WideOpenWest, Inc.

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the wide open West third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. Andrew Posen, you may begin your conference.

Thank you. Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. With me today is Theresa Elder, WOW's Chief Executive Officer, and John Rego, WOW's Chief Financial Officer. Before we get started, I'd like to remind everyone that during our call, we will make some forward-looking statements about our expected operating results, our business strategy, the expected effects of the recently closed transaction to sell five service areas that we announced on June 30th, 2021, and other matters related to our business. These forward-looking statements are made in reliance of the safe harbor provisions of the federal securities law and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual operating results, financial position, or performance to be materially different from those expressed or implied in our forward-looking statements. you are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update such forward-looking statements. For additional information concerning factors that could affect our financial results or cause actual results to differ materially from our forward-looking statements, please refer to our filings with the SEC, including the risk factors section of our Form 10-K filed with the SEC, as well as the forward-looking statement section of our press release. In addition, please note that on today's call and in the press release we issued this morning, we may refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for historical reported results can be found in our earnings releases and our trending schedules, which can be found on our website. Now, I'll turn the call over to WOW's Chief Executive Officer, Theresa Elder.

Thanks, Andrew. Welcome to WOW's third quarter earnings call. In addition to our press release and quarterly trending schedule that are available on the investor relations page on our website, we have also included a presentation to complement our prepared remarks. Last week, we announced the completion of the sale of our Chicago, Evansville, and Anne Arundel service areas to Astound Broadband. This follows the sale of our two Ohio service areas to Atlantic Broadband, which closed on September 1st. We are really pleased with how quickly both transactions closed. Combined, the sale of these markets generated $1.8 billion in gross proceeds for WOW, which were used to significantly reduce our debt by approximately $1.5 billion, strengthen our financial position, and better enable us to make significant greenfield investments funded by free cash flow generated by the business. Our broadband first strategy continues to yield positive results, as evidenced by another strong quarter of performance for WAP. To help you better understand our third quarter results and compare them to our historical performance, we have adjusted our trending schedule to reflect a pro forma view, which excludes the five service areas that we sold. Furthermore, the metrics and results referenced on this call and in our accompanying presentation also exclude the service areas we have recently divested. In the third quarter, total pro forma revenues were $184 million, up slightly compared to the same period last year. driven by growth in high-speed data revenues, which grew by 15% year over year on a pro forma basis to $103.3 million. This growth was partially offset by the decline in video telephony revenues during the quarter. Proforma adjusted EBITDA increased 6% to $66.7 million in the third quarter, compared to the same period last year, driven largely by the growth in our high-speed data revenue. Third quarter, Proforma adjusted EBITDA margin was 36.3%. We continued to report both sequential and year-over-year improvements across all the categories shown on this slide, demonstrating the strength of our core broadband business. During the third quarter, we added 1,600 high-speed data RGUs, bringing our total number of HSD RGUs to over 509,000. Although we saw slower HSD subscriber growth during the quarter, our levels of churn remained low and we increased the total number of subscribers during the quarter. Now that we have enhanced our balance sheet following the completion of the service area divestitures, we are in a very strong position to more aggressively invest in our broadband first strategy, which we expect will result in a re-acceleration of HSD subscriber growth in 2022. We will provide greater detail on these initiatives at our Investor Day in December. When competing specifically for broadband customers, our key differentiators are the strength and reliability of our network, which can deliver speeds of one gig across our footprint. Our exceptional customer service, which is consistently recognized by our customers. And lastly, our ability to deliver our service at a competitive price. All of these are possible because of our talented and passionate people. We have maintained a sell-in rate of approximately 87% of new customers purchasing our HSD-only service for the fifth consecutive quarter, which we view as another great indicator of our broadband strategy's success. When coupled with our low churn, this demonstrates the value our customers see in WOW's service. Not only is broadband becoming more important, but customers are requiring higher data speeds. In the third quarter of 2021, 87% of new customers purchased speeds of 200 meg or higher, reflecting the continued demand for high-speed data. HSD ARPU increased to 6770 in the third quarter. Our HSD revenue during the period included a $2.9 million previously deferred revenue. Excluding that revenue, our HSD ARPU would be $65.80, an 8% increase from the same period last year, driven predominantly by customers purchasing higher data speeds. Our edge-out strategy continues to deliver growth in homes past and RGUs and increasingly positive penetration rates. Penetration for both the 2019 and 2020 edge-out vintages also increased this quarter, with the 2019 vintages increasing to 18.8%, up from 17.8% in the second quarter, and the 2020 vintages increasing to 20.6%, up from 17.6% in the second quarter. We are continuing to see incremental improvements and acceleration of edge outs and expect those trends to continue. You can especially see why we are so optimistic about our edge out strategy based on the results we are seeing so far this year with the 2021 vintage of new homes past. Even though it is a relatively small sample size, penetration rates of our 2021 vintages have increased to 21.1% this year, up from 15.4% at the end of the second quarter. This is a great indicator for our core business, demonstrating the strength and opportunity for growth following the divestiture of the five markets. To conclude, I'm really excited and pleased about the continued successful execution of our broadband first strategy and the progress we've made in strengthening our financial position following the divestitures. The success of our core broadband-first business in driving high-speed data is clearly evident in the continued growth of our top line and EBITDA, driven by our ability to deliver fast, reliable, and affordable broadband products and services to new and existing customers. I look forward to giving you an update on our strategy and outlook at our Investor Day on December 9th. Now I'll turn the call over to John, who will go over our financial results in more detail.

Thanks, Teresa. We accomplished a lot in the third quarter and took significant steps towards accelerating our broadband first strategy. We're pleased to have successfully completed the divestitures, generating gross proceeds of approximately $1.8 billion. Teresa mentioned that we've updated prior periods in our trending schedule and presentation on a pro forma basis to reflect the new WOW. As we disclosed last quarter, due to GAAP accounting rules, our income statement includes a required column for discontinued operations to reflect the impact of the transactions. Note that these figures only reflect those items that are immediately identifiable as being associated with the service areas we sold. The revenue numbers in continuing operations exclude the full impact of the divested service areas. Operating expenses that are part of the transaction services agreements remain in continuing operations but are netted out in a pro forma adjusted EBITDA as the reimbursement for those expenses are included in other income. You'll also notice that the earnings release includes two definitions of adjusted EBITDA. The first reflects the total reported figure. The second shows the pro forma adjusted EBITDA, which excludes all five of the divested service areas. We believe that this best reflects the ongoing business. The trending schedule, which is available on our IR website, has a third definition, transaction adjusted pro forma EBITDA, which includes the estimated cost savings we expect to realize over time as we reduce the corporate overhead. As we go forward and incrementally right-size the business, the transaction-adjusted and proforma-adjusted EBITDA will begin to converge. Each quarter will provide an update on our progress. Now let's talk about our third quarter results. In the third quarter, our total proforma revenues increased to $184 million compared to the same period last year, reflecting a 15% increase in high-speed data revenue. HSD revenue in the third quarter increased due to the addition of new customers, as well as existing customers upgrading to higher speed tiers. This was offset by declines in video and telephony, which decreased 16% and 11%, respectively. HSD revenue included the recognition of $2.9 million of revenue attributed to work completed during the third quarter in Dothan, Alabama, as part of the Connect America Fund. Even though this revenue represents work over the past two years, GAAP accounting rules only enable us to recognize the revenue upon the completion of the network upgrade. It is also not one time in nature, as we will realize approximately $390,000 of HSD revenue on a quarterly basis as part of the program. The outperformance in our HSD business contributed to the growth in pro forma adjusted EBITDA in the third quarter, which increased more than 6% from the same period last year to $66.7 million, with a pro forma adjusted EBITDA margin of 36.3%, up from 34.4% in the same period last year. Our results today are also very strong. Total pro forma revenue increased 0.8% to $547.4 million, driven by a more than 13% increase in high-speed data revenue to $298.6 million. pro forma adjusted EBITDA grew 12% to $192.6 million, with an adjusted EBITDA margin of 35.2%. As you can see in this next slide, our incremental contribution margin increased in the third quarter to 71.8%, up significantly from 66.4% in the third quarter last year, consistent with the improvements we are seeing in our adjusted EBITDA and adjusted EBITDA margin. Now I'd like to spend a few minutes talking about our current debt, leverage ratio, and our balance sheet. On November 1st, we completed the second of the two transactions, generating $661 million in gross proceeds from the second transaction. Due to the tax efficiency of the transactions, we now have reduced our debt by approximately $1.5 billion as a result of the divestitures. The debt reduction significantly improves our capital structure while also creating a new WOW that continues to operate a robust business with numerous growth opportunities ahead of us. For the first time in WOW's history, at 2.6 times, our leverage ratio was more than two turns below our historical average as a public company. On a pro forma basis, our capex increased by $5.9 million in the third quarter, from the same period last year but decreased sequentially by more than $800,000, primarily due to the timing of network spend. We'll provide an update on our CapEx spending expectations at our investor day. We ended the third quarter with total cash of $59.6 million, reflecting $30.7 million of free cash flow generation in the third quarter. Finally, before we open the call for questions, I'd like to talk a little bit about our upcoming investor day, which we will be hosting on December 9th. We'll send out the details regarding the agenda and logistics over the coming weeks. At the meeting, we will lay out our strategy and path forward, including plans on greenfield and edge-out expansion, as well as our thoughts regarding investments we plan to make to grow our commercial business within our existing footprint, all with a strict eye on capital allocation, profitable growth, and further generation of free cash flow. In closing... We continue to make good progress in executing our broadband first strategy, building on our own momentum, delivering strong results, and taking steps to keep us on a promising and upward trajectory. And now we'd like to open up the line for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from Cal Evans from Stevens. Please go ahead.

Hi, thanks. Good morning, and congrats on the new leverage profile. Looks good on you. Could we maybe start out with any possible reverse operating economies of scale on the service sales? John, you mentioned that you were going to lower overhead going forward. I just wonder if there's anything else that's tougher about being a smaller company going forward that I've got to follow up on for you.

Yeah, so, you know, we talked about that when we first announced the question. So we have a very highly centralized organizational structure here. So we identified that there's probably about $35 million in corporate overhead that we need to get out of the business. Some of that's easy to get out. Some of it's a little bit more complex. And we believe it's going to take about three years to get it fully out. And so by giving these two definitions of EBITDA, Kyle, we'll let you see where we're tracking. We'll report back every quarter. um some of it will be you know easier things will be some reductions uh in force harder things are getting out of software contracts or getting out of real estate contracts but all within the window of three years we think we could be done we think we'll be about a third of the way there through uh 2022 i think with my expectation right now great it's not like you didn't want to talk about capex until the analyst day so i'll i'll take a turn and go towards the uh

that HSD only in the 200 meg uptake, which is both in the 80%, high 80% range. Are those numbers where you want them? And how could you move those upwards further? Thanks.

Yeah, thanks, Kyle. I'll go ahead and address that. I think we're very pleased with the progress that we've made in really focusing on broadband first. Our customers are responding well to that. And that itself takes a lot of costs out of the business since it is a much different product to service broadband. than, for example, higher video subscribers. So we're feeling good about that, and we continue to have programs and promotions in place that I think customers are availing themselves of, and we feel good about where the numbers are. And if they go up higher, we certainly are well-positioned to take advantage of that, both with the strength and reliability of our network.

Thank you.

Your next question comes from Frank Laufen from Raymond James. Please go ahead.

Great. Thank you. Can you walk us through on the edge out? What are you doing maybe differently now to try and continue to get traction there? And how much plant can we expect you to build on an annual basis? Are you getting a number of homes passed or some other metric you can give us on how much you're going to reinvest and grow that part of the business? Thanks.

Thanks, Frank. Great question. And as you can see, we really are focused again on edge outs. And I'm really pleased with how rapidly we're growing the penetration in our most recent cohorts or vintages. We plan to lay out on Investor Day more about the plans for the future. But what the deleveraging has really done is put us in a position to have low leverage and really focus on high growth. i think the success we've had with the recent vintages really shows how focused and we've been on making sure that we're investing in the right areas we're also focusing more on the mdu side of things which allows us the ability to i think penetrate faster too so we have a number of strategies for the future and we're excited with the position that the divestitures and deleveraging really have put us in for high growth for the future

Let me jump on that. I think when we look at CapEx, we break it into two parts, and we'll get more into this on December 9th. But if I consider base CapEx, which supports the business, that is naturally starting to come down. And the reason that's coming down is because video cord cutting is happening. The delivering and our ability now to choose how we allocate our capital a lot better than we had opportunities to before. What we'll talk a lot about on analyst day is, hey, we have an opportunity now to really go out and build a ton of homes here and do a greenfield strategy or a continuation of the edge-out strategy. And we'll take you through our thinking of that, but we're going to make you wait a month. But I think we're in a very, very different situation now than we were. To give you some perspective on that, I mean, just what this delivering actually means is You know, cash interest expense on old code debt was $100 million a year, and now it's not. So it's going to be significantly less. So that really opens up a lot of opportunities to put the capital to better use. That's the plan.

All right, great. I'm sure you'll walk us through what the plan is going to look like as well. So we'll wait for that. But just one last quick follow-up. What, if any, EBDP customers do you currently have in the base? Are you counting them towards new customers under that plan as subscribers? And what are your thoughts on that program going forward?

Yeah, the emergency broadband benefit certainly has been a positive for customers who are in financial need. That continues to grow within the footprint of our existing base now that we've done with investigators. In fact, it was a 60% growth. So we had about 5,000 customers last quarter on the EBB plan. Now we're sitting at about 8,000. We do not count those as new customers unless they truly are new customers. So the vast majority of those, as we've said before, are really helping our existing customers get the ability to take advantage of that program if they're eligible for that. So that 8,000 we show is predominantly existing customers. And it's one of the many contributors, in addition to our reliable network and the value of our service, on continuing to keep churned out.

As that evolves to the permanent broadband benefit plan under the infrastructure bill that I assume is going to get signed, any thoughts around marketing towards that customer base going forward?

Yeah, we definitely communicate with those customers, and we're going to continue to look at, you know, what is in the infrastructure bill and how we can best take advantage of that for our customers. So, you know, stay tuned with that. But I think we've done a good job trying to make customers aware of the program if they're eligible for it and then helping them get through all the steps to sign up for the plan as well. So it's definitely been good for our customers. Okay, great. Thank you.

Your next question comes from Dande from B-Riley Securities. Please go ahead.

Yes. Morning, guys. Appreciate you taking my questions here. So obviously shifting to a growthier stage and understanding you'll plan to provide more detail on the investor day in a couple of weeks. But just in general, should investors be thinking about this business as something that can support both capital returns and this edge-out slash greenfield expansion growth opportunity for the next, call it, one, two, three years? Or, you know, do you see this more as the expansion opportunities eating up most of the food cash flow for the foreseeable future?

I think we're in just an amazing position after the divestiture because we have now very low leverage and we plan to keep it at a relatively low level, certainly for the industry and certainly historically for where we have been as a company. This will allow us to fund growth capital for edge outs and importantly for greenfields through the existing operations of the business. So we are quite excited about that. And, yes, you're right, we do plan to lay out more on that come investor day. John, is there anything else you'd like to add?

No, I mean, the company just prior to the investors started moving into sort of a continued – you know, free cash flow generation that hasn't changed. In fact, it gets a little bit better now that we'll be, you know, new WoW. And yes, we are going to fund, you know, whatever expansions we want to do to the network from our free cash flow generation. But I think if you follow along with me, and again, December 9th isn't that far away, you know, we'll have a lot of opportunities and we'll be having to make real decisions on how we want to allocate our capital. I think we're going to be fine. So the answer, the long-winded answer is yes, there'll be opportunities to do other things with the capital.

Yeah, thanks, guys. And then just leverage ratio longer term, like you're going to be well below your peers in terms of the leverage profile. Do you see that as sort of the right leverage longer term? Are you going to lever up even a bit more for maybe three times or something? Or I guess how are you thinking about that as you can fund with free cash flow or incremental debt?

Yeah, so, I mean, I think this, you know, and it is rewarding after having been so levered to get it down to 2.6 times. And for an infrastructure company, that's probably too low, to be honest with you. But we're a smaller infrastructure company, so my perception is I don't see us getting ever above three and a half turns. And when Teresa joined, we were at 6.5 turns. When I joined, we were at 5.5 turns, and it was literally sort of choking the business. So we want to keep a proper balance there. So there's opportunities. And so, no, I don't think it's a 2.6 forever. And if real opportunities for investment present themselves, then we'll take a look. But always with an eye towards, I think, 3.5 times is probably a good number for us.

Yeah, great. All right, guys. Looking forward to the investor day. I'll turn it over. Best of luck.

Your next question comes from Brendan Nesbitt with KeyBank Capital Markets. Please go ahead.

Awesome. Thank you. Two questions. Theresa, can you talk about the HSD subscriber trajectory thus far into the fourth quarter? Last year you added, I think, 2.2K, but you mentioned a slowdown, so trying to understand what expectations should be into the fourth quarter. Second, on the new market expansion through edge outs, have you gotten to the point where you're ramped back to sort of full capacity? What is that capacity? She would be thinking about, you know, the new home past in terms of like the 2019 bid pitch of 10,000. And what should we be thinking about in terms of cost per home past? Thanks.

Thanks, Brandon. So taking your first question about the HSC subscribers and the trajectory, what I really need to say there is that the fundamentals of the business are just stronger than ever. What we're still seeing, though, is that we are in a dynamic and often difficult to forecast environments still because of the pandemic. As I had said last quarter, I really had hoped to see that we would have a strong back to school season, but that really didn't come back in Q3. With that said, though, as I mentioned, we did have customers that we were able to move on to the emergency broadband benefit, a few new ones, but mostly existing. And we did see a number of other areas of some green shoots or some as we start to see small business and some of the commercial activity improve. So we're seeing some things that look good and then some things that are taking a little bit longer than previously. As I look forward to the rest of the quarter, I think it's, We still are looking at 2019 as a reasonable approximate for this year, but we'll see what happens. I can tell you that we are still seeing low turn and still feeling very good about the plans that we have in place. As I look forward to the new market expansion, we will continue to look at capital allocation and how we divvy things up between edge outs, which we define as an extension adjacent to our existing network, and greenfields, which are not adjacent and really entering into new markets. And we're going to be able to share more about what our plans are again on December 9th. So sorry to keep pushing the questions to them. But I think that's when we'll be able to share more about what kind of momentum and what kind of capacity we have for the future. But clearly, the deleveraging has been transformative for this business. And we'll be able to really focus on growth and we'll be very clear and transparent with you as we always are on what we're looking for in the future.

If I could just follow up quickly, you mentioned sort of more like 2019. Could you just square away what was the fourth quarter of 2019 in terms of HSD net additions?

Yeah, I was really thinking about, you know, the full year number on that. And, of course, we did republish a trending schedule that goes back. I think for 2019, we just put in the full year number on that. So, you know, we'll see what it looks like for fourth quarter.

Fair enough. Thank you.

The full year number was just over 13,000.

Yeah, next question comes from Betty L. Levy from UBS. Please go ahead.

Great. Thank you. Can you talk a little bit about the competitive environment within HSD footprint? Since the beginning of the year, we've heard many telcos looking to build fiber and fix wireless access, ramping up as well. Are you seeing any indication for maybe competition picking up A couple of follow-ups. The $35 million corporate overhead, is that fully loaded or should we expect another increase now that all the deals closed? And if you could remind us how much NOL is left. Thank you.

You know, why don't I take the first one and then turn it over to John for the second question. So thank you, Bakya. On the first side, in terms of competition, every day we compete against some of the best in the business and absolutely can hold our own and continue to grow our HSD net ads and grow our subscriber base while keeping churn low. And nothing has changed on that in this quarter at all. We have a relatively small overlap with subscribers from other companies. And I think that is because of the dynamics of us being an overbuilder into these markets and already creating a competitive position for the bigger operators. Fixed wireless, we've really not seen having much of an impact at all on our competitive framework. So we continue to just stay true to what we know we're good at, and that is providing a choice with a speed and reliability, the value that we provide, the ease of doing business, and our customer-centric legacy. So those things continue to resonate with customers throughout the pandemic and really beyond. John, did you want to address the corporate overhead?

It's on the overhead box. That's fully loaded. $35 million is the number. We will start cutting some of that before the end of this year. We just closed on November 1st, so we'll see us take a couple of million out in 2021, with another big chunk coming out over the course of next year, 2022. The reason we provided that If you go to the trending schedule, that other definition of EBITDA, transaction adjusted, sort of shows you what we look like had it been at on day one. That's aspirational. But we plan each quarterly earnings call from this point forward. We'll track along with you so you guys know where we are in actually pulling the cost out of the business. Again, some of it's relatively easy to do. Some of it's more complex. Anything tied to, like, contractual relationships that we can't get out of are going to take a little bit more time. But I think you'll see that. I think also another benchmark I'm looking at is, you know, how quickly does it take us to get to the Q2 2021 EBITDA margin exit rate, at least to know when did we get back to where we started from. So that's another way to look at it. That, by the way, was 40.5% EBITDA margin. So we could also grow, you know, out of this as well, but the intention is to cut the full 35 and to grow.

And you still have about $200 million of NOL left. Is that right?

Yes, we have over $200 million. I think it was $225 million of NOL. The good thing about the NOL is, and there's all these strange 382s and the third-year rule limitations, is that much of that NOL will be fully usable and specific to the southeast properties that we maintain. So, yes, we have that. And even though we'll be generating EBITDA and generating cash flow, we'll still be generating some more NOLs going forward. It's just the nature of an infrastructure business. So, yes.

Got it. Thank you. Your next question comes from Matthew Harrigan from Benchmark. Please go ahead.

Thank you. We've seen in the market that if a company misses their broadband number by a very slight amount, you basically have a meltdown in stocks. There's not nearly commensurate attention on pricing, and clearly you're getting more utility to the consumer, 25%, 30%. usage increases, you know, per Nielsen's law, I mean, not a physical law, but kind of an empirical law. And nobody really talks about pricing power, you know, longer term. Could you give us your sense on that, you know, particularly given the advent of more competition? And then secondly, a little more clarity at the FCC. I think a lot of people probably welcome Jessica Rosenworcel being officially the head, but then you've got, you know, Gigi Zone, who is a bit of a gadfly and could probably make a lot of noise. It could upset the market, maybe not quite as badly after the results last Tuesday, but maybe enough to rattle people's cages. So moving on from the blocking and tackling questions, I thought I'd toss a few more conceptual things in there. Thank you.

Thanks, Matthew. So on the HSD pricing question, clearly we always have rates that are competitive, if not a bit more value-based than our competitors out there. What you've seen, though, is that our ARPU has continued to rise, and our overall HSD revenue rose by 15%, so significant growth. What we're seeing is that customers really are using the service. So they are buying higher speeds and they are buying ancillary products such as whole home Wi-Fi or whole business Wi-Fi and other services that we offer, which continues to contribute to ARPU. So we look at the overall relationship with the customer. I think we also had launched usage-based billing. As you know, we trialed it back in Chicago, which was one of the markets that we previously sold. But we are starting to roll it out in a couple of other markets where the competitive dynamics make sense to do that. And that is also a contributor to the pricing strategy while still giving customers a great value compared to competitors in the marketplace. So I think we try to be very smart and savvy with always making sure we're giving customers good value while also not leaving money on the table. Regarding the FCC, we, of course, work with the FCC closely as they are our regulator, and we'll just see what happens with the new leadership there. We work through our own regulatory group, but also with our industry associations like the MCTA to really work with them on policies that hopefully you know, make the most sense for our industry while balancing the demands of consumers. So I probably won't say much more about that at this point.

Actually, sorry to pile on, but do you think that broadband, you've got sustained pricing at maybe a couple hundred basis points better than the pace of inflation, or is that probably just, I know nobody has a crystal ball, but is that kind of your instinct on that or a little hard to say?

Well, I mean, what we're selling is not static. Customer's usage continues to change and increase. So I think customers are paying for that increase in usage that they have, the value that they're seeing from the product. So we're able to continue to take advantage of that. And I guess we'll see what happens. We always want to be competitive and providing good value to our customers. So I think we've done a good job of really looking at the analytics and seeing what's appropriate moving forward. So we're very pro-customer, but also, like I said, making sure we don't leave any money on the table either.

Thanks, Teresa. Congratulations on the deals and the numbers. Thanks, Matthew.

Again, if you'd like to ask a question, press star 1 on your telephone keypad. And your next question comes from Grant Joslin from Credit Suisse. Please go ahead.

Hey, good morning, guys. First, I was wondering if there are any factors that are different in the 2020 and 2021 edge-out vintages versus 2019 that you think might explain some of the difference in penetration. Like, are those builds in front of different competitors or more MDUs or single family or some other factor? And then second, I have a model question. So the leverage was already at 2.6x. at um at september 30th which is nearly the two and a half level that was mentioned when the sales were announced without receiving the sound proceeds yet so will you be well below the two and a half level at year end after those proceeds are received or is there an offsetting use of cash in the fourth quarter we should be thinking about thanks let me do that one quickly uh for you so yeah there's going to be an offsetting use of cash so i'm going to be parking on the balance sheet um

excuse me, a couple hundred million dollars of cash that's going to be used to make those tax payments. So when you look at it on an adjusted basis, when we post the next set of figures, it'll look like we're like two times levered. We're really not. So we're going to adjust that for you so you can see it. We'll exit at around 2.6 times. So that's the right number. And you'll see the full pay down of where we are on the debt. But again, Take the mystery out of it. I think our debt right now has been roughly about $735 million gross debt post the paydowns that we've made.

okay and then on the second or the other part of the question about the edge apps and what might be different in 2019 as many of those homes passed were delivered in the third and fourth quarter generally we would have seen a real focus on field sales and our other tactics in the first and second quarter of 2020 to really drive that penetration Similarly, with the 2020 agile, those that were delivered in the second and third quarter, we would have really had a focus on driving penetration earlier. That's right when the pandemic hit. And for the safety of our people, and I think with the comfort of consumers as well, we really took a lot of people out of the field and used other tactics, and that didn't drive penetration quite as quickly as what we're seeing with the 2021 vintage. So it's less about, I think, the demographics or any nature of necessarily those edge-outs. It's really, I think, just the wave of our tactics and how we had to adjust them pre-vaccine and in the earlier days of the pandemic. But we're continuing to see those grow. On average, though, 60% of the homes past net ads since 2020, also I just wanted to point out, are coming from the retained properties, so new wow. So the focus has really been on the properties that we are keeping, and you're really seeing the pickup rate and the penetration across all the vintages. Also in 2021, We did invest a bit less, so they're smaller numbers, but we feel like we've been very precise and focused on some areas that made a lot of sense for us. So that's, I think, a bigger issue on why the penetration rates are a bit different.

Okay, great. Thanks so much. I'm looking forward to the analyst day next month.

Great. Thanks.

And there are no further questions at this time. I will turn the call back over to Teresa for closing remarks.

Well, thank you all so much for joining us, and thank you for your continued interest and support of WOW. We really are looking forward to speaking with many of you in the coming weeks and at our Investor Day on December 9th. Have a great day. This concludes today's conference call. You may now disconnect.