Shenandoah Telecommunications Company ( SHEN)

Q2 2011 Earnings Call

August 08, 2011, 10:00 a.m. ET


Adele Skolits - CFO and VP, Finance

Christopher French - President and CEO

Earle MacKenzie - EVP and COO


Ric Prentiss - Raymond James

Greg Burns - Sidoti and Company

Barry Sine - Drexel Hamilton

Will Lauber - Sterling Capital Management



Good morning everyone and welcome to the Shenandoah Telecommunications Second Quarter of 2011 Earnings Conference Call. Today’s conference is being recorded. At this time I would now like to turn the conference over to Mrs. Adele Skolits, CFO. Please go ahead, Ma’am.

Adele Skolits

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel’s results for the quarter ended June 30, 2101.

Our results were announced in a press release distributed Friday evening and the presentation we’ll be reviewing is included on our website at Please note that a replay of the call will be made available later today. The details were set forth in a 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.

I'll begin on slide two of the presentation. While we don’t give guidance with respect to specific future financial results, we caution that this call may contain forward-looking statements, which involve a number of known and unknown 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 are 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 of these measures, including why we use them and reconciliations to the most comparable GAAP measures, are included in our SEC filings.

I'll turn the call over to Chris now.

Christopher French

Thank you, Adele. We appreciate everyone joining us this morning. This quarter we continue to execute on our plans to create future value for our shareholders by expanding our prepaid wireless customer base, continuing the upgrade of the cable properties purchased last year, building the Shentel brand within our new cable markets and growing our cable customer base. As expected all these efforts have resulted in lower operating income than in the same period of 2010. But we have achieved positive results on all of these objectives.

Slide 5 lists the highlights of the results on our wireless segment. We again had positive net wireless additions in both our postpaid and prepaid services with a number of total customers up 4% in this quarter and up 10% over the year-end 2010 number. Prepaid contributed nearly 80% of the net customer growth adding over 11,000 net customers. Since we began offering prepaid products in June of 2010, we have added over 41,000 net customers. We also had solid growth in postpaid adding over 3000 net customers.

Specific cable segment highlights are shown on Slide 6. The total number of revenue generating units rose to 131,000 at June 30th. The segment had gains in digital video, high speed internet and voice. These gains were offset by seasonal loss of video customers due to the students moving out of college and university communities we serve and the (inaudible) Virginia.

Major upgrades in the markets we acquired from JetBroadband began in April of this year and we have now completed upgrades to approximately 10% of the (inaudible) by these systems. Financial results on a consolidated basis shown on Slide 7, were negatively impacted by the significant cost associated with depreciation and amortization on the acquired businesses and by the interest expense related to the debt required to fund the acquisitions.

We are reporting net income of $3 million for the quarter compared to 4.6 million from the second quarter of 2010. Despite the impact on earnings we continue to believe our cable acquisitions and our entry into prepaid represent great opportunities for us to create long-term growth and shareholder value.

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

Adele Skolits

Thank you, Chris. I’ll begin on Slide 9. Adjusted operating income before depreciation and amortization or OIBDA for Q2 ’11 was $23 million or up $2.6 million from Q2 ’10. In order to better under the forces driving this change I have provided the OIBDA results by segment on Slide 10. Here you get a picture of how the segments results are contributing to the consolidated financial results. In a moment I’ll go into this segments OIBDA changes in depth.

What you see from this table is that adjusted wireless OIBDA has increased despite the fact that significant incremental costs were incurred associated with the growth in prepaid customers. In the cable segment the impact of the incremental OIBDA from the JetBroadband business is been offset by the significant incremental cost acquiring customers in the cable business. As we will see in a moment the wireline segments adjusted OIBDA dropped due to the sale of the directory in the third quarter of 2010.

On Slide 11, I’ve analyzed the changes in the wireless OIBDA results between Q2 ’10 and Q2 ’11. Postpaid revenues continue to grow as a result of the continued steady growth in its customer base. The prepaid business has already begun to make a meaningful contribution with $5.3 million in new revenue related to prepaid customers. As you may recall the service fee charged by Sprint Nextel in the postpaid business rose from 8.8% to 2% as of June 1st, 2010. This change increased service fees by $1.1 million in Q2 ’11. Acquiring prepaid customers involves additional expenses related to handset subsidies, commissions, marketing and other sales related cost, as a result of our success in acquiring prepaid customers, there are $3.5 million of new prepaid costs in Q2 ’11. We also paid separate fees to strengthen Nextel to provide on-going support fees for prepaid customers. These prepaid services added an incremental $1.5 million to expenses in Q2 ’11.

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