Q1 2024 Shenandoah Telecommunications Co Earnings Call
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Good morning, everyone and welcome to the Shenandoah Telecommunications first quarter 2024 earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Kirk Andrews director of financial planning and analysis fishing town.
Good morning, and thank you for joining us the purpose of today's call is to review <unk> results for the first quarter 2024.
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 <unk> dot.
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 at Mackay 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.
Therefore, we have provided a detailed discussion of various risk factors in our SEC filings, which you're encouraged to review.
Youre 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 this morning, and I hope everyone is well.
I will start the call with an update on our recent transactions and our strategy execution.
As listed on slide four we announced and closed on the sale of our towers during the first quarter to.
The 310 million sales price represents a multiple of approximately 31 times 2023 tower segment adjusted EBITDA when considering the expected T mobile revenue churn we had previously disclosed.
We're very pleased with the sale price, especially when considering the publicly traded tower companies are trading at multiples in the high teens.
This transaction is a good example of the market value of our assets and businesses exceeding the implied value.
Stock price.
We also closed on $356 million in new financings on April one.
Including $275 million in extra metal credits.
All of the capacity.
The $1 million in preferred equity.
We had strong answers from both lenders and financial sponsors during the financing processes.
This reflects well on our track record management team and fiber first strategy.
These financings will provide growth capital to continue to invest into new glo fiber expansion markets.
On April one we closed on the acquisition of Horizon Telecom for 385 million, which included issuing $4 1 million common shares to a selling shareholder of horizon.
Horizon's fiber rich network will open up new Glo fiber expansion markets in Ohio.
Doubling the size of our commercial fiber business.
We recently announced our plans to expand the Glo fiber network to Greenfield Hillsboro Jackson Johnstown in Zanesville, Ohio.
We're excited to welcome our new Ohio colleagues to Shoretel and I'm pleased to report that Glenn Lytle is joining the senior management team to lead commercial sales for the combined company.
Glen brings over 25 years of commercial fiber sales experience, including the last five years successfully growing the horizon commercial fiber business.
Yeah.
I'll now turn to slide five to give an update on our strategy execution and our horizon integration efforts.
Although we've only owned horizon for about five weeks, we're off to a fast start with our integration efforts we.
We announced a brand change from horizon to Glo fiber in mid April.
Implemented a new glo fiber rate card in Ohio.
Similar to the plants, we used in the mid Atlantic States, we focus on easy straightforward pricing with no long term contracts.
We expect the new rate card will enhance customer additions and reduce churn.
We also identified another $1 billion in annual run rate expense synergy savings, increasing our targets of $10 6 million.
We began to implement plans to achieve these synergies in April realizing about $4 8 billion annualized or about 45% of our target as we entered may.
We expect to complete the integration and realize the full energy savings target by the end of the first half of 2025.
In parallel with our sale acquisition and financing activities, we have reported a strong quarter of operating results in our mid Atlantic markets.
We added 5000, glo fiber customers setting a new quarterly record.
We also constructed and released to sales almost 26000, new glo fiber passes.
With the 260000 passengers constructed in the mid Atlantic markets and 15000 pass things acquired as part of the Horizon merger we knew.
Now have 275000, glo fiber expansion market passing.
Or 46% of our year end 2026 target of 600000.
Moving to slide six we now have over 15000 route miles and our Super regional fiber network spanning seven adjacent states.
The combination with horizon has been well received by our commercial customers.
We now have 25 glo fiber markets as reflected on slide seven we have started engineering permitting and construction and another eight markets, including five new markets in Ohio.
The horizon acquisition closed and most of the underwriting of new markets complete we have good visibility into the future state of our Glo fiber network end markets.
Next 32 months will be focused on execution of our build sales plan.
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.
James J. Volk: Before I provide commentary on our financial results. Please note that we have altered our financial recording triggered by the plan to sell our tower portfolio in the first quarter.
The tower segment is now reported under discontinued operations in our statement of comprehensive income and statement of cash flow.
The tower assets are recorded as held for sale on our balance sheet.
These changes are reflected for the current and prior periods in our earnings release and <unk> Form 10-K.
Under the new organizational and reporting structure. The company has one recordable segment continuing operations going forward.
And now moving to slide nine for our financial results for the first quarter.
Revenue grew three 1% to $69 3 million in the first quarter 2024, driven by continued strong residential and SMB revenue growth of four 7 million or nine 1%.
Partial partially offset by the expected decline of $2 3 million or minus <unk>, 8% and commercial revenue.
James J. Volk: The residential F&B revenue increase was driven by growth in both fiber markets revenue of 73, 1%.
At 62, 3% increase in broadband Arpus and a nine 7% increase in data market.
Commercial revenue declined due to the expected decline in T mobile right.
As reported throughout 2023 T mobile disconnected backhaul circuits as part of the decommissioning of the former sprint network the.
The revenue decline reflects a full period of these disconnects and a significant reduction and related early termination fees.
We still expect about $7 million and lower T mobile revenue in 2024.
And for the commercial revenue to return to mid to high single digit growth rate starting in 2025 as previously disclosed.
Adjusted EBITDA of $19 3 million was relatively flat in the first quarter as compared to the first quarter 2023.
Revenue growth was offset by higher expenses associated with expanding our global fiber line of business higher programming fees for our video product and bad debt due to general macro economic conditions.
Now I'd like to update you on our liquidity position following the horizon and related financing transactions, which we closed on April one.
As reflected on slide 10, we raised $81 million preferred equity financing.
And used the proceeds along with cash on hand, primarily from the tower sale to complete the acquisition of Horizon Telecom and <unk>.
Summary, we traded a slow growth infrastructure asset for digital fiber asset with higher growth potential, which fits nicely with our fiber strategy.
Our pro forma liquidity position on April 1st is $484 million, including about $110 million in cash $225 million available delayed draw term loans.
James J. Volk: $150 million and available revolver capacity.
We are well positioned to fund our business plan to grow our glo fiber expansion market.
600000 by the end of 2026.
Moving to slide 11, our pro forma outstanding net debt as of April one is a $190 million.
On a similar note after adjusted fully diluted common shares at $51 million for the additional $4 1 million common shares issued to a rollover of shareholder of our horizon as part of the acquisition.
And the ads converted equivalent common shares of the perfect preferred equity.
James J. Volk: Pro forma April 1st fully diluted common shares are now $58 4 million.
As a reminder, the exchange price for converting the preferred equity to common shares is $24 50.
Before turning the call over to Ed I will provide our expectations for 2020 for horizon financial contributions and some key operating metrics on slide 12.
James J. Volk: We expect horizon to generate $50 million to $54 million in revenue and $12 million to $16 million and adjusted EBITDA for the nine months of April to December 2024.
Capital expenditures for the nine month ownership period in 2024 are expected to range from $30 $39 million.
Most of the commercial fiber Capex is success based relating to installing service for a portion of the 690000 contracted monthly recurring revenue backlog.
As Chris noted earlier, we announced five new book fiber expansion markets in Ohio, The Glo fiber Capex in Ohio will be a combination of engine initial engineering and permitting for these new markets constructing a few thousand more Athens in existing Ohio markets.
Success based capex to connect customers.
James J. Volk: Horizon currently cast is 15000 homes and businesses with fiber and three Greenfield markets, a 14th Alpha testing in the <unk> market.
And now I'll turn the call over to Ed.
Okay.
Thank you Jimmy and good morning, all.
Ed: Start on slide 14, with an update on our fiber construction metrics.
In the first quarter, we continued the growth of our predominantly fiber network ending the quarter with 55% of our total broadband passing served by state of the art 10 gig <unk> PON fiber to the home networks.
We added over 26000, new fiber passes in the first quarter and our construction pace was 47% faster than the first quarter of 2023.
We are very pleased with the progress toward our goal of over 100000 additional fiber passengers in 2024.
We now have approximately 260000 glo fiber passes and our total number of approved Glo fiber passing has reached 565000 at the end of the first quarter.
Combined with 15000 existing greenfield fiber passive in form of horizon markets and our recently announced expansion to 40000 additional homes in Ohio, We now have enough passive in our construction pipeline to reach our goal of 600000 total glo fiber passing us by 2026.
Ed: In addition, we plan to construct approximately 23000 fiber passes as part of government Grant projects and 3500 were complete at the end of the first quarter.
As we continue to ramp up glo fiber construction, we had a record quarter for customer growth as shown on slide 15.
We added over 5000, new Glo fiber customers in the first quarter and reached a total of almost 47000 up 62% year over year.
Our total number of data video and voice revenue generating units has reached approximately 57000 up 56% year over year.
Ed: Our sales team continued to outpace our construction team and we grew broadband data penetration from 17, 4% a year ago to 18% at the end of the first quarter, while adding almost 95000 new passengers during the same period.
Okay.
Our broadband data average revenue per user increased almost 10% year over year due to a combination of rate adjustments additional equipment revenue and customer selecting higher speed tiers.
For the quarter, 50% of our new residential subscribers adopted speed tiers of one gig or higher including approximately 3% that took speeds up two gig or higher.
Okay.
Ed: We continue to focus on providing the fastest speeds most reliable network and outstanding local customer service and our churn remains extremely low at 0.86% for the quarter.
On slide 16, we highlight our data penetration rates as our markets mature and our continuing progress increasing penetration rates across all our cohorts.
First year after launch the Glo fiber market, we typically see penetration rates over 18% and after three years data penetration rates typically exceed 30%.
Ultimately, we expect to reach average terminal penetration rates of about 38% five years to six years after launching service in a new area.
Our most mature neighborhoods launched in late 2019 have already exceeded this goal.
Let's shift to our first quarter operating results for our cable markets on slide 17.
Broadband data subscribers decreased slightly year over year to 109000, and broadband data churn increased to 167% driven primarily by competition from cable and fiber overbuilding in some markets.
Our data penetration decreased to 53% driven by the decrease in subscribers and the addition of over 4000, passing through the past year, primarily in government subsidized areas.
Our total revenue generating units decreased by about four 5% year over year as we continued to see declines in video service and residential voice service due to cord cutting.
Competition has increased but unlike some of our larger cable peers. Our markets are predominantly rural with a cable or fiber competitor offering service to less than 20% of our passengers.
Despite competitive pressure in portions of some markets broadband data ARPA increased by two 4% year over year to $85 offsetting most of the decrease in revenue from fewer RG use.
I'll also add that we believe <unk> has limited exposure to the ACP program relative to some of our larger cable peers.
Less than 4% of our total broadband data customers subscribed to ACP supported plans and over 75% of them were customers prior to enrolling in the ACP program.
Ed: Sure.
Moving to slide 18, we highlight our broadband commercial fiber business.
In the first quarter, we booked new sales totaling 110000 in monthly revenue up almost 4% year over year.
Our new installed monthly revenue for the first quarter was 66000, and we finished the quarter with an installation backlog of approximately 165000 in monthly revenue.
We expect the majority of this backlog to be installed in the second quarter.
Monthly churn and compression decreased significantly year over year to 1% for the first quarter of 2024.
T Mobile has now completed the vast majority of backhaul disconnects associated with the sprint network rationalization.
As Jim mentioned, although these disconnects will temporarily slow revenue and earnings growth in 2024, we expect our commercial fiber business to return to historical growth rates in 2025 and beyond.
Ed: By 2023 capital spending.
Ed: And guidance for.
For 2024 are reflected on slide 19.
Total capital investments for the first quarter totaled $70 million roughly in line with our capital spending in the first quarter of 2023.
Our glo fiber and government subsidize investments were on plan for the first quarter and we are on pace to finish 2024 within our previous guidance range of $260 million to $290 million.
Thank you very much and operator, we're now ready for questions. Thank you and as a reminder to ask a question simply press star one one to get in the queue.
One moment, while we compile the Q&A roster.
Ed: Our first question comes from Matt <unk> with Dws financial Please proceed.
Hey, good morning.
Matt: So first off I just wanted to ask you about the ads you had with glo fiber.
Matt: Is that.
Matt: Method of just being in more markets or is that because youre gaining momentum with the markets you've already been established.
Good morning, Hi, Matt. This is Ed so it's a combination of both there not only do we have additional new classrooms, as we ramp up construction, but we're continuing to grow our penetration rates in those more mature markets.
It's definitely a combination of the two and we accelerated our net adds year over year.
Well.
And do these customers that you're adding do they have prior broadband service provider or are they brand new to the service.
I would say the majority of our ads are switching from one of the big cable providers.
Yes.
And lastly with horizon.
Matt: With the revenue that they're generating is there any growth possibilities. This year or are you more looking.
I stood 25 potential.
Speaker Change: Yes, I can jump in here.
Yes, the <unk>.
Revenue has grown.
Yes, low single digit rates the last two years they.
Speaker Change: They have a very sizable backlog as we noted on the slide they had $609000 of monthly.
Revenue under contracted sales contracts that are awaiting installation, we're trying to accelerate that that.
That installation pace, it's going a little slower than what we had expected so arc, but but our new leadership team is involved theater and we expect that will go up.
Pick up a couple of quarters passed and we should see some meaningful improvements by the time, we get into 2025.
Okay. Thank you.
Alright, Thanks, Amit thank.
Speaker Change: Thank you and this concludes the Q&A session for today I will pass it back to Jim Volk for final comments.
Yes, thanks, everyone for joining us. This morning, we look forward to updating you on our progress on our fiber strategy and the horizon integration in future periods have a great day. Thank you.
And this concludes our conference you may now disconnect.
Okay.
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