WideOpenWest (WOW), a leading broadband service provider, reported its first quarter 2024 earnings with a mix of positive developments in its expansion efforts and challenges in legacy markets. The company's high-speed data (HSD) revenue rose 1% year-over-year to $106.2 million, while adjusted EBITDA increased by 3.4% to $67.4 million. Despite a decline in total revenue due to drops in video and telephony services, WOW! demonstrated strong growth in its greenfield and Edge-Out markets, passing 18,100 new homes and maintaining robust penetration rates. However, the company also reported a net loss of 400 HSD subscribers, a significant improvement over the previous quarter. WOW! is transitioning to YouTube TV and expects HSD ARPU to rise gradually throughout the year.
Key Takeaways
- High-speed data revenue increased to $106.2 million, a 1% year-over-year rise.
- Adjusted EBITDA grew by 3.4% to $67.4 million with a margin of 41.07%.
- HSD ARPU went up by more than 5% from the same period last year.
- In greenfield markets, WOW! passed 15,100 new homes, totaling 45,500 homes passed.
- Edge-Out markets showed a 32% penetration rate for the 2024 vintage.
- Net loss of HSD subscribers was limited to 400, an improvement from the last quarter.
Company Outlook
- WOW! is progressing well in expansion markets and stabilizing legacy market subscriber numbers.
- The company is transitioning to YouTube TV to adapt to the shift in video streaming.
- HSD ARPU is expected to increase gradually over the year.
Bearish Highlights
- Total revenue declined by 6.2% from the same period last year to $161.5 million.
- Traditional video business continued to decline, affecting overall revenue.
Bullish Highlights
- Strong performance in greenfield and Edge-Out markets with high penetration rates.
- Positive response to new service offerings and simplified pricing plans.
- Nearly 490,000 HSD subscribers at the end of the first quarter.
Misses
- A slight decrease in HSD ARPU during the quarter due to new customers choosing lower tiers.
- Anticipated challenges in legacy markets continue to affect subscriber growth.
Q&A Highlights
- No questions were taken during the call due to the recent unsolicited acquisition proposal.
WideOpenWest's first quarter results reflect a company navigating through a transforming market. While facing declines in traditional services, WOW! is finding growth opportunities in new markets and through service enhancements. The company's investment in expansion and strategic alignment of its cost structure indicate a focused approach to scaling its business and improving profitability. Despite the absence of a Q&A session, the earnings call provided investors with a comprehensive view of WideOpenWest's current performance and future expectations.
InvestingPro Insights
WideOpenWest (WOW) has shown resilience in its first quarter 2024 earnings, with positive developments in its high-speed data segment and its expansion efforts. To provide a deeper understanding of the company's financial health and stock performance, here are some InvestingPro Insights that could be of interest to investors:
InvestingPro Data indicates that WideOpenWest has a market capitalization of $385.74 million, which reflects the size of the company in the market. The revenue for the last twelve months as of Q4 2023 stood at $686.7 million, despite a slight decrease of 2.58%. This shows that while the company is experiencing some challenges, it still maintains a significant level of sales. The gross profit margin for the same period was 57.26%, highlighting the company's ability to retain a majority of its revenue after the cost of goods sold.
From a stock performance perspective, WOW has experienced significant volatility. The 1-week price total return as of the most recent data point was an impressive 29.97%, and the 1-month return was also strong at 25.07%. However, the 6-month price total return was -39.9%, indicating some recent challenges that investors should be aware of.
InvestingPro Tips further reveal that management has been aggressively buying back shares, which could be a sign of confidence in the company's future prospects. Additionally, analysts predict the company will be profitable this year, providing a positive outlook for potential investors.
For those considering an investment in WideOpenWest, there are additional InvestingPro Tips available that could offer further insights into the company's operations and stock performance. With the use of coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to valuable data and analytics to inform their investment decisions. There are 12 more InvestingPro Tips listed in InvestingPro for WideOpenWest, which can be found at https://www.investing.com/pro/WOW.
Full transcript - WideOpenWest Inc (WOW) Q1 2024:
Operator: Thank you for standing by. My name is Dee, and I will be your conference operator today. At this time, I would like to welcome everyone to the WideOpenWest First Quarter 2024 Earnings Call. I would now like to turn the call over to Andrew Posen, Vice President, Head of Investor Relations. Please go ahead.
Andrew Posen: Good morning, everyone, and thank you for joining our first 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 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 to the financial information presented in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our historical reported results can be found in our earnings releases and on 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 First Quarter Earnings Call. Before we begin, I would like to acknowledge the recent news regarding the unsolicited, nonbinding preliminary acquisition proposal from Digital Bridge and Crestview Partners. A special committee of independent directors will evaluate the proposal. WOW! stockholders do not need to take any action at this time, and we do not have any updates to share today. Under the circumstances, we will not be taking any questions at the end of our remarks. Now I would like to turn to our first quarter results. Our results this quarter reflects momentum in our greenfield expansion and significant improvements in our legacy markets. Our first quarter results included high-speed data revenue of $106.2 million, up 1% year-over-year. Adjusted EBITDA of $67.4 million, which increased 3.4% year-over-year and an adjusted EBITDA margin of 41.07%. HSD ARPU also increased more than 5% from the same period last year, which represents another positive indicator and reinforces the confidence we have in our strategy, the foundation of which includes adding new homes and new customers in greenfield markets and stabilizing the subscriber losses in our legacy footprint and returning to overall growth. During the first quarter, we passed an additional 15,100 new homes in our greenfield markets, bringing our total number of homes passed in greenfield to 45,500. We also added 3,000 new homes through Edge-Out. I am extremely proud of the effort that our teams from engineering to construction to marketing, sales and installation are demonstrating and launching these new markets. Our efforts so far this year, similar to last year, included a significant amount of upfront spending, which keeps us in a strong position to pass a substantial amount of new homes in these markets. We continue to be particularly pleased with this response that we are seeing to our exceptional service and competitive offers. The penetration rates in our greenfield markets remained strong at 12.5% at quarter end, up from just under 10% last quarter. which is especially positive given the addition of 15,100 new homes this quarter. Even more impressive, though, is that we are averaging about 20% penetration within the first 6 months after activation. Our Edge-Outs are also performing extremely well. The 2024 vintage of Edge-Outs reported a 32% penetration rate, albeit off a low base. Our 2023 Edge-Out vintage increased to a penetration rate of 27%, while the 2022 vintage also remained strong at 31%. I am pleased with the progress we made during the first quarter with respect to our subscriber numbers, exceeding our expectations and making substantial improvements stabilizing the reduction in HSD subscribers. Through March 31, we reported a net loss of just 400 HSD subscribers, materially better than we reported last quarter. The improvement reflects the ongoing success of the measures that we launched during the quarter, including increasing our minimum speeds for existing customers to 300 meg as well as increasing the 500 meg customers to 600 meg. We continue to see an extremely positive response to our simplified pricing plan, which includes an optional price lock, modem included, no data caps and no contracts, which launched on February 1. The continued success of these steps has given us additional confidence in the progress that we are making to strengthen our subscriber numbers in our legacy footprint. The chart on the lower-left quadrant of the slide shows an increase in the proportion of new customers buying in the lower tiers. This shift resulted in a slight decrease in HSD ARPU during the quarter but increased more than 5% from the same period last year due to last year's rate increase as well as a majority of new customers across our legacy markets, Edge-Outs and especially in greenfield markets continue to buy 500 meg and above. We expect HSD ARPU will increase gradually throughout the year. As of the end of the first quarter, we have now nearly 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 new partnership provides a fantastic opportunity to provide more content at a much better value and to capitalize on the shift to video streaming, which we believe also contributes to our great success and strong 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 this call. First, we continue to make great progress in our expansion markets, passing 18,100 new homes in greenfield and Edge-Out markets through the end of March. And we are seeing significant progress with regard to stabilizing our numbers in our legacy footprint. Lastly, I would like to thank Tom McMillin, who is resigning from our Board for his dedication, support and counsel over the past several years through our asset sales and expansion strategy as we continue to execute our growth strategy in new markets. I would also like to welcome Jose Segrera to our Board, where I know his experience as a CFO at multiple public companies, his public accounting experience and his operating expertise will be an asset to the Audit Committee and to our Board in general. I will now turn the call over to John, who will go over our financial results in more detail.
John Rego: Thank you, Teresa. In the first quarter, we reported $106.2 million of HSD revenue, which increased 1% 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 HSD revenue was more than offset by a 24.5% and 9.1% drop in video and telephony revenue, respectively, resulting in a 6.2% decline in total revenue from the same period last year to $161.5 million. Adjusted EBITDA increased 3.4% from the same period last year to $67.4 million, with an adjusted EBITDA margin of 41.7% driven by the increase in higher-margin HSD revenue. The incremental contribution margin increased sequentially and continued to grow year-over-year, driven by the proportionate increase in HSD revenue, which increased to 66% of our total revenue this quarter, which is up from 61% in the same period last year. With respect to our cost structure alignment, we continue to be on pace to hit our target of $35.5 million by the end of 2025. As of the first quarter, our total savings equate to $29.9 million, which represents approximately 84% of the $35.5 million we identified for cost reduction over the next few years. In addition to these measures, we are making further head count reductions predominantly in our corporate and administrative areas as we continue to focus on reducing our cost structure. We ended the quarter with total cash of $19.2 million and total outstanding debt of $969.9 million, with our leverage ratio at 3.4x. We reported total capital spend of $72.5 million, down $8.1 million from last quarter, reflecting a significant decrease in maintenance CapEx. Our core CapEx efficiency was 15.8% in the first quarter. Expansion CapEx increased $18.7 million from the same period last year as we continue to invest in our future growth, bringing fiber homes to Central Florida and Greenville, South Carolina and now new markets in Michigan as well. In the first quarter, we spent $43.1 million on greenfields, $1.7 million on Edge-Outs and an additional $2.2 million on business services. As Teresa indicated in her comments, our greenfield spend included a significant amount of upfront expense focused on providing the foundation for passing additional homes throughout the remainder of the year. We believe we're on track to spend no more than $60 million on greenfield expansion this year. Our unlevered adjusted free cash flow, which we define as adjusted EBITDA less CapEx, was negative $5.1 million for the first quarter, almost entirely driven by higher expansion spend predominantly on greenfields. Finally, I would like to provide our expectations for the second 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. And we believe that we will see further approvals again in the second quarter. We expect our HSD net adds to be between negative 2,000 and negative 500. The ending of the ACP program is causing some uncertainty this quarter and is being reflected in our net adds guidance for the second quarter. We believe HSD revenue will be between $104 million and $107 million. We expect total revenue for the second quarter will be between $158 million and $161 million. And adjusted EBITDA to be between $63 million and $66 million. Thank you so much for joining us this morning, and have a great day.
Operator:
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