Christopher French - Chairman, President and Chief Executive Officer Adele Skolits - Chief Financial Officer, VP and Head-Investor Relations Earle MacKenzie - Executive Vice President and Chief Operating Officer.

Ric Prentiss - Raymond James Barry Sine - Drexel Hamilton.

Good morning, everyone and welcome to the Shenandoah Telecommunications Fourth Quarter and Year End 2014 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ms. Adele Skolits, CFO. Please go ahead ma’am..

Good morning and thank you for joining us. The purpose of today’s call is to review Shentel’s results for the quarter and year ended December 31, 2014. Our results were announced in a press release distributed this morning and the presentation we’ll be reviewing is included on the Investor page of our website at www.shentel.com.

Please note that an audio replay of the call will be made available later today. The details were set forth in the press release announcing this call. With us on the call today are Christopher French, our President and Chief Executive Officer, and Earle MacKenzie, our Executive Vice President and Chief Operating Officer.

After our prepared remarks, we’ll conduct a question-and-answer session. As always, let me refer you to slide two of the presentation which contains our Safe Harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties.

These may cause our actual results to differ materially from these statements. Shentel provides a detailed discussion of various risk factors in our SEC filings, which you’re strongly encouraged to review. You’re cautioned not to place undue reliance on these forward-looking statements.

Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement. Also, in an effort to provide useful information to investors, we note on slide three that our comments today include non-GAAP financial measures.

Details on these measures, including why we use them and reconciliations to the most comparable GAAP measures, are included in our SEC filings. These reconciliations are also provided in an appendix to today’s slide presentation. I’ll turn the call over to Chris now..

Thank you, Adele. We appreciate everyone joining us this morning. We had a strong fourth quarter, capping off a great year and I’m pleased to have this opportunity to provide details about the company’s continued growth.

On slide five, you’ll see the fourth quarter 2014 net income increased almost 30% to $8.6 million compared to the prior year, attributable primarily to continued growth in the Wireless segment. Adjusted operating income before depreciation and amortization, or OIBDA, for the quarter increased 18% to $34.2 million.

Revenues were $82.8 million in the fourth quarter, a 6% increase from the prior year period. Revenues increased chiefly as a result of subscriber growth and improved product mix.

Our Cable segment revenues also improved as a result of an increase in the number of revenue-generating units or RGUs and higher average revenue per customer, as customers increasingly selected premium digital TV and high-speed data packages.

On an annual basis, as you see on slide six, consolidated 2014 revenue grew 6% to $326.9 million and adjusted OIBDA increased 11%, to $132.1 million for the year. Slide seven illustrates the 12% growth in 2014 operating income to $61.9 million and a 15% increase in net income to $33.9 million for 2014. Our Wireless highlights start on slide 8.

We experienced solid growth in our Wireless segment with increased customers for our post and prepaid offerings as a result of our upgraded network, leveraging Sprint’s national marketing and providing high quality local customer service. Postpaid customers grew by over 5% compared to the prior year and prepaid customers by almost 6%.

Operating income for the year grew 9% when compared to 2013. Turning to slide nine, our Cable segment also delivered strong growth in the quarter as demand for our high-speed internet and voice services outpaced anticipated decrease in video subscribers.

Operating revenues increased 14% to $22.2 million; while Cable adjusted OIBDA grew almost 22% to $4.3 million. Solid growth in RGUs of about 7% drove this increase. Other highlights worth noting can be found on slide 10.

Our fiber lease revenues increased more than 18% to $8.4 million and our 154 towers generated $1.8 million in OIBDA from lease revenue, down slightly compared to last year’s fourth quarter. We were pleased to have a strong close to 2014, characterized by strong organic revenue growth with enhanced profitability and cash flow.

The major investments we made to upgrade our wireless network to 4G capabilities and to improve our cable network are paying off as we can now deliver the combination of high-speed, reliability and overall quality typically found in larger metropolitan areas.

On the Wireless side of our business, our 4G upgrade has enabled us to meet the growing consumer demand for consistent coverage in any location. On the Cable side, our improved network meets customer demand for high-speed broadband and access to premium television packages.

We have aggressively marketed our enhanced service offerings with a result of attracting new customers and signing up existing customers for expanded services. With the system upgrades completed, our capital expenditures have decreased resulting in higher free cash flow.

Our balance sheet has improved over the course of 2014, providing a solid foundation for long-term growth. There are three potential uses for our growing cash position. First, as a top priority, we continue to evaluate strategic expansion opportunities in both the wireless and cable markets.

Second, dividends will continue to be an important way for us to return capital to shareholders, evidenced by a recent 31% increase in our dividend to $0.47 per share as you can see on slide 11.

Finally, while our debt load is relatively modest with attractive terms, we began making principal payments in the fourth quarter of 2014 after two years of interest-only payments. Given our relatively small float, share repurchases are not an option that we think makes sense for us.

I’ll now turn the call back to Adele to review the details of our financial results..

Thank you, Chris. I’ll begin on slide 13, which shows our earnings per share or EPS with and without adjustments as outlined in the appendix to the presentation. Diluted EPS before adjustment rose from $1.23 to $1.39 or 13%. After adjustment, EPS rose from $1.25 to $1.44 and this equates to a 15% increase.

Slide 14 shows our growth in profitability and OIBDA. In the top line, you can see that we had nearly $3.9 million or a 31% increase in operating income for 4Q 2014 over 4Q 2013. For the year ended December 31, 2014, operating income was up $6.5 million or 12% over 2013.

In the rest of this table, we’ve adjusted for the disposal of certain equipment replacement when the systems were upgraded. As you can see, for 4Q 2014, adjusted OIBDA is up roughly $5.2 million over 4Q 2013, or nearly 18%. For the year ended December 31, 2014, adjusted OIBDA is up $13.5 million or 11%.

These improvements are consistent with the longer-term trends. On slide 15, I’ve provided the long-term view of adjusted OIBDA. Since 2010, adjusted OIBDA has grown by $48.1 million. This represents a compound annual growth rate of 12%.

To better understand the forces driving the results in our three segments, I’ve provided the fourth quarter OIBDA results by segment on slide 16. Adjusted Wireless OIBDA has increased by $3.3 million or 14%, while Cable results have improved by $800,000 or 22%. Wireline results have increased by $400,000 or 8%.

On slide 17, I’ve analyzed the changes in the adjusted Wireless OIBDA results between 4Q 2013 and 4Q 2014. The cost of postpaid handset and other customer acquisition costs have dropped by $4.7 million between 4Q 2013 and 4Q 2014.

This is due to the affiliate arrangement with Sprint that dictates that the equipment revenues and expenses related to handsets sold on equipment installment plans are both borne by Sprint. Postpaid revenues are up by $800,000 or 2.3%, despite the 5.4% increase in average postpaid customers.

The customer growth was partially offset by the discounted rate plans we offered to customers taking advantage of the installment billing plans. Prepaid revenues grew by $600,000 or 6% between 4Q 2013 and 4Q 2014, related primarily to growth in average prepaid customers of 5.8%.

The growth in the prepaid customer base drove a $500,000 increase in the fees we pay Sprint to support these customers. A 16% increase in the number of gross additions to our prepaid customer base, combined with an increase in the cost per addition charged by Sprint drove a $1 million increase in the cost of prepaid handset and acquisition costs.

Network costs have increased by $1.3 million, primarily as a result of increases in the cost of backhaul required to support the significant increases in data traffic. On slide 18, I’ve shown the components of changes to adjusted Cable segment OIBDA.

The positive changes include significant growth in high-speed data revenues of $2 million as a result of a 12% increase in average high-speed data or HSD customers. Also the HSD customers are choosing higher speeds of transmission that carry higher service charges.

Equipment revenues grew by $600,000 as a result of the growth in customers and charging separately for equipment that had been included in service fees in 2013. Video revenues were up by $600,000, as the slight loss of video subscribers was offset by increases in video rates driven by higher programming costs.

Voice revenues are up $300,000, driven by a 22% increase in average voice customers. Network cost grew by $400,000 as a result of additional cost to maintain the network. Promotional and other bundling related discounts grew by $1.1 million, commensurate with the increase in HSD voice and video fees.

Finally, programming costs rose by $1.2 million in 4Q 2014 over 4Q 2013 as a result of the increase in fee rates demanded by content providers. On slide 19, I’ve analyzed, the changes in Wireline results between 4Q 2014 and 4Q 2013. Facility lease revenue has grown by $1 million as a result of increased fiber sales.

Other revenues grew by $600,000, primarily related to growth in access fees. These fees grew as a result of having recorded an unfavorable adjustment to revenues in 4Q 2013. This adjustment related to settlement of a dispute over carrier access billing.

Selling, general and administrative expenses grew by $500,000 and network costs by $700,000, primarily related to the increase in fiber sales and increased cost to maintain the network. At this time, I’ll turn the call over to Earle go into greater depth on some of the operating factors driving our results..

Thanks, Adele. Good morning, everyone. I’ll start my remarks on slide 22. We ended the year with 287,867 postpaid users and 433,029 total users for a penetration rate of approximately 20% of covered pops. 79% of our postpaid users have a smartphone, 89% of the smartphones have LTE capabilities and 38% of the smartphones have spot capabilities.

Moving to slide 23, net postpaid adds were 4,891 for the fourth quarter and 14,146 for the year. The fourth quarter net adds were down from the record fourth quarter we had last year. But 2014 net adds were up over 30% compared to 2013. Gross postpaid adds were 21,313 for the quarter compared to 19,796 for the same quarter last year.

2014 gross adds were up almost 10% over 2013 at 72,891. Let me give you some additional fourth quarter stats. Our port-in ratio was a positive 1.8 to 1. Tablets only represented about 10.9% of gross adds. As of December 31, tablets represent 4.1% of our postpaid base. 47% of our fourth quarter gross adds took traditional subsidized phone plans.

38% selected installment sales and 15% leased their phones. As of year-end, 85% of our postpaid base is still on subsidized phone plans. We had a spike in upgrades with 12.5% of the base upgrading in the fourth quarter, 22% of the upgrades came through Shentel controlled markets.

The break down on Q4 upgrades was 63% selected as subsidized phone, 19% installment sales and 18% lease. The Cut Your Bill in Half promotion was very successful in getting prospects in the door, but only about 2% of the fourth quarter gross adds selected that service option.

The promotions and customers leasing or buying their phone have impacted our gross billed service revenue for postpaid user as shown on slide 24. Fourth quarter gross billed revenue was $62.74, a reduction of $1.73 from the same quarter last year and down a $1.21 from the $63.95 in the third quarter.

As a reminder, when any of our customers purchase their phone on a lease or installment, the revenue and cost of goods sold are recorded on Sprint’s financials. Since we have no recurring equipment revenue, we will not be reporting billed revenue with and without equipment billings.

Nothing has changed the way that we report equipment sales for customers that select a subsidized phone option. As we’ve done each quarter, the reconciliation of gross billed postpaid revenue to net postpaid service revenues recorded on our financials is provided on slide 25. Both the fourth quarter gross billed revenue and net are up 2.6%.

Discounts and promotions were down, but bad debt is up primarily due to former customers not paying their early termination fees. I show some prepaid stats on slide 26. We had 22,000 gross prepaid adds in the fourth quarter and netted 5,036. For all of 2014, we’ve netted 8,115. We ended the year with a 145,162 prepaid users, an increase of 5.9%.

As of year-end, 73% of our prepaid users had a smartphone with 24% of the prepaid smartphone users having an LTE phone. On slide 27, you see that prepaid churn has remained relatively constant at 4% in the fourth quarter. Average gross billed revenue was $27.72. The decrease is due to price reductions on the Boost brand.

Before we move to Cable, let me share some network stats on slide 28. We have 538 sites, 94% of the sites have 800 megahertz LTE service, 120 sites have a second 1,900 megahertz LTE carrier for a total of three LTE carriers.

We’ve been able to harvest 10 megahertz of our original 30 megahertz for LTE and will continue to deploy the second 1,900 LTE carrier as needed. 77% of all of our data traffic is on LTE, with 40% of the LTE traffic on 800 megahertz. Average speeds are approximately 6 meg.

Data usage more than doubled in 2014, with LTE traffic more than tripled and EVDO usage down just 9%. We estimate that our average customer using over 3 gigs per month.

We have 800 megahertz voice service on 94% of our cell sites, only 15% of the voice traffic is on 800 megahertz as we continue to have software issues on certain phones that prevent us from activating cross band loading balancing on our network. Our vendors are working to address this issue. Voice usage has decreased approximately 2% in 2014.

Drop calls were at 0.6% and blocked calls at 0.4%. We have our fiber built to 185 cell sites, 144 Shentel’s sites and 41 for others, with 21 additional sites under construction and 22 sites in engineering. Now on to Cable on slide 30, we added 1,250 net RGUs in the fourth quarter.

We added 733 new data users, 769 new voice users and lost 252 video users. We added 7,876 RGUs in 2014. We ended the year with 71,298 customers buying an average of 1.7 RGUs each. During the first quarter 2015, we will crossover and have more data users than video users. We expect that trend to continue to accelerate.

Average monthly revenue per RGU and per customer is shown on slide 31. Average monthly billing per RGU increased $3.03 to $56.99. Reflecting the increase in RGUs per customer, the average monthly revenue per customer grew $8.79 to $96.78.

Slide 32 shows the strong growth we’ve experienced since year end 2012 when our cable network upgrades were substantially complete.

Over the past two years, RGUs have grown by 12.6%, customers by 4.3% and RGUs per customer from 1.58% to 1.71%, which reflects our focus on selling multiservice customers and the loss of primarily single service video customers. High-speed Internet users have grown over 25%, voice users at almost 50%, while video customers have only decreased by 5%.

Our Wireline segment continues to be very stable. On slide 34, we ended 2014 with 21,612 regulated access lines. Access line loss continues below 3% per year. We had 12,742 DSO users. As you recall, we don’t count our video-only cable customers that we serve in our regulated telephone service area in our cable stats.

Slide 35 shows our fiber lease revenues recorded in our Wireline and Cable segments broken down between affiliated and non-affiliated. As we’ve mentioned before, our growth in fiber revenue have more than offset the loss in regulated revenues.

On the right side, in 2014, we signed $19.9 million in new non-affiliated fiber contracts, with $3 million to be recorded in our Cable segment and $16.9 million to be recorded in our Wireline segment. Revenues are recorded based on which segments the underlying fiber asset resides. My last slide is slide 36.

Actual CapEx for 2014 was $60.3 million, approximately $5.8 million moved to 2015 and we under spent the budget by $7.9 million. 2015 CapEx is estimated at $74.8 million. In Wireless, we have included the launch of approximately 50 Spark sites in the last half of the year. Most of the dollars in Wireline are for planned and anticipated fiber bills.

I draw your attention to the right side of the slide, where we have broken the $74.8 million into four categories. We’ll spend 30% maintaining our existing networks. We’ll spend 33% on increased capacity in Wireless and Cable. 20% will be for network expansion, which is primarily fiber bills and cable extensions.

The remaining 17% is for projects that will only be undertaken if we generate new customers and revenue such as customer premise equipment for cable or building fiber to a new customer’s location. I’ll now turn it back to Adele..

This concludes our prepared remarks.

Bridget, would you now review the instructions for posing a question?.

Absolutely. [Operator Instructions] We will go first to Ric Prentiss of Raymond James..

A couple of questions, appreciate you taking them. First, a lot of moving parts in the wireless industry these days, can you talk a little about, how we’ve gone into the first quarter’s Sprint cut your rate plan in have campaign, is that still driving traffic to the stores and what kind of volumes are you seeing just anecdotally.

But then also the effect of the equipment installment plans, pretty dramatic take rates in the quarter I must admit, looks like 53% of gross adds and a fairly high amount of the upgrades are taking that.

Can you walk us through what you expect the effect will be on your version of revenue since you don’t have the equipment side?.

First on your cut your bill in half promotion, that has continued to drive store traffic. As I said in my prepared remarks, a very small percentage of customers actually take that promotion once they get in the store and we explain to them kind of the other options that they have.

And so it’s a great way to get customers to come in and consider Sprint and we love that and we’re glad that Sprint is spending a lot of dollars on that campaign and I think we’re – because of our consulted sale, we are putting the customer in the right price plan, ultimately based on what they need.

As far as kind of looking at the growing percentage of both installment and lease, we’ve seen a steady increase in that over the fourth quarter – each month of the fourth quarter and that continued into the first quarter. We now have less than half of our customers are taking the subsidized plans and we think that will continue.

As far as the impact on us, I think if you look at the dollar plus $21 that we had decrease between the third quarter and the fourth quarter, a good portion of that was because of people taking the – not taking the subsidized phone.

So as we continue to see a significant percentage of customers, take installment and lease, we will continue to see some decrease in our average revenue per, but don’t expect it to be anything as significant as you’ve seen in some of the other carriers who have a very, very high percentage of installment and lease plans..

Okay. And then Chris, you mentioned upfront pretty strongly on the cash position balance sheet getting very strong.

The first preference on use of cash strategic expansion in wireless and cable, what makes an interesting and attractive wireless property and cable property to you, how should we think about what might be of interest you guys, just theoretically?.

Generally we want to stay within region. So we’re not looking for expansion or acquisition opportunities that are far afield.

Obviously, the most desirable to us would be where we could lever or overlay any of our existing businesses, so where we have fiber networks, where we have cable networks and then anything that would be economical to add to our existing properties.

So to the degree, for example, if there are cable systems that are nearby or could be easily connected in, so we could get some synergies by consolidating hidden and again reusing our fiber network. So really at this point kind of opportunistic, but still close by or within reach..

And I know you guys have considered in the past on the second use of cash dividend maybe going towards a quarterly dividend versus annual dividend, any update as far as what that might involve the process of board approval and just thought process on dividend, since it’s the second use of cash?.

Not really an update, I guess our thought process is we’ll evaluate that, as you know, we do an annual dividend right now. So the board makes that decision late typically in the October timeframe. We do have still a large number of retail shareholders, so going to a quarterly dividend, obviously, just the production of checks and mailing and all that.

Not a big issue, but some concern particularly if they end up being small shareholders that end up with small dividend checks, then we end up with a lot of uncashed check, so as time goes on we’ll keep reevaluating that, but no decision has been made to move to quarterly at this point..

And our next question is from Barry Sine with Drexel Hamilton..

I guess the question I want to ask is – very good subscriber numbers in the fourth quarter, continuing the trend and I guess the question I get to is what is really working here at Sprint’s major promotion is the Cut Your Bill in Half, you mentioned it’s bringing traffic in, but customers are not opting for that plan, wondered if you can give a little color on why not and obviously you’re successful in up-selling and then also on a related note with the EIP plan that seems to be very popular in bringing customers in although everybody has the IP now, why do you think the EIP is so popular, is it the fact that customers can walk out with a brand new phone with no money down even though they’re paying more for the phone overall?.

I’ll try to answer all of your questions, I’m not sure if I don’t, then you can ask them again. As far as why the mix of our sales, yes, the promotion that Sprint is running really does bring people in, but as you know it’s a fairly complex promotion. The customer has to turn in their phone.

They can’t change the amount of services that they’re buying from either AT&T or Verizon, they basically have to duplicate that, and then we will cut it in half. But if you take a customer who’s paying say $80 with a subsidized phone and they give up the phone and they get the same amount of service for $40, it’s really not exactly apples-to-apples.

And so when the customer understands kind of the fine print of the deal and we’re able to explain to them some of the other great values that we have as far as services, they’re still interested in Sprint, they just not necessarily interested in the Cut Your Bill in Half promotion.

So I think that it has really done a great job as far as bringing people in, but when we do that consulted sale, which we’ve always kind of prided ourselves with, we end up matching the customer with what we believe is the best long-term plan for them.

As far as what is attractive about the EIP, I think you are right, I think it is the fact that there’s less money down on the front end. And also when you kind of look at what the customer is paying on a monthly basis, it’s not significantly different than what they have been paying.

Obviously there are different lines on the financial statements than are on the bills and what they there was before, but if you look at kind of what they write in the check for at the end of the month, it’s very, very similar. So I think they like the idea of buying the phone over time and having that smaller down payment.

As far as kind of continued trends, we tend to find customers fall in both categories. I mean, some people just like the comfort of having that one subsidized phone bill that they’ve had in the past. Others are more than happy to look at the phone separated. We’re starting to get some momentum on the lease side.

I think that people see that as perpetuity if they walk-in, they lease an iPhone, for Life, they know that every 24 months or so they can walk in and get a new phone and continue to pay basically the same amount. So I think there is some comfort in that. People tend to like price plans that there’s not a lot of surprises.

And so when you see that consistency I think that is attracted to a lot of prospects..

Kind of similar question as we look forward in 2015, Cut Your Bill in Half, if I recall correctly didn’t come into a fact until about middle of December. So if we look into the first quarter 2015, you’ll have that for the full first quarter and in fact the full year.

So I’m wondering if we can expect even more of an impact from that very positive plan.

And then anything that you might be seeing specific to your markets in terms of changes in the competitive environment as we moved into 2015 as well?.

I think that probably the benefit of the Cut Your Bill in Half promotion will wane the longer it’s out there. Obviously, there are customers who are coming off contracted at all times, so that there’d be people who maybe wouldn’t consider in December, who will consider in it February or March. But I think it certainly has – continues to have legs now.

I wouldn’t want to say it’ll have legs for the whole 12 months. We’ll just have to wait and see. As far as the competitive environment, we really haven’t seen anything tremendously different in our markets. T-Mobile is primarily in the eastern part of Pennsylvania.

They are strong; they have good distribution there, but very weak distribution in the rest of our footprint. AT&T and Verizon continue to be good competitors, but there really hasn’t been any significant increase in their distribution over the last months. Probably the one change that is coming up for us is the closing of the RadioShack stores.

The good news for us is that RadioShack had become primarily in, at least in our markets, upgrades not a lot of new gross adds coming out of the RadioShack stores.

So, even though we will have a number of stores closing in our footprint, we don’t think it’s going to have a huge impact on gross adds and we assume that a lot of those customers who would go into RadioShack for an upgrade will either come into one of our stores, or one of the other big-box retailers.

So we’re not overly concerned at this point, we’ll continue to monitor it. And if necessary, we will modify our distribution channel in order to fill in any gaps that we think might be there..

And my next question is, if you could kind of update us on the impact in your business of being a Sprint affiliate, so Sprint has made a lot of progress in urban markets in terms of network quality, in rural markets, I believe, they lag and I think it some of your adjoining markets, they may a lag in some other upgrades, and I believe in the past you’ve said that’s had a bit of a harmful impact as exhibiting your churn numbers.

Where does that stand today in terms of their adjoining network quality and what impact is that having on the results that you’re reporting?.

We continue to see some weakness in their networks on the outer fringes. I mean, they have made some great strides and our customers are telling us that they are getting a better experience when they go into the more metro part of the adjacent areas, but still there is some weakness in the surrounding areas.

So it’s hard to quantify it exactly other than just anecdotally, but we continue to get complaints from customers that they would like stronger service and more LTE service as they leave our network.

Example of kind of the difference is, I don’t know if you saw the metrics, basically did a report on our Harrisburg market, not really knowing it was an affiliate. They just talked about Sprint versus the others and they gave us very high marks, actually said that our network was equal to the Verizon network in that area.

So that’s where we – it’s one of the one of the areas where we would see some weakness as customers would leave our area, heading towards Philadelphia. They get good service in Philadelphia, but some of the areas in between, there is some weakness..

[Operator Instructions] I’m not showing any further questions at this time. Please proceed with the any further comments..

Great. Thank you for participating. As usual, I’d invite you to let me know if there are additional details you’d like to see included in future phone calls. My contact information was provided on the press release. Thank you..

And again ladies and gentlemen, this does conclude today’s conference. We thank you for your participation. You may now disconnect..