Shenandoah Telecommunications Company Reports Third Quarter 2019 Results

EDINBURG, Va., Oct. 31, 2019 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (NASDAQ: SHEN) announced third quarter results, an increase in its cash dividend, a share repurchase program, and commencement of its Fiber to the Home service.

Highlights

• Free cash flow of $35.9 million in the third quarter 2019 and $86.4 million for year to date 2019.
• Record third quarter Wireless postpaid net additions of 11,698.
• Dividend to increase 7.4% to $0.29 per share representing the 7th consecutive year of an annual increase.
• Authorization of $80 million for a share repurchase program.
• Launch of Fiber to the Home ("FTTH") business with initiation of Glo Fiber service in Harrisonburg, Virginia.

"Our company’s growth was led by record net additions of Wireless postpaid services in the quarter. The commencement of Glo Fiber service in Harrisonburg reflects the start of our latest growth initiative as we continue to expand our footprint and service offerings,” said President and CEO Christopher E. French. “We continue to generate strong free cash flow, which along with our solid operating results, enables us to return value to our shareholders with both an increase in our cash dividend and initiation of a share repurchase program. The continuing dispute over the travel fee with Sprint caused uneven financial results, but we have triggered the dispute resolution process with Sprint which we expect will lead to a resolution by early 2020."

Please refer to our Third Quarter 2019 Earnings Presentation Supplement available at https://investor.shentel.com/ for additional information, including matters that will be referenced during the Company’s conference call. Included in this release are certain non-GAAP financial measures that are not determined in accordance with U.S. generally accepted accounting principles. Please refer to additional information for non-GAAP measures provided herein.

Consolidated Third Quarter 2019 Results

• Operating revenue in the third quarter of 2019 was $155.2 million compared with $158.7 million in the third quarter of 2018 driven by continued dispute of the travel fee with Sprint in the Wireless segment, partially offset by growth in the Cable segment.

• Adjusted OIBDA in the third quarter of 2019 was $62.8 million compared with $69.5 million in the third quarter of 2018 due to a decline in the Wireless segment.

• Operating income for the third quarter 2019 was $25.4 million compared with $28.3 million in the third quarter of 2018.

• Net income in the third quarter of 2019 was $14.4 million or $0.29 per diluted share compared with $15.5 million or $0.31 per diluted share in the third quarter of 2018.

Wireless

• Shentel's network served 823,417 wireless postpaid subscribers at September 30, 2019, representing an increase of 4.8% compared with 785,537 subscribers as of September 30, 2018. Third quarter 2019 postpaid gross adds increased 25.7% to 60,477 and churn increased 15 basis points to 1.99% compared to third quarter 2018.  At September 30, 2019, tablets and data devices represented 11.0% of the postpaid base.

• Shentel's network served 271,551 wireless prepaid subscribers at September 30, 2019, representing an increase of 6.3% compared with 255,462 subscribers as of September 30, 2018. Third quarter 2019 prepaid churn was 4.38%, representing an improvement of 24 basis points compared with the prior year.

• Wireless operating revenue decreased $5.7 million to $110.4 million for the third quarter of 2019 from $116.1 million in the third quarter of 2018. Sprint travel Revenue declined $4.5 million due to the continuing dispute over the resetting of the travel fee.  Subscriber revenue declined $1.1 million from the third quarter 2018 due to a combination of higher contract asset amortization from higher gross adds over the past year, reduced variable revenue resulting from increased bad debt write-offs in the West Virginia market, lower postpaid Average Revenue Per User ("ARPU") of $1.67, partially offset by an increase of 37,880 postpaid subscribers.

• Wireless operating expenses in the third quarter of 2019 were $86.7 million compared to $88.7 million in the third quarter of 2018. This decrease was primarily due to a $3.2 million decline in depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated and $1.7 million in lower advertising, offset by $2.8 million in higher tower rents due to an increase of 132 cell sites in our network.

• Wireless Adjusted OIBDA in the third quarter of 2019 was $50.9 million, compared with $57.7 million for the third quarter of 2018.

• Wireless operating income in the third quarter of 2019 was $23.7 million, compared with $27.4 million for the third quarter of 2018.

Cable

• Total Revenue Generating Units ("RGUs") as of September 30, 2019 were 150,191, representing an increase of 3% and includes the addition of approximately 4,800 RGUs obtained through the Big Sandy acquisition that occurred in the first quarter of 2019.  Please note that we have changed the computation of bulk RGUs to conform to industry standards.  Revised RGUs for current and past periods are presented in the supplemental information in this earnings release.

• Cable operating revenue for the third quarter of 2019 was $35.1 million, representing an increase of 9.1% from $32.2 million in the third quarter of 2018. The increase was primarily attributable to a full quarter of results from the Big Sandy acquisition and growth in ARPU from an increase in video rates.

• Cable operating expenses in the third quarter of 2019 were $28.8 million, representing an increase of 9.3% from $26.3 million for the third quarter of 2018. The increase was primarily due to $0.8 million of expenses incurred that were associated with starting our FTTH product offering, higher repair and maintenance expenses of $0.8 million associated with maintaining our growing network, higher sales and marketing expenses of $0.6 million and $0.2 million in higher programming costs. We expect to continue to incur expenses related to the initiation of FTTH in select markets, in advance of generating revenue from this new product.

• Cable Adjusted OIBDA for the third quarter of 2019 was $12.5 million, representing an increase of 4.9% from $11.9 million for the third quarter of 2018.

• Cable operating income for the third quarter of 2019 was $6.3 million, representing an increase of 7.9% from $5.8 million for the third quarter of 2018.

Wireline

• Wireline operating revenue for the third quarter of 2019 was $19.1 million, representing a decrease of $0.5 million from $19.6 million in the third quarter of 2018. The decrease in operating revenue was primarily attributable to the timing of receiving regulatory support funds.  Cable and fiber revenues grew 11.8% to offset the 8.3% decline in RLEC revenues.

• Wireline operating expenses in the third quarter of 2019 were $14.2 million, consistent with operating expenses in the third quarter of 2018.

• Wireline Adjusted OIBDA for the third quarter of 2019 was $8.0 million, representing a decrease of $0.6 million from $8.6 million in the third quarter of 2018.

• Wireline operating income for the third quarter of 2019 was $4.9 million, representing a decrease of $0.2 million from $5.1 million in the third quarter of 2018.

Other Information

• Capital expenditures were $107.0 million for the nine months ended September 30, 2019 compared with $92.3 million in the comparable 2018 period due to a $6.0 million increase in Wireless spending to support the expansion of the network and an $8.7 million increase in Cable segment spending required to support the launch of our FTTH initiative.

• Outstanding debt at September 30, 2019 totaled $740.6 million compared with $760.5 million and $785.2 million as of June 30, 2019 and December 31, 2018, respectively.  As of September 30, 2019, the Company had liquidity of approximately $172.4 million, including $75.0 million of revolving line of credit availability.  Our interest rate decreased by 25 basis points starting in September 2019 as our net leverage ratio declined below the lowest threshold as defined in our credit facility resulting in approximately $1.8 million of expected annual savings.

Conference Call and Webcast

Teleconference Information:

Date: October 31, 2019    Time: 8:30 A.M. (ET)Dial in number: 1-888-695-7639

Password: 6872816  Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through December 7, 2019 by calling (855) 859-2056.

About Shenandoah TelecommunicationsShenandoah Telecommunications Company (Shentel) provides a broad range of diversified communications services through its high speed, state-of-the-art network to customers in the Mid-Atlantic United States. The Company’s services include: wireless voice and data; cable video, internet and digital voice; fiber network and services; and regulated local and long distance telephone. Shentel is the exclusive personal communications service (“PCS”) Affiliate of Sprint in a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. For more information, please visit www.shentel.com.

This release contains forward-looking statements that are subject to various risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of unforeseen factors. A discussion of factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations is available in the Company’s filings with the SEC. Those factors may include changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.

CONTACTS:      Shenandoah Telecommunications Company      Jim Volk      Senior Vice President - Chief Financial Officer      540-984-5168      [email protected]

Or      John Nesbett/Jennifer Belodeau      IMS Investor Relations      203-972-9200      [email protected]

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)

Non-GAAP Financial Measures

Adjusted OIBDA

Adjusted OIBDA represents Operating income before depreciation, amortization, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.

Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors. Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies. This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.

Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:

Supplemental Information

Subscriber Statistics

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers:

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1. "POPS" refers to the estimated population of a given geographic area. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreement, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data.
2. Beginning February 1, 2018 includes Richmond Expansion Area except for gross PCS subscriber additions.

Except for gross additions, the subscriber statistics above include the Richmond Expansion Area as follows:

The following table indicates selected operating statistics of Cable and Wireline:

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1. Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. Homes passed have access to video, broadband and voice services.
2. Customer relationships represent the number of billed customers who receive at least one of our services.
3. As of September 30, 2019, the Company revised its methodology for counting RGUs associated with hotels, multiple dwelling units ("MDUs") and certain commercial customers.  We now count each dwelling or unit of service as a separate RGU.  Prior year information has been recast to reflect our revised methodology.  Previously we counted RGUs on an equivalent basis consistent with carriage fee practices.
4. Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
5. Digital video penetration is calculated by dividing the number of digital video users by total video users. Digital video users are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.
6. Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

The following table shows the components of free cash flow:

Free cash flow is a non-GAAP financial measure that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. We believe it is a more conservative measure of our cash flow since purchases of fixed assets are necessary for ongoing operations and expansion. Free Cash Flow is utilized by our management, investors and analysts to evaluate cash available that may be used to pay scheduled principal payments on our debt obligations and provide further investment in the business.