Lucas Binder - VP of Corporate Development & IR Richard Fish - CFO Teresa Elder - CEO & Director.

Batya Levi - UBS Investment Bank Amy Yong - Macquarie Research Frank Louthan - Raymond James.

Good morning, ladies and gentlemen, and welcome to the WOW First Quarter 2018 Earnings Call. As a reminder, I want to advise everyone that this call is being recorded. At this time, I would like to turn the call over to Mr. Lucas Binder, WOW!'s Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Binder..

revenue, including acquisitions and dispositions; residential subscription revenue, including acquisitions and dispositions; Business Services subscription revenue, including acquisitions and dispositions; adjusted EBITDA; transaction-adjusted EBITDA; transaction-adjusted capital expenditures; and adjusted EPS.

While the company believes these non-GAAP financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

These non-GAAP measures are reconciled in our earnings release to the most comparable GAAP measures. Now I'll turn the call over to Teresa..

Thanks, Lucas, and thank you, everyone, for joining today's call. Let me start by saying we are on track with our business transformation, and we're starting to see some leading indicators that demonstrate improving trends. While we are in the midst of a lot of change, our employees are engaged, believe in our vision and are encouraged for the future.

I would like to review some highlights of our first quarter, and Rich will provide some of the specifics around the first quarter results and outlook. I'll start with HSD RGU growth. In the first quarter, we added 8,700 HSD RGUs, which includes 6,600 organic net additions.

Included in these quarterly results, March was our first time in 47 months in which total RGU net additions were positive. Additionally, first quarter churn was at the lowest level for the first quarter on our records. We added 7,000 total customers in the first quarter as well.

Now we're still in the early phases of executing our strategic vision toward operating excellence and a return to growth, and this is an encouraging way to start the year. For the first quarter, Business Services subscription revenue, including acquisitions and dispositions, grew 14.6%, continuing our trend of double-digit growth in this segment.

Among our unique growth opportunities is our ability to extend our network through Edge-Outs. The 2016 Edge-Out Nodes are nearing 32% penetration, and our 2017 Edge-Out Nodes continue ramping up well and are approaching 24% penetration as of the quarter ended March 31, 2018.

We remain encouraged by the potential of our Edge-Out efforts and the ability to grow within our existing footprint, including the Edge-Ins, which represent even greater return potential. Between Edge-Outs and Edge-Ins, we expect to add 70,000 homes passed in 2018, which would exceed the Edge-Out homes passed we added in 2017.

On the last earnings call, we discussed our vision, connecting people to their world through the WOW! experience, which we define as reliable, easy and pleasantly surprising every time. Our performance in the first quarter reaffirms our confidence in that vision.

As a reminder, we are still in the renovation phase, and our second quarter 2018 results will include impacts from our typical seasonality and our annual rate increase that was implemented at the beginning of April. As expected, these will affect our subscriber growth in the second quarter.

We also mentioned our strategic initiatives last quarter, and we're investing between $20 million and $25 million in customer experience, customer acquisition and retention, products and services and our people. Let me give you an update on each. In 2018, we are investing in tools to transform how we deliver the WOW! experience.

We treat our customers as neighbors, not numbers, and relate to them on a personal level. As far as the investments in customer experience are concerned, we are on track. We're continuing to develop new ways to interact with customers on their terms.

With these tools, such as the mobile app and improvements to the wowway website, we not only will be able to serve a modern and mobile customer base that increasingly wants to have more self-service options, but we will begin to improve our cost structure for the future.

On the customer acquisition and retention front, our investments in marketing and sales are meant to expand the WOW! brand presence while adding more quota-bearing sales headcount, consistent with what we discussed on the last call.

We are fortifying our efforts to be an active and engaged participant in the local communities in which we live and work. In the first quarter of 2018, we started to make these investments in marketing and sales that are expected to impact the business throughout the year and beyond.

One key addition to the executive team in the first quarter was Nancy McGee, our Chief Marketing and Sales Officer.

I'm thrilled to have Nancy by my side leading the marketing and sales organization, and she is off to a great start, working with the team and bringing on others to add to the velocity of our efforts to achieve our vision and return to growth. Another key addition to the executive team is Matt Bell, our Chief Technology Officer.

Matt brings a wealth of expertise from Charter Communications and Motorola Mobility, among other organizations. Matt will help to sharpen our focus on our technology road map to bring innovative products and services to all of WOW!'s customers.

We will continue to invest in and expand our product offerings, helping us to attract and retain more customers. Our 1 Gig service has expanded to nearly our entire footprint. And together with our 100 MB and 500 MB products, we believe we have one of the strongest HSD product portfolios available.

And now to an area where we're starting to see some very positive leading indicators that reinforce our vision, the investments we've made in our people. Led by David Brunick, our Chief Human Resources Officer and his talented HR team, we focus on training, development, compensation, recognition efforts across the board.

As a business, we have the muscle memory to wow our customers from our residual knowledge of prior J.D. Power and Consumer Reports awards. We are doing our REPS, our shorthand for reliable, easy and pleasantly surprising. We're doing our REPS to get fit and bring WOW! back to full strength. We are reigniting the energy and passion of our people.

As we look to the remainder of the year, we're encouraged by the subscriber results experienced in the first quarter. The implementation of our rate increase in the second quarter may impact subscriber growth in the near term.

Adjusted EBITDA is expected to improve sequentially throughout the year, and we expect to realize year-over-year growth in adjusted EBITDA in the fourth quarter of 2018 as the benefits to revenue and efficiencies from the investments we are making in customer care, marketing, sales, products and our people will begin to materialize late in the year.

For the full year, we expect to continue to see our first year of positive free cash flow. Free cash is expected to be between $45 million and $55 million. There are a number of leading indicators that we watch to ensure progress towards the execution of our vision, and these indicators are showing positive trends.

At the top of this list are our people and customers. Our employee Net Promoter Scores, which measures how likely an employee is to refer others to work for WOW!, has improved since the beginning of the year. Additionally, customer satisfaction scores across the field and customer care teams are trending upward.

We watch all of these metrics closely as they are indicators that ultimately will result in a return to consistent subscriber growth and positive EBITDA growth. A great example of how our employees feel about working here is WOW!'s Columbus, Ohio market, which was just named the Top Workplace by CEO Magazine, our first win of that award since 2015.

Achieving each of these initiatives by -- for our people, customers and investors is an exciting challenge and a challenge that's absolutely within our reach. We're confident in our ability to execute on our long-term vision. And to that effect, the Board of Directors has authorized a new $25 million stock repurchase program.

In addition, as a further show of confidence in the business, Crestview Partners plans to purchase an additional $25 million of WOW! stock in conjunction with the company. I continue to be energized by the great people at WOW!, and I'm inspired by the many ways our employees have found to deliver exceptional customer experiences.

I truly believe we have the passion and ability to wow our customers. Our teams are aligned, and we've sharpened our focus on key priorities, which will result in a return to consistent subscriber growth and positive EBITDA growth. Now I'll turn it over to Rich to review our first quarter 2018 results and provide an update on our outlook for 2018.

Rich?.

Thanks, Teresa. Let me start with a couple of administrative items first. Starting on January 1 of this year, we prospectively adopted the FASB's new revenue recognition standard. This resulted in a number of small adjustments in the quarter, which affected both revenues and expenses, as detailed in our 10-Q, which was filed earlier this morning.

Accordingly, year-over-year comparisons of certain of the company's revenue components and adjusted EBITDA have been impacted by the adoption of these standards. Additionally, during the first quarter of 2018, we standardized the statistical reporting of customer and network metrics into a single reporting methodology.

Previously, this data was maintained and accumulated separately through independent processes and procedures. The [Technical Difficulty].

Thank you. I apologize, everyone. We are out of the office at a remote location and lost our phone connection. So apologies. We think that I should probably start with my section, so I'll start again. Let's start with a couple of administrative items.

Specifically, starting at the 1st of this year, we prospectively adopted the FASB's new revenue recognition, and this resulted in a number of small adjustments in the quarter, which affected both revenue and expenses, as detailed in our 10-Q, which was filed earlier this morning.

Accordingly, year-over-year comparisons to certain of the company's revenue components and adjusted EBITDA has been impacted by the adoption of these standards. Additionally, during the first quarter of 2018, we standardized the statistical reporting of customers and network metrics to a single reporting methodology.

Previously, this data was maintained and accumulated separately through independent processes and procedures. The impact of the standardization of consumer definition resulted in modest changes to our total subscribers, HSD, video and telephony and RGU accounts during the quarter, which are detailed both in our earnings release and our Form 10-Q.

All references, however, to first quarter subscriber activity will herein exclude the impact of those changes and refer solely to the actual net customer activity for the quarter. So I'll now turn to the results for the first quarter of 2018.

We reported total revenue of $285.5 million, a net loss of $202.7 million and adjusted EBITDA of $96.3 million. Net loss per share for the quarter ended March 31, 2018, totaled $2.40 per share, and adjusted diluted earnings per share was $0.19 per share.

As Teresa highlighted, we're very encouraged by our strong subscriber metrics in the first quarter.

The positive trends that we've experienced in organic subscriber metrics during the most recent quarters were significantly improved during this quarter, where we added 8,700 total HSD RGUs, which included positive organic HSD RGU growth of 6,600, which represents the best subscriber performance in the last 2 years for this particular RGU category.

Total subscriber trends for the first quarter also continued its great momentum as we increased total subscribers by 7,000 during the first quarter. Of that amount, 4,800 subscribers were derived from organic growth, which also represents the best subscriber performance in the last 2 years.

And finally, the total net change in total RGUs for the quarter is the best subscriber performance for total RGUs we have experienced in at least the last 4 years. Business Services subscription revenue totaled $31.4 million in the first quarter of 2018, a year-over-year increase of $3.3 million or 11.7%.

Adjusting for the effect of historical transactions, Business Services subscription revenue, including acquisitions and dispositions, for the quarter increased $4 million or 14.6% over the first quarter of last year.

At March 31, 2018, as a result of the Edge-Out initiatives that we restarted in 2016, we've extended our network by a total of 107,400 homes passed and have added a total of 28,600 new subscribers, achieving a total combined penetration rate approaching 27%. Those Edge-Out Nodes that we started in 2016 now pass 41,200 homes.

These homes have been in the market on average of 586 days, and we've achieved almost 32% penetration in these communities. The 2017 Edge-Out Nodes now pass 64,100 homes. Having an average of 279 days in the market, they continue to ramp and are now approaching 24% penetration.

Needless to say, we're very pleased with the continued performance of Edge-Outs, and we're increasingly confident in our ability to not only identify and target those opportunities at our communities but also to execute on them effectively.

As Teresa mentioned, we expect to continue to invest in Edge-Outs, where we will add approximately 70,000 new homes passed to our network in 2018, combining the 40,000 from Edge-Outs with the 30,000 from Edge-In opportunities. Total capital expenditures for the first quarter of 2018 was $56.5 million.

Of that amount, $5.9 million was incurred toward the completion of the Chicago fiber project, which will be reimbursed as elements of the final buildout are completed. We are on track with our efforts to complete the network build and expect that it will be complete some time during the first half of next year.

Adjusting for the effect of acquisitions and dispositions, transaction-adjusted capital expenditures for the first quarter totaled $50.6 million, which included transaction-adjusted strategic capital totaling $12.0 million.

Excluding those strategic capital investments, transaction-adjusted capital expenditures totaled $38.6 million or 13.5% of first quarter 2018 total revenue. From an accounting standpoint, we recorded a noncash charge related to the impairment of intangible assets totaling $256.4 million during the first quarter.

As was the case at the end of last year, the market price of our stock was the primary driver behind the impairment charge during the quarter. Although we believe the market price of our stock is significantly undervalued, that data point is one of the inputs to the estimation of the fair value of intangible assets on the balance sheet.

Although unfortunate, the impairment of the intangibles is a noncash accounting event and has absolutely no impact on our business, our customers, our employees, our initiatives for the year or our confidence about our ability to execute on our vision to return the company to a growth profile. With regard to liquidity and leverage.

At the end of the quarter, we had $36.5 million in cash on hand and outstanding debt of $2.271 billion. Accordingly, total leverage at March 31, 2018, was 5.3x on a trailing 12-month transaction-adjusted EBITDA basis.

In addition, subsequent to the beginning of the first quarter, we entered into interest rate swap agreements for an initial amount covering approximately 60% of the outstanding principal balance of our floating rate debt to mitigate the risk of rising interest rates.

The company has significant available liquidity through its cash balances, our expected free cash flow for the year and access to our $300 million revolver. In addition, as a reminder, the company has a very favorable tax position.

We still have available NOLs totaling approximately $650 million as of the end of the last fiscal year, and we don't expect to be a significant federal cash income taxpayer until at least 2022. In December of last year, the Board of Directors authorized a $50 million common stock buyback program.

As of the end of March 31, 2018, the company had purchased over 5 million shares in the open market and had completed the authorized buyback program.

As Teresa mentioned, the Board of Directors announced that it has authorized a new stock repurchase program commencing immediately, which will enable the company to repurchase an aggregate of $25 million of its outstanding common stock.

This repurchase program is expected to be executed over the next 12 months with the objective of delivering value to shareholders while capitalizing on attractive market valuations.

Shares may be repurchased from time to time in open market transactions at prevailing market prices and privately negotiated transactions or by other means, in accordance with federal securities laws, including the Rule 10b5-1 programs.

There's no minimum number of shares that the company is required to repurchase, and the repurchase plan may be suspended, modified or discontinued at any time. In addition, as Teresa mentioned, funds affiliated with Crestview Partners III GP, L.P.

had informed the company that they plan to purchase up to an additional $25 million of outstanding common stock in conjunction with the company. And finally, to address the outlook for the year.

Teresa provided some insight as how -- on how we expect EBITDA to trend throughout the remainder of the year, specifically in that we expect sequential increases each quarter from 2018 culminating in positive sequential and year-over-year growth in adjusted EBITDA by the fourth quarter of 2018.

Accordingly, we reiterate our guidance for the full year 2018. So that concludes the prepared remarks, and I'll turn it back to the operator to open the call to questions..

[Operator Instructions] Your first question comes from Batya Levi [UBS Investment Bank].

Can you talk a little bit more about the drivers of the high-speed data ad improvement that we saw in the core market this quarter? And you mentioned that the impact of price increases will hurt sub growth into second quarter.

Is that -- is there any difference on the impact for data versus video subscribers? And given the strong start to the year, can we expect maybe upside to our high-speed data targets for the full year? And then I had another question on video programming cost. It looks like it's been increasing quite a bit. Last year, we saw it coming down.

Can you talk about how you plan to balance that cost going forward?.

Thank you so much for the question. I appreciate that. So first of all, the first primary question, I believe, was around the drivers of high-speed data growth and really overall subscriber growth, I would say. And I think there's a number of components.

First of all, we've got the right people in the right jobs; secondly, the right number of people in key jobs. ‘ Last quarter, we talked about adding people to our care -- customer care organization as well as salespeople, and we have done both of those things.

The third thing that I think across the board is helping resolve is that we have an alignment and focus on what the key priorities are, and that's helping us execute precisely on many fronts.

And then finally, it really gets down to doing our REPS, being reliable, easy, pleasantly surprising, and getting that muscle memory back of how to wow our customers. All of those things are really helping us focus on growth across the board and clearly, especially on HSD, both organic and agile growth.

I believe the second question you had was around the rate increase that is taking place starting on April 1 and if the rate increase that is across a variety of our products. Even though we are encouraged by the initial results from the first quarter subscriber growth, to your question about full year, our guidance remains as it has been.

So we're not adjusting any changes on subscribers or financials associated with that. And then finally, you talked about video programming cost and increases in that. And I think our rate increase that we're taking is virtually reflective of trying to offset those cost as well..

Great. Just on -- following back on the high-speed data growth. Are you seeing any change in the competitive environment? I believe that they have been finding a little bit more difficulty raising prices on the video side.

Can you talk a bit of the competition?.

Well, I would never speak for our competition. But I guess, one of the things that I'm most encouraged by is that these are historic numbers for us, whether it's on the lowest churn, in our record-keeping, some of the highest growth we've seen in subs in 2 to 4 years.

What happened with the competitive landscape over the last 4 years is that broadband penetration has increased in a busy way. And yes, our product is very competitive. I think that's reflective of our 1 Gig network that is nearly completed, and that our pricing strategy is always such that we provide just excellent value to our customers.

And we believe our 1 Gig, 500 MB and 100 MB products are some of the -- best HSD value products in the marketplace..

Your next question comes from the line of Amy Yong [Macquarie Research].

Just following up on, I guess, Batya's question on broadband. Maybe if you could talk to us about what you saw this quarter in terms of competition. You mentioned broadband penetration is obviously very high now. But maybe if you could talk to us about the take rates for the 1 Gig product and how much room there is to upsell into that product.

And then just a point of housekeeping. Does the guidance include the impact of the Edge-Outs and Edge-Ins? And maybe if you could parse that out versus churn, that would be really helpful..

Okay. Thanks, Amy. First of all, on the broadband side, yes, we have some competitive markets, and we love the competition. What we're seeing across the board is that the take rate for our higher speed are going up. The customers are needing higher and higher speed.

As they look at the number of IoT devices that are in their homes and across the board, there are many applications for broadband. So yes, we see those fees increasing in the take rate for our higher speed continuing to evolve. On the issue about the Edge-Outs and Edge-Ins, I'll turn that over to Rich..

Yes. Amy, just the short answer is that our guidance does include the combined impact of both organic as well as Edge-Outs and Edge-Ins..

Your next question comes from Frank Louthan [Raymond James].

Just to clarify, with the price increases, is that on the video -- just on the video product? Or is that across all of the products? And how are you positioning that? Is that an increase on the actual product itself? Are you adding surcharges or retrans recovery or something like that for the price increases?.

Yes. The rate increase is across -- more than just our video product, and it is really just recovering our cost on retransmission..

Okay, great. And then a question for Matt if he's on or maybe you can address this.

So what are some of the top priorities that you think you can implement from an IT perspective or some of the projects that were spearheaded at Charter that you possibly can bring and help you guys out?.

Yes. I'll go ahead and answer on Matt's behalf. Perhaps he'll join us on a future call. I think he's about 14 days into his job right now, so I'll go ahead and answer for him. He is really charged with, of course, all of our technology, which includes the IT organization as well.

And like we talked about in the first quarter, one of the key initiatives this year is really our digital transformation. So that's everything from our wowway.com, to our mobile app, to really a number of initiatives that also help us provide better care to our customers, so tools where our customers can access us in any way they want to.

So those are things that are going to help our employees better serve our customers as well. So we have a whole variety of things that he's helping us with on the IT part..

[Operator Instructions] Your next question comes from Philip Lamb..

So I want to understand more about positive free cash flow generation for this quarter and going forward. So I remember from your guidance for the year, you expect to reduce CapEx and to slow down your Edge-Outs.

But how would that impact your RGU growth from Edge-Outs going forward and also your strategy on Edge-Outs?.

Sure. The free cash flow guidance that we have for the year is between $45 million and $55 million. Included in that is a capital investment related to Edge-Outs that would enable the company to build out 40,000 new homes passed as part of our Edge-Out 2018 initiatives.

In addition, however, to the 40,000 Edge-Out initiatives, as we spoke about on the call -- the previous call, we've identified at least an additional 30,000 homes passed that exist within our existing footprint that have not been marketed to. Network capability extends to those homes passed.

Service capability already exerts off of our existing network. And we clean the [indiscernible] those representing Edge-Ins inside of our existing footprint.

So on a combined basis, we expect to add in the 70,000 new homes passed between those 2 opportunities, actually, more new homes passed than what was added to the company that were in 2017, which I believe were approximately 64,000 or 65,000 new homes passed..

Can you provide a normalized level of CapEx that you expect going forward? The question was, can we provide a normalized CapEx level and can you identify is it CapEx with or without Edge-Outs as we will continue to evolve our CapEx number based on what our Edge-Out plans are on a go-forward basis.

So I don't think we're going to be providing any forward-looking on CapEx beyond what we provided for guidance for 2018 for subs..

You have no further questions at this time. I will turn the call back over to the presenters..

We just wanted to say how much we appreciate all of you joining us today.

Thank you for your continued interest in our business and your support of WOW!. Have a great day..

This concludes today's call, and you may now disconnect..