WOW! reports subscriber loss, forecasts 'significantly worse' Q4

WideOpenWest (WOW!) reported a loss of 5,000 broadband subscribers and a net loss of $104.5 million in the third quarter.

Colorado-based WOW!'s stocks fell more than 57% today. To date, the company’s shares are down around 65% this year.

WOW! CEO Teresa Elder said results this quarter make sense given two transitions the company is pursuing, including new market expansion and a shift to the next phase of its broadband first initiative—which involves transitioning its “low-margin video business to a high-margin streaming service.”

The company is seeing “some more aggressive competitive pressure than previous quarters as a result of the pressures in the legacy markets and lower-than-expected new homes coming on board,” said Elder.

“Our expectation is that the fourth quarter will be significantly worse than the third quarter." 

She attributed the bleak fourth-quarter expectations in part to a challenging macro environment as well as WOW!’s rate increases, which led to higher-than-anticipated churn, especially for subscribers who take lower tier speeds.

Additionally, Elder said the company is seeing fixed wireless begin to "more aggressively compete" at those lower speed tiers across its legacy markets.

WOW! optimistic about 2024, HSD

Elder told investors during earnings that she is "confident" WOW!'s expansion initiatives and broadband-first strategy will result in improved financial and customer results in 2024.

WOW! announced several new greenfield markets this quarter, including the opportunity to pass 80,000 new homes in Michigan, 85,000 in Minnesota and 44,000 new homes in Hernando County, Florida.

In the third quarter, Elder said the company passed more homes than it did in the first half of the year and more than the last three years combined.

Still, Elder acknowledged those passings represent less than what WOW! had internally forecasted, which is negatively impacting its overall HFC growth.

While expansion is "going well," Elder said the pace of construction in new markets is below the company's internal forecast. That is "significantly reducing the number of gross connects" expected.

Including its current greenfield markets in Central Florida and South Carolina, the company expects to hit a 400,000 new homes target by the end of 2027.

WOW! greenfield homes are built with fiber-to-the-home (FTTH) technology, and its edge-out builds use either FTTH or mid-split, high-split architecture with DAA capability for HFC, which lays the framework for DOCSIS 4.0 and symmetrical multi-gig services in those markets.

"The strength of these technologies is absolutely contributing to the strong penetration rate that we are seeing in these edge-outs," said Elder.

As of the end of the third quarter, WOW! had more than 503,000 high-speed data (HSD) subscribers (despite losing 4,400 in that period.)

According to Elder, a "record share of new customers are buying higher speeds than ever." Over 90% of the company's new connects are taking broadband-only.

HSD revenue increased more than 7% from the same period last year and more than 80% of WOW!'s new customers are buying speeds above 500 megs. 

The company experienced record HSD ARPU and adjusted economic value added (EVA) growth.

Q3 financials

WOW!'s net loss of $104.5 million in the third quarter was primarily due to a non-cash accounting adjustment required by GAAP. WOW! CFO John Rego said this charge, while significant on paper, does not impact the company's ability to manage its business or pursue its expansion strategy in new markets.

The quarter's increase in HSD revenue, was offset by a 14.1% decrease in video revenue and a 9.4% drop in Telephony revenue. As a result, total revenue for the period was $173.1 million, slightly lower than the same period last year.

Adjusted EBITDA increased by 3.5% to $70.9 million. This growth was attributed to the higher-margin HSD revenue, which accounted for 63% of total revenue in the quarter, up from 59% in the same period the previous year.

During earnings the company claimed it is making steady progress in aligning its cost structure and remains on track to achieve its target of $35.5 million in cost savings by the end of 2025.

As of the third quarter, it had realized $26 million in savings, which represents approximately 73% of their total cost reduction goal. The company has also implemented further headcount reductions, primarily in corporate and administrative areas, to optimize operations.

WOW! ended the quarter with $226 million in total cash and $889.1 million in outstanding debt.

Total capital spend for the quarter was $64.5 million, a $26.8 million increase from the previous year. This includes significant investments in expanding its fiber network in Central Florida and Greenville County, South Carolina, as well as its business services.