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Shentel results show strong first quarter

Posted 4 May 2017 12:00 AM by shentel

Shentel announces financial and operating results for the three months ended March 31, 2017.

For the quarter ended March 31, 2017, Shentel reported total revenues of $153.9 million, an increase of 66.2% compared to $92.6 million for the 2016 first quarter. While all segments reported revenue increases, the Wireless segment had the largest increase due to the nTelos acquisition and exchange transaction with Sprint completed on May 6, 2016. The integration of nTelos’ operations and the transition of its assets and customers continue to move forward as expected, with Shentel currently ahead of its schedule on the migration of nTelos customers to the Sprint platform and on track with the progress of its network upgrade.

Wireless service revenues increased 107.3% as a result of increases in average postpaid and prepaid subscribers of 128% and 69%, respectively. Cable segment revenues increased 9.7% due to a 2.2% increase in average Revenue Generating Units (RGUs), video price increases to offset increases in programming costs, and new and existing customers selecting higher-speed data packages. Wireline segment revenues increased 4.2% due to increases in fiber and access contracts.

Total operating expenses were $143.2 million in the first quarter of 2017 compared to $71.3 million in the prior year period. Operating expenses in the first quarter of 2017 included $4.5 million of integration and acquisition costs associated with the nTelos acquisition and exchange transaction with Sprint, with $3.8 million in the Wireless segment and $0.7 million in the Other segment. An additional $2.6 million of costs were incurred to operate and support the nTelos back office and billing functions until customers can migrate to Sprint platforms. This cost was included in cost of goods and services and selling, general and administrative expenses in the Wireless segment.

For the quarter ended March 31, 2017, Shentel reported net income of $2.3 million, compared to net income of $13.9 million in the first quarter of 2016. The decrease in net income is primarily the result of an increase in depreciation and amortization, straight-lining of certain Sprint fee credits, acquisition and integration related costs, and interest expense, all attributable to the nTelos acquisition and exchange transaction with Sprint.

Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased 82.0% to $73.5 million in the first quarter of 2017 from $40.4 million in the first quarter of 2016, resulting primarily from the nTelos acquisition and exchange transaction with Sprint. Continuing OIBDA (Adjusted OIBDA less the benefit received from the waived Sprint management fee over the next six years) increased 59.8% to $64.6 million.

Following the close of the first quarter, Shentel announced the April 6, 2017, closing of its amended Affiliate agreement with Sprint, which expands its affiliate service territory by adding approximately 500,000 POPs in the Parkersburg, WV; Huntington, WV and Cumberland, MD basic trading areas (“BTAs”). Including this expansion, Shentel has authorization to serve over 6 million POPs in the mid-Atlantic region as a Sprint PCS Affiliate. Shentel has agreed to invest approximately $32 million over the next three years to upgrade and expand the existing wireless network in those regions.

President and CEO Christopher E. French commented, “Our first quarter reflects a solid start to 2017, with revenue growth and Adjusted OIBDA increases achieved in all of our segments. The integration of customers and assets from the nTelos acquisition is proceeding as we expected and we’re pleased to be ahead of schedule migrating customers and combining operations. Just after the quarter closed, we announced the expansion of our affiliate relationship with Sprint, which significantly enhances our presence in the mid-Atlantic region and we’re excited to be adding new service areas that will improve customer experience and create shareholder value.”

Wireless Segment

First quarter wireless service revenues increased $56.0 million or 107.3%, primarily related to the addition of approximately 560,000 postpaid and prepaid customers from the nTelos acquisition. Additionally, the segment benefitted from a reduction in the postpaid management fees retained by Sprint as part of our amended affiliate agreement with Sprint.

Shentel had 717,150 wireless postpaid customers at March 31, 2017, up 127.5% over March 31, 2016, but down 5,412 in the quarter. Net additions in the Legacy area were 1,487, offset by net losses in the new areas of 6,899. Phone additions in the Legacy area were 2,122 or 143% of the net additions. First quarter postpaid churn was 2.05% for the total company and 1.56% in the Legacy area. The first quarter port in/port out ratio in the legacy area was 1.70:1, taking share from all carriers. As expected, the port in/port out ratio improved but continued to be negative in the acquired nTelos areas.

There were 243,557 prepaid wireless customers at March 31, 2017, an increase of 101,018 compared to the first quarter of last year. Prepaid net additions for the first quarter of 2017 were 7,419. Total company first quarter prepaid churn was 4.86% and 4.81% in the Legacy area.

During the first quarter, Shentel migrated 28,555 postpaid nTelos customers to Sprint’s back office, for a total of 116,348 since the acquisition. As planned, the prepaid migration was completed in late December, and the outsourced prepaid billing arrangement was terminated. At the current pace, Shentel expects to complete migrating the remaining postpaid nTelos customers by the end of the third quarter 2017.

First quarter Adjusted OIBDA in the Wireless segment was $61.4 million, an increase of 114.0% from the first quarter of 2016. Continuing OIBDA in the Wireless segment was $52.5 million, up $23.8 million from the first quarter of 2016.

Mr. French continued, “The doubling of our customer base via the nTelos acquisition and the strategic expansion of our mid-Atlantic footprint have opened up ongoing opportunities for the growth of our Company. We have made significant progress on our plans to upgrade services and improve network reach and reliability, and when completed we believe we will be among the most competitive in terms of service plan and coverage in the markets in which we operate.”

Cable Segment

Service revenues in the Cable segment increased $2.1 million or 8.5% to $26.4 million, primarily due to 2.2% growth in average RGUs (the sum of voice, data, and video users) to 132,846 ending RGUs as of March 31, 2017, video rate increases implemented in January 2017 to pass through programming cost increases, new and existing customers selecting higher speed data access packages and growth in the number of higher speed data and phone customers. Operating expenses remained essentially flat at $25.9 million in the first quarter of 2017. Operating income was $3.1 million compared to $0.6 million in the prior year, primarily due to the continued transformation of our Cable segment from a video focus to broadband.

Adjusted OIBDA in the Cable segment for first quarter 2017 was $9.3 million, up 31.7% from $7.0 million in the first quarter of 2016.

“We recognize the importance of providing our customers with a robust cable network that delivers high speed bandwidth as well as reliability. Our state of the art network meets these requirements and is gaining recognition in the marketplace among both new customers looking for a cable provider with the ability to consistently meet their high speed data needs and among our existing customers as they look to upgrade the alternatives available to them with their monthly subscription,” Mr. French stated.

Wireline Segment

Revenue in the Wireline segment increased 4.2% to $19.2 million in the first quarter of 2016, as compared to $18.4 million in the first quarter of 2016. Carrier access and fiber revenue for the quarter was $12.7 million, an increase of 5.8% from the same quarter last year, primarily as a result of new fiber contracts. Operating expenses increased 6.0% or $0.8 million to $14.1 million for first quarter 2016, primarily due to costs to support new fiber contracts.

Adjusted OIBDA in the Wireline segment for first quarter 2017 was $8.4 million, as compared to $8.3 million in first quarter 2016.

Other Information

Capital expenditures were $38.6 million in the first quarter of 2017 compared to $20.5 million in the comparable 2016 period.

Cash and cash equivalents as of March 31, 2017 were $39.9 million, compared to $36.2 million at December 31, 2016. Total outstanding debt at March 31, 2017 totaled $849.0 million, net of unamortized loan costs, compared to $829.3 million as of December 31, 2016. At March 31, 2017, debt as a percent of total assets was 58%. The amount available to Shentel through its revolver facility was $75.0 million.