WOW(WOW) - 2023 Q4 - Annual Report

PART I Business WideOpenWest is a US broadband provider offering HSD, Video, and Telephony services across 16 markets - As of December 31, 2023, the company's network passed 1.9 million homes and businesses, serving 504,100 customers, a penetration rate of approximately 26%[12] - The company's core strategy is 'broadband first', with approximately 89% of new customers in 2023 purchasing HSD-only offerings[14][21] - WOW faces significant competition from major cable operators, telecommunications companies, mobile 5G providers, and OTT video distributors[46][47][49] - As of December 31, 2023, the company employed 1,360 full-time employees and emphasizes a culture of diversity, equity, and inclusion[53][59] Service Offerings The company provides tiered HSD, Video, and Telephony services with a primary focus on high-speed data - Approximately 76% of the customer base subscribed only to HSD service as of December 31, 2023, reflecting the success of the broadband-first strategy[24] - The company offers a modern video platform, WOW tv+, which integrates traditional cable with cloud DVR and access to streaming apps[27] - Business services include advanced offerings such as fiber-based data speeds up to 10 Gbps, metro Ethernet, and cloud infrastructure services[30][44] Competition The company operates in a highly competitive environment against cable, FTTH, 5G, and OTT providers - Primary cable competitors are typically Comcast or Charter, while the largest telecommunications competitor is AT&T[46] - The company faces increasing competition from mobile phone companies like AT&T, T-Mobile, and Verizon, which offer 5G fixed wireless internet services[47] - Video services face growing pressure from OTT content providers and virtual multichannel video programming distributors like YouTube TV[49] Legislation and Regulation Operations are subject to extensive federal, state, and local regulations, including potential net neutrality rules - In October 2023, the FCC proposed to reenact 'net neutrality' requirements and classify broadband as a 'common carrier' service[74] - The company participates in the Affordable Connectivity Program (ACP), a federal initiative providing discounts on broadband services[93] - All telecommunications providers must contribute to the Universal Service Fund, with the contribution factor for Q4 2023 at 34.5%[91] Risk Factors The company faces risks from intense competition, technological change, rising costs, regulation, and high debt - The company faces intense competition from larger rivals, network upgrades for 5G and fiber, and the rise of OTT content delivery[104][105][106] - Programming is the largest single operating expense, and costs are expected to continue rising rapidly[111] - The company has substantial indebtedness, making it sensitive to interest rate increases and limiting its operational flexibility[148][149][152] - Crestview Partners owns approximately 38% of the company's common stock, giving it significant influence over corporate decisions[154] Unresolved Staff Comments There are no unresolved staff comments Cybersecurity The company manages cybersecurity through an enterprise-wide program overseen by the Audit Committee - The company has an enterprise-wide information security program to identify, protect, detect, respond to, and manage cybersecurity risks[182] - Cybersecurity governance is overseen by the Chief Technology Officer, with the Audit Committee receiving quarterly updates on risks and incidents[187][188] - While systems periodically experience attacks, these incidents have not had a material impact on its service, systems, or business to date[184] Properties The company leases its corporate offices and owns or leases all other necessary operational assets - The company's executive offices are leased, while its operating subsidiaries own or lease all other necessary fixed assets for business operations[190][191] Legal Proceedings The company is party to various legal proceedings in the normal course of business - Refer to Note 17 – Commitments and Contingencies for a discussion of the Company's legal proceedings[192] Mine Safety Disclosures This section is not applicable to the company PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE under 'WOW' and it does not currently pay dividends - The company's common stock has traded on the NYSE under the symbol 'WOW' since its IPO on May 25, 2017[195] - No dividends have been declared or paid on common stock, and the company does not anticipate paying cash dividends in the foreseeable future[197] Equity Securities Purchases (Q4 2023) | Period | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2023 | 560 | $7.04 | | November 2023 | 78,164 | $4.00 | | December 2023 | 1,669 | $4.05 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased 3% in 2023, resulting in a significant net loss due to a large non-cash impairment charge Financial Results Summary (2023 vs. 2022) | Metric | 2023 (in millions) | 2022 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $686.7 | $704.9 | -2.6% | | Loss from Operations | $(315.0) | $(0.7) | N/A | | Impairment Losses | $306.8 | $35.0 | +776.6% | | Interest Expense | $71.1 | $38.7 | +83.7% | | Net Loss | $(287.7) | $(2.5) | N/A | - The company recognized a non-cash impairment charge of $306.8 million on its franchise operating rights in 2023[253] - Selling, general and administrative (SG&A) expenses increased by 21% to $35.0 million, largely due to a patent litigation settlement[251] - Capital expenditures rose by $101.7 million to $268.9 million in 2023, driven by increased investment in market expansion and greenfield initiatives[273] Results of Operations Total revenue decreased 3% due to subscriber losses, while operating loss was driven by a major impairment charge - Subscription revenue decreased by 2% due to a service mix shift, partially offset by a $42.9 million increase in ARPU[246] - Operating expenses decreased by 8%, primarily driven by a $21.5 million reduction in programming expenses[249] - Interest expense increased by $32.4 million (84%) due to higher interest rates and increased borrowings on the revolving credit facility[254] Liquidity and Capital Resources The company funds operations through cash, operating flows, and its revolving credit facility - As of December 31, 2023, the company had $23.4 million in cash and cash equivalents and $44.3 million of available borrowing capacity[263][264] - The company completed its $50.0 million share repurchase program in June 2023, having repurchased approximately 4.9 million shares[265] Capital Expenditures Breakdown (2023 vs. 2022) | Category | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Scalable infrastructure | $80.1 | $39.4 | | Customer premise equipment | $65.7 | $64.6 | | Line extensions | $70.2 | $26.8 | | Support capital and other | $52.9 | $36.4 | | Total | $268.9 | $167.2 | | Included in Total: | | | | Greenfields | $105.0 | $21.5 | Critical Accounting Estimates Key estimates involve valuing intangible assets, which led to a $306.8 million impairment charge in 2023 - The company evaluates franchise operating rights for impairment annually, leading to a $306.8 million impairment charge in 2023[226] - Goodwill is also tested annually for impairment, with the tests for 2023, 2022, and 2021 resulting in no impairment charges[228] - Accounting for income taxes requires significant judgment in assessing the realizability of deferred tax assets and reserves[229][230] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its variable-rate debt - The company's main market risk is from interest rate fluctuations on its variable rate debt; a hypothetical 1% change in SOFR would impact annual interest expense by approximately $9.2 million[277] Financial Statements and Supplementary Data This section contains audited financial statements with an unqualified opinion from BDO USA, P.C - The independent auditor, BDO USA, P.C, issued an unqualified opinion on the consolidated financial statements and internal controls[287][308] - The auditor identified the determination of the fair value of certain franchise operating rights as a critical audit matter[312][315] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[281] - Management assessed the effectiveness of internal controls over financial reporting based on the COSO framework and concluded they were effective[285] PART III Directors, Executive Compensation, and Corporate Governance Required information is incorporated by reference from the company's 2024 proxy statement - Information for Part III (Items 10-14) is incorporated by reference from the company's definitive proxy statement for the 2024 annual meeting[297] PART IV Exhibits and Financial Statement Schedules This section lists financial statements and exhibits filed as part of the Form 10-K report Form 10-K Summary This section is not applicable