SHENANDOAH TELECOMMUNICATIONS CO/VA/ Q4 FY2024 earnings call

• Horizon Integration: Completed integration of remaining two back office systems in Q4, ahead of original plan. Upsized annual run rate synergy savings from $9.6 million to $13.8 million, with $4.5 million realized in 2024 and $8.5 million expected in 2025.
• Glo Fiber Expansion: 2024 was 4th consecutive year of increased construction pace and customer net additions. Passings released to sales ~97,000, net additions over 21,000. CAGR for customers and revenue since 2020: 99% and 135% respectively. Projected to be largest business by 2026 (customers) and 2029 (revenue).
• Network and Customers: Over 585k homes/businesses passed with broadband. Glo Fiber added over 21k net customers in 2024. Incumbent broadband markets saw improvements in penetration and ARPU. Commercial fiber saw growth in bookings and installations.

In 2024, revenue grew 22% to $328.1 million. The former Horizon markets contributed $47.7 million in revenue over nine months. Excluding Horizon, revenues grew $11.2 million or 4.3% over 2023. Glo Fiber revenue grew $21.4 million or 61% driven by a 50.9% increase in subscribers and a 7.3% increase in ARPU. Commercial revenue declined $5.8 million due to T-Mobile revenue churn, while Incumbent Broadband Markets revenue declined $5 million. Adjusted EBITDA grew 20% to $94.6 million. The former Horizon markets contributed $10.7 million of adjusted EBITDA. Excluding Horizon, adjusted EBITDA grew 6% from 2023.

• Capital Spending: 2024 capital spending $300M, driven by government projects. 2025 projected capital spending $250M-$280M, including $80M-$90M in government grants.
• Synergies: Upsized synergy savings from $9.6M to $13.8M, with $8.5M expected in 2025 and remaining in Q1 2026.
• Glo Fiber: On track to complete 7-year construction phase by end of 2025. Anticipated to be largest business by 2026 (customers) and 2029 (revenue).

• Competition: Incumbent markets face competition from cable and fiber providers, leading to churn.
• T-Mobile Churn: Impacted commercial revenue, but that's behind us.
• Government Grant Reimbursements: Timing and amount of reimbursements could affect cash flows.

Q: On the revenue adjustment with Horizon, can you just give us – remind us what the percentage of their revenue is at monthly amortized revenue versus monthly recurring revenue? And then 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 the expectation for what's left in the numbers? And then can you give us an idea of the cash impact of any of those future disconnects as well that would be great?

A: Good morning, Frank. On your first question, I don't have the exact numbers, but I can follow-up with you on the amount of revenue that is amortized revenue from Horizon. I don't think it's a significant portion, but I can follow-up and provide that to you later. In regards to the T Mobile, the Shentel business, that is behind us. 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, we continue to see year-over-year declines as a result of the churn that occurred in different parts of 2023. And as far as for the cash impact, that is pretty high gross margin revenue. There was very little operating expenses that go away with that revenue churn. So most – almost all of that $7.1 million of T-Mobile churn affected EBITDA and affected net income.

Q: One quick follow-up on Slide 16 just looking at the incumbent data penetration, so what is the source of that competition? Is any of that stuff that you're 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?

A: Frank, this is Ed. So there's no cannibalization from our Glo Fiber business. Glo Fiber is building in new markets, not overbuilding our cable. In our legacy Shentel Cable Markets, we do have about 23% of our passings that have overlap with a fiber or cable competitor. And then also part of our incumbent business now is the Horizon Telephone markets where they've deployed fiber to the home and that has 100 overlap with a local cable company. So all in all about 28% of our incumbent passings have a cable or fiber competitor. And that's a combination of the incumbent cable companies and in a few cases we do have some fiber overbuild activity as well.

Q: What kind of pressures are you seeing just from the other service providers that you're competing with the 28% that you're sharing markets with?

A: Yes. So the largest competitors are the two big cable companies in our Glo Fiber markets. We are seeing promotional offers, but they're typically discounting, putting more heavily discounted pricing on their lower end products. So we're continuing to have significant success in the middle of the high end of the range, but they are taking some of the lower tier products.

Q: As far as your Glo Fiber is concerned, do you feel like you got to go into each market with a low ball promotional offer? Or is it demand pretty sustainable without any kind of promotions or discounts?

A: When we initially go into the market, we typically don't go in there with heavily discounted pricing. 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 heavily discounted promotions. And now over time, once we've gotten our initial market share, we will go back in with some targeted promotional offers to increase penetration in some of the mature passings. But typically we're able to compete effectively with our standard everyday pricing.