10-Q 1 wow-20240331x10q.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, 2024

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 May 3, 2024 was 84,566,866.

WIDEOPENWEST, INC AND SUBSIDIARIES

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2024

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 Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

4

Notes to the Condensed Consolidated Financial Statements

5

Item 2:

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

16

Item 3:

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4:

Controls and Procedures

24

PART II. Other Information

25

Item 1:

Legal Proceedings

25

Item 1A:

Risk Factors

25

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3:

Defaults Upon Senior Securities

25

Item 4:

Mine Safety Disclosures

25

Item 5:

Other Information

25

Item 6:

Exhibits

26

This Quarterly Report on Form 10-Q is for the three months ended March 31, 2024. 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 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 March 13, 2024 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, 

   

2024

    

2023

(in millions, except share data)

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

19.2

$

23.4

Accounts receivable—trade, net of allowance for doubtful accounts of $6.4 and $6.7, respectively

 

37.3

 

38.8

Accounts receivable—other, net

 

8.4

 

9.5

Prepaid expenses and other

 

47.0

 

38.5

Total current assets

 

111.9

 

110.2

Right-of-use lease assets—operating

21.6

20.1

Property, plant and equipment, net

 

848.1

830.4

Franchise operating rights

 

278.3

278.3

Goodwill

 

225.1

225.1

Intangible assets subject to amortization, net

 

0.9

1.0

Other non-current assets

 

50.1

49.6

Total assets

$

1,536.0

$

1,514.7

Liabilities and stockholders’ equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable—trade

$

61.8

$

59.5

Accrued interest

 

1.8

 

1.6

Current portion of long-term lease liability—operating

4.4

4.3

Accrued liabilities and other

 

58.2

 

60.0

Current portion of long-term debt and finance lease obligations

 

17.5

 

18.8

Current portion of unearned service revenue

 

25.4

 

25.4

Total current liabilities

 

169.1

 

169.6

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

952.4

915.7

Long-term lease liability—operating

19.5

18.0

Deferred income taxes, net

 

124.2

125.7

Other non-current liabilities

 

26.2

27.5

Total liabilities

 

1,291.4

 

1,256.5

Commitments and contingencies (Note 13)

 

  

 

  

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; 98,706,060 and 98,594,629 issued as of March 31, 2024 and December 31, 2023, respectively; 83,329,326 and 83,557,786 outstanding as of March 31, 2024 and December 31, 2023, respectively

 

1.0

1.0

Additional paid-in capital

 

394.8

391.8

Retained earnings

5.3

20.3

Treasury stock at cost, 15,376,734 and 15,036,843 shares as of March 31, 2024 and December 31, 2023, respectively

 

(156.5)

(154.9)

Total stockholders’ equity

 

244.6

 

258.2

Total liabilities and stockholders’ equity

$

1,536.0

$

1,514.7

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, 

2024

    

2023

(in millions, except per share and share data)

Revenue

$

161.5

$

172.2

Costs and expenses:

 

 

Operating (excluding depreciation and amortization)

 

67.5

 

78.1

Selling, general and administrative

 

36.4

 

85.5

Depreciation and amortization

 

52.4

 

45.5

 

156.3

 

209.1

Income (loss) from operations

 

5.2

 

(36.9)

Other income (expense):

 

 

Interest expense

 

(21.0)

 

(14.9)

Other income, net

 

0.3

 

1.2

Loss before provision for income tax

 

(15.5)

 

(50.6)

Income tax benefit

 

0.5

 

12.6

Net loss

$

(15.0)

$

(38.0)

Basic and diluted loss per common share

Basic

$

(0.18)

$

(0.46)

Diluted

$

(0.18)

$

(0.46)

Weighted-average common shares outstanding

Basic

81,347,672

83,028,769

Diluted

81,347,672

83,028,769

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

FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(unaudited)

Common

Treasury

Additional

Total

Common

Stock

Stock at

Paid-in

Retained

Stockholders'

    

Stock

    

Par Value

    

Cost

    

Capital

Earnings

    

Equity

(in millions, except share data)

Balances at January 1, 2024

83,557,786

 

$

1.0

$

(154.9)

$

391.8

$

20.3

$

258.2

Stock-based compensation

 

 

3.0

 

 

3.0

Issuance of restricted stock, net

111,431

 

 

 

Purchase of shares

(339,891)

 

(1.6)

(1.6)

Net loss

 

 

 

(15.0)

 

(15.0)

Balances at March 31, 2024(1)

83,329,326

 

$

1.0

$

(156.5)

$

394.8

$

5.3

$

244.6

(1)Included in outstanding shares as of March 31, 2024 are 1,482,690 non-vested shares of restricted stock awards granted to employees and directors.

Common

Treasury

Additional

Total

Common

Stock

Stock at

Paid-in

Retained

Stockholders'

    

Stock

    

Par Value

    

Cost

    

Capital

Earnings

    

Equity

(in millions, except share data)

Balances at January 1, 2023

86,417,733

 

$

1.0

$

(108.6)

$

374.7

$

308.0

$

575.1

Stock-based compensation

 

 

5.6

 

 

5.6

Issuance of restricted stock, net

1,783,965

 

 

 

Purchase of shares

(2,642,178)

 

(28.4)

(28.4)

Net loss

 

 

 

(38.0)

 

(38.0)

Balances at March 31, 2023(1)

85,559,520

 

$

1.0

 

$

(137.0)

$

380.3

$

270.0

$

514.3

(1)

Included in outstanding shares as of March 31, 2023 are 3,057,037 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.

3

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Three months ended

    

March 31, 

2024

2023

(in millions)

Cash flows from operating activities:

 

  

 

  

Net loss

$

(15.0)

$

(38.0)

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

Depreciation and amortization

 

52.7

 

45.5

Deferred income taxes

 

(1.4)

 

(14.5)

Provision for doubtful accounts

 

2.7

 

2.6

Gain on sale of operating assets, net

(0.3)

Amortization of debt issuance costs and discount

 

0.4

0.4

Change in fair value of derivative instruments

1.1

Non-cash compensation

 

3.0

 

5.4

Other non-cash items

 

(0.2)

 

(0.1)

Changes in operating assets and liabilities:

 

 

Receivables and other operating assets

 

(6.0)

 

(5.4)

Payables and accruals

 

(3.8)

 

36.7

Net cash provided by operating activities

$

33.2

$

32.6

Cash flows from investing activities:

 

  

 

Capital expenditures

$

(72.5)

$

(60.2)

Other investing activities

 

 

0.1

Net cash used in investing activities

$

(72.5)

$

(60.1)

Cash flows from financing activities:

 

  

 

Proceeds from issuance of long-term debt, net

$

40.0

$

51.0

Payments on long-term debt and finance lease obligations

 

(5.4)

 

(4.9)

Reimbursement of finance lease payments

1.7

Purchase of shares

(1.2)

(28.4)

Net cash provided by financing activities

$

35.1

$

17.7

Decrease in cash and cash equivalents

 

(4.2)

 

(9.8)

Cash and cash equivalents, beginning of period

 

23.4

 

31.0

Cash and cash equivalents, end of period

$

19.2

$

21.2

Supplemental disclosures of cash flow information:

 

  

 

Cash paid during the periods for interest, net

$

19.3

$

14.5

Cash paid during the periods for income taxes

$

$

Cash received during the periods for refunds of income taxes

$

$

4.3

Non-cash operating activities:

Operating lease additions

$

2.5

$

0.8

Non-cash investing and financing activities:

 

 

Finance lease additions

$

0.5

$

1.9

Excise tax payable

$

0.4

$

Capital expenditures within accounts payable and accruals

$

41.4

$

32.2

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 MONTHS ENDED MARCH 31, 2024

(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 16 markets in the United States which consist of Detroit and Lansing, Michigan; Augusta, Columbus, Newnan and West Point, Georgia; Charleston and Greenville County, South Carolina; Dothan, Auburn, Huntsville and Montgomery, Alabama; Knoxville, Tennessee; and Panama City, Pinellas County and Seminole 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 2023 Annual Report filed with the SEC on March 13, 2024.

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

Recently Issued Accounting Standards

ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

In November 2023, Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvement to Reportable Segment Disclosures.  ASU 2023-07 will require public business entities (“PBEs”)  to disclose, on an annual and interim basis, significant segment expenses provided to the chief operating decision maker (“CODM”) including a profit and loss; an amount for other segment items by reportable segment, including  a description of composition; annual disclosures about a reportable segment’s profit or loss; if a CODM uses more than one measure of a segment’s profit or loss the PBE may report one or more of those additional measures; and requires that a PBE disclose the title and position of the CODM. The updated disclosure requirements are to be adopted for annual periods beginning after December 15, 2023.  The Company does not anticipate adoption will have a material impact on the financial position, results of operations or cash flows.

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures

In October 2023, FASB issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740), Improvement to Income Tax Disclosures.  ASU 2023-09 will require all entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. This requires PBEs to include incremental detail in a numerical, tabular format, while all other entities will do so through enhanced qualitative disclosures. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). The updated disclosure requirements are to be adopted for annual periods beginning after December 15, 2023.  The Company does not anticipate adoption will have a material impact on the financial position, results of operations or cash flows.

Note 3. Revenue from Contracts with Customers

Revenue by Service Offering

The following table presents revenue by service offering:

Three months ended

March 31, 

    

2024

   

2023

(in millions)

Residential subscription

HSD

$

86.9

$

86.8

Video

 

29.3

 

39.2

Telephony

 

4.8

 

5.6

Total residential subscription

$

121.0

$

131.6

Business subscription

HSD

$

19.3

$

18.4

Video

2.5

2.9

Telephony

6.2

6.5

Total business subscription

$

28.0

$

27.8

Total subscription services revenue

149.0

159.4

Other business services revenue(1)

5.3

5.2

Other revenue

7.2

7.6

Total revenue

$

161.5

$

172.2

(1)Includes wholesale and colocation lease revenue of $5.0 million and $4.7 million the three months ended March 31, 2024 and 2023, respectively.

6

Promotional Costs

The following table summarizes the activity of promotional costs:

Three months ended

March 31, 

2024

2023

(in millions)

Balance at beginning of period

$

20.4

$

18.0

Deferral

 

2.1

2.1

Amortization

 

(2.2)

(1.6)

Balance at end of period

$

20.3

$

18.5

The following table presents the current and non-current portion of promotional costs for the periods presented:

March 31,  2024

    

December 31,  2023

(in millions)

Current promotional costs

$

8.3

$

8.0

Non-current promotional costs

12.0

12.4

Total promotional costs

$

20.3

$

20.4

Costs of Obtaining Contracts with Customers

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

Three months ended

March 31, 

2024

2023

(in millions)

Balance at beginning of period

$

42.4

$

39.5

Deferral

 

4.7

 

4.4

Amortization

 

(4.2)

 

(4.0)

Balance at end of period

$

42.9

$

39.9

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,  2024

    

December 31,  2023

(in millions)

Current costs of obtaining contracts with customers

$

16.7

$

16.5

Non-current costs of obtaining contracts with customers

26.2

25.9

Total costs of obtaining contracts with customers

$

42.9

$

42.4

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.

7

Contract Liabilities

The following table summarizes the activity of current and non-current contract liabilities:

Three months ended

March 31, 

2024

2023

(in millions)

Balance at beginning of period

$

2.5

$

2.7

Deferral

 

2.4

 

2.5

Revenue recognized

 

(2.6)

 

(2.7)

Balance at end of period

$

2.3

$

2.5

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

March 31,  2024

December 31,  2023

(in millions)

Current contract liabilities

$

2.1

$

2.2

Non-current contract liabilities

0.2

0.3

Total contract liabilities

$

2.3

$

2.5

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, 2024 is set forth in the table below:

    

2024

    

2025

    

2026

    

Thereafter

    

Total

(in millions)

Subscription services

$

36.2

$

27.0

$

9.0

$

3.7

$

75.9

Other business services

 

2.4

 

1.8

 

0.8

 

0.2

 

5.2

Total expected revenue

$

38.6

$

28.8

$

9.8

$

3.9

$

81.1

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.

8

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

Three months ended

March 31, 

2024

    

2023

(in millions)

Accounts receivable - trade

$

43.7

$

43.1

Allowance for doubtful accounts:

Balance at beginning of period

$

6.7

$

4.3

Provision charged to expense

 

2.7

 

2.6

Accounts written off, net of recoveries

 

(3.0)

 

(2.1)

Balance at end of period

$

6.4

$

4.8

Accounts receivable - trade, net of allowance for doubtful accounts

$

37.3

$

38.3

Note 4. Plant, Property and Equipment, Net

Plant, property and equipment consists of the following:

March 31, 

December 31, 

    

2024

    

2023

(in millions)

Distribution facilities

$

1,573.8

$

1,510.6

Head-end equipment

 

289.9

 

296.5

Customer premise equipment

 

276.8

 

274.9

Computer equipment and software

 

187.9

 

182.0

Telephony infrastructure

 

48.0

 

48.0

Buildings and leasehold improvements

 

33.7

 

33.4

Vehicles

 

28.4

 

28.1

Office and technical equipment

 

19.1

 

19.1

Land

 

4.4

 

4.4

Construction in progress (including material inventory and other)

 

70.3

 

76.6

Total property, plant and equipment

 

2,532.3

 

2,473.6

Less accumulated depreciation

 

(1,684.2)

 

(1,643.2)

$

848.1

$

830.4

Depreciation expense for the three months ended March 31, 2024 and 2023 was $52.7 million and $45.4 million, respectively. Included in depreciation and amortization expense in the consolidated statement of operations were net gains on sales of operating assets of $0.3 million and nil for the three months ended March 31, 2024 and 2023, respectively.

9

Note 5. Accrued Liabilities and Other

Accrued liabilities and other consists of the following:

March 31, 

December 31, 

    

2024

    

2023

(in millions)

Payroll and employee benefits

$

16.4

$

15.5

Programming costs

11.5

11.4

Other accrued liabilities

7.0

6.8

Employee severance

6.9

5.4

Patent litigation settlement

5.8

10.0

Franchise and revenue sharing fees

 

3.9

 

4.9

Property, income, sales and use taxes

2.8

1.5

Utility pole costs

 

2.0

 

2.4

Professional fees

 

1.9

 

2.1

$

58.2

$

60.0

Note 6. Long-Term Debt and Finance Leases

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

December 31, 

March 31, 2024

2023

    

Available

    

    

borrowing

Effective

Outstanding

Outstanding

capacity

interest rate(1)

    

balance

    

balance

(in millions)

Long-term debt:

 

  

 

  

 

  

 

  

Term B Loans, net(2)

$

 

8.30

%

$

709.6

$

711.3

Revolving Credit Facility(3)

 

4.3

 

8.07

%

 

241.0

 

201.0

Total long-term debt

$

4.3

 

 

950.6

 

912.3

Other Financing

1.3

1.4

Finance lease obligations

 

  

 

  

 

21.5

 

24.6

Total long-term debt, finance lease obligations and other

 

  

 

  

 

973.4

 

938.3

Debt issuance costs, net(4)

 

  

 

  

 

(3.5)

 

(3.8)

Sub-total

 

  

 

  

 

969.9

 

934.5

Less current portion

 

  

 

  

 

(17.5)

 

(18.8)

Long-term portion

 

 

  

$

952.4

$

915.7

(1)Represents the effective interest rate in effect for all borrowings outstanding as of March 31, 2024 pursuant to each debt instrument including the applicable margin.
(2)At March 31, 2024 and December 31, 2023 includes $3.9 million and $4.1 million of net unamortized discounts, respectively.
(3)Available borrowing capacity at March 31, 2024 represents $250.0 million of total availability less borrowing of $241.0 million on the Revolving Credit Facility and outstanding letters of credit of $4.7 million. Letters of credit are used in the ordinary course of business and are released when the respective contractual obligations have been fulfilled by the Company.
(4)At March 31, 2024 and December 31, 2023, debt issuance costs include $2.9 million and $3.0 million related to Term B Loans and $0.7 million and $0.8 million related to the Revolving Credit Facility, respectively.

10

On December 20, 2021, the Company entered into a 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 Senior Secured Term B Loan in an aggregate principal amount of $730.0 million (“Term B Loan”) and (ii) a $250.0 million revolving credit commitment (“Revolving Credit Facility” together with the Term B Loan, the “Senior Secured Credit Facility”).  The Term B Loan 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 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, 2024, the Company was in compliance with all debt covenants.

Note 7. Stock-Based Compensation

The Company’s stock incentive plan, the 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 plan. The stock incentive plan has authorized 15,924,128 shares of the Company’s 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 or the outstanding shares of common stock.

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.

The Company recorded $3.0 million and $5.4 million of total non-cash compensation expense for the three months ended March 31, 2024 and 2023, respectively. Certain awards were modified during the year ended December 31, 2021 and were classified as liabilities. The remainder of these liability-based awards were settled with shares of restricted stock for nil and approximately $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents restricted stock activity during the three months ended March 31, 2024:

Number of

Unvested

Restricted Stock

Shares

Outstanding, beginning of period

2,451,026

Granted

164,725

Vested

(1,079,767)

Forfeited

(53,294)

Outstanding, end of period(1)

1,482,690

(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, 2024.

Performance Shares

The Company began issuing performance shares to certain executives in 2020. Each performance share grant has a performance period of three years and is based on the Company’s achievement level relative to: 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.

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

11

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.  As of March 31, 2024, 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 2022 and 2023.  This conclusion is consistent with the assessment performed at December 31, 2023 and as such, no compensation expense has been recognized for these awards.

Note 8. Equity

On October 4, 2022, the Company’s Board of Directors authorized the Company to repurchase up to $50.0 million of its outstanding common stock. The Company completed the Share Repurchase Program in June 2023 with approximately 4.9 million shares purchased for $50.4 million (including commissions).  

The following table summarizes the Company’s purchases of WOW common stock during the three months ended March 31, 2024 and 2023, respectively. These shares are reflected as treasury stock in the Company’s consolidated balance sheets.

    

Three months ended

    

March 31, 

2024

2023

(shares)

Share buybacks

1,941,033

Income tax withholding(1)

 

339,891

701,145

339,891

2,642,178

(1)Generally, the Company withholds shares to cover the income tax withholdings of the employee upon vesting. These shares are not part of the board approved Share Repurchase Program.

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, 2024 or 2023 because the Company incurred a net loss and the effect of inclusion would have been anti-dilutive.

Three months ended

March 31, 

    

2024

    

2023

(in millions, except share data)

Net loss

$

(15.0)

$

(38.0)

Basic weighted-average shares

 

81,347,672

 

83,028,769

Effect of dilutive securities:

 

 

Restricted stock awards

 

 

Diluted weighted-average shares

 

81,347,672

 

83,028,769

Basic and diluted (loss) earnings per common share

Basic

$

(0.18)

$

(0.46)

Diluted

$

(0.18)

$

(0.46)

12

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.

During the first quarter of 2024, the Company entered into five interest rate swap arrangements.  The Company’s derivative instrument is accounted for at fair value on a recurring basis and classified within Level 2 of the valuation hierarchy.

Level 1

    

Level 2

Level 3

    

Total

(in millions)

Financial Assets

Interest rate swaps (1)

$

$

3.1

$

$

3.1

Total

$

$

3.1

$

$

3.1

Financial Liabilities

Interest rate swaps (1)

$

   

$

4.2

   

$

   

$

4.2

Long-term debt, net (2)

619.0

619.0

Total

$

$

623.2

$

$

623.2

(1)Measured as the present value of all expected future cash flows based on the SOFR-based swap yield curves as of March 31, 2024. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
(2)Measured based on dealer quotes considering current market rates for the Company’s credit facility. 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. Debt fair value does not include debt issuance costs and discount.

There were no transfers into or out of Level 1, 2 or 3 during the periods ended March 31, 2024 and December 31, 2023.

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.

13

Note 11. Derivative Instruments

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. At various points during the first quarter of 2024, the Company entered into five separate pay-fixed interest rate swap agreements for a notional amount of $100 million each.

As of March 31, 2024, the Company is the fixed rate payor on five interest rate swap contracts that effectively fix the SOFR-based index used to determine the interest rates charged on the Company’s total long-term debt of $954.5 million, not including unamortized debt issuance costs and discount. These contracts fix approximately 52% of the Company’s term loan variable rate exposure at an average of 4.3% expiration dates of February and March 2027. The Company accounts for each agreement on a fair value basis at each reporting period.  

The following table summarizes the notional amounts and fair values of the Company’s outstanding derivatives by risk category and instrument type within the condensed consolidated balance sheet as of March 31, 2024. The Company did not have any derivative instruments as of December 31, 2023.

Fair Value

Fair Value

Other

Other

Notional

Current

Non-current

Amount

Assets

    

Liabilities

Derivatives Instruments

(in millions)

Interest rate swap contracts as of March 31, 2024

$

500.0

$

3.1

$

4.2

The Company recognized the change in fair value of $1.1 million, offset by cash receipts of $0.4 million, in interest expense in the condensed consolidated income statement related to these agreements for the three months ended March 31, 2024. See additional disclosure information related to these derivative instruments in Note 10 – Fair Value Measurements.  

Note 12. Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact on deferred tax assets and liabilities of changes in tax rates is reflected in the financial statements in the period that includes the date of enactment.

The Company reported income tax benefit of $0.5 million and $12.6 million for the three months ended March 31, 2024 and 2023, respectively.  The change to income tax benefit was primarily related to an increase in income from operations and valuation allowance quarter over quarter.

14

Note 13. Commitments and Contingencies

Sprint Patent Infringement Claim. On March 7, 2018, Sprint Communications Company LP (“Sprint”) filed a complaint in the U.S. District Court for the District of Delaware alleging that the Company infringed a set of patents directed to the provision of Voice over Internet Protocol (“VoIP”) services. This lawsuit was part of a larger, decade long patent enforcement campaign by Sprint aimed at numerous service providers in the broadband and telecommunications industry.  In April 2023, prior to the commencement of the Company’s jury trial on April 24, 2023, the Company and Sprint entered into settlement discussions and also conducted a formal mediation. Those discussions culminated in a negotiated resolution of the pending litigation, for which the parties executed a binding term sheet on April 19, 2023, and a Confidential Settlement and License Agreement on April 28, 2023. The terms of the settlement are confidential, but the agreement does obligate the Company to make payments to Sprint over the course of three years in exchange for a full release of all liability.  

The Company intends to pursue funding contributions for that settlement from third parties implicated by Sprint’s claims and the Company’s defense, including indemnification claims against the Company’s various affected equipment providers. As a result of the settlement, the Company accrued $46.8 million as of March 31, 2023, and the associated expense was included in selling, general and administrative expenses for the quarter ended March 31, 2023.

The Company is also party to various other legal proceedings (including individual, class and putative class actions) arising in the normal course of its business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, programming, taxes, fees and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers.

In accordance with GAAP, the Company accrues an expense for pending litigation when it determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of the Company’s existing accruals for pending matters are material. The Company consistently monitors its pending litigation for the purpose of adjusting its accruals and revising its disclosures accordingly, in accordance with GAAP, when required. However, litigation is subject to uncertainty, and the outcome of any particular matter is not predictable. The Company will vigorously defend its interests in pending litigation, and the Company believes that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which it is entitled, will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are 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 customers and offer a full range of products and services to business customers. Our services are delivered across 16 markets via our efficient, advanced hybrid fiber-coax (“HFC”) network. Our footprint covers certain suburban areas within the states of Alabama, Florida, Georgia, Michigan, South Carolina and Tennessee. At March 31, 2024, our broadband networks passed 1.9 million homes and businesses and served 500,700 customers.

Our core strategy is to provide outstanding service at affordable prices. We execute this strategy by managing our operations to focus on the customer. We believe that the customer experience should be reliable, easy and pleasantly surprising, every time. To achieve this customer experience, we operate one of the most technically advanced and high-performing networks in the industry.

We operate under a broadband first strategy. Our advanced network offers HSD speeds up to 1.2 GIG (1200 Mbps) in approximately 99% of our footprint and HSD speeds up to 5 GIG (5000 Mbps) in our greenfield expansion markets. Led by our robust HSD offering, our products are available either as an individual service or a bundle to residential and business service customers. Based on our per subscriber economics, we believe that HSD represents the greatest opportunity to enhance profitability across our residential and business markets.

For the three months ended March 31, 2024, the average percentage of HSD only new connections was approximately 92% compared to an average percentage of approximately 88% for the three months ended March 31, 2023. Of the HSD only customers, approximately 72% of the new connections purchased 500MB or higher speeds during the three months ended March 31, 2024, representing a 4% decrease compared to the three months ended March 31, 2023.  

WOW is continuing to focus on its market expansion strategy by building out its network in locations adjacent and nonadjacent to its existing network and bringing its state-of-the-art all IP fiber technology and award-winning customer service to those markets. During 2023, WOW launched services in the communities of Altamonte Springs, Wekiwa Springs, Casselberry, and Forest City in Florida as well as Headland, Alabama and Mauldin, SC. During the three months ended March 31, 2024, we continued to launch services in communities throughout Central Florida.

Key Transactions Impacting Operating Results and Financial Condition

Share Repurchase Program

On October 4, 2022, our Board of Directors authorized us to repurchase up to $50.0 million of our outstanding common stock.  The Company completed the Share Repurchase Program in June 2023 with approximately 4.9 million shares purchased for $50.4 million (including commissions).  During the quarter ended March 31, 2023, we repurchased 1.9 million shares for approximately $21.1 million as part of the Share Repurchase Program.

 

Critical Accounting Estimates

For a discussion of our critical accounting estimates and the means by which we develop estimates refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K. There have been no material changes from the critical estimates described in our Form 10-K.

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Homes Passed and Subscribers

We report homes passed as the number of serviceable addresses, such as single residence homes, apartments and condominium units, and businesses passed by our broadband network and listed in our database. We report total subscribers as the number of subscribers who receive at least one of our HSD, Video or Telephony services, without regard to which or how many services they subscribe. We define each of the individual HSD subscribers, Video subscribers and Telephony subscribers as a revenue generating unit (“RGU”). The following table summarizes homes passed, total subscribers and total RGUs for our services as of each respective date and for comparability purposes, presents subscribers associated with the Company’s operations as of each specified date:

Mar. 31,

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,

    

2023

2023

2023

2023

2024

Homes passed

   

1,885,700

1,892,600

1,905,600

1,932,200

1,948,500

Total subscribers

 

527,300

522,400

517,400

504,100

500,700

HSD RGUs

 

508,700

507,800

503,400

490,100

489,700

Video RGUs

 

117,100

110,000

100,800

90,800

79,300

Telephony RGUs

 

87,700

85,300