Market Overview

Shenandoah Telecommunications Company Reports Fourth Quarter and Full Year 2018 Results

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Quarterly Operating Income Increases to $27.0 million

Annual Operating Income More Than Doubled to $93.2 million

EDINBURG, Va., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company ("Shentel") (NASDAQ:SHEN) announced strong fourth quarter financial and operating results, reflecting record subscriber additions in both the Wireless and Cable segments. The net addition of 9,639 postpaid wireless customers during the quarter set an all-time high during Shentel's nearly two-decade relationship with Sprint. Growth in the Cable segment was led by strong sales of the Company's newly introduced PowerHouse broadband service. These successes drove quarterly operating income to $27.0 million.

Shentel's solid fourth quarter performance closed out a strong fiscal 2018, with significant increases in consolidated revenue and operating income, and improved OIBDA. Consolidated revenue increased to $630.9 million, compared to $612.0 million in 2017. Operating income more than doubled from $46.5 million in 2017 to $93.2 million in 2018. Adjusted OIBDA was $285.7 million for 2018 compared with $280.9 million in 2017.

Fourth Quarter 2018 Highlights

  • Operating revenue of $161.5 million grew 6.5%
  • Operating income up 49.1% to $27.0 million
  • Net income of $14.9 million, or $0.31 per basic share
  • Adjusted OIBDA of $73.2 million

Full Year 2018 Highlights

  • Operating revenue of $630.9 million grew 3.1%
  • Operating income more than doubles to $93.2 million
  • Net income of $46.6 million, or $0.94 per basic share
  • Adjusted OIBDA of $285.7 million

Please refer to our Fourth Quarter 2018 Earnings Presentation Supplement available at https://investor.shentel.com/ for additional information, including matters that will be referenced during the Company's conference call. Included in this release are certain non-GAAP financial measures that are not determined in accordance with US generally accepted accounting principles. Please refer to page 10 for additional information for non-GAAP measures.

Results

Consolidated  Fourth Quarter 2018 Results

  • Net income for the three months ended December 31, 2018 was $14.9 million, or $0.31 per share, compared with net income of $60.6 million, or $1.23 per share, in the fourth quarter of 2017.
      
    • Effective January 1, 2018, the Company adopted the new revenue recognition standard (Topic 606) that requires the Company to record costs such as commissions for the national sales channel that are settled separately with Sprint as reductions of revenue.  The impact of adopting Topic 606 is detailed in the section titled "Impact of Topic 606".
        
    • Fourth quarter 2017 included a one-time non-cash tax benefit of approximately $53.4 million as a result of the enactment of the Tax Cuts and Jobs Act in December of 2017.
        
  • Operating revenue for the fourth quarter of 2018 was $161.5 million, representing a year-over-year increase of 6.5%, driven by growth in Wireless and Cable subscribers.
      
  • Operating expenses for the three months ended December 31, 2018 were $134.5 million, compared with $133.5 million for the equivalent quarter in the prior year.
      
  • Operating income increased 49.1% in the fourth quarter of 2018 to $27.0 million from $18.1 million in the equivalent quarter of the prior year.
      
  • Adjusted OIBDA increased 3.1% to $73.2 million for the three months ended December 31, 2018, driven by subscriber based revenue growth in Wireless and Cable.

    Wireless
      
     •  Wireless operating revenue increased $7.5 million, to $119.0 million compared with the three months ended December 31, 2017, primarily driven by growth in postpaid and prepaid PCS subscribers, improvements in average monthly churn, and was partially offset by a decline in postpaid average revenue per subscriber primarily related to promotions and discounts.
     
     •  Wireless operating expenses decreased 8.0% in the fourth quarter of 2018 to $93.0 million, compared with $99.6 million for the three months ended December 31, 2017, primarily due to reducing back-office expenses that were required to support former nTelos subscribers that migrated to Sprint's back-office in 2017 and a reduction in acquisition, integration and migration expenses as the integration of the acquired nTelos business was completed during 2017.

     •   Wireless Adjusted OIBDA for the three months ended December 31, 2018 was $63.2 million, compared with $56.6 million for the three months ended December 31, 2017. Wireless Continuing OIBDA for the three months ended December 31, 2018 was $53.6 million, compared with $47.6 million for the three months ended December 31, 2017.

    Cable

       Cable operating revenue for the fourth quarter of 2018 was $32.9 million, representing a quarter over quarter increase of 7.9% compared with $30.5 million for the prior year fourth quarter. This growth was primarily due to increases in our broadband and voice subscribers, higher video rates and our customers selecting or upgrading to higher-speed data access packages.
     
     •   Cable operating expenses for the fourth quarter of 2018 were $26.6 million, a quarter over quarter increase of 5.9% compared with $25.1 million for the three months ended December 31, 2017. The increase was primarily due to new fiber contracts and installation services that were driven by growth in our customer base. The Company lost 3,013 video users while adding 4,261 broadband users and 811 voice users, since December 31, 2017.
        
     •   Cable Adjusted OIBDA for the three months ended December 31, 2018 was $12.6 million, compared with $11.3 million for the three months ended December 31,
    2017.

    Wireline
     
     •   Wireline operating revenue for the three months ended December 31, 2018 was $18.7 million, compared with $20.7 million for the prior year fourth quarter. The decrease in operating revenue was primarily attributable to repricing Wireless backhaul circuits to market rates and migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective Voice over IP ("VoIP") facilities.
      
     •   Wireline operating expenses for the three months ended December 31, 2018 were $15.5 million, compared with $15.3 million for the three months ended December 31, 2017. This increase was primarily attributable to the expansion of the underlying network assets and investments in infrastructure necessary to support the growth in our fiber network.
      
     •   Wireline Adjusted OIBDA for the three months ended December 31, 2018 was $6.7 million, compared with $8.8 million for the prior year equivalent quarter.
      

Consolidated Full Year 2018 Results

  • Net income in 2018 was $46.6 million, or $0.94 per share, compared with net income of $66.4 million, or $1.35 per share, in 2017.
      
    • The impact of adopting Topic 606 is detailed in the section titled "Impact of Topic 606".
        
    • 2017 included a one-time non-cash tax benefit of approximately $53.4 million as a result of the enactment of the Tax Cuts and Jobs Act in December of 2017.
  • Operating revenue in 2018 was $630.9 million, representing a year-over-year increase of 3.1%, compared with $612.0 million in 2017 driven by Wireless and Cable operations.
      
  • Operating expenses in 2018 were $537.6 million, compared with $565.5 million in 2017 primarily due to the absence of acquisition, integration and migration costs related to the completion of the transformation of the nTelos network in 2017 as well as lower depreciation and amortization costs due to the retirement of assets acquired with nTelos, partially offset by increased costs necessary to support our continued growth and expansion.
      
  • Operating income increased 100.5% in 2018 to $93.2 million from $46.5 million in 2017.
      
  • Adjusted OIBDA increased 1.7% in 2018 to $285.7 million,  fueled by the continued expansion of our Wireless segment and growth in Cable's broadband subscribers.

    Wireless
      
     •   Wireless operating revenue increased $7.6 million, to $462.7 million compared with 2017, primarily driven by growth in postpaid and prepaid PCS subscribers, improvements in average monthly churn, and was partially offset by a decline in postpaid average revenue per subscriber primarily related to promotions and discounts.
      
     •   Wireless operating expenses in 2018 were $369.8 million, compared with $420.9 million in 2017, a year over year decrease of 12.1%, primarily due to repricing Wireless backhaul circuits to market rates, migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective VoIP facilities, reducing back-office expenses that were required to support former nTelos subscribers that migrated to Sprint's back-office in 2017, and a reduction in acquisition, integration and migration expenses as the integration of the acquired nTelos business was completed during 2017.
       
     •   Wireless Adjusted OIBDA in 2018 was $243.4 million, compared with $230.4 million in 2017. Wireless Continuing OIBDA in 2018 was $205.7 million, compared with $194.3 million in 2017.

    Cable
      
     •   Cable operating revenue in 2018 was $128.9 million, representing a year over year increase of 8.2% compared with $119.2 million in 2017. This growth was primarily due to increases in our broadband and voice subscribers, higher video rates, and our customers selecting or upgrading to higher-speed data access packages.
      
     •   Cable operating expenses in 2018 were $105.1 million, a year over year increase of 1.8% compared with $103.3 million in 2017. The increase was primarily due to new fiber contracts and installation services that were driven by growth in our customer base. The Company lost 3,013 video users while adding 4,261 broadband users and 811 voice users, since December 31, 2017.
      
     •   Cable Adjusted OIBDA in 2018 was $48.3 million, compared with $40.5 million in 2017.
      
    Wireline
      
     •   Wireline operating revenue in 2018 was $77.1 million, compared with $79.3 million in 2017. The decrease in operating revenue was primarily attributable to repricing Wireless backhaul circuits to market rates and migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective Voice over IP ("VoIP") facilities.
      
     •   Wireline operating expenses in 2018 were $59.3 million, compared with $58.3 million in 2017. This increase was primarily attributable to the expansion of the underlying network assets and investments in infrastructure necessary to support the growth in our fiber network.
      
     •   Wireline Adjusted OIBDA in 2018 was $31.3 million, compared with $34.3 million in 2017.

"2018 was a strong year for Shentel, as demonstrated by solid consolidated revenue growth, significantly increased operating income and improved OIBDA," said President and CEO Christopher E. French. "During the past few years, we've strategically expanded our geographic reach and upgraded our network to ensure that we provide the most reliable coverage and highest data speeds and bandwidth in the areas we serve. Throughout 2018 we saw the benefits of these efforts as distribution levels and activation rates steadily increased. We believe our state-of-the-art network and expanded market coverage competitively position us to continue to capture market share and to grow our leadership position as the telecommunications provider of choice in the communities in which we operate."

"We achieved customer growth in all of our operating segments during fiscal 2018, highlighted by record customer adds in both our Wireless and our Cable segments during the fourth quarter," French continued. "Consumer reliance on wireless connectivity continues to increase exponentially, and our robust network meets and exceeds customer expectations for reliability and capacity. Likewise, in the Cable segment our high bandwidth capabilities are attractive to new customers and play a key role in our ability to transition existing customers to upgraded service packages. We're pleased with our achievements in 2018 and with our visibility today we believe we are well positioned to leverage our extensive coverage area, high caliber network and exceptional service to cultivate continued momentum as we move through 2019."

Other Information

Capital expenditures were $136.6 million for the year ended December 31, 2018 compared with $146.5 million in the comparable 2017 period.

The Company declared a cash dividend of $0.27 per share. The dividend was an increase of $0.01 per share or 3.8% over the 2017 dividend and was paid on November 30, 2018, to shareholders of record as of the close of business on November 12, 2018. The total payout to shareholders, before reinvestment, was approximately $13.4 million. The Company has paid an annual dividend every year since 1960, when its predecessor Shenandoah Telephone Company declared its first dividend.

Outstanding debt at December 31, 2018 totaled $770.2 million, net of unamortized loan costs, compared to $822.0 million as of December 31, 2017.  As of December 31, 2018, no amounts were outstanding under the revolving line of credit. The total leverage ratio as of December 31, 2018 was 2.54.

On November 9, 2018, the Company amended its credit agreement resulting in a 25 basis point reduction in the applicable base interest rate, extended maturity of both term loans and reduced near-term principle payments. Including our first quarter credit agreement amendment we reduced our base interest rate by 75 basis points in 2018.

Conference Call and Webcast

Teleconference Information:

Date: February 28, 2019   
Time: 10:00 A.M. (ET)
Dial in number: 1-888-695-7639

Password: 3786506
 
Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through March 28, 2019 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 a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, 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.

CONTACTS:

Shenandoah Telecommunications, Inc.
James F. Woodward
Senior Vice President, Finance and Chief Financial Officer
540-984-5990
James.Woodward@emp.shentel.com

Or

John Nesbett/Jennifer Belodeau
IMS Investor Relations
203-972-9200
jnesbett@institutionalms.com


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

  Three Months Ended
December 31,
  Twelve Months Ended
December 31,
  2018   2017   2018   2017
               
Operating revenue              
Service revenue and other $ 142,637     $ 149,602     $ 562,456     $ 601,673  
Equipment revenue 18,847     2,015     68,398     10,318  
Total operating revenue 161,484     151,617     630,854     611,991  
Operating expenses:              
Cost of services 47,660     42,977     194,022     188,721  
Cost of goods sold 17,952     5,554     63,959     22,786  
Selling, general and administrative 27,105     40,563     113,222     165,937  
Acquisition, integration and migration expenses     1,157         11,030  
Depreciation and amortization 41,773     43,256     166,405     177,007  
Total operating expenses 134,490     133,507     537,608     565,481  
Operating income (loss) 26,994     18,110     93,246     46,510  
Other income (expense):              
Interest expense (7,663 )   (9,925 )   (34,847 )   (38,237 )
Gain (loss) on investments, net (387 )   169     (275 )   564  
Non-operating income (loss), net 1,218     938     3,988     4,420
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