Q3 2024 WideOpenWest Inc Earnings Call
Hello and welcome to the wide open West 3rd quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: I would now like to turn the conference over to Andrew Posen, Vice President, I have a head of investor relations, you may begin.
Andrew Posen: Good afternoon everyone and thank you for joining our third quarter 2024 earnings call. With me today, Teresa Elder was Chief Executive Officer and John Rego, whose Chief Financial Officer.
Andrew Posen: Before we get started, I would like to remind everyone that during our call, we will make some forward-looking statements, but our expected operating results are business strategy and other matters relating to our business.
Speaker Change: These forward-looking statements are made in reliance on the safe harbor provisions in the federal securities laws and a subject to known and unknown risks on certain deeds and other factors that may cause our actual operating results and natural position or performance can be materially different from those expressed to implied.
and our forward-looking statements. You are cautioned not to place undue reliance on such forward-looking statements. We just claim any obligation to update such forward-looking statements.
Speaker Change: For additional information concerning factors, it could affect our financial results or cause actual results to differ materially from our forward looking statement.
Speaker Change: Please refer to our filings with the SEC, including the risk factor section of our form 10K filed with the SEC, as well as the forward-looking statement section of our press release.
Speaker Change: In addition, please note that on today's call and in the press release we issued this afternoon, we may refer to certain non-GAAP financial measures.
Speaker Change: 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.
Speaker Change: Reconciliations between gap and non-gap metrics for our historical reported results can be found in our earnings releases and our trending schedules which can be found on our website.
Speaker Change: We have also included a presentation this afternoon to complement our prepared remarks. Now I'll turn the call over to WOW's Chief Executive Officer, Teresa Elder.
Teresa Elder: Thanks Andrew. Welcome to WOW's third quarter earnings call.
Teresa Elder: Before we get started, I would like to say our thoughts go out to all who have been affected by Hurricanes Helene and Milton.
Teresa Elder: I am especially proud of our employees who continue to work tirelessly under difficult conditions to help those who are affected.
Most of our customers have now regained service.
Teresa Elder: Although we saw some impact to the business, our network held up extremely well, and we do not expect the financial impact on our business to be significant.
Speaker Change: Since we spoke to you in August, we have made solid progress on several fronts as we grow penetration in our new fiber markets and improve our liquidity to reaccelerate our greenfield fiber expansion.
Speaker Change: In early October, we closed a $200 million new super-priority term month.
Speaker Change: Enhancing our balance sheet and increasing our liquidity.
Speaker Change: which puts us in a strong position to re-accelerate our fiber greenfield strategy.
Speaker Change: and continue bringing our high-speed fiber network to a number of new communities as we work toward our goal of 400,000 fiber homes passed over the next few years.
Speaker Change: Note that we don't have any new information to share regarding the unsolicited non-binding acquisition proposal from DigitalBridge and Crestview Partners at this time.
Speaker Change: And while we will take questions at the end of our remarks, we will not be taking any questions on this topic.
Speaker Change: Now I would like to discuss our third quarter results, which included record adjusted EBITDA and significant increases in penetration rates across our fiber expansion initiatives.
Speaker Change: In the third quarter, high-speed data revenue of $107.5 million decreased 2.1% year-over-year, but increased 2.4% from the second quarter.
Speaker Change: reflecting the impact of a small rate increase which went into effect in July, as well as the benefits of simplified pricing which drove ARPU higher.
Speaker Change: The significant improvement in adjusted EBITDA predominantly reflects the benefits accrued from continuing to drive efficiency in our business as we migrate our customers off of our video platform and further align our relationship with YouTube TV.
Speaker Change: During the third quarter, our fiber expansion made further progress as we increased penetration rates across the 2023 and 2024 vintages, as well in our new greenfield fiber markets.
Speaker Change: Although the construction on new fiber homes passed slow during the quarter while we secured additional capital, our teams successfully focused on growing our customer base within our new fiber markets.
Speaker Change: And now that we have improved our liquidity with a new $200 million super priority loan, we are once again in a strong position to re-accelerate our highly successful Greenfield Cyber Expansion initiatives.
Speaker Change: The penetration rates in our greenfield fiber markets increased more than 2 percentage points, to 17.5%, up from 15.4% at the end of the second quarter, with the growth in penetration being driven by outperformance in our residential business, where penetration rates are above 20%.
Speaker Change: I'm also pleased to announce that we have begun adding customers in our newest Greenfield Fiber Market, Hernando County, Florida.
Speaker Change: Our EDGE app also saw strong results again this quarter, especially the 2024 vintage, which increased to 45%, growing over 6 percentage points.
Speaker Change: Our 2023 edge out vintage increased to a penetration rate of 29.7%, which is also a great improvement from last quarter.
Speaker Change: The 2022 vintage remains strong at 31%.
Speaker Change: With regard to our HSD subscribers, we lost a total of 4,400 during the quarter. Of that, approximately 1,900 subscribers were lost due to the ending of the ACP program, down from 5,000 last quarter.
Speaker Change: We added 1,100 fiber HSD subscribers in our greenfield markets and 1,200 in our edge-out expansion markets, which partially offset the drop in our legacy footprint.
Speaker Change: All in all, we continue to see very low churn across our base.
Speaker Change: The steps we introduced during the first half of the year, such as our complimentary speed upgrades and our simplified pricing plans, which includes an optional price lock, modem included, no data caps, and no contracts, are continuing to benefit our business.
Speaker Change: especially in our expansion markets.
Speaker Change: The charts on the bottom half of the slide highlight a shift that reflects the growing success of our fiber expansion strategy, as well as the impact of our initiatives to strengthen our legacy footprint.
Speaker Change: ARPU rose significantly during the quarter, both sequentially and year-over-year, driven by a rate increase that took effect in July, as well as continued success of our Simplified Pricing Strategy, which is showing particular strength in our greenfield fiber markets.
Speaker Change: As expected, our traditional video business declined further during the quarter and has now dropped to 66.3 thousand subscribers, a 34% decrease from the same period last year.
Speaker Change: We anticipate this trend will continue as we transition to YouTube TV, especially in our expansion markets, where customers are increasingly buying the HSD YouTube TV bundle.
Speaker Change: Our partnership provides a fantastic opportunity to offer more content to customers at a much better value and to capitalize on the shift to video streaming.
Speaker Change: To conclude before handing the call to John, I want to reinforce the significance of growing our penetration rates and how this is setting us up for continued success.
Speaker Change: I look forward to re-accelerating our growth and building on this momentum in these new markets.
Speaker Change: I'll now turn the call over to John, who will go over our financial results in more detail.
Speaker Change: Thank you for watching. I'm Teresa Elder. I'll see you next time.
John: In the third quarter, we reported $107.5 million of HSD revenue, which decreased 2.1 percent year-over-year, largely reflecting the decrease in HSD subscribers. Total revenue for the third quarter decreased 8.7 percent to $158 million, and video and telephony revenue dropped 28 percent and 9.5 percent respectively, in addition to the decline
John: Adjusted EBITDA increased 9% from the same period last year to $77.3 million, with an adjusted EBITDA margin of 48.9%. The growth in our adjusted EBITDA reflects the impact of beginning to more aggressively restructure our business.
John: away from our video platform.
Speaker Change: This change is reflected in integration and restructuring and is presented in the adjusted EBITDA reconciliation in our presentation and earnings release.
Speaker Change: Costs associated with this restructuring will come down and be subsequently reflected in integration as we continue to execute our broadband strategy and take the costs completely out of the business.
Speaker Change: The incremental contribution margin increased sequentially and continued to grow year over year, driven by the proportionate increase in HSD revenue, which increased to more than 68% of total revenue this quarter, up from 63% in the same period of last year.
Speaker Change: We ended the quarter with total cash of $21.6 million and total outstanding debt of $973 million with our leverage ratio at 3.4 times.
Speaker Change: However, on October 11th, we secured a new Super Priority Term Loan for $200 million. This new credit agreement will mature in December 2028, bears interest at the rate equal to SOFR plus 7%.
Speaker Change: This additional liquidity will enable us to re-accelerate our fiber greenfield strategy as we continue to work toward our goal of passing 400,000 new homes over the next few years.
Speaker Change: We reported a total capital spend of $40.5 million, which was down $24 million from last year and $10.6 million from last quarter, reflecting a significant decrease in expansion CapEx. Our core CapEx efficiency was 18.9% in the third quarter.
Speaker Change: Expansion CapEx decreased $22.3 million from the same period last year and $7 million from last quarter, as we emphasized lighting up the homes we've passed and increasing penetration in our expansion markets.
Speaker Change: In the third quarter, we spent $6.5 million on greenfields, $0.5 million on edge-outs, and an additional $3.6 million on business services.
Speaker Change: Our Unlimited Adjusted Free Cash Flow, which we defined as Adjusted EBITDA less CapEx, was $36.8 million for the third quarter. A significant improvement from last quarter, driven by the increase in Adjusted EBITDA and the reduction in Expansion CapEx.
Speaker Change: Finally, I would like to provide our guidance for the full year. We expect our HSD revenue to be between $422 and $426 million, total revenue to be between $629 and $633 million.
Speaker Change: and adjusted EBITDA to be between $284 and $288 million.
Speaker Change: We expect our HST subscriber numbers to be between a negative 19,500 and a negative 16,500. However, that includes an estimate of approximately 6,000 to 7,000 subscribers lost in the fourth quarter due to the hurricanes.
Speaker Change: and the loss of approximately 6,900 subscribers due to the discontinuation of ACP earlier this year. Thank you so much, and we'll now open up the line for some questions.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you.
Speaker Change: Your first question comes from the line of Batia Levi with UBS. Your line is open.
Batia Levi: Great, thank you. Maybe just following up on the recent broadband commentary you provided, four Q underlying trends excluding the ACP impact
Batia Levi: and Storm, do you expect an improvement to continue? And if you could also touch upon the competitive environment and if we hear from the cable operators with an increased emphasis on converged bundles, is there any change in the activity that you're seeing? And maybe a question on the CapEx, where will you end the year with that incremental 10 million CapEx on the Greenfield expansion? And how should we think about the pace of new builds and CapEx over the next year or so? Thank you.
Speaker Change: Great. Thanks, Batia. I'll start on the broadband commentary and then turn it over to John on the CapEx questions.
Speaker Change: So, as John mentioned,
Speaker Change: ACP for this quarter, the
Speaker Change: Deduction was about 1,900 customers, which is less than we had originally anticipated.
Speaker Change: That brings the full year impact for us of those ACP customers rolling off when that federal program went away of $6,900. We do not anticipate any more impact in ACP roll-off in the fourth quarter, so we believe that that's done.
Speaker Change: And that is as we...
Speaker Change: really are understanding which customers are just temporarily relocated because of damage to their home when they might be coming back. So that one is a little bit in flux as we really continue to work with the communities. And for us, the...
Speaker Change: The most significantly impacted market was Augusta. Really our Florida market has returned in pretty good shape, still a bit of recovery there, but we're certainly grateful that the impact wasn't worse in that market.
Speaker Change: So, those are the two kind of unusual things and how we're thinking about them for the fourth quarter. So, nothing more from ACP, and we're guessing $6,000 to $7,000 for the hurricane.
Speaker Change: When I look at the rest of Legacy, we actually have seen some very positive trends, and certainly on a year-over-year basis, we're very pleased with the impact of the things that we have been doing.
Speaker Change: We did the speed upgrades, the complimentary speed upgrades, for customers at our lowest two tiers back a few months ago, at the end of, or beginning of March.
Speaker Change: And so we think that has really helped drive down churn
Speaker Change: We also launched the Simplified Pricing, which is our plans.
Speaker Change: which don't have like a promotion roll off. These are our everyday very strong pricing that gives customers certainty on what their bill will be if they choose to enroll in the optional price block, which we charge an extra amount for because many customers are taking that option so they have that certainty for the future.
Speaker Change: We feel those things have increased customer satisfaction, decreased churn, and really helped stabilize our legacy base.
Speaker Change: The other thing that we are certainly excited about, we've continued to see
Speaker Change: So we have been cultivating those homes past that we added earlier in the year in this last quarter.
Speaker Change: And now that we've turned the Greenfield machine up again, with the influx of the new capital from our debt deal, we look forward to bringing on more new customers as we launch new homes.
Speaker Change: the Greenfield markets. So John, do you want to answer the second half around CapEx?
John Rego: Yeah, so CapEx spending clearly got, and you can tell it from the numbers reported, a little bit slowed down in the third quarter.
Speaker Change: as we were sort of preserving liquidity while we worked on the new debt transaction. We'll spend another $10 million on Greenfield in Q4. That'll bring the Greenfield spend for 2024 in at around $70 million.
Speaker Change: Total CapEx is probably in the 2005-2010 range. We haven't given guidance going forward next year, but I think the pace of money spent in 2024 is probably what...
Speaker Change: expansion spending is going to look like for the next year or two going forward. So, you know, we had a slowdown but we're kind of cranked up the machine again and that was the predominant reason to go out and raise some more capital.
Speaker Change: Thanks so much. Just with that 10 million incremental greenfield CAPEX, where do you, how many more homes do you plan to build in 4Q?
Speaker Change: Yeah, we don't give that access to but we can we can we can tell you in February when we report. Okay, but we will quickly look clearly back to building fiber homes again. Okay. And as we as we as we learned today from the Zipley announcement that fiber homes are pretty valuable.
Speaker Change: Okay, thank you.
Speaker Change: Your next question comes from the line of Brandon Nispel with KeyBank Capital Markets. Your line is open.
Brandon Nispel: Hi, thank you for taking the question. When you guys announced the financing transaction, you put out some financial projections on the business. Can you talk about just overall how we should be thinking about modeling the business in the context of those projections over the next couple of years?
Brandon Nispel: and secondly if you could focus on the adjusted EBITDA trajectory of the legacy markets and share with us how you see the profitability of the greenfield markets progressing please. Thank you.
Brandon Nispel: Yeah, so what was, this is John speaking, what we put out, Brandon, was
Brandon Nispel: was pretty trajectory of the model that was used while we were out raising the funds. That could be your baseline starting point. One thing that that that did anticipate was that the money would actually be raised. So I think you're going to have to look at it in that that light. We'll give a more clarity to what we think 25 looks like when we do next quarter's call. Excuse me.
Brandon Nispel: As it relates to Greenfield versus Legacy, so let's take Legacy first. Legacy is still profitable, and Legacy generates a ton of cash flow still, and will for the foreseeable future. Greenfield is just getting built. It hasn't hit its inflection point yet.
Brandon Nispel: So Greenfield is clearly a cash negative draw, but we're building incredible shareholder value by doing it. So it's kind of an odd thing. It isn't big enough yet, and we haven't reached the point where it makes sense for me to bifurcate it and show you A plus B equals C, but I promise you that's how we look at it.
Brandon Nispel: Do not be a little bit patient, I'll give you clarity on 25 on the next call. If you want to do some baseline modeling, you can take what was put out on that 8K, which is the same information that the lender saw.
Brandon Nispel: and then envision what happens if you put the money raised in the numbers.
Speaker Change: Awesome, thank you.
Speaker Change: Thank you. Bye.
Speaker Change: Your next question comes from the line of Frank Luthan with Raymond James. Your line is open.
Frank Luthan: Great, thank you. You probably can't comment, but I just wanted to see if you can confirm that both DigitalBridge and Crestie are still involved in the pursuit for the GoPrivate. Have any of them dropped out or has anyone else approached you on the deal? Is there anything you can comment around that?
Speaker Change: I guess what we can say is that nothing has changed from our previous updates that we've given you.
Speaker Change: Okay, great. That's very helpful. Thank you very much.
Speaker Change: This concludes the question and answer session. I'll turn the call to Teresa for closing remarks.
Teresa Elder: Okay, well, thank you so much. We appreciate your interest in WOW and thank you for joining us this afternoon.
Speaker Change: This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
Teresa Elder: [music]