Good morning, everyone and welcome to the Shenandoah Telecommunications First Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jennifer Belodeau of IMS and Investors Relations for Shentel..

Good morning and thank you for joining us. The purpose of today’s call is to review Shentel’s results for the quarter ended March 31, 2018. Our results were announced in our press release distributed this morning, and the presentation we’ll be reviewing is included on our Investor page at on the 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; Earle MacKenzie, our Executive Vice President and Chief Operating Officer; and Jim Woodward, Senior Vice President, Finance and CFO. 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 now turn the call over to Chris now. Go ahead, Chris..

Good morning and thank you for joining us. Our first quarter 2018 results showed continued momentum as evidenced by improvement in both net and operating income, as well as revenue growth in two of our three business segments.

As we mentioned in the last quarter, we completed our transition of nTelos to the Sprint affiliate model ahead of schedule, which resulted in a significant reduction in operating expenses in the first quarter.

With our amended affiliate agreement with Sprint, we’ve expanded our wireless service territory to include a population of over 7 million in the Mid-Atlantic area.

We have focused on adding complementary markets and we believe our upgraded network and comprehensive service packages position us well as a leading telecommunications provider in all of the markets in our extended coverage area. We were pleased to hear of the signed agreement for the Sprint/T-Mobile merger.

We have long-held to believe that a merger of these two companies makes tremendous sense and is needed in order for there to be a stronger challenger to the market domination of AT&T and Verizon. We have been a successful Sprint affiliate for 20 years investing our capital to serve mostly rural markets and growing the Sprint customer base.

We have provided tremendous benefit to Sprint and we expect to be able to continue providing value as an affiliate of the new combined company. Of course, at this point, there are many unknowns regarding whether and when the merger will gain approval. And if so, whether the new entity will desire to continue our mutually beneficial relationship.

Our agreements provide for a process to be followed and Earle willreview that process later. We believe any outcome will be beneficial to Shentel and its shareholders.

It will be many months before these issues will be resolved, but in the meantime, we are continuing to focus on growing our wireless business and providing an exceptional experience for our Sprint customers. Moving to our results.

On Slide 5, you’ll see the first quarter net income significantly improved to $4.8 million compared to $2.3 million in the first quarter of 2017.

We saw a strong growth in operating income to $14.3 million in the first quarter, primarily related to the elimination of acquisition, integration and migration costs that were included in the first quarter of the prior year.

Adjusted operating income before depreciation, amortization, or OIBDA decreased 6.6% to $68.7 million, and revenues came down slightly to $151.7 million. Excluding the impact of adopting ASC 606 regarding revenue recognition, revenues would have increased by $2 million.

Included in our first quarter of 2018 results, were a couple of one-time expense items including a special 401(k) contribution to our employees, additional audit fees related to the 2017 audit and a tax assessment from West Virginia. Excluding these items adjusted OIBDA was $71.2 million.

Revenue decrease was also related to lower average revenue per postpaid wireless user, but was primarily caused by presentation changes related to our application of ASC 606, which Jim will walk you through later in this call.

Our Cable segment revenues improved by 9.3% as a result of video price increases to offset increases in programming costs, an increase in High Speed Data and Voice Revenue Generating Units or RGUs, and new and existing customers selecting higher speed data packages.

In addition, wireline revenues increased by 2.9% to $19.7 million as resolved the strong fiber sales. In our Wireless Highlights on Slide 6, you’ll see the postpaid customers are up 8% and prepaid customers increased 16.5% compared to first quarter of 2017.

Wireless adjusted OIBDA for the quarter decreased by 6.3% to $57.6 million reflecting the expected increase and operating costs as we complete our network upgrades and the impact of lower ARPU. Moving to Slide 7.

Revenue in our Cable segment increased 9.3% to $31.7 million primarily due to growth the High-Speed Data and Voice RGUs, video rate increases implemented in January 18 to fast new program and cost increases and new and existing customers selecting higher speed data packages.

In addition, adjusted OBIDA for the first quarter grew 26.2% to $11.7 million compared to $9.3 million in the prior year. Slide 8 profiles our complimentary fiber lease and mobile tower revenue streams.

As you can see, our fiber lease revenues increased 8.9% to $12.2 million and our 193 towers generated $2 in million in OIBDA from lease revenue, up 3.1% compared to the first quarter of 2017. As you know with Earle's plan is to retire, we have been actively working to find the right person to fill this critical role.

This effort continues and we’re optimistic that we will be able to find the right person and begin a smooth transition. We are very pleased with our strong start in 2018.

We believe our expanded market area combined with our upgraded networks, enhanced service packages and customer recognition of our reliable and consistent coverage position as well as provider of choice in our markets. The Shentel brand continues to gain market recognition for our robust network, and high-quality service options.

Qualities that are strengthening our leadership position allowing us to grow our market share. We’re excited about the opportunities ahead of us as we move through 2018. Now, I’ll turn the call over to Jim Woodward, our CFO to review the details of our financial results..

Thank you, Chris, and good morning everyone. Before I review the quarterly results, I’m going to begin on Slide 10 to discuss a few significant developments during the quarter. First, we adopted ASC 606 and I’ll review the impact in more detail later.

The headlines on this one are that we have some geography changes in our income statement, and we’re required to defer and amortize some expenses that were previously recorded as a period of expense. The impact on net income is positive, but by less than a $0.01 a share and the adoption of 606 did not impact adjusted OIBDA.

Also, during the first quarter, we saw an expansion agreement with Sprint and as a result, our wireless footprint now includes certain areas of Kentucky, Pennsylvania, Virginia, West Virginia adding 1.1 million POPs and 54,000 subscribers.

Finally, on February 16, and as we discussed during the Q4 earnings call; we amended our credit agreement with CoBank to reduce our interest rate, which we believe will save approximately $12 million of interest expense over the term of loan.

On Slide 11, we’ve shown our consolidated results and the impact of the adoption of 606, and I’m going to walk through the components of the change. On the left of the Q1 results prior to the adoption of 606 and in the last column on the right is our reported Q1 results including the impact of 606.

As I mentioned, the impact 606 with some geography changes on our income statement and the deferrable expenses. So, let’s review those, working from left to right.

The changes in the presentation column represent the reclassification of cost of goods sold and SG&A from an operating expense to a contra revenue account resulting in a reduction in revenue. The changes – as a result, the change and who is considered our wireless customer under 606, previously the Sprint subscribers were considered our customers.

Under 606, we have one wireless customer, Sprint. Amount to do our customer are classified as contra revenue, not operating expense under the new standard. These amounts represent national sales expenses and expenses reimbursable to Sprint for the acquisition and support of prepaid subscribers. The next column is equipment revenue.

Previously equipment revenue was recorded net, going forward will be present equipment revenue growth and a related expense and cost of goods sold. As you can see both of these items are geographic changes only and do not impact the financial results. The next column deferred cost does have an impact on net income.

Under the new standard were required to defer some commissions, handset subsidies, and installation costs or the expected life of the consumer – customer, previously these amounts were recorded as a period operating expense. The impact is not material and does not impact adjusted OIBDA.

In summary, the adoption of 606 had a small impact on net income as illustrated by the last column on the right. The primary impact of 606 was in our wireless segment, and on Slide 12 is an illustration of the changes.

As you can see on this table, as a result of the adoption of 606 wireless revenue for the first quarter included a reduction of $20 million of expenses payable to Sprint, our customer for the reimbursement of costs incurred thus for international sales channels, for commissions, device costs and to provide ongoing service to their prepaid customers in our territory, but also as well reported a corresponding reduction in operating costs.

Commissions were previously booked to the SG&A expenses, additionally we recorded $15.5 million of equipment revenue and cost of goods sold for the sale of devices under Sprint’s device financing and lease programs. Historically, equipment costs were netted and presented with an equipment revenue. Okay, let’s look at our quarterly results.

On Slide 13, we share the changes in our operating revenues and net income. Revenues for the first quarter of 2018 were $151.7 million compared to $153.9 million in 2017. Excluding the impact of 606, revenues increased $2 million driven by high speed data and prepaid service revenues.

First quarter consolidated operating expenses decreased by $6 million, excluding the impact of 606, operating expenses decreased by $1 million.

The decrease of $1 million is driven by the absence of $6 million on nTelos acquisition costs offset by $2.5 million of one-time expenses, higher prepaid acquisition cost of $1.5 million and higher network COGS of nearly a $1 million. Our operating income increased $14.3 million or 34% over the prior years’ quarter.

We recorded a net income of $4.8 million or $0.10 per share compared to $2.3 million or $0.05 per share in the first quarter of 2017. Excluding the impact of 606, Q1 earnings per share was $0.09.

Move to Slide 14, adjusted OIBDA for Q1 was $69 million compared to $74 million in 2017, representing an adjusted OIBDA margin of 45%, also on Slide 14 is continuing OIBDA, which includes the impact of the waived Sprint management fee.

The decline in adjusted OIBDA includes $2.5 million of one-time expenses including the $1 million special 401(k) plan contribution, $1 million higher than anticipated 2017 audit fees and a $500,000 tax assessment from West Virginia, which we are appealing.

As a reminder, when we acquired nTelos, Sprint committed to waive the 8% postpaid and 6% prepaid management fees up to $4.2 million a month until the total waive fee reaches $256 million. We provide the continuing OIBDA measure to ensure the divestitures are aware of the impacted waive management fees. We expect the waive management fee in 2022.

On Slide 15, is our first quarter adjusted OIBDA results by segment. To better understand the drivers of the change in OIBDA. On Slide 16, we provided a bridge between 2017 and 2018 Q1 wireless OIBDA. Wireless adjusted OIBDA declined $4 million from Q1 2017 to Q1 2018.

The revenue related impact on OIBDA was a decline of $1 million driven by the absence of nTelos revenues and a decrease in national device sales from Sprint. Offsetting these declines in revenue was an increase in prepaid OIBDA.

Also contributing to the decline in OIBDA with higher prepaid acquisition costs and increases in other expenses including network costs and the property tax assessment. On Slide 17, as a bridge of the drivers and changes in cable adjusted OIBDA.

Cable Adjusted OIBDA grew over $2 million quarter-over-quarter primarily as a result of increases in high speed data revenues. The left and high-speed data revenues reflect the changing habits of our customers as they consume more Internet base video, which requires higher speeds and greater data consumption.

Turning to our capital metrics on Slide 18, as of March 31, 2018, we had $824 million of debt outstanding and our leverage ratio was 2.95 times, well inside of our debt covenant of 3.75. Barring any significant acquisitions, we expect our debt levels and leverage to decline.

As a result of the 2017 Tax Act, the lower tax rate and accelerated depreciation on our capital investments, we do not expect to pay any cash, federal, or state income taxes in 2018. Now I’ll turn the presentation over to Earle..

Thanks, Jim and good morning. To expand on the point that Jim made earlier about February 1, expansion with Sprint, slide 20 shows the areas we picked up in that expansion. The new service area is shown in orange and covers 1.1 million POPs, almost half are in Lancaster County, Pennsylvania.

As we’ve shared previously, we spent $57 million to acquire the customers and the network from Sprint and will spend $56 million on improving and expanding the network over the next three years. These new areas are critical for filling in coverage gaps between our network and the metro areas of Philadelphia, Washington and Richmond.

The hash marked area in the western part of the map is potential area that we have no fill requirement. Shown on Slide 21, including the customers are picked up from Sprint from the February 1 expansion as of March 31, we had 774,861 postpaid and 250,191 prepaid for a total of 1,025,052 customers.

At the end of the quarter, 24% of our customers were still on subsidized plans down from 26% at year-end. Seven percent of our base upgraded their phone in the quarter, 98% were phones and 2% non-phone upgrade. Eight percent of the post-paid base are tablets or data devices. We continue to see growth of Apple watches.

We don’t know how sticky the watches will be, so it’s a one that came on at year-end 2017, received 90 days free service, so it’s too early to know if they’ll turn off. Slide 22 shows the components of change of our wireless customer base from March 31, 2017 to March 31, 2018. You see the 78,000 customers added as a result of the two expansions.

We gained 300 net postpaid and had nearly 14,000 prepaid. As you recall, we finished up the migration of the nTelos postpaid customers at September 30, 2017 and lost thousands of customers that didn’t migrate during this 12-month period. Slide 23 shows the gross and net activity for the first quarter 2017 and 2018.

We had good gross adds in 2018 compared to 2017, but lighter than we expected. We had good conversion rates when we got prospects into the store, but activity was light. The new Samsung Galaxy phone didn’t create the activity of previously new releases. This was similar to what we saw in Q4 2017 related to the iPhone.

We continue to have a positive port-in versus port-out ratio at 1.34 to 1 for the first quarter of 2018. Churn was in line with our expectation, but with lower gross adds, our net loss for the quarter was 79. We had a net gain in non-phone devices led by Apple watches, therefore giving us a net loss of 230 phones.

Interesting - the net loss in phones was entirely made up of non-smartphones. Postpaid churn showed on Slide 24 for the quarter was 1.89%, continued to improve with the churn in the core of our legacy area at less than 1%. Phone churn was 1.27% and non-phone churn was 3.6%.

Postpaid ARPU was $43.22 for the quarter and included some non-recurring adjustments and promotions. Moving to Slide 25, we have a terrific prepaid quarter with gross adds of 40,111 and net adds of 8,678 up 7% from the same quarter last year. Our entire net gain this quarter was Boost customers.

The primary reason for the improvement were the expansion of Boost stores throughout our service area and investment we made in local Boost advertising. With the narrowing of ARPU between postpaid and Boost along with the prepaid cost structure, we’re very comfortable with prepaid becoming a larger percentage of our total customer base.

When Sprint was buying wholesale off the nTelos, the wholesale rate didn’t make it prudent for Sprint to push prepaid. So, we’re seeing a lot of prepaid potential in those areas.

An interesting trend that’s been for those prepaid customers that do port their phone numbers is that the largest porting group across our entire service area are T-Mobile postpaid customers. Looking at Slide 26, you see that prepaid churn is down, which had a significant impact on our great net adds.

Prepaid ARPU is down slightly this quarter due primarily to Sprint offering a one-month free Boost promotion during the quarter. Before I move to cable, I’d like to take a moment to share with you some information on our plans for new stores and some recent great news we got from RootMetrics about our network.

Two of the key important components for success in wireless are great network and distribution. As of September 30, 2017, we had 141 postpaid branded stores and 117 branded Boost stores. By year-end, we expect to have a 170 branded Sprint stores and 152 Boost stores, a 21% and 30% increase respectively from the end of the third quarter of 2017.

Another exciting development consists of results we got from RootMetrics for the second half of 2017. RootMetrics informed Sprint that they had achieved a number one ranking for their first state. It was West Virginia, where we serve the entire state except for the Wheeling area.

Prior to our network upgrade and expansion, AT&T had the dominant network in West Virginia. We tied AT&T for overall performance, network reliability and call performance and were the outright winners for texting. This is all very exciting when you consider that we won’t finish the expansion of our coverage for West Virginia until late this year.

We have to assume that if RootMetrics did separate testing for Western Virginia, with our similar approach to building the network, we would rank number one there too.

Moving to Cable on Slide 27, we have a net increase of 353 RGUs, continuing our transformation to broadband, we added 1,223 high-speed Internet users, 198 voice users and lost 1,058 video users. the video losses were fewer than expected considering the large price increase we had in January to pass on the higher programming costs.

In February, we did a speed role for all of our 15-meg and higher residential customers. we eliminated the 15-meg speed option and gave those customers 25 meg at the 15-meg price. We did a similar role for our 25, 50 and 101-meg users. Now, 101-meg users, which represent about 1% of our base were given 150-meg speeds at the former 101-meg price.

As you’ve been imagining, we have some very happy customers. No changes were made to our 10-meg and below users.

Slide 28 shows the continued improvement in average revenue per RGU and customer driven by 750 to 1,000 of our broadband users upgrading their speed every month and the video price increase we had in January to offset higher programming costs.

529 is another view of the data shown on a prior slide including the penetration of homes passed by each service, as expected increases in high speed internet and voice with a decrease in video. Our wireline stats on Slide 30 shows a slowing of access line loss to only 2.2% in the past 12 months.

We continue to add broadband customers with service revenues remaining constant. Over the next few years, we’re going to migrate all of our DSL customers in our cable footprint, cable modem and we’ll use the copper network in our cable footprint for voice only. Fiber lease revenue and sales are shown on Slide 31.

We continue to see growth in both affiliated and non-affiliated lease revenues. We did have lower fiber sales in the first quarter of 2018, but had a very strong April and expect total fiber sales for 2018 to exceed 2017. My last slide, slide 32 is CapEx for 2018. It hasn’t changed from the amount shown on our year-end call just a few weeks ago.

Before I conclude, let me summarize how the Sprint/T-Mobile merger will impact Shentel. There’s a waterfall of events. First, Shentel agrees not to file an injunction to try to block the merger. Assuming the merger gets approved upon the closing of the deal, the New T-Mobile will have 60 days to decide if they want to buy our wireless business.

Not all of Shentel, just the wireless subsidiary, not the towers or our fiber network. If they do decide to buy our wireless business, there’s a formula that should provide to our shareholders a very handsome return.

If they choose not to buy our wireless business, Shentel will remain an affiliate of the New T-Mobile and for the next 180 days, we have the option to acquire the T-Mobile customers and network in our 7 million POPs service area at 75% of the value of the customers and asset as determined by the merger value.

If we can’t finance the purchase, then the New T-Mobile will finance the purchase at their cost of capital for up to five years. If Shentel decides not to buy T-Mobile network and customers, then the New T-Mobile must turn off the T-Mobile network that overlaps Shentel within two years.

As Chris said at this point, we’re not going to spend a lot of time speculating, but we’ll continue to stay focused on running our business. I’ll now turn the call back to Jim..

Thank you and we are ready for – operator, we’re ready for questions..

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

Can you hear me okay?.

Yeah..

Yes..

Okay. Hey, a couple of questions. first, appreciate the color on the one-time items; we were kind of curious about that.

The 401(k) contribution is that something that we should think of happening annually and on the property tax assessment, was that related to towers or what exactly is it, and was it property tax?.

So, reverse order property taxes whether it was related to towers location and it was kind of an unexpected surprise, that’s why we’re healing it. We’re just not sure where it came from, but we are – occasionally the states localities will be looking for some revenue and come up with a surprise assessment especially on businesses..

In the 401(k) plan, no that’s not – I don’t expect that to be an annual event. That was a one-time thing. I don’t believe, maybe Shentel has done something somewhere in the past, but I think it's very rare and infrequent.

But, it was just a way to thank our employees for the hard work that they had put in, over the course of the last couple of years, helping to grow the business..

Great. And then operational question. It’s been a long time since I remember seeing any negative net phone adds for you guys. Earlier you talked a little bit about the gross ad pool is kind of light and opening up the new stores, it could help it, help us understand a little bit of what you're seeing in the industry.

Has there been any affect from cable competition, now that they're coming into the space, and was there any impact Sprint I think last night mentioned, that they had migrated some customers from prepaid to postpaid, both in the base and within their reported quarter and did you have any of that?.

I’ll start answering your questions; if I miss one, re-ask it..

Okay..

First question on, did we see any real shift from our impact on cable, the answer is no. Within our footprint, there is actually less than a thousand customers that we can identify from any porting activity.

So, we really have not seen although, there is a lot of Comcast cable in our area, there really hasn't been any impact from us as far as they’re taking any customers – meaningful customer from us and that's less than a 1,000 since they began.

As far as a shift between prepaid and postpaid, once again we did not see that in the quarter, I’m sure there was some, but there wasn’t enough that really measured – that we could measure it, and so I don't really see that as a primary issue.

The real effect – we had good activity relatively speaking, but from what we expected especially since this is our first quarter of selling both in the nTelos footprint and our legacy area, we expected higher gross adds than what we got. But, it really got down to door swings, and people coming into the store.

We really saw very little impact maybe not much more than a weekend, on the introduction of the Galaxy 9, and that was disappointing for us. But, really not terribly surprising compared to what we saw for the iPhone in the fourth quarter.

And we are still seeing some impact of the Verizon unlimited, now that has held down I think some folks who would have shifted in the past, but we’re still building the brand in the nTelos area. We have very good gross adds in legacy. We're not seeing any deterioration there.

We just didn't quite see the pickup in the gross adds in the nTelos area that we anticipated..

Any change to the advertising campaign or is it really just getting the doors open with both the Sprint branded and the Boost?.

Well, if you think about it, there are so many areas in our nTelos area where for 15, 20 years there's been no wireless service from nTelos/Sprint, and now we actually have service there and those people who have been hearing advertising for years are not going to all of a sudden say “gee whiz, now I have it in my neighborhood”.

So, we really are focusing, we started it in the first quarter, we're continuing into the second and third quarter, we're happy actually do very, very localized marketing using things like yard signs and door to doors hangers to let people know that you've been hearing the national advertising for years and years, but actually now you have an option to change to Sprint.

And we've had some good success stories from that initial areas where areas where there have been one or maybe two other carriers and we've gone in there provided good coverage now that we're expanding our coverage get the word out to the customers, and we're starting to make the sales. So, we're very optimistic that it's coming.

It's just it takes a long time to change perception even when reality is there..

Makes sense. And last question for me, obviously, Chris, you mentioned how it could be many, many months to resolve Sprint and T-Mobile. One thing that might be a little quicker to understand is your desire and Sprint’s desire to increase the turf that they assign to you, but that might also get delay just because they can't focus on it.

So, just wanted an update maybe on what you're thinking about the ability to replicate some of the turf expansions with Sprint particularly given the merger on the table..

Ric, I’ll take this. This is Earle, I'll take that question since I'm the one who has most of those conversations with Sprint. There is still interest on both parties for us to continue to expand. This is kind of a unique relationship where it truly is a win-win, and the two expansions that we've done, I think is kind of a testament to that.

You know, obviously there's a lot going on in Kansas City, and Seattle. And although we were in the middle of some discussions, we both agree that it was probably prudent to pause for a short period of time at least and give everybody a chance to kind of catch their breath.

But, I think that when you look beyond the areas that we've been talking about taking from Sprint or areas where T-Mobile doesn’t have any coverage either. So, I think that once we have an opportunity to continue these discussions, I think there is an opportunity for us to continue to expand..

Great. Thanks for taking the question guys..

Thank you. Our next question comes in line of Amy Yong from Macquarie. Your question please..

Good morning. I guess two questions, obviously one following up on the T-Mobile/Sprint merger. It looks like Sprint is actually shifting their strategic focus, they’re a little bit more focus on profitability. I think they're calling for churn to be slightly more elevated.

Can you just talk about the impact to your business as this merger continues or as it goes through the kind of the approval process, what we should expect from kind of an operational standpoint on the Sprint, and how Sprint is going to impact your operations, I guess.

And my second question is, I don't know Earle if it's too early, but if you could talk about some of the operational side you're seeing in the new expanded area Kentucky the one that you’ve singed in February? Thanks..

Okay. Well, as far as, yes Sprint has announced that they are planning on pulling back on the old promotions that have been out there beyond when they were actually promised. And they have said that they believe that churn will pick up when they start taking those promotions away.

We've actually been on the forefront of that and encouraging them to do that for quite a while, and we believe that that's very important for the long-term health of the business is for us to start to see some improvement in ARPU. And there are a lot of promotions that are running through revenue today.

But, the thing it's important to understand is that the way Sprint accounts for all promotions is basically as contra revenue. So, even if you do a BOGO on a phone, the second phone the cost that second phone is running through revenue and so that's impacting our ARPU.

We believe because of the quality of our network that if they do start pulling back the promotions that we don't expect to see any significant impact on our churn. They'll be some, but nothing that – we will more than happy to take any minor amount of churn impact to get the average – the increased average revenue up.

So, we actually have been very supportive of that and hope they will continue through with that in spite of the merger. As far as kind of the day to day operations, we're continuing as I said earlier, we're continuing to focus full speed ahead.

We're going to continue to, you know every plan that we had in place for 2018, at this point we're going to continue to follow that through with that whether it's constructing our network, whether it's opening stores, whether it's making an investment in local advertising.

We think that it's absolutely critical for us to continue to act as the merger is not happening, and not have our employees get sidetracked by thinking about that. So, that's kind of our plan.

When you look at the new expanded areas, it's a little early to see any significant impact, I can tell you that the one place where we have been able to see some impact has been in Lancaster County, Pennsylvania. Sprint had done a pretty good job of building the eastern part of that service area.

But, really the deficiency is the areas next to us in the western half of the county. But, we have – we put some resources in to supporting the dealers that are in the eastern part of that service area and we're seeing productivity from those stores improve almost overnight.

And so, I think it's a combination not only of focusing on getting the network upgraded, but also providing more support to these dealers that are in these outer markets for Sprint, but not outer markets for us.

And therefore, we’ll provide a lot more care and feeding than Sprint was able to do in the past and I think that we’ll see improved productivity out of those stores.

Really, we’re not going to see much out of even the first edition until next year, because we’re just not going to spend a lot of money trying to advertise and push new customers until we have a network that’s really competitive..

Does that answer your question?.

Yes. Thank you..

Thank you. Our next question comes from the line of Hamed Khorsand from BWS Financials. Your question please..

Hi. So first off, I just want to ask what are the changes as far as the OpEx is concerned with these expanded markets and it sounds like you’re not getting as much traction with new customers or you haven’t really tried to.

Is the OpEx increase or the implied increase going to be more than what you were expecting initially?.

Hamed, this is Earle. The answer is no. I mean basically when we acquired those customers, they were somewhat EBITDA or OIBDA neutral that we were collecting enough revenue from those customers to pay the operating costs of running the network, really was it much after that, but enough to cover it.

We’ve always said that there would be somewhat of a lead lag and I think we’ve actually given the numbers before. Bringing up a new site costs us about $5,500, $5,600 per month for the tower lease, for the backhaul, for the electricity, for the maintenance of the towers.

We will have in this year and the beginning of next year in the nTelos area and in both expansion areas, there will be this lead lag, where we’ll have to bring up cell sites, started incurring the $5,500, $5,600 a month and then we’ll be able to start adding customers.

And so that’s the reason why we we’ve said in the past that although you would see a decrease in the one-time cost that you would have from the transformation of nTelos at least in the near-term, those costs would be basically replaced by these increased costs of our operating the network until we were able to get it built and then start marketing and adding customers.

So, it really – you have to really think about it as invest and then harvest, which has really been our pattern for many years, whether it was in the cable business, whether it’s nTelos. This is the kind of business where you’ve got to make the big investment up front.

You’re going to incur the CapEx and some OpEx, and then you’re able to build the customer base to be able to cover those costs and create value for the shareholders..

Okay. And then my other question was on the video side for cable TV.

How much of the losses that you’re incurring, is that coming from just the solo subscriber versus bundle? How much from percentage standpoint, I mean are you – is the mix between bundle and solo as we go into the second quarter now?.

To answer your first question, we’re not losing anything but the video, either these are video only customers or even if they leave us for the video. They’re doing one of two things or either going over the top and they’re buying a bigger broadband pipe in order to get that over the top experience or they’re going to the satellite providers.

But, they’re leaving their broadband and/or phone with us. So, we really are not seeing a loss in other services, because of it, because we do provide the best broadband experience and we provide the best value for phone. So, it really doesn’t make sense for the customer to take their video.

I think the reason why you’re seeing fewer video losses than we had expected is because of our bundling effect. The way you need to think about it Hamed, is you buy broadband from us, you pay the retail price. You buy one other services from us, we take $20 off that first service.

If you buy three services from us, and we take $30 off or $10 off the second service for a total of $30. So, even with somebody’s thinking about getting rid of their video, they’re going to reduce their discount.

And so, I think that’s really actually been part of the reason why we’ve held on to customers is because when they’ve looked at their total bill even though their price of their video has gone up losing that discount doesn’t make it attractive to go the other place other way.

I would say, we have probably out of the 77,000 customers, I’m going to give you an approximate number, because I don’t have it right here in front of me.

But, out of those 77,000 customers probably about a third of them are a single service and then virtually, all cases that these are going to be video from customers we’ve had for a very, very long time, who are never going to be broadband and voice customers, or their broadband customers only.

With an average RGUs per customer of 1.7, you see that good portion of our customers have more than one service for us to be at the 1.7. If you had asked me this question several years ago, our goal was to get that above two, but realistically with a change in the video patterns, we believe that in the high 1.x ratio is as good as it’s going to get.

And you can see what’s happened for profitability just from this continued focus by ourselves and the customer on broadband versus video..

And my last question is a number of homes passed basically, has gone to almost nothing from an increase standpoint.

So, is it really just all about costs and any plans to expand further or not really just because it’s you can’t go any further than this?.

Well, we actually have in this year’s capital budget dollars to pass an additional 2,000 to 2,500 additional homes. We actually got some construction going right now to do that. So, these are edge-outs that we’ll continue to look at when it makes financial sense.

Actually, we are willing to spend more money today than we were several years ago to pass a home, because of the high profitability we’re seeing in our broadband business. So, some areas that were not financially viable several years ago, we now have put back on our list of markets to look at.

The other thing that we’re evaluating right now is that there is CAF II auction coming up later this summer, where the government is going to provide some funds to provide broadband, where there is no broadband today and we are looking at various areas within our overall footprint, where it makes sense for us to go into that reverse auction and potentially get some funds from the government to build out additional areas.

We’re constantly looking for positioned opportunities, but the bottom line is that just hasn’t been any. We will continue to look for those and if there are any that make sense for us, we certainly will go after them. But, at this point, there just hasn’t been a lot of activity in the M&A area for cable..

Okay, thank you..

You’re welcome..

Thank you. And this does conclude the question-and-answer session of today’s program..

So, thank you everyone for joining us for our call and we look forward to keeping you updated on our progress. Have a good day..