WideOpenWest - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $152.6 million ($0.153B), down 9.6% year over year and down 3.4% sequentially; adjusted EBITDA rose 3.5% YoY to $73.7 million with a 48.3% margin as WOW continues to migrate off legacy video and drive cost efficiencies.
• HSD revenue was $104.9 million (−3.5% YoY), including ~$1.9 million hurricane credits; net loss improved to $(10.6) million (net margin −6.9%) vs $(43.5) million in Q4 2023.
• Greenfield fiber expansion passed 31,500 new homes in 2024; penetration reached 16.6% by year-end (down from 17.5% at Q3 due to denominator growth), while Edge-out 2024 vintage achieved ~39.8% penetration.
• Liquidity strengthened via a new Priority Credit Agreement; total debt was $1,017.4 million, cash $38.8 million, net leverage 3.5x LTM adjusted EBITDA; Q1 2025 guidance: revenue $147–$149 million, adj. EBITDA $72–$74 million, HSD net adds −6,000 to −4,500.
• S&P Global Wall Street consensus for Q4 2024 EPS/Revenue was unavailable at time of writing; estimate comparisons could not be verified (SPGI daily limit) [Values retrieved from S&P Global unavailable].

What Went Well and What Went Wrong

• What Went Well

  • Adjusted EBITDA growth and margin expansion: Q4 adj. EBITDA $73.7 million (+3.5% YoY), margin 48.3% (vs 42.2% LY), driven by restructuring away from video and operating efficiencies. Quote: “Adjusted EBITDA of $73.7 million increased 3.5% year-over-year with an adjusted EBITDA margin of 48.3%”.
  • Expansion momentum: 2024 greenfield build passed 31,500 new homes; Edge-out 2024 vintage ~39.8% penetration; ongoing fiber launches in Michigan and Florida.
  • ARPU resilience and churn improvement supported by simplified pricing and YouTube TV bundles; ARPU ~$73.50 YoY up ~1% in Q4, despite hurricane credits.

• What Went Wrong

  • Top-line pressure: total revenue down 9.6% YoY; subscription revenue down 9.8% YoY on lower Video/HSD RGUs and volume; video RGUs fell 33% YoY to 60,600.
  • HSD RGU losses: −10,200 in Q4, including ~5,400 from Hurricanes Helene/Milton; total subscribers fell to 478,700.
  • SG&A spiked in Q4 (+26.9% YoY) due to legal/professional fees tied to financing and M&A-related activities; though full-year SG&A fell 22.7% YoY; integration/restructuring items elevated in non-GAAP bridge.

Transcript

Speaker 3

Thank you for standing by, and welcome to the WideOpenWest Fourth Quarter 2024 Earnings Conference 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 would like to ask a question during this time, simply press Star, followed by the number One on your telephone keypad. If you would like to withdraw your question, again, press the Star One. Thank you. I'd now like to turn the call over to Andrew Posen, Vice President, Head of Investor Relations. You may begin.

Speaker 0

Good morning, everyone, and thank you for joining our Fourth Quarter 2024 Earnings Call. With me today is Teresa Elder, Vice Chief Executive Officer, and John Rego, Vice Chief Financial Officer. Before we get started, I'd 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 result, 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 factor section of our Form 10-K filed with the SEC, as well as the forward-looking statement section on 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 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 morning to complement our prepared remarks. Now I'll turn the call over to Vice Chief Executive Officer, Teresa Elder.

Speaker 3

Thanks, Andrew. Welcome to WOW's Fourth Quarter Earnings Call. I'm pleased with the progress we made in 2024, especially in our greenfield markets, where we continue to pass additional homes and grow our penetration rate. Looking back at 2024, we took significant steps forward toward achieving our strategic initiatives, advancing our financial performance, and enhancing value for our customers through innovative partnerships and pricing strategies, all while delivering exceptional products and services to our customers. As we mentioned last quarter, we closed a $200 million new super priority term loan in October, and this puts us in a strong position to continue to invest in our greenfield fiber market expansion. Although we had a slowdown during the third quarter, we increased our construction pace in the fourth quarter, adding homes in our newest communities of Brighton, Michigan, and Hernando Beach, Florida.

All in all, we doubled our all-fiber footprint in 2024, adding 31,500 new homes while still increasing penetration rates in our markets. We remain encouraged in our legacy markets, which saw positive trends in our RPU driven by customer upgrades to high-value services and consistent levels of low churn, all which highlights our solid base of satisfied customers. Now I would like to discuss our fourth quarter results, which reflect continued momentum in our greenfield fiber expansion markets and strong cost management. In the fourth quarter, high-speed data revenue decreased 3.5% year over year to $104.9 million, but includes $1.9 million of revenue credits issued to customers as a result of Hurricanes Helene and Milton. Adjusted EBITDA of $73.7 million increased 3.5% year over year, with an adjusted EBITDA margin of 48.3%.

The continued improvement in adjusted EBITDA predominantly reflects the benefits accrued from continuing to drive efficiency into our business as we migrate our customers off our video platform and further align our relationship with YouTube TV. For the full year, our high-speed data revenue decreased 1.6% from last year to $423.6 million, but includes $2.5 million in hurricane credits issued during the third and fourth quarters. We did record $1.5 million in insurance. We did record $1.5 million in insurance proceeds through OPEX to partially offset the lost revenue. Given this, adjusted EBITDA still increased 4.7% year over year to $288.4 million, with an adjusted EBITDA margin of 45.7%. During the fourth quarter, our fiber expansion made further progress as we passed an additional 9,300 homes in our greenfield markets, bringing our total number of homes passed to 31,500 in these new markets in 2024.

I'm especially pleased with the results in these new markets, where over the course of the year, we strengthened our penetration rates from just under 10% at the end of 2023 to 16.6% at the end of 2024. Our success in these markets reinforces our confidence in our strategy and outlook. The 2024 edge-out vintage also increased during the quarter, passing another 2,300 new homes while delivering a penetration rate close to 40%, making this vintage another strong-performing expansion effort. Our 2023 edge-out vintage increased just over 1% to a penetration rate of 30.8%, while the 2022 vintage remained strong at 31%. With regard to our HSD subscribers, we lost a total of 10,200 during the quarter. Of that, approximately 5,400 subscribers were lost due to Hurricanes Milton and Helene.

We added 1,100 HSD subscribers in our greenfield markets and 800 in our edge-out expansion markets, which partially offset the drop in our legacy footprint. The steps we introduced during the first half of the year, such as complementary 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. 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. Our RPU remains high, increasing by around 1% year over year to $73.50, despite decreasing sequentially due to the hurricane impacts previously mentioned. Overall, we continue to see the success of our product marketing and sales strategies, which are showing particular strength in our greenfield markets.

As expected, our traditional video business declined further during the quarter and now has dropped to 60,600 subscribers, a 33% decrease from the same period last year. We anticipate this trend will continue as we transition to YouTube TV, which grew significantly this past year. To conclude, before handing the call to John, I would like to emphasize how pleased I am with the progress we made this past year and the clear strength and success of our greenfield strategy that continues to make substantial strides forward, both in terms of the number of homes passed and the clear momentum as we have demonstrated our great penetration rates in these markets. I will now turn the call over to John, who will go over our financial results in more detail.

Speaker 0

Thank you, Teresa. In the fourth quarter, we reported $104.9 million of HSD revenue, which decreased 3.5% year over year, largely reflecting the decrease in HSD subscribers in addition to the $1.9 million in hurricane customer credits. The revenue for the fourth quarter decreased 9.6% to $152.6 million as video and telephony revenues dropped 26.9% and 16.9%, respectively, in addition to the decline in HSD revenue during the quarter. Adjusted EBITDA increased 3.5% from the same period last year to $73.7 million, with an adjusted EBITDA margin of 48.3%. The growth in our adjusted EBITDA reflects the impact of our continued approach to aggressively restructure our business away from our video platform. This change is reflected in integration and restructuring and is presented in the adjusted EBITDA reconciliation in our presentation and earnings release.

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. The incremental contribution margin decreased slightly from the previous quarter, but continued to grow year over year driven by the proportionate increase in HSD revenue, which increased to more than 68.7% of our total revenue this quarter, which is up from 64.4% in the same period last year. We ended the quarter with total cash of $38.8 million and total outstanding debt of $1.02 billion, with our leverage ratio at 3.5 times. As we mentioned on our last call, during the quarter, we secured a new super priority term loan for $200 million. The agreement provides the ability to raise an additional $175 million in capital one year after the super priority close date.

That additional liquidity will enable us to accelerate our fiber greenfield growth strategy in 2025 and beyond as we continue to work toward our goal of passing 400,000 new homes over the next few years. We reported total capital spend of $51.7 million, which is down $28.9 million from last year, but up $11.2 million from last quarter, predominantly due to the hurricane remediation efforts. Our core CapEx efficiency was 27.7% in the fourth quarter. Expansion CapEx decreased to $31.4 million from the same period last year and $1.2 million from last quarter. In the fourth quarter, we spent $3.9 million on greenfields, $2.5 million on edge-outs, and an additional $3 million on business services. In 2025, we expect to spend between $60-$70 million on greenfield expansion CapEx.

Our unlevered adjusted free cash flow, which we defined as adjusted EBITDA less CapEx, was $22 million for the fourth quarter, a decrease from last quarter driven by the hurricane remediation CapEx. Finally, I'd like to provide our guidance for the first quarter. We expect our HSD revenue to be between $102 million and $104 million, total revenue to be between $147 million and $149 million, and adjusted EBITDA to be between $72 million and $74 million. We expect our HSD net adds to be between negative 6,000 and negative 4,500. Before we open the line for questions, I'd like to reiterate that we do not have any information to share regarding the unsolicited non-binding acquisition proposal from DigitalBridge and Crestview Partners at this time. While we will take questions at the end of our remarks, we will not be taking any questions on that topic.

Thank you so much, and we'll now open up the line for questions.

Speaker 3

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question today comes from the line of Frank Luthen from Raymond James. Your line is open.

Speaker 1

Great. Thank you. I appreciate that you're not taking the questions on the deal, but can you confirm that both Crestview and DigitalBridge are still engaged with the offer for the acquisition? That's my first question.

Speaker 2

Yeah, Frank. We do not have any updates for you beyond what we have said every quarter.

Speaker 1

Okay. That's fine. With the new financing, can you give us an idea of how much liquidity that gives you and how long do you think that takes you from a CapEx perspective on your goal to the 400,000 homes passed? Thanks.

Speaker 0

Yeah. The first piece was the $200 million. Frankly, we did that back in October. I think I alluded in my comments we can do another $175 million in October of 2025, and that takes you pretty deep into the project. There would probably be the need to raise incremental capital along the way, but the total $375 million between the two raises, I think, gets us pretty far along. To go back to the analysts when we first talked about the greenfield project, roughly what it costs per home, etc., etc. I think we're in reasonably good shape and much better than we were before we did the deal.

Speaker 1

Okay. Great. Thank you.

Speaker 3

Your next question comes from the line of Chris Scholl from UBS. Your line is open.

Speaker 6

Great. Thank you. You guided the broadband subscriber losses in one Q. I recognize ACP and storms had an impact in recent quarters, but any remnant impact you are anticipating from one Q, or is this mainly a result of competition in your footprint? Just along these lines, any color you can give on what you're seeing from fixed wireless, fiber, and cable in your markets would be helpful. Thank you.

Speaker 2

Thanks, Chris. First of all, we are really pleased with the results from last year. If we took out the impact that we mentioned from the hurricanes, as well as the impact from ACP last year, we actually saw an improvement in 2024 over 2023. We are pleased with the trajectory of what we are seeing for 2025 as well. First of all, certainly the greenfields continue to do extremely well, and that is going to bode well. Hopefully, we do not literally have any headwinds from hurricanes again this year. We have seen good momentum from our simplified pricing, which not only brings in customers, but also has helped us with overall customers going to higher tiers, higher RPU. One of the things that we have been seeing is that our churn is going down.

We're seeing churn very low, certainly in our greenfield markets, but also in our legacy markets with the implementation last year of our simplified pricing with the optional price lock. We think YouTube TV is also having a real benefit to us on churn. Those things all bode well. With that said, yes, there is some competition in the market, and that continues the trend I think that we've seen across the whole industry. We see very little from satellite. Most of our competition, I think, is still with the traditional cable companies and some from fixed wireless, but we feel very good about the offering that we have and how we have been competing.

Speaker 6

Great. That's helpful. There has been a lot of talk in the industry about convergence. Can you update us on how the mobile product is performing, and do you see the need to push that product more aggressively in 2025?

Speaker 2

Yeah. I think we have a mobile product, but it is not one that we certainly push to the forefront as some of our peers do. I believe many of them have launched that convergence to continue to reduce their churn and drive that lifetime value with their customers. We see our ability to do that because we have this pricing that does not have surprises that our customers want with a very reliable high-speed network. We have also seen the benefits that have come from lower churn with YouTube TV. We feel that we are getting the benefits of driving those items for our customers that is really allowing us to continue to compete and, like I said, have year-over-year improvement from 2023 to 2024, and I believe on into 2025.

Certainly, we see that in spades with the success of our greenfield market and the penetration that we're driving in those new markets too.

Speaker 6

Great. Thank you very much.

Speaker 3

Your next question comes from the line of Brandon Nispel from KeyBank. Your line is open.

Speaker 4

Hey. Thanks for taking the question. Question for John. John, adjusted EBITDA is increasingly being driven up, which you guys are calling non-recurring professional fees, M&A integration. Could you help us understand what those are and maybe what's included in guidance for 2020 or for the first quarter, and maybe how we should be thinking about them for 2025, and really when we're going to get back to maybe an EBITDA metric that's not being driven off a lot of those one-time adjustments? Teresa, I mean, I guess just looking at the first quarter guide from a net add standpoint, how are you thinking about how the full year shapes up from an HSD net add standpoint? Thanks.

Speaker 0

Okay. This concept of integration is not new. It's embedded in our debt agreement. It's always been part of our definition of EBITDA. If you go back on the trending schedules, you'll see it going back years and years and years. Start with that. It's not something new. There is a lot more activity as of late. I think that'll start to diminish as we get through 2025. If I wanted to give you some of the biggies that are in that line item, it would be things like the Sprint settlement. There would be things like costs associated with the theoretical M&A activity that you keep asking us about. There are costs associated with the restructuring or, should we say, the discontinuing of the video business. As we get through 2025, I think a lot of that's going to start to flush out.

I expect that number to come down. Yeah, there is a bit of that in the quarter, first quarter of 2025. 2025 would be less than what 2026 posted. I think once we get to 2027, you'll see it go down to a really small number. We just have to flush through some pretty big things. The Sprint settlement will be done next year. I mean, the payment of the Sprint settlement, the changeover of how we approach video, we're really moving now. We're down to 60,000 video RGUs, as Teresa said. When I joined five years ago, it was over 300,000. It's really moving now. That's the second big piece. When examining bids, of course, you would imagine there are legal costs and all other kinds of costs that we incur.

They really have nothing to do with the ongoing running of the business. Yeah, it did go up, and it will come down again. There have been periods of time, if you look at the trending chart over multiple years, where it goes up and then it comes down. I think after this year, you will start to see it. During this year, you will start to see it come down. Starting next year, you will start to see it really go down. Hope that helps.

Speaker 2

Yeah. The second half of your question, Brandon, is about net adds, what we're guiding to for the first quarter, which is an improvement over the fourth quarter, certainly. We aren't seeing any other carryover from the hurricanes or from APC at this time. That's in the rearview mirror. We hope we are regaining back some of those hurricane-impacted customers who maybe had to relocate for some period of time. We'll see how that all plays out. In general, I think we're pretty bullish on how things are going this year. We feel good about what we've implemented in terms of all of our products and services and are seeing churn continue to trend down. With that said, we are certainly moving more towards YouTube TV, which also, I think, is something that very much satisfies customers.

They get a discount with us, and they seem to be very happy with that service as we are transitioning them off of the traditional product. We also continue to be pleased with the RPU improvement we're seeing. We certainly are always looking at HSD net adds, but we're also making sure that we are doing the right thing in terms of RPU and revenue for the business. Threading the needle on the many goals that we have to achieve our financials.

Speaker 4

Thanks. Same questions.

Speaker 2

Thanks.

Speaker 3

Your next question comes from the line of Matthew Harrigan from Benchmark. Your line is open.

Speaker 5

Thank you. Good to get the gang together for a conference call this time around and hear your thoughts. I was curious, even in emerging markets, operators are building out clearly FTTH given the collapse of the costs. And DOCSIS 4.0 is problematical for a lot of operators. I mean, 3.1 is generally as much as people need. But given the appeal of fiber, which you're well acquainted with, given your success on the de novo builds, how are you thinking about your existing HSD topology? I assume it's on 3.1. It's probably too expensive to go to 4.0. But what are you doing to enhance the competitiveness of your plan and even just the appeal of it to the customer side, irrespective of competition? Thanks.

Speaker 2

Thanks, Matthew. Yeah, I think we really are doing the best of both worlds. Certainly, we have fiber to the home in our greenfield markets. We also have fiber in some of our legacy areas too, if it makes sense. We do that in some of our edge-out areas, which are performing very, very well. Certainly, we know the benefits of that kind of a symmetrical fiber that we can provide to our customers. With that, what you said as well is the path to DOCSIS 4.0. Yes, we have 3.1 everywhere. We're providing 1.2 gig speeds to our customers, which is good for most residential customers for anything they need right now. However, we are on the path to 4.0, which I think is also a terrific technology.

We have a network evolution path that we are proceeding with in selected targeted markets that makes sense. I think that keeps us very competitive with the right kind of speeds we need for our customers. We are always balancing, like the question I just answered from Brandon, balancing the financials on the RPU side to make sure we're driving revenue. We also are always looking at every dollar we spend in CapEx to make sure we're getting the best return for our investors, whether it's on the greenfield side or continuing the path to 4.0 within the legacy business. We have, I think, a very robust model that we use as we look at how we spend each dollar of CapEx.

As John has said, with the new money, the $200 million that came in since last fall, we are watching everything very closely to make sure that we are always competitive in all of our markets. Yes, we are providing what our customers need. Thanks.

Speaker 5

Thanks, Teresa.

Speaker 3

We have reached the end of our question and answer session. I will now turn the call back over to Teresa for closing remarks.

Speaker 2

Okay. Before I close, I just wanted to give a shout-out to the people of WOW for their incredible work last year, and especially in the fourth quarter with two hurricanes in two weeks, as well as building greenfields and delighting our customers every day as we've reduced churn. The people of WOW are the reason that we were once again, for the seventh year in a row, named one of the best and brightest companies to work for in the nation. With that, I'd like to thank all of you for calling in today and listening to our results. We hope you have a great day.

Speaker 3

This concludes today's conference call. Thank you for your participation. You may now disconnect.