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Shentel reports $6.7 million increase in net income for third quarter

Posted 1 November 2013 12:00 AM by Shentel

EDINBURG, Va., Nov. 1, 2013 - Shenandoah Telecommunications Company ("Shentel") (Nasdaq:SHEN) announces financial and operating results for the three and nine months ended September 30, 2013.

Consolidated Third Quarter Results

For the quarter ended September 30, 2013, net income from continuing operations was $6.7 million compared to $1.4 million in the third quarter of 2012, reflecting growth in subscriber counts and revenue per subscriber in both the Wireless and Cable segments.

Operating income was $13.3 million, up 145% from the same quarter last year. Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased to $28.7 million in the third quarter of 2013 from $25.6 million in the third quarter of 2012. Results for 2012 were impacted by accelerated depreciation related to the wireless network upgrade, a write-off of unamortized loan fees in conjunction with a debt facilities amendment, and costs to repair storm damage.

Total revenues were $77.5 million, an increase of 6% compared to $72.9 million for the 2012 third quarter. Revenues increased as a result of wireless subscriber growth and increased smartphone fees. Additionally, the increase in cable segment revenues resulted from an increase in RGU (revenue generating unit) counts, and higher monthly revenue per customer. Total operating expenses decreased 4.8%, to $64.3 million in the third quarter of 2013. Operating expenses in the Wireless segment decreased $3.3 million, driven by a $1.8 million reduction in depreciation and a $1.2 million reduction in the cost of goods and services.

President and CEO Christopher E. French commented, "Our third quarter demonstrated continued growth in consolidated net income with the addition of customers and increasing average revenue per customer in both our wireless and our cable segments. Additionally, we saw reduced operating expenses in our wireless business, where we experienced reduced accelerated depreciation as our 4G upgrade continued to replace older technology. Beginning in 2011 and throughout the last three years, we've made considerable capital expenditures as we executed initiatives to improve our cable technology and to implement the 4G upgrade in our wireless business to coincide with Sprint's Network Vision project. With the upgrade activity expected to conclude by year end, we expect capital spending in 2014 to be significantly lower."

Wireless Segment

Service revenues in the wireless segment increased 10.6% to $45.9 million as compared to the third quarter of 2012. Net postpaid service revenues increased $2.0 million due primarily to a 3.8% growth in customers and increased data fees on smartphones. The net service fee to Sprint increased from 12% of net billed revenues to 14% on August 1, 2013, which reduced net postpaid service revenue by $0.6 million. During the third quarter, net prepaid service revenues grew $2.4 million, or 31%, due to improved product mix and 10.3% growth in the pre-paid customer base as compared to the same period of 2012.

During the third quarter of 2013, net additions to postpaid subscribers were 1,370, down from 3,842 in the third quarter of 2012. Net additions to prepaid subscribers were 1,297 during third quarter 2013, compared to 5,384 in the third quarter of 2012.

Operating expenses in the Wireless segment decreased $3.3 million overall. Prepaid cost of goods decreased $2.0 million primarily due to lower rates per handset sold. Wireless network costs increased $0.9 million, primarily due to increases in rent and backhaul associated with the Network Vision project, while maintenance costs increased $0.3 million related to support of the network upgrade.

Selling, general and administrative expenses decreased $0.3 million, or 3.5%, in the three months ended September 30, 2013 over the comparable 2012 period. Costs associated with supporting existing prepaid subscribers increased $0.6 million, while costs to add new prepaid subscribers decreased $0.8 million due to lower rates per subscriber. Depreciation and amortization decreased $1.8 million in the third quarter of 2013 over the comparable 2012 period, due primarily to a decline in Network Vision-related accelerated depreciation of $0.5 million, down from $3.2 million in the third quarter of 2012.

Third quarter adjusted OIBDA in the wireless segment was $22.4 million, an increase of $3.0 million or 15% from the third quarter of 2012.

"As expected, the increased Sprint service fee that went into effect during the third quarter resulted in a reduction in net postpaid service revenue. Nonetheless, we saw an increase in postpaid revenue as we grew our customer base and realized the benefit of increased smartphone data fees," stated Mr. French. "As mentioned earlier, our portion of the Sprint Network Vision 4G project is largely complete and we anticipate capital expenditures in 2014 to decrease significantly as we continue to invest for maintenance and capacity purposes."

Cable Segment

Service revenue in the cable segment increased $1.1 million due to 3.6% growth in average RGUs (the sum of voice, data, and video subscribers), video price increases driven by rising programming costs, and customers selecting higher priced digital TV services and higher speed data access packages. Operating expenses increased by $0.6 million in third quarter 2013 over third quarter 2012.

Revenue generating units totaled 118,805 at the end of the third quarter of 2013, an increase of 3.5% from September 30, 2012.

Adjusted OIBDA in the cable segment for third quarter 2013 was $1.2 million, up 13% from $1 million in the third quarter of 2012.

Mr. French stated, "After completing substantial improvements to our cable infrastructure, we have turned our focus to strengthening the Shentel offering and improving our brand recognition throughout our cable markets. We expect to continue to benefit from increased consumer demand for high speed broadband services and premium digital TV packages."

Wireline Segment

Operating income for the wireline segment was essentially flat at $3.3 million as compared to $3.4 million in third quarter 2012. Access lines at September 30, 2013, were 22,211, compared to 22,506 at September 30, 2012. Adjusted OIBDA for the wireline segment for third quarter 2013 increased 2% to $5.9 million as compared to third quarter 2012.

Other Information

Capital expenditures were $32.3 million in the third quarter of 2013, up from $21.3 million in the comparable 2012 period. Capital expenditures in third quarter 2013 related primarily to base station replacements at PCS sites related to the Company's Network Vision project, while spending in third quarter 2012 primarily related to upgrades to the cable networks acquired in 2010, PCS capacity upgrades and base station replacements under Network Vision. The Company expects that capital spending will remain elevated through the end of 2013, as the Company completes cell site upgrades as part of the Network Vision project.

Cash and cash equivalents as of September 30, 2013 were $62.0 million, compared to $71.1 million at December 31, 2012. Total outstanding debt at September 30, 2013 totaled $230.2 million. There are no principal payments scheduled to occur in the next twelve months. At September 30, 2013, the debt/equity ratio was 0.98 and debt as a percent of total assets was 38.5%. The amount available to the Company through its revolver facility was $50 million as of September 30, 2013.

"We are pleased to report strong third quarter performance and believe our solid balance sheet positions us well to grow our customer base and expand our capabilities and service offerings," Mr. French concluded.

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 voice; fiber network and services; and local and long distance telephone. Shentel is the exclusive personal communications service ("PCS") Affiliate of Sprint in portions of Pennsylvania, Maryland, Virginia and West Virginia. 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 filings with the SEC. Those factors may include changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.

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