Good morning, everyone. Welcome to Shenandoah Telecommunications Third 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. Please go ahead, sir.

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the third quarter 2022. 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 Web site 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. With that, I will now turn the call over to Chris. Go ahead, Chris.

Thanks, Kirk. We appreciate everyone joining us this morning, and I hope everyone is staying healthy and safe. I'd like to start with a couple of observations on how Shentel is well-positioned in the current environment and how we're differentiating ourselves from our peers. Please refer to Slide 4. First, as we reported this morning, we continue to grow our broadband data subscribers and top line revenues. Our Glo Fiber product continues to take share as our fiber-to-the-home symmetrical speeds, outstanding local customer service and fair static pricing gives us a sustainable competitive advantage over our Cable and DSL competitors. Second, we ended the third quarter with approximately 131,000 Fiber passings with clear visibility to an additional 326,000 passings over the next 4 years. Unlike some newer entrants in the fiber-to-the-home space, we have had the same network leadership team in place since we launched our Glo Fiber strategy in 2018. We have longstanding relationships with our outside plant contractors in the local power companies that are critical for aerial construction and access to poles. We were able to get ahead of the supply chain constraints and have 6 to 9 months of fiber and network equipment inventory on hand. All these factors are valuable contributors to the strong construction momentum that we expect to continue into 2023. Third, we have over $400 million in liquidity as of the end of September. Our business plan is fully funded, and we have no material debt maturities until 2026. We are in the fortunate position to be able to continue to invest aggressively in our fiber-first strategy without having to access the capital markets to fund our plan. Lastly, we delevered our balance sheet last year, when we sold our wireless business. We currently have $25 million in outstanding debt. In a…

Thank you, Chris, and good morning, everyone. Please refer to Slide 8 to review our financial results for the third quarter 2022. Broadband revenue grew 7.7% to $62.4 million, driven by an increase of 8.7% in residential and SMB revenue due primarily to 127.6% increase in Glo Fiber data RGUs and a 3.8% increase in incumbent cable data RGUs. Glo Fiber revenue grew over 20% sequentially from the second quarter and 116% from the third quarter of 2021. Commercial fiber revenue grew 5.1% over the same period last year to $9.5 million, due primarily to growth in circuits. T-Mobile backhaul revenue was $5.1 million, consistent with the second quarter of 2022, and included 75,000 in early termination fees related to 8 backhaul site disconnects. We are now expecting most of the backhaul revenue churn and related early termination fees to occur in 2023. Broadband adjusted EBITDA of $22.2 million for the third quarter was flat with the third quarter 2021. Broadband expenses $4.5 million from the third quarter 2021 and $700,000, sequentially from the second quarter of 2022. Our Glo Fiber service reach an important milestone in achieving its first full quarter of positive incremental adjusted EBITDA. We expect Glo Fiber to contribute positive incremental adjusted EBITDA going forward. The favorable sequential increase in global fiber adjusted EBITDA was offset by $500,000 in noncash, non-operating charges for inventory and cancel projects under construction, $200,000 in higher fuel expenses and $100,000 and slightly higher software development expenses related to our system upgrades. We also announced this morning the sale of our 2.5 gigahertz wireless spectrum that is used to provide our Beam fixed wireless service for $21.1 million, including $17.3 million in cash and $3.8 million in assumed spectrum lease liabilities. We expect the transaction to close in the first half…

Thanks, Jim, and good morning. I will start on Slide 14, where we show our rapidly expanding broadband network that now consists of over 8,000 route miles of fiber. We continue to execute on our Glo Fiber build plan, adding over 18,000 additional passings in the quarter. With the launch of Lancaster and York counties in Pennsylvania, we now offer Glo Fiber symmetrical multi-gig service in 15 markets. In addition, our fiber construction is now underway to bring gigabit services to approximately 19,000 unserved homes, where we have one government grant funding. Turning to Slide 15. We now have approximately 438,000 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 in our government grant projects, we now have a construction backlog of 326,000 fiber passings in addition to the 131,000 Glo Fiber passings already constructed. Turning to Slide 16 for our operating results for our Glo Fiber business. We had our best quarter ever for customer growth and ended the period with over 27,000 total RGUs and 16.1% aggregate broadband data penetration rate across all markets. Our Glo Fiber customer relationships also more than doubled during the past year to end the quarter at over 21,000. In the third quarter of 2022, approximately 43% of our new subscribers adopted speed tiers of 1 gig or higher, including over 5% that took our 2 gig service. Broadband data average revenue per user declined about 1% year-over-year to $72.75, as we rolled out a lower speed tier targeting more price sensitive customers. Approximately 9% of our new subscribers adopted this 100 meg speed tier during the quarter. Attachment rates for our streaming TV and voice services were 13% and 11% in the quarter, respectively.…

[Operator Instructions] Your first question comes from Frank Louthan with Raymond James.

Great. Thank you. I apologize if you covered this. But Volk, can you give us an idea of the revenue and EBITDA impact from the [technical difficulty] from an annual basis, and when will that close? I assume the customers are going with it as well. And as a follow-up, any thoughts on the longer term more permanent financing for the fiber build specs?

Yes, Frank, we expect the spectrum sale to close in the first half of '23. It does require FCC approval. So those -- that part is in the works, as we speak today. And the amount of revenue related to our Beam business, we had about -- we have about 1,600 customers. And the amount of revenue, I’m looking it up right now here, not on the top of my tongue here is annually, we are going to do about $1.2 million of revenue this year from Beam. And the EBITDA has been negative since we launched the product. And with the upcoming government grants to build fiber-to-the-home to the same markets, we really made a decision a year-ago to stop investing and now we've been looking for solutions of what to do with the existing assets. And we thought the value of our spectrum had grown slightly, and we thought this was a good opportunity to exit the business.

And finally, any concerns that they're going to take that they might -- what are they going to do with it? Are they going to continue to compete there? Any thoughts there? And then, if you can address the permanent financing?

Yes. Go ahead, Ed.

Yes, I was going to say with the sale of the spectrum, we expect T-Mobile to use that to augment their current capacity. We still don't see a major issue from fixed wireless in our rural markets. I think the majority of the fixed wireless service is available today have data caps on them. I think the maximum speed you can get are 300 meg. We currently -- our broadband customers currently average well over 500 gigs a month -- excuse me, the capital on the data is 300 gig. Our average customer average is over 500 gig per month. So we don't think that necessarily competes well with either cable or fiber-to-the-home offering.

Okay.

Frank, could you repeat your second question, please?

Well, so longer term, what are your thoughts on the permanent financing for the fiber build? You're using kind of the revolver and the cash on hand for now, but any thoughts on how to put them in more permanent financing? Thanks.

Yes. So we have a $400 million credit facility. We've only drawn down $25 million to date. We do expect over the next 3 years to use all the $400 million to fund the expansion. At this point in time, with roughly looking at 700,000 homes pay us, we don't -- the plan is fully funded, and we don't anticipate raising any additional capital.

Okay, great. Thank you.

Your next question comes from Lucas Pipes with B. Riley.

Hey, guys. It's actually Dan Day. Thanks for taking my questions. So in the slide deck, you mentioned possible opportunistic M&A. Just any commentary on, whether there's an active pipeline there right now. I'd imagine there maybe some of the smaller players out there struggling to adjust to this cost of capital environment. So could present some M&A opportunities. So just curious your view there and whether you can give us anything else on M&A? And maybe whether that would be only directed in broadband assets or if there's anything else you're looking for out there?

I will say this, there's a few smaller opportunities in the pipeline right now. We believe there will be additional opportunities down the road. We think some of these fiber overbuilders and some of the folks that have taken government grant funding may struggle in the current economic environment. So we think there's opportunities down the road.

Yes, Dan, I was going to just add to that. With the rising cost of capital here, it does look like some of the broadband assets are -- the trading multiples are coming down. Some of the deals that were available over the summer, I don't think have gotten done, and I think expectations are coming down. So I think our ability to do accretive deals and to be fund them in today's market is somewhat unique to some of the other -- our broadband peers.

And then it sounded like -- I might have heard this [indiscernible] you called the Towers sort of noncore. I think you've used that term before. But just any change in your view on whether you might monetize those? I guess, it would be, if there was an M&A opportunity, maybe it makes more sense to monetize the Towers rather than raising the capital. Is that the way to think about it? Or would you think about monetizing those even if there's nothing like M&A wise that came up?

Yes. Dan, I think you hit the nail on the head there. We are fully funded to build out the plan that we have today. If we did an acquisition in lieu of issuing equity, we would certainly look to monetize the Towers. We again feel like those assets have maintained their value despite some of the economic changes here in the past 6 to 12 months. Alternatively, if we decide to upsize our Glo Fiber expansion plans well above what we are looking at today, that could also be a reason to possibly monetize the Tower assets. But absent that, the tax basis on the Towers is relatively low. We don't want to sell the towers today and incur a tax gain if we don't have a use of proceeds.

Got it. And then just one more for me. So we heard some commentary from the larger peers about challenges with labor availability as they're expanding their networks. And you guys talked about strong relationships with your contractors and all that. Just any issues you're seeing in terms of the availability of labor and whether that's a part of Glo going from the lower end of the cost or pass range to maybe up to the middle or higher end?

So I can say that's definitely a risk, we are monitoring very closely. We have lost a few contract crews that have gone to work on hurricane restoration work in Florida. We think that's temporary though. We don't think it will be a material impact on our targets for the year of reaching 150,000 of passings. We are also closely monitoring the impact of the hurricane restoration work is having on power companies and their ability to do make-ready work to prepare their polls for us to attach. I think the good news from our perspective is going into 2023, our shift -- we are shifting from a lot more aerial construction to more underground construction. So we're not going to have as big of an impact there. But again, monitoring very closely, but nothing that's going to impact our long-term build schedule at this point.

Thanks for taking my questions, guys.

Right. Thanks, Dan.

Thank you. Your next question comes from Hamed Khorsand with BWS Financial.

Hi, good morning. First off, could you just clarify the strategy as far as offering a lower tier for your broadband service? Is it -- have you reached the plateau as far as [indiscernible] is going to pay the more premium pricing? Or is this just more a incremental because you've already made the investments?

Yes. No, we don't believe we've reached the terminal penetration by any means on the customers are willing to buy the gig services. As I mentioned, almost half of our customers are taking gig services are higher. This was more going after some of the more economically challenged customers because we've already built the infrastructure, we've already passed the homes anyway.

Okay. And then as far as just the gain an incremental gig customer. Are you having to spend more on advertising dollars to get that customer? Or how has that response been?

We are increasing our advertising. We are also shifting our sales mix. So previously, we focused a lot more on door-to-door sales. We've been able to successfully shift a lot of our sales to our Web site. So about 30% of all of our sales are now occurring online, certainly lower cost to acquire a customer there. We are taking some of the savings there and putting that into advertising to continue to grow our brand awareness.

Okay. And then finally, the -- on the Beam sale, what happen to those customers. I mean, I'm assuming that business eventually goes away. So are you going to be able to recapture those customers with Glo?

So those customers are in very rural markets. So those are not customers we are typically targeting with Glo. A portion of those customers overlap our incumbent telephone company footprint. In the majority of those cases, we are actually building fiber-to-the-home. So a small fraction of Beam customers, we will be able to recapture the rest of those are going to be outside of our footprint with either Cable or Glo.

Okay, great. Thank you.

[Operator Instructions] Since there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Volk for any closing remarks.

Well, thank you, everyone, for joining us this morning. We look forward to keeping you abreast of our plans as we move forward. Good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.