UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the quarterly period ended | |
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File Number: 001-38101
WideOpenWest, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 46-0552948 |
| |
7887 East Belleview Avenue, Suite 1000 | 80111 |
(720) 479-3500
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | WOW | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |
Large accelerated filer ☐ | Accelerated filer ☒ |
| |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of outstanding shares of the registrant’s common stock as of October 29, 2020July 30, 2021 was 86,845,019.87,103,746.
WIDEOPENWEST, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBERJUNE 30, 20202021
TABLE OF CONTENTS
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| 1 | |
| 2 | |
| 3 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Deficit | 4 |
| 5 | |
| 6 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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This Quarterly Report on Form 10-Q is for the three and ninesix months ended SeptemberJune 30, 2020.2021. Any statement contained in a prior periodic report shall be deemed to be modified or superseded for purposes of this Quarterly Report to the extent that a statement contained herein modifies or supersedes such statement. The Securities and Exchange Commission allows us to “incorporate by reference” information that we file with them, which means that we can disclose important information by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report. References in this Quarterly Report to “WOW,” “we,” “us,” “our,” or “the Company” are to WideOpenWest, Inc. and its direct and indirect subsidiaries, unless the context specifies or requires otherwise.
i
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Quarterly Report that are not historical facts contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events. Such statements involve certain risks, uncertainties and assumptions. Forward-looking statements include all statements that are not historical fact and can be identified by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “anticipate,” “expect,” “believe,” “estimate,” “plan,” “project,” “predict,” “potential,” or the negative of these terms. Although these forward-looking statements reflect our good-faith belief and reasonable judgment based on current information, these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including, but not limited to:
● | the |
● | our ability to respond to rapid technological |
● | increases in programming and retransmission |
costs and/or programming exclusivity in favor of our competitors; |
● | the disruption or failure of our network information systems or technologies as a result of hacking, viruses, outages or natural disasters in one or more of our geographic markets; |
● |
● | our substantial level of indebtedness and our ability to comply with all covenants in our |
● | changes in laws and government regulations that may impact the availability and cost of capital; |
● | effects of uncertain economic conditions, particularly in light of the current novel coronavirus (“COVID-19”) pandemic, and related factors (e.g., unemployment, decreased disposable income, etc.) which may negatively affect our customers’ demand or ability to pay for our current and future products and services; |
● | our ability to manage the risks involved in the foregoing; and |
other factors described from time to time in our reports filed or furnished with the Securities and Exchange Commission (“SEC”), and in particular those factors set forth in the section entitled “Risk Factors” in our annual report filed on Form 10-K with the SEC on March 4, 2020February 24, 2021 and other reports subsequently filed with the SEC, including our quarterly report on Form 10-Q filed with the SEC on May 4, 2020.SEC. Given these uncertainties, you should not place undue reliance on any such forward-looking statements. The forward-looking statements included in this report are made as of the date hereof or the date specified herein, based on information available to us as of such date. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.
ii
PART I-FINANCIAL INFORMATION
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (in millions, except share data) | ||||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 32.9 | | $ | 21.0 |
Accounts receivable—trade, net of allowance for doubtful accounts of $8.1 and $7.5, respectively | |
| 67.2 | |
| 65.8 |
Accounts receivable—other, net | |
| 3.1 | |
| 9.8 |
Prepaid expenses and other | |
| 30.2 | |
| 22.1 |
Total current assets | |
| 133.4 | |
| 118.7 |
Right-of-use lease assets—operating | | | 26.6 | | | 26.5 |
Property, plant and equipment, net | |
| 1,079.8 | |
| 1,073.7 |
Franchise operating rights | |
| 799.5 | |
| 799.5 |
Goodwill | |
| 408.8 | |
| 408.8 |
Intangible assets subject to amortization, net | |
| 2.2 | |
| 2.9 |
Other non-current assets | |
| 49.0 | |
| 41.5 |
Total assets | | $ | 2,499.3 | | $ | 2,471.6 |
Liabilities and stockholders’ deficit | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable—trade | | $ | 45.9 | | $ | 47.1 |
Accrued interest | |
| 3.8 | |
| 2.7 |
Current portion of long-term lease liability—operating | | | 6.6 | | | 6.1 |
Accrued liabilities and other | |
| 96.9 | |
| 95.6 |
Current portion of long-term debt and finance lease obligations | |
| 34.9 | |
| 30.9 |
Current portion of unearned service revenue | |
| 45.9 | |
| 45.0 |
Total current liabilities | |
| 234.0 | |
| 227.4 |
Long-term debt and finance lease obligations—less current portion and debt issuance costs | | | 2,252.1 | | | 2,259.5 |
Long-term lease liability—operating | | | 23.1 | | | 23.4 |
Deferred income taxes, net | |
| 198.4 | |
| 192.5 |
Other non-current liabilities | |
| 14.2 | |
| 14.7 |
Total liabilities | |
| 2,721.8 | |
| 2,717.5 |
Commitments and contingencies | |
|
| |
|
|
Stockholders' deficit: | | | | | | |
Preferred stock, $0.01 par value, 100,000,000 shares authorized; 0 shares issued and outstanding | | | — | | | — |
Common stock, $0.01 par value, 700,000,000 shares authorized; 95,192,119 and 92,182,207 issued as of September 30, 2020 and December 31, 2019, respectively; 86,856,478 and 84,103,108 outstanding as of September 30, 2020 and December 31, 2019, respectively | |
| 0.9 | |
| 0.9 |
Additional paid-in capital | |
| 331.1 | |
| 322.8 |
Accumulated other comprehensive loss | | | (10.7) | | | (15.5) |
Accumulated deficit | | | (463.1) | | | (474.4) |
Treasury stock at cost, 8,335,641 and 8,079,099 shares as of September 30, 2020 and December 31, 2019, respectively | |
| (80.7) | |
| (79.7) |
Total stockholders’ deficit | |
| (222.5) | |
| (245.9) |
Total liabilities and stockholders’ deficit | | $ | 2,499.3 | | $ | 2,471.6 |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | (in millions, except share data) | ||||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 23.3 | | $ | 12.4 |
Accounts receivable—trade, net of allowance for doubtful accounts of $5.2 and $6.7, respectively | |
| 38.3 | |
| 44.4 |
Accounts receivable—other, net | |
| 2.4 | |
| 2.8 |
Prepaid expenses and other | |
| 35.1 | |
| 25.0 |
Current assets held for sale | | | 29.9 | | | 30.2 |
Total current assets | |
| 129.0 | |
| 114.8 |
Right-of-use lease assets—operating | | | 20.3 | | | 22.1 |
Property, plant and equipment, net | |
| 718.6 | |
| 720.9 |
Franchise operating rights | |
| 620.1 | |
| 620.1 |
Goodwill | |
| 225.1 | |
| 225.1 |
Intangible assets subject to amortization, net | |
| 1.8 | |
| 1.9 |
Other non-current assets | |
| 42.3 | |
| 42.1 |
Non-current assets held for sale | | | 730.1 | | | 740.0 |
Total assets | | $ | 2,487.3 | | $ | 2,487.0 |
Liabilities and stockholders’ deficit | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable—trade | | $ | 29.8 | | $ | 32.4 |
Accrued interest | |
| 3.8 | |
| 4.0 |
Current portion of long-term lease liability—operating | | | 6.0 | | | 5.8 |
Accrued liabilities and other | |
| 70.7 | |
| 79.7 |
Current portion of long-term debt and finance lease obligations | |
| 70.9 | |
| 37.5 |
Current portion of unearned service revenue | |
| 30.0 | |
| 28.6 |
Current liabilities held for sale | | | 46.9 | | | 47.9 |
Total current liabilities | |
| 258.1 | |
| 235.9 |
Long-term debt and finance lease obligations, net of debt issuance costs —less current portion | | | 2,176.8 | | | 2,228.5 |
Long-term lease liability—operating | | | 16.3 | | | 19.0 |
Deferred income taxes, net | |
| 205.0 | |
| 200.6 |
Other non-current liabilities | |
| 12.9 | |
| 13.1 |
Non-current liabilities held for sale | | | 2.4 | | | 2.3 |
Total liabilities | |
| 2,671.5 | |
| 2,699.4 |
Commitments and contingencies | |
|
| |
|
|
Stockholders' deficit: | | | | | | |
Preferred stock, $0.01 par value, 100,000,000 shares authorized; 0 shares issued and outstanding | | | — | | | — |
Common stock, $0.01 par value, 700,000,000 shares authorized; 95,888,217 and 95,187,161 issued as of June 30, 2021 and December 31, 2020, respectively; 87,111,194 and 86,847,797 outstanding as of June 30, 2021 and December 31, 2020, respectively | |
| 1.0 | |
| 1.0 |
Additional paid-in capital | |
| 340.9 | |
| 333.8 |
Accumulated other comprehensive income (loss) | | | — | | | (6.5) |
Accumulated deficit | | | (438.0) | | | (460.0) |
Treasury stock at cost, 8,777,023 and 8,339,364 shares as of June 30, 2021 and December 31, 2020, respectively | |
| (88.1) | |
| (80.7) |
Total stockholders’ deficit | |
| (184.2) | |
| (212.4) |
Total liabilities and stockholders’ deficit | | $ | 2,487.3 | | $ | 2,487.0 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| | | | | | | | | | | | |
| | Three months ended | | Nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
| | 2020 |
| 2019 | | 2020 |
| 2019 | ||||
| | (in millions, except per share data) | ||||||||||
Revenue | | $ | 288.7 | | $ | 285.4 | | $ | 855.2 | | $ | 862.3 |
Costs and expenses: | |
| | |
|
| |
|
| |
|
|
Operating (excluding depreciation and amortization) | |
| 140.8 | |
| 138.8 | |
| 436.6 | |
| 432.4 |
Selling, general and administrative | |
| 45.0 | |
| 40.6 | |
| 134.2 | |
| 133.7 |
Depreciation and amortization | |
| 58.2 | |
| 50.9 | |
| 170.8 | |
| 151.5 |
Loss on sale of operating assets, net | | | — | | | 8.4 | | | — | | | 4.8 |
| |
| 244.0 | |
| 238.7 | |
| 741.6 | |
| 722.4 |
Income from operations | |
| 44.7 | |
| 46.7 | |
| 113.6 | |
| 139.9 |
Other income (expense): | |
| | |
|
| |
|
| |
|
|
Interest expense | |
| (32.2) | |
| (35.8) | |
| (98.1) | |
| (107.4) |
(Loss) gain on sale of assets, net | | | (0.3) | | | — | | | 0.4 | | | — |
Other income, net | |
| 0.8 | |
| 0.6 | |
| 1.6 | |
| 3.3 |
Income before provision for income tax | |
| 13.0 | |
| 11.5 | |
| 17.5 | |
| 35.8 |
Income tax expense | |
| (4.0) | |
| (0.1) | |
| (6.2) | |
| (6.3) |
Net income | | $ | 9.0 | | $ | 11.4 | | $ | 11.3 | | $ | 29.5 |
| | | | | | | | | | | | |
Basic and diluted earnings per common share | | | | | | | | | | | | |
Basic | | $ | 0.11 | | $ | 0.14 | | $ | 0.14 | | $ | 0.37 |
Diluted | | $ | 0.11 | | $ | 0.14 | | $ | 0.14 | | $ | 0.36 |
Weighted-average common shares outstanding | | | | | | | | | | | | |
Basic | | | 81,771,279 | | | 80,885,244 | | | 81,475,814 | | | 80,639,099 |
Diluted | | | 83,030,056 | | | 81,104,905 | | | 82,533,287 | | | 81,064,688 |
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
| | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
| | (in millions, except per share data) | ||||||||||
Revenue | | $ | 181.9 | | $ | 179.4 | | $ | 363.4 | | $ | 360.1 |
Costs and expenses: | |
| | |
|
| |
|
| |
|
|
Operating (excluding depreciation and amortization) | |
| 95.1 | |
| 102.8 | |
| 193.5 | |
| 206.9 |
Selling, general and administrative | |
| 45.5 | |
| 41.5 | |
| 88.0 | |
| 84.8 |
Depreciation and amortization | |
| 42.4 | |
| 37.2 | |
| 83.7 | |
| 73.3 |
| |
| 183.0 | |
| 181.5 | |
| 365.2 | |
| 365.0 |
Loss from operations | |
| (1.1) | |
| (2.1) | |
| (1.8) | |
| (4.9) |
Other income (expense): | |
| | |
|
| |
|
| |
|
|
Interest expense | |
| (28.8) | |
| (32.4) | |
| (60.2) | |
| (65.9) |
(Loss) gain on sale of assets, net | | | (0.1) | | | 0.4 | | | (0.1) | | | 0.6 |
Other income, net | |
| — | |
| 0.1 | |
| 0.6 | |
| 0.7 |
Loss from continuing operations before provision for income tax | |
| (30.0) | |
| (34.0) | |
| (61.5) | |
| (69.5) |
Income tax benefit (expense) | |
| 7.5 | |
| 7.6 | |
| 16.3 | |
| 15.4 |
Loss from continuing operations | | | (22.5) | | | (26.4) | | | (45.2) | | | (54.1) |
Discontinued Operations (Note 1) | | | | | | | | | | | | |
Income from discontinued operations, net of tax | | | 34.9 | | | 28.6 | | | 67.2 | | | 56.4 |
Net income | | $ | 12.4 | | $ | 2.2 | | $ | 22.0 | | $ | 2.3 |
| | | | | | | | | | | | |
Basic and diluted (loss) per common share - | | | | | | | | | | | | |
Basic | | $ | (0.27) | | $ | (0.32) | | $ | (0.55) | | $ | (0.66) |
Diluted | | $ | (0.27) | | $ | (0.32) | | $ | (0.55) | | $ | (0.66) |
Basic and diluted earnings per common share - | | | | | | | | | | | | |
Basic | | $ | 0.42 | | $ | 0.35 | | $ | 0.82 | | $ | 0.69 |
Diluted | | $ | 0.42 | | $ | 0.35 | | $ | 0.82 | | $ | 0.69 |
Basic and diluted earnings per common share | | | | | | | | | | | | |
Basic | | $ | 0.15 | | $ | 0.03 | | $ | 0.27 | | $ | 0.03 |
Diluted | | $ | 0.15 | | $ | 0.03 | | $ | 0.27 | | $ | 0.03 |
Weighted-average common shares outstanding | | | | | | | | | | | | |
Basic | | | 82,828,227 | | | 81,612,359 | | | 82,433,311 | | | 81,325,795 |
Diluted | | | 82,828,227 | | | 81,612,359 | | | 82,433,311 | | | 81,325,795 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | Three months ended | | Six months ended | ||||||||||||||||
|
| September 30, | | September 30, |
| June 30, | | June 30, | ||||||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||
Net income | | $ | 9.0 | | $ | 11.4 | | $ | 11.3 | | $ | 29.5 | | $ | 12.4 | | $ | 2.2 | | $ | 22.0 | | $ | 2.3 |
Unrealized gain (loss) on derivative instrument, net of tax | |
| 4.5 | |
| (0.7) | |
| 4.8 | |
| (12.3) | ||||||||||||
Unrealized gain on derivative instrument, net of tax | |
| 2.2 | |
| 3.3 | |
| 6.5 | |
| 0.3 | ||||||||||||
Comprehensive income | | $ | 13.5 | | $ | 10.7 | | $ | 16.1 | | $ | 17.2 | | $ | 14.6 | | $ | 5.5 | | $ | 28.5 | | $ | 2.6 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | ||||
| | | | Common | | Treasury | | Additional | | Other | | | | | Total | | | | Common | | Treasury | | Additional | | Other | | | | | Total | ||||||||||
| | Common | | Stock | | Stock at | | Paid-in | | Comprehensive | | Accumulated | | Stockholders' | | Common | | Stock | | Stock at | | Paid-in | | Comprehensive | | Accumulated | | Stockholders' | ||||||||||||
|
| Stock |
| Par Value |
| Cost |
| Capital | | Loss | | Deficit |
| Deficit |
| Stock |
| Par Value |
| Cost |
| Capital | | Loss | | Deficit |
| Deficit | ||||||||||||
| | (in millions, except share data) | | (in millions, except share data) | ||||||||||||||||||||||||||||||||||||
Balances at January 1, 2020 | | 84,103,108 |
| $ | 0.9 |
| $ | (79.7) | | $ | 322.8 | | $ | (15.5) | | $ | (474.4) | | $ | (245.9) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — |
| | — |
| | — | |
| — | | | (3.0) | |
| — | |
| (3.0) | ||||||||||||||||||||
Balances at January 1, 2021 | | 86,847,797 |
| $ | 1.0 |
| $ | (80.7) | | $ | 333.8 | | $ | (6.5) | | $ | (460.0) | | $ | (212.4) | ||||||||||||||||||||
Changes in accumulated other comprehensive gain | | — |
| | — |
| | — | |
| — | | | 4.3 | |
| — | |
| 4.3 | ||||||||||||||||||||
Stock-based compensation | | — |
| | — |
| | — | |
| 2.7 | | | — | |
| — | |
| 2.7 | | — |
| | — |
| | — | |
| 3.1 | | | — | |
| — | |
| 3.1 |
Issuance of restricted stock, net | | 2,858,421 | | | — |
| | — | |
| — | | | — | |
| — | |
| — | | 666,127 | | | — |
| | — | |
| — | | | — | |
| — | |
| — |
Purchase of shares | | (199,520) |
| | — | | | (0.7) | | | — | | | — | | | — | | | (0.7) | | (397,186) |
| | — | | | (6.6) | | | — | | | — | | | — | | | (6.6) |
Net income | | — |
| | — |
| | — | |
| — | | | — | |
| 0.1 | |
| 0.1 | | — |
| | — |
| | — | |
| — | | | — | |
| 9.6 | |
| 9.6 |
Balances at March 31, 2020(1) | | 86,762,009 |
| $ | 0.9 | | $ | (80.4) | | $ | 325.5 | | $ | (18.5) | | $ | (474.3) | | $ | (246.8) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — | | | — | | | — | | | — | | | 3.3 | | | — | | | 3.3 | ||||||||||||||||||||
Balances at March 31, 2021(1) | | 87,116,738 |
| $ | 1.0 | | $ | (87.3) | | $ | 336.9 | | $ | (2.2) | | $ | (450.4) | | $ | (202.0) | ||||||||||||||||||||
Changes in accumulated other comprehensive gain | | — | | | — | | | — | | | — | | | 2.2 | | | — | | | 2.2 | ||||||||||||||||||||
Stock-based compensation | | — | | | — | | | — | | | 3.0 | | | — | | | — | | | 3.0 | | — | | | — | | | — | | | 4.0 | | | — | | | — | | | 4.0 |
Issuance of restricted stock, net | | 349,673 | | | — |
| | — | |
| — | | | — | |
| — | |
| — | | 34,929 | | | — |
| | — | |
| — | | | — | |
| — | |
| — |
Purchase of shares | | (46,917) | | | — |
| | (0.3) | |
| — | | | — | |
| — | |
| (0.3) | | (40,473) | | | — |
| | (0.8) | |
| — | | | — | |
| — | |
| (0.8) |
Net income | | — | | | — |
| | — | |
| — | | | — | |
| 2.2 | |
| 2.2 | | — | | | — |
| | — | |
| — | | | — | |
| 12.4 | |
| 12.4 |
Balances at June 30, 2020(1) | | 87,064,765 |
| $ | 0.9 |
| $ | (80.7) | | $ | 328.5 | | $ | (15.2) | | $ | (472.1) | | $ | (238.6) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — | | | — | | | — | | | — | | | 4.5 | | | — | | | 4.5 | ||||||||||||||||||||
Stock-based compensation | | — | | | — | | | — | | | 2.6 | | | — | | | — | | | 2.6 | ||||||||||||||||||||
Issuance of restricted stock, net | | (198,182) | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||
Purchase of shares | | (10,105) | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||
Net income | | — | | | — | | | — | | | — | | | — | | | 9.0 | | | 9.0 | ||||||||||||||||||||
Balances at September 30, 2020(1) | | 86,856,478 | | $ | 0.9 | | $ | (80.7) | | $ | 331.1 | | $ | (10.7) | | $ | (463.1) | | $ | (222.5) | ||||||||||||||||||||
Balances at June 30, 2021(1) | | 87,111,194 |
| $ | 1.0 |
| $ | (88.1) | | $ | 340.9 | | $ | — | | $ | (438.0) | | $ | (184.2) |
(1) | Included in outstanding shares as of March 31, |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | ||||
| | | | Common | | Treasury | | Additional | | Other | | | | | Total | | | | Common | | Treasury | | Additional | | Other | | | | | Total | ||||||||||
| | Common | | Stock | | Stock at | | Paid-in | | Comprehensive | | Accumulated | | Stockholders' | | Common | | Stock | | Stock at | | Paid-in | | Comprehensive | | Accumulated | | Stockholders' | ||||||||||||
|
| Stock |
| Par Value |
| Cost |
| Capital | | Loss | | Deficit |
| Deficit |
| Stock |
| Par Value |
| Cost |
| Capital | | Loss | | Deficit |
| Deficit | ||||||||||||
| | (in millions, except share data) | | (in millions, except share data) | ||||||||||||||||||||||||||||||||||||
Balances at January 1, 2019 | | 82,680,380 |
| $ | 0.9 |
| $ | (78.1) | | $ | 312.7 | | $ | (6.5) | | $ | (510.8) | | $ | (281.8) | ||||||||||||||||||||
Balances at January 1, 2020 | | 84,103,108 |
| $ | 0.9 |
| $ | (79.7) | | $ | 322.8 | | $ | (15.5) | | $ | (474.4) | | $ | (245.9) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — |
| | — |
| | — | |
| — | | | (3.1) | |
| — | |
| (3.1) | | — |
| | — |
| | — | |
| — | | | (3.0) | |
| — | |
| (3.0) |
Stock-based compensation | | — |
| | — |
| | — | |
| 2.1 | | | — | |
| — | |
| 2.1 | | — |
| | — |
| | — | |
| 2.7 | | | — | |
| — | |
| 2.7 |
Issuance of restricted stock, net | | 1,702,482 | | | — |
| | — | |
| — | | | — | |
| — | |
| — | | 2,858,421 | | | — |
| | — | |
| — | | | — | |
| — | |
| — |
Purchase of shares | | (108,937) |
| | — | | | (1.1) | | | — | | | — | | | — | | | (1.1) | | (199,520) |
| | — | | | (0.7) | | | — | | | — | | | — | | | (0.7) |
Net income | | — | | | — | | | — | | | — | | | — | | | 8.4 | | | 8.4 | | — | | | — | | | — | | | — | | | — | | | 0.1 | | | 0.1 |
Balances at March 31, 2019(2) | | 84,273,925 |
| $ | 0.9 | | $ | (79.2) | | $ | 314.8 | | $ | (9.6) | | $ | (502.4) | | $ | (275.5) | ||||||||||||||||||||
Balances at March 31, 2020(1) | | 86,762,009 |
| $ | 0.9 |
| $ | (80.4) | | $ | 325.5 | | $ | (18.5) | | $ | (474.3) | | $ | (246.8) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — |
| | — |
| | — | |
| — | | | (8.5) | |
| — | |
| (8.5) | | — |
| | — |
| | — | |
| — | | | 3.3 | |
| — | |
| 3.3 |
Stock-based compensation | | — |
| | — |
| | — | |
| 2.8 | | | — | |
| — | |
| 2.8 | | — |
| | — |
| | — | |
| 3.0 | | | — | |
| — | |
| 3.0 |
Issuance of restricted stock, net | | 239,903 | | | — |
| | — | |
| — | | | — | |
| — | |
| — | | 349,673 | | | — |
| | — | |
| — | | | — | |
| — | |
| — |
Purchase of shares | | (40,155) |
| | — | | | (0.3) | | | — | | | — | | | — | | | (0.3) | | (46,917) |
| | — | | | (0.3) | | | — | | | — | | | — | | | (0.3) |
Net income | | — |
| | — |
| | — | |
| — | | | — | |
| 9.7 | |
| 9.7 | | — |
| | — |
| | — | |
| — | | | — | |
| 2.2 | |
| 2.2 |
Balances at June 30, 2019(2) | | 84,473,673 |
| $ | 0.9 |
| $ | (79.5) | | $ | 317.6 | | $ | (18.1) | | $ | (492.7) | | $ | (271.8) | ||||||||||||||||||||
Changes in accumulated other comprehensive loss | | — | | | — | | | — | | | — | | | (0.7) | | | — | | | (0.7) | ||||||||||||||||||||
Stock-based compensation | | — | | | — | | | — | | | 2.9 | | | — | | | — | | | 2.9 | ||||||||||||||||||||
Issuance of restricted stock, net | | (170,558) | | | — | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||||||
Purchase of shares | | (22,309) | | | — | | | (0.1) | | | — | | | — | | | — | | | (0.1) | ||||||||||||||||||||
Net income | | — | | | — | | | — | | | — | | | — | | | 11.4 | | | 11.4 | ||||||||||||||||||||
Balances at September 30, 2019(2) | | 84,280,806 | | $ | 0.9 | | $ | (79.6) | | $ | 320.5 | | $ | (18.8) | | $ | (481.3) | | $ | (258.3) | ||||||||||||||||||||
Balances at June 30, 2020(1) | | 87,064,765 |
| $ | 0.9 |
| $ | (80.7) | | $ | 328.5 | | $ | (15.2) | | $ | (472.1) | | $ | (238.6) |
| Included in outstanding shares as of March 31, |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
WIDEOPENWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended | | Six Months Ended | ||||||||
|
| September 30, |
| June 30, | ||||||||
| | 2020 | | 2019 | | 2021 | | 2020 | ||||
| | (in millions) | | (in millions) | ||||||||
Cash flows from operating activities: |
| |
|
| |
|
| |
|
| |
|
Net income | | $ | 11.3 | | $ | 29.5 | | $ | 22.0 | | $ | 2.3 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
| | |
| |
Depreciation and amortization | |
| 170.8 | |
| 151.5 | |
| 124.7 | |
| 112.6 |
Deferred income taxes | |
| 4.5 | |
| 8.0 | |
| 2.3 | |
| 0.6 |
Provision for doubtful accounts | |
| 14.3 | |
| 12.5 | |
| 5.3 | |
| 12.2 |
Loss on sale of operating assets, net | |
| — | |
| 4.8 | ||||||
Gain on sale of assets, net | | | (0.4) | | | — | | | (0.1) | | | (0.7) |
Amortization of debt issuance costs and discount | |
| 3.6 | |
| 3.6 | |
| 2.4 | |
| 2.4 |
Non-cash compensation | |
| 8.3 | |
| 7.8 | |
| 7.1 | |
| 5.7 |
Other non-cash items | |
| (0.1) | |
| — | ||||||
Changes in operating assets and liabilities: | |
| | |
| | |
| | |
| |
Receivables and other operating assets | |
| (23.0) | |
| (27.4) | |
| (9.3) | |
| (11.6) |
Payables and accruals | |
| 10.7 | |
| (11.1) | |
| 2.6 | |
| 3.8 |
Net cash provided by operating activities | | $ | 200.1 | | $ | 179.2 | | $ | 156.9 | | $ | 127.3 |
Cash flows from investing activities: | |
|
| |
| | |
|
| |
| |
Capital expenditures | | $ | (166.3) | | $ | (191.1) | | $ | (115.5) | | $ | (115.2) |
Proceeds from sale of Chicago fiber assets | |
| — | |
| 21.0 | ||||||
Other investing activities | |
| (0.6) | |
| (1.3) | |
| 0.9 | |
| (0.7) |
Net cash used in investing activities | | $ | (166.9) | | $ | (171.4) | | $ | (114.6) | | $ | (115.9) |
Cash flows from financing activities: | |
|
| |
| | |
|
| |
| |
Proceeds from issuance of long-term debt | | $ | 91.0 | | $ | 65.0 | | $ | 31.0 | | $ | 91.0 |
Payments on long-term debt and finance lease obligations | |
| (111.3) | |
| (75.2) | |
| (55.0) | |
| (82.8) |
Purchase of shares | | | (1.0) | | | (1.5) | | | (7.4) | | | (1.0) |
Net cash used in financing activities | | $ | (21.3) | | $ | (11.7) | ||||||
Increase (decrease) in cash and cash equivalents | |
| 11.9 | |
| (3.9) | ||||||
Net cash (used in) provided by financing activities | | $ | (31.4) | | $ | 7.2 | ||||||
Increase in cash and cash equivalents | |
| 10.9 | |
| 18.6 | ||||||
Cash and cash equivalents, beginning of period | |
| 21.0 | |
| 13.2 | |
| 12.4 | |
| 21.0 |
Cash and cash equivalents, end of period | | $ | 32.9 | | $ | 9.3 | | $ | 23.3 | | $ | 39.6 |
Supplemental disclosures of cash flow information: | |
|
| |
| | |
|
| |
| |
Cash paid during the periods for interest | | $ | 93.4 | | $ | 107.8 | | $ | 59.0 | | $ | 62.6 |
Cash (received) paid during the periods for income taxes, net | | $ | (3.4) | | $ | 1.5 | ||||||
Insurance proceeds received for business interruption | | $ | — | | $ | 9.6 | ||||||
Cash paid (received) during the periods for income taxes, net | | $ | 1.7 | | $ | (3.9) | ||||||
Non-cash operating activities: | | | | | | | | | | | | |
Operating lease additions | | $ | 5.5 | | $ | 9.3 | | $ | 0.9 | | $ | 4.8 |
Non-cash financing activities: | |
|
| |
| | |
|
| |
| |
Finance lease additions | | $ | 13.3 | | $ | 18.0 | | $ | 3.3 | | $ | 6.6 |
Capital expenditure accounts payable and accruals | | $ | 13.7 | | $ | 11.3 | | $ | 12.2 | | $ | 9.8 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
WIDEOPENWEST, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021
(unaudited)
Note 1. General Information
WideOpenWest, Inc. (“WOW” or the “Company”) is a leading broadband services provider offering high-speed data ("HSD"(“HSD”), cable television ("Video"(“Video”), and digital telephony ("Telephony"(“Telephony”) services to residential and business customers. The Company serves customers in 19 Midwestern and Southeastern markets in the United States. The Company manages and operates its Midwestern broadband networks in Detroit and Lansing, Michigan; Chicago, Illinois; Cleveland and Columbus, Ohio; Evansville, Indiana and Baltimore, Maryland. The Southeastern systems are located in Augusta, Columbus, Newnan and West Point, Georgia; Charleston, South Carolina; Dothan, Auburn, Huntsville and Montgomery, Alabama; Knoxville, Tennessee; and Panama City and Pinellas County, Florida.
The Company’s operations are managed and reported to its Chief Executive Officer (“CEO”), the Company’s chief operating decision maker, on a consolidated basis. The CEO assesses performance and allocates resources based on the consolidated results of operations. Under this organizational and reporting structure, the Company operates as 1 reportable segment.
Discontinued Operations – Sale of Service Areas
On June 30, 2021, WOW entered into an Asset Purchase Agreement with Atlantic Broadband (OH), LLC, (“Atlantic”), a U.S. cable operator and subsidiary of Cogeco Communications, Inc. and Atlantic Broadband Finance, LLC, a Delaware limitied liability company (the “Atlantic Purchase Agreement”), whereby Atlantic agreed to acquire the Company’s Cleveland and Columbus, Ohio markets for approximately $1.125 billion, subject to adjustments, including customary working capital adjustments, as specified in the Atlantic Purchase Agreement.
Additionally, on June 30, 2021, WOW entered into an Asset Purchase Agreement with Radiate HoldCo, LLC, a telecommunications holding company affiliated with RCN Telecom Services LLC, Grande Communications Networks, LLC and WaveDivision Holdings, LLC (collectively, “Astound Broadband”) (the “Astound Purchase Agreement”), whereby Radiate HoldCo, LLC agreed to acquire the Company’s Chicago, Illinois, Evansville, Indiana and Baltimore, Maryland markets for approximately $661 million, subject to adjustments, including customary working capital adjustments, as specified in the Astound Purchase Agreement.
Both transactions are expected to close in the second half of 2021. The closing of each transaction is subject to certain regulatory reviews and approvals and the satisfaction of other customary closing conditions.
The divestiture of these markets represents a strategic shift in WOW’s business as the markets represent approximately 37% of total revenue for the three and six months ended June 30, 2021. As such, the results of these markets are classified as discontinued operations in the condensed consolidated statements of operations and excluded from continuing operations for all periods presented. Results of discontinued operations include all revenues and direct expenses of these markets. General corporate overhead is not allocated to discontinued operations. The assets and liabilities associated with these markets, as specified in the June 30, 2021 agreements, are classified as held for sale in our condensed consolidated balance sheets.
In connection with the divestiture of these markets, the Company has entered into transition services agreements under which WOW will continue to provide certain services to Astound Broadband and Atlantic. Under the transition services agreements, the buyers may elect a variety of services, including but not limited to: information technology, network, business support services, etc. The term of the transition services agreements are for 12 months following the closing date, with 2 optional three month extensions. NaN of the costs related to the employees, processes or systems that will be utilized to provide the services under the transition services agreements were allocated to discontinued operations.
6
The following table presents the aggregate amounts of the classes of assets and liabilities to be sold under the Astound Purchase Agreement and Atlantic Purchase Agreement:
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
| | (in millions) | ||||
Assets |
| |
|
| |
|
Current assets |
| |
|
| |
|
Accounts receivable—trade, net of allowance for doubtful accounts of $1.8 in both periods | | $ | 23.5 | | $ | 25.1 |
Accounts receivable—other, net | |
| 0.7 | |
| 0.9 |
Prepaid expenses and other | |
| 5.7 | |
| 4.2 |
Total current assets | |
| 29.9 | |
| 30.2 |
Right-of-use lease assets—operating | | | 3.1 | | | 2.8 |
Property, plant and equipment, net | |
| 368.7 | |
| 379.4 |
Franchise operating rights | |
| 165.4 | |
| 165.4 |
Goodwill | |
| 183.7 | |
| 183.7 |
Intangible assets subject to amortization, net | |
| 0.2 | |
| 0.2 |
Other non-current assets | |
| 9.0 | |
| 8.5 |
Total assets | | $ | 760.0 | | $ | 770.2 |
Liabilities and stockholders’ deficit | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable—trade | | $ | 11.2 | | $ | 11.4 |
Current portion of long-term lease liability—operating | | | 0.8 | | | 0.7 |
Accrued liabilities and other | |
| 17.8 | |
| 18.9 |
Current portion of unearned service revenue | |
| 17.1 | |
| 16.9 |
Total current liabilities | |
| 46.9 | |
| 47.9 |
Long-term lease liability—operating | | | 2.4 | | | 2.3 |
Total liabilities | | $ | 49.3 | | $ | 50.2 |
The following table presents information regarding certain components of income from discontinued operations, net of taxes:
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
| | 2021 |
| 2020 | | 2021 |
| 2020 | ||||
| | (in millions) | ||||||||||
Revenue | | $ | 105.4 | | $ | 102.6 | | $ | 210.2 | | $ | 206.4 |
Costs and expenses: | |
| | |
|
| |
|
| |
|
|
Operating (excluding depreciation and amortization) | |
| 37.6 | |
| 43.0 | |
| 77.2 | |
| 87.4 |
Selling, general and administrative | |
| 2.8 | |
| 2.4 | |
| 5.5 | |
| 5.9 |
Depreciation and amortization | |
| 20.5 | |
| 19.6 | |
| 41.0 | |
| 39.3 |
| |
| 60.9 | |
| 65.0 | |
| 123.7 | |
| 132.6 |
Income from operations | |
| 44.5 | |
| 37.6 | |
| 86.5 | |
| 73.8 |
Other income (expense): | |
| | |
|
| |
|
| |
|
|
Interest income (expense) | | | 0.4 | | | — | | | 0.4 | | | — |
Gain on sale of assets, net | | | 0.2 | | | — | | | 0.2 | | | 0.1 |
Other income, net | |
| 0.1 | |
| — | |
| 0.1 | |
| 0.1 |
Income from discontinued operations before provision for income tax | |
| 45.2 | |
| 37.6 | |
| 87.2 | |
| 74.0 |
Income tax expense | |
| (10.3) | |
| (9.0) | |
| (20.0) | |
| (17.6) |
Income from discontinued operations | | $ | 34.9 | | $ | 28.6 | | $ | 67.2 | | $ | 56.4 |
7
The following table presents revenue by service offering from discontinued operations:
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 | | 2020 | ||||
| | (in millions) | ||||||||||
Residential subscription | | | | | | | | | | | | |
HSD | | $ | 51.8 | | $ | 44.8 | | $ | 102.1 | | $ | 89.5 |
Video | |
| 35.5 | |
| 39.8 | | | 71.5 | | | 79.6 |
Telephony | |
| 3.9 | |
| 4.2 | | | 7.9 | | | 8.6 |
Total Residential subscription | | $ | 91.2 | | $ | 88.8 | | $ | 181.5 | | $ | 177.7 |
Business subscription | | | | | | | | | | | | |
HSD | | $ | 5.9 | | $ | 5.6 | | $ | 11.7 | | $ | 11.1 |
Video | | | 0.9 | | | 0.8 | | | 1.8 | | | 1.8 |
Telephony | | | 2.8 | | | 3.0 | | | 5.6 | | | 6.0 |
Total business subscription | | $ | 9.6 | | $ | 9.4 | | $ | 19.1 | | $ | 18.9 |
Total subscription services revenue | | | 100.8 | | | 98.2 | | | 200.6 | | | 196.6 |
Other business services revenue | | | 0.4 | | | 0.4 | | | 1.0 | | | 1.0 |
Other revenue | | | 4.2 | | | 4.0 | | | 8.6 | | | 8.8 |
Total revenue | | $ | 105.4 | | $ | 102.6 | | $ | 210.2 | | $ | 206.4 |
The following table presents specified items of cash flow and significant non-cash items of discontinued operations:
| | | | | | |
| | June 30, | | June 30, | ||
|
| 2021 |
| 2020 | ||
| | (in millions) | ||||
Specified items of cash flow: |
| |
|
| |
|
Capital expenditures | | $ | 29.8 | | $ | 28.6 |
| | | | | | |
Non-cash operating activities: | |
| | | | |
Operating lease additions | | $ | 0.7 | | $ | 0.6 |
Non-cash investing activities: | | | | | | |
Capital expenditure accounts payable and accruals | | $ | 4.8 | | $ | 5.6 |
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”); however, in the opinion of management, the disclosures made are adequate to ensure the information presented is not misleading. The year-end consolidated balance sheet was derived from audited financial statements.
In the opinion of management, all normally recurring adjustments considered necessary for the fair presentation of the financial statements have been included, and the financial statements present fairly the financial position and results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results expected for the full year or any future period. These unaudited condensed consolidated financial statements should be read in conjunction with Item 8 of the Company’s 20192020 Annual Report on Form 10-K filed with the SEC on March 4, 2020.February 24, 2021.
All significant intercompany accounts and transactions have been eliminated in consolidation.
8
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make assumptions and estimates that affect the reported amounts and disclosures of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts and disclosures of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, including but not limited to the potential impacts arising from COVID-19. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change and the Company is not able to fully predict the overall impact of COVID-19, the CARES Act (as defined herein), or any other current or future legislative programs relating to COVID-19 on the business. To the extent there are differences between those estimates and actual results, the unaudited condensed consolidated financial statements may be materially affected.
6
Recently Issued Accounting Standards
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.Reporting (“ASU 2020-04”). ASU 2020-04 provides optional guidance, expedients and exceptions for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to all entities, subject to meeting the criteria, that havewhich participate in contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was subsequently amended by ASU 2021-01, Reference Rate Reform (Topic 848), Scope, which refines the scope of Topic 848 and permits optional expendients and exceptions when accounting for derivative contracts and certain hedging relationships. The amendments of this updatethese updates are effective foravailable to all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluatinghas not yet adopted these amendments, but has determined the impact of adopting this guidance and the potential effects it couldwill not have a material impact on its financial position, results of operations and cash flows.
Recently Adopted Accounting Pronouncements
ASU 2019-12, Income Taxes—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.The Company will adopt this guidance prospectively beginning January 1, 2021, and is currently evaluating the impact the adoption will have on its financial position, results of operations and cash flows.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”), which requires a customer in a hosting arrangement that is a service contract to apply the guidance on internal-use software to determine which implementation costs to recognize as an asset and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized under Subtopic 350-40, Internal-Use Software, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. The amendments require a customer in a hosting arrangement that is a service contract to determine whether an implementation activity relates to the preliminary project stage, the application development stage, or the post-implementation stage. Costs for implementation activities in the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages will be expensed immediately. ASU 2018-15 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted this guidance prospectively as of January 1, 2020.2021. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
79
Note 3. Revenue from Contracts with Customers
RevenueRevenue by Service Offering
The following table presents revenue by service offering for the three and six months ended SeptemberJune 30, 20202021 and 2019, respectively:2020:
| | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2020 | | Three months ended September 30, 2019 | ||||||||||||||
|
| Residential | | Business |
| Total | | Residential | | Business | | Total | ||||||
|
| Subscription |
| Subscription |
| Revenue |
| Subscription |
| Subscription |
| Revenue | ||||||
| | (in millions) | ||||||||||||||||
HSD | | $ | 120.8 | | $ | 21.8 | | $ | 142.6 | | $ | 109.8 | | $ | 20.4 | | $ | 130.2 |
Video | |
| 100.1 | |
| 3.8 | | | 103.9 | |
| 102.8 | |
| 3.6 | | | 106.4 |
Telephony | |
| 12.7 | |
| 10.3 | | | 23.0 | |
| 15.1 | |
| 10.7 | | | 25.8 |
Total subscription services revenue | | $ | 233.6 | | $ | 35.9 | | $ | 269.5 | | $ | 227.7 | | $ | 34.7 | | $ | 262.4 |
Other business services revenue(1) | | | — | | | — | | | 6.3 | | | — | | | — | | | 6.8 |
Other revenue | | | — | | | — | | | 12.9 | | | — | | | — | | | 16.2 |
Total revenue | | $ | 233.6 | | $ | 35.9 | | $ | 288.7 | | $ | 227.7 | | $ | 34.7 | | $ | 285.4 |
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 | | 2020 | ||||
| | (in millions) | ||||||||||
Residential subscription | | | | | | | | | | | | |
HSD | | $ | 81.5 | | $ | 71.1 | | $ | 161.0 | | $ | 141.7 |
Video | |
| 52.5 | |
| 59.2 | | | 106.1 | | | 118.9 |
Telephony | |
| 7.3 | |
| 9.3 | | | 14.9 | | | 18.9 |
Total Residential subscription | | $ | 141.3 | | $ | 139.6 | | $ | 282.0 | | $ | 279.5 |
Business subscription | | | | | | | | | | | | |
HSD | | $ | 17.2 | | $ | 15.8 | | $ | 34.3 | | $ | 31.6 |
Video | | | 2.8 | | | 2.7 | | | 5.6 | | | 5.6 |
Telephony | | | 7.3 | | | 7.6 | | | 14.7 | | | 15.2 |
Total business subscription | | $ | 27.3 | | $ | 26.1 | | $ | 54.6 | | $ | 52.4 |
Total subscription services revenue | | | 168.6 | | | 165.7 | | | 336.6 | | | 331.9 |
Other business services revenue(1) | | | 5.7 | | | 6.0 | | | 11.3 | | | 11.9 |
Other revenue | | | 7.6 | | | 7.7 | | | 15.5 | | | 16.3 |
Total revenue | | $ | 181.9 | | $ | 179.4 | | $ | 363.4 | | $ | 360.1 |
(1) | Includes wholesale and colocation lease revenue of |
The following table presents revenue by service offering for the nine months ended September 30, 2020 and 2019, respectively:
| | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2020 | | | Nine months ended September 30, 2019 | |||||||||||||
| | Residential | | Business | | Total | | | Residential | | | Business | | | Total | |||
|
| Subscription |
| Subscription |
| Revenue |
|
| Subscription |
|
| Subscription |
|
| Revenue | |||
| | (in millions) | ||||||||||||||||
HSD | | $ | 352.0 | | $ | 64.5 | | $ | 416.5 | | $ | 328.4 | | $ | 59.7 | | $ | 388.1 |
Video | |
| 298.6 | |
| 11.2 | | | 309.8 | | | 316.1 | | | 10.9 | | | 327.0 |
Telephony | |
| 40.2 | |
| 31.5 | | | 71.7 | | | 46.8 | | | 32.1 | | | 78.9 |
Total subscription services revenue | | $ | 690.8 | | $ | 107.2 | | $ | 798.0 | | $ | 691.3 | | $ | 102.7 | | $ | 794.0 |
Other business services revenue(1) | | | — | | | — | | | 19.2 | | | — | | | — | | | 21.0 |
Other revenue | | | — | | | — | | | 38.0 | | | — | | | — | | | 47.3 |
Total revenue | | $ | 690.8 | | $ | 107.2 | | $ | 855.2 | | $ | 691.3 | | $ | 102.7 | | $ | 862.3 |
Costs of Obtaining Contracts with Customers
The following table summarizes the activity of costs of obtaining contracts with customers:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | Three months ended | | Six months ended | ||||||||||||||||
| | September 30, | | September 30, | | June 30, | | June 30, | ||||||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||
Balance at beginning of period | | $ | 45.2 | | $ | 32.8 | | $ | 40.7 | | $ | 26.3 | | $ | 42.0 | | $ | 35.5 | | $ | 40.8 | | $ | 33.1 |
Deferral | |
| 4.3 | |
| 6.5 | |
| 14.5 | |
| 16.3 | |
| 3.9 | |
| 3.6 | |
| 7.9 | |
| 8.2 |
Amortization | |
| (3.1) | |
| (2.1) | |
| (8.8) | |
| (5.4) | |
| (3.1) | |
| (2.3) | |
| (5.9) | |
| (4.5) |
Balance at end of period | | $ | 46.4 | | $ | 37.2 | | $ | 46.4 | | $ | 37.2 | | $ | 42.8 | | $ | 36.8 | | $ | 42.8 | | $ | 36.8 |
810
The following table presents the current and non-current portion of costs of obtaining contracts with customers as of the end of the corresponding periods:
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 | ||||
| | (in millions) | | (in millions) | ||||||||
Current costs of obtaining contracts with customers | | $ | 12.9 | | $ | 10.0 | | $ | 14.4 | | $ | 12.6 |
Non-current costs of obtaining contracts with customers | | | 33.5 | | | 30.7 | | | 28.4 | | | 28.2 |
Total costs of obtaining contracts with customers | | $ | 46.4 | | $ | 40.7 | | $ | 42.8 | | $ | 40.8 |
The current portion and the non-current portion of costs of obtaining contracts with customers are included in prepaid expenses and other and other non-current assets, respectively, in the Company’s unaudited condensed consolidated balance sheets. Amortization of costs of obtaining contracts with customers is included in selling, general and administrative expense in the Company’s unaudited condensed consolidated statements of operations.
Contract Liabilities
The following table summarizes the activity of current and non-current contract liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended | | Three months ended | | Six months ended | ||||||||||||||||
| | September 30, | | | September 30, | | June 30, | | | June 30, | ||||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 | ||||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||
Balance at beginning of period | | $ | 3.6 | | $ | 4.1 | | $ | 4.2 | | $ | 3.9 | | $ | 3.2 | | $ | 2.7 | | $ | 2.9 | | $ | 2.8 |
Deferral | |
| 3.7 | |
| 4.1 | |
| 10.4 | |
| 12.0 | |
| 2.9 | |
| 2.0 | |
| 5.8 | |
| 4.3 |
Revenue recognized | |
| (3.3) | |
| (4.0) | |
| (10.6) | |
| (11.7) | |
| (2.8) | |
| (2.0) | |
| (5.4) | |
| (4.4) |
Balance at end of period | | $ | 4.0 | | $ | 4.2 | | $ | 4.0 | | $ | 4.2 | | $ | 3.3 | | $ | 2.7 | | $ | 3.3 | | $ | 2.7 |
The following table presents the current and non-current portion of contract liabilities as of the end of the corresponding periods:
| | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 | ||||
| | (in millions) | | (in millions) | ||||||||
Current contract liabilities | | $ | 3.4 | | $ | 3.6 | | $ | 2.7 | | $ | 2.4 |
Non-current contract liabilities | | | 0.6 | | | 0.6 | | | 0.6 | | | 0.5 |
Total contract liabilities | | $ | 4.0 | | $ | 4.2 | | $ | 3.3 | | $ | 2.9 |
The current and the non-current portion of contract liabilities are included in the current portion of unearned service revenue and other non-current liabilities, respectively, in the Company’s unaudited condensed consolidated balance sheets.
Unsatisfied Performance Obligations
Revenue from month-to-month residential subscription service contracts have historically represented a significant portion of the Company’s revenue and the Company expects that this will continue to be the case in future periods. All residential subscription service performance obligations will be satisfied within one year.
911
A summary of expected business subscription and other business services revenue to be recognized in future periods related to performance obligations which have not been satisfied or are partially unsatisfied as of SeptemberJune 30, 20202021 is set forth in the table below:
| | | | | | | | | | | | | | | |
|
| 2020 |
| 2021 |
| 2022 |
| Thereafter |
| Total | |||||
| | (in millions) | |||||||||||||
Subscription services | | $ | 22.2 | | $ | 62.9 | | $ | 31.5 | | $ | 15.3 | | $ | 131.9 |
Other business services | |
| 1.0 | |
| 3.3 | |
| 1.5 | |
| 0.5 | |
| 6.3 |
Total expected revenue | | $ | 23.2 | | $ | 66.2 | | $ | 33.0 | | $ | 15.8 | | $ | 138.2 |
| | | | | | | | | | | | | | | |
|
| 2021 |
| 2022 |
| 2023 |
| Thereafter |
| Total | |||||
| | (in millions) | |||||||||||||
Subscription services | | $ | 25.3 | | $ | 31.4 | | $ | 13.6 | | $ | 6.1 | | $ | 76.4 |
Other business services | |
| 1.8 | |
| 2.4 | |
| 1.0 | |
| 0.2 | |
| 5.4 |
Total expected revenue | | $ | 27.1 | | $ | 33.8 | | $ | 14.6 | | $ | 6.3 | | $ | 81.8 |
Provision for Doubtful Accounts
The provision for doubtful accounts and the allowance for doubtful accounts are based on the aging of the individual receivables, historical trends and current and anticipated future economic conditions. The Company manages credit risk by disconnecting services to customers who are delinquent, generally after sixty days of delinquency. From March 12, 2020 through June 30, 2020, the Company suspended certain collection activities as a result of participation in the Federal Communications Commission (“FCC”) Keep Americans Connected Pledge. The FCC Pledge expired on June 30, 2020, however the Company continued to arrange payment plans for those customers impacted by COVID-19 through September 30, 2020. Individualindividual receivables are written-off after all reasonable efforts to collect the funds have been made. Actual write-offs may differ from the amounts reserved.
The following table presents the change in the allowance for doubtful accounts for trade accounts receivable:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | | Nine months ended | | Three months ended | | | Six months ended | ||||||||||||||||
| | September 30, | | | September 30, | | June 30, | | | June 30, | ||||||||||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
| 2019 |
| 2021 |
| 2020 |
|
| 2021 |
| 2020 | ||||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||||
Balance at beginning of period | | $ | 7.8 | | $ | 8.2 | | | $ | 7.5 | | $ | 7.5 | | $ | 7.3 | | $ | 7.8 | | | $ | 6.9 | | $ | 6.4 |
Provision charged to expense | |
| 3.4 | |
| 5.2 | | |
| 12.5 | |
| 12.5 | |
| 1.6 | |
| 2.9 | | |
| 3.6 | |
| 6.8 |
Accounts written off, net of recoveries | |
| (3.1) | |
| (4.7) | | |
| (11.9) | |
| (11.3) | |
| (3.7) | |
| (4.5) | | |
| (5.3) | |
| (7.0) |
Balance at end of period | | $ | 8.1 | | $ | 8.7 | | | $ | 8.1 | | $ | 8.7 | | $ | 5.2 | | $ | 6.2 | | | $ | 5.2 | | $ | 6.2 |
The Company established an allowance for doubtful accounts for non-trade accounts receivable of $1.8$1.4 million as of SeptemberJune 30, 2020 that is presented within accounts receivable—other in the Company’s unaudited condensed consolidated balance sheet. The Company did 0t have such an allowance as of June 30, 2021.
1012
Note 4. Property, Plant and Equipment, Net
Property, plant and equipment consists of the following:
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
| | (in millions) | | (in millions) | ||||||||
Distribution facilities | | $ | 1,921.0 | | $ | 1,780.7 | | $ | 1,193.7 | | $ | 1,148.8 |
Customer premise equipment | |
| 479.8 | |
| 460.1 | |
| 272.6 | |
| 266.2 |
Head-end equipment | |
| 354.4 | |
| 341.2 | |
| 222.2 | |
| 209.5 |
Telephony infrastructure | |
| 98.8 | |
| 97.9 | |
| 52.3 | |
| 52.5 |
Computer equipment and software | |
| 158.2 | |
| 146.4 | |
| 113.7 | |
| 102.5 |
Vehicles | |
| 37.2 | |
| 37.0 | |
| 21.1 | |
| 22.7 |
Buildings and leasehold improvements | |
| 49.6 | |
| 49.5 | |
| 31.4 | |
| 31.0 |
Office and technical equipment | |
| 34.7 | |
| 33.5 | |
| 18.7 | |
| 18.7 |
Land | |
| 6.2 | |
| 6.2 | |
| 4.4 | |
| 4.4 |
Construction in progress (including material inventory and other) | |
| 38.1 | |
| 61.2 | |
| 32.4 | |
| 32.8 |
Total property, plant and equipment | |
| 3,178.0 | |
| 3,013.7 | |
| 1,962.5 | |
| 1,889.1 |
Less accumulated depreciation | |
| (2,098.2) | |
| (1,940.0) | |
| (1,243.9) | |
| (1,168.2) |
| | $ | 1,079.8 | | $ | 1,073.7 | | $ | 718.6 | | $ | 720.9 |
Depreciation expense for the three months ended SeptemberJune 30, 2021 and 2020 and 2019 was $58.0$42.3 million and $50.4$36.9 million, respectively. Depreciation expense for the ninesix months ended SeptemberJune 30, 2021 and 2020 and 2019 was $169.9$83.5 million and $150.1$72.7 million, respectively.
Note 5. Accrued Liabilities and Other
Accrued liabilities and other consists of the following:
| | | | | | | | | | | | |
| | September 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
| | (in millions) | | (in millions) | ||||||||
Payroll and employee benefits | | $ | 28.7 | | $ | 28.0 | ||||||
Programming costs | | $ | 32.0 | | $ | 33.4 | | | 20.0 | | | 19.7 |
Interest rate swaps | | | 15.0 | | | 14.7 | ||||||
Payroll and employee benefits | |
| 21.8 | |
| 20.8 | ||||||
Other accrued liabilities | |
| 9.1 | |
| 8.2 | ||||||
Franchise and revenue sharing fees | |
| 10.2 | |
| 10.9 | |
| 6.2 | |
| 7.1 |
Other accrued liabilities | |
| 9.1 | |
| 10.0 | ||||||
Property, income, sales and use taxes | |
| 4.9 | |
| 2.4 | |
| 5.7 | |
| 5.6 |
Utility pole costs | |
| 3.9 | |
| 3.4 | |
| 1.0 | |
| 1.7 |
Interest rate swaps | | | — | | | 9.4 | ||||||
| | $ | 96.9 | | $ | 95.6 | | $ | 70.7 | | $ | 79.7 |
1113
Note 6. Long-Term Debt and Finance Leases
The following table summarizes the Company’s long-term debt and finance leases:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | December 31, | | | | | | | | | | | December 31, | ||
| | September 30, 2020 | | 2019 | | June 30, 2021 | | 2020 | ||||||||||||||||
|
| Available |
| | |
| |
| Available |
| | |
| | ||||||||||
| | borrowing | | Effective | | | Outstanding | | Outstanding | | borrowing | | Effective | | | Outstanding | | Outstanding | ||||||
| | capacity | | interest rate(1) | |
| balance |
| balance | | capacity | | interest rate(1) | |
| balance |
| balance | ||||||
| | (in millions) | | (in millions) | ||||||||||||||||||||
Long-term debt: |
| |
|
|
| |
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
Term B Loans, net(2) | | $ | — |
| 5.28 | % | | $ | 2,204.9 | | $ | 2,220.3 | | $ | — |
| 4.25 | % | | $ | 2,189.6 | | $ | 2,199.9 |
Revolving Credit Facility(3) | |
| 235.6 |
| 3.15 | % | |
| 59.0 | |
| 55.0 | |
| 261.7 |
| 3.08 | % | |
| 33.0 | |
| 38.0 |
Total long-term debt | | $ | 235.6 |
| | | |
| 2,263.9 | |
| 2,275.3 | | $ | 261.7 |
| | | |
| 2,222.6 | |
| 2,237.9 |
Other Financing | | | | | | | | | 0.6 | | | 0.8 | ||||||||||||
Finance lease obligations | |
|
|
|
| | |
| 29.2 | |
| 23.1 | |
|
|
|
| | |
| 28.9 | |
| 32.9 |
Total long-term debt and finance lease obligations | |
|
|
|
| | |
| 2,293.1 | |
| 2,298.4 | ||||||||||||
Total long-term debt, finance lease obligations and other | |
|
|
|
| | |
| 2,252.1 | |
| 2,271.6 | ||||||||||||
Debt issuance costs, net(4) | |
|
|
|
| | |
| (6.1) | |
| (8.0) | |
|
|
|
| | |
| (4.4) | |
| (5.6) |
Sub-total | |
|
|
|
| | |
| 2,287.0 | |
| 2,290.4 | |
|
|
|
| | |
| 2,247.7 | |
| 2,266.0 |
Less current portion | |
|
|
|
| | |
| (34.9) | |
| (30.9) | |
|
|
|
| | |
| (70.9) | |
| (37.5) |
Long-term portion | |
| |
|
| | | $ | 2,252.1 | | $ | 2,259.5 | |
| |
|
| | | $ | 2,176.8 | | $ | 2,228.5 |
(1) | Represents the effective interest rate in effect for all borrowings outstanding as of |
(2) | At |
(3) | Available borrowing capacity at |
(4) | At |
The Company’s Term B loansLoans will mature on August 19, 2023 and bear interest, at the Company’s option, at a rate equal to ABR plus 2.25% or LIBOR plus 3.25%. Borrowings under the revolving credit facility will mature on May 31, 2022 and bear interest, at the Company's option, at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. As of SeptemberJune 30, 2020,2021, the Company was in compliance with all debt covenants.
Note 7. Stock-Based Compensation
WOW’s 2017 Omnibus Incentive Plan provides for grants of stock options, restricted stock and performance awards. The Company’s directors, officers and other employees and persons who engage in services for the Company are eligible for grants under the 2017 Omnibus Incentive Plan. The 2017 Omnibus Incentive Plan has authorized 12,074,128 shares of common stock to be available for issuance, subject to adjustment in the event of a reorganization, stock split, merger or similar change in the Company’s corporate structure of the outstanding shares of common stock.
1214
The following table presents restricted stock activity during the ninesix months ended SeptemberJune 30, 2020:2021:
For restricted stock awards that contain only service conditions for vesting, the Company calculates the award fair value based on the Company’s closing stock price on the accounting grant date. The Company’s restricted stock awards generally vest ratably over a four year period based on the date of grant. Nonvested Performance Shares
The performance shares based on relative TSR performance have a market condition and are valued using a Monte Carlo simulation model on the grant date, which resulted in a grant date fair value of The performance shares based on three-year cumulative EBITDA have a performance condition. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the closing price per share of the Company's common stock on the date of the grant multiplied by the number of awards expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed. The Company recorded
Note 8. Earnings (Loss) per Common Share Basic earnings or loss per share attributable to the Company’s common stockholders is computed by dividing net earnings or loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings or loss per share attributable to common stockholders presents the dilutive effect, if any, on a per share basis of potential common shares (such as restricted stock units) as if they had been vested or converted during the periods presented.
Note 9. Fair Value Measurements The fair values of cash and cash equivalents, receivables and trade payables approximate their carrying values due to the short-term nature of these instruments. For assets and liabilities of a long-term nature, the Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. The Company applies the following hierarchy in determining fair value: 16
The Company’s derivative instrument
The estimated fair value of the Company’s long-term debt is based on dealer quotes considering current market rates for the Company’s credit facility and is classified as Level 2. The inputs used to determine the fair value of the Company’s aggregate debt balance has trended from quoted market prices in active markets to quoted prices in non-active markets. The fair value of the Company’s long-term debt was valued at There were 0 transfers into or out of Level 1, 2 or 3 during the periods ended The Company’s non-financial assets such as Note 10. Derivative Instruments and Hedging Activities The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates. The Company selectively uses derivative financial instruments (“derivatives”), including interest rate swaps, to manage interest rate risk. The Company does not hold or issue derivative instruments for speculative purposes. Fluctuations in interest rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results. The Company’s exposure to interest rate risk results primarily from its variable rate borrowings. On May 9, 2018, the Company entered into variable to fixed interest rate swap agreements for a notional amount of $1,361.2 million to hedge a portion of the outstanding principal balance of its variable rate term loan debt.
The 2020. The Company did 0t have such amounts as of
Gains (losses) on derivatives designated as cash flow hedges included in the unaudited condensed consolidated statements of comprehensive income (loss) for the three and
For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the unaudited condensed consolidated statements of cash flows. Note 11. Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the difference is expected to reverse. Additionally, the impact on deferred tax assets and liabilities of changes in The Company reported income tax expense of
Note 12. Commitments and Contingencies IPO Shareholder Class Action. Beginning in June 2018, 4 different plaintiffs’ firms filed 5 separate class-action lawsuits against WOW, certain individual defendants, and the private equity sponsors and underwriters of the May 2017 initial public offering. The actions allege violations of Sections 11, 12, and 15 of the 1933 Securities Act. The 3 actions filed in New York have been consolidated as Kirkland. et al. v. WideOpenWest, Inc., et al., 653248/2018. The other 2 actions, which were filed in Colorado state court, have been stayed by agreement until final resolution of the Kirkland action. The Plaintiffs in Kirkland allege that Defendants made or caused misstatements to be made in the Registration Statement and Prospectus (“Offering Materials”) issued in connection with the IPO. On January 17, 2019, Defendants filed an omnibus motion to dismiss all claims for failure to state causes of action which the court denied in part and granted in part on May 18, 2020, with the Company thereafter appealing those claims not dismissed. 18 Sprint Patent Infringement Claim. On March 7, 2018, Sprint Communications Company L.P (“Sprint”) filed complaints in the U.S. District Court for the District of Delaware alleging that the Company (and other industry participants) infringe patents purportedly relating to Sprint’s Voice over Internet Protocol (“VoIP”) services. The lawsuit is part of a pattern of litigation that was initiated as far back as 2007 by Sprint against numerous broadband and telecommunications providers. The Company has multiple legal and contractual defenses and is vigorously defending against the claims. Additionally, the Company is pursuing indemnification claims against equipment providers whose equipment is implicated by the claims. Formal discovery was completed in mid-February 2020, with the trial originally scheduled for October 2020, being moved to a yet to be determined date in the middle to second half of The Company is party to various legal proceedings (including individual, class and putative class actions) arising in the normal course of its business covering a wide range of matters and types of claims including, but not limited to, general contracts, billing disputes, rights of access, programming, taxes, fees and surcharges, consumer protection, trademark and patent infringement, employment, regulatory, tort, claims of competitors and disputes with other carriers. In accordance with GAAP, the Company accrues an expense for pending litigation when it determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Legal defense costs are expensed as incurred. None of the Company’s existing accruals for pending matters
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a leading broadband services provider offering high-speed data (“HSD”), cable television (“Video”), and digital telephony (“Telephony”) services to residential customers and offer a full range of products and services to business customers. Our services are delivered across 19 markets via our advanced hybrid fiber-coax (“HFC”) network. Our footprint covers certain suburban areas within the states of Alabama, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Ohio, South Carolina and Tennessee. At Our core strategy is to provide outstanding service at affordable prices. We execute this strategy by managing our operations to focus on the customer. We believe that the customer experience should be reliable, easy and pleasantly surprising, every time. To achieve this customer experience, we operate one of the most technically advanced and uniform networks in the industry with approximately 97% of our network at 750 MHz or greater capacity. Our advanced network offers HSD speeds up to 1 GIG (1000 Mbps) in approximately 95% of our footprint. Led by our robust HSD offering, our products are available either as
In order to support these trends, we are managing network bandwidth to meet the needs of our customers and We continue to
We have identified other potential impacts to the business as the potential for increases in delinquent customer payments and/or adverse effects on our ability to procure materials and equipment. Thus far, we have not experienced either of these adverse effects throughout the duration of the global health crisis. However, we are not able to fully predict the overall impact of the global health crisis on our 20 Key Transactions Impacting Operating Results and
Additionally, on June 30, 2021, we entered into an Asset Purchase Agreement with Radiate HoldCo, LLC, a telecommunications holding company affiliated with RCN Telecom Services LLC, Grande Communications Networks, LLC and Both transactions are expected to close in the second half of 2021. The closing of each transaction is subject to certain regulatory reviews and approvals and the Critical Accounting Policies and Estimates For a discussion of our critical accounting policies and the means by which we develop estimates refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Homes Passed and Subscribers We report homes passed as the number of serviceable addresses, such as single residence homes, apartments and condominium units, and businesses passed by our broadband network and listed in our database. We report total subscribers as the number of subscribers who receive at least one of our HSD, Video or Telephony services, without regard to which or how many services they subscribe. We define each of the individual HSD subscribers, Video subscribers and Telephony subscribers as a revenue generating unit (“RGU”). The following table summarizes homes passed, total subscribers and total RGUs for our services as of each respective date and does not make adjustment for any of the Company’s acquisitions or divestitures:
21 The following table displays the homes passed and subscribers related to the Company’s edge-out activities:
While we take appropriate steps to ensure subscriber information is presented on a consistent and accurate basis at any given balance sheet date, we periodically review our policies in light of the variability we may encounter across our different markets due to the nature and pricing of products, services, and billing systems. Accordingly, we may from time to time make appropriate adjustments to our subscriber information based on such reviews. Financial Statement Presentation Revenue Our operating revenue is primarily derived from monthly recurring charges for HSD, Video, Telephony and other business services to residential and business customers, in addition to other revenues.
Revenues attributable to monthly subscription fees charged to customers for our HSD, Video and Telephony services were 22 Costs and Expenses Our expenses primarily consist of operating, selling, general and administrative expenses, depreciation and amortization expense, and interest expense. Operating expenses primarily include programming costs, data costs, transport costs and network access fees related to our HSD, Video and Telephony services, Selling, general and administrative expenses primarily include salaries and benefits of corporate and field management, sales and marketing personnel, human resources and related administrative costs. Depreciation and amortizationincludes depreciation of our
We control our costs of operations by maintaining strict controls on expenditures. More specifically, we are focused on managing our cost structure by improving workforce productivity, increasing the effectiveness of our purchasing activities and maintaining discipline in customer acquisition. We expect programming expenses to continue to increase per Video subscriber due to a variety of factors, including increased demands by owners of some broadcast stations for carriage of other services or payments to those broadcasters for retransmission consent and annual increases imposed by programmers with additional selling power as a result of media consolidation. We have not been able to fully pass these increases on to our customers without the loss of customers, nor do we expect to be able to do so in the future. Results of Operations The following table summarizes our results of operations for the three
23 Table of Contents Three months ended Nine months ended September 30, September 30, 2020 2019 2020 2019 (in millions) Revenue $ 288.7 $ 285.4 $ 855.2 $ 862.3 Costs and expenses: Operating (excluding depreciation and amortization) 140.8 138.8 436.6 432.4 Selling, general and administrative 45.0 40.6 134.2 133.7 Depreciation and amortization 58.2 50.9 170.8 151.5 Loss on sale of operating assets, net — 8.4 — 4.8 244.0 238.7 741.6 722.4 Income from operations 44.7 46.7 113.6 139.9 Other income (expense): Interest expense (32.2) (35.8) (98.1) (107.4) (Loss) gain on sale of assets, net (0.3) — 0.4 — Other income, net 0.8 0.6 1.6 3.3 Income before provision for income tax 13.0 11.5 17.5 35.8 Income tax expense (4.0) (0.1) (6.2) (6.3) Net income $ 9.0 $ 11.4 $ 11.3 $ 29.5 The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:
Revenue
Total revenue for the six months ended June 30, 2021 increased $7.1 million, or 1%,
Subscription Revenue Total subscription revenue increased Other Business Services Other business services revenue decreased Other Other revenue Operating expenses (excluding depreciation and amortization) Operating expenses (excluding depreciation and amortization) Incremental contribution Incremental contribution is defined as subscription services revenue less costs directly incurred from third parties in connection with the provision of such services to our customers (service direct expense). Incremental contribution increased The increase is primarily due to an increase in HSD subscription revenue combined with the decrease in programming expense. Programming expense decreased from
Depreciation and amortization expenses Depreciation and amortization expenses increased $6.1 million, or 11%, and $12.1 million, or 11%, during the
Interest expense Interest expense decreased Income tax expense We reported income tax expense of Discontinued Operations Revenue from discontinued operations increased $2.8 million, or 3%, and $3.8 million, or 2%, during the three and Operating expense for discontinued operations (excluding depreciation and amortization) decreased $5.4 million, or 13%, and $10.2 million, or 12%, during the three and six months ended June 30, 2021, respectively, compared to the corresponding periods in 2020. The decreases are primarily due to the decrease in programming expense of $5.4 million and $9.2 million over the same periods, respectively. Discontinued operations expense does not include general corporate overhead or continuing costs related to providing service per the transition service agreements. Certain costs of providing the transition service agreements will continue during the term of the agreements as services are provided; however, upon termination of the agreements, these costs are expected to be reduced. In addition, general corporate overhead costs are expected to be reduced over a 26 Use of Incremental Contribution and Adjusted EBITDA We use certain measures that are not defined by GAAP to evaluate various aspects of our business such as adjusted EBITDA and incremental contribution. These measures should be considered in addition to, not as a substitute for, consolidated net income (loss) and operating income (loss) or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows, or as measures of liquidity. Our use of the terms adjusted EBITDA and incremental contribution may vary from others in our industry. These metrics have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. These metrics do not identify or allocate any other operating costs and expenses that are components of our income (loss) from operations to specific subscription revenues as we do not measure or record such costs and expenses in a manner that would allow attribution to a specific component of subscription revenue.
Adjusted EBITDA The following table provides a reconciliation of adjusted EBITDA to net income or loss, which is the most directly comparable GAAP measure, for the three and
Incremental contribution Incremental contribution is included herein because we believe that it is a key metric used by our management to assess the financial performance of the business by showing how the relative relationship of the various components of subscription services contributes to our overall consolidated historical results. Our management further believes that it provides useful information to investors in evaluating our financial condition and results of operations because the additional detail illustrates how an incremental dollar of revenue generates cash, before any unallocated costs are considered, which we believe is a key component of our overall strategy and important for understanding what drives our cash flow position relative to our historical results. Incremental contribution is defined by us as the components of subscription revenue, less costs directly incurred from third parties in connection with the provision of such services to our customers. 27 The following table provides a reconciliation of incremental contribution to income from operations, which is the most directly comparable GAAP measure, for the three and
Liquidity and Capital Resources Our primary funding requirements are for our ongoing operations, capital expenditures, outstanding debt obligations, including lease agreements, and strategic investments. At
June 30, 2021, we had borrowing capacity of $261.7 million under our Revolving Credit Facility representing $300.0 million of total availability less borrowings of $33.0 million and letters of credit of $5.3 million. We are required to prepay principal amounts We believe that existing cash balances, available borrowing capacity Our ability to fund operations, make capital expenditures, repay debt obligations and make future acquisitions and strategic investments depends on future operating performance and cash flows, which are subject to prevailing economic Historical Operating, Investing, and Financing Activities Operating Activities Net cash provided by operating activities increased from Investing Activities Net cash used in investing activities decreased from 28 We have ongoing capital expenditure requirements related to the maintenance, expansion and technological upgrades of our network. Capital expenditures are funded primarily through a combination of cash on hand and cash flow from operations. Our capital expenditures were The following table sets forth additional information regarding our capital expenditures for the periods presented:
Financing Activities
29 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk is limited and primarily related to fluctuating interest rates associated with our variable rate indebtedness under our Senior Secured Credit Facility. As of Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design
of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Our management, with the participation of the Certifying Officers, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the PART II Item 1. Legal Proceedings
Item 1A. Risk Factors Our Annual Report on Form 10-K for the year ended December 31, 30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Purchases of Equity Securities by the Issuer The following table presents WOW’s purchases of equity securities completed during the
Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information
Item 6. Exhibits
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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