Q4 2020 Shenandoah Telecommunications Co Earnings Call
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Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time of your lines will again be placed on music hold thank you for your patience.
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Good morning, everyone and welcome to the Shenandoah Telecommunications fourth quarter 'twenty 'twenty earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Kirk Andrews director of Finance.
The planning and analysis, where she can tell.
Good morning, and thank you for joining us the <unk>.
Today's call is to review <unk> results for the fourth quarter and full year of 2020.
Our results were announced in a press release distributed this morning, and the presentation will be of revealing is included on the investor page at our website www dot gentle dotcom.
Please note that an audio replay of this call will be made available later today.
The details are set forth in the press release announcing this call.
With us on the call today are Chris French President and Chief Executive Officer, Dave Heimbach, Executive Vice President and Chief operating Officer, and Jim Volk, Senior Vice President of Finance and CFO.
After our prepared remarks, we will conduct the question and answer session.
Please let me refer you to slide two of the presentation, which contains our safe Harbor disclaimer and remind you that this conference call may include forward looking statements object of certain risks and uncertainties.
These may cause our actual results to differ materially from the statements.
Therefore, we have provided a detailed discussion of various risk factors in our SEC filings, which you're 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 publicly update or revise any forward looking statements.
That I will now turn the call every day, Chris go ahead, Chris.
Thanks Kirk.
We appreciate everyone joining us this morning, and I hope, everyone staying healthy and safe.
As reflected on slide four we had a record year of broadband results with about 18800 high speed data net additions more than two five times higher than 2018 and 19.
Our success was driven by excellent execution of our growth strategy that we accelerated over two years ago, when Dave joined the company.
We now have three last mile of broadband networks tied together by over 6007 hundred route miles of fiber.
Our largest and most developed network the income of cable business.
Added over 14600 net additions due to strong demand for faster data speeds at of fair value from our customers, who are increasingly working and learning from home.
Glo fiber contributed 4000 net additions in its first full year of operations.
Feeding our expectations for construction pace penetration rates and churn.
Glo has validated our investment thesis and we plan to accelerate the pace of expansion.
Are being fixed wireless broadband service was launched in late October and contributed approximately 100 net additions.
Dave will provide more detail on these outstanding results later on the call.
Turning to slide five we now have product offerings to serve a variety of market dynamics with our glo fiber service targeting higher density urban markets and being fixed wireless service targeting lower density rural areas.
We now reach approximately 247000 homes passed an increase of over 38000 from the end of 2019.
We plan to accelerate our investments in both globe and beam and expect to reach approximately 730000 homes passed over the next five years.
The common denominator in all of our offerings is to provide the leading high speed Internet service available in each market combined with superior local customer service.
With projected global being terminal penetration rates in the low to mid thirties percent range.
Incumbent cable penetration in the mid 50% range, we expect our broadband business to have industry, leading sustainable growth for the next several years.
Moving to slide six I'd like to transition now and provide a brief update on the pending sale and expected use of proceeds that we announced earlier in February.
With the T mobile exercise of the purchase option of or P. C. S assets in the operation and the determination of the sales price behind US. We're now focused on executing the asset purchase agreement in the first quarter.
In obtaining required regulatory approvals and closing the transaction in the second quarter.
After the sales completed we of course will have to pay taxes and will need to pay off our existing credit agreements.
Our board of Directors will then meet to consider the special dividend and set the record and payable dates.
The first full year of Glo fiber as operations and the launch of beam where significant accomplishments for 2020 as was the work leading up to the successful outcome to the appraisal process for the Pcs sales.
But the most proud of how our entire organization address the impact of the pandemic.
They quickly took steps to protect our employees, while continuing to provide service and support for our customers.
The year was perhaps one of the most challenging in our company's history.
The team not only met the challenge, but became stronger and the process.
I'm very pleased with how our organization responded and how well she until it is positioned for a very bright future.
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.
Please refer to slide eight to discuss of our financial results for the fourth quarter.
<unk> revenue grew seven 8% to $53 7 million in the fourth quarter 2020.
Driven by an increase of $4 3 million or 11, 6% growth in residential and SMB revenue due primarily from of 22, 3% increase in broadband data net data of RG use.
Commercial fiber revenue grew 700000, or eight 7% to $8 7 million driven by higher enterprise to backhaul connections.
Our life and other revenue declined $1 1 million or 25% to $4 2 million, primarily from lower DSL subscribers and intercompany phone service.
Broadband adjusted OIBDA for the fourth quarter grew 700000 were three 5% to 21 4 million from the same period a year ago.
The revenue increase of $3 9 million was partially offset by higher maintenance costs of $1 2 million in compensation expense of $1 8 million due to a combination of glo fiber and the startup staffing higher incentive expense from strong operating results and enhanced benefit plans.
On slide nine.
Power segment revenue grew 24% to $4 6 million and adjusted EBITDA grew 18, 9% to $2 9 million for the fourth quarter 2020 due to the.
Five 5% growth in tenants and 16, 2% increase of the average lease rate due to amendments to the intercompany leases.
Moving to slide 10, consolidated revenue grew eight 5% to $58 1 million in the fourth quarter 2020.
Consolidated adjusted EBITDA for the quarter grew 24% 15.
$15 7 million.
The increase was due primarily to the strong growth in towers and of one 5 million reduction in corporate expenses.
Turning now to the full year 2000 of 'twenty results on slide 11.
Broadband revenue grew year over year of five 4% to $204 3 million in 2020, driven by an increase of $12 7 million or eight 9% of residential and SMB revenue due primarily from the 22, 3% increase in broadband data RG use.
Commercial fiber revenue grew $2 3 million or seven 7% to $32 8 million driven by higher enterprise and backhaul connections.
Our <unk> and other revenue declined $4 7 million from 22%.
The $16 6 million, primarily from the lower DSL subscribers government support and intercompany phone service.
2020 broadband adjusted OIBDA grew 400000 to $81 5 million from 2019 as revenue growth was largely offset by higher compensation.
Software fees and professional service expenses.
Compensation expenses.
Increases were primarily due to new hiring for the launch of <unk> and increasing the support staff of Glo fiber in the four new markets that we launched the 2020.
In addition to COVID-19 supplemental pay for customer facing employees during the second quarter.
On slide 12.
Tower segment revenue grew 31, 3% to $17 1 billion and adjusted EBITDA from 29, 7% to $10 7 million for 2020 in comparison to 2019.
Due to 5% growth of tenants and 23, 4% increase in the average lease rate due to amendments to the intercompany leases.
Moving to slide 13.
Consolidated revenue year over year of six 7% to 202.
The $220 8 million in 2020.
Consolidated adjusted EBITDA grew 15, 8% of $57 2 million during the same time period.
The increase was due primarily to strong growth in towers, and the $5 million or 12, 5% reduction in corporate expenses.
We are also reaffirming our 2000 of 21 outlet that we disclosed earlier this month.
Consolidated revenues to be $241 million to $248 million and adjusted OIBDA to range between 69 and $76 million.
Moving to slide 14, we ended the fourth quarter was $698 million of debt with an effective interest rate of two 3% and $270 million of total liquidity, including $195 million of cash and equivalents.
Continuing operations had $67 million of negative free cash flow in 2020, driven primarily by $59 million of Capex and $5 million negative contribution to adjusted EBITDA for Glo fiber.
Our discontinued wireless operation has generated strong free cash flow of $232 million in 2020.
And now I'll turn the call over to date.
Yeah.
Thanks, Jim and good morning, everyone I'll begin on slide 16, with our incumbent cable business and which total RG use grew a robust seven 9% year over year in the fourth quarter to approximately 182300 compared to approximately 168900 in the same period in the prior year.
We added roughly 2100 net broadband data RG use in the quarter and ended the year with 98500 data or would you use which is an exceptional 17, 4% increase to the prior year period.
We're also very pleased to report that our income and cable broadband data penetration rate increased from 46% in the fourth quarter last year to 47, 2%. This quarter on the continued strength of our new broadband data speeds, our new rate card service improvements and increased demand related to the pandemic.
Income and cable broadband data churn in the fourth quarter continued to improve declining 10 basis points versus the prior year quarter to an impressive 154% representing the 15th consecutive quarter of year over year churn improvement.
Broadband data average revenue per user in the quarter increased slightly versus the prior year period to $78.14 as our new powerhouse branded rate card leveraging an improved value proposition based on our DOCSIS three one speed upgrades now comprises 74% of the base.
At the end of the fourth quarter 2019.
35% of incumbent cable data customers were on rate plans of 10, megabits per second or less whereas now 79% are on plans of 25 megabits per second or higher with an average subscribed download speed of 83 Megabits per second which is well beyond the reach of our DSL competitors.
Turning to slide 17, as Chris mentioned at the start of the call. We had an outstanding first full year executing our new fiber to the home edge out strategy Glo fiber flow had approximately 5800 total RG use at the end of the fourth quarter, where the 14, 5% aggregate broadband data penetration rate across all markets comprised of <unk>.
Over 4000, new glo fiber customer relationships.
We continue to see extraordinarily low churn in our glo fiber high speed data product.
With less than 1% churn in the quarter Dot eight 8%.
Broadband data our pool was down sequentially to 77 in the quarter in the quarter as a result of new activation revenue timing.
But not due to discounting in fact, we continue to see a higher percentage of new subscribers of electing our higher priced gigabit speeds here with 44% of new subs in the quarter adopting this plan comprising 40% of the overall glo fiber base.
Our streaming TV and voice services continued to perform very well with 28% and 15% attachment rates in the quarter respectively.
At the end of 2020, 67% of Glo fiber customers were single play broadband data only 25% of subs were in the double play and 8% were in the Triple play.
Slide 18 depicts the status of our active and approves glo fiber markets as at the end of the fourth quarter.
Our first glo fiber market in Harrisonburg, Virginia reached 18, 6%.
The band data penetration at the end of the year with some of our most mature of neighborhoods in that community approaching our target terminal penetration rate.
Construction efforts are progressing very well and also exceeded our expectations in the fourth quarter and indeed all of 2020 in spite of concerns of delays related to COVID-19.
Approximately 6300, new residential and small business passengers were constructed and released the sales in the quarter with a total of 27000.
Glo fiber addresses added in 2020 and just under 29000, the overall at the end of the year.
We launched the Salem, Virginia market in January and we expect the construct and released the sales of approximately 45000, new glo fiber passing us by the end of 2021, bringing the total active passive to approximately 74000.
In total Glo fiber has approved franchised targeted passing of approximately 117000 with the strong funnel of additional markets in our edge out strategy as we start 2021.
On slide 19, we have depicted our fiber cable and fixed wireless broadband footprint.
This map really helps illustrate the integrated nature of our broadband networks and how operating leverage will increase over time, given the overlap of an adjacency of our operations and our growing footprint.
This quarter, we've updated the map to include launched been fixed wireless markets. We constructed 25 being macro sites in 2020 servicing nearly 9500 target households, and resulted in roughly 100, new beam subscribers at the end of 2020, and Albemarle Augusta Louisa and Rockingham counties in Virginia.
We plan to construct 70, new bean sites in 2021 and increased target households passed to approximately 45000 as.
As Chris stated at the start of the call combined our multi pronged broadband growth strategy were more than tripled homes passed to over 730000 in the next five years will.
We will continue to update you on the status of both our glo fiber and beam Internet expansion plans as we continue to progress in our market development and construction efforts.
Turning to slide 20.
Total tower tenants increased five 7% year over year to 427. This includes 221 intercompany tenants primarily.
For our.
Our wireless business.
We had a backlog of 151 open orders related to upgrades of existing tenants or the addition of new tenants at the end of 2020.
Finally, slide 21 provides an update to our 2020 capital spending results and guidance for our continuing operations for 2021.
We're no longer providing wireless guidance as a result of the pending sale and discontinued operations presentation.
Capital expenditures were $120 million in 2020 compared to $67 million in 2019.
The primary driver of the year over year increase relates to the investments in our glo fiber and beam internet fixed wireless broadband initiatives.
For 2021, our guidance for the full year is $157 million to $168 million as we continue to invest aggressively in the expansion of our fiber cable and fixed wireless networks.
Of the $55 million to $60 million of capital spend in our legacy broadband operations approximately 24 million of success based and supportive of continued growth in our commercial and wholesale fiber business and the increase in broadband data penetration, we expect to achieve in our income and cable markets.
Of the 100 to 105 million of Glo fiber and beam related capital spend in 2021, approximately $74 million is related to design and construction of new fiber and fixed wireless target passing and $13 million is related to connecting new fiber and fixed wireless subscribers.
Thank you very much and operator, we're now ready for questions.
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Yeah.
At this time, if you'd like to ask a question. Please press star one on your telephone keypad.
Thats Star one to ask a question.
Your first question comes from the line of her mid core fan with B Ws financial.
Hey, Good morning, I was just the first question I had was about the Gulf fiber I was looking to see if you're seeing this kind of.
Penetration in results from subscribers early on.
That promote competition to come in and how do you.
Create of mode. So youre not seeing increased competition that you're seeing early success.
Hey, good morning, how net this is Dave thanks for the question.
The competitive landscape in the markets that we have targeted for glo fiber is is.
Universally the.
The the case, where the incumbent lack or the income and phone company is only providing DSL based services and the the vast majority of the share of belongs to the incumbent cable company.
We believe that.
With the construction of a fiber network.
Which you know as I'm sure you can appreciate is it's pretty disruptive.
The community.
That that in and of itself getting franchising.
Permitting and completing the construction as a as a competitive moat in and of itself just having developed and deployed the infrastructure number one number two we believe that the value proposition of of fully symmetrical.
Future proof fiber based connection which is far superior to anything anybody else can get in these markets is the second aspect of of that competitive moat and thirdly, we think that those services provided by a local company that is.
<unk> is adding jobs in investing in these communities.
Is going to you know agenda of lot of goodwill amongst the subscriber base as well as the communities at large and so.
We're not particularly you know theres a lot of things that keep us up at night, but but the the competitive encroachment of of somebody else.
It is not is not one of those we're monitoring the the competitive response by the cable income, it's very closely but thus.
Thus far we've we've had success and don't see any signs of that slowing.
Okay and my other question was are you seeing any seasonality in the business now the COVID-19 restrictions are loosening or is it just too early.
Too early for that I'd say, the only seasonality we are seeing at the start of the first quarters. We've had a lot of unpleasant whether in this part of the country of lot of snow and ice storms and that that's hampered construction efforts.
Toward the door selling efforts here more.
More recently, but obviously as the weather warms up it's going to be close to 60 degrees here today, we think that'll turn.
Okay, great. Thank you.
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As a reminder to ask a question you will need to press star one on your telephone keypad again, Thats star one to ask a question.
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Okay.
I am showing no further questions at this time I would now like to turn the conference over to Jim Volk CFO.
Well. Thank you everyone for joining our call this morning.
We look forward to keeping you updated on our progress with our broadband growth strategy in future quarters, how does the day.
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Thank you for participating you may disconnect at this time.
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