[ad_1]
Shenandoah Telecommunications Firm (NASDAQ:SHEN) This autumn 2023 Earnings Convention Name February 21, 2024 8:30 AM ET
Firm Contributors
Kirk Andrews – Director of Monetary Planning and Evaluation
Christopher French – President and Chief Govt Officer
James Volk – Senior Vice President and Chief Monetary Officer
Edward McKay – Govt Vice President and Chief Working Officer
Convention Name Contributors
Frank Louthan – Raymond James
Dan Day – B. Riley Securities
Hamed Khorsand – BWS Monetary
Operator
Good morning, everybody. Welcome to Shenandoah Telecommunications Fourth Quarter 2023 Earnings Convention Name. At the moment’s convention is being recorded.
At the moment, I want to flip the convention over to Mr. Kirk Andrews, Director of Monetary Planning and Evaluation at Shentel.
Kirk Andrews
Good morning, and thanks for becoming a member of us. The aim of in the present day’s name is to overview Shentel’s outcomes for the fourth quarter and full 12 months 2023. 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 web site, www.shentel.com. Please word that an audio replay of this name shall be made out there later in the present day. The main points are set forth within the press launch asserting this name.
With us on the decision in the present day 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 all the time, let me refer you to slip two of the presentation, which accommodates our protected harbor disclaimer. I am going to remind you that this convention name could embrace forward-looking statements topic to sure dangers and uncertainties. These could trigger our precise outcomes to vary materially from the statements. Subsequently, we now have supplied an in depth dialogue of varied threat elements in our SEC filings, which you’re inspired to overview. 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.
Christopher French
Thanks, Kirk. We recognize everybody becoming a member of us this morning, and I hope everyone seems to be effectively. 2023 was one other sturdy 12 months for Shentel as we continued executing our Glo Fiber enlargement plan.
As you’ll be able to see on slide 4, consolidated revenues and adjusted EBITDA grew roughly 8% and 19%, respectively, pushed by Glo Fiber subscriber development. Since our first full 12 months of launching Glo Fiber in 2020, our consolidated income and adjusted EBITDA have grown at a compound annual development charge of roughly 9% and 18%, respectively. We consider that is an industry-leading tempo amongst publicly-traded broadband corporations.
As famous on slide 5, we had over 41,700 Glo Fiber subscribers as of December 2023, a rise of over 71% in comparison with 2022 and over 10 occasions 2020 subscribers. Glo Fiber revenues have grown over 160% per 12 months over the previous three years, fueling our industry-leading consolidated income and adjusted EBITDA development charges.
Shifting to slip six. We added over 86,000 new Go Fiber passings in 2023, nearly a 20% enhance from 2022 and over a threefold enhance from 2020 ranges. Our gross sales group has greater than stored tempo with our development group. We added over 17,000 Glo Fiber internet prospects, representing a greater than 32% enhance over 2022 and a 62% annual development charge since 2020. We count on to speed up the tempo of Glo Giber development and gross sales, once more, within the subsequent 12 months, persevering with the annual enhancements we have made in every of the previous three years.
Earlier than I flip the decision over to Jim, I might like to present an replace on our pending acquisition of Horizon Telecom. We have obtained many of the required regulatory approvals and count on to shut the transaction the second quarter, relying on the timing of the remaining regulatory approval. The Shentel and Horizon groups have been working effectively collectively in planning for the mixing of the 2 corporations. We now count on many of the system integration work to be accomplished within the first quarter of 2025.
With that, I am going to now flip the decision over to Jim to overview the small print of our monetary outcomes.
James Volk
Thanks, Chris, and good morning, everybody. I’ll begin with our broadband monetary outcomes for 2023 on slide eight. Broadband income grew $20.3 million, or 8.1%, to $269.3 million.
As Chris simply talked about, Glo Fiber income was the first catalyst, rising $16.8 million, or 92%, from the prior 12 months, with sturdy buyer development of over 71%, and a 4% enhance in information subscriber ARPU. Cable market revenues, excluding the impression of our discontinued Beam service, grew $2.5 million, or 1.4%, due primarily to 1.8% development in information subscriber ARPU.
Industrial fiber income grew $3.3 million, or 8.5%, due primarily to $3 million in nonrecurring early termination charges associated to backhaul circuit disconnects. T-Cell disconnected 338 backhaul circuits throughout 2023 as a part of the beforehand introduced shutdown of the previous Dash community.
With many of the T-Cell backhaul disconnects now behind us, we count on industrial fiber income in 2024 to say no by $3 million in decrease backhaul income from a full 12 months of decrease T-Cell backhaul circuits, $3 million in decrease nonrecurring early termination charges, and $1 million in extra T-Cell churn in 2024, partially offset by continued development in different buyer segments. We count on industrial fiber income to return to mid- to high-single-digit development charges, beginning at 2025.
Broadband adjusted EBITDA grew $15.8 million, or 17.6%, to $105.8 million in 2023 when in comparison with 2022, as a result of beforehand talked about income development of $20.3 million, partially offset by $4.6 million in increased promoting bills to help the Glo Fiber enlargement.
Broadband adjusted EBITDA margins expanded 320 foundation factors year-over-year to 39.3% as we proceed to see the advantages of working leverage of our fiber community, because the broadband value of service declined barely year-over-year regardless of including over 17,000 Go Fiber prospects over the previous 12 months.
On slide 9, Tower section income declined barely to $18.6 million due primarily to decrease intercompany income from the decommissioning of Beam fastened wi-fi community in 2022. We now have not acknowledged any Tower lease churn from T-Cell so far. We nonetheless count on T-Cell to terminate 53 leases as a part of the beforehand introduced pay-and-walk settlement, although the timing is unsure. These 53 leases will proceed to generate rental income till all required gear is faraway from the leased property and an inspection discover is issued. Tower adjusted EBITDA declined $300,000 to $11.6 million, due primarily to the decrease intercompany income.
Shifting to slip 10. Consolidated income grew 7.5% to $287.4 million in 2023, as a result of beforehand talked about development in broadband. Consolidated adjusted EBITDA grew 19.3% to $90.6 million, additionally as a result of development in broadband. Adjusted EBITDA margins expanded year-over-year from 28.4% to 31.5% in 2023, as a result of scaling of our fiber community.
Please word that we count on our consolidated income and adjusted EBITDA development charges to gradual in 2024 as a result of beforehand talked about $7 million in anticipated decline in broadband T-Cell income. We count on consolidated income and adjusted EBITDA to return to related development charges in 2025 as we have reported over the previous three years.
We now have $239 million of liquidity as of December 31 as displayed on slide 11, consisting of $139 million in money and $100 million in out there revolving line of credit score. We drew down the rest of our $300 million delayed draw time period loans in the course of the fourth quarter previous to the expiration of its availability. This liquidity place doesn’t embrace the incremental $356 million in dedicated credit score facility and most well-liked fairness financings associated to the Horizon transaction, which can shut on the identical day because the Horizon merger.
Unfavourable free money circulation for 2023 was $143 million, or $28 million greater than prior 12 months, due primarily to elevated investments in increasing Glo Fiber and authorities sponsored development to unserved houses, partially offset by $26 million in revenue tax and gross sales tax refunds in 2023.
Please word we obtained $17.3 million in proceeds from the closing of the two.5 spectrum sale and $1.9 million in authorities grants associated to unserved house development which can be reported individually from capital expenditures within the money circulation from investing actions.
As mirrored on slide 12, our excellent debt was $300 million as of December 31. We now have no important debt maturities till 2026.
And now, I am going to flip the decision over to Ed.
Edward McKay
Thanks, Jim, and good morning, everybody. I am going to begin on slide 14 with an replace on our built-in broadband community. We had a file quarter for fiber development, including over 33,000 new fiber passings and setting up nearly 500 new route miles of fiber. The fourth quarter marked a milestone the place Glo Fiber now passes extra houses and companies than our incumbent cable markets.
Within the fourth quarter, we launched the brand new Glo Fiber market of Salisbury, Maryland, and we now provide Glo Fiber multi-gigabit service in 22 markets with three extra market launches deliberate for 2024.
Turning to slip 15, our whole variety of accepted Glo Fiber passings has grown to 564,000, primarily pushed by a brand new franchise settlement to develop fiber providers to roughly 40,000 extra houses and companies in Frederick County, Maryland. We now have 74 franchise agreements in 25 markets throughout 5 states.
We continued to work by means of challenges with pole attachment permits and underground locates, and our engineering and development groups delivered a really sturdy fourth quarter, including over 31,000 new Glo Fiber passings and over 2,000 authorities sponsored fiber passings, bringing our whole fiber passings to over 236,000.
Our variety of deliberate authorities sponsored passings decreased barely quarter-over-quarter as we decreased the scope of 1 authorities grant mission. Nonetheless, our authorities — our development backlog stays very sturdy with roughly 351,000 incremental fiber passings accepted for development.
As we ramp up Glo Fiber development, we proceed to see sturdy buyer development, as proven on slide 16. We added over 4,300 Glo Fiber prospects within the fourth quarter to complete the 12 months at over 41,700, and our information penetration charge reached 17.8%, up from 16.5% on the finish of 2022. Our whole variety of information, video, and voice income producing items has reached over 51,000, up roughly 65% year-over-year.
As Jim talked about, our broadband information common income per person elevated by 4% year-over-year to over $76, pushed by a mix of extra gear income and prospects deciding on increased velocity tiers.
For the quarter, 47% of our new residential subscribers adopted velocity tiers of 1 gig or increased, together with roughly 4% that took speeds of two gig or increased. On the finish of the fourth quarter, roughly 11% of our whole Glo Fiber prospects subscribed to video service and roughly 12% subscribed to voice service.
And eventually, our churn remained very low at 1.0% for 2023, an enchancment of seven foundation factors over the prior 12 months, as we proceed to give attention to offering the quickest speeds in our markets, excellent native customer support and truthful easy pricing.
Shifting to slip 17. We spotlight our information penetration charges as our markets age. All of our cohorts confirmed enhancements within the fourth quarter, and we proceed to see penetration charges above 18% after one 12 months and above 30% after three years. Our oldest cohort, launched 4 years in the past, has now reached a penetration charge of virtually 39%. Finally, we count on to succeed in a mean terminal penetration charge of about 38% 5 to 6 years after new passings are launched.
Let’s transfer on to our working outcomes for our cable markets on slide 18. Broadband information subscribers remained flat year-over-year and quarter-over-quarter, and we ended the 12 months with over 109,000. Our whole income producing items decreased by about 3% year-over-year as we continued to see declines in video service and residential voice service as a result of wire chopping.
Our broadband information penetration decreased barely year-over-year, from 51.7% on the finish of 2022 to 50.8% on the finish of 2023. Though our broadband information prospects was flat year-over-year, we added roughly 37,000 new passings in 2023, primarily as a part of authorities sponsored tasks in unserved areas.
Broadband information churn was 1.58% for the fourth quarter of 2023, an enchancment of 5 foundation factors year-over-year, as we elevated broadband speeds within the second-half of the 12 months, giving buyer increased speeds and extra worth for a similar worth. For the whole 12 months, churn was 1.65%, up about 7 foundation factors year-over-year, as a result of overbuilder competitors in some markets. ARPU elevated roughly 1.8% year-over-year to $82.75.
Turning to slip 19, we spotlight our broadband enterprise and wholesale industrial fiber enterprise. In 2023, we booked new gross sales with month-to-month income totaling roughly $350,000, down about 5% year-over-year. Our new put in month-to-month income for 2023 was $353,000, and we completed the 12 months with an set up backlog of roughly $140,000 in month-to-month income.
For cell web site backhaul connections, T-Cell continues to cut back the variety of circuits as a part of their Dash community rationalization mission. Within the fourth quarter of 2023, they eliminated 57 connections. As Jim talked about, we count on extra churn as they full their community turndown this 12 months. And 167 of the remaining 190 backhaul connections are beneath a long-term contract. Excluding T-Cell, churn and income compression remained low at 0.4% for 2023.
Turning to slip 20. In our Tower section, we ended 2023 with 453 whole tower tenants and barely over two tenants per tower. Our third-party tower tenants remained regular, ending the 12 months at 437. Nonetheless, our intercompany leases elevated with new leases for Shentel broadband community gear at a number of extra tower websites.
As Jim talked about, we do count on T-Cell to finally scale back the variety of tower leases as they full their Dash community rationalization mission. And eventually, our whole variety of towers decreased to 219 as we decommissioned two non-revenue towers and transferred one non-revenue tower to our broadband section.
Our 2023 capital spending and steerage for 2024 are mirrored on slide 21. With sturdy Glo Fiber development ends in the fourth quarter, we completed 2023 with capital spending on the increased finish of our earlier steerage vary at roughly $257 million. The numerous enhance over 2022 was pushed by investments in Glo Fiber and authorities sponsored passings.
In 2023, we invested $31 million in authorities sponsored tasks, and we count on to be reimbursed for roughly 50% of those prices as we full development. Our Glo Fiber funding was $182 million in 2023, together with roughly $156 million to design and assemble new passings and roughly $17 million to attach new prospects.
For 2024, we’re projecting capital spending within the $260 million to $290 million vary as we proceed to speed up development for Glo Fiber and authorities grant tasks. We plan to take a position roughly $32 million internet of presidency subsidies to develop broadband to roughly 7,000 unserved houses. We additionally plan to take a position about $190 million in Glo Fiber, together with roughly $160 million to develop service to 100,000 new passings and $24 million to attach new prospects.
For our industrial fiber enterprise, we now have budgeted roughly $11 million in success-based spending. We have additionally budgeted about $41 million in our incumbent cable enterprise, together with $10 million in DOCSIS upgrades to enhance — so as to add extra capability and supply increased speeds in aggressive markets.
Thanks very a lot. And operator, we’re now prepared for questions.
Query-and-Reply Session
Operator
[Operator Instructions] Our first query will come from the road of Frank Louthan with Raymond James.
Frank Louthan
Nice. Thanks. If you get the Horizon deal accomplished and also you’re type of at a full development ramp, what number of houses do you count on to be passing per 12 months? After which what’s form of the catch-up from the advertising and marketing standpoint? What number of you assume you’ll be able to add? And — that is the primary query.
Second query, is T-Cell promoting fastened wi-fi within the legacy wi-fi markets the place — that you simply offered to them? Thanks.
Edward McKay
Sure. Frank, that is Ed. So, I am going to reply the T-Cell query first. Sure, they do provide their fastened wi-fi service within the legacy markets that we offered to them. Up up to now, we now have not seen any materials impression from T-Cell fastened wi-fi. So far as the development charge, as I discussed, we plan on constructing 100,000 extra Glo Fiber passings this 12 months. We do consider we’ll have the ability to speed up that considerably with the addition of Horizon as effectively. So, we count on a tempo over 100,000 passings.
Frank Louthan
Okay. All proper. Thanks very a lot.
Operator
Our subsequent query will come from the road of Dan Day with B. Riley Securities.
Dan Day
Sure. Hey, guys, thanks for taking the questions. So, simply, I observed you talked about exploring different strategic options within the press launch to possibly increase some development capital. Simply possibly body up what these would possibly seem like. Clearly, you talked a couple of tower sale. When you might present an replace there. And simply as you consider strategic options, whether or not you’d take into consideration a sale of any non-tower belongings. Thanks.
James Volk
Sure. Dan, we’re taking a look at a number of choices to boost extra development capital. Towers is likely one of the prospects. We do not have something to replace in the present day on that. The vital factor to notice is we do not actually need the capital till ’25, so we now have loads of time to discover totally different options. One other risk that we have taken an early have a look at is possibly coming into the asset securitization market, the ABS market, for a few of our extra chore fiber markets. So, we will discover all totally different choices after which come out with what we predict is the best choice to proceed to supply capital to develop our enterprise.
Dan Day
Okay. Nice. Thanks, Jim. After which simply on the capex steerage for 2024, you talked in regards to the enhance within the incumbent cable DOCSIS upgrades, all that form of stuff. Like is that this new form of $40 million-ish upkeep capex run charge in incumbent cable the best way we must always give it some thought, or is that this form of a onetime improve after which we form of return to just a little decrease than that? After which simply to be clear, on the 180 to 200 steerage for Glo and fiber-to-the-home, are you together with any passings from the incremental 100,000 from the Horizon acquisition there, or would that each one be capex upside to that?
Edward McKay
Sure. So, that is Ed, I am going to reply the Horizon query first. The 100,000 that I discussed was simply the legacy Shentel Glo Fiber enterprise, not any incremental passings from Horizon. And so far as the cable capex, the steerage is roughly $40 million in whole capex for 2024. As I discussed, about $10 million of that’s DOCSIS upgrades. So, I feel over the subsequent 5 years, as we do full our DOCSIS upgrades, we’ll see some elevated capex there, after which we’ll come down as we full the DOCSIS upgrades.
James Volk
Sure. Dan, on the DOCSIS upgrades, we’re planning to spend about $65 million over the subsequent 5 years. About $10 million of that shall be this 12 months. So, you’ll be able to layer that in on the highest. And as soon as we full that mission, it’s best to see the cable markets capex come down once more. And…
Dan Day
I assume to ask the query on the Glo Fiber one just a little bit totally different approach, when you do execute on a few of the passings within the, say, Ohio markets, like would there be — would that $190 million want to come back as much as account for that, I assume is the query I used to be asking.
James Volk
Sure. Dan, we are going to — as soon as the deal closes — and proper now we’re taking a look at doubtless second quarter, we are going to present up to date steerage on the capital spending for ’24. It should go up for — as we proceed to put money into the Ohio markets, as you talked about. And likewise the variety of passings on the fiber-to-the-home facet offers you some up to date steerage on that as effectively. We do count on so as to add about 100,000 houses within the Ohio markets over the subsequent three years. What number of are going to come back on in ’24? We’ll present an replace as soon as the deal closes.
Dan Day
Superior. Thanks, guys.
James Volk
Sure. Thanks, Dan.
Operator
[Operator Instructions] Our subsequent query will come from the road of Hamed Khorsand with BWS Monetary.
Hamed Khorsand
Hello, good morning. So, the primary query I had was, are you seeing any adjustments within the aggressive panorama concerning Glo Fiber in current months and quarter as you are speaking about this — the overbuild?
Edward McKay
So, no important adjustments within the aggressive panorama. We nonetheless primarily compete with one of many huge incumbent cable suppliers there, and so they’ve continued with promotional pricing. However no important adjustments so far as what they’re providing from a bundle standpoint.
Hamed Khorsand
Okay. And are you doing something totally different on the promotional standpoint as you enter these new markets?
Edward McKay
No, we’re nonetheless actually main with truthful, easy pricing. We do provide the primary month of service free. However we’re not offering these deep promotional reductions that our incumbent cable competitor is offering.
Hamed Khorsand
Okay. After which so far as the subscribers signing on initially, did — are you seeing any adjustments within the packages they’re subscribing to? Are they opting initially for the higher-tier worth, or are they coming in on the decrease tier?
Edward McKay
They’re persevering with to shift extra towards the upper tiers. As I discussed, nearly half of our new prospects are signing up for gigabit speeds or increased. So, we’re positively capturing the upper finish of the market as prospects need extra bandwidth.
Hamed Khorsand
And my final query is that, has there been any adjustments so far as your value and your capital expenditure mannequin? And the way a lot has that been?
Edward McKay
So, I’ll say we beforehand gave a spread of $1,000 to $1,400 per passing for brand new development for Glo Fiber. We’re on the increased finish of that vary now. We’re constructing in some much less dense areas. And the fee for development has gone up. We have seen it stage off up to now 12 months, however we did see some important will increase earlier than that.
Hamed Khorsand
Okay. Nice. Thanks.
Christopher French
Thanks, Hamed.
Operator
That concludes in the present day’s question-and-answer session. I might like to show the decision again to Jim Volk for closing remarks.
James Volk
Sure. Thanks, all, for becoming a member of. We sit up for updating you in 2024 of what we count on shall be a really thrilling 12 months. Thanks, everybody, and have a fantastic day.
Operator
This concludes in the present day’s convention name. Thanks for collaborating. It’s possible you’ll now disconnect.
[ad_2]
Source link
