UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to | |
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
|
(
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | |
Non-accelerated filer ☐ | Smaller reporting company |
Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of outstanding shares of the registrant’s common stock as of November 3, 2023 was
WIDEOPENWEST, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2023. Any statement contained in a prior periodic report shall be deemed to be modified or superseded for purposes of this Quarterly Report to the extent that a statement contained herein modifies or supersedes such statement. The Securities and Exchange Commission allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report. References in this Quarterly Report to “WOW,” “we,” “us,” “our,” or “the Company” are to WideOpenWest, Inc. and its direct and indirect subsidiaries, unless the context specifies or requires otherwise.
i
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report that are not historical facts contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events. Such statements involve certain risks, uncertainties and assumptions. Forward-looking statements include all statements that are not historical fact and can be identified by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “anticipate,” “expect,” “believe,” “estimate,” “plan,” “project,” “predict,” “potential,” or the negative of these terms. Although these forward-looking statements reflect our good-faith belief and reasonable judgment based on current information, these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including, but not limited to:
| ● | the ability to retain and further attract customers due to increased competition, resource abilities of competitors, and shifts in the entertainment desires of customers; |
| ● | our ability to respond to rapid technological change, including our ability to develop and deploy new products and technologies; |
| ● | increases in programming and retransmission costs and/or programming exclusivity in favor of our competitors; |
| ● | the disruption or failure of our network information systems or technologies as a result of hacking, viruses, outages or natural disasters in one or more of our geographic markets; |
| ● | the effects of new regulations or regulatory changes on our business; |
| ● | our substantial level of indebtedness, sensitivity to increases in prevailing interest rates, and our ability to comply with all covenants in our debt agreements; |
| ● | our ability to procure necessary materials, equipment and services from our vendors in a timely manner in connection with our network expansion initiatives; |
| ● | changes in laws and government regulations that may impact the availability and cost of capital; |
| ● | effects of uncertain economic conditions (e.g., unemployment, decreased disposable income, etc.) which may negatively affect our customers’ demand or ability to pay for our current and future products and services; |
| ● | our ability to manage the risks involved in the foregoing; and |
other factors described from time to time in our reports filed or furnished with the SEC, and in particular those factors set forth in the section entitled “Risk Factors” in our annual report filed on Form 10-K with the SEC on February 27, 2023 and other reports subsequently filed with the SEC. Given these uncertainties, you should not place undue reliance on any such forward-looking statements. The forward-looking statements included in this report are made as of the date hereof or the date specified herein, based on information available to us as of such date. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.
ii
PART I-FINANCIAL INFORMATION
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| September 30, | December 31, | ||||
|
| 2023 |
| 2022 | ||
| (in millions, except share data) | |||||
Assets |
|
|
|
| ||
Current assets |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable—trade, net of allowance for doubtful accounts of $ |
| |
| | ||
Accounts receivable—other, net |
| |
| | ||
Prepaid expenses and other |
| |
| | ||
Total current assets |
| |
| | ||
Right-of-use lease assets—operating | | | ||||
Property, plant and equipment, net |
| |
| | ||
Franchise operating rights |
| |
| | ||
Goodwill |
| |
| | ||
Intangible assets subject to amortization, net |
| |
| | ||
Other non-current assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and stockholders’ equity |
|
|
|
| ||
Current liabilities |
|
|
|
| ||
Accounts payable—trade | $ | | $ | | ||
Accrued interest |
| |
| | ||
Current portion of long-term lease liability—operating | | | ||||
Accrued liabilities and other |
| |
| | ||
Current portion of long-term debt and finance lease obligations |
| |
| | ||
Current portion of unearned service revenue |
| |
| | ||
Total current liabilities |
| |
| | ||
Long-term debt and finance lease obligations, net of debt issuance costs —less current portion | | | ||||
Long-term lease liability—operating | | | ||||
Deferred income taxes, net |
| |
| | ||
Other non-current liabilities |
| |
| | ||
Total liabilities |
| |
| | ||
Commitments and contingencies (Note 13) |
|
|
|
| ||
Stockholders' equity: | ||||||
Preferred stock, $ | ||||||
Common stock, $ |
| |
| | ||
Additional paid-in capital |
| |
| | ||
Accumulated income | | | ||||
Treasury stock at cost, |
| ( |
| ( | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended | Nine months ended | ||||||||||
|
| September 30, |
| September 30, | ||||||||
2023 |
| 2022 | 2023 |
| 2022 | |||||||
(in millions, except share data) | ||||||||||||
Revenue | $ | | $ | | $ | | $ | | ||||
Costs and expenses: |
|
|
|
| ||||||||
Operating (excluding depreciation and amortization) |
| |
| |
| |
| | ||||
Selling, general and administrative |
| |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
Impairment losses on intangibles | | — | | — | ||||||||
| |
| |
| |
| | |||||
(Loss) income from operations |
| ( |
| |
| ( |
| | ||||
Other income (expense): |
|
|
|
| ||||||||
Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Other income, net |
| ( |
| |
| |
| | ||||
(Loss) income before provision for income tax |
| ( |
| |
| ( |
| | ||||
Income tax benefit (expense) |
| |
| ( |
| |
| ( | ||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | | ||||
Basic and diluted (loss) earnings per common share | ||||||||||||
Basic | $ | ( | $ | | $ | ( | $ | | ||||
Diluted | $ | ( | $ | | $ | ( | $ | | ||||
Weighted-average common shares outstanding | ||||||||||||
Basic | | | | | ||||||||
Diluted | | | | | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| |||||||||||||||||
Common | Treasury | Additional | Total | ||||||||||||||
Common | Stock | Stock at | Paid-in | Accumulated | Stockholders' | ||||||||||||
| Stock |
| Par Value |
| Cost |
| Capital | Income |
| Equity | |||||||
| (in millions, except share data) | ||||||||||||||||
Balances at January 1, 2023 | |
| $ | | $ | ( | $ | | $ | | $ | | |||||
Stock-based compensation | — |
| — | — |
| |
| — |
| | |||||||
Issuance of restricted stock, net | | — | — |
| — |
| — |
| — | ||||||||
Purchase of shares | ( |
| — | ( | — | — | ( | ||||||||||
Net loss | — |
| — | — |
| — |
| ( |
| ( | |||||||
Balances at March 31, 2023(1) | |
| $ | | $ | ( | $ | | $ | | $ | | |||||
Stock-based compensation | — | — | — | | — | | |||||||||||
Issuance of restricted stock, net | ( | — | — |
| — |
| — |
| — | ||||||||
Purchase of shares | ( | — | ( |
| — |
| — |
| ( | ||||||||
Net loss | — | — | — |
| — |
| ( |
| ( | ||||||||
Balances at June 30, 2023(1) | |
| $ | | $ | ( | $ | | $ | | $ | | |||||
Stock-based compensation | — | — | — | | — | | |||||||||||
Issuance of restricted stock, net | ( | — | — | — | — | — | |||||||||||
Purchase of shares | ( | — | ( | — | — | ( | |||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||
Balances at September 30, 2023(1) | | $ | | $ | ( | $ | | $ | | $ | | ||||||
| (1) | Included in outstanding shares as of March 31, 2023, June 30, 2023 and September 30, 2023 are |
Common | Treasury | Additional | Total | ||||||||||||||
Common | Stock | Stock at | Paid-in | Accumulated | Stockholders' | ||||||||||||
| Stock |
| Par Value |
| Cost |
| Capital | Income |
| Equity | |||||||
| (in millions, except share data) | ||||||||||||||||
Balances at January 1, 2022 | |
| $ | |
| $ | ( | $ | | $ | | $ | | ||||
Stock-based compensation | — |
| — |
| — |
| |
| — |
| | ||||||
Issuance of restricted stock, net | | — |
| — |
| — |
| — |
| — | |||||||
Purchase of shares | ( |
| — | ( | — | — | ( | ||||||||||
Net income | — | — | — | — | | | |||||||||||
Balances at March 31, 2022(1) | |
| $ | |
| $ | ( | $ | | $ | | $ | | ||||
Stock-based compensation | — |
| — |
| — |
| |
| — |
| | ||||||
Issuance of restricted stock, net | ( | — |
| — |
| — |
| — |
| — | |||||||
Purchase of shares | ( |
| — | ( | — | — | ( | ||||||||||
Net income | — |
| — |
| — |
| — |
| |
| | ||||||
Balances at June 30, 2022(1) | |
| $ | |
| $ | ( | $ | | $ | | $ | | ||||
Stock-based compensation | — | — | — | | — | | |||||||||||
Issuance of restricted stock, net | ( | — | — | — | — | — | |||||||||||
Purchase of shares | ( | — | ( | — | — | ( | |||||||||||
Net income | — | — | — | — | | | |||||||||||
Balances at September 30, 2022(1) | |
| $ | |
| $ | ( | $ | | $ | | $ | | ||||
(1) | Included in outstanding shares as of March 31, 2022, June 30, 2022 and September 30, 2022 are |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended | |||||
|
| September 30, | ||||
2023 | 2022 | |||||
| (in millions) | |||||
Cash flows from operating activities: |
|
|
|
| ||
Net (loss) income | $ | ( | $ | | ||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|
| ||||
Depreciation and amortization |
| |
| | ||
Deferred income taxes |
| ( |
| ( | ||
Provision for doubtful accounts |
| |
| | ||
Loss (gain) on sale of operating assets, net | | ( | ||||
Amortization of debt issuance costs and discount |
| | | |||
Impairment losses on intangibles | | — | ||||
Non-cash compensation |
| |
| | ||
Other non-cash items |
| |
| | ||
Changes in operating assets and liabilities: |
|
| ||||
Receivables and other operating assets |
| ( |
| ( | ||
Payables and accruals |
| |
| ( | ||
Net cash provided by (used in) operating activities | $ | | $ | ( | ||
Cash flows from investing activities: |
|
|
| |||
Capital expenditures | $ | ( | $ | ( | ||
Other investing activities |
| |
| | ||
Net cash used in investing activities | $ | ( | $ | ( | ||
Cash flows from financing activities: |
|
|
| |||
Proceeds from issuance of long-term debt, net | $ | | $ | — | ||
Payments on long-term debt and finance lease obligations |
| ( |
| ( | ||
Purchase of shares | ( | ( | ||||
Net cash provided by (used in) financing activities | $ | | $ | ( | ||
Decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents, beginning of period |
| |
| | ||
Cash and cash equivalents, end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information: |
|
|
| |||
Cash paid during the periods for interest | $ | | $ | | ||
Cash paid during the periods for income taxes | $ | | $ | | ||
Cash received during the periods for refunds of income taxes | $ | | $ | — | ||
Non-cash operating activities: | ||||||
Operating lease additions | $ | | $ | | ||
Non-cash financing activities: |
|
| ||||
Finance lease additions | $ | | $ | | ||
Capital expenditures within accounts payable and accruals | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
WIDEOPENWEST, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
(unaudited)
Note 1. General Information
WideOpenWest, Inc. (“WOW” or the “Company”) is one of the nation’s leading broadband providers offering an expansive portfolio of advanced services, including high-speed data (“HSD”), cable television (“Video”), and digital telephony (“Telephony”) services to residential and business customers. The Company serves customers in
The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company operates as
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”); however, in the opinion of management, the disclosures made are adequate to ensure the information presented is not misleading. The year-end consolidated balance sheet was derived from audited financial statements.
In the opinion of management, all normally recurring adjustments considered necessary for the fair presentation of the financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with the 2022 Annual Report filed with the SEC on February 27, 2023.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the reported amounts and disclosures of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts and disclosures of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. To the extent there are differences between those estimates and actual results, the unaudited condensed consolidated financial statements may be materially affected.
5
Note 3. Revenue from Contracts with Customers
Revenue by Service Offering
The following table presents revenue by service offering:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 | 2022 | ||||||
(in millions) | ||||||||||||
Residential subscription | ||||||||||||
HSD | $ | | $ | | $ | | $ | | ||||
Video |
| |
| | | | ||||||
Telephony |
| |
| | | | ||||||
Total residential subscription | $ | | $ | | $ | | $ | | ||||
Business subscription | ||||||||||||
HSD | $ | | $ | | $ | | $ | | ||||
Video | | | | | ||||||||
Telephony | | | | | ||||||||
Total business subscription | $ | | $ | | $ | | $ | | ||||
Total subscription services revenue | | | | | ||||||||
Other business services revenue(1) | | | | | ||||||||
Other revenue | | | | | ||||||||
Total revenue | $ | | $ | | $ | | $ | | ||||
| (1) | Includes wholesale and colocation lease revenue of $ |
Costs of Obtaining Contracts with Customers
The following table summarizes the activity of costs of obtaining contracts with customers:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
(in millions) | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Deferral |
| |
| |
| |
| | ||||
Amortization |
| ( |
| ( |
| ( |
| ( | ||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
The following table presents the current and non-current portion of costs of obtaining contracts with customers as of the end of the corresponding periods:
September 30, 2023 |
| December 31, 2022 | ||||
(in millions) | ||||||
Current costs of obtaining contracts with customers | $ | | $ | | ||
Non-current costs of obtaining contracts with customers | | | ||||
Total costs of obtaining contracts with customers | $ | | $ | | ||
6
The current portion and the non-current portion of costs of obtaining contracts with customers are included in prepaid expenses and other and other non-current assets, respectively, in the Company’s unaudited condensed consolidated balance sheets. Amortization of costs of obtaining contracts with customers is included in selling, general and administrative expense in the Company’s unaudited condensed consolidated statements of operations.
Contract Liabilities
The following table summarizes the activity of current and non-current contract liabilities:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
(in millions) | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Deferral |
| |
| |
| |
| | ||||
Revenue recognized |
| ( |
| ( |
| ( |
| ( | ||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
The following table presents the current and non-current portion of contract liabilities as of the end of the corresponding periods:
September 30, 2023 | December 31, 2022 | |||||
(in millions) | ||||||
Current contract liabilities | $ | | $ | | ||
Non-current contract liabilities | | | ||||
Total contract liabilities | $ | | $ | | ||
The current portion and the non-current portion of contract liabilities are included in the current portion of unearned service revenue and other non-current liabilities, respectively, in the Company’s unaudited condensed consolidated balance sheets.
Unsatisfied Performance Obligations
Revenue from month-to-month residential subscription service contracts has historically represented a significant portion of the Company’s revenue and the Company expects that this will continue to be the case in future periods. All residential subscription service performance obligations will be satisfied within
A summary of expected business subscription and other business services revenue to be recognized in future periods related to performance obligations which have not been satisfied or are partially unsatisfied as of September 30, 2023 is set forth in the table below:
| 2023 |
| 2024 |
| 2025 |
| Thereafter |
| Total | ||||||
(in millions) | |||||||||||||||
Subscription services | $ | | $ | | $ | | $ | | $ | | |||||
Other business services |
| |
| |
| |
| |
| | |||||
Total expected revenue | $ | | $ | | $ | | $ | | $ | | |||||
Provision for Doubtful Accounts
The provision for doubtful accounts and the allowance for doubtful accounts are based on the aging of the individual receivables, historical trends and current and anticipated future economic conditions. The Company manages credit risk by disconnecting services to customers who are delinquent, generally after
7
The following table presents the change in the allowance for doubtful accounts for trade accounts receivable:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(in millions) | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Provision charged to expense(1) |
| |
| |
| |
| | ||||
Accounts written off, net of recoveries |
| ( |
| ( |
| ( |
| ( | ||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
| (1) | During the three and nine months ended September 30, 2022, the Company released |
Note 4. Plant, Property and Equipment, Net
Plant, property and equipment consists of the following:
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(in millions) | ||||||
Distribution facilities | $ | | $ | | ||
Customer premise equipment |
| |
| | ||
Head-end equipment |
| |
| | ||
Computer equipment and software |
| |
| | ||
Telephony infrastructure |
| |
| | ||
Buildings and leasehold improvements |
| |
| | ||
Vehicles |
| |
| | ||
Office and technical equipment |
| |
| | ||
Land |
| |
| | ||
Construction in progress (including material inventory and other) |
| |
| | ||
Total property, plant and equipment |
| |
| | ||
Less accumulated depreciation |
| ( |
| ( | ||
$ | | $ | | |||
Depreciation expense for the three months ended September 30, 2023 and 2022 was $
Depreciation expense for the nine months ended September 30, 2023 and 2022 was $
8
Note 5. Franchising Operating Rights and Goodwill
Changes in the carrying amounts of the Company’s franchise operating rights and goodwill during the three and nine months ended September 30, 2023 are set forth below:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
(in millions) | ||||||||||||
Franchise Operating Rights | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Impairment charge | ( | ( | ||||||||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
Goodwill | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Impairment charge |
| — |
| — |
| — |
| — | ||||
Balance at end of period | $ | | $ | | $ | | $ | | ||||
Due to the decline in the Company’s projected cash flows, combined with a reduction in stock price, which represented a triggering event during the three months ended September 30, 2023, the Company performed an interim impairment analysis of its franchise operating rights and goodwill.
Franchise Operating Rights
Franchise operating rights are evaluated for impairment by comparing the carrying value of the intangible asset to its estimated fair value, utilizing both quantitative and qualitative methods, at the lowest level of identifiable cash flows, which generally represent the markets in which the Company operates. Qualitative analysis is performed for franchise assets in the event the previous analysis indicates that there is a significant margin between the estimated fair value of franchise operating rights and the carrying value of those rights, and that it is more likely than not that the estimated fair value equals or exceeds its carrying value.
For the interim impairment analysis, all franchise operating rights were evaluated using quantitative analysis. The Company calculates the estimated fair value of franchise operating rights using the multi-period excess earnings method, an income approach, which calculates the estimated fair value of an intangible asset by discounting its future cash flows. The estimated fair value is determined based on discrete discounted future cash flows attributable to each franchise operating right intangible asset using assumptions consistent with internal forecasts. Assumptions key in estimating fair value under this method include, but are not limited to, revenue and subscriber growth rates (less anticipated customer churn), operating expenditures, capital expenditures (including any build out), market share achieved or market multiples, contributory asset charge rates, tax rates and a discount rate. The discount rate used in the model represents a weighted average cost of capital and the perceived risk associated with an intangible asset such as the Company’s franchise operating rights. If the fair value of the franchise operating right asset was less than its carrying value, the Company recognizes an impairment charge for the difference between the fair value and the carrying value of the asset.
As a result of the interim impairment analyses performed, the estimated fair value of certain franchise operating right assets was determined to be below the carrying value, which resulted in the recognition of non-cash impairment losses for the three months ended September 30, 2023.
The Company also performed an interim impairment analysis for the three months ended June 30, 2023, which resulted in the recognition of non-cash impairment losses.
9