Q2 2023 Shenandoah Telecommunications Company Earnings Call
Good morning, everyone welcome to Shenandoah Telecommunications second quarter 20, twenty-three earnings conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Mister Kirk Andrews director of financial planning and analysis <unk>.
Good morning, and thank you for joining us the purpose of today's call is to review <unk> results for a second quarter 2023.
Ah results were announced in a press release distributed this morning, and the presentation will be reviewing is included on the Investor page at our website Www Dot <unk> dot com.
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 a phone call today are Chris branch, President and Chief Executive Officer, Mmk, Executive Vice President and Chief Operating Officer, <unk> Senior Vice President of Finance and C. F F.
After our prepared remarks, we will conduct a question and answer session.
As always let me rephrase five 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.
Sure. We have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review.
You are cautious not to place undue reliance on these forward looking statements.
Except as required by law, we undertake no obligation to publicly update or revised any forward looking statements.
With that I will now turn the call over to Chris go ahead, Chris.
Thanks, Kirk we appreciate everyone joining us this morning, and I hope everyone is well.
I'm pleased with the continuation of our fiber first growth during the second quarter and with a solid execution across the board.
As noted on slide four we added almost 18000, new glow fabry passings in the second quarter.
And have increased passing 63% year over year to just under 183000.
Our sales team added 4000 data subscribers in the second quarter.
It has grown the glow fiber customer base about 92% over the past year.
Glow fiber revenue grew 101% over the same quarter last year and represented 78% of our consolidated revenue growth.
We expect these glow fiber revenue trends will continue and be a catalyst for creating shareholder value over the next several years.
Our cable commercial businesses also reported solid recurring revenue growth of 900000 and 500000, respectively.
With strong expense management or broadband segment converted 77% of the revenue growth into adjusted EBITDA growth during the second quarter.
Driving adjusted EBITDA margins to 39% or 300 basis points higher than the same period a year ago.
Fiber networks are extremely scalable driving high speed data gross margins of more than 80%.
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 six to review our financial results for the second quarter of 2023.
Broadband revenues grew $5.3 million or 8.6% to $66.7 million.
As Chris noted glue fiber revenue was the primary countless growing $4.1 million were over 100 per cent for the prior year period with strong customer growth and a slight increase in <unk>.
Cable market revenues grew 900000 or 2.2% growth.
<unk> and excluding the impact for D from B D conditioning.
Commercial fiber revenue grew 900000 or 98% to 10.3 million.
Due to 500000 and recurring revenue from circuit growth and 400000 and non-recurring early termination fees related to the back call disconnects and quarter.
As previously announced T mobile is planning to shut down the force Britney at work and disconnected twenty-two backhaul sites during the second quarter. We expect an additional 151 that called disconnect later in the year as part of this network rationalization.
Broadband adjusted EBITDA grew 18.4% to $26 1 million in the second quarter when compared to the same period in 2022 due to revenue growth of 5.3 million.
Partially offset by 1.2 million and higher expenses due to higher advertising expense primarily to support the glow fiber expansion.
As Chris mentioned earlier, we continued to see the benefits of operating leverage our global Harper business Ajar.
Justin EBITDA margin screwed to 39% from 36% in the same period last year and consistent with the first quarter of 2023, which included higher early termination fees from T mobile.
157.
Our segment revenue and adjusted EBITDA were in line with the same period of 2022.
We have not <unk>.
Recognize any term from T mobile to date that we have received notices that they plan to terminate 53 leases as part of the previously announced decommissioning of the spring for Sprint network.
Moving to slide eight consolidated revenue grew eight 1% to $71.3 million in the second quarter.
Previously mentioned growth and broadband.
Validate adjusted EBITDA from 21.1% to 22.5 million also getting broken broadband.
We have 301 billionth of liquidity at June 30th displayed on slide nine.
Negative free cash flow the first half of the 20th 2023 was 16 or any more than the prior year due primarily to increase investments in expanding glue fiber in government subsidized construction on surface.
Partially offset by $29 billion in income tax and sales tax refunds received during the first quarter.
We also closed on the 2.5 gigahertz spectrum sale in July which January to cash proceeds of $17 million.
As it reflected on slight K, we have no significant debt maturities until until 2026.
We amended our credit facility in the second quarter of 2023 to change our variable base rate from LIBOR Super extended delay draw and date to December 31st 2023.
Delay the beginning of term loan repayments to March 24, we.
We expect to save approximately $4 million in interest expense during twenty-three as a result.
And now I'll turn the call over to Ed Mmm.
Thanks, Jim and good morning, everyone.
I Hope you get on slide 12, with an update on our integrated broadband network, but now it's just some over 9000 route lodge, a fiber and we've confirm that we have no let cheap cables that our network.
We got another record quarter for five construction is rebuilt over 350 miles for glow fiber passage commercial fiber customers and government grant projects at Unserved areas.
This was an approving of more than 20 per cent over our construction right in the first quarter and we're on track to accelerate our number of fiber passengers in the second half of the year.
At the end of the second quarter, we turned up our newest glow fiber markets of Shippensburg Waynesboro in Pennsylvania, and we now have low fiber multi gigabit service available in 19 markets with four additional market launches plan by the end of the year.
We also add a new franchise agreements to bring low fiber to 18000 additional homes or businesses, including the new market of Orange in Virginia, and additional boroughs and townships adjacent to our existing markets in Pennsylvania.
Turning to slide 13, or a number of approved Gulf fiber passing it has grown to 478000.
65 franchise agreements and twenty-three markets across five states.
In addition, we continue to have success with government Grant awards and in the second quarter, we reward at 6.3 million in grants to bring broadband over 2000 additional unsure of homes surrounding our cable footprint.
Now been awarded a total of more than 87 billion in grants that will enable us to extend broadband so over 27000, unserved locations, primarily through fiber to the home technology.
And the second quarter, we added over 18000 do fiber passage, including 400, new government subsidized Patsy now.
Now pass more than 183000 homes and businesses with <unk>.
An additional construction backlog remains very robust with 319000 incremental passengers approved for construction.
As we ramp up construction, we continue to see strong customer growth is shown on July 14th.
As Chris mentioned, we saw glow fiber date of customers increased 92% year over year and in the second quarter with almost 33000.
We've added almost 16000 broadband data customers in the past year and or penetration rate plan to 18% in the second quarter.
15.2% a year ago.
Total number of date of video and voice revenue generated <unk> has reached almost 41000 up approximately 81% year over year.
Ah broadband data average revenue per user increased by 1.5% year over year and reached $75.63 for the quarter.
This was driven by a combination of additional equipment revenue and customer selecting higher speed tiers.
For the quarter, almost 43 per cent of our new residential subscribers adopted speed tiers of one giga higher.
Including approximately 4% that took speed tiers of two gig or higher.
Hello T V video service is available to about 89% of our glow fiber passes and video attachment wait for the second quarter was approximately 11% in areas, where the services available.
<unk> voice services available to all go fiber passing and detachment rate was over 11% for decor.
At the end of the second quarter, approximately 12% of our total glow fiber customers subscribe to video service and approximately 12% subscribed for service.
And finally, our churn continues to remain very low at 1.1% improvement of 11 basis points over the second quarter of 2022.
Moving on to Slide 15, we highlight are data penetration rates markets H R.
Cohort that launched a year ago in the second quarter of 2022 is already reached 18 per cent penetration and we saw steady growth quarter over quarter across all cohorts with a weighted average increase of about two per cent.
We continue to expect to reach average terminal penetration rate of approximately 38 per cent five to six years after market is launched.
Let's move onto our operating results for a cable markets on slot 60.
Broadband customers grew approximately 1.4% year over year and the end of the quarter at about 109000.
October revenue generating units decreased year over year about about two per cent as we continued to see declines in video service and residential voice service due to court.
Date of penetration increase year over year from 51% to 51.3 per cent at the end of the second quarter. However, we saw a decline of approximately 500 broadband data are you using the quarter.
From a seasonality standpoint, the second quarter's typically our slowest quarter.
In addition, broadband data churn was up 14 basis points year over year at approximately 1.8% for the quarter.
The increase was driven by five basis points of involuntary churn, which we believe was due to softness of the economy and some of our markets.
The remaining nine basis points due to voluntary term.
As we previously disclosed we have some overbilled competition in our markets a percentage of income the cable passengers with a cable or fibre competitor is currently in the high teens. We expect this to grow to approximately 25 per cent over the next few years with announced construction projects.
I will point out that approximately 23000 of our planned government subsidized passengers will extend broadband unserved areas around our cable markets and we see this as an excellent opportunity for broadband subscription subscriber growth as we complete construction over the next several years.
Broadband data average revenue per user remains strong increased approximately 2.1% year over year to $82.55 is customers continue to migrate to higher speed tiers.
And the second quarter, we also completed speed roles, bringing higher speeds and more value to our customers for the same price.
Turning to slide 17, we highlight are broadband enterprise and wholesale commercial flower business.
During the second quarter, we book, New sales with monthly revenue totaling approximately 102005 per cent improvement year over year.
Our wins for the quarter included three new Earache contracts, bringing our total to more than 40 school systems and it doesn't library systems on the contract.
We also installed new services totally 85000 and take her middle monthly revenue.
30 per cent improvement over the second quarter of 2022.
<unk> <unk> Paul connections T mobile is our largest customer and they continued to reduce the number of circuits as part of their sprint network rationalization project.
Over the past year, they have removed 222 connections and as Jim mentioned, we expect a <unk> actually 151 additional disconnect in 2023, the remaining 167 sites under a longterm seven year contract.
Excluding T mobile churning revenue compression for a commercial fiber business did increase year over year, but remain low at 0.7 per cent for the second quarter.
Turning to slide 18 in a tower segment, we ended the quarter with 448 total tower tennis and approximately two tenants per tower.
A third party tower kind of increased to 437. However are intercompany tower leases decreased from 31 to 11 is returned down beam fixed wireless sites in 2022.
As Jim mentioned, we do expect T mobile to reduce the number of tower Lisa So they complete the <unk> network rationalization project later this year.
Finally, slide 19 provides our capital spending and guidance for the year.
We've invested approximately $136 million in capital projects to your to data.
The significant increase year over year was driven by the ramp up construction low fiber markets and the uncertain market. So everyone government grants.
We've invested almost $14 million, a government subsidized projects and year to date, and we expect to be reimbursed for approximately 50 per cent of these costs as we complete construction.
For the low fiber, we've invested 99 million year to date, including approximately $90 million for engineering, and construction and 8 million to connect new customers.
For the full year guidance for maintenance and the 260 to 300 million dollar range as we continue to execute on our fiber first growth strategy.
Thank you very much an operator, we're now ready for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone again, that's star one one on your telephone to ask a question. Please stand by while we compile the Q&A roster.
Our first question.
Comes from the line of Frank <unk>.
Raymond James.
Great. Thank you is there anything you can do to sort of accelerate the marketing and penetration of broadband I'm. Just curious if we start to see a broader wrap with that with the passing and then walk us through sort of longer term your leverage plans, where do you see yourself, peaking on leverage and and how quickly can that EBITDA grow to bring that back.
Down and where are you comfortable sort of in the longterm as as at the baseline.
Baseline target thanks.
Yeah.
Thanks for the question <unk>. This is Ed I'll I'll start so as far as wrapping up the cloak customer subscriber base, we are continuing to focus on sale.
<unk> through our our web web sales channel, that's where most cost effective channel we have seen a significant increase year over year and the percentage of sales through the through the web. We have also started to offer you some.
Additional promotional activity on that web channel to encourage sales and we're seeing the good traction from that.
And then I'll I'll, let Jim answer the question on the on the leverage.
Yeah, Frank we we expect peak leverage.
To get to about 3.9 times in 25, and then it should start to decline in by 27, you know we should be down to about 2.5.
The tiny well beyond that.
<unk> is glew fiber starts to kick off amount of free cash flow.
Alright, great. That's helpful. Thank you.
Thank you stand by for our next question.
Our next question.
<unk> from the line of Dan day, That'd be Riley.
Just a quick Buck for me any updated thoughts on how you're you're looking at M&A as a capital allocation leather you talk a little bit about it in the past is whether it's something you're actively looking into or just you know sort of give it more as you know maybe it's something that cause maybe a dozen.
Yeah again, we continue to look for to be all for to just take a look for another beachhead to continue our globe fiber expansion strategy and that could come in the form of buying any common cable business buying the fiber business, we would entertain either one.
<unk> ideally it would it would be.
High school or not that would have a good strong base business, but with the opportunity to expand out from here to again kind of replicate what we're doing in the mid Atlantic area and other parts of the country.
It was the second straight quarter with the EBITDA margin over 31 per cent combined.
Yeah, I think that's a little higher than than we had been modeling it and talking about just took.
Well for sure whether there's anything.
The T mobile network rational.
Taking that a little high Unger.
And that's what I'm looking for it.
Yeah, So again.
We're still D. T mobile is still in the process of rationalizing the networking and as we added my vote mentioned on the call. There there's more turn that come from from that we expect for the 12 months. Following the end of that process, which is likely to be this year that the margin will probably go down by 200 <unk>.
<unk> points, but then after that you should with all of that plus through the system you should start to see margins, you'll grow pretty pretty rapidly at school fiber continues to grow and to penetrate and.
Thinking of going back.
The broadband does this getting the broadband uhm EBIT margin should be in the 40 per cent range. Five you know call at 25, and then growing growing increasingly year after year from there.
Do you have a golfer when you expect just pull a fiver itself to be EBITDA pop.
And then we turned EBIT positive at the end of last year and we are EBIT positive. This year like most likely to be single single digits in terms of.
Terms of EBITDA, but but we aren't we had been positive all of 23.
Thank you again to ask a question. Please press star one one on your telephone again, that's star one one on your telephone to ask a question.
Our next question.
Comes from the line of <unk> <unk> Ah B W. S financially.
Hey, Good morning first question is.
Anything.
Going on and glow as far as marketing is concerned the competition is concerned where the where the quarterly ads fluctuate, even though you're you're passings continue to go up.
No I would say historically the second quarter is the slowest quarter.
For us.
But really no no significant changes from a competitive standpoint.
In fact, we've seen the competition back off on some of their more competitive promotional offers that they they previously were making.
And with the warmer months kicking in as a cue to.
Should I expect Capex, which plan just accelerates here before winter.
Comes around.
I would kind of think you've reached you three.
Yeah. So a lot of the construction we did in Q2 was in preparation for passengers in Q3, a lot of the markets were building and right now our markets, where we did not have existing fiber infrastructure in place. So we had to establish a pop in and build fiber out to the neighborhoods a lot of our construction in the second quarter was building that five or to get out to the neighborhoods.
So we think we're well positioned to accelerate construction in the second half of the year.
Okay and then the cashier received from the spectrum sale is that just going to be used purely for the.
Capex program.
Yes, and then we plan to reinvest that into the into the broadband visits.
Okay, great. Thank you.
Yeah, Thanks for that.
[noise]. Thank you once again to ask a question. Please press star one one at this time.
Is there are no more questions in queue I would now like to turn the conference back to Gimpo for closing remarks, Sir.
Yes. Thank you all for joining we look forward to update you on our progress in future quarters have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Mmm.
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