SHENANDOAH TELECOMMUNICATIONS CO/VA/ Q3 FY2026 earnings call

• Fiber Expansion Milestones: Glowfiber surpassed 501,000 passings in Q3, adding 25,000 new passings during the quarter. The company remains on track to substantially complete its planned expansion by year-end 2026, expecting to reach approximately 517,000 total passings.
• Customer Acquisition & Retention: Record net data additions of 8,600 were achieved, up 48% from Q3 2025. Total broadband passes across the integrated network exceed 755,000. Customer satisfaction is high, with a Net Promoter Score of 58 and average monthly churn of just 1.1% for Glowfiber over the past 12 months.
• Product Strategy & Pricing: The five-year price guarantee plan has driven significant adoption, with over 83% of new residential customers selecting speeds of 1 Gbps or higher. In incumbent markets, management updated rate cards to better serve income-constrained rural customers, focusing on maximizing lifetime value rather than immediate ARPU growth.
• Commercial Success: Incremental monthly sales bookings exceeded 185,000, driven by strong demand from wireless carriers and wholesale customers. Average monthly compression and disconnect turns remain low at 0.5%.
• Operational Efficiency: Adjusted EBITDA margin expanded by 200 basis points year-over-year in Q3. Management attributes this to operating leverage from high-margin fiber growth and cost savings from a previously announced reduction in force, which will be completed in December 2026.

• Glow Fiber Expansion Markets: Revenue grew 32.2% year-over-year to $6.9 million, driven by a 31.8% increase in data subscribers. This segment is a key growth engine with record net additions of 8,600 customers.
• Commercial Fiber: Revenue increased 5.9% year-over-year to $1.2 million, supported by recurring revenue growth in enterprise and carrier verticals.
• Combined Fiber (Glow + Commercial): Total fiber revenue grew 19.5% year-over-year, representing 52% of consolidated revenues. Management expects this share to reach approximately 60% by 2028.
• Incumbent Broadband Markets: Revenue declined by $2.8 million year-over-year. The decline was primarily due to a 13% drop in video RGUs as customers shift to streaming, and a 3% decline in data RGUs.
• RLEC (Local Exchange Carrier) Business: Revenue decreased by $1.1 million, largely due to a 35% decline in DSL RGUs and lower government support revenues.

• 2026 Revenue Guidance: Reiterated range of $370 million to $377 million.
• 2026 Adjusted EBITDA Guidance: Reiterated range of $131 million to $136 million.
• 2026 Capital Expenditures Guidance: Increased upward from prior guidance of $220–$250 million to a new range of $255–$275 million. This increase is driven by constructing 7,000 additional Glowfiber passings and timing delays in government grant receipts extending into 2027.
• 2027 Margin Outlook: Expecting Adjusted EBITDA margins to expand by an additional 300–400 basis points in 2027, fueled by continued high-margin fiber revenue growth and full-year operating expense savings from the workforce reduction.
• Free Cash Flow Transition: Management anticipates generating positive free cash flow starting in 2027, supported by low double-digit EBITDA growth, mid-20% capital intensity, and a fixed-rate debt cost of 5.9%–6%.

• Competition in Rural/Incumbent Markets: Churn in incumbent broadband markets increased modestly to 1.76% in Q3, driven by wired broadband competition and softer demand in rural areas where inflation is pressuring household budgets.
• ARPU Pressure: Broadband data ARPU in incumbent markets declined 3% year-over-year to ~$80. Management notes that while Glowfiber ARPU stabilized after the initial impact of promotional plans, incumbent ARPU faces ongoing pressure from inflation and competitive pricing strategies.
• Satellite Competition: While currently minimal, satellite internet (e.g., SpaceX) poses a potential long-term risk. Management reports that churn impact from satellite peaked in Q1 2026 and has since declined, but it remains a factor to monitor, particularly in incumbent markets.
• Debt Maturity and Liquidity: The company has $760 million in outstanding debt with no maturities until 2029. While liquidity is sufficient ($139 million available), reliance on government grants introduces timing risk, as reimbursements may extend beyond current expectations.

Q: Analyst asked if subscriber acquisition is becoming harder for Glowfiber despite recent success, and about competitive threats. / A: CEO stated acquisition remains strong with 48% YoY growth in net adds and penetration still below 22%, leaving significant runway to the 37% target. He noted no major new competitive threats in Glowfiber markets, though some DSL upgrades occur in incumbent areas; however, most incumbent passings lack direct wireline competition.

Q: Analyst inquired about updates on hyperscaler data center deals and the internal return calculations for these investments. / A: CEO confirmed negotiations are progressing well but require time, viewing it as a significant growth opportunity. CFO explained they use customer lifetime value (CLV) models rather than strict IRR, noting that with 1.1% churn, Glowfiber customers have an 8+ year lifespan worth thousands of dollars in value.

Q: Analyst questioned the reason for the $25M CapEx increase and whether the stock valuation reflects the true value of passings. / A: CFO clarified $10M is for 7,000 extra passings, $15M is due to delayed government grant reimbursements, and $5M for other items. He expressed disappointment in the stock trading at ~10x EBITDA versus 12x recently, attributing the discount to macro factors rather than fundamentals, especially as the company de-risks by nearing positive free cash flow.

Q: Analyst asked when ARPU will stabilize/grow and what the long-term leverage target and capital allocation plan are post-build. / A: CFO outlined that Glowfiber ARPU will pivot to flat/slight growth in 2027 as equipment fees kick in, while incumbent ARPU will see <1% declines in 2027 before stabilizing via a new rate card. Leverage is expected to drop below 5x by end-2027 and below 4x by 2029, with excess cash likely used for deleveraging.

Q: Analyst asked if satellite internet (SpaceX) poses a material risk to subscriber retention. / A: CEO confirmed satellite impact is minimal, causing less than 10 basis points of churn in incumbent markets and virtually none in Glowfiber. He noted the peak impact occurred in Q1 2026 and has declined quarterly since, believing their updated rural rate cards compete effectively against satellite.