Shenandoah Telecommunications Company Q1 2023 Earnings Call
Speaker 1: You you.
Speaker 2: to Mr. Kurt Andrews, Director of Financial Planning and Analysis for Chantel. Please go ahead.
Speaker 3: Good morning and thank you for joining us. The purpose of today's call is to review Chantelle's results for first quarter of 2023. 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.chantelle.com.
Speaker 3: 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.
Speaker 3: With us on the call today are Chris French, President and Chief Executive Officer, Ed McKay, Executive Vice President and Chief Operating Officer, and Jim Bolk, Senior Vice President of Finance and CFO .
Speaker 3: After our prepared remarks, we will conduct a question-and-answer session.
Speaker 3: As always, 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.
Speaker 3: These may cause our actual results to differ materially from the statement.
Speaker 3: Therefore, we have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review.
Speaker 3: Your caution is 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. Have you been an advisor for such a while? No.
Speaker 4: Thanks, Kurt.
Speaker 4: We appreciate everyone joining us this morning, and I hope everyone is staying healthy and safe.
Speaker 4: We're off to a great start in 2023.
Speaker 4: As noted on slide four, we had a record quarter for our broadband segment driven by glow-fiber results.
Speaker 4: Glow Fiber, net customer additions were just over 4,500 in the first quarter. 87% higher than the first quarter 2022 and setting a quarterly record.
Speaker 4: Customer net additions benefited from the accelerating network expansion over the past few quarters.
Speaker 4: Glow Fiber Revenue, more than doubled to $7 million in the first quarter, also a new high when compared to the same period a year ago, and was the primary driver in achieving an all-time high for quarterly broadband segment revenue and adjusted EVA-TA.
Speaker 4: We are beginning to see the operating leverage in margin expansion in a broadband business as glow fiber accelerates growth and achieve scale.
Speaker 4: We now have a critical mass of glow fiber markets with construction substantially complete.
Speaker 4: where we can drive up gross margins as we add customers with very little incremental network expense.
Speaker 4: We have a substantial opportunity to grow revenue, adjusted EVA-DA and margins over the next few years as we increase our penetration rate from 17% to our target penetration rate of 38%.
Speaker 4: Moving to slide five for an update on construction and customer growth, we added over 17,000 new low fiber passings in the first quarter and have increased passing 76% year over year to over 165,000 passings.
Speaker 4: Our sales team has more than kept pace with our construction team with Glow Fiber customers growing 109% to almost 29,000 by the end of March.
Speaker 4: Ed will provide more details on both our low-fiber network construction and customer growth later in the call.
Speaker 4: With that, I'll now turn the call over to Jim to review the details of our financial results.
Speaker 5: Thank you, Chris, and good morning, everyone.
Speaker 5: Please refer to slide 7 to review our financial results for the first quarter 2023.
Speaker 5: Please note that we have broken out residential and SMB revenue between our cable markets and our Glow Fiber markets for the current period and prior year period and we will continue this recording going forward.
Speaker 5: In addition, all of the government grants unserved residential passing that we were awarded and are a different degree of construction.
Speaker 5: Surround in existing cable or globe fiber market.
Speaker 5: and will be reported with the adjacent market.
Speaker 5: With most of the grant passings and customers reported in the cable market segment.
Speaker 5: Turning now to our first quarter results.
Speaker 5: Broadband revenue grew 7.5 million or 12.5% to 67.2 million.
Speaker 5: Glow Fiber Revenue was the primary catalyst.
Speaker 5: growing 3.6 million or over 100% from the prior year period with strong customer growth as Chris mentioned earlier and Ceddi Arpo.
Speaker 5: Commercial Piber Revenue Group 2.6 million or 28.6 percent.
Speaker 5: to 11.7 million.
Speaker 5: Due to 800,000 in recurring revenue from circuit growth and 1.8 million in non-recurring early termination fees related to backhaul disconnects in the quarter.
Speaker 5: As previously announced, T-Mobile is planning to shut down the former Sprint network and disconnected 188 backhaul circuits during the first quarter.
Speaker 5: We expect an additional 174 back hold disconnects later in the year as part of this network rationalization.
Speaker 5: Broadband adjusted EBITDA grew 25%.
Speaker 5: to 26.3 million in the first quarter, when compared to the same period in 2022. Due to strong revenue growth, partially offset by higher expenses, with 1.7 million to support the Glow Fiber expansion, and 300,000 and higher software related costs from system upgrades.
Speaker 5: As Chris mentioned earlier, we are beginning to see the benefits of operating leverage as our Glowfiber Market Scale.
Speaker 5: Adjusted EBITDA margins grew to 39.2% from 35.3% in the same period last year.
Speaker 5: excluding the 1.8 million.
Speaker 5: non-recurring early termination fee revenue. Broadband revenue and adjusted either dot, either dot, would have grown at a very strong pace of 9.5% and 16.4% respectively.
Speaker 5: and our adjusted EBITDA margins would have been 37.5% or 220 basis points improvement from the first quarter of 2022.
Speaker 5: On slide 8, power segment revenue and adjusted EVA DAW declined slightly by 300,000.
Speaker 5: to 4.6 million.
Speaker 5: and 2.9 million respectively, do primarily to lower application fee revenue and intercompany revenue from decommissioning our beam network.
Speaker 5: Moving the slide 9, consolidated revenue crew 11.3% to 71.7 million in the first quarter due to the previously mentioned growth in broadband.
Speaker 5: Consolidated adjusted EBIDOC 28.6%.
Speaker 5: to 22.4 million also do the growth and broadband.
Speaker 5: We have 348 million of liquidity as of March 31st at the Slate-On Slide 10.
Speaker 5: Negative free cash flow for the first quarter was counted 10 million less than prior year as we collected 29 million.
Speaker 5: An income tax and sales tax refunds during the first quarter, supplementing the net cash provided by operations.
Speaker 5: We expect to close on our 2.5 GHz spectrum sale, which will generate cash proceeds of $17 million by the end of the third quarter.
Speaker 5: As reflected on slide 11, we have no material depth maturedies until 2026. We continue to main a strong liquidity position to accelerate our fiber network expansion plans without having to raise additional capital.
Speaker 5: and now I'll turn the call over to end.
Speaker 6: Thanks Jim and good morning everyone.
Speaker 6: I'll start on slide 13 with our Integrated Broadband Network. We had a record quarter for fiber construction adding approximately 300 new route miles of fiber for new globe fiber passing, new commercial fiber customers, and our new government grant projects and answer various. Our network now consists of over 8,600 route miles of
Speaker 6: 15,000 homes and businesses in the borough, and adjacent townships.
Speaker 6: We now have Glow Franchise Agreements in place with 60 municipalities in 24 different markets across five states.
Speaker 6: In addition, we have now launched NIGA Bit Robbant Service in four counties in Virginia, where we've won government grant funding for unserved areas, and we will be ramping up construction in the remainder of the year.
Speaker 6: Turning to slide 14, we now have 460,000 approved growth fiber passings with franchise agreements in place.
Speaker 6: This is more than enough to enable us to reach our goal of constructing 450,000 new greenfield path scenes by 2026.
Speaker 6: In addition, we continue to have success with government grants and we recently won additional grants, totally 9.4 million in Frederick County, Maryland, to bring fiber to over 1,500 un-served homes.
Speaker 6: We've now been awarded a total of over 81 million in grants that will enable us to extend broadband over 25,000 un-served locations primarily through fiber to the home technology.
Speaker 6: With the completion of over 17,500 new glow fiber passing and over 200 new government subsidized fiber passing in the first quarter, we now pass over 165,000 homes and businesses with fiber.
Speaker 6: In addition, our construction backlog remains very robust with 317,000 additional passings approved for construction. As we ramp up construction, our data penetration in existing Glow Fiber markets is accelerating as well. Turning to slide 15 for our Glow Fiber operating results.
Speaker 6: You can see that our number of glow fiber customers has more than doubled over the past year. Ending the quarter at almost 29,000.
Speaker 6: Our digital marketing campaigns have been very successful and our website is now our leading sales channel accounting for approximately 35% of all sales.
Speaker 6: As Chris mentioned, this was a record quarter for us as our broadband data penetration rate climbed to 17.4% up from 14.7% a year ago.
Speaker 6: A total number of data, video, and voice revenue generating units also approximately doubled year over year to over 36,000.
Speaker 6: Our average revenue per user of $74 was in line with our first quarter of 2022 results.
Speaker 6: And we saw an increase of 70 cents quarter over quarter driven primarily by increases in equipment revenue.
Speaker 6: In the first quarter approximately 42% of our new residential subscribers adopted speed tiers of 1 giga higher, including approximately 5% that took speeds of 2 giga higher.
Speaker 6: Our GLO TV Video Service is available to about 85% of our GLO Fiber Passing.
Speaker 6: And the video attachment rate for the first quarter was approximately 13% in areas where the service is available.
Speaker 6: Our voice service is available to all glow fiber pathways and the attachment rates were approximately 11% to the quarter.
Speaker 6: At the end of the first quarter, approximately 14% of our total glow fiber customers subscribe to video service and approximately 13% subscribe to voice service. And finally our turn continues to remain very low at 0.86% for the quarter.
Speaker 6: Slide 16 highlights our data penetration rates as Mark is age. 18 months after launching a neighborhood, we typically reach data penetration rates of 20%.
Speaker 6: We are continuing to see a steady climate penetration rate as a market's mature and brand-awareness increases, and we expect to reach an average terminal penetration rate of approximately 38 percent five to six years after a market has launched.
Speaker 6: Let's move on to our operating results for our cable markets on slide 17. Our broadband data RGU grew approximately 2.5% year over year and we ended the quarter just under 110,000.
Speaker 6: Our data penetration increased year over year from 50.7% to 51.8% at the end of the first quarter, and we added approximately 300 broadband data RGUs in the quarter.
Speaker 6: Total RGUs remain fairly constant year over year and approximately 1808,000.
Speaker 6: We continue to see declines in our video service and residential voice service to the court cutting, but commercial voice services are growing.
Speaker 6: Broadband data average revenue per user remains strong and increased approximately 2.4% year over year. So almost $83 is customers continued to migrate to higher speed tiers.
Speaker 6: And finally, turn was up approximately 20 basis points year over year at 1.52% for the quarter.
Speaker 6: An increase in non-paid disconnect was a primary factor in the uptake insurance, and it appears that macroeconomic conditions are impacting some of our low-rate income customers.
Speaker 6: To a lesser extent, competition impacted churn.
Speaker 6: As we previously disclosed, we see increased competition in some markets as adjacent broadband providers edge out into portions of our service areas.
Speaker 6: Turning to slide 18, we highlight our broadband enterprise and wholesale commercial fiber Metric Ryan features a 3D
Speaker 6: During the first quarter, we booked new sales with monthly revenue totaling approximately $105,000.
Speaker 6: We installed new services totally totally $82,000 in incremental monthly revenue.
Speaker 6: Several major contracts that we signed at the end of 2022 and the beginning of 2023 require significant construction.
Speaker 6: In these cases, we are seeing a delay between contract signature and revenue, but we expect our revenue from installed services to improve in the second half of the year as we complete these construction projects.
Speaker 6: T-Mobile continues to reduce the number of back-haul connections as part of their Sprint Network rationalization project.
Speaker 6: Over the past year they removed 203 connections and as Jim mentioned we expect 174 additional disconnects in 2023.
The remaining 166 sites under a long-term 7-year contract.
As part of this contract, we're building fiber to four T-Mobile regional switching centers in 2023, with the first already completed.
These switching center connections create additional backhole opportunities and we recently signed agreements for five new team mobile backhole searches.
Excluding T-Mobile, churn and revenue compression for our commercial fiber business remains very low at approximately 0.6% for the first quarter.
Turning to slide 19 at our tower segment, our number of revenue producing towers and third-party tower tenants were made constant year over year. However, our inter-company lease is decreased from 33 to 10 as we turn down being fixed wireless sites in 2022.
We ended the first quarter with 445 total tower tenants and approximately 2 tenants per tower.
As we previously disclosed, we expect pre-mobile to reduce their number of power leases from 262 to approximately 192 as they complete their Sprint Network Rationalization Project later this year.
Finally slide 20 provides our capital spending and guidance for the year. Can
We finished the first quarter with approximately 68 million in capital investments.
The significant increase over the first quarter of 2022 was primarily driven by the ramp-up of construction in our glow fiber markets and the unserved markets where we won government grants.
We've invested almost 7 million in government subsidized projects, including engineering materials and preliminary construction work toward the 4,000 new passings we expect to complete in 2023.
For Glow Fiber, we invested approximately 50 million in the first quarter, including approximately 40 million for engineering and construction.
to support construction activities in the second half of 2023.
For the full year, our guidance remains in the $260 to $300 million range as we continue to invest aggressively to accelerate construction of our fiber-to-home networks. Thank you very much and operator, we're now ready for questions.
Thank.
Thank you.
As a reminder to ask a question you'll need to press star 11 on your telephone. To withdraw your question please press star 11 again. Please stand by when we compile the Q&A roster. One moment for our first question.
Our first question comes from the line of Frank Lutheon with Raymond James. Your line is now open.
Hey guys, it's Rob, one for Frank. Hey, so what's the long-term margin potential of the business after you guys get the current homes built? And then as a follow-up, how would you rank your capital allocation priorities today? Thank you.
Yeah, Rob, I'll start with the first one.
umyou know.
We got to 30 if you exclude the early termination.
As we continue to scale and add more customers, specifically in the glow existing markets, we expect that broadband, even a large, and we'll get up to about 43% by 2025, which is consistent with where we started this back in 2018 before we had the dilute of the sex.
of launching a new line of business like Glow Fiber. We also launched Beam and then shut down Beam. And we've also been updating our...
our system upgrades and we had some increases in our software related costs. Most of that is now behind us. So as we move forward we should start to see some regular expansion in our even margins on the broadband side of the business to get to like I said back to where we started at 23% in the next two years.
And there's plenty of room above that as we slow down our investments in the 26-27 timeframe and those broadband, just a bit of margin, you know, should get even higher than that.
I'll jump in on the capital spending. Our priority remains focused on extending our fiber to all networks. Roughly 75% of our entire capital budget this year is focused on adding new broadband passing both in Glow Fiber and in our government subsidy project.
I'll jump in on the capital spending. Our priority remains focused on extending our fiber to the home networks. Roughly 75% of our entire capital budget this year is focused on adding new broadband passings, both in glow fiber and in our government subsidy project. Great. Thank you guys.
Thank you. One moment for our next question.
Thank you. One moment for our next question.
And the next question comes from the line of day and day with B. Riley Financial. Your line is now open. Yes, we're going to appreciate you taking the question. So I'm being in the news a little lately about availability of labor for fiber-build being tight. It's kind of been out there a lot, but it's just seen a little more recently.
She's contractors having like no capacity to take on new projects.
some fiber overbuilders sort of maybe in housing things that they had previously contracted out. So just wondering what you're seeing on that front and any potential savings from in housing versus contracting. So just wondering what you're seeing on that front and any potential savings from in housing.
So, yeah, so good morning. Appreciate the question. So from a contractor standpoint, we've had success holding on to our contractors.
We've got over 100 construction crews right now working in over a dozen different markets. Mainly regional folks, we've had long-term relationships with most of these contract firms. So we feel pretty good about that. We are bringing some of our labor in-house, particularly splicing work. We're bringing that work in-house, and also we're bringing in drop-berry crews.
to install the dropberries to customers homes. So we are shifting some of that in-house, and it's more about not only saving money by doing that, but also making sure we have reliable crews that we can get that work done.
Understood. Thanks. And then on Google Fiber, the R2, and you might have talked about this area, I have them call it a lay foot, that the R2 ticked back up where it was a year or so ago. Last time we were on, you got to talk about launching that 100-meg tier on customer to bad. I think that result to do that. A couple of quarters of it going a little lower as people adopted that tier. So just...
what you're seeing most recently as far as the puts and takes with single fiber for our code speed gears.
Yes, so the big factor there is equipment revenue. Prior to the first quarter, we were actually offering free Wi-Fi equipment in the home for 12 months to some customers. We stopped offering the free Wi-Fi equipment as a promotion. That's why we had this roughly 70 cents uptick in the R-Poo for the quarter.
We continue to see customers take our higher tier services. As I mentioned, over 42% of our customers are taking one gig or higher. Okay, that's all I had guys. Thanks for the time.
customers take a higher tier of services, as I mentioned, over 42% of our customers are taking one gig or higher. Okay, that's all I had guys. Thanks for the time. Thanks, thanks.
Thank you. One moment for our next question. And our next question comes from the line of HaMed Korsan with BWS Financial Your Line Awareness Now Open.
Good morning. The first question I had was just relate to your comments about the customers that dropped off or not paying. Has that been a factor before in a recession environment? And how do you adjust for that given that you're currently building out in these markets with fiber?
So, obviously, yes, it has been a factor during the past positionary times.
It's something we're monitoring very closely. We have seen the outstanding overdue balances come down, so we're hoping that's moving in the right direction. But something we're monitoring very closely at this point.
Okay, and then as far as the fiber bill goes, the spask board, the CAPEX that you spent, it was that because of weather and how does that play out for the rest of the year as far as your CAPEX goes.
Okay, and then as far as the fiber bill goes, the spask core of the CAPEX that you spent, it was that because of weather and how does that play out for the rest of the year as far as your CAPEX goes? Are you accelerating any programs?
We will be accelerating the number of new fiber pastings throughout the year. We spent first quarter building a lot of connections out to the neighborhoods. We had to build from our pops out to the neighborhoods and then in the following quarters, particularly in the second half of the year, we'll be connecting more of those neighborhoods.
You're particularly in some of our newer markets that we recently launched. Okay, great. Thank you. Thank you for that.
particularly in some of our newer markets that we recently launched. Okay, great. Thank you. Thank you. Thank you.
At this time, if you have a question, please press star 11. And at this time, I'm showing no further questions. I'd like to hand the conference back over to Mr. Jim Volk for closing remarks.
Thank you for joining us on a Friday morning. We look forward to updating you on our fiber first growth plan in future quarters. Have a good day.
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.