WideOpenWest, Inc. SEC 10-Q Report

WideOpenWest, Inc., one of the nation’s leading broadband providers, has released its Form 10-Q report for the quarter ended September 30, 2024. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces. This summary highlights the key aspects of the report, offering insights into the company's current state and future outlook.

Financial Highlights

Total Revenue: $158.0 million for the three months ended September 30, 2024, a decrease of $15.1 million or 9% compared to the corresponding period in 2023. For the nine months ended September 30, 2024, Total Revenue was $478.3 million, a decrease of $39.6 million or 8% compared to the corresponding period in 2023.

Operating Income (loss): $2.3 million for the three months ended September 30, 2024, compared to $(121.1) million for the corresponding period in 2023. For the nine months ended September 30, 2024, Operating Income was $11.2 million compared to $(279.4) million for the corresponding period in 2023.

Net Income (loss): $(22.4) million for the three months ended September 30, 2024, compared to $(104.5) million for the corresponding period in 2023. For the nine months ended September 30, 2024, Net Income was $(48.2) million compared to $(244.2) million for the corresponding period in 2023.

Business Highlights

Company Overview: WideOpenWest, Inc. is a leading broadband provider offering high-speed data (HSD), cable television (Video), and digital telephony (Telephony) services to residential customers, and a full range of products and services to business customers. The company's services are delivered across 16 markets via an advanced hybrid fiber-coax (HFC) network, covering suburban areas in Alabama, Florida, Georgia, Michigan, South Carolina, and Tennessee.

Customer Base and Network Reach: As of September 30, 2024, the company's broadband networks passed nearly 2.0 million homes and businesses and served approximately 490,500 customers.

Core Strategy: The company's core strategy is to provide outstanding service at affordable prices, focusing on customer experience by operating one of the most technically advanced and high-performing networks in the industry.

Broadband First Strategy: The advanced network offers HSD speeds up to 1.2 GIG (1200 Mbps) in approximately 99% of its footprint and HSD speeds up to 5 GIG (5000 Mbps) in its Greenfield expansion markets. HSD represents the greatest opportunity to enhance profitability across residential and business markets.

HSD Service Demand: For the three and nine months ended September 30, 2024, the average percentage of HSD only new connections was approximately 94%, a 3% increase compared to the corresponding periods in 2023. However, there was a decline in customers purchasing higher speeds, with approximately 71% of HSD only new connections purchasing 500MB or higher speeds, representing an approximate 9% decrease compared to the corresponding periods in 2023.

Greenfield Expansion: The company is focusing on its greenfield expansion strategy by building out its network in new locations. As of September 30, 2024, services were launched in several communities in Florida, Alabama, and South Carolina.

Hurricane Impacts: In late September 2024, Hurricane Helene caused damage to the network infrastructure, resulting in service disruptions and $0.6 million in service outage credits to customers. The company recorded a $2.4 million loss related to the estimated write-down of damaged fixed assets. On October 10, 2024, Hurricane Milton impacted the Florida markets, with the company restoring approximately 35 miles of network infrastructure and 96% of customers back online as of October 30, 2024.

Homes Passed and Subscribers: As of September 30, 2024, homes passed were 1,952,200, and total subscribers were 490,500. HSD RGUs were 480,600, Video RGUs were 66,300, and Telephony RGUs were 73,700.

Market Expansion Activities: As of September 30, 2024, homes passed in market expansion activities were 158,300, and total subscribers were 38,100. HSD RGUs were 37,800, Video RGUs were 7,400, and Telephony RGUs were 4,800.

Revenue Segments: Revenue is derived from monthly recurring charges for HSD, Video, Telephony, and other business services. HSD revenue includes fixed monthly fees for data service and modem rental. Video revenue includes fees for cable television services and equipment rental. Telephony revenue includes fees for local and enhanced services. Other business service revenue includes charges for various business services.

Operating Expenses: Operating expenses primarily include programming costs, data costs, transport costs, network access fees, hardware/software expenses, network operations and maintenance services, customer service and call center expenses, bad debt, billing and collection expenses, and franchise and other regulatory fees.

Selling, General and Administrative Expenses: These expenses include salaries and benefits of corporate and field management, sales and marketing personnel, human resources, and related administrative costs.

Depreciation and Amortization: Depreciation and amortization include depreciation of network infrastructure, equipment, hardware, software, buildings, and leasehold improvements. Amortization is recognized on other intangible assets with definite lives.

Cost Management: The company focuses on managing its cost structure by improving workforce productivity, increasing the effectiveness of purchasing activities, and maintaining discipline in customer acquisition.

Future Outlook: The company expects programming expenses to continue increasing per Video subscriber due to various factors, including increased demands by owners of some broadcast stations and annual increases imposed by programmers. The company does not expect to fully pass these increases on to customers without losing customers.

Strategic Initiatives

Greenfield Expansion Strategy: The company is focusing on its greenfield expansion strategy by building out its network in new locations adjacent and nonadjacent to its existing network. As of September 30, 2024, the company launched services in several new communities in Florida, Alabama, and South Carolina.

Capital Management: The company closed on $200.0 million of additional debt through an incremental superpriority loan on October 11, 2024. The company completed its Share Repurchase Program in June 2023, purchasing approximately 4.9 million shares for $50.4 million. During the third quarter of 2024, the company repurchased a total of 7,548 shares at an average price of $5.41 per share, primarily for the payment of taxes upon the vesting of restricted stock awards. The company is strategically managing its cash by decreasing spending on discretionary capital and expenses. As of September 30, 2024, the company had $21.6 million of cash and cash equivalents and borrowing capacity of $0.4 million under its Revolving Credit Facility.

Future Outlook: The company expects to utilize cash flow from operations, cash on hand, and proceeds from the super-priority term loan to fund its greenfield expansion initiatives. The company may also engage in future financing transactions to extend the maturities of its debt obligations, subject to market conditions. The company is actively reviewing potential acquisitions or dispositions to improve operational efficiency, geographic clustering of assets, product development, or technology capabilities. However, there is no assurance that any such transactions will be completed or material to operations or results.

Challenges and Risks

Hurricane Impacts: The company faced significant operational disruptions due to Hurricane Helene and Hurricane Milton. Hurricane Helene caused damage to network infrastructure, resulting in $0.6 million in service outage credits and a $2.4 million loss related to the write-down of damaged fixed assets. Hurricane Milton also impacted the network infrastructure, but the company does not expect a material financial impact. These events highlight the vulnerability of the company's infrastructure to natural disasters, which could lead to increased costs and service disruptions.

Decline in Subscription Revenue: There was a notable decrease in subscription revenue by $14.3 million (9%) for the three months and $38.6 million (8%) for the nine months ended September 30, 2024, compared to the same periods in 2023. This decline was driven by a reduction in revenue-generating units (RGUs) across all services and a decrease in customers purchasing higher-speed HSD services. This trend could impact the company's profitability and market position.

Increased Operating Expenses: Operating expenses, excluding depreciation and amortization, decreased by $13.0 million (17%) for the three months and $34.6 million (15%) for the nine months ended September 30, 2024. However, the company faces ongoing challenges in managing programming expenses, which are expected to continue increasing per Video subscriber due to higher demands from content providers. This could pressure margins if the company cannot pass these costs onto customers without losing subscribers.

Interest Expense: Interest expense increased by $12.7 million (67%) for the three months and $19.3 million (38%) for the nine months ended September 30, 2024, primarily due to higher debt balances and the impact of interest rate derivative instruments. This increase in interest expense could affect the company's net income and cash flow.

Impairment Losses: The company did not recognize impairment charges for the three and nine months ended September 30, 2024, unlike the previous year, which saw significant non-cash impairment charges related to franchise operating rights. However, the potential for future impairments remains a risk, particularly if cash flows decline or market conditions worsen.

Interest Rate Risk: The company is exposed to fluctuating interest rates on its variable rate indebtedness under the Senior Secured Credit Facility. As of September 30, 2024, approximately 46% of the facility is still variable rate debt. A hypothetical 100 basis point increase in SOFR interest rates could result in an annual interest expense increase of approximately $4.5 million. The company uses interest rate swaps to mitigate this risk, but significant rate increases could still impact financial performance.

No Material Changes in Risk Factors: The company reported no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023. However, the ongoing risks related to natural disasters, declining subscription revenue, increasing operating expenses, and interest rate exposure remain pertinent.

SEC Filing: WideOpenWest, Inc. [ WOW ] - 10-Q - Nov. 04, 2024