Q4 2023 WideOpenWest Inc Earnings Call
Operator: Thanks for standing by, and welcome to the WideOpenWest fourth quarter 2023 earnings call. I would now like to welcome Andrew Posen, Vice President, Head of Investor Relations, to begin the call. Andrew, over to you.
Thank you for standing by and welcome to the wide open West fourth quarter 2023 earnings call I would now like to welcome Andrew Posen, Vice President head of Investor Relations to begin the call Andrew over to you.
Andrew S. Posen: Good morning, everyone, and thank you for joining our fourth quarter 2023 earnings call. With me today is Teresa Elder, WOW's Chief Executive Officer, and John Rego, WOW's 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, financial position, or performance to be materially different from those expressed or implied We disclaim any obligation to update these forward-looking statements.
Good morning, everyone and thank you for joining our fourth quarter of 2023 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 in reliance on the safe Harbor provisions and federal Securities laws.
Due 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 obligation to update such forward looking statements for.
Andrew S. Posen: 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 statement 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 for the financial information presented in accordance with GAAP.
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 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 subset.
The financial information presented in accordance with GAAP reconciliations between GAAP and non-GAAP metrics for our financial reporting for our historical reported results can be found in our earnings releases and our trending schedules, which can be found on our website.
Andrew S. Posen: Information about 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. We have also included a presentation this afternoon to complement our prepared remarks. Now, I'll turn the call over to Teresa Elder, WOW's Chief Executive Officer. Thanks, Andrew.
We have also included the presentation. This afternoon to complement our prepared remarks now I will turn the call over to Teresa Elder Wow, 's Chief Executive Officer.
Thanks, Andrew welcome to <unk> fourth quarter earnings call.
We are continuing to build momentum in our market expansion initiative and we are seeing positive early indicators in our legacy markets in response to the efforts we are taking to stabilize subscriber losses.
Teresa L. Elder: Welcome to WOW's fourth quarter earnings call. We are continuing to build momentum in our market expansion initiatives, and we are seeing positive early indicators in our legacy markets in response to the efforts we are taking to stabilize subscriber losses. Our fourth quarter results include high-speed data revenue of $108.7 million, up 1.5% year-over-year, adjusted EBITDA of 71.2 million, which decreased 4.6% year-over-year but increased sequentially for the third consecutive quarter, and a record adjusted EBITDA margin of 42.2%, which increased steadily throughout the year. For the full year, our high-speed data revenue increased 4.4% from the last year to $430.4 million, while The pace of construction in our Greenfield and Agile markets accelerated throughout the year, culminating in a total of 48,400 new homes passed, including 30,400 in our greenfield markets and 18,000 new homes passed an edge up. In fact, our fourth quarter was the most robust quarterly expansion of our network in our 25-year history. We passed nearly as many homes in the fourth quarter alone as we did throughout the first three quarters of the year.
Our fourth quarter results include high speed data revenue of $108 7 million.
One 5% year over year.
Adjusted EBITDA of $71 2 million, which decreased four 6% year over year, but increased sequentially for the third consecutive quarter.
And a record adjusted EBITDA margin of 42, 2%.
Which increased steadily throughout the year.
For the full year, our high speed data revenue increased four 4% from the last year to 434 million, while adjusted EBITDA declined by one 7% to 275 4 million with an adjusted.
EBITDA margin of 41%.
The pace of construction in our Greenfield and agile markets accelerated throughout the year, culminating in a total of 48400, new homes passed including 30400, and our Greenfield markets and 18000 new.
Homes passed in edge outs in fact, our fourth quarter was the most robust quarterly expansion of our network and our 25 year history.
We pass nearly as many homes in the fourth quarter alone as we did throughout the first three quarters of the year.
Our momentum has continued through early 2024 as we have added over 10000 more homes as part of our expansion initiatives. So far this year predominantly in our Greenfield markets.
I am extremely proud of the effort of our teams that is driving our expansion, which is central to our growth strategy.
I'm not the only one who recognizes the quality of Wow U S News and World report just named Wow, a best Internet service provider of 2024 out of the list of 25 providers offering all types of internet across the U S, including fiber cable digital.
Fiber lines satellite fixed wireless and <unk> home Internet services Wow ranked first for fastest cable upload speeds.
For best cable Internet service providers and fourth overall this is a proud moment for our team and we will continue to prioritize innovation and customer satisfaction in this competitive marketplace.
Our HFC subscribers losses during the fourth quarter of 13300 <unk> were in line with the expectations that we set on our last call as the macro environment continued to be challenging low move activity higher churn and lower speed tiers and.
Teresa L. Elder: Our momentum has continued through early 2024, as we have added over 10,000 more homes as part of our expansion initiatives so far this year, predominantly in our greenfield market. I am extremely proud of the effort of our teams that are driving our expansion, which is central to our growth strategy. I'm not the only one who recognizes the quality of WOW.
<unk>.
Ongoing competitive threats from fixed wireless carried into the fourth quarter, but have begun to improve in the first quarter. As a result of several steps that we took to address these challenges.
Specifically, we increased our minimum speed for existing customers to 300, Meg giving them a surprise boost in their broadband speed at no additional cost we gave us surprise boost as well to the 500 Meg customers.
Second we introduced a simplified pricing action, which includes the price lock free modem no data caps or contracts.
Teresa L. Elder: U.S. News & World Report just named WOW the Best Internet Service Provider of 2024, out of a list of 25 providers offering all types of internet across the U.S., including fiber, cable, digital subscriber lines, satellite, fixed wireless, and 5G home internet services. WOW ranked first for fastest cable upload, second for best cable internet service providers, and fourth overall. This is a proud moment for our team, and we will continue to prioritize innovation and customer satisfaction in this competitive market. Our HSD subscriber losses during the fourth quarter of 13,300 were in line with the expectations that we set on our last call as the macro environment continued to be challenged; low move activity, higher churn, and lower speed tiers, and ongoing competitive threats from fixed wireless carried into the fourth quarter, but have begun to improve in the first quarter as a result of several steps that we took to address these challenges.
Surprise free approach has been extremely well received.
Third we strategically offered short term extensions to help create a soft landing for customers rolling off promotions.
The early success of these steps has given us additional confidence in the progress we are making to strengthen our subscriber numbers in our legacy footprint.
The chart on the lower left quadrant on the slide shows a small increase in the proportion of new customers buying in the lower tiers.
This shift during the quarter did not limit the growth in HST <unk> as the majority of new customers across our legacy markets edge outs, and especially in Greenfield markets continue to buy 500, Meg and above.
The chart on the lower right hand side of the slide shows our HST <unk>, reaching a new high of $72.90.
We expect <unk> will increase further in 2024.
Although the rate of growth will likely ease as the impact of the steps, we're taking to address subscriber churn work their way through our financials.
As of the end of the fourth quarter, we now have more than 490000 HFC subscribers as expected our traditional video business declined further during the quarter, which will continue as we transition to Youtube TV ads.
As mentioned this Youtube TV partnership provides a fantastic opportunity to provide our customers more content at a much better value and to capitalize on the shift to video streaming, which we believe will also contribute to great results. This year.
Our penetration rates remain strong and our greenfield markets and the early positive reception reinforces our conviction and commitment to our expansion strategy.
Our 2023 edge out vintage has a penetration rate of 24, 4%, while the 2021 and 2022 vintages also continued to report strong penetration rates of 47, 6% and 31% respectively.
Teresa L. Elder: Specifically, we increased our minimum speed for existing customers to 300 meg, giving them a surprise boost in their broadband speed at no additional cost. We gave a surprise boost as well to the 500 meg customer. Second, we introduced a simplified pricing option, which includes the price block, free modem, no data caps, or contracts. This surprise-free approach has been extremely well-received.
Penetration rates in our Greenfield markets decreased to just under 10% in the fourth quarter, because we significantly increased the number of homes passed and late in the quarter. However, the cohorts are demonstrating extremely strong penetration rates averaging more than.
20% within the first six months after activation.
To conclude before handing the call to John I want to reiterate the key points that I made at the outset of this call first we continue to make great progress in our expansion markets, passing 48400, new homes in both Greenfield and edge out markets through.
December 31, and more than 10000 homes, so far this year.
We took steps during the quarter to stabilize the losses in our legacy footprint and improvements are evident in our expectations for the first quarter and lastly, we continue to see positive reception to our Youtube TV offering.
Teresa L. Elder: Third, we strategically offered short-term extensions to help create a soft landing for customers rolling off promotion. The early success of these steps has given us additional confidence in the progress we are making to strengthen our subscriber numbers and our legacy footprint. The chart in the lower left quadrant on the slide shows a small increase in the proportion of new customers buying in the lower tiers. However, this shift during the quarter did not limit the growth in HSD ARPU, as a majority of new customers across our legacy markets, edge-outs, and especially in greenfield markets continue to buy 500 meg and above. The chart on the lower right-hand side of the slide shows our HSD ARPU reaching a new high of $72.99.
Now I'll turn the call over to John who will go over our financial results in more detail.
Thanks Teresa.
In the fourth quarter, we reported $108 $7 million of HFC revenue, which increased one 5% year over year, reflecting the impact of the respective rate increases as well as new and existing customers upgrading to higher speed tiers.
The growth in HST revenue was more than offset by a 19, 7% and four 8% drop in video and telephony revenue, respectively, resulting in a six 5% decline in total revenue from the same period last year to $168 8 million.
Adjusted EBITDA decreased four 6% from the same period last year to $71 2 million with a record adjusted EBITDA margin of 42, 2% driven by the increase in higher margin HFC revenue.
The incremental contribution margin increased sequentially and continued to grow year over year, driven by the proportionate increase in HST revenue, which increased to 64% of our total revenue this quarter up from 59% in the same period last year.
Teresa L. Elder: We expect HSD ARPU to increase further in 2024. Although the rate of growth will likely ease as the impact of the steps we're taking to address subscriber churn works its way through our finances, As of the end of the fourth quarter, we now have more than 490,000 HSD subscribers. As expected, our traditional video business declined further during the quarter, which will continue as we transition to YouTube TV. As mentioned, this YouTube TV partnership provides a fantastic opportunity to provide our customers with more content at a much better value and to capitalize on the shift to video streaming, which we believe will also contribute to great results.
Now for a progress update on our cost structure alignment, we continue to be on pace to hit our target of $35 $5 million by the end of 2025.
The fourth quarter, our total savings equate to $28 8 million, which represents approximately 81% of the $35 5 million, we identified for cost reduction over the next few years.
In addition to these measures.
We also made further head count reductions predominantly in our corporate and administrative areas.
We've made significant progress on realizing savings across the company and we will continue to be diligent as we manage costs. Despite the higher inflationary environment.
We ended the quarter with total cash of $23 4 million and total outstanding debt of $934 $5 million with our leverage ratio at three three times were.
We reported total capital spend of $80 6 million, which is up $27 9 million from last year, our core Capex efficiency was 23, 6% in the fourth quarter and 19, 9% for the year.
Teresa L. Elder: Our penetration rates remain strong in our greenfield markets, and the early positive reception reinforces our conviction and commitment to our expansion strategy. Our 2023 Edge Out Vintage has a penetration rate of 24.4%, while the 2021 and 2022 vintages also continue to report strong penetration rates of 47.6% and 31%, respectively. Penetration rates in our greenfield markets decreased to just under 10% in the fourth quarter because we significantly increased the number of homes passed late in the quarter.
Spansion Capex increased $26 3 million from the same period last year as we continue to invest in our future growth, bringing fiber to the homes of Central Florida, and Greensville County, South Carolina.
In the fourth quarter, we spent $33 8 million on Greenfields $3 $4 million on edge outs, and then an additional $3 6 million on business services.
Our unlevered adjusted free cash flow, which we define as adjusted EBITDA less capex decreased to negative $9 4 million in the fourth quarter almost entirely driven by higher expansion spend predominantly on greenfields.
For the full year, we reported $6 5 million and adjusted Unlevered free cash flow, which is down significantly from last year.
We are undertaking several steps to increase our free cash flow in 2024, and 2023, we invested $132 million in market expansion with a significant portion of the upfront spend to support the entrance to our new markets. This.
Teresa L. Elder: However, the cohorts are demonstrating extremely strong penetration, averaging more than 20% within the first six months after activation. To conclude, before handing the call to John, I want to reiterate the key points that I made at the outset of this call. First, we continue to make great progress in our expansion markets, opening 48,400 new homes in both Greenfield and Edge Out markets through December 31st, and more than 10,000 homes so far this year. Second, we took steps during the quarter to stabilize the losses in our legacy footprint, and improvements are evident in our expectations for the first quarter. And lastly, we continue to see positive reception for our YouTube TV offers. Now I'll turn the call over to John, who will go over our financial results in more detail. Thanks, Teresa.
This year, we plan to spend approximately $60 million predominantly focused on passing new homes leveraging the investments spent last year in these markets.
In addition to managing our expansion spend.
We will continue to be particularly targeted in our network spending as we strategically identify areas within our infrastructure that will immediately benefit from investment whether it is upgrading in support of DOCSIS, four dato or fiber to the home upgrades.
We also executed hedges on $500 million over our long term debt, which will help us manage our annual interest expense in 2024.
Combined we believe these efforts should put us back in a position of generating free cash flow by the end of this year.
Finally, before we open the call for questions I'd like to provide our expectations for the first quarter.
As Theresa indicated in her comments this morning.
We're seeing some positive indications from the steps we are taking to address the challenges in our legacy markets and we believe that we will see further improvements throughout the year for.
For the first quarter, we expect <unk> subscribers to be between negative 2000, and negative 500, a significant improvement from the fourth quarter. We believe HST revenue will be between 104 and $107 million. We expect total revenue for the first quarter to be between 159 and $162 million.
John S. Rego: In the fourth quarter, we reported $108.7 million in HSD revenue, which increased 1.5% year-over-year, reflecting the impact of the respective rate increases, as well as new and existing customers upgrading to higher speed tiers. However, the growth in HSD revenue was more than offset by a 19.7% and 4.8% drop in video and telephony revenue, resulting in a 6.5% decline in total revenue from the same period last year to $168 Adjusted EBITDA decreased 4.6% from the same period last year to $71.2 million, with a record adjusted EBITDA margin of 42.2% driven by an increase in higher-margin HSD revenue.
And adjusted EBITDA to be between 64, and $67 million and now we'd like to open up the line for questions.
The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad will now take a moment to compile a roster.
Our first question comes from the line of Chris Shaw with UBS. Please go ahead.
Great. Thank you for taking the questions you guided to and improved broadband subscriber trajectory in <unk> I recognize you highlighted the steps you're taking to mitigate the impact of fixed wireless but can you help us think through maybe other factors that contributed to the <unk> result that you don't expect to repeat here in <unk> and given what's going on with.
The ACP program can you help us size your ACP exposure and how youre thinking about mitigating churn their funding does lapse. Thank you.
Thanks, Chris I'll go ahead, and get started with Teresa and so I do not believe we will see any repeat of the fourth quarter fourth quarter as we said.
In our last call.
When we were telling you what was coming was unusual because we had just come off a large rate increase and we're.
John S. Rego: The incremental contribution margin increased sequentially and continued to grow year-over-year driven by the proportionate increase in HSD revenue, which increased to 64% of our total revenue this quarter, up from 59% in the same period last year. Now for a progress update on our cost structure alignments. We continue to be on pace to hit our target of $35.5 million by the end of 2025. As of the fourth quarter, our total savings equate to $28.8 million, which represents approximately 81% of the $35.5 million we identified for cost reduction over the next few years. In addition to these measures, we also made further headcount reductions, predominantly in our corporate and administrative areas.
We're also seeing significant promo roll offs and the customers we've taken significant steps as I outlined in my remarks to really address that and we saw improvement coming out of the end of the fourth quarter and certainly in the fourth first quarter. So those steps again are really focused on.
A soft landing for our promo roll off customers that simplified pricing that we have done that is really attracting great attention from both existing and new customers as well as the upgrades of speed tiers that we did as a surprise and delight for our existing base all of those.
Are really getting tremendous traction and I think hit the sweet spot of what customers really want on the simplified pricing. We did significant research, we really know what customers want and that is that consistency and.
And pricing I think we hit a great sweet spot there with the pricing with the tears.
Not having any kind of surprised fees and giving them an option if they want to do a price block four.
For the future. So it's a very different approach I think that some others have taken and customers are responding well so.
So we feel very good about Q1 and really the results for the rest of the year as we think about the greenfield homes that are coming on.
Leave your second question was about ACP and yes, we've been watching that news closely and certainly preparing for that we currently have 30000 customers who are on the ACP program, a 99% of those have opted in to continue services with wild when the program ends and we feel.
John S. Rego: We've made significant progress on realizing savings across the company and will continue to be diligent as we manage costs despite the higher inflationary environment. We ended the quarter with total cash of $23.4 million and total outstanding debt of $934.5 million. With our leverage ratio at 3.3 times, we reported total capital expenditure of $80.6 million, which is up $27.9 million from last year. Our core CapEx efficiency was 23.6% in the fourth quarter and 19.9% for the year. Expansion CapEx increased $26.3 million from the same period last year as we continue to invest in our future growth, bringing fiber to the homes of Central Florida and Greenville County, South Carolina. In the fourth quarter, we spent $33.8 million on greenfields, $3.4 million on edge outs, and an additional $3.6 million on business services. Our unlimited adjusted free cash flow, which we define as adjusted EBITDA less CapEx, decreased to negative $9.4 million in the fourth quarter, almost entirely driven by higher expansion spend, predominantly on greenfields. For the full year, we reported $6.5 million in adjusted unlevered free cash flow, which is down significantly from last year.
Some certainty of that and we'll have to see what happens in the future, but about 82% of our ACP participants were existing wild customers prior to enrolling in the ACP and many use this really to up tier to higher services. So it's hard to say exactly what's going to happen.
But we feel that.
We should be okay in terms of the subscriber side and we'll continue to.
Offer attractive pricing, so that hopefully we won't see much of any hit from the revenue side, but more to come since that hasn't been implemented yet.
That's very helpful. Thank you and then if I can just do one follow up there's been a lot of focus on fixed wireless, but can you maybe just remind us where telco fiber overlap is in your footprint today and how you expect that to evolve this year.
Yeah.
We have continued to have some telco overlap it's grown a bit it's still not one of the largest I think compared to our peers.
<unk> generally fiber is deployed in areas, where they know they can get a good return and given that we are an additional provider to the incumbent in our markets. It's usually not the most financially beneficial to come in with another alternative in our footprint. So we compete extremely well with that and.
So I feel good about our ability to compete with fiber where it is but we are we.
Do that every day, so not a huge concern of ours.
Great. Thanks, again for all the color.
Our next question comes from the line of Frank Louthan with Raymond James. Please go ahead.
Great. Thanks.
So you continue to build a lot outside your market can you give us some color on some of those bills and how that's expected to kind of drive adds going forward I mean in theory it should.
Relatively easy adds last year, we saw more base erosion, there or is there a point, where you think thats going to shift and what is the competitive issue and the larger and your larger legacy markets.
So overwhelming the base builds.
<unk> here thanks.
So.
I think I.
Understand the question that Frank I know Youll correct me, if I don't quite understand it so.
Talking about the new builds and the new markets, we are driving penetration very quickly 20% within six months.
John S. Rego: We are undertaking several steps to increase our free cash flow in 2024. In 2023, we invested $132 million in market expansion, with a significant portion of the upfront spend to support the entrance to our new markets. This year, we plan to spend approximately $60 million, predominantly focused on passing new homes, leveraging the investment spent last year in these markets, in addition to managing our expansion spend. We will continue to be particularly targeted in our network spending as we strategically identify areas within our infrastructure that will immediately benefit from investment, whether it is upgrading in support of DOCSIS 4.0 or fiber-to-the-home upgrades. We also executed hedges on $500 million of our long-term debt, which will help us manage our annual interest expense in 2024.
Those are very attractive markets. The reception that we're getting is extremely strong and we feel great about the pace of the construction last year I'm really focused a lot on many of the upfront aspects of that construction be it the warehouses, but getting the inventory there getting all of the Ines.
It'll work the hubs everything the locations for the hubs at all of those things in place. So now this year, we really are cranking homes passed and that is going extremely well in terms of the legacy markets. We have both some edge out additions that we've done that we added last year and continue to add some this year as well.
As well as the work that we're doing that I outlined on the previous question to really kind of a direct competition and turn around some of the losses that we've seen in those markets and I feel like we are making significant progress both on the legacy side of the business and certainly continue to accelerate momentum.
On the Greenfield side, so did I get it the essence of your question Frank.
Yeah.
Well I mean it.
It seems like the bigger issue is the losses in the base that are overwhelming.
<unk> builds and.
Can you point to or is there a point in the future, where that's going to cross where.
Where youre going to be able to see part youre spending a lot of money and still losing subscribers. What point can we see that start to work in the right direction and it seems like the bigger drag as the legacy business.
John S. Rego: Combined, we believe these efforts should put us back in a position of generating free cash flow by the end of this year. Finally, before we open the call for questions, I'd like to provide our expectations for the first quarter. As Teresa indicated in her comments this morning, we're seeing some positive indications from the steps we are taking to address the challenges in our legacy markets, and we believe that we will see further improvements throughout the year. For the first quarter, we expect HSD subscribers to be between negative 2,000 and negative 500, a significant improvement from the fourth quarter. We believe HSD's revenue will be between $104 and $107 million.
And I mean, I hear what you said about some of the changes and so forth, but what gives us confidence that this one is going to stick.
Yeah, No I think that's a great point, so I mean in the legacy business of course, we have $1 9 million homes and we've added another 30000 in Greenfield. So just the scale there is significant but what we are seeing coming out of the fourth quarter and certainly into the first quarter is a reversal of some of the trends.
The legacy business and then the continued expansion and growth that we're seeing in the Greenfield. So I do think we see a point in the future where that starts to cross and we start to see the business growing again.
So this year or is that for us.
Is that next year at what point will that be.
Yeah.
We're not giving guidance really for HFC net adds for the rest of the year for the first quarter, we have substantially improved over the fourth quarter, saying negative to thousands of negative 500 ads. That's also an improvement I believe over the first quarter of last year. So.
Operator: We expect total revenue for the first quarter to be between $159 and $162 million, and adjusted EBITDA to be between $64 and $67 million. Now, we'd like to open up the line for questions. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.
We believe it is within our grasp and we'll just have to continue to see how things.
Play out with all the many tactics and new strategies that we put in place, but we are feeling good about the momentum we've got so far.
Okay. Thank you.
Our next question comes from the line of Dan <unk> with B Riley Securities. Please go ahead.
Yes. Good morning, guys. Appreciate you taking the questions. So I know you track very closely when people churn out the reason for it and where theyre going and can you just talk about in the fourth quarter, where some of these customers why was it still mostly the low end moving to fixed wireless or is that sort of the the most common responses that you got or.
Anything to call out in terms of increased competitive pressures from the larger peers with these wireless bundles.
Yeah. The majority of the place our customers go is not to fixed wireless I think we talked about that last quarter and brought it up because it was the first time it was even much of a blip on the radar it hadn't been much for US previously so the majority of customers, who churn in and out of Wow will go to <unk> com.
Teresa L. Elder: We'll now take a moment to compile our offer. Our first question comes from the line of Chris Joel with UBS; please go ahead. Great, thank you for taking the questions. You guided us to an improved broadband subscriber trajectory in OneCue. I recognize you highlighted the steps you're taking to mitigate the impact of fixed wireless, but can you help us think through maybe other factors that contributed to the four key results that you don't expect to repeat here in OneCue? And given what's going on with the ACP program, can you help us size your ACP exposure and how you're thinking about mitigating churn there if funding does lapse? Thank you. Thanks, Chris. I'll go ahead and get started. This is Teresa.
Castro with charter, who our biggest.
Competitors everyday kind of all day, and so we feel like we created a bit of an opportunity because we had done the rate increase last year and we have also at the same time had some customers rolling off a promo. So we've really done some things to I think shore up the certainty of pricing competitiveness.
Of that and just simplified it for customers they want that certainty going forward and I think we're really addressing some of those kinds of things. So we've seen churn.
Really stepped down this quarter in the first quarter and of course, we don't want to get too much ahead of ourselves given your first quarter data, but just to let you know those are metrics of course that we track very very closely and always remain competitive. That's just the DNA of Wow is that we are competitive provider, we pride ourselves.
Our challenger brand and that means always being able to anticipate and respond to any competitive dynamics.
I think you've started to get into this and the last question that was asked but maybe I'll ask you just a little more directly so for the first quarter guidance for subscriber net adds can you talk about.
Teresa L. Elder: And so, I do not believe we will see any repeat of the fourth quarter. The fourth quarter, as we said in our last call when we were telling you what was coming, was unusual because we had just come off a large rate increase, and we were also seeing significant promo roll-offs from the customers. We've taken significant steps, as I outlined in my remarks, to really address that, and we saw improvement coming out of the end of the fourth quarter and certainly in the first quarter. So, those steps, again, are really focused on a soft landing for our promo roll-off customers, the simplified pricing that we have done that is really attracting great attention from both existing and new customers, as well as the upgrades of speed tiers that we did as a All of those are really getting tremendous traction and I think they hit the sweet spot of what customers really want. On the simplified pricing, we did significant research. We really know what customers want, and that is consistency and pricing.
Your expectations for Greenfield and what the you know maybe just directionally, what youre thinking for gross net adds in Greenfield.
Losses in the legacy markets.
Yeah, we really havent broken it down that way, so, but many of the overall number.
But of course Greenfield continues to contribute well, but in order to have that kind of a reversal from fourth quarter to first quarter and what.
We're guiding you for for the first quarter clearly we are seeing significant improvement in the legacy side of the business as well. So we're lifting the boats on both sides. We've got more homes passed on the Greenfield side to go out and.
Attract new customers. So our side was just with a group of our top salespeople. They are very excited about the reaction that theyre getting there and.
I feel good about the new markets that we're going into and on the legacy side, both shoring up.
Churn getting back down to those levels that wild has always enjoyed and also attracting new customers with the new pricing options delighting, our existing customers with those speed upgrades. So really I think working on all fronts.
Okay guys. Thanks.
Our next question comes from the line of Matthew Harrigan with benchmark. Please go ahead.
Thank you.
We'll be very happy with our robust cloud model is for identifying.
Mark and Anthony given the penetration you're getting on your cohorts, but do you think those markets are some of the characteristics of the evolve over time, so we're the near or the more competitive.
Teresa L. Elder: I think we hit a great sweet spot there with the pricing, with the tiers, not having any kind of surprise fees, and giving them an option if they want to do a price lock for the future. So, a very different approach, I think, than some others have taken, and customers are responding well. So, we feel very good about Q1 and really the results for the rest of the year as we think about the Greenfield homes that are coming on. I believe your second question was about ACP, and yes, we've been watching that news closely and certainly preparing for that. We currently have 30,000 customers who are on the ACP program, and 99% of those have opted in to continue services with WOW when the program ends. We feel some certainty about that.
Hey, Mark.
Identified.
Roy.
Modified your ROI and your hurdle rate.
Can you be a little bit more cautious.
Going forward in reaction to that and when you look at these new markets within Florida.
And some great demographic areas as far as household formation and all of that.
How much of your NAV right.
New markets as a function of.
Good demographics.
And all of that versus just the competitive intensity at least for a while.
A little less.
That's where the.
You have been you know much fiber.
T mobile Verizon about really getting too much one on hits wireless in those areas, yes, sorry apologize for being a little bit long winded, but I'm sure you get it.
Most of my questions. Thank you.
Thanks, Matthew Yeah, Dan I think I get the gist of what you are saying so in the new markets.
We do have some competitive dynamics theres no question about it but I believe what we are offering with the fiber to the home with attractive pricing once again actually the simplified pricing, where we really are bundling together the key components of the service that customers want so they don't have to do it piecemeal.
So really being very transparent in all our pricing that started in our greenfield markets as opposed to doing various promotions.
And that has worked very well in greenfield very very low churn and we took some of those key learnings along with additional research when we rolled out what we're doing now in our legacy markets. So we feel very good about the markets that we have selected and the penetration rate growth and.
Not seeing really anything for churn lots of good word of mouth. So those markets continue to be good I think the second half of your question was about okay. As we look at new markets, how does that compare what kind of criteria do we use and how does it compare to our original business plan, we still feel like we are.
Teresa L. Elder: We'll have to see what happens in the future, but about 82% of our ACP participants were existing WOW customers prior to enrolling in the ACP, and many use this really to up-tier to higher services. So it's hard to say exactly what's going to happen, but we feel that we should be okay in terms of the subscriber side, and we'll continue to offer attractive pricing so that, hopefully, we won't see much of a hit from the revenue side, but more to come since that hasn't been implemented yet. That's very helpful; thank you. And then I could just do one follow-up.
Beating the original business plan and some of those metrics, we put out way back when we did an investor day I believe in 2021, and we're feeling very good about those criteria that we had in the initial model.
The criteria that we have for selecting markets is not just about competition. Although that is a very important factor. It also we also look at the density of homes the costs to build the ratio of underground to Ariel.
The growth of the market itself versus is it.
Market or a city that is retracting insights.
The speed with which we can get launched we look at so many different criteria and I think that kind of secret sauce of how we have selected markets has proved very positive we've announced some other new markets. In addition to the ones, where we already have homes passed and we are extremely pleased with the early.
Teresa L. Elder: There's been a lot of focus on fixed wireless, but can you maybe just remind us where the telco fiber overlap is in your footprint today and how you expect that to evolve this year? Yeah, we have continued to have some telco overlap. It's grown a bit, but it's still not one of the largest, I think, compared to our peers. I think, generally, fiber is deployed in areas where they know they can get a good return.
Response from the community and how the builds are going so so far so good and we feel good about our ability to choose wisely.
And you clearly feel able to continue.
The newbuild.
Even the limited free cash generation right now.
Yes.
I'm John put out a guide for what we anticipate in terms of Capex for Greenfield. This year of $60 million last year. We spent a lot as we did a lot of the upfront work in many of these markets and those kinds of upfront costs really will support.
Teresa L. Elder: And given that we are an additional provider to the incumbent in our markets, it's usually not the most financially beneficial to come in with another alternative in our footprint. So we compete extremely well with that. And so I feel good about our ability to compete with fiber where it is. But, you know, we, you know, do that every day. So not a huge concern. Great, thanks again for all the color.
<unk> thousands of homes not just the ones we've done so far and John did you want to add more to that yes. So I mean, it's clearly less less capex dollars for Greenfield spend last year. However, a lot of the upfront work all the set up building of the hubs building the warehouses getting the materials out there this year as more purely focused on adding homes passed.
And that actually requires less money setup stuff. So we feel pretty comfortable we're going to stay on pace.
And we still feel fairly comfortable will be on pace that we said actually at the analyst day, which was back in 2021. So it's just a matter of where the where the dollars are spent but obviously, we're watching everything will be careful.
Yeah.
Thanks.
Thanks, John.
Okay.
Our final question comes from the line of branded Miscible with Keybanc capital markets. Please go ahead.
Teresa L. Elder: Our next question comes from the line of Frank Louthan with Raymond James. Please go ahead. Great, thanks. So, you continue to build a lot outside your market. Can you give us some color on some of those builds and how that's expected to kind of drive ads going forward? I mean, in theory, those should be relatively easy ads.
Hey, guys. Thanks for taking my question John I was hoping you could just address the liquidity position and it looks like you drew on the revolver again.
To the extent that you do want to go faster.
In terms of it sounds like you're slowing down quite a bit at least from a dollars perspective.
The options do you have.
To get some more liquidity in the business I mean, do you think you'll be free cash flow positive.
Turning towards the second half of the year.
Thanks, Dan.
Yes. So the plan is to be free cash flow positive for the full year. So we're doing a lot of different things Brendan just so you know so when we we are literally taking the expansion capital dollars down and we get them that's purely discretionary so we can do that.
Teresa L. Elder: Last year, we saw more base erosion there. Is there a point where you think that's going to shift? And what is the competitive issue in your larger legacy markets that's kind of still overwhelming the base builds and the new builds here? Thanks.
As I just said on Matt's question, you know we spent a lot of money in 2023 and that was a lot of the setup work.
So by spending less money, we can actually just focus on adding homes. So that's one thing for sure that we're doing.
Teresa L. Elder: So, I think I understand the question, but Frank, I know you'll correct me if I don't quite understand it. So, talking about the new builds and the new markets, we are driving penetration very quickly, 20% within six months. Those are very attractive markets. The reception that we're getting is extremely strong, and we feel great about the pace of construction. Last year, we really focused a lot on many of the upfront aspects of that construction, be it the warehouses, getting the inventory there, getting all of the initial work, the hubs, everything, the locations for the hub sites, all those things in place. So, now, this year, we really are cranking out homes past, and that is going extremely well.
We kind of blurted it out on the call, but we executed multiple hedges on about $500 million of our debt. So that will save us some cash flow as it relates to interest expense.
We also took another hard look at the Opex of the company and we also referenced that there on the call. We've done we've done some more cutting on top of the cutting that we talk about all the trying to hit the $35 million over over the next several years. So we feel we're in a place that we can do that.
Important thing to remember is that the bulk of our expanding outside of running the business is purely discretionary. So we take a little bit of cutbacks in terms of dollar spent on Greenfield dollar spent on core capex, we've done hedges and we've kind of right size. We believe some of the Opex of the company. So we feel fairly comfortable that we will be back to our cash flow.
Breakeven to somewhat positive by the end of this year that's the plan.
Thanks.
I would now like to turn the call over to Teresa elder for closing remarks.
Teresa L. Elder: In terms of the legacy markets, we have both some edge-out additions that we've done that we added last year and continue to add some this year as well, as well as the work that we're doing that I outlined in the previous question to really kind of address competition and turn around some of the losses that we've seen in those markets. And I feel like we are making significant progress both on the legacy side of the business and certainly continuing to accelerate momentum on the greenfield side. So, did I get the essence of your question, Frank?
Alright, Thank you and thanks, so much for joining us. This morning. We appreciate your continued interest and support of Wow have a great day.
This concludes today's call you may now disconnect.
Okay.
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Teresa L. Elder: Well, I mean, the bigger issue is the losses in the base that are overwhelming the new builds. And, you know, can you point to, is there a point in the future where that's going to cross, where you're going to be able to see positive results? You're spending a lot of money and still losing subscribers? At what point can we see things start to work in the right direction? And it seems like the bigger drag is the legacy business. And I mean, I hear what you said about some of the changes and so forth, but what gives us confidence that this one's going to stick? Yeah, no, I think that's a great point.
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Teresa L. Elder: So I mean, in the legacy business, of course, we have 1.9 million homes, and we've added another 30,000 in Greenfield. So just the scale there is significant. But what we are seeing coming out of the fourth quarter, and certainly into the first quarter, is a reversal of some of the trends in the legacy business, and then the continued expansion and growth that we're seeing in Greenfield. So I do think we see a point in the future where that starts to overlap, and we start to see the business growing. Is that this year, or is that next year? At what point will that be?
Okay.
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Teresa L. Elder: We're not giving guidance, really, for HSD net ads for the rest of the year. For the first quarter, we've substantially improved over the fourth quarter, saying negative 2,000 to negative 500 ads. That's also an improvement, I believe, over the first quarter of last year. So we believe it is within our grasp, and we'll just have to continue to see how things play out with all the many tactics and new strategies that we put in place, but we are feeling good about the momentum we've got so far. Okay, thank you. Our next question comes from the line of Dan Day with B. Reilly Securities. Please go ahead.
Okay.
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Teresa L. Elder: Yeah, morning, guys. Appreciate you taking the questions. So I know you track pretty closely when people churn out the reason for it and where they're going. Can you just talk about in the fourth quarter where some of these customers went? Was it still mostly the low end moving to fixed wireless?
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Teresa L. Elder: Was that sort of the most common response that you got or anything to call out in terms of increased competitive pressures from the larger peers with these wireless bundles? Yeah, the majority of the places our customers go is not to Fixed Wireless. I think we talked about that last quarter and brought it up because it was the first time it was even much of a blip on the radar.
Okay.
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Teresa L. Elder: It hadn't been much for us previously. So the majority of customers who churn in and out of WOW will go to Comcast or a charter, who are our biggest competitors every day, kind of all day. And so we feel like we created a bit of an opportunity because we had done the rate increase last year, and we also, at the same time, had some customers rolling off of promo. So we've really done some things to, I think, shore up the certainty of pricing, the competitiveness of that, and just simplified it for customers. They want that certainty going forward, and I think we're really addressing some of those primes.
Okay.
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Teresa L. Elder: So we've seen churn really step down this quarter and the first quarter. And, of course, we don't wanna get too much ahead of ourselves giving you first quarter data, but just to let you know, those are metrics that we track very, very closely and always remain competitive. That's just the DNA of WOW, that we're a competitive provider. We pride ourselves on being a challenger brand, and that means always being able to anticipate and respond to any competitive dynamic. Thanks.
Okay.
Yes.
Thank you.
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Teresa L. Elder: I think you started to get at this in the last question that was asked, but maybe I'll ask you just a little more directly. So for the first quarter guidance for subscriber net ads, can you talk about your expectations for Greenfield and what the, you know, maybe just directionally what you're thinking for gross net ads in Greenfield and then losses in the legacy markets? Yeah, but we really haven't broken it down that way.
Okay.
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Teresa L. Elder: So we've given you the overall number. But, of course, Greenfield continues to contribute well. But in order to have that kind of a reversal from the fourth quarter to the first quarter, and what we're guiding you on for the first quarter, clearly, we are seeing significant improvement in the legacy side of the business as well. So we're lifting boats on both sides. We've got more homes passed on the Greenfield side to go out and attract new customers, so I was just with a group of our top salespeople.
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Teresa L. Elder: They're very excited about the reaction that they're getting there and feel good about the new markets that we're going into. And on the legacy side, both shoring up, churn, getting back down to those levels that WOW has always enjoyed, and also attracting new customers with the new pricing options and delighting our existing customers with those speed upgrades. So really, I think, working on all fronts. Okay, good. Thanks. Our next question comes from the line of Matthew Harrigan with Benchmark. Please go ahead.
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Teresa L. Elder: Thank you. You have to be very happy with how robust your econometric model is for identifying new market entry given the penetrations you're getting in your cohorts, but do you think those markets or some of the characteristics are going to evolve over time so that they mirror the more competitive, based markets, and have you kind of identified your ROI and or modified your ROI and your hurdle rates and maybe be a little bit more cautious moving forward in reaction to that? And when you look at these new markets, I mean, Florida, etc., you're in some great demographic areas as far as household formation and all that, but how much of your identifying these great new markets is a function of, you know, good demographics and all that, you know, versus just the competitive intensity, at least for a while, being a little less intense, you know, whether it not be having, you know, much fiber or Sorry to apologize for being a little bit long-winded, but I'm sure you get the gist of my question. Thank you.
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Teresa L. Elder: Thanks, Matthew. Yes, I think I get the gist of what you're saying. So in the new market, we do have some competitive dynamics, there's no question about that. But I believe what we are offering with fiber to the home, at attractive prices, once again, actually, simplified pricing, where we really are bundling together the key components of the service that customers want, so they don't have to do it piecemeal. So really being very transparent in all our pricing, that started in our Greenfield markets, as opposed to doing, you know, various promotions. And that has worked very well in Greenfield; very, very low churn.
Okay.
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Teresa L. Elder: And we took some of those key learnings along with additional research when we rolled out what we're doing now in our legacy markets. So we feel very good about the markets that we have selected, and the penetration rate growth, and not seeing really anything for churn, lots of good word of mouth. So those markets continue to be good. I think the second half of your question was about, okay, as we look at new markets, how does that compare? What kind of criteria do we use?
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Thank you.
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Teresa L. Elder: And how does it compare to our original business plan? We still feel like we are beating our original business plan. And some of those metrics we put out way back when we did an investor day in 2021. And, you know, we're feeling very good about those criteria that we had in the initial model. The criteria that we have for selecting markets is not just about competition, although that is a very important factor. We also look at the density of homes, the cost to build, the ratio of underground to aerial, the growth of the market itself, versus is it a market or a city that is shrinking in size, the speed with which we can get launched, we look at so many different criteria.
Okay.
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Mhm.
Yeah.
Teresa L. Elder: And I think that kind of secret sauce of how we've selected markets has proved very positive. We've announced some other new markets in addition to the ones where we already have homes passed. And we're extremely pleased with the early response from the community and how the builds are going. So, so far, so good.
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Teresa L. Elder: And we feel good about our ability to choose wisely. And you clearly feel able to continue to finance the new build, given the limited pre-cast generation right now? Yes, John put out a guide for what we anticipate in terms of CapEx for Greenfield this year of $60 million. Last year, we spent a lot as we did a lot of the upfront work in many of these markets, and those kinds of upfront costs really will support hundreds of thousands of homes, not just the ones we've done so far. And John, did you want to add more to that?
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John S. Rego: Yeah, so I mean, Matt, it's clearly less CapEx dollars for Greenfield than last year. However, a lot of the upfront work, all the setup, building of the hubs, building the warehouses, getting the materials out there this year is more purely focused on adding homes past, and that actually requires less money than all the setup stuff. So we feel pretty comfortable. We're going to stay on pace. And we still feel really comfortable.
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John S. Rego: We'll be on pace that we set actually on analyst day, which was back in 2021. So it's just a matter of where the dollars are spent, but obviously, we're, we're watching everything. Thanks, Teresa. Thanks, John. Our final question comes from the line of Brandon Nispel with KeyBank Capital Markets. Please go ahead.
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Operator: Hey guys, thanks for taking the question. John, I was hoping you could just address the liquidity position. It looks like it drew on the revolver again.
Okay.
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John S. Rego: To the extent that you do want to go faster on greenfields, and it sounds like you're slowing down quite a bit, at least from a dollar's perspective. But what options do you have to get some more liquidity in the business? And then do you think you'll be free cash flow positive sort of towards the second half of the year as CapEx comes down? Yeah, so the plan is to be free cash flow positive for the full year. So we're doing a lot of different things, Brendan, just so you know.
Okay.
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Yes.
Thank you.
John S. Rego: So when we are literally taking the expansion capital dollars down, and we come in, that's purely discretionary. So we can do that. As I just said in Matt's question, you know, we spent a lot of money in 2023, and that was a lot of the set up work. So by spending less money, we can actually just focus on adding homes.
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John S. Rego: So that's that's one thing for sure that we're doing. We kind of blurted it out on the call, but we executed multiple hedges on about 500 million dollars of our debt. So that'll save us some cash flow as it relates to interest expense. We also took another hard look at the operating expenses of the company, and we also referenced that on the call. We've done some more cutting on top of the cutting that we talk about all the time to hit the thirty five million over the next several years. So we feel we are in a place that we can do that. And the important thing to remember is that the bulk of our spending outside of running the businesses is purely discretionary. So we make a little bit of cutbacks in terms of dollars spent on greenfields and dollars spent on core capex. We've done hedges, and we've got the right size, we believe, from the opex of the company.
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John S. Rego: So we feel fairly comfortable that we'll be back to a cash flow break even or somewhat positive by the end of this year. That's the Frank.
Teresa L. Elder: I would now like to turn the call over to Teresa Elder for closing remarks. All right, thank you. And thanks so much for joining us this morning. We appreciate your continued interest and support of WOW. Have a great day. This concludes today's call; you may now disconnect.
Okay.
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