Q2 2022 Shenandoah Telecommunications Co Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Good morning, everyone welcome to Shenandoah Telecommunications second quarter 2022 earnings Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Kirk Andrews.
Director of financial planning and analysts for Chantal.
Good morning, and thank you for joining us the purpose of today's call is to review <unk> results for second quarter 2022.
Our results were announced in a press release distributed this morning and the presentation. We'll be reviewing is included on the Investor page at our website Www Dot Shantou 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 French President and Chief Executive Officer.
Mkay Executive Vice President and Chief operating Officer, and Jim Volk, Senior Vice President of Finance and CFO .
After our prepared remarks, we will conduct a question and answer session.
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 subject to certain risks and uncertainties.
These may cause our actual results to differ materially from the statements there.
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.
With that I'll now turn the call over to Chris go ahead, Chris.
Thanks, Kurt we appreciate everyone joining us this morning, and I hope everyone is staying healthy and safe.
Before reviewing the highlights of our second quarter results I'd like to reflect on our progress over the past few years.
We adopted our fiber to the home strategy about four years ago. When we identified the tier three and four markets are demanding faster broadband speeds more reliable service and choice of broadband providers.
We spent the first year defining our underwriting network design brand and go to market processes and launched our first glo fiber markets in the fourth quarter of 2019.
Since then we've made remarkable progress in refining our strategies and accelerating our network builds on customer acquisition.
We now have in place a platform that we can leverage for the next several years.
I'm very proud of how our team has rallied around our fiber first strategy and our ability to delight our customers.
I'll now provide an update on glo fiber results in the second quarter.
As noted on slide four we had another record quarter with Glo fiber data net additions of approximately 3300, increasing sequentially almost 39% as our fiber network expanded and our brand awareness.
Hello fibers quickly, earning a reputation as the fastest symmetrical internet service in our markets with excellent global customer service and fair pricing.
The accelerated sales reaffirms, our investment thesis that residents and businesses in our target markets.
High quality option for their Internet service.
We expect net adds to trend up as we continued to expand our network and awareness of the <unk> fabric brand grows.
Turning to slide five we added almost 19000, new Glo fiber pass things in the quarter and ended the second quarter with approximately 113000 passengers.
We're well on our way to reaching our goal of 150000 glow passing by year end.
Our government relations team also made excellent progress in securing new glo fiber franchise agreements.
Adding approximately 72000, new franchise past in the second quarter.
Bringing our total franchise and government Grant award past to 330000 or 89% of 2026 targeted fiber passing.
We now have clear visibility in our fiber network expansion plans.
With that I'll now turn the call over to Jim to review the details of our financial results.
Thank you Christian good morning, everyone.
Please refer to slide seven to discuss our financial results for the second quarter of 2022.
Broadband revenue grew nine 2% to $61 4 million driven by an increase of eight 9% and residential and SMB revenue.
Due primarily from a 138, 9% increase in fiber data RG use and a four 3% increase in combat cable data are to us.
Glo fiber represented over half of our residential and SMB revenue growth and we expect that to increase in future periods as we extend our fiber network.
Commercial fiber revenue grew nine 4% to $9 3 million due primarily to brokerage circuits.
T mobile backhaul revenue were consistent with the first quarter 2022.
Broadband adjusted EBITDA for the second quarter increased 10, 2% to $22 million.
By topline revenue growth adjusted EBITDA.
EBITDA margins of 36% remained steady with prior year and prior quarter as our results reflect higher than normal software upgrade and conversion costs and negative EBITDA from our b product.
We expect adjusted EBITDA margins to improve modestly in the second half of this year from the decommissioning of the 20 unprofitable b cell sites and our software development costs begin to shrink.
On slide eight tower segment revenue grew $104 7 million in the second quarter due primarily to a three 8% increase in.
T Mobile tower revenue our lease revenue was consistent with prior quarter adjusted EBITDA declined one 4% due to a slight uptick in expenses.
Moving to slide nine consolidated revenue grew eight 8% to $66 million in the second quarter due to growth in broadband and tower revenues of 92% and one 9% respectively.
Consolidated adjusted EBITDA for the quarter grew 16, 4% to $86 million due to a temporary 10, 2% increase in broadband adjusted EBITDA and an eight 6% decline in corporate expenses driven by our previously announced cost reduction plan.
$1 1 million of cost savings from professional fees were $4 4 million annualized was recognized in the second quarter. We continue to look for opportunities to drive cost out of the business.
Moving to slide 10.
Free cash flow and cash on hand declined by approximately $50 million in the second quarter. We ended the quarter with a strong liquidity position of $433 million.
We drew $25 million on the delayed draw term loans in July and.
And expect to draw an incremental $50 million to $75 million by year end.
In addition, we now expect to receive $30 million of income tax refunds and $4 million from a refund of deposits from the CBR spectrum auction to supplement our liquidity as we enter 2023.
And now I'll turn the call over to Ed.
Thanks, Jim and good morning.
Beginning on slide 12, where we show our integrated fiber and cable broadband network.
We continue our rapid fiber expansion and we had another record quarter for new construction. We added approximately 300, new route miles of fiber, bringing our total to over 7900 <unk>. We also had a record number for new fiber passes in the quarter with the addition of almost 19000 and our existing home markets.
Construction is also underway in our new markets of Lancaster, and York Counties in Pennsylvania, and Williamsburg, and Suffolk in Virginia, we.
We are on track to launch all four of these markets in the second half of the year.
As Chris mentioned, the second quarter was a productive time for our government relations team, adding new franchise agreements for over 72000, new passenger including Shippensburg Greencastle at Waynesboro in South Central Pennsylvania.
Ashwin in Hanover County, Virginia, and Sussex County, our first glo fiber expansion into Delaware.
In addition, Chantel continues to have success with government grant funding for Unserved areas, we were announced as the winner of over $10 million in additional grants to bring gigabit fiber to a total of over 3000 Unserved locations in Frederick County, Maryland, and Grant County West Virginia.
Turning to slide 13, we now have approximately 411000 approved glo fiber passes with franchise agreements in place.
These are all greenfield builds outside of our current incumbent cable footprint.
We are on track for our goal of constructing 75000, new passengers in 2022, and we are well positioned to ramp our construction to over 100000 additional fiber passes in 2023.
With our previously announced grant funding and our newer Grant awards in the second quarter Centennial has now won over $68 million in state and local grant funds to bring gigabit broadband over 19000 Unserved homes.
Engineering is currently underway and we plan to ramp up construction in the second half of 2022. After we execute the government grant contracts with each county.
We have executed contracts with three of the seven counties and expect to have the remaining contracts with the counties and states finalized in the second half of 2022.
In total we have a construction backlog of approximately 317000 fiber passes in addition to almost 113000 glo fiber passing its already constructed.
Turning to slide 14 for our operating results for our Glo fiber business, we had another record quarter for customer growth and ended the period with almost 23000 total RG use and a 15, 2% aggregate broadband data penetration rate across all markets.
Our penetration rate has stayed steady at the 15% to 16% range over the past seven quarters as our sales have increased in line with our newly constructed passing.
Our glo fiber customer relationships also more than doubled over the past year to end the quarter at over 17000.
We typically see elevated churn in late spring and early summer months, and our broadband data churn rate remains low at one 2%.
Over half of our churn for the quarter was due to customers moving out of the area.
In the second quarter of 2020 to approximately 41% of our new subs adopted speed tiers of one gig or higher and our data <unk> remained consistent at $74 42.
Our streaming TV and voice services continued to perform well with 19% and 15% attachment rates in the quarter respectively.
At the end of Q2, 74% of our Glo fiber customers were single play data only.
21% were in a double play and 5% we're at Triple play.
Slide 15 demonstrates our data penetration as our markets age.
Our passing <unk> launched in the second quarter of 2022 have already reached a penetration rate of almost 8% and that jumps to almost 17% for markets launched 12 months ago in the second quarter of 2021.
We continue to see steady growth as our markets mature and brand awareness increases and our initial neighborhoods launched in the fourth quarter of 2019 now have a penetration rate of over 34% after 30 months.
Let's move onto our incumbent cable operating results on slide 16.
Our broadband data RG use grew approximately four 3% year over year to end the quarter at about 108000.
Our data penetration increased from 49, 1% in the second quarter of 2021% to 51% this quarter.
Pagan net additions were approximately 600 during the seasonally challenged second quarter.
Total RG use grew two 2% year over year to approximately 191000 at the end of the second quarter.
We continue to see declines in our video service due to cord cutting, but we see growth in our voice argues driven by success with commercial customers.
Broadband data average revenue per user increased approximately three 3% year over year to $80 85.
In the second quarter as customers continue to migrate to higher speed tiers.
Broadband data churn for the second quarter was $1, 67% about eight basis points higher than the same period in 2021.
Sorry is typically seasonal with higher churn in the late spring and summer months. However, our churn remains below pre COVID-19 levels as a point of reference our Q2 2019 churn was 2.0% to 7%.
On slide 17, we summarize our beam fixed wireless results.
Last quarter, we announced plans to decommission 20 unprofitable cell sites, which we completed on June 30, we.
We now expect beam to be EBITDA breakeven in the second half of the year.
Slide 18 provides a view of our broadband enterprise and wholesale commercial fiber business.
During the second quarter, we booked new sales with monthly revenue totaling over $97000.
We also installed new services in the second quarter totaling 65000 incremental monthly revenue.
This is down from Q2 2021, however, our new installed monthly revenue was up approximately 6% year to date versus 2021, as we had a strong start to 2022.
Monthly churn and revenue compression for our commercial fiber business improved significantly year over year with a combined total of 0.3% for the second quarter of 2022.
The high compression in the second quarter of 2021 was primarily due to a major wholesale customer, replacing higher cost optical circuits with lower cost Ethernet circuits.
Our number of cell site backhaul connections decreased slightly year over year to 702.
Our largest backhaul customers T mobile and we did see a reduction of circuits as we turned down non traditional cell sites and repeater systems in Q3 2021, shortly after the sale of our wireless assets and operations.
As we previously disclosed we expect T mobile to rationalize our network and our former wireless service area as they decommission the national Sprint CDMA LTE network.
In late July we executed a contract with T mobile to extend backhaul services for 175 sites on a seven year term.
The remaining 365 circuits still have over two years left on the term and we expect T mobile to terminate the vast majority of these circuits in late 2022 or early 2023.
We estimate revenue from the early termination fees to total three to $3 6 million, depending on timing and we expect annual revenue churn to be approximately $6 7 million as T mobile disconnects circuits.
However, we believe there is significant opportunity for additional backhaul revenue as we build fiber into T mobile switching centers and have the opportunity to bid on backhaul for additional cell sites as we expand our glo fiber network.
Turning to slide 19 in our tower segment as we also previously disclosed we believe some tower leases with T mobile will churn as they rationalize their network and turned down legacy sprint cell sites.
We now expect fewer sites to churn and estimate that we will retain approximately 196 of the 262 leases.
We expect annual revenue churn to be approximately $3 million as T. Mobile turns down these month to month leases in late 2022 or early 2023.
In summary, the total T mobile revenue churn from our tower and broadband segments will be about $9 7 million or about 700000 higher than the high end of our previous guidance range.
Total tower tenants increased three 8% year over year to 465 at the end of Q2 2022, driven by 11, new leases from wireless carriers other than T mobile.
We continue to grow our relationship with dish as they build out their national <unk> network with non executed leases and 11 pending applications.
Finally, slide 20 provides our 2021 capital spending and our guidance for 2022.
Year to date capital expenditures through Q2 were approximately $88 million in 2022 compared to about $80 million in 2021.
The primary driver for the year over year increase was the acceleration of our Glo fiber network construction.
For 2022, we have reduced our guidance for the full year to a range of $190 million to $210 million.
We continued to invest aggressively in expansion of our fiber to the home networks, However state and.
Contracts have taken longer than expected to finalize.
So this is pushed back our construction start date on these projects by several months.
We expect to have these contracts finalized in the coming months, but the timing of the startup construction and delivery of materials has shifted approximately $20 million of our projected 2020 to spend into the first half of 2023.
From a supply chain standpoint, we feel very confident in our ability to execute on our construction goal of 150000 total fiber passes by the end of 2022 and over 250000 total fiber passes by the end of 2023.
Thank you very much and operator, we're now ready for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone one moment for our first question.
Yes.
And our first question comes from the line of Frank Louthan from Raymond James Your question. Please.
Great. Thank you.
Talk to us a little bit about the about the funding that <unk> gotten in.
Remind us how does that how does that show up when you. When you receive it you get reimbursed on a percentage of completion basis or all the way at the end.
And then how is that book Contra.
Andre expense or does it.
How does it come into your numbers.
So the detailed agreements are still being worked out with each county, but we expect the grants will be dispersed on a cost recovery basis with a lag of three to six months on average.
Okay, great and as the team is the T mobile progress.
How is that relative to what your expectations were at the beginning of the year faster than going faster than you expected or slower how would you characterize it.
Is that the T. Mobile you were talking about the turndown of the legacy Sprint network.
Yes.
It's probably going a little slower than we than we expected.
We would have expected we would have seen a little a few more sites turned down at this time.
So we're still not clear exactly when these at these terminals the circuits will be terminated or the tower leases.
They are month to month will be terminated.
Okay great.
One quick follow up on the new backhaul that you renewed with them.
The rates on that versus what they were paying before what are you. What are you seeing on that front from a leasing perspective.
The rates are slightly lower but theyre getting significantly more bandwidth for the same amount of money.
Okay, great. Thank you very much.
Thank you one moment for our next question.
And our next question comes in line of Dan <unk> from B Riley Your question. Please.
Yes. Good morning, guys I appreciate you taking my questions just.
First for me on beam I'm curious if you have any plans.
Maybe in the near term is to sell the spectrum you have licensed further being fixed wireless now that youre kind of put in that project and maybe just remind us how much you originally paid for the spectrum rights related to Dean.
Yes, so I'll comment on the plans for being so we plan to continue to operate through the remaining of cell sites and support the existing customers at this time, but we have started to explore options for selling the spectrum holdings.
Actually classify those as assets held for sale.
Yes, Dan the original cost on the two dot five spectrum was about $60 million column. So we think the spectrum has held its value and probably appreciated a.
A bit since we originally acquired it.
So.
Awesome.
Thanks, guys last time last earnings call you talked about some of the sort of back office systems upgrades and some of the other near term kind of Opex headwinds just maybe provide an update on those items for me.
Sure. So one of the major products projects was the upgrade of our ERP system that has now been completed all of our second quarter.
Our financials were running through the new ERP system. We have also made significant progress on some of our other upgrades, including a new website for our cable business.
And we've also deploy new systems to track our fiber construction for our glo fiber.
So significant progress there.
Great and then just last one mostly out of curiosity I mean.
It looks like in the incumbent cable side, you actually added more voice customers than you did broadband which is pretty rare just anything going on there with the <unk>.
On the voice subscribers in the quarter, yes, so those are commercial.
Commercial voice customers. So we're seeing significant success with both from our SMB and.
And enterprise perspective, adding voice lines.
Yes, we had.
Large sale that we.
Large commercial sale that we booked last year and installed in the first half of this year.
There was quite a few IP centric lines on the voice side that is referring to that guide installed and increase the <unk> this quarter.
Great.
I appreciate you all taking my questions and I'll turn it over.
Okay. Thanks, Dan.
Thank you as a reminder, if you have a question. Please press star one one and our next question comes from the line of Humming Carson from B Ws financial your question. Please.
Hey, good morning.
First off on the incumbent broadband are you.
Doing anything different on the <unk>.
<unk> to acquire new customers is your cost to acquire customers going up on that front.
I'd say one major change we did launch a new website for our incumbent cable business.
And we can now take automatics.
Automated orders over our website. So that's a significant change from what we had previously so that actually.
Brings our cost down slightly but from an advertising standpoint marketing standpoint, we haven't made any significant changes.
Over the past quarter.
That would impact our cost.
Okay.
Overall are you seeing any changes as far as.
Customer payment habits or anything in that.
Sure.
Oh.
We are continuing to see more customers shift to <unk>.
Auto Bill pay and E bills.
But we do still have our fair share of customers that come into our local stores to pay their bill every month.
Yes.
Our involuntary churn did bump up a little bit in the past quarter as did our bad debt.
But our bad debt was really at record lows. It was it was running at about 5% 6% of service revenues. It's now kind of up to 8% of service revenues, which is still very good I think the Colgate.
Tailwind had supported yes.
Yes, making it a priority payment by by our customers and maybe the next change just a tad, but still better than historical experience.
Okay, Great and then last question was.
Whats the biggest overhang as far as preventing you from.
Adding more passing quickly this year is it labor or is it more just government approvals.
No its really two main factors one is.
Make ready work by the power companies.
So as we're attaching to power company Poles, they have to prepare those poles for us to attach.
That's slowing us down and then.
The municipalities themselves. They only want a limited number of construction zones within a given city or town. So.
That limits us as well.
But we've not had issues with our own construction crews.
Still remain well positioned from a labor standpoint and material standpoint.
Okay. Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jim Volk for any further remarks.
Yes, thanks, everyone for joining us.
We look forward to updating you on our progress in the next quarter have a good day.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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