WideOpenWest, Inc. (WOW) Earnings Call Transcript & Summary

Good afternoon, everybody. I'm so happy to be joined again this year by Teresa Elder, the CEO; and John Rego, the CFO of WideOpenWest. Thanks so much for joining me today, guys.

Thank you.

Thanks for the invite, Grant.

So I just want to start by saying what a difference a year makes. So last year at this conference, WOW! had not even announced the sale of its Midwestern markets, and the leverage was certainly not in a place that would have supported a 400,000 home greenfield fiber expansion. So a lot of change in the last year. When you look forward to the next year, what are each of you primarily focused on?

Well, it certainly has been an exciting year for WOW! being able to get to that low leverage place, get these 2 transactions completed last year. And then working through the transaction services agreements with both parties right now. What we're looking ahead for, though, is really what this allows us to do and frees us up to do these greenfield build. We're very excited about execution on those. Just last month, we announced the increase, as you mentioned, to 400,000 homes passed over the next 5 years, and we're just really having fun getting going on that, while also executing on all the things we can do for our existing customers and our current footprint.

Yes. So for me, I think Teresa's 4.5 years, we have been transformative, and I'd like to think financially, my 2 years here have been somewhat transformative. We had a lot of things we had to try to solve for. So by selling the 5 markets, and delevering, we were 5.5x levered when I joined, 6.5x when Teresa joined, we kind of broke the logjam. So to use an [indiscernible] was like shrinking to grow. So we had to get that part done. The other thing we had to do though was we were tremendously undervalued versus our peer group. But I think one of the rationales behind selling the 5 markets at 11x multiple was to like just point out to people like, hey, this company is really undervalued. So we put ourselves in a position now where we could really grow the business, and that's a completely new day in the sun. So that's a couple of things that went behind it. So delevering, proving the value of the company, shrinking to grow, and now start to see, let's go build these fiber networks in the greenfields. It's pretty exciting times looking forward.

Great. So we'll spend some time on the greenfield builds in a little while. But first, I want to talk about the broadband environment where we last checked in on that at 1Q earnings in early May. So I'd love to hear an update on how consumers are feeling in your base footprint. Are household budgets getting stretched and, as a low-cost challenger brand, is that environment impacting well, either positively or negatively?

Yes, it's a great question. I mean, certainly, our customers are being impacted by the same issues of inflation and gas prices as the rest of the U.S. So I think many people are feeling squeezed. The good side of it for WOW! is that WOW! is a brand that not only offers reliability and speed but value and a choice from the more expensive competitors. So that makes us, I think, more attractive to customers who, of course, can't live without their broadband, but are really looking for ways to stretch their budget further. So I think that's a plus. And we have continued to participate in the affordable connectivity program, which also offers, for those who qualify, a $30 subsidy per month. And so that has been an attractive plan for some of our customers, too.

Great. So it seems like the whole industry has been in a really low churn broadband environment for quite a while now across non-paid churn, move churn and voluntary churn, all 3. So how are each of those trending right now? Is transferring to normalize?

Our churn has been at record lows for a number of years now. And that trend is absolutely continuing. We really value our customers and we're so glad that they are so loyal to us. So yes, we have definitely seen that trend continue.

I'm going to ask you a question now that I'm getting a lot from investors, which is that WOW!'s exposure to kind of moderate density suburban markets means that on paper its footprint looks like really good territory for mid-band based fixed wireless broadband. Are you actually feeling any competitive impact from fixed wireless, either on [ win ] share or on your ability to retain customers?

Yes. Fixed wireless really is not, I would say, a competitive threat to WOW!. We certainly take all competitors seriously and we look at what they're doing. But for a customer, they really look for something that is very viable, that has high speeds, that isn't complicated to set up or continue to try to tweak to get just right. And that for WOW! is very successful. We tend to compete extremely well against fixed wireless competitors. So it hasn't been an issue really for us.

Good to hear. And then the other horseman of broadband competition is fiber. So you are the fiber competition and we'll get to that in a little bit. But in your base footprint, are you seeing any incremental fiber competition?

No. It's been kind of the same black percentage that it's sort of been for many years now. If you think about it, just like we are now thinking about, where do we want to invest and deploy fiber? We're going to look for markets where customers have fewer choices, where there aren't all the alternatives for different providers. And so when another fiber company is looking at investing, the WOW! markets aren't that attractive because by definition, with us being there, it's a pretty competitive market. So that's some of the reasons why I think we haven't seen big inroads from competitors.

So switching over to John. When you look at this competitive environment, are you seeing anything that makes you nervous for the 11% to 12% high-speed data revenue long-term target that you've put out there?

No, I'm not. I mean one of the things we're doing, Grant, and you know this from the earnings call, is we're really stoking up the flames on the growth CapEx really dramatically. So historically, the company was spending maybe $30 million a year that went down to negligible amounts in '20 and '21 due to the pandemic. But our growth CapEx for just this year is $80 million, which is a lot for us. It's more than twice what it's ever been. The future is in expanding our existing base as best as we can, but the bigger growth story is in the greenfield builds. And as Teresa said, we're not afraid of competition. We're the overbuild. We are a competitor. It's all we do. We're always the competition. So there's nothing new there. But in -- and we'll talk about greenfields, I guess, more later, but in picking where to build the greenfields, we are like kind of cherry picking places where there aren't 50 competitors or [ 43 ] competitors. So we tend to do much better in places where there's maybe 1 large competitor and maybe some DSL provider. And if you look at the overall penetration that the company has achieved in 21 years, it's roughly 28%, all in, but there are 14 markets now post divestiture. They're not all at 28%. Some are -- we have ones that are 50%. We have ones that are slightly below 28%. So just think about inspiring the growth, we're not changing that growth number at all. We're moving towards markets where we could be really competitive and penetrate very quickly, very soon. While that is going on, ARPUs are going up. Our HSD ARPU has been up sequentially 8 quarters in a row. I don't see that really changing. So what people need is the need for speed and people seem to be tiering up to 500 meg and greater. 51% of new adds now are taking 500 meg or greater. And even the existing base, the core base, just a hair under 50%, now are sort of at that 500 meg or greater. So people realized that probably in the pan -- no, definitely in the pandemic. So we're feeling good about the 11% to 12%. No changes.

And you started on the ARPU growth conversation. So I'm going to take us there next. So AT&T kind of started a conversation on price increases this spring with inflation and actually raised its U-verse prices $6, but there's been little in the way of broadband price increases since from anyone else. So how do you think about taking price in this environment?

We haven't done a lot. Go ahead, Teresa.

No, no. Go ahead. I'm sure we'll say the same answer.

All right. So on the video product, there's an annual rate increase, no shocker there, because we get a [indiscernible] increase every year. But in HSD, we historically have not taken a lot of rate because we just have chosen not to do that. But it's not to say we've never done it. In fact, we did take a little bit of rate this year that impacts maybe 30% of the base. So there's room to do it. The interesting aspect what we're doing is that we're generally lower than the competition to begin with. So even if we take a rate increase, we're still lower than the competition. And that, by the way, will be an excellent meeting point in the greenfield territories, because we'll be really lower than the competition. So that helps, especially in times like now.

Do you need price increases to meet that 11% to 12% revenue target? Or is it just tiering up in volume growth that are kind of the engines that get you there?