Cable One shrinkage continues: Customer relationships drop 1.4% in Q2 while margins increase to 46.4%

(Cable One)

Cable One continued its strategy of addition by subtraction in the second quarter, with its legacy operation losing another 9,200 video customers and 2,600 high-speed internet users while its profit margins expanded to 46.4%.

“Cable One’s margins are now within shouting distance of 50%, the magic number touted by Altice as the Holy Grail of cable cost management,” said MoffettNathanson analyst Craig Moffett in a note to investors. 

Cable One made its first quarterly earnings report since closing on its $735 million purchase of NewWave in early May. Now labeled by Cable One as its “Northeast Division,” the erstwhile NewWave contributed two months worth of financials to Cable One’s bottom line. 

RELATED: From Altice to Comcast: Tracking Q2 2017 earnings in the cable industry

Net income for the combined company was $28.6 million in the second quarter, up 7.3%. Adjusted EBITDA was up 26.8% to $113.3 million. 

Cable One is currently in the midst of converting NewWave’s systems to digital and establishing 32-channel bonding at the operator’s plant. In the words of Cable One CFO Kevin Coyle, the effort is to make “NewWave look like Cable One.”

Eventually, Coyle said, that integration will include NewWave’s business model. 

RELATED: Cable One closes on $735M NewWave buy

Video attrition: Cable One has been slowly letting its video business go to seed since 2012, reducing customer care costs, and, more notably, programming expenses associated with pay-TV. The Phoenix, Arizona-based cable operator’s TV base has shrunk from 324,982 at the end of June 2016 to 284,695 on a legacy basis at the end of the recently completed second quarter. 

Video now produces only 42.6% of revenue for Cable One. The emphasis is now on higher margin sectors like business services, which saw revenue spike 32.6% in the second quarter to $32.5 million. 

“Cable One has always argued that video carries far more cost than just programming. They are proving themselves correct; the many input costs that support video (e.g., customer service and set-top box-related repair and maintenance) are all falling,” Moffett said. 

ARPU increases: Meanwhile, Cable One continues to find ways to charge fewer customers more money each month.

“Perhaps the most important metric is total customer relationships. That number declined by 1.4% year over year for the legacy business," Moffett noted.

Residential video revenue declined 4.3%, but average revenue per video user (ARPU) was up 9.5% to $80.47. ARPU for residential broadband users was up 5.2% to $64.70.