifies.
- New Product Rollouts: Expansion of FlexConnect and Internet Lift is anticipated to attract new customer segments and boost broadband revenue, with targeted marketing designed to minimize churn and maximize ARPU.
- Retention and Experience Investments: Enhanced retention strategies, including AI tools and personalized engagement, are expected to maintain historically low churn and support customer satisfaction.
- Balance Sheet Focus: The dividend suspension reallocates capital to debt repayment and growth investments, with management aiming to keep leverage below four times and maintain flexibility for future refinancing or share repurchases.
Top Analyst Questions
- Frank Louthan (Raymond James): Asked if the dividend cut was due to financial distress or debt covenants. CFO Todd Koetje stated it was a strategic move, not related to liquidity or covenants, to accelerate debt reduction and support growth initiatives.
- Frank Louthan (Raymond James): Followed up on timing for returning to broadband subscriber growth. CEO Julia Laulis said improvements are underway but did not specify a target date, expressing confidence that both subscriber and revenue growth would be achieved in 2025.
- Sebastiano Petti (JPMorgan): Sought specifics on the unusual churn events and confidence in revenue growth despite recent subscriber and ARPU declines. Management attributed churn to billing migration, fixed wireless tower shutdowns, and weather, but stressed that retention and new product trials underpin their outlook.
- Brandon Nispel (KeyBanc): Requested details on ARPU for FlexConnect and Lift, as well as competitive overlap from fiber and fixed wireless. Management explained that pricing for FlexConnect would change in mass rollout and noted that over 50% of the footprint faces fiber competition, with nearly all markets exposed to mobile broadband competition.
- Brandon Nispel (KeyBanc): Asked about the competitive environment and market overlap. Management confirmed that competitive dynamics are driving product innovation and targeted marketing efforts.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the effectiveness of FlexConnect and Internet Lift in attracting new broadband customers, (2) whether churn rates remain at historically low levels following operational changes, and (3) the impact of the dividend suspension on debt reduction and capital allocation. Progress on business data contract wins and execution of infrastructure investments will also be important indicators of Cable One’s ability to deliver on its long-term growth objectives.
Cable One currently trades at a forward EV-to-EBITDA ratio of 1.1×. At this valuation, is it a buy or sell post earnings? Find out in our free research report.
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