Slide 1: Equity Investor Presentation June 2015
EQUITY INVESTOR PRESENTATION June 2015
Slide 2: Disclaimer
Disclaimer 2 This presentation has been prepared by Cable One, Inc. (Cable ONE). The information contained in this presentation is for informational purposes only. The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis
Slide 3: Presenters
Presenters Thomas O. MightCEO – Cable ONE Kevin CoyleCFO – Cable ONE 3
Slide 4: Agenda
Agenda► Transaction overview► Investment highlights► Financial overview► Appendix 4
Slide 5: Summary of Cable ONE Spin-off
Summary of Cable ONE Spin-off Overview ► On November 13, 2014, Graham Holdings Company (“GHC”) announced plans for the complete legal and structural separation (the “Spin-off”) of Cable One, Inc. (“Cable ONE”) from GHC, which is scheduled to be completed on July 1st The distribution will be 1 Cable
Slide 6: Transaction timeline
Illustrative timeline Key transaction milestoneFederal holiday 6 Transaction timeline Week of June 1st Week of June 15th Week of June 30th June 2015 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 July 2015 S M T W T F S 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Slide 7: Agenda
Agenda► Transaction overview► Investment highlights► Financial overview► Appendix 7
Slide 8: Cable ONE at a glance
Cable ONE at a glance ► 10th largest cable company in the United States► Integrated provider of data, video & voice services in 19 Midwestern, Southern and Western states► Multi-year broadband speed and reliability investment project (increasing capacity by over 1,000%)► 75% of customers located in
Slide 9: We are a contrarian success story
We are a contrarian success story ► Only “mid-size” MSO to remain independent (out of over 30) since the late 1980s► Conscious decision in the late 1990s to trade urban systems for rural systems► Higher customer satisfaction with significantly lower cost per PSU versus larger publicly-traded MSOs► P
Slide 10: Linear video model in decline
64% 55% 39% 30% 2005A 2010A 2015E 2018E 2018E Source: SNL Kagan1 Contribution margin defined as cable video ARPU less programming and retransmission costs; Margin does not include operating costs Avg. cable operator video contribution margin1 15 23 31 36 7 12 20 27 $22 $35 $52 $63 2005A 2010A 2015E
Slide 11: Key Cable ONE strategy drivers since 2012
Key Cable ONE strategy drivers since 2012 11 The video subscription model is broken and cannot be fixed Trends point to an HSD-centric residential model The demise of the video-centric cable model is OK Business Services will help drive future revenue/profit growth Margins should expand as r
Slide 12: Key investment highlights
Key investment highlights Differentiated, highly effective strategy Attractive markets with favorable competition Focus on maximizing free cash flow Residential Internet leadership in our markets Significant HSD and commercial opportunity Culture of cost leadership Attractive capital allocation stra
Slide 13: Differentiated, highly effective strategy
Differentiated, highly effective strategy 1 13 Focus on larger, non-urban markets► Attractive cost structure► Favorable competitive dynamic Long-term free cash flow based business model ► Actively addressing linear video disruption and land-line phone decline► Seek to maximize overall free cash
Slide 14: Attractive footprint with favorable competitive dynamics
Attractive footprint with favorable competitive dynamics 2 ► Regionally diversified with less competition in rural markets► < 1% of customers have access to fiber-to-the-home from competitors (no FiOS competition)► Two largest markets, Treasure Valley (Idaho) and Gulf Coast (Mississippi), represent
Slide 15: Focus on maximizing free cash flow
Focus on maximizing free cash flow 3 ► Rigorous analytics to determine lifetime value of customers implemented in 2012► Target customers who generate highest free cash flow versus increasing customer count► Focus on QUALITY not quantity of customers 2010 2014 2010 2014Source: Company filings Video H
Slide 16: Limited free cash flow in video
Video Average Revenue Per Unit Less: programming & retrans cost 3 $81.03 (45.86) Contribution per video sub3 $35.17 % contribution margin 3 43% Less: indirect cost per PSU (24.55) % OCF margin 13% Less: capex per PSU (11.58) FCF per video sub ($0.96) % FCF margin (1%)Video Phone HSDSource: Company f
Slide 17: Redeploying harvested cash flow in higher growth areas
Redeploying harvested cash flow in higher growth areas 2012 – 2014 growth Revenue 1% 3 ► Actively managing business away from less profitable video-only subscribers and PSUs► Shift towards higher-value LTV customers driving expense reduction and margin expansion► Long-term core focus on growing Resi
Slide 18: Residential Internet leadership in our markets
Residential Internet leadership in our markets ► Began transitioning to Internet-centric business in 2012► Industry and market leader in speedIntroduced industry leading standard 50 Mbps speed in 2011Planned to complete upgrade to standard 100 Mbps speed by January 2016► Offer premium product at pre
Slide 19: Attractive Cable ONE HSD value proposition
Attractive Cable ONE HSD value proposition = Direct competitorSource: Consumer Reports, Ookla, The Wall Street Journal Internet service customer satisfaction¹ Recognized as #1 in HSD value2 2013RankingBright House Cox Suddenlink Cablevision Time Warner Comcast Charter Mediacom 2014RankingBright Hous
Slide 20: Expanding commercial opportunity
► Significant market opportunity20-30% penetration among ~175k opportunitiesSubstantial room for growth relative to peers► Customer demand and compelling valueProducts of interest at competitive pricesTargets underserved SMB & enterprise markets Expanding commercial opportunity 5 Commercial sales as
Slide 21: Culture of cost leadership
1,968 850 1,549 666 2010 2014Customer contact headcount 2010 2014Truck rolls (000s) Customer productivity growth Bad debt percent of revenue 1.3% 0.5% 2010 2014 Source: Company filings, SNL Kagan1 For peer set total cost defined as operating expenses plus capex. Operating expense defined as revenue
Slide 22: Attractive capital allocation strategy
► Do not anticipate major bolt-on cable system acquisitions in near-term ► Will seek opportunities that fit well with focus on Residential HSD Services and Business Services Attractive capital allocation strategy Capital structure ► Optimal sustained target leverage of 3.0x trailing EBITDA, plus or
Slide 23: Experienced management team and Board
Experienced management team and Board Management team Board of directors Thomas O. MightChief Executive Officer and Director► CEO of Cable ONE since 1994► 22 years of broad cable industry experience Julie M. LaulisPresident and Chief Operating Officer► COO of Cable ONE since 2008; President since 20
Slide 24: Agenda
Agenda► Transaction overview► Investment highlights► Financial overview► Appendix 24
Slide 25: Key financial highlights
Key financial highlights 25 Stable overall revenue with expanding margins Culture of cost leadership Lifetime value strategy drives profitable growth Strong and efficient balance sheet Balanced capital allocation
Slide 26: Financial and operating strategy
Financial and operating strategy 26 Prioritize product portfolio based on free cash flow potential► Confront the technological disruption, programmer overreach and generational change► Respond wisely and timely to these changes► Employ multiple strategic analytic frameworks, such as Porters Five For
Slide 27: Steady, consistent financial performance
Steady, consistent financial performance 1 Adj. EBITDA defined as income from operations plus depreciation and amortization and certain non-recurring costs related to implementation of Cable ONE's billing system minus gains / (losses) on the disposition of fixed assets; Refer to page 30 in the Appen
Slide 28: Performance by product
2010A 2011A 2012A 2013A 2014A 2010A 2011A 2012A 2013A 2014A1 SNL Kagan2 Adj. EBITDA defined as income from operations plus depreciation and amortization and certain non-recurring costs related to implementation of Cable ONE's billing system minus gains / (losses) on the disposition of fixed assets;
Slide 29: Attractive capital structure
Attractive capital structure 1 Based on LTM 3/31/15 Adj. EBITDA of $302mm; Adj. EBITDA defined as income from operations plus depreciation and amortization and certain non-recurring costs related to implementation of Cable ONE's billing system minus gains / (losses) on the disposition of fixed asset
Slide 30: Agenda
Agenda► Transaction overview► Investment highlights► Financial overview► Appendix 30
Slide 31: Reconciliation of income from operations to operating cash flow and Adj. EBITDA
Reconciliation of income from operations to operating cash flow and Adj. EBITDA ($mm) 1 Operating cash flow is a non-GAAP financial measure and means income from operations plus depreciation and amortization. We focus on operating cash flow because it allows us to assess operational performance on a