Q2 2021 WideOpenWest Inc Earnings Call
[music].
Thank you.
Good day, and thank you for standing by.
Welcome to wide open Wests second quarter, 2021 earnings call.
At this time all participants are in a listen only mode for the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star 1 on your telephone.
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I'd now like behind the conference over to your Speaker today, Mr. Andrew Posen, Vice President of Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us for our second quarter 2021 earnings call with me today is Teresa Elder Wow, Chief Financial Chief Executive Officer, and John Rego Wireless Chief Financial Officer before we get started I'd like to remind everyone that during our call. We will make some forward looking statements about <unk>.
Our expected operating results our business strategy.
<unk> net effects of the pending transactions to sell 5 services that we announced on June 30 of 2021 and other matters relating to our business.
These forward looking statements are made in reliance on the safe Harbor provisions of the federal Securities laws and are subject to known and unknown risks uncertainties and other factors that may cause our actual operating results financial position for performance to be materially different from those expressed or implied in our forward looking statements.
You are cautioned not to place undue reliance on such forward looking statements.
Disclaim any obligation to update such forward looking statements for additional information concerning factors that could affect our financial results for cause actual results to differ materially from our forward looking statements.
Please refer to our filings with the SEC, including the risk factors section of our form 10-K filed with the SEC.
Well as the forward looking statements section of our press release. In addition, please note that on today's call and in the press release, we issued this morning, we may refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors the presentation of this information.
Not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
Reconciliations between GAAP and non-GAAP metrics for our historical reported results can be found in our earnings release, and our trending schedules, which can be found on our website now I'll turn the call over to our Chief Executive Officer Teresa Elder.
Thanks, Andrew welcome to low second quarter earnings call.
In addition to our press release and quarterly trending schedule that are available on the Investor Relations page on our website.
We have also included a presentation to complement our prepared remarks.
Wow delivered great second quarter results.
<unk>, our seventh consecutive quarter of record high speed data revenue continued growth in our adjusted EBITDA and EBITDA margin and a significant increase in our free cash flow.
I think ended the quarter, we reached agreements to sell 5 surface areas in 2 transactions valued at approximately 1.8 billion debt. We believe will deliver significant benefits to our company and shareholders by enhancing our overall financial strength and flexibility.
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In the second quarter total revenue increased nearly 2% from the same period last year to $287 million.
The increase was driven by our high speed data business, where revenues grew by 14% year over year to $202.156 million more than offsetting the decline in video and telephony revenue during the quarter.
And driving adjusted EBITDA to $118 million up more than 16% from the same period last year.
Not only are we executing on our strategy and growing our business our employees continue to recognize wow as a great place to work.
Once again, we have been named 1 of the best and brightest companies to work for in Atlanta, Chicago and Detroit. Our employees are 1 of our main differentiators that enable us to provide exceptional customer service.
All of these achievements highlight of successful first half of 'twenty, 'twenty, 1 and underscore the strength and future prospects of our broadband first growth strategy.
The following statistics demonstrate our execution during the second quarter of the year.
With all of the charge selling both year over year and sequential improvement.
During the second quarter, we added 3400 high speed data argues brings.
Bringing our total number of HSBC argues to over 826000.
The number of net adds while showing growth was slightly below our expectations for the quarter, reflecting lighter than expected connects.
However, we are still positive about our outlook for the year as we continue to benefit from historically low levels of churn.
We did not see as significant of an improvement in our growth from our commercial business.
<unk> are still.
Not yet back to pre COVID-19 level.
We are beginning to see improvement there as more businesses cautiously reopen.
The Federal E. D D program, which launched mid May has seen strong adoption with more than 7800 customers participating year to date.
The program of has predominantly resulted in existing wild customers upgrading to higher data speed rather than on attracting new customers.
H S. D. R. <unk> increased in the second quarter do once again, primarily to customers purchasing higher data speed.
HST RP was $63.20 up from 50.710 for nearly 11% versus the same period last year.
During the second quarter, all piece statistics continue to trend upward as we grew our total number of subscribers again this quarter highlighting the consistency of our historically low churn.
Another great indicator for the success of our broadband first strategy is that we have maintained a high selling rate of 87 per cent of new subscribers purchasing of our HST only services.
And not only of broadband and becoming more important but customers are requiring higher data speeds in.
In the second quarter of 2021.
89% of new customers purchased speed of 200, Meg or higher which increased for the third quarter in a row Richard.
Collecting the underlying growth in demand for high speed data.
Our edge out strategy continues to deliver growth in homes passed and our view and is delivering increasingly positive penetration rate.
Penetration for both the 2019 and 2020 edge out vintages increased again this quarter with of 2019 vintages, increasing to 17, 9% up from 17, 3% last quarter.
And the 2000, twenty's vintages, increasing to $19.5 per cent.
From 17, 7% last quarter.
We're continuing to see incremental improvement and acceleration of edge out and expect those trends to continue in the back half of this year.
And lastly, before I hand, the call over to John I would like to go into some detail about the 2 transactions, we announced at the end of June.
I'll focus on reiterating the benefits, we expect the transactions to deliver for our business and our shareholders.
As we highlighted when we announced the transaction.
The divestitures will generate gross proceeds of approximately 1.8 billion at an implied combined multiple of 11 times adjusted EBITDA.
These transactions continue what we have done over the company's history strategically buying and selling markets and our business.
They also highlight the tremendous value and attractiveness of our service areas and provide us with increased financial capacity and enhanced flexibility to expand our position as a trusted provider of fast reliable and affordable broadband products and services.
While also creating significant shareholder value.
The divestitures represent a significant step towards strengthening while balance sheet and providing the capital to support our strategic growth.
We expect to use the proceeds to reduce our debt and continue to invest in our broadband first strategy.
The investment will support increasing penetration through and out of.
As well as building out our infrastructure in Greenfield markets.
Our advanced IP based network enables us to enter new less competitive non adjacent markets and deliver both broadband and <unk>.
And our I P TV services, while TV plus or other streaming alternatives.
Through the fiber to the home technology.
These greenfield opportunities in addition to edge up a low while to bring on fast and reliable services to new customers.
We are working towards completing the transaction before the end of the year.
We have also began to restructure our sales and product organizations to reflect the fact that upon completion of these transactions.
He will be a smaller company.
Accordingly, we have moved our sales organization to our chief customer experience Officer, Santana and our product organization to our Chief Technology Officer Henry Berkowitz.
We believe this is an important initial step towards increasing the efficiency of our structure.
Better aligning it with the future size and strategic focus of the post transaction low as a result of this change our chief commercial officer role was eliminated.
To conclude I'm excited about the continued execution of our broadband first strategy and our continued progress in strengthening our financial position.
I'm also pleased with our success in driving topline gross and EBITDA, while delivering fast reliable and affordable broadband products and services to our customers and opportunities for employees now.
Now I'll turn the call over to John who will go over our financial results in more detail.
Well thanks Teresa.
This quarter, we made good progress on growing our business as our strong HFC revenues and adjusted EBITDA are up significantly year over year, pushing on adjusted EBITDA margins of 41% in the quarter.
In addition for the 2 transactions that we announced at the end of the quarter will lower our leverage ratio to approximately 2 and a half times of clothing and provides us with significant added flexibility to enhance our broadband for strategy.
Before I talk for more about the transactions I'd like to review our second quarter results.
Due to GAAP accounting rules, you will notice that our income statement now include the required column for discontinued operations to reflect the impact will be announced transactions. It's important to point out that these figures only reflects those items that are specifically identifiable as being associated with the surface areas being fooled.
And that's exclusive of relevant corporate overhead.
The numbers associated with discontinued operations will continue to evolve as we work towards closing the transactions.
And 2 of the respective deals close we will continue to speak only to the figures as they represent the financials for the business that we continue to manage.
In the second quarter total revenues increased nearly 2% for $287.3 million, reflecting a 4% increase in high speed data revenue offset by declines in video and telephony, which decreased 11% and 12% respectively.
The growth in HST revenue reflects the addition of new customers as well as existing customers upgrading to higher speed tiers.
Performance on our HFC business contributed to our higher EBITDA in the second quarter, which increased more than 16% on the same period last year 2 of them other than $17.8 million with an adjusted EBITDA margin of 41 per cent.
Also a significant improvement from the same period last year.
Our results through the first half of the year on also very strong total revenue increased 1.3 per cent to $573.6 million driven by of nearly 13% increase in high speed data revenue of $309.1 million.
Adjusted EBITDA grew nearly 15% for $230.2 million with an adjusted EBITDA margin of 41%.
As you can see on this next slide on incremental contribution margin sort of significant increase during the second quarter to its highest level ever nearly 70% up from 67% last quarter and 64% kind of the second quarter last year.
With the improvements that we're seeing on our adjusted EBITDA and EBITDA margin.
In the second quarter, our Capex decreased by $1 million from the same period last year and by more than $3.1 million. Some of the first quarter, primarily due to lower CPE and the benefit of customers taking advantage of self installation.
Excluding the potential impact of of transactions. We continue to expect our full year capex to be consistent with or slightly lower than last year.
We ended the second quarter with total free cash flow of $41.4 million, reflecting $23.1 million of free cash flow in the second quarter.
With regards to liquidity and leverage we had $23.3 million of cash on hand, and organically lowered our leverage ratio to 4 times 8 times as of June 30.
We're very pleased with our ability to bring our leverage ratio of below 5 times of organic.
But we've been very clear over the past year that we need to get our leverage more in line with our peers.
We're committed to increasing our free cash flow.
The transactions that we announced in June represent a significant step towards achieving those objectives.
For the closing of these transactions, we expect high.
On leverage ratio to be approximately 2 and a half times calculated off of a significantly lower level of net debt.
The transactions will vastly improve our capital structure, while also creating a new well.
To operate a robust business with numerous growth opportunities before it.
Following the completion of the divestitures, we will continue to operating 14th service areas in Alabama, Florida, Georgia, Michigan, South Carolina and Tennessee.
Excluding the 5 surface area to be sold as of June 30th on financial model remains strong.
On an estimated pro forma basis for the trailing 12 months total revenues and high speed data revenues would've been approximately 733, 6 and $381 million respectively.
Growth rates of 2% and 12% respectively.
The adjusted EBITDA would have been approximately $297 million with an adjusted EBITDA margin of 45 per cent.
The year over year of growth rates are consistent with the trailing 12 months figures without taking into account some of the transaction.
And finally before we open the call for questions I'd like to talk about guidance for the remainder of the year.
Due to significant scope of the transactions that we announced and their impact on our business going forward as well as the precise timing for completing each of them, we've decided not to provide guidance for the remainder of this year.
We have significant momentum on our broadband for strategy and continue to expect growth on our HFC revenue and our adjusted EBITDA.
After we close the transactions, which we expect will occur before year end, we will host an investor day, where we will provide an update on our strategy and financial model.
Moving on I'd like to reiterate that we are executing our broadband for strategy building on our momentum and delivering strong results and taking steps to keep us on a promising an upward trajectory and.
And now we'd like to open up the line for questions.
Thank you.
As a reminder to ask a question. Please press star 1 on your telephone keeping debate you on your question perhaps for balance sheet.
Please stand by all of our re compiled of gaining roster.
Okay.
Your first question comes from Kyle Evans from Stephens Your line of children.
Thanks.
Rental gross margin growth.
If we kind of run.
On.
I think for double digit adjusted growth.
No.
Okay.
Where do you think that debt.
Margin could go overtime.
A follow up question.
1 of 'twenty of jobs look like they are dramatically outpacing for 2019 vintage without getting into specifics around cities of neighborhoods could you just talk qualitatively about the differences between the 2 thanks.
For the first 1 for Richard I think of the incremental contribution.
Easily will get to.
<unk> 80 for 80 plus percent number and I think we can get through the next 3 years, perhaps of 80% to 83% incremental contribution it shows up on my own modeling, but the reality is debt high speed data is on 97 ish percent gross margin product.
In video as you know of sub 20%. So it's literally just of flipping.
Of the whole thing so I feel very very comfortable about that and we already sort of massive.
That's a improvement in just of course of 12 months that we sort of really been into the ATM.
Yeah.
I'll go ahead and answer the second question. Thanks, Kyle on the adds.
Outside of just that we built last year as you recall, we backed off a little bit just because of the pandemic, we had to stay a little closer to home. So a lot of the 'twenty 'twenty edge out we're filling in in areas, where there were new homes being built in for MDU, That's where I was kind of a very close and are surrounded by areas where wound up.
Isn't it.
So it was really when you think of X.
Close extension of our existing plants and I think we had the name recognition on the discipline of great job penetrating the market. So we feel good about the return we're getting on both the 19 out of the 20 adds up but yes. Please proceed.
Edge outs that we're doing this.
This year of doing well.
Thank you.
Your next question comes from Brandon Nashville from Keybanc capital markets Your line Sir.
Okay, great. Thank you for taking my questions could you guys talk about the subscriber growth and remain co versus the assets that are being sold particularly on the ease of speed side.
Hum.
And then can you talk more about the restructuring for sales force work in selling general and administrative expenses go relative.
And of $5 million you guys reported for the remaining for us.
Yeah.
First of all I'd say certainly on the.
On that so.
When we look at remain co.
And we will again will be on analyst day.
Some of the fourth quarter buildup of remain kind of at least a couple of them Firstly, we'll be better penetrators for zinc.
Okay.
And of prospective growth rate of historical growth rates.
That's.
A little bit higher than that of the overall company.
That is it just a bit to do with the with what their real estate and the location of where is it worth it.
So we.
We should be looking out towards higher penetrated well, we should be looking for that.
Gross.
Because of that nature.
Yeah.
Thanks, Brandon and I will talk about the second 1 around the sales force. So I like we said when we announced the transaction we want to make sure that our corporate expenses are in line on a proportionate basis with the new size of Wow, and therefore made the difficult decision.
Can we do them once the level in our business. Fortunately, we had a good price for the sales organization to go in the capable hands.
Who now has all of the customer experience touch points within his organization and.
And Don has also a long history of running sales organizations for many business. He's been a part of I think in terms of the sales expenses and marketing expenses and all of that that will be part of what we talked about at the Investor Day is we will give you a pass.
Fast forward for the remainder.
So I can just call up for a minute.
Historically, you guys of offshore at a lot of your customer call Center.
And the services of course is that something that you are looking at bringing sure. Thanks.
Thanks.
Oh, yes, we have a mix of onshore as well as some offshore operations and more pleased with how that's working.
Right now, we don't have plans to shift that substantially.
Thanks for taking the question.
Mhm.
Your next question comes from Frank Louthan for Raymond James Your line is open.
Great. Thank you.
On the guide just to clarify quickly any reason to believe there's anything changing in the operations materially different for us.
This center.
Debt, we bite at lightning speed.
And then you mentioned on the.
I appreciate on optical.
Walk us for that and what would be driving that I would assume it would be additional broadband growth, but could you clarify kind of what you are.
Your thoughts on how how much more you could you could grow that business with a little bit more financial flexibility.
Sure. So I think the trajectory of remaining so is the same if not slightly better than let's call. It of holdco for the moment.
With the with the guidance, though the complexity is a lot closer to 1 of them quickly to transactions.
Quite frankly, they're going to close on.
That might close in different quarters. So it really starts to get typical of what what are you looking at so it seem to be most prudent to.
Kill the guys, but again as we said on the call today, we expect the trajectory of the company to be pretty much the same.
If not a little bit better because we'll be more of more and more penetrated.
So that's the first part of ICR.
Okay, Great and then any thoughts on future future expansion and broadband and so yes.
I'm, sorry, so yes.
As a woman of time, when we calculate the level for 2 of them.
My expectation would be debt, we will keep leverage.
Low threes for the high to the debt.
And what are we going to do on maybe expectation of 1 of the reasons why we did this with vs..2.
Clearly to deliver for us.
So for sure.
But it gives us the opportunity for pursue growth opportunities.
All of it today about group for us.
Speaking of about.
So there's always get adjusted as a growth opportunity. So we'll be able to take advantage of the approval of those parts of it.
So on the gross that being said.
No expectation of that whatsoever that will ever be 5 times levered again, so it was simple.
High lifetime, So we will keep leverage again best of low threes and.
Right now as you know.
2 of them until the.
They've got a little bit of it.
That's good.
Okay.
Always good alright, thank you very much.
I'd also just like to add on in addition to the edge out from a greenfield, we still see opportunity for growth within our organic footprint as well both on our commercial business as well as and for some residential high organic footprint.
Alright.
Alright, great. Thank you.
Thank you Frank.
Yeah.
Your next question comes from Danielle <unk> from B Riley Securities Your line of children.
Yeah. Good morning, guys. Thanks for taking my question. So just on the topic of of Greenfield of expansion.
Think about that.
Sort of look at the infrastructure bills floating around in Washington.
It's clearly a lot of support for kind of subsidized subsidized build out on it.
Non preferred area for us.
Do you think about Greenfield you kind of want to stay on.
Sort of for suburban markets or are you kind of look at that day that companies interested in our in force.
Imagine something like the southeastern Michigan.
Keeping to venture out a little bit might qualify for some of those so just.
I was wondering your thoughts on that.
Yeah. Thanks for the question Danielle, we're really evaluating our criteria for a market. We may answer really looking at opportunity for us to bring the very valuable high speed as been pricing to markets that really haven't had the chance to avail themselves of those sort of place.
Places, where there are less.
<unk>, certainly so that could be a consideration.
But also that has a great return for our investors. So I will probably talk more about that sort of playing with Easter, but certainly we're looking at all of the opportunity for us there's a lot of great opportunities out there.
Great. Thanks, Teresa and then just.
CPE in the quarter the tax change of Super low a really good job there anything in particular on driving Mendes things supply chain related that you've had.
Are you concerned getting PPE pilot of table anything.
Anything you are doing the same kind of thing.
Jeremy.
Yes of CPE.
I'm sorry to be so.
We got a little bit of head on CPE last quarter. Secondly, CP included in that type of healing.
Also of the capitalized portion of an installation and now that many customers are taking the self installation that number is going to start to trickle down for sure.
Yeah.
And there haven't been any particular supply supply chain issue. So it's really just for China, but my expectation is over time.
Should see CPE continues to sort of trend down.
Okay.
Got it got it okay guys. Thank you for taking my questions are sort of it.
Your next question comes from that County line from UBS. Your line is open.
Great. Thank you.
Can you talk a little bit more about sort of high speed data.
For the quarter I think you mentioned 70 high 7800 E b be parts of friction how many were new to the company.
A bit more color on the flow.
How is that that's page 2 of the quarter. Thank you.
Yeah, Thanks, Bob Yeah.
In terms of all of the BBB.
Vast majority of those were existing customers that perhaps I was a little optimistic but more of them would be new but I think across the industry. We've all all of the operators have done a really good job, making sure that the E. D. B program has been in place for subscribers, who can qualify to avail themselves of that so I'm proud of.
We've done as an industry, but that said it definitely was not an opportunity for a lot of new acquisition. So across the board I think we've seen a tick.
Low churn, which is fantastic for our industry, but we did see some trends in commercial we were optimistic that the business is would bounce back a little faster than they have but the economy is really starting to open up more but we've seen some business as delays in decision, making and data.
Just be a little bit slower than what we had optimistically hope with that.
Very good for seasonal trends that we traditionally see in our business are starting to come back, especially things like back to school and so we're looking forward to a great second half.
Great. Thank you.
Your next question comes from Matthew Harrigan benchmark for life.
Thank you I was going to ask developed block.
Perfect.
Significant debt.
The other day too.
And anything for them.
Finally stopped HST net adds number and yet very strong revenue instead of like the dog gross I Wonder if you could maybe just for us on.
On the first part of that understanding of the year over year accomplished was tough and it's difficult to forecast for the COVID-19 impacts, but just if there's anything more can say about why that HST add number was kind of on the light side, maybe it was just that but then on the flip side.
Given the strong revenue on earnings performance, you know how much more upside might there'd be too.
Things like upgrading on customers to hire tears.
[noise] pricing power that you may have there is that does that of trend. We can look forward to.
Yeah I'll take the first part and then can go for get down for the second part.
I'm Gonna put the agent the net adds for the first half of of the year of really in perspective, we've been 13400 that here and if you go back to 2019, we really this year have done more than double on the triple what we did in 2019 and I think 2019.
Like a little low it would be for we he pivoted to broadband first and 2020 with certainly high with the on slot of the pandemic as well and really with mm mm Greater Gaskill, we launched are of broadband for it.
Bigger way, so I realized with the concert difficult, but I feel good about the H S. D. Net adds that when you packed up here and good about our pizza prospect and I I'm also pleased that we're doing that.
Great HFC revenue day and for member discount on if he wants to add something for about.
I mean, I think we we we we will continue to see the agency or proof of increased it's not just people peering up [noise].
And it was people purchasing until the services. So 2 for hold on Wifi solution on other services that we will probably be added to the product lineup over.
Over the next several of quarter show don't really see that changing anytime she there hasn't been any significant price action.
Action on Asia piece of much of this as of the cheering up and people just kind of right sizing I think people are going to continue to cheer up you know of streaming becomes more and more.
Of an option for folks of just gonna want just gonna want the greater bandwidth coming in so I think it's a positive trend for instead of isn't going to change anytime soon.
Great that only on.
Oh of course.
Yeah. So instead of just to add him. We also of course feller of mess network hold on Wifi product, which has a very they're selling right and we talked for lunch been version fixed on Wifi would you like it even higher speed wi-fi throughout the home. So I think all of those things are really making a difference.
Yeah, no. They don't make sense I just thought of interesting the the the actual some number of vs. The revenue growth number and I I might've missed it did you give or have you given can you give a kind of a number of what what proportion of your of your H S. G. Subs are on of 1 gig type of level.
No we don't usually get that happened on the chart for the 11 hour. We did show how many are 200, Megan of Bob and I can tell you that that proportion keeps rising and certainly a lot of customer of our agents about 501 gig level I think of it you know.
No significant share of of the new customers coming in.
Okay. Thanks, a lot.
Mhm.
There's no for a great question of this time I would now like to turn the cold ever cause of T V. 's held it for a close in common.
[noise]. Thank you so much for joining us this morning, and thank you for your continued interest and support of Wow. We look forward to speaking with many of you in the coming weeks have a great day.
Basically today's conference call. Thank you for participating he may not understand.
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