Q4 2022 WideOpenWest Inc Earnings Call
Good morning, My name is Devin and I will be your conference operator today at this time I would like to welcome everyone to the wide open West fourth quarter 2022 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 press star followed by the number.
One on your telephone keypad, and if you would like to withdraw your question at any time press the pound key.
Thank you for your patience I'll now turn the call over to Olivia partners Senior manager of Investor Relations you may begin the conference.
Yeah.
Good morning, everyone and thank you for joining our fourth quarter 2020, do you agree with.
With me today is Teresa elder Wow, 's, Chief Executive Officer, and John Right now was 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 the other not.
Relating 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 do not to place undue reliance on such forward looking statements.
<unk> disclaims any obligation to update such forward looking statements.
For additional information concerning factors that could affect our financial results or cause actual results differ materially from our forward looking statements. Please refer to our filings with the SEC.
The risk factors section of our Form 10-K filed with the SEC.
As well as our 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 may refer to certain non-GAAP financial measures. The company believes that these non-GAAP financial measures provide useful information for investors.
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 reckon.
Reconciliations between GAAP and non-GAAP metrics.
Our historically reported results can be found in our earnings releases and on their trending schedule, which can be found on our website.
We have also included a presentation. This morning to complement our prepared remarks.
Now I'll turn the call over to House, Chief Executive Officer trace out there.
Thanks, Olivia welcome to Wild fourth quarter earnings call. Despite the difficult year for the industry I'm pleased with our results this quarter, especially our record adjusted EBITDA post asset sale and the significant progress we are making as we.
We execute our greenfield expansion strategy.
In 2022, we began to execute our clear vision for long term growth with a player to deliver.
And a commitment from our board and executive team and employees to implement it.
The key elements of our strategy are based on our three pillars of growth Green.
Greenfield expansion.
Business services.
Yeah, Jeff.
And these elements are grounded in our commitment to maintain our profile as a low leverage high growth business.
Our total revenue increased more than 1% in the fourth quarter as high speed data revenue grew nearly 7% from last year.
Video and telephony revenue declined, 15% and 9% respectively from the same period last year.
Our adjusted EBITDA post asset sale increased over 8% to a record $74 6 million.
Driven by an increased proportion of revenue from our high margin high speed data business.
The adjusted EBITDA margin post asset sale was 41, 3%.
Also a quarterly record.
For the full year, our total revenue declined 3% as a 3% increase in the H M. D revenue was more than offset by declines in video and telephony revenue, which dropped 14% and 10% respectively.
Adjusted EBITDA post asset sale increased 7% from last year.
During the fourth quarter, we lost just under 7000 high speed data argues, bringing our total H F D subscribers to approximately 512000.
Reduction in H F. D. RG is also drove a decline in our total number of subscribers during the quarter ending the year with nearly 531000.
Our operating metrics for our high speed data business continued to be strong.
For the 10th consecutive quarter, we maintained an average sell in the rate of approximately 87% or higher of our customers' purchasing H S. D. Only.
With the figure reaching more than 89% this quarter.
Further driving our core financial metrics higher.
Also consistent with past quarters, new customers are buying higher data speed tiers with approximately 70% taking speeds above 500, Meg including strong adoption of our recently offered 1.2 gig services.
This quarter more than 50% of our base have speeds above 500, Meg, which demonstrates the superior quality and reliability of our network and the strong demand for faster and higher speeds.
H F D <unk> increased during the quarter to a record $69 30.
Our H F. D revenue included $2 2 million of previously deferred revenue.
Putting that revenue H S D ARP, who would be $67 90 is that still a record.
The increase in <unk> was driven by a rate increase which took effect in October as well.
Well as customers purchasing higher data speeds.
These were partially offset by the costs of promotional activity during the quarter.
We believe we will continue to see H F. D are to increase as existing customers continue barring higher speeds.
Third as we add fiber customers in new markets.
Both greenfield and edge outs.
Our edge out strategy continues to drive growth, especially in our 2022 village, where we passed another 2000 homes in the fourth quarter and increased our penetration in that vintage to nearly 21%.
Our 'twenty 2020 'twenty. One vintages also remained strong with penetration rate stayed constant at 23, 5% and 45% respectively.
As we've said before we believe our edge out strategy remains a strong engine of growth for our business and the performance in those markets further supports our confidence in our ability to grow quickly in new markets.
In fact, we announced in January we are seeing great initial traction in our first greenfield market in Central Florida, where we launched earlier this year and have an initial penetration rate above 25%.
We're really excited about our progress and have been expanding construction in additional Seminole County communities. While also beginning construction in Greenville County, South Carolina.
We will provide more specifics on our Greenfield progress on our next earnings call.
In addition to our all fiber Greenfield expansion, we've also announced a new fiber to the home edge outs in Alabama, where we are passing new homes and seeing extremely strong reception contributing to both increased penetration and higher ARPA.
And lastly, before I hand, the call over to John to discuss our financial results I would like to spend a minute recognizing the amazing effort that our employees across the entire company demonstrated on a daily basis.
Launching wow in new markets, expanding our footprint through additional edge outs.
And importantly, maintaining a reliable infrastructure that delivers a high quality service to all our customers and reflects the strength and dedication of our workforce.
<unk> continues to be recognized as a great place to work for the fifth time in a row, we have been named a best and brightest company to work for in the nation as well as in Atlanta, Denver and Detroit.
To conclude we are executing our strategy and growing our business, we're particularly excited about the initial returns in our greenfield markets and new fiber edge out.
The core aspects of our strategy remains strong.
Sure edge outs continue to increase our penetration rates.
Our Greenfield expansion is making real progress and importantly, we're doing all of this with cash from operations, thereby enabling us to maintain our low leverage profile.
Now I'll turn the call over to John who will go over our financial results in more detail.
Thanks Teresa.
We're very proud of the hard work and execution of our team this year.
Through a challenging macroeconomic backdrop, we delivered solid financial results with record setting adjusted EBITDA post margin asset sale.
This quarter, we brought new offerings to the market such as Wow mobile and $1 two gig and made further progress on our greenfield initiatives.
Before we get into our fourth quarter and full year financial results I'd like to comment on the updated adjusted EBIT of term.
The FTC released updated guidance on the use of the term pro forma due to this change we are now referring to pro forma adjusted EBITDA as adjusted EBITDA post asset sale.
In the fourth quarter total revenue improved one 2% to $185 million, reflecting a six 6% increase in high speed data revenue and are fortunate to have an eight 8% decline in video and telephony respectively.
<unk> revenue included the recognition of $2 2 million of revenue attributed to the network construction requirements completed during the fourth quarter and Valley, Alabama as part of the connect America Fund broadband loop.
Even though this revenue reflects completion of the valley Buildout project over a period of time accounting standards limit us to recognize the revenue only upon the completion of the network requirements.
On a go forward basis, we will realize approximately 260000 of revenue per quarter as part of the program.
Excluding the recognition of deferred revenue HFC revenue increased four 4% year over year. This increase reflects a $4 rate increase which took effect in October on a portion of our base as well as new and existing customers buying higher speed tiers.
Most notably our $1 two gig speed tier has seen a 100% increase in the number of subscribers quarter over quarter.
Yeah.
Our revenue grew $4 5 million year over year.
Reflecting $3 million of revenue as part of the FCC initiative to reserve spectrum for five G service providers.
Adjusted EBITDA post asset sale grew eight 1% from the same period last year to $74 6 million, achieving our highest level to date.
On a full year basis total revenue of $704 9 million was down from the prior year's revenue of $725 7 million.
The mix shift in our revenue continue throughout the year as growth in HST revenue now accounts for nearly 60% of total revenue.
Adjusted EBITDA post asset sale of $280 1 million grew seven 1% year over year driven by the continued success of our broadband first strategy.
We see the incremental contribution margin grow sequentially and year over year to 77, 8% as a result of the favorable shift in our base to HFC only.
Incremental contribution margin increased by four five percentage points from the same period last year, which demonstrates the importance of this metric as it is consistent with the strong improvements we are seeing in our adjusted EBITDA margin post asset sales and free cash flow generation.
Now for a progress update on our cost structure alignment following the divestiture of the <unk> service areas as of the fourth quarter, our savings equate to $21 $4 million.
This represents approximately 60% of the $35 5 million, we identified for cost reduction over the next few years.
We've made tremendous progress on realizing these savings and we will continue to be diligent as we manage costs. Despite the higher inflationary environment.
Yeah.
We ended the quarter with total cash of $31 million and total outstanding debt of $752 3 million, which holds our leverage ratio at two six times we.
We reported total annual capital spend of $167 2 million, which is up $4 9 million from last year.
Our core Capex efficiency improved one 3% to 18, 5% on an annual basis.
And growth Capex increased $18 $3 million as we continue to heavily invest in our future growth and bring fiber to the homes of central Florida in Greenville, South Carolina.
So far we have seen very encouraging take rates for our new fiber offerings and look forward to providing more data this year.
Looking at the right side of the slide our results for 2022, Unlevered adjusted free cash flow, which we define as adjusted EBITDA post asset sale less capex increase.
<unk> increased to $112 9 million up $13 6 million from last year, primarily driven by the growth in adjusted EBITDA post asset sale.
Last quarter, we announced a $50 million stock repurchase program as we believe we're significantly undervalued.
In 2022, we repurchased approximately one 2 million shares totaling $12 3 million at an average price of $10 39 per share.
Finally, before we open the call for questions I'd like to provide our outlook for the first quarter and full year.
For the first quarter, we expect <unk> revenue to be between 105 and 108 million.
Total revenue to be between 172, and $175 million and adjusted EBITDA to be between 65 and 68 million.
We also expect HFC net additions to be between negative 4000 in zero.
For the full year, we expect HST revenue to be between 437% and 441 million.
Total revenue to be between 703, and $707 million and adjusted EBITDA to be between 286 and 290 million.
Full year adjusted EBITDA includes additional upfront cost related to our Greenfield investments, we expect to add between 6000 to 10000 HST RG use for the year with the majority coming in the back half of the year as we add more fiber to our home passes.
Clothing.
Another solid quarter and year for awhile in a very volatile environment.
Our conviction in our strategy growth prospects and our commitment to our customers and our shareholders hold strong and we look forward to delivering a bright future ahead.
Now, we'd like to open up the line for questions.
At this time I would like to remind everyone in order to ask a question press star one on your telephone keypad.
Our first question comes from.
Laura <unk> with RBC capital markets.
Good morning.
Thanks for taking the questions I had two questions I wanted to ask about first broadband subscriber trends.
Can you expand on what's driving your expectations for the range you provided for Q1 coming in at I think 4000 net losses to flattish is it competition macro or perhaps churn picking up following the October rate increase and maybe you can help peel the onion a bit on what's driving your confidence in the plan.
And the balance of 2023, presumably growing contributions from the greenfields in edge outs, but I didn't know if there was anything else to call out and just on free cash flow for 2023, I know, you're not providing specific guidance beyond EBITDA, but any color on the drivers between capex cash interest working cap.
It would be greatly appreciate it thank you.
I'll take the first part cotton and have done a pickup with the free cash flow. So we do feel confident absolutely in our ability to execute especially with what we've seen with some trends with subscribers. We still are seeing some uncertainty certainly in our forecasts.
As we look at fewer movers interest rates inflation some of those things that I think we are impacting us in the fourth quarter as well are still prevalent I do believe though that the wave of those customers that we talked about last quarter that needed financial assistance is largely behind us and have moved.
True we are seeing we continue to do promotions, we did as we mentioned a rate increase in the fourth quarter and that's now behind us. So I think things do look a bit better for the first quarter certainly the biggest piece is our customers continue to be very loyal we do have low churn and the.
Bringing on customers with Greenfield and these new edge out areas is extremely exciting.
That's why we just.
I have to tell you about the great success, we've already had in the first greenfield market being at 25% penetration now we can't.
Say that will always be that fast to get to that and we'll be adding new homes passed or it will go up and down as the denominator of homes passed increases, but we're very very encouraged by the strong results. So far so that's.
Some caution with the uncertainty in the environment, but also some optimism for what we're seeing as well.
With that I'll turn it over to John to answer the second question about free cash flow.
Yeah. So on the free cash flow could get if we can just re review what we what were you asking one more time please.
Yes of course, I was just trying to get a better sense of the.
Maybe components of free cash flow as in turn page to 2023, you guided to.
So we could so we have that but I didn't know if there was anything more specific around capex any more color around cash interest I assume cash taxes will still be relatively zero and I didn't know if there was anything nuanced with working capital as you kind of work.
<unk> process that we should be doing.
Thank you for everyone's questions, but no worries, we won't give you too much color. So I think what we'll see is that on capex.
Youre going to start to see the Capex for expansion change in a big way. So I think you're going to see sort of a shape shifting of of.
Capex for 2023, so more and more money now is going to be spent on growth Capex, which includes greenfields of course. It also includes edge out activity and it also includes business services or commercial so that number it's going to get to become a bigger piece of the pie in the prepared remarks, we're talking about the capital efficiency was like down for core and up for for growth. So.
We continue to see that happen.
Interest expense cash interest expense I mean, we're in a we're in a variable interest world now so it's.
It's still going up but going up left.
Yes.
Unless big pieces, so we'll have to see where that plays out.
And I wish I had that kind of crystal ball to predict it but even still.
We did 110 plus million in free cash flow for 2022, and we think that we'll still be able to generate more than enough to cover our cash interest expense and all the capital stuff that we want to do to expand the network. So nothing nothing extraneous there for us.
Okay.
Perfect. Thank you both you.
You bet.
Our next question comes from Frank Loosen with Raymond James.
Great. Thank you.
Can you just a couple of quick clarifications is there any subsidy revenue that you're expecting going forward in the <unk>.
Q1 to the full year guide if you can give us a little bit more color on the $2 $3 million deferred revenue that you recognized.
And then how much is left outstanding as of today on the buyback and is there any covenants you have restricting increasing that over time. Thank you.
Okay.
Okay.
Talk about the subscriber revenue on that.
Point I think it's $2 2 million. So these are so on that these are these are government type projects and just the way the accounting rules work Frank we can't recognize the revenue until the project is completed but until some of the government says it's completed so it sits in a deferred revenue box. So we get the whole big influx on that magic date. So.
That's the $2 3 million, but it creates an ongoing revenue stream of about 260000, a quarter now that the project is built and we have those from time to time last year, we had one with <unk>.
And then to be called C. Band, then Youll see if you look at our.
Schedule is that we do to accompany the earnings call, we try to bifurcate the.
If I had to bifurcate the graph. So you can see that little bump that's caused by that.
So that's that piece.
<unk>.
And then the second part of your question was on the buyback. So we did around $12 million of buyback through the end of the year, we only started buying back shares in November .
A total of $50 million.
Okay.
Excuse me so we have.
Plenty of capacity still to get through the $50 million as we start working it through 2023, there is no general restrictions or covenants that we can't do it.
Certainly not at the $50 million revenue level excuse me. So we'll see where this we'll see where this takes its our belief though is that the stock is undervalued undervalued for a lot of people and it seems like a perfect time for us to take some takes them back. So that's what we're doing.
Can you give us an update on how much of that 38 million is still that was available at the end of the year is still outstanding today.
So into Q1, we probably did about another $8 million so far.
Yeah.
Okay. Thank you very much youre welcome.
Our next question comes from Scott here.
Revenue with UBS.
Great. Good morning, everyone. This is Christopher <unk>, maybe starting with the competitive backdrop any shifts in intensity youre seeing from your peers and what impacts have you seen from fixed wireless and maybe new fiber expansion in your footprint and just to put a finer point on your prepared remarks do you believe you will continue to grow in the legacy footprint going forward.
Or will most of your broadband some growth be driven by greenfield markets in the coming years. Thanks.
Thanks, Chris.
The competitive intensity I think has.
Ramped up since last year as there are fewer new customers really are available across the board. So I think that has been maintained as we're going into the first quarter as well. So there certainly is a promotional activity and we talked about that as well that we continue to make sure that our price.
<unk> is a competitive with others, we generally are a little bit lower than our competition with higher speeds and great reliability. So that's part of our just brand promise along with just providing the choices that we do within the marketplace and that does resonate well with customers our churn rate remains low so that is very good.
Good.
We have.
In some tick up in the.
We are extremely excited to highlight some of the edge out in Greenfields, where the growth has been extremely strong I am very rapidly. So we're seeing customers receptive to the product offerings that we have as well as with our legacy of Great service.
Alright, thank you.
All of them with the initial greenfield market starting to come online can you just remind us how you're thinking about penetration in these locations on maybe a multi your basis I reckon I decided to 25 per cent in Central Florida, where do you believe you can also get penetration rates in these areas over the long term.
We're thinking I think way back to when we first introduced the our motto for Greenfield, which of course, it's funded completely by our own free cash flow around operations, we talked about being able to ramp to a 30 per cent penetration in new Greenfield markets and that was over some period of time.
We're talking more than a year. So granted that we are starting from a small footprint of homes past, but we are absolutely thrilled with the welcome that we've received from the customers of Central Florida and ramping this quickly to twenty-five percent, we're very pleased with that and encouraged so we <unk>.
Know that these markets will be very accretive for us at 30 per cent, but we don't know what the feeling is I can look too you know some of our edge out penetration some of those vintages are up in the 40 per cent 45 per cent range. So we we feel very good about how our products are resonating in the markets.
We've chosen.
Great. Thank you.
Our next question comes from Dan Day would be Riley Securities.
Yes more than guys I appreciate you taking the questions. So it looks like for the 2023 guidance.
<unk> H S. D. R. P roughly flat in the first quarter I think I'm getting to just under $70 then for the full year.
Your guidance implies <unk> about $71. So.
That would be above that in the back half just wondering what gives you confidence in that Arkan expansion you talked about Greenfield argues maybe being a little bit higher. So can you just maybe talk about what you're thinking for the differential between like the argument legacy markets Hershey Greenfield that'd be great yeah.
Yeah, So <unk>, so cheering up it's still happening.
[noise] excuse me in the base business and what's interesting is under Greenfield business that we've seen so far folks are coming in and seriously hire higher speed tiers. So do we have.
A goodly proportion of folks taking three gig offering taking 1.2 gig offering and I'd say the the the low point offering for the Greenfield. Thus far has been 500, Meg So it's really driving a higher are approved so that's one reason and the second reason is continue tearing up with the overall base I mean, where like the.
Majority now have 500, Meg or more and base business. So we feel pretty comfortable that we can still keep ratcheting up the number.
[laughter].
Great. That's that's good to hear and so.
Maybe on the non-recurring professional fees and back to you just to be without relating to I think just integration of M&A and all that maybe just directionally relative to 22, where where you think that's gonna go in 23.
Just any color there would be great.
Are we talking about it on the one the one time sort of government construction project.
There are known for twenty-three [laughter], we did it we didn't win 22 so.
So what what what what.
That was pretty badly so being added back to eat it alright, Oh, I'm, sorry C. A sentence for valley. So you build it out and we'll get we'll get about 260 Grand a quarter in recurring revenue never project is done.
The big payment, we got was actually for the building of the project that all gets deferred until it's completed.
Okay, Great Yeah, that's all I had thank you guys.
[noise] thank Stan.
Our final question comes from Brandon This spell was Keybanc capital market.
Yeah.
Awesome. Thanks for taking the questions I was hoping you could talk about your growth. Thus far since you outlined that your analysts say you know your H S. The total revenue and EBITDA growth had been far below your expectation do it up right.
Back then so can you can talk about your confidence and getting back to those targets if at all and what level should be we'd be looking for if those targets are not no longer achievable. Thanks.
Yeah, I mean, I think a lot has changed as I recall, we did our analysts say I think it was December 7th of 2021, So a lot has.
It happened instance, back then with the economy and her shifts that have taken place really across our whole industry. So we definitely are trying to figure out you know what the appropriate guidance as to give and we gave you our best estimates and what we put forward for the remainder of the year and I can tell you we are.
Like I said I'm very pleased to be looking at not just greenfield opportunities, but we're excited by the new opportunities were saying within our legacy footprint to continue to grow deeper in things like M. D use but also fill in opportunities and edge out areas with a variety of technologies.
That are very attractive as well so yes, we didn't put out some numbers that we feel good about them feel good about our ability to execute and you know things have changed since December so in terms of the longer term motto at this time, we're giving you an estimate for justice.
Ah Ah Ah John is there anything else I guess you'd like to add in relation to the numbers from Investor day.
No I mean, we're constantly updating we're gonna update the the multi your modeling.
Brandon and we can we can probably bring everybody to.
Two and adjusted play somewhere down the Pike from my initial look it's not going to change dramatically, but it has been probably change a little bit.
And that's more of a nature of of the economic World that we're living in right now.
Great if I could follow up just on twenty-three guidance I I was hoping you could outline with some more detail in terms of what we should expect for new Greenfield times past. Thanks.
Yeah at this point, we're not putting out a number but I can tell you it's going to ramps significantly this year a lot of the groundwork has been laid in 20 twenty-two everything from what we needed in terms of system design in Hollywood.
Wyoming and walk outs, and thousands and thousands of pole attachment permits and all of the things that go into a construction bill. So much of that work was done in 2022 and I'm. So proud of the team for setting us well Ah Ah for growth in 2023, so more to come and we.
Will in future calls be providing more detail on greenfield. We wanted to give you a taste of what we've seen in the first five or six weeks that we've been adding new customers on so that you just gotta tasted how how did you hear the mortal combat.
Thank you.
There are no further questions at this time I now turn the call over to Theresa elder for closing remarks.
Alright, Thank you and thanks, so much for joining us this morning, and thank you for your continued interest and supportive Wow have a great day.
[noise].
We should hang up the phone.
Oh yeah.