WideOpenWest 10Q 2019 Q3 Quarterly report

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 September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38101

WideOpenWest, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	46-0552948 (IRS Employer Identification No.)

7887 East Belleview Avenue, Suite 1000 Englewood, Colorado (Address of Principal Executive Offices)	80111 (Zip Code)

(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 28, 2019 was 84,280,806.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

		Page
PART I. Financial Information
Item 1:	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Deficit	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4:	Controls and Procedures	29
PART II.		31
Item 1:	Legal Proceedings	31
Item 1A:	Risk Factors	31
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3:	Defaults Upon Senior Securities	32
Item 4:	Mine Safety Disclosures	32
Item 5:	Other Information	32
Item 6:	Exhibits	33

This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2019. 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.

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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 wide range of competition we face;

●

competitors that are larger and possess more resources;

●

competition for the leisure and entertainment time of audiences;

●

whether our edge-out strategy will succeed;

●

dependence upon a business services strategy, including our ability to secure new businesses as customers;

●

conditions in the economy, including potentially uncertain economic conditions, unemployment levels and turbulent developments in the housing market;

●

demand for our bundled broadband communications services may be lower than we expect;

●

our ability to respond to rapid technological change;

●

increases in programming and retransmission costs;

●

declines in advertising revenues;

●

the effects of regulatory changes in our business;

●

our substantial level of indebtedness;

●

certain covenants in our debt documents;

●

programming exclusivity in favor of our competitors;

●

inability to obtain necessary hardware, software and operational support;

●

loss of interconnection arrangements;

●

failure to receive support from various funds established under federal and state law;

●

exposure to credit risk of customers, vendors and third parties;

●

strain on business and resources from future acquisitions or joint ventures, or the inability to identify suitable acquisitions;

●

potential impairments to our goodwill or franchise operating rights;

●

the occurrence of natural disasters in one or more of our geographic markets;

●

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 7, 2019 and other reports subsequently filed with the 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.

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PART I-FINANCIAL INFORMATION

WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30,		December 31,
	2019		2018
	(in millions, except share data)
Assets
Current assets
Cash and cash equivalents	$	9.3	$	13.2
Accounts receivable—trade, net of allowance for doubtful accounts of $8.7 and $7.5, respectively		78.7		74.6
Accounts receivable—other		5.5		9.2
Prepaid expenses and other		22.2		15.4
Total current assets		115.7		112.4
Right-of-use assets—operating		26.7		—
Plant, property and equipment, net		1,064.5		1,053.4
Franchise operating rights		809.2		809.2
Goodwill		408.8		408.8
Intangible assets subject to amortization, net		4.4		3.6
Other noncurrent assets		39.7		32.2
Total assets	$	2,469.0	$	2,419.6
Liabilities and stockholders’ deficit
Current liabilities
Accounts payable—trade	$	35.7	$	42.0
Accrued interest		0.5		4.6
Current portion of lease liability—operating		6.3		—
Accrued liabilities and other		94.1		93.2
Current portion of debt and finance lease obligations		29.1		24.1
Current portion of unearned service revenue		45.5		60.2
Total current liabilities		211.2		224.1
Long-term debt and finance lease obligations—less current portion and debt issuance costs		2,277.2		2,271.4
Long-term lease liability—operating		23.5		—
Deferred income taxes, net		205.8		201.4
Other noncurrent liabilities		18.8		13.0
Total liabilities		2,736.5		2,709.9
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; 92,344,520 and 90,572,693 issued as of September 30, 2019 and December 31, 2018, respectively; 84,280,806 and 82,680,380 outstanding as of September 30, 2019 and December 31, 2018, respectively		0.9		0.9
Additional paid-in capital		320.5		312.7
Accumulated other comprehensive loss		(18.8)		(6.5)
Accumulated deficit		(490.5)		(519.3)
Treasury stock at cost, 8,063,714 and 7,892,313 shares as of September 30, 2019 and December 31, 2018, respectively		(79.6)		(78.1)
Total stockholders’ deficit		(267.5)		(290.3)
Total liabilities and stockholders’ deficit	$	2,469.0	$	2,419.6

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions, except share data)
Revenue	$	285.4	$	291.6	$	862.3	$	868.4
Costs and expenses:
Operating (excluding depreciation and amortization)		138.8		152.7		432.4		467.9
Selling, general and administrative		40.6		37.0		133.7		116.4
Depreciation and amortization		50.9		46.3		151.5		139.0
Impairment losses on intangibles and goodwill		—		—		—		216.3
Loss (gain) on sale of assets		8.4		(1.5)		4.8		(1.5)
		238.7		234.5		722.4		938.1
Income (loss) from operations		46.7		57.1		139.9		(69.7)
Other income (expense):
Interest expense		(35.8)		(35.0)		(107.4)		(96.8)
Other income, net		0.6		0.5		3.3		1.7
Income (loss) before provision for income tax		11.5		22.6		35.8		(164.8)
Income tax (expense) benefit		(0.3)		7.9		(7.0)		57.9
Net income (loss)	$	11.2	$	30.5	$	28.8	$	(106.9)

Basic and diluted earnings (loss) per common shares
Basic	$	0.14	$	0.38	$	0.36	$	(1.30)
Diluted	$	0.14	$	0.37	$	0.35	$	(1.30)
Weighted-average common shares outstanding
Basic		80,885,244		80,663,128		80,639,099		82,319,223
Diluted		81,104,905		81,569,173		81,064,688		82,319,223

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)
Net income (loss)	$	11.2	$	30.5	$	28.8	$	(106.9)
Unrealized (loss) gain on interest rate derivative instrument, net of tax		(0.7)		6.0		(12.3)		5.4
Comprehensive income (loss)	$	10.5	$	36.5	$	16.5	$	(101.5)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(unaudited)


								Accumulated
		Common		Treasury		Additional		Other				Total
	Common	Stock		Stock at		Paid-in		Comprehensive		Accumulated		Stockholders'
	Stock	Par Value		Cost		Capital		Loss		Deficit		Deficit
	(in millions, except share data)
Balances at January 1, 2019	82,680,380	$	0.9	$	(78.1)	$	312.7	$	(6.5)	$	(519.3)	$	(290.3)
Changes in accumulated other comprehensive loss	—		—		—		—		(3.1)		—		(3.1)
Stock-based compensation	—		—		—		2.1		—		—		2.1
Issuance of restricted stock, net	1,702,482		—		—		—		—		—		—
Purchase of shares	(108,937)		—		(1.1)		—		—		—		(1.1)
Net income	—		—		—		—		—		8.2		8.2
Balances at March 31, 2019(1)	84,273,925	$	0.9	$	(79.2)	$	314.8	$	(9.6)	$	(511.1)	$	(284.2)
Changes in accumulated other comprehensive loss	—		—		—		—		(8.5)		—		(8.5)
Stock-based compensation	—		—		—		2.8		—		—		2.8
Issuance of restricted stock, net	239,903		—		—		—		—		—		—
Purchase of shares	(40,155)		—		(0.3)		—		—		—		(0.3)
Net income	—		—		—		—		—		9.4		9.4
Balances at June 30, 2019(1)	84,473,673	$	0.9	$	(79.5)	$	317.6	$	(18.1)	$	(501.7)	$	(280.8)
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	—		—		—		—		—		11.2		11.2
Balances at September 30, 2019(1)	84,280,806	$	0.9	$	(79.6)	$	320.5	$	(18.8)	$	(490.5)	$	(267.5)

(1)	Included in outstanding shares as of March 31, 2019, June 30, 2019 and September 30, 2019 are 3,703,649, 3,601,021 and 3,354,505, respectively, of non-vested shares of restricted stock awards granted to employees and directors.


								Accumulated
		Common		Treasury		Additional		Other				Total
	Common	Stock		Stock at		Paid-in		Comprehensive		Accumulated		Stockholders'
	Stock	Par Value		Cost		Capital		Income (Loss)		Deficit		Deficit
	(in millions, except share data)
Balances at January 1, 2018	88,426,742	$	0.9	$	(4.8)	$	299.9	$	—	$	(437.8)	$	(141.8)
Impact of change in accounting policy	—		—		—		—		—		9.1		9.1
Stock-based compensation	—		—		—		4.3		—		—		4.3
Issuance of restricted stock, net	657,992		—		—		—		—		—		—
Purchase of shares	(4,636,669)		—		(45.2)		—		—		—		(45.2)
Other	—		—		—		(0.2)		—		—		(0.2)
Net loss	—		—		—		—		—		(162.0)		(162.0)
Balances at March 31, 2018(2)	84,448,065	$	0.9	$	(50.0)	$	304.0	$	—	$	(590.7)	$	(335.8)
Changes in accumulated other comprehensive loss	—		—		—		—		(0.6)		—		(0.6)
Stock-based compensation	—		—		—		4.6		—		—		4.6
Issuance of restricted stock, net	978,896		—		—		—		—		—		—
Purchase of shares	(1,322,133)		—		(12.5)		—		—		—		(12.5)
Net income	—		—		—		—		—		24.6		24.6
Balances at June 30, 2018(2)	84,104,828	$	0.9	$	(62.5)	$	308.6	$	(0.6)	$	(566.1)	$	(319.7)
Changes in accumulated other comprehensive income	—		—		—		—		6.0		—		6.0
Stock-based compensation	—		—		—		2.1		—		—		2.1
Issuance of restricted stock, net	48,887		—		—		—		—		—		—
Purchase of shares	(1,458,865)		—		(15.5)		—		—		—		(15.5)
Net income	—		—		—		—		—		30.5		30.5
Balances at September 30, 2018(2)	82,694,850	$	0.9	$	(78.0)	$	310.7	$	5.4	$	(535.6)	$	(296.6)

(2)	Included in outstanding shares as of March 31, 2018, June 30, 2018 and September 30, 2018 are 2,545,272, 2,380,631 and 2,403,512, respectively, of non-vested shares of restricted stock awards granted to employees and directors.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
	September 30,
	2019		2018
	(in millions)
Cash flows from operating activities:
Net income (loss)	$	28.8	$	(106.9)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		151.5		139.0
Deferred income taxes		8.7		(59.2)
Provision for doubtful accounts		12.5		14.2
Loss (gain) on sale of assets		4.8		(1.5)
Amortization of debt issuance costs and discount		3.6		3.6
Impairment losses on intangibles and goodwill		—		216.3
Non-cash compensation		7.8		11.0
Changes in operating assets and liabilities:
Receivables and other operating assets		(27.4)		(23.4)
Payables and accruals		(11.1)		6.7
Net cash provided by operating activities	$	179.2	$	199.8
Cash flows from investing activities:
Capital expenditures	$	(191.1)	$	(213.8)
Proceeds from sale of Chicago fiber assets		21.0		3.4
Other investing activities		(1.3)		—
Net cash used in investing activities	$	(171.4)	$	(210.4)
Cash flows from financing activities:
Proceeds from issuance of debt	$	65.0	$	60.0
Payments on debt and finance lease obligations		(75.2)		(18.1)
Purchase of treasury stock		(1.5)		(73.2)
Other		—		(0.2)
Net cash used in financing activities	$	(11.7)	$	(31.5)
Decrease in cash and cash equivalents		(3.9)		(42.1)
Cash and cash equivalents, beginning of period		13.2		69.4
Cash and cash equivalents, end of period	$	9.3	$	27.3
Supplemental disclosures of cash flow information:
Cash paid during the periods for interest	$	107.8	$	92.0
Cash paid during the periods for income taxes	$	1.5	$	12.0
Insurance proceeds received for business interruption	$	9.6	$	—
Non-cash financing activities:
Capital expenditure accounts payable and accruals	$	11.3	$	11.3

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WIDEOPENWEST, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019

(unaudited)

Note 1. General Information

WideOpenWest, Inc. (“WOW” or the “Company”) is a fully integrated provider of high-speed data (“HSD”), cable television (“Video”), and digital telephony (“Telephony”) services. The Company serves customers in 19 Midwestern and Southeastern markets in the United States. The Company manages and operates its Midwestern systems 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.

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 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 the Company’s 2018 Annual Report on Form 10-K filed with the SEC on March 7, 2019 (the “2018 Form 10-K”).

All significant intercompany accounts and transactions have been eliminated in consolidation.

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. To the extent there are differences between those estimates and actual results, the unaudited condensed consolidated financial statements may be materially affected.

Restatement of Previously Issued Consolidated Financial Statements

As previously disclosed in note 1 to the Company’s consolidated financial statements included in the 2018 Form 10-K, the Company identified past errors in the accounting for deferred income tax liabilities and goodwill that

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resulted from a 2006 merger transaction when preparing the 2018 consolidated financial statements. In the 2018 Form 10-K, the Company restated its historical consolidated financial statements to properly reflect the impact of the 2006 merger transaction, which resulted in adjustments to goodwill, deferred tax liabilities and stockholders’ deficit in the affected periods. The condensed consolidated financial statements for the nine months ended September 30, 2018 included in this Quarterly Report on Form 10-Q, have been similarly restated to reflect the correction of these errors and should be read in conjunction with notes 1 and 20 to the Company’s consolidated financial statements included in the 2018 Form 10-K.

Recently Issued Accounting Standards

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Early adoption is permitted. The Company plans to adopt this guidance prospectively as of January 1, 2020. The Company does not anticipate that the adoption will have a material impact on its financial position, results of operations or cash flows.

Recently Adopted Accounting Pronouncements

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, an entity is required to recognize right-of-use (“ROU”) assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018 (January 1, 2019 for the Company). ASU 2016-02 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Targeted Improvements (“ASU 2018-11”) and ASU 2018-20, Narrow-Scope Improvements for Lessors.

The Company adopted the new lease standard using the effective date method as of January 1, 2019 as allowed under ASU 2018-11. Consequently, financial information will not be retrospectively restated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits the Company to not reassess the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Additionally, the Company elected the practical expedient pertaining to land easements, which allows the Company to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840. The Company did not elect the use-of-hindsight transition practical expedient.

Topic 842 also provides practical expedients for the Company’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning the Company will not recognize right-of-use assets or lease liabilities for existing and new lease agreements that qualify. Additionally, the Company elected the practical expedient to not separate lease and non-lease components for all of its leases, including those for which the Company is a lessee and those for which it is a lessor.

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Adoption of ASU 2016-02 resulted in the recording of ROU assets and liabilities for the Company’s operating leases of approximately $23.9 million and $25.0 million, respectively, as of January 1, 2019. The difference between the ROU assets and lease liabilities primarily represents the existing prepaid rent balance, which was reclassified upon adoption. The Company’s accounting for finance leases and for operating leases, as lessor, remained substantially unchanged. The adoption of this standard did not have a material impact on the Company’s results of operations, cash flows or liquidity. The adoption resulted in additional interim and annual lease disclosures.

Note 3. Revenue from Contracts with Customers

Revenue by Service Offering

The following table presents revenue by service offering for the three months ended September 30, 2019 and 2018, respectively:


	Three months ended September 30, 2019						Three months ended September 30, 2018
	Residential		Business		Total		Residential		Business		Total
	Subscription		Subscription		Revenue		Subscription		Subscription		Revenue
	(in millions)
HSD	$	109.8	$	20.4	$	130.2	$	100.2	$	18.8	$	119.0
Video		102.8		3.6		106.4		115.8		3.5		119.3
Telephony		15.1		10.7		25.8		18.3		10.7		29.0
Total subscription services revenue	$	227.7	$	34.7	$	262.4	$	234.3	$	33.0	$	267.3
Other business services revenue (1)		—		—		6.8		—		—		6.6
Other revenue		—		—		16.2		—		—		17.7
Total revenue	$	227.7	$	34.7	$	285.4	$	234.3	$	33.0	$	291.6

(1)

Includes wholesale and colocation lease revenue of $5.6 million and $5.0 million for the three months ended September 30, 2019 and 2018, respectively.

The following table presents revenue by service offering for the nine months ended September 30, 2019 and 2018, respectively:


	Nine months ended September 30, 2019						Nine months ended September 30, 2018
	Residential		Business		Total			Residential		Business		Total
	Subscription		Subscription		Revenue			Subscription		Subscription		Revenue
	(in millions)
HSD	$	328.4	$	59.7	$	388.1	$	293.5	$	54.7	$	348.2
Video		316.1		10.9		327.0		353.6		10.6		364.2
Telephony		46.8		32.1		78.9		56.5		31.7		88.2
Total subscription services revenue	$	691.3	$	102.7	$	794.0	$	703.6	$	97.0	$	800.6
Other business services revenue (1)		—		—		21.0		—		—		20.6
Other revenue		—		—		47.3		—		—		47.2
Total revenue	$	691.3	$	102.7	$	862.3	$	703.6	$	97.0	$	868.4

(1)

Includes wholesale and colocation lease revenue of $16.5 million and $16.0 million for the nine months ended September 30, 2019 and 2018, respectively.

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Costs of Obtaining Contracts with Customers

As of September 30, 2019, the current portion of costs of obtaining contracts with customers of $8.8 million and non-current portion of costs of obtaining contracts with customers of $28.4 million are included in prepaid expenses and other noncurrent assets, respectively, in the Company’s condensed consolidated balance sheet. As of December 31, 2018 the current and non-current portion of costs of obtaining contracts with customers was $6.0 million and $20.3 million, respectively.

Contract Liabilities

As of September 30, 2019, the current portion of contract liabilities of $3.6 million and the non-current portion of contract liabilities of $0.6 million are included in current portion of unearned service revenue and other non-current liabilities, respectively, in the Company’s condensed consolidated balance sheet. As of December 31, 2018, the current and non-current portion of contract liabilities was $3.3 million and $0.6 million, respectively.

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.

A summary of expected commercial revenue to be recognized in future periods related to performance obligations which have not been satisfied or are partially unsatisfied as of September 30, 2019 is set forth in the table below:


	2019		2020		2021		Thereafter		Total
	(in millions)
Subscription services	$	22.9	$	65.5	$	35.4	$	39.2	$	163.0
Other business services		1.3		3.2		1.8		1.0		7.3
Total expected revenue	$	24.2	$	68.7	$	37.2	$	40.2	$	170.3

Note 4. Plant, Property and Equipment, Net

Plant, property and equipment consists of the following:


	September 30,		December 31,
	2019		2018
	(in millions)
Distribution facilities	$	1,695.0	$	1,543.3
Customer premise equipment		453.8		440.4
Head-end equipment		337.8		321.9
Telephony infrastructure		97.7		94.8
Computer equipment and software		143.9		129.1
Vehicles		38.6		36.5
Buildings and leasehold improvements		49.3		46.3
Office and technical equipment		32.8		32.7
Land		6.2		6.2
Construction in progress (including material inventory and other)		100.8		157.8
Total plant, property and equipment		2,955.9		2,809.0
Less accumulated depreciation		(1,891.4)		(1,755.6)
	$	1,064.5	$	1,053.4

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Depreciation expense for the three months ended September 30, 2019 and 2018 was $50.4 million and $46.1 million, respectively. Depreciation expense for the nine months ended September 30, 2019 and 2018 was $150.1 million and $137.8 million, respectively.

Note 5. Asset Sales

Sale of Chicago Fiber Network

On August 1, 2017, the Company entered into a definitive agreement to sell a portion of its fiber network in the Company’s Chicago market to a subsidiary of Verizon for $225.0 million in cash. On December 14, 2017, the Company finalized the sale by entering into an Asset Purchase Agreement (“APA”) with a subsidiary of Verizon.

In addition to the APA, the Company and a subsidiary of Verizon entered into a Construction Services Agreement pursuant to which the Company agreed to complete the build-out of the network in exchange for $50.0 million, which represented the estimated remaining build-out costs to complete the network. The $50.0 million was recognized over time as such network elements were completed and accepted. The Company completed the network build-out as of September 30, 2019.

The Company recognized a $2.5 million loss on sale of assets resulting from the completion and acceptance of certain network elements under the Construction Services Agreement during the nine months ended September 30, 2019. From project inception through completion, the Company has recorded a total loss on the Construction Services Agreement of $0.1 million.

Note 6. Leases

The Company leases certain property, vehicles and equipment for use in its operations. The Company determines if an arrangement is or contains a lease at inception. The Company has lease agreements with lease and non-lease components and has elected to not separate these components for all classes of underlying assets. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet. Leases with initial terms greater than 12 months are recorded as operating or financing leases on the condensed consolidated balance sheet. As of September 30, 2019, financing lease assets of $19.1 million are included in plant, property and equipment on the condensed consolidated balance sheet. The Company has recorded accumulated amortization on the financing leases of $3.4 million. Financing lease liabilities are included within the current and long-term portions of debt and finance lease obligations of $6.3 million and $13.1 million, respectively.

Operating lease assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company utilizes a collateralized incremental borrowing rate based on information available at the lease commencement date in determining the present value of future payments, unless the rate is implicit in the lease agreement. The operating and finance leases may contain variable payments for common-area maintenance, taxes and insurance, and repairs and maintenance. Variable payments are recognized when incurred and not included in the measurement of the right-of-use asset and lease liability. In instances where customer premise equipment (“CPE”) would qualify as a lease, the Company applies the practical expedient to combine the operating lease with the subscription revenue as a single performance obligation in accordance with revenue recognition accounting guidance as the subscription service is the predominant component.

The Company’s lease agreements may contain options to extend the lease term beyond the initial term, termination options, and options to purchase the underlying asset. The Company has not included these options in the lease term or the related payments in the measurement of the ROU asset and lease liabilities as the Company has determined the options are not reasonably certain to be exercised.

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Lease cost components are classified as follows:


			Three months ended	Nine months ended
	Classification		September 30, 2019	September 30, 2019
		(in millions)
Finance lease cost
Amortization of leased asset	Depreciation	$	1.5	$	3.4
Interest on lease liabilities	Interest expense		0.2		0.4
Operating lease cost (1)	Operating expense		2.7		7.1
Net lease cost		$	4.4	$	10.9

(1)

Includes short-term lease and variable lease costs of $0.6 million and $1.1 million for the three and nine months ended September 30, 2019, respectively.

The following table presents aggregate lease maturities as of September 30, 2019:


	Finance Leases		Operating Leases		Total
	(in millions)
Remaining three months of 2019	$	7.0	$	7.9	$	14.9
2020		6.8		6.8		13.6
2021		4.8		6.3		11.1
2022		1.4		4.5		5.9
2023		0.7		3.3		4.0
Thereafter		—		6.6		6.6
Total Lease Payments		20.7		35.4		56.1
Less: Interest		(1.3)		(5.6)		(6.9)
Present value of lease liabilities	$	19.4	$	29.8	$	49.2

The following table presents aggregate lease maturities as of December 31, 2018:


	Finance Leases		Operating Leases		Total
	(in millions)
2019	$	1.3	$	7.2	$	8.5
2020		1.3		5.4		6.7
2021		1.2		4.7		5.9
2022		0.9		4.0		4.9
2023		0.4		2.4		2.8
Thereafter		—		6.5		6.5
Total Lease Payments	$	5.1	$	30.2	$	35.3

The following table presents the weighted average remaining lease term and discount rate:


	September 30, 2019

Weighted-average remaining lease term (in years)
Finance Leases	3.2
Operating Leases	5.5
Weighted-average discount rate
Finance Leases	4.62	%
Operating Leases	6.23	%

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The following table presents other information related to operating and finance leases:


		Nine months ended
		September 30, 2019
		(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4.7
Financing cash flows from finance leases		3.1
Right-of-use assets obtained in exchange for lease obligations:
Finance leases		18.0
Operating leases		9.3

Note 7. Accrued Liabilities and Other

Accrued liabilities and other consists of the following:


	September 30,		December 31,
	2019		2018
	(in millions)
Programming costs	$	32.0	$	35.4
Franchise and revenue sharing fees		9.7		12.0
Payroll and employee benefits		18.3		19.7
Property, income, sales and use taxes		5.9		7.4
Utility pole rentals		3.4		2.5
Interest rate swaps		13.7		2.6
Other accrued liabilities		11.1		13.6
	$	94.1	$	93.2

Note 8. Long-Term Debt and Finance Leases

The following table summarizes the Company’s long-term debt and finance leases:


							December 31,
	September 30, 2019						2018
	Available
	borrowing		Effective		Outstanding		Outstanding
	capacity		interest rate (1)		balance		balance
	(in millions)
Long-term debt:
Term B Loans, net(2)	$	—	5.69	%	$	2,225.5	$	2,240.9
Revolving Credit Facility(3)		224.5	5.05	%		70.0		60.0
Total long-term debt	$	224.5				2,295.5		2,300.9
Finance lease obligations						19.4		5.1
Total long-term debt and finance lease obligations						2,314.9		2,306.0
Debt issuance costs, net(4)						(8.6)		(10.5)
Sub-total						2,306.3		2,295.5
Less current portion						(29.1)		(24.1)
Long-term portion					$	2,277.2	$	2,271.4

(1)	Represents the effective interest rate in effect for all borrowings outstanding as of September 30, 2019 pursuant to each debt instrument including the applicable margin.

(2)	At September 30, 2019 includes $8.9 million of net discounts.

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(3)

Available borrowing capacity at September 30, 2019 represents $300.0 million of total availability less borrowing of $70.0 million on the Revolving Credit Facility and outstanding letters of credit of $5.5 million. Letters of credit are used in the ordinary course of business and are released when the respective contractual obligations have been fulfilled by the Company.

(4)	At September 30, 2019, debt issuance costs include $6.4 million related to Term B Loans and $2.2 million related to the Revolving Credit Facility.

Refinancing of the Term B Loans and Revolving Credit Facility

On July 17, 2017, the Company entered into an eighth amendment (“Eighth Amendment”) to its Credit Agreement, with JPMorgan Chase Bank, N.A., as the administrative agent and revolver agent. Under the Eighth Amendment, (i) the Company borrowed new Term B loans in an aggregate principal amount of $230.5 million, for a total outstanding Term B loan principal amount of $2.28 billion and (ii) the revolving credit commitments were increased by an aggregate principal amount of $100.0 million, for a total outstanding revolving credit commitment of $300.0 million available to the Company under the revolving credit facility. The new Term B loans 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%. Loans 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%. The guarantees, collateral and covenants in the Eighth Amendment remain unchanged from those contained in the credit agreement prior to the Eighth Amendment. As of September 30, 2019, the Company was in compliance with all debt covenants.

On May 31, 2017, the Company entered into a seventh amendment (“Seventh Amendment”) to its Credit Agreement. The Seventh Amendment (i) refinanced the then-existing $200.0 million of borrowings available to the Company under the revolving credit facility and (ii) extended the maturity date of the revolving credit facility to May 31, 2022, unless an earlier date was triggered under certain circumstances. The interest rate margins applicable to the revolving credit facility bore interest at a rate equal to ABR plus 2.00% or LIBOR plus 3.00%. Additionally, the Company entered into an Incremental Commitment Letter to its revolving credit facility that increased the available borrowings to $300.0 million that became available upon compliance by the Company with certain conditions (which included redemption of the then existing 10.25% senior notes subsequently achieved as a result of the Eighth Amendment). The guarantees, collateral and covenants in the Seventh Amendment remained unchanged from those contained in the credit agreement prior to the Seventh Amendment.

Note 9. 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.

The following table presents restricted stock activity during the nine months ended September 30, 2019:


		Number of Unvested Restricted Stock Shares
Outstanding, January 1, 2019		2,356,418
Granted		2,043,175
Vested		(773,740)
Forfeited		(271,348)
Outstanding, September 30, 2019 (1)		3,354,505

(1)	The total outstanding unvested shares of restricted stock awards granted to employees and directors are included in total outstanding shares as of September 30, 2019.

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For restricted stock awards that contain only service conditions for vesting, the Company calculates the award fair value based on the closing stock price on the accounting grant date. Restricted stock generally vests ratably over a three or four year period based on the date of grant.

The Company recorded $2.9 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively, and recorded $7.8 million and $11.0 million for the nine months ended September 30, 2019 and 2018, respectively of non-cash stock-based compensation expense which is reflected in selling, general and administrative expense in the Company’s condensed consolidated statements of operations.

Note 10. 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. No such items were included in the computation of diluted loss per share for the nine months ended September 30, 2018 because the Company incurred a net loss in the period and the effect of inclusion would have been anti-dilutive.


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions, except share data)
Net income (loss)	$	11.2	$	30.5	$	28.8	$	(106.9)

Basic weighted-average shares		80,885,244		80,663,128		80,639,099		82,319,223
Effect of dilutive securities:
Restricted stock awards		219,661		906,045		425,589		—
Diluted weighted-average shares		81,104,905		81,569,173		81,064,688		82,319,223

Basic net income (loss) per share	$	0.14	$	0.38	$	0.36	$	(1.30)
Diluted net income (loss) per share	$	0.14	$	0.37	$	0.35	$	(1.30)

Note 11. Fair Value Measurements

The fair values of cash and cash equivalents, receivables, trade payables and the current portions of long-term debt approximate 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:

●

Level 1, defined as observable inputs being quoted prices in active markets for identical assets;

●

Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

●

Level 3, defined as unobservable inputs for which little or no market data exists, consistent with reasonably available assumptions made by other participants therefore requiring assumptions based on the best information available.

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The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2019:


	Level 1		Level 2		Level 3		Total
	(in millions)
Financial Liabilities
Interest rate swaps (1)	$	—	$	23.5	$	—	$	23.5
Long-term debt (2)		—		2,156.2		—		2,156.2
Total	$	—	$	2,179.7	$	—	$	2,179.7

(1)	Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of September 30, 2019. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.

(2)

Measured based on dealer quotes considering current market rates for the Company’s credit facility. The ratio of the Company’s aggregate debt balance has trended from quoted market prices in active markets to quoted prices in non-active markets. Debt fair value does not include debt issuance costs and discount.

There were 0 transfers into or out of Level 1, 2 or 3 during the nine months ended September 30, 2019.

Note 12. 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.

As of September 30, 2019, the Company is the fixed rate payor on 2 interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on the Company’s total long-term debt of $2,304.4 million, not including debt issuance costs and discounts. These contracts fix approximately 60% of the Company’s term loan variable rate exposure at 2.7% and have an expiration date of May 2021. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. As all of the critical terms of each of the derivative instruments matched the underlying terms of the hedged debt and related forecasted interest payments, these hedges were considered highly effective. Based on LIBOR-based swap yield curves as of September 30, 2019, the Company expects to reclassify losses of $13.7 million out of accumulated other comprehensive loss (“AOCL”) into earnings within the next 12 months.

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The following table summarizes the notional amounts and fair values of the Company’s outstanding derivatives by risk category and instrument type within the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018.


			Fair Value		Fair Value
			Accrued		Other
	Notional		Liabilities		Non-Current
	Amount		and Other		Liabilities
Derivatives Designated as Hedging Instruments	(in millions)
Interest rate swap contracts as of September 30, 2019	$	1,340.6	$	13.7	$	9.8
Interest rate swap contracts as of December 31, 2018	$	1,350.9	$	2.6	$	4.0

Losses recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 total $1.6 million and $3.2 million, respectively.

Gains and losses on derivatives designated as cash flow hedges included in the condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018 are shown in the table below.


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
Interest rate swap contracts(1)	(in millions)
(Loss) gain recorded in AOCL on derivatives, net	$	(0.7)	$	6.0	$	(12.3)	$	5.4
Loss reclassified from AOCL into income		—		—		—		—

(1)	Gains (losses) on derivatives reclassified from AOCL into income will be included in “Interest expense” in the condensed consolidated statements of operations, the statement of operations line item as the earnings effect of the hedged item.

For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the condensed consolidated statements of cash flows.

Note 13. 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 of changes in the tax rates and laws on deferred taxes, if any, is reflected in the condensed consolidated financial statements in the period of enactment.

The Company assesses the available positive and negative evidence to estimate whether sufficient taxable income will be generated to permit the utilization of existing deferred tax assets. On the basis of this evaluation, as of September 30, 2019, a valuation allowance of $24.0 million exists to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance is based on the Company’s existing positive and negative evidence. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased based on the Company’s future operating results.

The Company reported total income tax expense of $0.3 million and benefit of $7.9 million for the three months ended September 30, 2019 and 2018, respectively, and total income tax expense of $7.0 million and benefit of $57.9 million for the nine months ended September 30, 2019 and 2018, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. For federal tax purposes, the Company’s 2016 through 2018 tax years remain open for examination by the tax authorities under the

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normal three year statute of limitations. Generally, for state tax purposes, the Company’s 2016 through 2018 tax years remain open for examination by the tax authorities under a three year statute of limitations. Should the Company utilize any of its U.S. federal or state loss carryforwards, their carryforward losses, which date back to 1996, would be subject to examination.

As of September 30, 2019, the Company recorded gross unrecognized tax benefits of $11.4 million, all of which, if recognized, would affect the Company’s effective tax rate. Interest and penalties related to income tax liabilities, if incurred, are included in income tax expense in the condensed consolidated statement of operations. The Company has accrued gross interest and penalties of $1.0 million. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues are addressed in the Company’s tax audits in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

Unrecognized tax benefits consist primarily of tax positions related to issues associated with the restructuring of WideOpenWest Finance, LLC and the acquisition of Knology, Inc. Depending on the resolution with certain state taxing authorities that is expected to occur within the next twelve months, there could be an adjustment to the Company’s unrecognized tax benefits for certain state tax matters.

The Company is not currently under examination for U.S. federal income tax purposes, but does have various open tax controversy matters with various state taxing authorities.

Note 14. Commitments and Contingencies

In June and July of 2018, putative class action complaints were filed in the Supreme Court of the State of New York and Colorado State Court against WideOpenWest, Inc. and certain of the Company’s current and former officers and directors, as well as Crestview Advisors, LLC (“Crestview”), Avista Capital Partners (“Avista”), and each of the underwriter banks involved with the Company’s IPO. The complaints allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 in connection with the IPO. The plaintiffs seek to represent a class of stockholders who purchased stock pursuant to or traceable to the IPO. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Colorado actions have been stayed while the New York cases have been consolidated with the court staying discovery until after a determination has been made with respect to the Company’s Motion to Dismiss for which a hearing was held by the court on July 10, 2019. A decision by the court on the Motion to Dismiss is not expected for at least several months. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s results of operations, financial condition, or cash flows.

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 will vigorously defend against the claims. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s results of operations, financial condition, or cash flows.

The Company is also 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.

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regularly monitors its pending litigation for the purpose of adjusting its accruals and revising its disclosures accordingly, in accordance with GAAP, when required. Litigation is, however, subject to uncertainty, and the outcome of any particular matter is not predictable. The Company vigorously defends its interests in pending litigation, and as of this date, the Company believes that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which it is entitled, will not have a material adverse effect on its condensed consolidated financial position, results of operations, or cash flows.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We provide high-speed data (“HSD”), cable television (“Video”), digital telephony (“Telephony”), and business-class services to a service area that includes approximately 3.2 million homes and businesses. Our services are delivered across nineteen markets via our advanced HFC cable network. Our footprint covers certain suburban areas within the states of Alabama, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Ohio, South Carolina and Tennessee. Led by our robust HSD offering, our products are available either as a bundle or as an individual service to residential and business services customers. As of September 30, 2019, approximately 817,600 customers subscribed to our services.

Historically, the Company’s outstanding shares have been majority held by Crestview Advisors, LLC (“Crestview”) and Avista Capital Partners (“Avista”), private equity firms based in New York. On August 6, 2019, Avista, in its capacity as the general partner of several funds, executed a distribution-in-kind of its shares of the Company’s common stock to its limited partners, effectively extinguishing its ownership of the Company. As of September 30, 2019, approximately 36% of our outstanding common shares were held by Crestview.

Overview

Since commencing operations in 2001, our focus has been to offer a competitive alternative cable service and establish a brand with a strong market position. We have scaled our business through (i) organic subscriber growth and increased penetration within our existing markets and footprint, (ii) edge-outs to grow our footprint, (iii) upgrades to introduce enhanced broadband services to networks we have acquired, (iv) entry into business services, with a broad range of HSD, Video and Telephony products, and (v) acquisitions and integration of cable systems.

We operate primarily in economically stable suburbs that are adjacent to large metropolitan areas as well as secondary and tertiary markets, which we believe have favorable competitive and demographic profiles and include businesses operating across a range of industries. We benefit from the ability to augment our footprint by pursuing value-accretive network extensions, or edge-outs, to increase our addressable market and grow our customer base. We have historically made selective capital investments in edge-outs to facilitate growth in residential and business services.

We are focused on efficient capital spending and maximizing adjusted earnings before income taxes, depreciation and amortization (“Adjusted EBITDA”) through an Internet-centric growth strategy while maintaining a profitable video subscriber base. Based on our per subscriber economics, we believe that HSD represents the greatest opportunity to enhance profitability across our residential and business markets. We believe that our advanced network is designed to meet our current and future customers’ HSD needs. We offer HSD speeds up to 1 GIG (1000 Mbps) in approximately 95% of our footprint.

Our most significant competitors are other cable television operators, direct broadcast satellite providers and certain telephone companies that offer services that provide features and functionality similar to our HSD, Video and Telephony services. We believe that our strategy of operating primarily in suburban areas provides better operating and financial stability compared to the more competitive environments in large metropolitan markets. We have a history of successfully competing in chosen markets despite the presence of competing incumbent providers through attractive high value bundling of our services and investments in new service offerings.

Key Transactions Impacting Operating Results and Financial Condition

Hurricane Michael

During the third quarter of 2019, we finalized the insurance claim related to the damages incurred from Hurricane Michael. We received $9.6 million of business interruption insurance recoveries during the nine months ended September 30, 2019.

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Sale of Chicago Fiber Network

On December 14, 2017, we finalized the sale of a portion of our fiber network in the Chicago market to a subsidiary of Verizon for $225.0 million in cash. In addition, we and a subsidiary of Verizon entered into a construction agreement pursuant to which we agreed to complete the build-out of the network in exchange for $50.0 million (which approximated our remaining estimate to complete the network build-out), recognized over time as the remaining network elements are completed and accepted. The Company completed the network build-out as of September 30, 2019 resulting in a $0.1 million loss from project inception to completion.

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 2018 Annual Report on Form 10-K. There have been no material changes from the critical policies described in our Form 10-K.

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:


	Jun. 30,	Sep. 30,	Dec. 31,	Mar. 31,	Jun. 30,	Sep. 30,
	2018	2018	2018	2019	2019(1)	2019
Homes passed	3,149,200	3,160,400	3,176,500	3,192,500	3,199,500	3,215,500
Total subscribers	800,100	805,300	807,900	812,500	809,800	817,600
HSD RGUs	747,800	755,100	759,600	765,900	763,700	773,900
Video RGUs	419,900	412,800	406,100	398,000	387,100	380,800
Telephony RGUs	214,000	209,300	204,400	201,900	198,100	195,700
Total RGUs	1,381,700	1,377,200	1,370,100	1,365,800	1,348,900	1,350,400

(1)

The Company transitioned statistical reporting tools and standardized reporting methodologies in the third quarter of 2019. The standardized reporting led to the following decreases on June 30, 2019 subscriber and RGU counts: total subscribers (1,500), HSD RGUs (1,800), Video RGUs (1,000), and Total RGUs (2,800).

The following table displays the homes passed and subscribers related to the Company’s edge-out activities:


	Jun. 30,	Sep. 30,	Dec. 31,	Mar. 31,	Jun. 30,	Sep. 30,
	2018	2018	2018	2019	2019	2019
Homes passed	116,600	122,200	138,100	147,400	152,600	166,600
Total subscribers	30,900	33,700	35,500	36,800	37,600	39,500
HSD RGUs	30,600	33,400	35,300	36,500	36,900	39,200
Video RGUs	16,100	17,200	17,600	17,900	17,800	18,100
Telephony RGUs	6,000	6,400	6,400	6,000	5,500	7,100
Total RGUs	52,700	57,000	59,300	60,400	60,200	64,400

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.

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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.

●

HSD revenue consists primarily of fixed monthly fees for data service and rental of modems.

●

Video revenue consists primarily of fixed monthly fees for basic, premium and digital cable television services and rental of video converter equipment, as well as charges from optional services, such as pay-per-view, video-on-demand and other events available to the customer. The Company is required to pay certain cable franchising authorities an amount based on the percentage of gross revenue derived from video services. The Company generally passes these fees on to the customer, which is included in video revenue.

●

Telephony revenue consists primarily of fixed monthly fees for local service and enhanced services, such as call waiting, voice mail and measured and flat rate long-distance service.

●

Other business service revenue consists primarily of monthly recurring charges for session initiated protocol, web hosting, metro Ethernet, wireless backhaul, broadband carrier services and cloud infrastructure services provided to business customers.

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Other revenue consists primarily of revenue from line assurance warranty services provided to residential and business customers and revenue from advertising placement.

Revenues attributable to monthly subscription fees charged to customers for our HSD, Video and Telephony services provided by our cable systems were 92% of total revenue for both the nine months ended September 30, 2019 and 2018. The remaining percentage of non-subscription revenue is derived primarily from other business services, line assurance warranty services and advertising placement.

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, costs of dark fiber sales, network operations and maintenance services, customer service and call center expenses, bad debt, billing and collection expenses and franchise and other regulatory fees.

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 amortization includes depreciation of our broadband networks and equipment, buildings and leasehold improvements and amortization of other intangible assets with definite lives primarily related to acquisitions. Depreciation and amortization expense is presented separately from operating and selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

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 due to a variety of factors, including increased demands by owners of some broadcast stations for carriage of

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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.

Restatement of Previously Issued Consolidated Financial Statements

As previously disclosed in note 1 to the Company’s consolidated financial statements included in the 2018 Form 10-K, the Company restated its historical consolidated financial statements to properly reflect the impact of a 2006 merger transaction, which resulted in adjustments to goodwill, deferred tax liabilities and stockholders’ deficit. The condensed consolidated financial statements for the nine months ended September 30, 2018 been similarly restated to reflect the correction of these errors.

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2019 and 2018:


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)
Revenue	$	285.4	$	291.6	$	862.3	$	868.4
Costs and expenses:
Operating (excluding depreciation and amortization)		138.8		152.7		432.4		467.9
Selling, general and administrative		40.6		37.0		133.7		116.4
Depreciation and amortization		50.9		46.3		151.5		139.0
Impairment losses on intangibles and goodwill		—		—		—		216.3
Loss (gain) on sale of assets		8.4		(1.5)		4.8		(1.5)
		238.7		234.5		722.4		938.1
Income (loss) from operations		46.7		57.1		139.9		(69.7)
Other income (expense):
Interest expense		(35.8)		(35.0)		(107.4)		(96.8)
Other income, net		0.6		0.5		3.3		1.7
Income (loss) before provision for income tax		11.5		22.6		35.8		(164.8)
Income tax (expense) benefit		(0.3)		7.9		(7.0)		57.9
Net income (loss)	$	11.2	$	30.5	$	28.8	$	(106.9)

Revenue

Revenue for the three and nine months ended September 30, 2019 decreased $6.2 million, or 2%, and $6.1 million, or 1%, respectively, as compared to the corresponding periods in 2018 as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)
Residential subscription	$	227.7	$	234.3	$	691.3	$	703.6
Business services subscription		34.7		33.0		102.7		97.0
Total subscription		262.4		267.3		794.0		800.6
Other business services		6.8		6.6		21.0		20.6
Other		16.2		17.7		47.3		47.2
	$	285.4	$	291.6	$	862.3	$	868.4

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Total subscription revenue decreased $4.9 million and $6.6 million during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The decreases are driven by a decrease in average total RGUs of $8.2 million and $20.1 million, partially offset by increases in average revenue per unit (“ARPU”) of our customer base of $3.3 million and $13.5 million, respectively. ARPU is calculated as subscription revenue for each of the HSD, Video and Telephony services divided by the average total RGUs for each service category for the respective period.

The following tables detail subscription revenue by service offering for the three and nine months ended September 30, 2019 and 2018:


	Three months ended September 30,						Subscription
	2019			2018			Revenue
	Subscription		Average	Subscription		Average	Change
	Revenue		RGUs	Revenue		RGUs	$		%
	(in millions)		(in thousands)	(in millions)		(in thousands)
HSD subscription	$	130.2	769.7	$	119.0	751.4	$	11.2	9	%
Video subscription		106.4	384.4		119.3	416.4		(12.9)	(11)	%
Telephony subscription		25.8	196.9		29.0	211.7		(3.2)	(11)	%
	$	262.4		$	267.3		$	(4.9)	(2)	%


	Nine months ended September 30,						Subscription
	2019			2018			Revenue
	Subscription		Average	Subscription		Average	Change
	Revenue		RGUs	Revenue		RGUs	$		%
	(in millions)		(in thousands)	(in millions)		(in thousands)
HSD subscription	$	388.1	766.7	$	348.2	743.9	$	39.9	11	%
Video subscription		327.0	393.5		364.2	422.7		(37.2)	(10)	%
Telephony subscription		78.9	200.0		88.2	214.6		(9.3)	(11)	%
	$	794.0		$	800.6		$	(6.6)	(1)	%

HSD Subscription

HSD subscription revenue increased $11.2 million, or 9%, and $39.9 million, or 11%, during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The increases in HSD subscription revenue are primarily attributable to a $8.2 million and $28.8 million increase in HSD ARPU and a $3.0 million and $11.1 million increase in average HSD RGUs, respectively.

Video Subscription

Video subscription revenue decreased $12.9 million, or 11%, and $37.2 million, or 10%, during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The decreases are primarily due to a $3.8 million and $12.2 million decrease in Video ARPU and a $9.1 million and $25.0 million decrease in average Video RGUs, respectively.

Telephony Subscription

Telephony subscription revenue decreased $3.2 million, or 11%, and $9.3 million, or 11%, during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The decreases are primarily due to a $1.1 million and $3.1 million decrease in Telephony ARPU and a $2.1 million and $6.2 million decrease in average Telephony RGUs, respectively.

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Operating expenses (excluding depreciation and amortization)

Operating expenses (excluding depreciation and amortization) decreased $13.9 million, or 9%, and $35.5 million, or 8%, during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The decreases are primarily attributable to increases in eligible capitalizable costs, receipt of business interruption insurance proceeds, decreases in video and telephony direct expense, and decreases in compensation cost associated with reductions in headcount.

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. Incremental contribution decreased $2.1 million, or 1%, during the three months ended September 30, 2019 compared to the three months ended September 30, 2018 and $2.6 million, or 1%, during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decreases are primarily due to the decrease in subscription service revenue driven by decreases in Video and Telephony ARPU and RGUs, partially offset by increases in HSD ARPU and RGUs. Direct expenses decreased $2.7 million, or 3%, and $5.5 million, or 2%, during the three and nine months ended September 30, 2019 compared to the corresponding periods in 2018. The decrease is primarily due to decreases in programming expense, which was $88.8 million for the three months ended September 30, 2019 compared to $91.6 million for the three months ended September 30, 2018 and $275.9 million for the nine months ended September 30, 2019 compared to $279.5 million for the nine months ended September 30, 2018.

Selling, general and administrative (SG&A) expenses

Selling, general and administrative expenses increased $3.6 million, or 10%, and $17.3 million, or 15%, during the three and nine months ended September 30, 2019, respectively, compared to the corresponding periods in 2018. The increases are primarily attributable to costs associated with digital transformation initiatives, increases in third party professional fees and sales and marketing expenses, partially offset by decreases in employee stock compensation costs.

Depreciation and amortization expenses

Depreciation and amortization expenses increased $4.6 million, or 10%, and $12.5 million, or 9%, during the three and nine months ended September 30, 2019, respectively, as compared to the corresponding periods in 2018. The increases are primarily attributable to an increase in fixed assets placed into service to rebuild our network infrastructure in the Panama City, FL market which was significantly impacted by Hurricane Michael combined with new financing leases entered into during 2019.

Gain on sale of assets

On December 14, 2017, we sold a portion of our Chicago fiber network to a subsidiary of Verizon for $225.0 million in cash. In addition, we and a subsidiary of Verizon entered into a construction agreement pursuant to which we agreed to complete the build-out of the network in exchange for $50.0 million (which approximated our remaining estimate to complete the network build-out), recognized over time as the remaining network elements were completed and accepted. The Company completed the network build-out as of September 30, 2019. We recognized a $2.5 million loss for the nine months ended September 30, 2019 as a result of the completion and acceptance of such elements during 2019.

Impairment Losses on Intangibles and Goodwill

As a result of the decline in the Company’s common stock price during the three months ended March 31, 2018, we recorded non-cash impairment charges of $143.2 million related to certain franchise operating rights and $73.1 million related to goodwill in certain of our markets. The primary driver of the impairment charges was a decline in the price of our common stock, which reduced market multiples utilized to determine estimated fair market values of

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indefinite-lived intangible assets and goodwill in certain reporting units. We had no such impairment charge for the nine months ended September 30, 2019.

Interest expense

Interest expense increased $0.8 million, or 2%, and $10.6 million, or 11%, during the three and nine months ended September 30, 2019, respectively, compared to the corresponding periods in 2018. The increases are primarily due to an increase in interest rates on our variable rate debt.

Income tax (expense) benefit

We reported income tax expense of $0.3 million and benefit of $7.9 million for the three months ended September 30, 2019 and 2018, respectively, and income tax expense of $7.0 million and benefit of $57.9 million for the nine months ended September 30, 2019 and 2018, respectively. The change for the three month comparative period is primarily due a favorable state tax audit settlement during the three months ended September 30, 2019. The change for the nine month comparative period is primarily due to the $216.3 million impairment charge recorded in 2018. We had no such impairment charge for the nine months ended September 30, 2019.

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 and operating income 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 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

Adjusted EBITDA is a key metric used by management and our Board of Directors to assess our financial performance. We believe that adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of expenses that do not relate to business performance, and that the presentation of this measure enhances understanding of financial performance. Adjusted EBITDA is defined as net income (loss) before net interest expense, income taxes, depreciation and amortization (including impairments), impairment losses on intangibles and goodwill, the write-up or write-off of any asset, loss on early extinguishment of debt, integration and restructuring expenses and all non-cash charges and expenses (including stock-based compensation expense) and certain other income and expenses.

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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 nine months ended September 30, 2019 and 2018:


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)

Net income (loss)	$	11.2	$	30.5	$	28.8	$	(106.9)
Depreciation and amortization		50.9		46.3		151.5		139.0
Impairment loss on intangibles and goodwill		—		—		—		216.3
Loss (gain) on sale of assets		8.4		(1.5)		4.8		(1.5)
Interest expense		35.8		35.0		107.4		96.8
Non-recurring professional fees, M&A integration and restructuring expense		5.3		2.7		22.2		10.1
Non-cash stock compensation		2.9		2.1		7.8		11.0
Other income, net		(0.6)		(0.5)		(3.3)		(1.7)
Income tax (benefit) expense		0.3		(7.9)		7.0		(57.9)
Adjusted EBITDA	$	114.2	$	106.7	$	326.2	$	305.2

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.

The following table provides a reconciliation of incremental contribution to income (loss) from operations, which is the most directly comparable GAAP measure, for the three and nine months ended September 30, 2019 and 2018:


	Three months ended				Nine months ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in millions)
Income (loss) from operations	$	46.7	$	57.1	$	139.9	$	(69.7)
Revenue (excluding subscription revenue)		(23.0)		(24.3)		(68.3)		(67.8)
Other non-allocated operating expense (excluding depreciation and amortization)		43.2		54.3		136.2		167.7
Selling, general and administrative		40.6		37.0		133.7		116.4
Depreciation and amortization		50.9		46.3		151.5		139.0
Impairment losses on intangibles and goodwill		—		—		—		216.3
Loss (gain) on sale of assets		8.4		(1.5)		4.8		(1.5)
Incremental contribution	$	166.8	$	168.9	$	497.8	$	500.4

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Liquidity and Capital Resources

At September 30, 2019, we had $115.7 million in current assets, including $9.3 million in cash and cash equivalents, and $211.2 million in current liabilities. Our outstanding consolidated debt and finance lease obligations aggregated to $2,306.3 million, of which $29.1 million is classified as current in our unaudited condensed consolidated balance sheet as of such date.

On December 14, 2017, we completed our asset purchase agreement with a subsidiary of Verizon and entered into a Construction Services Agreement pursuant to which we agreed to complete the build-out of the network in exchange for $50.0 million. The $50.0 million was recognized over time as such network elements were completed and accepted. As of September 30, 2019, the network build-out was complete and we have incurred expenses of approximately $48.7 million.

We are required to prepay principal amounts under our Senior Secured Credit Facilities credit agreement if we generate excess cash flow, as defined in the credit agreement. As of September 30, 2019, we had borrowing capacity of $224.5 million under our Revolving Credit Facility and were in compliance with all our debt covenants. Accordingly, we believe that we have sufficient resources to fund our obligations and anticipated liquidity requirements in the foreseeable future.

Historical Operating, Investing, and Financing Activities

Operating Activities

Net cash provided by operating activities decreased from $199.8 million for the nine months ended September 30, 2018 to $179.2 million for the nine months ended September 30, 2019. The decrease is primarily due to timing differences of our receivables and payables.

Investing Activities

Net cash used in investing activities decreased from $210.4 million for the nine months ended September 30, 2018 to $171.4 million for the nine months ended September 30, 2019. The decrease is attributable to a decrease in capital expenditures and an increase in cash received associated with the Construction Services Agreement with a subsidiary of Verizon.

We have ongoing capital expenditure requirements related to the maintenance, expansion and technological upgrades of our cable network. Capital expenditures are funded primarily through a combination of cash on hand and cash flow from operations. Our capital expenditures were $191.1 million and $213.8 million for the nine months ended September 30, 2019 and 2018, respectively. The $22.7 million decrease from the nine months ended September 30, 2018 to the nine months ended September 30, 2019 is primarily due to a decrease in expenditures related to the Construction Services Agreement with a subsidiary of Verizon, which was completed as of September 30, 2019, combined with increased finance lease activity.

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The following table sets forth additional information regarding our capital expenditures for the periods presented:


	For the nine months ended
	September 30,
	2019		2018
	(in millions)
Capital Expenditures
Customer premise equipment(1)	$	87.0	$	89.6
Scalable infrastructure(2)		13.4		24.9
Line extensions(3)		48.7		55.2
Upgrade / rebuild(4)		2.4		—
Support capital(5)		39.6		44.1
Total	$	191.1	$	213.8
Capital expenditures included in total related to:
Edge-outs(6)	$	27.6	$	23.9
Business services(7)	$	27.2	$	38.3

(1)	Customer premise equipment (“CPE”) includes equipment and installation costs incurred to deliver services to residential and business services customers. CPE includes the costs of acquiring and installing our set-top boxes and modems, as well as the cost of customer connections to our network.

(2)	Scalable infrastructure includes costs, not directly related to customer acquisition activity, to support new customer growth and provide service enhancements (e.g., headend equipment).

(3)	Line extensions include costs associated with new home development within our footprint and edge-outs (e.g., fiber / coaxial cable, amplifiers, electronic equipment, make-ready and design engineering).

(4)	Upgrade / rebuild includes costs to modify or replace existing HFC network, including enhancements.

(5)	Support capital includes all other costs to support day-to-day operations, including land, buildings, vehicles, office equipment, tools and test equipment.

(6)	Edge-outs represent costs to extend our network into new adjacent service areas, including the associated CPE.

(7)	Business services represent costs associated with the build-out of our network to support business services customers, including the associated CPE.

Financing Activities

Net cash used in financing activities decreased from $31.5 million for the nine months ended September 30, 2018 to $11.7 million for the nine months ended September 30, 2019. The decrease is primarily due to lower share repurchases, partially offset by net payments on debt and finance lease obligations.

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 September 30, 2019, borrowings under our Term B Loans and Revolving Credit Facility bear interest at our option at a rate equal to either an adjusted LIBOR rate (which is subject to a minimum rate of 1.00% for Term B Loans) or an ABR (which is subject to a minimum rate of 1.00% for Term B Loans), plus the applicable margin. The applicable margins for the Term B Loans is 3.25% for adjusted LIBOR loans and 2.25% for ABR loans. The applicable margin for borrowings under the Revolving Credit Facility is 3.00% for adjusted LIBOR loans and 2.00% for ABR loans. We manage the impact of interest rate changes on earnings and operating cash flows by entering into derivative instruments to protect against increases in the interest rates on our variable rate debt. We use interest rate swaps, where we receive variable rate amounts in exchange for fixed rate payments. As of September 30, 2019, after considering our interest rate swaps, approximately 40% of our Senior Secured Credit Facility is still variable rate debt. A hypothetical 100 basis point (1%) change in LIBOR interest rates (based on the interest rates in effect under our Senior Secured Credit Facility as of September 30, 2019) would result in an annual interest expense change of up to approximately $9.6 million on our Senior Secured Credit Facility.

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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.

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, management had then concluded that there was a material weakness in internal control over financial reporting relating to the accounting for, and disclosure of, the deferred income tax effects and goodwill allocation associated with complex tax transactions involving partnership interests.

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 September 30, 2019. Based on these evaluations, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures required by paragraph (b) of Rule 13a-15 or 15d-15 were effective as of September 30, 2019 as a result of the remediation of the material weakness discussed below. Our management has concluded that the unaudited condensed consolidated financial statements included in this quarterly filing fairly represent in all material respects our financial position, results of operations, cash flows and changes in shareholders’ deficit as of and for the periods presented in accordance with U.S. GAAP.

Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting

As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2018, management identified a material weakness as of such date. A material weakness, as defined in Exchange Act Rule 12b-2, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness was in connection with our controls over the completeness and accuracy of accounting for, and disclosure of, the deferred income tax effects and goodwill allocation associated with complex tax transactions involving partnership interests. Specifically, we did not design the appropriate controls to (i) identify and reconcile deferred income taxes associated with the accounting for acquired partnership interests, and (ii) correctly allocate corporate goodwill to appropriate reporting units. This material weakness resulted in material errors arising as a result of our 2006 Merger Transaction that were corrected through the restatement of the consolidated and combined consolidated financial statements as of and for the years ended December 31, 2017 and December 31, 2016 and the correction of the unaudited quarterly financial information for fiscal years 2018 and 2017.

In response to the material weakeness referred to above, with the oversight of the Audit Committee of our Board of Directors, we implemented changes to our internal control over financial reporting, which included enhancements to certain controls and the implementation of a specific control to ensure that (i) deferred income tax effects of acquired partnership interests are properly accounted for and disclosed in the period of acquisition, (ii) the

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goodwill allocation associated with any acquired entity is properly accounted for and disclosed in the period of acquisition, and (iii) the resulting investment in partnership deferred income tax assets and liabilities are assessed and reconciled periodically to the book-tax differences in the underlying assets and liabilities within the partnership to determine whether any adjustment is necessary.

We have completed documentation of the actions described above, and based on the evidence obtained in validating the design effectiveness of the implemented controls, we have concluded that the previously disclosed material weakness has been remediated as of September 30, 2019.

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 third quarter of 2019, except as discussed above in “—Remediation of Previously Disclosed Material Weakness in Internal Control over Financial Reporting,” that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

In June and July of 2018, putative class action complaints were filed in the Supreme Court of the State of New York and Colorado State Court against WOW and certain of the Company’s current and former officers and directors, as well as Crestview, Avista and each of the underwriter banks involved with the Company’s IPO. The complaints allege violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 in connection with the IPO. The plaintiffs seek to represent a class of stockholders who purchased stock pursuant to or traceable to the IPO. The complaint seeks unspecified monetary damages and other relief. The Company believes the complaint and allegations to be without merit and intends to vigorously defend itself against these actions. The Colorado actions have been stayed while the New York cases have been consolidated with the court staying discovery until after a determination has been made with respect to the Company’s Motion to Dismiss for which a hearing was held by the court on July 10, 2019. A decision by the court on the Motion to Dismiss is not expected for at least several months. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations or cash flows.

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 will vigorously defend against the claims. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on the Company’s financial position, results of operations or cash flows.

The Company is party to various legal proceedings 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 is material. The Company consistently monitors its pending litigation for the purpose of adjusting its accruals and revising its disclosures accordingly, in accordance with GAAP, when required. However, litigation is subject to uncertainty, and the outcome of any particular matter is not predictable. The Company will vigorously defend its interest for pending litigation, and as of this date, the Company believes that the ultimate resolution of all such matters, after considering insurance coverage or other indemnities to which it is entitled, will not have a material adverse effect on its unaudited condensed consolidated financial position, results of operations, or cash flows.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2018 includes “Risk Factors” under Item 1A of Part 1. There have been no material changes from the updated risk factors described in our Form 10-K.

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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 third quarter of 2019 (dollars in millions, except per share amounts):


					Approximate Dollar Value of
				Total Number of Shares	Shares that May Yet be
	Number of Shares	Average Price		Purchased as Part of Publicly	Purchased Under the Plans
Period	Purchased (1)	Paid per Share		Announced Plans or Programs	or Programs
July 1 - 31, 2019	4,767	$	7.52	—	$	—
August 1 - 31, 2019	4,234	$	5.62	—	$	—
September 1 - 30, 2019	13,308	$	6.00	—	$	—

(1)	Shares represent shares withheld from employees for the payment of taxes upon the vesting of restricted stock awards.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

As previously disclosed on a Form 8-K filed September 17, 2019, the Company announced the promotion of Bill Case to Chief Information Officer of the Company. In connection with this promotion, on September 13, 2019, the Company and Mr. Case entered into an Amended and Restated Letter of Employment (the “Employment Letter”). Pursuant to the terms of the Employment Letter, Mr. Case receives a minimum annual base salary of $330,000 and an annual performance-based incentive bonus with a target of 50% of his base salary (pro-rated for 2019), to be earned based upon achievement of objective performance goals.

Mr. Case is also entitled to participate the Company’s annual equity incentive plan and the Company’s Change in Control and Severance Benefit Plan, attached as Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed with the SEC on March 7, 2019. In addition, upon a termination of Mr. Case’s employment by the Company without cause or by Mr. Case for good reason, Mr. Case will become entitled to 24 months’ of base salary continuation, subject to an execution of a release reasonably satisfactory to the Company. Mr. Case is also subject to standard restrictive covenants, including a non-solicitation provision and non-competition provision during employment and for 24 months thereafter.

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Item 6. Exhibits


Exhibit Number	Exhibit Description	Filed Herewith
10.1	Amended and Restated Letter Agreement of Employment, dated September 13, 2019, between WideOpenWest, Inc. and Bill Case	*
31.1	Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
31.2	Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*
101	The following financial information from WideOpenWest, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019, filed with the Securities and Exchange Commission on November 1, 2019, formatted in iXBRL (inline eXtensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Deficit; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to the Condensed Consolidated Financial Statements.
104	Cover Page, formatted in iXBRL and contained in Exhibit 101.

*	Filed herewith.

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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.


	WIDEOPENWEST, INC.

November 1, 2019	By:	/s/ TERESA ELDER
		Teresa Elder
		Chief Executive Officer

	By:	/s/ RICHARD E. FISH, JR.
		Richard E. Fish, Jr.
		Chief Financial Officer

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WideOpenWest (WOW) 10-Q2019 Q3 Quarterly report

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