SHEN
$44.68
Shenandoah Telecom
($.91)
(2.00%)
Earnings Details
4th Quarter December 2018
Thursday, February 28, 2019 7:00:00 AM
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Summary

Shenandoah Telecom Misses

Shenandoah Telecom (SHEN) reported 4th Quarter December 2018 earnings of $0.30 per share on revenue of $161.5 million. The consensus earnings estimate was $0.31 per share on revenue of $160.8 million. The Earnings Whisper number was $0.36 per share. Revenue grew 6.5% on a year-over-year basis.

Shenandoah Telecommunications Co and its subsidiaries provides both regulated and unregulated telecommunications services to end-user customers and other telecommunications providers in Virginia, West Virginia, central Pennsylvania and western Maryland.

Results
Reported Earnings
$0.30
Earnings Whisper
$0.36
Consensus Estimate
$0.31
Reported Revenue
$161.5 Mil
Revenue Estimate
$160.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Shenandoah Telecommunications Company Reports Fourth Quarter and Full Year 2018 Results

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 revenue18,847  2,015  68,398  10,318 
Total operating revenue161,484  151,617  630,854  611,991 
Operating expenses:       
Cost of services47,660  42,977  194,022  188,721 
Cost of goods sold17,952  5,554  63,959  22,786 
Selling, general and administrative27,105  40,563  113,222  165,937 
Acquisition, integration and migration expenses  1,157    11,030 
Depreciation and amortization41,773  43,256  166,405  177,007 
Total operating expenses134,490  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), net1,218  938  3,988  4,420 
Income (loss) before income taxes20,162  9,292  62,112  13,257 
Income tax expense (benefit)5,310  (51,303) 15,517  (53,133)
Net income (loss)$14,852  $60,595  $46,595  $66,390 
        
Net income (loss) per share, basic and diluted:       
Basic net income (loss) per share$0.31  $1.23  $0.94  $1.35 
Diluted net income (loss) per share$0.30  $1.21  $0.93  $1.33 
Weighted average shares outstanding, basic49,587  49,298  49,542  49,150 
Weighted average shares outstanding, diluted50,112  50,043  50,063  50,026 
        


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

 December 31,
2018
 December 31,
2017
        
        
Cash and cash equivalents$85,086  $78,585 
Other current assets 125,116   94,310 
Total current assets 210,202   172,895 
        
Investments 10,788   11,472 
Property, plant and equipment, net 701,359   686,327 
Intangible assets, net 366,029   380,979 
Goodwill 146,497   146,497 
Deferred charges and other assets, net 49,891   13,690 
Total assets$1,484,766  $1,411,860 
        
Total current liabilities 88,539   137,584 
Long-term debt, less current maturities 749,624   757,561 
Other liabilities 204,356   166,493 
Total shareholders’ equity 442,247   350,222 
Total liabilities and shareholders’ equity$1,484,766  $1,411,860 


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

 2018 2017
Cash flows from operating activities:       
Net income (loss)$46,595  $66,390 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Depreciation142,111  151,063 
Amortization24,294  25,944 
Amortization reflected as rent expense in cost of services342  1,528 
Bad debt expense1,983  2,179 
Stock based compensation expense, net of amount capitalized4,959  3,580 
Waived management fee37,763  36,056 
Deferred income taxes6,208  (54,055)
Other adjustments(1,135) 311 
Changes in assets and liabilities2,527  (10,066)
Net cash provided by (used in) operating activities$265,647  $222,930 
    
Cash flows from investing activities:   
Acquisition of property, plant and equipment(136,641) (146,489)
Proceeds from sale of assets840  980 
Cash disbursed for acquisition, net of cash acquired(52,000) (6,000)
Release of restricted cash   
Cash distributions (contributions) from investments and other1  14 
Net cash provided by (used in) investing activities$(187,800) $(151,495)
    
Cash flows from financing activities:   
Principal payments on long-term debt(51,264) (36,375)
Proceeds from revolving credit facility borrowings15,000   
Proceeds from credit facility borrowings  25,000 
Principal payments on revolving credit facility(15,000)  
Payments for debt issuance costs(3,971)  
Dividends paid, net of dividends reinvested(12,866) (12,257)
Taxes paid for equity award issuances(3,245) (5,411)
Net cash provided by (used in) financing activities$(71,346) $(29,043)
Net increase (decrease) in cash and cash equivalents6,501  42,392 
Cash and cash equivalents, beginning of period$78,585  $36,193 
Cash and cash equivalents, end of period85,086  78,585 
    
Supplemental Disclosures of Cash Flow Information   
Cash payments for:   
Interest, net of capitalized interest of $1,556, $1,559 and $1,374 in 2018, 2017 and 2016, respectively$33,034  $33,495 
Income tax (refunds received) paid, net$(2,721) $20,066 
Capital expenditures payable$23,501  $7,254 


Impact of Topic 606
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), effective January 1, 2018, using the modified retrospective method. The following tables identify the impact that the application of Topic 606 had on the Company for the fourth quarter and full year 2018:

 Three Months Ended December 31, 2018
  Topic 606 Impact - CONSOLIDATED 
($ in thousands, except per share amounts)Prior to Adoption of Topic 606Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue and other$161,185 $(22,568)$ $4,020 $142,637 
Equipment revenue2,262  16,585  18,847 
Total operating revenue163,447 (22,568)16,585 4,020 161,484 
Cost of services47,661   (1)47,660 
Cost of goods sold8,061 (6,694)16,585  17,952 
Selling, general & administrative43,042 (15,874) (63)27,105 
Depreciation and amortization41,773    41,773 
Total operating expenses140,537 (22,568)16,585 (64)134,490 
Operating income (loss)22,910   4,084 26,994 
Other income (expense)(6,832)   (6,832)
Income tax expense (benefit)4,186   1,124 5,310 
Net income (loss)$11,892 $ $ $2,960 $14,852 
      
Earnings (loss) per share     
Basic$0.24   $0.07 $0.31 
Diluted$0.24   $0.06 $0.30 
Weighted average shares outstanding, basic49,587    49,587 
Weighted average shares outstanding, diluted50,112    50,112 

 

 Year Ended December 31, 2018
  Topic 606 Impact - CONSOLIDATED 
($ in thousands, except per share amounts)Prior to Adoption of
Topic 606
Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue and other$632,340 $(86,637)$ $16,753 $562,456 
Equipment revenue8,298  60,100  68,398 
Total operating revenue640,638 (86,637)60,100 16,753 630,854 
Cost of services193,860   162 194,022 
Cost of goods sold28,377 (24,518)60,100  63,959 
Selling, general & administrative175,753 (62,119) (412)113,222 
Depreciation and amortization166,405    166,405 
Total operating expenses564,395 (86,637)60,100 (250)537,608 
Operating income (loss)76,243   17,003 93,246 
Other income (expense)(31,134)   (31,134)
Income tax expense (benefit)10,926   4,591 15,517 
Net income (loss)$34,183 $ $ $12,412 $46,595 
      
Earnings (loss) per share     
Basic$0.69   $0.25 $0.94 
Diluted$0.68   $0.25 $0.93 
Weighted average shares outstanding, basic49,542    49,542 
Weighted average shares outstanding, diluted50,063    50,063 


(1)Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred. Under Topic 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue. In 2017, these amounts were approximately $44.8 million for the postpaid national commissions, previously recorded in selling, general and administrative, $18.7 million for national device costs previously recorded in cost of goods and services, and $16.9 million for the on-going service to Sprint's prepaid customers, previously recorded in selling, general and administrative.
(2)Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue. Under Topic 606, the revenue and related costs from device sales are recorded gross. These amounts were approximately $63.8 million in 2017.
(3)Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs, which historically have been expensed when incurred and presented net of revenue, are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months. In Cable and Wireline, installation revenues are recognized over a period of approximately 10-11 months. The deferred balance as of December 31, 2018 is approximately $75.8 million and is classified on the balance sheet as current and non-current assets, as applicable.


The following tables identify the impact that the application of Topic 606 had on the Company's Wireless operations for the fourth quarter and full year 2018:

 Three Months Ended December 31, 2018
  Topic 606 Impact - WIRELESS 
($ in thousands)Prior to Adoption of
Topic 606
Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue$115,187 $(22,568)$ $4,045 $96,664 
Equipment revenue2,066  16,585  18,651 
Tower and other revenue3,684    3,684 
Total operating revenue120,937 (22,568)16,585 4,045 118,999 
Cost of services31,675    31,675 
Cost of goods sold7,943 (6,694)16,585  17,834 
Selling, general & administrative27,719 (15,874)  11,845 
Depreciation and amortization31,668    31,668 
Total operating expenses99,005 (22,568)16,585  93,022 
Operating income (loss)$21,932 $ $ $4,045 $25,977 


 Year Ended December 31, 2018
  Topic 606 Impact - WIRELESS 
($ in thousands)Prior to Adoption of Topic 606Changes in Presentation (1)Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue$450,735 $(86,637)$ $16,720 $380,818 
Equipment revenue7,410  60,100  67,510 
Tower and other revenue14,327    14,327 
Total operating revenue472,472 (86,637)60,100 16,720 462,655 
Cost of services131,166    131,166 
Cost of goods sold28,001 (24,518)60,100  63,583 
Selling, general & administrative109,657 (62,119)  47,538 
Depreciation and amortization127,521    127,521 
Total operating expenses396,345 (86,637)60,100  369,808 
Operating income (loss)$76,127 $ $ $16,720 $92,847 


(1)Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred. Under Topic 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue. In 2017, these amounts were approximately $44.8 million for the postpaid national commissions, previously recorded in selling, general and administrative, $18.7 million for national device costs previously recorded in cost of goods and services, and $16.9 million for the on-going service to Sprint's prepaid customers, previously recorded in selling, general and administrative.
(2)Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue. Under Topic 606, the revenue and related costs from device sales are recorded gross. These amounts were approximately $63.8 million in 2017.
(3)Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs, which historically have been expensed when incurred and presented net of revenue, are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months. The deferred balance as of December 31, 2018 is approximately $75.8 million and is classified on the balance sheet as current and non-current assets, as applicable.


Non-GAAP Financial Measures

In managing our business and assessing our financial performance, management supplements the information provided by the 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 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; actuarial gains and losses on pension and other post-retirement benefit plans; and share-based compensation expense, amortization of deferred costs related to the impacts of the adoption of Topic 606, and adjusted to include the benefit received from the waived management fee by Sprint. Continuing OIBDA is defined as Adjusted OIBDA, less the benefit received from the waived management fee by Sprint. Adjusted OIBDA and Continuing OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance.

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 these measures facilitate comparisons of our operating performance from period to period and comparisons of our operating performance to that of our peers and 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, but are not limited to, the following:

  • they do not reflect capital expenditures;
  • they do not reflect the impacts of adoption of Topic 606;
  • 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 measure that supplements but does not replace the information reflected in our GAAP results.

The adoption of the new revenue standard did not impact Adjusted OIBDA.

The following tables reconcile Adjusted OIBDA and Continuing OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the fourth quarter and full year 2018 and 2017:

Adjusted OIBDA and Continuing OIBDA

 

Three Months Ended December 31, 2018 (in thousands) Wireless Cable Wireline Other Consolidated
Operating income $25,977  $6,311  $3,178  $(8,472) $26,994 
Impact of ASC topic 606 (4,026) (17) (58)   (4,101)
Depreciation and amortization 31,668  6,339  3,604  162  41,773 
Share-based compensation expense       381  381 
Benefit received from the waived management fee (1) 9,599        9,599 
Amortization of intangibles netted in rent expense (30)       (30)
Actuarial (gains) losses on pension plans       (1,441) (1,441)
Adjusted OIBDA 63,188  12,633  6,724  (9,370) 73,175 
Waived management fee (9,599)       (9,599)
Continuing OIBDA $53,589  $12,633  $6,724  $(9,370) $63,576 


Three Months Ended December 31, 2017 (in thousands) Wireless Cable Wireline Other Consolidated
Operating income $11,907  $5,386  $5,393  $(4,576) $18,110 
Depreciation and amortization 33,922  5,898  3,293  142  43,255 
(Gain) loss on asset sales 6  (128) 53  90  21 
Share-based compensation expense 233  146  63  88  530 
Benefit received from the waived management fee (1) 8,988        8,988 
Amortization of intangibles netted in rent expense (645)       (645)
Temporary back-office costs to support the billing operations through migration (2) 964        964 
Actuarial gains on pension plans       (1,391) (1,391)
Integration and acquisition related expenses, and other 1,187      (30) 1,157 
Adjusted OIBDA 56,562  11,302  8,802  (5,677) 70,989 
Waived management fee (8,988)       (8,988)
Continuing OIBDA $47,574  $11,302  $8,802  $(5,677) $62,001 


Year Ended December 31, 2018 (in thousands) Wireless Cable Wireline Other Consolidated
Operating income $92,847  $23,755  $17,865  $(41,221) $93,246 
Impact of ASC topic 606 (15,048) (74) (197)   (15,319)
Depreciation and amortization 127,521  24,644  13,673  567  166,405 
Share-based compensation expense       4,959  4,959 
Benefit received from the waived management fee (1) 37,763        37,763 
Amortization of intangibles netted in rent expense 342        342 
Actuarial (gains) losses on pension plans       (1,688) (1,688)
Adjusted OIBDA 243,425  48,325  31,341  (37,383) 285,708 
Waived management fee (37,763)       (37,763)
Continuing OIBDA $205,662  $48,325  $31,341  $(37,383) $247,945 


Year Ended December 31, 2017 (in thousands) Wireless Cable Wireline Other Consolidated
Operating income $34,139  $15,846  $20,965  $(24,440) $46,510 
Depreciation and amortization 139,610  23,968  12,829  600  177,007 
(Gain) loss on asset sales 214  (243) 79  68  118 
Share-based compensation expense 1,579  916  384  701  3,580 
Benefit received from the waived management fee (1) 36,056        36,056 
Amortization of intangibles netted in rent expense 1,528        1,528 
Temporary back-office costs to support the billing operations through migration (2) 6,459      1  6,460 
Actuarial gains on pension plans       (1,387) (1,387)
Integration and acquisition related expenses, and other 10,793      237  11,030 
Adjusted OIBDA 230,378  40,487  34,257  (24,220) 280,902 
Waived management fee (36,056)       (36,056)
Continuing OIBDA $194,322  $40,487  $34,257  $(24,220) $244,846 

________________________________

(1)Under our amended affiliate agreement, Sprint agreed to waive the Management Fees charged on both postpaid and prepaid revenues, up to $4.2 million per month, until the total amount waived reaches approximately $255.6 million, which is expected to occur in 2022.
(2)Represents back-office expenses required to support former nTelos subscribers that migrated to Sprint back-office systems.


Segment Results

Three Months Ended December 31, 2018          
(in thousands) Wireless Cable Wireline Other Eliminations Consolidated
External revenue            
Service revenue $96,664  $29,120  $5,469  $  $  $131,253 
Equipment revenue 18,651  158  38      18,847 
Other 2,414  2,309  6,661      11,384 
Total external revenue 117,729  31,587  12,168      161,484 
Internal revenue 1,270  1,312  6,533    (9,115)  
Total operating revenue 118,999  32,899  18,701    (9,115) 161,484 
Operating expenses            
Cost of services 31,675  14,817  9,615    (8,447) 47,660 
Cost of goods sold 17,834  98  20      17,952 
Selling, general and administrative 11,845  5,334  2,284  8,310  (668) 27,105 
Depreciation and amortization 31,668  6,339  3,604  162    41,773 
Total operating expenses 93,022  26,588  15,523  8,472  (9,115) 134,490 
Operating income (loss) $25,977  $6,311  $3,178  $(8,472) $  $26,994 


Three Months Ended December 31, 2017          
(in thousands) Wireless Cable Wireline Other Eliminations Consolidated
External revenue            
Service revenue $106,468  $27,109  $5,087  $  $  $138,664 
Equipment revenue 1,801  177  37      2,015 
Other 2,011  2,119  6,808      10,938 
Total external revenue 110,280  29,405  11,932      151,617 
Internal revenue 1,242  1,092  8,740    (11,074)  
Total operating revenue 111,522  30,497  20,672    (11,074) 151,617 
Operating expenses            
Cost of services 28,881  14,379  10,060  39  (10,382) 42,977 
Cost of goods sold 5,569  (82) 67      5,554 
Selling, general and administrative 30,056  4,916  1,858  4,425  (692) 40,563 
Integration and acquisition expenses 1,186      (29)   1,157 
Depreciation and amortization 33,925  5,898  3,293  140    43,256 
Total operating expenses 99,617  25,111  15,278  4,575  (11,074) 133,507 
Operating income (loss) $11,905  $5,386  $5,394  $(4,575) $  $18,110 


Year Ended December 31, 2018          
(in thousands) Wireless Cable Wireline Other Eliminations Consolidated
External revenue            
Service revenue $380,818  $114,917  $21,521  $  $  $517,256 
Equipment revenue 67,510  695  193      68,398 
Other 9,311  8,585  27,304      45,200 
Total external revenue 457,639  124,197  49,018      630,854 
Internal revenue 5,016  4,706  28,124    (37,846)  
Total operating revenue 462,655  128,903  77,142    (37,846) 630,854 
Operating expenses            
Cost of services 131,166  59,935  38,056    (35,135) 194,022 
Cost of goods sold 63,583  295  81      63,959 
Selling, general and administrative 47,538  20,274  7,467  40,654  (2,711) 113,222 
Depreciation and amortization 127,521  24,644  13,673  567    166,405 
Total operating expenses 369,808  105,148  59,277  41,221  (37,846) 537,608 
Operating income (loss) $92,847  $23,755  $17,865  $(41,221) $  $93,246 


Year Ended December 31, 2017          
(in thousands) Wireless Cable Wireline Other Eliminations Consolidated
External revenue            
Service revenue $431,184  $107,338  $20,388  $  $  $558,910 
Equipment revenue 9,467  724  127      10,318 
Other 9,478  7,855  25,430      42,763 
Total external revenue 450,129  115,917  45,945      611,991 
Internal revenue 4,949  3,245  33,308    (41,502)  
Total operating revenue 455,078  119,162  79,253    (41,502) 611,991 
Operating expenses            
Cost of services 129,626  59,335  38,417  39  (38,696) 188,721 
Cost of goods sold 22,653  14  119      22,786 
Selling, general and administrative 118,257  19,999  6,923  23,564  (2,806) 165,937 
Integration and acquisition expenses 10,793      237    11,030 
Depreciation and amortization 139,610  23,968  12,829  600    177,007 
Total operating expenses 420,939  103,316  58,288  24,440  (41,502) 565,481 
Operating income (loss) $34,139  $15,846  $20,965  $(24,440) $  $46,510 


Supplemental Information

Subscriber Statistics

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

  December 31, 2018 (3) December 31, 2017 (4)
Postpaid:    
Retail PCS subscribers - postpaid 795,176  736,597 
Gross PCS subscriber additions - postpaid 190,334  173,871 
Net PCS subscriber additions (losses) - postpaid 58,579  14,035 
PCS average monthly retail churn % - postpaid 1.82% 2.04%
Prepaid:    
Retail PCS subscribers - prepaid (1) 258,704  225,822 
Gross PCS subscriber additions - prepaid (1) 150,662  151,926 
Net PCS subscriber additions (losses) - prepaid (1) 32,882  19,150 
PCS average monthly retail churn % - prepaid (1) 4.45% 5.07%
     
PCS market POPS (000) (2) 7,023  5,942 
PCS covered POP (000) (2) 6,109  5,272 
CDMA base stations (sites) 1,853  1,623 
Towers owned 208  192 
Non-affiliate cell site leases 193  192 

_______________________________________________________

(1)As of September 2017, the Company is no longer including Lifeline subscribers to be consistent with Sprint's policy. Historical customer counts have been adjusted accordingly.
(2)"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. Historical periods previously referred to other third party population data and have been recast to refer to U.S. census data.
(3)Beginning February 1, 2018 includes Richmond Expansion Area except for gross PCS subscriber additions.
(4)Beginning April 6, 2017 includes Parkersburg Expansion Area except for gross PCS subscriber additions.


The subscriber statistics shown above include the following:

  February 1, 2018 April 6, 2017
  Expansion Area Expansion Area
PCS subscribers - postpaid 38,343  19,067 
PCS subscribers - prepaid (1) 15,691  4,517 
Acquired PCS market POPS (000) 1,082  511 
Acquired PCS covered POPS (000) 602  244 
Acquired CDMA base stations (sites) (2) 105   

_______________________________________________________

(1)Excludes Lifeline subscribers.
(2)As of December 31, 2018 we have shut down 107 overlap sites associated with the nTelos Area.


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

  December 31, 2018 December 31, 2017
Homes passed (1) 185,133  184,910 
Customer relationships (2)    
Video users 41,269  44,269 
Non-video customers 38,845  33,559 
Total customer relationships 80,114  77,828 
Video    
Customers (3) 43,600  46,613 
Penetration (4) 23.6% 25.2%
Digital video penetration (5) 78.8% 76.2%
Broadband    
Available homes (6) 185,133  184,910 
Users (3) 68,179  63,918 
Penetration (4) 36.8% 34.6%
Voice    
Available homes (6) 185,133  182,379 
Users (3) 23,366  22,555 
Penetration (4) 12.6% 12.4%
Total revenue generating units (7) 135,145  133,086 
Fiber route miles 3,514  3,356 
Total fiber miles (8) 138,648  122,011 
Average revenue generating units 133,109  132,759 


(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 billed 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. 
(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)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 users.
(8)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.

 

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

  December 31, 2018 December 31, 2017
Long distance subscribers 9,452  9,078 
Video customers (1) 4,742  5,019 
Broadband customers 14,464  14,353 
Fiber route miles 2,127  2,073 
Total fiber miles (2) 161,552  154,165 

_______________________________________________________

(1)Wireline's video service passes approximately 16,500 homes.
(2)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.

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Source: Shenandoah Telecommunications Co