Cable One has kept itself busy with plenty of acquisition and investment deals in recent years and it already has its next move in sight: a joint venture designed to help it accelerate fiber growth in new markets.
CEO Julie Laulis highlighted the operator's interest in such a deal during its Q3 earnings call. While a definitive agreement has yet to be signed, she said Cable One would contribute its Clearwave holdings (minus its tower business) and some of its Hargray Fiber assets to the joint venture in exchange for a majority stake in the newly formed company. Its prospective partners – private equity firms GTCR, Stephens Capital Partners and the Pritzker Organization – would provide a “significant cash investment” to fund accelerated fiber growth.
“We believe a compelling use of our capital comes from building fiber and expanding the network to drive additional growth,” Laulis stated. While internal efforts on that front will continue, a standalone joint venture “would allow us to have a proven and dedicated team that can be hyper-focused on accelerating market expansion in new and existing systems. This will also allow Cable One's team to remain focused on our primary business, increasing penetration rates, integrating recently acquired companies and driving higher margins and greater free cash flow.”
Cable One acquired Clearwave from Stephens Capital in January 2019 and Hargray from The Pritzker Organization in May of this year. The Hargray assets cover several states in the Southeastern U.S., while Clearwave’s are concentrated in Illinois. GTCR is Cable One’s current partner in Mega Broadband Investments.
Former Hargray executives Michael Gottdenker and David Armistead would lead the standalone joint venture company as executive chairman and CEO, respectively, Laulis said.
Elaborating on why the operator is interested in pursuing a joint venture, Cable One CFO Steven Cochran said it “saw a challenge” in being able to invest enough resources to accelerate expansions on its own. He explained “to put an organization like that in place is a lot of people, a lot of expense, a lot of capital and was both going to negatively impact our margins as well as our free cash flow if we tried to truly go after it.”
It is unclear when Cable One might ink a formal agreement with its prospective partners.
Cable One’s revenue rose 26.9% in Q3 to $430.2 million, though net income fell 21.2% to $52.3 million. It ended the quarter with 935,000 residential data primary service units (PSUs), an increase of 19.2% year on year, with business data PSUs up 17% to 95,000. Data PSU penetration stood at 38.8%.