Good morning, everyone. Welcome to the Shenandoah Telecommunications First Quarter 2021 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.

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the first quarter of 2021. Our results were announced in a press release distributed last night, and the presentation we'll be reviewing is included on the Investor page at our website, www.shentel.com.

Thanks, Kirk. We appreciate everyone joining us this morning, and I hope everyone is staying healthy and safe. I'm pleased to report that we started 2021 with a strong quarter of growth in both our operational and financial results. I'd like to start with leading indicators for our financial growth. As reflected on Slide 4, we added approximately 13,000 new passings in the first quarter, with total passings now just under 260,000. Our diversified last-mile broadband networks grew an impressive 48,000 passings year-over-year. Our Glo Fiber branded Fiber to the Home business added 5,800 new passings, including the launch of service in the Virginia markets of Salem during the first quarter, and Roanoke and Lynchburg in April. We also added approximately 5,800 passings with our Beam service during the quarter. With service now available in 5 counties in Virginia. Lastly, the completion of the acquisition of Canaan Cable on December 31 added over 1,000 homes passed to our incumbent cable network. Turning to Slide 5, Broadband data net additions increased by over 4,200 or almost 62% from the first quarter 2020. With the tailwinds from COVID slowing our incumbent cable net additions of 2,500 have returned to pre-COVID growth levels. However, Glo Fiber and Beam now make up more than 40% of the Broadband data net additions, keeping our organic penetration growth rates among the industry leaders.

Thank you, Chris, and good morning, everyone. Please refer to Slide 8 to discuss our financial results for the first quarter. Broadband revenue grew 10.8% to $55.2 million driven by an increase of $5.9 million or 16% in Residential and SMB revenue, due primarily from a 24.1% increase in Broadband data RGUs and an increase in video ARPU of $6.28.

Thanks, Jim, and good morning, everyone. I'll begin on Slide 15, where we've outlined our 3 primary product offerings to serve a variety of market dynamics. In summary, our Shentel incumbent cable networks service both small towns and rural areas with broadband data speeds of up to 1-gig per second, home phone and cable TV service across roughly 210,000 homes and businesses in Virginia, West Virginia and Maryland. Our Glo Fiber service targets higher density urban markets and our new Beam Internet fixed wireless service targets lower density rural areas, where it isn't cost effective to build cable or fiber. As Chris said at the beginning of the call, we now reach approximately 260,000 homes and businesses passed which is an increase of nearly 48,000 from the first quarter last year. The common denominator in all of our offerings is to provide the leading high speed internet service available in each market we serve combined with superior local customer service. With projected Glo and Beam terminal penetration rates in the low- to mid-30% range and incumbent cable penetration in the mid-50% range, we expect our broadband business to have industry leading sustainable growth as we build out our network over the next several years. Now turning to Slide 16, we've depicted our rapidly evolving and expanding fiber, cable and fixed wireless broadband footprint. This map helps illustrate the integrated nature of our broadband networks and how operating leverage will increase over time given the overlap and the adjacency of our operations in our growing footprint. Combined, our multipronged broadband growth strategy will more than triple homes passed to over 730,000 in the next 5 years. We'll update you today on the status of our Glo Fiber and Beam Internet expansion progress of the first quarter and each quarter as we continue to progress in our market development and construction efforts across our region. Now, let's focus on our operating results in the first quarter. Starting on Slide 17 with our incumbent cable business, total RGUs grew an impressive 8.1% year-over-year in the first quarter to approximately 184,700 compared to roughly 170,900 in the same period in the prior year.

Thank you. Our first question comes from the line of Ric Prentiss from Raymond James. You may begin.

Can you guys hear me okay?

We can now.

Yeah.

Okay, good. I won't say can you hear me now. The - wireless humor. Down the road from you guys in D.C. lots going on. Want to know if you can talk a little bit about how you think you might be able to benefit or take - participate in the EBB, the Emergency Broadband Benefit? But also, how you see things shaking out? On the infrastructure bill, obviously the cake is not all the way baked. But how do you think it might affect you guys both EBB, infrastructure bill and wherever else you're seeing in D.C. area?

Yeah, thanks, Ric, good morning, early morning for you. On the EBBP front, that's stuff to say, isn't it? We applied on an expedited basis and are approved to provide that in our footprint. And it's hard to say, Ric, but we think we're going to see maybe roughly 4,000 gross activation lift this year from participating that program, assuming that it stays funded in through the fall. And so, it's a nice program that we look forward to participating in. We're ready with - just obviously received word yesterday that I think May 12 is start of the program. So we're looking forward to jumping in there. As it relates to the infrastructure bill, we probably don't have enough time on this call to kick around all the twists and turns that that may end up taking as it makes its way through Congress. But - and just as a general statement, we see more opportunity than threat associated with increased spending in the sector. And so, we think we're uniquely positioned to take advantage of that, A, given our relationships in D.C., given our near adjacency here in that regard; and B, just given the nature of the relationships that we have in surrounding municipalities and counties, and with co-ops, and so on and so forth. So we think kind of across the spectrum, we're pretty uniquely positioned, particularly given our financial strength and our strong legacy in the region.

Okay. And as you think, one of the questions we get a lot, is lot of press about Low Earth Orbit satellites, LEOs as they're called, and people wondering will SpaceX Starlink come in and disrupt rural markets like what you guys operate in. So can you share us a little bit about what you see in the satellite competitive landscape? And maybe a little bit more thought about what kind of population density areas you're serving versus where you see satellite having a success.

Yeah, in terms of the things that keep us awake at night here, I don't think LEOs is one of them. I know that that's grabbing a lot of headlines, especially more recently. But our Beam Internet fixed wireless service, we think it's really the only product that we're offering where the densities would be consistent with those that you would expect the satellite-based offering to target. But we think that with an LTE-standards-based 5G-ready network that today is capable of delivering 100 meg, but down the road is likely going to be capable of delivering 300 meg in the not-too-distant future, with low latency and fiber-based backhaul that's terrestrial based, we still think we're going to have a superior product offering there. The other thing is that we're just a little bit dubious about the economic model, the underlying business model, and the cost of customer equipment. And I think we both know that there is a lot of maturing that needs to take place for that business to achieve any kind of scale where it has anything close to subscriber-level economics like we see.

Okay. And last one for me, you guys did do an acquisition in the cable space a few months back. How is the appetite out there and any thought with capital gains tax on the agenda in Washington that there might shake out some people interested in selling?

Yeah, on the M&A front, Ric, we continue to be an opportunistic acquirer. And we have been and continue to be in dialogue with a number of operators in and around our footprint. We have competed in a couple of auctions unsuccessfully. The market is very frothy and we'd like to be disciplined in terms of how we think about M&A as one of the tools in our toolkit. So I would characterize us as an opportunistic acquirer of assets, with all the consolidation that has occurred and continues to occur in the industry, which is probably why we're more predominantly focused on the organic growth strategy, because we think the returns are exceptional. And candidly, we think generally based on where we've seen transactions over the last couple of years that seemed to be only accelerating in this regard. We think, we can create our own LEC at much lower costs and much higher level of accretion to our shareholders by building on our own then buying somebody else's problems.

Right. Makes sense. And good luck closing the deal with T-Mobile, I think last one for me that usually T-Mobile likes to close transactions on the first day of a month, the first or second month of the quarter. So should we think maybe, hopefully, July 1 is higher probability than August 1? Or how are you kind of handicapping it?

Jim, you want to field that one?

Yeah, Ric, that is accurate. That's T-Mobile has expressed the same to us. And we're comfortable with that. So yeah, I would say we need to get, I think, the long pole in the tent is the FCC approval here. But I think, it's likely that that will occur in the next 60 to 90 days. And if it gets done before the end of June, we plan to close July 1, I would say the outer date would likely be August 1.

Okay, makes sense. And you got to love Charlie Ergen calling T-Mobile the Grinch. So I know you guys had quite a process to get that 1 over the finish line, so congrats on being almost there.

Thanks, Ric.

Thanks, Ric.

Our next question will come from the line of Hamed Khorsand from BWS Financial. You may begin.

Good morning. So the first question I had was, are you seeing any changes in your subscriber habits now that the COVID restrictions are loosening?

Hey, good morning, Hamed. Not really, not yet, in the data that we look at. We continue to see a steady increase in consumption. I think, last month, we clocked in at an average of over 400 gigs per sub consumed on our networks, and it's even a little bit higher metric on the Glo Fiber networks than that. And what - we're going to obviously pay closer attention to that as things continue to open up here. But now, I can't say that we've seen any material change and behavior.

Yeah, I'll add 1 thing to that. The 1 thing we haven't seen changes is customer switching or switching off of the higher bandwidth plans that they adopted during COVID. As you can see in our record low incumbent cable churn below 1.3%, so we think that that's here to stay.

Okay. And then, as you're expanding Glo Fiber and Beam, what are you learning along the way that you're incorporating into the new markets and the homes that you're passing either from a marketing standpoint, or just the customer outreach?

Yeah, they're 2 different animals. But what we're seeing is that there's a convergence that occurring, as we engage at the county level, where we're primarily focused where they're being fixed wireless offering. So as we move through this cycle, and we think about the 3-prongs of our Resi and SMB broadband strategy, right, we have our hybrid fiber coaxial incumbent cable networks that we continue to extend and do line extensions on. And we've got spectrum, I'm sure you've noticed on the map, we've got spectrum, basically, surrounding all of those areas that we can do further edge out with fixed wireless to extend our franchise into areas that maybe the cable plant doesn't cover. And I think the same is really true with Glo Fiber, Hamed, in the sense that in the urban and suburban areas where the density is a little higher, and it makes good economic sense, we're going to continue to stay focused on constructing fiber, but edge out with fixed wireless. And so we're kind of pursuing a strategy at both ends and meeting in the middle, if you will. And what I mean by that is, we're deploying Beam right now, and pretty low-density rural areas. But what we're finding is, those folks have a desire for fiber too, right, everybody has a desire for fiber. So between an unsubsidized fiber build approach, and maybe a subsidized fiber build approach kind of back to Ric's question, in addition to the Glo or the Beam fixed wireless strategy. We really feel like, we've got all the bases covered here. So in terms of what we've learned in any given market, I'd say that the experience has been pretty homogeneous across our different Glo Fiber markets thus far in terms of any kind of - we haven't seen any kind of unique competitive response or any kind of unique customer profile or anything in that regard. I think, generally speaking everybody's very, very happy on the Glo Fiber side to have a choice versus cable and there's a ton of demand. And we're happy to be able to bring consumers choice there. And thus far, we haven't had to do any discounting to win customers. So we're not leading with price, we're leading with value. And then, on the Beam side, folks are just thrilled to have any viable broadband connection whatsoever, a lot of folks moving from low speed DSL or from satellite, and it's really life changing. If you look at some of the social media posts for Beam subs, it's really heartwarming stuff, because the folks finally can work or study from home when - previously they haven't been able to do that effectively.

Okay. And my last question was given the increase in free cash flow from wireless business, any intention to accelerate your CapEx in the homes passed plan?

The acceleration of CapEx is really more of an operational governor than it is a free cash flow governor, Hamed. So we're pushing the team very hard. And they're responding very, very, very well. As I mentioned in my scripted comments, we're going to be accelerating the pace of construction as we move through the year here. And you can expect that that'll increase yet again, as we move into next year. But it does take a while to get this locomotive moving down the tracks. And once it is, then it's going to take on a momentum of its own, but we're still at a place in our development here, where we want to be reasonable with our expectations of what we can put on the team to go get done. So, last year, roughly 25,000 passings constructed. This year, it'll be a little less than half of that, but almost - or sorry, a little less than twice that, but almost twice that. And next year, we would expect to probably construct about 75,000 or so. So that's more of an operational constraint than a financial constraint. And then on the Beam side, it's really - the constraint there is on the site acquisition front. It takes a while to do the RF design and engineering work and then find or construct the towers or small cells, and that's really the governor there. So, Jim, I don't know if there is anything you want to add to that. But, in summary, it's not a financial constraint. It's more operational in terms of how fast we can go.

Yeah, I agree. And on that, the change in free cash flow was really a result of just owning the Wireless business longer. Each month we owned it, we're - it's very profitable and it's generating a lot of cash. So that's - the small delays and the closing has generally been a net positive from a cash flow perspective.

Okay, great. Thank you.

And I'm not showing any further questions in the queue.

Well, I'd like to thank everyone for joining the call this morning. And we look forward to updating you in July on our continued progress here at Shentel with Glo and Beam. Thanks, everyone, and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.