Shenandoah Telecommunications Company Reports Second Quarter 2020 Results

July 30, 2020 at 6:00 AM EDT

EDINBURG, Va., July 30, 2020 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (Nasdaq: SHEN) announced second quarter 2020 financial and operating results.

Second Quarter 2020 Highlights

  • Record quarter for Broadband data net additions of 6,000
  • Wireless prepaid gross and net additions grew 15.8% and 469.2%, respectively, over prior year period
  • Sprint travel dispute favorably resolved with fee reset to $18.0 million per year for 2019 to 2021
  • Operating cash flow was $67.8 million consistent with prior year period
  • Normalized free cash flow grew 38.5% to $46.1 million compared to the second quarter 2019, driven primarily by our Wireless segment

"We continue to manage through the changes created by COVID-19 and the Sprint/T-Mobile merger.  Our broadband business had strong operating results driven by demand from stay-at-home and work-from-home initiatives, new offerings and complementary temporary increases in bandwidth speeds and data allowances," said President and CEO, Christopher E. French. "We have the most robust broadband network in our service areas, and it has continued to perform very well. Our wireless business began to rebound in the second quarter with strong prepaid growth and all of our COVID-19 related temporary retail store closures were able to re-open by the end of the quarter.  We expect to return to pre-COVID postpaid sales levels when the economies in our markets fully re-open. Our wireless segment continues to generate strong and steady cash flow.”

Shentel's second-quarter earnings conference call will be webcast at 8:00 a.m. ET on Thursday, July 30, 2020. The webcast and related materials will be available on Shentel’s Investor Relations website at https://investor.shentel.com.

COVID-19 Update

Broadband

  • The stay-at-home directives by our governments spurred strong demand for broadband services during the second quarter 2020 resulting in record data net additions of 6,000 and the first quarter of positive video net additions since 2014.
     
  • Approximately 700 COVID-19 related non-payment service disconnections were deferred during the quarter ending June 30, 2020.  We resumed normal collection practices on July 1, 2020 and expect this will have minimal impact on bad debt expense in future periods.

Wireless

  • Our markets continued to be affected by the stay-at-home directives and the phased re-opening of local economies. We re-opened all the Sprint branded retail stores by the end of June that were temporarily closed in mid-March. Wireless postpaid gross additions and voluntary churn declined year over year approximately 28% and 23%, respectively, for the three months ended June 30, 2020 due to the store closures and lower store traffic from the stay-at-home directives.

  • As a Sprint affiliate, our wireless segment participated in the Keep Americans Connected pledge and deferred an estimated 2,300 COVID-19 related non-payment service disconnections during the quarter ended June 30, 2020.  While the majority of these subscribers have agreed to payment plans with Sprint, we recognized contra-revenue of $1.2 million during the second quarter of 2020, which effectively represents the pass-through of Sprint’s bad debt expense for these customers.  Sprint resumed normal collection practices on July 1, 2020.

  • During the second quarter of 2020, Sprint issued $1.4 million of credits to prepaid customers in our service territory to alleviate the impacts of COVID-19 and keep these customers connected. Issuance of these credits ceased on June 1, 2020.

  • Expense for payroll paid to idled employees and as a premium for certain employees interfacing with the general public, totaled $1.1 million for the three months ended June 30, 2020 and was presented within the cost of service and selling, general, and administrative expense captions.

  • With the stay-at-home directives continuing through the second quarter, we also reduced our wireless advertising spend for the three month period ended June 30, 2020 by $2.8 million from the comparable prior year period.

Sprint Travel Dispute

Our travel revenue dispute with Sprint was resolved through binding arbitration during June 2020. The arbitrators’ ruling reset the fee to $1.5 million per month through December 31, 2021. As a result, we recognized $21.0 million of travel revenue during the second quarter 2020 for service that we have provided since May 1, 2019.  We recognized and collected $6.0 million in travel revenue in 2019 prior to Sprint ceasing payments in May 2019.  Sprint paid the $21.0 million in July 2020.

Consolidated Second Quarter 2020 Results

  • Revenue in the second quarter of 2020 was $169.5 million compared with $158.9 million in the second quarter of 2019, due to the growth of $8.6 million, $1.9 million and $0.1 million in the Wireless, Broadband and Tower segments, respectively. The Wireless growth was driven by the resolution of the travel dispute with Sprint.

  • Adjusted OIBDA in the second quarter of 2020 increased $14.0 million to $80.9 million compared with $67.0 million in 2019 due primarily to the aforementioned travel revenue dispute resolution in the Wireless segment.

  • Operating income increased 79.0% to $43.0 million in 2020 from $24.0 million in 2019, primarily due to the resolution of the travel revenue dispute in the Wireless segment.

  • Earnings per diluted share grew 123.1% to $0.58 from $0.26 per diluted share in 2019.

Wireless

  • Shentel served 846,428 wireless postpaid subscribers at June 30, 2020, representing an increase of 4.3% compared with June 30, 2019. Second quarter 2020 postpaid gross adds were 37,832, as compared to 52,799 in the second quarter of 2019. Net adds were (1,343) as compared to 10,767 in the second quarter 2019. Postpaid churn was 1.55% as compared to 1.74% in the second quarter 2019. During the second quarter 2020, Sprint adopted the T-Mobile credit and collection policies for Sprint branded customers including those in the Shentel service area.  Approximately 4,400 involuntary (non-payment) postpaid disconnects were accelerated into our second quarter subscriber results.  Excluding this policy change, postpaid net additions and churn for the quarter would have been 3,021 and 1.37%, respectively. Wireless postpaid gross and net additions for the second quarter were adversely affected by COVID-19.

  • Shentel served 289,449 wireless prepaid subscribers at June 30, 2020, representing an increase of 7.6% compared with June 30, 2019. Second quarter 2020 prepaid gross additions grew 15.8% to 39,083 from the second quarter 2019. Net additions were 10,353, as compared to 1,819 in the same period a year ago. Prepaid churn was 3.38%, an improvement over 3.97% for the prior year quarter. Prepaid gross and net additions were favorably impacted by the prepaid value proposition in a recessionary economy and COVID related retention credits.

  • Wireless revenue increased approximately $8.6 million, or 7.8%, for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The growth was driven by a $19.5 million increase in travel revenue due to the resolution of the Sprint travel fee dispute, $1.5 million due to subscriber growth, $0.7 million in higher roaming and MVNO revenues partially offset by a $6.9 million decline in equipment revenue as retail stores were temporarily closed amidst the COVID-19 outbreak, $3.2 million in higher amortized customer contract costs, $1.4 million in COVID related prepaid customer retention credits and $1.2 million of COVID-19 related postpaid bad debt in connection with the Keep Americans Connected pledge.

  • Wireless operating expenses in the second quarter of 2020 were $75.9 million compared to $90.2 million in the second quarter of 2019. The decrease was primarily attributable to a $8.0 million decline in depreciation and amortization as certain assets acquired from nTelos became fully utilized, a $6.3 million decline in cost of goods sold on lower volume of equipment sales and $2.8 million in lower advertising costs both driven by COVID-19 related slower economic activity, partially offset by $1.1 million in COVID-19 related payroll expense, $0.6 million of legal fees to support the Sprint dispute matter, $0.6 million in higher operating taxes due to a non-recurring benefit recognized in the second quarter 2019, higher cell site rent expense of $0.5 million related to our network expansion and $0.4 million in employee retention bonus accrual relating to the Sprint/T-Mobile merger.

  • Wireless Adjusted OIBDA in the second quarter of 2020 was $67.7 million, compared with $52.4 million for the second quarter of 2019.

  • Wireless operating income in the second quarter of 2020 was $43.9 million, compared to $20.9 million for the second quarter of 2019.

Broadband

  • Total Revenue Generating Units ("RGUs") as of June 30, 2020 were 199,667, representing an increase of 4.7% from June 30, 2019, driven by a record quarter for incumbent cable and Glo Fiber data net additions of 5,150 and 878, respectively, for the second quarter 2020. Incumbent cable broadband penetration grew from 38.5% to 44.1% and churn declined 83 basis points to 1.32%. Glo Fiber added over 7,800 homes passed and ended the quarter with approximately 13,000 homes passed and 10.1% broadband penetration. Video net additions were approximately 100 in the second quarter driven by 1.36% churn.

  • Broadband revenue in the second quarter of 2020 increased $1.6 million or 3.3% to $50.1 million compared with $48.6 million in the second quarter of 2019, primarily driven by a $2.2 million increase in Cable Residential and SMB revenue and $0.9 million increase in Fiber, enterprise and wholesale revenue partially offset by $1.2 million decrease in RLEC revenues.

  • Broadband operating expenses in the second quarter of 2020 were $41.4 million compared to $36.7 million in the second quarter of 2019. The increase was primarily due to $3.3 million in higher payroll and benefit expense due to a combination of Glo Fiber and fixed wireless start-up staffing, supplemental COVID-19 compensation expense for customer interfacing employees, an increase in benefit plans and higher incentive accrual from strong operating results and $1.2 million increase in depreciation and amortization expense due to the expansion of our network.

  • Broadband Adjusted OIBDA in the second quarter of 2020 decreased 8.5% to $20.0 million, compared with $21.9 million for the second quarter of 2019 due primarily to the dilution of start-up costs from Glo Fiber and fixed wireless.

  • Broadband Operating income in the second quarter of 2020 was $8.8 million, compared to $11.9 million in the second quarter of 2019.

Tower

  • Total macro towers, small cells and tenants were 220, 8 and 413 as of June 30, 2020 as compared to 217, zero and 377, respectively, as of June 30, 2019.

  • Tower revenue in the second quarter of 2020 grew 41.0% to $4.3 million, compared with $3.0 million for the second quarter of 2019. This increase was due to a 9.5% increase in tenants and an 20.8% increase in the average lease rate driven by amendments to the intercompany leases.

  • Tower operating expenses in both the second quarter of 2020 and 2019 were approximately $2.0 million.

  • Tower Adjusted OIBDA in the second quarter of 2020 grew 46.1% to $2.7 million, compared with $1.9 million for the second quarter of 2019.

  • Tower operating income in the second quarter of 2020 was $2.2 million, compared to $1.1 million for the second quarter of 2019.

Other Information

  • Capital expenditures were $66.6 million for the six months ended June 30, 2020 compared with $79.1 million in the comparable 2019 period. The $12.5 million decrease in capital expenditures was primarily due to a $30.1 million decline in Wireless as the nTelos and Parkersburg network expansions were completed in the first half of 2019 and Richmond Sliver territory expansion projects have been postponed as we await further clarity on the impact of ongoing negotiations with the new T-Mobile. The decline in Wireless spending was partially offset by $19.5 million in higher spending in Broadband driven primarily by our Glo Fiber market expansion.

  • Outstanding debt at June 30, 2020 totaled $704.3 million, net of unamortized loan costs, compared to $720.1 million as of December 31, 2019. As of June 30, 2020, the Company had liquidity of approximately $218.7 million, including $75.0 million of revolving line of credit availability.

  • On April 1, 2020, T-Mobile publicly 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 1999. The 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, expired on June 30, 2020. 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 and determined pursuant to the appraisal process under the affiliate agreement); this period will expire on August 31, 2020. 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.

  • Our Sprint affiliate agreement required T-Mobile to comply with certain restrictive operating requirements during the 90 day period following their Conversion Notice which ended on June 30, 2020.  T-Mobile publicly announced on July 22, 2020 its intention to begin integration of the brands, rate plans, sales and network on August 2, 2020.  Although the impact to Sprint customers in our affiliate area is uncertain at this point in time, the integration plans are likely to adversely affect our Wireless segment operating and financial results in future periods.

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

Teleconference Information:

Date: July 30, 2020 
Time: 8:00 A.M. (ET)
Dial in number: 1-888-695-7639

Password: 1246368
 
Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through August 29, 2020 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 wireless, cable and fiber optic networks to customers in the Mid-Atlantic United States. The Company’s services include: wireless voice and data; broadband internet, video, and digital voice; fiber optic Ethernet, wavelength and leasing; telephone voice and digital subscriber line; and tower colocation leasing. 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, 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 natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.

CONTACTS:
     Shenandoah Telecommunications Company
     Jim Volk
     Senior Vice President - Chief Financial Officer
     540-984-5168
     Jim.Volk@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 June 30,   Six Months Ended June 30,
  2020   2019   2020   2019
Revenue:              
Service revenue and other $ 159,720     $ 142,059     $ 299,908     $ 285,290  
Equipment revenue 9,806     16,855     22,806     32,467  
Total revenue 169,526     158,914     322,714     317,757  
Operating expenses:              
Cost of services 50,640     49,497     100,205     99,015  
Cost of goods sold 9,658     15,874     22,329     30,511  
Selling, general and administrative 31,394     27,170     62,385     55,892  
Depreciation and amortization 34,832     42,353     71,743     83,532  
Total operating expenses 126,524     134,894     256,662     268,950  
Operating income 43,002     24,020     66,052     48,807  
Other income (expense):              
Interest expense (5,044 )   (7,522 )   (11,255 )   (15,476 )
Other 1,573     1,176     2,306     2,463  
Income before income taxes 39,531     17,674     57,103     35,794  
Income tax expense 10,284     4,524     14,576     8,734  
Net income $ 29,247     $ 13,150     $ 42,527     $ 27,060  
               
Net income per share, basic and diluted:              
Basic net income per share $ 0.59     $ 0.26     $ 0.85     $ 0.54  
Diluted net income per share $ 0.58     $ 0.26     $ 0.85     $ 0.54  
Weighted average shares outstanding, basic 49,902     49,848     49,878     49,812  
Weighted average shares outstanding, diluted 50,082     50,142     50,039     50,118  
 


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

  June 30,
 2020
  December 31,
 2019
       
Cash and cash equivalents $ 143,712     $ 101,651  
Other current assets 155,821     140,102  
Total current assets 299,533     241,753  
       
Investments 12,661     12,388  
Property, plant and equipment, net 703,012     701,514  
Intangible assets, net 285,081     314,147  
Goodwill 149,070     149,070  
Operating lease right-of-use assets 376,912     392,589  
Deferred charges and other assets, net 54,311     53,352  
Total assets $ 1,880,580     $ 1,864,813  
       
Total current liabilities 145,327     $ 147,336  
Long-term debt, less current maturities 672,601     688,464  
Other liabilities 551,195     556,585  
Total shareholders’ equity 511,457     472,428  
Total liabilities and shareholders’ equity $ 1,880,580     $ 1,864,813  
 


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  Six Months Ended June 30,
  2020   2019
Cash flows from operating activities:      
Net income $ 42,527     $ 27,060  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 63,258     72,737  
Amortization of intangible assets 9,336     10,795  
Bad debt expense 436     764  
Stock based compensation expense, net of amount capitalized 4,520     2,307  
Deferred income taxes 8,714     3,434  
Other adjustments 1,923     275  
Changes in assets and liabilities (1,775 )   12,260  
Net cash provided by operating activities 128,939     129,632  
       
Cash flows from investing activities:      
Capital expenditures (66,626 )   (79,124 )
Cash disbursed for acquisitions     (10,000 )
Proceeds from sale of assets and other 286     105  
Net cash used in investing activities (67,540 )   (89,019 )
       
Cash flows from financing activities:      
Principal payments on long-term debt (17,061 )   (24,777 )
Taxes paid for equity award issuances (2,182 )   (2,912 )
Proceeds from exercise of stock options (95 )   81  
Net cash used in financing activities (19,338 )   (27,608 )
Net increase (decrease) in cash and cash equivalents 42,061     13,005  
Cash and cash equivalents, beginning of period 101,651     85,086  
Cash and cash equivalents, end of period $ 143,712     $ 98,091  
       


Non-GAAP Financial Measures
Adjusted OIBDA

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 U.S. Generally Accepted Accounting Principles (“GAAP”).

The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:

Three Months Ended June 30, 2020                    
(in thousands)   Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
Operating income   $ 43,872     $ 8,767     $ 2,229     $ (11,866 )   $ 43,002  
Depreciation   19,545     11,078     477     (310 )   30,790  
Amortization of intangible assets   4,301     167             4,468  
OIBDA   67,718     20,012     2,706     (12,176 )   78,260  
Share-based compensation expense               1,615     1,615  
Deal advisory fees               1,060     1,060  
Adjusted OIBDA   $ 67,718     $ 20,012     $ 2,706     $ (9,501 )   $ 80,935  


Three Months Ended June 30, 2019                    
(in thousands)   Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
Operating income   $ 20,928     $ 11,880     $ 1,096     $ (9,884 )   $ 24,020  
Depreciation   26,447     9,882     756     132     37,217  
Amortization of intangible assets   5,016     120             5,136  
OIBDA   52,391     21,882     1,852     (9,752 )   66,373  
Share-based compensation expense               593     593  
Adjusted OIBDA   $ 52,391     $ 21,882     $ 1,852     $ (9,159 )   $ 66,966  


Six Months Ended June 30, 2020                    
(in thousands)   Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
Operating income   $ 67,316     $ 18,797     $ 4,024     $ (24,085 )   $ 66,052  
Depreciation   40,555     21,795     947     (39 )   63,258  
Amortization of intangible assets   9,015     321             9,336  
OIBDA   116,886     40,913     4,971     (24,124 )   138,646  
Share-based compensation expense               4,520     4,520  
Deal advisory fees               1,970     1,970  
Adjusted OIBDA   $ 116,886     $ 40,913     $ 4,971     $ (17,634 )   $ 145,136  


Six Months Ended June 30, 2019                    
(in thousands)   Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
Operating income   $ 45,141     $ 21,929     $ 2,220     $ (20,483 )   $ 48,807  
Depreciation   51,199     19,832     1,436     270     72,737  
Amortization of intangible assets   10,634     161             10,795  
OIBDA   106,974     41,922     3,656     (20,213 )   132,339  
Share-based compensation expense               2,307     2,307  
Adjusted OIBDA   $ 106,974     $ 41,922     $ 3,656     $ (17,906 )   $ 134,646  
 

Segment Results

Three Months Ended June 30, 2020:

(in thousands) Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
External revenue                  
Postpaid $ 73,269     $     $     $     $ 73,269  
Prepaid 12,432                 12,432  
Tower lease         1,829         1,829  
Cable, residential and SMB (1)     35,829             35,829  
Fiber, enterprise and wholesale     5,663             5,663  
Rural local exchange carrier     4,602             4,602  
Travel, installation, and other 24,438     1,658             26,096  
Service revenue and other 110,139     47,752     1,829         159,720  
Equipment 9,610     196             9,806  
Total external revenue 119,749     47,948     1,829         169,526  
Revenue from other segments     2,185     2,430     (4,615 )    
Total revenue 119,749     50,133     4,259     (4,615 )   169,526  
Operating expenses                  
Cost of services 33,237     20,640     1,315     (4,552 )   50,640  
Cost of goods sold 9,437     221             9,658  
Selling, general and administrative 9,783     9,260     238     12,113     31,394  
Depreciation and amortization 23,420     11,245     477     (310 )   34,832  
Total operating expenses 75,877     41,366     2,030     7,251     126,524  
Operating income (loss) $ 43,872     $ 8,767     $ 2,229     $ (11,866 )   $ 43,002  

____________________________
(1)  SMB refers to Small and Medium Businesses.


Three Months Ended June 30, 2019:

(in thousands) Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
External revenue                  
Postpaid $ 75,997     $     $     $     $ 75,997  
Prepaid 13,603                 13,603  
Tower lease         1,751         1,751  
Cable, residential and SMB     33,581             33,581  
Fiber, enterprise and wholesale     4,921             4,921  
Rural local exchange carrier     5,581             5,581  
Travel, installation, and other 4,971     1,654             6,625  
Service revenue and other 94,571     45,737     1,751         142,059  
Equipment 16,548     307             16,855  
Total external revenue 111,119     46,044     1,751         158,914  
Revenue from other segments     2,507     1,270     (3,777 )    
Total revenue 111,119     48,551     3,021     (3,777 )   158,914  
Operating expenses                  
Cost of services 32,668     19,014     895     (3,080 )   49,497  
Cost of goods sold 15,742     131         1     15,874  
Selling, general and administrative 10,318     7,524     274     9,054     27,170  
Depreciation and amortization 31,463     10,002     756     132     42,353  
Total operating expenses 90,191     36,671     1,925     6,107     134,894  
Operating income (loss) $ 20,928     $ 11,880     $ 1,096     $ (9,884 )   $ 24,020  
 

Six Months Ended June 30, 2020:

(in thousands) Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
External revenue                  
Postpaid $ 148,197     $     $     $     $ 148,197  
Prepaid 25,541                 25,541  
Tower lease         3,626         3,626  
Cable, residential and SMB     70,772             70,772  
Fiber, enterprise and wholesale     11,151             11,151  
Rural local exchange carrier     9,358             9,358  
Travel, installation, and other 27,789     3,474             31,263  
Service revenue and other 201,527     94,755     3,626         299,908  
Equipment 22,360     446             22,806  
Total external revenue 223,887     95,201     3,626         322,714  
Revenue from other segments     4,718     4,363     (9,081 )    
Total revenue 223,887     99,919     7,989     (9,081 )   322,714  
Operating expenses                  
Cost of services 66,676     39,883     2,254     (8,608 )   100,205  
Cost of goods sold 21,965     364             22,329  
Selling, general and administrative 19,211     18,759     764     23,651     62,385  
Depreciation and amortization 48,719     22,116     947     (39 )   71,743  
Total operating expenses 156,571     81,122     3,965     15,004     256,662  
Operating income (loss) $ 67,316     $ 18,797     $ 4,024     $ (24,085 )   $ 66,052  
 

Six Months Ended June 30, 2019:

(in thousands) Wireless   Broadband   Tower   Corporate & Eliminations   Consolidated
External revenue                  
Postpaid $ 152,179     $     $     $     $ 152,179  
Prepaid 26,733                 26,733  
Tower lease         3,514         3,514  
Cable, residential and SMB     66,007             66,007  
Fiber, enterprise and wholesale     9,749             9,749  
Rural local exchange carrier     10,819             10,819  
Travel, installation, and other 12,989     3,300             16,289  
Service revenue and other 191,901     89,875     3,514         285,290  
Equipment 31,839     628             32,467  
Total external revenue 223,740     90,503     3,514         317,757  
Revenue from other segments     4,929     2,540     (7,469 )    
Total revenue 223,740     95,432     6,054     (7,469 )   317,757  
Operating expenses                  
Cost of services 65,200     38,075     1,841     (6,101 )   99,015  
Cost of goods sold 30,169     342             30,511  
Selling, general and administrative 21,397     15,093     557     18,845     55,892  
Depreciation and amortization 61,833     19,993     1,436     270     83,532  
Total operating expenses 178,599     73,503     3,834     13,014     268,950  
Operating income (loss) $ 45,141     $ 21,929     $ 2,220     $ (20,483 )   $ 48,807  
 

Supplemental Information

Wireless Operating Statistics

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers, as of the dates shown:

    June 30,
 2020
  June 30,
 2019
Retail PCS total subscribers - postpaid   846,428     811,719  
Retail PCS phone subscribers   735,028     726,899  
Retail PCS connected device subscribers   111,400     84,820  
Retail PCS subscribers - prepaid   289,449     269,039  
PCS market POPS (000) (1)   7,227     7,227  
PCS covered POP (000) (1)   6,379     6,285  
Macro base stations (cell sites)   1,968     1,910  


    Three Months Ended
June 30,
  Six Months Ended
June 30,
Postpaid:   2020   2019   2020   2019
Gross PCS total subscriber additions   37,832     52,799     89,823     103,646  
Gross PCS phone additions   26,567     39,948     63,301     77,734  
Gross PCS connected device additions   11,265     12,851     26,522     25,912  
Net PCS total subscriber (losses) additions (2)   (1,343 )   10,767     2,234     16,543  
Net PCS phone (losses) additions   (3,967 )   4,069     (6,278 )   3,444  
Net PCS connected device additions   2,624     6,698     8,512     13,099  
PCS monthly retail total churn % (2)   1.55 %   1.74 %   1.73 %   1.81 %
PCS monthly phone churn %   1.38 %   1.62 %   1.57 %   1.68 %
PCS monthly connected device churn %   2.63 %   2.88 %   2.80 %   3.09 %
Prepaid:                
Gross PCS subscriber additions   39,083     33,753     78,157     74,732  
Net PCS subscriber additions   10,353     1,819     15,437     10,335  
PCS monthly retail churn %   3.38 %   3.97 %   3.76 %   4.06 %

______________________________
(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 U.S. census data.
(2)  Includes an estimated 4,364 involuntary (nonpayment) postpaid disconnects were accelerated into our second quarter subscriber results due to a change in Sprint collection policy.  Excluding this policy change, postpaid net additions for the three and six months ending June 30, 2020 would have been 3,021 and 6,598, respectively, and churn would have been 1.37% and 1.64%, respectively.


Broadband Operating Statistics

    June 30,
2020
  June 30,
 2019
Broadband homes passed (1) (2)   220,442     206,262  
Incumbent Cable   207,269     206,262  
Glo Fiber   13,173      
Broadband customer relationships (3)   101,816     88,860  
         
Video:        
RGUs   53,153     57,215  
Penetration (4)   24.1 %   27.7 %
Digital video penetration (5)   94.3 %   90.3 %
Broadband:        
RGUs   92,695     79,507  
Incumbent Cable   91,364     79,507  
Glo Fiber   1,331      
Penetration (4)   42.0 %   38.5 %
Incumbent Cable penetration (4)   44.1 %   38.5 %
Glo Fiber penetration (4)   10.1 %   %
Voice:        
RGUs   32,252     30,754  
Penetration (4)   16.5 %   16.2 %
Total Cable and Glo Fiber RGUs   178,100     167,476  
         
RLEC homes passed   25,852     25,814  
RLEC customer relationships (3)   12,587     13,528  
RLEC RGUs:        
Data RLEC   7,755     8,424  
Penetration (4)   30.0 %   32.6 %
Voice RLEC   13,812     14,873  
Penetration (4)   53.4 %   57.6 %
Total RLEC RGUs   21,567     23,297  
         
Total RGUs   199,667     190,773  
         
Fiber route miles   6,478     5,833  
Total fiber miles (6)   346,969     307,125  

_______________________________
(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

    June 30,
2020
  June 30,
2019
Macro towers owned   220     217  
Small cell sites   8.0      
Tenants (1)   413     377  
Average tenants per tower   1.8     1.7  

______________________________
(1)  Includes 206 and 177 intercompany tenants for our Wireless segment as of June 30, 2020 and 2019, respectively.


Reconciliation of Non-GAAP Measures Normalized Free Cash Flow and Free Cash Flow

    Three Months Ended
June 30,
  Six Months Ended
June 30,
(in thousands)   2020   2019   2020   2019
Net cash provided by operating activities   $ 67,831     $ 67,969     $ 128,939     $ 129,632  
Less: Capital expenditures (1)   (21,767 )   (34,704 )   (46,871 )   (79,124 )
Normalized free cash flow   46,064     33,265     82,068     50,508  
Glo Fiber and Beam capital expenditures   (12,560 )       (19,755 )    
Free cash flow   $ 33,504     $ 33,265     $ 62,313     $ 50,508  

______________________________
(1)  Excludes capital expenditures for the development of Glo Fiber and Fixed Wireless (Beam).


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 Glo Fiber and Beam fixed wireless services, from net cash provided by operating activities. We believe they are more conservative measures of our cash flow since purchases of fixed assets are necessary for ongoing operations and expansion. Free cash flow and normalized free cash flow are utilized by our management, investors and analysts to evaluate cash available that may be used to pay scheduled principal payments on our debt obligations and provide further investment in the business.


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Source: Shenandoah Telecommunications Co

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