WOW(WOW) - 2023 Q2 - Quarterly Report

PART I. Financial Information Item 1: Financial Statements (Unaudited) WideOpenWest, Inc. reported a $139.7 million net loss for the six months ended June 30, 2023, driven by a $128.1 million impairment charge and higher SG&A Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $1.62 billion, liabilities increased to $1.22 billion, and equity significantly declined Condensed Consolidated Balance Sheets | Balance Sheet Items | June 30, 2023 (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | Total Assets | $1,621.4 | $1,717.4 | | Cash and cash equivalents | $23.0 | $31.0 | | Franchise operating rights | $457.0 | $585.1 | | Total Liabilities | $1,221.2 | $1,142.3 | | Long-term debt and finance lease obligations | $851.4 | $725.0 | | Total Stockholders' Equity | $400.2 | $575.1 | Condensed Consolidated Statements of Operations The company reported a $139.7 million net loss for the six-month period, driven by a $128.1 million impairment and increased interest expense Condensed Consolidated Statements of Operations | Metric | Q2 2023 (in millions) | Q2 2022 (in millions) | Six Months 2023 (in millions) | Six Months 2022 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $172.6 | $176.1 | $344.8 | $350.7 | | (Loss) Income from Operations | $(121.4) | $9.9 | $(158.3) | $14.9 | | Impairment losses on intangibles | $128.1 | $0.0 | $128.1 | $0.0 | | Interest expense | $(17.3) | $(7.9) | $(32.2) | $(15.3) | | Net (Loss) Income | $(101.7) | $4.0 | $(139.7) | $9.7 | | Diluted (Loss) Earnings Per Share | $(1.25) | $0.05 | $(1.70) | $0.11 | Condensed Consolidated Statements of Cash Flows Net cash from operations was $41.2 million for the six months ended June 30, 2023, with investing activities using $123.6 million Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Six Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $41.2 | $(51.7) | | Net cash used in investing activities | $(123.6) | $(75.7) | | Net cash provided by (used in) financing activities | $74.4 | $(15.9) | | Decrease in cash and cash equivalents | $(8.0) | $(143.3) | Notes to the Condensed Consolidated Financial Statements Key notes highlight a 2% revenue decline, a $128.1 million impairment, a $46.8 million patent settlement, and completion of a $50.0 million share repurchase - Total subscription revenue decreased by 2% for the six months ended June 30, 2023, primarily due to a decline in Video and Telephony subscribers, partially offset by higher HSD revenue[29][95] - The company recorded a non-cash impairment charge of $128.1 million on its franchise operating rights due to a decline in its stock price and revised future cash flow estimates for certain markets[38][39][42] - A patent infringement lawsuit with Sprint was settled, resulting in an accrued expense of $46.8 million as of March 31, 2023, which is included in SG&A expenses[70][71] - The company completed its authorized $50.0 million share repurchase program as of June 30, 2023, having purchased approximately 4.9 million shares for $50.4 million[59] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2% revenue decline to a shift towards HSD and market expansion, with operating results impacted by a $128.1 million impairment and patent settlement Overview and Subscriber Data The company's 'broadband first' strategy focuses on HSD and fiber expansion, with total subscribers declining to 522,400 but growth in new markets - The company is executing a 'broadband first' strategy, with approximately 87% of new connections being for HSD only in the first half of 2023[77][78] - WOW is focused on market expansion, launching services in several new Florida and Alabama markets in the first half of 2023 using all-IP fiber technology[79] Subscriber Data | Subscriber Metrics | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Homes Passed | 1,892,600 | 1,886,000 | | Total Subscribers | 522,400 | 536,600 | | HSD RGUs | 507,800 | 517,200 | | Video RGUs | 110,000 | 135,500 | | Telephony RGUs | 85,300 | 95,200 | Results of Operations Q2 2023 revenue decreased 2% to $172.6 million, SG&A surged 66% from a patent settlement, and a $128.1 million impairment led to a substantial operating loss - Subscription revenue for the six months ended June 30, 2023, decreased by $5.4 million (2%) year-over-year, driven by a reduction in Video and Telephony RGUs, partially offset by higher HSD ARPU from customers buying higher speed tiers[95] - Operating expenses for the six months decreased by $16.6 million (10%) year-over-year, mainly due to lower programming costs associated with the decline in Video subscribers[98] - SG&A expenses for the six months increased by $51.5 million (66%) year-over-year, primarily due to the patent litigation settlement and restructuring costs[100] - A non-cash impairment charge of $128.1 million was recognized related to franchise operating rights, driven by declining cash flow projections and a lower stock price[102] - Interest expense for the six months increased by $16.9 million (110%) year-over-year due to higher interest rates and increased borrowings on the revolving credit facility[103] Liquidity and Capital Resources As of June 30, 2023, the company had $23.0 million cash and $106.4 million available credit, deemed sufficient for 12 months, despite capital expenditures increasing to $123.8 million - The company believes existing cash, available borrowing capacity of $106.4 million, and operating cash flows are sufficient to fund obligations for the next 12 months[110][111] Capital Expenditures | Capital Expenditures (Six Months Ended June 30) | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Scalable infrastructure | $29.6 | $18.1 | | Customer premise equipment | $32.0 | $33.6 | | Line extensions | $38.7 | $10.2 | | Support capital and other | $23.5 | $14.9 | | Total | $123.8 | $76.8 | | Related to Greenfields | $43.2 | $5.0 | - Cash from financing activities was $74.4 million in the first half of 2023, compared to a use of $15.9 million in the prior year, primarily due to a $130.2 million increase in net borrowings[119] Item 3: Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable-rate debt, where a 1% SOFR increase would raise annual interest expense by approximately $8.6 million - The company's main market risk is from fluctuating interest rates on its variable rate debt, where a hypothetical 1% change in the SOFR rate would alter annual interest expense by approximately $8.6 million[122] Item 4: Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, with no material changes to internal control over financial reporting during Q2 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[125] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2023[126] PART II. Other Information Item 1: Legal Proceedings The report refers to Note 13 for details on legal proceedings, including the settlement of a patent infringement claim with Sprint - For discussion of legal proceedings, the report refers to Note 13 – Commitments and Contingencies[129] Item 1A: Risk Factors No material changes to risk factors from the company's 2022 Annual Report on Form 10-K were reported - No material changes to the risk factors from the 2022 Annual Report on Form 10-K were reported[130] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company repurchased 1,866,046 shares as part of its $50.0 million stock repurchase plan, completed in June 2023 - The company's $50.0 million stock repurchase plan was completed in June 2023[131] Share Repurchase Activity | Period (2023) | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1 - 30 | 637,896 | $10.82 | | May 1 - 31 | 1,022,505 | $8.78 | | June 1 - 30 | 205,645 | $7.81 | Other Items (Items 3, 4, 5, 6) The company reported no defaults on senior securities or applicable mine safety disclosures, while two executive officers adopted new Rule 10b5-1 trading plans - There were no defaults upon senior securities (Item 3) and mine safety disclosures are not applicable (Item 4)[132][133] - Two executive officers, Donald P. Schena and Henry Hryckiewicz, terminated existing Rule 10b5-1 trading plans and adopted new ones in May 2023[134][135]