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Shenandoah Telecommunications Company Reports Net Income Increase of 9.9% to $8.6 Million for Second Quarter 2014; Revenues of $81.4 Million


Revenue Increase Driven By Wireless Customer and Cable RGU Growth

EDINBURG, Va., Aug. 1, 2014 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company ("Shentel") (Nasdaq:SHEN) announces financial and operating results for the three months ended June 30, 2014.

Consolidated Second Quarter Results

For the quarter ended June 30, 2014, net income rose by 9.9% to $8.6 million compared to $7.8 million in the second quarter of 2013. Operating income was $15.8 million, up from $14.5 million in the same quarter last year. Adjusted OIBDA (Operating Income Before Depreciation and Amortization) increased 5.7% to $33.0 million in the second quarter of 2014 from $31.3 million in the second quarter of 2013.

Total revenues were $81.4 million, an increase of 5.1% compared to $77.5 million for the 2013 second quarter. The increase in revenue was largely attributable to growth in subscribers and revenue per subscriber. Total operating expenses were $65.6 million in the second quarter of 2014 compared to $63.0 million in the prior year period. Cost of goods sold increased $1.9 million, including an increase of $0.7 million in cable programming costs, $0.7 million in network maintenance costs and $0.6 million in wireless handset costs. Selling, general and administrative expenses increased $0.3 million. Depreciation and amortization expense increased $0.5 million, primarily due to completion of the Network Vision upgrade project.

President and CEO Christopher E. French commented, "During the second quarter we achieved improved net income largely as a result of revenue and subscriber growth in both the cable and wireless segments. Our regional efforts to promote our upgraded networks and improved service are gaining traction as demonstrated by increases in average revenue per customer. Additionally in the second quarter, we began offering Sprint's Framily service plan and Easy Pay phone financing plan and benefitted from Sprint's national marketing efforts around these programs."

Wireless Segment

Revenues in the wireless segment increased 4.0% to $51.8 million as compared to the second quarter of 2013. Net postpaid service revenues increased $1.2 million as a result of 4.2% growth in average customers and increased data fees. The net service fee to Sprint increased from 12% of net billed revenues to 14% on August 1, 2013, which reduced net postpaid service revenue by $0.9 million. During the second quarter, net prepaid service revenues grew $0.3 million, or 3.1%, due to 3.4% growth in average prepaid subscribers as compared to the same period of 2013.

During the second quarter of 2014, net additions to postpaid subscribers were 2,648, 13.2% higher than net additions in the second quarter of 2013. Net prepaid subscribers declined 361 in the second quarter compared to a decline of 3,032 in the second quarter of 2013. Both decreases are due to lifeline wireless customers not re-qualifying for the programs due to tightened eligibility requirements.

Operating expenses in the Wireless segment increased by $0.5 million in the second quarter of 2014 compared to the second quarter last year. Postpaid handset costs increased $1.0 million due to a high volume of handset upgrades and tablets in 2014 and to higher cost handsets. Prepaid handset subsidies decreased $0.5 million on lower volume of handsets sold.

Second quarter adjusted OIBDA in the wireless segment was $25.8 million, an increase of $1.8 million or 7.5% as compared to the second quarter of 2013.

"Our wireless segment continued to grow with postpaid customer counts increasing and revenue growth in both postpaid and prepaid services offsetting the loss of lower revenue lifeline service customers. We continue to highlight our improved network as part of our local marketing strategies and also saw a positive impact from Sprint's national advertising," stated Mr. French.

Cable Segment

Service revenue in the cable segment increased $1.1 million as a result of a 6.3% increase in average RGUs (the sum of voice, data, and video subscribers), customers selecting higher speed data access packages, and video rate increases in January 2014. Cost of goods and services sold increased by $1.2 million in second quarter 2014 over second quarter 2013, due primarily to increased cable programming costs of $0.7 million as rising rates per subscriber outpaced declining video subscriber counts. Maintenance costs increased $0.3 million related to costs associated with network growth.

Revenue generating units totaled 116,221 at the end of the second quarter of 2014, an increase of 6.1% over the prior year period.

Adjusted OIBDA in the cable segment for second quarter 2014 was $3.9 million, up 20.1% from $3.3 million in the second quarter of 2013.

Mr. French stated, "Performance in our cable segment improved and we saw an increase in revenue generating units (RGUs) as customer demand for high speed internet outweighed the anticipated decrease in video subscribers. We have concentrated our marketing efforts to highlight the speed and strength of our updated network, attracting new cable customers while also expanding the offerings we provide to existing cable customers."

Wireline Segment

Operating income for the wireline segment was $3.8 million as compared to $4.0 million in second quarter 2013. Access lines at June 30, 2014, were 21,842, compared to 22,465 at June 30, 2013.

Adjusted OIBDA for the wireline segment for second quarter 2014 declined to $6.5 million, as compared to $7.0 million in second quarter 2013.

Other Information

Capital expenditures were $15.6 million in the second quarter of 2014, compared to $22.5 million in the comparable 2013 period.

Cash and cash equivalents as of June 30, 2014 were $72.1 million, compared to $38.3 million at December 31, 2013. Total outstanding debt at June 30, 2014 totaled $230.0 million. The Company will begin making quarterly principal payments of $5.75 million on its debt in December 2014. At June 30, 2014, debt as a percent of total assets was 38.1%. The amount available to the Company through its revolver facility was $50 million as of June 30, 2014.

"Our balance sheet is strong and should strengthen further given reduced capital expenditures now that our Network Vision 4G build out and cable system upgrades are complete. We will continue to invest in our networks, services and marketing, and remain on the lookout for new investment opportunities to complement or expand our businesses. We believe the combination of our improved network, competitive service plans and effective regional and national advertising programs, position us well to expand our customer base," Mr. French concluded.

Conference Call and Webcast

The Company will host a conference call and simultaneous webcast today, Friday, August 1, 2014, at 8 A.M. Eastern Time.

Teleconference Information:
Friday, August 1, 2014, 8:00 A.M. (ET)
Dial in number: 1-888-695-7639
Password: 73418983
Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately one hour after the call is complete, through August 8, 2014 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 voice; fiber network and services; and local and long distance telephone. Shentel is the exclusive personal communications service ("PCS") Affiliate of Sprint in portions of Pennsylvania, Maryland, Virginia and West Virginia. For more information, please visit www.shentel.com.

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 filings with the SEC. Those factors may include changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
  June 30,

2014
December 31,

2013
     
Cash and cash equivalents  $ 72,085  $ 38,316
Other current assets  39,716  59,658  
Total current assets  111,801  97,974
Investments  9,668  9,332
     
Net property, plant and equipment   405,810  408,963
     
Intangible assets, net  69,165  70,816
Deferred charges and other assets, net  7,559  9,921
Total assets  $ 604,003  $ 597,006
     
Total current liabilities, including current maturities of long-term debt  49,515  43,994
Long-term debt, less current maturities  212,750  224,250
Total other liabilities  89,975  94,447
Total shareholders' equity  251,763  234,315
Total liabilities and shareholders' equity   $ 604,003  $ 597,006
 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
         
  Three Months Ended June 30, Six Months Ended
   June 30,  June 30,
  2014 2013 2014 2013
         
         
Operating revenues  $ 81,416  $ 77,454  $ 161,868  $ 153,463
         
Cost of goods and services  32,403 30,528 64,639 61,229
Selling, general and administrative 16,625 16,355 33,773 32,484
Depreciation and amortization 16,595 16,071 31,983 30,042
Total operating expenses 65,623 62,954 130,395 123,755
Operating income 15,793 14,500 31,473 29,708
         
Other income (expense):        
Interest expense  (2,065)  (2,068)  (4,112)  (4,220)
Gain(loss) on investments, net 114 30 96 178
Non-operating income, net  459 458 1,086 979
         
Income before taxes 14,301 12,920 28,543 26,645
         
Income tax expense 5,686 5,078 11,312 10,452
Net income  $ 8,615  $ 7,842  $ 17,231  $ 16,193
         
Net income per share, basic  $ 0.36  $ 0.33  $ 0.72  $ 0.67
Net income per share, diluted  $ 0.35  $ 0.33  $ 0.71  $ 0.67
         
Weighted average shares outstanding:        
Basic 24,102 23,996 24,080 23,985
Diluted 24,320 24,078 24,271 24,055

Non-GAAP Financial Measure

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, which is considered a "non-GAAP financial measure" 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; 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.

In a capital-intensive industry such as telecommunications, management believes that adjusted OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance. We use adjusted OIBDA as a supplemental performance measure because management believes it facilitates 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 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 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 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 has 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:

In light of these limitations, management considers adjusted OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.

The following table shows adjusted OIBDA for the three and six months ended June 30, 2014 and 2013:

  Three Months Ended

June 30,
Six Months Ended

 June 30,
(in thousands) 2014 2013 2014 2013
         
Adjusted OIBDA $ 33,043 $ 31,260 $ 64,773 $ 60,894

The following table reconciles adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the three and six months ended June 30, 2014 and 2013:

Consolidated:

(in thousands)
Three Months Ended

June 30,
Six Months Ended

June 30,
  2014 2013 2014 2013
         
Operating income $ 15,793 $ 14,500 $ 31,473 $ 29,708
Plus depreciation and amortization 16,595 16,071 31,983 30,042
Plus (gain) loss on asset sales 123 152 (243) 234
Plus share based compensation expense 532 537 1,560 910
Adjusted OIBDA $ 33,043 $ 31,260 $ 64,773 $ 60,894

The following tables reconcile adjusted OIBDA to operating income by major segment for the three and six months ended June 30, 2014 and 2013:

Wireless Segment:
(in thousands) Three Months Ended  Six Months Ended 
  June 30, June 30,
  2014 2013 2014 2013
         
Operating income  $ 17,571  $ 16,063  $ 34,364  $ 32,774
Plus depreciation and amortization  8,071  7,781  15,268  13,809
Plus (gain) loss on asset sales  59  11  (293)  100
Plus share based compensation expense  112  152  328  262
Adjusted OIBDA  $ 25,813  $ 24,007  $ 49,667  $ 46,945
     
Cable Segment:

(in thousands)

 
Three Months Ended

June 30,
Six Months Ended

June 30,
  2014 2013 2014 2013
         
Operating income (loss) $ (2,085) $ (2,483) $(4,045) $(4,821)
Plus depreciation and amortization 5,766 5,479 11,170 10,684
Plus (gain) loss on asset sales 39 28 16 9
Plus share based compensation expense 196 236 584 398
Adjusted OIBDA $ 3,916 $ 3,260 $ 7,725 $ 6,270
     
Wireline Segment:

(in thousands) 
Three Months Ended

June 30,
Six Months Ended

June 30,
  2014 2013 2014 2013
         
Operating income $ 3,761 $ 4,000 $ 8,113 $ 7,843
Plus depreciation and amortization 2,653 2,802 5,350 5,532
Plus loss on asset sales 26 113 35 124
Plus share based compensation expense 102 114 280 191
Adjusted OIBDA $ 6,542 $ 7,029 $ 13,778 $ 13,690

Supplemental Information

Subscriber Statistics

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

  June 30, December 31, June 30, December 31,
  2014 2013 2013 2012
         
Retail PCS Subscribers - Postpaid 277,673 273,721 266,297 262,892
Retail PCS Subscribers - Prepaid 138,176 137,047 131,372 128,177
PCS Market POPS (000) (1) 2,406 2,397 2,393 2,390
PCS Covered POPS (000) (1) 2,100 2,067 2,063 2,057
CDMA Base Stations (sites) 528 526 525 516
Towers 154 153 151 150
Non-affiliate cell site leases (2) 195 217 219 216
  Three Months Ended Six Months Ended
  June 30, June 30,
  2014 2013 2014 2013
         
Gross PCS Subscriber Additions - Postpaid 15,898 15,184 31,483 31,088
Net PCS Subscriber Additions - Postpaid 2,648 2,340 3,952 3,405
Gross PCS Subscriber Additions - Prepaid 15,286 18,307 34,458 39,729
Net PCS Subscriber Additions(Losses) - Prepaid (361) (3,032) 1,129 3,195
PCS Average Monthly Retail Churn % - Postpaid (3) 1.60% 1.62% 1.67% 1.74%
PCS Average Monthly Retail Churn % - Prepaid (3) 3.78% 5.33% 4.03% 4.62%

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 the Company is authorized to serve under its Sprint PCS affiliate agreements, and Covered POPS are those covered by the Company's network. 

2) The decrease from December 31, 2013 to June 30, 2014 is a result of expected terminations of Sprint iDEN leases associated with the former Nextel network.

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

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

  June 30, December 31, June 30, December 31,
  2014 2013 2013 2012
Homes Passed (1) 171,147 170,470 168,523 168,475
Customer Relationships (2)        
Video customers 50,159 51,197 51,591 52,676
Non-video customers 19,730 18,341 16,731 15,709
Total customer relationships 69,889 69,538 68,322 68,385
Video        
Customers (3) 51,699 53,076 53,395 54,840
Penetration (4) 30.2% 31.1% 31.7% 32.6%
Digital video penetration (5) 63.6% 49.2% 40.2% 39.5%
High-speed Internet        
Available Homes (6) 168,923 168,255 166,675 163,273
Customers (3) 48,096 45,776 42,519 40,981
Penetration (4) 28.5% 27.2% 25.5% 25.1%
Voice        
Available Homes (6) 166,186 163,282 161,709 154,552
Customers (3) 16,426 14,988 13,576 12,262
Penetration (4) 9.9% 9.2% 8.4% 8.0%
Total Revenue Generating Units (7) 116,221 113,840 109,490 108,083
Total Fiber Miles (8) 70,772 69,715 41,394 39,418
Fiber Route Miles 2,463 2,446 2,234 2,077

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.

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. Fiber counts were recalculated after a fiber audit and deployment of enhanced mapping software in the fourth quarter of 2013.

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

  June 30, December 31, June 30, December 31,
  2014 2013 2013 2012
Telephone Access Lines 21,842 22,106 22,465 22,342
Long Distance Subscribers 9,730 9,851 10,065 10,157
Video Customers 5,904 6,342 6,534 6,719
DSL Subscribers 12,707 12,632 12,621 12,611
Total Fiber Miles (1) 85,348 85,135 84,414 84,107
Fiber Route Miles 1,455 1,452 1,430 1,420

1. 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 makers. 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 provides 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. 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. 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 services throughout Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

Three months ended June 30, 2014           Consolidated
(in thousands) Wireless Cable Wireline Other Eliminations Totals
External revenues            
Service revenues $  47,868 $ 17,416 $ 5,120 $ -- $ -- $ 70,404
Other 2,813 3,388 4,811 -- -- 11,012
Total external revenues 50,681 20,804 9,931 -- -- 81,416
Internal revenues 1,094 33 5,713 -- (6,840) --
Total operating revenues 51,775 20,837 15,644 -- (6,840) 81,416
Operating expenses            
Costs of goods and services, exclusive of depreciation and amortization shown separately below 18,476 12,421 7,737 -- (6,231) 32,403
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 7,657 4,735 1,493  3,349 (609) 16,625
Depreciation and amortization 8,071 5,766 2,653 105 -- 16,595
Total operating expenses 34,204 22,922 11,883 3,454 (6,840) 65,623
Operating income (loss) 17,571 (2,085) 3,761 (3,454) -- 15,793
             
Three months ended June 30, 2013           Consolidated
(in thousands) Wireless Cable Wireline Other Eliminations Totals
External revenues            
Service revenues $  46,362 $ 16,325 $  5,558 $ -- $  -- $  68,245
Other 2,328 2,357 4,524 -- -- 9,209
Total external revenues 48,690 18,682 10,082 -- -- 77,454
Internal revenues 1,076 53 5,169 -- (6,298) --
Total operating revenues 49,766 18,735 15,251 -- (6,298) 77,454
Operating expenses            
Costs of goods and services, exclusive of depreciation and amortization shown separately below 17,854 11,239 7,198 -- (5,763) 30,528
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 8,068 4,500 1,251 3,071 (535) 16,355
Depreciation and amortization 7,781 5,479 2,802 9 -- 16,071
Total operating expenses 33,703 21,218 11,251 3,080 (6,298) 62,954
Operating income (loss) 16,063 (2,483) 4,000 (3,080) -- 14,500
             
Six months ended June 30, 2014           Consolidated
 (in thousands) Wireless Cable Wireline Other Eliminations Totals
External revenues            
Service revenues $  95,100 $ 34,840 $ 10,220 $ -- $   -- $ 140,160
Other 5,569 6,418 9,721 -- -- 21,708
Total external revenues 100,669 41,258 19,941 -- -- 161,868
Internal revenues 2,184 59 11,478 -- (13,721) --
Total operating revenues 102,853 41,317 31,419 -- (13,721) 161,868
Operating expenses            
Costs of goods and services, exclusive of depreciation and amortization shown separately below 37,132 24,811 15,219 -- (12,523) 64,639
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 16,089 9,381 2,737 6,764 (1,198) 33,773
Depreciation and amortization 15,268 11,170 5,350 195 -- 31,983
Total operating expenses 68,489 45,362 23,306 6,959 (13,721) 130,395
Operating income (loss) 34,364 (4,045) 8,113 (6,959) -- 31,473
             
Six months ended June 30, 2013           Consolidated
(in thousands) Wireless Cable Wireline Other Eliminations Totals
External revenues            
Service revenues $ 90,427 $ 32,487 $ 11,021 $ -- $ -- $ 133,935
Other 5,347 4,659 9,522 -- -- 19,528
Total external revenues 95,774 37,146 20,543 -- -- 153,463
Internal revenues 2,149 102 9,808 -- (12,059) --
Total operating revenues 97,923 37,248 30,351 -- (12,059) 153,463
Operating expenses            
Costs of goods and services, exclusive of depreciation and amortization shown separately below 35,385 22,461 14,364 -- (10,981) 61,229
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 15,955 8,924 2,612 6,071 (1,078) 32,484
Depreciation and amortization 13,809 10,684 5,532 17 -- 30,042
Total operating expenses 65,149 42,069 22,508 6,088 (12,059) 123,755
Operating income (loss) 32,774 (4,821) 7,843 (6,088) -- 29,708
CONTACT: 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
Source: Shenandoah Telecommunications Company