Q3 2021 WideOpenWest Inc Earnings Call
Good morning, My name is Julie and I will be your conference operator today.
At this time I would like to welcome everyone to know why don't Penn West third quarter 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you like to withdraw your question Press Star One again, thank you and your children you may begin your conference.
Thank you good morning, everyone and thank you for joining us for our third quarter 2021 earnings call.
With me today is Teresa elder Wow, 's, Chief Executive Officer, and John Rego, Welch Chief Financial Officer before.
Before we get started I would like to remind everyone that during our call. We will make some forward looking statements about our expected operating results our business strategy.
Expected effects of the recently closed transactions yourself five service areas that we announced on June 30 of 2021 and other matters related to our business.
These forward looking statements are made in reliance on the safe Harbor provisions of the Federal Securities Law.
And are subject to known and unknown risks uncertainties and other factors that may cause our actual operating results financial position or 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 we disclaim any.
To update such forward looking statements.
For additional information concerning factors that could affect our financial results or 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 FCC as 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 is not intended to be considered in isolation or as a substitute.
All information presented in accordance with GAAP.
Reconciliations between GAAP and non-GAAP metrics for Stork, all reported results can be found in our earnings releases in our trending schedules, which can be found on our website.
Now I'll turn the call over to US Chief Executive Officer Teresa Elder.
Thanks, Andrew welcome to Wow third 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.
Last week, we announced the completion of the sale of our Chicago, Evansville, and Ana Rundle surface areas too astound broadband. This follows the sale of our two Ohio service areas to Atlantic broadband, which closed on September 1st we're really pleased with how.
Quickly both transactions closed.
By the sale of these market generated one 8 billion in gross proceeds for Wow, which were used to significantly reduce our debt by approximately 1.5 billion.
Strengthening our financial position.
And better enable us to make significant greenfield investments funded by free cash flow generated by the business.
Our broadband first strategy continues to yield positive results as evidenced by another strong quarter of performance per watt.
To help you better understand our third quarter results and compare them to our historical performance, we have adjusted our trending schedule to reflect a pro forma view, which excludes the five service areas that we sold.
Furthermore, the metrics and results referenced on this call and in our accompanying presentation also exclude the service areas. We have recently divested.
In the third quarter total pro forma revenues were.
Hundred and 84 million up slightly compared to the same period last year driven by growth in high speed data revenues, which grew by 15% year over year on a pro forma basis to 100 entry point $3 million.
This growth was partially offset by the decline in video telephony revenues during the quarter.
Pro forma adjusted EBITDA increased 6% to $66 7 million in the third quarter compared to the same period last year, driven largely by the growth in our high speed data revenue.
Third quarter pro forma adjusted EBITDA margin was 36, 3%.
We continue to report both sequential and year over year improvements across all the categories shown on this slide demonstrating the strength of our core broadband business.
During the third quarter, we added 1600 high speed data argues, bringing our total number of HST RG use to over 509000.
Although we saw slower HST subscriber growth during the quarter our levels of churn remained low and we increased the total number of subscribers during the quarter.
Now that we have enhanced our balance sheet. Following the completion of the service area of divestitures. We are in a very strong position to more aggressively invest in our broadband first strategy, which we expect will result in a re acceleration of HST subscriber growth in 2022.
We will provide greater detail on these initiatives at our Investor day in December.
When competing specifically for broadband customers, our key differentiators are the strength and reliability of our network, which can deliver speeds of one gig across our footprint, our exceptional customer service, which is consistently recognized by our customers and lastly.
Our ability to deliver our service at a competitive price.
All of these are possible because of our talented and passionate people.
We have maintained our sell in rate of approximately 87% of new customers purchasing our H S. D. Only service for the fifth consecutive quarter, which we view as another great indicator of our broadband strategy and success.
When coupled with our low churn this demonstrates the value our customers see in wild service.
Not only is broadband and becoming more important.
Customers are requiring higher data speeds in the third quarter of 2021, 87% of new customers purchased speeds up 200, Meg or higher reflecting the continued demand for high speed data.
H S. The ARP, who increased to $67 70 in the third quarter, our H S. D revenue during the period included a $2 9 million previously deferred revenue excluding that revenue our H S E ARP, who would be 65 to 80 and eight.
8% increase from the same period last year.
Predominantly by customers purchasing higher data speeds.
Our edge out strategy continues to deliver growth in homes passed and RG use and increasingly positive penetration rates.
Penetration for both the 2019 and 2020 edge out vintages also increased this quarter with the 2019 vintages, increasing to 18, 8%.
From 17, 8% in the second quarter, and the 2020 vintages, increasing to 26% up from 17, 6% in the second quarter.
We are continuing to see incremental improvements and acceleration of the edge outs and expect those trends to continue.
You can especially see why we're so optimistic about our edge out strategy based on the results. We are seeing so far this year with the 2021 vintage of new homes passed.
Even though it is a relatively small sample size penetration rates of our 'twenty 'twenty. One vintages had increased to 21, 1% this year up from 15.4% at the end of the second quarter.
This is a great indicator for our core business, demonstrating the strength and opportunity for growth following the divestiture of the five markets.
To conclude I'm really excited and pleased about the continued successful execution of our broadband first strategy and the progress we've made in strengthening our financial position following the divestitures.
The success of our core broadband first business and driving high speed data is clearly evident in the continued growth of our topline and EBITDA driven by our ability to deliver fast reliable and affordable broadband products and services to new and existing.
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I look forward to giving you an update on our strategy and outlook at our Investor Day on December 9th.
Now I'll turn the call over to John who will go over our financial results in more detail.
Thanks Teresa.
We accomplished a lot in the third quarter and took significant steps towards accelerating our broadband first strategy.
We're pleased to have successfully completed the divestitures generating gross proceeds of approximately $1 8 billion.
Teresa mentioned that we've updated prior periods and are trending schedule and presentation on a pro forma basis to reflect the new well.
As we disclosed last quarter due to GAAP accounting rules. Our income statement include the required column for discontinued operations to reflect the impact of the transactions note that these figures only reflect those items that are immediately identifiable as being associated with the service areas we sold.
The revenue numbers in continuing operations exclude the full impact of the divested service areas.
Operating expenses that are part of the transaction services agreements remain in continuing operations, but are netted out in a pro forma adjusted EBITDA as the reimbursement for those expenses are included in other income.
You'll also notice that the earnings release include two definitions of adjusted EBITDA.
The first reflects the total reported figure.
Shows the pro forma adjusted EBITDA, which excludes all five of the divested service areas. We believe that this best reflects the ongoing business the trending schedule, which is available on our IR website has a third definition transaction adjusted pro forma EBITDA, which.
Which includes the estimated cost savings, we expect to realize over time as we reduce the corporate overhead.
As we go forward and incrementally rightsize the business the transaction adjusted and pro forma adjusted EBITDA will begin to converge.
Each quarter, we will provide an update on our progress.
Now, let's talk about our third quarter results in the third quarter.
Our total pro forma revenues increased to $184 million compared to the same period last year, reflecting a 15% increase in high speed data revenue.
<unk> revenue in the third quarter increased due to the addition of new customers as well as existing customers upgrading to higher speed tiers.
This was offset by declines in video and telephony, which decreased 16% and 11% respectively.
<unk> revenue included the recognition of $2 $9 million of revenue attributed to work completed during the third quarter in Dothan, Alabama as part of the connect America Fund, even though this revenue represents work over the past two years GAAP accounting rules only enable us to recognize the revenue upon the completion of the <unk>.
At work upgrade it is also not onetime in nature as we will realize approximately $390000 of HFC revenue on a quarterly basis as part of the program.
The outperformance in our HST business contributed to the growth in pro forma adjusted EBITDA in the third quarter, which increased more than 6% from the same period last year to $66 7 million with a pro forma adjusted EBITDA margin of 36, 3% up from 34, 4% in the same period last year.
Our results to date are also very strong total pro forma revenue increased 8% to $547 4 million driven by our more than 13% increase in high speed data revenue to $298 6 million.
Pro forma adjusted EBITDA grew 12% to 192 6 million with an adjusted EBIT margin of 35, 2%.
As you can see on this next slide are incremental contribution margin increase in the third quarter to 71, 8% up significantly from 66, 4% in the third quarter last year.
Consistent with the improvements we are seeing in our adjusted EBITDA and adjusted EBITDA margin.
Now I would like to spend a few minutes talking about our current debt leverage ratio and our balance sheet.
On November one we completed the second of the two transactions generating $661 million in gross proceeds from the second transaction.
Due to the tax efficiency of the transactions, we now have reduced our debt by approximately $1 $5 billion as a result of the divestitures the.
The debt reduction significantly improves our capital structure, while also creating a new well that continues to operate a robust business with numerous growth opportunities ahead of us for the first time in <unk> history at two six times, our leverage ratio was more than two turns below our historical average as a public company.
On a pro forma basis, our capex increased by $5 9 million in the third quarter.
From the same period last year, but decreased sequentially by more than 800000, primarily due to the timing of network spend we will provide an update on our capex spending expectations at our Investor day.
We ended the third quarter with total cash of $59 6 million, reflecting $30 7 million of free cash flow generation in the third quarter.
Finally.
Before we open the call for questions I'd like to talk a little bit about our upcoming Investor day, which we will be hosting on December 9th we will send out the details regarding the agenda in logistics over the coming weeks.
At the meeting we will lay out our strategy and path forward, including plans on Greenfield in edge out expansion as well as our thoughts regarding investments we plan to make to grow our commercial business within our existing footprint.
All with the strict on capital allocation profitable growth and further generation of free cash flow.
Closing, we continue to make good progress in executing our broadband first strategy building on our own momentum delivering strong results and taking steps to keep us on a promising an upward trajectory.
And now we'd like to open up the line for questions.
Okay.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question comes from Kyle Evans from Stephens. Please go ahead.
Hi, Thanks, good morning, and congrats on the new leverage profile looks good on you.
Can we maybe start out with.
Any possible reverse operating economies of scale and then on the service sales John you mentioned that.
Yeah.
Going forward I, just wonder if there's anything else that's tougher about being a smaller company going forward.
Yes, so we've talked about that when we first announced the announced the question. So we have a very highly centralized organizational structure here. So we.
Does it probably about $35 million in corporate overhead that we need to get out of the business that somebody that's easier to get out some of its a little bit more complex.
And we believe it's going to take about three years to get it fully out and so by giving these two definitions of EBITDA, Kyle well, let's just see where we're tracking we will report back every quarter.
Some of it will be easier things will be some reductions enforced harder things are getting out of software contracts or getting out of real estate contracts, but all within the window of three years. We think we could be done we think will be about a third of the way there through 2022, I think with my expectation right now.
Great and it sounded like you didn't want to talk about capex until the analyst day. So.
Al.
I'll take a turn and go to <unk>.
HST only in the 200.
Meg.
Uptake, which is both of them, 80% high 80% range are those numbers.
Want them and how could you move those upwards further thanks.
Yeah.
Okay. I'll go ahead and address that I think we're very pleased with the progress that we've made and.
Really focusing on broadband first our customers are responding well to that and that itself takes a lot of costs out of the business. Since it is a much different product to service than for example, higher video subscribers. So we're feeling good about that and we continue to have programs.
Promotions in place that I think customers are availing themselves of it.
We feel good about where the numbers are and if they go up higher we certainly are well positioned to take advantage of that but who flip the strength and reliability of our network.
Thank you.
Yeah.
Your next question comes from Frank Louthan from Raymond James. Please go ahead.
Great. Thank you can you walk us through.
The edge out.
What are you doing maybe differently now to try and continue to get traction there and how much plant can we expect you to build on it.
<unk> basis.
Number of homes passed or some other metric you can give us.
What you're going to reinvest and grow that part of the business. Thanks.
Thanks, Frank Great question and as you can see we really are focused again on edge outs and I'm really pleased with how rapidly we're growing the penetration in our most recent cohorts or vintages.
We plan to lay out on Investor day, more about the plans for the future, but what the deleveraging has really done is put us in a position to Uh huh.
Have low leverage and really focus on high growth I think the success. We've had with the recent vintages really shows how focused and we've been on making sure that we're investing in the right areas. We're also focusing more on the MDU side of things, which allows us the ability to.
I think penetrate faster too so we have a number of strategies for the future and we're excited with the position that the divestitures and deleveraging really have put us in four high growth for the future.
Yes, let me jump on that Frank I think when we look at Capex.
Let me break it into two parts and we will get more into this one December night, but if I consider base Capex, which supports the business that is naturally starting to come down and the reason that's coming down is because video cord cutting is happening.
The delivery.
And our ability now to choose how we allocate our capital a lot better than we had opportunities to before.
We'll talk a lot about in analyst day is hey, we have an opportunity now to really go out and build a ton of homes here and do a greenfield strategy or a continuation of the edge out strategy and we will take you through our thinking of that but we're going to make you wait a month, but.
I think we're in a very very different situations that we werent to give you some perspective on that I mean, because what this delivering actually means.
Cash interest expense on Holdco debt was $100 million a year and now it is not so it's going to be significantly less so that really opens up a lot of opportunities to put the capital to better use thats the plan.
Alright, great I'm sure you'll walk us through what the plants and I'll look like as well so I'll wait for that but just one last quick follow up.
What if any edp customers do you currently have in the base are you counting them towards subscriber new customers under that plan as subscribers and what are your thoughts on that program going forward.
Yeah, the emergency broadband benefit certainly has been a positive for customers who are in financial need that continue to grow within the footprint of our existing base now that we've done the divestitures in fact, it was a 60% growth. So we had about 5000 customers last quarter on the E.
<unk> plan now we're sitting at about 8000, we do not count those as new customers unless they truly are a new customers. So the vast majority of those as we've said before are really helping our existing customers.
Yes.
The ability to take advantage of that program. If they are eligible for that so that 8000, we show is predominantly existing customers and it's one of the.
Many contributors in addition to our reliable network and the value of our service on continuing to keep terminal.
As that evolves to the.
Permanent broadband benefit plan under the infrastructure Bill that I assume is going to get signed.
Any thoughts around marketing towards that customer base going forward.
Yeah, we definitely communicate with those customers and we're going to continue to look at what is in the infrastructure Bill and how we can best take advantage of that for our customers. So stay tuned with that but I think we've done a good job.
And to make customers aware of the program. If they are eligible for it and then helping them get through all the steps to sign up for the plant as well.
It's definitely been good for our customers.
Okay, great. Thank you.
Your next question comes from Dan <unk> from B Riley Securities. Please go ahead.
Yeah. Good morning, guys. Appreciate you taking my questions here, so obviously shifting to growth year stage.
Understanding.
Plan is to provide more detail on the Investor day in a couple of weeks, but just in general.
Should investors be thinking about this business is something that can support both capital returns and this edge out flash Greenfield expansion and growth opportunity for the next call it 123 years or.
Do you see this more as the expansion opportunities eating up most of the free cash flow for the foreseeable future.
Okay.
I think we're in just an amazing position after the divestiture because we have now very low leverage and we plan to keep it at.
Relatively low level.
At least for the industry and certainly historically for where we have been as a company. This will allow us to fund growth capital for edge outs, and importantly for greenfield through the existing operations of the business.
We are quite excited about that and yes, you're right. We do plan to lay up more on that kind of Investor day, John is there anything else you'd like to add.
No I mean, the company just prior to the divestitures started moving into sort of continued.
<unk>.
Free cash flow generation that Hasnt changed in fact that gets a little bit better now that will be.
Wow and yes, we are going to we are going to fund whatever expansions, we want to do to the network from our free cash flow generation, but I think if you. If you follow along with me and again December 9th isn't that far away.
Yes.
We will have a lot of opportunities and we'll be having to make real decisions on how we want to allocate our capital I think we're going to be fine. So the answer the long winded answer is yes, there'll be opportunities to do other things with the capital.
Got it thanks, guys and then just leverage ratio longer term like youre going to be well.
Below your peers in terms of the leverage profile.
Do you see that as sort of the right leverage longer term are you willing to lever up even a bit more from 83 times or something or I guess, how are you thinking about that issue.
Yes.
With free cash flow or incremental debt.
Yes, so I mean I think this.
And it is rewarding after having been so levered to get it down to two six times.
And for an infrastructure company Thats, probably too low to be honest with you, but we're a smaller infrastructure company. So my my perception is I don't see us getting ever above three five turns.
And Teresa joined grew at six five turns when I jewelry, a five five turns and it was literally sort of choking the business. So we wanted to keep the one to keep her proper balance there. So there is.
There is opportunities.
So no I don't think it's two six forever and if real opportunities for investment present themselves and then we will take a look but always with an eye towards.
I think three five times is probably a good number for us.
Yeah.
Yes, great Eric I was looking forward to the Investor Day, I'll turn it over is luck.
Your next question comes from Brandon <unk> with Keybanc capital markets. Please go ahead.
Awesome. Thank you two questions.
Can you talk about the HST subscriber trajectory, thus far into the fourth quarter last year, you added I think 2.2, K, but you mentioned a slowdown so I'm trying to understand what expectations should be into the fourth quarter.
Second on the new market expansion through edge outs have you gotten to the point, where you ramped back to sort of full capacity what is that capacity should we be thinking about.
New home passed in terms of like the 2019 and.
And what should we be thinking about in terms of the cost per home passed.
Thanks, Brandon So taking your first question about the HSV subscribers in that trajectory.
I really need to say there is that the fundamentals of the business are just stronger than ever what we're still seeing though is that we are in a dynamic and are often difficult to forecast environment still because of the pandemic.
As I had said last quarter I'd really I had hoped to see that we have a strong back to school season, but that really didn't come back in Q3 with that said, though as I mentioned, we did have.
And customers that we were able to move on to the emergency broadband benefit a few new ones, but mostly existing and we did see a number of other areas of some green shoots there are some positives as we start to see small business and some of the commercial activity improve so we're seeing some things that look good and then some things that are taking a little bit long.
Gert than previously.
I look forward to the rest of the quarter I think it's.
We still are looking at 2019 as a reasonable approximate for this year, but we'll see what happens I can tell you that we are.
Still seeing low churn and still feeling very good about the plans that we have in place.
I look forward to.
The new market expansion, we will continue to look at capital allocation and how we did things up between edge outs, which we define as an extension adjacent to our existing network and Greenfield, which are not adjacent and really entering into new markets and.
Going to be able to share more about what our plans are again on December 9th so sorry to keep them.
Pushing the questions to them, but I think that's when we'll be able to share more about what kind of momentum and what kind of capacity, we have for the future, but clearly the deleveraging has been transformative for this business and we will be able to really focus on growth and we'll be very clear and transparent.
With you as we always are and what we're looking for in the future.
If I could just follow up quickly you mentioned sure.
Sort of more like 2019 could you just square, where what was the fourth quarter of 2019 in terms of the HFC net additions.
Yeah, I was just really thinking about the full year number on that and of course, we did or we publish a trending schedule that goes back I think for 2019, we just put in the full year number on that.
So.
Well, we'll see what it looks like for fourth quarter.
Fair enough. Thank you.
Full year number was just over 13000.
Okay.
Your next question comes from Betty L. Lindsey from UBS. Please go ahead.
Thank you can you talk a little bit about the competitive environment.
HFC footprint since the beginning of the year with herds, many telcos looking to build fiber and fixed wireless access are ramping up as we all are you seeing any indication for maybe competition picking up.
Couple of follow ups, the 35 million corporate overhead is that fully loaded or should we expect.
Another increase now that the deal close and if it could you remind us how much I know Atlas left thank you.
Yeah, why don't I take the first one and then turn it over to John to the second question. So thank you Bob.
On the first side in terms of competition every day, we compete against some of the best in the business and absolutely can hold our own and continue to grow our HFC net adds and grow our subscriber base, while keeping churn low and that nothing has changed on that yes in this quarter at all.
We have a relatively small overlap with fiber subscribers from other companies and I think that is because of the dynamics of us being an overbuild or into these markets and already creating a competitive position for the the bigger operators fix.
Fixed wireless we've really not seen them.
Having much of an impact at all on our competitive framework.
So we continue to just stay true to what we know we're good at and that is providing a choice.
With the speed and reliability the value that we provide the ease of doing business and our customer centric legacy. So those things continue to resonate with customers.
The pandemic and really beyond.
John did you want to address the corporate overhead the overhead bought so that's fully loaded $35 million is the number we will start cutting some of that before the end of this year. We just closed on November one so you'll see us take a couple of million out in 2021.
With another big chunk coming out over the course of next year 2022.
The reason we provided that.
If you go to the trending schedules that other definition of EBITDA transaction adjusted sort of shows you. What we looked like had it been out on day, one that's aspirational, but we plan each quarterly earnings call from this point forward will track along with you. So you guys know where we are in actually pulling the cost out of the business again some of it's relatively easy to do.
It's more complex anything tied to like contractual relationships that we can't get out if we're going to take a little bit more time.
But I think youll see that I think also another benchmark I'm looking at is.
How quickly does it take us to get to the Q2 2021 EBITDA margin exit rate.
At least to know when do we get back to where we started from so that's another way to look at it.
By the way was 45% EBITDA margin.
So we can also grow out of this as well, but the intention is to cut the full 35 and to grow.
Got it.
And you still have about $200 million up I know I left is that right.
Yes, we have over 200 over $200 million. It was a $225 million of NOL because think about the NOL is in there was.
There's all these strange 380, twos and thoroughly rule limitations is that much of that NOL is really cool.
We'll be fully fully usable and specific to the southeast properties that we maintain so yes, we have a we have that and.
Even though we will be generating EBITDA and generating cash flow, we will still be generating some more nols going forward. It's just the nature of an infrastructure business. So yes.
Thank you.
Your next question comes from Matthew Harrigan from Benchmark. Please go ahead.
Oh, Thank you Susan.
The market of a company misses their broadband number by very slight amount you basically have a meltdown in stocks and it was not nearly commensurate with janssen on pricing and clearly you're getting more utility to the consumer 25, 30% usage increases.
Nielsen's law.
We call it kind of empirical law and nobody really talks about pricing.
Power longer term could you give us your sense of them out there, particularly given the advent of more competition and then secondly.
A little more clarity at the FCC I think a lot of people probably welcome Jessica Rose in Warsaw.
Officially the head, but then you've got <unk> zone, who.
Is it kind of a gadfly and could probably make a lot of noise that could upset the market maybe not quite as badly after the results last last Tuesday, but maybe enough too.
People's Canadians, so kind of moving on from the blocking and tackling questions I thought I'd toss it to your more conceptual things in there. Thank you.
Thanks, Matthew so on the HFC pricing question.
Clearly, we always had rates that are competitive.
Not a bit more value based than our competitors out there.
What you've seen though is that our ARP, who has continued to rise in our overall HST revenue rose by 15% so significant growth.
What we're seeing is that customers really are using the service. So they are buying higher speed.
And they are buying ancillary products, such as whole home Wi Fi, our whole business Wi Fi and other services that we offer which continues to contribute to ARPA. So we look at the overall relationship with the customer I think.
We also are had launched usage based billing as you know we trialed it back in Chicago, which was one of the markets that we.
Previously sold but we are starting to roll it out in a couple of other markets, where the competitive dynamics makes sense to do that and that is also a contributor to the pricing strategy, while still giving customers a great value compared to competitors in the marketplace. So I think we try to be very smart.
Savvy with always making sure we're giving customers good value, while also not leaving money on the table.
Regarding the FCC.
We.
Of course.
Work with the FCC closely.
They are a regulator and we will just see what happens with the new leadership there we work.
Our own regulatory group, but also with our industry associations like the <unk>.
On Ta to really work with them on policies that hopefully.
You can make the most sense for industry, while balancing the demands of consumers.
Probably won't say much more about that at this point.
Absolutely.
To pile on but do you think the broadband sustained pricing, maybe a couple of hundred basis points better than the pace of inflation or is it probably just I know nobody has a crystal ball, but is that kind of your your instinct on that or.
A little hard to say.
Well I mean, what we're selling is not static customers' usage continues to change and increase so I I think customers are paying for that increase in usage that they have the value that they're seeing from the product. So.
We were able to continue to take advantage of that and I guess, we'll see what happens we always want to be competitive and providing good value to our customers. So I think we've done a good job of really looking at the analytics and seeing what's appropriate moving forward. So we're.
Very pro customer, but also like I said, making sure we don't leave any money on the table either.
Thanks, and congratulations on the deals in the numbers.
Thanks Nancy.
Hey, Dan if you like to ask a question press Star one on your telephone keypad and your next question comes from Grant Jasmine Zhou from Credit Suisse. Please go ahead.
Hey, good morning, guys.
First I was wondering if there are any factors that are different in the 2020 in 2021 agile vintages versus 2019 that you think might explain some of the difference in penetration Blake.
Are those barrels inside of different competitors or good morning to use where single family or some other factor.
And then second I have a model question. So the Leverages is already at $2 six X at at September 30, which is nearly the two and a half level that was mentioned with the sales were announce without receiving the us down proceeds yet so will you be well below the two and a half level at year end. After those proceeds are received or is there an offsetting use of.
Cash in the fourth quarter, we should be thinking about thanks. So let me let me do that one quickly for you. So yes, there's going to be an offsetting use of cash so I'm going to be parking on the balance sheet.
Excuse me a couple of hundred million dollars of cash that's going to be used to make those tax payments.
When you look at when you look at when you look at it on.
On adjusted basis, when we post the next set of figures. It will look like we're like two times Levered, we're really not so we're going to adjust that for you. So you can see it will exit at around two six times.
So thats the right number.
And Youll see the full youll see the full pay down of where we are on the debt, but to take the mystery out of it I think our debt right now it's been roughly about $735 million.
Gross debt.
Post the pay downs that we've made.
Yeah.
Okay and then on.
The second the other part of the question about the edge out from what might be different in 2019 as many of those homes passed were delivered in the third and fourth quarter. We generally we would have seen a real focus on field sales and our other tactics in the first and second quarter.
<unk> 2020 to really drive that penetration similarly, with the 2020 edge outs those that were delivered in the second and third quarter. We would have really had a focus on driving penetration earlier, that's right when the pandemic hit and for the safety of our people, we and I think with the comfort of consumers as well.
We really took a lot of people out of the field and used other tactics and that didn't drive penetration quite as quickly as what we're seeing with the 2021.
So it's less about I think the demographics or any nature of necessarily those edge outs, it's really I think that just the wave.
Our tactics and how we had to adjust them.
Pre vaccine and in the earlier days of the pandemic that we're continuing to see those grow.
On average, though 60% of the homes passed net adds since 2020 also I just wanted to point out are coming from the retained properties. So new Wow. So the focus has really been on the properties that we are keeping and.
Really seeing the pickup rate and the penetration across all the vintages.
Also in 2020 in 2021, we did invest a bit less so there are smaller numbers, but we feel like we've been very precise and focused on some areas that made a lot of sense for us. So that's I think a bigger issue on why the penetration rates are a bit different.
Okay, great. Thanks, so much and looking forward to the analyst day and Exxon.
Great. Thanks.
And there are no further question at this time I will turn the call back over to Theresa for closing remarks.
Well. Thank you all so much for joining us and thank you for your continued interest and support of Wow. We really are looking forward to speaking with many of you in the coming weeks and at our Investor Day on December 9th have a great day.
This concludes today's conference call you may now disconnect.
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