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Operator: Good morning, everyone. Welcome to the Shenandoah Communications Fourth Quarter 2022 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Kirk Andrews, Director of Financial Planning and Analysis for Shentel.

Kirk Andrews: Good morning, and thank you for joining us. The purpose of today’s call is to review Shentel’s results for fourth quarter and full year 2022. Our results were announced in our press release distributed this morning, and the presentation we’ll be reviewing is included on the Investor page at our website, www.shentel.com. 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. 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.

As always, let me refer you to Slide 2 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 statements. Therefore, we have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You’re cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements. And with that, I will now turn the call over to Chris. Go ahead, Chris.

Christopher French: Thanks, Kirk. We appreciate everyone joining us this morning, and hope everyone is staying healthy and safe. 2022 was another successful year for Shentel. We had solid growth across our Incumbent Cable, Commercial Fiber and Tower businesses and had remarkable growth with our Glo Fiber expansion. As noted on Slide 4, we accelerated both our construction and sales of Glo Fiber in each of the past 2 years. Our annual construction pace increased 64% from approximately 27,000 new passings in 2020 to over 72,000 new passings in 2022. We have built us a sizable construction backlog, underwriting new markets, securing franchise agreements and doing the field engineering and permitting work, which should enable us to construct 100,000 new passings in 2023.

Our sales team has more than kept pace with our construction team with Glo Fiber net data additions growing 79%, from 4,000 in 2020 to almost 13,000 in 2022. We expect data net additions to accelerate again in 2023. As reflected on Slide 5, we highlight the outstanding progress we’ve made over the past 4 years since we began investing in Glo Fiber. We have successfully transitioned from the proof-of-concept stage to the rapid-growth stage as all key metrics have met or exceeded our business plans. We ended 2022 with over 147,000 passings in 17 markets. All of our Glo Fiber passings are in greenfield markets, bringing us new customers and incremental revenue. We have now secured franchise agreements for 445,000 passings, rapidly approaching our 450,000 target, and preparing us well for accelerating construction.

Our cost to pass of $1,170 is consistent with our underwriting assumptions. The metric I’m most proud of is our outstanding customer satisfaction scores. Our most recent Net Promoter Score was 65%, more than 10x the average score for Internet Service Providers. We believe our local customer service is a competitive advantage as our employees are neighbors with our customers, knowledgeable about the local markets and involved in the communities that they serve. We believe this local connection and care is a major driver of the NPS score and our data churn results of less than 1.1% since launch. We ended 2022 with 24,000 Glo Fiber customers or about 16% of year-end passings. As we stated in the past, we expect our average market to reach 38% terminal penetration, more than double our current level.

Coupled with the growth expected as we complete construction of all franchise passings, we believe we are well positioned for significant revenue growth over the next 5 years. We’ve also been pleased by the strong demand for our Glo Symmetrical gigabit service. As of December 31, 44% of our Glo Fiber customer base has purchased our 1 gigabit or higher bandwidth speed, driving up ARPU to over $73 since we launched service. We recently introduced a 2.4-gigabit service to meet the customer demand for higher bandwidth services. With that, I’ll now turn the call over to Jim to review the details of our financial results.

James Volk: Thank you, Chris, and good morning, everyone. Please refer to Slide 7 to review our financial results for 2022. Broadband revenue grew $20.9 million or 9.2% to $249 million, driven by an increase of 9.3% in Residential and SMB revenue due primarily to a 119% increase in Glo Fiber revenue and a 3.5% increase in Incumbent Cable data revenue. Commercial Fiber revenue grew 11.2% to $38.8 million due primarily to growth in circuits. Broadband adjusted EBITDA grew 7.5% to $90 million in 2022 due to strong revenue growth, partially offset by higher expenses of $7.9 million to support the Glo Fiber expansion; $4.3 million in salary, wages and incentive compensation; and $1.9 million in higher software-related costs from system upgrades.

As previously announced last quarter, we ceased Beam services and operations in the fourth quarter in advance of the expected closing of the previously announced sale of the 2.5-gigahertz spectrum in the first half of 2023. The discontinuation of Beam operations will eliminate $1.3 million in revenue, $600,000 in adjusted EBITDA losses and $13.9 million in operating losses in 2023. On Slide 8, Tower segment revenue grew $1.2 million or 6.9% to $18.9 million in 2022 due primarily to a 4.1% increase in the average revenue per tenant. Adjusted EBITDA grew 7.7% due to the increase in revenue. Moving to Slide 9. Consolidated revenue grew 9% to $267.4 million in 2022 due to Broadband and Tower revenue increases of 9.2% and 6.9%, respectively. Consolidated adjusted EBITDA grew 15.6% to $76 million due to growth in Broadband and Tower adjusted EBITDA of 7.5% and 7.7%, respectively, and 10% decline in corporate expenses.

We have gained strong momentum in our fiber-first growth plan as outlined on Slide 10. Since our first full calendar year of Glo Fiber sales activity in 2020, we have posted a double-double with 10% and 16% compounded annual growth rates for revenue and adjusted EBITDA, respectively. We were able to accomplish these strong growth rates while we were selling our wireless business, resizing the company to a broadband-centric business and ceasing our Beam fixed wireless product. The last nonrecurring material event to flow through our financials will be churn related to T-Mobile decommissioning the former Sprint network in our markets. We are now estimating approximately $9 million, the high end of our range provided last year, an annual backhaul and Tower lease revenue churn when we enter 2024 as T-Mobile rationalizes the former Sprint network during 2023.

Although T-Mobile churn will temporarily slow growth in the short term, we are confident that our long-term growth rate, driven by our Glo Fiber expansion, will return to similar CAGR rates from the past 2 years. Moving to Slide 11. We had $369 million of liquidity as of December 31. Negative free cash flow for 2022 was $115 million, up $18 million, as we accelerated our Glo Fiber construction. As reflected on Slide 12, we have no material debt maturities until 2026. In addition to our credit facility availability, we expect to supplement our liquidity with $30 million in tax refunds and $17 million in cash proceeds from the sale of the 2.5-gigahertz spectrum in the first half of 2023. We are in a strong liquidity position to accelerate our Glo Fiber network expansion plans without having to raise additional capital.

And now I’ll turn the call over to Ed.

Edward McKay: Thanks, Jim, and good morning. I’ll start on Slide 14, where we depict our integrated broadband network, including over 8,300 route miles of fiber. With the launch of our new markets of Williamsburg and Suffolk, Virginia, we now offer Glo Fiber Symmetrical multi-gig service in 17 markets. We continue to execute on our Glo Fiber build plan, adding almost 17,000 additional passing in the quarter, and we are on track to launch 6 new Glo markets in 2023. Construction is also progressing in the rural markets where we have won government grant funding for unserved areas, and we expect to launch gigabit fiber services in 4 counties in the first half of 2023. Turning to Slide 15. We now have approximately 445,000 approved Glo Fiber passings with franchise agreements in place.

These are all greenfield builds outside of our current Incumbent Cable footprint. With the combination of Glo Fiber and our 20,000 approved fiber passings for government grant projects, our construction backlog is approximately 318,000 fiber passings in addition to over 147,000 Glo Fiber passings already constructed. Turning to Slide 16 for our Glo Fiber operating results for 2022. We more than doubled our data customers and total RGUs, ending the year at over 24,000 customers and 31,000 total RGUs. Our Broadband data penetration rate climbed from 15.1% to 16.5%, and our churn remains extremely low at less than 1.1% as our local customer service team and technicians continue to take great care of our customers. In the fourth quarter of 2022, approximately 44% of our new residential subscribers adopted speed tiers of 1 gig or higher, including over 7% that took our 2-gig service.

Broadband data average revenue per user declined slightly year-over-year to $73.48 as we rolled out a lower-speed tier, targeting more price-sensitive customers. Less than 6% of our new residential subscribers adopted this 100-meg tier during the fourth quarter. Attachment rates for our streaming TV and voice services were both 11% for the fourth quarter. At the end of 2022, approximately 15% of Glo Fiber customers subscribed to streaming TV service, and approximately 13% subscribed to voice service. Slide 17 demonstrates our data penetration as our markets age. 18 months after launching a neighborhood, we typically reach data penetration rates of 20%. We continue to see a steady climb in penetration rates as our markets mature and brand awareness increases.

And after 3 years, our initial neighborhoods launched in the fourth quarter of 2019 have reached a penetration rate of about 36%. Let’s move on to our Incumbent Cable operating results for 2022 on Slide 18. Our Broadband data RGUs grew approximately 3.1% year-over-year, and we ended the year at almost 110,000. Our data penetration increased from 50.4% at year-end 2021 to 51.7% at year-end 2022, and we added approximately 500 Broadband data RGUs in the fourth quarter. Total RGUs grew 1.6% year-over-year to approximately 190,000 at the end of 2022. We continue to see declines in our video service due to cord cutting, and growth in commercial voice RGUs more than offset declines in residential voice services for the year. Broadband data average revenue per user remained strong and increased approximately 2.9% year-over-year to over $81 as customers continue to migrate to higher-speed tiers.

And finally, churn remained fairly steady year-over-year at 1.58% in 2022. Turning to Slide 19, we highlight our Broadband enterprise and wholesale Commercial Fiber business. During 2022, we booked new sales with monthly revenue totaling approximately $367,000. Our enterprise and mid-market new sales bookings were down in 2022 primarily due to sales position vacancies, but we have filled those positions, and 2023 is off to a good start. We installed new services totaling over $403,000 in incremental monthly revenue in 2022. And excluding the impact of the T-Mobile network rationalization that Jim mentioned, we are well positioned to continue annual revenue growth rates in the high single to low double digits. T-Mobile did reduce the number of backhaul connections in 2022, and we expect the majority of their network rationalization project to be completed in 2023.

In addition to the 7-year contract with T-Mobile for 175 backhaul connections that we previously disclosed, we’re also seeing additional wholesale backhaul orders supporting T-Mobile cell sites. Excluding T-Mobile, churn and revenue compression for our Commercial Fiber business improved significantly year-over-year with a combined total of just 0.33% for 2022. The high compression in 2021 was due to a combination of a major wholesale customer replacing higher-cost optical circuits with lower-cost ethernet circuits and a 5-year contract extension at a reduced rate for a major wireless carrier. Turning to Slide 20 and our Tower segment. We decommissioned one non-revenue tower in 2022 due to a highway relocation project, bringing our total number of towers down to 222.

Our third-party leases remained fairly steady year-over-year at 436. However, our intercompany leases decreased from 47 to 10 as we turn down Beam fixed wireless sites. We ended the year with 446 total tower tenants and approximately 2 tenants per tower. Finally, Slide 21 provides our 2022 capital spending and our guidance for 2023. We finished 2022 at the low end of our previous guidance at approximately $190 million in capital investments. The increase over 2021 was primarily driven by the ramp-up of construction in our low fiber markets and the start of construction in the unserved markets where we have won government grants. For 2023, we are projecting capital spending in the $260 million to $300 million range as we continue to invest aggressively to accelerate construction of our greenfield fiber-to-the-home networks.

In our Glo Fiber markets, we plan to invest approximately $180 million, including approximately $110 million to complete construction of 100,000 passings in 2023, approximately $50 million for engineering, permitting and preliminary construction work towards the remaining 198,000 passings in the construction backlog and approximately $20 million to connect new customers. We also plan to invest approximately $40 million to deliver gigabit Broadband to unserved areas as part of government grant projects. Roughly $15 million will be used to complete approximately 4,000 passings in 2023, and $25 million will be invested in engineering, permitting and preliminary construction work toward the remaining 19,000 passings in our construction backlog.

We will eventually be reimbursed for approximately 50% of our total construction costs. However, we expect the vast majority of these reimbursements to occur in 2024 and 2025. Thank you very much. And operator, we’re now ready for questions.

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Operator: . Frank Louthan with Raymond James, your line is open.

Frank Louthan: I got a few questions that I think are pretty important in looking at the outlook for the business. Last year, we got a pretty good look at sort of the stability of the business. And I know some of this is a little forward-looking, but I think it will help folks a lot with modeling and so forth. If you can give us a better split between the $9 million of how much of that’s going to come out of the actual tower lease line? How much of it is going to come out of the fiber backhaul and kind of the EBITDA effect as well? And give us an idea of the jumping-off point for the fiber in the backhaul from ’23 going into ’24. That would be — that’s my first question, that would be very helpful.

James Volk: Yes, Frank. I can answer that one. So of $9 million, about $2.8 million is going to be on the tower side — the tower lease side, and $6.2 million on the backhaul side. Just to give you a little bit more context here, we’re expecting about $20 million — we received about $20 million of revenue from T-Mobile in ’22. With early termination liability fees that we expect to collect during ’23, we think the T-Mobile revenue will be about $15 million in ’23. And then as we go to ’24, we expect it to be around the $11 million mark. The full $9 million should be reflected by the time of the end of ’24.

Frank Louthan: Okay. All right. And so my next question, as you look out over the next few years, walk us through where you are with the balance sheet. And where do you think you have to get before you raise new capital? And what sort of the maximum leverage you would get to before you would make a financing decision? Not asking kind of when that happens, but where — so we can kind of model this out over the next few years.

James Volk: Sure. So we expect peak net leverage to be in 2025, and we expect it to get up to about 3.9x at that point in time. And that is assuming we also would probably do a refinancing of current facility, which is going to mature in 2026. So again, no plans to raise capital in the short term. And just to give you a little bit of guidance in the next 12 months, we expect to end the year with about $200 million of liquidity at the end of ’23 is our projections as we speak today.

Frank Louthan: And how much of that liquidity will be cash and how much of that will be borrowing capacity?

James Volk: Yes, about $100 million in cash and then about $100 million in revolver availability. Our current agreement requires us to draw down on the remaining delayed draw term loans by June 30, and we need that money and we plan to do that in the first half of this year.

Frank Louthan: Okay. Great. And then very quick, so you say you reach peak leverage of 3.9x. If you do nothing else, if you kind of hit the wall and the expansion ends, where does — how much do you delever on an annual basis after that with the penetration and so forth that you have?

James Volk: Yes, Frank, it comes down quite a bit after that. So by — as we slow our capital spending and we have this a fairly sizable opportunity to continue to monetize by adding customers, the incremental margin on a new customer once you’ve built out the network and you’ve launched the network, the incremental margins are quite high. You’re in the 60%, 70% range. So to answer your question, we expect net leverage to go below 3x by ’27 and maybe even at the end of ’26.

Operator: Dan Day with B. Riley Securities, your line is open.

Daniel Day: Just first one for me. If you could just comment on labor availability, either for you or your contractors as you build out the network, whether that’s getting better or worse into 2023. And any impact that might have on your cost per passing going forward?

Edward McKay: Yes, this is Ed. I’ll comment on that. So our labor availability has been fairly steady. In fact, we’ve got more construction crews working right now than we have in the history of the Glo project. So we feel like we’re in pretty good shape there. We have seen impacts from inflation. Our costs for both materials and labor have gone up 5% to 10%. So we’ve previously disclosed, we expect a range of $1,000 to $1,400 per new Glo passings. Up to this point, we’ve been in the lower half of that range. We do think those inflationary factors will push us up higher into that range. Another factor there is some of the markets we’re building in now are less dense and they have more underground construction, so that’s driving the cost per pass up slightly as well.

Daniel Day: Great. That’s helpful. I know video is increasingly less important part of the business going forward, but you lost almost 2,000 video subs. Just wondering if there’s anything you did to kind of push people out of the video product in the quarter. It just seems like an elevated number relative to the last few quarters or was just kind of maybe a onetime random blip there?

Edward McKay: Yes, nothing specific in the quarter there. We continue to see cord cutting. We have been passing along our programming cost increases to our customer, so the rates have been going up. So I think that does tend to push customers away as well.

Daniel Day: Yes, got it. And then last one for me. When we think about the Glo Fiber ARPU, are you being somewhat promotional in terms of getting people to switch? And then like after a year or 2, maybe those promotional rates were off and ARPU could — there could be a tailwind there longer term? Or is kind of the price to price and you’re letting the product speak for yourself to get people to switch over?

Edward McKay: So yes, the price is the price we offer 1 month free of service to new customers, but that’s really the only real promotion we’re running right now. We’ve really been focused on having fair, steady pricing and not having this massive price increase like some of our competitors do after 12 or 24 months.

Operator: Hamed Khorsand with BWS Financial, your line is open.

Hamed Khorsand: Can you just talk about the Glo Fiber adds in the quarter? I think in my math, it was up about 3,180 if I’m right, and that was down from the prior quarter, from Q3 adds and also lower than the Q2 adds. So is there seasonality involved? Is it just timing versus what your build-out schedule?

Edward McKay: Hamed, that’s a good question there. That is primarily seasonality. Fourth quarter is typically slow. We typically see more gross adds in the second quarter and the third quarter.

Hamed Khorsand: Okay. And then the ad spending that you’re doing now in those markets, obviously, didn’t generate the increase in subscribers. So what is your marketing strategy on that front given the seasonality?

Edward McKay: So we have shifted our strategy somewhat. We are putting more marketing dollars into advertising, particularly digital advertising, and the goal there is to shift more sales to our web channel. And we’ve seen a significant increase in web traffic with those new marketing initiatives. That’s our lowest cost sales channel. Over 30% of our gross adds are now coming through the web for Glo Fiber. So we’ve made significant progress there.

Hamed Khorsand: And on the markets that you’ve already started to build out and enter commercially, is — are there any one of them where you think that you could see a quick ramp in the number of subscribers this year?

Edward McKay: Yes, I think the ramp we’re expecting is fairly consistent with what we’ve seen over time. Slide 17 of the deck shows you the ramp. I think the markets we’re entering now, the ramp should be fairly consistent to that, and that’s what we’re seeing so far.

Operator: . There are no further questions at this time. I would now like to turn the call back over to our presenters for final remarks.

James Volk: Yes. I’d just like to thank everyone for joining us this morning. We look forward to updating you on our fiber-first growth plan in 2023. Take care.

Operator: This concludes today’s conference call. We thank you for your participation. You may now disconnect.