WideOpenWest (WOW) has announced its second quarter 2024 earnings, revealing a stable financial performance with an emphasis on fiber expansion and legacy market stabilization. The company reported a slight year-over-year decrease in high-speed data revenue, which came in at $105 million, but saw an increase in adjusted EBITDA to $70 million.
Despite the loss of 4,700 high-speed data subscribers, primarily due to the ending of the ACP program, WOW highlighted significant progress in its fiber network expansion, reaching more homes and improving penetration rates in both Greenfield and Edge-out markets.
Key Takeaways
- High-speed data revenue was reported at $105 million, a 1.6% year-over-year decrease.
- Adjusted EBITDA increased by 2.8% year-over-year to $70 million.
- WOW has expanded its fiber network, passing an additional 7,000 homes and adding 1,900 new homes to Edge-out.
- Penetration rates in Greenfield markets rose to 15.4%, and Edge-out markets grew to 38.6% for the 2024 vintage.
- The company experienced a net loss of 4,700 high-speed data subscribers, attributing the decline to the end of the ACP program.
- Total revenue decreased by 8% to $158.8 million, mainly due to lower video and telephony revenue.
- WOW is exploring funding options to support further expansion and expects HSD net adds to be negative in the third quarter.
Company Outlook
- WOW is seeking additional funding to maintain the pace of its fiber expansion.
- High-speed internet revenue is expected to be between $106 million and $109 million in the third quarter.
- Third-quarter total revenue is forecasted to be between $157 million and $160 million.
- Adjusted EBITDA for the third quarter is projected to be between $67 million and $70 million.
Bearish Highlights
- The company saw a decrease in total revenue and high-speed data subscribers in the second quarter.
- The end of the ACP program significantly impacted subscriber numbers.
- WOW anticipates a negative impact on high-speed internet subscriber numbers in the third quarter.
Bullish Highlights
- Adjusted EBITDA saw a year-over-year increase.
- WOW has made significant strides in expanding its fiber network and improving market penetration rates.
- The company reported an unlimited adjusted free cash flow of $18.9 million for the second quarter.
Misses
- The company missed on net high-speed data subscriber growth due to the ACP program ending.
- Video and telephony revenues continued to decline, contributing to the overall revenue decrease.
Q&A Highlights
- Teresa Elder, during the Q&A session, discussed the company's ARPU, customer growth, churn, and EBITDA.
- Elder acknowledged that the previous quarter's guidance had not fully accounted for the ACP's impact.
- The company is implementing strategies to stabilize its legacy base, including simplified pricing and the introduction of YouTube TV.
- No specific details were provided on the amount of ACP losses.
- Elder did not comment on the unsolicited proposal or the timeframe of the deal.
WideOpenWest (ticker: WOW) remains focused on expanding its fiber network and stabilizing its legacy markets while navigating the challenges presented by the end of the ACP program. The company's efforts to secure additional funding and preserve liquidity are aimed at continuing its expansion and improving its financial position in the upcoming quarters.
InvestingPro Insights
WideOpenWest (WOW) has been navigating a challenging landscape, as indicated by the recent second-quarter earnings report. For investors and analysts following WOW, certain real-time data and InvestingPro Tips can provide deeper insights into the company's financial health and future prospects.
InvestingPro Data highlights include a market capitalization of approximately $425.39 million, reflecting the company's size and market value. The P/E ratio, a measure of the company's earnings relative to its share price, is currently negative at -2.42, indicating that the company has been reporting losses. Additionally, revenue for the last twelve months as of Q2 2024 stands at $662.2 million, with a noted decrease of 5.26% from the previous period, which aligns with the reported decline in high-speed data revenue and total revenue in the earnings report.
InvestingPro Tips that may be particularly relevant to WOW at this juncture include the company's significant debt burden and the fact that it is quickly burning through cash. These factors are critical as WOW seeks additional funding for its expansion efforts. Moreover, analysts anticipate a sales decline in the current year, which could be a concern for investors considering the company's revenue trends. Additionally, with the company not paying dividends to shareholders, investment returns would primarily depend on stock price appreciation, which has been volatile as per recent price movements.
For a more comprehensive analysis, investors can explore additional InvestingPro Tips on https://www.investing.com/pro/WOW, where 11 tips in total are available to provide a more nuanced understanding of WideOpenWest's financial position and outlook.
WOW's strategic focus on fiber network expansion and market stabilization is crucial as it attempts to offset the challenges posed by the loss of high-speed data subscribers and the end of the ACP program. These InvestingPro Insights can help investors gauge the potential risks and opportunities associated with WideOpenWest's stock.
Full transcript - WideOpenWest Inc (WOW) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the WideOpenWest Second Quarter 2024 Earnings Call. All lines have been placed in mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Andrew Posen, Vice President, Head of Investor Relations. Please go ahead.
Andrew Posen: Good afternoon, everyone, and thank you for joining our second quarter 2024 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 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 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 afternoon, 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. Reconciliations between GAAP and non-GAAP metrics for 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 WOW’s Chief Executive Officer, Teresa Elder.
Teresa Elder: Thanks, Andrew. Welcome to WOW’s second quarter earnings call. Before we start, here is a brief update on the unsolicited non-binding acquisition proposal from DigitalBridge and Centerview Partners. A special committee of independent directors has been formed to evaluate the proposal and the work of the committee is ongoing. WOW stockholders do not need to take any action related to the proposal at this time and we do not have any updates to share today. We will take questions at the end of our remarks, however. We will not be taking any questions related to the unsolicited bid. Now I would like to turn to our second quarter results. Our results this quarter were in line with our expectations and reflect momentum in our Greenfield fiber expansion and improvements in our legacy markets, which were offset by the loss of subscribers due to the ending of the ACP program. As we have emphasized over the past several quarters, we are focused on growing our fiber footprint in our expansion markets, including both Greenfield and Edge-out and stabilizing the losses in our legacy footprint. This quarter we made substantial progress on both fronts. Excluding the impact of losses related to ACP, we would have reported a net gain of more than 300 high-speed data customers. Our second quarter results include high-speed data revenue of $105 million, down 1.6% year-over-year, adjusted EBITDA of $70 million increased 2.8% year-over-year, and an adjusted EBITDA margin of 44.1% was up 4.6 percentage points from the same period last year and 2.4 percentage points from last quarter. We have now fully realized the target of $35.5 million savings, more than a year ahead of schedule. I am pleased with the progress that we continue to make, both in terms of growing our fiber business in new markets, while also reducing our cost base and managing expenses to drive adjusted EBITDA growth. During the second quarter, our fiber expansion proceeded well. We passed an additional 7,000 new homes in our Greenfield markets, bringing our total number of homes passed in Greenfield markets to 52,500. We also added 1,900 new homes to Edge-out. Our expansion efforts are further driving our growth and continue to lay the foundation for our exciting future, providing exceptional quality fiber-to-the-home broadband service with what we believe is the best value in the market. The consistent improvement in our penetration rates across Edge-out and Greenfield s reinforces my conviction in our strategy. The penetration rates in our Greenfield markets increased nearly 3 percentage points to 15.4%, up from 12.5% at the end of the first quarter. Our Edge-out are also performing extremely well, especially the 2024 vintage, which increased to 38.6%, growing over 6 percentage points from the end of last quarter. Our 2023 Edge-out vintage increased to a penetration rate of 28.6%, which is also a great improvement from last quarter. The 2022 vintage remains strong at 31%. I am pleased with further progress we made during the quarter with respect to our subscriber numbers. The ending of the ACP program resulted in a churn of 5,000 high-speed data subscribers, resulting in a total net loss of 4,700 high-speed data subscribers. Excluding the ACP impact, HSD net adds increased by 300 subscribers. I would like to break this down a little bit further to emphasize the progress we are making in our legacy footprint. Specifically, in the second quarter, our Greenfield markets added 2,400 new HSD subscribers. Excluding the 5,000 subs from ACP, the losses in our legacy markets accounted for a loss of 2,100 HSD subs, which is 1,000 fewer losses than the first quarter and a significant improvement from the fourth quarter of last year. While there will be further impact from ACP in the third quarter, our efforts to keep those customers on our platform are mitigating some of these losses. Overall, we continue to see very low churn across our base, and the strategic steps we introduced during the first quarter are continuing to show extremely positive results. Specifically, we introduced speed upgrades and our simplified pricing plan, which includes an optional price lock, modem included, no data caps, and no contracts. The continued success of these strategies 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 of the slide shows customers buying in the lower tiers was consistent with last quarter as we worked to lower the impact from the ending of the ACP program. This resulted in a slight decrease in HSD ARPU relative to last quarter, although compared to the same period last year, ARPU increased 2.6%. The year-over-year increase was largely driven by last year’s rate increase, as well as the impact of new customers buying higher speed tiers, especially in Greenfield markets. As of the second quarter, we now have 485,000 HSD subscribers. As expected, our traditional video business declined further during the quarter, which will continue as we transition to YouTube TV. The success of this partnership is another factor that is contributing to the consistent low churn across our customer base. We are seeing a nice increase in customers buying an HSD YouTube TV bundle, a trend we expect to continue, especially in our expansion markets. Our partnership provides a fantastic opportunity to offer 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. To conclude before handing the call to John, I want to reiterate the key points that I made at the outset of the call. First, we continue to make great progress with our fiber build in expansion markets, both in terms of packing new homes and increasing our penetration rates, and we are seeing ongoing progress with regard to stabilizing our numbers and our legacy footprint. I’ll now turn the call over to John, who will go over our financial results in more detail.
John Rego: Thanks, Teresa. In the second quarter, we reported $105 million of HSD revenue, which decreased 1.6% year-over-year, largely reflecting the decrease in HSD subscribers due to ACP, as well as the impact of lower ARPU during the quarter. Total revenue for the second quarter decreased 8% to $158.8 million, as video and telephony revenue dropped 26% and 11.6% respectively, in addition to the decline in HSD revenue during the quarter. Adjusted EBITDA increased 2.8% from the same period last year to $70 million, with an adjusted EBITDA margin of 44.1%. 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 66% of our total revenue this quarter, which is up from 62% in the same period last year. With respect to our cost structure alignment, we made significant progress this quarter and have now fully realized the target of $35.5 million, more than a year ahead of schedule. In addition to these measures, we made further expense reductions, predominantly in our corporate and administrative areas, as we continue to focus on reducing our cost structure, which helped drive our adjusted EBITDA higher this quarter. We ended the quarter with total cash of $20.7 million and total outstanding debt of $974.5 million, with our leverage ratio at 3.4 times. Our current cash position is largely in line with last quarter, as we continue to lower our cost base and manage working capital. We reported total capital spend of $51.1 million, down $12.5 million from last year, and down $21.4 million from last quarter. This reflects a significant decrease in expansion CapEx. Our core CapEx efficiency was 21.1% in the second quarter. Expansion CapEx decreased $12.8 million from the same period last year and $29.4 million from last quarter, as we emphasized lighting up homes we passed and increasing penetration in our expansion markets. In the second quarter, we spent $10.2 million on Greenfield s, $2.7 million on Edge-out, and an additional $4.7 million on business services. We believe we are on track to spend no more than $60 million on Greenfield expansion this year. Although the pace of Greenfield construction has slowed down compared to Q1, it is in line with our CapEx and will continue to operate at a slower pace for the time being. We are currently exploring options to enhance our ability to accelerate our expansion initiatives. Specifically, we are actively exploring a number of options to secure additional funding. This process may or may not result in a near-term transaction. Our unlimited adjusted free cash flow, which we define as adjusted EBITDA less CapEx, was $18.9 million for the second quarter, a significant improvement from last quarter driven by the reduction in expansion CapEx. Finally, I would like to provide our expectations for the third quarter. As Teresa indicated in her comments this morning, we are seeing positive indications from the steps we are taking to address the challenges in our legacy markets. However, we believe that our results in the third quarter will reflect a number of competing dynamics that may negatively impact our HSD subscriber numbers. First, we believe that there will be an additional ACP impact on our numbers this quarter. And secondly, we are anticipating a reduction in capital spend on our expansion initiatives, which could lower the number of HSD subscribers in these markets. As a result of these items, we expect our HSD net ads to be between negative $5,000 and negative $3,000. We believe HSD revenue will be between $106 million and $109 million. We expect total revenue for the third quarter to be between $157 million and $160 million, and adjusted EBITDA to be between $67 million and $70 million. Thank you so much and now we’re going to open up the line for some questions.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of Brandon Nispel with KeyBanc Capital Markets. Your line is open.
Brandon Nispel: Hey, guys. Thanks for taking the question, John. I was hoping you could go a little bit deeper in terms of the options you’re exploring for liquidity. It looks like you ended the quarter with a fully drawn revolver and $20 million in cash, and maybe level set us. What do you expect for free cash flow for the rest of the year and what does that mean in terms of new home expansion on Greenfield for this year? Thanks.
John Rego: Okay. So thanks, Brandon. A lot in there. So, clearly we’re managing our cash position. I think we did a great job of it in the second quarter. We’ve done a lot of different things that we mentioned on the call. So we lowered our OpEx, and that’s one of the reasons we were able to hit the three-year target of $35.5 million early. We’ve gone beyond that. Clearly we’ve not stopped, but we’ve slowed the pace of capital spending in expansion, and obviously, we’re managing our working capital. So we’ve got lots of ways to preserve liquidity, and I don’t really feel we have any issues there. The theoretical possible funding options or any other options we would look at, too early to give you great detail on that, but the whole purpose of that would be to be able to expand the pace, I think, of expansion CapEx. So right now we’re on a pace to spend the $60 million for Greenfield that we said we would spend at the beginning of the year. We’ve already done about $51 million of it. I don’t see any change at all in that and to the extent that we create some sort of transaction, then I think you’ll see us expand that a bit. That’s where we’re at right now.
Brandon Nispel: Great. Thank you for taking the question.
John Rego: You bet.
Operator: Next question comes from the line of Batya Levi with UBS. Your line is open.
Batya Levi: Great. Thank you. Can you provide a little bit more color on HSD subscriber trends you’re seeing, specifically the guidance for third quarter? How much of that is, do you think, related to ACP? Are you taking any reserves against that and should we assume it will be done by the end of third quarter? And a bit of color in terms of the competitive environment would be helpful in terms of fixed wireless. Are you seeing any incremental bills from over builders or anything different from the cable side? And maybe lastly, a bit more sort of how you’re thinking about HSD ARPU trends going forward would be helpful? Thank you.
Teresa Elder: Thanks, Batya. So, first of all, on the HSD subscribers, I think we’re feeling very good about, certainly this quarter we’re talking about right now, that we would have had 300 net add positive except for ACP. And I feel like we’ve been managing the ACP base quite well. At our peak, we had 30,000 subscribers, so certainly less exposure than many of our peers out there. Specifically, for the third quarter, we will continue to see some impact from ACP. And I can tell you well over half of the disconnects that we are seeing are customers who were in a non-pace status. So they may have had all of their fees subsidized with the $30 or the majority of it, but then when the subsidy went away with the ACP program, they were no longer able to cover those. I think we’ve done a good job converting as many as possible into ongoing paying subscribers. We certainly are always balancing preserving EBITDA with throwing caution to the wind on ARPU and balancing that with customers. So for the third quarter, we’ll still see some of that impact. It’s hard to know exactly how much that will be, which is why we put the guide out there the way that we’re seeing it. I think your second question was around the competitive environment. And I think things have shifted a bit in terms of the competitive environment. I think we’ve seen a softening of any competitive impact from fixed wireless, as has been widely reported throughout the industry. I see, I guess, two reasons for that. One is just the fixed wireless providers themselves. I don’t know if they’re getting to saturation on that or what their issues are. But specifically, I can point to the competitive strategies we took starting February 1st of this year. Specifically, on our customer base, we upgraded the 200-meg subscribers to 300-meg and our 500-meg customers to 600-meg. And I think customers have appreciated that surprise and delight and appreciate the speeds that they’re getting. We also rolled out on September 1st simplified pricing that provides no contract, no data fees, no hidden fees. We also have an optional price block that gives that certainty to customers of what their bill would be over time as an option. So I think all of those things that we did competitively have helped us both on the top end of the sales funnel with connect, as well as continuing to delight our customers, which is why we’re seeing very strong low churn, so very low churn. And then the third question I believe you had was around HSD ARPU. And we are pleased that we see ARPU up on a year-over-year basis. I believe on the last quarter, the ACP did have a bit of a pull on our ARPU as we tried to place those customers who are especially cost-conscious into appropriate pricing. And, of course, the $30 subsidy went away. But in general, we are always balancing customer growth, churn with EBITDA and the revenue and ARPU growth. So I think I addressed the three questions. Did I get it?
Batya Levi: Yes. That’s helpful. Thank you.
Teresa Elder: Okay. Thanks, Batya.
Operator: Our next question comes from the line of Frank Louthan with Raymond James. Your line is open.
Frank Louthan: Great. Thank you. Back to the ACP, I think last quarter your guidance was inclusive of ACP losses. Just wanted to clarify your $3000 to $5,000 loss for Q3. Does that include ACP losses or does that not include them and if you didn’t include them, do you think you would be positive? And then I’m sure you won’t -- don’t want to discuss about the deal. But is there a timeframe that the deal is under? And are you able to accept competing bids at the time or are you actively looking for them as part of the process? If you can give us any color on that, that would be great.
Teresa Elder: Okay. So on the ACP, really our guidance last quarter was very much a guess because we didn’t know what was going to happen with the dynamics of ACP. If you think about just a quarter ago when we were reporting, we really didn’t know what the plans were, how it might filter out. So that was a guess. So I don’t think our guidance for a second quarter fully encompassed what might happen with ACP. We’ve now started to see how our transition plans for those customers are working and we’ve seen the amount of customers who are struggling and getting into non-pay status. So the negative $3,000 to $5,000 that we’re guiding to for the third quarter I think is better informed by what we’ve learned from the last couple of months with the ACP program gone. So last quarter it was not fully in our guidance. This quarter we feel more confident that we have a sense of the impact that it will make. And as for anything related to the unsolicited proposal, we really can’t comment.
Frank Louthan: Okay. Thank you. But to be -- so the $3,000 to $5,000 would include ACP losses. Can you give us an idea of what that amount is? Is it more than $5,000 you think you’re going to lose or how should we think about it?
Teresa Elder: Yeah. I think until we get there I can’t break it down in great detail, but I can tell you we do feel good about how we have been stabilizing the legacy base through all the things I mentioned with the new simplified pricing and our optional price lock, the churn reduction, YouTube TV, all of those things are definitely having a positive impact on the legacy base, as well as the rapid penetration that we’re seeing on the Greenfield side. So we feel good about those forces that are all at play, as well as managing the ACP. So more to come.
Frank Louthan: Okay. Thank you.
Teresa Elder: Thanks, Frank.
Operator: There are no further questions at this time. Ms. Elder, I turn the call back over to you.
Teresa Elder: Okay. Well, thank you so much for joining our call this afternoon and we hope you have a great rest of your day.
Operator: Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.
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