Good morning, everyone. Welcome to Shenandoah Telecommunications Fourth Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Kirk Andrews, Director of Financial Planning and Analysis for Shentel.

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for 2021. Our results were announced in our press release distributed last night, and the presentation we'll be reviewing is included on the Investor page at our website, www.shentel.com. 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 Chris French, President and Chief Executive Officer; Ed McKay, Executive Vice President and Chief Operating Officer; and Jim Volk, Senior Vice President of Finance and CFO. After our prepared remarks, we will conduct a question-and-answer session. As always, let me 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. These may cause our actual results to differ materially from the statements. Therefore, I 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. And with that, I will now turn the call over to Chris. Go ahead, Chris.

Thanks, Kirk. We appreciate everyone joining us this morning and trust that you are staying healthy and safe. As summarized on Slide 4, 2021 was truly a transformative year for Shentel. We successfully divested our wireless business, our largest business segment at the time for $1.94 billion and used the proceeds to pay almost $940 million in a special dividend to shareholders and to pay off all of our debt. Simultaneously with the divestiture, we raised $400 million in growth capital to find our ambitious Fiber First growth plan. We invested $82 million in 2021 to grow the Glo Fiber network and customer base, achieving a record year for Glo Fiber construction and net additions. We also secured franchise agreements for 175,000 new passings and were announced as the winner of over $54 million in state and local grants that will subsidize construction to 16,000 unserved homes. We start 2022 with a fiber construction backlog of over 255,000 passings in addition to the 75,000 Glo Fiber homes and businesses passed as of the end of 2021. We now have franchise approvals to build over two thirds of our 2026 goal of 466,000 fiber passings. We expect by the end of 2023 to pass more homes and businesses with fiber than our incumbent cable network. We're very excited about the creation of this platform that will provide sustainable growth for the next several years. Additionally, as we resized our organization to reflect our smaller broadband focused business, we obtained $4 million in annual run rate expense savings. We continue to take opportunities to drive non-employee cost out of our business through changes and procurement practices, software automation, and lower facility cost. We have now identified an incremental $5 million in annual operating cost savings that we expect to achieve by the…

Thank you, Chris, and good morning, everyone. Before I review our results for 2021, please note that we made a few changes to the presentation of our financial statements and non-GAAP metrics for the years 2019, 2020 and 2021. We have changed the non-GAAP metric previously reported as adjusted OIBDA to adjusted EBITDA. The change in fact is in description only, and did not impact current or prior period results. During the fourth quarter, we discovered an error in our previously issued financial statements related to the capitalization of labor and overhead costs associated with certain customer installation activities in our broadband segment. Although we determined the error to be immaterial to our prior annual and interim financial statements, the cumulative effect of the error would be material if corrected in the current year. Therefore, we have revised our historical financial statements for 2019 and 2020 to properly reflect the impact of expensing certain fulfillment costs previously capitalized as a contract asset. The impact of the error increased broadband cost of service by approximately $900,000 in 2021. Please see Note 1 of our financial statements filed last night and the appendix to the earnings call presentation posted on our website this morning for more details, and recasting of prior period results. We also had an unusual number of nonrecurring, or add period adjustments embedded in our fourth quarter financial results that I'd like to highlight. We recognized a $5.9 million impairment charge related to our decision to cease expansion of our beam network that we announced in October. We also began to expense certain cable replacement costs in the fourth quarter when we replace a cable or fiber drop or other small section of our outside plan. The added period adjustment of $2.4 million was recorded in broadband cost of…

Thanks, Jim, and good morning. So I'll begin on Slide 13 where we summarized our primary product offerings. Our Shentel incumbent cable networks offer data, voice and video services to 211,000 homes and businesses in small towns and rural areas of Virginia, West Virginia, Maryland and Kentucky. We currently offer gigabit speeds to 99% of our passings and we expect our total number of passings to grow to 220,000 over the next five years. Glo Fiber targets higher density urban and suburban areas in Tier 3 and Tier 4 markets and we continue to make significant progress toward our goal of 450,000 passings over the next five years. In addition to constructing over 46,000 new passings in 2021, we executed 20 new franchise agreements and now have a total of over 318,000 franchise approved passings. As Chris mentioned earlier, we are on track to double our current Glo Fiber passings to over 150,000 by the end of 2022. As we previously announced, we have ceased further beam fixed wireless expansion due to the influx of government broadband grants for unserved areas, and we do not anticipate any additional beam passings in 2022. However, we are actively pursuing government grant funding, and have targeted 32,000 passings from unserved areas over the next five years. We expect to serve at least 16,000 of these via fiber. Shentel has had early success with government broadband grants, and in December, we were announced as the winner of over $36 million in Virginia telecommunication initiative grants through a partnership with five counties. Shentel will leverage these grants along with an additional $18 million in matching funds from the counties, which will likely be sourced primarily from their local share of the American Rescue Plan Act infrastructure funding. These projects will bring broadband to over 16,000…

Thank you. Your first question comes from the line of Dan Day from B. Riley. Please ask your question.

Yes, good morning, guys. I appreciate you taking my questions. Just first one on the segment level broadband EBITDA margin, obviously a little bit depressed in the quarter, just how should we be thinking about that for 2022? It seemed to approach high 30s, low 40s, outside of that quarter. So is that number still kind of what we should be thinking about modeling moving forward?

Yes, Dan. So there's a couple, there's quite a bit of noise in our fourth quarter numbers as I made in my scripted comments at the beginning. So, I guess first is, we were still in 2021 we still were incurring losses related to both beam and Glo. Those losses were about $5 million to $6 million in 2021. We expect the Glo to turn to be breakeven this year, so we're on the cusp of turning positive likely in the second half of the year. But we do expect beam to be a drag on adjusted EBITDA in 2022. In addition to that, there was some heavy out of period expenses that hit in the fourth quarter that I highlighted. The impact going forward is about $2 million of incremental expense a year is what we're estimating on top of that. So, to summarize, excluding Glo and beam our adjusted EBITDA margins for broadband should be around 40% with the expected continued losses coming from the beam side of the house. That number, that EBITDA margin number will likely be in the high 30% margins until we go EBITDA positive on both Glo and beam.

Got it, thank you. And then just anything you're seeing out there as far as, like labor costs, construction cost pressures as you build out Glo Fiber? I know you guys did a good job with raw materials and all that, but just specifically on the labor and security and construction crews and all that, any issues with that?

Yes, Dan, no issues of security, construction crews up to this point. As I mentioned, in previous calls, we focus primarily on regional construction companies. We've been, we've had long-term partnerships with them. I think rates have gone up slightly, but we're also seeing some efficiencies in our network architecture that we were able to keep our costs in line with what they were previously.

And then just last one from me on the EBV program, I know that's been made permanent with the infrastructure bill, any increased uptake with this sort of new permanent program, whether it's new customers, existing ones increasing speeds or anything like that?

No additional significant traction at this point. We still have around 1000 customers on the EBV and the replacement programs, but no significant changes at this point.

All right. I appreciate you guys taking my questions. I'll turn it over.

Okay, thanks, Dan.

Your next question comes from the line of Frank Lucian from RJF. Please ask your question.

Hey, thank you. I missed the part of the first part of the call and so, but I still don't follow on the margin side. And can you just walk me, you said in Dan's last question, you're looking at 30% EBIT margins for the quarter it came in quite a bit below that. What should we expect you to report on the EBITDA line for the margin on a go forward basis? How should we think about where that's going to be settling out? And then can you, what are some of the bigger deltas in the quarter, versus maybe what we were expecting, the Street was expecting?

Yes, Frank. So looking forward, we would expect the EBITDA margins for broadband to be in the high 30% range as we move forward. As I look at my crystal ball here, that should grow as I mentioned, to Dan earlier, that those margins should grow as beam matures and becomes EBITDA positive and starts to contribute, which we expect in the second half of this year, and then to be positive going forward from that aspect. So we do expect the margins to grow and as we kind of look further out four or five years out, as we scale up the Glo business, we expect the EBITDA margins eventually to reach about 50% as we get five, six, seven years down the road.

Some of those consolidated EBITDA margins for the company that you report on the EBITDA line what will that number be?

Consolidated numbers?

Hmm…

Let's see, so consolidated numbers are going to be a little bit lower than that. When you factor in the corporate expenses, so in 2021 we were in the high 20% range that will continue we expect in 2022. And then again, as we start to get contributions, we scale up the Glo Fiber business and start to get contributions to EBITDA, we expect the margins to grow into the low-to-mid 40% range as we get five to six years down the road.

Okay, all right, thank you.

Okay.

Your next question comes from the line of Hamed Khorsand from BWS Financial. Please ask your questions.

Good morning. So first off, I just want to see because it sounds like your intentions are to keep the beam business going, is that true?

Correct. Yes, we've already built towers. We plan to continue to operate the beam business. We just paused any construction on any new sites and don't plan on building any in 2022.

So would you still be able to add subscribers to it?

Correct, yes we would -- we will actively be adding subscribers to the existing sites.

All right and on the Glo Fiber side the aggressive build out at what point would you expect to generate subscribers on pastors this year, would it happen immediately?

Hamed I could not hear the question, could you repeat it please?

Oh, you are talking about adding 75,000 on the home pastors right, for this year and I'm just trying to gauge is the timing as to as these 75,000 come on, what would the timing be as your ability to actually add customers from these 75,000?

So those 75,000 are roughly distributed throughout the year you will complete a construction or probably the number is slightly higher on the back half of the year, but as we complete the construction for these 75,000 passings, we will turn them over to our sales team and then start selling at that point. So it will be throughout the year that we're adding customers on these new household passings.

And given that Glo is growing larger in size geographically, does that mean your ad spending will also increase?

I think the ad spending will be probably slightly higher, but it will increase as the number of our new passings increases.

But that's not going to have an impact on your EBITDA numbers?

Correct, I think our -- oh go ahead Jim.

Yes, that's factored into, like I said, we're 2022 we're on the EBITDA breakeven margin and that includes, that assumes there was going to be an increase in advertising as we open up more markets.

Got it? Okay, thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Jim Volk.

I'm not sure what that was, but any way thank you for joining us today. We look forward to updating you on our Fiber First Strategy in progress in future quarters. Have a good day.

That does conclude our conference for today. Thank you for participating. You may all disconnect.