Good afternoon, and welcome to the Cable One Earnings Report Q2 2020 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Steven Cochran, Chief Financial Officer. Please go ahead, Mr. Cochran.

Thank you, Lexi. Good afternoon, and welcome to Cable One's second quarter 2020 earnings call. We appreciate you joining us today. Before we proceed, I would like to remind you that today's discussion may contain forward-looking statements relating to future events and expectations. You can find factors that could cause Cable One's actual results to differ materially from these projections listed in today's earnings release and in our recent SEC filings. 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. Reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be found in our earnings release or on our website at ir.cableone.net. Joining me on today's call is our President and CEO, Julia Laulis. With that, let me turn the call over to Julie.

Thank you, Steven. Good afternoon. I want to thank everyone for joining us for our second quarter earnings call. Before discussing the quarter, I want to welcome our new associates from ValueNet, an all-fiber Internet service provider operating in Kansas. This transaction closed on July 1, and we are very excited to have ValueNet join the Cable One family of brands. We will begin to see them in our financial results starting in the third quarter. In addition to ValueNet, we completed a few other investments since we last spoke with you, which Steven will highlight later in the call. Our second quarter results epitomize the resiliency of our business model, especially in the face of times of uncertainty, like we are seeing now. For the health and safety of our associates and communities, we made deliberate choices that resulted in us foregoing revenues and increasing costs. Even with those negative elements impacting results, we grew our quarter-over-quarter revenues by 14.9% and our adjusted EBITDA by 18.6%, while increasing our adjusted EBITDA margin 150 basis points to 49.7%. To meet the increased demand from new residential data customers, we focused our efforts on completing HSD-only connect for most of the second quarter. We added more than 44,000 residential HSD customers since the end of the first quarter of 2020, which excluded approximately 2,000 new customers who never paid us and are at high risk for disconnections, and our year-over-year growth increased to 23.7%. The health crisis has reinforced the need for reliable, value-priced and flexible HSD service. And we believe that, as a result of years of investment and the commitment of our associates, our business was well positioned to handle the increased demand. Meanwhile, our video losses accelerated slightly in the quarter, a trend that we recognized and adapted,…

Thank you, Julie. The second quarter of 2020 produced strong financial results. Revenue for the second quarter were $328.3 million compared to $285.7 million in the prior year quarter, representing a 14.9% increase. This increase was fueled by a residential HSD revenue increase of 23.5% and a business services revenue increase of 17.5%. Excluding Fidelity operations, total revenues increased 3.3% year-over-year. Operating expenses were $106 million or 32.3% of revenues in the second quarter compared to $95.7 million or 33.5% of revenues in the prior year quarter, a 120 basis point improvement. Selling, general and administrative expenses were $65 million or 19.8% of revenues in the second quarter compared to $60.1 million or 21% of revenues in the prior year quarter, a 120 basis point improvement as well. This includes a significant increase in our bad debt reserve in Q2 to account for non-paying customers that were committed not to disconnect as part of the FCC's Keep Americans Connected Pledge. Net income in the second quarter was $62.5 million, and net income per share on a fully diluted basis was $10.63 per share. Adjusted EBITDA was $163.2 million for the second quarter and increased 18.6% from the prior year quarter. Our adjusted EBITDA margin increased 150 basis points year-over-year, going from 48.2% to 49.7%. Capital expenditures totaled $78.7 million for the second quarter of 2020, which equates to 48.2% of adjusted EBITDA and 24% of revenues. We attributed the majority of our sequential increase in capital expenditures to labor and materials, supporting elevated HSD installation and purchases to ensure we have adequate supply chain. In the second quarter of 2020, we paid $13.6 million in dividends to shareholders. As announced earlier this week, we increased the quarterly dividend by $0.25 to $2.50 per share. From a liquidity standpoint, we raised…

[Operator Instructions] Your first question today comes from Greg Williams with Cowen. Please go ahead.

Great. Thanks for taking my questions. First one, just on ARPU. It looks like you posted solid ARPU gains across the board. I'm just trying to understand the sustainability of the ARPU strength. You mentioned a lot of customers taking faster speeds. But at the same time, on July 1, you guys changed your rate card a little bit to provide some extra data. And then my second question, you provided some good detail on the ValueNet and Hargray transactions. How should I think of them from an EBITDA perspective? Did they have similar margin profiles?

I'll jump in on the ARPU and let Steven take the ValueNet, Hargray question. You're exactly right, Greg. Our sell-in to higher levels of service, in the past, 100 meg was our standard service. That is no longer the case as we continue to sell in at higher levels. 70% or more of new customers coming on board are electing to get service at a higher than 100-meg level, and those are obviously at higher rates. Now during the Keep Americans Connected Pledge period, where it was pretty well known that we were not assessing any overage fees, so that was something that Cable One took on its own behalf as well as no disconnects, our sell-in for unlimited fell during that period, but the premium sell-in to higher tiers did not, so it continues to drive the ARPU up. Recall also that we did migrate NewWave customers on to our flex pricing and packaging, and so that was bringing NewWave's ARPU up closer to Cable One's historical ARPU. There is – shows no signs of slowing down, and I would expect that once we start having our overage fees in effect, the appeal of unlimited will go back up as well.

And then on the margin question, I mean, ValueNet, obviously, is a smaller operator, doesn't have as high as margins as we do, but they're very good for a company their size. Their margins were good. And so – and we would anticipate that, over time, with the scale and the areas where we can help them, that those margins will align nicely with Cable One's margins. On Anniston, we don't give system specific margins or even region-specific margins. But from a system standpoint, it looks a lot like the rest of the company.

Great, thank you.

Thank you.

We have reached our allocated time for the question-and-answer session. I would now like to turn the conference back over to Ms. Julie Laulis for any closing remarks.

Thank you, Lexi. Before ending the call, I would like to take a moment to welcome Sherrese Smith, the newest member of our Board of Directors. An experienced and highly regarded attorney who is very familiar with our industry, Sherrese is a valuable addition to our already exceptional Board, and we are eager to reap the benefits of her insight and acumen. In closing, I want to say thank you to each of our associates for continuing to live out our company's purpose during these turbulent times to provide communities the connectivity that riches – enriches their world is more important than ever, and I'm very grateful to be working alongside of all of you. Thank you.

Thank you, Ms. Laulis. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.