Q1 2025 Shenandoah Telecommunications Co Earnings Call
Operator: Good morning, everyone. Welcome to the Shenandoah Telecommunications first quarter 2025 earnest conference call. Today's conference is being recorded.
Good morning, everyone welcome to the Shenandoah Telecommunications first quarter 2025 earnings conference call.
Today's conference is being recorded at.
Kirk Andrews: At this time, I will turn the conference over to Mr. Kirk Andrews, Director of Financial Planning and Analysis for Shentel.
Speaker Change: At this time I will turn the conference over to Mr. Kirk Andrews director of financial planning and analysis for St. Joe.
Kirk Andrews: Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for first quarter 2025. 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 Shentel.com website.
Speaker Change: Good morning, and thank you for joining us the purpose of today's call is to review <unk> results for first quarter 2020.
Speaker Change: 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 <unk> Dot Com website.
Kirk Andrews: 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 Change: Please note that an audio replay of this call will be made available later today.
Speaker Change: Details are set forth in the press release announcing this call.
Kirk Andrews: 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 Volk, Senior Vice President of Finance and CFO. After our prepared remarks, we will conduct a question and answer session.
Chris French: But that's on the call today are Chris French President and Chief Executive Officer.
Speaker Change: Okay, Executive Vice President and Chief operating Officer, and Jim Volk, Senior Vice President of Finance and CFO.
Chris French: After our prepared remarks, we will conduct a question and answer session.
Kirk Andrews: 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. These may cause our actual results to differ materially from the statement. Therefore, we have provided detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward-looking states.
Chris French: 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.
Chris French: These may cause our actual results to differ materially from the statements.
Chris French: Therefore, we have provided detailed discussion of various risk factors in our SEC filings, which you are encouraged to review.
Chris French: You are cautioned not to place undue reliance on these forward looking statements.
Kirk Andrews: Acceptance required by law, we undertake no obligation to publicly update or revise any forward-looking statement.
Chris French: Except as required by law, we undertake no obligation to publicly update or revise any forward looking statements.
Christopher French: And with that, I'll 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.
Chris French: And with that I'll now turn the call over to Chris go ahead, Chris.
Chris French: Thanks, Kurt we appreciate everyone joining us this morning, and I hope everyone is well.
Christopher French: We are pleased with our results for the first quarter of 2025, with growth or subscriber improvements across all lines of business. Highlights for the quarter are listed on slide four. First, we had another solid quarter of rapid growth in our Glow Fiber Expansion Mark. We added 5,400 new subscribers and 16,600 new passes. and increased revenues by 52% over the same period in 2020. As we enter the last 20 months of the investment phase of our expansion, we're very excited about the growth prospects these greenfield markets will contribute to shareholder value. While we have reported on our track record of ramping up the number of passings, customers, and revenue for the past few years, we're also very excited about the potential free cash flow generation.
Chris French: We are pleased with our results for the first quarter of 2025 with gross or subscriber improvements across all lines of business.
Chris French: Highlights for the quarter are listed on slide four.
First we had another solid quarter of rapid growth in our glo fiber expansion markets. We added 5400, new subscribers and 16600, new passing and increased revenues by 52% over the same period in 2024.
Chris French: As we enter the last 20 months so the investment phase of our expansion. We're very excited about the growth prospects. These greenfield markets will contribute to shareholder value.
Chris French: While we have reported on our track record of ramping up the number of passing <unk> customers and revenue for the past few years. We're also very excited about the potential free cash flow generation.
Christopher French: As an example, our mature market cohorts from fourth quarter 2019 through third quarter 2023 represent 51,000 customers with an average penetration rate of 25%. These mature cohorts generated free cash flow margins of over 40% during the first quarter, 2025, after considering the cost to connect new customers and maintenance cap. We expect these free cash flow margins to expand as we approach our average terminal penetration rate of 37%. We believe this is an underappreciated value of our business and will be a catalyst for share price appreciation.
Chris French: As an example, our mature market cohorts from fourth quarter 2019 through third quarter 2023 represents 51000 customers with an average penetration rate of 25%.
Chris French: These mature cohorts generated free cash flow margins of over 40% during the first quarter 2025, after considering the cost to connect new customers and maintenance Capex.
Chris French: We expect these free cash flow margins to expand as we approach our average terminal penetration rate of 37%.
Chris French: We believe this is an underappreciated value of our business and will be a catalyst for share price appreciation.
Christopher French: We also saw improvement in our incumbent broadband business as we returned to positive data RGU growth, driven by 31 basis point reduction in churn to 1.36% and ramping subscriber penetration in our newly constructed passings in unserved areas. Our customers are reacting favorably to the enhanced rate plans and value propositions we introduced in the past year. Despite the elevated capital expenditures in constructing fiber to unserved homes with various government grant subsidy programs, we expect to generate free cash flow in this mature line of business in 2025.
Chris French: Okay.
Chris French: We also saw improvement in our incumbent broadband business.
Chris French: Turn to positive data <unk> growth driven by 31 basis point reduction in churn to 136% and ramping subscriber penetration and our newly constructed passing an unserved areas.
Chris French: Our customers are reacting favorably to the enhanced rate plans and value propositions, we introduced in the past year.
Chris French: Despite the elevated capital expenditures and constructing fabric to unserved homes with various government grant subsidy programs, we expect to generate free cash flow in this mature line of business in 2025.
Christopher French: Lastly, our commercial sales team had a record quarter for sales bookings of just under $200,000 in monthly recurring revenue. While we still have work to do in accelerating service delivery and improving the quality of service for our carrier customers in our Ohio markets, sales bookings are an early indicator of future revenue growth acceleration.
Chris French: Okay.
Chris French: Lastly, our commercial sales team had a record quarter for sales bookings of just under 200000.
Chris French: In monthly recurring revenues.
Chris French: While we still have work to do in accelerating service delivery and improving the quality of service for our carrier customers in our highway markets sales bookings are an early indicator of future revenue growth accelerating.
James Volk: 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. Before I review our financial results, please note that we changed the recording of promotional discounts and certain revenues across our products and lines of business to better conform with industry practice. These changes are revenue neutral but do impact certain lines of business revenue disclosures and non-GAAP metrics like average revenue per unit or RRP. We have updated the presentation of prior year revenues, ARPU, and RGUs.
Chris French: 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.
Jim: Before I review our financial results. Please note that we changed the reporting of promotional discounts and certain revenues across our products and lines of business to better conform with industry practice.
Jim: These changes are revenue neutral, but do impact certain lines of business revenue disclosures and non-GAAP metrics that average revenue per unit or <unk> we.
Jim: We have updated the presentation. Prior year revenues are two RG use to conform with the reporting changes for comparability purposes.
James Volk: perform with reporting changes for comparability purposes. Please see slides 21 and 22 in the appendix to the earnings call deck or the last two pages of the earnings release that we posted to our investor relations website this morning for 2024 revenue and metrics. Details under the prior and current reporting.
Jim: Please see slides 21, and 22 in the appendix to the earnings call deck for the last two pages of the earnings release that we posted to our Investor Relations website. This morning for 2020 for revenue and metrics details under the prior and current reported.
James Volk: I'll now start on slide six for our financial results for the first quarter 2025. Revenues grew 27%. to 87.9 million. The former Horizon Markets contributed $15.2 million of revenue. Excluding Horizons. revenues grew $3.5 million or 5% over the first quarter 2024. Legacy Globe Fiber Markets revenue grew $5.6 million or 47%. driven by an increase in subscribers.
Jim: I'll start on slide six for our financial results for the first quarter 2025.
Jim: Revenues grew 27% to $87 9 million.
Jim: Former horizon markets contributed $15 $2 million of revenue.
Jim: Excluding horizon.
Jim: Revenues grew three 5 million or 5% over the first quarter 2024 legacy Glo fiber markets revenue grew $5 6 million or <unk>, 47% driven by an increase in subscribers.
James Volk: The legacy fiber revenue growth was partially offset by a decline in incumbent broadband markets revenue of $2.2 million, primarily due to a 14% decline in video RTUs due to customers switching to streaming video services. and Lower Installation and Equipment Revenue.
Jim: The legacy Glo fiber revenue growth was partially offset by a decline in broadband markets revenue up $2 2 million, primarily due to a 14% decline in the EUR to use due to customer switching to streaming video services.
Jim: And lower installation and equipment revenues.
James Volk: adjusted Ithacakwu 43% to $27.6 million. The former Horizon Markets contributed $4.4 million of adjusted EBIT dollars. excluding Horizon, adjusted ethodoc group 4 million or 21% from the same period a year ago. Adjusted EBITDA margins increased from 28% in the first quarter 2024 to 31% in the first quarter 2025, driven by the high incremental margins of adding Glow Fiber subscribers and an additional $2.8 million of Horizon Synergy savings being realized. We expect to realize a total of $8.5 million of incremental synergies in 2025, as previously guided.
Jim: Adjusted EBITDA grew 43% and $27 6 million.
Jim: The former horizon markets contributed $4 4 million of adjusted EBITDA, Excluding horizon, adjusted EBITDA grew $4 million or 21% for the same period a year ago.
Jim: Adjusted EBITDA margins increased from 28% in the first quarter, 2024% to 31% in the first quarter 2025, driven by the high incremental margins of any growth fiber subscribers.
Jim: And an additional an additional $2 8 million of horizon synergy savings being realized.
Jim: We expect to realize a total of $8 5 million of incremental synergies in 2025 as previously by.
James Volk: I'd now like to update you on our liquidity and debt positions on slide seven. Liquidity was $335 million as of March 31st, including $88 million in cash. 143 million in available revolver capacity, and 104 million in remaining reimbursements available under government control. As of March 31st, we had $516 million of outstanding debt. Earlier this month, we executed an amendment to our credit facility to extend the July 2026 maturities of our revolver and one of our term loans by one year, in addition to increasing the net leverage covenant by a half a turn to 4.7 times.
Jim: I would now like to update you on our liquidity and debt position on slide seven.
Jim: Liquidity was $335 million.
Jim: As of March 31, including $88 million in cash $143 million and available revolver capacity.
Jim: Capacity.
Jim: And $104 million in remaining reimbursements available under government grants.
Jim: As of March 31, we had $516 million of outstanding debt.
Jim: Earlier this month, we executed an amendment to our credit facility to extend the July 2026 maturities of our revolver and one of our term loans by one year. In addition to increasing the net leverage covenant by half a turn to four seven times.
James Volk: With the amendment, the first major maturity is now July 2027.
Jim: With the amendment the first major maturity is now July 2020.
James Volk: As I noted during our earnings call, our last earnings call, We are planning to refinance our credit. At this time, our preferred path to refinance is to access the asset-backed securitization, or ABS, market for our fiber business and enter into a new credit facility for our incumbent broadcaster. We believe this hybrid capital structure could provide us a lower cost of living. The amendment to our credit facility provides us additional time to restructure our lines of business reporting and back office systems to support this hybrid capital structure while lowering the risk that the current term loans will be reclassified as a current liability.
Jim: As I noted during our earnings call. Our last earnings call. We are planning to refinance our credit facilities. At this time, our preferred path to refinement is to access the asset backed securitization or ABS market for our fiber business and enter into a new credit facility for our incumbent broadband business.
Jim: We believe this hybrid capital structure could provide us a lower cost of debt.
Jim: The amendment to our credit facility provides us additional time to restructure our lines of business reporting and back office systems to support this hybrid capital structure, while lowering the risk that the current term loans will be reclassified as a current liability.
James Volk: More to come on refinancing details in future quarters.
Jim: More to come on refinancing details with each quarters.
Christopher French: And now, I'll turn the call over to... Thank you, Jim, and good morning, everyone. Our integrated broadband network shown on slide 9 now passes more than 600,000 homes and businesses with Glowfiber accounting for over 60% of our total pass. Our construction teams added almost 400 route miles of fiber in the quarter to expand GLO fiber, pass additional homes in government-subsidized areas of incumbent broadband markets, and extend service to commercial customers. Our extensive regional fiber network now spans more than 17,200 route miles across eight states. Slide 10 provides additional details on our broadband passings and plans to substantially complete the construction phase of our Glow Fiber Expansion Project and government grant projects by the end of 2026.
Ed: And now I'll turn the call over to Ed.
Ed: Thank you Jim and good morning, everyone.
Ed: Our integrated broadband network shown on slide nine now passes more than 600000 homes and businesses with Glo fiber accounting for over 60% of our total passengers.
Ed: Our construction teams added almost 400 route miles of fiber in the quarter to explain expand glo fiber pass additional homes in government subsidized areas of incumbent broadband markets and extend service to commercial customers.
Ed: Our extensive regional fiber network now spans more than 17200 route miles across eight states.
Ed: Slide 10 provides additional details on our broadband passes and plans to substantially complete the construction phase of our Glo fiber expansion project and government grant projects by the end of 2026.
Christopher French: We started 2025 with 346,000 glow fiber passings, and we added approximately 17,000 passings in the first quarter to bring our total to 363,000. By the end of 2025, we plan to reach a total of 440,000 homes, and we are targeting approximately 550,000 total glow fiber passings by the end of 2026 as we focus on construction in areas meeting our return criteria. In our incumbent broadband markets, we started the year with 239,000 passings and added approximately 2,000 additional passings in the first quarter, primarily as part of government grant projects to extend fiber to unserved areas. We plan to reach a total of approximately 254,000 incumbent broadband passings as we complete government grant projects in the remainder of 2025 and 2026.
Ed: We started 2025 with 346000 glo fiber passive and.
Ed: And we added approximately 17000 passengers in the first quarter to bring our total to 363000.
Ed: By the end of 2025, we plan to reach a total of 440000 homes and we are targeting approximately 550000 total glu fiber pass seats by the end of 2026, as we focus on construction and areas meeting our return criteria.
Ed: Okay.
Ed: And our incumbent broadband markets, we started the year with 239000 patents and added approximately 2000 additional passengers in the first quarter, primarily as part of government grant projects to extend fiber to unserved areas.
Ed: We plan to reach a total of approximately 254000 broadband passes as we complete government grant projects and the remainder of 2025 and 2026.
Christopher French: With Glowfiber and incumbent broadband markets combined, we plan to pass more than 800,000 homes and businesses with broadband service by the end of 2026. As we continue to increase our number of glow fiber passings, customer net additions have accelerated as shown on slide 11. In the first quarter, we added 5,400 new customers and approximately 6,100 total data, video, and voice revenue generating units. Year over year, we grew our customer base by 51% and ended the first quarter with approximately 71,000 Glowfiber subscribers. Our total glow fiber revenue generating units reached 84,000 at the end of the quarter, up approximately 48% year-over-year.
Ed: With glo fiber and incumbent broadband markets combined we plan to pass more than 800000 homes and businesses with broadband service by the end of 2026.
Ed: As we continue to increase our number of glo fiber passing customer net additions have accelerated as shown on slide 11.
Ed: In the first quarter, we added 5400, new customers and approximately 6100 total data video and voice revenue generating units.
Ed: Year over year, we grew our customer base by 51%.
Ed: And ended the first quarter with approximately 71000, Google fiber subscribers.
Ed: Our total fiber revenue generating units reached 84000 at the end of the quarter up approximately 48% year over year.
Christopher French: Broadband data penetration in our Glow Fiber Expansion Markets climbed to 19.4% at the end of the first quarter, up 18% from 18 percent a year earlier. And monthly broadband data churn for the first quarter remained very low at 0.9 percent. Our broadband data average revenue per user increased slightly to more than $77 in the first quarter as over 49% of our residential subscribers adopted speed tiers of one gig or higher, including approximately 7% that took speeds of two gig or higher. On slide 12, we've updated our data penetration rates as markets mature, and we are very pleased with our progress toward our average terminal penetration target of 37%.
Ed: Broadband data penetration in our glo fiber expansion markets climbed to 19, 4% at the end of the first quarter up 18%.
Ed: From 18% a year earlier and monthly broadband data churn for the first quarter remained very low at 0.9%.
Ed: Our broadband data average revenue per user increased slightly to more than $77 in the first quarter.
Ed: That's over 49% of our residential subscribers adopted speed tiers of one gig or higher including approximately 7% that took speeds of two gig or higher.
Ed: On slide 12, we've updated our data penetration rates as markets mature and we are very pleased with our progress toward our average terminal penetration target of 37%.
Christopher French: As Chris noted earlier, passings released to sales from fourth quarter 2019 to third quarter 2023 ended the first quarter with an average data penetration rate of approximately 25%. Our most mature cohorts launched four or more years ago continue to show strong growth with a weighted average growth rate of more than one percentage point in the first quarter.
Ed: As Chris noted earlier passengers released to sales from fourth quarter 2019 to third quarter 2023 ended the first quarter with an average data penetration rate of approximately 25%.
Ed: Our most mature cohorts launched four or more years ago continued to show strong growth with a weighted average growth rate.
Ed: Of more than one percentage points in the first quarter.
Christopher French: Moving on to slide 13, we show our operating results for our incumbent broadband. In the first quarter we added more than 500 broadband data subscribers with customer additions in our government subsidized markets more than offsetting losses in competitive areas. We ended the first quarter with approximately 112,000 broadband data customers, up 2.7% year-over-year due to the acquisition of approximately 3,000 broadband data customers from Horizon.
Ed: Moving on to Slide 13, we show our operating results for our broadband markets.
Ed: In the first quarter, we added more than 500 broadband data subscribers with customer additions in our government subsidized markets more than offsetting losses and competitive areas.
Ed: Okay.
Ed: We ended the first quarter with approximately 112000 broadband data customers up two 7% year over year due to the acquisition of approximately 3000 broadband data customers from horizon.
Christopher French: Data Voice and Video. RGUs totaled approximately 163,000 at the end of the first quarter and remained fairly consistent year over year with RGUs acquired from Horizon partially offsetting losses in Shentel incumbent cable markets due to video customers moving to online streaming options. Monthly broadband data churn continued to improve in the first quarter, down more than 30 basis points year over year to 1.36%. Our rate cards providing higher speeds and more value for the same price continue to be effective at mitigating churn while preserving broadband data ARPU of more than $83. Overall broadband data penetration decreased to 46.5% at the end of the first quarter, down year-over-year due to the addition of acquired passings in the Horizon ILEC territory and recently constructed government subsidized passings.
Ed: Data voice and video.
Ed: RG use totaled approximately 163000 at the end of the first quarter and remained fairly consistent year over year with RG use acquired from horizon, partially offsetting losses in centel incumbent cable markets due to video customers moving to online streaming options.
Ed: Once the broadband data churn continued to improve in the first quarter down more than 30 basis points year over year to $1 three 6%.
Ed: Our rate cards, providing higher speeds and more value for the same price continued to be effective in mitigating churn, while preserving broadband data <unk>.
Ed: Of more than $83.
Ed: Overall broadband data penetration decreased to 46, 5% at the end of the first quarter down year over year due to the addition of acquired passage in the Horizon ILEC territory and recently constructed government subsidized passes.
Christopher French: we see significant opportunities to drive penetration growth in both of these areas over the next several years.
Ed: We see significant opportunities to drive penetration growth in both of these areas over the next several years.
Christopher French: Slide 14 highlights our commercial fiber business and our record quarter for sales with new contracts for $196,000 in incremental monthly revenue. In the first quarter, our service delivery team installed approximately $221,000 in new monthly revenue and our remaining installation backlog is $549,000 in monthly revenue.
Ed: Okay.
Ed: Slide 14 highlights our commercial fiber business and a record quarter for sales with new contracts for 196000 incremental monthly revenue.
Ed: In the first quarter, our service delivery team installed approximately 221000, new monthly revenue and our remaining installation backlog was 549000 in monthly revenue.
Christopher French: We expect to install the vast majority of this backlog in 2025. Average monthly compression and disconnect churn was up slightly year over year to 1.3% due to an expected re-rate of certain T-Mobile circuits in the first quarter.
Ed: We expect to install the vast majority of this backlog in 2025.
Ed: Average monthly compression disconnect churn was up slightly year over year to one 3% due to an expected re rate of certain T mobile circuits in the first quarter.
Christopher French: This contract was executed in 2021 and included a January 2025 step down in price that remains in effect until early 2031.
Ed: This contract was executed in 2021 and included the January 2025 step down in price that remains in effect until early 2031.
Christopher French: Capital spending for the first quarter and guidance for the full year are shown on slide 15. We invested $76 million in the first quarter, a net of $7 million in government subsidies. For the full year, we expect capital investments to be in the $250 to $280 million range, net of $60 to $70 million in government subsidies.
Ed: Capital spending for the first quarter and guidance for the full year are shown on slide 15.
Ed: We invested $76 million in the first quarter net of $7 million in government subsidies.
Ed: For the full year, we expect capital investments to be in the $250 million to $280 million range net of $60 million to $70 million in government subsidies.
Christopher French: The timing of government subsidies are factors in our elevated spending in both commercial fiber and incumbent cable markets, and we expect spending to normalize as we receive additional reimbursements in the second half of the year. To date, we have not been impacted by price increases due to tariffs. and we don't expect to see a significant impact on our future construction costs.
Ed: The timing of government subsidies are factors in our elevated spending in both commercial fiber and incumbent cable markets and we expect spending to normalize as we receive additional reimbursements in the second half of the year.
Ed: To date, we have not been impacted by price increases due to tariffs and.
Ed: And we don't expect to see a significant impact on our future construction costs.
Christopher French: Materials and equipment only account for about 20% of our overall capital investments in 2025. The vast majority of the fiber and associated construction materials we use are manufactured in the United States and we have about eight months worth of construction materials in our warehouse.
Ed: Materials and equipment only account for about 20% of our overall capital investments in 2025.
Ed: The vast majority of the fiber and associated construction materials. We use are manufactured in the United States and we have about eight months worth of construction materials and our warehouses.
Christopher French: We could have future tariff exposure with electronic equipment, particularly customer premise equipment like Wi-Fi routers, cable modems, and video set-top boxes. Most of this equipment is manufactured overseas, but we currently have more than six months worth of equipment either in our warehouses or already in the U.S. with firm pricing commitments. If this equipment is impacted by tariffs and price increases, we would likely increase monthly equipment rental fees to offset the cost increase.
Ed: We could have future tariff exposure with electronic equipment, particularly customer premise equipment like Wi Fi routers cable modems and video set top boxes.
Ed: Most of this equipment is manufactured overseas, but we currently have more than six months worth of equipment either in our warehouses, we're already in the U S with firm pricing commitments.
Ed: This equipment is impacted by tariffs and price increases, we would likely increase monthly equipment rental fees to offset the cost increase.
Christopher French: Overall, we think we're well positioned to execute on our capital plan this year and substantially complete the construction phase of our glow fiber bills and government grant projects by the end of 2026.
Ed: Overall, we think we're well positioned to execute on our capital plan this year and substantially complete the construction phase of our glo fiber builds and government grant projects by the end of 2026.
Operator: Thank you very much, and operator, we're now ready for questions. Thank you.
Ed: Thank you very much and operator, we're now ready for questions.
Operator: At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while I compile the Q&A roster.
Ed: Thank you at this time, we will conduct a question answer session.
Ed: As a reminder to ask a question you need to press Star one one of your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while a comparable the Q&A roster.
Frank Louthan: Our first question comes from Frank Louthan from Raymond James and Associates. Please go ahead. Great, thank you. I just want to talk about the potential for some ABS securities. What rates do you think you can get and do you think you can get a deal done this year? And then what is sort of the optimal capital structure for you guys using that capital source and other sources? How do you think about that longer term? And then I've got a follow-up. Sure.
Speaker Change: Our first question comes from Frank Louthan.
Speaker Change: From Raymond James and Associates. Please go ahead.
Speaker Change: Great. Thank you.
Speaker Change: Just want to talk about the potential for some ABS securities what rates do you think you can get in and do you think you can get it done a deal done this year and then what is sort of the optimal capital structure for you guys using using that capital source and other sources. How do you think about that longer term and then I've got a follow up.
James Volk: Good morning, Frank. Oh, yeah, we think ABS is going to save us about 100 basis points in interest expense.
Speaker Change: Sure Good morning, Frank.
Speaker Change: Yes, we think ABS is going to save us about 100 basis points.
Speaker Change: Interest expense.
James Volk: We're, you know, we're planning to only use the investment grade tranches of the ABS, you know, we're not, we're not trying to maximize leverage here, we're really just trying to minimize the cost of We will also put in a revolver credit facility for the broadband business, and as I think long term, most likely that facility will likely be used in the short term, but in the long term, likely all of the debt will end up on the fiber side of the capital structure. All right, great.
Speaker Change: We're planning to only use the investment grade tranches of the Avs, we're not we're not trying to maximize leverage here, we're really just trying to minimize the cost of the debt.
Speaker Change: We will also put in a revolver.
Speaker Change: Credit facility for the broadband business.
Speaker Change: And as I think long term most likely that facility.
Speaker Change: Likely be used in the short term, but in the long term what the all of the debt will end up on the on the fiber side of the capital structure.
Frank Louthan: And then can you walk us through sort of the tail end plan here of Glowfiber? When will that elevated CapEx investment be substantially done? Is that year-end 26, and is that the point where we can expect CapEx to really fall off?
Speaker Change: Alright, Great and then can you walk us through sort of the tailwind plan here of Glo fiber is when when will that that elevated capex investment be substantially done as at year end 2006, and it is at the point, where we can expect capex to really.
James Volk: And then once you're done with the current expansion there, what is an ongoing level of capital intensity we should expect going Yeah, Frank, we expect to complete the construction to get to the 550,000 passings through the end of 2026. So beginning in 2027, we think the capital intensity should drop to about 20% to 25% of our revenues. And we expect to be free cash flow positive in 2027 and with meaningful amounts of growth in 2028 and beyond as we continue to execute. There will still be plenty of growth left from the global fiber business as we continue to add customers there.
Speaker Change: Falloff and then once once you're done with the.
Speaker Change: The current expansion there what what is ongoing.
Speaker Change: Ongoing level of capital intensity, we should expect going forward.
Speaker Change: Yes, Frank we expect to complete the construction to get to the 550000 passing.
Speaker Change: Through the end of 2006, so beginning of 2027, we think.
Speaker Change: Capital intensity should drop to about $20 to 25% of our revenues.
Speaker Change: And we will we expect to be free cash flow positive in 2007, and with meaningful amounts of growth in 2008 and beyond.
Speaker Change: As we continue to execute there'll still be plenty of growth left from the glo fiber business as we continue to add customers yet.
Frank Louthan: Why would it still be that high? That seems very elevated to me relative to the industry and kind of historic norms. Is that still sort of, you know, running drops to houses and things like that for a couple years? I mean, if we think about it long term, you settle in at a decent penetration rate.
Speaker Change: Why would it still be that high that seems very elevated to me relative to the industry and kind of historic norms is that still sort of running drops to houses and things like that for a couple of years I mean, if we think about it long term you settle in at a decent penetration rate why wouldn't capital intensity would be in the mid teens.
Frank Louthan: Why wouldn't capital intensity be in the mid-teens?
Edward McKay: Frank, this is Ed. What you mentioned about installing drops to homes, that's a big factor here. As we install more drops and have those drops in place, that capital intensity does come down. Okay, great.
Speaker Change: Yes, Frank this is Ed what you mentioned about installing drops to homes, that's a big factor here as we install more.
Speaker Change: This drops in place that capital intensity does come down.
Frank Louthan: One last question, just on impressive on the EBITDA side.
Speaker Change: Okay, Great and one one last question just thought.
James Volk: Is this the new normal here for the level of EBITDA we should think about going forward? Or is there anything kind of one time that helped the margin or any seasonal costs coming up later this year that might walk that margin back a little bit? How should we think about the ongoing level of EBITDA? Yeah, Frank, this is, I was using your words, the new normal. We do expect revenue and EBITDA to continue to grow, as we've talked about in the past, and that we expect the margins, the EBITDA margins, each year to probably grow 300 to 400 basis points a year as we continue to add customers on the Glowfiber side.
Speaker Change: Impressive on the EBITDA side is this the new normal here for the level of EBITDA, we should think about going forward or is there anything kind of one time that helped the margin or or any seasonal cost coming up later this year that might walk that margin back a little bit how should we think about the.
Speaker Change: Ongoing level of EBITDA.
Speaker Change: Yes, Frank this is I would say using your words the new normal.
Speaker Change: We do expect revenue and EBITDA continued to grow as we've talked about in the past and that we expect the margins the EBIT margins each year to probably grow 300 to 400 basis points a year as we continue to add customers on the fiber side very high incremental margins when we're adding.
James Volk: Very high incremental margins when we're adding a Glowfiber. So 300 to 400 basis points for the whole company, kind of even top margin growth. Correct.
Speaker Change: Fiber customer.
Speaker Change: So the 300 to 400 basis points for the whole company kind of EBITDA margin growth each year.
Frank Louthan: Okay, great.
Frank Louthan: Thank you very much.
Speaker Change: Correct.
Speaker Change: Okay, great. Thank you very much.
Operator: Thank you.
Hamed Khorsand: One moment for our next question. Our next question comes from Hamed Khorsand from BWS Financial. Please go ahead.
Speaker Change: Thank you wont before a mix question.
Speaker Change: Our next question comes from handmade Corzine from B Ws financial Please go ahead.
Hamed Khorsand: Hi, good morning. First off, just want to talk about, you know, the amount of subscriber growth you're seeing on the gold fiber side. Is it becoming difficult in adding that incremental one subscriber each quarter or you're not at that point yet?
Speaker Change: Hi, good morning.
Speaker Change: First off just wanted to talk about.
Speaker Change: Non of subscriber growth youre seeing on the <unk> fiber side.
Speaker Change: Is it becoming difficult and adding that incremental one subscriber each quarter or youre not at that point yet.
Edward McKay: Yeah, Frank, this is excuse me, I mean, this is Ed. Really, we're not at that point yet. Even our most mature markets that we launched, you know, four plus years ago, you know, we saw, you know, one percentage point growth in the past quarter. So we're continuing to add customers, you know, two, three, four years after we launch a market.
Speaker Change: Yes, Frank this is the darkness excuse me how bad this is Ed.
Speaker Change: We're not at that point, yet even our most mature markets that we launched four plus years ago. We saw one percentage point growth in the past quarter. So we're continuing to add customers.
Speaker Change: 234 years after we launch a market.
Hamed Khorsand: And are you seeing any competitive pressures in any of these markets yet? We have a small overlap with BrightSpeed, you know, roughly 5% of our passings. We have seen them deploy fiber. Other than that, we haven't seen any significant fiber deployments in our glow fiber market.
Speaker Change: Yes.
Speaker Change: And then are you seeing any competitive pressures in any of these markets yet.
Speaker Change: Of.
Speaker Change: We have a small overlap with bright speed roughly 5% of our passives, we have seen them.
Speaker Change: Floyd fiber.
Speaker Change: Other than that we haven't seen any significant fiber deployments in our glo fiber markets.
Hamed Khorsand: Are you changing your CAPEX strategy based upon competition or you just don't think that's a factor? No. When we're building out into a new area, we consider the competition. For example, if we're in a market and Verizon has already built Fios into a neighborhood, we avoid that neighborhood. So we are targeting passings where we are the only fiber provider and really the only wired broadband competitor is the cable company.
Speaker Change: Are you changing your Capex strategy based upon competition or you just don't think that that's a factor.
Speaker Change: No.
Speaker Change: We were building out into a new area. We consider the competition for example, if we're in a market and Verizon has already built <unk> into a neighborhood. We avoid that neighborhood. So we are targeting pass things, where we are the only fiber provider and really the only wired broadband competitor.
Speaker Change: Cable the cable company.
Hamed Khorsand: and then I'm just trying to stay on the refinancing topic.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: I'm just trying to understand on the refinancing topic.
James Volk: You know, it sounds like you were going through this integration process from the horizon, but now it sounds like you're going through it on integration standpoint, if that's even a word, process just to get this refinancing done. And yeah, is that I'm just trying to understand the cost basis here. I know you're trying to save on interest rates, but then isn't there a cost factor as far as this kind of restructuring is concerned? Ahmed, just internal projects more than anything here, but for us to be able to save 100 basis points on roughly $700 million of funded debt is pretty meaningful to us.
Speaker Change: Sounds like you were going through this integration process with horizon, but now it sounds like youre going through it.
Speaker Change: On integration standpoint, if that's even a word <unk>.
Speaker Change: <unk> just to get this refinancing done and is that I'm, just trying to understand the cost basis here I know you're trying to save on interest rates, but that isn't there a cost factor as far as this kind of restructuring is concerned.
Speaker Change: Just internal projects more than anything here, but.
Speaker Change: For us to be able to save a 100 basis points on roughly $700 million.
Speaker Change: Blended debt.
James Volk: So the internal work that we're doing on this is going to take several months. We expect to likely access the ABS market in the second half of the year, but we think it's well worth it to save roughly $7 million of interest expense a year.
Speaker Change: Pretty meaningful to us so so.
Speaker Change: Sure.
Speaker Change: Tunnel work that we're doing on this.
Speaker Change: It's going to take several several months, we expect to likely access the ABS market in the second half of the year.
Speaker Change: But we think it's well worth it and say roughly $7 million of.
Speaker Change: Interest expense a year.
Hamed Khorsand: Okay, thank you.
Okay. Thank you.
Speaker Change: Okay. Thank you.
Hamed Khorsand: Thank you.
Operator: As a reminder, to ask a question, you need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one one of your telephone and wait for your name to be announced.
Speaker Change: Yeah.
James Volk: This concludes the question and answer session.
Speaker Change: This concludes the question and answer session I will now turn it back to Jim Volk for closing remarks.
James Volk: I will now turn it back to Jim Volk for closing remarks. Thank you everyone for joining. We look forward to updating you on our progress in future quarters.
Jim Volk: Thank you everyone for joining we look forward to updating you on our progress in future quarters have a great day.
Operator: Have a great day. Thank you for your participation in today's conference.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Operator: This does conclude the program. You may now disconnect.
Speaker Change: Okay.
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