Good morning, everyone. And welcome to the Shenandoah Telecommunications Third Quarter 2017 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. 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 ended September 30, 2017. Our results were announced in a press release distributed this morning, and the presentation we'll be reviewing is included on our Investor page at our website www.shentel.com.

Please note that an audio replay of the call will be made available later today. The details are 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 2 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 the 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 3 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. Our third quarter was highlighted by a completion of the integration of nTelos' operations, the transition of its customers, and the upgrade of the network. We're especially pleased that each of these milestones was completed ahead of schedule and under budget.

Demonstrating the strength of our operating team, with the transformation of nTelos to the Sprint affiliate model and the upgrade of a state-of-the-art 4G LTE network, we're now focused on capitalizing on the fourth quarter selling season.

We have launched the biggest advertising campaign in Shentel’s history to highlight our enhanced network and drive interest from new customers and broaden our brand recognition in the markets.

On Slide 5, you'll see that our third quarter net income of $3.5 million is a significant improvement compared to the net loss of $7.6 million in the third quarter 2016.

This increase is primarily related to improved results in the Cable and Wireless segments and reductions in the integration and acquisition expenses related to the transitioning nTelos. These gains were partially offset by increased operating expenses and higher interest from the debt related to the nTelos acquisition.

For the quarter adjusted Operating Income Before Depreciation and Amortization or OIBDA decrease 9.3% to $66.9 million. Revenues were $151.8 million in the third quarter a decline of 3.2% from the prior year period. The revenue decrease was largely related to lower average revenue per post-paid wireless user.

Wireless segment revenues also experienced 3.2% decline for the same reason. Of the former nTelos customers approximately 65% of prepaid and 75% of post-paid migrated to the Sprint platform.

Our Cable segment revenues improved as a result of an increase in the number of revenue generating units or RGUs and higher average revenue per customer due to video rate increases and customers increasingly selecting high speed data packages. Wireline revenues increased 6% due to increases in fiber release revenue.

Our Wireless highlights start on Slide 6. Postpaid customers are up 1.3% over the last 12 months while prepaid customers declined 8.3%. The decline in prepaid reflects a change in Company policy as to how long inactive customers are included in our customer count.

We change this policy in December 2016 and effectively reduce prepaid customers by approximately 24,000. We completed the migration of postpaid customers during the third quarter and as expected we saw higher customer churn as we reached the end of the migration period.

For third quarter 2017, Wireless adjusted OIBDA decreased by $8.3 million or 13.3% reflecting increased operating costs from completion of our network upgrades. Turning to Slide 7. Our Cable segment delivered solid growth in the quarter with continued demand for high-speed Internet and voice services.

Additionally, we passed through video rate increases in January 2017 to offset increases in programming costs. Operating revenues increased 9.2% to $30.1 million; while Cable adjusted OIBDA grew 21% to $10 million. Customer demand for higher bandwidth data services and growth in RGUs of 0.6% contributed to the revenue and OIBDA increases.

Slide 8 profiles two additional assets that provide complimentary revenue streams. Our fiber lease revenues increased almost 13% to $12.3 million. And our 101 towers generated $1.9 million in OIBDA from lease revenue, up almost 9% compared to last year's third quarter.

In most of the markets in which we operate, we've been at the forefront of making changes and improvements to provide enhanced customer experience. With the completion of our upgraded network, we believe we can offer the most expansive coverage and reliable service to customers in these markets.

We believe our Triple Play offering is among the best available in our operating regions, both in terms of service and competitive pricing. Our Shentel brand enjoys a solid reputation as a high performance provider in the Mid-Atlantic region and we look forward to continuing to expand our reach through our enhanced affiliate agreement with Sprint.

We recognized the importance of having a robust network in place, so that we can effectively and efficiently meet the high expectations of consumers when it comes to high speed bandwidth and network availability. We are focused on ensuring that our products and services provide the coverage and reliability that our customers demand.

This provides an advantage in the competitive marketplace as we look to capture new customers and provide flexibility and the highest quality service options to customers who wish to upgrade their service packages. We are very pleased with the progress made in the third quarter and we are excited about the opportunities ahead.

I would like to take a moment to recognize and thank Adele for her tenure as a service to Shentel as Chief Financial Officer. She has played a key role overseeing the Company's financial function and obtaining financing critical to our organization's growth.

We will miss her and we wish her all the best as she moves to how to pursue a new professional endeavor and takes the opportunity to live closer to her family and expect a grandchild.

As we previously announced, Earle has delayed his announced retirement and will assume the CFO responsibilities on an interim basis, while continuing his Investor Relations and Business Development roles with our organization. We continue to evaluate candidates for the COO role and are getting started on the effort for the CFO position.

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

Thank you, Chris. I'll begin with Slide 10, which shows our changes in profitability. Our operating income increased by $13.4 million for Q3 2017 over Q3 2016. Over the same period, net income is up $11.1 million, and basic and fully diluted earnings per share have improved by $0.23.

The improvement in these profitability measures resulted from a drop in the cost of acquisition, integration and migration expenses of $13.6 million and a drop of $3 million in depreciation and amortization related to the retirement of certain network assets acquired from nTelos.

Partially offsetting these favorable changes, revenues decreased by $5 million between these two periods as a result of the reduction in average billing rates. We've provided the next slide to assess how the underlying business is performing without these costs.

Slide 11 begins with the $13.4 million growth in operating income and then adjusts for certain non-cash and non-routine items. As you can see, for Q3 2017, adjusted OIBDA is down $6.8 million or 9% over Q3 2016.

We also provide continuing OIBDA to reflect the amount of adjusted OIBDA, the Company would generate without the benefit of Sprint's waiver of management fees and this measure is down $6.3 million or 10% for Q3 2017, over Q3 2016.

As a reminder, when we acquired nTelos, Sprint committed to waiving the 8% postpaid and 6% prepaid management fees, up to $4.2 million a month, until the total waived reaches $251.8 million. We provide the continuing OIBDA measure to ensure investors are aware that will eventually reach this threshold and the waiver will end.

In addition for the first six months, after the May 6 closing date of the nTelos acquisition in 2016, we did not incur any management fees relative to the nTelos customers’ billings prior to the customer being migrated to Sprint’s back office.

To better understand the factors driving the consolidated results, I provided the third quarter adjusted OIBDA results by segment on Slide 12. Adjusted Wireless OIBDA has decreased by $8.3 million or 13%, while Cable results have improved by $1.8 million or 21%. Wireline results have increased by $700,000 or 10%.

On Slide 13, I've analyzed the changes in the adjusted Wireless OIBDA results between Q3 2016 and Q3 2017. Travel and other revenues have written by $500,000 as more expense wholesale customers are roaming on our network.

Prepaid revenues have dropped by $100,000 despite the growth in revenue generating prepaid customers as a result of recording an unfavorable adjustment of $1.1 million from Sprint related to Q1 2017.

Sprint weighed $600,000 less in management fees in Q3 2017 as a result of the reduction in the net service revenues on which the management fee waiver is based. Also Sprint waived management fees related to billings on the unmet migrated nTelos customers for the first six months after the acquisition.

Other postpaid acquisition costs have risen by $700,000 as a result of recording a $500,000 write-down to the value of handset inventories and the $400,000 impact of Sprint not sharing the margin on accessory sales through national channels as they have done since January of 2016.

We're engaged in discussions with Sprint now about whether or not this was appropriate. Network costs have risen by $700,000 as a result of having 119 more cell sites on the air at September 30, 2017 than we had at the same time last year. Prepaid costs charged by Sprint to support the customer base have grown by $900,000.

Prepaid acquisition costs have risen by $2.5 million, as a result of Sprint’s increased spending to promote the prepaid brand. Finally postpaid service revenues have dropped by $3.3 million, despite the growth in postpaid customers as a result of the drop in average billing rates.

On Slide 14, I've shown the components of changes to Adjusted Cable segment waived. The positive changes include significant growth in high speed data revenues of $1.6 million, as a result of that 6.2% increase in average high speed data customers. Also the HSD customers are choosing higher speeds that carry higher service charges.

Voice equipment and other revenues have risen by $500,000 as a result primarily of sales of fiber, another favorable improvement to revenues with the decline of $500,000 in promotional credits and discount. Network and other costs of goods sold have increased by $300,000 as a result of increases in the cost to maintain the network.

Selling, general and administrative costs have increased by $500,000 due primarily to increases in advertising. At this time, I'll turn the call over to Earle to go into greater depth on some of the operating factors driving our results..

Thank you, Adele. Good morning everyone. I'll begin on Slide 16. At September 30, we had 952,563 subscribers. Starting this quarter, we no longer include Assurance subs to be consistent with Sprint. Of the current postpaid based 29% are still on subsidized price plans compared to 43% at September 30, 2016.

In the third quarter, we completed the migration of the nTelos customers to the Sprint platform. As of June 30, we had approximately 27,000 non-migrated postpaid customers. During the quarter, we migrated more than 15,000. At September 30, we still had approximately 4,000 subs that we disconnected and included in churn from Q3.

A few 100 of them came into our stores and migrated in October. Upgrades in the quarter excluding migrations were 7.2% of the base compared to 6.8% in Q2. Slide 17, shows the continuation of the positive trend we saw last quarter in our new area. The former nTelos area had 55% of the gross adds and increase of 13% from the same quarter last year.

Including the migration losses we had Q3 net loss of 4,710 with 2,878 net adds in our legacy area. If you eliminate the impact of the migration losses we had net adds 5,700. Considering we did not have a proactive marketing plan in the new area in Q3 this is a positive indicator of future sales opportunities.

We had a net loss of 1,388 tablets and data devices in the quarter as we continue to focus on net phone adds. Tablets and data devices represent approximately 7% of our postpaid base. We continue to have a negative port in versus port out ratio in the new area but trending positive.

In the legacy area our port in ratio the port out was in line with last quarter at approximately 1.3 to 1. We continue to see some impact of the Verizon unlimited plans. On Slide 18, you see the churn was up in the quarter. With the total market churn still impacted by migration churn. Excluding the migration churn the combined postpaid churn is 1.85%.

As we optimize the network and continue to add new coverage we expect churn in the new area to start to decrease in Q4 with churn moving down to the range of the legacy area over 2018. Revenue per postpaid subscriber was flat with Q2. The past three quarters have seen very consistent ARPU. Prepaid stats are on Slide 19.

Those prepaid adds were nearly 38,000 up almost 17% over the same quarter last year but down slightly from the prior quarter. We added 2,571 net prepaid customers in the quarter. Assurance customers have been removed from all the period shown. Slide 20 shows prepaid churn and average revenue. Churn is in line was the third quarter of 2016.

Average revenue has been reached without Assurances subs. As Adele mentioned we had an unfavorable out of period true-up from Sprint of $1.1 million in the third quarter reversing entries made in the first quarter.

The average revenue has been normalized to exclude the $1.1 million from both the first and third quarters, the dip in revenue in Q3 as a result of new all inclusive boost plans that include taxes. On October 2, we issued a press release that stated we had completed the upgrade of the nTelos network.

The chart on Slide 21 shows the completed status of the upgrade and decommissioning and we're on target have 60% with the expansion site done by year-end. We're still on track to stay within the $230 million budget we set in 2016 for upgrading and expanding the nTelos network.

Moving to Cable on Slide 22, we continue to see the benefits of focusing on broadband rather than video. We had a net increase in RGUs of 953 with a net gain of 1,495 higher margin high speed data users, 327 higher margin voice users and a loss of 869 lower margin video users.

High speed data revenue continues to grow much faster than data subs to 700 or more current users upgrading their speed package every month.

Slide 23, shows to continue trend of growing average revenue per RGU and customer due to higher current high speed data customers moving to higher speed packages and the annual video increase to cover the increase in programming costs. Slide 24, shows stats comparing the third quarter 2017 to the same quarter last year.

It details the trend of the shift from video to data and voice. Wireline stats are shown on Slide 25. We're seeing a slowdown in access line losses. It has been two years since we ceased requiring our regulated telephone customers to have a voice access line to get broadband.

We continue to see growth in high speed broadband users with the growth in cable modem which is available in over two thirds of our regulated telephone service area. Slide 26 shows a 15% increase in fiber revenue from the same period last year with the growth in both affiliated and non-affiliated revenue.

New fibers contracts signed in the third quarter were up over 70% from the same quarter 2016. My final slide is Slide 27, which shows our CapEx. We've revived our 2017 CapEx down from $155 million to $141 million. $8.5 million will roll into 2018.

$5 million was accomplished in 2016 and the remainder was reserved for success-based projects that won't be used.

Looking forward to 2018, we are still working on our CapEx budget, but we will need to finish the expansion sites in the former nTelos area, build sites in the Parkersburg, West Virginia, Cumberland, Maryland expansion area we've got to spread in April of this year and plan to expand cable plant into some adjacent areas.

We expect that 2018 CapEx will be in the $150 million to $160 million range. With the transformation of nTelos behind us, we are focused on expanding our wireless customer base especially in West Virginia and Southern Virginia. I will now turn it back to Adele..

This concludes our prepared remarks. [Attadia], would you now review the instructions for posing a question..

[Operator Instructions] We will go to our first question Mr. Rick Prentiss. Your line is open..

Great. Well first, Adele we've enjoyed working with you as well. We wish you the best of luck in Toledo with a new grandbaby. Earle, we’re glad to have you around for longer as you work through the stuff, so good bye to Adele and glad we got Earle for a little bit longer. A couple operational questions if I could.

First, I think one of the big things people are looking at is obviously the wireless nTelos markets and how you can ramp those up. It look like gross adds in the new markets were up year-over-year, but also quarter-over-quarter, but just modestly quarter-over-quarter.

Chris you mentioned biggest ad campaign in Shenandoah history, so how should we think about the productivity of those stores, the benefit of the advertising kind of what the trends in gross adds might be both in the new markets as well as some of that advertising going to help possibly in the legacy markets?.

Rick, this is Earle. We didn't really start the advertising until right at the end of the third quarter, so it really had no impact at all. So the fact that gross adds were similar to the second quarter is really wasn’t surprising to us because we weren't doing anything proactive and try to drive customers into the store.

We also realized that this is a combination of brand advertising and promotional advertising. So it's not designed necessarily to get people to run in the door day-one.

We will be adding some promotional advertising in the middle of the fourth quarter hopefully which will continue to have door swings, but we are seeing pickup in traffic in the new area as we have been running the brand advertising, explaining the increased coverage and the higher quality coverage.

So we're actually quite optimistic for gross and net adds in the nTelos area especially really up until September 30, we were still dedicating a tremendous amount of the efforts in the store for migrating customers. So it really is kind of a new beginning for us starting October 1 as far as gross adds.

We also didn't do any promotions other than what Sprint was running nationally or really much advertising in our legacy area for the third quarter.

We were basically keeping our powder dry for a bigger fourth quarter advertising, we're continuing not the same advertising, but continuing to advertise in the legacy area primarily focused on our great quality of network we had there for quite a while, talking about really our pricing advantages more than our quality of network there because as Sprint runs that why pay more for a network that's within 1%.

We don't run within 1% part in our legacy area because we believe our network is equal to better than. So we are expecting a good strong fourth quarter in both areas, but really kind of the first opportunity we've had to stretch our opportunities in the new area..

Okay, one month into the fourth quarter, so one month into that advertising campaign and as it's been noticeable say October over October year-over-year?.

Yes in the legacy area we have seen more I mean in the new area, we have seen more store traffic than we had a year-ago. But once again you have to – you can't just look at absolute door swings has a lot of door swings a year-ago where people coming again with the migration.

So we've tried to separate that out and when you look at kind of new folks versus new folks, we've definitely seen an uptick in the month of October..

Okay, and when Chris mentioned the biggest ad campaign in your history.

How should we think about the costs that are going to come into the fourth quarter from the beyond just Sprint advertising campaign?.

Well, we had budgeted I think about $13 million in the total year and we're going to stay within that. What you've seen as it's just been a little lumpy through the year, as we – this campaign that we're running in the new area is about $2 million.

So it's not half of the year, but it's significantly more than we've ever done and one quarter in the past.

So it will be up a little bit from the quarters, but if you take and divide that, we actually spent a lot of advertising dollars in the legacy area in the second quarter, because we wanted to try to get ahead of – for the year and saw that as an opportunity where other carriers weren't spending a lot of advertising in that quarter normally.

We decided to up our adds in the legacy area, so overall maybe a little bit of an uptick for the fourth quarter, but not significantly more than you've seen the other three quarters..

Okay, and on the Cable side, results continue to come in strong margins are getting better? How should we think of the trend lines there? It looks like you're close to getting an extra digit rounds to $10 million of you but in the quarter or so as we think of the trends there, it seems like still pretty strong movement from video to high speed broadband, which has better margins, but just help us understand what that trend looks like?.

Well, I think if you look really at the last three quarters, they've been pretty consistent. We’re having approximately 700 to 800 of our current broadband customers every month upgrade to the next higher speed, which usually represents about a $20 increase in their billing. And we do that as customers call in and have an issue with speed.

I think I've told this story before, but basically it's a recurring theme for us.

Customers who we've had for several years will call in, they'll say, my service is not as good as it was a couple of years ago? What's going on? You take the time to talk something about the number of connected devices they have in the home, the number of users they have and what we find in most cases over the last couple of years, the number of devices has exploded in their home that they’re using We will – what we do is we actually will give them a two speed upgrade for 60 days at no additional cost and tell them if they want to go back to their old speed, give us a call at the end of the 60 days, if not we'll start billing them for the higher speed and what we find is about 85% or more of those customers never call us back and so we still have the majority of our broadband customers are still at 5 in 10 meg and so we see a tremendous amount of continued upside from customers just demanding more and more speed and capacity in their broadband connection.

So I think if you look at kind of the trend we've seen for the last couple of quarters I think that's a good indication of what you're going to see for the foreseeable future..

Great. Thanks guys and best of luck up in Toledo..

Thank you, Rick..

Our next question is from Hamed Khorsand. Your line is open..

Hi, Adele, just a quick housekeeping question.

What was the temporary back office expense in the quarter?.

Temporary back office expense would have been given on Slide 11 and that was $1.2 million in the third quarter..

Okay. Missed it. And then one of the slides you guys are shown in the Slide 18, postpaid ARPU was stabilizing. Why isn't prepaid ARPU stabilizing the same manner..

Well, I have couple of things Hamed, this is overall. You remember that in the fourth quarter we basically stop counting or shorten the life of the time that we've covered a customer active when they were not giving us billing and so you saw that we dropped 24,000 customers and then – that was right at the end of the fourth quarter.

So far on an average basis it really didn't have much of an impact in Q4 but you do see in Q 1 it had a significant impact of increasing average revenue by taking out 24,000 non-paying non-revenue producing customers. We have also taken out all Assurance customers which has an impact on ARPU also.

But then in the third quarter Sprint has introduced a plan that looks a lot likes some of the other carriers where they've included the taxes in the fee and so if you were paying the same amount as you were last month but now it includes taxes obviously it's going to have an impact on revenue, because we don't include the taxes when we were quoting a revenue number.

And so it actually has been very stable because the vast majority of our customers and prepaid or boost customers which of the higher revenue customers. And so even though it shows a little bit of a wobble there from a customer standpoint it's been very stable.

I think you're going to see probably a little bit more of a decrease in ARPU in prepaid as more customers come on to the all inclusive plan for boost, but we're actually quite comfortable where average revenue is..

Okay.

And then in the CapEx commentary you said that there was – I think 6 million a success based CapEx that you're not going to see this year? What happened to that success that you were thinking would happen?.

Well, actually we've had the success we just haven't had to spend the money. I guess is the good news we always have to make an assumption especially on a fiber sale what kind of a build will have to do into a customer location or an extension in order to meet a customer’s need.

And not knowing exactly who those customers will be where they will need to build and really always been is that we didn't have to spend as much money to generate the same number of contracts. Because the fiber was closer to the customer than we expected or we were able to serve another customer that was already in a building.

And therefore it turned out to be a success for us in that we got the revenue without having to spend the dollars..

Okay.

And last for me is could you quantify the number of homes past you're looking to target for 2018 with the new CapEx program?.

We're still looking at that Hamed, but we're probably looking something between [2,500 and 4,000] additional homes. And these would be homes where we have determined there would be a very high probability of customers taking one of more services primarily broadband. So that we would see a corresponding growth in RGUs as we build them.

But once again there's always a lag between when you build something and you actually get the revenue. So we'll be building these extensions throughout next year not all of them will necessarily be in a position to generate revenue in 2018..

Okay. Thank you appreciate..

You’re welcome. End of Q&A.

I think that's all the questions that we have for today. Thank you for joining us on this call and thank you for your support over the last 10 years..

Again, ladies and gentlemen, this does conclude today's conference. We thank you for participation. You may now disconnect..