WideOpenWest Inc (WOW) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Year-End 2018 WideOpenWest, Inc. Earnings Conference Call. As a reminder, I want to advise everyone that this call is being recorded.

At this time, I would like to turn the call over to Mr. Lucas Binder, WOW!'s Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Binder.

Thank you, Jack. Good morning, everyone, and thank you for joining our Fourth Quarter and Year End 2018 Earnings Call. With me today is Teresa Elder, WOW!'s Chief Executive Officer; and Rich Fish, WOW!'s Chief Financial Officer.

Before we get started, we need to remind everyone that during our call, we will make some forward-looking statements about our expected operating results, our business strategy and other matters relating to the business.

These forward-looking statements are made in reliance on the Safe Harbor provisions of the federal securities laws 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 10-K filed with the SEC this morning.

In addition, please note that in today's call and in our earnings release, we refer to certain non-GAAP financial measures. Such measures include: revenue, including acquisitions and dispositions; residential subscription revenue, including acquisitions and dispositions; Business Services subscription revenue, including acquisitions and dispositions; adjusted EBITDA; transaction-adjusted EBITDA; transaction-adjusted capital expenditures; adjusted diluted earnings per share; and transaction-adjusted free cash flow.

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 and in accordance with GAAP. These non-GAAP measures are reconciled in our earnings release to the most comparable GAAP measures.

With regard to Hurricane Michael, which hit our Panama City Florida market and the impacts on our results, we've included a reconciliation of reported total revenue to total revenue including acquisitions and dispositions, adjusted EBITDA and capital expenditures to transaction-adjusted EBITDA and transaction-adjusted capital expenditures and the impact of subscriber metrics in our earnings release and trending schedule available at our website at ir.wowway.com.

Unless otherwise noted, references to transaction-adjusted results discussed on this call means results adjusted to include the impact from acquisitions, exclude the impact from dispositions and exclude the impact from Hurricane Michael.

Now I'll turn the call over to Teresa.

Thanks, Lucas, and thank you, everyone, for joining today's call. As we entered 2018, we were focused on transformation. We knew there was a need to invest in the business by adding headcount in customer care, investment in sales and marketing and digital transformation initiatives that have all had an impact throughout the year.

Our investments helped to substantially improve the customer experience throughout 2018, and we have seen trouble call volumes decline, which positions us to realize operational efficiencies heading into this new year.

In 2018, we achieved a milestone in being the first operator to have 1 Gig in over 95% of our network. We set records in employing Net Promoter Scores, customer satisfaction scores and improvement in customer churn, which in turn, drove our best high-speed data revenue-generating unit growth in at least 4 years.

We grew organic HSD RGUs each quarter of the year, culminating in fourth quarter organic HSD RGU additions of 5,200 and full year organic HSD RGU net additions of 17,900. We grew total subscribers by 19,000, an improvement of 14,000 over 2017 or 280% growth in subscriber net additions.

Our investments have the effect of lowering transaction-adjusted EBITDA in 2018, with the knowledge that we would get back to growth heading into 2019. In meeting our transaction-adjusted EBITDA guidance for 2018, we grew fourth quarter transaction-adjusted EBITDA by 5.5% year-over-year and expect to continue to grow throughout 2019. The benefits from these efforts, started in 2018, will compound going forward.

We relaunched wowway.com and started to deploy our Whole-Home WiFi product in the second half of the year, and we continue to make improvements to both offerings that will drive connects in 2019.

Additionally, we are expecting the benefits of improved interactive voice response flow with the addition of text, chat and callback features to further drive efficiencies in the care organization. These efficiencies are not isolated. When care is more efficient, the dispatch, field and support organizations all benefit.

Another highlight at the end of the year speaks to the progress we have made around our investment in people. WOW! was recently named a winner of the 2018 Best and Brightest Companies to Work For in the Nation. This marks the fifth time WOW! has won this award and the first time since 2014. I cannot be more proud of the efforts of all of our employees.

As you have heard throughout the last year, the efforts to drive consistency is reflected in our vision, connecting people to their world through the WOW! experience, which we defined as being reliable, easy and pleasantly surprising every time.

In 2018, we did our reps to get fit. Now we build on and keep doing our reps, while we move towards being ready or Reliable, Easy and Always Delight You.

In the fourth quarter, we added 7,100 HSD RGUs. Importantly, organic HSD RGU net additions for the fourth quarter were 5,200, the fourth consecutive quarter of positive organic HSD RGU net additions.

For the full year, we added 27,000 HSD RGUs, 80% above the high end of the guidance range we provided at the start of 2018. And this represents a 95.7% increase in net additions over 2017 and a 3.7% increase in total HSD RGUs year-over-year.

Additionally, fourth quarter and full year 2018 subscriber churn were the best subscriber churn results for our fourth quarter and the full year in at least 2 years.

During the fourth quarter of 2018, we grew total subscribers by 5,200, the best fourth quarter results in the last 4 years.

Fourth quarter 2018 Business Services subscription revenue, including acquisitions and dispositions, grew 12.7% year-over-year, representing our ninth consecutive quarter of double-digit growth in this segment. Full year 2018 Business Services subscription revenue, including acquisitions and dispositions, grew 14% versus 2017.

Our ability to extend our network through Edge-Outs remains a unique growth opportunity for WOW!. As of December 31, 2018, the 2016 Edge-Out Nodes reached 33.6% penetration, and our 2017 Edge-Out Nodes continue ramping well and achieved a 27.1% penetration.

So far this year, our 2018 Edge-Out Nodes expanded our homes passed by more than 30,000 and have achieved 11.6% penetration after an average of 111 days in the market.

For the full year, WOW! generated $24.3 million in transaction-adjusted free cash flow. While this was below the guidance we provided at the start of 2018, which was largely attributable to higher-than-expected interest expense and capital expenditures, we saw year-over-year improvement in transaction-adjusted free cash flow of $83.7 million. And as promised, this was our first year of positive transaction-adjusted free cash flow.

As I've mentioned, we executed our plans for 2018 through investment in our people and customers, which drove out performance on customer churn, HSD RGU growth and in line transaction-adjusted EBITDA for the year.

So much of the success we have experienced through 2018 around customer satisfaction and retention is driven by the efforts of our employees and the steps we've taken to improve the employee satisfaction and engagement.

Additionally, we have been able to drive bad volume out of the business. This has materialized through lower call volumes on a year-over-year basis, fewer truck rolls and more efficient procedures in place to reduce call times.

The impact of these operational and productivity improvements has allowed WOW! to rationalize some of the care organization in Colorado Springs and our Chicago area location. We are redeploying resources into our Augusta, Georgia and West Point, Georgia in-market facilities with a lower cost structure, while also balancing outsourced benefits.

We're never happy to separate from employees, but we and the organization know these are the right moves for the business and allow WOW! to capture continued productivity in 2019.

Our investments in marketing continue to drive greater impact as we are more efficient in spend and look to continue these improvements and investments in 2019.

It's now been more than 6 months since the relaunch of wowway.com, and the results could not be more pleasing. We have continued to see a greater percentage of connects come through this channel. We're adding features and functionality such as self-care, proactive notification and other enhancements to drive greater overall experience and uptake. The benefits will also contribute to a better customer experience, lower churn and fewer calls.

February of 2019 saw WOW! implement its annual rate increase. The rate increase occurred 2 months earlier than in 2018, aligning better with our annual programming cost increases. It's still too early to report on the results, but we will look forward to sharing more details on future calls.

As we discussed on the last earnings call, Hurricane Michael hit one of our smaller markets in Panama City, Florida. Rich will provide specifics on the financial impact.

From a business perspective, I could not be more proud of the execution by our team. Through our work across our business and in the community in which we provide service, we were able to bring the vast majority of the market back up and running by the end of 2018, less than 3 months after the storm.

The feedback from our customers has also been overwhelmingly positive. We work closely with the community to bring back service in the market.

One customer commented, WOW! texts are equally as important as first responder teams because they are making it possible for customers to connect with family and friends.

We respect and are grateful to all the first responders who have enabled our teams to do their jobs and reconnect the community, and we so appreciate the many kind gestures and comments from our customers and community leaders and are inspired by their resilience.

This was a great example of how the people of WOW! were able to be nimble and execute under pressure, all while delivering on subscriber growth and transaction-adjusted EBITDA for the quarter.

We expect 2019 to be a year of inflection, with continued growth in HSD and organic HSD RGUs and a continuation of the fourth quarter trends leading to a return to growth in transaction-adjusted EBITDA.

We executed precisely in 2018, and we'll continue in 2019. WOW! will focus on growing its subscribers, improving our revenue trends and returning to growth in transaction-adjusted EBITDA. We have an opportunity to build on the successes of 2018 and look forward to sharing our progress with all of you.

Now I'll turn it over to Rich.

Thanks, Teresa. Before I share some of the financial highlights, you may have noted that we filed an 8-K this morning indicating that we've restated our 2016 and 2017 financial statements as part of our 10-K filing for 2018. The restatement is being made as a result of errors that were made in 2006, in calculating certain complex partnership tax interest during a transaction which occurred in 2006.

The errors only impacted noncash deferred tax expense, deferred income tax liabilities and goodwill. These restatements did not, and will not, have an impact on the company's cash balances, our revenues or adjusted EBITDA, transaction-adjusted EBITDA or transaction-adjusted free cash flows or our leverage calculations.

Furthermore, such corrections do not impact the $737 million of available net operating loss carryforwards that we have nor our ability to utilize them or is indicative in any other way of an impact to the underlying performance of the business. Please refer to our SEC filings from this morning for more details.

As Teresa discussed, WOW! successfully executed on its plans for 2018. We reported total revenue, including acquisitions and dispositions and transaction-adjusted EBITDA at or above the midpoint of our guidance range and far exceeded the high end of our HSD RGU guidance.

For the full year 2008 (sic) [2018], we reported total revenue of $1.154 billion, net loss of $90.6 million and adjusted EBITDA of $409.7 million. Loss per share for the year totaled $1.11, and adjusted diluted earnings per share was $1.31.

Fourth quarter 2018 transaction-adjusted EBITDA totaled $110.6 million, which was up 5.5% on a year-over-year basis, representing the first year-over-year increase in transaction-adjusted EBITDA in 5 quarters. And as Teresa said, a return to growth for WOW!.

In addition, transaction-adjusted EBITDA margin in the fourth quarter increased to 38%, a sequential improvement of over 140 basis points as a result of improved customer retention and efficiencies gained in our operating cost structure.

Transaction-adjusted EBITDA for the full year 2018 totaled $415.8 million, which excludes the onetime nature of the impact of Hurricane Michael coming in at the upper half of our guidance range for 2018.

As Teresa highlighted, the fourth quarter of last year was the fourth consecutive quarter of very strong subscriber metrics. Excluding the impact from the hurricane, we added 7,100 HSD RGUs, which included positive organic HSD RGU growth of 5,200. This represents an improvement of over 6,100 organic HSD RGUs as compared to the fourth quarter of last year. This was the fourth straight quarter of positive organic HSD RGU growth for the company.

On a transaction-adjusted basis, net HSD RGUs grew 27,000 during the full year 2018, representing 3.7% growth in total HSD RGUs on a year-over-year basis.

Net video RGUs decreased by 5,500 during the fourth quarter, which is a dramatic improvement in the rate of net video losses of 4,400 or 44% as during the fourth quarter of 2017.

Overall, our total RGU performance was the best fourth quarter result we've experienced in at least the last 4 years. Total subscriber trends for the fourth quarter also demonstrated strong momentum, with an increase in total subscribers of 5,200 during the fourth quarter of 2018.

Similar to our total RGU performance, this represents the best net subscriber metric during a fourth quarter in the last 4 years.

As a result of the hurricane, we estimate the impact to customers was a loss of approximately 2,600 subscribers and 4,400 RGUs, which includes 2,600 HSD RGUs. This onetime impact is outlined in our earnings release and trending statement.

Turning to Business Services. Business Services subscription revenue, as reported, totaled $32.5 million in the fourth quarter of 2018, a year-over-year increase of $2.2 million or 7.3%.

Business Services subscription revenue, including acquisitions and dispositions for the quarter however, increased $3.8 million or 12.7% over the fourth quarter of last year.

As a result of the Edge-Out initiative, we've extended our network by more than 138,000 new homes passed as of the end of December 31, 2018. The Edge-Out Nodes we started in 2016 have added a total of 41,700 new homes passed, and we've achieved 33.6% penetration to date in those communities.

2017 Edge-Out Nodes have added 66,300 new homes passed. Penetration continues to ramp and is now at 27.1%. And the Edge-Out Nodes we started during 2018 have added 30,100 new homes passed, have an average of just 111 days in the market and have already reached 11.6% penetration.

The growth in Edge-Out homes in 2018 was below our expectations. Unexpected factors that impacted the timing of the turn up of homes passed at the end of the fourth quarter have primarily to do with delays in getting permitting approvals for some of the Edge-Out projects.

In addition, the efforts to restore the Panama City market took more resources than expected, which impacted growth in Edge-Out homes passed. We've continued, however, to invest in Edge-Outs throughout the beginning and the first quarter of 2019 and do expect a much more even deployment of homes passed throughout this year as compared to last year. Our investments in Edge-Out network expansion has been and will continue to be a key driver of growth in subscribers and adjusted EBITDA for the company.

Capital expenditures for the fourth quarter of 2018 totaled $100.3 million on a reported basis. Of that amount, $7.6 million was incurred towards the completion of the Chicago fiber project, which as you know, will be reimbursed as elements of the final buildout are completed.

In addition, $26.4 million was incurred towards the repair and restoration of the Panama City market following Hurricane Michael.

Transaction-adjusted capital expenditures for the fourth quarter of 2018 totaled $56.3 million, which included transaction-adjusted strategic capital expenditures, totaling $7.5 million.

Excluding those strategic capital investments, transaction-adjusted capital expenditures totaled $48.8 million or 16.8% of fourth quarter 2018 total revenue, including acquisitions and dispositions.

For the full year 2018, transaction-adjusted CapEx totaled $251.1 million, which included transaction-adjusted strategic capital expenditures totaling $50.7 million.

Excluding those strategic CapEx, transaction-adjusted capital expenditures totaled $200.4 million or 17.3% of full year 2018 total revenue, including acquisitions and dispositions.

As we mentioned on the third quarter 2018 earnings call, we had expected capital expenditures for 2018 to be at the high end of our guidance range, and we came in above those expectations.

Contributors to higher-than-expected capital expenditures for the year included the inventory buildup associated with the launch of our new Whole-Home WiFi product, the impact of certain timing delays associated with the Edge-Out builds and higher-than-expected support capital that was necessary to address an unexpected increase in local government network requirements, such us forced network relocates.

With regard to liquidity and leverage, at the end of 2018, we had $13.2 million in cash on hand, outstanding debt totaling $2.317 billion. And we had $234.5 million of undrawn revolver capacity.

As we discussed on the third quarter 2018 conference call, we had expected leverage to have peaked at that time and were pleased to see improvements sequentially as we ended December 31, 2018 with a reduction in total leverage to 5.46x on a trailing 12-month transaction-adjusted basis.

Looking forward with anticipated growth in transaction-adjusted EBITDA in 2019, we expect to see total leverage continue to decline throughout the year.

Relating to Hurricane Michael, we provide a reconciliation of the impacts on our customer and financial results in our earnings release and trending schedules, which is available, as Lucas said, on our Investor Relations webpage.

The impact to our adjusted EBITDA for both the fourth quarter as well as the full year impact for the year ended 2018 totaled $6.1 million of adjusted EBITDA. This amount includes revenue credits of approximately $5.4 million and additional expenses associated with accelerated rebuild cost totaling $0.7 million.

We're completing the work to finalize our initial insurance claim for business interruption coverage and expect to file that in the next couple of weeks.

Onetime capital expenditures required to rebuild the Panama City network, covering over 430 miles of reconstructed plant, are expected to total just under $30 million, of which $26.4 million was incurred in the fourth quarter, with the remainder to be incurred during the first quarter of 2019.

And finally, to address our outlook for 2019. As we look back on 2018, as Teresa mentioned, we made the conscious decision to invest in WOW! across customer care, sales and marketing and digital transformation. The positive benefits from those investments can now be measured by our significantly improved employee satisfaction scores and customer service levels, greatly reduced customer churn and most importantly, the significant HSD RGU and organic HSD RGU growth we experienced during 2018.

WOW! also reported its first year of positive transaction-adjusted free cash flow of $24.3 million, which was an improvement of $83.7 million over 2017, representing dramatic growth over the prior year.

As Teresa mentioned, our focus this year is on precise execution and a return to positive transaction-adjusted EBITDA growth, building off the successes that we've had in the fourth quarter and throughout the year in 2018.

The key highlights for our guidance for 2019 are that we expect HSD RGU growth of between 30,000 and 40,000 RGUs, and we expect total revenue between -- to be between $1.155 billion and $1.165 billion.

The seasonality associated with subscriber growth is expected to be more heavily weighted towards the second half of the year, given the rate increase that we implemented in the first quarter of 2019 and the anticipated uptick in move related customer churn that we typically experience during the second quarter.

As we discussed earlier, we reported adjusted EBITDA for 2018 totaling $409.7 million and transaction-adjusted EBITDA for the year was $415.8 million adjusting for the impacts of Hurricane Michael.

We expect a return to growth in 2019, with transaction-adjusted EBITDA for next year to be between $430 million and $440 million.

Similar to last year, we expect sequential transaction-adjusted EBITDA in the first quarter of 2019 to be down by approximately $9 million to $10 million as a result of the annual increases to our programming cost, which go into effect January 1, and then improve sequentially throughout the year.

Nevertheless, we expect first quarter of 2019 transaction-adjusted EBITDA to represent growth on a year-over-year basis relative to the first quarter of 2018.

So that concludes our prepared remarks. And we'll turn it back to the operator to open the call to questions.

(Operator Instructions) Your first question comes from the line of John Hodulik with UBS.

It's Batya Levi for John. A couple of questions. Can you provide more color on the magnitude of the rate increase you implemented this year versus last year's? And it's still early, but how has the adoption been so far? Do you expect to -- churn to pick up? Maybe just to clarify your comments about the second half heavily weighted subs. Should we expect maybe churn to pick up in the first half and get better? And another question on CapEx. Can you provide a little bit more color on where CapEx will be spent in '19? And you mentioned an even buildout in Edge-Outs. How much of the CapEx will be allocated for Edge-Out? And how many homes do you expect to increase their buy?

Great. Thanks, Batya. I'll take the first couple of questions and then turn it over to Rich for some. On the rate increase, we started the rate increase this year on February 1. Last year, we started our rate increase on April 1. This year, it is for a smaller group of customers than we did last year, but we feel good about doing it earlier in the year since that more closely aligns with the programming cost that start on January 1 of the year. With that, there is, yes, naturally some concerns about subscriber churn when you're doing a rate increase, but as always, we are ready. We've done lots of communication, and we work hard to retain all of our customers. But I think it's realistic that first quarter of 2019 is going to be impacted to a greater level than 2018 was. So we're certainly working on churn and have continued to set new records quarter-over-quarter, but there will be a difference, I think, year-over-year since last year we didn't do the rate increase until the beginning of the second quarter. And then on CapEx and the Edge-Outs, Rich, do you want to take that?

Sure. Yes, Batya. I think when we look at guidance for next year as it relates to CapEx, I think the spend on a year-over-year basis is relatively flat. As it relates to Edge-Outs, we would expect to spend similar levels that we did in 2018. I would say that we're currently targeting between 30,000 and 40,000 new homes passed for our 2019 Edge-Out projects.

Your next question comes from the line of Zach Silver with B. Riley FBR.

Okay, great. One of the things, I think, that may be pressured your stock recently is concerns around leverage. You guys generated great organic, high-speed data sub-growth this year. And I'm wondering how you think about the balance of spending on Edge-Out CapEx versus kind of focusing on deleveraging in 2019.

Yes. I think the conversation is one that where we look at and we see unbelievable opportunity for highly accretive investment opportunities, specifically, but not included -- or not exclusively our Edge-Out projects. The returns that we get on those projects, with the penetration rates, the relatively steep curve that we've been able to experience from them from a penetration standpoint provide significantly accretive opportunities to increase EBITDA. So when we look at -- and we do have an objective to continue to delever this company from where it is to, we've said on previous calls and has been pretty public about our intent to drive leverage below 5 into the mid-4s or something like that, we feel like the best way to accomplish that objective on the quickest trajectory is to continue to invest in the accretive growth opportunities that we had -- that we have, while maintaining status as still being free cash flow positive on a yearly basis.

Got it. And then the high-speed data ARPU growth looks like high single-digit x hurricane we're calculating. What -- maybe -- what is driving that? Is that kind of upsell on the higher packages? Or where there's some less discounting going on? Any detail on that would be helpful.

Yes. Zach, I think you've hit on 2 of the key things. Certainly, the -- we're the first operator to have 1 Gig, and most of our footprint is terrific, and that helps us as we are upselling the higher speeds. So whether it's 500, 1 Gig packages, we're definitely seeing customers taking the higher packages which come with higher ARPU. But yes, I think we also have rationalized our pricing on that and press less discounting as well. And just overall, customer staying with us longer as well, which is great.

Your next question comes from the line of Amy Yong with Macquarie.

Maybe two questions. First, Teresa, can you comment a little bit on the competitive landscape in your footprint? Maybe break it down for us between cable and what you're seeing on the satellite side, particularly with dish and their programming dispute with HBO. And then you talked a lot about operational efficiencies. Should we think about margin expansion for 2019?

Thanks, Amy. Yes. When we think about competition, competition remains robust, there's no question about that, and we feel very good about how we are positioned to compete. So like we've said, we have some of the lowest churn that we've had in at least 2 years. And I think this shows up as we are really being smart and nimble in our retention efforts. It's -- really, I think our confidence in having the high speeds with also value pricing in our market that I think has allowed us to compete successfully, so I don't know that I can really differentiate between the groups of competitors that we have. We continue to, I think, offer our customers more channels to reach us, whether it's on wowway.com, we've seen a big uptick in that channel as customers like to buy online from us, which wasn't as easy in the past. So across-the-board, I feel good about how we are competing in the marketplace. In terms of our operational efficiencies, we are continuing to execute precisely drive volume out of the business, whether it's calls into our call centers or the truck rolls. Customers don't want to have to stay home and wait for us. Well, if our network is that much more reliable then they don't have to. So yes, that is definitely driving cost out of the business. And that's part of the reason we actually did some downsizing earlier this year.

Your next question comes from the line of James Ratcliffe with Evercore ISI.

One for Teresa and one for Rich, if I could. Teresa, it looks like the 2017 vintage Edge-Outs might be running a bit lower on a sub-percentage penetration basis for the same sort of days active than the 2016s did. Can you talk about what your expectations are of penetrations and the financial performance of Edge-Outs for newer vintage versus older going forward? And secondly, Rich, around the Panama City you mentioned business interruption. How much of those costs do you expect to recover? And how much of the business are you expecting to get back? Or is there some of it you're just -- that the homes no longer exist for whatever reason?

Yes. Okay, I'll go ahead. Do you want me to start on the penetrations? So the penetrations, we feel really good about the penetration rates of each of the vintages of Edge-Out properties that we have, and so I feel like they're tracking quite well. As we move forward, certainly the 2016 vintage is doing well over 33%, but we're feeling good about the tracking as we move forward. And underneath that, there are some that do even better, so I don't have concerns of one vintage versus the other. We have a rigorous process on how we evaluate where we build out, and I think that's boding well for the penetrations that we're seeing. And then I guess Rich can address Panama City but once again, I'm feeling quite good about growth in Panama City.

Sure. Just some of the mechanics related to the insurance claim, et cetera in the impact, the $6.1 million that was the impact in 2018 on EBITDA. If you recall, that was $5.4 million associated with revenue credits and roughly $700,000 of additional expenses to expedite the build for the total of the $6.1 million. We expect to be able to collect that under our business interruption coverage in the fiscal year 2019. We had approximately -- in addition to that, we had, as I mentioned, we had approximately 2,600 customers that I would say that we have lost. They're unfortunately, folks who have had their homes permanently destroyed and really are not in a position to -- whether they are in the process of rebuilding or otherwise, we're clearly not in a position of believing that we will eventually restore those customers. Those 2,600 customers, certainly, we will not be billing them. We've not taken them necessarily out of our system, I guess. We won't be billing them, but one of the coverages under our business interruption policy is we have something that's called an extended indemnity period, which provides us the insurance coverage for the loss of those business relationships for a 12-month period following the restoration of the actual network to the extent that they have not returned to service. So inside of this year, even though we will not be billing those 2,600 customers for service, we will be submitting the lost billings associated with that group, those 2,600 customers as continued insurance claim submissions to our insurance carrier throughout the year.

And James, just to provide one more clarification. We haven't taken them out as far as homes cost but they are not in the customer.

That's correct.

So that adjustment has been made.

Got it. Just to make sure I understand then that -- so of the customer and RGU impacts you site, those are potentially ones that you expect to be effectively permanent, that we shouldn't be able to confer any sort of bounce back in 1Q?

That's correct. I think that's a safe assumption. The economics of losing those customers will be covered, however, at least during the first 12 months as part of our BI coverage.

Your next question comes from the line of Brandon Nispel with KeyBanc Capital Markets.

Great. Two questions if I could, please. One for Rich. I think actually one of Teresa's comments was that results are going to be compounding on themselves going forward. Can you maybe frame what you expect from a transaction-adjusted EBITDA growth perspective over a longer-term time frame? And then Teresa, I think one of your comments was that the network is now 1 Gig enabled in 95% of the footprint. Can you talk about what you can do strategically to maybe increase customer penetration? And yes, I'll leave it at that.

Okay. I'll take the first one as it relates to longer term growth percentages. I would tell you that, that's not something that we've put out into the public domain, so I'd not be able to be specific. With respect to the question, I -- the way I think we would answer your question is that certainly, this year is, as Teresa mentioned, this is a year of -- in an inflection year and a return to growth. Our guidance for 2019 suggests that we feel very comfortable with our ability to execute on our plans, make the right kind of growth initiatives such that we feel comfortable that we have the opportunity to drive single-digit, mid-single-digit improvements in adjusted EBITDA for 2019. Clearly, we would not consider that financial performance, if we're describing it as being an inflection year, to be an anomaly such that, that's not something would be able to be repeated. So without giving you any specifics, we do feel like last year was an unbelievably important year because it was a year of kind of inflection where we made the investments that were necessary to put the company on a footing here at the end of the year in the beginning of 2018 to return to a trajectory of multi-period year-over-year solid growth in financial performance. Teresa, you want to add anything to that?

Yes, just to add to that. I mean, I think that our network is 1 Gig-enabled; certainly attracts customers and really is able to help them with a whole variety of their needs as they're -- as we can take care of whatever they need with the speeds that we provide, whether it's in the residential marketplace and also in our commercial space as well. So really, everything we're doing this year in 2018 is helping position us for 2019. We're growing new customers, we're reducing churn, and I think what that really means is that customers that we have are stickier, especially as we also enable products like Whole-Home WiFi, the mesh network in the home. Things just worked very well for our customers. All of that will contribute towards the increase in penetration and our competitiveness.

Great. If I could follow up real quick, Rich. Does guidance for adjusted EBITDA include any insurance reimbursements for the year?

It does not, specifically as it relates to the $6.1 million of business interruption claim that we would make related to 2018. That would be on top of our guided EBITDA range.

Your next question comes from the line of Brian Russo with Crédit Suisse.

Two questions. One for Teresa and then a follow-up for Rich. So for Teresa, I think at this point now, all of your major broadband competitors are offering a wireless product kind of bundled in to the broadband offering. So I was wondering what your thoughts were about that kind of strategy? Does that change the competitive landscape at all? Have you seen it? Or maybe it's still kind of early days for that, but -- so love to get your thoughts on the notion of being able to bundle in wireless as a competitive edge. And then for Rich, just a follow-up on the restatements. I think you mentioned this in the remarks, but I just wanted to clarify. Does any of what happened change your expectations for when you expect to start paying full cash taxes? I think, previously, I had thought that you wouldn't be paying full federal cash tax payer until like at least 2022 or something. So just wanted to clarify if there wasn't any update to that.

Okay. So I'll go ahead and start first on the wireless product. So on that, I think I told you last year when I introduced myself to all of you, half my career has been in wireless, so I'm very familiar with the wireless customers and the wireless marketplace. And no, I don't think we've seen any competitive disadvantage because we don't have a wireless product right now. Our customers really rely on us for the products that we provide, and our focus on doing that very well and being a strong alternative and challenger brand to the other cable companies out there, I think, has worked quite well for us. So, so far, so good. We are well aware and always watching what's happening in that the space. But right now, we feel good about the focus on what we're delivering. And then in regard to the taxes, I'll turn that over to Rich.

Yes. Brian, I did mention it in the opening remarks but happy to reconfirm it. The answer is categorically no. There is no impact to the restatements on the company's existing available NOL balances. At the end of this year, we have $737 million of available NOLs that are not impacted by in any way shape or form. And our assertion or belief that we won't be a significant federal cash income taxpayer for some time is not impacted at all. This was simply an error that occurred going back to 2006. It involved deferred taxes, noncash deferred tax expense and goodwill. So nothing impacting the business whatsoever.

(Operator Instructions) Your next question comes from the line of Brandon Nispel with KeyBanc Capital Markets.

Great. Just wanted to jump back in for another one. Maybe on video, when did it make sense for you all to start looking at different strategies for video, maybe partnering with an OTT provider? Are there any compelling OTT options out there? And then maybe in terms of what drove out the performance in HSD growth in 2018 compared to your initial expectations that you guided to a year ago?

Okay. Well, on the video side, I think WOW! has always been a company that has embraced alternatives in programming. We were ones first to work with Netflix way back in the day, and our network is especially well set up for that. We continued to look at alternative providers and new offerings for our customer base. Last year, for example, just in terms of different type of programming, we launched Cheddar TV, which is -- gives us a revenue share opportunity as well, and our network is just very well suited. So I feel like everything we're doing with our digital transformation, readying the network is really ensuring that we are very competitive in the video space. We saw a 50% improvement in video losses or 44% in 2018 relative to the year-ago period, and that's one of our best video results in the last 3 years. In terms of HSD, I think it's really the culmination of the many strategies we had, whether it was the improvements we made in customer care, the more targeted and precise sales and marketing approach, launching new products such as Whole-Home WiFi that make that HSD experience that much better through the mesh network, offering an alternative channel for customers to buy more easily through wowway.com and certainly all the other things that we've done to make the network more reliable so customers just have fewer problems across-the-board. It's really the culmination of all of those things that not only helped impact connects at the top end of the funnel being more positive but also the churn reduction. So it was a combination of all of those things or, I think, getting traction perhaps better than we had anticipated a year ago at this time.

The Q&A portion of the call has ended. I would now like to turn the call back over to the WOW! management team for closing remarks.

Great. Well, thank you so much, everyone. I so appreciate your joining us today, and I appreciate very much your interest in our business and your support of WOW!. Have a great day.

This concludes the Fourth Quarter and Year-End 2018 WideOpenWest Inc. Earnings Conference Call. We'd like to thank you for your participation. You may now disconnect.