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. I'm really grateful to have Ed McKay from Shenandoah here again with us. 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, Virginia, but glad to be here. Thanks for the invitation. Yeah. We love to have you, so thank you again for that. I wanted to start really high level in something that's I think of interest and topical for the entire telecom ecosystem and that's SpaceX and Starlink. 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 the U.S. is about 20% rural. Depending on the definition. 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, a New York City or a Los Angeles. 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? 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. 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. 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. 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 as 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. We think there'll be less of an impact from satellites in those fiber-to-the-home markets. And then as you 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 it in 2019. Now is the time to fill up that network. So we are focused on driving data penetration in those markets. Current penetration rates about 21% on average. We're projecting 37% penetration sort of midterm, 5-7 years after we launch a market. So we believe we have significant upside from organic growth in the Glo Fiber markets. 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. Then I'd say the third priority would be keeping our expenses under control and operating 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 those are what I keep emphasizing with the team in the coming year. I want to come back to the expense side and even the data center connectivity market opportunity. I thought I'd want to stay focused on Glo Fiber here for a second. As you think about the return on investment, right, for fiber, I think generally ballpark people say greater than 20% penetration is what you want to get to get to an adequate return. You're targeting 37%, but the other factors are obviously going to be price and then churn. Based on what you know now and your projections, where do you expect your return to go over time on the investment you've made? I guess what are the levers or variables that you're watching most closely for any risk to that return target? When we build our business case for a Glo Fiber market, we have a 15% IRR- Yeah threshold, and that's an unlevered IRR. We're well on our way to hitting that target with our penetration curve. We monitor our growth curve carefully. Since we launched in 2019, we have a predictable growth curve that our cohorts typically follow. That's been very predictable. From an ARPU standpoint, our ARPU's 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. 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. On the disconnects that you see, you mentioned Starlink earlier and some of the discount and 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. Yeah. 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. 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- Yeah send a fixed wireless signal directly into a large building. Okay. 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 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 are feeling very good about our ability to hit our penetration targets. Mm-hmm. You are better positioned than some of your peers that have been doing over builds 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 amongst some of the emerging fiber operators? Do you think that happens? If not, what do you think the path is for the industry? Yeah, 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. How do you evaluate valuation? I know some evaluate just in a simple cost to pass, right? Where they'll do a cost per home pass, 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, depends on the density of the market and that cost to pass, and just as important, the demographics. We've noticed in the lower income areas, it's a challenge getting as high a penetration rate. 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. In those higher end markets, it costs more to pass. You 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, right? That's right. 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 a likelihood to go up the- To a higher speed. Absolutely. Higher speed. I always wonder about that because you do sell out a market marketing for higher speed fiber tiers. I know my own fiber usage. I know 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 are 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 higher end service. A lot of internet traffic is bursty. Yeah. Those higher speeds get you the data more quickly, especially with 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 some of it, the customers in these higher end areas, they want to have the fastest speeds. Yeah, why not? A bit of bragging rights for the gigabit plus speeds. Got a Ferrari in the garage, right? Well. Can only drive 60. I want to go back to the OpEx comment that you made earlier. I hear from a lot of my companies about the challenge of keeping costs under control, right? Whether it's on the building side, because it's hard to find skilled labor, or even the white collar workers as well. We're seeing wage inflation. How are you controlling cost, and how do you plan to continue to control cost to drive higher operating leverage? 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. We're going to start to see the benefits of that starting in 2027. 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. Can you remind me, have you said publicly what your margin expansion target is for the next 12 months or 24 months? 300, 400 basis points annually. We believe we'd have some significant upside on our margin expansion. You also mentioned, I want to come back to it, the data center connectivity business, and you're not the only one. Other operators, including Verizon now, have leaned into data center connectivity. How large is the market opportunity? I have also heard from some people that the bidding process is a lot more competitive for data center connectivity, meaning people are underwriting lower returns, right? Maybe just address those two things, the size of the market and then returns you're underwriting. We're in a bit of a unique position with our fiber assets in Ohio and our fiber assets in Virginia. There's significant hyperscaler data activity from Columbus down into southern Ohio. Yeah. We already have fiber network in place. There is significant activity in Virginia, where we already have fiber network in place. 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 do not want to get into 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 sign that service order till the time we see revenue and EBITDA, it is 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 could start to see an impact in the early 2028 timeframe from a revenue standpoint. But you will see that the impact closer as far as our new sales bookings. We report that on a quarterly basis. I would say there is an opportunity for material increase in those new sales bookings with some of the opportunities we have in the pipeline. The structure of the contract. Some companies are structuring them where they receive cash up front for the build and then obviously recognize that as deferred revenue over time. It flows through, but there is not a cash impact as it flows through the life of contract. Others obviously would pay for the build themselves, and then you are charged 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 non-recurring charge up front to cover, for example, our connection from our existing fiber into the data center, and then an ongoing revenue stream as well. Okay. You mentioned Ohio earlier. Headlines recently about SB Energy planning to build a large multi-gigawatt facility in southwestern Ohio, the Pike facility. Would that be an opportunity for you or something you would be in discussions with? Just thinking geographically, I think pretty close to some of your Ohio assets. Yeah. 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. Then just going back to the Glo Fiber markets, how should we think about the ramp from the 21% to the 37% penetration? I know you mentioned 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? When we launch a cohort, we typically have 15% penetration after the first year. After three years, that jumps to 25%+. After that, it is a gradual increase to that 37%. Some of our older cohorts launched back in 2019, 2020. They are now at 40%+ penetration. Some of it depends on the mix of residential versus commercial passings in those cohorts. The business passings tend to ramp more slowly. Sometimes they are under contract, so it takes a little while to get that. 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. Can we just talk some metrics here for a minute? We have talked about some of the pieces here, the net adds. You talked about trading up to higher speed tiers. Can we talk about the components of revenue growth and how you are thinking about revenue growth, whether it is net adds, ARPU expansion from higher tiers or other factors like expanded markets and data center connectivity? Then maybe take us from that growth rate to how you are thinking about EBITDA growth and then even growth in free cash flow? In Glo Fiber, we are a share taker right now. The primary growth there is coming from net adds. As far as ARPU and pricing, we have not increased our price for Glo Fiber since we launched service. We have given customers higher speed and more value for the same price, but as long as we are taking share, we are 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. On the commercial side, most of our growth there is success-based growth. When we sign a new contract, we are building to the customers. We believe we have significant opportunity there. We have over 90,000 locations that are near-net within a quarter mile of our fiber. We only serve about 6,000 of those locations today. We think there is significant upside taking advantage of our existing fiber network in those near-net network opportunities. I think those are the big drivers of the revenue growth. I mentioned earlier, we are focused on keeping our operating expenses constant, and that is going to drive the higher EBITDA and EBITDA margin expansion. Then I guess, beyond EBITDA, how are you thinking about CapEx? 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 CapEx is going to decline significantly. 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 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, I think you said a quarter mile, I think, right? What is the cost to connect each of those locations? It varies a little bit. Typically, 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. We build a model there with a target IRR. Again, we're targeting 15%+ 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 if there's additional opportunity along the routes. Okay. I asked earlier about the competitive threat from Leo for residential. Yesterday, I think it was yesterday, AT&T announced an agreement with Amazon Leo for commercial or business broadband. Right? How do you think about Leo as a competitive threat or even affecting your builds, given, say, $5,000 a connection, affecting your business decision connectivity? I think in many cases, these businesses are still going to want fiber. 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. We talked a little bit about consolidation earlier, and you have expanded your footprint over the years when Ohio was an expansion market, correct? How should we and investors think about the qualities of markets as you think about potential expansion? I mean, is that kind of that Midwest area, is that the right geographic region, or you want to look more broadly? How should we think about the criteria? Well, we're operating in eight states now. We've launched the Glo Fiber service in six 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 that 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. They're scattered all over the place. We've 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. Are there size constraints we should think about for consolidation? Is something too small or too large? I guess the other part of that would be on the too large side, how should we think about leverage and how much leverage you are comfortable with, and how you would think about financing any acquisitions? So from a size perspective, if it is a smaller pure play fiber provider that we could easily integrate and it is adjacent to one of our markets, we would do that all day long. If we were going to jump, let us say, to another adjacent state where we do not currently operate, we would want something likely larger, 100,000 type passings for that. 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. Presuming that you do not pursue large scale acquisition and you obviously march towards free cash flow positive in 2027, 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. I think we would also. We do think there are some acquisition opportunities, so we would want to keep some dry powder for that. Okay. You mentioned your CapEx coming down. I think we are seeing it falling below 30% in 2027. Is that correct? Is that the correct target metric that you had? That is right. Yeah. 25%-30%. When you look at our Glo Fiber, capital intensity is going to be about 25% in 2027. That will come down over time. It is still elevated because we have a significant number of homes where we are connecting fiber to that home for the first time. Doing the drop. Yeah, that's right. Doing the drop. Yeah. Installing the optical equipment. As we get more homes wired with a 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. 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 to previously- unserved areas. That's with fiber. 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 a video service migration. We're moving from 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. Can you remind me if any of the areas where you operate or adjacent to where you operate are the BEAD eligible areas or areas that 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. Mm-hmm. Yeah. 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. 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 gave us the passings we wanted. There wasn't a whole lot left that wasn't covered by that where there was BEAD 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. Yeah. Again, there really wasn't that much left. 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. 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. No, makes sense. I wonder back to the capital intensity for a second, because to me, I understand you're ending a major build, so capital intensity is going to be higher, but even the target next year or two, at least to my eye, seems relatively high maybe versus a more traditional telecom company. So where can that go over time? Can you get into the mid-teens over time? Is that a target longer term we should be thinking about? Yeah. 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. The cost per drop, you mentioned a lot of the spending right now is actually on doing the drop or the final connection into the home that's relatively labor intense, so there's more equipment- Right 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 per drop? All in to connect a new customer between $750 and $850. That's for the drop. That's not for the passing. That's for the drop and the labor and the equipment that goes Yep that goes in the home. But the drop itself, $250-$350, depending on whether it's aerial or underground. Okay. 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. Then, I guess, how can those costs change as we move forward? Because obviously once you connect a home, when you have churn, that CPGA, the cost per gross out of 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 the Wi-Fi equipment in the home. the cost would be 35%, 40% of what it was originally just to potentially replace the Wi-Fi equipment. As we're installing the optical equipment in the home now, we're attaching it to the wall, leaving it in the house. Yep. That'd be the ONT, I guess, or? The ONT, correct. Okay. Perfect. As far as equipment cost, we've not seen an increase there. In fact, we've been able to keep our equipment cost steady. We've been going through an RFP process right now for our equipment in the customer prem equipment. We don't believe we're going to be seeing an increase there in the near future. Hugh, where are you sourcing the equipment, the ONT and other equipment? The ONT, we use Calix and Nokia. Okay. For the Wi-Fi equipment in the home, we use Calix and eero currently. Okay. You already mentioned some of the balance sheet and some of the cleanup or the things that 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 our ARPU. We don't expect to grow that incumbent business, but Glo Fiber and commercial fiber are the real growth engines. Those are the levers for growth, presumably keeping the ARPU relatively flat to hopefully some upward trajectory to ARPU as well, correct? Correct. Just this past quarter, our fiber business has started generating more revenue than our incumbent business. We're going to continue to see that grow. More and more of our revenue, more and more of our EBITDA, are going to be driven by fiber as opposed to the incumbent business. Okay. I'm going to open it to audience for questions here in one minute. I'll ask one more. Then there are microphones to go around as well if anyone has any questions. For Glo Fiber, you said you're finishing your build this year for Glo Fiber? Yes. That's correct. By the end of the year, we expect to have 510,000+ Glo Fiber passings. Okay. And who are the major competitors in the markets that you're seeing? Mostly cable companies still you're taking market share? Yeah. Primarily the big cable guys. We have very little fiber competition in our Glo Fiber market. Yep. 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. In your markets, I think the FCC broadband report said that like 75% of all markets have three or more broadband options. So in the markets where you compete, how many broadband options exist? In Glo Fiber, as far as wired broadband options, Yeah it is typically two. It's you and cable. Us and cable, yes. That's because we've targeted smaller markets. We targeted smaller markets where there was less competition. What we've seen as we've built out fiber in these markets, we've never seen another fiber overbuilder come into our market. We've seen a relatively small number of fiber upgrades by the local telephone company as well. Okay. You expect to continue to share gains from cable over time marching towards that 37%. Yeah. Yes. The majority of our gross adds are coming from cable. Okay. I think we have time for one or two questions if we have any from the audience. Okay. I do not see any hands. Okay. Great. We can go ahead and wrap it up there. Thank you so much. I appreciate it. I appreciate it. Thank you. Thanks for coming out. Thank you.