UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 20, 2017

 

---

Shenandoah Telecommunications Company

---

(Exact name of registrant as specified in its charter)

 

---

 

Registrant’s telephone number, including area code:  (540) 984-4141

Not applicable

---

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2-(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

---

Item 2.02.

Results of Operations and Financial Condition.

 

On March 20, 2017, the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

 

These materials may contain forward-looking statements about Shenandoah Telecommunications regarding, among other things, our business strategy, our prospects and our financial position.  These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “intends,” “may,” “will,” “should,” “could,” or “anticipates” or the negative or other variation of these or similar words, or by discussions of strategy or risks and uncertainties.  Shenandoah Telecommunications undertakes no obligation to revise or update such statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

Item 9.01

Financial Statements and Exhibits.

(c)

Exhibits

The following exhibit is furnished with this Current Report on Form 8-K.

99.1

Fourth Quarter 2016 Earnings Press Release

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

2

---

Exhibit 99.1

 

Shenandoah Telecommunications Company Reports Fourth Quarter 2016 Revenue Increased to $155.6 Million Due to Acquisition of nTelos

- Operating Income of $12.2 Million

 

Shentel had 722,562 wireless postpaid customers, a fourth quarter increase of 3,777 postpaid net additions, with 7,014 postpaid net additions in its Legacy area. For 2016, taking into consideration the 404,965 postpaid customers acquired in the nTelos transaction on May 6th, the company added 5,085 total net postpaid additions in 2016, with 16,854 net additions in the Legacy area during the year. Net additions in the fourth quarter were impacted by issues with the Samsung Galaxy Note 7 and a shortage of new iPhone 7’s early in the quarter. Fourth quarter postpaid churn was 2.1% for the total company and 1.6% in the Legacy area. Total company annual postpaid churn was 1.8% and 1.5% in the Legacy area. Phones, excluding data only devices, were 74% of net additions in the fourth quarter and 95% in the Legacy area. The fourth quarter and total year Port in/Port out ratio in the Legacy area was 1.71:1 and 1.75:1 respectively, taking share from all carriers. As expected, the Port in/Port out ratio continued to be negative in the acquired nTelos area.

There were 236,138 prepaid wireless customers at year-end, a decrease of 39,308 in the fourth quarter. Included in the decrease was the one-time reduction of the length of time a customer is inactive before being eliminated from customer counts, which resulted in 24,348 prepaid customers being removed in the fourth quarter. The eliminated customers were non-revenue producing, so the impact on prepaid revenue is minimal. Excluding this change, the company lost 14,960 prepaid customers with a net loss of 43 in the Legacy area. Total company fourth quarter prepaid churn, excluding the one-time reduction, was 5.9% and 4.7% in the Legacy area. Total annual prepaid churn was 5.2% and 4.8% in the Legacy area.

As of year-end, the company migrated 87,793 postpaid and 41,141 prepaid nTelos customers for a total of 128,934 to the Sprint back office. As planned, the prepaid migration was completed in late December, and the outsourced prepaid billing platform was turned down. At the current pace, Shentel expects to complete migrating the remaining postpaid nTelos customers by the end of the third quarter 2017.

About Shenandoah Telecommunications

CONTACTS:

Shenandoah Telecommunications, Inc.

Adele Skolits

CFO and VP of Finance

540-984-5161

Adele.skolits@emp.shentel.com

Or

John Nesbett/Jennifer Belodeau

Institutional Marketing Services (IMS)

203-972-9200

jnesbett@institutionalms.com

 

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

In managing our business and assessing our financial performance, management supplements the information provided by financial statement measures prepared in accordance with GAAP with Adjusted OIBDA and Continuing OIBDA, which are considered “non-GAAP financial measures” under SEC rules.

Adjusted OIBDA is defined by us as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of:  certain non-recurring transactions; impairment of assets; gains and losses on asset sales; straight-line adjustments for the waived management fee by Sprint; amortization of the affiliate contract expansion intangible asset reflected as a contra revenue; actuarial gains and losses on pension and other post-retirement benefit plans; and share-based compensation expense.  Adjusted OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance.  Continuing OIBDA is defined by us as Adjusted OIBDA, less the benefit received from the waived management fee by Sprint over the next approximately six-year period, showing Sprint’s support for our acquisition and our commitment to enhance the network.

In a capital-intensive industry such as telecommunications, management believes that Adjusted OIBDA and Continuing OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance.  We use Adjusted OIBDA and Continuing OIBDA as supplemental performance measures because management believes they facilitate comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by excluding potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the other items described above for which additional adjustments were made.  In the future, management expects that the Company may again report Adjusted OIBDA and Continuing OIBDA excluding these items and may incur expenses similar to these excluded items.  Accordingly, the exclusion of these and other similar items from our non-GAAP presentation should not be interpreted as implying these items are non-recurring, infrequent or unusual.

While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the current period allocation of costs associated with long-lived assets acquired or constructed in prior periods, and accordingly may obscure underlying operating trends for some purposes.  By isolating the effects of these expenses and other items that vary from period to period without any correlation to our underlying performance, or that vary widely among similar companies, management believes Adjusted OIBDA and Continuing OIBDA facilitates internal comparisons of our historical operating performance, which are used by management for business planning purposes, and also facilitates comparisons of our performance relative to that of our competitors.  In addition, we believe that Adjusted OIBDA and Continuing OIBDA and similar measures are widely used by investors and financial analysts as measures of our financial performance over time, and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA and Continuing OIBDA have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.  These limitations include the following:

·

they do not reflect capital expenditures;

·

many of the assets being depreciated and amortized will have to be replaced in the future and Adjusted OIBDA and Continuing OIBDA do not reflect cash requirements for such replacements;

·

they do not reflect costs associated with share-based awards exchanged for employee services;

·

they do not reflect interest expense necessary to service interest or principal payments on indebtedness;

·

they do not reflect gains, losses or dividends on investments;

·

they do not reflect expenses incurred for the payment of income taxes; and

·

other companies, including companies in our industry, may calculate Adjusted OIBDA and Continuing OIBDA differently than we do, limiting its usefulness as a comparative measure.

In light of these limitations, management considers Adjusted OIBDA and Continuing OIBDA as a financial performance measures that supplement but do not replace the information reflected in our GAAP results.

 

The following table shows Adjusted OIBDA for the three and twelve months ended December 31, 2016 and 2015:

 

The following table reconciles Adjusted OIBDA and Continuing OIBDA to operating income (loss), which we consider to be the most directly comparable GAAP financial measure, for the three and twelve months ended December 31, 2016 and 2015:

 

Consolidated:

 

The following tables reconcile Adjusted OIBDA and Continuing OIBDA to operating income by major segment for the three and twelve months ended December 31, 2016 and 2015:

 

 

Cable Segment:

 

Wireline Segment:

 

(1)

Integration and acquisition costs consist of severance accruals for short-term nTelos personnel to be separated as integration activities wind down, transaction related expenses, device costs to support the transition to Sprint billing platforms, and other transition costs to support the migration to Sprint back-office functions.  Once former nTelos customers migrate to the Sprint backoffice, the Company incurs certain postpaid fees retained by Sprint and prepaid costs passed to us by Sprint that would offset a portion of these savings.  For the three and twelve months ended December 31, 2016, these offsets were estimated at $1.5 million and $4.6 million, respectively.

(2)

As part of the Company’s amended affiliate agreement, Sprint agreed to waive the management fee, which is historically presented as a contra-revenue by the Company, for a period of approximately six years.  The impact of Sprint’s waiver of the management fee over the approximate six-year period is reflected as an increase in revenue, offset by the non-cash adjustment to recognize this impact on a straight-line basis over the contract term of approximately 14 years.

(3)

Pursuant to the intangible asset exchange with Sprint, the Company recognized an intangible asset for the affiliate contract expansion received.  Consistent with the presentation of related service fees charged by Sprint, the Company recognizes the amortization of this intangible as a contra-revenue over the contract term of approximately 14 years.

 

Supplemental Information

Subscriber Statistics

The following tables show selected operating statistics of the Wireless segment as of the dates shown:

The changes from December 31, 2015 to December 31, 2016 shown above include the following amounts acquired in the nTelos acquisition and exchange with Sprint on May 6, 2016:

 

1)

POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources.  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.

2)

Net of approximately 160 overlap cell sites we intend to shut down in coming months.

3)

PCS Average Monthly Retail Churn is the average of the monthly subscriber turnover, or churn, calculations for the period.

4)

Prepaid losses in the three and twelve months ended December 31, 2016 include 24,348 subscribers purged as a result of a one-time reduction of the length of time a customer is inactive before eliminating them from the customer counts.  These losses have been excluded from the churn computation for the respective periods shown.

During the three and twelve months ended December 31, 2016, 838 and 5,248 former nTelos prepaid subscribers, respectively, switched to postpaid subscribers as they migrated to the Sprint back-office platforms.

 

The following table shows selected operating statistics of the Cable segment as of the dates shown:

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.

2)

Customer relationships represent the number of customers who receive at least one of our services.

3)

Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer.  Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above.  During the first quarter of 2016, we modified the way we count subscribers when a commercial customer upgrades its internet service via a fiber contract. We retroactively applied the new count methodology to prior periods, and applied similar logic to certain bulk customers; the net result was reductions in internet subscriber counts of 559 and 673 subscribers to December 31, 2015, and December 31, 2014 totals, respectively.

4)

Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate.

5)

Digital video penetration is calculated by dividing the number of digital video customers by total video customers.  Digital video customers 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 customer.

6)

Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area.

7)

Revenue generating units are the sum of video, voice and high-speed internet customers.

8)

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.

On January 1, 2016, the Company acquired the assets of Colane Cable Company.  With the acquisition, the Company acquired 3,299 video customers, 1,405 high-speed internet customers, and 302 voice customers.  The customers are included in the December 31, 2016 totals shown above.

 

The following table shows selected operating statistics of the Wireline segment as of the dates shown:

1)

Effective October 1, 2015, we launched cable modem services on our cable plant, and eliminated the requirement that a customer have a telephone access line to purchase DSL service.

2)

The Wireline segment’s video service passes approximately 16,000 homes.

3)

December 2016 and December 2015 totals include 1,072 and 420 customers, respectively, served via the coaxial cable network.  During first quarter 2016, we modified the way we count subscribers when a commercial customer upgrades its internet service via a fiber contract. We retroactively applied the new count methodology to prior periods and the net result was increases in internet subscriber counts of 804 and 352 subscribers to December 31, 2015 and December 31, 2014 totals, respectively.

4)

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.

 

Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker.  The Company has three reportable segments, which the Company operates and manages as strategic business units organized by lines of business: (1) Wireless, (2) Cable, and (3) Wireline.   A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company.

The Wireless segment has historically provided digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate.  With the May 6th acquisition of nTelos, the Company’s wireless service area expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

The Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout southern Virginia and West Virginia. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.

The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video and cable modem services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor through West Virginia, Maryland and portions of central and southern Pennsylvania.

 

 

Wireless Service Revenues

 

 

---