Q1 2024 Cable One Inc Earnings Call

Participants

Jordan Morkert

Julia M. Laulis; Chairwoman, President & CEO; Cable One, Inc.

Todd M. Koetje; CFO; Cable One, Inc.

Brandon Lee Nispel; Research Analyst; KeyBanc Capital Markets Inc., Research Division

Frank Garrett Louthan; MD of Equity Research; Raymond James & Associates, Inc., Research Division

Gregory Bradford Williams; Director; TD Cowen, Research Division

Kohulan Paramaguru; Analyst of Telecom Operators; BNP Paribas Exane, Research Division

Sebastiano Carmine Petti; Analyst; JPMorgan Chase & Co, Research Division

Steven Lee Cahall; Senior Analyst; Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cable One First Quarter 2024 Earnings Conference Call. (Operator Instructions).
I would now like to turn the conference over to Vice President of Investor Relations, Jordan Morkert. Please go ahead.

Jordan Morkert

Good afternoon, and welcome to Cable One's First Quarter 2024 Earnings Call. We're glad to have you join us as we review our results.
Before we proceed, I would like to remind you that today's discussion contains forward-looking statements relating to future events that involve risks and uncertainties, including statements regarding future customer growth changes in ARPU, financial performance, capital allocation, dividend policy, leverage ratios and financing plans.
You can find factors that could cause Cable One's actual results to differ materially from the forward-looking statements discussed during today's call and today's earnings release and in our SEC filings, including our annual report on Form 10-K. Cable One is under no obligation and expressly disclaims any obligation, except as required by law, to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.
Additionally, today's remarks will include a discussion of certain financial measures that are not presented in conformity with U.S. generally accepted accounting principles or GAAP. When we refer to free cash flow during today's call, we mean adjusted EBITDA less capital expenditures as defined in our earnings release. Reconciliations of non-GAAP financial as discussed on this call to the most directly comparable GAAP measures can be found in our earnings release on our website at ir.cableone.net.
Joining me on today's call is our President and CEO, Julie Laulis; and Todd Koetje, our CFO. With that, let me turn the call over to Julie.

Julia M. Laulis

Thank you, Jordan, and good afternoon, everyone. We appreciate you joining us for today's call. Our first quarter results reflect continued momentum in residential broadband customer growth, sustained free cash flow growth and the early proof of our focused efforts aimed at attracting a new cohort of customers. The initial results of this approach lead us to believe that we are on the right strategic path to create additional value in the future.
Today, before turning the call over to Todd for a full review of our financial performance, I'm going to touch on 3 main topics. One, I'll discuss residential broadband growth, both our historical approach and the current marketplace as well as factors influencing our near-term performance that lay the foundation for sustained long-term growth. Two, our network, which serves as a fundamental driver of our growth and efficiency not only today, but as a cornerstone of our future success. And three, the continued strong performance of our investment partnerships, including Mega Broadband.
First, residential broadband service. Our past strategy focusing on high lifetime value customers enabled us to streamline operations and marketing efforts leading to tremendous growth of HSD revenues, EBITDA and free cash flow by attracting a higher ARPU customer, albeit at a lower overall penetration level. We are now navigating a marketplace characterized by low move activity, the emergence of new fixed wireless competitors targeting value-conscious customers, a segment we had not previously targeted and a rise in additional fiber competitors in select markets.
Growth is essential for any successful business. At CABO, we are using multiple levers to help us achieve it. Unlike most of our peers, Cable One grew its residential subscriber base this quarter, adding approximately 6,900 new customers sequentially. Since the fall of 2023, our focus on expanding market penetration has yielded tangible results, even at mixed increasing competition. Our approach has led to both an increase in connects, and a further reduction in churn, demonstrating not only our resilience against competitive pressures, but also high levels of customer satisfaction.
Moreover, our substantial network capacity and growing percentage of self-installations allow us to onboard these new customers more efficiently and profitably.
Our competitive strategy extends beyond price. For example, as we deploy our wall-to-wall WiFi solution across our footprint, we gained substantial insight into our customers' end-to-end service experience. Based on these insights, our internal engineers developed a platform that enables us to monitor external network interference, power levels and other potential technical concerns allowing us to proactively identify and address potential issues or necessary enhancements.
This capability to assess problematic areas empowered us to target our efforts prioritizing our resources where they'll have the greatest positive impact on customer experience. By responding aggressively to certain competitors and retooling our go-to-market approaches to protect our customer base and attract new value customer segments, we have grown customers for 8 straight months and vented customer growth trends in our favor in some of our most competitive markets. We are encouraged by these results, and now with this work behind us, our sites are set on trialing different tactics defending against new competitors on an as-needed basis.
We believe that expanding our market share and growing customers ultimately sets us up for positive financial performance over the long term. While ARPU this quarter declined as expected, we believe this decline will ameliorate as we round the corner on the activities I just described. We are confident in our trajectory moving forward.
Now shifting to our network, I'll delve into our ability to deliver the next generation of speed and service offerings alongside our ongoing investments to enhance service delivery. We are proud to have invested more than $1 billion in our network infrastructure just over the last 3 years. These investments allow us to not only meet but to anticipate and exceed our customers' evolving needs for superior reliability and performance. This strategic focus includes enhancing reliability within homes and across individual devices with a large majority of customer issues occur regardless of whether the service is delivered via fiber or HFC. As a result, we have seen a notable improvement in customer satisfaction.
We continue to invest in our network so that we can roll out DOCSIS 4.0 and 10 gigabit speed offerings and stay well ahead of the customer data demand which continues to grow at an extraordinary rate. In fact, our customers' monthly average usage has more than tripled in the prior years. Despite this growth, our network maintained a stable utilization rate of around 20% for both downstream and upstream traffic during peak hours this quarter.
This proactive investment mindset to build excess network capacity positions us to optimize capital spending, supporting both superior net performance and sustained free cash flow growth.
Over the past year, we've been directing investments into software platforms that serve as catalysts for digital transformation. These platforms are reshaping our operations and enhancing the customer experience by enabling advanced automation and making our service delivery more efficient. One such example is the consolidation of our current billing technology onto a single platform. Work is currently underway on this significant milestone, and we plan to have it completed within the next 12 months. This will streamline operations for associates and customers while expediting product launches and enabling us to go to market as one Sparklight brand. This process will also allow us to retire more than 30 disparate software platforms across our brands, drastically simplifying our technological infrastructure which we expect to result in several million dollars of annual savings.
Turning to our investment partnerships. Today, we posted some additional information regarding the companies we have invested in on our Investor Relations website. The aggregate fourth quarter annualized 2023 adjusted EBITDA of select companies in our investment portfolio was $613 million. This represents growth 24% when compared to annualized fourth quarter 2022 adjusted EBITDA of these companies. Additionally, these companies collectively grew broadband subscribers by 11% and added over the 330,000 new fiber passings during 2023. Continuing this positive trend into the first quarter, their total number of residential and business data customers increased by roughly 20,600 or 2.5% sequentially. It's important to note that these figures do not include the operations of Metronet in which our investment is relatively small. This performance underscores the effective execution by the seasoned management teams we chose to partner with and why we believe in the substantial value and potential future growth of these companies.
We are also asked about the future of our investment in Mega Broadband Investments, also known as MBI and the potential for us to acquire the remaining 55% stake in the company. Let me explain why we believe MBI is a great partner for us. First, they are performing well financially with annualized Q4 2023 revenues of approximately $320 million and a double-digit EBITDA growth rate when comparing LQA Q4 2022 to LQA Q4 2023, thanks in part to continued growth in both broadband customers and ARPU. They also have a loyal customer base of approximately 230,000 residential and business broadband customers in a network that covers about 665,000 passings as of December 31, 2023. Finally, and very importantly, we have a strong management team that shares our vision and value.
If we do acquire the remaining stake in MBI, we are confident in our ability to efficiently integrate them, gaining cost and tax efficiencies. Our active participation on their board coupled with a robust network and a shared culture of delivering high-quality service to customers underpins this confidence. In sum, we continue to value MBI for all the reasons that first drew us to them. Their strong growth and less competitive rural market, impressive potential for future growth and exceptional leadership team.
To sum up, our performance in the first quarter of 2024 aligns with our long-term objectives, reflecting residential broadband customer growth and the benefits of past capital investments we have made in our network, allowing us to continue to generate strong free cash flow. With condition in our strategic direction and the capability of our team, we are poised to sustain this momentum and realize our objectives for the remainder of this year. Looking ahead, we are focused on leveraging these achievements to drive sustainable EBITDA and revenue growth over the long term.
And now, Todd, who will provide a recap of our first quarter financial performance.

Todd M. Koetje

Thanks, Julie. Starting off with revenues. For the first quarter of 2024, our total revenues were $404.3 million compared to $421.9 million in the first quarter of 2023. This decline is primarily driven by losses in video subscribers as we continue to navigate the final phase of our video product life cycle. Year-over-year, residential video revenues decreased to $9.9 million or 14.1%.
Residential data revenues decreased $6.9 million or 2.8% year-over-year, driven by a 2.7% decrease in average revenue per unit. However, as Julie noted, residential data subscribers grew by 6,900 sequentially, expanding on the growth experienced in the fourth quarter of last year.
On the business services side, starting this quarter, we are now breaking out data revenues separately given this product's very different growth profile as compared to business video and voice services. For the first quarter of 2024, business data revenues grew by over $2 million or 3.7% compared to Q1 of 2023. Operating expenses were $106.5 million or 26.3% of revenues in the first quarter of 2024 compared to $112.2 million or 26.6% of revenues in the prior year quarter, a 30 basis point improvement driven largely by a $9.2 million decrease in programming costs.
Selling, general and administrative expenses were $90.4 million for the first quarter of 2024 compared to $86.7 million in the prior year quarter. SG&A as a percentage of revenue was 22.4% for Q1 of 2024 compared to 20.6% for Q1 of 2023, with the increase driven by additional investments in marketing to attract the new value segments and platform enhancements facilitating digital transformation.
Net income was $47.3 million for the first quarter of 2024 compared to $57.4 million in the first quarter of 2023. The prior year quarter benefited from a $12.3 million noncash mark-to-market gain on one of our equity investments. Adjusted EBITDA was $217.1 million for Q1 2024, representing a 53.7% margin compared to $228.8 million, a 54.2% margin in the year-ago quarter as residential data subscriber growth was outpaced by continued attrition in our video business, a decrease in residential data ARPU and the aforementioned incremental costs associated with long-term investments in customer growth platforms.
Capital expenditures of $65.9 million in Q1 were $30.2 million or 31.4% lower than in Q1 of last year. During the quarter, we invested $15.9 million of CapEx for new expansion projects and $4.4 million for integration activities. The reduced level of capital expenditures during Q1 was largely due to the execution of our working capital optimization initiatives and a continued benefit associated with prior proactive investments in our network architecture. We continue to expect total CapEx for the year to trend towards below $300 million for the full year. Adjusted EBITDA less capital expenditures increased $18.5 million or 13.9% to $151.2 million in the first quarter of 2024. We will continuously assess the optimal allocation of the significant cash flow generated by our business, maintaining a highly disciplined commitment to long-term investment strategies and conservative financial management.
Our focus remains in 4 key areas: enhancing network and platform infrastructure, capitalizing on organic growth opportunities within our existing markets strategic inorganic growth strategies, both investments and through acquisitions and a diversified capital return strategy, which predominantly entails regular dividends, disciplined debt repayment and opportunistic share repurchases. In Q1, we distributed $16.8 million in dividends to shareholders and repaid $54.8 million of debt of which $50 million represented a voluntary repayments on our outstanding revolver balance. As of March 31, we had approximately $211 million of cash and cash equivalents on hand. Our debt balance was approximately $3.6 billion, consisting of approximately $1.8 billion in term loans, $920 million in convertible notes, $650 million unsecured notes, $288 million of revolver borrowings and $5 million of finance lease liabilities.
We also had $712 million available for additional borrowings under our $1 billion committed revolving credit facility as of March 31. Earlier this week, we voluntarily repaid an additional $50 million of debt under our revolving credit facility, continuing our commitment to disciplined debt reduction. Our weighted average cost of debt for the first quarter of 2024 was 4.25%. Our net leverage ratio on a last quarter annualized basis was 3.9x and the large majority of our borrowings are either fixed issuance or have been synthetically fixed at underlying base rates that are approximately half of the prevailing floating rates.
Additionally, the nearest final maturity for any of our debt instruments are $575 million of 0.0% convertible notes does not occur until 2026.
We are confident in our ability to maintain our leverage within a target range of 2.5 to 4.5x, should we acquire MBI via the put option. Additionally, given the available capacity under our revolving credit agreement, the consistent free cash flow generation from both companies and the portability of existing MBI credit facilities, we believe that we are well prepared to potentially complete the transaction without accessing the market for additional incremental capital. However, we will remain opportunistic in evaluating attractive windows in the capital markets.
Before we open the floor to questions, I'd like to share an update on the affordable connectivity program, ACP. Despite the requirement to stop adding new ACP customers after February 7 due to the programs wind down, we achieved growth in overall residential broadband subscribers each month this quarter. It's important to note that among our roughly 48,000 ACP subscribers approximately 20% are fully dependent on ACP funding for their service plans. Although we anticipate some customer losses, this transition also offers an opportunity to attract new customers.
With that, we are now ready for questions.

Question and Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Sebastiano Petti with JPMorgan.

Sebastiano Carmine Petti

If I could just ask a quick perhaps housekeeping question, Julie, on your comments about believing that ARPU declines will ameliorate once you kind of -- once you turn the corner. Is that implied as you kind of lap the 4Q kind of impact? Are you trying to be explicit in your timing there of that? I apologize for the question there.
And then just relatedly, on the residential broadband ARPU, how should we be thinking about the dilutive impacts of the new strategy and what that could mean on broadband ARPU as we trend over the course of the year? Obviously, eventually, we'll rebound here. But any risk, perhaps you're thinking about to the back book and then I think you did also make a comment in your prepared remarks that you may be in a position to, I think, test new offers or try to go after new competitors or trialing new offers? Any other additional color around that would be helpful as well.

Julia M. Laulis

Okay. That was a mouthful. I'm going to see if I can get your question answered in order. So ARPU to defines amelioration. What I'm referring to there is, in the fall of '23, we -- you -- well, let's step back even a little bit further. In past, we, I think, have been well known for going after a high lifetime value customer. And that resulted in a lower penetration than our peers, but a higher ARPU than our peers overall. The business environment is a lot different now with less moves and new competitors, both wired and wireless.
And so in the fall of '23, we made a move to go aggressively against certain competitors and retool our go-to-market -- go-to-market approaches to different customer segments, basically, all customer segments versus just concentrating on high LTV value. And there are a lot of reasons for that. I mean, firstly, you have to have customers in order to have a business, but also there are ways to bring in a similar margin or value from value-conscious customers in today's day and age with different platforms and tools, machine learning, et cetera, et cetera.
So we responded decisively against competition in the fall, and we began trialing and experimenting with many different pros and retention efforts. And our ARPU dropped, but we also learned which tactics work and which ones didn't. And I think we feel really good that we have grown in the face of increasing competition in our marketplace. And we are seeing growth in all segments as we define them. That is to say, even in our highly competitive markets, we are winning against DSL, we're winning against fiber. We are winning against big fiber against independent fiber.
If the growth is [the EPs] that gives us confidence.
Now in terms of the ARPU, I think of this maybe simplistically about like a person walking across the seesaw and you're trying not to have it tilt one way or the other, but we knew we were going to cause that tilt in ARPU. And the only thing that I don't -- that I think we need to titrate is that we take our learnings and put them to use now. Now we know what works and what to do.
So in Q4 and Q1, you saw the results of the things that I just talked about. Now we know more, we know better and we're going to do better. I think we have a lot of puts and takes going on in ARPU. If you look year-over-year, the largest ARPU drop is attributable to competitive pressure responses in a few systems. But offsetting that was a positive impact of customers migrating to higher tiers. They're still doing that. Customers are choosing. They are choosing their own volition to take higher speed packages. Now that was blunted by us taking some items that we charged for previously, like usage-based billing, or unlimited data going away. But I feel good about that because those items are high-value items for higher ARPU price overall. So we think that positions us well for the future.
Then you, things like rate card adjustments, rate increases, if you will. And that's also a positive impact year-over-year. But it's being offset, again, year-over-year by promos and value-conscious rates. But those things, both of those things can become positives over time. This is about the setup for the future. Promos roll off and you can adjust prices. So hopefully, that gives you a little color on ARPU.
In terms of trialing for the future, what I'm saying is we're not done with anything that we're doing. We're going to continue to experiment and innovate. And it's actually one of the things I'm most proud of the group about is having a more agile mindset and responding much more quickly and open-mindedly about things that are worth trying in order to ultimately deliver the best products, the best price, the best experience for our customers.

Operator

Your next question comes from the line of Brandon Nispel with KeyBanc Capital Markets.

Brandon Lee Nispel

I'm going to ask one along the same line. Julie, the way that I sort of thought about what you guys are doing from a go-to-market perspective? Is there's sort of an economic curve between ARPUs and penetration? And so in a hypothetical scenario where your ARPUs are -- you allow them to go down to $70 to $75 a month. What should investors expect your penetration rates to be. And then you had mentioned, you're growing subs for 8 months in a row. Are you seeing those trends start to accelerate from some of the go-to-market efforts that you're making?

Julia M. Laulis

Accelerate, yes, the first quarter was stronger than the fourth quarter in the -- let's say the thing about that is that it was because of connects and churn. So people have been talking about churn for a while now, and our churn is super low. And it's dropped in half in some of the most highly competitive marketplaces, let's say, what we're doing is working.
So what else is talking I'm about? Oh yes, the connects. They are up, depending on where you're talking about because again, our systems are not monolithic. They're all over the place. But anywhere from single-digit to double-digit increases in Connects happened during the first quarter. And honestly, we haven't seen connect activity like that since 2020. So yes, on the acceleration.
Let's see what else you asked about, penetration rate, and I don't think we say exactly where we think we're going to end up, but I think it would be reasonable to suggest that somewhere around where you see the other guys, the other big guys hanging is reasonable. Not exactly the same because our market demographics are a little bit different, but similar.

Todd M. Koetje

Hi, Brandon. This is Todd, as we've shared about in the past and discuss broadly at 35% now versus many of the peer group in the high 40s, low 50s, getting that extra percentage point of penetration is going to be much more achievable. For us, especially with some of these new tactics and strategies, closing that gap completely is not what we have talked about.

Julia M. Laulis

Right. Similar.

Brandon Lee Nispel

Yes. Sure. So I guess, again, the question is if you expect to close the gap, at what ARPU level do you expect to be at when you are closing the gap?

Julia M. Laulis

Well, I think that's a great question. I mean, again, if we use the seesaw analogy, while our penetration is going up and our ARPUs tilting down, their ARPU is going up, all their penetration is tilting down. And somewhere, we're all going to meet. You can tell me where you think that is. I think it's for any of us to guess.

Todd M. Koetje

Recall also that our ARPU that we're looking at is a data-only ARPU for the vast majority of everything you look at. So important element to think about as you look at comparing the benchmarks, if you will.

Julia M. Laulis

But I think what we're trying to suggest without giving too much leading guidance because none of us has a crystal ball but we've taken some big steps and we expect to see the ARPU slide ameliorate.

Operator

Your next question will come from the line of Greg Williams with TD Cowen.

Gregory Bradford Williams

I'll take the subscriber question another way, too. So you mentioned you're poised for sustained momentum here. So you're the only cable company that provide positive subs this quarter. So have we reached a steady state, you think now of positive subscriber growth, absent [ACP] next quarter?
And second question is on EBITDA. Todd, can you remind me if there's any first quarter seasonal impacts and how much they were? And you mentioned the OpEx cost for systems and platforms and you're retiring 30 different systems. Can you give us a some help on how much that would cost sort of upfront and then when you realize these millions in savings that you alluded to, when will that realization occur?

Julia M. Laulis

Sustained momentum. It certainly feels like it. But quite honestly, my hope is that our team is thinking the way, the cable team usually thinks which is about continuous improvement and betting that has the agile mindset and more trialing like -- we have found things that work that have we not tried yet. So I do think we have great momentum going forward. As you mentioned, (inaudible), I wouldn't put a cap on it, yes.

Todd M. Koetje

And Greg, as it relates to seasonality question on EBITDA, I wouldn't look at that as something that would be a meaningful impact to Q1. I think you appropriately asked about the investments in these long-term platforms and the cost of those investments as we've discussed now for a couple of quarters, those costs are going to impact in 2024 as it relates to both OpEx and some SG&A, but these are long-term investments and overall efficiencies in terms of how we deliver the product, how we support the product, how we create a better customer experience and how we create a better associate experience. And we referred to several millions of dollars in our prepared remarks on the back end of that. And there is an investment and investment that we think is critical to make this year.

Julia M. Laulis

And that was related to just the billing platform implementation.

Operator

Your next question will come from the line of Frank Louthan with Raymond James.

Frank Garrett Louthan

Great. As you've been growing those customers, can you give us a sense, is that coming from improving the gross adds or is it a little bit of less affection or how should we think about that? And we can kind of back into the math, but if you want to give us some color on what the range of the multiples are with the put for MBI?

Julia M. Laulis

Frank, it's Julie. We grew customers by increasing connects and reducing churn. Again, we -- depending on where you're talking about, all connects increase anywhere from high single digits to mid-double digits, the likes of which we haven't seen since 2020 and churn is at all-time lows. Especially in markets where we responded strongly to competition.

Todd M. Koetje

And then Frank, on the MBI front, I guess, Julie added definitely some additional commentary in her remarks. I supplemented that in my remarks. I would say the most important thing as it relates to that is, its performance trends are extremely impressive. Where it is from a network perspective is highly aligned with us where it is from a leadership and cultural perspective, checks every box that we look at as it relates to ongoing investments in partners, both investments as well as acquisitions. And we are very mindful of maintaining a very conservative balance sheet approach, both from a leverage perimeter and also how we think about funding prospective transactions like that. And I think you heard me mention that we see a path to where we do not have to go to the capital markets to affect that transaction, given all the proactive planning that we've been doing now for the last 2 years.

Operator

Your next question will come from the line of Steven Cahall with Wells Fargo.

Steven Lee Cahall

I wanted to maybe come at the subscriber trends from a slightly different direction. So I understand your strategy of targeting more of the value-conscious consumer, and thank you for talking through that a bit and the implications on ARPU going forward. I think the bit that I'm trying to understand is that it looked like residential data revenue was down sequentially about 3%. It was down, I think, year-on-year, about 3% as well. I think a lot of that has to do with the competition that you're facing and seeing lower ARPU on existing subs despite all those other trends. So because it's such a high gross margin business, how do we think about when your residential revenue for broadband might start to stabilize versus continuing to decline?
And then as a follow-up, Todd, I was wondering if you mentioned how many net adds you had in Q1 from ACP, I think you mentioned you were adding subs up until April. So just curious if that was a meaningful number.

Todd M. Koetje

I can let Julie maybe go about the value-conscious customers, then I can address the ACP.

Julia M. Laulis

Yes, right. So residential data revenue was down because of the ARPU decline. And the ARPU decline was driven by the pieces that I went through earlier. The largest piece of that being the competitive pressure response in a few systems. And then things like the migrations, which are positive to revenue being blunted by us adding in things that used to cost extra like usage-based billing and unlimited data, as well as rate card adjustments, which are, again, positive to revenue, but being offset by more promos and the value-conscious rates. That's just a small piece, the value-conscious rate of the overall ARPU decline.
I don't know -- I think your question was when do you think residential revenues will stabilize? We haven't given guidance about -- and we never ever since being public, have we given guidance about where we think revenue or adjusted EBITDA will go. We had it that we are going to have a positive free cash flow year. And I will say that I believe that everything that we're doing right now sets us up for positive revenue and adjusted EBITDA growth in the future. ACP, we only did ACP installs until February 7.

Todd M. Koetje

Yes. That's exactly right, Steven. February 7 was the day that we were mandated to stop, and we had basically started to pull on that already before that point in time. And so the comment around every single month of this quarter was a positive subscriber add on a net basis was included after February 7. So we didn't break down what was ACP net adds for January and the first 7 days of February, but suffice to say, we weren't really impressing on something that we already knew was going to be going away.

Julia M. Laulis

Well, and even if I exclude any ACP customers that came in, in the first quarter, our connects were up substantially. So they're not on the back of ACP. My guess would be, and it would only be a guess because I can't quantify it, is that the connects are likely coming from competitors like, we're getting connects that normally might go to fixed wireless, as we're focusing on that segment which is the value-conscious segment.

Operator

(Operator Instructions). And your next question will come from the line of Kohulan Paramaguru with BNP Paribas.

Kohulan Paramaguru

I've got 2 questions. Firstly, on the ARPU. Can you give us a little bit more color on what ARPU those growth adds are actually coming in on? If we do some rough math, it indicates if these offers are the reason for the ARPU decline, it would imply sort of a sub-$50 ARPU. Just trying to think about if this is value accretive to the business or how should we think about this in the long run? And secondly, around MBI, does your comment around not necessarily needing to come to the capital markets for the deal, include an assumed drawdown on the RCF?

Todd M. Koetje

Yes. Good questions. I'll address both. Julie can jump in on the ARPU and the value accretive side of the equation. It's a great question as you're selling in at a lower price point to a new customer, one of the critical things to assess is how long-term accretive is that customer. And when you have 80% capacity in your network because of the way that we've invested in our network, and you have organizational capacity, many of these customers coming in markets that we already served with that network, the way that we can deliver the product from a cost to install Julie referred to in her prepared remarks around self-installs as well as the way that we can support that product and that customer with a lot lower CPX, the value-accretive nature of that new customer, even at those lower price points, even if they never upgraded is accretive.
And then you've got to look at the fact that over time, that is a customer that is likely to upgrade as both self-intentioned price upgrades as well as where we can potentially see some of these promo prices roll off that Julie alluded to. But that's a critical part of that because customers for the sake of having customers has never been part of our strategy.
The other element you asked about related to MBI is, yes, what we have committed in terms of our $1 billion credit facility, what we generate from free cash flow, what MBI has committed that does not necessitate any change of control if it were to come into CABO and their free cash flow is what informs my remarks. Is that helpful?

Kohulan Paramaguru

Yes. Thank you.

Operator

We have no further questions at this time. I'll turn the call back over to Julie Laulis for closing remarks.

Julia M. Laulis

Thank you, Regina. As we wrap up today's call, I want to focus on what truly powers our success at Cable One, and that is the dedication and hard work of our people. While today's discussion centered on topics that our shareholders are frequently acquired about, it's important to remember that it's our associates who turn these plans into reality. They are indeed our most valuable asset. So to each of our team members, thank you for your relentless effort and commitment. Additionally, for those interested, Todd and Jordan will represent Cable One later this month at the upcoming JPMorgan conference in Boston, and we all know how much fun they are, so come and see them. Thanks and speak to you again next quarter.

Operator

That does conclude today's call. We thank you all for joining. You may now disconnect.