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WideOpenWest, Inc. (NYSE:WOW)
Q2 2020 Earnings Call
Aug 3, 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 Second Quarter 2020 WideOpenWest Incorporated Earnings Conference Call. [Operator Instructions] Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions]

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, Corporate Development and Investor Relations

Thank you, Leo. Good afternoon, everyone and thank you for joining our second quarter 2020 earnings call. With me today is Teresa Elder, WOW!'s Chief Executive Officer; and John Rego, 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 our business. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors, including most recently the economic uncertainty relating to the COVID-19 pandemic 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 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 for the year ended December 31, 2019 and other reports subsequently 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. Please refer to our 8-K and trending schedules for the reconciliation of non-GAAP financial measures to GAAP and our reasoning for presenting such measures.

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

Teresa Elder -- Chief Executive Officer and Director

Thanks, Lucas. I hope you and all those dear to you are doing well as COVID-19 continues to impact our daily life. Today, I'm joined by our new Chief Financial Officer, John Rego. I'm very excited to have John at WOW!, and I'm delighted with his enthusiasm for the business and experience in this space. I think many of you may have spoken to John in his previous CFO roles. Today, he will share our financial updates after my strategic business highlights.

As we manage our business through this unprecedented time, WOW!'s focus remains on our vision, connecting people to their world through the WOW! experience, which we define as reliable, easy and pleasantly surprising every time. Now more than ever, we are connecting people through broadband, as our broadband-centric approach gains momentum. Consumers are shifting toward high-speed data only adoption, faster speeds and increased penetration of Whole-Home WiFi. This shift is fueling our growth in high-speed data RGUs and reinforces our strategic move toward leading with broadband connectivity.

Demands for our broadband services led to the best second quarter of high-speed data RGU growth in at least five years. We added more high-speed data RGUs in the first half of 2020 than we did in all of 2019. During the second quarter, 77% of our new customers subscribed to either our high-speed data only offering or our high-speed data with a streaming service, which is up from 57% in the year ago period and 66% in the first quarter of 2020. While some of the change in consumer behavior can be attributed to the global health crisis, we believe the ongoing shift away from traditional video will continue to accelerate.

Our advanced broadband network is equipped to respond to this demand and we have positioned our business to focus on the innovative broadband products and services that our customers want. These innovative products and services were cited by Cablefax as reasons they recognized WOW! as MSO of the Year. We're proud of this honor and it also recognizes the growth we have realized over the last year. Our success is a direct result of WOW!'s ability to be nimble and the hard work and dedication of each and every WOW! employee. Additionally, we were named as Best and Brightest Company to Work For in both our Chicago and Atlanta area markets. These are meaningful awards as we work to ensure employee, as well as customer well-being during this time of the pandemic.

We also welcomed two new additions to our executive leadership team and one to our Board of Directors. I've already introduced John Rego, our new CFO, but we also welcomed this quarter, Shannon Campain to the team as our new Chief Commercial Officer. Both John and Shannon bring a wealth of experience to their roles at WOW! and have really hit the ground running. I believe they will provide great leadership for our business as we execute on our initiatives in 2020 and beyond. I'm also pleased to welcome Gunjan Bhow to our Board of Directors. Gunjan is the Global Chief Digital Officer of Walgreens Boots Alliance and previously served in senior executive leadership roles at the Walt Disney Company and at Amazon. He brings a wealth of experience in consumer digital products, digital transformation and success at navigating multiple cycles of disruption in technology, broadband and the media ecosystem.

Now, let me highlight how we executed in the second quarter. Total subscribers grew 6,500 in the second quarter of 2020, which includes 900 subscribers from our Edge-Out. High-speed data RGUs grew by 8,000 in the second quarter, which included 7,100 organic high-speed data RGU net additions. This was the best second quarter of high-speed data net additions in at least five years. WOW!'s participation in the FCC pledge to keep America connected was the right decision for our business and customers. The customers who took advantage of the pledge remain in our base and many of these customers that have worked with us to make payments and are already current on their bill. WOW! is committed to working closely with its customers to ensure that they can stay connected with friends and families and have the ability to work and learn from home through these unprecedented times.

Our commitment to the FCC pledge has favorably impacted involuntary churn in the second quarter, but separately, voluntary churn also contributed to the lowest churn for a second quarter in at least five years. We expect variability in subscriber growth in the second half of 2020 associated with the uncertainty surrounding COVID-19. As an example, communities' and company's decisions related to school reopenings and ongoing remote working behavior are still being determined as August to begin.

Second quarter 2020 Business Services Subscription revenue grew 3.5% year-over-year. Now although the ongoing economic impact from the pandemic poses some challenges to this segment, we do see some small businesses purchasing higher speed services, as they transition to online operation. Second quarter adjusted EBITDA was $101.3 million. We expect an impact on adjusted EBITDA from COVID-19 of $7.6 million. For the second quarter, WOW! generated $17.7 million in free cash flow. As we enter 2020, we highlighted the plans for the business around a concerted effort to drive greater high-speed data adoption, and we remain laser-focused on keeping our business aligned with changes in our customers' behavior as -- and as well as we can be positioned to take advantage of the ongoing shift with consumers.

As I mentioned, 77% of our new customers in the second quarter took our higher margin high-speed data only offering. This was up from 57% in the second quarter of 2019. The take rate for high-speed data only offering has continued to rise throughout the quarter and was more than 80% in June, and this trend is continuing in July as well. Customers are rapidly moving to streaming services or OTT offerings and we are well positioned to support and even encourage these moves as well. As a greater percentage of new customers purchase our high-speed data only option, we are proactively managing our network to support the growing demand for broadband services. We have a plan to move legacy customers over to IP or OTT to allow for better overall utilization of our advanced broadband network.

WOW! tv+, which is our IPTV offering is now available in six WOW! markets. Our plan is to migrate our legacy video customers to high-speed data only and HSD and streaming solution or our IP-based WOW! tv+ offering with high-speed data. This migration gives our customers more choice and potential cost savings, while it also drives our network efficiency. We are positioning our offerings as broadband first, which is reflected in our sales strategy and the alignment of our sales compensation. We believe these actions will continue to support and ultimately drive customer behavior toward our high-speed data offering. We believe WOW!'s transformation will drive increased customer penetration and higher speed adoption for our high-speed data product, resulting in the realization of higher margin, lower customer churn and better -- better capital efficiency. This will help improve WOW!'s competitive positioning and enable WOW! to accelerate EBITDA and free cash flow growth.

Customer behavior continues to evolve toward higher speed tiers and more services associated with our high-speed data offering. In the second quarter, nearly 40% of new customers took higher speed tiers of 500 Meg or 1 Gig from WOW!. Whole-Home WiFi is a compelling add-on service for our broadband customers, providing excellent propagation of WiFi throughout the home. This product generally contributes to higher ARPU and lower churn for customers.

For the second quarter, Whole-Home WiFi take rates were up 17.8 percentage points over the second quarter of 2019, and up 4.5 percentage points over the first quarter of 2020. Our online sales channel, the lowest cost of acquisition channel has grown to be the second largest channel for new customers. For the second quarter of 2020, 38.7% of our high-speed data only connects came through our online channel. Now what we have been doing is really transformational for WOW! and we're encouraged by the ongoing success of these efforts and we'll continue to share how these results are progressing. I'm especially proud of how the WOW! team navigated the challenge posed by the pandemic in the second quarter, yet continue to focus on delivering, not only critical services to the communities we serve, but to achieve record broadband growth and position us for the future.

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

John S. Rego -- Chief Financial Officer

Well, thanks, Teresa. It's hard to believe that I've been here five weeks. I already feel like I'm part of the WOW! family, and that's amazing considering that we're all working remotely. When I was considering opportunities for myself, I kept coming back to the WOW! opportunity. And what most impressed me during the process was the energy level and commitment to excellence of its people and the power of its network. It struck me that WOW! have the perfect combination for success as it works through its transformation to become a broadband-centric company. After five weeks of working with the team, I'm even more impressed, in fact, I'm bowled over by the energy level and the tenacity as we work through challenging times.

As an example of that commitment to excellence, consider that we grew our total net subscribers by 6,500 or 0.8% over the first quarter, driven by the addition of 8,000 high-speed data RGUs, a 1% increase. Year-to-date, we've added 24,100 high-speed data RGUs. This quarter was the best second quarter of high-speed data adds in five years, and that's during a pandemic, now that is excellence. And these results tell me that we are well on our way to becoming a broadband-centric company.

For the second quarter of 2020, we reported total revenue of $282 million, which was down 2.7% on a year-over-year basis. High-speed data revenue totaled $137.3 million, an increase of $6.9 million or 5.3% over the second quarter of last year. Again, this is a proof point for our broadband-centric strategy. Business Services Subscription revenue totaled $35.5 million in the second quarter, a year-over-year increase of $1.2 million or 3.5%. Our net income for the second quarter was $2.2 million, and our second quarter 2020 adjusted EBITDA totaled $101.3 million, giving us an adjusted EBITDA margin of 35.9%.

Now COVID-19 absolutely had a negative impact on our business in the second quarter. We estimate the COVID-19 impact on adjusted EBITDA to be approximately $7.6 million. That impact was driven by lower advertising revenue and higher bad debt expenses of approximately $3 million, FCC pledge related bad debt of approximately $1.4 million, uncharged late fees of approximately $1.2 million also related to the pledge, customer care costs associated with onshoring resources of approximately $400,000 and other costs and benefits across the business of approximately $1.6 million.

I believe our results were solid, even in light of the impact of the pandemic and impressed at the results that our people were able to deliver. Understanding the economics and the highly accretive nature of Edge-Out investments, I want to highlight how we've been progressing among the most recent vintages of Edge-Outs. For the second quarter of 2020, the 2018 Edge-Out nodes have achieved 18.5% penetration, and the 2019 Edge-Out nodes, most of which were delivered in the second half of the year have achieved 13.6% penetration.

Our capital expenditures for the second quarter of 2020 totaled $57.2 million on a reported basis. Now that includes $5.4 million of expansion capital expenditures for Business Services and Edge-Out construction. Excluding expansion capex, our capital expenditures totaled $51.8 million or 18.4% of total revenue for the second quarter. With regards to liquidity and leverage, we had $39.6 million of cash on hand at June 30, 2020. Outstanding debt totaled $2.3 billion and we had $215.5 million of undrawn revolver capacity.

As stated last quarter, the company took a precautionary $50 million draw on the revolver in April, which was subsequently been repaid in June based on the stability of the capital markets and a further understanding of the global health crisis impact on our business. Net leverage was 5.39 times as of June 30, 2020 on a trailing 12-month adjusted EBITDA basis. That was up from 5.32 times at March 31, 2020 because of the impact of COVID on adjusted EBITDA.

Look, I'm extraordinarily excited to be here as we transform WOW! from a traditional cable company to a broadband-centric one. I look forward to working with the WOW! team and also getting to know each of you.

Now, let's turn it back to the operator, and we'll open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And we'll take a question from Batya Levi of UBS.

Christopher Schoell -- UBS -- Analyst

Great. This is Chris for Batya. It was another very strong broadband quarter. I appreciate you mentioned you expect greater subscriber volatility going forward. But can you help us think about how much of the first half outperformance has been a pull forward of demand, and can you provide any color on how subs have trended so far here in July?

Teresa Elder -- Chief Executive Officer and Director

Thanks, Chris. Appreciate the question. Yeah, I think we are still trying to figure that out, as we said, in terms of subscriber demands given we're not sure specifically what's happening with schools and work-from-home. So I can tell you on the commercial side, we're encouraged. We're starting to see some businesses come back and some demands there taking place as well. So we are continuing to feel our way through it as well. John, is there anything else you wanted to add to that?

John S. Rego -- Chief Financial Officer

No, I think that's right, Teresa. So it's a -- it's a little bit of wait-and-see, but from where we sit right now, things are looking reasonably good.

Christopher Schoell -- UBS -- Analyst

Great, thanks.

Teresa Elder -- Chief Executive Officer and Director

I guess, I would just add one other thing and that is that we have -- I -- we really believe we're providing the services our customers want. Our services are very competitive. And as customers have their own budgets being impacted with perhaps the economic crunch, we really provide great value and the kinds of high-speeds and the services customers want. And I think that's part of the reason we have been so successful all the year, not just because of COVID. If you recall back in January, we started the year big as well and we're pleased to still see that consumer reaction. Thanks.

Christopher Schoell -- UBS -- Analyst

Great, thank you for that. And if I can just fit in one maybe on the video strategy. You have a range of products out in the market and the release talks about the margin uplift you expect over time from declining video. Do you envision taking a more opex and capex-light approach over time and focusing more on reselling OTT services or do you believe it's still important to also offer your own set of TV products?

Teresa Elder -- Chief Executive Officer and Director

Yeah, I think that's a great question. And clearly, absolutely broadband first. And as you could see in the numbers that we were sharing with you, the increase in the percentage of new customers taking broadband only or broadband with streaming, we definitely are prioritizing and going that direction. With that said, we also have a base of video customers and we care about their transition as well. And so we're transitioning them either first to high-speed data only. We have heard from industry research and we find that to be true that probably 75% of most customers out there subscribe to at least one streaming service. So we see that transition happening.

Secondly, we see our existing video customers disconnecting from the video service, which is fine, and moving to our high-speed data with one of our OTT or streaming services. And then the third option for those customers that still want a curated product from that -- from us. We feel great about the WOW! tv+ service. It offers benefits to the customers. We're seeing that it has an even higher customer SAT or NPS score than our traditional video, and it moves customers off of our QAM network on to the IP network, which absolutely gives us better network efficiency and lower cost to serve. So it's a win-win, a positive for the customers and it's also a positive for us. So our video strategy is to be supportive really of the bigger picture and that is our broadband strategy. Does that answer your question, Chris?

Christopher Schoell -- UBS -- Analyst

Yeah, it does. Thank you so much for all the color.

Teresa Elder -- Chief Executive Officer and Director

You bet. Thanks.

Operator

Thank you. [Operator Instructions] We'll take our next question from Frank Louthan of Raymond James.

Frank Louthan -- Raymond James -- Analyst

Great, thank you. I want to talk a little bit about the Edge-Out strategy. The momentum is still a little bit slower than it was in years past. What are the thoughts on getting that accelerated? And how did those go pace through the quarter? What was the receptivity in the second quarter and how has that continued in Q3 in those newer markets?

Teresa Elder -- Chief Executive Officer and Director

Yeah, thanks for the question, Frank. First of all, I think when we started the year, we said we were probably going to do a little bit less in terms of new homes passed with Edge-Outs this year. And certainly, with challenges with construction, given the pandemic, we continue to look at how much we really want to spend this year on new homes passed. With that said, we also are continuing to focus on the vintages that we launched in 2018, as well as 2019. So we are continuing to grow those.

One of the things that is key to growth in new Edge-Out areas is having our field sales people in the markets. We did pull back from that in this last quarter due to the pandemic, so we didn't have people in the field and generating the kind of demands that I think we usually do. But somehow with all of those challenges, we still are growing those vintages and we still see tremendous opportunity and we'll continue to pursue that. We now have our field sales folks back in the market with all of the appropriate precautions, of course, in PPE. Does that help, Frank?

Frank Louthan -- Raymond James -- Analyst

No, that's great. And so how would you expect that to trend for the rest of the year, if you have the full field sales assuming there is no other setbacks and shutdowns things like that?

Teresa Elder -- Chief Executive Officer and Director

John, did you want to chime in and perhaps add [Phonetic]?

John S. Rego -- Chief Financial Officer

Yeah, I just -- just want to point out quickly, Frank, to the earlier point that one of the things that was kind of amazing to me as I started to dig into the company that the penetrations really grew in the first half of the year even in light of not being able to go knock on doors for four months out of the last six months, I was actually kind of impressed by that. I think that as Teresa said, we're going to have less capex spend to build out and the fleet [Phonetic] more focused now on penetration. So my expectation is that we'll see these penetration numbers go up from now to the end of the year.

Frank Louthan -- Raymond James -- Analyst

Was there any particular marketing change that you did? I mean, I understand that the door knock, door hangers and the industry [Phonetic] is pretty typical, and this is a good strategy. But what have you learned from that or is there something new or is it just the nature of folks couldn't go anywhere or do anything else and they kind of had to shift how they bought things like they have in so many other areas or is there something new that you're trying, and do you think that it's -- there's been a shift in the consumers' mentality that they'll start to gravitate to those other forms of marketing?

Teresa Elder -- Chief Executive Officer and Director

So I would say, we continually with marketing are always sharpening our pencil and looking at the competition, so we have a variety of tactics. And certainly with Shannon Campain coming on Board, we're excited with the continued rejuvenation of our Edge-Out strategy. What customers like in our organic footprint and that is that we have high-speed service and we have Whole-Home WiFi, a very reliable service. Those same things are very attractive when we go into a new area, especially in the areas where customers maybe didn't have as many choices in the past.

So, and then like I said, we offer great value and that's great having that. So being able to really focus on that, I think we'll continue to grow our Edge-Out penetration. We also look at a variety of metrics. We've stated this before on previous calls and that is penetration is one variable. We also look at the IRR and the cost of the build-out, and we still are absolutely on track with the returns that we had expected on all of our Edge-Out builds.

Frank Louthan -- Raymond James -- Analyst

All right, great. Thank you very much.

Teresa Elder -- Chief Executive Officer and Director

Thanks, Frank.

Operator

And well our next question comes from Tim Nollen of Macquarie.

Tim Nollen -- Macquarie -- Analyst

Hi, everyone. Thanks very much for taking the question. I'd like to come back to the TV side of things again. Appreciate the color around the EBITDA getting back toward. It looks if my numbers are right to being exactly flat year-over-year. And my question is, as you're pushing your HSD-only strategy and such a high percentage of HSD-only customers coming on now, when do you think -- how do you think that will play out in terms of your earnings progress, as -- can we look toward run rate earnings growth for the company all else being equal? And I guess how then will you also be actively pushing existing subscribers away from a linear TV bundle on to these OTT packages?

Teresa Elder -- Chief Executive Officer and Director

Great. John, do you want to speak to that?

John S. Rego -- Chief Financial Officer

Yeah, now it's what we're going to do it. So I think a couple of things, and you don't essentially know this anyway. But the growth of the gross margins in the high-speed data product are significantly higher than the TV product, but that's only part of the story. The cost to operate the business for TV is substantially more expensive than it is to operate it for high-speed data and even phone for that matter. So we're at that pivot point now that is the broadband-centric strategy. So as you track along with us for the next several quarters, if we keep coming up with months where 80% of the new adds or high-speed data only, we're going to start to see the turnaround happen. So that's what I'm looking at, and I think that -- I think that we'll see that. COVID is unfortunate, so it negatively hit us a bit this year as it did everybody else, but if we can see past that I think we can see a path to sustain profitability.

Teresa Elder -- Chief Executive Officer and Director

Yeah. And just to add to that, I completely agree, John. We also, Tim, have a video rate increase that we've implemented starting July 1st, and that is of course associated with the programming increases and things that we've had throughout the year. So that is a significant increase as customers may call in about that video increase. We offer them alternatives and say, well, if the traditional video package we're offering doesn't meet your needs, can we consult with you on what streaming package might work, and that is also a way that we are converting customers off of the existing video platform.

Tim Nollen -- Macquarie -- Analyst

Okay. So it is an active effort to just do what you said convert linear TV subscribers on to another streaming service instead, which is more profitable for you...

Teresa Elder -- Chief Executive Officer and Director

To either -- yeah, to either high-speed data only if they have their own streaming services they were already subscribed to or high-speed data with one of our streaming services, absolutely, that is the philosophy. However, we also for those profitable high-speed data and video customers, we will have WOW! tv+ as a curated option that is on the IP network, which is our more efficient network.

Tim Nollen -- Macquarie -- Analyst

Yeah, got it.

Teresa Elder -- Chief Executive Officer and Director

So that's absolutely the strategy.

Tim Nollen -- Macquarie -- Analyst

Thanks.

Operator

We'll take our next question from Zack Silver of B. Riley.

Zack Silver -- B. Riley -- Analyst

Okay, great. Thanks for taking the questions. I wonder if you go back to the HSD net adds in the quarter, you guys put up good growth like many of the other operators. For you specifically, what was the biggest driver of that growth between churn and new activations? And in the new activations you saw, was that primarily new household formation, share shift away from DSL or winning customers away from incumbents?

Teresa Elder -- Chief Executive Officer and Director

Thanks, Zack, yeah, a good question. And one thing I would say, it's a combination of all those things. As we mentioned, we had some of the best churn numbers we've had in the company's history, part of that is involuntary churn and that relates back to the FCC pledge. We did have a number of customers that we put on those plans. Our plans were different than some of our competitors in that we did not launch any zero cost plans for customers. I think some of the others in the industry were giving like 60 days free. We didn't do that. We charge the customers and in fact, many of them are -- since the pledge ended on June 30 are already current with their bills and are being charged as always.

So it was a combination of certainly I think our high-speed data broadband service being a compelling offering, customers who were currently on it not wanting to leave us. There was some impact from the lower involuntary churn because of the FCC pledge, but we think that was a smaller piece. And I do think there are some customers through the pandemic who previously used just wireless that are now moving to broadband because they need to have both services. And clearly, we are continuing to be successful with those who are previous DSL customers who realize they need more speed. So it's been a combination of reasons, and existing customers taking higher speeds and more Whole-Home WiFi. So kind of benefits all around, and we feel like our services and our network have been well positioned to take advantage of that. Does that help, Zack?

Zack Silver -- B. Riley -- Analyst

Yeah, that's helpful. And one more if I could just going back to the Edge-Outs. The capex in the first half of '20 has come down quite a bit, and some of your commentary was around focusing on increasing pen [Phonetic] rates in the existing Edge-Outs. So should we read into that, that you may be moderating new home build Edge-Out capex going forward? And then how do we think about capital allocation toward new builds for Edge-Outs versus say paying down debt or share repurchase?

John S. Rego -- Chief Financial Officer

Yeah, so this is John. I -- we're looking at less capex this year than last year for sure. I think as Teresa said earlier, when we look at the '18 vintage to '19 vintage, the focus right now is to increase the penetration on what has been built. So it's very systematic the way we're looking at that. I think if you look at -- you look at our capex, excuse me, for the quarter versus a year ago quarter, you would find that is slightly higher, and most of that has to do with us actually proactively going out and increasing our CPE inventories under the fear that there might be like a supply chain issue this quarter because of COVID, but all the other components of capex have come down. And I would expect that, again as I said, capex for the year to be less than last year.

Zack Silver -- B. Riley -- Analyst

That's helpful. Thanks, John.

Operator

Our next question is from Kutgun Maral of RBC Capital Markets.

Kutgun Maral -- RBC Capital Markets -- Analyst

Great. Thanks for taking my questions. Two, if I could. First for John, I know it's only been five weeks since you've joined the company, so this might be premature, but as you slowly settle into the role and evaluate the company through a fresh lens, are there any specific areas you think you might be -- it might be worth reevaluating, whether it's the near-term or long-term allocation or sizing of capex, Edge-Outs, the balance sheet for the video strategy? I guess, put more simply, would it be fair to say the goal is to find ways to better lean into the company's broadband pivot as opposed to a broader strategic shifts, and I have a follow-up?

John S. Rego -- Chief Financial Officer

Yeah, so a great question. And it has only been five weeks, it feels like 10 weeks, but it was five. I think that yeah, I'm looking rather specifically into the efficiency of where the dollars are spent. As I told Teresa on my first day, just because it's in the budget doesn't mean you get it. So we're taking a good hard look at everything. But believe me, everything that I look at now is focused on two areas, one is to become a broadband-centric company that actually means something to me, that's why I took the job. And the other one is to move the company to a position to continually and increasingly generate free cash flow. So everything that I'm looking at will be revolving around those two things.

Kutgun Maral -- RBC Capital Markets -- Analyst

Understood, great. Thanks. And then just briefly on broadband, I know we should expect some variability in the back half, can you just help us think about how elevated churn might be in Q3 given the pledge roll off?

John S. Rego -- Chief Financial Officer

Yeah, to be seen, as we said we had an impact that we quantified for this quarter about $7.6 million. And by the way, we are expecting to have some negativity from COVID in Q3 and Q4 as well. My expectation is that, we're going to see a bit -- we're going to see a bit more in the bad debt arena, to be quite honest with you. So I'm building that into my own modeling just so you know.

Kutgun Maral -- RBC Capital Markets -- Analyst

Understand, all right, thank you.

Teresa Elder -- Chief Executive Officer and Director

And just to be clear on the FCC pledge, we as of June 30, we had about 4,700 customers resolved [Phonetic] that were labeled on what we're calling these essential services. And once again, we were still charging customers for those services, I would say over a third of them are already paying and back up current so far throughout July. So we're working closely as we always do, to be clear, we always work with our customers on payments and listen to them. So the pledge was consistent with kind of how we think about working with our customers anyway. But just to let you know the scale, they're not huge numbers.

Operator

Our next question is from Brandon Nispel of KeyBanc Capital Markets.

Evan Young -- KeyBanc Capital Markets -- Analyst

Hi, thanks for taking the question. This is Evan Young stepping in for Brandon. Verizon had recently announced that was expanding its 5G Home offering through Detroit, which we understand is a large market for you guys. How do you see that service from a competitive standpoint?

Teresa Elder -- Chief Executive Officer and Director

Thanks, Evan. Yeah, in terms of 5G, we really haven't seen much in terms of any impact in Detroit or for that matter anywhere else. We continue to watch it and remain focused really on our ability to execute. And from the wholesale perspective at times, it's an opportunity for us. But really the strength of our network is such that over time we could compete very favorably and even faster speeds, if needed on 5G -- than 5G. So we really haven't seen much impact at all in Detroit or anywhere else.

Evan Young -- KeyBanc Capital Markets -- Analyst

Great, thank you.

Operator

[Operator Instructions] And we have a question from Rob Williams of Octagon.

Robert Williams -- Octagon -- Analyst

Hi, Teresa, welcome aboard, John. Thanks for taking my question. One clarification, on that 4,700 customers on the FCC pledge plan, are they netted out of your subscriber numbers for this quarter or are those inclusive?

Teresa Elder -- Chief Executive Officer and Director

They are included...

John S. Rego -- Chief Financial Officer

No, they are in the subscriber -- sorry.

Teresa Elder -- Chief Executive Officer and Director

No problem, John.

John S. Rego -- Chief Financial Officer

They're in the subscriber numbers and appropriate bad debt reserves have been put up against some of those folks. That number of 4,700 by the way has come down post the quarter. So I think we're here below 4,000 as I speak.

Robert Williams -- Octagon -- Analyst

Okay, got it. Thank you. And then another question, just on the kind of speed upgrade side, you gave good color around 40% of your customers taking kind of 500 plus, what percent of your existing customer base throughout this time has been upgrading? It's great to see the new customers coming in, but how is the progress going there and kind of what room do you have to run that a little bit further?

Teresa Elder -- Chief Executive Officer and Director

Yeah, that's a great point. We have -- we don't give out exact percentages on the existing base, but I can tell you many, many customers that are in our existing base over the last few months have upgraded their service to higher speeds or added Whole-Home WiFi just as they've seen the demands that all of us are experiencing in our homes, with people working from homes and the kids gaming, as well as doing online learning, so that, that is also happening in a big way too.

Robert Williams -- Octagon -- Analyst

Okay, thanks. And actually just one quick kind of follow-up, if -- I don't know if you're going to give this one either. Just when you do go through and do those proactive video kind of move to OTT and other video product, what's the process there about working these people through that as well as potentially uptiering them to higher speeds? And that's it for me. Appreciate it.

Teresa Elder -- Chief Executive Officer and Director

Well, I think as a company we first start with where our customers are and what their needs are. And so it's a very consultative process right now reactively as customers may call in concerned about a service or interested in a new service, they've heard about WOW! tv+ or that they just like many people have looked at the bills and see that maybe they're using more streaming services than the traditional linear video. So we consult with them and are happy to transition them to high-speed data only with a higher speed, maybe Whole-Home WiFi, so that they can make sure that they're getting great video coverage or other coverage throughout every aspect of their home. And if they still really want that service from WOW! and they're in one of the markets where we've launched, we offer WOW! tv+. But right now as always, we are led by our customers and want to offer robust services to them that, that's the priority that we look at.

Operator

And that concludes our question-and-answer session. I'd be happy to return the call to Teresa Elder for any closing comments.

Teresa Elder -- Chief Executive Officer and Director

Well, thanks so much, everyone, and thank you, John, for your first call for WOW!. We appreciate all of you joining us this afternoon. Thanks for your continued interest in our business and your support of WOW!. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

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

Teresa Elder -- Chief Executive Officer and Director

John S. Rego -- Chief Financial Officer

Christopher Schoell -- UBS -- Analyst

Frank Louthan -- Raymond James -- Analyst

Tim Nollen -- Macquarie -- Analyst

Zack Silver -- B. Riley -- Analyst

Kutgun Maral -- RBC Capital Markets -- Analyst

Evan Young -- KeyBanc Capital Markets -- Analyst

Robert Williams -- Octagon -- Analyst

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