Good morning, everyone. Welcome to the Shenandoah Telecommunications' Third Quarter 2019 Earnings Conference Call. Today's conference is being recorded.At this time, I would like to turn the conference over to Mr. John Nesbett of IMS and investor 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 third quarter ended September 30, 2019. 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 this 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 Chris French, President and Chief Executive Officer; Dave Heimbach, Executive Vice President and Chief Operating Officer; and Jim Volk, Senior Vice President Finance and CFO. After our prepared remarks, we will 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 reminds you that this conference may include forward-looking statements subject to certain risks and uncertainties.These may cause actual results to differ materially from the statements; hence, I'll provide a detailed discussion of various risk factors in our SEC filings, which you're 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 statements.Okay, with that, I'll turn the call over to Chris now. Go ahead, Chris..

Thanks, John. We appreciate everyone joining us this morning. In the third quarter, we continued to generate strong free cash flow across our business segments, enabling us to both invest in growth and return value to our shareholders.As you see on Slide 4, Shentel generated $86.4 million of free cash flow for the 9 months ending September 30, 2019.

During the same time period, we have invested approximately $17 million for 2.5 gigahertz license spectrum to be used for our new fixed wireless broadband offering, $10 million for the acquisition of Big Sandy Broadband and $9 million into our new Fiber-to-the-Home business initiative.In addition to these growth investments, we repaid $45 million of our term loan, moving us down to the lowest interest rate tier on our debt facility and lowering annual interest expense by $1.8 million.

Highlighting our commitment to shareholder returns, earlier this week, our Board of directors approved a cash dividend of $0.29 per share. This reflects a 7.4% increase over the prior year and marks the 7th consecutive year of an annual increase. It is also Shentel's 59th consecutive year of dividend payments.

In addition to the cash dividend, our board authorized $80 million for our first share repurchase program. We expect this program to execute over the next 12 months as market conditions warrant.During the third quarter, we've continued to execute on our growth strategies.

We had record wireless postpaid net additions of approximately 11,700 in the quarter. This week, we launched in Harrisonburg, Virginia our Fiber-to-the-Home business that we have branded Glo Fiber.

Both of these milestones are leading indicators of the long-term growth we expect in the coming years.Dave will speak in more detail about our operating results later in the call.

Despite these recent achievements, the continuing dispute over the travel fee with Sprint has significantly contributed to uneven financial results this quarter in our wireless segment.

As we discussed during our last earnings call, the travel fee is to be reset every three years based on our and Sprint's respective cost per minute of voice usage and per gigabyte of data usage and the roaming traffic of Sprint and Shentel subscribers using each other's networks.While we had several negotiating sessions with Sprint over the past 90 days, we cannot find common ground for an agreement, and we initiated the dispute resolution process of arbitration.

The arbitration proceedings are confidential, so we will not be able to make any public comments regarding them other than we expect a resolution by early 2020 and any owed amounts will be recognized and paid retroactive to May 2019.Before I turn the call over to Jim to review our financial results, I'd like to comment on the status of the proposed merger of Sprint and T-Mobile.

With the Department of Justice settlement and the FCC's approval in October, the long pole in the tent appears to be the lawsuit to block the deal by more than a dozen states.

The lawsuit is scheduled to go on trial -- go to trial on December 9 and is expected to last two to three weeks.A ruling is expected to fall in the first quarter 2020 and clarity on our wireless segment could happen by the summer of 2020, if the merger is approved. As discussed on prior calls, our Sprint affiliate agreement provides multiple options.

And if the merger goes through, we will work toward obtaining an outcome in the best interest of our shareholders.With that, I'll now turn the call over to Jim to review the details of our financial results..

Thank you, Chris, and good morning, everyone. Now turning to the financials, please refer to Slide 6. Consolidated revenue was $155.2 million for the third quarter 2019, compared to $158.7 million in the third quarter of 2018.

Consolidated adjusted OIBDA for the quarter was $62.8 million, compared to $69.5 million in the same period of last year.Operating income decreased $2.9 million to $25.4 million versus $28.3 million in the third quarter of 2018.

Net income for the quarter was $14.4 million or $0.29 per diluted share, compared to $15.5 million or $0.31 per diluted share in the prior-year period.

As Chris referenced earlier, the declines in consolidated results were adversely driven by the continued dispute of the travel fee with Sprint in the wireless segment.In our wireless highlights on Slide 7, wireless operating revenues for the third quarter 2019 decreased $5.7 million to $110.4 million as compared to $116.1 million in the prior-year period.

The decline in revenue was due to a $4.5 million decrease in Sprint travel revenue and a $1.1 million decline in subscriber revenue.

We did not recognize any travel revenue in the third quarter due to the travel fee dispute.Subscriber revenue declines were due to a combination of lower postpaid ARPU of $1.67, due primarily to promotional from discounts, higher contract asset amortization expense from higher gross adds over the past year, higher bad debt write-offs, partially offset by an increase of approximately 38,000 postpaid subscribers.When we adopted the new revenue recognition pronouncement, ASC 606, certain expenses, including bad debt and contract costs like commissions are reported as contra revenue.Adjusted OIBDA for the Wireless segment decreased $6.8 million to $50.9 million in the third-quarter 2019, compared to $57.7 million in the prior year period.

In addition to the revenue declines of $5.7 million, tower rents expense increased $2.8 million from lease escalators and 132 more cell sites at September 30, 2019 versus the same date a year ago, partially offset by a $1.7 million decline in lower advertising expenses.

Included in our wireless segment is our tower business.We own 221 towers, with a ratio of 1.7 tenants per tower as of quarter end.

Tower revenue grew 3.3% to $3.1 million, and adjusted OIBDA grew 11.8% to $1.9 million for the third quarter of 2019.Moving to Slide 8, revenue in our Cable segment grew $2.9 million or 9.1% to $35.1 million in the third-quarter 2019, driven by an increase in RGUs from a full quarter of Big Sandy results and an increase in ARPU per RGU.

Cable operating expenses increased $2.5 million year-over-year due to $800,000 in Fiber-to-the-Home expenses, $800,000 in higher maintenance expenses, higher sales and marketing expenses of approximately $600,000 and higher programming expenses of approximately $200,000.

Cable adjusted OIBDA for the third quarter grew 4.9% to $12.5 million, compared to $11.9 million in 2018.Excluding the start-up cost of the Fiber-to-the-Home initiative, our cable adjusted OIBDA growth and margins would have been approximately 12% and 38%, respectively.For our wireline results on Slide 9, we continue to see strong growth of our cable franchise in Shenandoah County, and our fiber enterprise business with year-over-year revenue growth rates of 18.3% and 8.9%, respectively, offset by an 8.3% decline in the RLEC business.Overall, wireline revenues of $19.1 million and adjusted OIBDA of $8 million decreased primarily due to the timing of the annual true-up of RLEC regulatory support funds from the Universal Service Fund that we received in the second quarter of 2019, but received in the third quarter of 2018.Turning to our balance sheet on Slide 10.

As of September 30, 2019, we had $741 million of debt outstanding, with an average interest rate of 3.63%. Our cost of debt declined by 25 basis points starting in September, after our net leverage declined to the lowest threshold level in our senior secured credit agreement.

Our net leverage ratio was 2.56% using annualized third quarter '19 adjusted OIBDA. As Chris mentioned earlier, we prepaid $15 million of our term loans in September, in addition to scheduled amortization.We ended the second-quarter 2019 with $172 million in liquidity, including $75 million in available revolving line of credit.

Our strong balance sheet, cost of capital, and cash flow generation will be a key advantage in growing our business long-term.Now I'll turn the call over to Dave..

Thanks, Jim, and good morning, everyone. I'll start by going over some of our operational highlights from the third quarter of 2019. On Slide 12, we show the key metrics of our postpaid wireless business.

We had approximately 823,000 postpaid subscribers at the end of the third quarter.Net ads for the third quarter 2019 were approximately 12,000 for postpaid, compared to 5,000 in the third quarter of 2018.

The incremental net gain year-over-year was driven both by record phone additions and record IoT device additions on the strength of terrific execution of our local marketing programs and at point-of-sale in the field across both owned retail and third-party distribution.Postpaid churn rose 15 basis points year over year to 1.99%, with approximately one-third of the increase due to line-level churn in response to promo roll-offs.

And one-third of the increase was due to account level port outs to Verizon as a result of their new unlimited plan pricing and some XFINITY Mobile ads, and the remainder of the increase was a combination of IoT churn and some one-time events.In contrast, gross additions increased 26% year over year by over 12,000 with phones representing 77% of total postpaid activations and up 16% versus the prior-year period.

As Jim already mentioned, postpaid ARPU declined approximately $1.67 year-over-year, driven primarily by Sprint promotional discounting and to a lesser extent, the increase in the mix of IoT devices in the base.This quarter marks the 8th consecutive quarter we've enjoyed a positive port in to port out ratio with a 1.2 to 1 ratio for the third quarter of 2019.

We also continue to increase our retail presence and finished the quarter with 169 Sprint postpaid branded doors, an increase of almost 7% year-over-year.Lastly, 7.2% of our postpaid base upgraded their device in the quarter and 11% of the base was comprised of tablets and data devices.

Moving to Slide 13, we had approximately 272,000 prepaid subscribers at the end of the third quarter.

Prepaid gross and net ads were just over 38,000 and 2,500, respectively, for the third-quarter 2019, with gross additions consistent with the prior-year period.Third quarter prepaid churn dropped 24 basis points year-over-year to 4.38%, while ARPU increased $0.61 as the mix of our prepaid subscribers on the Boost brand remained at roughly 90% of the total prepaid base.

We increased our Boost door locations by 12% year-over-year to 163 doors as some of the trepidation we sensed from our prepaid dealers that we commented on in the second quarter appeared to be subsiding by Q3.Turning to Slide 14 and our Cable business.

We note that we changed the calculation of bulk RGUs to conform to public company cable industry peers. A reconciliation to the prior RGU calculation methodology is provided in the appendix of the presentation.

In the third-quarter 2019, total RGUs grew 2.5% to approximately $150,000, compared to approximately 146,500 in the prior year.We added roughly 1,600 net broadband RGUs in the quarter through organic growth and are pleased to report that our broadband penetration increased from 37.3% in the third quarter last year to 40.1% this quarter on the strength of our new broadband speeds and rate card.

Average revenue per RGU grew 4.6% year-over-year to $68.50, driven by a combination of broadband speed upgrades and annual video price increases.Over 92% of homes passed in our cable markets are now capable of broadband speeds of up to 1 gig per second, with approximately 46% of our base in the upgraded areas having migrated to the new PowerHouse branded rate card.

The speed upgrade is a new rate card we launched roughly one year ago, in addition to more recent investments and improving service in our contact centers and field operations teams are all serving to improve customer satisfaction, reduce churn and construct a deeper competitive moat in the cable markets we serve.In fact, we saw a 34-basis-point reduction in broadband churn this quarter as compared to the third quarter in 2018, while the average subscribed speed increased 129% year over year to 55 megabits per second.

Last quarter, we announced our plans for the launch of a new Fiber-to-the-Home initiative called Glo Fiber, which will be capable of multi-gigabit symmetrical speeds over 100% ultra-low latency fiber optic network.We noted that while Shentel has operated various flavors of Fiber-to-the-Home networks for years, this exciting new fiber Edge Out initiative will leverage the depth of our growing regional fiber network, the strength of our existing municipal and commercial customer relationships and our strong heritage in the region as a local service provider.On Slide 15, as Chris mentioned in his opening remarks, we are pleased to report that just this week, we've commercially launched Glo Fiber in our first few neighborhoods in Harrisonburg, Virginia, and expect to begin offering service in Winchester, Virginia by the end of the year.

With these first two markets, in addition to construction we've begun in Front Royal and Stanton and construction slated to begin in the first quarter in Salem and Lynchburg, Virginia, we anticipate passing roughly 60,000 new residential and commercial addresses over the next few years.We're also making great progress toward our goal of launching a new fixed wireless broadband offering in the second half of 2020, targeting roughly 300,000 rural households across portions of Virginia, West Virginia and Southeastern Ohio, where we recently completed the acquisition of between 50 and 90 megahertz of 2.5 gigahertz spectrum.

We will continue to update you on status of both our Glo Fiber and fixed wireless initiatives as we progress in our build plans at launch of commercial services over the next several quarters.Finally, Slide 16 provides an update to our 2019 capital spending plans.

Capital expenditures were $107 million at the end of the third-quarter 2019 as compared to $92.3 million in the same period last year.

The increase is primarily related to a $6 million increase in spending in the Wireless segment to support the continued expansion of the network in acquired territories, and an $8.7 million increase in the Cable segment spending related to the launch of our Fiber-to-the-Home initiative.

Our 2019 capital spending guidance is $153 million, the same from prior quarter after excluding spectrum purchases that are shown separately in our cash flow statement.Thank you very much. And operator, we're now ready to take questions..

[Operator Instructions] And our first question comes from Zack Silver with B. Riley FBR. Your line is now open..

Okay, great. Thanks for taking the question. The first one is just on the postpaid ARPU versus some of the -- the postpaid to ARPU dipped in the quarter, but you also mentioned that some of the churn was due to some line-level churn from promotional deals expiring.

So I'm just trying to reconcile why there would have been such a big dip if you did have some of those promotional lines coming off?.

Sure, Zack. This is Dave. I think the biggest driver that we're seeing in postpaid ARPU declines really relates to the migration or shift that's under way in the base with respect to folks that were on legacy unlimited rate plans that are churning.

And those subscribers that are coming on to new unlimited rate plans, but enjoying some pretty heavy promotional discounting attributed to those new unlimited rate plans as they come on.And the mix shift is really the principal driver of the ARPU decline.

And that's primarily as a result of handset financing promos that Sprint is offering to incentivize new subscriber additions. So that mix shift is really the -- it's probably three quarters of the decline. And I would say that the IoT mix shift is probably the balance..

Got it, thank you. And then just to follow-up.

Just on the -- I mean on the travel side, I know that you can't say much, but I mean is it -- and I think I asked this last quarter, but is there anything to read into your relationship with Sprint with this or is this just something where maybe they're distracted with the T-Mobile merger and can't get around to it? I guess anything that we should read into about your relationship with Sprint in this travel dispute?.

No, Zack. There's nothing to read into it. We've had, through the years, a number of different things that we've had disputes on.

This one was one that through -- while we were having constructive negotiations, as we reported to you, even most recently at your conference in New York, we just felt like we had reached a point where we needed to take it to the next step as provided in our agreement..

That makes sense. And then one more if I could. Just on -- you mentioned that Verizon is getting -- has gotten a bit more promotional. Anything on the other carriers, AT&T with the FirstNet rollout, or Kemo, I guess, they rebranded some of their plans.

And also, I mean have talked about deepening their deployment of 600 megahertz?.

Right. No, the big one that stands out for us in the quarter is Verizon. That's the big shift we saw, particularly toward the end of the quarter, just in terms of increased churn versus the trends we've been seeing.

And again, it was primarily related to the discounting of their unlimited rate plan and to a lesser extent, and this one's a tough one for us to understand in super concrete terms, we think some of the activity related to Comcast entering into the market..

Got it. Thanks, Dave..

[Operator Instructions] Our next question comes from Hamed Khorsand with BWS Financial. Your line is now open..

Hi, good morning.

So just to follow-up on those -- that comment right there was are you able to match that discounting and how much would that hurt in your forward ARPU?.

Yes, Hamed, this is Dave.

We -- as I think you know, we operate off of the Sprint national rate card, and we think that we have a really compelling value proposition in our markets, given the strength of our network, the strength of our service and distribution and believe that we certainly represent a far superior price value equation to Verizon, certainly, in our footprint.

But as a -- and look, let me spell it out for you, it's less than 5 basis points of total churn we're talking about as the increase here out of 199 basis points. So it's nothing, no sky is falling thing. It's just a way to explain some of the variance we saw in the quarter..

Okay, got you. And then as far as the trends you're seeing on the postpaid side, I mean you're continually seeing over 10,000 net ads in the postpaid wireless. And is there something different that you're doing? Or is this purely just a matter of having a large network and finally being able to penetrate it..

Yes, it's that. It's a rinse wash repeat strategy that we have been employing for years now of adding territory, upgrading the networks and coverage in those territories, and then following that rapidly with expanding distribution.

So when you see us talk about opening new doors, those new doors are having a tremendous impact on our results in terms of driving new growth. And so we're incredibly pleased with our team's performance in that regard..

And if this Sprint arbitration is expected to take several months, are you going to do anything different as far as OpEx is concerned?.

No, we're not planning any material changes to the business in lieu of the Sprint travel dispute..

Okay, thank you..

And at this time, I'm showing no further questions. I'd like to turn the call back over to Mr.

Volk for any closing remarks?.

Yes. Thank you, everyone, for joining our call today and we look forward to keeping you updated on our progress in future quarters. Thanks, and have a good day..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..