Shentel(SHEN) - 2024 Q1 - Quarterly Results

First Quarter 2024 Highlights The quarter achieved record Glo Fiber subscriber growth, major M&A, and new financing, setting the stage for sustained organic expansion Overview Shentel reported a record quarter for Glo Fiber net subscriber additions, alongside a major acquisition (Horizon), a significant divestiture (Tower Portfolio), and new financing, focusing on Horizon integration and sustained organic growth, with Tower segment results now discontinued operations - The company achieved a record quarter for Glo Fiber net subscriber additions[4] - Shentel closed a major acquisition (Horizon), a major divestiture (Tower Portfolio), and secured $356 million in financings during the period[4] - The integration of Horizon is progressing and is expected to be completed by early 2025[4] - Following the sale of the Tower Portfolio, the Tower segment's financial results will be presented as discontinued operations[2] Detailed Financial and Operational Results Q1 2024 saw revenue growth from Glo Fiber, significant M&A, and increased operating expenses and capital expenditures Key Results and Corporate Actions In Q1 2024, revenue grew 3.1% to $69.2 million, driven by a 73.0% increase in Glo Fiber Markets revenue, experiencing a net loss from continuing operations but a large net income from discontinued operations due to the Tower Portfolio sale, alongside significant corporate actions including the Tower sale, Horizon acquisition, and credit facility upsizing Q1 2024 Financial Summary vs. Q1 2023 | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $69.2 million | $67.2 million | +3.1% | | Glo Fiber Markets Revenue | $12.1 million | $7.0 million (est.) | +73.0% | | Net (Loss) Income from Continuing Operations | ($4.1 million) | $0.7 million | - | | Net Income from Discontinued Operations | $218.8 million | $1.3 million | +16723% | - Completed the sale of the Tower Portfolio to Vertical Bridge for $309.9 million in cash on March 29, 2024[6] - Completed the acquisition of Horizon for $385 million, consisting of $305 million in cash and 4.1 million shares of Shentel common stock, on April 1, 2024[12] - Amended and upsized its credit facility by $275 million to a total of $675 million to fund Glo Fiber expansion[12] - As of March 31, 2024, pro forma for the Horizon transaction and financing, total available liquidity was $484 million[12] Revenue and Subscriber Analysis Total broadband RGUs grew 12.2% year-over-year to 155,687, driven by a 62.3% increase in Glo Fiber subscribers, with Glo Fiber passings increasing by 94,509 YoY to 259,567, while overall revenue growth was fueled by a 9.1% increase in Residential & SMB revenue, offset by a 19.8% decline in Commercial Fiber revenue due to T-Mobile backhaul circuit disconnects Subscriber and Passings Growth (YoY) | Metric | March 31, 2024 | March 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Broadband RGUs | 155,687 | 138,713 | +12.2% | | Glo Fiber Subscribers | ~47,000 | 28,793 | +63.2% | | Glo Fiber Passings | 259,567 | 165,058 | +57.3% | - Residential & SMB revenue increased by $4.7 million (9.1%), driven by Glo Fiber's RGU growth and a 9.7% increase in broadband data ARPU[7] - Commercial Fiber revenue decreased by $2.3 million (19.8%) as expected, due to the decline in T-Mobile revenue from decommissioning the former Sprint network[7] Expense and Capital Expenditure Analysis Operating expenses saw modest increases in Q1 2024, with cost of services rising 2.2% due to higher video programming costs and Glo Fiber network expansion, SG&A expenses increasing 9.3% driven by higher advertising for Glo Fiber, bad debt charges, and payroll, and capital expenditures at $70.1 million, a slight increase from the prior year - Cost of services increased by $0.6 million (2.2%) due to higher video programming costs and line costs from Glo Fiber network expansion[7] - Selling, general and administrative (SG&A) expense increased by $2.4 million (9.3%) due to higher advertising for Glo Fiber, increased bad debt charges, and higher payroll expenses[12] - Depreciation and amortization increased by $2.2 million (14.2%) primarily due to the expansion of the Glo Fiber network[12] - Capital expenditures were $70.1 million for Q1 2024, compared to $67.5 million in Q1 2023[12] Financial Statements Financial statements show a net loss from continuing operations, offset by a significant Tower Portfolio sale gain, impacting assets, equity, and cash flows Unaudited Condensed Consolidated Statements of Comprehensive Income For Q1 2024, the company reported a loss from continuing operations of $4.1 million, a significant shift from a $0.7 million income in Q1 2023, primarily due to a tenfold increase in interest expense, but a substantial gain of $216.8 million from the sale of discontinued operations (Tower Portfolio) resulted in a total net income of $214.7 million, compared to $2.1 million in the prior year, with diluted EPS from continuing operations at $(0.08) and total diluted EPS at $4.21 Q1 2024 Income Statement Highlights (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Service revenue and other | $69,248 | $67,165 | | Operating (loss) income | $(2,776) | $306 | | Interest expense | $(4,076) | $(392) | | (Loss) income from continuing operations | $(4,090) | $741 | | Gain on the sale of discontinued operations, net of tax | $216,805 | $— | | Total income from discontinued operations, net of tax | $218,786 | $1,325 | | Net income | $214,696 | $2,066 | Q1 2024 Earnings Per Share (Diluted) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | (Loss) income from continuing operations | $(0.08) | $0.01 | | Income from discontinued operations, net of tax | $4.29 | $0.03 | | Diluted net income per share | $4.21 | $0.04 | Unaudited Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased to $1.45 billion from $1.21 billion at year-end 2023, driven by a significant rise in cash and cash equivalents to $389.7 million resulting from the Tower sale, with total shareholders' equity growing substantially to $871.6 million from $652.7 million, reflecting retained earnings from the divestiture Balance Sheet Summary (in thousands) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $389,735 | $139,255 | | Total assets | $1,445,922 | $1,214,229 | | Total liabilities | $574,642 | $561,559 | | Total shareholders' equity | $871,643 | $652,670 | Unaudited Condensed Consolidated Statements of Cash Flows In Q1 2024, net cash from operating activities was $15.2 million, down from $48.3 million in Q1 2023, while net cash from investing activities was a positive $238.5 million, driven by $305.8 million proceeds from discontinued operations (Tower sale) despite $70.1 million in capital expenditures, with financing activities using $3.2 million, ending the period with a cash balance of $389.7 million, a net increase of $250.5 million Q1 2024 Cash Flow Summary (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,158 | $48,324 | | Net cash provided by (used in) investing activities | $238,484 | $(67,570) | | Net cash (used in) provided by financing activities | $(3,162) | $23,581 | | Net increase in cash and cash equivalents | $250,480 | $4,335 | Non-GAAP Financial Measures Adjusted EBITDA remained stable at $19.3 million in Q1 2024, with a slight margin decrease, serving as a key supplemental performance metric Adjusted EBITDA Reconciliation The company uses Adjusted EBITDA as a supplemental performance measure, which for Q1 2024 was $19.3 million, nearly flat compared to $19.4 million in Q1 2023, with the Adjusted EBITDA margin slightly decreasing to 28% from 29% in the prior-year quarter, reconciled from net loss from continuing operations by adjusting for depreciation, amortization, interest, taxes, and stock-based compensation - Adjusted EBITDA is defined as net income from continuing operations adjusted for items like depreciation, amortization, interest, taxes, stock compensation, and transaction costs[20] Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | (Loss) income from continuing operations | $(4,090) | $741 | | Depreciation and amortization | $17,443 | $15,269 | | Stock-based compensation | $3,966 | $3,717 | | Adjusted EBITDA | $19,251 | $19,423 | - Adjusted EBITDA margin was 28% in Q1 2024, compared to 29% in Q1 2023[24] Supplemental Information Supplemental data highlights significant growth in homes and businesses passed, broadband RGUs, and ARPU, particularly within Glo Fiber markets Operating Statistics As of March 31, 2024, total homes and businesses passed reached 476,081, a significant increase from 377,348 a year prior, driven by Glo Fiber market expansion, with total broadband RGUs growing to 155,687, Glo Fiber market penetration increasing to 18.0% from 17.4% YoY, while Cable Market penetration slightly declined to 50.3% from 51.8% Homes and Businesses Passed | Market | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Total | 476,081 | 377,348 | | Cable Markets | 216,514 | 212,290 | | Glo Fiber Markets | 259,567 | 165,058 | Broadband Data RGUs and Penetration | Market | RGUs (3/31/24) | Penetration (3/31/24) | Penetration (3/31/23) | | :--- | :--- | :--- | :--- | | Total | 155,687 | 32.7% | 36.8% | | Cable Markets | 108,958 | 50.3% | 51.8% | | Glo Fiber Markets | 46,729 | 18.0% | 17.4% | Residential and SMB ARPU For Q1 2024, total Residential and SMB revenue grew to $56.5 million from $51.8 million in Q1 2023, with broadband data ARPU increasing to $83.83 from $81.09, a notable rise in Glo Fiber Markets ARPU to $81.39 from $74.18, and video ARPU also seeing a significant increase to $116.19 from $105.51 Average Revenue Per User (ARPU) | Service | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Broadband Data | $83.83 | $81.09 | | - Cable Markets | $84.81 | $82.83 | | - Glo Fiber Markets | $81.39 | $74.18 | | Video | $116.19 | $105.51 | | Voice | $24.77 | $25.25 | Residential and SMB Revenue by Service (in thousands) | Service | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Broadband Data | $38,581 | $33,174 | | Video | $14,394 | $14,645 | | Voice | $3,023 | $3,030 | | Total Revenue | $56,488 | $51,759 |