Operator: Good morning, everyone. Welcome to the Shenandoah Telecommunications First Quarter 2025 Earnings Conference Call. Today’s conference is being recorded. At this time, I will 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 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. 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 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 statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements. And with that, I’ll now turn the call over to Chris. Go ahead, Chris?

Chris French: Thanks, Kirk. We appreciate everyone joining us this morning, and I hope everyone is well. 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 4. First, we had another solid quarter of rapid growth in our Glo Fiber Expansion Markets. We added 5,400 new subscribers and 16,600 new passings and increased revenues by 52% over the same period in 2024. 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 are also very excited about the potential free cash flow generation.

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 CapEx. 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. We also saw improvement in our Incumbent Broadband business as we return to positive data RGU growth, driven by a 31 basis point reduction in churn to 1.36% and ramping subscriber penetration in our newly constructed passings and 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 and 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. Lastly, our commercial sales team had a record quarter for sales bookings of just under $200,000 in monthly recurring revenues. 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 accelerating. With that, I’ll now turn the call over to Jim to review the details of our financial results.

Jim Volk: 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 ARPU. We have updated the presentation of prior year revenues, ARPU and RGUs to conform with the 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.

I’ll now start on Slide 6 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 Horizon, revenues grew $3.5 million or 5% over the first quarter 2024. Legacy Glo Fiber markets revenue grew $5.6 million or 47%, driven by an increase in subscribers. The legacy Glo 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 RGUs due to customers switching to streamed video services and lower installation and equipment revenues. Adjusted EBITDA grew 43% to $27.6 million. The former Horizon markets contributed $4.4 million of adjusted EBITDA. Excluding Horizon, adjusted EBITDA grew $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 Glo Fiber subscribers and an additional $2.8 million of Horizon and synergy savings being realized. We expect to realize a total of $8.5 million of incremental synergies in 2025 as previously guided. I’d now like to update you on our liquidity and debt position on Slide 7. 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 grants. As of March 31, 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 0.5 turn to 4.7 times.

With the amendment, the first major maturity is now July 2027. 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 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 broadband business. We believe this hybrid capital structure could provide us a lower cost of debt. The amendment to our credit facility provides us additional time to restructure our lines of business reporting and back-office systems to support this hyper capital structure, while lowering the risk that the current term loans will be reclassified as a current liability. More to come on refinancing details in future quarters.

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

Ed McKay: 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 Glo Fiber accounting for over 60% of our total passings. Our construction teams added almost 400 route miles of fiber in the quarter to expand Glo Fiber, pass additional homes and 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 Glo Fiber Expansion project and government grant projects by the end of 2026.

We started 2025 with 346,000 Glo 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 Glo 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. With Glo Fiber 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 Glo 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 Glo Fiber subscribers. Our total Glo Fiber revenue generating units reached 84,000 at the end of the quarter, up approximately 48% year-over-year. Broadband data penetration in our Glo Fiber Expansion Markets climbed to 19.4% at the end of the first quarter, up 18% – up from 18% a year earlier. And monthly broadband data churn for the first quarter remained very low at 0.9%. 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 1 gig or higher, including approximately 7% that took speeds of 2 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%. 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 continued to show strong growth with a weighted average growth rate of more than 1 percentage point in the first quarter. Moving on to Slide 13, we show our operating results for our Incumbent Broadband Markets. 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. 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 in 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. We see significant opportunities to drive penetration growth in both of these areas over the next several years. 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. 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.

This contract was executed in 2021 and included a January 2025 step down in price that remains in effect until early 2031. Capital spending in the first quarter and guidance for the full year are shown on Slide 15. We invested $76 million in the first quarter, net of $7 million in government subsidies. 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. 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.

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 warehouses. 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.

Overall, we think we are 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. Thank you very much. And operator, we’re now ready for questions.

Operator: [Operator Instructions] Our first question comes from Frank Louthan from Raymond James & Associates. Please go ahead.

Frank Louthan: Great. Thank you. 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 it done – 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.

Jim Volk: Sure. Good morning, Frank. Yes, we think ABS is going to save us about 100 basis points in interest expense. We’re planning to only use the investment-grade tranches of the ABS. We’re not trying to maximize leverage here. We’re just trying to minimize the cost of the debt. We will also put in a revolver credit facility for the Incumbent 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, what the – all of the debt will end up on the fiber side of the capital structure.

Frank Louthan: All right. Great. And then can you walk us through sort of the tail end plan here of Glo Fiber? Is – when will that elevated CapEx investment be substantially done? Is that year-end 2026? And is that the point where we can expect CapEx to really fall off? And then once you’re done with the current expansion there, what is an ongoing level of capital intensity we should expect going forward?

Jim Volk: Yes. 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 will – 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 Glo Fiber business as we continue to add customers there.

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 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 be in the mid-teens?

Ed McKay: Yes, Frank, this is Ed. What you mentioned about installing drops to homes, that’s a big factor here as we install more drops – we’ll have these drops in place, that capital intensity does come down.

Frank Louthan: Okay. Great. One last question, just 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 onetime that held 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?

Jim Volk: Yes. 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 Glo Fiber side, very high incremental margins when we’re adding a Glo Fiber customer.

Frank Louthan: So 300 to 400 basis points for the whole company kind of the EBITDA margin growth each year?

Jim Volk: Correct.

Frank Louthan: Okay, great. Thank you very much.

Operator: Thank you. [Operator Instructions] Our next question comes from Hamed Khorsand from BWS Financial.

Hamed Khorsand: Hi, every morning. First off, just want to talk about the amount of subscriber growth you’re seeing on the Glo Fiber side. Is it becoming difficult in adding that incremental one subscriber each quarter? Or you’re not at that point yet?

Ed McKay: Frank, this is – excuse me, Hamed, this is Ed. Really, we’re not at that point yet. Even our most mature markets that we launched 4-plus years ago, we saw 1 percentage point growth in the past quarter. So we’re continuing to add customers two, three, four years after we launch a market.

Hamed Khorsand: And then are you seeing any competitive pressures in any of these markets yet?

Ed McKay: We have a small overlap with Brightspeed, roughly 5% of our passings. We have seen them deploy fiber. 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.

Ed McKay: No. When we’re building out into a new area, we consider the competition, for example, if we’re in a market in Verizon has already built Fios into a neighborhood, we avoid that neighborhood. So we’re targeting passings where we are the only fiber provider and really the only wired broadband competitor is the cable company.

Hamed Khorsand: And then I’m just trying to understand the refinancing topic. It sounds like you were going through this integration process for 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 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?

Jim Volk: Hamed, just internal projects more than anything here. But for us, to be able to save 100 basis points on roughly $700 million funded debt is pretty meaningful for us. 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 say roughly $7 million of interest expense in a year.

Hamed Khorsand: Okay, thank you.

Jim Volk: Okay, thank you.

Operator: Thank you. [Operator Instructions] This concludes the question-and-answer session. I will now turn it back to Jim Volk for closing remarks.

Jim Volk: Thank you, everyone, for joining. We look forward to updating you on our progress in future quarters. Have a great day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

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Q1 2025

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