WOW(WOW) - 2022 Q2 - Quarterly Report

PART I. Financial Information Item 1: Financial Statements (Unaudited) Unaudited H1 2022 financials show decreased assets, net income shift, and negative operating cash flow due to a large tax payment Condensed Consolidated Balance Sheets Total assets decreased to $1,758.1 million by June 30, 2022, due to reduced cash, with liabilities also decreasing and equity slightly increasing Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $49.9 | $193.2 | | Total current assets | $142.5 | $282.0 | | Total assets | $1,758.1 | $1,906.7 | | Liabilities & Equity | | | | Total current liabilities | $163.9 | $320.9 | | Long-term debt and finance lease obligations, net | $720.2 | $723.5 | | Total liabilities | $1,171.7 | $1,335.9 | | Total stockholders' equity | $586.4 | $570.8 | Condensed Consolidated Statements of Operations Q2 2022 revenue slightly decreased, but income from continuing operations significantly improved to $4.0 million from a loss, driven by reduced interest expense Condensed Consolidated Statements of Operations (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $176.1 | $181.9 | $350.7 | $363.4 | | Income (loss) from operations | $9.9 | $(1.1) | $14.9 | $(1.8) | | Interest expense | $(7.9) | $(28.8) | $(15.3) | $(60.2) | | Income (loss) from continuing operations | $4.0 | $(22.5) | $9.7 | $(45.2) | | Net income | $4.0 | $12.4 | $9.7 | $22.0 | | Diluted EPS - continuing operations | $0.05 | $(0.27) | $0.11 | $(0.55) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $51.7 million for H1 2022, a significant decline from prior year, primarily due to a large income tax payment Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(51.7) | $156.9 | | Net cash used in investing activities | $(75.7) | $(114.6) | | Net cash used in financing activities | $(15.9) | $(31.4) | | (Decrease) increase in cash and cash equivalents | $(143.3) | $10.9 | - A significant cash payment for income taxes of $141.0 million was made during the first six months of 2022, compared to only $1.7 million in the same period of 2021[20] Notes to the Condensed Consolidated Financial Statements Notes detail single operating segment, discontinued operations impact, revenue trends, debt structure, and a pending patent lawsuit - In 2021, the company sold its service areas in Cleveland, Columbus, Chicago, Evansville, and Baltimore. These are now treated as discontinued operations. The company is providing transition services to the buyers, recognizing $5.4 million and $13.5 million in income for the three and six months ended June 30, 2022, respectively[30][34] Revenue by Service Offering (Continuing Operations, in millions) | Service | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Residential HSD | $84.6 | $81.5 | $166.9 | $161.0 | | Residential Video | $44.7 | $52.5 | $90.4 | $106.1 | | Residential Telephony | $6.1 | $7.3 | $12.4 | $14.9 | | Business Subscription | $27.8 | $27.3 | $55.5 | $54.6 | - The company is involved in a patent infringement lawsuit filed by Sprint in 2018 regarding VoIP services. The trial is scheduled for April 24, 2023. The company cannot determine the potential material impact at this time[76] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 'broadband first' strategy, 2021 divestiture impact, Q2 2022 revenue trends, improved operating income, and liquidity challenges - The company's core strategy is 'broadband first,' focusing on HSD services. Approximately 87% of new connections in H1 2022 were for HSD only[83][84] - WOW is pursuing 'greenfield' initiatives to build all-IP fiber networks in new markets, including Seminole and Orange County, Florida, and Greenville County, South Carolina[85] - The 2021 sale of five service areas generated $1.8 billion in net proceeds, which was primarily used to pay down debt and refinance the credit agreement, strengthening the company's financial position[86] Homes Passed and Subscribers As of June 30, 2022, the company served approximately 536,600 total subscribers, with HSD RGUs growing while Video and Telephony RGUs declined Subscriber and RGU Trends (Continuing Operations) | Metric | Jun 30, 2021 | Dec 31, 2021 | Jun 30, 2022 | | :--- | :--- | :--- | :--- | | Total subscribers | 530,500 | 532,900 | 536,600 | | HSD RGUs | 507,900 | 511,700 | 517,200 | | Video RGUs | 169,300 | 150,600 | 135,500 | | Telephony RGUs | 105,600 | 100,000 | 95,200 | Results of Operations Q2 2022 total revenue decreased by 3% YoY, due to declining Video/Telephony, while operating and interest expenses significantly decreased - Q2 2022 subscription revenue decreased by $5.4 million (3%) YoY, driven by a $13.5 million decline from the shift away from Video and Telephony, partially offset by a $6.4 million increase in ARPU as HSD customers chose higher speed tiers[101] - Operating expenses for Q2 2022 decreased by $12.1 million (13%) YoY, mainly due to an $8.2 million reduction in programming expenses, aligning with the decline in Video RGUs[105] - Interest expense for Q2 2022 decreased by $20.9 million (73%) YoY, a direct result of the debt refinancing and lower principal balance following the 2021 asset sales[110] - Other income increased by $6.4 million in Q2 2022, primarily from income related to the Transition Services Agreements for the sold service areas[112] Liquidity and Capital Resources As of June 30, 2022, the company had $49.9 million cash and $245.6 million available credit, though operating cash flow was negative due to a large tax payment - The company believes existing cash, available borrowing capacity, and operating cash flows will be sufficient to fund obligations for the next 12 months[122] - Net cash used in operating activities was $51.7 million for H1 2022, a swing from $156.9 million provided in H1 2021, primarily due to the income tax payment associated with the 2021 asset sales[127] Capital Expenditures (Continuing Operations, H1 2022, in millions) | Category | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Customer premise equipment (CPE) | $33.6 | $36.5 | | Scalable infrastructure | $18.1 | $22.6 | | Line extensions | $10.2 | $7.4 | | Support capital and other | $14.9 | $19.0 | | Total | $76.8 | $85.5 | - Capital expenditures included $5.0 million for new 'Greenfield' projects and $1.9 million for 'Edge-outs' in H1 2022, reflecting a focus on network expansion[130][131][133] Item 3: Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate fluctuations on variable-rate debt; a 1% SOFR increase would raise annual interest expense by $7.3 million - The company's primary market risk is from interest rate changes on its variable rate debt[135] - A hypothetical 1% (100 basis point) change in SOFR would change annual interest expense by approximately $7.3 million[135] Item 4: Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2022, with no material changes to internal controls during Q2 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[138] - No material changes were made to the internal control over financial reporting during the second quarter of 2022[139] PART II. Other Information Item 1: Legal Proceedings The company is involved in a patent infringement lawsuit by Sprint related to VoIP services, with a trial scheduled for April 2023 - The company is defending against a patent infringement claim from Sprint related to VoIP services, with a trial scheduled for April 2023[76][141] Item 1A: Risk Factors No material changes to risk factors from the 2021 Form 10-K - No material changes to risk factors from the 2021 Form 10-K[142] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds Shares purchased during Q2 2022 were withheld from employees for tax obligations on vested restricted stock awards, not a formal buyback - Shares purchased during the quarter were withheld from employees to satisfy tax obligations on vested restricted stock awards, not as part of a formal buyback program[143] Item 3: Defaults Upon Senior Securities No defaults upon senior securities were reported Item 4: Mine Safety Disclosures This item is not applicable to the company's operations Item 5: Other Information No other material information is reported in this section Item 6: Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents and required certifications