Cable One (CABO) Fights Subscriber Losses While Squeezing Out Cash

On August 6, Cable One (NYSE:CABO) presented a quarter that appeared to be a combination of two distinct businesses. Residential broadband customers continued to cancel their services, yet management highlighted improving connect trends, rising average revenue per user, and a relentless debt reduction plan as indicators of the company's stabilization despite subscriber losses.

The report provided both optimistic and pessimistic perspectives. Cable One's acquisition numbers showed improvement in Q2, with connect activity increasing sequentially and door-to-door sales more than doubling as a share of quarter connections over the past year. Residential broadband average revenue per user also grew, driven by promotional roll-offs, modifications to the AutoPay Plus program, and customers adding higher-value products.

The company's network is already capable of delivering gigabit speeds, with most customers expected to have multi-gig infrastructure by year-end, according to Cable One. Business services also showed stability, with enterprise, wholesale, and carrier offerings thriving from long-term contracts and recurring revenue, along with a new unified communications product called UCaaS.

Notably, Cable One reduced its debt balances by $63 million in the quarter, with nearly $60 million through voluntary repurchases at a discount, totaling $130 million in debt reduction year-to-date, and $700 million remaining on its revolving credit facility. However, the company lost 17,000 residential broadband customers in Q2, with residential data revenue dropping 7.3% year-over-year due to a 6.6% decrease in subscribers, despite a flat ARPU.

Total revenue declined to $348.9 million from $381.1 million a year earlier, and the SMB broadband business faced pressure, while business data revenue fell 6.6% year-over-year partly due to tower assets sold earlier in the year. Profitability deteriorated, with adjusted EBITDA falling to $173.5 million or 49.7% of revenue, down from 53.3% a year ago, while capital expenditures increased to $74 million, up $5.6 million year-over-year.

Adjusted EBITDA less capex dropped to $99.5 million, compared to $134.8 million a year ago. Cable One also recorded non-cash impairment charges related to franchise agreements, goodwill, and its MBI investment. The company's leverage stood at 4.2 times, with a gross debt load of $3.06 billion, as management identified continued competitive intensity in fiber overbuild markets.

Hedge fund ownership of Cable One increased from 23 funds to 25 in the most recent quarter, indicating a modest uptick in institutional interest. Short sellers remain heavily invested against the stock, with 16.41% of the float sold short, suggesting a significant bear camp. The mixed indicators leave a question mark for Cable One's future, with bulls highlighting positive trends and bears emphasizing losses, shrinking margins, and high leverage.

Despite acknowledging the potential of Cable One as an investment, insiders prefer other AI stocks with greater upside and lower risk.