WideOpenWest Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 7 speakers on the call.

Operator

My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the WideOpenWest Q1 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, Thank you. I will now hand today's call over to Andrew Pozen, Vice President, Head of Investor Relations.

Speaker 1

Good morning, everyone, and thank you for joining our Q1 2023 earnings call. With me today is Teresa Elder, Wow! Chief Executive Officer and John Rego, Wow! Chief Financial Officer. We will make some forward looking statements about our operating results, our business strategy and other matters relating to our business, visions of the federal securities laws and are subject to known and unknown risks, uncertainties and other factors that may cause our actual operating results from those expressed or implied in our forward looking statements.

Speaker 1

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 ks 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 the press release we issued this morning, We may refer to these non GAAP financial measures to 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 1

Reconciliations between GAAP and non GAAP metrics for our historical reported results can be found in our earnings releases and our trending schedules, which can be found on our website. We have also included a presentation this morning all over to Wow! Chief Executive Officer, Teresa Elder.

Speaker 2

South First Quarter Earnings Call. I'm pleased with our results this quarter and strategy. Our 2021 asset sales built a solid foundation and a clean balance sheet, which enabled us to focus on our strategy with a clear vision to drive growth. As we report our Q1 results, we are seeing significant progress on our greenfield initiatives in our fiber to the home edge out in Alabama, all while delivering financial results that were in line with our expectations. Importantly, we continue to do this with cash from operations, while maintaining a very low leverage ratio.

Speaker 2

In the Q1, our total revenue decreased 1% from the same period last year as a 5% increase in high speed data revenue was more than offset by declines in video and telephony, which dropped 13% and 9%, respectively. Our adjusted EBITDA decreased 2% to 65% associated with our expansion in Central Florida and South Carolina. The adjusted EBITDA margin was 30 We lost 2,900 high speed data RGUs, bringing our total HSD subscribers to approximately 509,000. The reduction in HSD RGUs also drove a decline in our total number of 6,000. Despite a reduction in HR, for the 11th consecutive quarter, we maintained a higher percentage of our customers purchasing HSD only.

Speaker 2

Also consistent with past quarters, new customers are buying higher data speeds with approximately 70 gigabytes including further momentum in customers taking our 1.2 gig service. We are seeing an even stronger dynamic in our new greenfield market, where more than 90% of customers our buying speeds of 500 meg and above, including a number of customers taking either our 3 or 5 gig services. These statistics demonstrate the strong demand for faster and higher speeds and the superior quality and reliability of our network. It also reinforces our confidence in our ability to ARPU increase year over year from last quarter's normalized figure to $68.70 full effect of the rate increase that was introduced to a portion of our base, the HSD R2 increase as we add fiber customers in new markets, including greenfield and edge out and as existing customers continue to upgrade to higher speeds. Our expansion strategy continues in our most recent vintage.

Speaker 2

Our 2023 vintage, which includes our new greenfield market in Central Florida 5%. Our 2023 edge out 10.7%. The 2022 vintage increased its penetration rate to 27.6 percent and the 2021 Edge Out Vintage continues to be particularly strong with penetration. As I said before, Our expansion strategy remains an engine of growth for our business and the performance in those markets further supports our confidence and our ability to grow quickly in new market, providing an update on our greenfield expansion initiatives. As we said last quarter, We're making significant progress in Central Florida, where as of March 31st, we passed 1700 homes and have seen fantastic reception in the market, achieving a penetration rate of 23.5% in less than 3 months.

Speaker 2

In fact, considering that we added our first customer on January 25, the effort of our team driving this exceptional momentum. We expect the pace of adding homes passed to increase significantly throughout the year. We have continued to build out our footprint with construction well underway in additional Central Florida communities. Construction is also advancing in Greenville County, South Carolina, where we expect to begin providing services to consumers in several communities in the near future. The progress in these new markets represents the first phase of our commitment to bring our reliable, state of the art fiber network to 400,000 homes passed in new service areas by 2027 and New Fiber Edge Out.

Speaker 2

The core aspects of our strategy remains strong. And importantly, we are doing all of this with cash from operations, which enables us to maintain our low leverage profile. Now, I'll turn the call over to John, who will go over results in more detail.

Speaker 3

Thanks, Theresa. 2023 is off to a good start. Our high speed data business, Construction is moving along at a great pace and we are maintaining a low leverage ratio, which puts us into a fantastic position to further execute our expansion plans. In the Q1, total revenue decreased 1.4% from the same period last year to $172,200,000 and a 13.4% and 9% reduction in video and telephony, respectively. The increase in HSD revenue reflects full quarter impact of last quarter's rate increase on a portion of the base as well as new and existing customers upgrading to higher speed tiers.

Speaker 3

Adjusted EBITDA decreased 1.9% from the same period last year to $65,200,000 largely driven by higher upfronts this year as well as higher operating costs in our core business related to inflation. The mix shift in our revenue Continued towards a greater proportion coming from HSD, which increased to 61.1 percent of our total revenue this quarter. The incremental contribution margin decreased sequentially, but continued to grow year over year. The sequential decline is largely due to the timing effect of the video programming cost increases, which took effect in January and March. The year over year increase continues to reflect the favorable shift in our base to HSD only.

Speaker 3

Incremental contribution margin increased by 2.7 percentage points. Progress update on our cost structure alignment following the divestiture of the pace to hit our target of $35,500,000 by the end of 2025. Although The pace of cost reduction has been somewhat tempered. In the Q1, our total savings equate to $22,000,000 we identified for cost reduction over the next few years and we'll continue to be diligent as we manage costs despite the higher inflationary environment. We ended the quarter with total cash of $21,200,000 and total outstanding debt of 791,200,000 With our leverage ratio at 2.8 times, we reported total capital spend of 60,200,000 OpEx efficiency remained at 18.5% in the Q1.

Speaker 3

Expansion CapEx increased $23,500,000 to bring fiber to the homes of Central Florida and Greenville, South Carolina. In the Q1, we spent $20,200,000 on greenfields, $4,200,000 on Edge Outs and an additional $3,900,000 on Business Services. Expansion CapEx spend on greenfields will continue to trend at this level throughout the year. Looking at the right side of our slide, Our results for Q1 2023 unlevered adjusted free cash flow, which we define as adjusted EBITDA less $300,000 in Q1 2022. This was present predominantly on greenfields.

Speaker 3

This morning we disclosed infringement lawsuit for $48,000,000 including $27,000,000 that will be paid in May and the remainder paid over the remaining way. And we remain excited about our progress in new markets. In the Q1, we repurchased approximately 1,900,000 shares totaling $21,100,000 at an average price of $10.88 per share. We've repurchased 3,100,000 shares for approximately 33. And finally, before we open the call for questions, I'd like to provide our outlook for the Q2 and the full year.

Speaker 3

For the Q2, We expect HSD revenue to be between $106,000,000 $109,000,000 total revenue to be between $173,000,000 $176,000,000 and adjusted EBITDA to be between $65,000,000 $68,000,000 We also expect HSD net additions to be between negative 4,000 and 0. We're maintaining our full year guidance as we are seeing significant progress in our base business and strong momentum in new markets. For the full year, we expect HSD revenue to be between $437,000,000 $441,000,000 total revenue to be between $703,000,000 $707,000,000 and adjusted EBITDA to be between $286,000,000 $290,000,000 reflecting continued investments related to market expansion to use for the year as we add more fiber to the home passings throughout the year. In closing, this was another solid quarter. Commitment to our customers and our shareholders hold strong.

Speaker 3

And now we'd like to open up the line for some questions.

Operator

James?

Speaker 4

Great. Thank you. So you've been in a pretty active build mode for the last couple of years Why that is? And in the last couple of quarters, you've been seeing subscribers down and you're calling for subscribers down again in Q2 in the back half of the year that's going to get you to pause.

Speaker 2

Thanks, Frank. Yes, a couple of things. First of all, starting out with the home pass that was kind flat for this quarter, although of course we did add on past both in the Edge Out and the Greenfield areas. There are always some adjustments that are done to the overall homes passed every so often. We had some cleanup of some multiple dwelling units where there Maybe we're fewer homes that are seeing that dynamic on homes past.

Speaker 2

But of course, on the charts, we did show you what we've actually been building. And, and training and the walkouts and all of the things that go into the build process before you actually deliver activated homes passed. So there is that ramp up time and we're really seeing the machine start to take off. So, when I was in Greenfield, we're seeing very low churn continues to be, I would say on the legacy side, continues to be soft just with the macroeconomic conditions, but I am pleased that we saw significant improvements in the loss of net adds compared to the Q4. And as we build those new homes and they really start Come on, and fully going to see those subscribers take off, as well as the improvements that we're seeing within the legacy business as well, just with some of the macroeconomic trends that might be getting a bit better.

Speaker 2

So does that answer your question, Frank?

Speaker 4

So what are the tactics that you're Going to use to turn the tide in the legacy business and what gives the confidence that the new homes coming on are See the sort of explosion of growth that we use.

Speaker 2

Well, one of the things that we can do at Wow! Is really localize many of our strategies. And what we're seeing is that, although Connect have been soft for the last year or so, just With the softness in the whole economy, we're seeing a little bit of pickup. We could find that we compete extremely at work at some of the best prices that are out there really seems to resonate well with customers. So, we've seen the very end of the Q1 and even a little bit the beginning of Q2, some upticks.

Speaker 2

So pleased with seeing that in the legacy business. And as you've seen, We feel very good about the area. We can get these very incredible pops of penetration quickly. So that 23.5 percent, for example, in Central Florida, we just started there January 25. The 10.7% penetration that we're already seeing in Headland, Alabama.

Speaker 2

We started mid February. So those are very quick results And we're pleased with the reaction that we're seeing in those markets. That's why I have a lot of confidence in our ability to execute both building as well as driving sales.

Speaker 4

Overarching competitive factor, is it the wireless bundles that the cable Competitors are throwing in there, what would you say is sort of the main factor when you look at when you don't win?

Speaker 2

Yes, I would say head to head we usually win. So it's just if the customer is not choosing to perhaps switch or there's just fewer moves, fixed wireless release. So I would say if we have the opportunity to be in front of a customer, we are very successful with our close rates.

Speaker 4

All right, great. Thank you very much.

Speaker 2

Thanks, Rick.

Operator

Value Securities.

Speaker 5

Yes. Good morning, guys. Thanks for taking the questions. So John, you mentioned Higher operating costs in the core business just related to inflation. Maybe just if you could dig in a little more there where exactly you're seeing that inflation?

Speaker 5

Is it just wading perspective?

Speaker 3

No, nothing dramatic. I mean, it's a national average merit increase, so we got that one. I think the bigger things we see if Looking at OpEx versus last year and EBITDA versus last year is this year really introduces more of an upfront cost For upfront spend relating to greenfield. So remember, you go into a market, you have to do like a blitzkrieg marketing, but that's some of what we're seeing, slight increases in pricing.

Speaker 5

Okay. Thanks. And then, looks like you pulled on the revolver in the quarter. Just talk about the setting up. I don't know if it was influenced by the settlement of the patent litigation.

Speaker 5

Just any commentary there? And is the plan really

Speaker 3

No, it's not. So again, we are at 2.8 times levered, 2.5 times to 2.6 times levered. My commitment so we've got a couple of things going on at the same time. We're spending heavily on the greenfield. The Board authorized doing the share repurchase program, So you authorized $50,000,000 So you realize that we were $33,000,000 at the end of the quarter, we're almost done.

Speaker 3

It is not to just keep drawing down on that thing to take it up to its total, We just like to

Speaker 2

get it.

Speaker 5

All right, great. I'll turn it over. Thanks guys for taking the questions.

Speaker 2

Your next question is from the

Operator

line of Brandon Nispel with KeyBanc.

Speaker 6

Great. Thanks for taking the questions. Following up on Frank's question,

Speaker 1

can you talk a

Speaker 6

little bit more specifically about the ramp you Expect an HSD revenue, EBITDA and HSD subscribers. On my math, when you look at first half versus Quarterly run rate that you need in the second half. You need to get to $113,000,000 in HSD revenue quarterly versus less than 107 Based on your guide, EBITDA needs to get to 78 versus the guide of 66 this quarter and and HSD net adds need to get to 6,000 a quarter versus you're running at a minus 2,000 obviously. So would appreciate a little bit more detail in terms of how you get to your guide and why we shouldn't be just expecting sort of the low end of the guide at this point this year?

Speaker 3

Yes. So Frank, the homes are the new homes are being built as we speak. There is a massive ramp. So if you think about We disclosed today $20,000,000 was spent in Q1 towards the Greenfield initiative. So Just think of at that pace, there will be tens of thousands of more homes to sell into as we report the next quarter back to you.

Speaker 3

The ability to sell into those homes and the penetration rate into the new homes built are coming very, very quickly as we've seen. And remember when we did the whole Greenfield initiative, myriad factors that were looked at, but one of the principal factors was We are handpicking markets where there is de minimis competition, with a large player and maybe a very small player that are providing very good service at a higher price. So we feel really comfortable, excuse me, based on what we've seen in our Edge Out Fiber markets and in the Greenfield markets built that we're going to hit those So yes, you're right. You're going to see a big happen for sure.

Speaker 6

John, can I just follow-up on that? When you say tens of thousands of new greenfield homes, Are we talking about 15,000, 20000? Are we talking about 50,000 or 60,000? And then can you just address the core business in terms of HSD net adds. I mean, when we back out Greenfield and Edge Out additions from You know the reported Navin, you provide some color on when that will turn as well.

Speaker 6

Thanks. Yes.

Speaker 2

I think on Let me Just a little John and then we can tag team it. So I think in this second quarter, we're really starting to get The machine rolling to deliver those close to that 10,000 mark for Q2 and then it really ramps From there, keep in mind, we will be working in multiple markets, not just one, delivering homes passed. So I think that ramp for the year is significant. And you will see them following that, of course, the Fed. We also, are doing a lot within our legacy markets and pleased with the progress that we've been making there with a number of offerings.

Speaker 2

So, it has continued to grow in terms of ARPU and just getting more efficient and everything we're doing in the legacy markets, while we continue to have very low churn and compete very effectively at a local basis. But most of the upside of growth, I'd say, clearly is going to come from reception from the customers.

Speaker 6

Okay, great. Thanks for taking the questions.

Operator

Thank you. I will now hand today's call back over to Teresa Elders for any closing remarks.

Speaker 2

Thank you. And thank you all so much for joining us and I appreciate

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Earnings Conference Call
WideOpenWest Q1 2023
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