Shenandoah Telecommunications Company Stock

And for those of you that I haven't met yet, I'm Mike Rollins, and I'm joined with my colleague, Roberta Versiani, and we cover the communication services and infrastructure stocks for Citi. It's a real pleasure to welcome Ed McKay, President and CEO of Shentel. Ed, thank you so much for being with us today.

Appreciate it. Great to be here at the Citi, and thank you for the invitation and the hospitality.

Great. So just to get us started, maybe for those less familiar with your business, you can share a little bit about your strategy, your focus and the key priorities, not just for the remainder of this year, but as you're looking out over time?

Sure. So Shentel, long-term operator founded in 1902 as a local telephone company. We've evolved into a cable company and then now a Fiber First company. As far as our big priorities, we've been building out our Glo Fiber fiber-to-the-premise network since 2019. It's a major construction project for us. By the end of the year, we'll have over 510,000 fiber passings. So a major priority for us is wrap up construction by the end of the year.

Another big priority is continue to grow our commercial fiber business. We now have almost 20,000 route miles of fiber stretching from Chicago to the Washington, D.C. area. We've had a lot of success with enterprise mid-market customers. Our wholesale and wireless carrier business for backhaul services is growing significantly. We also think we have a new opportunity for some data center connectivity as well. So that's a big priority. And then the third priority is operating efficiently, keeping our operating costs steady as we grow our top line revenue with our fiber businesses.

And talking a bit about your financial outlook. So your 2026 guidance is targeting roughly 4% revenue growth and 12% EBITDA growth at the midpoint. What's the formula to get there? And is that -- is it sustainable for you to keep EBITDA growing faster than revenue in the long term?

Yes. For the short to midterm, definitely sustainable. In our Glo Fiber markets, current data penetration, about 21%. So we're targeting 37% penetration in the midterm, 5 to 7 years after we launch market, and we're well on our way to reaching that. So we have a lot of opportunity for organic growth in our business. When you look at our combined fiber business, our commercial fiber business and our Glo Fiber business, revenue grew 21% over the past 12 months. And when we look at our Glo Fiber subscribers, they grew 31% over the past 12 months. So we certainly have a good organic growth trajectory there in the short to midterm.

So when you think of the company and investors do their work, should they think of your company really as 3 businesses. So you have the incumbent cable business, you have the kind of historical telecom and fiber markets, but then you've got these expansion markets. So let's group them together. So incumbent cable and fiber, the expansion markets, where you're new into those regions. And then the third would be business and enterprise. Is that a fair way to think about SHEN?

Yes, I would recommend viewing it as a sum of the parts. So the Incumbent Broadband business, which is, again, the cable and the telco and then the commercial fiber business and then our Glo Fiber business. Our fiber business is now 51% of our total revenue. So we've become a fiber dominant company. In the second quarter, for the first time, that was when our fiber businesses overtook our Incumbent business from a revenue standpoint, and we expect that trajectory to continue.

And going back to the 37% fiber penetration target, that's for the midterm, right? Where do you see it going long term? And also, are you seeing any changes in trends in fiber as you have more overbuilders entering the market, and also now satellite?

Sure. So long term, we see upside from that 37%. When you look at our oldest cohorts that were built back in 2019, 2020, we're seeing some of them over 40% penetration now, and that number continues to grow. So we think long term, our fiber technology is superior to the cable competition. So we think there's a significant upside there.

As far as competition from satellites, I would say the impact has been minimal so far. In the first quarter, we did see a small impact in our very rural cable markets. And at that time, Starlink was basically giving away free equipment. They also had highly promotional pricing in place ahead of their IPO. But since then, we've seen them back off on the free equipment and the promotional pricing. But really, no -- virtually no impact in our Glo Fiber fiber-to-the-home markets, very little impact in our more dense cable markets. The only place we really saw any activity was in the very rural cable markets.

And since the first quarter of this year, that impact has declined. And we've also rolled out new pricing plans in those very rural markets to give customers more value. So in those markets now, a Shentel customer, they can get twice the speeds as Starlink at a lower price. So we think we're positioned very well to compete there. And again, virtually no impact in our fiber-to-the-home markets, which are becoming our largest part of our business.

And just a follow-up. How is the competitive environment different between residential and your business segment?

In the Glo Fiber markets, sometimes there is more commercial competition. There may be another third party in there providing commercial fiber services. In some cases, a local telephone company still has copper for their residential customers, but they actually have fiber for business customers. So I'd say a little more competition in some markets for commercial. But with commercial, a small business customer in our Glo Fiber markets, they have twice the data ARPU as a residential customer. They also have a much higher take rate on phone services and they pay more for those phone services, so even at a lower penetration rate on commercial fiber, we -- small business customers, we still get similar returns or even better returns in some cases at a lower penetration rate versus a higher penetration rate in the residential areas.

And as far as other fiber competition, we've built out Glo Fiber in smaller Tier 3, Tier 4 markets. And we -- our goal was to be the first fiber provider in those markets. So we have very limited fiber competition in those markets. When we built Glo Fiber into a new market, we've never seen a fiber overbuilder come in after us and deploy fiber. Now we have seen the local telephone company upgrade to fiber in some cases, but that's been a relatively small portion of our passings, only 12%, maybe 13% of our passings. So 87%, 88% of our Glo Fiber passings, it's duopoly. It's us and one of the big cable folks as the only wired broadband option.

So one of the interesting things, you guys give a lot of transparency on how the Glo Fiber has been doing across your, I guess, we'll call them vintages. From the launch time of fiber into that market, you've been giving the Street regular updates on how the penetration is trending. And what I've noticed in that chart is not surprisingly, generally, right, the longer you're in a market, the more penetration you have. But there are some kind of valleys along the way, some nonlinearity. What causes that nonlinearity to happen and recognizing that you run a business, not a spreadsheet, and where we look at spreadsheets. And how do you get those markets back to that regression line, so to speak?

Sure. So we do pay very close attention to our cohorts in that penetration curve. The sort of -- some of the valleys you may see in that penetration curve, some of that is due to competition. In a few of the cohorts, they were in Brightspeed markets. Shortly after we built those markets, Brightspeed upgraded to fiber-to-the-home. So that slowed down our penetration curve, but that penetration curve in those markets continues to grow. And again, that's a very small percentage of our passings. It's only about 6% of our passings overlap with Brightspeed and their fiber-to-the-home upgrades.

Another area where you'll see some slightly depressed numbers on the penetration curve is in the commercial passings. So with commercial passings, that penetration curve is typically slower. We talked about potentially additional competition, but also, in some cases, those commercial customers are under contract. So we have to wait for that contract to expire before we have a real opportunity to win that business. So those are the two main factors. Demographics also play a role in some of the cohort penetration curves.

And when we look at the markets, we look at the demographics, and we have a target penetration in a more -- a higher income market, maybe in the low 40% range that we're targeting, lower income market, maybe in the low 30% range. But in either case, we can get the same IRR. We're targeting a 15% plus internal rate of return, and that's unlevered. So on a levered basis, that's 20% plus. But those higher income markets, they're typically less dense, larger lot sizes, underground utilities, higher cost to pass, but we get a higher penetration rate and those customers tend to go upstream, taking higher speed services.

And when you're selecting a new market, what are your -- how do you decide which market to continue investing in fiber in the coming years? And also, what are the characteristics you think about when you also consider exiting a specific market?

Right. So I'd say we don't have any plans to exit any of our markets. And really, as far as new markets, we've already claimed all of the markets we want. So we're winding down construction at the end of the year. But when we selected our markets, competition was the first factor. Again, we had to be the first fiber provider in that market. So that was a key for us. And given the limited fiber competition we have now, we think we selected well.

In addition to demographics, the other big factor is the cost to pass. How much of the -- how dense is the market, how much is underground versus aerial. And a big factor is the cost to attach to poles. We ran into several markets where the power company was basically trying to charge us an outrageous rate for the permits and make-ready. And unfortunately, we had to back out of those markets because we couldn't hit our target returns with those high make-ready costs. But we've been very disciplined as far as our construction, and we were not trying to hit some large number. The key was selecting markets where we could hit our target return thresholds.

Got it. And let's talk a little bit about your pricing power. How has your pricing strategy evolved over the last few years? And how do you think about customer segments and which customer segments are you most focused on today?

So we're really a share taker at this point. So we've kept our pricing constant really since we launched service. We have not raised rates since we launched service back in 2019. Now we have given customers more value. We've given them higher speed for the same price. We've had a tremendous amount of success at the middle to high end of the market. 80% of our customers take speeds of 1 gig or higher, and that includes about 19%, taking 2 gig, about 5% taking 5 gig [indiscernible] that's helped us maintain our ARPU even though we've actually started to offer 5-year price guarantees in some cases.

So it seems like the category -- when we look at the last couple of quarters, Broadband ARPUs in general, just across the board have been softer. And I think the market is trying to understand, like are we hitting like a resistance point in terms of just what customers are spending relative to the history of Broadband ARPUs where they're significantly up because of tiering and because of different price actions, partly or largely from cable? Or is this just a temporary low? Like you're trying to, as you mentioned, get your share, get it up. And then at some point, you're going to return to trying to get price and create that balanced P x Q math to drive revenue.

Yes. Ultimately, I believe we have pricing power. We have a superior product, higher speeds, lower latency, higher reliability, and we certainly believe we have better customer service than our competition as well. So over time, we believe we have that pricing power as we take more market share. But when you look at the ARPU, our large cable competitors last year started offering 5-year price guarantees. So we started offering that as well. Now when those guarantees expire, the revenue goes up by about $15 per customer. And also with our 5-year price guarantee, that's just for the Internet service itself. We also offer equipment add-ons. And that equipment add-on is free for only 12 months. After that, it goes to our rack rate, which is $12 for the basic Wi-Fi and then $5 for each repeater unit. So we have some upside there as customers roll off of that initial free equipment offering that goes along with our 5-year price plan.

And then also, more recently, we've started experimenting with a shorter price guarantee term. So I think there are some options there where we don't necessarily have to lock ourselves in for a 5-year plan.

Just out of curiosity, so when you introduced these price locks, what effect did it have on sales, retention? Where did you see the benefit? And were there places where customers are like, it's nice, but that's not my concern as to why I'm looking at buying one service over another or staying with one service over another?

I think when the cable guys first launched their 5-year price guarantee, we did see a little impact on gross adds, no impact on churn. But then once we launched our 5-year price guarantee, we saw that impact from the cable gross adds go away completely. And in fact, our gross adds went up as a result of that. So we feel good about where we're positioned. And I mentioned we've had success at the middle to high end of the market. It seems like cable has sort of gone downstream in many cases, focusing on the lower-tier customers with some of their more aggressive pricing. And we're glad to stick to the higher end of the market.

Staying on the topic of competition, how are currently the incumbent cable operators responding to your Glo Fiber products? And do you see any impacts from converged offers in your markets since you don't have the wireless offer bundles?

Yes. I would say, for the most part, the cable competitors have been rational with their pricing. We have not seen any extreme pricing changes. They have been trying to push the bundle with the mobile service, and we don't offer mobile service. We don't feel like we need to offer mobile service. Our sales team is not telling us that they need that to be effective selling. And believe me, they would scream if they thought they needed that as a product. And also, we're not seeing any churn that we can really measure to the cable companies because they -- we don't have a wireless offering. So right now, we believe we can continue to add customers, drive penetration without having that mobile offering. Again, we think we have a superior product that competes extremely well against cable.

And in terms of fixed wireless, just any incremental incursions or as these companies get more spectrum and they light it up, they have the potential to offer more service to the homes and businesses?

We continue to see very limited impact from fixed wireless in our markets. And I think we do have an advantage with our markets with the terrain. We have hills, mountains, large trees. It does make offering fixed wireless more difficult. We were previously a wireless network provider as a Sprint affiliate providing mobile services, and we offer our own fixed wireless. I can tell you from experience in our markets, and particularly with mid-band spectrum where all the capacity is, it is difficult to offer fixed wireless service, particularly when you're -- the wireless guys are offering it with a device you put in your window. When we were offered fixed wireless, we actually installed an antenna on the roof to get the signal in there.

So I think because of the terrain and the foliage that impact has been somewhat muted for us relative to some of our peers who are in the Midwest with flat terrain or in larger cities with MDUs where you can get basically line of sight for fixed wireless into a building.

And what are the biggest drivers of churn today? And what's your retention strategy?

In our Glo Fiber markets, the biggest driver of churn is customers moving. Again, customers moving out of the market. And in our churn numbers, we also include customers that move within our market. So if you back out customers that move within our market from one address to another address, our churn is even lower, we see very low churn to competition. And I think one of the reasons for that is we really focus on customer satisfaction. Every interaction that our customers have with Glo Fiber and Shentel, they have the opportunity to provide feedback through a customer satisfaction survey. So whether that's tech support, customer service, a technician visit to the home, we take those survey results very seriously and are working to constantly improve. And I think we've seen the results in our Net Promoter Score. We've seen historical Net Promoter Scores in the 60 range compared to our competition on the cable side, we think that is much higher.

So when I think back to your recent history, you took a step that was a little bit of a TAM expansion relative to the resi and small business fiber by buying some assets focused more on fiber infrastructure, right, in Ohio. And so you become even more broadly focused on the business segment within some of your markets and adjacencies. What are you seeing in terms of the trends and opportunities there to grow that business, expand margins? I welcome your perspective on what you're seeing, especially as we're on this early part of a journey of this AI adoption cycle.

Sure. So we acquired Horizon Telcom based in Ohio in April of 2024. That basically doubled the size of our commercial fiber business. That integration has gone very well from our perspective. We had more synergies than we expected, and it has really allowed us to grow our commercial fiber business. With the larger scale with a network now stretching over 8 states, we're now able to get more attention from the wireless carriers. So we see more wireless carrier opportunity now than I think either company would have seen on a stand-alone basis. So that's a big opportunity to continue to grow. The other big opportunity is with the data centers and the hyperscalers. We're fortunate that our network in Ohio is an area where a lot of hyperscaler data center activity is occurring. So the area from Columbus down into Southern Ohio, we have a lot of fiber assets there currently. We're also seeing a lot of activity in our Virginia markets.

So we think we have the opportunity there to leverage our existing fiber assets, existing conduits to serve hyperscalers. We mentioned on our earnings call, we now have a master service agreement in place with one of the major hyperscalers, so we're working on our first service orders for that. So it will take some time before that shows up as impacting revenue and EBITDA, probably 12 to 18 months after we sign a service order, because we, in many cases, need to construct fiber from our existing fiber routes to the data center. And in most cases, these data centers are still under construction.

But I think you'll see some early indicators. Quarterly, we report on our new sales bookings. I think it's likely that you'll see a significant increase in those new sales bookings as we get some of these service orders in place. But we feel very good about that opportunity. And that's really an incremental vertical for us. We really haven't seen revenue from that data center to data center connectivity in the past.

So just one more on this. So there's all different flavors of these revenue streams coming from hyperscalers. Some of these deals where there's significant CapEx involved, the hyperscaler funds a portion or more than 100% of that CapEx and then there's different accounting treatments as it comes through the telcos numbers. And then, of course, there's like recurring service, right, selling waves or just selling things on a monthly basis and just the traditional you build it and you charge for it. What do these revenue streams look like for your company? And is it going to be biased to one of these kind of flavors versus another?

I'd say that most of the conversations we've had now so far have been about dark fiber between the data centers. We've also seen some interest in some 100-gig, 400-gig wave services as well. And what we're likely to see, there will be a nonrecurring charge component to help, in our case, with the construction from our existing fiber to the data center or to possibly augment some of our fiber counts along the routes, but we also expect to see an ongoing recurring charge as well as part of these deals.

And we'll get into free cash flow more broadly in a moment, but does this impact the free cash flow trajectory that you're on?

I would say no. I mean, we've stated we target to be free cash flow positive starting in 2027. I think our data center builds that we are looking at right now, they're sort of a CapEx-light approach, taking advantage of our existing fiber we already have in place. This would not be a massive capital investment for a huge new fiber route, for example, it's taking advantage of that existing fiber, maybe augmenting in some cases and building off the endpoints.

And sorry, going back to your -- to the business segment. Within your current business offerings, are there any underappreciated aspects or opportunities, for example, any customer segments that could accelerate your revenue and profitability in business?

I mentioned growth with the wireless carriers. I think there's an opportunity there to see incremental revenue. Also on our small, medium business in our Glo Fiber markets, I think there's an opportunity to increase revenue there. Our penetration rate now is only about 12%. We think we can grow that significantly. We have some additional sales resources that are focused on that now. And then, of course, the data center hyperscaler activity, we have additional sales resources now that are dedicated to that. So I think the combination there, there is upside for our commercial fiber revenue.

When you look at the free cash flow opportunity for 2027, what are the principal drivers that get you to that inflection to go positive? But then also, how do you weigh generating positive free cash next year or growing that in the future, relative, if you're getting 15% unlevered IRRs and 20%-plus levered IRRs on your capital, why not just keep pushing the builds?

So as far as hitting that free cash flow inflection point, it's a combination of increased revenue from our Glo Fiber business as we drive penetration, increased revenue from our commercial fiber business. We couple that with the significant decline in our capital intensity. We've been spending a lot. We've invested over $600 million building out this Glo Fiber network. So as we wind the build down at the end of this year, that's going to significantly reduce our CapEx, likely cut it in more than half of what we're spending this year.

So those are 2 factors. And also, at the end of 2025, we refinanced our debt. So most of our fiber assets and revenue now are part of an ABS that significantly reduced our cost of capital and our interest expense. So the combination of all those working together as well as keeping our operating costs steady as we grow revenue, that's really how we get to the free cash flow positive position starting in 2027.

And as far as why not continue to keep building, we think in our markets for Glo Fiber Expansion, there's not a whole lot of new market opportunity where there's not already a fiber provider. We don't want to go chase a larger number if we can't hit those returns. So we believe there will be some fill-in in our existing markets and all -- our Glo Fiber markets are growing. So there'll be growth opportunities there as those markets grow, and there's additional passings constructed. But we don't see a lot of new market opportunity that's adjacent to us right now. Some of the fiber builders that are out there that are looking at these huge new passing targets, I'm not sure where they're going to come from, unless they're willing to build in areas that already have a significant amount of fiber.

And how do you think about M&A? As regional fiber consolidation continues, do you see yourself more as a buyer or a seller? And are there any -- what's your view on target size, geography or financial profile? How has that evolved?

So I do think there will continue to be consolidation in the industry. We could certainly position ourselves as a buyer. We think there's opportunity for some of the smaller regional fiber companies that are adjacent to us. We could add them to our Glo Fiber network and our ABS facility. If it's a smaller number of passings within our existing states that we operate, we would be interested. If we have to jump to a new state, for example, or a couple of states away, we would need at least 100,000 passings to make that make sense. But we want to stay reasonably within the same geography we operate today. And we've been very selective in our markets. The majority of our markets are connected to our fiber backbone, and we feel like we can operate that network efficiently. So we would not want to go jump across the country to a new region. We want to stay in that similar region.

But with our size, we feel we're positioned to continue to be a long-term operator, but there's always the opportunity for consolidation. And we would certainly -- our Board would certainly evaluate that, we want to do what's best in the interest of our long-term shareholders.

And how should investors think about how you're going to balance debt reduction, M&A opportunities, CapEx and shareholder returns?

Well, I mentioned CapEx comes down significantly. Our capital intensity, we're projecting between 25% and 30% next year. When we think about that, Glo Fiber is about 25% capital intensity because we're still adding customers and adding new fiber drops to the network. And in commercial fiber business, that's capital intensive because that's really success-based. So that will be probably 30% and declining over time as our business scales. But as we generate more free cash flow, we will certainly be opportunistic with acquisition opportunities, and we would look to really reduce our highest cost of capital. So we have a preferred stock that we would look at and then also our revolving credit facility on our Incumbent business. We would look to reduce that as well.

So your company is in one of these like really unique positions where -- yes, I'm kind of curious how it works when you're in your operational meetings because you have the role in some markets of being incumbent and having to respond to insurgency. And then you've got the other side where you're the insurgent and you're just looking to win over the incumbents. And so you might uniquely be able to answer this question, which is, is there a long-term equilibrium, where both sides at some future point can grow? Because that's the big concern, right? It's like, is there an equilibrium for cable? Or where does the insurgency go and how durable, sustainable that is. So when you look at these two different sides of the business and different strategies and competitive responses. What's your conviction that there's a future state where both sides are going to be okay?

So I do think there's still runway with cable. In our cable markets, they're primarily rural, low density. We have limited competition compared to our larger cable peers. So I think there's runway there. I do think we hit an equilibrium point, but I do think fiber is going to have the advantage. Fiber is going to have a larger share of the market because I do believe it is a superior technology.

Do customers appreciate that today? Like just anecdotally, like never have conversations about people who have friends, family, Broadband, like it's not -- I mean, if you're in the industry, I think everyone appreciates performance and speed. But is that appreciated that there's a difference? And also, again, a unique position of seeing both sides, as cable upgrades to DOCSIS 4.0 and potentially beyond, does that just mitigate any of the variances?

Well, I continue to think fiber will be the superior platform in terms of speed, latency and reliability. With the fiber networks, I mean, there's no electronic equipment between that POP site, which is backed up with generators and battery, and the customer home. Even going to DOCSIS 4.0, there's still other equipment in there, and it creates a reliability issue. So I think fiber will certainly have the advantage there long term.

Thank you for joining us today. It's great to see you. Thank you.

Appreciate the opportunity. Thanks.

Thank you all for coming out. I'm Mike Funk from Bank of America. I lead the North American telecom, data center and tower research team here at the bank. Really grateful to have Ed McKay from Shenandoah here again with us. So thank you, Ed, for coming out.

Thanks, Mike. Glad to be here. Always good to be in the city, certainly a little bit of a change of pace from the Shenandoah Valley of Virginia, but glad to be here. Thanks for the invitation.

Yes. We love to have you. So thank you again for that. I wanted to start really high level and something that's, I think, of interest and topical for the entire telecom ecosystem, and that's SpaceX and Starlink -- and Starlink has already been in the market with broadband for a while. They've been relatively successful. But with plans to launch the V3 satellites, I think internally, we're projecting something like 20,000 V3 by 2030. Their capacity is obviously going to expand materially, potentially allowing them to address a much larger market.

Our research, we show in the United States is about 20% rural, right, depending on the definition. And I believe that is the most natural addressable market for Starlink broadband given that it's a shared service. Now I realize not all your markets are rural or fit that definition, but where you operate and where you build is more kind of semi-suburban rural relative to, say, in New York City or Los Angeles. So a very long intro to get to a short question, which is, how do you think about the competitive threat? And how, if any way, does it change your plans or your strategy?

So to date, we've seen minimal impact from Starlink. The only place where we've really seen any impact at all is in our very rural markets. When we look at our fiber-to-the-home markets, virtually no impact from Starlink, even in our incumbent cable markets that are more dense, very little impact. It's only these very rural areas where we've seen an impact.

We believe we have a superior product. We can offer higher speeds, better latency, and we think customer service differentiates us as well. So we're certainly keeping an eye on that. In some of our rural markets, we have changed our pricing plans to make them more competitive. Right now, in our rural markets, customers can get twice the speed for a lower price than they can get with Starlink. So we have reacted, we've seen churn come down. Really, the peak churn we saw in these rural areas was in the first quarter. At that point in time, they were giving away free equipment, had heavily discounted promotional rates.

Since then, we've seen the churn levels come down. Part of that is they stopped the free equipment promotion, but also, I think our new rate plans have helped to decrease churn as well.

Okay. And what do you find most compelling to customers? Is it price? Is it the speed difference? Is it emphasizing reliability? What resonates most with your customers if you're doing your internal market research?

In the rural areas, we have some challenging demographics. It's more about price there. When you look at our Glo Fiber markets, which is now the vast majority of our passings, it's more about speed, low latency, reliable service. So we think there will be less of an impact from satellite in those fiber-to-the-home markets.

And then as you, kind of, move towards the end or you progress in the Glo Fiber construction phase and I guess, presumably greater focus on customer growth and cash generation, how do your operating priorities or focus change?

Sure. Well, we think we've built a very unique network. We've invested over $600 million building out our fiber-to-the-prem network. We first launched in 2019. But now is the time to fill up that network. So we are focused on driving data penetration in those markets. Current penetration rate is about 21% on average. We're projecting 37% penetration sort of midterm 5 to 7 years after we launch a market. So we believe we have significant upside from organic growth in the Glo Fiber market. So driving penetration there is the biggest priority.

We're also driving growth in our commercial fiber business. We now have almost 20,000 route miles of fiber stretching from Chicago all the way to the Washington, D.C. area. We're serving enterprise, mid-market customers. We're seeing growth in our wholesale and our carrier business as well. Also, we see an additional opportunity for data center connectivity in our markets. And then I'd say the third priority would be keeping our expenses under control and operate efficiently. As we're driving top line revenue from the growth in Glo Fiber and our commercial fiber business, our focus is on keeping our operating expenses constant so we can see some EBITDA margin expansion. So that those are what I keep emphasizing with the team in the coming year.

And I want to come back to the expense side and even the data center connectivity market opportunity, but I thought want to stay focused on Glo Fiber here for a second. So if you think about the return on investment, right, for fiber. And I think generally, ballpark people said kind of greater than 20% penetration is when you want to get to, to get to an adequate return. You're targeting 37%. But the other factors are obviously going to be price and then churn. So based on what you know now in your projections, where do you expect your return to go over time on the investment you've made? And I guess, what are the levers or variables that you're watching most closely for any risk to that return target?

So when we build our business case for a Glo Fiber market, we have a 15% IRR threshold, that's an unlevered IRR. So we're well on our way to hitting that target with our penetration curve. So we monitor our growth curve carefully since we launched in 2019, we had a predictable growth curve that our cohorts typically follow. That's been very predictable. From an ARPU standpoint, our ARPU has been very resilient. We've averaged between $76 and $77.

The key there is we've had customers going upstream as far as speeds. 80% of our customers now are taking speeds of 1 gig or higher, and that includes about 19% at 2 gig and another 5% at 5 gig. So some customers are going upstream. We've had tremendous success at the middle to high end of that market. And because of that, we believe that ARPU will continue to be resilient.

And on the disconnect that you see, you mentioned Starlink earlier and some of the discount of the free equipment. But what are you seeing from fixed wireless in terms of percentage of disconnects?

I would say minimal impact from fixed wireless. In our markets, there are some terrain challenges. We used to be a wireless operator in our market. I can tell you from experience, it is tough to operate fixed wireless, particularly with mid-band spectrum when you have large trees, heavy foliage, rolling terrain with hills and mountains. So I think we've been impacted less by fixed wireless than some of our larger peers that may be more in the Midwest with flat ground or in larger cities with MDUs where you can send a fixed wireless signal directly into a large building.

Okay. So you feel good about trajectory for the rest of the year then with your net additions given the competitive pullback you saw from Starlink, some of your own planned pricing changes in end market.

We do. We feel very good as far as our net addition trajectory. We had a record quarter for net additions in Glo Fiber last quarter. So we're feeling very good about our ability to hit our penetration targets.

And maybe you're better positioned than some of your peers that have been doing overbuilds or greenfield builds with fiber. But there has been a lot of talk about consolidation amongst fiber operators. What is your view on the need for consolidation among some of the emerging fiber operators? Do you think that happens -- and if not, what do you think the path is for the industry?

Yes. I think we're going to see more and more consolidation. I think that has already started, and we see that as a potential opportunity for us. There are some fiber-to-the-home providers within our region that we think maybe have not had the success that we've had with Glo Fiber. There could be an opportunity for an acquisition down the road for us to possibly roll up some of these other providers.

And then how do you evaluate valuation? I know some evaluate just in a simple cost to pass, right? They'll do a cost per home passed and if that's less than their cost to build, then that's an attractive valuation for them. How do you think about valuation of targets?

Well, some of it depends on -- when you look at the additional opportunity, it depends on the density of the market and that cost to pass, and this is important to demographics. We've noticed in the lower income areas, it's a challenge getting as high a penetration rate. But when we build our models, we assume different penetration rates depending on the market. For example, a higher income market, we may have a target penetration rate in the low 40% range. Lower income markets, it may be in the low 30% range. And those higher-end markets, it costs more to pass. We have larger lots, primarily underground utilities. In the lower income areas, smaller lots, primarily aerial facilities, and the cost to put the drop into the customer's house is typically lower because it's a shorter drop. So we can get the same returns in a higher income area with higher cost to pass as compared to a lower income area with lower cost to pass.

Because of higher penetration in the higher income area, you can presume and maybe even lower churn rates as well or lower moves or...

Lower churn, higher penetration and likelihood to go up to...

A higher speed.

Absolutely.

Higher speed. And I always wonder about that, you see a lot of marketing for higher-speed fiber tiers. And I know my own fiber usage, I know kind of the average fiber usage, I know what an HD stream takes. And it all comes in well below those multi-gig type of services that you're talking about. So what is the use case that is being sold to consumers for the higher-end tiers? And what are you seeing from the consumers that do trade up in terms of trading back down after having that service for a while?

We see very few trade back down once they've had the high-end service. A lot of Internet traffic is bursty. These higher speeds get you the data more quickly, especially with the upstream data now, remote work. We do think there is advantage. But to your point, if you're just streaming video, you don't need all that speed. But we -- some of it even the customers in these high-end areas, they want to have the fastest speeds. Bit of bragging rights for the gigabit plus speeds.

Kind of a Ferrari in the garage, right? Can only drive 60. I want to go back to the OpEx comment that you made earlier. So I hear from a lot of my companies about the, kind of, challenge of keeping costs under control. Right? Whether it's on the building side, it's hard to find skilled labor or even the white collar workers as well, we're seeing wage inflation -- so how are you controlling costs? And how do you plan to continue to control cost to drive higher operating leverage?

So a couple of things -- earlier in the year, we announced a reduction in force, about a 10% reduction in our workforce. Part of that was due to winding down our Glo Fiber construction at the end of this year. So we're going to start to see the benefits of that starting in 2027 -- we're also -- we also have several AI initiatives to improve our customer service and tech support call handle times. We're seeing positive results with those initiatives. We have another AI-powered initiative to reduce our truck rolls to proactively detect problems in the network so we can solve that problem before we have to send a truck out to the customer's home.

And can you remind me, have you said publicly what your margin expansion target is for the next 12 months or 24 months?

So 300, 400 basis points annually. We believe we have significant upside on our margin expansion.

And then you also mentioned, I want to come back to the data center connectivity business. And you're not the only one. Other operators, including Verizon, now have leaned in the data center connectivity. So what are you -- how large is the market opportunity? And then I have also heard from some people that the bidding process is, kind of, a lot more competitive for data center connectivity, meaning people are underwriting lower returns, right? Let me just address those two things, size of the market and then returns you're underwriting?

So we're in a bit of a unique position with our fiber assets in Ohio, our fiber assets in Virginia. There's significant hyperscaler data activity from Columbus down into Southern Ohio. We already have fiber network in place. There's significant activity in Virginia, where we already have fiber network in place. So we think the sweet spot for us is providing that fiber access quickly, and we can do that with a capital-light approach, taking advantage of our existing fiber and conduit, building fiber to the endpoints of the data center as opposed to having to build the entire route from scratch.

I don't want to give the specifics on the potential dollar amount, but we have signed a master service agreement with one of the large hyperscalers. Next step with that would be service orders. Now from the time we signed that service order to the time we see revenue and EBITDA, still probably about 12 to 18 months because we do need to build the fiber to the data center, the endpoints and also the data centers are still under construction in most cases. So we expect -- we can start to see an impact in the 2020 -- early 2028 time frame from a revenue standpoint. But you'll see that the impact closer as far as our new sales bookings. We report that on a quarterly basis. I would say there's an opportunity for a material increase in those new sales bookings with some of the opportunities we have in the pipeline.

And the structure of the contract, so some companies are structuring them where they receive cash upfront for the build and then obviously recognize that deferred revenue over time, right, flows through, but it's not a cash impact as it flows through a life of contract. Others obviously would pay for the build themselves and then you charge more on a recurring basis for the service. How are you structuring your contracts with the hyperscalers?

We would see a mix of that. We would likely see a nonrecurring charge upfront to cover, for example, our connection from our existing fiber to the data center and then an ongoing revenue stream as well.

Okay. And you mentioned Ohio earlier, headlines recently about SB Energy, planning to build a large multi-gigawatt facility in Southwestern Ohio, the Pike facility. Is that -- would that be an opportunity for you or something you'd be in discussions with thinking geographically, I think, pretty close to some of your Ohio assets.

Yes. Southern Ohio, we have existing fiber assets in place. So I think the data center opportunity there is certainly somewhere where we believe we can play.

And then just going back to the Glo Fiber markets, how should we think about the ramp from the 21% to 37% penetration? I know you mentioned, kind of, a record net add quarter in the most recent quarter. But is that going to be relatively linear? Or should we think about that being a lumpier trajectory from the 21% to the 37%?

So when we launch a cohort, we typically have 15% penetration after the first year. After 3 years, that jumps to 25% plus. And then after that, it's a gradual increase to that 37%. Some of our older cohorts launched back in 2019, '20, they're now at 40-plus percent penetration. And some of it depends on the mix of residential versus commercial passings in these cohorts. The business passings tend to ramp more slowly. Sometimes they're under contract, so it takes a little while to get that. But from a return standpoint, in a business area, we can actually get to similar returns with a lower penetration because our ARPU for the business customers is double the ARPU for our residential customers.

And can we just talk some metrics here for a minute? We've, kind of, talked about some of the pieces here, the net adds you talked about trading up to higher speed tiers. So can we talk about the components of revenue growth and how you're thinking about revenue growth, whether it's net adds, ARPU expansion from higher tiers or other factors like expanded markets and data center connectivity. And then maybe take us from that growth rate, kind of, how you're thinking about EBITDA growth and even growth in free cash flow?

So in Glo Fiber, we're a share taker right now. So the primary growth there is coming from net adds. As far as ARPU and pricing, we haven't increased our price for Glo Fiber since we launched service. Now we have given customers higher speed and more value for the same price. But as long as we're taking share, we're likely to keep that pricing consistent with what we have today. I think over time, we have additional pricing power.

I think we have a superior product from a speed standpoint, from a latency standpoint, I think we also have a superior product from a customer service standpoint. And then on the commercial side, most of our growth there is success-based growth. And when we sign a new contract, we're building to the customers, we believe we have significant opportunity there. We have over 90,000 locations that are near net within 0.25 mile of our fiber. We only serve about 6,000 of those locations today. So we think there's significant upside of taking advantage of our existing fiber network in those near network opportunities. So I think those are the big drivers of the revenue growth, as I mentioned earlier, focused -- we're focused on keeping our operating expenses constant, and that's going to drive the higher EBITDA and EBITDA margin expansion.

And then I guess beyond the EBITDA, how are you thinking about CapEx?

So as we wind down our build at the end of this year, we're going to substantially complete our Glo Fiber builds, substantially complete the government grant projects we've been working on. Our cash -- our CapEx is going to decline significantly. So with the CapEx declining with our revenue increasing with our operating expenses remaining constant, the goal is free cash flow positive starting in 2027. Another area that's helped us there, we have -- we completed a refinancing last year. We have ABS in place for our fiber networks now. So that helped us significantly from a cost of capital standpoint, and that's going to contribute to the free cash flow as well.

Okay. And of the enterprise locations and things in that category, I think, right? What is the cost to connect each of those locations?

It varies a little bit. Typically, in those near-net opportunities, $5,000 to connect them. If it's on our Glo Fiber network, it's much less. It's maybe $1,000 to connect them. Now we do success-based builds as well that are outside of those near net opportunities. And we do -- we build a model there with a target IRR. And again, we're targeting 15%-plus unlevered IRR. We don't typically do speculative builds. So we typically need to get an anchor customer before we will build. Sometimes we'll take a lower return on that initial customer and there's additional opportunity along the routes.

Okay. I asked earlier about the competitive threat from LEO for residential, yesterday, I think it was, just that AT&T announced an agreement with Amazon Leo -- for commercial or business broadband, right? So how do you think about LEO as the competitive threat or even affecting your builds given, say, $5,000 worth of connection affecting your business data connectivity.

I think in many cases, these businesses are still going to want fiber. Now they may have an alternate for a wireless connection but I think with the speed, reliability, I think there's still going to be a demand for fiber for these enterprise customers.

Okay. And then we talked a little bit about consolidation earlier. And you have expanded your footprint over the years. I mean, Ohio was an expansion market, correct? So how should we and investors think about the qualities of markets as you think about potential expansion? I mean, is it, kind of, that Midwest area? Is that the right geographic region? Or you wouldn't look more broadly? How should we think about the criteria?

Well, we're operating in 8 states now. We've launched the Glo Fiber service in 6 states. If we were to expand further, we would want to be geographically adjacent. We've built our network so that we can connect it together. So we do have some operating efficiencies within the region. I think other fiber-to-the-home providers have just built wherever they could get an agreement with the municipality to scatter it all over the place. We made a conscious effort to keep things more dense where we could have efficiencies with our field operations and we could connect these markets to our own fiber backbone for efficiencies as well.

Okay. And are there other size constraints that you think about for consolidation as being too small or too large? And then I guess, third part of that would be on the too-large side -- how should we think about leverage and how much leverage you're comfortable with and how you would think about financing any acquisitions?

So from a size perspective, if it's a smaller pure-play fiber provider that we could easily integrate and it's adjacent to one of our markets, we would do that all day long. If we were going to jump, let's say, to another adjacent state where we don't currently operate, we would want something likely larger, 100,000-type passings for that. And as far as leverage, I think the fact that we have an ABS in place could help us with a potential acquisition if we could bring those fiber passings into our existing ABS.

Okay. And presuming that you don't pursue large-scale acquisition and you obviously march towards free cash flow positive in '27, how do you intend to use that cash?

I would say, at this point, no definite decisions. I think at the top of the list, we have a preferred PIK. We would likely move that to cash as an initial step. But I think we would also -- we do think there's some acquisition opportunities. So we would want to keep some dry powder for that.

Okay. And then you mentioned our capital or CapEx coming down. I think you're saying falling below 30% in 2027, is that correct? Is that the correct target metric that you had?

That's right. 25% to 30%. When you look at our Glo Fiber capital intensity going to be about 25% in 2027. That will come down over time. It's still elevated because we have a significant number of homes where we're connecting fiber to the home for the first time.

Doing the drop.

That's right. Doing the drop, installing the optical equipment. As we get more homes wired with the drop, that capital intensity comes down. When you look at our commercial fiber business, that's more like 30% in 2027. But again, that's all success-based. As we get more scale to that business, I think that capital intensity comes down as well. And then in our incumbent business, it's about 25% in 2027 is what we're projecting as well. We have some elevated spending there also. One reason is we've built almost 25,000 government grant passings, previously unserved areas that's with fiber. So these are rural areas, long drops. So we're still hooking up a lot of those drops for the first time. So we have elevated CapEx there.

Also in our incumbent business, we're in the process of video service migration. We're moving from a traditional linear video over to IP streaming video. It gives our customers better service, more channels, network DVR, better guide -- but the real reason we're doing that is to free up capacity on the network so that we can offer higher data speeds to our customers. So that conversion will be wrapped up in 2027. Once that's complete, we'll see that capital intensity come down in the incumbent business as well.

Okay. And can you remind me if any of the areas you operate or adjacent to where you operate are the BEAD-eligible areas or areas are going to be addressed by the BEAD program?

There are -- we took a hard look at that. We did receive some BEAD funding in Ohio in our legacy local telephone company territory, but that's a very small build for us. We did not think it was worthwhile to pursue BEAD in many of our other markets. And another reason for that is we received American Rescue Plan Act funds to build out a lot of the unserved areas around our incumbent markets. So that's -- that gave us the passings we wanted -- there wasn't a whole lot left that wasn't covered by that, that would be eligible. So we're not going to be a big BEAD player.

What was it about the program that wasn't attractive to you?

Certainly, a lot more strings attached to BEAD than there were to the ARPA funds. And again, there really wasn't that much left. And when we looked at where we were investing capital, with our Glo Fiber construction, there we passed 80, 90 homes per mile of fiber we built. If you look out in these BEAD-eligible areas, you'd be passing less than 10 homes per mile. So it just was a lot of effort for not a lot of incremental passings, and that's why we decided to pass for the most part.

Okay. It makes sense. I wonder about the capital intensity for a second because to me -- and I understand you're ending a major build. So capital intensity is going to be higher. But even the target next year to, at least to my eye, seems relatively high versus a more traditional telecom company. So where can that go over time? Can you get to the -- can you get into the mid-teens over time? Is that a target longer term we should be thinking about?

Yes. We do get the capital intensity down in that range over time. Again, as we connect more drops, particularly in Glo Fiber, that comes down significantly.

Okay. And then the cost per drop, you mentioned a lot of the kind of spending right now is actually on doing the drop or kind of the final connection into the home. It's relatively labor-intensive. There's more equipment related to that as well. I am hearing a lot about, obviously, the labor cost pressure I mentioned earlier, but then also equipment pressure, right, whether it's fiber or other equipment that might be in the home -- so what are you seeing on the cost -- on the cost per drop?

So all in to connect a new customer between $750 and $850...

And that's for the drop?

That's for the drop and the labor and the equipment that goes into the home. But the drop itself, $250, $350, depending on whether it's aerial or underground.

Okay. And has that been relatively stable over time? Or have you been seeing any change in the cost?

We've seen the drop cost relatively stable over time. We've not seen a big increase there.

Okay. And then I guess, how can those costs change as we move forward? Because obviously, once you connect the home, when you have churn, that CPGA, the cost per gross add or the customer acquisition is going to go down. So how does that change over time?

Really, at that point, all we're replacing would be WiFi equipment in the home. So the cost would be 35%, 40% of what it was originally just to replace the -- potentially replace the WiFi equipment. And if we're installing the optical equipment in the home now, we're attaching it to the wall, leaving it in the house.

Yes. And maybe the ONT, I guess or...

The ONT, correct.

Okay. Perfect.

And as far as equipment costs, we've not seen an increase there. In fact, we've been able to keep our equipment costs steady. We've been going through an RFP process right now for our equipment and the customer prem equipment. So we're not going to -- we don't believe we're going to be seeing an increase there in the near future.

And where are you sourcing the equipment, the ONT and other equipment?

So, the ONT we use Calix and Nokia; for the WiFi equipment in the home, we use Calix and eero currently.

Okay. And you already mentioned some of the balance sheet and some of the cleanup or the things you've addressed there. What's left to do in the next 12 or 24 months?

Really, the next 12 or 24 months, it's all about driving penetration in the Glo Fiber markets and growing the commercial fiber business. In our incumbent business, it's about maintaining our customer base and ARPU. We don't expect to grow that incumbent business, but Glo Fiber and commercial fiber are the real growth engines.

Those are levers for the growth and then presumably keeping the ARPU relatively flat to hopefully some upward trajectory -- to ARPU as well, correct?

Correct. And just this past quarter, our fiber business has started generating more revenue than our incumbent business. So we're going to continue to see that grow. More and more of our revenue, more and more of our EBITDA is going to be driven by fiber as opposed to the incumbent business.

Okay. I'm going to open it to the audience for questions here. And one, and I'll ask one more, then there are microphones to go around as well, if anyone has any questions. So for Glo Fiber, you said you're finishing your build this year for Glo Fiber -- that's correct?

Yes, by the end of the year, we expect to have 510,000-plus Glo Fiber passings.

Okay. And who are the major competitors in those markets that you're seeing? Mostly cable companies still, you're taking market share?

Yes, primarily the big cable guys. We have very little fiber competition in our Glo Fiber market. 87%, 88% of our Glo Fiber passings do not have a fiber competitor. The only wired competitor is one of the big cable companies.

Okay. And so in your markets, I think the FCC broadband reports that, like, 75% of our markets have three or more broadband options. So in the markets where you compete, how many broadband options exist?

As far as far as in Glo Fiber, as far as wired broadband options, it's typically two.

It's you and cable.

Us and cable. And that's because we've targeted smaller markets. So we targeted smaller markets where there was less competition. And what we've seen as we've built out fiber in these markets -- we've never seen another fiber overbuilder come into our market, and we've seen a relatively small number of fiber upgrades by the local telephone company as well.

Okay. And you see that continued share gains from cable over time, marching towards that 37%?

Yes. And the majority of our gross adds are coming from cable.

Okay. I think we have time for 1 or 2 questions, if we have any from the audience. Okay. I don't see any hands. Great. We can go to wrap it up there. Thank you so much. I appreciate it.

I appreciate it.

Thank you for coming out.

Thank you.

Thank you. Good morning, everyone. Welcome to Shenandoah Telecommunications' second 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. Vice President of Corporate Finance for Chantel. Please go ahead.

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the second 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 be reviewing is included on the investor page on our investor.chentel.com website. 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 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. I refer you to slide two 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 that may cause our actual results to differ materially from these forward-looking statements. Additionally, we have provided a detailed discussion of various risk factors. in our FCC filings which you are encouraged to review. You are 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 Ed.

Go ahead, Ed.

Thanks Lucas. Good morning everyone and thank you for joining us today. Starting on slide four I'll share some of our second quarter highlights. The quarter included several important milestones for Centel and our Glow Fiber business. achieved a record 6,200 Glow Fiber Net Additions during the quarter, demonstrating continued strong demand for our service. We also surpassed 100,000 Glow Fiber data customers, representing 31.3% year-over-year growth and underscoring the success of our seven-year investment in fiber to the home. Fiber revenue, which includes both Glow Fiber and Commercial Fiber, grew 21.4% year-over-year in the second quarter, reflecting the strong momentum we continue to see across both fiber businesses. For the first time, our fast-growing fiber businesses represented 51% of consolidated revenue in the second quarter, exceeding the combined revenue for our incumbent broadband and RLEC businesses. Consolidated revenue for the quarter was $93.5 million, an annual increase of 5.5%, and adjusted EBITDA was $32 million, up 12.9% year-over-year.

This growth reflects the success in our Fiber First strategy we put in place years ago, including our early investment in fiber to the home starting in 2019, the expansion of our commercial fiber business through the Horizon acquisition, and our continued focus on driving sustained residential and commercial growth. Our operating footprint also provides a strategic advantage with close proximity to major data center hubs in Ashburn, Virginia and Columbus, Ohio. I would like to thank our team members for their dedication and execution in achieving these results. As we complete our fiber of the home build and position our business to return to positive free cash flow beginning in 2027, I'm excited about the opportunities ahead continue building on the momentum. Turning to slide five, we highlight our scale integrated broadband network that spans more than 19,800 fiber route miles across eight states with approximately 730,000 total broadband passings. On the map, all planned glow fiber markets have now been launched, and we've added nearly 97,000 fiber passings over the past 12 months. We remain on track to substantially complete our Glow Fiber expansion in 2026, reaching 510,000 passings.

On slide six, our sales and marketing team continues to drive strong growth across our Glow Fiber expansion markets. During the second quarter, we added over 6,000 new customers, a record for quarterly net additions, and nearly 7,000 total data, video, and voice revenue generating units. Our five-year price guarantee card, introduced in the second half of 2025, continues to drive interest and is supported by the expansion of our door-to-door sales channel. Over the past 12 months, we've added approximately 24,000 new data customers and more than 26,000 total RGU's. Total Glow Fiber Revenue Generating Units surpassed 117,000 in the second quarter, up 30% compared to the prior year. Moving to slide seven, second quarter construction was strong with more than 26,000 passings added, bringing the total to more than 475,000. Penetration rose to 21.1%, 20 basis point increase over the first quarter, and a 93 basis point increase year over year.

Penetration trends across our Glowfiber cohorts are shown on slide 8 and reflect blended penetration rates for both residential and small and medium business passings. We're expecting data penetration rates of approximately 37% five to seven years after launching a market. Most mature cohorts launched during the two years ending in the third quarter of 2021 have surpassed the five-year mark and currently average 35% penetration, providing confidence in our ability to reach our objective. In addition to providing the fastest speeds in our markets, we continue to focus on providing outstanding local customer service. As shown on slide nine, our average monthly churn was 1.21% in the second quarter, which continues to be among the best in the industry. As expected, seasonal customer move activity was elevated during the quarter. Almost half of our churn, or approximately 59 basis points, was driven by customers relocating.

Included in that figure are 13 basis points associated with customers who transferred their Glow Fiber service to a new address. We saw virtually no low-fiber churn to satellite providers during the quarter. Broadband data average revenue per user for the second quarter was down slightly sequentially year over year to just under $77. We continue to have success selling up the rate card and differentiating our offerings through faster speeds than our cable competitors. Customer demand for higher speed products remains strong, with more than 80% of new residential customers in the second quarter selecting speeds of 1 gig or higher, including nearly 19% choosing 2 gig service and almost 5% choosing 5 gig service. Our commercial fiber business is highlighted on slide 10. In the second quarter, incremental monthly sales bookings exceeded 180,000, driven by strong demand across commercial and enterprise customers, including wireless carriers, wholesale customers, and school systems.

Our service delivery team had a strong quarter, installing 209,000 in new monthly revenue, and the exceptional customer support from our sales and network operations teams kept average monthly compression and disconnect churn very low at 0.4%. Turning to slide 11, we ended the second quarter with more than 110,000 broadband data customers in our incumbent broadband markets, a modest decline of less than 1% year over year. While total RGU's declined at a faster rate, the decrease was largely attributable to expected video subscriber losses as consumers continued the industry-wide shift towards streaming services. Total broadband passings in our incumbent markets increased slightly quarter over quarter, and we expect to complete approximately 1,100 additional government-subsidized fiber passings in the second half of 2026, primarily in West Virginia. As shown on slide 12, our recently constructed subsidized passings represent a strong growth opportunity for our incumbent markets, and data penetration has exceeded 40 percent within 18 months of a neighborhood launch. The average penetration of our 2023 cohorts is over 59%, with the oldest cohort reaching more than 72%. We've already achieved an aggregate penetration of 40% across 23,000 subsidized passes.

Moving to slide 13, broadband data monthly churn increased modestly in the second quarter to 1.73 percent. The increase was driven by a combination of normal seasonal move activity, wired broadband competition across roughly 35% of our passings, and softer demand in rural markets with weaker demographics as inflation continues to pressure household budgets. Customer moves contributed 65 basis points of churn, including 23 basis points associated with customer transfers to another Shentel service address. The impact from satellite competition declined from the first quarter and remained a relatively small contributor to churn. We saw further improvement in June and will continue to monitor competitive activity across all technologies. Broadband data ARPU declined 2.6% year over year to $81. As we previously disclosed, we introduced a more competitive rate card a few years ago in markets where we face wired broadband competition.

Those markets drove about a 1% decline in ARPU, consistent with recent quarters. Late in the first quarter, we introduced a new rate card in our rural markets where demographics are weaker and demand was softer. The pricing change reduced ARPU by an additional 1.6%, but it has already improved the satellite-related churn we saw in the first quarter. We expect the new pricing strategy to drive higher growth ads and further turn improvement over the coming quarters. Overall, we believe these changes will maximize long-term revenue by balancing subscriber growth, retention, and ARPU. I'll now turn the call over to Jim to walk you through our second quarter 2026 financial results.

Thank you, Ed, and good morning, everyone. I'll start on slide 15 with the financial results for the second quarter. Revenue grew 5.5% to $93.5 million, driven by another quarter of strong global fiber expansion market revenue growth of $6.5 million, or 32.8%, due to a 30-year growth in the 31.3% increase in data subscribers and stable year-over-year data arbitrage. Commercial fiber revenue grew 1.9 million, or 9.8% year over year. This growth was driven by a combination of recurring revenue growth in the enterprise and carrier verticals, a non-cash sales type lease of customer equipment in the second quarter of 26, and a negative non-cash deferred revenue adjustment for one of our national wireless carrier customers in the second quarter of 2025. Fiber revenue, the combination of our fast-growing GLOW and commercial fiber revenue, grew 21.4% to 51% of total revenue in the second quarter. the first time fiber revenue exceeded incumbent broadband markets and RLEC revenue. Incumbent broadband markets revenue declined 2.5 million, primarily due to lower video revenue from a 14.1% decline in video RGUs as customers continue to switch to streaming video services. and lowered data revenues due primarily to a 2.6 percent decline in data output.

RLEC revenue declined $1 million, primarily due to lower DSL revenue from a 31% decline in DSL RGUs and lower government grant support revenues. Approximately half of the decline in DSL RGU's was due to transfers to our own broadband service. Adjusted ETH dog grew 3.6 million, or 12.9%, to 32 million. driven by 4.9 million revenue growth and offset by 1.3 million higher operating expenses. Incremental adjusted EBITDA margin was 73% in the second quarter. Adjusted EBITDA margins increased 200 basis points to 34.3% in the second quarter of 26 as compared to the second quarter of 2025. Turning to slide 16, we reiterate our annual guidance for 2026. We expect revenues of $370 to $377 million, adjusted EBITDA of $131 to $136 million, and CapEx net government grant reimbursements to be 220 to 250 million.

We expect second half 2026 revenue and adjusted EBITDA to be favorably impacted by continued high margin growth fiber revenue growth, similar to recent quarterly trends and lower operating expenses from the previously announced reduction in force. Moving to slide 17, we invested $146 million in capital expenditures in the first half collected $20 million in government grants for net cap back to $126 million. Net capex declined 18% to the first half 2025 due to decline in incumbent government subsidized construction. As of June 30th, construction was complete for 95% of the subsidized passings and 93% of our target globe fiber passings, with both projects expected to be substantially complete by the end of 2026. I'd now like to update you on our liquidity and debt maturities on slide 18. As of June 30th, we had $728 million in outstanding debt. 674 million of net debt. We have no debt maturities until 2029 and 78% of our debt is fixed rate, providing meaningful protection for potential increases in short-term interest rates.

Total available liquidity was 159 million. consisting of $24 million of cash and cash equivalents, $31 million in restricted cash as required by the ABS InVenture, $2 million available under the VFN, $75 million available under the revolving credit facility, 27 remaining reimbursements under government grants. In addition, the company has over $105 million of BFN commitments that are not available to draw as of June 30th. However, we expect the available VFN capacity to reach the commitment levels with continued growth in the secured fiber network revenues from the ABS entities. In summary, as noted on slide 19, we have three catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. low double-digit adjusted EBITDA growth rates driven by our FIDO businesses, declining capital intensity as we exit the construction phase of our business plan, and declining cost of capital after refinancing our debt in December 2025.

Thank you, operator. And we're now ready for questions. Thank you. If you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, please press star one one again. We ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question will be coming from the line of Christian Schwab of Craig Elliman.

Please go ahead.

Thank you. Congrats on the good quarter. I'm wondering if you could give us an update We kind of talked about it a little bit last quarter on the data center opportunity. I know in your geographical footprint, we got 20 data centers sitting in Ohio and we have a lot in Virginia and wondering if there's anything new to report there.

Hey, Christian, good morning. This is Ed. We don't have anything specific to report at this time. I will state that we're making progress there. We do have a master service agreement in place with a major hyperscaler that will enable them to potentially buy services in the future. So we're still confident in the opportunity going forward.

Great. I know I think you kind of talked about before that that you maybe would need multiple customers to really make a go at that, if you will. But since you do have an MSA with one, you know, is one customer,.

enough if the terms and opportunity is right? So the advantage we have, we have existing fiber and existing conduit in close proximity to some of these data centers. So that gives us an advantage where we can provide the service without having to make as significant a capital investment as other providers may.

Okay, fantastic. And then just as we do transition the business model from heavy cap backs, to CapEx Lite and free cash flow positive. I just wanted to confirm again that the target over the next couple of years is still kind of a 40% consolidated target. EBITDA margin target and 50% long-term, that's still accurate, right?.

Yes, Christian, that is accurate. We expect to grow EBITDA margins by 300 to 400 basis points a year for the next couple of years and expect that we have a clear visibility to get to 40% in a couple of years.

Excellent. No other questions. Thanks, guys. Thank you. One moment for the next question, please. And our next question is coming from Milana Pramod, correspondent of BWS Financial. Please go ahead.

Hey, good morning. So first off, could you just talk a little bit more about the competitive landscape? I know you were talking about the pricing solves some of your issues with satellite. Are you seeing any other encroachment in your market? Is the pricing list that you have now.

solving that issue. Good morning, Ahmed. You appreciate the question. We mentioned in the script we have about 35 percent of our incumbent broadband footprint that overlaps with a wired competitor. We believe we're priced competitively there. Our prices are typically lower than that wired competitor. competitor with similar bandwidth. And as far as the satellite competition, I mentioned the impact has been minimal. Really, the only place we saw any impact at all was in our rural markets. We believe with our new rate card, we're well positioned there.

Because the bottom line is we have faster speeds, we have superior latency, and we believe We have superior customer service as well. So we believe we are well positioned going forward.

Okay. And then could you talk about if you're increasing your sales efforts on the commercial SMB side and what the growth opportunity is there for you?.

So, we have added additional resources on the commercial side, and particularly on the SMB side as well. We are seeing good progress there. And we've mentioned previously, with the data center activity, we think this is basically a new growth opportunity for us above and beyond what we've traditionally seen. So, we're optimistic about that. about the growth. Okay, great. Thank you.

One moment for the next question. And our next question is coming from the line of Vakeesh Harlada of New Street Research. Please go ahead.

Hi, it's Rikash Hralka from New Street. Thanks for taking my question. I just want to go back to the satellite question. You mentioned that there was no impact on churn in 2Q. What exactly changed from 1Q to 2Q? Was it just your pricing? Did satellite pull back on marketing? Any color there would be very helpful. And then if we sort of flip that but the other way around, do you see a lot of satellite customers switch to Glow Fiber when you build fiber in a market where satellite was the only viable option?.

Yes, so as I mentioned during the script, no impact that was material at all in Glow Fiber, just a minimal impact in the incumbent broadband markets in the rural areas. So I think our new rate card helped bring satellite churn down in the second quarter. With our service, you can get double the speed for a lower price than satellite offers currently. That was certainly a factor, but I think satellite also backed off some of their aggressive promotions. They were giving away free equipment. That's now gone to a lease. They also had some low introductory rates. they backed off those as well.

So I think the combination of those two certainly reduced churn in the second quarter. And I mentioned we saw a significant reduction in June as well. So we think we're on a good trajectory there. And as far as our Glow Fiber markets with the satellite customers moving to Glow Fiber, think we have good visibility into that. So I think we're primarily gaining customers from the incumbent cable provider and then new customers moving into the area. I would say it's probably less of an impact from migrations from Starlink or some other provider to our service.

Thanks so much. You're welcome. Thank you.

Thank you. And there are no more questions in the queue. I would like to turn the call back over to Ed McGee for closing remarks. Please go ahead.

Thank you. We appreciate your time today and we look forward to updating you in future quarters.

This concludes today's programming. Thank you so much for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, everyone. Welcome to Shenandoah Telecommunications First 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, VP of Corporate Finance for Shentel.

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the first 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 be reviewing is included on the Investor page on our investor.shentel.com website. 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 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.

I 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 that may cause our actual results to differ materially from these forward-looking statements. Additionally, we provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are 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 Ed. Go ahead, Ed.

Thanks, Lucas. Good morning, everyone, and thank you for joining us today. Starting on Slide 4, I'll share some of our first quarter highlights. During the quarter, we released 22,000 passings to sales, bringing our total Glo Fiber expansion markets passings to 449,000. We added approximately 6,000 Glo Fiber net customers in the first quarter, a 9% improvement over the prior year period, and we now serve a total of 94,000 customers. Our Commercial Fiber business also delivered a strong quarter with 196,000 in sales bookings and revenue growth of 4.7% year-over-year. Collectively, these results demonstrate the excellent momentum we continue to see in our fiber businesses. We were also pleased with our first quarter financial results.

Consolidated revenues and adjusted EBITDA grew 4.8% and 15% year-over-year, respectively, and we remain on track to deliver positive free cash flow in 2027. Turning to Slide 5. We highlight our integrated broadband network that spans more than 19,000 fiber route miles across 8 states with over 700,000 total broadband passings. As shown on the map, all planned Glo Fiber markets have now been launched, and our primary focus is adding passings in our existing Virginia, Pennsylvania, Maryland and Ohio markets. We remain on track to complete our Glo Fiber expansion in 2026, reaching 510,000 passings. On Slide 6, our sales and marketing team continues to drive strong growth across our Glo Fiber expansion markets. And during the first quarter, we added approximately 6,000 new customers and nearly 7,000 total video, voice and data revenue-generating units.

Our 5-year price guarantee rate card introduced in the second half of 2025 is gaining traction, supported by the expansion of our door-to-door sales channel. Over the past 12 months, we have added more than 23,000 new data customers, more than 26,000 total RGUs as well. Total Glo Fiber revenue-generating units surpassed 110,000 in the first quarter, up 31% compared to the prior year. Moving to Slide 7.

First quarter construction was strong with over 22,000 passings added, bringing the total to more than 449,000. Coupled with the continued increase in homes passed, penetration rose to 20.9%, a 30 basis point increase over the fourth quarter and 150 basis point increase year-over-year. Penetration trends across our Glo Fiber cohorts are shown on Slide 8 and reflect blended penetration rates for both residential and small and medium business passings. We are expecting data penetration rates of approximately 37%, 5 to 7 years after launching the market, and our most mature cohorts launched in 2019 and 2020 have now exceeded this with an average penetration rate of 37.5%. In addition to providing the fastest speeds in our markets, we continue to focus on providing outstanding local customer service. As shown on Slide 9, our average monthly churn was 0.92% in the first quarter, which continues to be among the best in the industry.

Broadband data average revenue per user for the first quarter was stable sequentially and year-over-year at more than $77. We continue to have success selling up the rate card with nearly 82% of our new residential customers in the first quarter, selecting speeds of 1 gig or higher, including 18% choosing 2-gig service and 5% choosing 5-gig service. Our commercial fiber business is highlighted on Slide 10. In the first quarter, incremental monthly sales bookings exceeded 196,000, driven by strong demand from wireless carriers, wholesale customers and school systems. Our service delivery team installed 167,000 in new monthly revenue during the quarter and the acquired Verizon backlog that drove elevated installation activity in 2025 is now substantially complete. Average monthly compression and disconnect churn remained very low at 0.4% in the first quarter, reflecting exceptional support from both our network operations center and sales team. Turning to Slide 11.

We show our operating results for our incumbent broadband markets. At the end of the first quarter, we served more than 111,000 broadband data customers. Data, voice and video RGUs totaled more than 156,000 at year-end, down 4% year-over-year, primarily due to video customers moving to online streaming services. Total broadband passings in our incumbent markets stayed steady compared to the fourth quarter, and we expect to complete 1,800 additional government-subsidized incumbent grant passings in 2026, primarily in West Virginia. As shown on Slide 12, the recently constructed subsidized passings represent a strong growth segment for our incumbent markets with data penetration exceeding 40% within 6 quarters of a neighborhood launch. Average penetration in our 2023 cohorts is over 52% with the oldest cohort reaching 71%. We've already achieved an aggregate penetration of 37% across 23,000 subsidized passings. Moving to Slide 13.

Monthly broadband data churn was stable sequentially and up modestly year-over-year at 1.46% for the first quarter. The slight uptick in churn was due to promotional activity from satellite competition in some of our most rural markets without a fixed Wireline competitor. In these markets, we implemented a speed increase late in the first quarter, providing customers with higher speeds at the same price to better differentiate our service from satellite offerings. Across approximately 1/3 of our passings where we face another fixed broadband competitor, our rate card strategy of offering greater value with higher speeds at the same price continues to be effective at mitigating churn. As expected, broadband data ARPU declined 1.6% from a year ago to $82, driven by the addition of new customers with more aggressive pricing in our competitive markets. I'll now turn the call over to Jim to walk you through our first quarter financial results.

Thank you, Ed, and good morning, everyone. I'll start on Slide 15 with financial results for the first quarter. Revenues grew 4.8% to $92.2 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.4 million or 34.6% due to a 33.7% increase in data subscribers and stable data ARPU. Commercial Fiber revenue grew $900,000 or 4.7% year-over-year, driven primarily by growth among existing customers in the enterprise and carrier verticals. Incumbent broadband markets revenue declined $2.2 million, primarily due to lower video revenue from a 14.6% decline in video RGUs as customers switched to streaming video services and to a lesser extent, lower data revenues due to a 1.6% decline in data ARPU from a more aggressive rate card in competitive markets.

RLEC revenues declined $800,000, primarily due to lower DSL revenue from a 28% decline in DSL RGUs and lower government grant support revenues. Approximately half of the decline in DSL RGUs was due to customer upgrades to our broadband service. Adjusted EBITDA grew $4.1 million or 15% to $31.7 million, driven by $4.3 million in revenue growth and slightly higher operating expenses. Adjusted EBITDA margins increased 300 basis points to 34.4% in the first quarter of 2026 as compared to the first quarter 2025 due to a combination of high incremental margins in Glo Fiber, fewer lower-margin video customers and a favorable true-up related to a government grant. Turning to Slide 16.

We reiterate our annual guidance for 2026. We expect revenues of $370 million to $377 million, adjusted EBITDA of $131 million to $136 million and CapEx net of grant reimbursements to be $220 million to $250 million. Moving to Slide 17. We invested $75.8 million in capital expenditures in the first quarter 2026 and collected $11.5 million in government grants for net CapEx of $64.3 million. CapEx declined 16% compared to the first quarter of 2025 due to completing 91% of the incumbent broadband markets government subsidized builds to unserved areas in 2025. We have also completed construction of 88% of our target Glo Fiber passings as of March 31 and expect to complete the Glo Fiber expansion by the end of '26. I'd now like to update you on our liquidity and debt maturities on Slide 18.

As of March 31, we had $707 million in outstanding debt and $636 million of net debt. We have no debt maturities until 2029. Total available liquidity was approximately $195 million as of March 31, consisting of $44 million of cash and cash equivalents, $27 million in restricted cash, $18 million available under the VFN, $68 million available under the RCF and $38 million remaining reimbursements available under government grants. In addition, the company has over $117 million of VFN commitments that are not available to draw as of March 31. We expect the available VFN capacity to reach the commitment levels with continued growth in the secured fiber network revenues from the ABS entities.

In summary, as noted on Slide 19, we have 3 catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. low double-digit adjusted EBITDA growth rates driven by our fiber businesses, declining capital intensity as we exit the construction phase of our business plan and declining cost of capital after refinancing our debt in 2025.

Thank you. And operator, we are now ready for questions.

[Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial.

First question is just, are you seeing any changes or challenges in adding subscribers given the competitive nature that you're talking about in your markets?

In our Glo Fiber markets, we're not. Our net adds were up 9% over the first quarter of 2025. So we're very pleased with our progress there. We did mention in our incumbent markets, we did see a little bit of churn to Starlink with some of the promotional offers they launched in the first quarter. But other than that, we're on plan as expected.

Okay. And then as far as the change of goes ending your construction phase and going into more of a subscriber growth phase here, are you going to be increasing marketing expense? Or is this -- should we expect just CapEx to decline and it's just going to be incremental here to cash flow?

Yes. I would expect marketing expense to be similar and the primary impact will be the decline in CapEx.

Our next question comes from Christian Schwab with Craig-Hallum.

Yes. Congratulations on the solid results. On your ASP on the Glo Fiber business and the recent areas and trends of moving from just not just 1 gig speed or higher at 82%, but having people want 2% and 5%. Do you think those trends are sustainable over a multiyear period? And do you have any target expectations for customers' needs for higher speeds at 2 gigabytes, excuse me, and above as your penetration rates go to your target levels on the fiber that's been laid in the last few years, meaning your blended ASP at $77, I think in most markets, your 1 gig product is priced around $65. So do you see ASP trends in that business increasing over time? Or is it too early to tell?

I'd say medium term, we are offering 5-year price guarantees on the higher speed tiers. But longer term, I think there's opportunity there. And we were very pleased with the speed mix in the past quarter. The demand is out there for those higher speeds, and we do think that's sustainable going forward.

Okay. Fantastic. And then on the commercial fiber business, could you just remind us what your growth objectives are there and how you see that market over a multiyear time frame doing for you? And the potential for you to add additional subscribers?

Well, I'll start, and then I'll pass it over to Jim. One opportunity we do see is with the data centers moving out to our more rural areas, we think that's an additional opportunity for incremental revenue. We're really not playing in the hyperscalers space today. There have been several data center announcements in our markets. We think we certainly have the opportunity to win our share of those services, and that would be additive to our current revenue. And I'll let Jim talk a little about the growth projections.

Yes, Christian, we're generally expecting mid-single-digit revenue growth rates from the commercial business over like a 3- or 4-year period. It's important to note, this is a little bit of a lumpy business. Some of the larger deals like what Ed mentioned that we're working on, on the hyperscalers and some of the carrier business tends to be a little lumpy. But we do have -- each quarter, we're adding more enterprise customers along the way as well. But yes, we think there's a nice growth opportunity here in the mid-single-digit growth rates.

Great. And then a follow-up on the data center for clarity. Can you just remind us of the miles of fiber that you have and the connectivity potential that you have in data center so people can understand maybe potentially a little bit better why data center customers would be coming to you?

So 19,000-plus route miles of fiber in total. Our fiber network stretches from Chicago all the way to the Washington, D.C., Ashburn, Virginia area. We get major markets in between like Columbus, Ohio, like Pittsburgh. And we have many unique fiber routes. So as these data centers move out further from the metropolitan areas, seeking areas with land and power, we believe we have the opportunity to take advantages of those unique fiber routes that we have and gain some of that business.

Can you give us an idea what the revenue potential would be not this year, but over a multiyear time frame, given that trend as data centers move out a little bit away from metro into rural areas that might want to take advantage of your 19,000 fiber miles. Can you give us an idea of the revenue potential, not an estimate, but maybe an aspiration or goal that you guys may have for that market?

Yes, Christian, I think it would be a little premature to get into revenue expectations. But I can tell you, there is about 20 data centers being either built or being built close to our fiber in the 8 states that we operate in. So not clear to me whether all of them are actually going to get built. But if they do get built, we think we're in a prime position to win some business.

[Operator Instructions] Our next question comes from Vikash Arlaka with New Street Research.

There's a lot of concern among broadband investor base around pricing power and broadband ARPU growth for the industry. Do you think that broadband businesses have pricing power today? Or are we entering a period of deflation for the business? And then I have a follow-up.

So I'll say in our Glo Fiber business, we're expecting fairly flat ARPU in the near term. I think over time, we do gain that pricing power. And then our incumbent business, we mentioned earlier, as we've seen some competition in our markets, we have seen a slight decline in ARPU there. So it's -- I think it's a bit of a mix depending on which business you're looking at.

Add to that. In our incumbent business, about 2/3 of the passings, we are the only fixed wireline provider. So we do think we have some pricing power there as well.

Got it. That's helpful. And then I just wanted to go back to your comment about increased competition from Starlink during the quarter. It sounds like the competition was mainly because Starlink had some promotions. And so did you lose customers on the growth add side or churn or both? And do you see this competition as continuing from here? And if so, what's your plan on addressing this increased competition?

So we only saw the impact in the most rural areas of our incumbent broadband market. We saw really no impact in Glo Fiber and no impact in the majority of our incumbent passings. So what they started offering in the first quarter was $15 off for 4 months as a promotion. But I think the biggest factor was they offered free equipment. It was previously $350 , so we'll see how long this lasts. They could be offering these promotions in preparation for a potential IPO later this year. But we have the ability to increase speeds. So we've done that. Late in the first quarter, we increased speeds significantly in our rural incumbent areas. Most of those customers that left were on legacy rate cards. So we've given those customers more value for the same price, and we think that will help mitigate.

Our next question comes from Christian Schwab with Craig-Hallum.

Yes. Just a quick follow-up on that. Just on the Starlink promotion in your most rural market, these are very slow speeds. Can you just quantify a little bit more clarity around your commentary to compete with Starlink, how you increased -- give us an idea of what speed you were operating at to what speed you can move customers to compete with Starlink because this really isn't the competition for fiber at 1, 2 and 5 gig speeds.

Yes. So in all of these markets, we have the ability to offer gigabit speeds. And I think it was a -- customers were looking for a potentially lower-priced alternative. But when you compare our pricing to Starlink's pricing, after that promotional discount expires, we're actually favorable from a pricing standpoint and a speed standpoint. So we'll see how long these customers stay on Starlink. We certainly think we have the opportunity to win some of those back as well.

Thank you. I would now like to turn the call back over to Ed McKay for any closing remarks.

Thank you for joining us today. We look forward to updating you on our progress in the future quarters. And operator, that concludes our call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Great. Let me just start with this quick disclaimer. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Jim, thanks for coming back.

Yes. Thanks for having me. Great to be in San Francisco again.

Excellent. We like having you at this conference. Let's start with Glo Fiber. Why don't you give us an update on the build-out. I think you ended 2025 with 427,000 homes passed. Are you still on track to substantially completing the build in calendar 2026? And what does the final build look like for you?

Yes, Jon, we're well on track to substantially completing the build. We expect to end '26 with about 510,000 fiber-to-the-home passings and we exited -- the fourth quarter was our best quarter last year. We have good momentum going into this year. So we're in a good place on that side.

And you've talked about terminal penetration rates in the high 30s. What's the time line to reach that target terminal penetration rate?

Yes. In most markets, we get there in 5 to 7 years after we launch a market. Now there's been a couple of markets, very isolated situations where the telco built fiber after we launched service. There, we're likely to probably be getting more like low 30% penetration. The telco is taking some share there. But we have a portfolio of about 30 different markets across our 7 states that we operate Glo Fiber in. We're going to have some markets that do better than others. But collectively, we're very confident that we're going to be able to hit the 37% collectively across all the markets.

You've touched on competition. Maybe let's go there for a second. You've highlighted previously that in almost 90% of your markets, you only have one competitor. How have you seen that number evolve over the last several years? And what's your -- as you think about these new build markets, are you still seeing that type of competition rate?

We are. We're very selective in our underwriting process in selecting markets where we're going to be the first to fiber. So we're going to be the second broadband provider. We're going into dense markets, competing against generally the cable company. We're serving about 80 to 90 homes per route mile. But from a competitive standpoint, if somebody got there with fiber before we get there, we won't go. We'll -- there's plenty of other opportunities. We'll pivot and go elsewhere.

So having said that, occasionally, the telco will build fiber after we built. Brightspeed, in particular, about 5%, 6% of our passings built fiber after we entered the market. But we did have a first-mover advantage. We were there first. So we still think we're going to get a return on investment. Probably won't be as high as what we originally planned, but still will be a positive return. But generally, we've been -- we ended December with about 88% of our passings are in duopoly markets. So it's us and the cable company.

Now how do you think about overall pricing power? I mean there's history in this industry of becoming the first fiber provider in the market. You price high, you get some competition, price starts to come down over time. How are you thinking about that intro pricing and the evolution?

Yes. When we enter a market, we're not going in to just compete on price. We're really focusing heavily on the technology. Fiber is a superior technology to the coax cable that the cable guys use. And we're focusing on local customer service. There is an unbelievable amount of pent-up demand with a lot of times with the cable companies when we enter into it. And we pride ourselves on answering the phone in 30 to 60 seconds, no handoffs to overseas, authentications, all done locally. If you're calling from Pennsylvania, you're talking to somebody from Pennsylvania. If you call from Virginia, you're talking to somebody from Virginia. We think that local difference makes a big deal with customers who've been pretty much frustrated for maybe the last 10, 20 years where cable was really the only game in town and there wasn't -- customers didn't have a choice.

Funny you say that because your NPS scores are exceptionally high. I think 61 is what we saw in terms of a recent survey. How does that impact retention metrics?

It's huge. Our customers love our service. And when they do, they're going to tell their neighbors, they're going to tell the family, they're going to tell their friends, and that helps the momentum to adding more and more customers.

This is our seventh year now in our fiber-to-the-home expansion. And we've consistently had, I think, some of the lowest churn in the broadband industry, about 1% per month is what we've been averaging over the past 7 years. And that's a reflection upon the quality of service, the technology, the local customer service. And it's also a function of, again, being very selective in the markets that we select to invest in, that we're going to be first to fiber and they're going to be duopoly markets.

So you think 1% is the right number to be targeting long term for yourselves?

Yes, in that range. I'd say low 1s. It will grow somewhat just with the base growing. But yes, I expect it to hover in that. It has for 7 years. So I would expect the next 5 years will be similar.

Great. Switching over to commercial for a moment. You had an incredible 2025, and you're seeing, I think, in the back half, you saw bookings growth almost 10%. What are the key drivers that you're seeing in the market?

Yes. We -- 2025, we had great success in a couple of the customer verticals. Fiber-to-the-tower was a big one. We have very strong relationships with each of the 3 tower companies, and we're getting repeat business, which is -- if you're not providing good quality service to those customers, you will not get any new business. So that's an important part, and we think that will continue into '26.

We have a pretty -- I think we have the largest K-12 school market share in our Virginia markets, and we're expanding this now into some of the other states that we operate in. Here, we're getting -- the government subsidizes broadband to the school based upon -- this goes back to 1996 Telecom Act that the FCC put in place. And that allows affordable broadband. So we collect some of it from the school. The rest of it, we get from Universal Service Fund. That's been a growing segment for us as well.

We also get a lot of business from other carriers. Again, we have a lot of -- we have 19,000 route miles of fiber. A lot of it is in unique routes that we're the only provider there. And if a customer wants to get from A to B, we may be the only way to connect that. So we've got a lot of wholesale and carrier business that comes through as well.

Maybe if you don't mind, touch on the uniqueness of the network because you mentioned fiber-to-the-tower being a core strength of your business over the last year and expecting to continue. I think many would say that, that's been an area of weakness across the broader market, but not for you and probably speaks to your network. But maybe if you could elaborate on that a bit.

Yes. Well, one is we were in the wireless business in most of the states that we operate in now. We ended up selling the business to T-Mobile back in 2021 for a little bit under $2 billion. So we had built a lot of fiber to the tower to serve ourselves. And now that's serving the 3 national wireless guys as well. In many cases, we're the only provider with fiber to these towers. So it gives us a unique advantage. There's a heavy capital cost for somebody else to build into each tower and build into the NFC. So that's a key factor on the uniqueness.

And then just having strong customer relations is very important. I've been very impressed. We recently did an acquisition to expand into Ohio. We bought a company called Horizon Telcom. Putting the 2 networks together, we've become a more relevant customer to the wireless guys. They would prefer to have less vendors versus more vendors, and we can now -- with our 19,000 fiber route miles, we can now cover a lot more of their more difficult -- we'd like to pride ourselves in solving difficult problems of our customers. And in our case, we can cover more towers that are in these very rural areas that they've maybe struggled with in the past.

And maybe talk about churn on the commercial side because it's exceptionally low. I think you've reported 0.6% per month. What's driving that?

Again, coming back to the unique fiber routes and the relationship building.

Any challenges you're seeing across the commercial market?

No. It's a good solid growth business for us. It's not growing as fast as the fiber -- the residential fiber-to-the-home business, but it's been a nice solid single-digit, mid-single-digit growth business for us. Jonathan, we're also starting to hit potentially a new customer vertical as the explosion of AI and data centers, data centers need fiber. And some of these data centers are now going outside of the traditional areas and more rural opportunities.

So we have a couple of things in the hopper right now that we're working on that might get us into the hyperscale space to start serving some of the hyperscale customers. We don't really have any of that revenue today. And if we can win 1 or 2 of these things, we think it would be pretty big upside to the commercial business.

Certainly upside to the commercial business. Have you thought about contract structure as it relates to fiber to the data center? I mean are you thinking about using that capital -- taking capital upfront to go and deploy out these builds and then leverage the network into additional revenue over time? Or is this something you're thinking about on a recurring revenue basis? Or is it still too early?

Yes. Jonathan, the opportunities that we're talking about right now would be, I would say, 75%, 80% would be on-net fiber. This is fiber that we've already built. We have excess capacity, excess dark fiber strands that we can lease that meets the needs of our customers. In some cases, again, unique routes gives us the ability to have a little bit more leverage with some of these much larger businesses than what we are and create a win-win situation that they get. They get what they need from a fiber perspective, but we get a balanced contract, which would mainly be recurring revenue going back to your question.

So capital-efficient growth?

Capital-efficient growth. Yes.

Let's talk about the telco and incumbent piece of the business that you've got. Maybe talk about your overall strategy as it relates to both the cable and the telco networks that you operate.

Yes. This -- our incumbent business has been around for many years. It's free cash flow positive. It's a mature business. Generally, our penetration rates on the incumbent broadband side are in the high 40% range. 30% of the passings, we have another -- somebody edged out and overbuilt us. But 70%, we are still the only broadband provider in those markets. Again, we're looking at not very dense markets. I shared earlier that our typical Glo Fiber fiber-to-the-home market, we're passing about 80 to 90 homes per route mile. On the incumbent cable side, it's about 40 homes per mile. So very rural. And the areas that have been overbuilt have been the dense areas. So I would -- that kind of points us that the density per route mile is even lower than the 40 homes per mile, which creates a moat around our cable business and makes it really challenging for a competitor to come overbuild us.

In addition, some of the demographics, especially in the West Virginia area, are not very strong, which kind of makes it less attractive. Putting it differently, we're in the business of overbuilding cable companies. We would not pick the markets that are left. We -- they would not be at the top of our list to overbuild just because of the lack of density and the low demographics.

And so maybe talk about any motivation, if any, to upgrade these markets yourselves because obviously, it would be most capital efficient for you to do it versus someone overbuilding you. But it also sounds like you may not see the need to do so given the lack of competition.

Yes, that's correct. We've looked at it, but we -- it's a difficult business case to justify spending capital just to keep your customers. So we think there's plenty of runway for us on the DOCSIS systems that we have today. We can offer up to 2 gig download on all of our systems. That seems to be very competitive even if there is another competitor in those markets. And of course, in the markets, the 70% where it's just us, we even have a little bit more wiggle room there.

And that's talking about fixed network. Obviously, there's been a lot of noise in the market around Starlink and fixed wireless. Maybe talk about what you're seeing in those markets with respect to that type of competitor.

So when a customer calls to disconnect service, we ask where they're going, if they're moving or if they're leaving for another competitor. In the fourth quarter, on the satellite side, I think we had about 50 disconnects related to fixed -- to satellite. So that comes out to about 1 basis point of churn on the Glo Fiber side.

On the fixed wireless side, it was about 225 disconnects, which translates to about 5 basis points of churn. So in our markets where we have a lot of rolling hills, we have a lot of mountains, we have a lot of foliage during the spring through fall months, the signal doesn't propagate well to get a consistent broadband speed. So we don't think those markets are going to be -- ever be very effective in relation to fixed wireless and satellite.

The Ohio market is a little bit flatter. That's a small portion of our network that there may be a little bit more risk in those markets. But at least in the 80% to 90% of our passings, just the geography benefits us and kind of minimizes the risk of that.

And then maybe just touch a little bit on your general approach to subsidies, particularly as it relates to these markets or new markets that you might consider entering?

Yes. So we were granted about $150 million in government subsidies. Going back to 2022, America Rescue Plan had dedicated a lot of money for subsidizing unserved areas. And as part of that, we started building -- generally, we look to build -- get grants around our cable areas to kind of more of a defensive play, but knowing that it would also provide a nice upside opportunity on growing units. We've completed 22,000 of the 24,000 passings in the incumbent markets. The state of Virginia is substantially complete as of the end of the year. And we have a small amount to go in West Virginia to complete the government grants there.

But Jon, it's been a great growth engine now that we got the 22,000 passings up. We're getting to roughly about 45% penetration after 5 or 6 quarters. Our oldest cohorts, we're already over 60% penetration. So a lot of upside.

I think this is a big reason why when you look at our incumbent broadband and cable RGUs, you're seeing continued growth. It's not substantial growth, but it's -- the needle is pointing up, not down like it is in a lot of the other cable providers that are reporting their numbers.

Let's talk about your capital structure. End of last year, we heard you introduced ABS into your capital structure. Maybe walk us through what the rationale was behind that deal.

Yes. For us, it was really -- we were motivated not to maximize our capital, but to minimize the cost of the capital. So thanks to Morgan Stanley and another bank that led us through the financing exercise, we were able to reduce our cost of debt by about 170 basis points. That will save us about $11 million annually each year in cash interest. So it was a great success. We only borrowed through the investment-grade tranches. We didn't go into the sub-investment-grade tranches. We're planning to be free cash flow positive starting in '27. This is the last year of our construction phase, both on the Glo Fiber side expansion and also on the subsidized government grant passings that we just talked about.

So we didn't have an unlimited need for capital. We're fully funded today and have access to capital above and beyond what we need. But it's -- the beautiful thing about ABS is it grows with you. So as we add more Glo Fiber customers and more revenue, our borrowing base keeps increasing. So that will give us a lot of optionality once we turn free cash flow positive to either return value to shareholders, maybe participate in M&A. We'll do whatever is right to really focus on increasing shareholder value.

And so you have certain assets that are already in the ABS facility. You also maintained your revolving credit facility outside of the ABS program. Maybe just talk about the flexibility that those 2 facilities provide you and the ability to keep both programs outstanding for the medium, long term.

Sure, sure. Yes. So we contributed into ABS 100% of our commercial fiber business and about 300 of our 427,000 Glo Fiber passings. It was the mature passings that were generally EBITDA positive and free cash flow positive in the markets they operated in. So that capital we raised there, we can distribute to the rest of the organization to continue and complete the build that we're in the process of finishing up this current year. And that's also where the revolving credit facility comes into play. It allows us to fund some of that construction to get us through the last year of our expansion plans. But as we think about '27 and beyond, again, our ABS investment-grade capacity is going to keep growing. We're going to be able to use the proceeds there to -- of roughly our incremental borrowing rate through our variable funding note program is about 5.5%. That will -- we'll be using that to pay off the revolving credit facility, which has about 100 basis points higher borrowing rate. So there's some incremental benefit in continuing to reduce the cost of capital, not only today, but in the future as well.

And so you mentioned that you didn't borrow as much as you could have. How should your investors think about leverage in the near term and then beyond? And what are you managing to, to the extent you want to go into that?

Sure. We expect to be -- this will be the last year of borrowing as we -- before we turn free cash flow positive next year. We expect the net leverage will peak around 5.3x, 5.4x by the end of the year. And then just through -- without paying down debt, just through organic growth of EBITDA, that number should end up around 3x as we get 4 or 5 years down the road just through organic growth.

And maybe to the extent you can, just give investors a sense for 5.3x, 5.4x relative to some publicly traded peers may sound high. Relative to what you could have achieved, though, it's actually quite low. And so what does that say about the fiber business that you're operating in and the efficiency of both your asset base, but then also the financing that's in place?

Yes. We passed on the sub-investment-grade tranches, which would give us another 2 turns of borrowing capacity. And with ABS, we can recycle as we put more passings in, again, 127,000 passings are not in the facility today. plus we're building another 85,000 today. So eventually, they're going to make their way shift -- we'll be transferring those over into ABS to give us even more borrowing capacity. I would expect we'll probably do another note issuance probably towards the end of '27, beginning of '28, which will free up even more capacity.

So as we get into '28, '29, we're going to have a lot of capacity above and beyond our needs that could be used for a number of purposes. It creates a lot of financial flexibility. Again, whether that's paying down the revolving credit facility, returning value to shareholders, participating in M&A, we'll have a lot of options that we can encounter at that point.

And the ABS debt investment grade rated, correct?

That's correct.

Great. Let's transition off the balance sheet, talk about overall corporate strategy. A lot of chatter around M&A, consolidation in fiber-to-the-home. How do you see the world at Shentel?

Yes. In '26, as we speak today, we're very focused on completing the build and turning the page to positive free cash flow. That's first and foremost on our thought process. Along those lines, Jonathan, we announced a reduction in force last week to resize the organization for the post-expansion phase. That will save us about $12 million annually. About half of that will be CapEx, capital labor, half will be operating expenses that we'll get the benefit of.

But as -- we'll continue to look for M&A on an opportunistic basis, which in the short term, that will probably limit us to more tuck-in acquisitions, fiber-to-the-home tuck-in acquisitions in the immediate area that are adjacent to our market, which tend to have a higher amount of synergies and are very accretive. But once we turn free cash flow positive, we get out to '27, '28, I think we would be more open to more transformative M&A. And we are willing to -- we'd be willing to go outside of our core area. We'd be looking to potentially -- scale matters a lot in our industry. So we'd be willing to maybe perhaps merge up with other middle market fiber companies to gain some scale.

So we -- I think we're going to have a lot of options in front of us. The telecom world has a way of repeating itself over history. I've been in the business for 30-some years. I started on the wireless side. Wireless back in 2020 -- 2000, there was 20 -- I go to a conference, there'll be 20 CFOs there for different publicly traded wireless companies. We're down to 3 as we speak today. Cable heavily consolidated and the commercial fiber business heavily consolidated.

So we think the fiber-to-the-home consolidation is just beginning. I think we're in the early innings of that. We think there's a lot more activity that's going to occur. And I'm not sure which way we're going to end up going with it, but we have a lot of options with our flexible capital structure that we just talked about. And we're -- for the fiber-to-the-home providers outside of the very high end of that market, our 500,000-plus passings are pretty significant in that. There's a lot of companies, a lot of them are private equity backed that have somewhere between 100,000 and 200,000 passings. At some point, those companies are going to be looking for liquidity and perhaps that could be a landing spot for us.

We've talked about you operate a few different business silos between Glo Fiber, the commercial business and then the incumbent business. As you think about potential acquisitions, is it limited to fiber-to-the-home? Or would you explore either multipurpose assets that are out there that look similar to yours or are exclusive to commercial per se?

We do operate multiple businesses, multiple technologies. But I would say at this stage of the game, we're very focused on fiber-to-the-home. So the majority of whatever we buy would have to be fiber-to-the-home. Otherwise, we would probably pass on it.

Makes sense. You also have a history of divestiture going the other direction. You sold your wireless assets in 2021, the cell towers in 2024. We just mentioned you have multiple businesses. How do you think about keeping the asset as one versus finding other homes for potential pieces?

Yes. At this stage, we don't really have any, what I would consider noncore assets that would be for sale like the towers ended up being. So yes, we're looking at the business that we're -- this is all broadband. This is all gigabyte services, whether we're serving you with fiber, serving you with coax cable. So we don't feel a need to separate. But we do have some, again, optionality in the structure of how we're set up that if we needed to, there's some of the mechanics that we put in place to facilitate the ABS. We had to create arm's length agreements between the cable business and the fiber businesses. So some of that is now in place that if there was a need to separate down the road, we kind of have some of that plumbing work already done today.

And it would be remiss not to mention potential joint ventures. We see some operators out there that are engaging in those. You could argue the motivation is around more off-balance sheet deployments. How do you think about joint ventures? And does that play a piece of the broader equation here?

Yes, Jonathan, let me start by saying we are one of the early adopters of investing in fiber-to-the-home. We started in 2019. I think we were ahead of the curve there, and I think we're smart to do so. I would say we're going to be one of the few, if not the first, to kind of complete their stated goal and their stated build and cease expansion. And I think we're going to be smart to do that now. What we see is left to be built of fiber-to-the-home is the quality is just not there of what we saw in the early phase of our construction. Either the competition is not there. We're not going to be first to fiber, which strays us away. The density is not there or even if the density is there and the competition, there's nobody else a fiber provider, the demographics tend to be really low.

So for those reasons, we have -- we don't need an off-balance sheet financing focus. We think the industry -- the fiber-to-the-home industry is going to shift from all this organic growth to more of a consolidation phase. And I think the next 5 years is going to be fascinating. It's going to be very exciting.

Let's go over to financial outlook, and we can end there. 2026, you've put out guidance, I believe it calls for 4% revenue growth, 12% EBITDA growth, which implies substantial margin gains. You touched a little bit about the recent RIF, but maybe talk about what goes into the EBITDA equation for the next year or so.

Yes. So when we add a fiber customer, there's virtually minimal operating expenses associated with that from a network perspective, which creates very high incremental margins. There is some sales and marketing expenses related to advertising, related to commissions. But I went back and looked at our incremental EBITDA versus our incremental revenue in our Glo Fiber business from '24 to '25. Our incremental margins came out to 77%. So that shows the operating leverage in these fiber networks. There's just an unlimited amount of capacity that you can add more and more customers onto it. And whether that's on the residential side or the commercial side, the equation is very, very similar. So that's going to drive EBITDA margin expansion here for the next 3 or 4 years.

I've shared before, I still believe we'll probably be growing our adjusted EBITDA margins by 300 to 400 basis points in the next couple of years. We look like we're on target to do that.

There's a few companies out there talking about AI. Apparently, it's a big craze. How does AI play into the Shentel equation?

I'd say twofold. I think there's a revenue opportunity, and I think there's some additional expense savings. The revenue opportunity gets into hyperscalers building data centers where we have fiber and we could serve those data centers. And we talked about that a few minutes ago. We haven't won any business there yet, but that is upside to the plan if we're able to win 1 or 2 of those deals.

On the expense side, we recently -- last year, we launched some AI initiatives to improve our customer service and the technical side of customer service. We're -- we've now started investing in half a dozen additional projects this year that will be really focused on rolling less trucks, answering the phones more efficiently, anticipating network problems before they actually occur and using that intelligence to get in front of maintenance to avoid the network going down.

So that's -- we're not spending huge amounts of money. I know there's a ton of money being spent industry-wide on that, but Shentel is not leading the way on that side. But we are trying to spend smartly to gain some efficiencies.

And how should we think about capital intensity long term? You've talked about completing the build, telecom industry has a history of continuing to be capital intensive even when builds are largely complete, but it does feel like fiber-to-the-home is going to be a bit different. So maybe talk about longer-term capital intensity for Shentel.

Yes. On our residential business, both the fiber business and the cable business, we expect the capital intensity to land in the 15% to 25% range. For ' 27, we're likely to be closer to the 25%. And a lot of that is due to the fact that we're a greenfield overbuilder on the fiber side. So when we win a new customer in a new market, generally, we have to do a drop, a fiber drop from the curb to the customer's house. That costs us $750 to $800 to connect that customer. If that customer moves and somebody else moves in and we have to go back and reconnect, the reconnect cost to where an existing fiber exists is only about $300, so significantly lower. But in the near term, as we're thinking just ahead to '27, we're probably looking -- targeting to kind of land around 25% on the residential business.

And then on the commercial business, the commercial business is always going to have a higher capital intensity rate just because every commercial customer requires some degree of capital. Generally, we look at that as a function of the revenue that we're getting, and we try to get our money back within, say, 36 to 42 months. The near net stuff, sometimes we're getting it back within 12 to 24 months. But some of the recent wins that we've had, especially with like the cellular guys, there's a little bit more off-net that we have to go to, to connect the customer. So I think that is going to be more in the 20% to 30% range. And again, we're probably targeting the high end of that range for next year based upon what's in the funnel today.

So overall, I think if you blend those 3 capital intensities together, we're going to be kind of in the 25% to 30% range next year, which should translate to where we've been spending capital the last couple of years, it will be about 1/3 of what we've been spending recently. And most of that capital is going to be spent on cost to connect, to a lesser degree, on maintenance.

One of the areas where fiber providers just have a sustainable competitive advantage over our cable peers is on maintenance. The fiber networks just require very little maintenance. There's very few electronics in the fiber network as opposed to the HFC coax cable network.

As a result, the costs are down, the reliability is up, the uptime is up and there's less repairs and outages. And that's also a factor in why our churn is so low is customers -- the network rarely goes down and our customers -- at the end of the day, that's one of the first things customers think about if they're thinking of switching service or not switching service.

You've cited 3 pillars to achieving free cash flow positive, double-digit EBITDA growth, reduction in capital intensity and then the reduced interest cost coming from the financing, all of which we've touched on at this point. I guess how confident are you in achieving that free cash flow trajectory? And what do you end up doing with all the cash?

Yes. We're -- again, exciting inflection point right in front of us. As each quarter passes, I get better transparency and visibility and confidence that we're going to hit the number.

On the EBITDA growth side, we've grown EBITDA 16% over the last 5 years. So we think the 12% target is very achievable. On the declining cost of capital, thanks to Morgan Stanley and one of our other bank relationships, we're able to reduce our cost of capital there. So that's already in place.

I would say from a risk standpoint, the only risk I see, I think we're on schedule to complete the build. But we use a lot of -- most of our outside plant construction is outsourced. And a lot of these are small businesses. And my biggest risk is these guys don't send us an invoice right away. And some of that CapEx that is done in '26 may actually get paid in '27, and that may move the number up a little bit. But I don't think it's going to be material, but it's something we're monitoring.

How do you think about ultimate return to capital program? You historically paid a higher dividend. Is that something that's on the horizon? Do you think about share buybacks longer term? Maybe just talk what's ideating as you think about return to free cash flow positive?

Yes. We pay a small dividend to our shareholders today, and that's kind of motivated -- the company started as a telephone co-op in the Shenandoah Valley. So about 30% of our shares are still owned by retail. And that dividend is kind of important to them. But it's about a 1% yield today. It's very small. That could be something we would look to increase once we're generating free cash. I think a share repurchase program could be something we would consider. We do have to think about that with the preferred stock because there are some restrictions on putting a share repurchase program as long as the preferred is in place. I think about possibly taking the preferred out down the road. We do have an option in the agreement that if it doesn't convert to common after the fifth-year anniversary, we could redeem that in cash. And again, with our flexible credit facilities, that could be an option as we get out into the '29 time frame as well.

Great. Well, I think that's probably a good spot to end. Thanks again for coming back. And hopefully, we'll see you next year.

Yes. Thanks for having us.

Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Shenandoah Telecommunications Company Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lucas Binder, Vice President of Corporate Finance for Shentel. Please go ahead.

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the fourth quarter and full year 2025. Our results were announced in a press release distributed this morning. In addition, we filed our Form 10-K and also a Form S-3 with the SEC to fulfill our Horizon merger contractual requirements to GCM. The presentation we will be reviewing is included on the Investor page on our investor.shentel.com website. 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 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. I refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference may include forward-looking statements subject to certain risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements. Additionally, we have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are 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 Ed. Go ahead, Ed.

Thanks, Lucas, and good morning, everyone. Thank you for joining us today. This past year marked another important step forward for Shentel as we continue to execute on our fiber-first strategy. Strong year-over-year growth in both Glo Fiber and Commercial Fiber drove a notable shift in our revenue mix with our fiber-based lines of business surpassing our incumbent broadband revenue in the fourth quarter. Throughout 2025, we remain disciplined and focused on our 4 strategic pillars that continue to guide our operational and financial priorities, building on our long history of success, completing our fiber network expansion, accelerating growth and positioning the business to inflect to positive free cash flow in 2027.

I'm pleased with the way our team delivered on each of these priorities, strengthening our position and keeping our strategy firmly on track. Starting on Slide 4, we share some of our full year highlights. At year-end 2025, we passed approximately 427,000 homes and businesses in our Glo Fiber expansion markets, an annual increase of 81,000 passings. Our government subsidized passings in incumbent broadband markets more than doubled year-over-year to 22,000 and penetration in these areas has already reached 31%.

We are well on our way to substantially completing construction for these capital-intensive expansion projects by the end of 2026. Glo Fiber data RGUs grew 35% in 2025 to 88,000, and we maintained data ARPU by driving customers to higher speed tiers. Lastly, we successfully refinanced our debt with our inaugural ABS financing in December that will save us approximately 170 basis points in cash interest expense and extend our maturities to 2030. We finished 2025 with strong momentum, driving customer growth, expanding our high-value fiber business and strengthening our balance sheet. This performance gives us confidence in our trajectory as we move into 2026.

Turning to Slide 5. We show our integrated broadband network that spans more than 19,000 fiber route miles across 8 states with over 679,000 total broadband passings. Our markets have compelling competitive dynamics that differentiate us from our peers in the broadband industry. 88% of our Glo Fiber passings are duopoly markets with only one fixed broadband competitor. And in our incumbent markets, 70% of our passings have no fixed broadband competitor. As we enter the home stretch of our Glo Fiber expansion, we remain focused on return on investment. Due to rising aerial make-ready costs in some areas, we have recently decided to pass on investments in certain Ohio markets where the cost to pass increased, reducing our ability to earn a return on investments above our hurdle rate of 15%.

As you can see on the map, all of the planned Glo Fiber markets have been launched and our primary focus in 2026 is adding passings in our Virginia, Pennsylvania, Maryland and Ohio markets. Despite the reduction in targeted passings, we remain confident in our plans to achieve positive free cash flow in 2027. On Slide 6, our sales and marketing team continues to drive growth in our Glo Fiber expansion markets. In the fourth quarter, we added 5,300 new customers and more than 6,000 total data, video and voice revenue-generating units. For full year 2025, we added approximately 23,000 new customers and 26,000 total RGUs. As a result, total Glo Fiber revenue-generating units surpassed 103,000 by year-end, up 33% compared to the prior year.

Moving to Slide 7. The fourth quarter marked our strongest construction period of the year with more than 26,000 Glo Fiber passings completed, bringing total passings to just under 427,000. While the significant increase in new passings kept penetration flat quarter-over-quarter at 20.6%, penetration improved 1.8 percentage points year-over-year. Penetration trends across our Glo Fiber cohorts are shown on Slide 8 and reflect blended penetration rates for both residential and small and medium business passings. Business passings account for about 8% of our total passings, and they typically exhibit a slower penetration ramp than residential passings.

However, business customers generate data ARPU that is more than 40% higher than residential customers. Due to the slower business ramp, cohorts with a higher concentration of business passings can show lower penetration. This dynamic is evident in the Q4 2023, Q1 and Q4 2024, and Q1 2025 cohorts, which have a significantly higher mix of business passings than other cohorts. Excluding the differences in residential and business mix, penetration growth in our Glo Fiber expansion markets has followed a consistent and predictable pattern with steady increases as cohorts mature.

Our earliest cohorts launched in 2019 and 2020 now have an average data penetration rate of more than 37%. On Slide 9, we highlight our most recent Net Promoter Score customer satisfaction survey, where we received an outstanding score of 61. This result compares very favorably with cable competitors that often have single-digit scores. Our continued focus on customer service is a key driver of our low churn with average monthly churn of 1.01% in the fourth quarter and 1.07% for full year 2025. Broadband data average revenue per user increased to more than $77 in the fourth quarter, representing a 2.3% year-over-year increase. Midway through the third quarter, we introduced new promotional rate plans offering higher speeds for the 5-year price guarantee.

With these plans available for a full quarter, more than 75% of our new residential subscribers selected speeds of 1 gig or higher, including 20% choosing 2-gig service and 5% choosing 5-gig service. The increase in ARPU was driven by our shift away from a first month free promotion in prior periods, along with strong adoption of the 5-year price guarantee plans in the fourth quarter. As these plans continue to roll through our base, we expect data ARPU to decline by approximately 1% over the next few quarters before stabilizing.

Turning to Slide 10. We show our operating performance for the incumbent broadband markets. At the end of 2025, we served about 112,000 broadband data customers, reflecting a year-over-year increase of over 600. Data, voice and video RGUs totaled more than 158,000 at the end of the year, down 3% year-over-year, primarily due to video customers moving to online streaming services. Total broadband passings in our incumbent markets grew to 252,000 at year-end, up about 13,000 compared to the prior year. This increase was driven by the construction of government-subsidized passings in previously unserved areas.

We've substantially completed construction and fulfilled our grant obligations in Virginia, and we expect to complete the remaining 1,300 government-subsidized incumbent grant passings in West Virginia in 2026. As a result of our government grant fiber construction, approximately 21% of our incumbent broadband passings are now equipped with fiber-to-the-home technology. As shown on Slide 7, these new subsidized passings represent a strong growth catalyst for our incumbent markets with data penetration exceeding 45% within 6 quarters of a neighborhood launch. Our earliest cohort from the first quarter of 2023 has reached 61% penetration, and we've already achieved an aggregate penetration of 31% across more than 22,000 subsidized passings.

Moving to Slide 12. Monthly broadband data churn improved sequentially and remained steady year-over-year at 1.47% for the fourth quarter. Our rate card strategy offering greater value with higher speeds at the same price continues to be effective at mitigating churn. As expected, broadband data ARPU declined 2.4% from a year ago to $82, driven by the addition of new customers with more aggressive pricing in competitive markets. Our Commercial Fiber business is highlighted on Slide 13. In the fourth quarter, incremental monthly bookings exceeded 155,000, in line with the prior year period. After record bookings in the first half of 2025, second half bookings increased almost 9% compared to the second half of 2024. We're seeing strong performance across a broad and diverse customer base, including wireless carriers, mid-market and enterprise customers, wholesale partners, educational institutions and state and local governments.

Our service delivery team installed $191,000 in new monthly revenue in the fourth quarter, down modestly as we continue to work through the backlog and move bookings to revenue more quickly. Average monthly compression and disconnect churn remained very low at 0.6% in the fourth quarter, driven by exceptional support from our network operations center and sales team. Before I turn the call over to Jim, I want to briefly address the recently announced reduction in force.

On February 23, we announced a workforce reduction of approximately 10% of our employees to better align our staffing levels with the planned completion of the construction phase of Glo Fiber. Impacted employees will have a staggered departure dates through the end of 2026 with the largest impact in the fourth quarter. All affected employees are eligible for severance pay and benefits as well as career transition services. We expect to incur approximately $3.1 million in restructuring costs and anticipate annual savings of roughly $12.3 million starting in 2027, split evenly between operating expenses and capitalized labor.

While our major Glo Fiber market expansion is nearing completion by year-end, we remain firmly focused on driving continued growth in Glo Fiber and Commercial Fiber and delivering the high level of service our customers expect and deserve. I'll now turn the call over to Jim to walk you through our 2025 financial results and our outlook for 2026.

Thank you, Ed, and good morning, everyone. I'll start on Slide 15 with the financial results for the fourth quarter 2025. Revenues grew 7.2% to $91.6 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.5 million or 39%, driven by a 37% increase in data subscribers and a 2% increase in data ARPU. Commercial Fiber revenue grew $2 million or 10.8% year-over-year, driven primarily by a negative deferred revenue adjustment in the fourth quarter of 2024. Incumbent broadband markets revenue declined $1.7 million, primarily due to lower video and data revenues from a 14.8% decline in video RGUs as customers switched to streaming video services and a 2.4% decline in data ARPU due to a more aggressive rate card in competitive markets.

Broadband data subscribers did grow 0.6% year-over-year. RLEC revenue declined $500,000, primarily due to lower DSL revenue from a 24.4% decline in DSL RGUs, partially due to customers migrating to our broadband data service in the recently constructed passings supported by government grants. Adjusted EBITDA grew $8 million or 31.3% to $33.5 million, driven by $6.2 million in revenue growth and $1.8 million in lower expenses from a combination of Horizon synergy savings, higher capitalized labor from a strong quarter of fiber construction and lower bad debt.

Adjusted EBITDA margins increased 670 basis points to 36.5% in the fourth quarter due to a combination of recurring synergy savings seasonality due to a strong quarter of fiber construction, favorably impacting higher capitalized labor and lower network compensation expenses and nonrecurring bad debt expense adjustments. We expect adjusted EBITDA margin to decline slightly in the first half of 2026 before expanding again in the second half of 2026. On Slide 16, we share our last 5-year financial results. Revenues and adjusted EBITDA grew at a compounded annual growth rate of 10% and 16%, respectively. We believe these growth rates are industry-leading among publicly traded broadband companies.

Please note that we acquired $19 million of annual run rate EBITDA when we acquired Horizon in 2024. This was fully offset by $12 million of lower EBITDA when we sold our tower business in the same year and $7 million in lower EBITDA from backhaul revenue churn due to the onetime network rationalization event following T-Mobile's acquisition of Sprint. While we are proud of our team's performance over the past 5 years, we are even more excited about our growth prospects over the next 5 years when we expect low double-digit EBITDA growth rates, combined with significantly lower capital intensity starting in 2027.

Turning to Slide 17 for our annual guidance for 2026. We expect 2026 revenues of $370 million to $377 million or 4.4% growth based upon the midpoint. We are guiding to adjusted EBITDA of $131 million to $136 million or 12.1% growth based upon the midpoint. We expect 2026 CapEx net of grant reimbursements to be $220 million to $250 million or a 21% decline at the midpoint. Moving to Slide 18. We invested $359 million in capital expenditures in 2025 and collected $63 million in government grants for net CapEx of $296 million. We have completed construction of 84% of Target Glo Fiber passings and 94% of target incumbent government grant passings in unserved areas.

In summary, capital intensity is trending down as we get closer to the end of the expansion phase. Capital intensity declined from 91% in '24 to 83% in '25 and to a range of 59% to 67% in '26 based upon our guidance. For 2027, we are currently trending to the high end of the long-term target capital intensity range we provided a year ago. We expect our residential businesses to be in the 25% range and our commercial business in the 30% range initially before declining further over time as our businesses scale.

I'd now like to update you on our refinanced credit facilities and liquidity on Slide 19. As previously announced in December, we successfully refinanced our $675 million term loan and revolving credit facility with a hybrid capital structure featuring asset-backed securitization or ABS notes supported by most of our fiber business and a revolving credit facility backed primarily by our incumbent business. The ABS notes include $567 million of privately placed investment-grade notes to institutional investors due December 2030 with a weighted average interest rate of 5.69% and $175 million variable funding note facility or VFN, with a group of financial institutions.

The VFN has a maturity date of December 2029 and bears interest at SOFR plus 175 basis points. The VFN is a revolving facility within the ABS special purpose entities that is also investment-grade rated and securitized by the same fiber assets and customer contracts. It is also governed by the same ABS indenture as the ABS notes. We did not borrow from the VFN as of December 31, 2025. Concurrently, we established a new $175 million revolving credit facility, or RCF, with a group of financial investors maturing December 2030. The RCF bears interest at SOFR plus 250 to 300 basis points, depending upon net leverage as defined in the RCF agreement.

We borrowed $75 million from the RCF as of December 31, 2025. Please note that these are 2 discrete credit facilities separated legally by special purpose entities established for ABS. Shentel and the non-ABS entities have no recourse to the loans of the ABS entities. Likewise, the ABS entities have no recourse to the loans of the RCF. As of December 31, we had $642 million in outstanding debt with a weighted average interest rate of 5.75%. This compares favorably to September 30 weighted average interest rate of our prior credit facility of 7.47%, saving us 172 basis points in cash interest, driven by the investment-grade rated ABS notes. Based on our current debt levels, this will save us $11 million annually in cash interest.

Total available liquidity was approximately $235 million as of December 31, consisting of $27 million of cash and cash equivalents, $21 million in restricted cash as required by the ABS indenture, $44 million available under the VFN, $93 million under the RCF and $50 million available under government grants. In addition, the company has over $130 million of VFN commitments that are not available to draw as of December 31. The available capacity of the VFN will increase based upon fiber revenue growth from the ABS entities, multiplied by a net operating income margin as defined in the ABS indenture and a 6.25 multiple. We are very pleased with our new credit facilities and the financial flexibility they will provide us in future years.

In summary, as noted on Slide 20, we have 3 catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. Low double-digit adjusted EBITDA growth rates driven by our fiber businesses, declining capital intensity as we exit the construction phase of our business plan in 2027 and declining cost of capital after refinancing our debt in December 2025 with primarily investment-grade ABS notes. This is a very exciting time for Shentel and our shareholders. Thank you, operator. We are now ready for questions.

[Operator Instructions] Your first question comes from the line of Hamed Khorsand with BWS Financial.

About the markets that you've decided not to enter in Ohio, how much CapEx are you looking to save? And is it all being -- was it all planned for '26? So it already brings down the CapEx that you're projecting for '26?

Yes. Hamed, the CapEx per passing in this last year is roughly going to be around $1,400 per passing. Now some of that money has been previously spent in prior years, and we're now really focusing primarily on just placing the fiber. So it's mainly construction labor at this stage, which will probably be about 75% of the $1,400 or, call it, $1,000 per passing. The markets that we decided to pass on wasn't an issue of timing as much as it was an issue of return on investment. As Ed mentioned in his scripted comments, the cost of aerial make-ready has gone up significantly, like 2 and 3x in some markets. And it just made it uneconomical for us to build these markets and get a return on investment as we've expected of roughly 15%.

Okay. And from a competitive standpoint, you introduced this 5-year guarantee, I think, last quarter. Have you seen any step down as far as competitive pressures go? Or is it still the same?

Hamed, recently, one of our large cable competitors actually increased their prices on their 5-year guarantee. But that just happened recently here in the first quarter. Other than that, we haven't seen significant changes since we launched the 5-year price guarantee.

Okay. And then you had said, if I heard you right, that it takes a bit longer on the business than on the residential. How fast -- I don't think I heard you say how fast it takes for residential to sign up.

Sorry, say again, for a residential customer to sign up?

Yes, to sign up for service. I know you were talking about how there's a delayed factor when it comes to business customers.

Yes. So with the business customers, in many cases, they're under contract. We have to wait for that contract to roll off. And in some markets, there are actually multiple providers going after business customers. So we expect terminal penetration on business customers to be lower than residential. But then residential customers that ramp to our target 37% plus penetration rate, we're tracking 5 to 7 years after we launch a market.

Your next question comes from the line of Vikash Harlalka with New Street Research.

I just have a couple of questions. Why did you feel the need to offer a 5-year price guarantee plans? Was it because competition was going in that direction? And then how does that impact ARPU growth? And I'll ask my second after you answer this one.

Yes. So it was in response to competition. One of our large cable competitors launched a 5-year price guarantee. We did initially see some impact on gross adds when they launched it, didn't see any impact on churn. But once we launched our own 5-year price guarantee, that impact on gross adds, we felt was mitigated. And as I mentioned on the -- in my script, we do expect short-term impact on ARPU as this 5-year price guarantees roll through about 1% over the next few quarters, but we expect it to stabilize after that in our Glo Fiber markets.

Got it. And then I have one strategic question. We recently met with many small private fiber operators. There seems to be a lot of appetite for M&A. Could you just remind us how you're thinking about M&A? And if you're looking to buy fiber assets out there, what characteristics are you looking for in any potential targets?

Well, I'd say we've certainly seen consolidation start. We believe consolidation will continue. At this point in time, we're focused on successfully completing our build plan, accelerating customer growth and then reaching that positive free cash flow inflection point in 2027. So that's really our main focus right now. As we look ahead further into the future, from an M&A standpoint, we'd be most interested in a pure-play fiber provider, less interested in a cable provider and not interested at all in a copper provider.

We have no further questions at this time. I will now turn the call back over to Jim Volk for closing remarks.

Well, thanks, everyone, for joining our call this morning. As I mentioned earlier, this is a very exciting time for Shentel, and we look forward to updating you on our progress in future quarters. Thank you. Have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good afternoon, everyone. Welcome to the Shenandoah Telecommunications Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Lucas Binder, VP of Corporate Finance for Shentel.

Thank you, Michelle. Good afternoon, and thank you for joining us. The purpose of today's call is to review Shentel's results for the third quarter of 2025.

Our results were announced in a press release distributed after the market closed this afternoon, and the presentation we will be reviewing is included on the Investor page on our investor.shentel.com website.

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 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. I refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer, and I remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements.

Additionally, we have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are 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 Ed. Go ahead, Ed.

Thanks, Lucas, and good afternoon, everyone. So thanks for joining us today. So as we begin the call, I'd like to share our vision for Shentel. We're focused on 4 key pillars that are driving operational execution and positioning us for long-term value creation.

First, we are focused on building on our success. We have a proud history of delivering exceptional local customer service and deploying high-quality networks in smaller markets. We're enhancing that foundation by integrating advanced technology and AI to boost operational efficiency.

For example, we're currently using AI to streamline our technical support operations and optimize digital marketing, ensuring that the right offer reaches the right customer at the right time.

Our second pillar is successfully completing our build. Finishing our network expansion remains a top priority, and I'm very proud of our team's achievements over the past 6 years. 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. Our third pillar is accelerating growth. We're focused on driving penetration rates in Glo Fiber markets and expanding our commercial fiber business.

We're growing the size of our direct sales team, and we have simplified our online purchase experience and launched targeted digital marketing with compelling rate plans.

Our 100% fiber optic Glo network gives us a clear competitive edge and our many unique commercial fiber routes connect our smaller markets back to major metropolitan data centers.

Finally, we're focused on achieving positive free cash flow. Prior to our heavy investment cycle in Glo Fiber expansion markets, Shentel consistently delivered positive free cash flow.

Returning to that position is a key milestone, and we remain on track to reach positive free cash flow for the full year 2027, driven by declining capital intensity and continued customer growth.

To support this transition, we plan to refinance our credit facilities through 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. We expect this approach to lower our cost of debt, strengthen our credit profile and increase financial flexibility.

These improvements will position us to capitalize on opportunities in a consolidating industry and deliver greater value to our investors. We anticipate completing the refinancing in the coming months.

Thank you for your continued trust in Shentel. We remain focused on operational excellence, strategic agility and delivering value to our customers and shareholders. Starting on Slide 4, we share some of our key highlights from the quarter.

We reached the milestone of 400,000 total Glo Fiber passings, driven by 21,000 homes released to sales in the third quarter. Glo Fiber data revenue-generating units grew to 83,000 at the end of the quarter, representing year-over-year growth of 39.5% and Glo Fiber revenues grew 41.1%, reaching $21.3 million. 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, and our margins expanded 300 basis points to 33%. Jim will provide you with more details on the key drivers of our financial results in a few minutes. Moving to Slide 5, we show our integrated broadband network that spans more than 18,000 fiber route miles across 8 states.

Our markets have compelling competitive dynamics that differentiate us from our broadband peers. 92% of our Glo Fiber passings are duopoly markets with only one fixed broadband competitor. And in our incumbent markets, 70% of our passings have no fixed broadband competitor.

On Slide 6, our sales and marketing team continues to drive growth in our Glo Fiber expansion markets. In the third quarter, we added 6,400 new customers and approximately 7,200 total data, video and voice revenue-generating units.

600 of the new customer additions were from our recent Blacksburg, Virginia acquisition that we closed and integrated in July. Over the last 12 months, we've added more than 23,000 data RGUs across the Glo Fiber expansion markets. We ended the third quarter with approximately 83,000 Glo Fiber customers, 39% increase year-over-year.

Our total Glo Fiber revenue-generating units reached more than 97,000 at the end of the quarter, up 37% from the same period a year ago.

Moving to Slide 7, Glo Fiber passings exceeded 400,000 at the end of the third quarter, an increase of 81,000 year-over-year.

Broadband data penetration in our Glo Fiber expansion markets climbed 2.1 percentage points to 20.6% at the end of the third quarter. As shown on Slide 8, growth in our Glo Fiber expansion markets has followed a consistent predictable pattern with steady increases in data penetration rates as cohorts mature. We typically achieve 15% data penetration rates within the first year and 25% by year 3. Our earliest cohorts, which launched in 2019 and 2020 have now reached an average data penetration rate of 37%.

We're also pleased with our sales and marketing team's ability to quickly engage customers when launching new neighborhoods as demonstrated by our 8% penetration rate for communities introduced in the third quarter.

On Slide 9, monthly broadband data churn for the quarter remained steady at 1.17%. As a reminder, third quarter is the seasonally highest churn quarter due to greater move churn, especially around schools and universities. Our broadband data average revenue per user remained strong in the third quarter at roughly $77, supported by customer adoption of higher speed tiers.

In the middle of the third quarter, we introduced new promotional rate plans that offer enhanced speeds with a 5-year price guarantee. As a result of this new plan, we saw an increase in subscriber gross additions in the second half of the quarter with 68% of our new residential customers choosing speeds of 1 gig or higher, including 12% choosing speeds of 2 gig and 3% choosing speeds of 5 gig.

As a greenfield overbuilder and share taker, we have not raised broadband service prices since we launched Glo Fiber 6 years ago. In addition, our fiber networks have ample excess capacity and are superior to our competitors' DOCSIS networks in providing faster symmetrical speeds. Our new promotional plans leverage our competitive advantage as well, and we believe they will be a key driver in accelerating growth.

As more customers select these new plans, we expect minimal impact to data ARPU in the next couple of quarters and a decline of approximately 1% for 2026. Turning to Slide 10, we show our operating performance for the incumbent broadband markets. At the end of the third quarter, we served about 112,000 broadband data customers, reflecting a year-over-year increase of 580.

Data voice and video RGUs totaled 160,000 at the end of the third quarter, down 3% year-over-year, primarily due to video customers moving to online streaming options. Total broadband homes and businesses passed in our incumbent markets grew to 248,000 at the end of the quarter, up about 14,000 over the same period a year ago.

This increase was driven by construction of new government-subsidized passings in previously unserved areas. As a result, approximately 20% of our incumbent broadband passings are now equipped with fiber-to-the-home technology.

As shown on Slide 11, these new passings represent a strong growth catalyst in our incumbent markets, and we're seeing data penetration exceed 45% 5 quarters after a neighborhood is launched. Our oldest cohort from first quarter of 2023 has reached 61% penetration, and we've achieved an aggregate penetration of 30% across more than 19,000 subsidized passings.

Moving to Slide 12, monthly broadband data churn improved 6 basis points year-over-year, reaching 1.61% in the third quarter. Our rate card strategy of offering higher speeds and more value for the same price continues to be effective in mitigating churn. Broadband data ARPU declined 1% from a year ago as expected to $82.

Our commercial fiber business is highlighted on Slide 13. In the third quarter, we continued to execute with sales of almost $157,000 in incremental monthly revenue, an increase of 19% over the prior year quarter. This followed record-setting sales in the first half of the year.

We're seeing strong performance across a broad and diverse customer base, including wireless carriers, mid-market and enterprise customers, wholesale partners, educational institutions and state and local governments. Our service delivery team installed $215,000 in new monthly revenue in the third quarter, similar to prior periods.

Average monthly compression and disconnect churn remained very low at 0.4% in the third quarter, driven by exceptional support from our Network Operations Center and our sales team. So I'll now turn the call over to Jim to walk you through our financials and outlook for the rest of 2025.

Thank you, Ed, and good afternoon, everyone. I'll start on Slide 15 with the financial results for the third quarter 2025.

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%.

The Glo Fiber revenue growth was partially offset by declines in our other lines of business. Incumbent broadband markets revenue declined $1.6 million, primarily due to a 15% decline in video RGUs due to customers switching to streaming video services.

The commercial fiber revenue declined $1.1 million, primarily due to $900,000 in noncash deferred revenue adjustments for one of our national wireless carrier customers and a $500,000 decline in early termination fees earned in 2024. Excluding these variances, commercial fiber revenue grew 2.3% over the same period in 2024.

RLEC revenue declined $1.3 million, primarily due to lower government support revenue and a 21% decrease in DSL subscribers, as many of these customers have migrated to our recently constructed broadband Internet service.

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.

Adjusted EBITDA margins increased 300 basis points to 33% in the third quarter of 2025. Moving to Slide 16, we invested $212 million in capital expenditures year-to-date, net of $39.9 million in government subsidies collected.

We constructed over 1,700 route miles of fiber in the last year, and we have completed construction on 89% of the planned 22,000 government subsidized unserved passings in our incumbent markets. We expect to complete this construction in mid-2026, and this will be a driver of lower capital intensity in future years.

Turning to Slide 17, we are reiterating our 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.

I'd now like to update you on our liquidity and debt position on Slide 18. Liquidity was $230 million on September 30, including $23 million in cash, $118 million in available revolver capacity and $72 million in remaining reimbursements under available government grants. At the end of the third quarter, we had $535 million of outstanding debt. Our first material maturity is July 2027. Thank you. And operator, we are now ready for questions.

[Operator Instructions] Our first question will come from the line of Frank Louthan with Raymond James & Associates.

So 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? And that's the first question. And then I have a follow-up.

Sure, Frank. This is Ed. Appreciate the question. 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. We're also looking to drive efficiencies in our business. Some of the technology we're deploying will help us there. And also, we'll be gaining some efficiencies as we wind down our construction process.

Yes. Frank, if I could add to that, the Glo Fiber expansion is coming to an end in 2026, and we expect the positive free cash flow inflection point is a significant accomplishment, and we will begin generating several years in front of us of significant free cash flow in '28 and beyond. So I think that will be another driver based upon our organic plan.

Okay. All right. And then -- so I think you mentioned you're at 30% penetration in your subsized passings. Can you remind us how many subsized passings are you -- have you been granted and what you get? And then ultimately, what's sort of the target penetration for those builds?

Yes. So Frank, in our incumbent cable markets, about 22,000 is what we're targeting. And we expect penetration in the high 60% range. We also have several thousand other passings in Glo Fiber markets as well.

Our next question comes from the line of Hamed Khorsand with BWS Financial, Inc.

I just wanted to say 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 that you have to feel like you had to do a new pricing scheme?

Yes. Hamed, good question there. So 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, no impact on the churn side, though, but we decided to respond with our own 5-year guarantee. We've got enhanced bandwidth speeds.

And that 5-year guarantee started in mid-August, and we've seen a significant lift in gross adds since then. In fact, they're above the levels we experienced before Comcast launched their 5-year plan. But we continue to believe we have a competitive advantage there, not only with speed, but with our local customer service and our network reliability as well.

Why isn't this growth leading to you raising your guidance?

Hamed, this is Jim. I can respond to that one. It takes several quarters for growth to accumulate here. So it's not something that you get in the first quarter. But our customer churn is very low, as you're aware.

Generally, we've been averaging about 1% per year. So we think these customers will be with us for 100-plus months. 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.

And I'm showing no further questions, and I would like to hand the conference back over to Jim Volk for any further remarks.

Yes. Thank you all for joining. We're at a very exciting point in our evolution, and we look forward to updating you at our next quarterly call. Have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Mike Funk from Bank of America. I lead the telecom infrastructure, comm software team at the bank. Really happy to have Shenandoah here with us today. I think it's the first time at our conference you guys joined maybe. So thank you again for coming out this year. We have Ed and Jim. So I was going to invite them to give a bit of an overview of the company for anyone in the room or online listening who is unfamiliar. So thank you guys again for coming out.

Yes. Thank you, Mike.

Yes. Definitely appreciate the invitation.

So maybe just for anybody that's unfamiliar with Shenandoah, just to give a brief overview of the company, and there's a long history to the company. It's not to come back the entire way, but maybe just the past 5 or 10 years and the transformation you've taken the company through and then also pointing forward to the strategy, your fiber build strategy and how you're executing on that.

Sure. I'll kick things off and then let Jim jump in. But we do have a long history, founded back in 1902 as a local telephone company in the Shenandoah Valley, Virginia, but we have evolved into a broadband company, first as a cable company and now a fiber-to-the-home company.

When you look at our business, we are projecting over $350 million in revenue this year. We're publicly traded on the NASDAQ. We have a significant regional fiber optic network, 18,000 route miles of fiber stretching from Chicago to the Washington, D.C. area. So we operate in 8 contiguous states in the Mid-Atlantic region and the Midwest as well.

As far as the split between residential and commercial business, about 75% of our business is residential, about 25% is commercial. On the residential side, we have an incumbent cable broadband business. So that's our legacy telephone footprint and our cable footprint. We pass about 240,000 homes and businesses with hybrid fiber coax networks, DOCSIS 3.1. We offer gigabit service across the board. And more recently, we have launched fiber-to-the-home service. So in 2019, we started building in new greenfield areas. These are new markets outside of our incumbent cable business. We focused on smaller cities, smaller towns. We now pass about 380,000 homes and businesses with our Glo Fiber fiber-to-the-home service.

So we're still actively building. We have another roughly 16 months in our build plan, plan to be between 500,000 and 550,000 total passings by year-end 2026. So that's a little bit of our background. But main focus right now is successfully completing that construction phase of our Glo Fiber project. We're also really trying to ramp up penetration in our Glo Fiber markets, and we're seeing success there.

Okay. And so within your footprint, how many households or potential passings are there? And I guess, what percentage does that 500,000 to 550,000 represent?

That's the majority of our passings. We're a fiber dominant network at this point. So 500,000 and 550,000 is what we're targeting by year-end 2026. That's really more than double the number of passings we have in our incumbent broadband markets.

I guess maybe I didn't phrase the question correctly, I apologize. What I was really thinking with, I'm sure there are probably households or passings that are just too expensive to justify the economics don't make sense. So trying to figure out what percentage of your footprint you're actually targeting with fiber and then how you draw that threshold, whether it's a cost to pass or other factors that help you make that choice about passing with fiber and not passing with fiber.

So when we look at the models for these markets, first thing we target is areas where we're the first fiber provider. We don't want to go in and be the second fiber provider in the vast majority of our Glo Fiber markets, we are the only fiber provider. So that's the first factor. And we also consider the cost to pass. whether it's aerial construction, underground construction, and we look -- take a close look at the demographics as well. We're factoring in the average revenue per user as well as a target terminal penetration rate.

On average across our markets, we're targeting a 37% terminal penetration rate. And when we build these models, we're looking at a 15% plus unlevered IRR within the markets. So if we can't get those returns, we won't build an area or if another fiber provider had already started construction there, we won't build that area.

And Michael, just to add one thing there is when we generally get a franchise agreement in all these municipalities. And generally, since we're the second one in, it's kind of very open-ended. We're not guaranteeing full coverage in the whole market. We can kind of pick and choose the best demographics, the best households where we think we can get the highest penetration. So we have a lot of flexibility. There may be 1 or 2 exceptions to that of the 25 markets that we're in, but that's generally the framework, which I think might have been part of what you were asking.

Yes. It was a more open-ended question. So definitely, you both addressed it very, very well. So thank you. And then who are the dominant cable providers or provider that you're normally going up against when you are the second entrant?

So about 2/3 of our markets we were going up against Comcast, about 1/3, it's a combination of Charter and Cox. Very, very small percentage of actually fiber passing from the LEC. Only about 8% of our passings as a LEC deployed fiber. So 92% of the passings, it's a duopoly environment where it's either us with our fiber network or one of the big cable guys that we're going up against.

Okay. And have you seen increased competition from the cable companies in the last 6 or 12 months? I know they've been leaning in a bit more utilized in their bundling strategy with the MVNO wireless product from Verizon. Are you seeing that in your markets, too? Or are they not as aggressive there?

We've certainly seen aggressive promotional pricing. It seems like that's the way they've been operating, a low introductory rate and then a significant increase once that introductory period expires. More recently, we've seen Comcast go to a 5-year price lock guarantee, but we really haven't seen an impact from the mobile bundle in our market. Our sales folks are not saying that they're unable to sell because we don't have a mobile offering. We're not seeing churn because we don't have a mobile offering.

Okay. And I'm curious why you think that is because AT&T last week announced the EchoStar Spectrum transaction and their FWA believers talking about being more aggressive with FWA deployment so they can have a converged offering before they roll out fiber more aggressively. You've heard Verizon talk about their own FWA strategy, whether it's MDU or otherwise, T-Mobile. So it seems to be a growing consensus that having both products, converged opportunity or optionality at least is the right strategy. So why is that not the right strategy for you? And maybe how are your markets different and the demographics different where it might not fit as well?

I think as far as having a mobile bundle, we don't think we need it right now. Down the road, that may be an option for us. As far as the fixed wireless competition, we view that as a value play. We've seen very little impact from fixed wireless as far as impacting new sales or impacting churn. We were previously a fixed wireless operator within our footprint. And based on our own experience, a lot of our markets have hills, mountains, large trees operating fixed wireless network with mid-band spectrum in those markets. is a bit of a challenge in our markets versus some of the other areas throughout the company.

So the topography affects the propagation of the spectrum, makes it difficult to deploy fixed wireless in some areas like I presume like Pennsylvania or West Virginia or some other areas where you operate that dense village and hills and everything. So...

Correct. Our largest market right now is in Virginia, where we have plenty of hills, mountains and dense village.

Exactly. You did a recent acquisition in Ohio, though, to supplement your organic growth strategy. Can you talk a bit about that acquisition and why it made sense?

Yes, I'll kick things off there. So we acquired Horizon Telecom based in Chillicothe, Ohio. That really doubled the size of our commercial fiber business. Also, we picked up some leadership on the commercial sales side of our business as well. The former Chief Revenue Officer of Horizon is now leading our commercial fiber business. And this really gave us a larger regional fiber optic network. I mentioned 18,000 route miles now. And one of the advantages we have with our commercial fiber business, we have unique routes in rural areas and smaller markets, and we're able to connect customers there back to major data centers in metropolitan areas.

We have -- we're built into data centers in Chicago, Columbus, Ohio, Pittsburgh, the Washington D.C. area in Ashburn. So that's really a benefit we can offer. And also with the larger scale with the Horizon acquisition, we're getting more traction with the wireless providers as far as providing backhaul services. We're able to connect to more cell sites. We're able to connect to more of their switching centers as well.

Okay. Yes. Maybe just for a second, Jim, I mean, I'm sure you're really busy and active funding all of the exciting builds that you're doing. So how are you addressing the funding? Can you talk a bit about the balance sheet for a second? And how much more capacity do you have to drive the builds?

Yes, sure. Yes. So when we completed the Horizon acquisition last April, April '24, we upsized our credit facility to $675 million. And we also issued about $80 million of preferred equity securities to balance out the capital structure. We are -- the credit facility, the first maturities are coming up in June of '27. So we are actively exploring refinancing the whole credit facility right now, and we're planning to go down the path of using ABS, the asset-based securitization market. We think this will actually lower our cost of debt by about 100 basis points. And when you're looking at about $700 million plus of funded debt, that's pretty material, and that will go right down to the bottom line for free cash flow when we turn.

So we likely will upsize the credit facilities in total when we complete the refinancing. But in order of magnitude, maybe in the $50 million range above and beyond what we have today.

Okay. That's perfect. And just more of a high-level question before I dig into more kind of your specific strategy and the products. in the financials is that I've been covering telecom for long enough to remember all the LECs back in that day, probably still name more that I should be able to. And over time, we clearly saw consolidation, right, whether it was kind of the Bell system or even the LECs consolidating, that was the trend for the last 25 years, right? So where is there a place for Shenandoah in the current telecom environment, independent organic growth company versus following that trend of consolidation, whether it being a target or even a consolidator, right? We see a lot of private fiber companies doing overbuilds today. So just trying to get your thought -- your higher-level thoughts on kind of industry structure and where you fit within it longer term.

And we're definitely seeing consolidation. Jim and I have both been in the telecom industry for about 30 years now, even on the wireless side, turn of the century there were 20-plus publicly traded wireless companies.

All the Sprint affiliates.

There would be 3, yes, and we were certainly part of the Sprint affiliates arrangement. But I think we're definitely going to see some consolidation in the industry. I think there is an opportunity for us to potentially consolidate some of the smaller players within our region. We had a recent tuck-in acquisition in Virginia. That's in addition to the Horizon acquisition last year. So we think we can be a player there.

We think we've proven that we can actually integrate these acquisitions. The acquisition in Virginia occurred in July. We've already moved them onto our network, onto our billing system, the Verizon acquisition last year. By the end of the year, we completed the migration to our billing system, all the back-office systems. So we think we can be a player there, but we definitely expect to see consolidation in the industry, and it's already started.

Okay. And you can be part of that as well, to your point, where appropriate. What have you learned and what processes you put in place for integration for the back office of billing? That's always been what's tripped up acquirers and telecom. It's always -- that was always the stuff that created issues. So what have you learned, what processes do you have in place to make sure that you don't face similar hurdles?

Well, any of these acquisitions, we put a team in place focused on that acquisition. Our Chief Information Officer has actually helped us lead these acquisitions. She's done an outstanding job there. We think we do have the processes in place to consider the billing systems and the back-office systems to gain some of the synergies that we've seen with the Horizon acquisition and the more recent tuck-in acquisition as well.

Okay. So I wanted to shift back to Glo Fiber for a moment and just ask you how your strategy there has evolved over time as you continue with the fiber build-out?

So back in 2019, when we launched Glo Fiber, we were still primarily a wireless company. You mentioned the Sprint affiliate arrangement. We were a Sprint affiliate. And when T-Mobile bought Sprint, they had a call option for our wireless business. So we reluctantly sold the business, sold that for almost $2 billion. So we paid off all of our debt with the proceeds. We provided a significant special dividend to our shareholders. We used the remainder to fund our Glo Fiber build and really accelerate that Glo Fiber build. So that's really helped us. Again, with Glo Fiber, we're really focused on being the first fiber provider to the markets, and that strategy has played out for us.

When you look at the growth we saw after we launched Glo Fiber, first 3 years after that, we saw EBITDA CAGR rates about 18%. This year, we're off to a great start as well. Year-over-year, our EBITDA is up more than 20%. So we're starting to see some traction as we gain higher penetration rates in these Glo Fiber markets.

Okay. And how is the, I guess, customer adoption trended over time? Has there been an education process for the customers in your area? Is it more of a pull or demand driven when they find fiber available, there's tremendous demand for it. So what is the education and the marketing process as you roll out fiber into some of these newer areas?

Well, there's a certain group of customers that as soon as they get another option other than the big cable guy, they're going to move. But a lot of it is positive word of mouth within the community. When we go into a new community, we're looking for a warm embrace from that municipality. We want to be a partner with them in not only building the network, but offering the services to their constituents.

I think there are certainly opportunities for us. We're really focused on market segmentation right now, digital marketing, making sure that we're getting the right offer in front of the right customers. We're basing that on household income, home values. We're starting to see success for that as well. We also have a direct sales team that goes door-to-door. They participate in community events, whether it's the local fair, local festivals, et cetera. So about 1/3 of our sales are coming through the door-to-door sales channel, about 1/3 are coming through our web sales channel. And then we also have an inbound call center that's handling about 1/3 in combination with retail stores in the local markets.

I think you touched on it. I don't want to skip over it. Your comment about local markets, I think also your customer service approach is different maybe than a lot are used to and take advantage of the low CSAT at cable companies. So can you expand on that a bit, how you have a different approach to customer service, community involvement that allows you to take the share that you were talking about earlier?

Sure. We do focus on providing outstanding local customer service. We hire all of our customer service reps within the markets that we serve.

So you're not talking to somebody overseas when you calling a customer service being bounced around. It's all local, and it feels like a warm embrace versus the...

Great. If you're in Virginia, you're likely going to be talking to a customer service rep in Virginia. If you're in Ohio, you're likely to be talking to a customer service rep in Ohio as well. So we make sure that we answer the phone and connect our customers to a live person. We don't believe in endless automated call queues. Our abandon rate, we've averaged about 6% year-to-date. We think that's among the leaders in the industry. When you look at our average time to answer, it's about 2 minutes. So we're connecting customers to live reps without having the long waits that they may experience with some other providers, some of our competitors.

And do you have any statistics to share maybe that have backed up or support that, whether it's your CSAT relative to the cable companies or even churn rates? I would love to hear your comments on churn rates over time as well, maybe how that's trended. Any kind of metrics you can add?

Sure. So our Net Promoter Score is 69. Compare that to some of the big cable guys, they're in the single digits or even negative in some cases. So we believe that our customers do appreciate the service we're providing. As far as our churn, we've averaged about 1% churn. So we don't think that's among the...

Industry average, Verizon was sitting around 1% this morning, too. So you're up there with the larger telcos.

Yes. We think we're up there with the big guys.

Okay. No, it's very impressive. I just mentioned Verizon. Maybe think AT&T obviously has been talking about a more aggressive fiber build-out of their own, right, 60 million plus. I thought Sampath was foreshadowing a bit this morning that they may also talk about an expanded fiber strategy once we get closer to the Frontier deal closing. So how does Shenandoah fit into that kind of that world where you have AT&T and Verizon, they're going to be passing 100 million-plus households across the United States, other private also building out. Do you fear that you're going to get boxed in? Or is there an opportunity for you to be part of those expansive fiber strategies at AT&T and Verizon and perhaps help them meet their goals of more fiber passings to combine with their wireless?

There's certainly potential to work with them, but we focus on smaller markets. Big market for us is 50,000 passings. Most of our markets are 10,000, 15,000 passings. So smaller markets, we've seen very limited activity from the local telephone companies in our markets as far as fiber construction. In few cases, if they're an adjacent market to us, we have seen them edge out. And when they've done that, we've basically bypassed those neighborhoods where they've built fiber. So that's again, key for us is being the first to fiber in the market.

And you think that's a blocking position then if you're the second, generally, another competitor is not going to want to come in and be the third because your returns fall precipitously.

They do fall precipitously. And once -- when you're the first one in, you're going to take a significant portion of that market share upfront. And once you have a customer that's on fiber that has gigabit speeds and happy with the service, they're very unlikely to churn.

Yes. With that low churn rate, I'm assuming relatively low move rates in the markets where you operate as well, which is obviously a component of churn over time. So very, very sticky customer base. And maybe, Jim, just coming back, I don't think we touched on it yet, but a really important metric is the cost to pass, right? And the fear or the conventional wisdom was that fiber wouldn't get built in some of these less densely populated areas, and I'm from Ohio, I'm kind of familiar with some of these markets and a lot of space in between homes, right? And so the conventional wisdom was that they're not going to get passed because the cost to pass is just too high. They're going to be fixed wireless. They're going to be DSL, maybe cable. So maybe talk a bit about your cost to pass and how you're achieving the economics that you talked about earlier.

Yes. We're seeing -- we're generally passing 80 to 90 homes per route mile of fiber. That translates to about $1,000 to $1,400 per passing. I would say the -- we've been doing this for 6 years. The earlier markets were probably closer to the 90 homes per mile in the passing, the cost to pass was closer to the $1,000. What's left to be built at this stage is probably more on the 80 or even maybe slightly less than that and the cost of passing is about $1,400.

So that's one of the key variables when we look at underwriting these markets to a 15% IRR or higher. The cost to pass is a significant -- that's the cost to enter. But what we're seeing is the areas that we're going into are kind of now going outside of the town centers, the dense areas and going more into the suburban sprawl. The demographics tend to be better. And the penetration rates we're underwriting them to be higher and the ARPUs, we have probably one of the higher ARPUs from a fiber provider side. We were $77 in the second quarter of last year. So we can still get to the same returns on investment with higher penetration in these given markets even if the cost to pass goes up, in this case, 10% or 15%.

Okay. And most of your markets buried or strong plant?

It's about 50-50.

So you're a mix. Do you see a notable difference in the cost to pass for the buried versus the strong?

Typically, cost to burry is higher. And we have a lot of rock in some of our markets in the Western part of Virginia and Pennsylvania. But one of the challenges we have is even with aerial, costs have increased, and that's for the permitting and the make-ready cost, the cost for the power companies to make their poles ready to attach. We've seen the power companies really trying to pass all of the costs on to us for the past SIMs of other attachments. So that's certainly a challenge. And if there's a -- we're disciplined with our CapEx. And if there's a market that's expensive to build because of increased make-ready costs, we're not going to build it unless we get our returns.

And is that permitting process, is it affecting the pace of your fiber build at all?

It definitely impacts the pace as well. When you look out over the past year, I think the power companies have been really overwhelmed in some cases by all of the broadband projects that are going on. So it's taking more time to get permits processed at this point.

It seems like that issue has yet to be solved after, what, 20 years of building fiber. We can come back to the same issues we had 20 years ago.

No, it never changes. The permitting process is always painful, I guess. You mentioned very high ARPU in your areas and targeting specific demographics. What do you view as the potential or the trend for ARPU over time? I mean do you see that contributing materially to revenue growth over time? Or is it going to be more of a Q and the P x Q equation?

Yes. We're winning market share. We're going in as the new guy. So we're not looking to raise prices. We haven't raised prices in 6 years. So we're looking to take share. But the high ARPU is really coming from -- we do very well at the middle to the high end of the market. Over 50% of our gross adds each month are taking or buying the gigabyte plus plans, which generally start at $80. So that is -- we're doing very well in that segment of the market, and that's kind of driving the higher ARPU than maybe some of our peers.

Okay. And what role is government funding played in your builds? Are you getting the BEAD funding? Is there other government funding that's factored into the builds?

So we've been awarded over $100 million in grant funds so far, and that's the build to unserved areas. That's primarily around our incumbent cable markets. And those were through American Rescue Plan Act funds. So we've already completed a significant portion of that construction, and we'll be wrapping that up later this year and in 2026.

As far as BEAD funding, we don't see a big opportunity in our footprint. We have applied for a BEAD project in Ohio in our local telephone company footprint. But overall, when we looked at the density of those BEAD projects, it didn't make sense for us. As Jim mentioned, in our Glo Fiber greenfield builds, we're passing 80 and 90 homes per mile of fiber in these unserved areas, it would be part of BEAD projects. It would be maybe 8 homes passed per mile. So when we looked at the level of effort and the resources required to build that mile of fiber on those BEAD projects versus continuing to build in the greenfield Glo Fiber markets, we decided to focus our efforts on continuing the greenfield Glo Fiber markets.

Is that the economics don't make sense, so the funding relative to the cost and projected revenue? Or is it just that like we have finite resources and rather put those resources to the Glo Fiber rather than 7 or 8 homes per mile. So is it a math or a return problem? Or is it just, like I said, capital -- or sorry, human capital resources and not want to put them there?

It's a return problem in some cases. We can't get the same returns we're projecting in the Glo Fiber markets. But in our case, it's also a resource issue.

Do you think they moved the ball? They kind of came back with some slight tweaks and changes to the BEAD program, seem to open it up maybe some alternative solutions, have the states go back. Do you think maybe they move the ball and change that? Or did the math never make sense to you?

I think it moves some around the edges. I don't think -- at least the states where we provide service, I don't think there was a material shift in the policy. I do think some of these providers that have taken the BEAD money, they're going to struggle to execute on the build plans. So we'll see what happens there.

Why didn't they'll struggle to execute?

Just because of the permitting challenges because in most cases, they're going to be building aerial in these rural areas.

It goes back to the power company operator wanting to pay for the alterations to the plant.

Absolutely, not only from a -- having to pay for that, but the time lines as well. It's going to push those completion dates out, I think, significantly in some cases.

Okay. And you haven't seen the local regulators step in at all and try to incentivize or at least push the utility companies along and say, "Hey, look, you're repeating a project that's really important to us both locally, but also at a national level all the way to the FCC and the White House for increasing broadband deployment." You haven't seen any pressure or any movement there?

So in West Virginia, for example, we start -- have started to see some movement and some pressure from the state. But other than that, we haven't seen any significant changes.

No movement at this point. We've been talking a lot about the residential side, I've been asking about that. But your commercial fiber strategy, can you just talk about what that is or how you think about the commercial part of the business?

Sure. So if you look at our commercial business, roughly half of that is the big wireless carriers and wholesale. The other half is mid-market enterprise and education customers. I mentioned the increased scale from Horizon has certainly helped us with the big wireless carriers. We're also getting a lot of traction serving education customers, school systems. We serve over 40 school systems throughout our footprint. We're a big participant in the E-Rate program, bringing broadband and data connections to these rural school districts.

And I mentioned earlier, a key is connecting these smaller markets, these rural areas back to major data centers. And also, when we build out Glo Fiber, our commercial business is very complementary. We have numerous examples where we build out to residential homes with Glo Fiber. We've been able to come in and win the business of the school system there and also win service with the local government as well. So we view the residential service and our commercial fiber business is very complementary.

Okay. You mentioned a few times the connectivity back to data centers. Can you just help me understand why that's important to you and to your customers?

Sure. They -- our customers need to connect to possibly a corporate office somewhere. If we can get them to that data center, they can connect to the outside world. And also, it helps us efficiently provide Internet service to these businesses as well throughout the network.

Okay. And if I'm correct with my math, I mean your acquisition was more in Western Ohio, which not necessarily contiguous with your legacy plant. So how important is it for acquired plant to be contiguous with existing? And then how does that change the math around potential synergies, if at all?

Yes. So the acquisition in Ohio was primarily Southeastern Ohio. So it is contiguous with our network in West Virginia and Pennsylvania. So we are connecting those networks. So we will have a contiguous network connecting Ohio all the way to the Washington, D.C. area and all the way to Chicago as well. So we think that is important to have that connectivity. And also from an operational standpoint, we're able to operate more efficiently with our teams in West Virginia and Ohio, complementary with each other.

Okay. Well, I was definitely wrong with my math then. Embarrassing for a guy from Ohio, I should have known that. So would you consider acquisitions that are not contiguous with your existing plant? Are there scenarios that would be attractive to you?

I think we would consider it, but there would have to be enough scale for that to make sense. We would not be interested in a lot of little islands that weren't reasonably geographically adjacent to our current network.

And Michael, I think that is one of the differentiators of Shentel is we're only in 8 states, but 7 of the 8 states, we provide both residential and commercial services in states. We think we get much better returns on that fiber investment when we put the fiber in the ground as opposed to a lot of our peers do maybe one or the other, but generally aren't doing both. So we think that helps us differentiate ourselves a bit from some of the others.

Okay. And I asked earlier about cable, and you just brought up the commercial part of the business as well, and cable recently signed an MVNO with T-Mobile that allows them to go after the business customer with wireless, right? Previously, it was only businesses with 20 or fewer employees. With the Verizon agreement, this moves it from kind of 20 to 999. Do you see that impacting your commercial business as well? Is that any different with the ability to bundle broadband with wireless? Or as you view the same as on your residential market?

Yes. I view that the same as our residential markets. The big 3 wireless carriers, they have strong wireless coverage throughout our footprint, really not any material amount of fiber-to-the-home or broadband service. So I think there's plenty of opportunity for customers to buy Shentel or Glo Fiber service, wired service and bundle that with 1 of the 3 big wireless carriers.

Who's the dominant wireless operator in your markets? Is it AT&T, Verizon, T-Mobile? Do you have a sense?

I would say T-Mobile has the best coverage. That's because we built the network before we sold it to them. But all 3 of them have solid wireless coverage in our markets. I would say Verizon and T-Mobile are probably in the lead though.

Okay. Makes sense. I want to leave a minute or 2 in case anyone in the audience has any questions here for the guys. So if you do, just please let me know. Otherwise, I kind of roll forward here a bit. So another kind of big part for traditional telecom investors is the return of capital, right? You've been focused very much on deploying capital to build out the network. So how should we think about Shentel's strategy for returning capital to investors over time? What's your framework on that?

Yes. We're very disciplined in our capital allocation. As Edward was mentioning with regards to BEAD, we just don't see the returns on investment there. We're not really seeing many new markets to build into from a greenfield market approach where we can be a duopoly with good density and strong demographics. So I think our capital allocation will change. We're about to hit an inflection point in 2027. When we complete the build in '26, we should flip to free cash flow positive. We've been free cash flow negative for a couple of years here because we were building out Glo Fiber, and we were underlevered due to the T-Mobile transaction that we started with a clean balance sheet 4 years ago.

But at this stage, we're very focused on hitting that inflection point as a publicly traded company. We think it's important to get back to free cash flow to get a wider investor base and interest. as we've done different IR events over my 6 years here, some -- we have a lot of fans out there who may be on the sidelines right now because they can't invest in negative free cash flow, small cap companies, right?

Sure and just -- sorry, Ana, did you raise here? Yes, I have one more quick one. Can you just remind me, Jim, what your current leverage, your leverage target just so we have those numbers? And then maybe just to kind of dig into my prior question a little bit more, how you think about the benefits of either whether it's dividend, stock buyback over time when you finally do hit the leverage target and have more optionality?

Yes. So we're -- today, we're -- our net leverage is about 3.7x. That will probably have another turn of leverage by the time we complete the build. So it would probably be 4.5 to 4.75x by the end of '26. But with turning free cash flow in '27, that's where our debt should cap at the end of '26. And as we keep growing EBITDA, we're going to delever naturally just through higher EBITDA levels, delevering. We should be back under 3x by '28, '29 time frame based upon that. So from a -- once we get into the free cash flow positive scenario again, I would say, generally, we've always -- Shentel has been doing this for a long period of time. We generally look to always reinvest in the business first. But as I mentioned, we're finding less and less opportunities to do so.

So I think we would turn to potentially returning value to the shareholders, and that could be through -- we have an annual dividend today, which is only about a 1% yield. It's something that's important to the retail shareholders that we're planning to continue, but we could potentially increase that or potentially do a share buyback or we have a preferred equity out there. That could be another use of funds if we decided that we wanted to eliminate that down the road, we should have the cash proceeds and the cash flow to do something along those lines as well.

Okay. That's great. Anna, did you have one?

Yes. I just wanted to clarify your earlier comments on the debt capital structure strategy. So currently, you largely have loans. You said you intended to tap the ABS market. And so timing on that, number one. And then two, were you referring to sort of like an entire company ABS? Would that be your entire capital structure? Or is this still going to be a balance between ABS and loans or other kinds of corporate bonds?

Yes. We're planning to access the ABS market probably late this year, early next year, depending upon we need to get some state regulatory approvals to move forward with it. But we're only planning to, one, put our fiber assets in there, the commercial business and the fiber-to-the-home residential business will be contributed to that. Cable will stay outside of the securitization. And we're debating what classes of ABS to issue. We don't need unlimited amount of money. I need roughly around $700 million plus to refinance what I have and what my future needs are going to be. So we may just end up accessing the investment-grade tranches of ABS, but we are preparing to have access to all tranches if we have a need to do so.

But we expect to complete that in, like I said, late this year, early next year. And we will put a small revolving credit facility essentially on the cable side of the business. I don't expect that to be utilized much. And as we go forward in a year or 2, I believe all the debt of the company will be on the fiber side of the business and cable will be essentially unlevered at that stage of the game. One of the benefits of ABS is once you put the structure in place, every quarter, every month, when we're adding customers, we're increasing the borrowing base. And we'll have what they call a VFN or variable funding note facility. It's kind of like a revolver on the securitization that we could borrow against if we needed additional funds down the road at more favorable investment-grade rates than what we're getting today.

Okay. Great. Hey, guys, thank you so much for coming out. Really appreciate it. All right.

Thanks, Mike.