Q4 2024 Shenandoah Telecommunications Co Earnings Call
Speaker Change: Good morning, everyone. Welcome to Shenandoah Telecommunications' fourth quarter 2024 earnings conference call.
Kurt: Thanks, Kurt we appreciate everyone joining us this morning, and I hope everyone's doing well.
Kurt: We're very pleased with our results for 2024, which was a pivotal year for our company as we successfully expanded into.
Kurt: Through our acquisition of Horizon.
Kurt: New records for construction sales, our glo fiber business.
Kurt: Slide four lists the highlights for our horizon integration.
Kurt: We completed the integration of the remaining two back office systems in the fourth quarter.
Kurt: In all we integrated six separate systems in nine months, which was three months faster than our original plan.
Kurt: The successful integration along with identifying new opportunities for improved productivity allowed us to upsize, our annual run rate synergy savings from our original estimate of $9 6 million to $13 8 million.
Kurt: We realized $4 $5 million of these savings in 2024, and we expect to realize an additional $8 5 million and 25.
Kurt: With remaining amount expected to be realized in the first quarter 2026.
Kurt: I'll now turn to slide five to give an update on execution of our glo fiber expansion plan.
Kurt: 24 was the fourth consecutive year, we increased both our construction pace in customer net additions.
Kurt: <unk> released to sales were approximately 97000 and customer net additions were over 21000.
Kurt: We remain on target to complete Glo fiber seven year construction phase by the end of next year.
Kurt: Moving to slide six such Glo fiber its first full year in 2020, we have increased customers and revenue compound annual growth rates of 99% and 135% respectively.
Kurt: While the construction phase of Glo fiber is projected to be substantially complete in 2026.
Kurt: We expect glo fiber customer net additions and revenue to be an engine of growth for the next six to seven years with penetration levels expected to increase from the COVID-19%.
Words are projected terminal penetration rate of approximately 37%.
Kurt: We anticipate the glo fiber expansion markets will be our largest line of business in terms of customers by 2026 and revenue by 2029.
Kurt: With that I'll now turn the call over to Jim to review the details of our financial results.
Jim: Thank you, Chris and good morning, everyone I'll start on slide eight for our financial results for 2024.
Jim: Revenue grew 22% to $328 1 million in 2020 for the former Horizon markets contributed 47 7 million of revenue during the nine months of share ownership in the fourth quarter, we made a measurement period adjustment to horizon's commercial revenues of negative.
Jim: $2 6 million.
And establish the corresponding deferred revenue liability to be recognized over the contract period.
Jim: The measurement period adjustment the first revenue in future years, and does not impact billings for cash collections.
Jim: Excluding the former Horizon markets revenues grew 11 2 million or four 3% over 2023.
Jim: Fiber revenues grew 21, 4 million or 61% driven by a 59% increase in subscribers and a seven 3% increase in ARPA.
Jim: The legacy Glo fiber revenue growth was partially offset by declines in commercial fiber and incumbent broadband markets revenue.
Jim: Commercial revenue declined $5 8 million due to seven 1 million in expected T mobile revenue churn offset by growth in recurring revenue.
Jim: As reported throughout 2023.
Jim: T mobile disconnected backhaul circuits as part of the decommissioning of the former Sprint network. The revenue trend reflects a full period of disconnects and a reduction in related early termination fees.
Jim: We expect the commercial fiber revenue to return to mid to high single digit growth rates in future periods.
Jim: Incumbent broadband markets revenues declined $5 million.
Jim: Do a 16, 9% decline in CEO RG use due to cord cutting and a one 6% decline in data Archie used with.
Jim: With the majority of the decline due to the ACP program ending in 2024.
Jim: Adjusted EBITDA grew 20% to $94 6 million.
Jim: The former horizon markets contributed $10 7 million of adjusted EBITDA.
Jim: Excluding the former horizon markets adjusted EBITDA grew $4 9 million or 6% from 2023.
Jim: Pretty unusual growth in adjusted EBITDA was primarily due to seven 1 million decline in T mobile revenue mentioned earlier.
Jim: Turning to slide nine I'd like to review, our historical revenue and adjusted EBITDA growth rate since the first full year of Glo fiber expansion.
Jim: As we disclosed a year ago consolidated revenues and adjusted EBITDA grew 9% and 18% respectively over the three year period 2021 2023.
Speaker Change: Driven by the rapid growth of Glo fiber expansion markets that Chris shared earlier.
Speaker Change: 2024 was a transition year percentile as we sold our tower business in March 2024.
Speaker Change: Acquired horizon in April 2024.
Speaker Change: Curt higher horizon operating expenses during the integration period.
Speaker Change: And experienced lower Centel legacy growth due to the $7 1 million and T Mobile revenue chart.
Speaker Change: With these onetime events behind us we expect our long term consolidated revenue and adjusted EBITDA compounded annual growth rates will return to similar levels that we achieved after we launched the <unk>.
Speaker Change: We expect adjusted EBITDA margins to improve in future years as well.
Speaker Change: Even by high incremental margins of adding glo fiber customers and as the full impact of the synergy savings kick in.
Speaker Change: I would now I'd like to update you on our liquidity and debt position on slide 10.
Speaker Change: Liquidity was 400 million on December 31 include.
Speaker Change: Including $46 million in cash $100 million in available delayed draw term loans $143 million and available revolver capacity.
Speaker Change: And $111 million in remaining reimbursements available on your government grants.
Speaker Change: As previously disclosed disclosed we have been awarded a $150 million in government grants to expand our broadband network to uncertain times.
Speaker Change: And upgrade parts of our middle mile Network.
We have collected $39 million in grant funds to date and expect to collect the remaining as we complete these projects over the next few years.
Speaker Change: At the end of 2024, we had $418 million of outstanding debt.
Speaker Change: The first major maturity is June 2026, and we are planning to refinance the 2026 maturities in 2025.
Speaker Change: More to come on refinancing details in future quarters.
And now I'll turn the call over to Ed.
Ed: Thank you Jim and good morning.
Ed: So I'll start with an overview of our integrated broadband network on slide 12.
Ed: We now pass more than 585000 homes and businesses with broadband services and we have continued our evolution to a fiber dominant network provider with 61% of our passing served via fiber and our glo fiber expansion markets or as part of government subsidized projects.
Ed: 2024 was a record year for fiber construction with our engineering and construction teams, adding over 103000, new fiber passes and more than 1400, new route miles of fiber.
Ed: In the fourth quarter, we added approximately 30000, new fiber passes and our extensive regional fiber network. Now consists of approximately 16800 route miles.
Ed: Slide 13 provides additional details on our fiber construction metrics.
Ed: As Chris mentioned, our engineering and construction teams added approximately 97000, new glo fiber passengers in 2024, and we also added over 6000, new fiber passes as part of government grant projects.
Ed: With the addition of a former Horizon network, we now pass approximately 356000 homes and businesses with fiber, including approximately 10000 in government subsidized areas that were previously unserved.
Ed: Our pipeline for construction opportunities remains robust with 323000 potential additional patents.
Ed: This is more than enough to complete the construction phase of our fiber expansion initiative by year end 2026, and we plan to add more than 100000 fiber passes and each of the next two years.
Ed: As we continue to accelerate construction and glo fiber expansion markets. We also continue to accelerate customer growth as shown on slide 14.
Ed: In the fourth quarter, we added approximately 5900 net customers to close out a record year for broadband sales.
Ed: For the year, we added more than 21000 net customers.
Ed: 2024, with 65000 total customers up 56% year over year.
Ed: Our total number of data video and voice revenue generating units reached 78000 at the end of 2024 up approximately 53% year over year.
Ed: The broadband data penetration rate in our glo fiber expansion markets climbed to 18, 8% at the end of 2024 up a full percentage point from the prior year.
Ed: In our more mature markets with fiber passing is released to sales two or more years ago. Our average penetration has climbed over 26%.
Ed: Broadband data average revenue per user increased as well up 6% year over year due to a combination of rate adjustments additional equipment revenue and customer selecting higher speed tiers.
Ed: In the fourth quarter over 49% of our residential subscribers adopted speed tiers of one gigawatt higher including approximately 6% that took speeds of two gigawatt.
Ed: Our monthly broadband data churn for the fourth quarter was very low at zero point, 94% and we finished the year at 1.0% to 4%.
Ed: The slight increase year over year was primarily due to the end of the affordable connectivity program.
Ed: On slide 15, we have updated our data penetration rates as markets mature and we have seen growth across all cohorts over the past year, including our most mature markets.
Ed: As we have expanded glo fiber service into new areas. We continue to see typical data penetration rates above 20% two years after launching service.
Ed: Data penetration rates for most mature cohorts launched in 2019, and 2020 have a weighted average growth rate of approximately three percentage points over the past year.
Ed: They are well on their way to reaching our projected average terminal penetration rate of about 37%.
Ed: Okay.
Ed: Moving on to Slide 16, we show operating results in our incumbent broadband markets.
Ed: These metrics cover our incumbent cable markets and telephone markets with fiber to the home passes.
Ed: Broadband data subscribers increased slightly year over year to over 111000, driven by the acquisition of approximately 3000 broadband data customers from horizon.
Ed: In the fourth quarter broadband data customers remained flat with broadband customer additions in our government subsidized markets and incumbent telephone markets offsetting lawsuit losses to competitors and become a cable markets.
Ed: Yes.
Ed: Total data voice in revenue video revenue generating units declined slightly year over year to approximately 183000 with Archie use acquired from horizon, partially offsetting losses, and some telecom cable markets due to customers moving to online streaming options.
Ed: Yes.
Ed: Monthly data churn for 2024 averaged 163%.
Ed: And former ACP customers accounted for about eight basis points of churn.
Ed: Despite the end of the ACP program churn was down slightly from the prior year.
For the fourth quarter of 2024 average monthly churn was 149% down five basis points from the fourth quarter of 2023.
Ed: Our new rate cards, giving customers more value and higher speeds for the same price have been effective at mitigating churn.
Ed: Despite the competitive pressures of portions of some incumbent markets broadband data <unk> increased by two 5% year over year to almost $85 due to a combination of rate adjustments and customer selecting higher speed tiers.
Ed: Okay.
Ed: Our overall broadband data penetration rate decreased to 46, 6% at the end of 2024 with the addition of acquired Horizon Passives and recently constructed government subsidized passes.
Ed: The former horizon incumbent telephone market had a broadband data penetration rate of 21, 3% at the end of the year and we believe there is significant opportunity to take advantage of the fiber to the home technology deployed in this market improve our market share and gained parity with the local cable company.
Ed: The overall data penetration rate in our incumbent cable markets at the end of 2024 was 48, 4%.
Ed: Over the past year, we added over 6000 additional fiber passing from these markets as government grant projects.
Ed: And we see significant growth opportunities in these areas as we complete our subsidized builds over the next two years.
Ed: Okay.
Ed: Our commercial fiber business as highlighted on slide 17.
Ed: The addition of the former horizon markets drove significant increases in both new sales bookings and installations of new monthly revenues.
Ed: In 2024, we booked new sales totaling 550 to 552000 in lumpy revenue up approximately 58% year over year.
Ed: Our service delivery team installed new monthly revenue of approximately 710000 more than double our total from 2023.
Ed: The fourth quarter was a record quarter for sales with new bookings totaling approximately 156000 and monthly revenue and.
Ed: And we finished the year with an installation backlog of almost 587000 in monthly revenue.
Ed: Excluding the impact of the T Mobile network rationalization that Jim discussed average monthly churn and compression for 'twenty 'twenty four remain low at approximately 0.6%.
Ed: Our capital spending for 2024 and guidance for 2025 are shown on slide 18.
Ed: Capital expenditures in 2024 totaled $300 million with the increase over 2023, driven primarily by additional investments in government subsidized projects.
Ed: In 2024 gross capital spending on government grant projects was approximately $83 million and we received approximately $19 million in reimbursements.
Ed: These.
Ed: <unk> included broadband expansion to unserved areas, and both incumbent table and Glo fiber markets as well as the middle mile fiber network upgrade and expansion to support our commercial fiber business in Ohio.
Speaker Change: Grant funding is expected to cover more than 50% of the total cost for these projects and as Jim mentioned, we expect to receive approximately $111 million in reimbursements in future years.
Speaker Change: For 2025, we are projecting capital spending in the $250 million to $280 million range as we continued to expand our fiber networks.
Speaker Change: This includes gross capital investments of approximately $80 million to $90 million in government grant projects and we expect to receive 2025 reimbursements in the $60 million to $70 million range.
Speaker Change: Our planned fiber investment of $175 million to $190 million will extend fiber to approximately 95000, new passes and connect new customers.
Speaker Change: And our company broadband business, we plan to invest $40 million to $50 million in capital projects, including extending broadband service to approximately 9000 government subsidized unserved homes and in upgrading networks in competitive markets to support multi gigabit speeds.
Speaker Change: Our planned commercial fiber investments are expected to be in the $35 million to $40 million range for success based spending for new revenue.
Speaker Change: And upgrades to the former Horizon network, including the government Grant project to expand our middle mile network and upgrade to 400 gig capable core network.
Speaker Change: As we approached the end of the construction phase of our fiber expansion projects. We wanted to provide long term guidance on capital intensity.
Speaker Change: Slide 19 shows our recent capital intensity as we've rapidly expanded our fiber networks.
Speaker Change: Net of government subsidies or overall capital investments in 2024 or 91% of revenues.
Speaker Change: Glo fiber expansion was the major driver behind the increased capital intensity.
Speaker Change: When it comes to broadband and commercial fiber investments have also been elevated due to grant projects to extend broadband service to unserved areas.
Speaker Change: Grant projects to upgrade and expand middle mile networks, and onetime projects in the form of horizon markets to upgrade networks and work through the large installation backlog.
Speaker Change: Our planned capital intensity has reached its peak and we expect our capital intensity to decline dramatically. Once we've substantially completed our glo fiber Buildout and government grant projects in 2026.
Speaker Change: For both our glo fiber and incumbent broadband businesses, we expect our long term capital investments to be between 15% and 25% of our revenues.
Speaker Change: Initially we will likely be on the higher end of this range as we connect new customers, but spending will come down over time. Once we have completed the initial drop installation to customers' homes.
Speaker Change: We expect our commercial fiber business to be more capital intensive than the 20% to 30% range due to success based spending to extend fiber networks to reach new customers.
Speaker Change: As we look out to 2027 and beyond we expect our overall capital intensity to be 20% to 25%, while still growing revenues and adjusted EBITDA at high rates.
Speaker Change: Thank you very much and operator, we're now ready for questions.
Speaker Change: Sadly.
Speaker Change: To ask a question at this time, you will need to press star one on your telephone and wait for your name to be announced to.
Speaker Change: <unk> Your question simply press Star one again, please standby, while we compile the Q&A roster.
Speaker Change: Now first question coming from the line of Frank Louthan with Raymond James Your line is now open.
Great. Thanks on the revenue adjustment with Horizon can you just give us.
Speaker Change: Remind us what the percentage of their revenue is at monthly amortized revenue versus monthly recurring revenue and then on the on.
Speaker Change: On the commercial business returning to mid to high single digits. When will all this T mobile churn be finished and what's kind of your expectation for what's left in the numbers and then can you give us an idea of the of the cash impact of any of those future disconnects as well that'd be great. Thanks.
Speaker Change: Good morning, Frank.
Speaker Change: On your first question.
Speaker Change: I don't have the exact numbers, but I can follow up with you on that on the.
Speaker Change: The amount of revenue that is amortized revenue from horizon I don't think its.
Speaker Change: Significant portion but.
Speaker Change: I can follow up if you can provide that to you later.
Speaker Change: In regards to the T mobile.
Speaker Change: The <unk> business that is behind us.
Speaker Change: So that is now all flowed through the system most of the disconnects occurred in 2023, but when you look at the year over year results.
Speaker Change: Yes, I mean, we continue to see year over year declines as a result of.
Speaker Change: The churn that occurred in in different parts of 2023.
Speaker Change: And as far as for the cash impact.
Speaker Change: That is pretty high.
Speaker Change: Gross margin revenue there was very little operating expenses that go away with that revenue churn. So most almost all of that $7 $1 billion of T mobile churn.
Speaker Change: <unk> EBITDA in affected net income.
Speaker Change: Okay, but after this quarter that that's done and we shouldn't see any any more of that.
Speaker Change: That is behind us.
Speaker Change: Okay excellent.
Speaker Change: One quick follow up on slide 16, just looking at the incumbent.
Speaker Change: Data penetration. So what is what is the source of that competition is any of that stuff that youre cannibalizing into maybe to your fiber business I don't think that's the case, but just checking and then where is that competition coming from that's causing that high churn.
Speaker Change: Yes, Frank this is Ed. So there is no cannibalization from our Glo fiber business Glo fiber.
Speaker Change: Building new markets not overbuilding our cable.
Speaker Change: In our legacy Sheftel cable markets, we do have about 23% of our passing that have overlap with a fiber or for our cable competitor.
Speaker Change: And then also part of our incumbent business now is the horizon telephone markets, where they have deployed fiber to the home and that has 100% overlap with the local cable company. So.
Speaker Change: All in all about 28% of our incumbent passes have a cable or fiber competitor.
Speaker Change: And that's a combination of the incumbent cable companies and in a few cases, we do have some fiber overbuild activity as well.
Speaker Change: Yeah.
Okay and I have just gotten has it got more competitive recently or what's has anything changed in the last six to 12 months or is it just general.
Speaker Change: General pace of business, and where do you expect that to.
Speaker Change: To end up are they on based on past, 40% or are they kind of done or what do you think.
Speaker Change: I think the pace of construction has actually slowed down.
Speaker Change: Over the past six months.
The projects that have been announced we expect that that overlap probably goes to 30% over the next couple of years.
Speaker Change: But.
Speaker Change: Beyond that our cable markets are still very rural.
The low density and some challenging demographics in some areas.
Speaker Change: We think we'll take overbuilt or less likely.
Speaker Change: Alright, great. Thank you very much yes, and Frank I, just looked up the monthly amortized revenue and on the horizon part of the business Thats about 8% of their revenues was amortized revenue.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: And as a reminder to ask a question. Please press star one line.
Speaker Change: Our next question coming from the line of Amit question with Dws financial your line is open.
Speaker Change: How many of you there.
Speaker Change: Alright.
Speaker Change: Sorry, I was on mute what kind of pressures are you seeing just from the other service providers.
Speaker Change: You're competing with the 28%.
Speaker Change: Sharing markets with.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: The largest competitive competitors.
Speaker Change: Two big the two big cable companies.
Speaker Change: In our fiber markets.
We are seeing.
Speaker Change: Promotional offers but they are.
Speaker Change: Typically discounting.
Speaker Change: Putting more heavily.
Speaker Change: Pricing on their lower end products.
So we're continue to have significant success in the middle of the high end of the range, but.
Speaker Change: They are taking some of the lower lower tier products.
Speaker Change: Okay, and then as far as your Glo fiber is concerned do you feel like you got to.
Speaker Change: Go into each market with.
Speaker Change: A low ball promotional off or is it.
Speaker Change: <unk> pretty sustainable without any kind of promotions or discounts.
Speaker Change: When we initially go into the market. We typically don't go in there with heavily discounted pricing.
Speaker Change: We do offer some promotions $100 off your total bill for the first year for example, but typically we don't go in there with a heavily.
Speaker Change: Discounted promotions and now over time once we have gotten our initial market share. We will go back in with some targeted promotional officers offers to increase penetration in some of the mature.
Speaker Change: Passing.
Speaker Change: Typically we're able to compete effectively with our with our standard everyday pricing.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you.
Speaker Change: There are no further questions in the queue I will now turn the call back over to Mr. Jim Volk for any closing remarks.
Speaker Change: Yes. Thank you everyone for joining our call. This morning, we look forward to updating you on our growth prospects and status in the future quarters have a good day.
Speaker Change: This does concludes today's conference. Thank you all for participating and you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.