Cable ONE Reports Fourth Quarter and Full Year 2017 Results

PHOENIX–(BUSINESS WIRE)–Cable One, Inc. (NYSE: CABO) (the “Company” or “Cable ONE”) today
reported financial and operating results for the quarter and year ended
December 31, 2017.(1)

Full year 2017 highlights:

• Net income was $234.0 million in 2017, an increase of 131.5%
  year-over-year. Net income includes a $113.0 million income tax
  benefit as a result of the 2017 Federal tax reform legislation.
  Adjusted EBITDA(2) was $443.1 million, an increase of 24.0%
  year-over-year. Net profit margin was 24.4% and Adjusted EBITDA Margin(2)
  was 46.2%.
• Net income and Adjusted EBITDA results for 2017 include eight months
  of NewWave Communications (“NewWave”) operations and the favorable
  impact of a reduction in expense of $16.3 million due to a change in
  accounting for capitalized labor costs effective since the first
  quarter of 2017.
• Without the contribution from NewWave operations, net income would
  have increased 123.8% to $226.3 million and Adjusted EBITDA would have
  increased 10.7% to $395.5 million. In addition, net profit margin
  would have been 27.2% and Adjusted EBITDA margin would have been 47.5%.
• Excluding both the NewWave operations and the capitalized labor
  change, net income would have increased 113.8% to $216.2 million and
  Adjusted EBITDA would have increased 6.1% to $379.2 million. In
  addition, net profit margin would have been 26.0% and Adjusted EBITDA
  margin would have been 45.5%.
• Net cash provided by operating activities was $324.5 million, an
  increase of 26.2% year-over-year. Adjusted EBITDA less capital
  expenditures(2) was $263.7 million, an increase of 16.4%
  compared to 2016.
• Total revenues were $960.0 million, including a $127.3 million
  contribution from NewWave operations, compared to $819.6 million in
  2016.
• Residential data revenues increased 20.4% and business services
  revenues increased 30.7% year-over-year. Excluding the contribution
  from NewWave operations, residential data revenues increased 7.9% and
  business services revenues increased 11.8% compared to the prior year.

Fourth quarter 2017 highlights:

• Net income was $143.2 million in the fourth quarter of 2017, an
  increase of 484.3% year-over-year. Net income includes a $113.0
  million income tax benefit as a result of the 2017 Federal tax reform
  legislation. Adjusted EBITDA was $117.0 million, an increase of 26.8%
  year-over-year. Net profit margin was 55.5% and Adjusted EBITDA margin
  was 45.4%.

• Net income and Adjusted EBITDA results in the fourth quarter of 2017
  include NewWave operations and the favorable impact of a reduction in
  expense of $3.1 million due to the capitalized labor change.
• Without the contribution from NewWave operations, net income would
  have increased 472.9% to $140.3 million and Adjusted EBITDA would have
  increased 6.5% to $98.2 million. In addition, net profit margin would
  have been 66.8% and Adjusted EBITDA margin would have been 46.7%.
• Excluding both the NewWave operations and the capitalized labor
  change, net income would have increased 465.1% to $138.5 million and
  Adjusted EBITDA would have increased 3.2% to $95.1 million. In
  addition, net profit margin would have been 65.9% and Adjusted EBITDA
  margin would have been 45.3%.
• Net cash provided by operating activities was $104.7 million, an
  increase of 75.7% year-over-year. Adjusted EBITDA less capital
  expenditures was $66.4 million, an increase of 17.2% compared to the
  fourth quarter of 2016.
• Total revenues were $257.7 million, including a $47.6 million
  contribution from NewWave operations, compared to $206.7 million in
  the fourth quarter of 2016.
• Residential data revenues increased 27.2% and business services
  revenues increased 37.2% year-over-year. Excluding the contribution
  from NewWave operations, residential data revenues increased 8.6% and
  business services revenues increased 9.9% compared to the fourth
  quarter of 2016.

Full Year 2017 Financial Results Compared to Full Year 2016

Revenues increased $140.4 million, or 17.1%, to $960.0 million for 2017
due primarily to $127.3 million in revenues attributable to eight months
of NewWave operations. For 2017 and 2016, residential data revenues
comprised 43.2% and 42.0% of total revenues and business services
revenues comprised 13.7% and 12.2% of total revenues, respectively.
Excluding the $127.3 million contribution from NewWave operations in
2017, revenues increased $13.1 million from $819.6 million in the prior
year.

Operating expenses (excluding depreciation and amortization) were $337.0
million in 2017 and increased $40.5 million, or 13.6%, compared to 2016.
Operating expenses as a percentage of revenues were 35.1% for 2017
compared to 36.2% for 2016. Additional operating expenses attributable
to the NewWave operations were $63.1 million for 2017. This increase was
partially offset by a $12.7 million decrease in labor costs associated
with the capitalized labor change, a $3.8 million decrease in
programming costs resulting from fewer video subscribers, a $3.1 million
decrease in backbone and internet connectivity fees, a $1.3 million
decrease in insurance costs and a $1.0 million decrease in repair and
maintenance costs. Excluding the impact of NewWave operations, operating
expenses would have been $273.9 million in 2017, a decrease of $22.7
million, or 7.6%. Operating expenses as a percentage of revenues,
excluding the impact of the NewWave operations, would have been 32.9% in
2017 compared to 36.2% in 2016.

Selling, general and administrative expenses increased $20.8 million, or
11.3%, to $204.8 million for 2017. Selling, general and administrative
expenses as a percentage of revenues were 21.3% and 22.5% for 2017 and
2016, respectively. Additional selling, general and administrative
expenses attributable to the NewWave operations were $16.6 million for
2017. Increases in severance costs of $4.4 million, deferred
compensation expenses of $2.4 million and software maintenance costs of
$2.1 million were partially offset by a $3.6 million decrease in labor
costs associated with the capitalized labor change and a $1.8 million
decrease in employee incentive costs. Excluding incremental expenses
associated with the NewWave operations, selling, general and
administrative expenses would have increased $4.2 million, or 2.2%, to
$188.2 million for 2017. Selling, general and administrative expenses as
a percentage of revenues, excluding the impact of the NewWave
operations, would have been 22.6% in 2017 compared to 22.5% in 2016.

Depreciation and amortization increased $33.8 million, or 22.8%, to
$181.6 million for 2017 including $32.2 million attributable to NewWave
operations. The increase was due primarily to new assets placed in
service in 2017 and 2016, including property, plant and equipment and
amortizable intangible assets acquired as part of the NewWave
acquisition, partially offset by assets that became fully depreciated
during those periods. As a percentage of revenues, depreciation and
amortization expense was 18.9% for 2017 compared to 18.0% for 2016.

Interest expense increased $16.6 million, or 55.1%, due primarily to
additional outstanding debt that was incurred in 2017 to finance the
NewWave acquisition.

Net income increased $132.9 million, or 131.5%, to $234.0 million in
2017 compared to $101.1 million in the prior year, which includes an
income tax benefit of $113.0 million resulting from the enactment of
Federal tax reform legislation in December 2017. Excluding the NewWave
operations, net income would have increased 123.8% to $226.3 million in
2017. Without both the NewWave operations and the capitalized labor
change, net income would have increased 113.8% to $216.2 million in
2017. Excluding the NewWave operations, the capitalized labor change and
the adverse Hurricane Harvey impact, net income would have increased
115.9% to $218.2 million in 2017.

Adjusted EBITDA was $443.1 million and $357.4 million for 2017 and 2016,
respectively. Adjusted EBITDA growth of 24.0% in 2017 includes the
positive impact of the NewWave operations and the capitalized labor
change. Without the contribution from NewWave operations, Adjusted
EBITDA would have been $395.5 million and Adjusted EBITDA growth would
have been 10.7% for 2017. Excluding both the NewWave operations and the
capitalized labor change, Adjusted EBITDA would have been $379.2 million
and Adjusted EBITDA growth would have been 6.1%. Excluding the NewWave
operations, the capitalized labor change and the adverse Hurricane
Harvey impact, Adjusted EBITDA would have been $381.1 million and
Adjusted EBITDA growth would have been 6.6%.

Capital expenditures totaled $179.4 million and $130.8 million for 2017
and 2016, respectively. Adjusted EBITDA less capital expenditures for
2017 was $263.7 million, an increase of $37.2 million, or 16.4%, from
the prior year. Excluding NewWave operations, capital expenditures would
have been $149.1 million. Excluding both the NewWave operations and the
capitalized labor change, capital expenditures would have been $132.8
million.

Fourth Quarter 2017 Financial Results Compared to Fourth Quarter
2016

Revenues increased $51.0 million, or 24.7%, to $257.7 million for the
fourth quarter of 2017 due primarily to $47.6 million in revenues
attributable to the NewWave operations. For the fourth quarter of 2017
and 2016, residential data revenues comprised 43.4% and 42.5% of total
revenues and business services revenues comprised 14.2% and 12.9% of
total revenues, respectively. Excluding the $47.6 million contribution
from NewWave operations in the fourth quarter of 2017, revenues
increased to $210.1 million from $206.7 million in the prior year
quarter.

Operating expenses (excluding depreciation and amortization) were $92.2
million in the fourth quarter of 2017 and increased $19.6 million, or
27.0%, compared to the fourth quarter of 2016. Operating expenses as a
percentage of revenues were 35.8% for the fourth quarter of 2017
compared to 35.1% for the year-ago quarter. Additional operating
expenses attributable to the NewWave operations were $22.9 million for
the fourth quarter of 2017. This increase was partially offset by a $3.0
million decrease in labor costs associated with the capitalized labor
change and a $0.7 million decrease in backbone and internet connectivity
fees. Excluding the impact of NewWave operations, operating expenses
would have been $69.3 million in the fourth quarter of 2017, a decrease
of $3.3 million, or 4.5%, compared to the fourth quarter of 2016.
Operating expenses as a percentage of revenues, excluding the impact of
the NewWave operations, would have been 33.0% in the fourth quarter of
2017 compared to 35.1% in the fourth quarter of 2016.

Selling, general and administrative expenses increased $8.1 million, or
17.1%, to $55.4 million for the fourth quarter of 2017. Selling, general
and administrative expenses as a percentage of revenues were 21.5% and
22.9% for the fourth quarter of 2017 and 2016, respectively. Additional
selling, general and administrative expenses attributable to the NewWave
operations were $5.9 million for the fourth quarter of 2017. Medical
insurance costs increased $1.6 million, driven mainly by favorable
results in the fourth quarter of 2016, and severance costs increased
$1.5 million. These increases were partially offset by lower
acquisition-related costs of $1.0 million resulting from the completion
of the NewWave acquisition. Excluding incremental expenses associated
with the NewWave operations, selling, general and administrative
expenses would have increased $2.2 million, or 4.6%, to $49.5 million.
Selling, general and administrative expenses as a percentage of
revenues, excluding the impact of the NewWave operations, would have
been 23.5% in the fourth quarter of 2017 compared to 22.9% in the fourth
quarter of 2016.

Depreciation and amortization increased $8.4 million, or 21.4%, to $47.3
million for the fourth quarter of 2017 including $12.1 million
attributable to the NewWave operations. The increase was due primarily
to new assets placed in service since the fourth quarter of 2016,
including property, plant and equipment and amortized intangible assets
acquired as part of the NewWave acquisition, partially offset by assets
that became fully depreciated since the fourth quarter of 2016. As a
percentage of revenues, depreciation and amortization expense was 18.4%
for the fourth quarter of 2017 compared to 18.9% for the fourth quarter
of 2016.

Interest expense increased $5.9 million, or 77.3%, to $13.5 million for
the fourth quarter of 2017 due primarily to additional outstanding debt
that was incurred in 2017 to finance the NewWave acquisition.

Net income increased $118.7 million, or 484.3%, to $143.2 million in the
fourth quarter of 2017 compared to $24.5 million in the prior year
quarter, which includes an income tax benefit of $113.0 million
resulting from the enactment of Federal tax reform legislation in
December 2017. Excluding the impact of NewWave operations, net income
would have increased 472.9% to $140.3 million. Without both the NewWave
operations and the capitalized labor change, net income would have
increased 465.1% to $138.5 million for the fourth quarter of 2017.

Adjusted EBITDA was $117.0 million and $92.2 million for the fourth
quarter of 2017 and 2016, respectively. Adjusted EBITDA growth of 26.8%
in the fourth quarter of 2017 includes the positive impact of the
NewWave operations and the capitalized labor change. Without the
contribution from NewWave operations, Adjusted EBITDA would have been
$98.2 million and Adjusted EBITDA growth would have been 6.5% for the
fourth quarter of 2017. Excluding both the NewWave operations and the
capitalized labor change, Adjusted EBITDA would have been $95.1 million
and Adjusted EBITDA growth would have been 3.2%.

Capital expenditures totaled $50.5 million and $35.5 million for the
fourth quarter of 2017 and 2016, respectively. Adjusted EBITDA less
capital expenditures for the fourth quarter of 2017 was $66.4 million,
an increase of $9.7 million, or 17.2%, from the prior year quarter.
Excluding NewWave operations, capital expenditures would have been $39.3
million. Excluding both the NewWave operations and the capitalized labor
change, capital expenditures would have been $36.3 million.

Liquidity and Capital Resources

At December 31, 2017, the Company had $161.8 million of cash and cash
equivalents on hand, compared to $138.0 million at December 31, 2016.
The Company’s debt balance, excluding the effect of unamortized debt
issuance costs, was $1.2 billion at December 31, 2017 and $545.3 million
at December 31, 2016. The increase in the Company’s debt balance was
primarily due to the $750 million of term loans incurred in connection
with the NewWave acquisition, of which $744.4 million was outstanding at
December 31, 2017. The Company also had $196.9 million available for
borrowing under its revolving credit facility as of December 31, 2017.
As a result of the 2017 Federal tax reform legislation, the Company
expects to realize approximately $38 million to $42 million of cash tax
savings in 2018.

Revision to Previously Issued Financial Statements

Commencing in the first quarter of 2017, the Company changed its
accounting for the capitalization of certain internal labor and related
costs associated with construction and customer installation activities.
The Company initially classified the change as a change in accounting
estimate. During the fourth quarter of 2017, the Company determined that
a portion of what had previously been reflected as a change in estimate
should have been categorized as a change in accounting principle and
accounted for prospectively upon adoption given that it was
impracticable to apply retrospectively. In addition, the Company
identified an error associated with its historical accounting for
certain categories of internal labor and related costs, which resulted
in an undercapitalization of labor costs in its previously issued
financial statements. Although the Company has determined such error to
be immaterial to its previously issued financial statements, the
cumulative effect of the error would be material if corrected in the
current year. Therefore, the Company has revised its historical
financial statements to properly reflect the impact of the labor
capitalization, including the related impact to depreciation expense and
income tax. In connection with this revision, the Company also included
other immaterial adjustments for 2016. The financial results included in
this press release reflect the impact of the revision. Refer to various
tables for reconciliations between previously reported and revised
amounts for the years ended December 31, 2016 and 2015 and for the
quarters ended March 31, 2017 and 2016, June 30, 2017 and 2016,
September 30, 2017 and 2016, and December 31, 2016. Additional
information regarding the revision will be included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2017.

Conference Call

Cable ONE will host a conference call with the financial community to
discuss results for the fourth quarter and full year 2017 on Thursday,
March 1, 2018, at 11 a.m. Eastern Time (ET).

Shareholders, analysts and other interested parties may register for the
conference in advance at http://dpregister.com/10116517.
Those unable to pre-register may join the call via the live audio
webcast on the Cable
ONE Investor Relations website or by dialing 1-844-378-6483 (Canada:
1-855-669-9657/International: 1-412-542-4178) shortly before 11 a.m. ET.

A replay of the call will be available from Thursday, March 1, 2018,
until Thursday, March 15, 2018, on the Cable
ONE Investor Relations website.

Additional Information Available on Website

The information in this press release should be read in conjunction with
the financial statements and footnotes contained in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017, which will be
posted on the “SEC Filings” section of the Cable ONE Investor Relations
website at ir.cableone.net when it is filed with the U.S. Securities and
Exchange Commission (the “SEC”). Investors and others interested in more
information about Cable ONE should consult our website, which is
regularly updated with financial and other important information about
the Company.

Use of Non-GAAP Financial Metrics

The Company uses certain measures that are not defined by generally
accepted accounting principles in the United States (“GAAP”) to evaluate
various aspects of its business. Adjusted EBITDA, Adjusted EBITDA margin
and Adjusted EBITDA less capital expenditures are non-GAAP financial
measures and should be considered in addition to, not as superior to, or
as a substitute for, net income, net profit margin or net cash provided
by operating activities reported in accordance with GAAP. Adjusted
EBITDA and Adjusted EBITDA less capital expenditures are reconciled to
net income, and Adjusted EBITDA margin is reconciled to net profit
margin, in the “Reconciliations of Non-GAAP Measures” tables
within this press release. Adjusted EBITDA less capital expenditures is
also reconciled to net cash provided by operating activities in the “Reconciliations
of Non-GAAP Measures” tables within this press release.

“Adjusted EBITDA” is defined as net income plus interest expense, income
tax provision (benefit), depreciation and amortization, equity-based
compensation expense, severance expense, (gain) loss on deferred
compensation, acquisition-related costs, (gain) loss on disposal of
assets, other (income) expense, net, and other unusual operating
expenses, as provided in the “Reconciliations of Non-GAAP Measures”
tables within this press release. As such, it eliminates the significant
non-cash depreciation and amortization expense that results from the
capital-intensive nature of the Company’s business as well as other
non-cash or special items and is unaffected by the Company’s capital
structure or investment activities. This measure is limited in that it
does not reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenues and the Company’s cash
cost of debt financing. These costs are evaluated through other
financial measures.

“Adjusted EBITDA margin” is defined as Adjusted EBITDA divided by total
revenues.

“Adjusted EBITDA less capital expenditures,” when used as a liquidity
measure, is calculated as net cash provided by operating activities
excluding the impact of capital expenditures, interest expense, income
tax provision (benefit), changes in operating assets and liabilities,
deferred income taxes and other unusual operating expenses, as provided
in the “Reconciliations of Non-GAAP Measures” tables within this
press release.

The Company uses Adjusted EBITDA, Adjusted EBITDA margin and Adjusted
EBITDA less capital expenditures to assess its performance, and it also
uses Adjusted EBITDA less capital expenditures as an indicator of its
ability to fund operations and make additional investments with
internally-generated funds. In addition, Adjusted EBITDA generally
correlates to the measure used in the leverage ratio calculation under
the Company’s credit facilities and outstanding 5.75% senior unsecured
notes due 2022 to determine compliance with the covenants contained in
the facilities and ability to take certain actions under the indenture
governing the notes. For the purpose of calculating compliance with the
leverage ratio covenants in the Company’s debt instruments, the Company
uses a measure similar to Adjusted EBITDA, as presented. Adjusted EBITDA
and capital expenditures are also significant performance measures used
by the Company in its annual incentive compensation program. Adjusted
EBITDA does not take into account cash used for mandatory debt service
requirements or other non-discretionary expenditures, and thus does not
represent residual funds available for discretionary uses.

The Company believes Adjusted EBITDA and Adjusted EBITDA margin are
useful to investors in evaluating the operating performance of the
Company. The Company believes that Adjusted EBITDA less capital
expenditures is useful to investors as it shows the Company’s
performance while taking into account cash outflows for capital
expenditures and is one of several indicators of the Company’s ability
to service debt, make investments and/or return capital to its
shareholders.

Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less capital
expenditures and similar measures with similar titles are common
measures used by investors, analysts and peers to compare performance in
the Company’s industry, although the Company’s measures of Adjusted
EBITDA, Adjusted EBITDA margin and Adjusted EBITDA less capital
expenditures may not be directly comparable to similarly titled measures
reported by other companies.

Contacts

Cable One, Inc.
Trish Niemann
Corporate Communications Director
602-364-6372
or
Kevin
Coyle
Chief Financial Officer
602-364-6505

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