Shenandoah Telecommunications Company Reports First Quarter 2020 Results
First Quarter 2020 Highlights
$36.0 millionin normalized free cash flow and $61.1 millionin operating cash flow.
- Ended the quarter with
$195.2 millionof liquidity.
- Broadband revenues and Adjusted OIBDA increased 6.2%, and 4.3%, respectively. Operating income was flat with prior year.
Glo Fiberinto three new markets increasing homes passed to over 5,000.
"Although we do not operate in the densely populated urban markets most affected, the COVID-19 crisis began to affect our operating and financial results during the latter part of the first quarter of 2020," said President and CEO,
Shentel's first-quarter earnings conference call will be webcast at
Consolidated First Quarter 2020 Results
- Revenue in the first quarter of 2020 was
$153.2 millioncompared with $158.8 millionin the first quarter of 2019, due primarily to a decline of $8.5 millionin the Wireless segment, partially offset by growth of $2.9 millionand $0.7 millionin the Broadband and Towersegments, respectively. The Wireless segment recognized $4.5 millionin lower travel revenue in the first quarter of 2020 compared to the first quarter of 2019 due to the ongoing dispute with Sprint over resetting of the travel fee. We expect to settle this dispute in the second quarter of 2020 through binding arbitration.
- Adjusted OIBDA in the first quarter of 2020 decreased
$3.5 millionto $64.2 millioncompared with $67.7 millionin 2019 due primarily to the $4.5 milliontravel revenue decline in the Wireless segment.
- Operating income decreased 7.0% to
$23.1 millionin 2020 from $24.8 millionin 2019.
- Earnings per diluted share decreased 3.6% to
$0.27from $0.28per diluted share in 2019.
- Shentel served 847,771 wireless postpaid subscribers at
March 31, 2020, representing an increase of 5.8% compared with March 31, 2019. First quarter 2020 postpaid gross adds were 51,991, as compared to 60,477 in the third quarter of 2019 and 50,847 in the first quarter of 2019. Net adds were 3,577 as compared to 11,698 in the third quarter 2019 and 5,776 in the first quarter 2019. Postpaid churn was 1.91%, consistent with the third quarter and first quarter 2019. The COVID-19 related retail store closures and local government mandated stay at home directives in second half of March adversely affected gross and net additions during the quarter diluting the sales momentum from the network and distributions expansions we completed in the summer of 2019. At March 31, 2020, phones represented 87.1% of the postpaid base.
- Shentel served 279,096 wireless prepaid subscribers at
March 31, 2020, representing an increase of 4.4% compared with March 31, 2019. First quarter 2020 prepaid gross adds of 39,074 declined from 40,979 in the first quarter 2019. Net adds were 5,084, as compared to 8,516 in the same period a year ago. Prepaid phone churn was 4.13%, consistent with the first quarter 2019. Prepaid subscriber results were consistent with our expectations.
- Wireless revenue decreased approximately
$8.5 millionfor the three months ended March 31, 2020compared with the three months ended March 31, 2019. The decrease was primarily attributable to the aforementioned $4.5 milliondecline in travel revenue, $2.5 millionin lower equipment revenue, $3.0 millionin higher amortized customer contract costs, partially offset by a $1.7 millionincrease in postpaid and prepaid revenue from growth in subscribers.
- Wireless operating expenses in the first quarter of 2020 were
$80.7 millioncompared to $88.4 millionin the first quarter of 2019. The decrease was primarily attributable to a $4.6 milliondecrease in depreciation and amortization as certain assets acquired from nTelos became fully utilized, a $1.9 milliondecline in cost of goods sold resulting from reduced volume of equipment sales, $1.0 millionin lower advertising costs driven by temporary closure of certain retail stores, a $0.8 millionsales and use tax settlement gain, partially offset by higher cell site rent expense of $1.0 millionrelated to our network expansion.
- Wireless Adjusted OIBDA in the first quarter of 2020 was
$49.2 million, compared with $54.6 millionfor the first quarter of 2019.
- Wireless operating income in the first quarter of 2020 was
$23.4 million, compared to $24.2 millionfor the first quarter of 2019.
- Total Revenue Generating Units ("RGUs") as of
March 31, 2020were 193,654, representing an increase of 0.4% from March 31, 2019. Incumbent cable broadband penetration grew from 38.3% to 41.7% and broadband churn declined 5 basis points to 1.48%. Glo Fiberadded over 3,600 homes passed and ended the quarter with approximately 5,350 homes passed and 8.5% broadband penetration.
- Broadband revenue in the first quarter of 2020 grew
$2.9 millionor 6.2% to $49.8 millioncompared with $46.9 millionin the first quarter of 2019, primarily driven by a $2.5 millionincrease in Cable Residential and SMB revenue and $1.1 millionincrease in Fiber, enterprise and wholesale revenue partially offset by $0.5 milliondecline in RLEC revenues.
- Broadband operating expenses in the first quarter of 2020 were
$39.8 millioncompared to $36.8 millionin the first quarter of 2019. The increase was primarily due to $1.3 millionof Glo Fiberstart-up expenses, $0.9 millionincrease in depreciation and amortization expense due to the expansion of our network and $0.5 millionincrease in advertising expenses,
- Broadband Adjusted OIBDA in the first quarter of 2020 grew 4.3% to
$20.9 million, compared with $20.0 millionfor the first quarter of 2019.
- Broadband Operating income in the first quarter of 2020 was
$10.0 million, compared to $10.0 millionin the first quarter of 2019.
- Total towers and tenants were 226 and 408 as of
March 31, 2020as compared to 211 and 368, respectively, as of March 31, 2019.
- Tower revenue in the first quarter of 2020 grew 23.0% to
$3.7 million, compared with $3.0 millionfor the first quarter of 2019. This increase was due to a 10.9% increase in tenants and an 11.4% increase in the average lease rate.
- Tower operating expenses in both the first quarter of 2020 and 2019 were
- Tower Adjusted OIBDA in the first quarter of 2020 grew 25.5% to
$2.3 million, compared with $1.8 millionfor the first quarter of 2019.
- Tower operating income in the first quarter of 2020 was
$1.8 million, compared to $1.1 millionfor the first quarter of 2019.
- Capital expenditures were
$32.3 millionfor the three months ended March 31, 2020compared with $44.4 millionin the comparable 2019 period. The $12.1 milliondecrease in capital expenditures was primarily due to a $17.0 milliondecline in Wireless as the Ntelos and Parkersburg network expansions were completed in the first half of 2019 partially offset by $5.0 millionin higher spending in Broadband driven by our Glo Fibermarket expansion.
- Outstanding debt at
March 31, 2020totaled $712.2 million, net of unamortized loan costs, compared to $720.1 millionas of March 31, 2019. As of March 31, 2020, the Company had liquidity of approximately $195.2 million, including $75.0 million of revolving line of credit availability.
April 1, 2020, T-Mobile announced the completion of its business combination with Sprint and subsequently delivered to the Company a notice of Network Technology Conversion, Brand Conversion and Combination Conversion (a “Conversion Notice”) pursuant to the terms of the Company’s affiliate agreement with Sprint. As described in more detail in the Company’s 2019 Annual Report on Form 10-K, our Wireless segment has been an affiliate of Sprint since 1995. The affiliate agreement provides for a 90 day period following receipt of the Conversion Notice for the parties to negotiate mutually agreeable terms and conditions under which the Company would continue as an affiliate of T-Mobile. The affiliate agreement further provides that, if T-Mobile and the Company have not negotiated a mutually acceptable agreement within the 90 day period, then T-Mobile would have a period of 60 days thereafter to exercise an option to purchase the assets of our Wireless operations for 90% of the “Entire Business Value” (as defined under our affiliate agreement). If T-Mobile does not exercise its purchase option, the Company would then have a 60 day period to exercise an option to purchase the legacy T-Mobile network and subscribers in our service area. If the Company does not exercise its purchase option, T-Mobile must sell or decommission its legacy network and customers in our service area.
- We have been closely monitoring the latest developments around the outbreak of a new strain of coronavirus ("COVID-19") and its impact globally. As we focus on our community and do our part to stop COVID-19 from spreading we have taken the following actions to keep families and businesses safe and connected virtually:
-- In our Broadband segment, we expanded our service offerings by temporarily increasing the minimum speed and data allowance of our broadband service to 50 Mbps and by 250 GB, respectively, each at no additional charge and introducing a new
$25per month prepaid internet service.
-- In our Wireless segment, we have supported Sprint’s adoption of the Keep Americans Connected pledge while temporarily closing approximately 40% of the Sprint branded retail locations in our service area to comply with federal and state mandates.
-- We have implemented alternative working arrangements where practicable to keep our employees safe and maintained our geographically redundant equipment, diverse fiber facilities and monitoring services to support maximum uptime of all our essential networks and services.
While these actions did not have a material impact on our first quarter operating results nor do we expect them to impact our long-term growth prospects, we do expect them to temporarily dislocate our wireless operating momentum until the economies in the markets that we serve re-open.
Free cash flow, normalized free cash flow and Adjusted OIBDA are non-GAAP financial measures that are not determined in accordance with US generally accepted accounting principles. Reconciliations of these non-GAAP financial measures are provided in this press release after the consolidated financial statements.
Conference Call and Webcast
Date: April 30, 2020
Dial in number: 1-888-695-7639
Audio webcast: http://investor.shentel.com/
An audio replay of the call will be available approximately two hours after the call is complete, through
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
Senior Vice President - Chief Financial Officer
IMS Investor Relations
|SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|(in thousands, except per share amounts)
|Three Months Ended
|Service revenue and other||$||140,188||$||143,231|
|Cost of services||49,565||49,518|
|Cost of goods sold||12,671||14,637|
|Selling, general and administrative||30,991||28,722|
|Depreciation and amortization||36,911||41,179|
|Total operating expenses||130,138||134,056|
|Other income (expense):|
|Income before income taxes||17,572||18,120|
|Income tax expense||4,292||4,210|
|Net income per share, basic and diluted:|
|Basic net income per share||$||0.27||$||0.28|
|Diluted net income per share||$||0.27||$||0.28|
|Weighted average shares outstanding, basic||49,888||49,775|
|Weighted average shares outstanding, diluted||50,036||50,115|
|SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES|
|UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS|
|Cash and cash equivalents||$||120,232||$||101,651|
|Other current assets||137,677||140,102|
|Total current assets||257,909||241,753|
|Property, plant and equipment, net||695,920||701,514|
|Intangible assets, net||299,458||314,147|
|Operating lease right-of-use assets||382,973||392,589|
|Deferred charges and other assets, net||53,436||53,352|
|Total current liabilities||139,644||$||147,336|
|Long-term debt, less current maturities||680,531||688,464|
|Total shareholders’ equity||480,650||472,428|
|Total liabilities and shareholders’ equity||$||1,850,777||$||1,864,813|
|SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES|
|UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS|
|Three Months Ended
|Cash flows from operating activities:|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Amortization of intangible assets||4,868||5,659|
|Bad debt expense||205||367|
|Stock based compensation expense, net of amount capitalized||2,905||1,714|
|Deferred income taxes||2,135||(3,378||)|
|Changes in assets and liabilities||4,508||7,698|
|Net cash provided by operating activities||61,108||61,663|
|Cash flows from investing activities:|
|Cash disbursed for acquisitions||—||(10,000||)|
|Proceeds from sale of assets and other||274||45|
|Net cash used in investing activities||(32,025||)||(54,375||)|
|Cash flows from financing activities:|
|Principal payments on long-term debt||(8,530||)||(19,889||)|
|Taxes paid for equity award issuances||(1,945||)||(2,698||)|
|Proceeds from exercise of stock options||(27||)||72|
|Net cash used in financing activities||(10,502||)||(22,515||)|
|Net increase (decrease) in cash and cash equivalents||18,581||(15,227||)|
|Cash and cash equivalents, beginning of period||101,651||85,086|
|Cash and cash equivalents, end of period||$||120,232||$||69,859|
Non-GAAP Financial Measures
Adjusted OIBDA represents Operating income before depreciation, amortization of intangible assets, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors. Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies. This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with
The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:
|Three Months Ended
|(in thousands)||Wireless||Broadband||Tower||Corporate &
|Amortization of intangible assets||4,714||154||—||—||4,868|
|Share-based compensation expense||—||—||—||2,905||2,905|
|Non-recurring deal advisory fees||—||—||—||910||910|
|Three Months Ended
|(in thousands)||Wireless||Broadband||Tower||Corporate &
|Amortization of intangible assets||5,618||41||—||—||5,659|
|Share-based compensation expense||—||—||—||1,714||1,714|
|Three Months Ended
|Cable, residential and SMB (1)||—||34,943||—||—||34,943|
|Fiber, enterprise and wholesale||—||5,488||—||—||5,488|
|Rural local exchange carrier||—||4,756||—||—||4,756|
|Travel, installation, and other||3,351||1,816||—||—||5,167|
|Service revenue and other||91,388||47,003||1,797||—||140,188|
|Total external revenue||104,138||47,253||1,797||—||153,188|
|Revenue from other segments||—||2,533||1,933||(4,466||)||—|
|Cost of services||33,439||19,243||939||(4,056||)||49,565|
|Cost of goods sold||12,528||143||—||—||12,671|
|Selling, general and administrative||9,428||9,499||526||11,538||30,991|
|Depreciation and amortization||25,299||10,871||470||271||36,911|
|Total operating expenses||80,694||39,756||1,935||7,753||130,138|
|Operating income (loss)||$||23,444||$||10,030||$||1,795||$||(12,219||)||$||23,050|
(1) SMB refers to Small and Medium Businesses.
|Three Months Ended
||Wireless||Broadband||Tower||Corporate & Eliminations||Consolidated|
|Cable, residential and SMB||—||32,426||—||—||32,426|
|Fiber, enterprise and wholesale||—||4,828||—||—||4,828|
|Rural local exchange carrier||—||5,238||—||—||5,238|
|Travel, installation, and other||8,018||1,646||—||—||9,664|
|Service revenue and other||97,330||44,138||1,763||—||143,231|
|Total external revenue||112,621||44,459||1,763||—||158,843|
|Revenue from other segments||—||2,422||1,270||(3,692||)||—|
|Cost of services||32,532||19,061||946||(3,021||)||49,518|
|Cost of goods sold||14,427||211||—||(1||)||14,637|
|Selling, general and administrative||11,079||7,569||283||9,791||28,722|
|Depreciation and amortization||30,370||9,991||680||138||41,179|
|Total operating expenses||88,408||36,832||1,909||6,907||134,056|
|Operating income (loss)||$||24,213||$||10,049||$||1,124||$||(10,599||)||$||24,787|
Wireless Operating Statistics
The following tables indicate selected operating statistics of Wireless, including Sprint subscribers, as of the dates shown:
|Retail PCS total subscribers||847,771||800,952|
|Retail PCS phone subscribers||738,410||722,830|
|Retail PCS connected device subscribers||109,361||78,122|
|Gross PCS total subscriber additions||51,991||50,847|
|Gross PCS phone additions||36,734||37,786|
|Gross PCS connected device additions||15,257||13,061|
|Net PCS total subscriber additions||3,577||5,776|
|Net PCS phone additions (losses)||(2,311||)||105|
|Net PCS connected device additions||5,888||5,671|
|PCS monthly retail total churn %||1.91||%||1.89||%|
|PCS monthly phone churn %||1.76||%||1.74||%|
|PCS monthly connected device churn %||2.97||%||3.35||%|
|Retail PCS subscribers||279,096||267,220|
|Gross PCS subscriber additions||39,074||40,979|
|Net PCS subscriber additions||5,084||8,516|
|PCS monthly retail churn %||4.13||%||4.14||%|
|PCS market POPS (000) (1)||7,227||7,023|
|PCS covered POP (000) (1)||6,325||6,261|
|Macro base stations (cell sites)||1,966||1,874|
(1) "POPS" refers to the estimated population of a given geographic area. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network. The data source for POPS is
Broadband Operating Statistics
|Broadband homes passed (1) (2)||212,129||206,113|
|Broadband customer relationships (3)||103,287||95,933|
|Digital video penetration (5)||94.3||%||85.7||%|
|Total Cable and Glo Fiber RGUs||171,570||168,806|
|RLEC homes passed||25,848||25,798|
|RLEC customer relationships (3)||10,111||11,101|
|Total RLEC RGUs||22,084||24,006|
|Fiber route miles||6,273||5,799|
|Total fiber miles (6)||334,802||303,511|
(1) Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. Homes passed have access to video, broadband and voice services.
(2) Includes approximately 16,600 RLEC homes passed where we are the dual incumbent telephone and cable provider.
(3) Customer relationships represent the number of billed customers who receive at least one of our services.
(4) Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
(5) Digital video penetration is calculated by dividing the number of digital video users by total video users. Digital video users are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.
(6) Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.
Tower Operating Statistics
|Average tenants per tower||1.8||1.7|
(1) Includes 203 and 175 intercompany tenants for our Wireless segment as of
Reconciliation of Non-GAAP Measures Normalized Free Cash Flow and Free Cash Flow
|Three Months Ended|
|Net cash provided by operating activities||$||61,108||$||61,663|
|Less: Capital expenditures (1)||(25,104||)||(44,420||)|
|Normalized free cash flow||36,004||17,243|
|Free cash flow||$||28,809||$||17,243|
(1) Excludes capital expenditures for the development of
Free cash flow and normalized free cash flow are non-GAAP financial measures that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. Normalized free cash flow is calculated by subtracting capital expenditures, excluding spending on the development of
Source: Shenandoah Telecommunications Co