Shenandoah Telecommunications Company Price & Performance (SHEN)

Therefore, we have provided detailed discussion of various risk factors our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward looking statements. Except as required by law, we undertake no obligation to update or revise any forward looking statements. And with that, I'll now turn the call over to Chris. Go ahead, Chris. Thanks, Kirk. We appreciate everyone joining us this morning. And I hope everyone is well. We are pleased with our results for the first quarter of twenty twenty five with growth or subscriber improvements across all lines of business. Highlights for the quarter are listed on Slide four. First, we had another solid quarter of rapid growth our GLO fiber expansion markets. We added 5,400 new subscribers and 16,600 new passings and increased revenues by 52% over the same period in 2024. As we enter the last twenty months of the investment phase of our expansion, we're very excited about the growth prospects these greenfield markets will contribute to shareholder value. While we have reported on our track record of ramping up number of passings, customers and revenue for the past few years, we're also very excited about the potential free cash flow generation.

As an example, our mature market cohorts from fourth quarter twenty nineteen through third quarter twenty twenty three represent 51,000 customers with an average penetration rate 25%. These mature cohorts generated free cash flow margins of over 40% during the first quarter twenty twenty five after considering cost to connect new customers and maintenance CapEx. We expect these free cash flow margins to expand we approach our average terminal penetration rate of 37%. We believe this is an underappreciated value of our business and will be a catalyst for share price appreciation. We also saw improvement in our incumbent broadband business as we return to positive data RGU growth driven by 31 basis point reduction in churn to 1.36%. And ramping subscriber penetration in our newly constructed passings and areas. Our customers are reacting favorably to the enhanced rate plans and value propositions we introduced in the past year. Despite the elevated capital expenditures and constructing fiber to unserved homes with various government grant subsidy We expect to generate free cash flow in this mature line of business in 2025. Lastly, our commercial sales team had a record quarter for sales bookings of just under 200,000 in monthly recurring revenues.

While we still have work to do in accelerating service delivery and improving the quality of service for our carrier customers in our Ohio markets, sales bookings are an early indicator of future revenue growth With that, I'll now turn the call over to Jim to review the details of our financial results.

Thank you, Chris, and good morning, everyone.

Before I review our financial results, please note that we changed the recording of promotional discounts and certain revenues across our products.

And lines of business to better conform with industry practice. These changes are revenue neutral but do impact certain lines of business revenue disclosures and non GAAP metrics like average revenue per unit or ARPU.

We have updated the presentation of prior year revenues ARPU, and RGUs to conform with reporting changes for comparability purposes. Please see slides twenty one and twenty two in the appendix to the earnings call deck or the last two pages of the earnings release that we posted to our Investor Relations website this morning for 2024 revenue and metrics details under the prior and current reporting.

I'll now start on slide six for our financial results for the first quarter twenty twenty five. Revenues grew 27% to 87,900,000.0 The former Horizon markets contributed $15,200,000 of revenue. Excluding Horizon, revenues grew $3,500,000 or 5% over the first quarter twenty twenty four. Legacy Globe Fiber markets revenue grew 5,600,000.0 or 47% driven by an increase in subscribers. The legacy Glo Fiber revenue growth was partially offset by a decline in incumbent broadband markets revenue of 2,200,000.0 primarily due to 14% decline in video RGUs due to customers switching to stream video services. And lower installation equipment revenues. Adjusted EBITDA grew 43% to $27,600,000 The former Horizon markets contributed $4,400,000 of [indiscernible] Excluding Horizon, adjusted EBITDA grew $4,000,000 or 21% from the same period a year ago. Adjusted EBITDA margins increased from 28% in the first quarter twenty twenty four to 31% in the first quarter twenty twenty five. Driven by the high incremental margins of adding Globe Fiber subscribers and an additional 2,800,000.0 of Horizon synergy savings being realized. We expect to realize a total of 8,500,000.0 of incremental synergies in 2025 as previously guided. I'd now like to update you on our liquidity and debt positions on slide seven.

Liquidity was $335,000,000 as of March 31, including $88,000,000 in cash, dollars 143,000,000 in available revolver capacity, and $104,000,000 in remaining reimbursements available under government grants. As of March 31, we had $516,000,000 of outstanding debt Earlier this month, we executed an amendment to our credit facility to extend the July 2026 maturities of our our revolver and one of our term loans by one year in addition to increasing the net leverage covenant by a half a turn to 4.7 times. With the amendment, the first major maturity is now July 2027. As I noted during our earnings call, our last earnings call, we are planning to refinance our credit facility At this time, our preferred path to refinance is to access the asset backed securitization or ABS market for our fiber business and enter into a new credit facility for our incumbent broadband business. We believe this hybrid capital structure could provide us a lower cost of debt The amendment to our credit facility provides us additional time to restructure our lines of business reporting and back office systems to support this hybrid capital structure while lowering the risk that the current term loans will be reclassified as a current liability.

More to come on refinancing details in future quarters. And now I'll turn the call over to Ed.

Thank you, Jim, and good morning, everyone.

Our integrated broadband network shown on slide nine now passes more than 600,000 homes and businesses with Globe Fiber accounting for over 60% of our total passes. Our construction teams added almost 400 route miles of fiber in the quarter to expand Glo Fiber. Pass additional homes in government subsidized areas of incumbent broadband markets, and extend service to commercial customers. Our extensive regional fiber network now spans more than 17,200 route miles across eight states. Slide 10 provides additional details on our broadband passings and plans to substantially complete the construction phase of our glow fiber expansion project and government grant projects by the end of twenty twenty six. We started 2025 with 340,000 Glo Fiber passings and we added approximately 17,000 passings in the first quarter to bring our total to 363,000. By the end of twenty twenty five, we plan to reach a total 440,000 homes and we are targeting approximately 550,000 total Glo Fiber passings by the end of twenty twenty six as we focus on construction in areas meeting our return criteria. In our incumbent broadband markets, we started the year with 239,000 passings added approximately 2,000 additional passings the first quarter primarily as part of government grant projects to extend fiber to unserved areas.

We plan to reach a total of approximately two fifty four thousand incumbent broadband passings as we complete government grant projects in the remainder of 2025 and 2026. 800,000 homes and businesses with broadband service by the end of twenty twenty six. As we continue to increase our number of GloFibre passings customer net additions have accelerated as shown on Slide 11. The first quarter, we added 5,400 new customers, and approximately 6,100 total data, video and voice revenue generating units. Year over year, we grew our customer base by 51% and ended the first quarter with approximately 71,000 Global Fiber subscribers. Our total GloFiber revenue units reached 84,000 at the end of the quarter up approximately 48% year over year.

Broadband data penetration in our GLO fiber expansion markets climbed to 19.4% at the end of the first quarter. Up 18% from 18% a year earlier. And monthly broadband data churn for the first quarter remained very low at 0.9%. Our broadband data average revenue user increased slightly to more than $77 in the first quarter, as over 49% of our residential subscribers adopted speed tiers of one gig or higher including approximately 7% that took speeds of two gig or higher. On slide 12, we've updated our data penetration rates as markets mature and we are very pleased with our progress toward our average terminal penetration target of 37%. Chris noted earlier, passings released to sales from fourth quarter twenty nineteen to third quarter twenty twenty three ended the first quarter with an average data penetration rate of approximately 25%. Our most mature cohorts launched four or more years ago continue to show strong growth with a weighted average growth rate of more than one percentage point in the first quarter. Moving on to slide 13, we show our operating results for our incumbent broadband markets. In the first quarter, we added more than 500 broadband data subscribers with customer additions in our government subsidized markets more than offsetting losses in competitive areas.

We ended the first quarter with approximately 112,000 broadband data customers up 2.7% year over year due to the acquisition of approximately 3,000 broadband data customers from Horizon.

Data voice and video RGUs totaled approximately 163,000 at the end of the first quarter and remained fairly consistent year over year with RGUs acquired from Horizon partially offsetting losses in Shentel incumbent cable markets due to video customers moving to online streaming options. Monthly broadband data churn continued to improve in the first quarter. Down more than 30 basis points year over year to 1.36%. Our rate cards providing higher speeds and more value for the same price continue to be effective in mitigating churn while preserving broadband data ARPU of more than $83 Overall broadband data penetration decreased 46.5% at the end of the first quarter, down year over year due to the addition of acquired passings in Horizon ILEC territory and recently constructed government subsidized passings. We see significant opportunities to drive penetration growth in both of these areas over the next several years. Slide 14 highlights our commercial fiber business. And our record quarter for sales with new contracts for 196,000 in incremental monthly revenue. In the first quarter, our service delivery team installed 221,000 in new monthly revenue, and our remaining installation backlog is $549,000 in monthly revenue. We expect to install the vast majority of this backlog in 2025.

Average monthly compression and disconnect churn was up slightly year over year to 1.3% due to an expected re rate of certain T Mobile circuits in the first quarter. This contract was executed in 2021 included a January 2025 step down in price that remains in effect until early two thousand and thirty one. Capital spending for the first quarter and guidance for the full year are are shown on Slide 15. We invested $76,000,000 in the first quarter net of $7,000,000 in government subsidies. For the full year, we expect capital investments to be in the $250,000,000 to $280,000,000 range net of 60,000,000 to $70,000,000 in government subsidies. The timing of government subsidies are factors in our elevated spending in both commercial fiber and incumbent cable markets. And we expect spending to normalize as we receive additional reimbursement in the second half of the year. To date, have not been impacted by price increases due to tariffs, and we don't expect to see a significant impact on our future construction costs. Materials and equipment only account for about 20% of our overall capital investments in 2025, The vast majority of the fiber and associated construction materials we use are manufactured in The United States, we have about eight months worth of construction materials in our warehouses.

We could have future tariff exposure with electronic equipment particularly customer premise equipment like Wi Fi routers, cable modems, and video set top boxes. Most of this equipment is manufactured overseas, but we currently have more than six months' worth of equipment either in our warehouses or already in The US with firm pricing commitments. If this equipment is impacted by tariffs and price increases, we would likely increase monthly equipment rental fees to offset the cost increase. Overall, we think we are well positioned to execute on our capital plan this year and substantially complete the construction phase of our low fiber builds and government grant projects the end of twenty twenty six. Thank you very much, and operator, we're now ready for questions.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the q and a roster. Our first question comes from Frank Louthan from Raymond James and Associates. Please go ahead.

Great. Thank you. Just want to talk about the potential for some AVS securities. What rates do you think you can get? And do you think you can get it done a deal done this year? And then what is sort of the optimal Leverage here. We're really just trying to minimize the cost of the debt. We will also put in a revolver credit facility for the incumbent broadband business And as I think long term most likely that facility will likely be used in the short term but in the long term like the all of the debt will end up on the on the fiber side of the capital structure. All right. Great. And then can you walk us through sort of the tail end plan here of Glo Fiber? When will that that elevated CapEx investment be done? Is that year end 2026? And is that the point where we can expect CapEx to really fall off? And then once you're done with the current expansion there, what is a ongoing level of capital intensity we should expect going forward? Yes, Frank, we expect to complete the construction to get to the 550,000 passings through the end of twenty six.

So beginning in 2027, we think the capital intensity should drop to about 20% to 25% of our revenues. And we will we expect to be free cash flow positive in '27 and with meaningful amounts of growth in 'twenty eight and beyond as we continue to execute. There will still be plenty of growth left from the Glo Fiber business. As we continue to add customers there. Why would it still be that high? That seems very elevated to me relative to the industry and kind of historic norms. Is that still sort of running drops to houses and things like that for a couple of years? I mean, we think about it long term, you settle in at a decent penetration rate, why wouldn't capital intensity be in the mid teens? Frank, this is Ed. What you mentioned about installing drops to homes, that's a big factor here. As we install more drops and have those drops in place, that capital intensity does come down.

Okay, great. And one last question. Just impressive on the EBITDA side. Is this the new normal here for the level of EBITDA we should think about going forward? Or is there anything kind of one time that helped the margin? Or any seasonal costs coming up later this year that might walk that margin back a little bit? How should we think about the ongoing level of EBITDA? Yeah. Frank, is I was using your words the new normal. We do expect revenue and EBITDA to continue to grow as we've talked about in the past and that we expect the margins the EBITDA margins each year to probably grow 300 to 400 basis points a year. As we continue to add customers on the low fiber side. Very high incremental margins when we're adding a Glo Fiber customer. So 300 to 400 basis points for the whole company kind of EBITDA margin growth each year? Correct. Okay, great. Thank you very much.

Thank you.

Moment for our next question. Our next question comes from Hamed Khorsand. From BWS Financial. Please go ahead.

Hi. Good morning. First off, just wanna talk about the amount of subscriber growth you're seeing on the GlobalFiber side? Is it becoming difficult in adding that incremental one subscriber each quarter or you're not at that point yet? Yes, Frank, is excuse me, Hamed, this is Ed. Really, we're not at that point yet. Even our most mature markets that we launched four plus years ago, we saw one percentage point growth in the past quarter. So we're continuing to add customers two, three, four years after we launch a market.

And are you seeing any competitive pressures in any of these markets yet? [indiscernible] We have a small overlap with BrightSpeed roughly 5% of our passings We have seen them deploy fiber Other than that, we haven't seen any significant fiber deployments in our global fiber markets.

Are you changing your CapEx strategy based upon competition or you just don't think that's a factor?

No, we were building into a new area, we consider the competition. For example, if we're in a market and Verizon has already built Fios into a neighborhood, we avoid that neighborhood. So we are targeting passings where we are the only fiber provider really the only wired broadband competitor is the cable company. And then I'm just trying to understand the refinancing topic. It sounds like you were going through this integration process with Horizon but now it sounds like you're going through it on integration standpoint, if that's even a word. Process just to get this refinancing done and is that I'm just trying to understand the cost basis here. You're trying to save on interest rates, but then isn't there a cost factor as far as this kind of restructure is concerned? Ahmed, just internal projects more than anything here. But for us, to be able to save 100 basis points on roughly $700,000,000 of funded debt. Is pretty meaningful to us. So the internal work that we're doing on this is going to take several months. We expect to likely access the ABS market in the second half of the year. But we think it's well worth it to say roughly $7,000,000 of interest expense a year.

Okay, thank you. Okay. Thank you. Thank you.

As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced.

This concludes the question and answer session. I will now turn it back to Jim Bulk for closing remarks.

Thank you, everyone, for joining. We look forward to updating you on progress in future quarters. Have a great day.

You for your participation in today's conference. This does conclude the program. You may now disconnect.