WideOpenWest - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 met-to-strong across headline metrics vs both company guidance and consensus: revenue slightly beat, Adjusted EBITDA topped the guide’s high end, and HSD revenue exceeded the guide; however, GAAP EPS remained a loss and revenue declined year over year as video attrition continued.
• WOW announced a take-private agreement at $5.20 per share with DigitalBridge Investments and Crestview Partners on the same day, a likely dominant stock catalyst overshadowing fundamentals; the revolver maturity was also extended in connection with the deal.
• Execution in Greenfield fiber continued: +15.5K homes passed in Q2, 91.1K cumulative homes, 16.0% penetration; CFO highlighted “another quarter of record HSD ARPU” as cost reductions in video lowered programming expense and sustained margin strength.
• Year-over-year revenue pressure persisted (-9.2% YoY) with broad RGU declines; yet Adjusted EBITDA rose modestly (+0.4% YoY) on mix shift and cost actions, lifting Adjusted EBITDA margin to 48.8% (up ~470 bps YoY).
• Liquidity stable: cash $31.8M, total long-term debt/leases $1,053.0M, LTM net leverage ~3.5x; undrawn revolver $110.4M as of Q2; revolver extension supports near-term flexibility pending transaction close.

What Went Well and What Went Wrong

What Went Well

• Record HSD ARPU and disciplined video de-emphasis supported margins: Operating expenses fell 14.6% YoY, with programming expense down $9.2M; Adjusted EBITDA margin expanded to 48.8% (vs 44.1% LY).
• Greenfield momentum: +15.5K homes passed and +2.3K subs added in Q2; 91.1K homes passed in Greenfield with 16.0% penetration; CEO: “accelerate our fiber-to-the-home expansion… driving positive momentum”.
• Guidance execution: Actuals came in at or above Q1-issued Q2 guidance ranges—Revenue $144.2M at the top end ($141–$144M), Adjusted EBITDA $70.3M above the high end ($65–$68M), HSD revenue $104.8M above the high end ($101–$104M), and HSD net adds (-3.9K) better than guided range (-6.5K to -4.5K).

What Went Wrong

• Continued revenue and RGU pressure: Total revenue -9.2% YoY; net loss widened to -$17.8M (vs -$10.8M LY); HSD RGUs decreased 23K YoY and 3.9K sequentially amid ongoing legacy footprint pressure.
• Video erosion persisted: Video RGUs fell to 42.5K from 48.9K in Q1 and 60.6K in Q4, reflecting migration to OTT offerings; video decline remained a headwind to subscription revenue and mix.
• Interest expense elevated: $25.6M in Q2 (vs $17.8M LY), weighing on GAAP profitability despite operating efficiency gains; net loss margin deteriorated to (12.3)% from (6.8)% YoY.

Transcript

Speaker 5

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the WideOpenWest second quarter 2025 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. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again press the star and one. I would now like to turn the call over to Andrew Posen, Vice President of Investor Relations. You may begin.

Speaker 4

Good afternoon, everyone, and thank you for joining our second quarter 2025 earnings call. I'm joined today by Teresa Elder, WideOpenWest Chief Executive Officer, and John Rego, WideOpenWest 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 at 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 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 WideOpenWest Chief Executive Officer, Teresa Elder.

Speaker 1

Thanks, Andrew. Welcome to WideOpenWest's second quarter earnings call. Before we review our second quarter results, I would like to spend a couple of minutes discussing this afternoon's announcements. Earlier this afternoon, we announced that we have entered into a definitive agreement under which affiliated investment funds of DigitalBridge Investments and Crestview Partners will acquire all of the outstanding shares of common stock of WideOpenWest, not already owned by Crestview and its affiliates, for $5.20 per share in an all-cash transaction with an enterprise value of approximately $1.5 billion. Crestview, our largest stockholder, has agreed to roll over all of the shares of WideOpenWest common stock that they own.

Upon the unanimous recommendation of a special committee of independent and disinterested directors formed to lead the evaluation of the potential transaction, the board unanimously approved this offer, which represents a premium of 37.2% to the unaffected price of $3.79, prior to the May 2, 2024, offer and a 63% premium to Friday's close, which we believe is a very good offer for investors. The transaction is expected to close by the end of the year or in the first quarter of 2026, subject to the satisfaction of the closing conditions, including receipt of WideOpenWest stockholder approval and of required regulatory approval. More information will be available when we file the proxy materials in the near future. In addition, we also reached an agreement to amend and extend our current revolving credit facility.

This amendment provides for our revolver to be extended for six months beyond the current term, which expires at the end of 2026. In addition, conditional on the closing of the sale to DigitalBridge and Crestview, the revolver will be further extended through September 11, 2028. The full terms of the amended agreement will be disclosed in an upcoming Form 8-K to be filed with the SEC. Now, I would like to review our second quarter results, which reflect strong momentum in our greenfield markets, building on the success we delivered in the first quarter. We maintained strong penetration rates of 16%, all while growing our footprint with an additional 15,500 new greenfield homes passed during the quarter.

We're pleased with the progress of our all-fiber new builds in Central Florida, Fernandina Beach, Florida, Brighton, Michigan, and Greenville, South Carolina, which have clearly demonstrated consumers' desire for exceptional fiber-to-the-home broadband that delivers high speeds at lower costs with exceptional customer service. In the second quarter, high-speed data revenue decreased slightly year over year to $104.8 million. Adjusted EBITDA of $70.3 million increased slightly year over year, while adjusted EBITDA margin increased from the prior year to 48.8%. Momentum in our greenfield expansion efforts further drove growth in our footprint, all while maintaining a penetration rate of 16% in our greenfield market. During the second quarter, we passed an additional 15,500 homes in our greenfield market, bringing our total number of greenfield homes passed to 91,100.

Our success in these markets includes strong selling in the higher speed tiers, which demonstrates the high quality and value of the product we're bringing to market. The 2025 edge-out vintage passed an additional 3,500 new homes in the second quarter, bringing the total vintage to 5,000 homes, while growing penetration to 28%. Our 2024 edge-out vintage increased its penetration rate to 45.8%, while the 2023 vintage remained flat at 31.4%. Our expansion efforts include both our greenfield and edge-out markets, which are all performing extremely well, supporting our growth strategy as we move into the second half of the year. With regard to our HSD subscribers, we lost a total of 3,900 during the quarter. We added 2,300 HSD subscribers in our greenfield markets and 1,100 in our edge-out expansion markets, which partially offset the drop in our legacy footprint.

Importantly, we are now seeing the growth of subscribers in our greenfield markets, coupled with improving subscriber dynamics in our legacy markets, pushing us significantly closer to hitting the inflection point where our net ads return to positive. The steps we introduced last year, such as complimentary speed upgrades and our simplified pricing plan, which include an optional price lock, modem included, no data caps, and no contracts, are continuing to benefit our business in both our legacy and expansion markets. 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.

ARPU was another record high, increasing 4.9% year over year to $75.30, predominantly reflecting the impact of a rate increase that went into effect on June 1, as well as demand for higher speed tiers, which continues to grow, with 76% of HSD-only new connects purchasing 500 Mbps or higher during the second quarter, a 4% increase year over year. Overall, we continue to see the success of our simplified pricing strategy, which is showing particular strength in our greenfield markets. As expected, our traditional video business declined further during the quarter and has now dropped to 42,500 subscribers, a 40.6% decrease from the same period last year. We anticipate this trend will continue as we transition to YouTube TV to align our total product offering with current market trends.

As a result of our declining traditional video business, overall operating expenses decreased slightly year over year, reflecting the lower number of video subscribers. The lower cost base in our legacy business enables us to maximize investment in our greenfield expansion initiative, which partially offsets the decrease in the legacy operating expenses and aligns our cost base with our core strategy. To conclude, before handing the call to John, I would like to emphasize how our results this quarter reflect momentum in our greenfield expansion as we continue to focus on our fiber-to-the-home expansion while maintaining a commitment to cost discipline and effective pricing strategy that again resulted in a record high ARPU while showing improvements in our HSD subscriber trend, moving us nearer to positive net ad inflection points. I will now turn the call over to John, who will go over our financial results in more detail.

Speaker 3

Thank you, Teresa. In the second quarter, we reported $104.8 million of HSD revenue, which decreased 0.2% year over year, largely reflecting the decrease in HSD subscribers. Total revenue for the second quarter decreased 9.2% to $144.2 million, as video and telephony revenue dropped 39.9% and 10.3% respectively, in addition to the slight decline in HSD revenue during the quarter. Adjusted EBITDA increased 0.4% from the same period last year to $70.3 million, while adjusted EBITDA margin remains strong at 48.8%. The year-over-year growth in our adjusted EBITDA reflects the impact of our continued approach to aggressively restructure our business away from our video platform. Although integration increased from the same period last year, we saw the benefit this quarter from the lower number of video subscribers, which is now reflected in lower programming costs and video support costs.

As we said last quarter, costs associated with this restructuring will continue to come down as we execute our broadband strategy. The incremental contribution margin increased over two percentage points from the previous quarter and continued to grow year over year, driven by the proportionate increase in HSD revenue, which increased to 72.7% of our total revenue this quarter, which is up from 66.1% in the same period last year. We ended the quarter with a total cash of $31.8 million and a total outstanding debt of $1.05 billion, with our leverage ratio at 3.5 times. We reported a total capital spend of $47.9 million, down $3.2 million from the same quarter last year. Our core CapEx efficiency was 18.9% in the second quarter. Expansion CapEx increased $3 million from the same period last year and $5.9 million from last quarter.

In the second quarter, we spent $14.1 million on greenfields and remain on track to spend between $60 million and $70 million in 2025. Additionally, we spent $4.3 million on edge-outs and $2.2 million on business services. Our unlevered adjusted free cash flow, which we define as adjusted EBITDA less CapEx, was $22.4 million for the second quarter, a decrease from last quarter driven by lower EBITDA and increased expansion CapEx spend. Finally, before we open the line for questions, due to this afternoon's transaction announcement, we will not be providing guidance for the third quarter. I thank you so much, and we'll now open up the line for questions.

Speaker 5

At this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Frank Lozan with Raymond James. Your line is open.

Speaker 2

Great. Thank you, and congratulations on getting the deal done. Going forward, what's the plan to continue with the greenfield build or edge-outs, or is it going to be a broader expansion? Just curious what the longer-term plan is for the business.

Speaker 1

Thanks, Frank. Yes, I would redirect you to the press release that was put out right before this call. Our focus is now making sure we continue to run the business very well while also going through all of the appropriate approvals with stockholders and with the regulatory authorities to get us to the close. The future, really, of the company, I will leave that to DigitalBridge and Crestview Partners to talk about. Once again, refer you to the quotes that are in the document.

Speaker 2

Okay. What is the, I think the release has some timeframes for the close. Is there anything that would make that materially longer? Any potential concerns you would have from a regulatory perspective or anything like that?

Speaker 1

Not that we know of right now, but I think what we referenced was it could be later this year or first quarter is our estimate. Of course, no one can completely predict, but that's the estimate.

Speaker 2

Okay, thank you very much, and congratulations.

Speaker 1

Thank you.

Speaker 2

I know you've been working on it for a long time.

Speaker 1

Thanks, Frank.

Speaker 5

Your next question comes from the line of Bacha Levy with UBS. Your line is open.

Speaker 0

Great. Thank you. Teresa, can you provide a little bit more color on your strategic review since the initial unsolicited offer you got to bring you to this decision? I think the deal implies maybe a low five multiple. The thoughts around that in terms of if you could give us maybe a fiber versus cable mix of the footprint would be helpful. Is there a breakup fee that we should consider?

Speaker 1

Yeah. I will have to direct you to the documents that will be filed as we put out the proxy. There will be lots of detail in all of those. What I can tell you in terms of the process is, as you know, the non-binding unsolicited purchase proposal came in from DigitalBridge and Crestview Partners in May of last year. At that time, a special committee of WideOpenWest's board of directors was formed that included the non-Crestview affiliated board members. I can tell you the special committee had a very thorough and diligent process. From that process, they unanimously recommended the offer presented by DigitalBridge and Crestview to the board, and then the board unanimously approved that. There will be more detail as the proxy comes out.

Speaker 0

Got it. Thank you. Maybe just a quick one on CapEx. Should we assume that you will continue at least on this year's plans to build out to edge-outs and greenfield?

Speaker 1

Yes. There's no change in this year's CapEx plan. I think the strategy of the company clearly was reflected in the bid that we got and the comments from both companies.

Speaker 0

Of your roughly 2 million homes passed, what % is directly fiber-to-the-home?

Speaker 1

I'm not sure if we've broken that out. I can tell you certainly all of the 91,100, I think, is where we're at in terms of the end of the second, the third quarter. I'm sorry, the second quarter. All of those are fiber-to-the-home. We also have some within our legacy footprint as well, but the bulk of them are in our greenfield markets.

Speaker 0

Okay, thank you very much.

Speaker 1

You bet.

Speaker 5

There are no further questions at this time. Teresa Elder, I'll turn the call back over to you.

Speaker 1

Okay. Thank you all so much for dialing in today. Before we close, I just want to thank the people of WideOpenWest, whose passion for serving our customers inspires me every day. As always, we appreciate you joining our earnings call today, and we appreciate your interest in WideOpenWest.

Speaker 5

This concludes today's conference call. You may now disconnect.