Q4 2021 WideOpenWest Inc Earnings Call
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Good morning, My name is Chris and I'll be your conference operator today at this time I would like to welcome everyone to the wide open west fourth quarter 2021 earnings 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.
To withdraw your question. Please press star one again.
Thank you Andrew Posen, Vice President head of Investor Relations you may begin.
Good morning, everyone and thank you for joining us for our fourth quarter 2021 earnings call with me today is Teresa elder Wow, 's Chief Executive Officer.
And John Rego, whilst Chief Financial Officer.
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 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.
We will position our performance to be materially different from those expressed or implied in our forward looking statements.
Cautioned not to place undue reliance on such forward looking statements.
We disclaim any obligation 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 SEC 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 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 for the financial information presented in accordance with GAAP.
Conciliations between GAAP and non-GAAP metrics for our historical reported results can be found in our earnings releases and our trending schedules, which can be found on our website now I'll turn the call over to <unk>, Chief Executive Officer Teresa Elder.
Thanks, Andrew welcome to Wows fourth quarter earnings call.
In addition to our press release and quarterly trending schedules that are available on the Investor Relations page on our website. We've also included a presentation to complement our prepared remarks.
This past year has been one of the most consequential years in our company's history and we finished the year with strong results driven by further strength in our high speed data business.
We sold five surface areas at a combined multiple of 11 times used the proceeds to significantly lower debt and leverage ratio received ratings upgrades from both S&P and Moody's and we refinanced our debt.
In addition to strengthening our financial position. We also made substantial operational improvements in our business that added to our already strong customer experience.
The number of self installs continues to grow we further improved the way we serve customers and enhance the overall efficiency of our business with the successful consolidation of our billing systems into one system clearly we accomplished a lot this year.
Now, let's dive into the results.
The full year, our high speed data revenue, which is now 55% of our total revenue increased more than 11% on a pro forma basis offsetting a 13% decline in video and a 12% drop in telephony revenue from last year.
Our full year pro forma adjusted EBITDA increased nearly 9% to 261 6 million driven largely by the growth in our high margin high speed data business.
The pro forma adjusted EBITDA margin was 36% for the year.
The metrics in our high speed data business also continued to show strength.
During the fourth quarter, we added 2200 high speed data or do you use up 37% from the last quarter, bringing our total number of HST RG used to nearly 512000 with consistent levels of low churn, we once again increase.
The total number of subscribers to 533000.
We have maintained our sell in rate.
Approximately 87% or slightly higher of new customers purchasing our HST only service for the sixth consecutive quarter, which we view as another great indicator of our broadband first strategies long term success.
Whether it's the growing number of connected devices.
Increased streaming of video and gaming.
Or working remotely the importance of broadband and access to our high quality network continues to increase.
As a result customers are requiring higher data speeds.
In the fourth quarter of 2021 once again, 87% of new customers purchased speeds of 200, Meg or higher.
With a majority of those buying speeds above 500 Meg.
Just the <unk> of $65.60.
Kris 2.5% from the same period last year and was in line with the third quarter's H F. D. R. Two adjusting for the $2 9 million of deferred revenue that was included in last quarter's revenue.
The year over year increase in H S. D <unk> predominantly reflects customers purchasing higher data speeds.
Our edge out strategy continues to deliver growth in homes passed and increasing penetration rates penetration for the 2019 vintage increased to 19, 6%.
The 2020 binge remains solid at 26% and the 2021 vintage increase to 30% this quarter.
We are especially pleased about the growth of our 2021 vintage which continues to show strength as we increase the number of homes passed and increased penetration.
This is a great indicator for our core business, demonstrating the opportunities for growth and highlighting our ability to grow penetration quickly in future Greenfield markets.
Over the past few years, we have transformed our strategy launching broadband first to meet customer demand and grow our margins and this past year, we transformed our financial position by divesting five surface areas generating $1 8 billion of gross.
Proceeds, which we used to significantly lower debt and delever the business.
At our Investor Day in December we presented our strategy for growth including detail.
Plan to increase the number of homes passed with our significantly lower leverage we're now able to grow our footprint in non adjacent greenfield markets that have less competitive intensity and we're able to do this with proceeds from operations without having to re lever the business.
A few weeks ago, we all know that Seminole County, Florida will be our first greenfield market expansion.
This morning, we announced our second Greenfield market in Orange County, Florida, where we will be investing approximately $40 million over the next few years and plan to reach more than 40000 homes passed combined these two investments in central Florida represents an exciting step forward for <unk>.
Now as we expand in new non adjacent Greenfield markets, bringing our advanced multi gig fiber technology and award winning customer service to approximately 100000, new homes across our growing footprint.
This week, we also announced a new partnership with reach mobile to offer customers the option to add wireless service with wild broadband, which will be branded while mobile powered by reach this represents our entrance into the mobile market, providing our broadband customers additional.
The ability to stay connected on the go through a reliable no contract cell phone plan with unlimited talk and text.
As I said at the very beginning of the call.
We accomplished so much this year.
Our focus and commitment of our employees to our customers was particularly evident which is why I am so proud of the accolades that we received in recognition of that.
In 2021, we were named one of the best no contract Internet service providers by CNET.
And the best and brightest companies to work for in the nation as well as in Atlanta, Chicago, Denver and Detroit.
To conclude I am so pleased with the continued execution of our broadband first strategy and the progress we've made in strengthening our financial position. Following the divestitures, we have been doing the hard work of transforming the company and executing our strategy we.
We now have set the stage for our future as a low leverage high growth company through self funding Greenfield builds edge outs and further driving penetration in our organic footprint for both residential and commercial customers.
We are able to win through our people were built the wildly gassy of customer Centricity.
Wow is a challenger, we're better positioned than ever before reflecting on our ability.
To deliver fast.
Reliable and affordable broadband products and services to new and existing customers.
Now I'll turn the call over to John who will go over our financial results in more detail John .
Thanks Teresa.
Well, we've talked about transformation than our broadband first strategy a lot this year and we really follow through.
In 2021, the majority of our revenues were from high speed data at 55%.
This directly translates to the margin improvement that we continue to report.
We've completed the sale of five service areas added 11 times, multiple allowing us to de risk our balance sheet and close on a new software based credit facility.
Now, let's look at the fourth quarter and full year results.
As mentioned on the prior quarter's earnings call, we've updated our trending schedule and presentation on a pro forma basis to reflect the new well.
As a reminder, due to GAAP accounting rules. Our income statement includes a required column for discontinued operations to reflect the impact of the transactions.
Look at these figures only reflect those items that are immediately identifiable as being associated with the service areas that we sold.
The revenue numbers in continuing ops exclude the full impact of the divested service areas operating expenses that are part of the transaction services agreement remain in continuing operations, but are netted out in pro forma adjusted EBITDA as the reimbursement for those expenses are included in other income.
In the fourth quarter, our total pro forma revenues decreased four 7% to $178 3 million compared to the same period last year.
<unk> revenue increased five 1% to $105 million in the quarter, partially offsetting the decline in video and telephony revenues, which declined $15 four and 11, 1% respectively.
The outperformance in our HFC business as well as realized cost savings contributed to the growth in pro forma adjusted EBITDA margin in the fourth quarter, which increased more than 170 basis points from the same period last year to 38, 7% on a pro forma adjusted EBITDA of $69 million.
On a full year basis total pro forma revenues were $725 7 million down slightly from prior year's revenue of $730 2 million.
The mix shift in our revenue continue throughout the year as growth in HST was up 11, 2% from last year offsetting the reduction in our video and telephony revenue down, 13% and 12, 1% respectively.
The growth in <unk> revenue is attributed to several things, including the increase in <unk>.
Collecting customers demand for higher speed tiers through upgrades and saelens, coupled with further group in HST RG use which increased by 12900 <unk> this past year.
Slightly below 2019, which we believe is the right comparison.
Our incremental contribution margin increased in the fourth quarter to 73, 4% up significantly from 68, 2% in the fourth quarter last year.
This is consistent with the improvements we are seeing in our pro forma adjusted EBITDA margin.
Following the divestiture of the <unk> service areas, we committed to aligning our cost structure to be commensurate with the new Wow.
As of year end, we have cut $5 $5 million out of the business, which represents approximately 15% of the $35 million, we identified to be reduced over the next few years.
These reductions in our cost base are primarily from a decrease in head count which is evident in SG&A as well as costs that are being incurred as services related to the TSA is as part of our divestitures.
That are also reflected in our SG&A as we continue to incur the expense, but are reimbursed for those costs, which represented in other income.
On an annualized basis, we are well on track to realize 2022 as expected cost savings.
Now I'd like to spend a few minutes talking about our current debt leverage ratio and balance sheet.
On November one we completed the second of two divestiture transactions and subsequently received credit rating upgrades from both Moody's and S&P, reflecting our lower debt level in December we refinanced our debt closing on a new credit facility and tightening our cost of capital by 75 basis points.
We ended the quarter with total cash of $193 2 million and total outstanding debt of $752 7 million, resulting in a pro forma leverage ratio of two seven times adjusting for cash held for taxes related to the transaction.
On a pro forma basis, we reported fourth quarter total capital spend of $36 1 million and total annual capital spend of $162 3 million down $9 1 million from last year, Consequently, improving our total capital efficiency by one 1%.
The improvement is primarily due to decreased spend of CPE previously pulled into 2021 and preparation for supply chain delays offset by investments made in our network.
Additionally, including this morning's press release regarding Orange County, Florida, We have now announced two Greenfield markets Seminole County, Florida.
We plan to invest at least $60 million over the next two to three years in Orange County, Florida, where we plan to invest at least $40 million over the same period.
Combined we will be bringing our advanced fiber technology to more than 100000 homes. This puts us well on our way to the target of 200000 homes. We expect that these initiatives will drive our expansion capex for the year to approximately $80 million, which is slightly higher than our expected annual average that we presented at our Investor day.
In total <unk>.
<unk> into consideration the additional expansion Capex, we anticipate that our total capex for 2022 will be approximately $215 million.
We're excited to be able to make these investments directly from the cash generated by the business.
If you look at the right side of the slide.
We've included a new metric unlevered adjusted free cash flow, which we define as pro forma adjusted EBITDA less capex from continuing operations.
This year's fourth quarter results of $32 9 million reflect an increase of $13 8 million up significantly from $19 1 million in the same period last year. We believe this metric presents cash generated by the ongoing business and provides a clearer comparison to prior periods. We will continue to use this metric throughout the year as a proxy for <unk>.
Free cash flow.
Finally, before we open the call for questions I'd like to talk about guidance.
Last summer we removed our guidance following the divestiture of the five service areas.
Now we have provided pro forma historical statistics in financials and presented our strategy at our Investor Day in December I would like to reintroduce guidance and provide our outlook for both the upcoming quarter and the full year.
For the first quarter, we expect HFC revenue to be between 99, and 102 million total revenue to be between 171 and $174 million and adjusted EBITDA to be between 65 and $68 million. We also expect HFC net additions to be between 20 320 700.
For the full year, we expect <unk> revenue to be between 427% and $430 million total revenue to be between 708 and $711 million.
And adjusted EBITDA to be between 281 and $284 million, we expect to add between 14017 thousand HFC RG use for the year with the majority coming in the back half of the year.
Our guidance across all of these metrics is in line with our long term targets, we presented in December at our Investor day in.
In closing, we're thrilled about the upcoming year and the growth ahead as we continue to make good progress in executing our broadband first strategy building on our momentum and delivering strong results and now we'd like to open up the line for questions.
Yes.
As a reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Your first question is from Frank Louthan with Raymond James Your line is open.
Great. Thank you very much.
For taking the question.
Just wanted to <unk>.
You mentioned the the additional capex that goes into the the investments can you characterize any opex that youre going to make for the Greenfield investments and then can you comment on the wireless announced that you made earlier this week what sort of penetration do you think you can get ultimately out of that product. Thank you.
Great. So what are the rank.
I'll go ahead, and I ask John to answer the part about Capex and Opex and then I'll take the wireless.
Yes, so the Capex Frank is that is coming in this year's growth capex of $80 million, but remember the growth Capex also includes the edge add activity and commercial activity.
So it's not just greenfield the Greenfield Capex will probably start to really come into play towards the back half of the year.
As well in terms of the Opex question that you asked.
Theres not a significant amount of Opex. That's created at this phase will be a bit as we get towards the back end of the year a bit of incremental marketing expense as we go into areas, where well might be not well known as we iron ore in our service areas. So.
Expect more as we go through the next quarter and then you'll start to see some of the some of the funds rolling through in the back half of the year.
Yeah. Thanks for the question on mobile we announced yesterday that we are launching while mobile powered by reach and for US. It's really a service that our customers Trust us to provide and we're thrilled to have the partnership let's reach who has their same kind of standards of quality of service. So we're.
Cited to be working with them.
For us it's less than you know driving.
Share of penetration it really is having that offering for customers who want to take the great experience of wireless broadband on the go with them and we think over time, it really will help us with furthering our relationship with customers and deepening.
That test ability for customers to never want to churn from us and we think it makes a lot of sense. So it's less about targets and to have the deep we drive the penetration is just always having the things that customers expect from us and we can provide in a very straightforward way. So we're excited about it.
Alright, great and just to clarify on the Orange County, and outside I assume that's your targeting areas that are more adjacent to Seminole county, and not necessarily across the entire the.
The entire area there in Orlando.
Yep.
Going into that and I'm really bad kind of cities and a natural of or Orlando, We're really looking at some of those northern suburbs that kind of match the characteristics that we look forward. The most and we're very excited to be going into both seminar and Orange County.
Alright, great. Thank you very much.
The next question is from Dan <unk> with B Riley Your line is open.
Yeah. Good morning, guys. Thanks for taking my questions too.
Two part one two part question here first on the Greenfield.
I think maybe the most common question I get from some of the more skeptical investors out there as far as fiber to the home Greenfield.
The point that some of the I guess you'd call it relatively poor historical performance.
The fiber over builders of the past. So just maybe first if you could talk about some of the key things that have changed over the last call. It 510, 15 years as far as construction costs for fiber to the home and then also value to the consumer and then.
At the Investor Day, the second question, the 30% to 40% IRR as youre targeting for for Greenfield.
King you can on what might give investors confidence that those are achievable whether it's.
Thing is underpinning your cost per pass assumptions marketing spend penetration ramp anything there that you could give would be great. Thank you.
Okay, why don't I take the first half and now I'll turn it over to John for the IRR question.
Thanks for the question Dan.
I look at our own experience with edge outs and really the whole history of Wow have been going into new markets as a challenger brand.
<unk> a great alternative technology building, our brand and driving great penetration, we have 28% penetration across our entire organic footprint and we've shown you. The recent vintages of edge outs and how we continue to drive strong penetration and so this is our playbook.
<unk> is what we know how to do across the board. It's in our wheelhouse, we have always been a builder and constructing new areas and we have a very robust process.
Through which we have chosen certain markets, where we think consumers are really looking for a new choice and a new or alternative so we feel very confident and that combined with the analysis that we did to say that for the new Greenfield markets. We feel fiber to the home is the right technology cost a bit more upfronts that we feel over time.
With the maintenance.
Some of the operational elements of it makes a lot of sense and will allow us to drive deep penetration. So I you know I can't speak to what anybody else has done but this is exactly the playbook.
Does and we tend to tell you what we're gonna do and then we go do it so John you mentioned about the IRR part.
So just so you know Dan so our Greenfield modeling is massive and it is over 60 inputs and I think everything that's on a cross functional basis across the organization was well considered but some of the key considerations in that.
Well one of the most key considerations as well what penetration levels continue.
And quite frankly.
Frankly, we think that we are going to hit penetration levels in greenfield markets that are substantially higher.
We have overall so you know overall for the entity gets to about 28%, but that being said, we have markets, where we're significantly higher than 28%.
So when we pick Greenfield markets were specifically looking for markets that have perhaps only a single one gig provider and perhaps a DSL provider and when we're in those types of situations with our existing business, we tend to penetrate quickly and significantly higher than the average and that's what gives me some confidence about about the IRS.
<unk>.
Great. Thanks, and then just.
Quick follow up just any timeline to maybe the first greenfield customer later this year early 2023 or anything on that and then just.
Can you confirm if there are any other fiber to the home options in Orange and Seminole County today or any of the <unk> out there.
Have plans to pursue fiber to the home in those counties.
Yeah, I guess to the second half of that question I mean, we can't speak for what competitors are doing.
Where we're planning to go absolutely fits the criteria that we have.
We feel confident our ability to succeed and offer customers great choice.
Yes.
Sorry.
We'll be building, we'll be building down in the second half of this year expectations, our first greenfield customers onboard in early 2023.
Yeah, and we're already do awesome work, obviously in both counties.
Yes, I appreciate the color and I will turn it over thanks for your time.
Thanks, Dan.
The next question is from Matthew Harrigan with benchmark your line is open.
Thank you.
I was curious if you could comment on the current environment Youre seeing for broadband pricing and whether it was just a downward.
<unk> has exerted by our T mobile in particular I know you didn't think that was having much impact during your investor day.
How would you arrange your assessment of your pricing power relative to any cost pressure I mean, I've got the TV right now I haven't seen people on a bomb shelter.
In Ukraine, so I can imagine what.
We're going to be looking at as far as further supply chain disruptions is there anything that gives you pause in terms of pressure on your margins in terms of having not quite as much.
Broome on on pricing versus some some cost pressure that may have been somewhat unanticipated given everything going on sorry, if you get a little more holistically are kind of ugly morning.
Thanks, Matthew I appreciate the thoughtful questions.
You know I would point to the ongoing strength of our RFP in growth that we've had in high speed data.
Clearly, we always have as part of the Wow philosophy that we provide high speed reliable network. The legacy of this great customer service, we have offer a good value and so we offer a good pricing to our customers, but it's that blend of all of those things together that I.
Think really makes us successful so I point also to the strength of our continuing growth of our subscriber base and our high speed data RG use up 37% over the previous quarter. So I know that we always are competitive with the full array of services that we offer we have not seen it.
Any significant impact from any any certain competitor and I think the whole market continues to be pretty strong well I would also have to say there still are some.
Uncertainties in the market from Covid and such and just the economy in general that we continue to all in the industry grapple with where it's difficult to predict some of the seasonality that we traditionally how does the cable industry. So that's why we think although we are seeing continued.
Growth in our business and quarter over quarter growth. We think that this year is maybe a little bit more back half.
That's okay in terms of your question on supply chain, we actually are in a very good position with equipment and everything we need for the organic business and the growth. We're seeing there plus we have gotten ahead of the curve and the.
Buying process for our Greenfield markets. So we have a months ago already gotten what we need to.
Launched the markets and do what we need to do to meet the plans that we're setting out for you. So we got way ahead of the supply chain issues. So we're feeling like we're in a good position. Thanks for the question.
Thank you great great timing in those asset sales and good luck with the de Novo built.
Thanks.
The next question is from Brandon <unk> with Keybanc capital markets. Your line is open.
Okay great.
Two questions.
John on the EBIT margin guidance and just shy of 40%. This year can you help us understand what's embedded in there.
In terms of corporate overhead expenses and expenses related to the new mobile service then.
Maybe.
Maybe following up on that last question for Theresa what gives you guys. The confidence to guide to HFC net adds this year can you maybe help us understand what youre seeing in terms of gross adds and churn.
Let me let me do the first one so I think youre talking to how are we doing with cutting out corporate overhead like we suggested we would do at analyst day.
We're on track.
To keep doing what we're doing and I would say by the end of 2022, we'll have gotten about $11 $5 million out.
And then more will come after that part of the ties into satisfy satisfaction of the TSA, which we should be done with by the end of the year and then it really won't expense since then.
To the mobile question the impact on our G&A is de Minimis. Okay. This is a.
This is this is a.
And then B, you know sort of like.
Most of the heavy lifting will be handled by the partner and this is something that we're offering to our customers, which we think will be impactful in reducing churn and given them.
A bundle because it <unk> impact.
Impact should be de Minimis.
And to the second question Brandon really on HST.
We have continued to.
<unk> performed quite well, we're seeing strength across all of our channels. In fact, our close rates are actually very strong and close to some record highs I think customers are looking for that equation of value with the speed reliability and that.
Trusted partner for customer service as well. We also are seeing some nice growth in our commercial and small business area kind of returning to some of the pre pandemic level.
Really focused on local markets and see some great opportunities there and I just think that we're kind of continuing in that cadence of growing our subscriber base in our organic markets plus I'm pleased with the strength that we've seen in our edge out areas and know that you know for the future greenfields are going to be quite <unk>.
<unk> two on the other half of the site is really all the work that we do every day to retain our loyal customers and keep that churn at a very low level. So just a couple of points there.
Clearly last year, we participated in the EBV program. The emergency broadband benefit that is now morphing into the affordable connectivity program. We have about 10000 customers who are availing themselves of that plan. That's up about 2000 from the last time, we reported on that.
So for the customers who.
Are you able to qualify for that clearly that helps them significantly it still is mace <unk> mace, mostly.
<unk>.
Our existing customers as opposed to new customers, but we feel that's a good program.
The ACP program offers that flexibility for even more folks we see mobile as another element that will help customers be able to get their bundle of connectivity needs through us and we think that will also continue to keep us at those low churn levels, along with just the reliable service.
As always so important so that's why we feel confident that in the numbers that we're putting out there, which I think are our strong numbers. So we feel good about that.
Yeah.
Thank you.
We have no further questions at this time I'll turn the call over to Teresa elder for any closing remarks.
Thank you so much and thank you all for joining US this morning, and we really appreciate your continued interest and support of Wow have a great day.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating you may now disconnect.
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