션텔(SHEN) 2026년 3분기 실적 발표회: 설비투자(CapEx) 가이던스 상향 속 광통신 성장이 EBITDA 견인

핵심 요약

• 쉐난도어 텔레커뮤니케이션즈(Shenandoah Telecommunications)의 2026년 3분기 매출은 전년 동기 대비 4.6% 증가한 9,390만 달러를 기록했으며, 조정 EBITDA는 11.8% 늘어난 3,320만 달러를 기록했다.
• 글로 파이버(Glo Fiber) 및 커머셜 파이버(Commercial Fiber) 매출은 19.5% 증가해 연결 매출의 52%를 차지했다. 경영진은 이 비중이 2028년까지 약 60%에 달할 것으로 전망하고 있다.
• 글로 파이버는 사상 최대인 8,600명의 데이터 고객을 순증하며 2025년 3분기 대비 48% 증가한 실적을 거뒀다. 전체 데이터 고객 수는 전년 동기 대비 32% 증가한 약 10만 9,000명에 달했다.
• 회사는 2026년 매출 가이던스를 3억 7,000만~3억 7,700만 달러, 조정 EBITDA 가이던스를 1억 3,100만~1억 3,600만 달러로 기존 제시안을 유지했다.
• 설비투자(CAPEX) 가이던스는 추가 글로 파이버 파싱(passings, 연결 가능 가구·회선 수) 및 정부 보조금 환급 지연을 반영해 기존 2억 2,000만~2억 5,000만 달러에서 2억 5,500만~2억 7,500만 달러로 상향 조정됐다.
• 경영진은 연말까지 주요 네트워크 확장 작업이 실질적으로 완료될 것으로 기대하고 있으며, 2027년부터 플러스(+) 잉여현금흐름을 창출한다는 목표를 계속 유지하고 있다.

핵심 재무 실적

사업 및 운영 성과

글로 파이버는 셰스텔(Shentel)의 핵심 성장 동력 자리를 유지했다. 3분기 중 2만 5,000개의 파싱을 추가하면서 분기 말 기준 네트워크 구축 가구 및 사업체 수(passings)는 약 50만 1,000개에 달했다. 회사는 현재 연말까지 약 51만 7,000개의 파싱에 도달할 것으로 예상하고 있다.

글로 파이버는 8,600명의 데이터 고객 순증을 기록하며 전체 데이터 고객 기반을 약 10만 9,000명으로 확대했다. 총 수익 창출 단위(RGU)는 전년 동기 대비 31% 증가한 12만 7,000개를 넘어섰다. 초고속 인터넷 데이터 침투율은 21.7%에 달해 전분기 대비 68basis point, 전년 동기 대비 108basis point 상승했다.

초기 글로 파이버 코호트(가입자 그룹)의 성숙도는 지속적으로 높아졌다. 2019년 및 2020년에 출범한 파싱의 평균 침투율은 38.5%에 달해 경영진의 중기 목표치인 37%를 상회했다. 지난 12개월간 월평균 이탈률(churn)은 1.1%를 기록했으며, 고객 만족도 조사에서는 순고객추천지수(NPS) 58점을 기록했다.

글로 파이버의 데이터 가입자당 평균 매출(ARPU)은 5년 가격 보장 요금제 도입 영향으로 전년 동기 대비 1% 감소해 76달러를 소폭 하회했다. 더 빠른 속도의 요금제에 대한 수요는 견조하게 유지되어, 신규 주거용 고객의 83% 이상이 최소 1기가급 속도를 선택했으며, 이 중 20%는 2기가 서비스, 5%는 5기가 서비스를 선택했다.

커머셜 파이버는 해당 분기 동안 18만 5,000달러가 넘는 신규 월간 매출 예약(sales bookings)을 창출했으며, 17만 8,000달러 규모의 신규 월간 매출 인스톨을 완료했다. 지난 12개월간 월평균 축소 및 해지 이탈률은 0.5%로 낮은 수준을 유지했다.

기존 브로드밴드 시장의 3분기 말 데이터 고객 수는 11만 명을 상회했으나, 전년 동기 대비 2% 미만 감소했다. 데이터 ARPU는 3% 감소한 약 80달러를 기록한 반면, 월간 데이터 이탈률은 1.76%로 상승했다. 경영진은 인플레이션이 가계 예산에 영향을 미치고 있는 일부 농촌 지역의 약화된 수요와 유선 경쟁을 이러한 압박의 원인으로 짚었다.

경영진 가이던스

셰스텔은 2026년 운영 전망을 유지했다:

• 매출 3억 7,000만~3억 7,700만 달러
• 조정 EBITDA 1억 3,100만~1억 3,600만 달러

회사는 2026년 설비투자 가이던스를 기존 2억 2,000만~2억 5,000만 달러에서 2억 5,500만~2억 7,500만 달러로 상향 조정했다. 상향된 금액 중 약 1,000만 달러는 7,000개의 추가 글로 파이버 파싱과 관련되어 있으며, 약 1,500만 달러는 2027년 1분기로 이월될 것으로 예상되는 정부 보조금 환급금을 반영한 것이다. 나머지 500만 달러는 몇 가지 소규모 항목을 포함한다.

9월 30일 기준 글로 파이버 확장 공사는 97%, 기존 브로드밴드 확장은 99% 완료되었다. 경영진은 두 건설 프로그램 모두 연말까지 실질적으로 완료될 것으로 예상하고 있다.

2027년의 경우 경영진은 조정 EBITDA 마진이 300~400basis point 추가 확대될 것으로 전망하고 있다. 주요 요인으로는 고마진 글로 파이버의 지속적인 성장과 12월 완료 예정인 인력 감축에 따른 연간 비용 절감 효과가 꼽힌다.

경영진은 또한 2027년부터 글로 파이버 ARPU가 보합세를 보이거나 소폭 상승할 것으로 예상하고 있다. 기존 브로드밴드 ARPU는 지속적으로 감소할 것으로 보이나, 2026년 3분기에 기록한 3% 감소에 비해 2027년 및 향후 몇 년 동안은 감소율이 1% 미만 수준에 그칠 것으로 예상된다.

리스크 및 주시해야 할 요인

셰스텔은 분기 말 기준 7억 6,000만 달러의 미상환 부채를 보유하고 있다. 순차입금 배율(Net leverage)은 2026년 말 약 5.7~5.8배(EBITDA 대비) 수준으로 마무리될 것으로 예상된다. 경영진은 차입금 배율을 2027년 말까지 5배 미만, 2029년까지 4배 미만으로 낮추는 것을 목표로 하고 있다.

정부 보조금 환급 시점은 설비투자의 변동성 요인으로 남아 있다. 회사는 일부 보조금 수령이 2027년으로 이월되면서 2026년 순설비지출이 증가할 것으로 예상하고 있다.

기존 브로드밴드 사업은 비디오 고객 감소, 농촌 지역의 가계 부담 압박, 데이터 ARPU 하락 및 일부 유선 경쟁에 계속 직면해 있다. 비디오 RGU는 13% 감소했으며, RLEC 매출은 DSL RGU의 35% 감소와 정부 지원금 매출 감소의 영향을 받았다.

애널리스트 Q&A 주요 내용

경영진은 추가 성장의 어려움에 대한 우려에도 불구하고 글로 파이버의 고객 확보는 여전히 견조하다고 밝혔다. 순증 가입자 수는 전년 동기 대비 48% 증가했으며 침투율은 여전히 22% 미만에 머물러 있어 회사의 중기 목표치인 37%를 달성할 여력이 남아 있다.

경쟁 환경과 관련해 경영진은 글로 파이버 시장에서 유의미한 변화는 없다고 전했다. 지역 전화 회사들이 일부 DSL 네트워크를 광케이블로 업그레이드하고 있으나, 회사는 이러한 움직임이 제한적인 수준이라고 평가했다.

경영진은 위성 브로드밴드가 글로 파이버 시장에서 이탈률에 미친 영향은 사실상 없다고 설명했다. 기존 브로드밴드 시장의 경우 그 영향은 이탈률 기준 10basis point 미만이었으며, 2026년 1분기 정점을 찍은 이후 매 분기 감소하고 있다.

하이퍼스케일러들과 복수의 AI 데이터 센터 기회에 대한 논의가 계속 진행되고 있다. 경영진은 협상이 진전되고 있지만 추가적인 계약 세부 정보는 밝히지 않았다.

셰스텔은 연말까지 계획된 7,000개의 추가 파싱을 포함해 글로 파이버 시장의 내부수익률(IRR)을 15% 수준으로 추산했다고 밝혔다. 회사는 반복 매출, 반복 조정 EBITDA, 이탈률 및 고객 확보 비용을 기반으로 한 고객 생애 가치(LTV)를 활용해 고객 경제성을 평가한다.

실적발표 콘퍼런스 콜 전문 녹취록

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good morning, everyone. Welcome to Shenandoah Telecommunications Third 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, Vice President of Corporate Finance for Shentel.

Lucas Binder

Thank you, Victor. Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the third 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 review is available on the Investor page of our website at investor.shentel.com. An audio replay of this call will be available later today with details included in the press release announcing this call. With us 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.

Please turn to Slide 2, which contains our safe harbor disclaimer. This call may include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from those statements. We encourage you to review the detailed discussions of risk factors in our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Forward-looking statements reflect management's current beliefs, assumptions and expectations and are not guarantees of future performance. You should not place undue reliance on them. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements or revise any forward-looking statements. We will also discuss certain non-GAAP measures. Reconciliations and additional information are included in today's release and presentation.

With that, I will turn the call over to Ed. Go ahead, Ed.

Edward McKay

Customers, advancing our major construction programs toward completion and converting revenue growth into stronger adjusted EBITDA growth. For the third quarter, Glo Fiber surpassed 0.5 million passings, an important milestone as we move closer to completing our planned expansion. We added 8,600 Glo Fiber data customers, a record quarter for net additions, and ended the quarter with approximately 109,000 data customers, up 32% year-over-year. Our fiber businesses continue to gain scale with combined Glo Fiber and Commercial Fiber revenue growing 19.5% year-over-year and representing 52% of consolidated revenues.

Total revenue was $93.9 million, up 4.6% year-over-year, while adjusted EBITDA increased 11.8% to $33.2 million. The higher rate of adjusted EBITDA growth reflects the operating leverage we are beginning to realize from continued growth in our fiber businesses. I think it is also important to recognize how Shentel's business is evolving relative to other broadband providers. While many traditional cable operators are navigating broadband subscriber declines, we continue to add customers at a strong pace. More than half of our revenue now comes from our growing fiber businesses, and with our major network expansion substantially complete by year-end, we believe we are uniquely positioned to convert that growth into expanding margins and positive free cash flow starting in 2027.

Turning to Slide 5. Our integrated network now includes more than 20,000 route -- fiber route miles across 8 states and approximately 755,000 total broadband passings. At quarter end, Glo Fiber passed approximately 501,000 homes and businesses, including 25,000 added during the third quarter. We remain on track to substantially complete our planned Glo Fiber expansion in 2026 and now expect to pass approximately 517,000 homes and businesses by the end of the year.

As shown on Slide 6, Glo Fiber customer growth accelerated in the third quarter with a record 8,600 data net additions, up 48% from the third quarter of 2025. Our 5-year price guarantee and expansion of our door-to-door sales channel have been key drivers of this growth. Over the past 12 months, we've added more than 26,000 new data customers and 30,000 total RGUs. We ended the third quarter with more than 127,000 Glo Fiber revenue-generating units, up 31% compared to the prior year.

Moving to Slide 7. Broadband data penetration reached 21.7%, increasing 68 basis points sequentially and 108 basis points year-over-year. Over the past 12 months, we released approximately 100,000 passings to sales, creating a larger base for continued customer growth. Penetration trends for Glo Fiber expansion markets are shown on Slide 8. Our older cohorts continue to increase penetration with passings launched in 2019 and 2020 now averaging 38.5%, exceeding our medium-term target of 37%. In addition to providing the fastest speeds in our markets, we remain focused on delivering outstanding local customer service.

As shown on Slide 9, our annual Glo Fiber customer satisfaction survey produced an outstanding Net Promoter Score of 58. We continue to rank among broadband industry leaders in both customer satisfaction and retention with average monthly churn of just 1.1% over the past 12 months. Broadband data average revenue per user for the third quarter was down slightly, both sequentially and year-over-year to just under $76. The 1% year-over-year decline was consistent with our expectations following the introduction of our 5-year price guarantee plans a year ago. We continue to have success moving customers up the rate card and differentiating Glo Fiber with faster speeds than our competitors. Demand for higher-speed products remains strong with more than 83% of new residential customers selecting speeds of 1 gig or higher in the third quarter, including 20% choosing 2-gig service and 5% choosing 5-gig service.

Our Commercial Fiber business is highlighted on Slide 10. In the third quarter, incremental monthly sales bookings exceeded $185,000, driven by strong demand across commercial and enterprise customers, including wireless carriers and wholesale customers. Our service delivery team installed $178,000 new monthly revenue in the quarter, and our average monthly compression and disconnect churn remained low, averaging 0.5% over the last 12 months.

On Slide 11, incumbent broadband markets ended the quarter with more than 110,000 broadband data customers, down less than 2% year-over-year. The decline in total RGUs continued to be driven by video customer losses as customers shift to streaming services. Total broadband passings in our incumbent markets increased slightly during the quarter, and we expect to complete the government grant-subsidized fiber passings by the end of 2026.

As shown on Slide 12, our 23,000 subsidized passings completed in recent years, predominantly with fiber, have reached aggregate data penetration of 43%. The 2023 cohorts are averaging more than 60% with the oldest cohort approaching 72%. These results demonstrate strong customer demand across these previously unserved areas. We expect overall penetration to reach approximately 65% over the next few years, representing roughly 5,000 incremental customers on our superior fiber network.

Moving to Slide 13. Broadband data monthly churn increased modestly in the third quarter to 1.76%. The increase was driven primarily by a combination of wired broadband competition and softer demand in some of our more rural markets, where inflation continues to pressure household budgets. Broadband data ARPU declined 3% year-over-year to approximately $80. Our focus this year has been on modernizing our offerings in these rural markets to better meet customer needs. We saw churn improve in September and expect both churn and ARPU to gradually stabilize over the coming quarters as we make additional changes to our rate card and product offerings to maximize customer lifetime value.

I want to thank our employees for their continued dedication to serving our customers and executing on our fiber expansion strategy. Glo Fiber's successful growth over the past several years reflects the collective efforts of our entire team and builds on Shentel's proud legacy.

Jim, I'll turn it over to you to review our financial results.

James Volk

Thank you, Ed, and good morning, everyone. I will begin on Slide 15 with our third quarter financial results. Revenues increased 4.6% year-over-year to $93.9 million. Glo Fiber expansion market revenue grew $6.9 million or 32.2%, driven by a 31.8% increase in data subscribers and relatively stable year-over-year data ARPU. Commercial Fiber revenue grew $1.2 million or 5.9%. This growth was driven by recurring revenue growth in the enterprise and carrier verticals. Combined, Glo Fiber and Commercial Fiber revenue grew 19.5% and represented 52% of consolidated revenue. We expect strong fiber revenue growth to continue, reaching approximately 60% of consolidated revenue by 2028.

Incumbent broadband markets revenue declined $2.8 million, primarily due to lower video revenue from a 13% decline in video RGUs as customers continue to switch to streaming video services as well as lower data revenues due primarily to a 3% decline in data ARPU. RLEC revenue declined $1.1 million, primarily due to lower DSL revenue from a 35% decline in DSL RGUs and lower government support revenues. We have successfully migrated about 4,500 DSL customers to our recently constructed broadband Internet service in our Virginia and Ohio telephone markets since 2023. We expect DSL customer base to stabilize after we migrate the remaining 600 DSL customers in the next year or so.

Adjusted EBITDA increased $3.5 million or 11.8% to $33.2 million. Revenue grew $4.1 million, partially offset by $600,000 in higher operating expenses. Incremental adjusted EBITDA margin was an outstanding 85% by -- driven by the high-margin Glo Fiber revenue growth. Compared to the same periods in 2025, adjusted EBITDA margin expanded 200 basis points in the third quarter and 300 basis points year-to-date. We expect adjusted EBITDA margins to expand another 300 to 400 basis points in 2027, driven by continued high-margin Glo Fiber revenue growth and a full year of operating expense savings from the previously announced reduction in force that will be completed in December.

Turning to Slide 16. We are reiterating our 2026 operating guidance. We continue to expect revenues of $370 million to $377 million and adjusted EBITDA of $131 million to $136 million. For our capital expenditures outlook, we are increasing our guidance to a range of $255 million to $275 million from our prior guidance of $220 million to $250 million. The primary drivers of the increase are twofold. One, we expect to construct 7,000 additional Glo Fiber passings by year-end, bringing total to approximately 517,000 from 510,000. Two, the timing of government grant receipts will likely extend into 2027, which will result in higher net CapEx for 2026. Please note that our prior CapEx guidance was based on net capital expenditures.

On Slide 17, we invested $215 million in capital expenditures during the first 9 months of 2026 and collected $22 million in government grants, resulting in net capital expenditures of $193 million. Net capital expenditures declined 9% from the first 9 months of 2025. As of September 30, we are 97% complete with our Glo Fiber expansion and 99% complete with our incumbent broadband expansion, and we expect to substantially complete the remaining construction by year-end.

I'd now like to update you on our liquidity and debt maturities on Slide 18. As of September 30, we had $760 million in outstanding debt. We have no debt maturities until 2029 and 75% of our debt is fixed rate, providing meaningful protection from potential increases in short-term interest rates. Total available liquidity was $139 million, consisting of $19 million in cash and cash equivalents, $27 million in restricted cash as required by the ABS indenture, $16 million available under the VFN, $50 million available under the RCF and $27 million remaining reimbursements available under government grants. In addition, the company has over $84 million of VFN commitments that are not available to draw as of September 30. We expect the available VFN capacity to reach the commitment levels with continued growth in secured fiber network revenues from the ABS entities. As we wrap up the final 2 months of our network expansion, we have greater visibility into our financial outlook.

Slide 19 highlights the 3 keys to generating and growing positive free cash flow beginning in 2027. Number one, low double-digit adjusted EBITDA growth rates driven by our fiber businesses; two, mid-20% capital intensity consisting primarily of success-based and maintenance capital spending; and three, 5.9% to 6% cost of debt that is primarily fixed-rate notes. As we complete our investment phase and transition to positive free cash flow, we expect to derisk our business plan while retaining significant runway for Glo Fiber penetration, high-margin revenue growth and cash flow generation.

Thank you, operator. We are now ready for questions.

Operator

[Operator Instructions] First question will come from the line of Hamed Khorsand from BWS Financial.

질의응답

Hamed Khorsand

I guess the first question I have, just given what you're saying about the business and how you're adding subscribers. On one hand, it seems like you're adding a lot of more Glo Fiber subscribers, but the commentary makes it sound like it's getting tougher for that incremental add. Is that a good assessment? Or is it still easy to find Glo Fiber subscribers?

Edward McKay

Hamed, this is Ed. I would say we are still having significant success adding Glo Fiber customers. When you look at our gross adds -- or excuse me, our net adds in the third quarter of this year versus net adds in the third quarter of last year, those net adds are up 48%. So we are having success. We have a lot of runway ahead of us. Our penetration rate in Glo Fiber right now is still below 22%. So we've got a lot of runway to hit our 37% midterm target, and we believe there's upside beyond that longer term. So we're still able to add Glo Fiber customers at an accelerated pace year-over-year.

Hamed Khorsand

Okay. And are you seeing any competitive threats at all in any of your markets right now? Or has that eased?

Edward McKay

Yes. In Glo Fiber, really no additional changes from a competitive threat standpoint. We still see some fiber upgrades in the local telephone company markets from DSL in some areas, but again, not significant. In our incumbent cable business, same thing. We do see some upgrades from the local telephone companies of DSL, but the majority of our passings in our incumbent business still do not have a wired cable competitor or fiber competitor.

Hamed Khorsand

Okay. And then as far as your ARPU is concerned, is that more of a metric of what the price card you've moved to in recent months?

Edward McKay

Correct. Yes. In our Glo Fiber business, really the 5-year rate card that we rolled out last year impacted the ARPU by about 1% as we expected. In our incumbent cable markets, we've updated the rate card to be more effective in the more rural areas that are income-constrained and are really feeling the pinch from inflation. So our goal there is to really maximize the lifetime value of those customers. So we're balancing return, ARPU as well as gross adds.

Operator

And our next question comes from the line of Christian Schwab from Craig-Hallum.

Benjamin Taxdahl

It's Ben Taxdahl on for Christian this morning. Another solid quarter. I have a couple of questions. First on the -- any update on your footprint? I think you previously said you have around 20 data centers across the footprint. And last quarter, you announced a master service agreement with a hyperscaler. Any updates there on AI data center customers across the footprint?

Edward McKay

Ben, thank you for the question. So I'll say it takes time to negotiate contracts with these major hyperscalers. Our discussions are ongoing regarding multiple opportunities. They're progressing well. We still see this as a significant growth opportunity for us. I just don't have anything additional to share right at this moment.

Benjamin Taxdahl

All right. And then just quickly on those customers, what -- have you guys done like an internal IRR calculation or what like a return on investment could be like for these types of customers?

Edward McKay

Jim, do you want to take that one?

James Volk

Yes. Ben, we tend to do more of a customer lifetime value calculation, which essentially looks at the lifetime of the customer, which is kind of the inverse of churn, which for us, with 1.1% churn on the Glo Fiber side, that equates to almost 100 months or 8-plus years. And then we look at the recurring revenue and recurring adjusted EBITDA from that customer, and then we subtract out the cost of acquisition. And for Glo Fiber, that gives us -- the value of those customers are worth a couple of thousand dollars when you do those calculations. And we'll do the same calculations on the incumbent cable side as well.

Benjamin Taxdahl

All right. And just remind me, as we increase the passings by 7,000, I mean, of, say, the roughly 30,000 -- sorry, $30 million in CapEx increase, how much of that is just on adding passings? And it may be helpful to just kind of give the cost so I can compare it to what you just said.

James Volk

Yes. Ben, so about $10 million of the increase related to the 7,000 additional passings. About $15 million relates to the government grant subsidies, which is really just a timing issue. We don't control exactly when the governments reimburse us for the grants. But it looks like based upon timing, it is going to extend into the first quarter. And then the remaining piece, $5 million, which is a variety of smaller things.

Benjamin Taxdahl

So I mean, say, [ $1,500 ] of passing and I mean, you just said a couple of thousand, say, [ $3,000-ish ] and where the stock is, I mean, how I'm viewing it as you guys aren't getting even close to the full value of what your passings are worth? Is that kind of how you're viewing it internally?

James Volk

Yes, that's correct. We're -- one, going back to Glo Fiber passings and your question on IRRs, we've been underwriting all of the Glo Fiber markets to an IRR of 15%. And that would include the additional 7,000 passings that we're planning to build by the end of this year. But as far as for valuation, Ben, we're disappointed where the stock is sitting today. We think there's some macro issues driving that more so than our fundamentals. But ironically, if you do the calculations, we're trading at roughly 10x today, whereas 5 months ago, we were trading roughly at 12x EBITDA. And we're significantly derisking our business plan by completing the construction phase and going free cash flow positive. So a lot of times, I would suspect that -- or EBITDA multiples would expand during that period of transition, but we seem to be getting hit with some outside influences outside of our business.

Benjamin Taxdahl

Yes. And just speaking of outside influences, you guys -- it seems like if there's a comment on SpaceX, your stock will trade down. But as you -- you can maybe highlight more, you guys don't believe SpaceX is a risk virtually at all, especially in the Glo Fiber business, correct?

Edward McKay

Ben, that's right. We've seen virtually no churn impact from satellite in our Glo Fiber markets. Even in our incumbent broadband markets, the churn impact has been minimal, less than 10 basis points of churn. So the satellite impact peaked in the first quarter of this year, and it has declined every quarter since. We believe our updated rate cards in our incumbent cable markets, they compete very effectively against satellite. So we do not believe this is a significant long-term factor for us.

Operator

And our next question will come from the line of Vikash Harlalka from New Street Research.

Vikash Harlalka

I know you touched upon stabilization in broadband ARPU. Could you just provide us any visibility into when you expect broadband ARPU to stabilize and maybe start growing? And then second, I just wanted to understand your capital allocation philosophy, especially given that now you're almost done with your fiber build. What's your long-term leverage target? When do you get there? And then what do you plan to do with any excess cash that you may generate?

Edward McKay

Jim, do you want to take that one?

James Volk

Sure. I'll start with the last question. We expect net leverage at the end of the year to be about 5.7 to 5.8x EBITDA. We do expect to delever relatively quickly. By the end of '27, we expect the net leverage to be below 5x. And by '29, we expect it to be below 4x. So we're confident in our ability to delever the business. In regard to the ARPU, so 2 different stories here with the 2 different residential lines of business.

On the Glo Fiber side, when we introduced a year ago the 5-year price-guaranteed rate plans, we expected about 1% decline in ARPU due to the promotional plans that we had put out there. And then in our 5-year plans, we're not charging for equipment for the first year, but we do charge it starting in the second year. So some of that equipment revenue was kicking in, in the fourth quarter. So we still expect a small decline from the third quarter to the fourth quarter. But starting in '27, we expect ARPU to actually be flat to slightly rising. So we're just about at the point that it starts to pivot back up.

On the incumbent side, we do -- we are -- we introduced several new initiatives this year, as Ed talked about, in the markets that we don't have wireline competition, but we have low demographics and have been -- that have been pinched pretty hard by the inflation. So we've been doing that more on a retention and a promotional plan basis. But Vikash, we expect -- we're planning to introduce a new rate card in early 2027 that will move away from some of the promotional activity and get into more everyday pricing. And it will -- we believe it will increase customer lifetime value. There's going to be some pluses and minuses in those new rate plans that we think will allow us to grow penetration in some of these lower-income markets better than what we've done recently. But the ARPU will probably still slightly decline, but not at the rate that we had this past quarter where it was 3%. I would expect it to be more on the lines of less than 1% in 2027 and the next couple of years after that.

Operator

And this concludes the question-and-answer session. I would now like to turn it back over to Ed for closing remarks.

Edward McKay

Thanks for joining us today. We're very excited about our growth opportunities. We look forward to updating you on our progress in the future quarters. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.