Q2 2021 Shenandoah Telecommunications Co Earnings Call
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Good morning, everyone welcome to the Shenandoah Telecommunications second quarter 2021 earnings conference call.
Today's.
This is being recorded at this time I would like to turn the conference over to you Mr. Kirk Andrews director of financial planning and analysis portion town. Please go ahead.
Good morning, and thank you for joining us.
Purpose of todays call is to review <unk> results for the second quarter of 2021.
Our results were announced.
The press release distributed last night on the presentation, we'll be reviewing is included on the Investor page at our website Www Dot Centel dot com.
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.
Comp President and Chief Executive Officer, Ed Mckay Executive Vice President and Chief Operating Officer, Jim Volk, Senior Vice President of Finance and CFO.
After our prepared remarks, we will conduct a question and answer session as always let me refer you to slide 2 of the presentation, which contains our safe Harbor disclaimer.
I'll remind you that this conference call May include forward looking statements subject to 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.
And not to place on.
French reliance on these forward looking statements, except as required by law, we undertake no obligation to publicly update or revise any forward looking statements.
With that I'll now turn the call over to Chris go ahead, Chris.
Thanks Curt.
We appreciate everyone joining us this morning, and I hope everyone is staying healthy and safe.
Safe It took 3 years since sprint announced a merger with T mobile, but we're very pleased to have completed the 1.94 billion dollar sale over wireless assets and operations to T mobile on July 1st.
The sales successfully completes a 25 year chapter in the history of shouldn't tell and allows us to temporary.
For like Delever, our business returned significant value to our shareholders and fully focus on our rapidly growing broadband business.
Immediately following the sale, we repaid all of our outstanding term loans totaling $681 million.
And our board of directors approved an <unk>.
$18.
75 cents per <unk> per share special dividend totaling approximately $937 million.
The special dividend will be paid on August 2nd.
As we look forward to growing our broadband business, we closed on a $400 million new financing facility that will provide growth capital.
Expand our broadband networks from 279000 homes and business passing on to 730000 passing.
Jim will provide more details on the financing shortly.
During the second quarter, we also began to transform our cost structure around our broadband and tower businesses.
2 we announced work force reductions in April that will allow us to realize $1.7 million in annual run rate cost savings and continuing operations as we exit the second quarter.
As we complete these previously announced reductions we expect the annual run rate cost savings to grow to $3.3 million as we exit the third quarter.
And $4 million as we enter 2022.
Shifting now to our broadband network expansion on slide 5 we continued our strong construction momentum in the second quarter with 19000, New pass things being added with a total pass things now just under 279000.
Our.
Fiber branded fiber to the home business added 12000, new passing doubling the pace of the last 2 quarters, including the launch of service in the Virginia markets of Roanoke in Lynchburg in April.
Are being fixed wireless network added over 6500, passing is during the quarter with their beam service now available.
Payable to over 21000 homes in Southern Virginia, and West Virginia counties.
We expect our integrated broadband network to reach approximately 329000, passing by the end of 'twenty 'twenty 1.
Turning to slide 6 broadband data net additions were over 3900.
Despite the seasonal bump in churn due primarily to college student move outs in several of our markets.
The second quarter was a pivotal turning point in the mix of our net additions with glo fiber and beam now contributing over 50% of on net adds.
We anticipate this trend will continue over the next several years.
Net additions over the last several quarters and a reduction in corporate expenses were the primary drivers in the outstanding revenue and adjusted OIBDA growth during the second quarter.
Before turning the call to our financial results I'd like to introduce Ed Mckay, who was recently promoted to Chief operating officer on July 2nd.
It has been with shouldn't tell for over 17 years, most recently, serving as senior Vice President of engineering and operations.
It is an outstanding leader and has been instrumental in the growth and the launch and growth of our Glo fiber had being new services, making him a natural successor to lead our operations.
<unk> next chapter of a broadband centric business.
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 8 to discuss our financial results for the second quarter.
Broadband broadband revenue.
Vincent grew 12, 2%.
$6.2 million driven by an increase of $6.3 million or 16, 7% in residential and SMB revenue due primarily from a 23% increase in broadband data are to us.
Our.
Like in other revenue declined $400000 or 8.8% to $3.7 billion, primarily from fewer DSL subscribers and lower government support.
Broadband adjusted EBITDA for the second quarter grew 500000, or 2.5% to $20.3 million from the same period a.
New zone.
The revenue increase of $6.1 million was partially offset by $5.6 million in higher expenses.
$3 million of the increase supported the expansion of our glo fiber and beam services, including $1.2 million of compensation Commission expense.
$1.1.
On a advertising telemarketing expenses.
700000 of maintenance and line costs.
Software and professional fees increased $1 million due to enhancements in our to our back office systems.
We also incurred a recurring increase in video programming fees totaling 500000.
And on nonrecurring increase in franchise and regulatory fees of 500000.
On slide 9 towers.
Tower segment revenues grew 8.3% to $4.6 million and adjusted EBITDA grew 9.3% to $3 million for the second quarter of 2012.
1 due to an 8.5% growth index.
Moving to slide 10.
Consolidated revenues grew 11, 7% to $67 million in the second quarter 2021.
Solid date adjusted EBITDA for the quarter grew 29, 6%.
<unk> $16.3 million.
The increases were primarily due to strong broadband and tower revenue growth and a 30% decline in corporate expenses.
The decline in corporate expenses were due to a combination of lower compensation legal and professional fees.
Please note that effective with the wireless.
T T mobile will now become our largest customer representing approximately 75% consolidated revenue.
Turning now to full year 2021 outlook on slide 11.
We are reaffirming our 2021 outlook with consolidated revenues.
Let's see I did around the midpoint of the $241 million to $248 million range.
Adjusted EBITDA expected in the lower end of the $69 million to $76 million range due to higher non recurrent expenses primarily related to the wireless sales transactions.
We ended the second quarter with cash and equivalents of $248.8 million, an increase of $19.6 million from the first quarter 2021, due to strong free cash flow from our wireless segment reported as discontinued operations.
Moving to slide 12.
We reflect our liquidity.
The position pro forma for the wireless sale special dividend and the new financing transactions that Chris noted earlier.
We expect over $480 million on liquidity will fully fund our business plan until we returned to positive free cash flow in 2024.
On slide.
Slide 13, we summarize certain key terms of the new credit facility that we closed on July 1.
The $400 million facility consists of $300 million and delayed draw term loans.
$100 million on our revolving line of credit.
We do not expect to draw on the new facility into the fourth quarter when we make.
Liquidity debated income tax payments related to the wireless sales.
We have significant financial flexibility with our new facility to add incremental debt up to 4 times total net leverage that will allow us to be opportunistic on the mergers and acquisition front.
Pricing on the <unk> of the new facility is attractive.
Reflecting the strong credit profile of our broadband centric business.
We expect total net leverage to generally be below the 225 times ratio for most of the life of the facility excluding the impact from any potential acquisitions.
And now I'll turn the call over to Ed.
<unk>.
Good morning, everyone.
I'll begin on slide 15, where we show our free primary product offerings.
<unk> income with cable networks serve both small towns and rural areas with gigabit broadband voice services and cable television services across 211000 homes and businesses in Virginia, West, Virginia, Maryland, and Kentucky.
Our glo fiber service targets higher density urban and suburban areas, while are being fixed wireless Internet service targets lower density rural areas, where can be cost prohibitive to build fiber or cable.
We now past 279000 homes and businesses with our broadband services.
This represents an increase of over 58500 were.
Almost 27% from the second quarter of 2020.
Our glo fiber service is starting to edge out of our original markets to areas with less existing central fiber and then the lower density suburban neighborhoods, where utilities tend to be underground.
On the suburban areas have a higher cost to pass, but also typically have a higher penetration rate.
Based on our performance to date, we have increased our target terminal penetration is low for close to 38% and on.
Cost per passing is also increased to between 1000 and $1400 as we construct these lower density areas.
We continue to expect our broadband business to have industry, leading sustainable growth as we build out our networks over the next several years.
Years.
Turning to slide 16, we have depicted our rapidly expanding broadband network. Now consists of over 7000 route miles of fiber connecting our income at cable glo fiber and fixed wireless broadband networks.
In addition to launching Glo fiber service and Renault convinced Berg, Virginia during the second quarter, we reached franchise.
Agreements with Mount Bill Boro, and East Haddonfield Township outside of Lancaster, Pennsylvania.
You know being fixed wireless footprint, we launched service on 7 additional counties 6 in Virginia, and our first county, and West Virginia.
Let's move on to our operating results in the second quarter, starting on slide 17.
And our income at cable business total Archie used grew 6% year over year on the second quarter to almost 186800 compared to about 176100 in the same period during the prior year.
We added nearly 1800 net broadband Archie us to end the quarter with approximately 103500.
This is a significant increase of 13, 2% compared to the same period in the prior year.
Our income at cable broadband data penetration increased from 44, 1% in the second quarter of last year to 49, 1% this quarter.
The value of our broadband rate card combined with service improvements in field operations.
Customer service are the primary drivers behind our success.
<unk> also leverages the net promoter score research metric as an indicator of our overall customer satisfaction.
We have seen a dramatic increase in our broadband customer net promoter scores over the past 2 years growing from a 10% weighting in the second quarter of 2019 to a 39.
9.7% weighting in the second quarter of this year.
Broadband data average revenue per user in the quarter increased modestly versus the prior year period to $78.48.
Driven by our powerhouse branded rate card.
80% of our broadband data subscribers are now on plans of 25 megabits per second or higher.
With an average subscribed download speed of 85, Megabits per second which is well beyond the reach of our DSL competitors.
Although churn in the second quarter increased by 26 basis points year over year to 1.59% churn remains significantly lower than pre COVID-19 levels.
Turning to slide 18 for Glo fiber.
We had approximately 9900 total RG use at the end of the second quarter with a 15, 5% aggregate broadband data penetration rate across all markets.
Our glo fiber customer relationships increased over 5800 year over year to end the quarter at almost 7200.
<unk> for broadband data churn rate did increase 48 basis points year over year to 1.15%, but the prior year number was based on an extremely small customer base.
We continue to be very bullish on our residential and small business fiber edge out strategy and a low churn on broadband service.
Glo fiber ARPA.
On a year over year to $73.66 for the quarter. However, this is due to a beginning of the year the accounting change for deferred revenue from the account level to the product level.
In the second quarter of 2021, 55% of new subs adopted our 1 gig speeds here, which now process.
46% of the overall glo fiber customer base, an increase of 3% quarter over quarter or.
Our streaming TV and voice services continue to perform very well with 23% and 14% attachment rates in the quarter respectively.
At the end of the second quarter of 2021, 70% of Glo fiber customers with single play broadband.
<unk> was down 23% were in a double play and 7% were in a triple play.
Slide 19 depicts the status of our active and approved low markets.
As of the end of the second quarter.
The band data penetration in our most mature markets of Harrisonburg, Staunton, Virginia have reached 22, 4% and 20.
<unk> percent respectively.
And we first launched Glo with 1700 households passed in the fourth quarter of 2019.
We now have reached 31% penetration in these neighborhoods after only 18 months.
We now have approximately 46400 residential and small business passing is constructed and released.
Sales in our construction rate of almost 12000, new passenger this quarter was more than 50% higher from the same period last year.
Yes.
Low target passing an all franchise approved markets now exceed 200000, as we continue to add new municipalities in the surrounding counties to our plants.
Engineering and construction work is now underway in all approved markets as we work toward our goal of bringing bringing multi gigabit symmetrical low latency service to 300000 Glo fiber passing from the next several years.
On slide 20, we've highlighted our early results from for our emerging beam Internet fixed wireless broadband service as a reminder.
This is a purpose built fixed wireless network leveraging license 2.5 gigahertz and 3.5 gigahertz. Some mid band spectrum standard space, <unk> ready LTE technology, and commercial grade towers, and small cells that are predominantly 5 or fit.
We provide a highly reliable low latency service using high gain outdoor antennas.
Is that the customers home and the same robust indoor Wi Fi technology that we leverage for arc low fiber and new income on cable customers.
We completed 9 new beam Internet sites in second quarter, and we now have a total of 36 sites on air.
Our target markets are low density rural areas without cable or fiber internet options.
We currently have service available over 21000 target households, and we expect to approximately double this number by the end of the year.
We increased our being broadband data Archie used by about 70% in the past quarter.
Penetration in this early stage investment is now 3.9%.
We are encouraged by our strong churn numbers of approximately 1%.
And our pool of over $72.
We continue to see approximately 2 thirds of our customers adopting the $80 per month 50 megabit per second speeds here.
Yeah.
Turning to slide 21.
Total tower tenants increased 8.5% year over year to 448. This includes 230.
9 intercompany tenants, primarily for our wireless operations.
At the end of second quarter, we had a backlog of 160 open orders related to upgrades of existing tenants or the addition of new tenants, including 15 applications from dish as they begin to build their national 5 day network and on a market.
Finally slide.
Slide 22 provides current and your current year to date capital spending results and guidance for our continuing operations for 2021.
Capital expenditures were approximately $80 million through the second quarter of 2021 compared to 52 million in the same time period in 2020.
Low fiber and beam internet fixed wireless expansion of the drivers behind that.
Increase with year to date capital investments of approximately $45 million and 7 million respectively.
On the $27 million in capital spending in our legacy broadband business almost $13 million is success based in support of our continued growth in our commercial and wholesale fiber business and our increase in broadband data penetration.
We are confirming our guidance on capital spending for the year of between 157 and $168 million as we continue to invest aggressively in expanding our fiber and broadband networks, given our accelerated glo fiber construction, we are likely to come in on the high end of that capital spending range.
Thank you very much and operator we're.
We're now ready for questions.
Thank you.
To ask a question you will need to press Star then 1 on your telephone to withdraw your question. Please press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Ric Prentiss.
With Raymond James Your line is now open.
Hey, good morning, guys.
Hey.
Hey couple of questions first as we listen to what's out there we get a lot of questions on supply chain and Covid related questions I'll talk just a little bit about your.
You're a supply chain.
Building out the beam on the globe as well as labor force to to hit kind of the the targets for the homes passed.
Yeah. Rick This is Ed I'll I'll comment on that we have seen a definite increase on the lead times required for our materials for glo fiber construction.
And that includes a customer premise equipment as well, where now ordering fiber over a year in advance we're ordering CPE a year in advance as well and we have a lot of fiber right now Oh warehouse. So up to this point, we have not had any impact on our construction schedule because of the supply chain issues, but we're monitoring that very.
Closely.
From a labor perspective.
We're monitoring that closely as well, but we have not had any problems at this point getting contractors.
Into our network to build on networks.
Makes sense.
And then obviously been a very busy summer, so far which I continue to be busy.
You mentioned a couple of times opportunistic on the M&A front can you talk to us a little bit about what is happening out there in the in the broadband universe, both maybe near your footprint and anything outside of footprint.
[noise] fluctuate near our footprint, there and there's just not a lot of opportunities right now it's pretty high.
Valuations, but we're being very disciplined in our on our M&A approach. We believe we have significant upside in our organic growth plan, but we're monitoring this closely.
And anything outside footprint, a large ones that are being shopped around out there.
Nothing at this point to comment on now.
And the final 1 from me on the tower business, how should we think about the potential for churn.
You mentioned T Mobile's 7.5% of consolidated revenues, how should we think about.
What might happen with the tower portfolio.
And related question, you mentioned 160 quarters backlog, what's kind of the process on you guys are targeting to get amendments and new co lows on the towers.
It's typically.
Fairly long process.
We'll likely see some of that revenue in the fourth quarter, but most of the.
Revenue from new tenants, particularly at.
Dish network build out you won't see the impact of that until 'twenty 'twenty, 2 but you know with T. Mobile, we certainly think there will be some rationalization on the network. We don't have the exact details at this point, but in general we don't expect that rationalization to occur until after they turned down.
<unk> CDMA network, and we don't expect that to happen.
Until 2022.
As far as cell site backhaul that we provide now to T mobile.
That's governed under a separate agreement has industry standard early.
Early termination provisions embedded in that.
And from a tower portfolio standard.
Standpoint, we don't consider that to be a strategic asset. So we would consider monetizing that to fund a more transformative broadband acquisition as opposed to issuing credit in the future are true.
Issuing equity in future.
Makes sense, okay. Thanks, guys stay well.
Thank you Rick.
Thank you.
Next question comes from the line of day in day with B Riley Securities. Your line is now open.
Yeah, Hey, yeah. Good morning, everybody. Thanks for taking my questions. So the the 300002 hundred 15000 homes passed targets for or go out with beam respectively.
Can you maybe just.
Provide some commentary on and that's for 2026 I believe.
What what needs to happen for you to either kind of material.
Seed or missed those numbers just kind of same question from the targeted penetration rates just sort of looking for the level of variance and then to puts and takes on what we might need to think about for those numbers.
In the coming years.
We feel very good about the construction plan at this point as we said earlier, we already have over 200000 franchise households passed in the pipeline, where we're actively doing.
Engineering and construction work right now so we feel very good about the construction there we are keeping an eye.
On some of the Universal broadband funding is out there. We believe that's probably more of an opportunity right now that a threat to us that's funding is not going to be available.
And areas that we serve either with with the incumbent broadband business or was slow.
We do think with the level of funding is proposed in the.
State of Virginia for example, there could be additional opportunity for us to build out glo fiber to the home, but as that glo fiber to the home opportunity increases that could decrease our total total addressable market for our beam service, but we have the ability to shift resources from beam to blow as needed and we're prepared to do that.
Got it got it. Thank you and then a follow up on.
Pricing for being just I know, it's very early days in that product on a couple of hundred subscribers right now I'm just.
2 thirds it sounds like are in sort of that middle tier how do you think about how its always tough pricing.
New product how do you think about maybe tweaking pricing do you think you have it right, especially for that higher tier maybe to induce switching from from satellite just anything on pricing would be would be great.
We think we have it right. We have 3 tiers currently we start out with a $60 per month 25 Meg plan.
On the move to a $50 per month plan or excuse me 50 Meg per month.
$80 and then we'd have a higher 100, Meg plan at $160 per month.
But I think with these rural customers.
The reliability is most important.
So we believe we're price very competitively.
To go up against other wireless Isps that may already be there and typically they could be charging $100 per month for a 10 Meg service and we also believe we have an advantage over satellite.
And DSL. So I think reliability is the key we believe these customers will pay to get that reliable service out in these rural markets.
Great. Thanks.
Thanks, just 1 more on now I'll turn it over the EBV program can.
Can you provide any commentary around that is it you know so far mostly existing customers upgrading speeds or.
Are you seeing a material number of new customers coming in because of that program and just anything around that would be great. Thanks. So total right now we have about.
450 EVP customers.
Majority of them have been existing customers. So we're not seeing a whole lot of traction with new customers at this point.
But that is something with our door to door sales team, we are having leave behind materials. So that customers can get into the EBV program.
Thanks.
Great well.
Thanks, guys for taking my questions I'll turn it over.
Thanks.
Yes.
Thank you.
Reminder, to ask a question you will need to press Star then 1 on your telephone.
Our next question comes from the line of course.
With BW as financial your line is now open.
Good morning.
So first off just wanted to ask if you're seeing any changes in.
Consumer habits as far as subscription and churn now that.
Covid restrictions are much looser.
Sure.
If you chart attorney is up slightly as we mentioned, but it is much lower than it was for pre COVID-19 levels. So we have not seen a dramatic dramatic.
Dramatic change slight increase in churn, but but are still very very positive across all of our product.
Product lines.
But your ads in cable were down quite a bit.
That returned to the seasonality of our pre COVID-19.
Correct correct on net adds were down quite a bit but yes that is going.
That's the tailwind from Covid are decreasing so we expect to be.
More on line with our net adds this quarter going forward as opposed to how we were last year in the middle of Covid.
Yes.
And we are starting we are starting to see a shift in our net adds towards low and be over 50% of on net adds from the past quarter were low and B and we expect to see that continue to.
Right, but they don't come in cable business. We think this quarter is representative of what we're likely to see going forward.
Yeah.
And as far as T mobile being 7.5 percentage revenue how long would that last 4 do you have a time frame from T mobile.
Yes.
So we do not yet we still have details on the plan at this point, we are engaged in conversations with them, but we just we just don't have a don't have an update for that at this time.
Okay and then.
I know you.
Previous questions about the acquisitions, but is there.
Plans to make acquisitions that you would make a comment like that.
Yeah.
Yes.
Jumping on this 1 you know we we have a great organic growth plan, that's going to allow us to grow the business quite a bit in the next 5 years and create a lot of shareholder value.
Right.
I would use.
Is that opportunistic M&A.
Yeah player here, we are looking for acquisitions, we've done some small tuck ins and we'll continue to do that and maybe something bigger.
Right opportunity crosses.
Yeah understood, but that was that was that was really the reason why I was asking him questions because.
Yeah.
You've laid out a capex program that kind of.
It is robust so I was trying to see like where where do you think it's lacking.
You would think that the acquisition is cheaper to do it or do.
Do you want on excuse me do you want to grow somewhere.
Yes.
Yeah.
Net acquisitions generally the tuck ins are just unique opportunities they tend to be very accretive.
Whereby they're not in those deals aren't as frothy as some of the larger deals that had been announced in the last year or so.
And then for something more transformative it it would be a scale opportunity it will allow us to.
Do you have a bigger platform in a bigger scale and hopefully be able to allow us to withstand our global niche products that we're launching.
Okay. Thank you.
Yeah.
Thank you.
There are no further questions at this time.
I would now like to turn the call over to Mr. Jim Volk for closing remarks.
Oh.
Well, thank you again for everyone joining.
Joining our call and following our progress.
July has been a pretty busy on the early August we become kind of to the end of our transformation process here with the.
Dividends being paid.
And we just want to thank everyone for being loyal shareholders and I look forward to keeping you updated on our progress going forward. Thank you.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Okay.
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