Shenandoah Telecommunications Company Reports Fourth Quarter and Full Year 2017 Results
Posted 15 March 2018 12:00 AM by Shentel
EDINBURG, Va., March 15, 2018 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (NASDAQ: SHEN) announces financial and operating results for the three months and for the year ended December 31, 2017.
Consolidated Fourth Quarter 2017 Results
For the quarter ended December 31, 2017, the Company reported net income of $60.6 million, compared to a net loss of $0.2 million in the fourth quarter of 2016, representing an improvement of $60.8 million. This includes a onetime non-cash tax benefit of approximately $53.4 million in our net deferred tax liabilities as a result of the remeasurement of our deferred tax assets and liabilities to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent. The integration of nTelos' operations, the transition of its customers, and the upgrade of the network were completed ahead of schedule.
Total revenues were $151.6 million, compared with $155.6 million for the 2016 fourth quarter. Wireless service revenues decreased 3.0% as a result of lower average revenue per subscriber, partially offset by an increase in the number of subscribers. Cable revenues increased 7.7% due primarily to an increase in High Speed Data and voice Revenue Generating Units (RGUs), and new and existing customers selecting higher-speed data packages. Wireline revenues increased 7.3% due to increases in fiber revenue.
Total operating expenses were $133.5 million in the fourth quarter of 2017 compared to $143.4 million in the prior year period, a decrease of $9.9 million or 6.9%. Operating expenses in the fourth quarter of 2017 included $1.2 million of integration and acquisition costs associated with the nTelos acquisition and the exchange transaction with Sprint, compared to $6.4 million in the same quarter last year.
Operating income was $18.1 million representing an increase of $5.9 million compared with the fourth quarter of 2016.
Adjusted OIBDA (Operating Income Before Depreciation and Amortization) decreased 6.5% to $71.0 million in the fourth quarter of 2017 from $76.0 million in the fourth quarter of 2016 primarily due to a decline in Wireless revenues. Continuing OIBDA (Adjusted OIBDA less the benefit received from the waived Sprint management fee) decreased 7.4% to $62.0 million from $67.0 million.
Consolidated Full Year Results
For the year ended December 31, 2017, operating revenues were $612.0 million, an increase of $76.7 million or 14.3%, primarily due to the expansion of our wireless network and coverage area through our acquisition of nTelos and exchange transaction with Sprint that occurred during May 2016. Operating income was $46.5 million, representing an increase of $24.0 million compared with 2016.
Adjusted OIBDA increased 14.1% to $280.9 million in 2017 from $246.1 million in 2016, primarily due to the expansion of our wireless network coverage area through our acquisition of nTelos and exchange transaction with Sprint that occurred during May 2016. Continuing OIBDA increased 10.5% to $244.8 million from 2016.
Net cash provided by operating activities increased 38.0% to $222.9 million.
President and CEO Christopher E. French commented, “Our Company delivered profitable growth in 2017, highlighted by our completed transition of nTelos to the Sprint affiliate model and making great progress in many areas. We accomplished the transition a full quarter ahead of schedule and below our cost expectations. The fourth quarter was our first full quarter of sales after completing the upgrade to 4G LTE in the former nTelos area. At year end 2017 we have completed more than 60% of the planned expansion sites and believe we’re well positioned to continue marketing our enhanced network to drive new customer growth."
Fourth quarter wireless revenue decreased $6.3 million or 5.3%, primarily related to a reduction in average revenue per customer as our postpaid subscriber base continued the shift from higher revenue subsidized phone price plans to lower revenue price plans associated with leased and installment sale phones.
Shentel served 736,597 postpaid wireless subscribers at December 31, 2017, up 1.9% over December 31, 2016. Fourth quarter postpaid churn was 2.0% for the total Company and 1.8% in the Legacy area (service area excluding the acquired nTelos area). The Company had net adds of 8,643 postpaid subscribers in the quarter, of which 2,895 were tablets and devices, with the Legacy area adding 3,838 net adds. As of December 31, 2017, tablets and data devices were 7.9% of the postpaid base.
Shentel served 225,822 prepaid wireless subscribers at December 31, 2017, representing an increase of 9.3% compared with 2016. Total fourth quarter prepaid churn was 5.1% with 4.8% in the Legacy area. The Company had net additions of 1,213 prepaid subscribers in the fourth quarter of 2017, with the Legacy area net additions of 1,191.
As previously reported, the prepaid subscriber migration was completed in late December 2016, and the outsourced prepaid billing arrangement was terminated. Shentel completed the migration of the postpaid subscribers in the nTelos service area and the upgrade of the network September 30, 2017.
Fourth quarter 2017 Adjusted OIBDA in Wireless was $56.6 million, a decrease of 11.0% from the fourth quarter of 2016. Continuing OIBDA in Wireless was $47.6 million, down 12.9% from the fourth quarter of 2016.
Mr. French continued, “With the nTelos transition completed, we are focused on attracting new subscribers by effectively marketing the benefits of our improved network, extended coverage area and enhanced service offerings. A few weeks ago, we announced that effective February 1, 2018 we have further expanded our Sprint relationship to add 1.1 million POPs in Lancaster County, Pennsylvania, central Virginia, southwest Virginia, southern West Virginia and eastern Kentucky, with the opportunity to add an additional 200,000 POPs in eastern Kentucky. The expansion allows us to build networks that will improve coverage between our existing service areas and Sprint’s metro networks, provide better and more reliable service for our customers and introduce significant opportunities for our continued growth.”
Fourth quarter Cable revenue increased $2.2 million or 7.7% to $30.5 million, primarily due to growth in High Speed Data and Voice RGUs. Operating expenses decreased 1.0% or $0.3 million in the fourth quarter of 2017. Operating income was $5.4 million compared with $3.0 million in the prior year, primarily due to the continued transformation of Cable from a video focus to broadband. In the fourth quarter of 2017, the Company added 476 High Speed Data users and 136 voice users, and lost 766 video users.
Adjusted OIBDA in Cable for fourth quarter 2017 was $11.3 million, up 21.3% from $9.3 million in the fourth quarter of 2016.
“Our proven network delivers the high bandwidth and availability that enables us to meet and exceed consumer expectations for high speed service and dependably accessing voice, video or data applications. The reliability of our state-of-the-art network is a competitive advantage as customers choose a new provider or evaluate upgrading their existing service,” Mr. French stated.
Revenue in Wireline increased 7.3% to $20.7 million in the fourth quarter of 2017, as compared to $19.3 million in the fourth quarter of 2016. Fiber revenue for the fourth quarter of 2017 was $14.2 million, an increase of 9.7% 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 10.6% or $1.5 million to $15.3 million for fourth quarter 2017, primarily due to costs to support new fiber contracts.
Adjusted OIBDA in Wireline for fourth quarter 2017 was $8.8 million, as compared to $8.4 million in fourth quarter 2016.
The Company declared and paid a cash dividend of $0.26 per share during the fourth quarter of 2017. This was the 58th consecutive year of paying a dividend.
Capital expenditures were $37.1 million in the fourth quarter of 2017 compared to $70.4 million in the comparable 2016 period.
Capital Expenditures were $146.5 for the full year 2017, compared with $173.2 for 2016. Capital expenditures in 2017 primarily supported the expansion of our wireless network. Capital expenditures in 2016 primarily supported wireless network upgrades and capacity and coverage enhancements as a result of the nTelos acquisition, as well as retail store remodeling, cable segment extensions and investment in customer premises equipment, and expansion and upgrade of our fiber networks.
Cash and cash equivalents as of December 31, 2017 were $78.6 million, compared to $36.2 million at December 31, 2016. Total outstanding debt at December 31, 2017 totaled $822.0 million, net of unamortized loan costs, compared to $829.3 million as of December 31, 2016. At December 31, 2017, debt as a percent of total assets was 58%. The amount available to the Company through its revolver facility was $75.0 million. The Company expects to utilize $15 million of the revolver facility capacity during the first quarter of 2018.
Effective February 1, 2018, we signed the Expansion Agreement with Sprint to expand our wireless service area to include certain areas in Kentucky, Pennsylvania, Tennessee, Virginia and West Virginia, (the “Expansion Area”), effectively adding a population (POPs) of approximately 1.1 million in Lancaster County, PA, central Virginia, southwest Virginia, southern West Virginia, and eastern Kentucky. The agreement includes certain network build out requirements in the Expansion Area, and the ability to utilize Sprint’s spectrum in the Expansion Area along with certain other amendments to the Affiliate Agreements. Pursuant to the Expansion Agreement, Sprint agreed to, among other things, transition the provision of network coverage in the Expansion Area from Sprint to us. The Expansion Agreement required us to make a one-time payment of $60.0 million to Sprint for the right to service the Expansion Area pursuant to the Affiliate Agreements plus an additional payment of up to $5.0 million for certain equipment at the Sprint cell sites in the Expansion Area for maximum potential consideration of $65.0 million. We also amended our affiliate agreements with Sprint to reflect the provisions of the Expansion Agreement. A postclosing reconciliation to validate Sprint subscribers in the Expansion Area identified 59,097 Sprint subscribers in the Expansion Area instead of the 66,822 originally identified, which resulted in an $8 million reduction in purchase price.
On February 16, 2018, the Company, entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with CoBank, ACB, as administrative agent of its Credit Agreement, described more fully in Note 13, Long-Term Debt, and the various financial institutions party thereto (the “Lenders”), which modifies the Credit Agreement by (i) reducing the interest rate paid by the Company by approximately 50 basis points with respect to certain loans made by the Lenders to the Company under the Credit Agreement, and (ii) allowing the Company to make charitable contributions to Shentel Foundation, a Virginia nonstock corporation, of up to $1.5 million in any fiscal year.
Conference Call and Webcast
The Company will host a conference call and simultaneous webcast Thursday, March 15, 2018, at 9:00 A.M. Eastern Time.
March 15, 2018 9:00 A.M. (ET)
Dial in number: (888) 695-7639
Audio webcast: http://investor.shentel.com/
An audio replay of the call will be available approximately two hours after the call is complete, until March 29, 2018 by calling (855) 859-2056.
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.