Shenandoah Telecommunications outlines timeline for positive free cash flow by 2027 as Glo Fiber expansion nears completion

Earnings Call Insights: Shenandoah Telecommunications Company (SHEN) Q3 2025

MANAGEMENT VIEW

* President & CEO Edward McKay outlined the company's strategic vision, emphasizing "four key pillars that are driving operational execution and positioning us for long-term value creation." He stated, "We're enhancing that foundation by integrating advanced technology and AI to boost operational efficiency," referencing the use of AI in technical support and digital marketing.
* McKay highlighted network expansion, noting, "At the end of Q3, Glo Fiber reached a major milestone, passing 400,000 homes and businesses in our greenfield expansion markets. We remain on track to substantially complete our build by the end of 2026."
* He stressed growth acceleration, mentioning, "We're focused on driving penetration rates in Glo Fiber markets and expanding our commercial fiber business."
* McKay discussed returning to positive free cash flow: "We remain on track to reach positive free cash flow for the full year 2027, driven by declining capital intensity and continued customer growth."
* The company plans to refinance credit facilities, aiming for "a hybrid structure, asset-backed securitization for our Glo Fiber and commercial fiber businesses paired with a new credit facility for our incumbent broadband business." McKay said, "We expect this approach to lower our cost of debt, strengthen our credit profile and increase financial flexibility."
* Senior VP of Finance & CFO James Volk stated, "Revenue grew 2.5% to $89.8 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.2 million or 41.1%." Volk added, "Adjusted EBITDA grew $3.1 million or 11.7% to $29.7 million, driven by the previously mentioned revenue growth and $900,000 in lower operating expenses as we recognize synergy savings from the Horizon acquisition."

OUTLOOK

* McKay reiterated the company's annual guidance: "We expect 2025 revenues of $352 million to $357 million and adjusted EBITDA of $113 million to $118 million. CapEx, net of grant reimbursements of $55 million to $65 million, is expected to be $260 million to $290 million."
* The company remains on track to "substantially complete our build by the end of 2026" and targets "positive free cash flow for the full year 2027."
* There were no changes to guidance compared to the previous quarter.

FINANCIAL RESULTS

* Consolidated revenues reached $89.8 million, an increase of 2.5% year-over-year.
* Adjusted EBITDA climbed to $29.7 million, up 11.7% year-over-year, with margins expanding to 33%.
* Glo Fiber revenues grew 41.1%, reaching $21.3 million. Glo Fiber data revenue-generating units grew to 83,000, representing year-over-year growth of 39.5%.
* The company constructed over 1,700 route miles of fiber in the last year and completed construction on 89% of the planned 22,000 government subsidized unserved passings in incumbent markets.
* Liquidity was $230 million on September 30, including $23 million in cash. Outstanding debt was $535 million at quarter end.

Q&A

* Frank Louthan, Raymond James & Associates: "I want to get your thoughts on creating longer-term shareholder value either through M&A, either as a buyer or a seller. Is that on the table? And then, if not, what else can you do for -- to drive higher shareholder returns?" Edward McKay replied, "The industry is consolidating, and we want to be a player in that. And we think our -- the refinancing we're working on gives us the flexibility to be a player there, and we're looking for opportunities to expand our footprint."
* Louthan followed: "Can you remind us how many subsidized passings are you -- have you been granted and what you get? And then ultimately, what's sort of the target penetration for those builds?" McKay answered, "About 22,000 is what we're targeting. And we expect penetration in the high 60% range."
* Hamed Khorsand, BWS Financial Inc.: "Your pricing action you took with Glo Fiber, what sparked that? Are you seeing increased competition or just a lack of consumer willingness to take on the new service...?" McKay responded, "Comcast launched a 5-year price guarantee in our markets in June. We did see a little bit of impact there on the gross add side...but we decided to respond with our own 5-year guarantee...we've seen a significant lift in gross adds since then."
* Khorsand: "Why isn't this growth leading to you raising your guidance?" Volk replied, "It takes several quarters for growth to accumulate here. So it's not something that you get in the first quarter...So it will take an accumulation of higher gross adds for a couple of quarters before we see a significant lift in our revenues and EBITDA."

SENTIMENT ANALYSIS

* Analyst tone was probing, with questions focused on shareholder value creation, market penetration, and the impact of new pricing strategies. The line of questioning was neutral to slightly pressing, particularly regarding guidance and competition.
* Management maintained a confident and slightly defensive tone, using phrases like "we want to be a player" and "we continue to believe we have a competitive advantage." Management's tone during prepared remarks was optimistic, while in Q&A, explanations emphasized patience and strategic positioning.
* Compared to the previous quarter, both analyst and management sentiment remained steady, with analysts continuing to focus on growth drivers and management reiterating confidence in strategy and guidance.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language and numerical ranges for revenue and EBITDA remained unchanged from the previous quarter.
* Strategic focus shifted more toward operational execution, network build completion, and the upcoming refinancing plan, whereas the previous quarter emphasized leadership transition and expansion milestones.
* Key metric changes included a higher number of Glo Fiber passings (400,000 vs. 380,000), an increase in Glo Fiber data RGUs, and a rise in Glo Fiber revenues.
* Analysts' focus evolved from leadership transition and expansion to more granular questions about pricing strategy and the timing of financial uplift from recent growth initiatives.
* Management's confidence in achieving positive free cash flow by 2027 was reiterated, with additional details on refinancing strategy provided this quarter.

RISKS AND CONCERNS

* Management cited competitive pricing actions by Comcast as prompting their own 5-year price guarantee and acknowledged some impact on gross additions.
* Declines in video RGUs due to customers moving to streaming services and lower government support revenue for RLEC were noted as business challenges.
* Capital expenditure intensity remains a challenge, but management expects this to decline post-network build.
* Analysts expressed concern about the timing of financial benefits from recent growth and the lack of upward revision to guidance despite positive subscriber trends.

FINAL TAKEAWAY

The company underscored steady operational execution, continued strong growth in Glo Fiber passings and revenues, and steadfast progress toward completing the network build by 2026. Management reiterated unchanged annual guidance and emphasized that positive free cash flow is targeted for 2027, with refinancing efforts expected to enhance financial flexibility as industry consolidation accelerates. The response to competitive pricing and a focus on customer acquisition underpin the company's confidence in its long-term growth trajectory and shareholder value creation.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/shen/earnings/transcripts]

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