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WideOpenWest, Inc. (NYSE:WOW)
Q1 2020 Earnings Call
May 4, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2020 WideOpenWest, Inc. Earnings Conference call. [Operator Instructions] Please note, this call maybe recorded.

I would now like to turn the call over to Mr. Lucas Binder, WOW!'s Vice President of Corporate Development and Investor Relations. Mr. Binder, please proceed.

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Thank you, David. Good afternoon, everyone, and thank you for joining our first quarter 2020 earnings call. With me today is Teresa Elder, WOW!'s Chief Executive Officer; and Bill Case, WOW!'s Chief Information 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 our 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, including most recently the economic uncertainty related to the COVID-19 pandemic and 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.

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 adjusted EBITDA; transaction adjusted capital expenditures; capital expenditures, excluding expansion capital expenditures and transaction adjusted diluted earnings per share. 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.

Now, I'll turn the call over to Teresa.

Teresa Elder -- Chief Executive Officer

Thank you, Lucas. As I speak with you today, as I have for each quarter for the last two years, I can't help but pause to comment on how the world has changed so quickly and so dramatically. Adjusting to life during the COVID-19 pandemic means different things to different people. For some, it may mean a series of inconveniences, but for many this has caused major disruptions with the potential for life-altering impacts.

As you know, I tested positive for COVID-19 at the end of March and spent five days in the hospital. I know this was a difficult time for my family, friends and colleagues. I'm so grateful for all of the well-wishers sent my way and for everyone at WOW! who stepped-up to be sure that our business didn't skip a beat. I'm happy to be recovered back to full duties and with you today to review WOW!'s very strong first quarter results.

As we described during the year-end call, the quarter started off very well. The solid subscriber growth we saw in January and February continued into March. We experienced our best quarterly HSD RGU net addition results in at least five years.

Adjusted EBITDA, excluding the estimated bad debt reserves associated with COVID-19, would have been flat versus the first quarter of 2019.

As our communities face unprecedented challenges, we at WOW! acted quickly and decisively to put our employees and customers' health and well-being at the top of our priority list. I believe the pre-emptive measures we took contributed to keeping our workforce healthy. Only a small handful of our employees have tested positive and we put in place programs to quickly respond with support for individuals that are being directly impacted by the pandemic.

With the rapid acceleration of COVID-19 pandemic and its economic impact, I wanted to walk through some of the initiatives we planned beginning in January and how we worked to protect our employees and customers in this challenging time. WOW! is an essential service provider. We're expected to and we take pride in continuing to provide our services to our customers. During this time of stay-at-home directives, many of our customers are working and learning from home, WOW!'s Internet service has been invaluable for the communities we serve.

In mid-March, WOW! began to move employees to work-from-home status and smoothly and successfully moved more than 1,600 employees to full-time work-from-home status in the span of less than two weeks. In many, if not, all cases, we took these actions ahead of directives by local municipalities and state governments. We included more than 95% of our domestic call center dispatch and other employee groups, many of whom would not typically be considered for work-from-home. We also minimized health risks for key personnel who are customer-facing and considered essential to operations. Each person was provided guidelines on how to reduce the risk of becoming ill. Workspaces were disinfected. Hand sanitizer and disinfectant wipes were distributed to all WOW! locations. In recognition of their essential contributions to the business and their commitments to serving our customers, these customer-facing employees were awarded a temporary pay enhancement.

Additional safety actions include, providing personal protective equipment, encouraging system technicians to home garage, launching new processes for handling and cleaning CPE mail and bill payments. We closed all front counter or retail locations to customer traffic and added equipment and payment drop boxes at all local offices, where they didn't already exist.

We launched new call-ahead in customer contact procedures to ask if anyone in the home have flu-like symptoms and as often as possible, our techs completed jobs without entering customers' homes. To better serve our customers, we accelerated more self-installed options for HSD-only and Whole-Home WiFi installation. We also implemented additional COVID-19 paid personal time for impacted employees.

Our workforce is not the only part of the business that is adapted well to these unprecedented conditions. We have experienced an overall increase in bandwidth demand across our network of approximately 27% since the beginning of the year. I'm especially pleased to report our advanced broadband network was well positioned to handle this unparalleled increase in customer traffic and it continues to perform well. I cannot overstate how proud I am in the efforts put forth by all of our teams to keep moving the business forward in a new and challenging environment.

So now, let me highlight how we have executed in the first quarter while addressing these challenges. Total subscribers grew 14,600 in the first quarter of 2020. High-speed data RGUs grew by 16,100 in the first quarter, which included 14,400 organic high-speed data RGU net addition. This was the best quarter of high-speed data net additions in at least five years. While we signed onto the FCC's pledge to keep customers connected and not proactively disconnect HSD customers for non-pay, the pledge was implemented for just the last two weeks in the quarter, and had minimal impact on net additions reported for the quarter.

Total subscriber churn decreased in the first quarter and was the lowest first quarterly churn in at least five years. Once again, the impact on non-paid disconnects as the result of our commitment to the FCC pledge was minimal in the first quarter. As we look to the second quarter, we expect lower non-paid disconnects as well. We will continue our pledge to work with customers, who have been affected by COVID-19 to find solutions to support them and keep them connected through this difficult time.

Keeping our customers connected to their world is and always have been our priority, and it's the cornerstone of our vision along with providing them the best possible customer experience. With the emergence of COVID-19, the impact on subscriber growth throughout the year will likely experience greater variability than we have experienced in the past. As an example, universities and schools have been teaching remotely in many communities since late March, and it's unknown when or if students will move back to campuses and reconnects their services as they would typically do in the third quarter. As part of our subscriber growth, Edge-Outs added 1,800 subscribers in the first quarter. First quarter 2020 business services subscription revenue grew 6.2% year-over-year and improvement over the fourth quarter 2019. Although we recognize there is considerable uncertainty about how small and medium-sized businesses will rebound from the impacts of the pandemic.

First quarter adjusted EBITDA of $99.1 million was down 3.9% on a year-over-year basis, which was adversely impacted by COVID-19. Excluding the bad debt reserves associated with COVID-19, adjusted EBITDA would have been flat for the first quarter of 2019. Through the end of this first quarter, we have seen minimal impact on collections and customer behavior. However, uncertainty heading into the second quarter as it pertains to collectability for outstanding accounts receivable from our residential customers, commercial customers and advertising partners supports taking bad debt reserves in the first quarter. These additional reserves for potential bad debt amended to approximately $3.2 million.

Our business is evolving as more customers' access content where, when, and how they choose. They're enjoying more choices than ever before and becoming agnostic as to how their entertainment is delivered. This market dynamic has led to record cord cutting and cord shaving in the industry. We would not be surprised to see the ongoing impact of these economic challenges accelerate this customer's behavior. WOW! is positioned to meet this market dynamic as we continue to grow our broadband business by improving the value proposition of our high-speed data services and further building upon the strength of our advanced broadband network. Especially, now in these challenging times, customers turn to WOW! because they trust us, and they see us as a choice at a good price for services they want.

As we discussed on the last earnings call, we have advanced our strategic initiative and have been testing in two markets with our OTT video streaming alternative and WOW! tv+ service, our IPTV offering. We're accelerating the transformation of our networks to all IP-based services. In our Charleston, South Carolina test of OTT streaming alternatives, as a video solution for customers, we've measured how successful WOW! was and continuing to drive high-speed data adoption, specifically without a slowdown in connects. Thus far, we have been very pleased with the success in Charleston and starting on April 1, we began to move forward with expanding this effort across our footprint. High-speed data-only coupled with streaming alternatives is addressing the changing customer demand for more flexible, cost-effective video choices.

Our launch of WOW! tv+ in January in Columbus, Ohio, has been moving along as well. We continue to improve the service and look to expand to additional markets in the second quarter. We've seen increased improved operational efficiencies in delivering this full service video offering to our customer during this period. We expect both of these IP-based video services will drive enhanced penetration of high-speed data, facilitate long-term reductions to operating expenses and provide more efficient use of capital as we reclaim bandwidth on our networks, ensuring that we have sufficient capacity to meet the multi-gig demands of the future.

As consumer behavior continues to move toward broadband-centric, our customers' behavior -- buying behavior reflects this. For the first quarter of 2020, customers buying high-speed data-only represented 67% of total new subscribers, up from 61% in the fourth quarter of 2019 and 55% in the first quarter of 2019. As we continue to transform the business, our initiatives are focused on several key objectives. We plan to free up network capacity to enable enhanced broadband services to provide more customer choice, and to optimize our customer experience capabilities. All of these objectives take advantage of how the industry is evolving toward WOW!'s strength.

WOW!'s vision is connecting people to their world through the WOW! experience, which we define as reliable, easy, and pleasantly surprising every time. This is the driver of our evolutionary work at WOW! After making these investments and ultimately transforming our business, we believe the Company will enjoy increased customer penetration rates for high-speed data, realize higher margins, become more capital efficient, and be better positioned to accelerate EBITDA growth.

Customer behavior has continued to evolve toward higher speed tiers and more services associated with our high-speed data offering. Whole-Home WiFi, as an added service, coupled with high-speed data has seen adoption rates rise significantly as well. For the first quarter, Whole-Home WiFi take rates were up 12.5 percentage points over the first quarter of 2019 and up 3 percentage points over the fourth quarter of 2019.

Our online sales channel, the lowest cost of acquisition channel has grown to be the second largest channel for new connects. We also saw high-speed data-only connects come in at an even higher rate through this channel. For the first quarter of 2020, 31% of our high-speed data-only connects came through our online channel.

This is an exciting time for WOW! as we migrate to a broadband-centric approach to take advantage of our strong network. What we have been doing is transformational for WOW! and is exactly what our customers need most right now. We have compelling offers for our customers, for their products and services that keep them connected.

Now, I'll turn it over to Bill Case to discuss some of the quarterly financials.

Bill Case -- Chief Information Officer

Thanks, Teresa. For the first quarter of 2020, we reported total revenue of $284.5 million, which was down 0.9% on a year-over-year basis. Net income for the first quarter of 2020 was $0.1 million. First quarter 2020 adjusted EBITDA totaled $99.1 million, and adjusted EBITDA margin in the first quarter decreased to 34.8%, which included a reserve for additional bad debt expense of $3.2 million as a result of the uncertainty around the economic position of customers impacted by the global pandemic.

As of March 31, 2020, total net subscribers increased by 14,600 or 1.8% over the December 31, 2019 total subscriber count. And total net HSD RGUs increased by 16,100, or 2.1% from the end of the fourth quarter. Subscriber activity during the first quarter of 2020 included organic net HSD RGU additions of 14,400. Business services subscription revenue totaled $35.8 million in the first quarter, a year-over-year increase of $2.1 million, or 6.2%.

Understanding the economics and the highly creative nature of Edge-Out investments, I want to highlight how we've been progressing among the most recent vintages of Edge-Outs. Through the first quarter of 2020, the 2018 Edge-Out nodes have achieved 17.9% penetration and the 2019 Edge-Out nodes, most of which were delivered in the second half of the year have achieved 12.3% penetration.

Capital expenditures for the first quarter of 2020 totaled $58 million on a reported basis. This included $8.7 million of expansion capital expenditures for business services and Edge-Out construction, as well as $4.7 million of capital related to the strategic initiatives we've highlighted, including the launch of WOW! tv+, partnering with streaming service providers and our efforts to optimize bandwidth utilization on our network. We expect to continue making investments in these areas throughout the year. Excluding the $8.7 million of expansion capital expenditures, capital expenditures totaled $49.3 million, or 17.3% of first quarter 2020 total revenue.

With regard to liquidity and leverage, as of March 31, 2020, we had $36.8 million of cash on hand. Outstanding debt totaling $2.331 billion and $208.5 million of undrawn revolver capacity. Thus far, we've not experienced significant effects on our liquidity as a result of the global health crisis. While we've only experienced a slight slowing of cash collections, we've made precautionary drawings on our revolving credit facility since March 2020 in response to the uncertainty and the capital markets and future economic conditions. Accordingly, we believe that we have sufficient resources to fund our financial obligations and anticipated liquidity requirements in the foreseeable future.

Net leverage was 5.32 times as of March 31, 2020, on a trailing 12-month adjusted EBITDA basis, which was up from 5.25 times at December 31, 2019.

As we've highlighted during this call, WOW!'s positioned to support our employees, our customers, and the communities we serve in these challenging times. as an essential service provider, we stand, ready and able to meet the increased needs from our customers. However, due to the economic uncertainties arising from the duration and impact of the COVID-19 pandemic and the unprecedented economic impact, WOW! is withdrawing its previously announced outlook for 2020.

That concludes our prepared remarks, and I'll turn it back to the operator to open the call to questions.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Batya Levi with UBS. Please go ahead. Your line is open.

Batya Levi -- UBS -- Analyst

Great. Thank you. It's great to see you fully recovered, Teresa. I wanted to ask a few questions on the broadband side. Can you provide a little bit more color on the components of the strength that you saw in the quarter, maybe in terms of competition versus penetration gains and how those trends have so far been in April? And I know, I understand why you would pull the guidance in terms of the financial metrics, but in terms of the high-speed data growth, can we still assume that the -- you have good momentum to continue to drive higher net adds this year versus last year?

And secondly, on data revenue growth, it looks like ARPU growth slowed down a little bit, even though you've had the price increases. Can you provide some color on the impact of that and how we should think about ARPU growth going forward? Thank you.

Teresa Elder -- Chief Executive Officer

Thanks, Batya, and thanks for your well-wishes. So, the first about the broadband and where is this high-speed data growth coming from? I think it's kind of your question. We don't break it down precisely, but I can tell you, the overwhelming reason I think customers are coming to WOW! is that, they're choosing us over our competitors for our high-quality products and services at a value price. I think customers are certainly looking at their budgets and realizing WOW! as a great value for an incredible service with great customer care as well.

We're also seeing customers, who are coming to us, who perhaps had wireless services-only in the past and now realize when they're at home, they want to have that broadband component. There are customers, who perhaps never had broadband before, as well as conversions from some DSL providers. So, we don't break down the exact breakdown of each of those. But I can tell you most of it, I would say is, customers choosing us for the services at the great price we provide. And we're also seeing that we're -- the net is that, we are keeping more customers than ever before with our historic low churn.

On the pulling guidance, we feel it's prudent to do that right now just overall, given the tremendous uncertainty right now. We certainly were extremely encouraged with our high-speed data growth before COVID-19 really had any impact on any of the markets. So certainly, we'd like to see that continue and we feel good about both our sales, our product offering and the response we're getting from customers.

In terms of the revenue, I think you referenced a rate increase we did, the one we did in December was actually a video-only rate increase, so that wouldn't impact our data revenue. Where I feel like we're seeing improvements in the data ARPU is on two components, it's that customers are buying higher speeds as they have so many demands within their home and their businesses. And also, we are seeing the further purchase of Whole-Home WiFi, our mesh network product. So, those are the two components on the data side.

Batya Levi -- UBS -- Analyst

Okay. Thank you.

Teresa Elder -- Chief Executive Officer

Okay. Thanks, Batya.

Operator

We'll take our next question from Frank Louthan with Raymond James. Please go ahead. Your line is open.

Frank Louthan -- Raymond James -- Analyst

Great. Thank you very much. Just I appreciate pulling on the guidance, but thoughts on the capex outlook. I think you guided before to maybe $20 million, $30 million increase. Is that -- was that still reasonable? And what can you tell us about the HSD trends through April? Any change there? Are you still taking share and any particular markets, where you're seeing any strengths? Thanks.

Teresa Elder -- Chief Executive Officer

Okay. Thanks, Frank. On capex, just like the other components of guidance, we really are pulling guidance. I'm not giving it out piece part, but I can understand people's desire to understand what we're doing. We continue to watch capex very, very closely. And so, I can tell you that that is one of the primary things that we look at every week at my executive team meetings, how we're deploying capital, both to keep up with the growing demands for bandwidth in the network, as well as all these new customers that are coming on board and we had said, we were going to do a fewer Edge-Outs this year, just so we can further penetrate the tremendous growth we had in 2019, but we really aren't giving guidance on any of the components right now.

On the HSD trends for April, I think we usually give those at the end of the second quarter. But I continued to feel good about how our strategies are playing out in the marketplace.

Lucas, anything else that you'd like to add?

Frank Louthan -- Raymond James -- Analyst

Yeah. Just maybe as a follow-up to, where are you as far as your ability to construct with outside plant? I've heard there's various things, some municipalities allowing more construction, some kind of held up with the permitting process and so forth. I mean, is this -- in some ways, it's an opportunity to get ahead on some capex or some construction. Just your thoughts there. And you also are not reporting the Edge-Out penetration vintages. Any thoughts on how those are trending as you're focusing on that? Thanks.

Teresa Elder -- Chief Executive Officer

Okay. Thanks, Frank. On the outside plant, you're right, it varies by municipality. Those where we can continue to move forward. Those that have some restrictions in that area. So, we're just taking it on a case-by-case basis. But we had already decided before COVID that we were going to reduce the number of Edge-Outs this year so we could further penetrate what we did last year.

In terms of the previous vintages, we roll those into our organic base after a few years and we continue to sell in and work in those areas, but we don't no longer report them as separate vintages since they've really become part of our base.

Frank Louthan -- Raymond James -- Analyst

All right. Great. And congratulations for getting back on the job. Glad you're healthy.

Teresa Elder -- Chief Executive Officer

Thank you.

Operator

We'll take our next question from Brandon Nispel with KeyBanc. Please go ahead. Your line is open.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Thank you for taking the question. Teresa, a question for you. Can you get a little deeper on the WOW! tv+ and then your partnerships with the VM, the virtual guys? And, I guess, did I hear you correctly in saying that you rolled out the virtual product across your footprint? And, I guess, what we're trying to get at is, which have seen greater interest thus far? How did you pick the markets that you picked? What's the difference in capital spending for each of the type of programs? And then I have a follow-up. Thanks.

Teresa Elder -- Chief Executive Officer

Thanks, Brandon. So, on WOW! tv+, we launched that in just Columbus, Ohio, and we have not launched that one across our entire footprint yet. WOW! tv+ is our IPTV service offering that is more like our traditional linear video product. It is going extremely well with both the customer satisfaction and really delight with that product, as well as our ability to reduce operational costs. And, of course, that's what helps us recover the bandwidth in our network, so that we can have this growth of data usage for years to come.

Our virtual, which I think you're referring to, our OTT streaming partners was a trail we did just in Charleston, South Carolina. So the markets are very apples and oranges from Charleston to Columbus. So, it's not like we have a race between the two of them. In fact, what we really see is offering these as a menu of choices to our customers. On the OTT, our streaming service partnerships that we have, we like this model, because it's what our customers want and streaming services, especially with our partners are becoming more and more like the traditional video offerings. The difference being that it is a relationship directly with the consumers, with the streaming providers. We provide the ability to help them get connected to those providers. So we like that model very much as well. So it's not really, I'd say, an either or between them, but rather letting the customers lead. And we're in the process of deploying the OTT offerings with our partners across all markets and have done that effective April 1. So, that's a little different, OK?

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Got it. And then as a follow-up, you talked about the potential for an acceleration in cord cutting. I guess, does this change your view and your spending plans for WOW! tv+, given the uncertain economic environment today versus a couple of months ago? Thanks.

Teresa Elder -- Chief Executive Officer

So, on WOW! tv+, this is an offering, of course, not just for new customers but also for our existing customers as they move over to the new service that provides different navigational tools and smaller boxes, wireless boxes, all of those kinds of things. So, the acceleration in cord cutting is to us something that plays to our strengths in many ways as customers move to HSD-only or maybe the OTT service. But we still have a base of customers that do like the video offering and that's part of our core business of what we provide. So, we're continuing to watch all that very closely.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

And, I guess, on WOW! tv+ are you -- it's for new and existing customers. Are you giving it to customers proactively? Or just as they come and ask? Thanks.

Teresa Elder -- Chief Executive Officer

Give it to our customers proactively. So, I'm not exactly sure I understand the question. I guess, if customers want a video offering, what we would offer is, first, understanding their needs, and if the streaming services meet their needs, then we certainly would provide that first. But we also have the WOW! tv+ offerings which would meet their needs. But right now, WOW! tv+ is, like I said, just in limited markets.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Okay. Great. Thank you.

Operator

We'll take our next question from Zack Silver with R. Riley FBR [Phonetic]. Please go ahead. Your line is open.

Zack Silver -- B. Riley FBR, Inc. -- Analyst

Okay, great. Thanks for taking the question. And Teresa, I happy to hear that you're on the call and you've made a full recovery. The first one for me is just around the -- you guys have highlighted the push into broadband first over the past couple of calls. The longer-term bandwidth benefits, meaning changing consumer demands. But is there anything you can share with us around your assumptions for differences in unit economics specifically for you guys around a broadband-only customer and a traditional triple play customer around things like churn, acquisition costs and cost to serve per customer.

Teresa Elder -- Chief Executive Officer

Thanks, Zack.

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Sure. Hey --. Go ahead, Teresa.

Teresa Elder -- Chief Executive Officer

Yeah. I think I'll let Lucas jump in on this one since I've been hogging all the time.

Zack Silver -- B. Riley FBR, Inc. -- Analyst

Great. Thank you.

Lucas Binder -- Vice President of Corporate Development and Investor Relations

So, Zack, just to repeat once again, just from a broadband perspective, some of the unit economics associated with that offering, as well as some of the details around churn, profitability and such, I think, we've conveyed in the past, the broadband offering is gross profit margins in the high-90s, mid- to high-90% range. The benefit of offering a service like that is you have much fewer calls into the call center. You have a lot more truck rolls that complete on the first try fewer problems. And the feedback that we've gotten on Whole-Home WiFi has also been driven those interactions down as well. We've actually also stated in the past that churn in HSD-only has actually crossed down below where a double-side churn is for us. So, the overall economics are very favorable for us to go down the broadband focus for awhile.

Zack Silver -- B. Riley FBR, Inc. -- Analyst

Got it. That's really helpful. And then one more if I could, around Edge-Outs and selling those. Our understanding is that, a lot of the Edge-Outs sales process is more sort of door-to-door and boots on the ground. With the virus and different challenges that presents, how are you guys thinking about Edge-Outs penetration and selling into those new markets?

Teresa Elder -- Chief Executive Officer

Yeah, you're right. We did have to take the field sales folks or door-to-door folks out of the market, of course, with what's happened with COVID-19. The good news is, I think we have repurposed those folks and they are selling in a different way and doing a great job with their productivity. I also feel really good about our marketing and our direct communication in those markets. So that we've continued to keep a high profile and sales coming in. So, we're continuing to focus and just doing what WOW! does best and that is being agile and nimble as the environment changes and that's really who we are.

Zack Silver -- B. Riley FBR, Inc. -- Analyst

Okay, great. Thank you, both.

Operator

We'll take our next question from Kutgun Maral with RBC Capital Markets. Please go ahead. Your line is open.

Kutgun Maral -- RBC Capital Markets -- Analyst

Great. Thank you for taking the question. I appreciate that you've withdrawn the 2020 outlook across the board, but I'd love to hear about how we should be thinking about new balance in your capex investments across bandwidth and IP-based video services versus what might be a period of EBITDA or free cash flow volatility in the near-term. If we do end up seeing some headwinds ramp throughout the year, are there investment areas that you could be flexible with in pulling back on? I'm just trying to get a bit more comfort around the sustainability of free cash flow. Thanks.

Teresa Elder -- Chief Executive Officer

Yeah. Thank you so much for the question. And yes, I know it's challenging to withdraw guidance and I am sure you can all understand our dilemma as we're trying to forecast as well and understand the impacts of COVID-19 on so many things in our business. We already mentioned the challenges with Edge-Outs, how we're looking at commercial growth with many small and medium businesses, not back yet. And that's also where some capex goes. We're seeing really, I would say, almost unprecedented demand for our high-speed data services, especially on the residential side, which comes with some capex that success-based as well.

And then we've talked about some of the initiatives that we're doing as well. And I would say that's a component where we have more ability to stage the timing on those things as we also look to the bottom line and look to free cash flow. So we're juggling all those things on a daily and weekly basis, as we try to manage the business. So, I'm sorry, I can't give you more details, but just know that is absolutely on trend and on exactly what is in our minds as we're balancing these many things and using capex as efficiently as possible.

Kutgun Maral -- RBC Capital Markets -- Analyst

Great. Thank you.

Operator

We'll take our next question from James Ratcliffe with Evercore ISI. Please go ahead. Your line is open.

James Ratcliffe -- Evercore ISI -- Analyst

Thank you. And, Teresa, glad you're back up and running again. Two, if I could. One, on the business services front, can you give us some color on what makes up that business services revenue subscription -- subscription revenue segment and SMB versus enterprise government, etc., and particularly how large the exposure to independent SMBs?

And secondly, I noticed kind of fluctuate quarter-over-quarter but capex in the CPE side ticked up in the quarter. And can you give us any thoughts on how that line item is likely to trend just as you move toward more IP-driven and more OTT video offerings? Thanks.

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Sure, James. So -- it's Lucas here. On the business services subscription revenue and then probably turn it over to Bill on the capex side. But on the business services subscription revenue, there -- the component there is very much in the SMB side. Enterprise is typically in other business revenue, as well as wholesale. So, most of that is more on the SMB side. That does include mid-market -- large locals, as well as hospitals and the other sort of local governments, as well as schools and whatnot. So, there's definitely exposure there.

As far as the percentages, I don't know we've ever broken that out, but I can look into that and probably follow-up with you afterwards.

Teresa Elder -- Chief Executive Officer

Yeah. And just to add to that, I mean, we obviously saw many of our healthcare partners ask for many additional lines. So that was an area, where we were rushing, of course, to help them as the demands of -- for their services increased and they needed more broadband services as well.

Bill Case -- Chief Information Officer

Yeah. And I'll just maybe chime in with regard to your question around the CPE and the capex. Much of that is around our success-based capital. As you saw, we had subscriber growth, some of that coming in our HSD areas, as well as those who are looking not just for HSD installations, but in some cases looking for Whole-Home WiFi as well. So, much of that CPE growth that you're seeing as success-based in terms of the investments that we made there.

The other piece was some of the capex ticked up strategically with the investments that we are making, although to a much less degree around our strategic investments in WOW! tv+, most of that is really around our success-based capital for the CPE.

James Ratcliffe -- Evercore ISI -- Analyst

Great. Thank you.

Operator

We'll take our next question from Brian Russo with Credit Suisse. Please go ahead. Your line is open.

Brian Russo -- Credit Suisse -- Analyst

Hi. Thanks for taking the questions. Two, if I could. The first is with respect to your strong HSD results. Just curious if there was any way to break-out the HSD net add trends in sort of January and February versus what you saw at the end of March when the lockdowns came into place. Just trying to figure out what sort of the COVID-related sort of boost to HSD was impossible?

And the second was with regard to cord cutting. In the first quarter, your results didn't really look very different from last year. So, I was just curious if you saw something change in late March or maybe into April. And if not, maybe, just give some color on why you're expecting cord cutting to sort of increase during this time? Thanks.

Teresa Elder -- Chief Executive Officer

Thanks, Brian. Yeah. We don't usually break-out month-by-month, but definitely, we saw very strong trends in January and February and early March. It was really kind of the last two weeks, where we had any COVID impact, and I would say, it was a minimal impact on results. In other words, the trend that was strong continued. And we'll see -- be able to see more, I think when we give out second quarter results, but it certainly didn't dampen the things.

The cord cutting, really what we talked about on that is, when I think about the increase in the number of new connects that are coming in that are HSD-only. So, they may be cord cutting from others and coming to us for our great network and our valuable high-speed data offering at a good price. So, that increase that we've been showing, that's -- now a significant proportion of our customers who are coming in that have HSD-only. So, I guess, that's where I see the growth happening rather than customers of our existing base downgrading.

Brian Russo -- Credit Suisse -- Analyst

So, would it be fair to say maybe that's less applicable to your own video subscriber base than it is to some of your competitors?

Teresa Elder -- Chief Executive Officer

I think so. Although, we see some of that in our own base, and when our customers call in, we offer them the streaming option and we're available WOW! tv+. And, of course, we see across the board, consumers are moving more and more to streaming services-only since they can save money by doing that. So, I would say, I dramatically see it though in the new connects coming in the door to us and I believe we're the beneficiary of that. So, we view that as a trend that is well suited to our strong network and the offering we have.

Brian Russo -- Credit Suisse -- Analyst

Understood. Thank you.

Operator

We'll take our last question...

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Hey, David, can we take our last question?

Operator

Absolutely. We'll take our question from Brandon Nispel with KeyBanc. Please go ahead. Your line is open.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Thank you. I wanted to ask a couple of follow-ups. One, what percentage of revenue is coming from the advertising that's not broken out? Two, maybe, if you can share some more details just on the number of customers who have requested support under the FCCs keep their connected pledge, that would be great. And then lastly, I was hoping you could talk about your estimate for bad debt. How did you come to that estimate? And what's the level of conservatism built-in? Thanks.

Teresa Elder -- Chief Executive Officer

Okay. So, Lucas, if you want to take those first two and then Bill, if you want to talk about the -- how we came up with the estimate for bad debt?

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Sure. So, on the percentage of revenues from advertising, like you said, we actually don't break that out, Brandon. It is within the other revenue line of our results. So, you can kind of take some inference from there. But we don't specifically break that out. It is or will be impacted and as a result of less advertising overall, but our expectation is that second half, especially the protocol, we should see kind of start to see some recovery, can't speak to as to whether or not it will be fully back from that perspective.

As far as the number of customers that were impacted by the pledge, we actually haven't broken that out with regard to -- we are -- it's still very early in the first quarter, it was pretty nominal, and that's represented by our subscriber growth that we saw. We didn't -- we're not offering any sort of 60-day free or anything like that. We are really more managing around those customers who are looking to -- who might be having difficulty paying, because they're suffering from economic hardship associated with COVID-19 and being more considerate to non-paid disconnects than necessarily going out and proactively connecting those sort of free, if you will. So, the number of customers we haven't really identified as being a significant number.

And then to Bill, if you want to comment on the bad debt side?

Bill Case -- Chief Information Officer

Yeah, that's right. Thanks, Lucas. And just with regard to bad debt and the COVID-related bad debt expense that we took. We took a look across our residential, commercial and ad sales basis of revenue and look at all those, and balance in terms of expected cash flow that may be impacted. We didn't see specific cash flow non-collectibles that we saw driving those estimates. But more we're looking forward on potential bad debt collections that may be associated with those different scenarios. So, it was more of a prospective viewpoint in terms of what we thought may happen, not necessarily reacting to things that had already happened that were point certain that led us to that estimate.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Good. Thank you.

Lucas Binder -- Vice President of Corporate Development and Investor Relations

And Brandon, I'll just add really quick with regards to advertising, just as a percentage of total revenue is less than 1% from the quarter, so just from that [Phonetic] perspective.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Teresa Elder -- Chief Executive Officer

Okay.

Operator

And there are no further questions on the line at this time.

Teresa Elder -- Chief Executive Officer

Great. Well, we appreciate all of you joining us this afternoon, and I appreciate your continued interest in our business and your support of WOW! Thank you so much.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Lucas Binder -- Vice President of Corporate Development and Investor Relations

Teresa Elder -- Chief Executive Officer

Bill Case -- Chief Information Officer

Batya Levi -- UBS -- Analyst

Frank Louthan -- Raymond James -- Analyst

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Zack Silver -- B. Riley FBR, Inc. -- Analyst

Kutgun Maral -- RBC Capital Markets -- Analyst

James Ratcliffe -- Evercore ISI -- Analyst

Brian Russo -- Credit Suisse -- Analyst

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