Shenandoah Telecommunications (NASDAQ:SHEN) reported robust monetary and operational efficiency in its second-quarter 2024 earnings name. CEO Chris French and COO Ed McKay outlined the profitable growth of the Glo Fiber community, whereas CFO Jim Volk detailed a big improve in income and adjusted EBITDA.
The corporate’s Glo Fiber technique is proving efficient with a better common income per person (ARPU) and a steady month-to-month churn fee. The current acquisition of Horizon Telecom is anticipated to be totally built-in by Q1 2025. Shentel’s broadband information penetration charges and buyer adoption of upper velocity tiers are on the rise, with optimistic expectations for the long run.
Key Takeaways
- Shentel’s Q2 2024 income elevated by 29% to $85.8 million, and adjusted EBITDA rose by 20% to $23.3 million.
- The Glo Fiber community now serves 27 markets throughout six states with over 53,000 prospects.
- The associated fee to go a house with Glo Fiber stays inside the estimated vary of $1,000 to $1,400.
- ARPU for Glo Fiber is roughly 10% increased than initially assumed.
- Shentel maintains a low month-to-month churn fee of round 1% and a web promoter rating of 69 for Glo Fiber.
- Over half of the residential subscribers have adopted velocity tiers of 1 gig or increased.
- The corporate’s liquidity place stands at $412 million, with a web leverage ratio of two.7x.
- Capital investments for the 12 months are anticipated to be between $290 million to $329 million.
Firm Outlook
- System integration work for the just lately acquired Horizon Telecom is anticipated to be accomplished by Q1 2025.
- Knowledge penetration charges are anticipated to succeed in a mean of 37% inside 5 to six years after launching service in new areas.
- Shentel plans to refinance $150 million in time period loans maturing in June 2026 in the course of the second half of the subsequent 12 months.
Bearish Highlights
- Broadband information churn for the quarter was 1.18%, primarily because of prospects transferring out of the markets.
- A lower in information penetration to 47.8% was noticed in incumbent broadband markets on the finish of the second quarter.
- T-Cell’s decommissioning of backhaul circuits is anticipated to lead to a income lower of about $7 million in 2024 in comparison with 2023.
Bullish Highlights
- The corporate’s Glo Fiber growth continues to reveal potential for long-term worth creation.
- Latest transactions within the fiber-to-the-home market have reaffirmed the worth of the Glo Fiber enterprise.
- Shentel has not noticed vital aggressive exercise from Verizon (NYSE:) in its markets concerning fiber upgrades.
Misses
- The corporate has not engaged in concrete conversations about refinancing its 2026 debt stack however has plans to deal with it within the latter half of the subsequent 12 months.
Q&A Highlights
- Shentel is seeking to broaden relationships and add extra backhaul circuits sooner or later.
- The corporate doesn’t really feel pressured to decrease pricing in aggressive markets as a result of superior high quality of their product.
- There are not any plans to speed up capital expenditures this 12 months, because of allowing and make-ready work challenges for pole attachments.
In conclusion, Shentel’s earnings name highlighted a robust quarter with continued progress and strategic growth in its Glo Fiber community. The corporate stays targeted on enhancing shareholder worth and delivering high-quality broadband providers to its prospects.
Full transcript – Shenandoah Telecommunications Co (NASDAQ:) Q2 2024:
Operator: Good morning, everybody. Welcome to Shenandoah Telecommunications Second Quarter 2024 Earnings Convention Name. Immediately’s convention is being recorded. Presently, I want to flip the convention over to Mr. Kirk Andrews, Director of Monetary Planning and Evaluation for Shentel.
Kirk Andrews: Good morning and thanks for becoming a member of us. The aim of right this moment’s name is to evaluation Shentel’s outcomes for the second quarter of 2024. Our outcomes had been introduced in a press launch distributed this morning and the presentation we’ll be reviewing is included on the Investor web page at our shentel.com web site. Please notice that an audio replay of this name shall be made accessible later right this moment. The small print are set forth within the press launch saying this name. With us on the decision right this moment are Chris French, President and Chief Govt Officer; Ed McKay, Govt Vice President and Chief Working Officer; and Jim Volk, Senior Vice President of Finance and CFO. After our ready remarks, we are going to conduct a question-and-answer session. As at all times, let me refer you to Slide 2 of the presentation, which accommodates our Protected Harbor disclaimer and remind you that this convention name might embody forward-looking statements topic to sure dangers and uncertainties. These might trigger our precise outcomes to vary materially from the statements. Subsequently, now we have supplied an in depth dialogue of assorted danger components in our SEC filings, which you might be inspired to evaluation. You might be cautioned to not place undue reliance on these forward-looking statements. Besides as required by regulation, we undertake no obligation to publicly replace or revise any forward-looking statements. With that, I’ll now flip the decision over to Chris. Go forward, Chris.
Chris French: Thanks, Kirk. We respect everybody becoming a member of us this morning and hope everyone seems to be properly. Earlier than we focus on our second quarter monetary and working outcomes, I’d wish to touch upon progress with execution of our Glo Fiber growth technique and community build-out. After we developed our Glo Fiber marketing strategy 5 years in the past, we recognized a couple of working metrics that we consider are key to driving returns on funding. Value to go a house was estimated to be within the $1,000 to $1,400 vary. As we attain the midway level of our focused passings, now we have seen price improve, however we stay inside this vary. ARPU was estimated to be within the low to mid $70 vary. Given increased take charges on Web speeds of 1-gig and above, our Glo Fiber broadband information ARPU is about 10% increased than our authentic assumptions. Terminal penetration is anticipated to be within the 35% to 40% vary in most markets. Whereas we’re nonetheless within the early years of penetration for a lot of of our market rollouts, our oldest cohorts have achieved or are trending properly to succeed in this vary. There are a few early indicator components that give us confidence we can repeat our penetration success in extra markets. Our month-to-month churn fee continues to be within the low 1% vary. We predict this industry-leading metric is because of our capacity to supply superior product worth backed by excellent native customer support. Our most up-to-date web promoter rating for Glo Fiber broadband service was 69, which compares very favorably to low single-digit and even destructive scores for our cable competitors. Community reliability, the quickest symmetrical broadband speeds, glorious native customer support and honest pricing are differentiators. We additionally notice that roughly 95% of our passings solely have one broadband competitor. Lastly, we assumed a view on terminal worth of the fiber-to-the-home enterprise utilizing conventional variables like perpetual progress charges and weighted common price of capital. With current bulletins of fiber-to-the-home operators promoting their companies, it seems the precedent transaction worth per passing for greenfield fiber networks with progress traits just like Glo Fiber are multiples of our price to go and better than our personal mannequin assumption. In abstract, we’re happy with our Glo Fiber growth progress to-date and these current transactions have reaffirmed our view on the potential long-term worth creation. As we shared on our final earnings name, we accomplished the acquisition of Ohio-based Horizon Telecom on April 1. We’re very happy with our integration progress to-date, together with conversions of the again workplace methods and we count on to finish our system integration work by the primary quarter of 2025. As Jim will share later, now we have already made vital progress attaining our synergy targets. I’ll now flip to Slide 4 to provide an replace on our technique execution. We ended the second quarter with roughly 298,000 Glo Fiber passings, together with slightly below 16,000 we acquired as a part of the Horizon acquisition. This provides a 63% progress fee from a 12 months in the past. As of the tip of June, now we have over 53,000 Glo Fiber prospects, representing a 62% year-over-year progress fee. We entered July with excellent gross sales momentum in what’s seasonally the strongest quarter for gross provides. With that, I’ll now flip the decision over to Jim to evaluation the main points of our monetary outcomes.
Jim Volk: Thanks, Chris, and good morning. I’ll begin on Slide 6 for our monetary outcomes for the second quarter. Income grew 29% to $85.8 million within the second quarter of 2024. The previous Horizon markets contributed $16.7 million of income. Excluding the previous Horizon markets, revenues grew 3.6% over the identical interval a 12 months in the past because of $5.4 million or 67% progress in Glo Fiber income, partially offset by declines in industrial RLEC and incumbent broadband market revenues. Glo Fiber growth markets grew broadband information RGUs by 56% and information ARPU by 9%, driving the three.6% income progress. Industrial income declined as a result of anticipated decline in T-Cell income. As reported all through 2023, T-Cell disconnected backhaul circuits as a part of their decommissioning of the previous Dash community. The income decline displays a full interval of those disconnects and a discount in associated early termination charges. We nonetheless count on about $7 million in decrease T-Cell income in 2024 in comparison with 2023 and for industrial fiber income to return to mid- to excessive single-digit progress charges beginning in 2025 as beforehand disclosed. RLEC income decline was pushed by DSL migrations to our sooner broadband providers and a decline in authorities assist income. We count on the federal government assist income to extend within the second half of 2024. Incumbent broadband market income decline was because of decrease information subscribers within the roughly 20% of our passings the place we face one other broadband supplier. Though our aggressive response has been efficient in sustaining ARPU ranges and decreasing churn in these markets, gross provides have declined in these markets driving the decline in subscribers and income. Adjusted EBITDA grew 20% to $23.3 million within the second quarter 2024. The previous Horizon markets contributed $3.7 million of adjusted EBITDA. Excluding Horizon, adjusted EBITDA grew barely from the identical interval a 12 months in the past. The slower than traditional progress in adjusted EBITDA was due primarily to the anticipated decline in T-Cell income and nonrecurring changes that we don’t count on to recur within the second half of the 12 months. Adjusted EBITDA margin declined from 29% to 27% as a result of similar drivers and fewer sale and decrease margin within the former Horizon enterprise. We count on margins to enhance in future quarters as we understand the complete $10.6 million of goal expense synergies. As famous on Slide 7, we realized $4.6 million or 43% of our annual run-rate goal synergies as we exit the second quarter. I’d now wish to replace you on our liquidity place and debt maturities as of the tip of the second quarter. As mirrored on Slide 8, our liquidity place was $412 million, together with about $44 million of money, $225 million in accessible delay-draw time period loans and $143 million in accessible revolver capability. We’re properly positioned to fund our marketing strategy. As of June 30, now we have $297 million of excellent debt. The primary main maturity is June 2026. Our web leverage ratio primarily based on annualized second quarter 2024 adjusted EBITDA is 2.7x. For financial institution mortgage functions, web leverage is roughly 2.2x when you think about add-backs for anticipated synergies and Glo Fiber market losses. And now I’ll flip the decision over to Ed.
Ed McKay: Thanks, Jim, and good morning. I’ll begin on Slide 10 with an replace on our built-in broadband community. With the launch of multi-gigabit broadband providers in Sussex County, Delaware, and Warrenton, Virginia, we now supply Glo Fiber in 27 markets throughout six states. We proceed to construct extra passings in our present markets, and now we have engineering, allowing and/or building in progress in 5 extra markets, together with our latest market of Steubenville, Ohio. Our intensive fiber optic community that connects our broadband markets now consists of over 16,000 route miles of taste. As proven on Slide 11, we now have authorized franchise agreements in place for 633,000 Glo Fiber passings, together with 62,000 in our new Ohio growth markets. As well as, now we have 28,000 passings authorized as a part of authorities grant initiatives in unserved areas, together with 4,500 in former Horizon markets. We constructed virtually 24,000 new fiber passings within the second quarter, bringing our complete fiber passings to greater than 302,000, together with our new Glo Fiber growth markets in Ohio and authorities backed builds. We’re happy with our building tempo, and we’ve constructed 30% extra passing within the second quarter of 2024 than we constructed within the second quarter of 2023. Our building pipeline is powerful with 358,000 extra passings in varied levels of engineering, allowing and building, together with 51,000 passings in Ohio. As we ramp up Glo Fiber building in our growth markets, we proceed to see robust buyer progress as proven on Slide 12. 12 months-over-year, we elevated our variety of Glo Fiber prospects by 62% and ended the second quarter at over 53,000. This consists of virtually 2,000 prospects from the Horizon acquisition in addition to virtually 5,000 web provides within the second quarter. Our complete variety of information, video and voice income producing items reached virtually 65,000 on the finish of the quarter, up virtually 58% year-over-year. Glo Fiber broadband information penetration charges in our Mid-Atlantic markets elevated from 18% a 12 months in the past to 18.2% on the finish of the second quarter, and we constructed over 99,000 extra passings in these markets throughout that very same time interval. With the addition of former Horizon markets with 12.8% penetration, our total broadband information penetration fee declined barely to 17.9% on the finish of the second quarter. Our broadband information common income per person elevated over 8% year-over-year because of a mix of fee changes, extra gear income and prospects choosing increased velocity tiers. Within the second quarter, 50% of our residential subscribers adopted velocity tiers of 1 gig or increased, together with roughly 7% that took speeds of two gig or increased. Our broadband information churn for the second quarter was 1.18%, a slight improve year-over-year, pushed by prospects transferring out of our markets. Our churn to rivals remained extraordinarily low and per the earlier 12 months. On Slide 13, we’ve up to date our information penetration charges as our markets mature, and we proceed to extend penetration charges throughout all our cohorts. The primary 12 months after launching a Glo Fiber market, we sometimes see information penetration charges of roughly 17%, and after 3 years, penetration charges sometimes exceed 25%. In the end, we count on to succeed in common terminal penetration charges of about 37%, 5 to six years after launching service in a brand new space. The decline in anticipated terminal penetration from 38% to 37% is as a result of addition of deliberate Ohio Glo Fiber markets, which have decrease anticipated terminal penetration charges than our Mid-Atlantic markets. Our underwriting fashions align terminal penetration with market demographics. Though anticipated market penetration could also be decrease in our Ohio markets, we additionally count on common building price to go houses to be decrease, and we nonetheless count on returns on investments to be just like these we’ve shared beforehand. Let’s shift to our working outcomes for our incumbent broadband markets on Slide 14. These metrics cowl our Shentel incumbent cable markets and former Horizon phone markets with fiber-to-the-home passes. Broadband information subscribers elevated barely year-over-year to 111,000 pushed by the acquisition of roughly 3,000 broadband information prospects for Horizon. Whole information, voice and video income producing items remained constant year-over-year at roughly 186,000 with RGUs acquired from Horizon offsetting losses in Shentel incumbent cable markets. Our total information penetration decreased to 47.8% on the finish of the second quarter with penetration within the Shentel incumbent cable markets and the Horizon incumbent phone markets of 49.6% and 21.6%, respectively. We consider there may be upside within the former Horizon markets to enhance penetration and acquire parity with the cable supplier. Over the previous 12 months, we’ve constructed over 4,000 fiber passings as a part of authorities grant initiatives in unserved areas in our incumbent cable markets. We have now a complete of 28,000 fiber passings authorized as a part of authorities backed initiatives, and we see vital buyer progress alternatives in these unserved areas as we full building over the subsequent few years. Regardless of the aggressive strain in parts of some incumbent markets, broadband information ARPU elevated by 2.4% year-over-year to greater than $84 offsetting many of the lower in income from fewer RGUs. Broadband information churn improved to 1.69% for the second quarter, an enchancment of 12 foundation factors year-over-year as we elevated broadband speeds over the previous 12 months, giving prospects increased speeds and extra worth for a similar worth. We’ve seen restricted influence from the tip of the reasonably priced connectivity program with ACP buyer disconnects accounting for about 15 foundation factors of the churn within the second quarter. On the finish of the quarter, solely about 3.5% of our incumbent broadband prospects had been on plans beforehand supported by ACP. We proceed to supply these prospects a low-priced plan and greater than 80% of the previous ACP prospects had been present on their stability on the finish of the second quarter. I’ll transfer on to Slide 15, the place we spotlight our broadband industrial fiber enterprise. Within the second quarter, we booked new gross sales totaling 154,000 in month-to-month income, up over 50% year-over-year with the addition of the previous Horizon markets. Our new put in month-to-month income for the second quarter was roughly $186,000 and we completed the quarter with an set up backlog of $701,000 in month-to-month income. Excluding the influence of the T-Cell community rationalization that Jim mentioned earlier, month-to-month churn and compression decreased year-over-year to 0.5% as our gross sales and community operations groups proceed to take nice care of our prospects. Our year-to-date capital spending and full 12 months steerage for 2024 are mirrored on Slide 16. Whole capital investments by means of the tip of the second quarter totaled roughly $151 million, together with roughly $11 million within the former Horizon markets. Our Glo Fiber and authorities backed investments have been consistent with our expectations year-to-date, and we plan to complete the 12 months with capital investments within the $290 million to $329 million vary, together with between $30 million and $39 million in former Horizon markets. Thanks very a lot. And operator, we’re now prepared for questions.
Operator: [Operator Instructions] And your first query comes from the road of Frank Louthan with Raymond James. Please go forward.
Frank Louthan: Sorry. Hey. Nice. Thanks. I needed to see, have you ever seen any adjustments or indication that Verizon is increasing its fiber upgrades in your markets? After which are you able to stroll us by means of the tempo of the tower decommissioning by T-Cell, or how a lot have they dropped this 12 months? And what sort of notices have you ever gotten for the remainder of the 12 months on that enterprise? Thanks.
Ed McKay: Frank, that is Ed. I’ll remark first on Verizon after which kick it over to Jim to speak about T-Cell. However from a Verizon fiber-to-the-home standpoint, now we have not seen any materials exercise in our markets. We have now seen a couple of remoted neighborhoods the place they construct fiber-to-the-home, however by no means a big bulletins or building initiatives underway that now we have seen.
Jim Volk: Sure. And Frank, may you repeat the query on T-Cell, please?
Frank Louthan: Sure. Are you able to simply – are you able to quantify form of the tempo of income that’s been misplaced as T-Cell’s type of decommission issues this 12 months? And any indications or notices they’ve given you for what that may appear like for the complete 12 months? How a lot of that may go away in 2024?
Jim Volk: Okay. Sure. So, Frank, many of the – virtually all the disconnects for the backhaul occurred in ‘23. We have now had a couple of lingering ones that got here in, within the first half of ‘24, however comparatively very small {dollars}. So, the steerage that we shared with you earlier within the 12 months was we count on about $7 million much less in T-Cell income in ‘24 in comparison with ‘23. To-date, it seems like we’re about $3.5 million of that to this point has come by means of. So, it seems like we’re proper on schedule with the place we thought we’d be.
Frank Louthan: Okay. That’s useful. After which…
Jim Volk: Sure, Frank, simply so as to add to it. We have now about 170 backhaul circuits which can be below long-term contracts. I believe now we have 6 years left on the contracts. So, we’re principally at a gradual tempo now from that income streams. And naturally, our staff is working to broaden that relationship and add extra backhaul circuits down the street. However now we have hit the purpose that we’re on the regular state, if that additionally helps to reply your query.
Frank Louthan: Okay. Nice. After which so far as your 2026 debt stack, when does that go present in 2025? And what conversations have you ever had about attempting to refinance that?
Jim Volk: Sure. So, $150 million of our time period loans matures in June of ‘26. We haven’t – I haven’t had any concrete conversations with our banks on refinancing at this stage. I’m type of focusing on the second half of subsequent 12 months to deal with doing the refinancing. And whether or not that’s below the present time period facility that now we have right this moment with our banks or whether or not that’s on a brand new facility, to be decided. We’re taking a look at totally different choices of the best way to reduce our price of debt.
Frank Louthan: Bought it. Okay. Nice. Thanks.
Jim Volk: Thanks Frank.
Operator: Your subsequent query comes from the road of Hamed Khorsand with BWS Monetary. Please go forward.
Hamed Khorsand: Hello. Good morning. So, first query I had is, do you’re feeling obligated or pressured in any approach to decrease pricing in your markets the place you might be seeing competitors in any respect or one other format can be the place you might be coming into with Glo Fiber for the primary time. Do you assume that it’s important to enter with a decrease fee card?
Ed McKay: Sure. Hamed, that is Ed. I’ll begin off with that. We actually don’t at this level, 95% of our passings in Glo Fiber don’t have a fiber competitor. So, we consider now we have the superior product from a velocity standpoint. We’re actually targeted on native customer support and honest easy pricing. So, we don’t really feel the necessity to supply vital reductions as we go into these markets, and now we have had success including prospects with out doing that.
Hamed Khorsand: Okay. And people prospects are approaching with you as Glo Fiber. Are they rapidly choosing the upper speeds, or are they transitioning after 6 months or 12 months to a unique velocity?
Ed McKay: We do see some upgrades, however out of the gate, over half of our prospects are choosing 1 gig velocity or increased. Final quarter, it was 43% choosing 1 gig after which truly 7% chosen 2 gig speeds. So, we’re – out of the gate, we’re seeing prospects self-select the upper speeds.
Hamed Khorsand: Alright. And my final query was in regards to the CapEx plan for this 12 months. Given the commentary about price rising, any plan to speed up a few of the CapEx?
Ed McKay: So, at this level, we don’t plan to speed up the CapEx. Actually, what’s maintaining us from doing that’s allowing and make-ready work for pole attachments, that’s the largest problem that’s maintaining our building tempo the place it’s presently, so I’d say at this level, we don’t plan to speed up the CapEx.
Hamed Khorsand: Thanks.
Ed McKay: Thanks.
Operator: That concludes our Q&A session. I’ll now flip the convention again over to Jim Volk, Senior Vice President of Finance and CFO for our closing remarks.
Jim Volk: Thanks for all – everybody for becoming a member of us right this moment. We look ahead to updating on our fiber first technique and progress sooner or later quarters. Have day.
Operator: Women and gents, that concludes right this moment’s name. Thanks all for becoming a member of. It’s possible you’ll now disconnect.
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