Shentel releases third quarter results
Posted 30 October 2015 12:00 AM by Shentel
Shenandoah Telecommunications Company (“Shentel”) (NASDAQ: SHEN) announces financial and operating results for the three months ended September 30, 2015.
Consolidated Third Quarter Results
For the quarter ended September 30, 2015, net income of $8.0 million, the same as the third quarter of 2014. The current year results were unfavorably impacted by $2.1 million of expenses related to the Company’s acquisition of NTELOS Holdings Corp and a non-routine depreciation adjustment of $2.6 million. Net income without these two items was $10.8 million, up 35% over the quarter ended September 30, 2014. Operating income was $15.1 million, an increase of 6.7% from the same quarter last year. Operating income without these two items was $19.8 million, up 40%.
Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased 10.7% to $36.8 million in the third quarter of 2015 from $33.3 million in the third quarter of 2014. Total revenues were $85.2 million, an increase of 3.6% compared to $82.3 million for the 2014 third quarter. Cable segment revenues increased due to an increase in subscribers and Revenue Generating Units (RGUs), video price increases, as well as improved product mix with customers selecting higher-speed data packages. Wireless revenues decreased as customers shifted to service plans that excluded subsidized phones, while Wireline segment revenues increased due to higher internet service fees as customers upgraded their services. Total operating expenses were $70.1 million in the third quarter of 2015 compared to $68.1 million in the prior year period. Excluding the nTelos acquisition costs and the depreciation adjustment, operating expenses were $65.4 million or down 4.0%.
nTelos Acquisition and Sprint Contract Amendment
During the quarter, Shentel announced a definitive agreement to acquire all of nTelos’ stock and operations, including wireless network assets, retail stores and approximately 298,000 retail subscribers in the nTelos Western Markets. The transaction is valued at approximately $586 million (including $208 million in equity and net debt of $378 million as of June 30, 2015). Concurrently with the signing of the nTelos agreement, Shentel announced that it had entered into a series of agreements with Sprint Corporation (“Sprint”), including an addendum to the Shentel/Sprint affiliate agreement. These agreements extended the Company’s initial affiliate contract with Sprint five years to 2029, and will allow Shentel to serve nTelos customers as well as the Sprint customers within the nTelos footprint at closing. As a result, Shentel expects to expand its wireless subscriber base by 581,000 (based on customer counts as of June 30, 2015) to over 1,000,000 subscribers.
President and CEO Christopher E. French commented, “This was a very busy quarter for our Company, during which we drove solid revenue growth and added to our customer base, while at the same time
negotiating the details of a transformative acquisition. Without the non-routine costs of the acquisition and the depreciation adjustment, we substantially improved the ongoing earnings of the company. We continue to attract new customers with the enhanced capabilities of our upgraded wireless and cable networks, which enable us to provide the reliable and versatile coverage and offerings that consumers demand.”
“The nTelos acquisition is an exciting opportunity for our Company, expected to more than double Shentel’s wireless customer base, enhance our presence in the Mid-Atlantic region by adding a highly complementary footprint and further strengthen our longstanding relationship with Sprint,” Mr. French continued. “With the close of the transaction, Shentel will be positioned as one of the top six public wireless providers in the U.S.”
Average postpaid subscribers grew 7.2%, while service revenues in the Wireless segment decreased 0.5% to $47.8 million as compared to the third quarter of 2014 primarily as a result of postpaid customers selecting lower-priced service plans associated with leasing and installment billing programs for handsets. More than offsetting the decrease in postpaid revenue was a decrease in the cost of postpaid handset subsidies of $3.8 million. In the third quarter, net prepaid service revenues grew $1.3 million, or 11.7%, due primarily to a 4.7% growth in average prepaid customers and improved product mix as compared to the same period of 2014.
During the third quarter of 2015, net additions to postpaid subscribers were 7,035, up 33% compared to 5,303 postpaid subscriber additions in the third quarter of 2014. Net prepaid subscribers declined by 327 during third quarter 2015, compared to 1,950 added in the third quarter of 2014.
Depreciation and amortization for the wireless segment in the third quarter of 2015 increased 22% or $1.7 million as compared to the same prior year period. Third quarter 2015 included a one-time, unfavorable adjustment of $1.9 million for the Wireless segment’s portion of the depreciation adjustment.
Third quarter adjusted OIBDA in the Wireless segment was $27.2 million, an increase of $1.9 million or 7.5% from the third quarter of 2014.
“The reliability of our state of the art wireless network continues to attract new customers as demonstrated by the strong growth in our postpaid customer base during the quarter,” Mr. French stated. “Monthly service fees and handset subsidy costs have continued to decline as customers select lower revenue service plans related to handset financing and leasing plans.”
Revenue in the Cable segment increased $3.4 million or 16.2% to $24.4 million, due to 3% growth in average RGUs (the sum of voice, data, and video users), video rate increases in January 2015, and customers selecting higher speed data access packages. Operating expenses were flat at $25 million in the third quarter of 2015 compared to third quarter 2014. Included in the 2015 operating expenses was a $0.3 million unfavorable depreciation adjustment.
Revenue generating units totaled 125,182 at the end of the third quarter of 2015, an increase of 3% over September 30, 2014.
Adjusted OIBDA in the Cable segment for third quarter 2015 was $5.5 million, up 62% from $3.4 million in the third quarter of 2014.
Mr. French stated, “During the quarter we saw increased demand for our high speed internet services and continued to benefit from video rate increases that went into effect in January 2015. Our enhanced
service capabilities are attracting new customers and motivating our existing customers to transition to upgraded service offerings and monthly subscription plans.”
Revenue in the Wireline segment increased 8.5% to $17.3 million in the third quarter of 2015, as compared to $15.9 million in the third quarter of 2014. Carrier access and fiber revenue for the quarter was $10.9 million, an increase from $9.9 million for the same quarter last year, due to growth in new fiber contracts. Operating expenses increased 15.8% or $1.8 million to $13.3 million for third quarter 2015, due to higher cable programming costs, costs to support new fiber contracts, and the $0.4 million Wireline-related portion of the depreciation adjustment recorded in the third quarter of 2015.
Adjusted OIBDA for the Wireline segment for third quarter 2015 was $7.5 million, as compared to $7.9 million in third quarter 2014.
On October 20, 2015, the Company declared a dividend of $0.48 per share payable December 1, 2015 to shareholders of record on November 5, 2015, with an expected payout of $11.6 million. The Company also declared a two-for-one stock split effective for shareholders of record as of December 31, 2015.
Capital expenditures were $14.5 million in the third quarter of 2015 compared to $18.4 million in the comparable 2014 period.
Cash and cash equivalents as of September 30, 2015 were $87.3 million, compared to $68.9 million at December 31, 2014. Total outstanding debt at September 30, 2015 totaled $207 million compared to $230.0 million as of September 30, 2014. The Company began making quarterly principal payments of $5.75 million on its debt in December 2014. According to the terms of the Company’s credit agreement, a decrease in the Company’s leverage triggered a 0.25% decrease in the interest rate on the Company’s outstanding debt. At September 30, 2015, debt as a percent of total assets was 33.4%. The amount available to the Company through its revolver facility was $50 million.
“We believe that our solid balance sheet provides a strong foundation for the continued growth of our customer base, capabilities and service offerings. We look forward to the closing of the nTelos acquisition and with that, the opportunity to serve additional customers and new markets,” 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.