Cable One, Inc. (CABO) FY 2021 MD&A

Overview

We are a fully integrated provider of data, video and voice services to residential and business customers in 24 Western, Midwestern and Southern states as of December 31, 2021. The markets we serve are primarily non-metropolitan, secondary and tertiary markets, with approximately 74% of our customers located in seven states as of December 31, 2021: Arizona, Idaho, Mississippi, Missouri, Oklahoma, South Carolina and Texas. Our biggest customer concentrations are in the Mississippi Gulf Coast region and in the greater Boise, Idaho region. We provided service to approximately 1.2 million residential and business customers out of approximately 2.7 million homes passed as of December 31, 2021. Of these customers, approximately 1,055,000 subscribed to data services, 261,000 subscribed to video services and 149,000 subscribed to voice services as of December 31, 2021.

We generate substantially all of our revenues through three primary product lines. Ranked by share of our total revenues during 2021, they are residential data (52.0%), residential video (21.2%) and business services (data, voice and video: 19.2%). The profit margins, growth rates and/or capital intensity of these three primary product lines vary significantly due to competition, product maturity and relative costs.

In 2021, our Adjusted EBITDA margins for residential data and business services were approximately nine and eleven times greater, respectively, than for residential video. We define Adjusted EBITDA margin for a product line as Adjusted EBITDA attributable to that product line divided by revenue attributable to that product line (see “Use of Adjusted EBITDA” below for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, which is the most directly comparable GAAP measure). This margin disparity is largely the result of significant programming costs and retransmission fees incurred to deliver residential video services, which in each of the last three years represented between 64% and 66% of total residential video revenues. Neither of our other primary product lines has direct costs representing as substantial a portion of revenues as programming costs and retransmission fees represent for residential video, and indirect costs are generally allocated on a per PSU basis.

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We focus on growing our higher margin businesses, namely residential data and business services. Beginning in 2013, we began our shift away from our prior concentration on growing revenues through subscriber retention and maximizing customer PSUs. We adapted our strategy to face the industry-wide trends of declining profitability of residential video services and declining revenues from residential voice services. The declining profitability of residential video services is due primarily to increasing programming costs and retransmission fees and competition from other content providers, and the declining revenues from residential voice services are due primarily to the increasing use of wireless voice services instead of residential voice services. Separately, we have also focused on retaining customers who are likely to produce higher relative value over the life of their service relationships with us, are less attracted by discounting, require less support and churn less. This strategy focuses on increasing Adjusted EBITDA and Adjusted EBITDA less capital expenditures and producing higher margins.

Excluding the effects of our recently completed and any potential future acquisitions and divestitures, the trends described above and the COVID-19 pandemic have impacted, and are expected to further impact, our three primary product lines in the following ways:

We continue to experience increased competition, particularly from telephone companies, fiber and municipal overbuilders, OTT video providers and DBS television providers. Because of the levels of competition we face, we believe it is important to make investments in our infrastructure. In addition, a key objective of our capital allocation process is to invest in initiatives designed to drive revenue and Adjusted EBITDA expansion. More than 60% of our total capital expenditures since 2017 were focused on infrastructure improvements that were intended to grow these measures. We continue to invest capital to, among other things, increase fiber density and coverage, expand our footprint, increase plant and data capacity, enhance network reliability and improve the customer experience. As of December 31, 2021, we offered Gigabit data service to approximately 99% of our homes passed and have deployed DOCSIS 3.1, which, together with Sparklight TV, further increases our network capacity and enables future growth in our residential data and business services product lines.

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We expect to continue to devote financial resources to infrastructure improvements in existing and newly acquired markets as well as to expand high-speed data service in areas where our consortium was designated the winning bidder for the RDOF Phase I auction. We believe these investments are necessary to continually meet our customers’ needs and to remain competitive. The capital enhancements associated with recent acquisitions include rebuilding low-capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 4.0; consolidating back office functions such as billing, accounting and service provisioning; migrating products to legacy Cable One platforms; and expanding our high-capacity fiber network.

Our primary goals are to continue growing residential data and business services revenues, to increase profit margins and to deliver strong Adjusted EBITDA and Adjusted EBITDA less capital expenditures. To achieve these goals, we intend to continue our disciplined cost management approach, remain focused on customers with expected higher relative value and follow through with further planned investments in broadband plant upgrades, including the deployment of DOCSIS 4.0 capabilities and new data service offerings for residential and business customers. At the same time, we intend to continue balancing the impact of the COVID-19 pandemic on our business, associates, customers and other stakeholders. We also plan to continue seeking broadband-related acquisition and strategic investment opportunities in rural markets in addition to pursuing organic growth through market expansion projects.

On January 8, 2019, we acquired Clearwave, a facilities-based service provider that owns and operates a high-capacity fiber network offering dense regional coverage in Southern Illinois. We paid a purchase price of $358.8 million in cash on a debt-free basis. The acquisition provides us with a premier fiber network within our existing footprint, further enables us to supply our customers with enhanced business services solutions and provides a platform to allow us to replicate Clearwave’s strategy in several of our other markets. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness. On January 1, 2022, a majority of Clearwave's operations were contributed to the Clearwave Fiber joint venture discussed below.

On October 1, 2019, we acquired the data, video and voice business and certain related assets of Fidelity, a provider of connectivity services to residential and business customers throughout Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas. We paid a purchase price of $531.4 million in cash on a debt-free basis. Cable One and Fidelity share similar strategies, customer demographics and products. The acquisition provides us opportunities for revenue growth and Adjusted EBITDA margin expansion as well as the potential to realize cost synergies. The all-cash transaction was funded through a combination of cash on hand and proceeds from new indebtedness.

On May 4, 2020, we made a minority equity investment for a less than 10% ownership interest in Nextlink for $27.2 million. On November 5, 2021, we invested an additional $50.0 million in Nextlink, resulting in us owning an approximately 17% equity interest in Nextlink.

On July 1, 2020, we acquired Valu-Net, an all-fiber internet service provider headquartered in Kansas with approximately 5,000 residential data subscribers at the time of the acquisition. We paid a purchase price of $38.9 million in cash on a debt-free basis. The acquisition provides us the opportunity to further grow our business in and around Emporia, Kansas and realize operational synergies and Adjusted EBITDA growth.

On July 10, 2020, we acquired an approximately 40% minority equity interest in Wisper for total consideration of $25.3 million.

On October 1, 2020, we contributed the Anniston System to Hargray in exchange for an approximately 15% equity interest in Hargray on a fully diluted basis. The Anniston System had approximately 19,000 residential data subscribers at the time of the transaction. On May 3, 2021, we acquired the remaining approximately 85% equity interest that we did not already own in Hargray, a data, video and voice services provider to residential and business customers throughout Alabama, Florida, Georgia and South Carolina, for a purchase price of approximately $2.0 billion that implied a $2.2 billion total enterprise value for Hargray on a cash-free and debt-free basis. The Hargray Acquisition was financed with cash on hand and net proceeds from indebtedness. The Hargray Acquisition expands our presence in the Southeastern U.S. and we expect to capitalize on Hargray’s experience and expertise in fiber expansion.

On November 12, 2020, we acquired a 45% minority equity interest in MBI for $574.9 million in cash. MBI provides high-speed data, video and voice services to residential and business customers in rural markets in 16 states under the Vyve Broadband brand and is majority-owned by funds affiliated with GTCR LLC, a private equity firm based in Chicago (“GTCR”). As of December 31, 2021, MBI’s network passed approximately 652,000 homes and has upgraded systems and a high-capacity plant with more than 15,800 network plant miles, including over 4,100 fiber route miles, capable of delivering Gigabit speeds across its footprint. As part of this investment, we acquired the right, but not the obligation, to purchase all but not less than all of the remaining equity interests in MBI that we do not already own between January 1, 2023 and June 30, 2024 (the “Call Option”). If we do not exercise the Call Option, investors affiliated with GTCR have the right, but not the obligation, to sell (and to cause all members of MBI other than us to sell) to us and, in such case, we are obligated to purchase, all but not less than all of the direct and indirect equity interests in MBI that we do not already own between July 1, 2025 through September 30, 2025 (the “Put Option” and, together with the Call Option, the “Call and Put Options”). The purchase price payable upon the exercise of the Call Option or the Put Option, as applicable, will be calculated under a formula based on a multiple of MBI’s adjusted EBITDA. MBI generated revenues of approximately $287 million during 2021.

On October 1, 2021, we made a minority equity investment for a less than 10% ownership interest in Point Broadband for $25.0 million.

On October 18, 2021, we completed a minority equity investment for a less than 10% ownership interest in Tristar for $20.8 million.

On December 30, 2021, we acquired certain assets and assumed certain liabilities from CableAmerica, a data, video and voice services provider in central Missouri, for $113.1 million in cash on a debt-free basis, subject to customary post-closing adjustments. The CableAmerica acquisition was financed with cash on hand and is expected to provide the Company opportunities for footprint expansion in Missouri, margin growth and potential cost synergy realization.

On January 1, 2022, we closed a joint venture transaction in which we contributed certain fiber operations (including a majority of Clearwave's operations and certain fiber assets of Hargray) and certain unaffiliated third-party investors contributed cash, to a newly formed entity, Clearwave Fiber LLC ("Clearwave Fiber"). The operations we contributed generated approximately 3% of our consolidated revenues for the three months ended December 31, 2021. Our approximately 58% investment in Clearwave Fiber was valued at $440.0 million as of the closing date. Clearwave Fiber is intended to accelerate deployment of fiber internet to residents and businesses in existing markets and near-adjacent areas, as well as to provide connectivity to unserved and underserved areas in such markets via fiber-to-the-premises service. Joint ventures often involve many of the same risks and uncertainties applicable to acquisitions and they also present additional areas of risk due to the shared ownership and control of the venture.

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for discussion and analysis of our financial condition and results of operations for 2020 compared to 2019 contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

COVID-19 Update

During 2020, the COVID-19 pandemic and our associated responses negatively impacted Adjusted EBITDA by $17.6 million, primarily during the second and third quarters of the year. The negative impacts were driven by a $12.3 million decrease in revenues largely from the now-concluded suspensions of data overage fees, late charges and reconnect fees as well as diminished growth in business services revenues, coupled with $5.3 million of higher labor costs and other operating expenses, net of lower travel costs. These negative Adjusted EBITDA impacts were more than offset by a greater-than-usual gain in residential data customers in 2020 and the associated increase in residential data revenues.

The actions we took during 2020 in response to the COVID-19 pandemic did not have any notable negative impact on our results for 2021, due primarily to the resumption of billing late charges, reconnect fees and data overage fees as well as the normalization of labor costs since the fourth quarter of 2020. We experienced a positive impact on residential data revenues during 2021 as a result of retaining a significant number of residential data customers acquired during 2020 and continued growth of residential data customers during the period, and we expect that there will continue to be a positive impact on future residential data revenues from these factors, albeit at a slower pace. However, we continue to face various uncertainties related to the impact of the COVID-19 pandemic on the overall economy and our business, including whether we will be able to sustain continued customer growth, our level of bad debt expense, supply chain disruptions, labor shortages and whether some of the expense reductions realized during the pandemic will continue or if those expenses will return to more normal levels given the fluid situation regarding pandemic-related restrictions across the country. In addition, the continually evolving COVID-19 pandemic and the government's associated responses have contributed to fluctuations in our expenses from period to period and have increased the difficulty of projecting costs into the future.

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Refer to the section entitled “Risks Factors” in this Annual Report on Form 10-K for additional risks we face due to the COVID-19 pandemic.

Results of Operations

PSU and Customer Counts

Selected subscriber data for the periods presented was as follows (in thousands, except percentages):

In recent years, our customer mix has shifted away from double- and triple-play packages combining data, video and/or voice services, which is in line with our strategy of focusing on our higher margin residential data and business services product lines. This is largely because some residential video customers have defected to DBS services and OTT offerings and households continue to discontinue residential voice service. In addition, we have focused on selling data-only packages to new customers rather than cross-selling video to these customers. Meanwhile, the COVID-19 pandemic and our responses to it have accelerated this customer mix shift.

Use of Nonfinancial Metrics and ARPU

We use various nonfinancial metrics to measure, manage and monitor our operating performance on an ongoing basis. Such metrics include homes passed, PSUs and customer relationships. Homes passed represents the number of serviceable and marketable homes and businesses passed by our active plant. A PSU represents a single subscription to a particular service offering. Residential bulk multi-dwelling PSUs are generally classified as residential and are counted at the individual unit level. Business voice customers who have multiple voice lines are counted as a single PSU. A customer relationship represents a single customer who subscribes to one or more PSUs.

We believe homes passed, PSU and customer relationship counts are useful to investors in evaluating our operating performance. Similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measures of homes passed, PSUs and customer relationships may not be directly comparable to similarly titled measures reported by other companies.

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We use ARPU to evaluate and monitor the amount of revenue generated by each type of service subscribed to by customers and the contribution to total revenues as well as to analyze and compare growth patterns. Residential ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the corresponding average of the number of PSUs at the beginning and end of each period, divided by the number of months in the period, except that for any PSUs added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent the applicable residential service revenues (excluding installation and activation fees) divided by the pro-rated average number of PSUs during such period. Business services ARPU values represent business services revenues divided by the average of the number of business customer relationships at the beginning and end of each period, divided by the number of months in the period, except that for any business customer relationships added or subtracted as a result of an acquisition or divestiture occurring during the period, the associated ARPU values represent business services revenues divided by the pro-rated average number of business customer relationships during such period.

We believe ARPU is useful to investors in evaluating our operating performance. ARPU and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of ARPU may not be directly comparable to similarly titled measures reported by other companies.

2021 Compared to 2020

Revenues

Revenues increased $280.6 million, or 21.2%, including $206.9 million from Hargray operations. The remaining increase was due primarily to increases in residential data, business services and other revenues of $91.7 million, $14.1 million and $5.1 million, respectively, partially offset by decreases in residential video and residential voice revenues. In 2020, certain actions we took in response to the COVID-19 pandemic, which concluded in 2020 and included waiving late charges, suspending collection activities (which reduced reconnect fees) and temporarily discontinuing charging data overage fees, negatively impacted consolidated revenues by $12.3 million. This negative impact on 2020 consolidated revenues, of which $7.4 million was associated with other revenues, was more than offset by a larger-than-usual gain in residential data customers and the associated increase in residential data revenues related to the COVID-19 pandemic.

Revenues by service offering for 2021 and 2020, together with the percentages of total revenues that each item represented for the years presented, were as follows (dollars in thousands):

Residential data service revenues increased $166.2 million, or 24.8%, due primarily to $74.5 million from Hargray operations as well as organic subscriber growth, a reduction in package discounting and increased customer subscriptions to premium tiers.

Residential video service revenues increased $6.9 million, or 2.1%, due primarily to $36.6 million from Hargray operations and a rate adjustment implemented in March 2021, partially offset by a decrease in organic residential video subscribers.

Residential voice service revenues decreased $0.1 million, or 0.2%, due primarily to a decrease in organic residential voice subscribers, partially offset by $7.4 million from Hargray operations.

Business services revenues increased $74.1 million, or 31.6%, due primarily to $60.0 million from Hargray operations and organic growth in our business data and voice services to small and medium-sized businesses and enterprise customers.

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Other revenues increased $33.6 million, or 82.7%, due primarily to $28.5 million mainly associated with regulatory revenues from Hargray operations and higher advertising revenues, late charges and reconnect fees compared to the prior year period. The actions we took during 2020 in response to the COVID-19 pandemic, including temporarily discontinuing data overage fees, waiving late charges and suspending collection activities, negatively impacted other revenues in 2020.

ARPU for the indicated service offerings for 2021 and 2020 were as follows:

Costs and Expenses

Operating expenses (excluding depreciation and amortization) were $455.4 million for 2021 and increased $36.6 million, or 8.8%, compared to 2020. The increase in operating expenses was primarily attributable to $58.8 million of additional expenses related to Hargray operations and a $2.2 million increase in network backbone costs, partially offset by decreases of $22.7 million in programming expenses and $4.7 million in labor and other compensation-related costs. Operating expenses for 2020 included $5.3 million of higher labor costs and other operating expenses, partially offset by lower travel costs, as a result of actions we took in response to the COVID-19 pandemic. Operating expenses as a percentage of revenues were 28.4% and 31.6% for 2021 and 2020, respectively.

Selling, general and administrative expenses were $347.1 million for 2021 and increased $91.9 million, or 36.0%, compared to 2020. The increase in selling, general and administrative expenses was primarily attributable to $57.2 million of additional expenses related to Hargray operations and increases of $14.3 million in labor and other compensation-related costs, $6.9 million in acquisition-related costs, $6.1 million in health insurance costs, $4.2 million in marketing costs, $4.1 million in professional fees and $3.5 million in system conversion costs, partially offset by a $3.6 million decrease in bad debt expense. The increase in labor and other compensation-related costs was due to higher stock-based compensation and performance-based compensation, increased headcount and higher average salary rates. The increase in acquisition-related costs was primarily due to expenses related to the Hargray and CableAmerica acquisitions. The increase in health insurance costs was the result of lower-than-normal costs in the prior year from reduced claims activity in connection with stay-at-home orders issued during the pandemic. Selling, general and administrative expenses as a percentage of revenues were 21.6% and 19.3% for 2021 and 2020, respectively.

Depreciation and amortization expense was $339.0 million for 2021, including $66.1 million from Hargray operations, and increased $73.4 million, or 27.6%, compared to 2020. Depreciation and amortization expense as a percentage of revenues was 21.1% and 20.0% for 2021 and 2020, respectively.

We recognized a net loss on asset sales and disposals of $7.8 million in 2021 and a net gain on asset sales and disposals of $1.1 million in 2020 that included a $6.6 million non-cash gain on the sale of certain tower properties.

We also recognized an $82.6 million non-cash gain on sale of business in 2020 in connection with the Anniston Exchange.

Interest Expense

Interest expense was $113.4 million for 2021 and increased $39.8 million, or 54.1%, compared to 2020, driven primarily by additional outstanding debt and higher interest rate swap settlement expense.

Other Income (Expense), Net

Other expense, net, was $6.0 million for 2021 and consisted primarily of a $50.3 million non-cash loss on fair value adjustment associated with the MBI Net Option and $2.1 million of debt issuance cost write-offs, partially offset by a $33.4 million non-cash gain on fair value adjustment associated with our existing investment in Hargray upon the Hargray Acquisition, $11.6 million of investment and interest income and a $2.3 million non-cash mark-to-market investment gain. Other expense, net, was $16.4 million for 2020 and consisted primarily of a $17.5 million non-cash loss on fair value adjustment associated with the MBI Net Option, $6.2 million of debt issuance cost write-offs and $1.2 million of financing-related fees, partially offset by $8.5 million of investment and interest income.

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Income Tax Provision

Income tax provision was $45.8 million for 2021 and decreased $30.6 million, or 40.0%, compared to 2020. Our effective tax rate was 13.6% and 20.1% for 2021 and 2020, respectively. The decrease in the effective tax rate was due primarily to a $35.4 million income tax benefit from the reversal of a pre-existing deferred tax liability on the investment in Hargray, partially offset by a $13.0 million income tax benefit attributable to the net operating loss ("NOL") carryback provision of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") in the prior year period that did not recur in 2021 and an $8.0 million increase in income tax expense related to a change in the valuation allowance associated with the MBI Net Option.

Net Income

Net income was $291.8 million for 2021 compared to $304.4 million for 2020. The prior year's net income included the $82.6 million pre-tax non-cash gain on sale of business in connection with the Anniston Exchange.

Unrealized Gain (Loss) on Cash Flow Hedges and Other, Net of Tax

Unrealized gain on cash flow hedges and other, net of tax was $57.9 million for 2021 compared to an unrealized loss of $72.5 million for 2020 due primarily to higher projected future increases in interest rates.

Use of Adjusted EBITDA

We use certain measures that are not defined by GAAP to evaluate various aspects of our business. Adjusted EBITDA is a non-GAAP financial measure and should be considered in addition to, not as superior to, or as a substitute for, net income reported in accordance with GAAP. Adjusted EBITDA is reconciled to net income below, the most directly comparable GAAP financial measure.

Adjusted EBITDA is defined as net income plus interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation, (gain) loss on deferred compensation, acquisition-related costs, (gain) loss on asset sales and disposals, system conversion costs, rebranding costs, (gain) loss on sale of business, equity method investment (income) loss, other (income) expense and other unusual items, as provided in the following table. As such, it eliminates the significant non-cash depreciation and amortization expense that results from the capital-intensive nature of our business as well as other non-cash or special items and is unaffected by our 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 our cash cost of debt financing. These costs are evaluated through other financial measures.

We use Adjusted EBITDA to assess our performance. In addition, Adjusted EBITDA generally correlates to the measure used in the leverage ratio calculations under the Credit Agreement and the Senior Notes Indenture (as defined elsewhere in this Annual Report on Form 10-K) to determine compliance with the covenants contained in the Credit Agreement and the ability to take certain actions under the Senior Notes Indenture. Adjusted EBITDA is also a significant performance measure used by us in our incentive compensation programs. 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.

NM = Not meaningful.

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We believe that Adjusted EBITDA is useful to investors in evaluating our operating performance. Adjusted EBITDA and similar measures with similar titles are common measures used by investors, analysts and peers to compare performance in our industry, although our measure of Adjusted EBITDA may not be directly comparable to similarly titled measures reported by other companies.

Financial Condition: Liquidity and Capital Resources

Liquidity

Our primary funding requirements are for our ongoing operations, capital expenditures, potential acquisitions and strategic investments, payments of quarterly dividends and share repurchases. We believe that existing cash balances, our Senior Credit Facilities and operating cash flows will provide adequate support for these funding requirements over the next 12 months. However, our ability to fund operations, make capital expenditures, make future acquisitions and strategic investments, pay quarterly dividends and make share repurchases depends on future operating performance and cash flows, which, in turn, are subject to prevailing economic conditions and to financial, business and other factors, including the impact of the COVID-19 pandemic, some of which are beyond our control.

As part of our 45% minority equity interest in MBI, we acquired the Call Option to purchase all but not less than all of the remaining equity interests in MBI that we do not already own, which is exercisable at any time between January 1, 2023 and June 30, 2024. If we do not exercise the Call Option, then investors affiliated with GTCR may exercise the Put Option under which we are obligated to purchase all but not less than all of the direct and indirect equity interests in MBI that we do not already own from all members of MBI other than us, which is exercisable at any time between July 1, 2025 through September 30, 2025. The purchase price payable upon the exercise of the Call Option or the Put Option, as applicable, will be calculated under a formula based on a multiple of MBI’s adjusted EBITDA. We have not yet obtained the capital that we believe will be necessary to pay the purchase price if either the Call Option or the Put Option are exercised.

In light of the volatility in the debt markets resulting from the COVID-19 pandemic as well as our desire to enhance our flexibility in pursuing acquisitions and strategic investments, in May 2020, we completed a public offering of 287,500 shares of our common stock (the “Public Offering”) and raised $469.8 million, after deducting underwriting discounts and offering expenses.

The following table shows a summary of our net cash flows for the years indicated (dollars in thousands):

NM = Not meaningful.

The $130.0 million year-over-year increase in net cash provided by operating activities was primarily attributable to an increase in Adjusted EBITDA of $165.2 million, tax refunds received compared to taxes paid in the prior year and lower system conversion costs, partially offset by a decrease in accounts payable and accrued liabilities compared to an increase in the prior year and an increase in cash paid for interest and acquisition-related costs.

The $1.5 billion year-over-year increase in net cash used in investing activities was due primarily to $2.1 billion in net cash paid for the Hargray and CableAmerica acquisitions, $95.8 million invested in Nextlink, Point Broadband and Tristar and an $82.0 million increase in cash paid for capital expenditures, partially offset by $612.1 million in equity investments in the prior year, $68.7 million in dividends received from MBI in the current year and $38.3 million in net cash paid for Valu-Net in the prior year.

The $750.9 million year-over-year increase in net cash provided by financing activities was due primarily to net proceeds of $895.2 million and $789.8 million from the offering of the Convertible Notes and Term Loan B-4 issuance, respectively, during 2021 compared to $1.1 billion in proceeds in 2020 from a $650.0 million private offering of Senior Notes, $300.0 million in proceeds from the Term Loan B-3 and a $100.0 million draw on the Revolving Credit Facility and $581.5 million in lower debt repayments, partially offset by $469.8 million of net proceeds from the Public Offering in the prior year period that did not recur. Refer to the following section for further information on the Company's financing activity.

On July 1, 2015, the Board authorized up to $250.0 million of share repurchases (subject to a total cap of 600,000 shares of our common stock). Purchases under the share repurchase program may be made from time to time on the open market and in privately negotiated transactions. The size and timing of these purchases are based on a number of factors, including share price and business and market conditions. Since the inception of the share repurchase program through the end of 2021, we have repurchased 210,631 shares of our common stock at an aggregate cost of $104.9 million. No shares were repurchased during 2021. Although we have not repurchased shares of our common stock in recent periods pursuant to this authority, we may, from time to time, opportunistically repurchase shares depending on the trading price of our common stock, market conditions and other factors.

We currently expect to continue to pay comparable quarterly cash dividends on shares of our common stock, subject to approval of the Board. During the fourth quarter of 2021, the Board approved a quarterly dividend of $2.75 per share of common stock, which was paid on December 17, 2021, bringing total dividends distributed during 2021 to $63.5 million. On February 1, 2022, the Board approved a quarterly dividend of $2.75 per share of common stock to be paid on March 4, 2022 to holders of record as of February 15, 2022.

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Financing Activity

Senior Credit Facilities

In May 2021, we amended the third amended and restated credit agreement among us, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, dated as of October 30, 2020 (as amended, the "Credit Agreement"), to provide for a new seven-year incremental term "B" loan in an aggregate principal amount of $800.0 million maturing in 2028 (the "Term Loan B-4"). The interest margin applicable to the Term Loan B-4 is, at our option, equal to either LIBOR or a base rate, plus an applicable margin equal to 2.0% for LIBOR loans and 1.0% for base rate loans. The Term Loan B-4 may be prepaid at any time without penalty or premium (subject to customary LIBOR breakage provisions). The Term Loan B-4 benefits from certain “most favored nation” pricing protections and is not subject to the financial maintenance covenants under the Credit Agreement. The Term Loan B-4 amortizes in equal quarterly installments at a rate (expressed as a percentage of the original principal amount) of 1.0% per annum (subject to customary adjustments in the event of any prepayment), with the outstanding balance due upon maturity. The Term Loan B-4 was drawn in full in connection with the closing of the Hargray Acquisition.

The Credit Agreement also provides for senior secured term loans in original aggregate principal amounts of $700.0 million maturing in 2025 (the “Term Loan A-2”), $250.0 million maturing in 2027 (the “Term Loan B-2”) and $625.0 million maturing in 2027 (the “Term Loan B-3”), as well as a $500.0 million revolving credit facility maturing in 2025 (the “Revolving Credit Facility” and, together with the Term Loan A-2, the Term Loan B-2, the Term Loan B-3 and the Term Loan B-4, the “Senior Credit Facilities”). Other than with respect to maturity, amortization and pricing, the Term Loan B-4 contains terms that are substantially similar to the Term Loan B-2 and Term Loan B-3. The Revolving Credit Facility also gives us the ability to issue letters of credit, which reduce the amount available for borrowing under the Revolving Credit Facility.

We have issued letters of credit totaling $33.0 million under the Revolving Credit Facility on behalf of Wisper to guarantee its performance obligations under an FCC broadband funding program. The fair value of the letters of credit approximates face value based on the short-term nature of the agreements. We would be liable for up to the total amount outstanding under the letters of credit if Wisper were to fail to satisfy all or some of its performance obligations under the FCC program. Wisper pledged certain assets in favor of us as collateral for issuing the letters of credit, which pledge was terminated in the third quarter of 2020 at the same time that we closed an equity investment in Wisper, and Wisper has guaranteed and indemnified us in connection with such letters of credit. As of December 31, 2021, we have assessed the likelihood of non-performance associated with the guarantee to be remote, and therefore, no liability has been accrued within the condensed consolidated balance sheet. As of December 31, 2021, letter of credit issuances under the Revolving Credit Facility totaled $40.2 million and bore interest at a rate of 1.88% per annum.

The Credit Agreement contains customary representations, warranties and affirmative and negative covenants, including limitations on indebtedness, liens, restricted payments, prepayments of certain indebtedness, investments, dispositions of assets, restrictions on subsidiary distributions and negative pledge clauses, fundamental changes, transactions with affiliates and amendments to organizational documents. The Credit Agreement also requires that we maintain specified ratios of total net indebtedness and first lien net indebtedness to consolidated operating cash flow. The Credit Agreement also contains customary events of default, including non-payment of principal, interest, fees or other amounts, material inaccuracy of any representation or warranty, failure to observe or perform any covenant, default in respect of our and our restricted subsidiaries’ other material debt, bankruptcy or insolvency, the entry against us or any of our restricted subsidiaries of a material judgment, the occurrence of certain ERISA events, impairment of the loan documentation and the occurrence of a change of control.

As of December 31, 2021, we had $2.3 billion of aggregate outstanding term loans and $459.8 million available for borrowing under the Revolving Credit Facility. A summary of our outstanding term loans as of December 31, 2021 is as follows (dollars in thousands):

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Senior Notes

In November 2020, we completed a private offering of $650.0 million aggregate principal amount of 4.00% senior notes due 2030 (the “Senior Notes”). The Senior Notes bear interest at a rate of 4.00% per annum payable semi-annually in arrears on May 15th and November 15th of each year, beginning on May 15, 2021. The terms of the Senior Notes are governed by an indenture dated as of November 9, 2020 (the “Senior Notes Indenture”), among the Company, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (“BNY”), as trustee. The Senior Notes are required to be guaranteed on a senior unsecured basis by each of our existing and future wholly owned domestic subsidiaries that guarantees our obligations under the Credit Agreement or that guarantees certain capital markets debt of ours or a guarantor in an aggregate principal amount in excess of $250.0 million.

At any time and from time to time prior to November 15, 2025, we may redeem some or all of the Senior Notes for cash at a redemption price equal to 100% of their principal amount, plus the “make-whole” premium described in the Senior Notes Indenture and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Beginning on November 15, 2025, we may redeem some or all of the Senior Notes at any time and from time to time at the applicable redemption prices listed in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to November 15, 2023, we may redeem up to 40% of the aggregate principal amount of Senior Notes with funds in an aggregate amount not exceeding the net cash proceeds from one or more equity offerings at a redemption price equal to 104% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

Upon the occurrence of a Change of Control and a Below Investment Grade Rating Event (each as defined in the Senior Notes Indenture), we are required to offer to repurchase the Senior Notes at 101% of the principal amount of such Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

Convertible Notes

In March 2021, we completed a private offering of $575.0 million aggregate principal amount of 0.000% convertible senior notes due 2026 (the “2026 Notes”) and $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2028 (the “2028 Notes” and, together with the 2026 Notes, the “Convertible Notes,” and the Convertible Notes collectively with the Senior Notes, the "Notes"). The net proceeds from the offering were $895.2 million after deducting initial purchaser discounts and other offering costs and expenses. We used the net proceeds from the offering for general corporate purposes, including to finance a portion of the purchase price for the Hargray Acquisition. The Convertible Notes are senior unsecured obligations of ours and are guaranteed by our wholly owned domestic subsidiaries that guarantee the Senior Credit Facilities or that guarantee certain of our Notes in an aggregate principal amount in excess of $250.0 million. The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes do not accrete. The 2028 Notes bear interest at a rate of 1.125% per annum. Interest on the 2028 Notes is payable semiannually in arrears on March 15th and September 15th of each year, beginning on September 15, 2021, unless earlier repurchased, converted or redeemed. The 2026 Notes are scheduled to mature on March 15, 2026, and the 2028 Notes are scheduled to mature on March 15, 2028. The initial conversion rate for each of the 2026 Notes and the 2028 Notes is 0.4394 shares of our common stock per $1,000 principal amount of 2026 Notes and 2028 Notes, as applicable (equivalent to an initial conversion price of $2,275.83 per share of common stock). The initial conversion price of each of the 2026 Notes and the 2028 Notes represents a premium of 25.0% over the last reported sale price of $1,820.83 per share of our common stock on March 2, 2021. The Convertible Notes are convertible at the option of the holders. The method of conversion into cash, shares of our common stock or a combination thereof is at our election.

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Other Debt-Related Information

We were in compliance with all debt covenants as of December 31, 2021.

In connection with various financing transactions completed during 2021 and 2020, we capitalized $13.7 million and $15.1 million of debt issuance costs and wrote-off $2.1 million and $6.2 million of existing unamortized debt issuance costs. We recorded debt issuance cost amortization of $5.6 million and $4.3 million for 2021 and 2020, respectively, within interest expense in the consolidated statements of operations and comprehensive income.

Unamortized debt issuance costs consisted of the following (in thousands):

Unamortized debt discount associated with the Convertible Notes was $20.6 million as of December 31, 2021. The Company recorded debt discount amortization of $3.5 million during 2021 within interest expense in the consolidated statement of operations and comprehensive income.

In March 2021, we terminated $900.0 million of definitive bridge loan commitments that were originally received to finance a portion of the Hargray Acquisition purchase price.

We are party to two interest rate swap agreements to convert our interest payment obligations with respect to an aggregate of $1.2 billion of our variable rate LIBOR indebtedness to a fixed rate. Under the first swap agreement, with respect to a notional amount of $850.0 million, our monthly payment obligation is determined at a fixed base rate of 2.653%. Under the second swap agreement, with respect to a notional amount of $350.0 million, our monthly payment obligation is determined at a fixed base rate of 2.739%. Both interest rate swap agreements are scheduled to mature in the first quarter of 2029 but each may be terminated prior to the scheduled maturity at our election or that of the financial institution counterparty under the terms provided in each swap agreement. We recognized losses of $31.3 million and $22.5 million on interest rate swaps for 2021 and 2020, respectively, which were reflected within interest expense in the consolidated statements of operations and comprehensive income.

Refer to notes 10 and 12 to the consolidated financial statements for further details regarding our financing activity, outstanding debt and interest rate swaps.

Capital Expenditures

We have significant ongoing capital expenditure requirements as well as capital enhancements associated with acquired operations, including rebuilding low-capacity markets; reclaiming bandwidth from analog video services; implementing 32-channel bonding; deploying DOCSIS 4.0; consolidating back office functions such as billing, accounting and service provisioning; migrating products to legacy Cable One platforms; and expanding our high-capacity fiber network. Capital expenditures are funded primarily by cash on hand and cash flows from operating activities.

Our capital expenditures by category for the years ended December 31, 2021 and 2020 were as follows (in thousands):

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Contractual Obligations and Contingent Commitments

The following table summarizes our outstanding contractual obligations as of December 31, 2021 (in thousands):

We incur the following costs as part of our operations, however, they are not included within the contractual obligations table above for the reasons discussed below:

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or financing arrangements with special-purpose entities.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

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An accounting policy is considered to be critical if it is important to our results of operations and financial condition and if it requires management’s most difficult, subjective and complex judgments in its application. For a summary of all our significant accounting policies, see note 2 of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Long-lived Assets

A long-lived asset or asset group is tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment may include:

When an indicator of impairment is determined, the first step is to identify the future intent of the asset or asset group: hold for continued use, hold for sale or dispose by a means other than sale. If the asset is held for continued use and the carrying amount exceeds the undiscounted sum of cash flows expected from the use and eventual disposition of the property, the impairment loss is recognized as the difference between the carrying amount and the estimated fair value of the asset or asset group, and the new cost basis is depreciated over the remaining useful life of the asset. If the intent is to hold the asset for sale and certain other criteria are met (e.g., the asset can be disposed of currently, appropriate levels of authority have approved the sale and there is an active program to locate a buyer), the impairment test involves comparing the asset’s carrying value to its estimated fair value less disposal costs. To the extent the carrying value is greater than the asset’s estimated fair value less disposal costs, an impairment charge is recognized for the difference. If the asset is to be disposed by a means other than sale, the depreciation estimates are revised to reflect the use of the asset over its shortened useful life.

Significant judgments in this area involve determining whether an event has occurred, determining the future cash flows for the assets involved and selecting the appropriate discount rate to be applied in determining estimated fair value.

Goodwill and Indefinite-Lived Intangible Assets

We have a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for impairment. These balances were as follows (dollars in thousands):

Goodwill Reporting Unit. Goodwill is calculated as the excess of the consideration transferred over the fair value of identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from anticipated synergies and intangible assets acquired that do not qualify for separate recognition, including an assembled workforce, noncontractual relationships and other agreements. We assess the recoverability of our goodwill as of October 1st of each year, or more frequently whenever events or substantive changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value. We test goodwill for impairment at the reporting unit level, for which we have identified a single goodwill reporting unit based on the chief operating decision maker’s performance monitoring and resource allocation process and the similarity of our geographic divisions.

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Indefinite-Lived Intangible Assets Units of Accounting. Our intangible assets with an indefinite life are from franchise agreements that we have with state and local governments and certain trade names. Franchise agreements allow us to contract and operate our business within specified geographic areas. We expect our franchise agreements to provide us with substantial benefit for a period that extends beyond the foreseeable horizon, and we have historically obtained renewals and extensions of such agreements without material modifications to the agreements for nominal costs, and these costs are expensed as incurred. We currently expect to utilize certain of our trade names for a period that extends beyond the foreseeable horizon and expect the cost to maintain such asset to be nominal.

We assess the recoverability of our indefinite-lived intangible assets as of October 1st of each year, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. We have identified a single unit of accounting for our franchise agreements for use in impairment assessments based on our current operations and the use of our assets.

Property, Plant and Equipment

Our industry is capital intensive, and a significant portion of our resources is spent on capital activities associated with extending, rebuilding and upgrading our network. The following tables present certain information regarding our net property, plant and equipment and our cash paid for property, plant and equipment for the periods indicated (dollars in thousands):

Property, plant and equipment represents the costs incurred in the design, construction and implementation of plant, infrastructure and capacity improvements and upgrades. Costs associated with the installation and upgrade of services and the acquiring and deploying of customer premise equipment, including materials, internal and external labor costs and related indirect and overhead costs, are also capitalized.

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Capitalized labor costs include the direct costs of engineers and technical personnel involved in the design and implementation of plant and infrastructure; the costs of technicians involved in the installation and upgrades of services and customer premise equipment; and the costs of support personnel directly involved in capitalizable activities, such as project managers and supervisors. These costs are capitalized based on internally developed standards by position, which are updated annually (or more frequently if required). These standards are developed utilizing a combination of actual costs incurred where applicable, survey information, operational data and management judgment. Overhead costs are capitalized based on standards developed from historical information. Indirect and overhead costs include payroll taxes; insurance and other benefits; and vehicle, tool and supply expense related to installation activities. Costs for repairs and maintenance, disconnecting service or reconnecting service are expensed as incurred.

The estimated useful lives assigned to our property, plant and equipment are reviewed on an annual basis or more frequently if circumstances warrant and such lives are revised to the extent necessary due to changing facts and circumstances. Any changes in estimated useful lives are reflected prospectively.

Business Combination Purchase Price Allocation

The application of the acquisition method requires the allocation of the purchase price amongst the acquisition date fair values of identifiable assets acquired and liabilities assumed in a business combination. Fair values are determined using the income approach, market approach and/or cost approach depending on the nature of the asset or liability being valued and the reliability of available information. The income approach estimates fair value by discounting associated lifetime expected future cash flows to their present value and relies on significant assumptions regarding future revenues, expenses, working capital levels and discount rates. The market approach estimates fair value by analyzing recent actual market transactions for similar assets or liabilities. The cost approach estimates fair value based on the expected cost to replace or reproduce the asset or liability and relies on assumptions regarding the occurrence and extent of any physical, functional and/or economic obsolescence.

Recently Adopted and Issued Accounting Pronouncements

Recent accounting pronouncements which may be applicable to us are described in note 2 to our consolidated financial statements.