10-Q 1 wow-20220331x10q.htm 10-Q Merrill Document Readback
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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: 001-38101

WideOpenWest, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of Incorporation or Organization)

46-0552948
(IRS Employer Identification No.)

7887 East Belleview Avenue, Suite 1000
Englewood, Colorado
(Address of Principal Executive Offices)

80111
(Zip Code)

(720479-3500

(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

Common Stock

WOW

New York Stock Exchange

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. Yes  No

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). Yes    No 

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.

Large accelerated filer 

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    No 

The number of outstanding shares of the registrant’s common stock as of April 29, 2022 was 87,800,330.

WIDEOPENWEST, INC AND SUBSIDIARIES

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2022

TABLE OF CONTENTS

Page

PART I. Financial Information

Item 1:

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income

3

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

4

Condensed Consolidated Statements of Cash Flows

5

Notes to the Condensed Consolidated Financial Statements

6

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4:

Controls and Procedures

27

PART II. Other Information

28

Item 1:

Legal Proceedings

28

Item 1A:

Risk Factors

28

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3:

Defaults Upon Senior Securities

28

Item 4:

Mine Safety Disclosures

28

Item 5:

Other Information

28

Item 6:

Exhibits

29

This Quarterly Report on Form 10-Q is for the three months ended March 31, 2022. 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 competitiors, 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 and our ability to comply with all covenants in our debt agreements;
changes in laws and government regulations that may impact the availability and cost of capital;
effects of uncertain economic conditions, particularly in light of the current novel coronavirus (“COVID-19”) pandemic and related factors (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 24, 2022 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)

March 31, 

December 31, 

   

2022

    

2021

(in millions, except share data)

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

190.7

$

193.2

Accounts receivable—trade, net of allowance for doubtful accounts of $2.8 and $4.3, respectively

 

37.7

 

40.9

Accounts receivable—other, net

 

15.5

 

17.2

Prepaid expenses and other

 

38.7

 

30.7

Total current assets

 

282.6

 

282.0

Right-of-use lease assets—operating

15.9

17.2

Property, plant and equipment, net

 

716.6

 

722.3

Franchise operating rights

 

620.1

 

620.1

Goodwill

 

225.1

 

225.1

Intangible assets subject to amortization, net

 

1.6

 

1.7

Other non-current assets

 

39.7

 

38.3

Total assets

$

1,901.6

$

1,906.7

Liabilities and stockholders’ equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable—trade

$

40.8

$

50.3

Accrued interest

 

4.9

 

0.8

Current portion of long-term lease liability—operating

4.9

5.1

Accrued liabilities and other

 

216.4

 

218.7

Current portion of long-term debt and finance lease obligations

 

18.1

 

17.9

Current portion of unearned service revenue

 

28.7

 

28.1

Total current liabilities

 

313.8

 

320.9

Long-term debt and finance lease obligations, net of debt issuance costs —less current portion

722.2

723.5

Long-term lease liability—operating

12.7

13.8

Deferred income taxes, net

 

255.6

 

257.6

Other non-current liabilities

 

20.5

 

20.1

Total liabilities

 

1,324.8

 

1,335.9

Commitments and contingencies

 

  

 

  

Stockholders' equity:

Preferred stock, $0.01 par value, 100,000,000 shares authorized; 0 shares issued and outstanding

Common stock, $0.01 par value, 700,000,000 shares authorized; 96,930,774 and 96,225,910 issued as of March 31, 2022 and December 31, 2021, respectively; 87,798,566 and 87,392,088 outstanding as of March 31, 2022 and December 31, 2021, respectively

 

1.0

 

1.0

Additional paid-in capital

 

354.1

 

348.5

Accumulated income

316.2

310.5

Treasury stock at cost, 9,132,208 and 8,833,822 shares as of March 31, 2022 and December 31, 2021, respectively

 

(94.5)

 

(89.2)

Total stockholders’ equity

 

576.8

 

570.8

Total liabilities and stockholders’ equity

$

1,901.6

$

1,906.7

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

    

March 31, 

2022

    

2021

(in millions, except share data)

Revenue

$

174.6

$

181.5

Costs and expenses:

 

 

  

Operating (excluding depreciation and amortization)

 

87.3

 

98.4

Selling, general and administrative

 

38.3

 

42.5

Depreciation and amortization

 

44.4

 

41.3

 

170.0

 

182.2

Income (loss) from operations

 

4.6

 

(0.7)

Other income (expense):

 

 

  

Interest expense

 

(7.4)

 

(31.4)

Loss on sale of assets, net

(0.4)

Other income, net

 

8.7

 

0.6

Income (loss) from continuing operations before provision for income tax

 

5.5

 

(31.5)

Income tax benefit

 

0.2

 

8.8

Income (loss) from continuing operations

5.7

(22.7)

Discontinued Operations (Note 3)

Income from discontinued operations, net of tax

32.3

Net income

$

5.7

$

9.6

Basic and diluted earnings (loss) per common share -
continuing operations

Basic

$

0.07

$

(0.28)

Diluted

$

0.07

$

(0.28)

Basic and diluted earnings per common share -
discontinued operations

Basic

$

$

0.40

Diluted

$

$

0.40

Basic and diluted earnings per common share

Basic

$

0.07

$

0.12

Diluted

$

0.07

$

0.12

Weighted-average common shares outstanding

Basic

83,286,934

82,031,043

Diluted

86,422,983

82,031,043

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three months ended

    

March 31, 

2022

2021

(in millions)

Net income

$

5.7

$

9.6

Unrealized gain on derivative instrument, net of tax

 

 

4.3

Comprehensive income

$

5.7

$

13.9

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(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, 2022

87,392,088

 

$

1.0

$

(89.2)

$

348.5

$

310.5

$

570.8

Stock-based compensation

 

 

5.6

 

 

5.6

Issuance of restricted stock, net

704,864

 

 

 

Purchase of shares

(298,386)

 

(5.3)

(5.3)

Net income

 

 

 

5.7

 

5.7

Balances at March 31, 2022(1)

87,798,566

 

$

1.0

$

(94.5)

$

354.1

$

316.2

$

576.8

(1)Included in outstanding shares as of March 31, 2022 are 3,721,638 non-vested shares of restricted stock awards granted to employees and directors.

Accumulated

Common

Treasury

Additional

Other

Total

Common

Stock

Stock at

Paid-in

Comprehensive

Accumulated

Stockholders'

    

Stock

    

Par Value

    

Cost

    

Capital

Loss

Deficit

    

Deficit

(in millions, except share data)

Balances at January 1, 2021

86,847,797

 

$

1.0

 

$

(80.7)

$

333.8

$

(6.5)

$

(460.0)

$

(212.4)

Changes in accumulated other comprehensive gain

 

 

 

4.3

 

 

4.3

Stock-based compensation

 

 

 

3.1

 

 

3.1

Issuance of restricted stock, net

666,127

 

 

 

 

Purchase of shares

(397,186)

 

(6.6)

(6.6)

Net income

9.6

9.6

Balances at March 31, 2021(1)

87,116,738

 

$

1.0

 

$

(87.3)

$

336.9

$

(2.2)

$

(450.4)

$

(202.0)

(1)

Included in outstanding shares as of March 31, 2021 are 4,423,885 non-vested shares of restricted stock awards  granted to employees and directors.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Three months ended

    

March 31, 

2022

2021

(in millions)

Cash flows from operating activities:

 

  

 

  

Net income

$

5.7

$

9.6

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

44.4

 

61.8

Deferred income taxes

 

(2.0)

 

0.2

Provision for doubtful accounts

 

0.4

 

2.9

Loss on sale of assets, net

0.4

Amortization of debt issuance costs and discount

 

0.4

1.2

Non-cash compensation

 

5.7

 

3.1

Other non-cash items

 

(0.1)

 

(0.1)

Changes in operating assets and liabilities:

 

 

Receivables and other operating assets

 

(5.7)

 

(0.7)

Payables and accruals

 

0.2

 

(0.4)

Net cash provided by operating activities

$

49.4

$

77.6

Cash flows from investing activities:

 

  

 

Capital expenditures

$

(42.1)

$

(59.3)

Other investing activities

 

0.5

 

0.4

Net cash used in investing activities

$

(41.6)

$

(58.9)

Cash flows from financing activities:

 

  

 

Proceeds from issuance of long-term debt, net

$

$

31.0

Payments on long-term debt and finance lease obligations

 

(5.0)

 

(19.4)

Purchase of shares

(5.3)

(6.6)

Net cash (used in) provided by financing activities

$

(10.3)

$

5.0

(Decrease) increase in cash and cash equivalents

 

(2.5)

 

23.7

Cash and cash equivalents, beginning of period

 

193.2

 

12.4

Cash and cash equivalents, end of period

$

190.7

$

36.1

Supplemental disclosures of cash flow information:

 

  

 

Cash paid during the periods for interest

$

2.8

$

30.7

Cash paid during the periods for income taxes

$

$

Non-cash operating activities:

Operating lease additions

$

$

0.1

Non-cash financing activities:

 

  

 

Finance lease additions

$

3.5

$

2.8

Capital expenditure accounts payable and accruals

$

20.3

$

17.0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

WIDEOPENWEST, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2022

(unaudited)

Note 1. General Information

WideOpenWest, Inc. (“WOW” or the “Company”) is a leading broadband services provider offering high-speed data (“HSD”), cable television (“Video”), and digital telephony (“Telephony”) services to residential and business customers. The Company serves customers in 14 markets in the United States which consist of Detroit and Lansing, Michigan; Augusta, Columbus, Newnan and West Point, Georgia; Charleston, South Carolina; Dothan, Auburn, Huntsville and Montgomery, Alabama; Knoxville, Tennessee; and Panama City and Pinellas County, Florida.

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 one reportable segment.

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 2021 Annual Report filed with the SEC on February 24, 2022.

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.

6

Note 3. Discontinued Operations

Sale of Service Areas

On June 30, 2021, WOW entered into two seperate asset sales with two different buyers. On September 1, 2021, WOW completed the sale of its Cleveland and Columbus, Ohio markets and on November 1, 2021, WOW completed the sale of its Chicago, Illinois, Evansville, Indiana and Baltimore, Maryland markets. The Company will present these markets as discontinued operations in the consolidated statements of operations and exclude from continuing operations for all periods in which such discontinued operations are presented. Results of discontinued operations include all revenues and direct expenses of these markets. General corporate overhead is not allocated to discontinued operations.

The following table presents information regarding certain components of income from discontinued operations:

Three months ended

    

March 31, 

2021

(in millions)

Revenue

$

104.8

Costs and expenses:

 

Operating (excluding depreciation and amortization)

 

39.6

Selling, general and administrative

 

2.7

Depreciation and amortization

 

20.5

 

62.8

Income from discontinued operations before provision for income tax

 

42.0

Income tax expense

 

(9.7)

Income from discontinued operations

$

32.3

The following table presents revenue by service offering from discontinued operations:

Three months ended

March 31, 

    

2021

(in millions)

Residential subscription

HSD

$

50.3

Video

 

36.0

Telephony

 

4.0

Total Residential subscription

$

90.3

Business subscription

HSD

$

5.8

Video

0.9

Telephony

2.8

Total business subscription

$

9.5

Total subscription services revenue

99.8

Other business services revenue

0.6

Other revenue

4.4

Total revenue

$

104.8

7

The following table presents specified items of cash flow and significant non-cash items of discontinued operations:

Three months ended

March 31, 

   

2021

(in millions)

Specified items of cash flow:

 

  

Capital expenditures

$

15.3

Non-cash investing activities:

Capital expenditure accounts payable and accruals

$

1.8

In connection with the asset sales, the Company entered into two separate transition services agreements under which WOW will continue to provide certain services to each of the buyers. Under the transition services agreements, the buyers may elect a variety of services, including but not limited to: information technology, network, business support services, etc. The term of the transition services agreements are for 12 months following the closing date, with two optional three month extensions. None of the costs related to the employees, processes or systems that will be utilized to provide the services under the transition services agreements were allocated to discontinued operations.

Income earned under these agreements is presented in other income, net in the condensed consolidated statement of operations and associated receivables are presented in accounts receivable – other, net in the condensed consolidated balance sheet. The Company recognized $8.1 million of income related to the transition service agreements for the three months ended March 31, 2022.

Note 4. Revenue from Contracts with Customers

Revenue by Service Offering

The following table presents revenue by service offering:

Three months ended

March 31, 

    

2022

   

2021

(in millions)

Residential subscription

HSD

$

82.3

$

79.5

Video

 

45.7

 

53.6

Telephony

 

6.3

 

7.6

Total residential subscription

$

134.3

$

140.7

Business subscription

HSD

$

17.8

$

17.1

Video

2.9

2.8

Telephony

7.0

7.4

Total business subscription

$

27.7

$

27.3

Total subscription services revenue

162.0

168.0

Other business services revenue(1)

5.3

5.6

Other revenue

7.3

7.9

Total revenue

$

174.6

$

181.5

(1)Includes wholesale and colocation lease revenue of $4.7 and $4.8 million for the three months ended March 31, 2022 and 2021.

8

Costs of Obtaining Contracts with Customers

The following table summarizes the activity of costs of obtaining contracts with customers:

Three months ended

March 31, 

2022

2021

(in millions)

Balance at beginning of period

$

37.3

$

31.8

Deferral

 

3.8

 

4.0

Amortization

 

(3.4)

 

(2.0)

Balance at end of period

$

37.7

$

33.8

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:

March 31,  2022

December 31,  2021

(in millions)

Current costs of obtaining contracts with customers

$

14.6

$

14.1

Non-current costs of obtaining contracts with customers

23.1

23.2

Total costs of obtaining contracts with customers

$

37.7

$

37.3

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

March 31, 

2022

2021

(in millions)

Balance at beginning of period

$

3.3

$

2.9

Deferral

 

3.2

 

2.9

Revenue recognized

 

(3.4)

 

(2.6)

Balance at end of period

$

3.1

$

3.2

The following table presents the current and non-current portion of contract liabilities as of the end of the corresponding periods:

March 31,  2022

December 31,  2021

(in millions)

Current contract liabilities

$

2.8

$

2.9

Non-current contract liabilities

0.3

0.4

Total contract liabilities

$

3.1

$

3.3

9

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 have 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 one year.

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 March 31, 2022 is set forth in the table below:

    

2022

    

2023

    

2024

    

Thereafter

    

Total

(in millions)

Subscription services

$

32.4

$

25.6

$

11.9

$

3.5

$

73.4

Other business services

 

2.6

 

1.7

 

0.7

 

0.1

 

5.1

Total expected revenue

$

35.0

$

27.3

$

12.6

$

3.6

$

78.5

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 100 days of delinquency. The individual receivables are written-off after all reasonable efforts to collect the funds have been made. Actual write-offs may differ from the amounts reserved.

The following table presents the change in the allowance for doubtful accounts for trade accounts receivable:

Three months ended

March 31, 

    

2022

    

2021

(in millions)

Balance at beginning of period

$

4.3

$

6.7

Provision charged to expense (1)

 

0.4

 

2.0

Accounts written off, net of recoveries

 

(1.9)

 

(1.6)

Balance at end of period

$

2.8

$

7.1

(1)The Company released $0.8 million of a reserve established in 2020 related to COVID-19.

10

Note 5. Plant, Property and Equipment, Net

Plant, property and equipment consists of the following:

March 31, 

December 31, 

    

2022

    

2021

(in millions)

Distribution facilities

$

1,265.0

$

1,238.3

Customer premise equipment

 

267.6

 

267.7

Head-end equipment

 

236.3

 

228.5

Computer equipment and software

 

139.0

 

132.5

Telephony infrastructure

 

52.4

 

52.4

Buildings and leasehold improvements

 

32.2

 

32.1

Vehicles

 

23.8

 

23.7

Office and technical equipment

 

18.9

 

18.9

Land

 

4.4

 

4.4

Construction in progress (including material inventory and other)

 

28.0

 

34.9

Total property, plant and equipment

 

2,067.6

 

2,033.4

Less accumulated depreciation

 

(1,351.0)

 

(1,311.1)

$

716.6

$

722.3

Depreciation expense for the three months ended March 31, 2022 and 2021 was $44.3 million and $41.2 million, respectively.

Note 6. Accrued Liabilities and Other

Accrued liabilities and other consists of the following:

March 31, 

December 31, 

    

2022

    

2021

(in millions)

Property, income, sales and use taxes(1)

$

134.4

$

132.7

Programming costs

20.0

19.3

Payroll and employee benefits

16.1

29.6

Customer cash collections (Transition Services Agreements)

30.5

17.5

Other accrued liabilities

 

7.8

 

9.5

Franchise and revenue sharing fees

 

6.0

 

7.9

Utility pole costs

 

1.6

 

2.2

$

216.4

$

218.7

(1)Includes the current income tax payable associated with the sale of the Chicago, Illinois, Evansville, Indiana, and Baltimore, Maryland markets.

11

Note 7. Long-Term Debt and Finance Leases

The following table summarizes the Company’s long-term debt and finance leases:

December 31, 

March 31, 2022

2021

    

Available

    

    

borrowing

Effective

Outstanding

Outstanding

capacity

interest rate(1)

    

balance

    

balance

(in millions)

Long-term debt:

 

  

 

  

 

  

 

  

Term B Loans, net(2)

$

 

3.50

%

$

722.6

$

724.2

Revolving Credit Facility(3)

 

245.6

 

3.00

%

 

 

Total long-term debt

$

245.6

 

 

722.6

 

724.2

Other Financing

0.3

0.4

Finance lease obligations

 

  

 

  

 

22.7

 

22.3

Total long-term debt, finance lease obligations and other

 

  

 

  

 

745.6

 

746.9

Debt issuance costs, net(4)

 

  

 

  

 

(5.3)

 

(5.5)

Sub-total

 

  

 

  

 

740.3

 

741.4

Less current portion

 

  

 

  

 

(18.1)

 

(17.9)

Long-term portion

 

 

  

$

722.2

$

723.5

(1)Represents the effective interest rate in effect for all borrowings outstanding as of March 31, 2022 pursuant to each debt instrument including the applicable margin.
(2)At March 31, 2022 and December 31, 2021 includes $5.6 million and $5.8 million of net unamortized discounts, respectively.
(3)Available borrowing capacity at March 31, 2022 represents $250.0 million of total availability less outstanding letters of credit of $4.4 million. The aggregate amount of undrawn letters of credit cannot exceed $20.0 million and are used in the ordinary course of business and released when the respective contractual obligations have been fulfilled by the Company.
(4)At March 31, 2022 and December 31, 2021, debt issuance costs include $4.0 million and $4.1 million related to Term B Loans and $1.3 million and $1.4 million related to the Revolving Credit Facility, respectively.

Refinancing of the Term B Loans and Revolving Credit Facility

On December 20, 2021, the Company entered into a new secured credit agreement with Morgan Stanley Senior Funding, Inc., as administrative agent, collateral agent and issuing bank (the “Credit Agreement”).  The Credit Agreement consists of (i) a new Term Loan B in an aggregate principal amount of $730.0 million and (ii) a $250.0 million revolving credit commitment. The Term Loan B matures in December 2028 and bears interest at a rate equal to the Secured Overnight Financing Rate (“SOFR”) plus 3.00%, subject to a 50 basis point floor, and the revolving credit commitment bears interest at a rate equal to SOFR plus 2.75%, subject to a 50 basis point commitment fee rate for unused commitments, and matures in December 2026. The Senior Secured Term B loans and Revolving Credit Facility are secured on a first-priority basis by a lien on substantially all of the Company’s assets, subject to certain exceptions and permitted liens.

As of March 31, 2022, the Company was in compliance with all debt covenants.

Note 8. Stock-Based Compensation

WOW’s 2017 Omnibus Incentive Plan provides for grants of stock options, restricted stock and performance awards. The Company’s directors, officers and other employees and persons who engage in services for the Company are eligible for grants under the 2017 Omnibus Incentive Plan. The 2017 Omnibus Incentive Plan has authorized 12,074,128 shares of common stock to be available for issuance, subject to adjustment in the event of a reorganization, stock split, merger or similar change in the Company’s corporate structure of the outstanding shares of common stock.  

12

The following table presents restricted stock activity during the three months ended March 31, 2022:

Number of

Unvested

Restricted Stock

Shares

Outstanding, beginning of period

4,325,124

Granted

735,761

Vested

(1,308,350)

Forfeited

(30,897)

Outstanding, end of period(1)

3,721,638

(1)The total outstanding non-vested shares of restricted stock awards granted to employees and directors are included in total outstanding shares as of March 31, 2022.

Restricted stock awards generally vest ratably over a four year period based on the date of grant. For restricted stock awards that contain only service conditions for vesting, the Company calculates the award fair value based on the closing stock price on the accounting grant date. Certain awards were modified during the year ended December 31, 2021 and are classified as liabilities.

Nonvested Performance Shares

On March 3, 2022, the Company granted 199,592 performance shares which will vest based on the Company’s achievement level relative to the following performance measures at December 31, 2024: 50% based upon the Company’s Total Shareholder Return (“TSR”) relative to the TSRs of the Company’s peer group and 50% based on the Company’s three-year cumulative EBITDA metric. EBITDA is defined as net income (loss) before net interest expense, income taxes, depreciation and amortization (including impairments), impairment losses on intangibles and goodwill, the write-off of any asset, loss on early extinguishment of debt, integration and restructuring expenses and all non-cash charges and expenses (including stock compensation expense) and certain other income and expenses. Upon achievement of the minimum threshold performance metric, the grantee may earn 50% to 200% of their respective target shares based on the performance goal.  

The performance shares based on relative TSR performance have a market condition and are valued using a Monte Carlo simulation model on the grant date, which resulted in a grant date fair value of $24.71 per share. The estimated fair value is amortized to expense over the requisite service period, which ends on December 31, 2024. The following assumptions were used in the Monte Carlo simulation for computing the grant date fair value of the performance shares with a market condition: risk-free interest rate of 1.66%, volatility factors in the expected market price of the Company's common shares of 58.47% and an expected life of three years.

The performance shares based on three-year cumulative EBITDA have a performance condition. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the closing price per share of the Company's common stock on the date of the grant multiplied by the number of awards expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed.

During the fourth quarter of 2021, the Company determined that it was not probable that the performance condition based on three-year cumulative EBITDA would be met for the performance shares issued in 2021 and 2020. The Company came to this conclusion based on the sale of five service areas in 2021. See Note 3 – Discontinued Operations for additional information regarding the sales. As a result of this conclusion, the Company reversed approximately $1.0 million of previously recognized stock compensation expense in the fourth quarter of 2021.

13

During February of 2022, the Compensation Committee approved proportional adjustments to the three-year cumulative EBITDA metrics associated with the 2021 and 2020 performance shares to adjust for the sale of the five service areas. Stock compensation expense will be recognized from the date of adjustment through the remaining service period of the awards if achievement is deemed probable. As of March 31, 2022, achievement of the performance conditions associated with the 2022, 2021 and 2020 performance shares was deemed probable.

The Company recorded $5.7 million and $3.1 million for the three months ended March 31, 2022 and 2021, respectively, of non-cash stock-based compensation expense which is reflected in operating expense or selling, general and administrative expense, depending on the recipients’ duties, in the Company’s unaudited condensed consolidated statements of operations.

Note 9. Earnings per Common Share

Basic earnings or loss per share attributable to the Company’s common stockholders is computed by dividing net income or loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings or loss per share attributable to common stockholders presents the dilutive effect, if any, on a per share basis of potential common shares (such as restricted stock units) as if they had been vested or converted during the periods presented. No such items were included in the computation of diluted loss or earnings per share for the three months ending March 31, 2021 because the Company incurred a net loss from continuing operations and the effect of inclusion would have been anti-dilutive.

Three months ended

March 31, 

    

2022

    

2021

(in millions, except share data)

Income (loss) from continuing operations

$

5.7

$

(22.7)

Income from discontinued operations

$

$

32.3

Net income

$

5.7

$

9.6

Basic weighted-average shares

 

83,286,934

 

82,031,043

Effect of dilutive securities:

 

 

Restricted stock awards

 

3,136,049

 

Diluted weighted-average shares

 

86,422,983

 

82,031,043

Basic and diluted earnings (loss) per
common share - continuing operations

Basic

$

0.07

$

(0.28)

Diluted

$

0.07

$

(0.28)

Basic and diluted earnings per
common share - discontinued operations

Basic

$

$

0.40

Diluted

$

$

0.40

Basic and diluted earnings per common share

Basic

$

0.07

$

0.12

Diluted

$

0.07

$

0.12

14

The dilutive effect of the potential common shares from the performance shares is included in diluted earnings per share upon the satisfaction of certain performance and market conditions. These conditions are evaluated at each reporting period and if the conditions have been satisfied during the reporting period, the number of contingently issuable shares are included in the computation of diluted earnings per share. As of March 31, 2022, the Company determined the performance conditions were not yet achieved; however, the market conditions indicated a certain level of achievement within the payout range. Therefore, the contingently issuable performance shares associated with the market condition were included in the computation of diluted earnings per share.

Note 10. Fair Value Measurements

The fair values of cash and cash equivalents, receivables and trade payables approximate their carrying values due to the short-term nature of these instruments. For assets and liabilities of a long-term nature, the Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. The Company applies the following hierarchy in determining fair value:

Level 1, defined as observable inputs being quoted prices in active markets for identical assets;
Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3, defined as values determined using models that utilize significant unobservable inputs for which little or no market data exists, discounted cash flow methodologies or similar techniques, or other determinations requiring significant management judgment or estimation.

The Company’s derivative instrument expired in May 2021; however, prior to expiration the derivative instrument was accounted for at fair value on a recurring basis and classified within Level 2 of the valuation hierarchy. The fair value of the derivative instrument was measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of the measurement date. The present value calculation utilized discount rates that were adjusted to reflect the credit quality of the Company and its counterparties.

The estimated fair value of the Company’s long-term debt is based on dealer quotes considering current market rates for the Company’s credit facility and is classified as Level 2. The ratio of the Company’s aggregate debt balance has trended from quoted market prices in active markets to quoted prices in non-active markets. The fair value of the Company’s long-term debt was valued at $725.4 million and $729.1 million as of March 31, 2022 and December 31, 2021, respectively. Long-term debt fair value does not include debt issuance costs and discounts. There were no transfers into or out of Level 1, 2 or 3 during the periods ended March 31, 2022 and December 31, 2021.

The Company’s nonfinancial assets such as franchise operating rights, property, plant, and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist.  When such impairments are recorded, fair values are generally classified within Level 3 of the valuation hierarchy.

15

Note 11. Derivative Instruments and Hedging Activities

The Company is exposed to certain risks during the normal course of its business arising from adverse changes in interest rates. The Company selectively uses derivative financial instruments (“derivatives”), including interest rate swaps, to manage interest rate risk. The Company does not hold or issue derivative instruments for speculative purposes. Fluctuations in interest rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.

The Company’s exposure to interest rate risk results primarily from its variable rate borrowings. On May 9, 2018, the Company entered into variable to fixed interest rate swap agreements for a notional amount of $1,361.2 million to hedge the outstanding principal balance of its then-existing variable rate term loan debt. The interest rate swap contracts expired in May of 2021.

Gains on derivatives designated as cash flow hedges included in the unaudited condensed consolidated statements of comprehensive income for the three months ended March 31, 2021 are shown in the table below: