Shenandoah Telecommunications Company reports first quarter 2018 results

Consolidated First Quarter Results

For the quarter ended March 31, 2018, the Company reported net income of $4.8 million, compared to net income of $2.3 million in the first quarter of 2017, representing an improvement of $2.5 million, or 106.3%. The Company completed the acquisition and integration of Sprint subscribers related to the additional Sprint territory under the affiliate agreement on February 1, 2018. The 2018 financial results include the impact of the new revenue recognition standard and Tax Reform.

Earnings per Share was $0.10 in the first quarter 2018 compared to $0.05 in the prior year period. Excluding the impact of the new revenue recognition standard, earnings in the first quarter 2018 were $0.09 per share.

Total revenues were $151.7 million, a decrease of 1.4% compared to first quarter 2017 revenues of $153.9 million.  Excluding the impact of the new revenue recognition standard, which became effective January 1, 2018, total revenues improved approximately $2.0 million. The adoption of the new revenue standard now requires the Company to report costs such as commissions for the national sales channel that are settled separately with Sprint as reductions of revenue. Previously these costs were recorded in cost of goods and services and in selling, general and administrative expense.

Total operating expenses were $137.4 million in the first quarter of 2018 compared to $143.2 million in the prior year period, a decrease of $5.8 million or 4.1%.  Excluding the impacts of the new revenue standard, operating expenses decreased $1.4 million due to a decrease in acquisition and integration costs related to the nTelos integration, and a decrease in depreciation and amortization as assets acquired in the nTelos acquisition were retired. These declines were partially offset by increases in network and selling costs associated with the continued expansion of our networks to support the increase and demand of our subscriber base.

Adjusted OIBDA decreased 6.6% to $68.7 million in the first quarter of 2018 from $73.5 million in the first quarter of 2017. Continuing OIBDA (Adjusted OIBDA less the benefit received from the waived Sprint management fee) decreased 7.7% to $59.6 million from $64.6 million. The adoption of the new revenue recognition standard did not have an impact on Adjusted OIBDA.

President and CEO Christopher E. French commented, “We’re pleased to have continued our momentum from the fourth quarter, delivering enhanced net profitability as well as revenue improvement in two of our segments. The early completion of our transition of nTelos to the Sprint affiliate model resulted in a significant reduction in operating expenses for the quarter and our upgraded network and service packages position us well as a leading telecommunications provider in all of the markets in our extended coverage area.”

Wireless

First quarter wireless revenue decreased $5.1 million or 4.4%, due primarily to the adoption of the new revenue recognition standard. Excluding the impacts of the new revenue recognition standard, revenues decreased $0.9 million driven by a decline in average revenue per subscriber offset by an increase in the number of Sprint's subscribers, including the acquisition of the new territory on February 1, 2018.  The decline in average revenue per subscriber was driven by promotions and discounts.

First quarter operating expenses decreased $10.8 million or 10.1%.  Excluding the impacts of the new revenue recognition standard, operating expenses decreased $6.3 million.  The decrease was due to the elimination of acquisition and integration costs related to the nTelos integration and a reduction in depreciation and amortization.  These decreases were offset by increases in network costs resulting from the completion of our 4G roll-out and expanded coverage, as well as additional selling costs.

Shentel served 774,861 wireless postpaid customers at March 31, 2018, up 8.0% over March 31, 2017.  First quarter postpaid churn was 1.9% and flat to the preceding quarter. The Company had net additions of 38,264 postpaid customers in the quarter, including 38,434 postpaid subscribers in the acquired territory. As of March 31, 2018, tablets and data devices were 8% of the postpaid base reflecting a net gain of 187 for these devices in the quarter.

Shentel served 250,191 prepaid wireless customers at March 31, 2018, an increase of 35 thousand compared to the first quarter of last year.  Total first quarter prepaid churn was 4.4%, down from 5.0% in Q1 2017.  The Company had net additions of 24,369 prepaid customers in the first quarter of 2018, including 15,691 prepaid subscribers in the acquired territory. Excluding the impact of the acquired territory, prepaid subscribers grew 3.7%.

First quarter 2018 Adjusted OIBDA in Wireless was $57.6 million, a decrease of 6.3% from the first quarter of 2017.  Continuing OIBDA in Wireless was $48.5 million, down 7.6% from the first quarter of 2017.

Mr. French continued, “We have significantly grown our coverage area through both the nTelos acquisition and the recent expansion of our Sprint relationship which added 1.1 million POPs in Lancaster County, Pennsylvania, central and southwestern Virginia, southern West Virginia and eastern Kentucky.  With the addition of these new markets, we’ve focused our marketing efforts on increasing customer awareness around our state-of-the-art network, extended coverage area and enhanced service offerings.  We have expanded into complementary markets where we can build networks designed to improve the customer experience by bridging coverage between our existing service areas and Sprint’s metro networks while also providing more continuous, reliable service.  We believe the benefits of our upgraded network and expanded market coverage will drive continued customer additions and market share growth.”

Cable

Service revenues in Cable increased $2.1 million or 7.8% to $28.5 million, primarily due to growth in High Speed Data and Voice RGUs, video rate increases implemented in January 2018 to pass through programming cost increases, and new and existing customers selecting higher speed data packages.  Operating expenses increased 1.2% or $0.3 million in the first quarter of 2018. In the first quarter the Company added 1,223 High Speed Data users and 188 voice users, and lost 1,058 video users. The impact of the new revenue recognition standard, which includes the deferral of incremental commissions and installation costs, was immaterial to operating income for the period ended March 31, 2018.

Adjusted OIBDA in Cable for first quarter 2018 was $11.7 million, up 26.2% from $9.3 million in the first quarter of 2017.

“Consumers increasingly demand high speed, availability, and reliability when they select a new cable provider or look to upgrade their existing service, and our robust network meets and exceeds these requirements. Our ability to provide both high speed bandwidth and dependability is a competitive advantage that allows us to attract new customers and to seamlessly meet the changing needs of our existing customers,” Mr. French stated.

Wireline

Revenue in Wireline increased 2.9% to $19.7 million in the first quarter of 2018, as compared to $19.2 million in the first quarter of 2017.  Carrier access and fiber revenue for the first quarter of 2018 was $12.9 million, an increase of 1.5% from the same quarter last year, primarily as a result of new fiber contracts. Increases in broadband service revenue offset the loss of regulated voice service revenue.  Operating expenses increased 6.1% or $0.9 million to $14.9 million for first quarter 2018, primarily due to costs to support new fiber contracts. The impact of the new revenue recognition standard, which includes the deferral of incremental commissions and installation costs, was immaterial to operating income for the period ended March 31, 2018.

Adjusted OIBDA in Wireline for first quarter 2018 was $8.1 million, as compared to $8.4 million in first quarter 2017.

Other Information

Capital expenditures were $24.4 million in the first quarter of 2018 compared to $38.6 million in the comparable 2017 period. The Company has spent or committed $47.7 million of the estimated 2018 capital budget.

Cash and cash equivalents as of March 31, 2018 were $49.4 million, compared to $78.6 million at December 31, 2017. During the quarter, the Company funded the expansion of the Sprint territory with $52 million of cash on hand. Outstanding debt at March 31, 2018 totaled $810.9 million, net of unamortized loan costs, compared to $822.0 million as of December 31, 2017.  As of March 31, 2018 no amounts were outstanding under the revolving line of credit.

About Shenandoah Telecommunications

Shenandoah 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 portions of Pennsylvania, Maryland, Virginia, West Virginia, and portions of 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.