Shenandoah (SHEN) Q3 2026 Earnings Call Transcript

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DATE

Wednesday, Oct. 28, 2026

CALL PARTICIPANTS

• Vice President of Corporate Finance - Lucas Binder
• President and Chief Executive Officer - Edward McKay
• Senior Vice President and Chief Financial Officer - James Volk

TAKEAWAYS

• Total Revenue -- $93.9 million, rising 4.6% year over year driven by growth in fiber services.
• Adjusted EBITDA -- $33.2 million, an increase of 11.8% year over year reflecting operating leverage from fiber expansion.
• Glo Fiber Expansion Markets Revenue -- $28.2 million, growing 32.2% year over year due to a 31.8% rise in data revenue-generating units.
• Commercial Fiber Revenue -- $21.1 million, an increase of 5.9% year over year driven by higher recurring revenue from enterprise and carrier customers.
• Fiber Revenue Contribution -- 52% of consolidated revenues, comprising combined Glo Fiber and Commercial Fiber operations.
• Glo Fiber Data Customer Growth -- 8,600 net additions, representing a record quarter and bringing the total to 108,787 data customers.
• Glo Fiber Data RGUs -- 127,000, up 31% compared to the prior year.
• Glo Fiber Passings -- 500,584 total homes and businesses, including 25,000 new passings added during the third quarter.
• Broadband Data Penetration -- 21.7% for Glo Fiber, an increase of 108 basis points year over year.
• Glo Fiber Data ARPU -- $75.96, a 1.1% decline year over year following the introduction of five-year price guarantee plans.
• Glo Fiber Churn -- 1.1%, reflecting high customer satisfaction and service quality over the past 12 months.
• Incumbent Broadband Markets Revenue -- $39.1 million, down 6.8% year over year due to lower video revenue and data ARPU compression.
• Incumbent Data ARPU -- $79.84, representing a 3% decline year over year.
• Incumbent Broadband Churn -- 1.76%, influenced by wired broadband competition and inflation-driven household budget pressure.
• Incremental Adjusted EBITDA Margin -- 85%, reflecting the high profitability of incremental Glo Fiber revenue.
• Residential Speed Adoption -- 83% of new residential customers selected speeds of 1 gigabit or higher in the third quarter.
• Capital Expenditures -- $215 million for the first nine months of the year, focusing on Glo Fiber network expansion.
• Revised 2026 CapEx Guidance -- $255 million to $275 million, up from the previous range of $220 million to $250 million due to additional passings and government grant timing.
• Reiterated 2026 Revenue Guidance -- $370 million to $377 million, as management confirmed previous annual targets.
• Reiterated 2026 Adjusted EBITDA Guidance -- $131 million to $136 million, consistent with prior financial outlooks.
• Total Outstanding Debt -- $760 million, with 75% of the balance at fixed rates to protect against interest rate increases.
• Liquidity -- $138.6 million as of Sept. 30, 2026, consisting of cash, restricted cash, and available credit facilities.
• Headcount Reduction Savings -- $12.3 million in annual savings expected starting in 2027 following a 10% reduction in force.

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RISKS

• McKay noted that incumbent broadband churn increased to 1.76% due to "wired broadband competition and softer demand in some of our more rural markets, where inflation continues to pressure household budgets."
• Volk stated that the 2026 capital expenditure guidance was raised partly because "the timing of government grant receipts will likely extend into 2027, which will result in higher net CapEx for 2026."

SUMMARY

Shenandoah Telecommunications Company (NASDAQ:SHEN) reported results for the third quarter of 2026. Management stated that the company reached a milestone by exceeding 500,000 Glo Fiber passings and delivering record net additions in its data segment. The company reported that fiber services now represent more than half of its total revenue, with total adjusted EBITDA growth exceeding top-line expansion due to operating leverage. The company indicated that its major network construction phase is nearing completion, which supports a transition toward positive free cash flow starting in 2027. Management noted that liquidity remains sufficient to fund the final stages of expansion through the end of the fiscal year.

• McKay noted that the company added 8,600 Glo Fiber data customers during the quarter, stating, "our 5-year price guarantee and expansion of our door-to-door sales channel have been key drivers of this growth."
• Volk stated that the company expects adjusted EBITDA margins to expand another 300 to 400 basis points in 2027, driven by "continued high-margin Glo Fiber revenue growth and a full year of operating expense savings from the previously announced reduction in force."
• Management reported that 83% of new residential customers chose speeds of 1 gigabit or higher, with 5% opting for 5-gigabit service.
• McKay addressed competitive threats from satellite providers, indicating that "the satellite impact peaked in the first quarter of this year, and it has declined every quarter since."
• Management stated that discussions with major hyperscalers regarding fiber infrastructure opportunities are ongoing and represent a growth channel for the Commercial Fiber segment.
• Volk stated that the company has no debt maturities until 2029 and that 75% of its $760 million debt is fixed-rate.

INDUSTRY GLOSSARY

• ABS: Asset-Backed Securities, a form of debt financing secured by a specific pool of assets.
• ARPU: Average Revenue Per User, a measure of the revenue generated per subscriber unit.
• DSL: Digital Subscriber Line, a technology used to transmit digital data over telephone lines.
• FTTH: Fiber To The Home, a broadband network architecture using optical fiber to provide local loops.
• RCF: Revolving Credit Facility, a flexible line of credit that can be drawn and repaid as needed.
• RGU: Revenue Generating Unit, an individual service subscription, such as broadband, video, or voice.
• RLEC: Rural Local Exchange Carrier, a traditional telephone company serving rural areas.
• VFN: Variable Funding Note, a type of debt instrument where the principal amount can fluctuate based on borrowing needs and collateral.

Full Conference Call Transcript

Operator: Good morning, everyone. Welcome to Shenandoah Telecommunications Third Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lucas Binder, Vice President of Corporate Finance for Shentel.

Lucas Binder: Thank you, Victor. Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the third quarter of 2026. Our results were announced in a press release distributed this morning. In addition, we filed our Form 10-Q with the SEC. The presentation we will review is available on the Investor page of our website at investor.shentel.com. An audio replay of this call will be available later today with details included in the press release announcing this call. With us today are Ed McKay, President and Chief Executive Officer; and Jim Volk, Senior Vice President and Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session.

Please turn to Slide 2, which contains our safe harbor disclaimer. This call may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those statements. We encourage you to review the detailed discussions of risk factors in our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Forward-looking statements reflect management's current beliefs, assumptions and expectations and are not guarantees of future performance. You should not place undue reliance on them. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or revise any forward-looking statements. We will also discuss certain non-GAAP measures.

Reconciliations and additional information are included in today's release and presentation. With that, I will turn the call over to Ed. Go ahead, Ed.

Edward McKay: Customers, advancing our major construction programs toward completion and converting revenue growth into stronger adjusted EBITDA growth. For the third quarter, Glo Fiber surpassed 0.5 million passings, an important milestone as we move closer to completing our planned expansion. We added 8,600 Glo Fiber data customers, a record quarter for net additions, and ended the quarter with approximately 109,000 data customers, up 32% year-over-year. Our fiber businesses continue to gain scale with combined Glo Fiber and Commercial Fiber revenue growing 19.5% year-over-year and representing 52% of consolidated revenues. Total revenue was $93.9 million, up 4.6% year-over-year, while adjusted EBITDA increased 11.8% to $33.2 million.

The higher rate of adjusted EBITDA growth reflects the operating leverage we are beginning to realize from continued growth in our fiber businesses. I think it is also important to recognize how Shentel's business is evolving relative to other broadband providers. While many traditional cable operators are navigating broadband subscriber declines, we continue to add customers at a strong pace. More than half of our revenue now comes from our growing fiber businesses, and with our major network expansion substantially complete by year-end, we believe we are uniquely positioned to convert that growth into expanding margins and positive free cash flow starting in 2027. Turning to Slide 5.

Our integrated network now includes more than 20,000 route -- fiber route miles across 8 states and approximately 755,000 total broadband passings. At quarter end, Glo Fiber passed approximately 501,000 homes and businesses, including 25,000 added during the third quarter. We remain on track to substantially complete our planned Glo Fiber expansion in 2026 and now expect to pass approximately 517,000 homes and businesses by the end of the year. As shown on Slide 6, Glo Fiber customer growth accelerated in the third quarter with a record 8,600 data net additions, up 48% from the third quarter of 2025. Our 5-year price guarantee and expansion of our door-to-door sales channel have been key drivers of this growth.

Over the past 12 months, we've added more than 26,000 new data customers and 30,000 total RGUs. We ended the third quarter with more than 127,000 Glo Fiber revenue-generating units, up 31% compared to the prior year. Moving to Slide 7. Broadband data penetration reached 21.7%, increasing 68 basis points sequentially and 108 basis points year-over-year. Over the past 12 months, we released approximately 100,000 passings to sales, creating a larger base for continued customer growth. Penetration trends for Glo Fiber expansion markets are shown on Slide 8. Our older cohorts continue to increase penetration with passings launched in 2019 and 2020 now averaging 38.5%, exceeding our medium-term target of 37%.

In addition to providing the fastest speeds in our markets, we remain focused on delivering outstanding local customer service. As shown on Slide 9, our annual Glo Fiber customer satisfaction survey produced an outstanding Net Promoter Score of 58. We continue to rank among broadband industry leaders in both customer satisfaction and retention with average monthly churn of just 1.1% over the past 12 months. Broadband data average revenue per user for the third quarter was down slightly, both sequentially and year-over-year to just under $76. The 1% year-over-year decline was consistent with our expectations following the introduction of our 5-year price guarantee plans a year ago.

We continue to have success moving customers up the rate card and differentiating Glo Fiber with faster speeds than our competitors. Demand for higher-speed products remains strong with more than 83% of new residential customers selecting speeds of 1 gig or higher in the third quarter, including 20% choosing 2-gig service and 5% choosing 5-gig service. Our Commercial Fiber business is highlighted on Slide 10. In the third quarter, incremental monthly sales bookings exceeded $185,000, driven by strong demand across commercial and enterprise customers, including wireless carriers and wholesale customers. Our service delivery team installed $178,000 new monthly revenue in the quarter, and our average monthly compression and disconnect churn remained low, averaging 0.5% over the last 12 months.

On Slide 11, incumbent broadband markets ended the quarter with more than 110,000 broadband data customers, down less than 2% year-over-year. The decline in total RGUs continued to be driven by video customer losses as customers shift to streaming services. Total broadband passings in our incumbent markets increased slightly during the quarter, and we expect to complete the government grant-subsidized fiber passings by the end of 2026. As shown on Slide 12, our 23,000 subsidized passings completed in recent years, predominantly with fiber, have reached aggregate data penetration of 43%. The 2023 cohorts are averaging more than 60% with the oldest cohort approaching 72%. These results demonstrate strong customer demand across these previously unserved areas.

We expect overall penetration to reach approximately 65% over the next few years, representing roughly 5,000 incremental customers on our superior fiber network. Moving to Slide 13. Broadband data monthly churn increased modestly in the third quarter to 1.76%. The increase was driven primarily by a combination of wired broadband competition and softer demand in some of our more rural markets, where inflation continues to pressure household budgets. Broadband data ARPU declined 3% year-over-year to approximately $80. Our focus this year has been on modernizing our offerings in these rural markets to better meet customer needs.

We saw churn improve in September and expect both churn and ARPU to gradually stabilize over the coming quarters as we make additional changes to our rate card and product offerings to maximize customer lifetime value. I want to thank our employees for their continued dedication to serving our customers and executing on our fiber expansion strategy. Glo Fiber's successful growth over the past several years reflects the collective efforts of our entire team and builds on Shentel's proud legacy. Jim, I'll turn it over to you to review our financial results.

James Volk: Thank you, Ed, and good morning, everyone. I will begin on Slide 15 with our third quarter financial results. Revenues increased 4.6% year-over-year to $93.9 million. Glo Fiber expansion market revenue grew $6.9 million or 32.2%, driven by a 31.8% increase in data subscribers and relatively stable year-over-year data ARPU. Commercial Fiber revenue grew $1.2 million or 5.9%. This growth was driven by recurring revenue growth in the enterprise and carrier verticals. Combined, Glo Fiber and Commercial Fiber revenue grew 19.5% and represented 52% of consolidated revenue. We expect strong fiber revenue growth to continue, reaching approximately 60% of consolidated revenue by 2028.

Incumbent broadband markets revenue declined $2.8 million, primarily due to lower video revenue from a 13% decline in video RGUs as customers continue to switch to streaming video services as well as lower data revenues due primarily to a 3% decline in data ARPU. RLEC revenue declined $1.1 million, primarily due to lower DSL revenue from a 35% decline in DSL RGUs and lower government support revenues. We have successfully migrated about 4,500 DSL customers to our recently constructed broadband Internet service in our Virginia and Ohio telephone markets since 2023. We expect DSL customer base to stabilize after we migrate the remaining 600 DSL customers in the next year or so.

Adjusted EBITDA increased $3.5 million or 11.8% to $33.2 million. Revenue grew $4.1 million, partially offset by $600,000 in higher operating expenses. Incremental adjusted EBITDA margin was an outstanding 85% by -- driven by the high-margin Glo Fiber revenue growth. Compared to the same periods in 2025, adjusted EBITDA margin expanded 200 basis points in the third quarter and 300 basis points year-to-date. We expect adjusted EBITDA margins to expand another 300 to 400 basis points in 2027, driven by continued high-margin Glo Fiber revenue growth and a full year of operating expense savings from the previously announced reduction in force that will be completed in December. Turning to Slide 16. We are reiterating our 2026 operating guidance.

We continue to expect revenues of $370 million to $377 million and adjusted EBITDA of $131 million to $136 million. For our capital expenditures outlook, we are increasing our guidance to a range of $255 million to $275 million from our prior guidance of $220 million to $250 million. The primary drivers of the increase are twofold. One, we expect to construct 7,000 additional Glo Fiber passings by year-end, bringing total to approximately 517,000 from 510,000. Two, the timing of government grant receipts will likely extend into 2027, which will result in higher net CapEx for 2026. Please note that our prior CapEx guidance was based on net capital expenditures.

On Slide 17, we invested $215 million in capital expenditures during the first 9 months of 2026 and collected $22 million in government grants, resulting in net capital expenditures of $193 million. Net capital expenditures declined 9% from the first 9 months of 2025. As of September 30, we are 97% complete with our Glo Fiber expansion and 99% complete with our incumbent broadband expansion, and we expect to substantially complete the remaining construction by year-end. I'd now like to update you on our liquidity and debt maturities on Slide 18. As of September 30, we had $760 million in outstanding debt.

We have no debt maturities until 2029 and 75% of our debt is fixed rate, providing meaningful protection from potential increases in short-term interest rates. Total available liquidity was $139 million, consisting of $19 million in cash and cash equivalents, $27 million in restricted cash as required by the ABS indenture, $16 million available under the VFN, $50 million available under the RCF and $27 million remaining reimbursements available under government grants. In addition, the company has over $84 million of VFN commitments that are not available to draw as of September 30. We expect the available VFN capacity to reach the commitment levels with continued growth in secured fiber network revenues from the ABS entities.

As we wrap up the final 2 months of our network expansion, we have greater visibility into our financial outlook. Slide 19 highlights the 3 keys to generating and growing positive free cash flow beginning in 2027. Number one, low double-digit adjusted EBITDA growth rates driven by our fiber businesses; two, mid-20% capital intensity consisting primarily of success-based and maintenance capital spending; and three, 5.9% to 6% cost of debt that is primarily fixed-rate notes. As we complete our investment phase and transition to positive free cash flow, we expect to derisk our business plan while retaining significant runway for Glo Fiber penetration, high-margin revenue growth and cash flow generation. Thank you, operator. We are now ready for questions.

Operator: [Operator Instructions] First question will come from the line of Hamed Khorsand from BWS Financial.

Hamed Khorsand: I guess the first question I have, just given what you're saying about the business and how you're adding subscribers. On one hand, it seems like you're adding a lot of more Glo Fiber subscribers, but the commentary makes it sound like it's getting tougher for that incremental add. Is that a good assessment? Or is it still easy to find Glo Fiber subscribers?

Edward McKay: Hamed, this is Ed. I would say we are still having significant success adding Glo Fiber customers. When you look at our gross adds -- or excuse me, our net adds in the third quarter of this year versus net adds in the third quarter of last year, those net adds are up 48%. So we are having success. We have a lot of runway ahead of us. Our penetration rate in Glo Fiber right now is still below 22%. So we've got a lot of runway to hit our 37% midterm target, and we believe there's upside beyond that longer term. So we're still able to add Glo Fiber customers at an accelerated pace year-over-year.

Hamed Khorsand: Okay. And are you seeing any competitive threats at all in any of your markets right now? Or has that eased?

Edward McKay: Yes. In Glo Fiber, really no additional changes from a competitive threat standpoint. We still see some fiber upgrades in the local telephone company markets from DSL in some areas, but again, not significant. In our incumbent cable business, same thing. We do see some upgrades from the local telephone companies of DSL, but the majority of our passings in our incumbent business still do not have a wired cable competitor or fiber competitor.

Hamed Khorsand: Okay. And then as far as your ARPU is concerned, is that more of a metric of what the price card you've moved to in recent months?

Edward McKay: Correct. Yes. In our Glo Fiber business, really the 5-year rate card that we rolled out last year impacted the ARPU by about 1% as we expected. In our incumbent cable markets, we've updated the rate card to be more effective in the more rural areas that are income-constrained and are really feeling the pinch from inflation. So our goal there is to really maximize the lifetime value of those customers. So we're balancing return, ARPU as well as gross adds.

Operator: And our next question comes from the line of Christian Schwab from Craig-Hallum.

Benjamin Taxdahl: It's Ben Taxdahl on for Christian this morning. Another solid quarter. I have a couple of questions. First on the -- any update on your footprint? I think you previously said you have around 20 data centers across the footprint. And last quarter, you announced a master service agreement with a hyperscaler. Any updates there on AI data center customers across the footprint?

Edward McKay: Ben, thank you for the question. So I'll say it takes time to negotiate contracts with these major hyperscalers. Our discussions are ongoing regarding multiple opportunities. They're progressing well. We still see this as a significant growth opportunity for us. I just don't have anything additional to share right at this moment.

Benjamin Taxdahl: All right. And then just quickly on those customers, what -- have you guys done like an internal IRR calculation or what like a return on investment could be like for these types of customers?

Edward McKay: Jim, do you want to take that one?

James Volk: Yes. Ben, we tend to do more of a customer lifetime value calculation, which essentially looks at the lifetime of the customer, which is kind of the inverse of churn, which for us, with 1.1% churn on the Glo Fiber side, that equates to almost 100 months or 8-plus years. And then we look at the recurring revenue and recurring adjusted EBITDA from that customer, and then we subtract out the cost of acquisition. And for Glo Fiber, that gives us -- the value of those customers are worth a couple of thousand dollars when you do those calculations. And we'll do the same calculations on the incumbent cable side as well.

Benjamin Taxdahl: All right. And just remind me, as we increase the passings by 7,000, I mean, of, say, the roughly 30,000 -- sorry, $30 million in CapEx increase, how much of that is just on adding passings? And it may be helpful to just kind of give the cost so I can compare it to what you just said.

James Volk: Yes. Ben, so about $10 million of the increase related to the 7,000 additional passings. About $15 million relates to the government grant subsidies, which is really just a timing issue. We don't control exactly when the governments reimburse us for the grants. But it looks like based upon timing, it is going to extend into the first quarter. And then the remaining piece, $5 million, which is a variety of smaller things.

Benjamin Taxdahl: So I mean, say, [ $1,500 ] of passing and I mean, you just said a couple of thousand, say, [ $3,000-ish ] and where the stock is, I mean, how I'm viewing it as you guys aren't getting even close to the full value of what your passings are worth? Is that kind of how you're viewing it internally?

James Volk: Yes, that's correct. We're -- one, going back to Glo Fiber passings and your question on IRRs, we've been underwriting all of the Glo Fiber markets to an IRR of 15%. And that would include the additional 7,000 passings that we're planning to build by the end of this year. But as far as for valuation, Ben, we're disappointed where the stock is sitting today. We think there's some macro issues driving that more so than our fundamentals. But ironically, if you do the calculations, we're trading at roughly 10x today, whereas 5 months ago, we were trading roughly at 12x EBITDA. And we're significantly derisking our business plan by completing the construction phase and going free cash flow positive.

So a lot of times, I would suspect that -- or EBITDA multiples would expand during that period of transition, but we seem to be getting hit with some outside influences outside of our business.

Benjamin Taxdahl: Yes. And just speaking of outside influences, you guys -- it seems like if there's a comment on SpaceX, your stock will trade down. But as you -- you can maybe highlight more, you guys don't believe SpaceX is a risk virtually at all, especially in the Glo Fiber business, correct?

Edward McKay: Ben, that's right. We've seen virtually no churn impact from satellite in our Glo Fiber markets. Even in our incumbent broadband markets, the churn impact has been minimal, less than 10 basis points of churn. So the satellite impact peaked in the first quarter of this year, and it has declined every quarter since. We believe our updated rate cards in our incumbent cable markets, they compete very effectively against satellite. So we do not believe this is a significant long-term factor for us.

Operator: And our next question will come from the line of Vikash Harlalka from New Street Research.

Vikash Harlalka: I know you touched upon stabilization in broadband ARPU. Could you just provide us any visibility into when you expect broadband ARPU to stabilize and maybe start growing? And then second, I just wanted to understand your capital allocation philosophy, especially given that now you're almost done with your fiber build. What's your long-term leverage target? When do you get there? And then what do you plan to do with any excess cash that you may generate?

Edward McKay: Jim, do you want to take that one?

James Volk: Sure. I'll start with the last question. We expect net leverage at the end of the year to be about 5.7 to 5.8x EBITDA. We do expect to delever relatively quickly. By the end of '27, we expect the net leverage to be below 5x. And by '29, we expect it to be below 4x. So we're confident in our ability to delever the business. In regard to the ARPU, so 2 different stories here with the 2 different residential lines of business. On the Glo Fiber side, when we introduced a year ago the 5-year price-guaranteed rate plans, we expected about 1% decline in ARPU due to the promotional plans that we had put out there.

And then in our 5-year plans, we're not charging for equipment for the first year, but we do charge it starting in the second year. So some of that equipment revenue was kicking in, in the fourth quarter. So we still expect a small decline from the third quarter to the fourth quarter. But starting in '27, we expect ARPU to actually be flat to slightly rising. So we're just about at the point that it starts to pivot back up.

On the incumbent side, we do -- we are -- we introduced several new initiatives this year, as Ed talked about, in the markets that we don't have wireline competition, but we have low demographics and have been -- that have been pinched pretty hard by the inflation. So we've been doing that more on a retention and a promotional plan basis. But Vikash, we expect -- we're planning to introduce a new rate card in early 2027 that will move away from some of the promotional activity and get into more everyday pricing. And it will -- we believe it will increase customer lifetime value.

There's going to be some pluses and minuses in those new rate plans that we think will allow us to grow penetration in some of these lower-income markets better than what we've done recently. But the ARPU will probably still slightly decline, but not at the rate that we had this past quarter where it was 3%. I would expect it to be more on the lines of less than 1% in 2027 and the next couple of years after that.

Operator: And this concludes the question-and-answer session. I would now like to turn it back over to Ed for closing remarks.

Edward McKay: Thanks for joining us today. We're very excited about our growth opportunities. We look forward to updating you on our progress in the future quarters. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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