Shenandoah Telecommunications Company (NASDAQ:SHEN) announces financial and operating results for the three and nine months ended September 30, 2016.
Consolidated Third Quarter Results
For the quarter ended September 30, 2016, the Company reported total revenues of $156.8 million, an increase of 84.1% compared to $85.2 million for the 2015 third quarter. All segments reported revenue increases, with the largest being due to the nTelos acquisition which was completed May 6, 2016. The integration of nTelos’ operations and the transition of its assets and customers are progressing as expected, with Shentel currently ahead of its schedule on the migration of nTelos customers to the Sprint platform.
Wireless service revenues increased 132.3% as a result of increases in average postpaid and prepaid subscribers of 75% and 46%, respectively, and a reduction in postpaid fees retained by Sprint. Cable segment revenues increased 12.9% due to a 6.8% 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 8.4% due to higher fiber lease revenues, as well as higher internet service fees as customers upgraded their services.
Total operating expenses were $160.8 million in the third quarter of 2016 compared to $70.1 million in the prior year period. Operating expenses in the third quarter of 2016 included $15.3 million of integration and acquisition costs associated with the nTelos acquisition, with $14.5 million in the Wireless segment and $0.8 million in the Other segment. An additional $4.9 million of costs to operate and support the nTelos back office and billing functions until customers can migrate to Sprint platforms was included in cost of goods and services and selling, general and administrative expenses in the Wireless segment.
For the quarter ended September 30, 2016, the Company reported a net loss of $7.6 million, compared to net income of $8.0 million in the third quarter of 2015, primarily reflecting increased depreciation and amortization expenses and acquisition and integration costs incurred for its acquisition of nTelos.
Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased 100.4% to $73.7 million in the third quarter of 2016 from $36.8 million in the third quarter of 2015. Continuing OIBDA (Adjusted OIBDA less the benefit received from the waived Sprint management fee over the next six years) increased 74.5% to $64.2 million.
President and CEO Christopher E. French commented, “Our third quarter results reflect our first full quarter including the assets and customers gained through our acquisition of nTelos. In addition to the resulting increases in wireless, revenue and OIBDA also increased in our cable and wireline segments. As we complete the operational changes related to blending our wireless operations, we are increasingly energized by the opportunities across all segments and our larger footprint and presence in the Mid-Atlantic region. We are focused on leveraging the consistent coverage and high speed access of our state-of-the-art networks to serve our large and growing customer base.”
Wireless Segment
Third quarter wireless service revenues increased $63.2 million or 132.3%, primarily related to the addition of approximately 580,000 postpaid and prepaid customers from the nTelos acquisition. Additionally, the segment benefited from a reduction in the postpaid fees retained by Sprint as part of the amended affiliate agreement.
During the third quarter of 2016, net postpaid subscribers increased by 1,222 as compared to 7,035 net postpaid subscriber additions in the third quarter of 2015, while net prepaid subscribers declined by 13,865 during third quarter 2016, compared to a decline of 327 in the third quarter of 2015.
Third quarter adjusted OIBDA in the Wireless segment was $62.5 million, an increase of 130% from the third quarter of 2015. Continuing OIBDA in the Wireless segment was $53.0 million.
“The doubling of our wireless customer base and the addition of several new, complementary markets positions us well for continued growth. During the quarter, we saw continued expenses related to the migration of certain nTelos customers to the Sprint billing platform. Our upgraded networks are a competitive advantage and we continue to make progress bringing improved reliability and coverage in our acquired markets,” Mr. French stated.
Cable Segment
Revenues in the Cable segment increased $3.1 million or 12.9% to $27.6 million, primarily due to 6.8% growth in average RGUs (the sum of voice, data, and video users), video rate increases implemented in January 2016 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 increased 1.1% to $25.3 million in the third quarter of 2016. Third quarter operating income was $2.3 million compared to an operating loss of $0.6 million in the prior year.
Revenue generating units totaled 132,430 at September 30, 2016, an increase of 6.4% over September 30, 2015.
Adjusted OIBDA in the Cable segment for third quarter 2016 was $8.2 million, up 50.5% from $5.5 million in the third quarter of 2015.
Mr. French stated, “We are confident in the strength and performance of our Cable segment as customer expectations and demands increase related to the availability and capabilities of their cable service. The performance of our state-of-the-art network has prompted many existing customers to upgrade their monthly subscription plans and attracted new customers seeking robust service selections.”
Wireline Segment
Revenue in the Wireline segment increased 8.4% to $18.7 million in the third quarter of 2016, as compared to $17.3 million in the third quarter of 2015. Carrier access and fiber revenue for the quarter was $12.4 million, an increase of 13.8% from the same quarter last year, as a result of new fiber contracts. Operating expenses increased 4.8% or $0.6 million to $13.9 million for third quarter 2016, primarily due to costs to support new fiber contracts.
Adjusted OIBDA in the Wireline segment for third quarter 2016 was $7.7 million, as compared to $7.5 million in third quarter 2015.
Other Information
Capital expenditures were $42.7 million in the third quarter of 2016 compared to $14.5 million in the comparable 2015 period.
Cash and cash equivalents as of September 30, 2016 were $27.5 million, compared to $76.8 million at December 31, 2015. Total outstanding debt at September 30, 2016 totaled $809.6 million, net of unamortized loan costs, compared to $199.7 million as of December 31, 2015. At September 30, 2016, debt as a percent of total assets was 56.5%. The amount available to the Company through its revolver facility was $75.0 million, and from the delayed draw term loan, $50.0 million.
“Our balance sheet remains strong, providing a secure foundation to drive the growth of our customer base, while also enabling us to continually improve our service offerings and capabilities. The addition of the nTelos markets has significantly expanded our operations and we remain focused on adding new customers in new markets as we grow our position as one of the top six public wireless providers in the United States,” Mr. French concluded.
Conference Call and Webcast
The Company will host a conference call and simultaneous webcast today, Monday, November 7, 2016, at 8:30 A.M. Eastern Time.
Teleconference Information:
Monday, November 7, 2016 8:30 A.M. (ET)
Dial in number: 1-888-695-7639
Password: 10988671
Audio webcast: http://investor.shentel.com/
An audio replay of the call will be available approximately two hours after the call is complete, through November 14, 2016 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 and West Virginia. For more information, please visit www.shentel.com.