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Shenandoah Telecommunications Company Reports Third Quarter 2019 Results

/EIN News/ -- EDINBURG, Va., Oct. 31, 2019 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (NASDAQ: SHEN) announced third quarter results, an increase in its cash dividend, a share repurchase program, and commencement of its Fiber to the Home service.

Highlights

  • Free cash flow of $35.9 million in the third quarter 2019 and $86.4 million for year to date 2019.
  • Record third quarter Wireless postpaid net additions of 11,698.
  • Dividend to increase 7.4% to $0.29 per share representing the 7th consecutive year of an annual increase.
  • Authorization of $80 million for a share repurchase program.
  • Launch of Fiber to the Home ("FTTH") business with initiation of Glo Fiber service in Harrisonburg, Virginia.

"Our company’s growth was led by record net additions of Wireless postpaid services in the quarter. The commencement of Glo Fiber service in Harrisonburg reflects the start of our latest growth initiative as we continue to expand our footprint and service offerings,” said President and CEO Christopher E. French. “We continue to generate strong free cash flow, which along with our solid operating results, enables us to return value to our shareholders with both an increase in our cash dividend and initiation of a share repurchase program. The continuing dispute over the travel fee with Sprint caused uneven financial results, but we have triggered the dispute resolution process with Sprint which we expect will lead to a resolution by early 2020."

Please refer to our Third Quarter 2019 Earnings Presentation Supplement available at https://investor.shentel.com/ for additional information, including matters that will be referenced during the Company’s conference call. Included in this release are certain non-GAAP financial measures that are not determined in accordance with U.S. generally accepted accounting principles. Please refer to additional information for non-GAAP measures provided herein.

Consolidated Third Quarter 2019 Results

  • Operating revenue in the third quarter of 2019 was $155.2 million compared with $158.7 million in the third quarter of 2018 driven by continued dispute of the travel fee with Sprint in the Wireless segment, partially offset by growth in the Cable segment.
  • Adjusted OIBDA in the third quarter of 2019 was $62.8 million compared with $69.5 million in the third quarter of 2018 due to a decline in the Wireless segment.
  • Operating income for the third quarter 2019 was $25.4 million compared with $28.3 million in the third quarter of 2018.
  • Net income in the third quarter of 2019 was $14.4 million or $0.29 per diluted share compared with $15.5 million or $0.31 per diluted share in the third quarter of 2018.

Wireless

  • Shentel's network served 823,417 wireless postpaid subscribers at September 30, 2019, representing an increase of 4.8% compared with 785,537 subscribers as of September 30, 2018. Third quarter 2019 postpaid gross adds increased 25.7% to 60,477 and churn increased 15 basis points to 1.99% compared to third quarter 2018.  At September 30, 2019, tablets and data devices represented 11.0% of the postpaid base.
  • Shentel's network served 271,551 wireless prepaid subscribers at September 30, 2019, representing an increase of 6.3% compared with 255,462 subscribers as of September 30, 2018. Third quarter 2019 prepaid churn was 4.38%, representing an improvement of 24 basis points compared with the prior year.
  • Wireless operating revenue decreased $5.7 million to $110.4 million for the third quarter of 2019 from $116.1 million in the third quarter of 2018. Sprint travel Revenue declined $4.5 million due to the continuing dispute over the resetting of the travel fee.  Subscriber revenue declined $1.1 million from the third quarter 2018 due to a combination of higher contract asset amortization from higher gross adds over the past year, reduced variable revenue resulting from increased bad debt write-offs in the West Virginia market, lower postpaid Average Revenue Per User ("ARPU") of $1.67, partially offset by an increase of 37,880 postpaid subscribers.
  • Wireless operating expenses in the third quarter of 2019 were $86.7 million compared to $88.7 million in the third quarter of 2018. This decrease was primarily due to a $3.2 million decline in depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated and $1.7 million in lower advertising, offset by $2.8 million in higher tower rents due to an increase of 132 cell sites in our network.
  • Wireless Adjusted OIBDA in the third quarter of 2019 was $50.9 million, compared with $57.7 million for the third quarter of 2018.
  • Wireless operating income in the third quarter of 2019 was $23.7 million, compared with $27.4 million for the third quarter of 2018.

Cable

  • Total Revenue Generating Units ("RGUs") as of September 30, 2019 were 150,191, representing an increase of 3% and includes the addition of approximately 4,800 RGUs obtained through the Big Sandy acquisition that occurred in the first quarter of 2019.  Please note that we have changed the computation of bulk RGUs to conform to industry standards.  Revised RGUs for current and past periods are presented in the supplemental information in this earnings release.
  • Cable operating revenue for the third quarter of 2019 was $35.1 million, representing an increase of 9.1% from $32.2 million in the third quarter of 2018. The increase was primarily attributable to a full quarter of results from the Big Sandy acquisition and growth in ARPU from an increase in video rates.
  • Cable operating expenses in the third quarter of 2019 were $28.8 million, representing an increase of 9.3% from $26.3 million for the third quarter of 2018. The increase was primarily due to $0.8 million of expenses incurred that were associated with starting our FTTH product offering, higher repair and maintenance expenses of $0.8 million associated with maintaining our growing network, higher sales and marketing expenses of $0.6 million and $0.2 million in higher programming costs. We expect to continue to incur expenses related to the initiation of FTTH in select markets, in advance of generating revenue from this new product.
  • Cable Adjusted OIBDA for the third quarter of 2019 was $12.5 million, representing an increase of 4.9% from $11.9 million for the third quarter of 2018.
  • Cable operating income for the third quarter of 2019 was $6.3 million, representing an increase of 7.9% from $5.8 million for the third quarter of 2018.

Wireline

  • Wireline operating revenue for the third quarter of 2019 was $19.1 million, representing a decrease of $0.5 million from $19.6 million in the third quarter of 2018. The decrease in operating revenue was primarily attributable to the timing of receiving regulatory support funds.  Cable and fiber revenues grew 11.8% to offset the 8.3% decline in RLEC revenues.
  • Wireline operating expenses in the third quarter of 2019 were $14.2 million, consistent with operating expenses in the third quarter of 2018.
  • Wireline Adjusted OIBDA for the third quarter of 2019 was $8.0 million, representing a decrease of $0.6 million from $8.6 million in the third quarter of 2018.
  • Wireline operating income for the third quarter of 2019 was $4.9 million, representing a decrease of $0.2 million from $5.1 million in the third quarter of 2018.

Other Information

  • Capital expenditures were $107.0 million for the nine months ended September 30, 2019 compared with $92.3 million in the comparable 2018 period due to a $6.0 million increase in Wireless spending to support the expansion of the network and an $8.7 million increase in Cable segment spending required to support the launch of our FTTH initiative.
  • Outstanding debt at September 30, 2019 totaled $740.6 million compared with $760.5 million and $785.2 million as of June 30, 2019 and December 31, 2018, respectively.  As of September 30, 2019, the Company had liquidity of approximately $172.4 million, including $75.0 million of revolving line of credit availability.  Our interest rate decreased by 25 basis points starting in September 2019 as our net leverage ratio declined below the lowest threshold as defined in our credit facility resulting in approximately $1.8 million of expected annual savings.

Conference Call and Webcast

Teleconference Information:

Date: October 31, 2019   
Time: 8:30 A.M. (ET)
Dial in number: 1-888-695-7639

Password: 6872816
 
Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through December 7, 2019 by calling (855) 859-2056.

About Shenandoah Telecommunications
Shenandoah Telecommunications Company (Shentel) provides a broad range of diversified communications services through its high speed, state-of-the-art network to customers in the Mid-Atlantic United States. The Company’s services include: wireless voice and data; cable video, internet and digital voice; fiber network and services; and regulated local and long distance telephone. Shentel is the exclusive personal communications service (“PCS”) Affiliate of Sprint in a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. For more information, please visit www.shentel.com.

This release contains forward-looking statements that are subject to various risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of unforeseen factors. A discussion of factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations is available in the Company’s filings with the SEC. Those factors may include changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.

CONTACTS:
      Shenandoah Telecommunications Company
      Jim Volk
      Senior Vice President - Chief Financial Officer
      540-984-5168
      Jim.Volk@emp.shentel.com

Or
      John Nesbett/Jennifer Belodeau
      IMS Investor Relations
      203-972-9200
      jnesbett@institutionalms.com



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2019   2018   2019   2018
Operating revenue:              
Service revenue and other $ 138,832     $ 142,768     $ 424,122     $ 419,819  
Equipment revenue 16,320     15,963     48,787     49,551  
Total operating revenue 155,152     158,731     472,909     469,370  
Operating expenses:              
Cost of services 50,164     47,886     149,179     146,362  
Cost of goods sold 15,825     15,036     46,336     46,007  
Selling, general and administrative 27,178     27,452     83,070     86,117  
Depreciation and amortization 36,626     40,028     120,158     124,632  
Total operating expenses 129,793     130,402     398,743     403,118  
Operating income 25,359     28,329     74,166     66,252  
Other income (expense):              
Interest expense (7,505 )   (9,001 )   (22,981 )   (27,184 )
Other 1,099     1,054     3,562     2,882  
Income before income taxes 18,953     20,382     54,747     41,950  
Income tax expense 4,599     4,848     13,333     10,207  
Net income $ 14,354     $ 15,534     $ 41,414     $ 31,743  
               
Net income per share, basic and diluted:              
Basic net income per share $ 0.29     $ 0.31     $ 0.83     $ 0.64  
Diluted net income per share $ 0.29     $ 0.31     $ 0.83     $ 0.63  
Weighted average shares outstanding, basic 49,857     49,559     49,827     49,527  
Weighted average shares outstanding, diluted 50,129     50,117     50,110     50,044  
               



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

  September 30,
 2019
  December 31,
 2018
               
Cash and cash equivalents $ 97,415     $ 85,086  
Other current assets 124,225     125,116  
Total current assets 221,640     210,202  
       
Investments 11,851     10,788  
Property, plant and equipment, net 688,516     701,359  
Intangible assets, net 328,831     366,029  
Goodwill 149,070     146,497  
Operating lease right-of-use assets 400,489      
Deferred charges and other assets 50,469     49,891  
Total assets $ 1,850,866     $ 1,484,766  
       
Total current liabilities $ 132,055     $ 88,539  
Long-term debt, less current maturities 696,378     749,624  
Other liabilities 546,579     204,356  
Total shareholders’ equity 475,854     442,247  
Total liabilities and shareholders’ equity $ 1,850,866     $ 1,484,766  
               



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  Nine Months Ended
September 30,
 
  2019   2018
Cash flows from operating activities:               
Net income $ 41,414     $ 31,743  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 104,503     106,002  
Amortization 15,655     18,630  
Accretion of asset retirement obligations 1,093     710  
Bad debt expense 1,215     1,362  
Stock based compensation expense, net of amount capitalized 3,158     4,578  
Deferred income taxes 4,999     (1,989 )
Other adjustments (439 )   1,060  
Changes in assets and liabilities 21,861     26,704  
Net cash provided by operating activities 193,459     188,800  
       
Cash flows from investing activities:      
Acquisition of property, plant and equipment (107,038 )   (92,309 )
Cash disbursed for acquisition, net of cash acquired (10,000 )   (52,000 )
Cash disbursed for FCC spectrum licenses (16,742 )    
Proceeds from sale of assets 156     539  
Net cash used in investing activities (133,624 )   (143,770 )
       
Cash flows from financing activities:      
Principal payments on long-term debt (44,666 )   (46,375 )
Proceeds from revolving credit facility borrowings     15,000  
Principal payments on revolving credit facility     (15,000 )
Proceeds from exercises of stock option 81      
Taxes paid for equity award issuances (2,912 )   (2,033 )
Other (9 )    
Net cash used in financing activities (47,506 )   (48,408 )
Net increase (decrease) in cash and cash equivalents 12,329     (3,378 )
Cash and cash equivalents, beginning of period 85,086     78,585  
Cash and cash equivalents, end of period $ 97,415     $ 75,207  
       


Non-GAAP Financial Measures

Adjusted OIBDA

Adjusted OIBDA represents Operating income before depreciation, amortization, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.  

Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors. Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies. This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.

Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).

The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:

Adjusted OIBDA                                        
                                         
Three Months Ended September 30, 2019                    
(in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 23,731     $ 6,296     $ 4,927     $ (9,595 )   $ 25,359  
Depreciation and amortization   27,200     6,226     3,077     123     36,626  
OIBDA   50,931     12,522     8,004     (9,472 )   61,985  
Share-based compensation expense               851     851  
Adjusted OIBDA   $ 50,931     $ 12,522     $ 8,004     $ (8,621 )   $ 62,836  
                                         
Three Months Ended September 30, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 27,352     $ 5,834     $ 5,122     $ (9,979 )   $ 28,329  
Depreciation and amortization   30,363     6,102     3,435     128     40,028  
OIBDA   57,715     11,936     8,557     (9,851 )   68,357  
Share-based compensation expense               1,171     1,171  
Adjusted OIBDA   $ 57,715     $ 11,936     $ 8,557     $ (8,680 )   $ 69,528  
                                         
Nine Months Ended September 30, 2019                    
(in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 71,092     $ 18,785     $ 14,367     $ (30,078 )   $ 74,166  
Depreciation and amortization   90,469     19,239     10,057     393     120,158  
OIBDA   161,561     38,024     24,424     (29,685 )   194,324  
Share-based compensation expense               3,158     3,158  
Adjusted OIBDA   $ 161,561     $ 38,024     $ 24,424     $ (26,527 )   $ 197,482  
                                         
Nine Months Ended September 30, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 66,870     $ 17,444     $ 14,687     $ (32,749 )   $ 66,252  
Depreciation and amortization   95,853     18,305     10,069     405     124,632  
OIBDA   162,723     35,749     24,756     (32,344 )   190,884  
Share-based compensation expense               4,578     4,578  
Adjusted OIBDA   $ 162,723     $ 35,749     $ 24,756     $ (27,766 )   $ 195,462  


Segment Results                                                
                                                 
Three Months Ended September 30, 2019                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 91,108     $ 30,829     $ 5,446     $     $     $ 127,383  
Equipment revenue   15,975     292     53             16,320  
Tower revenue   1,660                     1,660  
Other revenue   395     2,392     7,002             9,789  
Total external revenue   109,138     33,513     12,501             155,152  
Internal revenue   1,290     1,591     6,643         (9,524 )    
Total operating revenue   110,428     35,104     19,144         (9,524 )   155,152  
Operating expenses                        
Cost of services   34,044     15,790     9,104         (8,774 )   50,164  
Cost of goods sold   15,571     156     98             15,825  
Selling, general and administrative   9,882     6,636     1,938     9,472     (750 )   27,178  
Depreciation and amortization   27,200     6,226     3,077     123         36,626  
Total operating expenses   86,697     28,808     14,217     9,595     (9,524 )   129,793  
Operating income (loss)   $ 23,731     $ 6,296     $ 4,927     $ (9,595 )   $     $ 25,359  
                                                 
Three Months Ended September 30, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 96,299     $ 28,578     $ 5,443     $     $     $ 130,320  
Equipment revenue   15,666     234     63             15,963  
Tower revenue   1,639                     1,639  
Other revenue   1,232     2,104     7,473             10,809  
Total external revenue   114,836     30,916     12,979             158,731  
Internal revenue   1,263     1,266     6,643         (9,172 )    
Total operating revenue   116,099     32,182     19,622         (9,172 )   158,731  
Operating expenses                        
Cost of services   32,253     14,837     9,266     (12 )   (8,458 )   47,886  
Cost of goods sold   14,940     78     19     (1 )       15,036  
Selling, general and administrative   11,191     5,331     1,780     9,864     (714 )   27,452  
Depreciation and amortization   30,363     6,102     3,435     128         40,028  
Total operating expenses   88,747     26,348     14,500     9,979     (9,172 )   130,402  
Operating income (loss)   $ 27,352     $ 5,834     $ 5,122     $ (9,979 )   $     $ 28,329  
                                                 
Nine Months Ended September 30, 2019                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 282,533     $ 91,250     $ 16,489     $     $     $ 390,272  
Equipment revenue   47,814     817     156             48,787  
Tower revenue   4,985                     4,985  
Other revenue   1,060     6,895     20,910             28,865  
Total external revenue   336,392     98,962     37,555             472,909  
Internal revenue   3,830     4,541     20,025         (28,396 )    
Total operating revenue   340,222     103,503     57,580         (28,396 )   472,909  
Operating expenses                        
Cost of services   101,085     47,138     27,234         (26,278 )   149,179  
Cost of goods sold   45,740     443     153             46,336  
Selling, general and administrative   31,836     17,898     5,769     29,685     (2,118 )   83,070  
Depreciation and amortization   90,469     19,239     10,057     393         120,158  
Total operating expenses   269,130     84,718     43,213     30,078     (28,396 )   398,743  
Operating income (loss)   $ 71,092     $ 18,785     $ 14,367     $ (30,078 )   $     $ 74,166  
                                                 
Nine Months Ended September 30, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 284,154     $ 85,797     $ 16,052     $     $     $ 386,003  
Equipment revenue   48,859     537     155             49,551  
Tower revenue   4,934                     4,934  
Other revenue   1,963     6,276     20,643             28,882  
Total external revenue   339,910     92,610     36,850             469,370  
Internal revenue   3,746     3,394     21,591         (28,731 )    
Total operating revenue   343,656     96,004     58,441         (28,731 )   469,370  
Operating expenses                        
Cost of services   99,491     45,118     28,441         (26,688 )   146,362  
Cost of goods sold   45,749     197     61             46,007  
Selling, general and administrative   35,693     14,940     5,183     32,344     (2,043 )   86,117  
Depreciation and amortization   95,853     18,305     10,069     405         124,632  
Total operating expenses   276,786     78,560     43,754     32,749     (28,731 )   403,118  
Operating income (loss)   $ 66,870     $ 17,444     $ 14,687     $ (32,749 )   $     $ 66,252  
                                                 



Supplemental Information

Subscriber Statistics

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers:

    September 30,
 2019
  September 30,
 2018
Retail PCS subscribers - postpaid   823,417     785,537  
Retail PCS subscribers - prepaid   271,551     255,462  
PCS market POPS (000) (1)   7,227     7,024  
PCS covered POPS (000) (1)   6,294     5,921  
CDMA base stations (sites)   1,920     1,788  
Towers owned   221     193  
Cell site leases   203     192  


    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2019   2018   2019   2018 (2)
Gross PCS subscriber additions - postpaid   60,477     48,111     164,123     135,817  
Net PCS subscriber additions - postpaid   11,698     4,879     28,241     48,940  
Gross PCS subscriber additions - prepaid   38,014     38,486     112,746     112,437  
Net PCS subscriber additions - prepaid   2,512     3,408     12,847     29,640  
PCS average monthly retail churn % - postpaid   1.99 %   1.84 %   1.87 %   1.80 %
PCS average monthly retail churn % - prepaid   4.38 %   4.62 %   4.17 %   4.42 %

_______________________________________________________

  1. "POPS" refers to the estimated population of a given geographic area. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreement, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data.
  2. Beginning February 1, 2018 includes Richmond Expansion Area except for gross PCS subscriber additions.

Except for gross additions, the subscriber statistics above include the Richmond Expansion Area as follows:

    February 1,
 2018
    Expansion Area
PCS subscribers - postpaid   38,343  
PCS subscribers - prepaid   15,691  
Acquired PCS market POPS (000)   1,082  
Acquired PCS covered POPS (000)   602  
Acquired CDMA base stations (sites)   105  

The following table indicates selected operating statistics of Cable and Wireline:

  September 30, 2019   September 30, 2018
  Cable Wireline Total   Cable Wireline Total
Cable homes passed (1) 189,762   16,500   206,262     185,119   16,500   201,619  
               
Cable customer relationships (2) 39,195   4,249   43,444     41,807   5,300   47,107  
Non-cable customers 45,564   13,429   58,993     37,619   13,538   51,157  
Total cable customer relationships 84,759   17,678   102,437     79,426   18,838   98,264  
               
Video RGUs:              
RGUs former methodology 41,331   4,438   45,769     44,093   4,796   48,889  
Bulk adjustment 8,632   614   9,246     9,624   817   10,441  
RGUs revised methodology (3) 49,963   5,052   55,015     53,717   5,613   59,330  
Penetration (4) 26.3 % 30.6 %     29.0 % 34.0 %  
Digital video penetration (5) 95.9 % 100.0 %     77.8 % 100.0 %  
               
Broadband RGUs:              
RGUs former methodology 73,557   14,061   87,618     67,089   14,734   81,823  
Less: Rural Local Exchange Carrier ("RLEC")   (8,112 ) (8,112 )     (9,625 ) (9,625 )
Bulk adjustment 2,601   306   2,907     1,939   (456 ) 1,483  
RGUs revised methodology (3) 76,158   6,255   82,413     69,028   4,653   73,681  
Penetration (4) 40.1 % 37.9 %     37.3 % 28.2 %  
               
Voice RGUs:              
RGUs former methodology 23,636   19,135   42,771     23,268   17,786   41,054  
Less: RLEC   (14,594 ) (14,594 )     (15,002 ) (15,002 )
Bulk adjustment 434   2,345   2,779     504   105   609  
RGUs revised methodology (3) 24,070   6,886   30,956     23,772   2,889   26,661  
Penetration (4) 12.7 % 41.7 %     12.8 % 17.5 %  
               
Total RGUs former methodology 138,524   37,634   176,158     134,450   37,316   171,766  
Less: RLEC   (22,706 ) (22,706 )     (24,627 ) (24,627 )
Bulk adjustment 11,667   3,265   14,932     12,067   466   12,533  
Total RGUs revised methodology 150,191   18,193   168,384     146,517   13,155   159,672  
               
RLEC homes passed   25,495   25,495       25,457   25,457  
RLEC RGUs:              
Data RLEC   8,112   8,112       9,625   9,625  
Penetration (4)   31.8 %       37.8 %  
Voice RLEC   14,594   14,594       15,002   15,002  
Penetration (4)   57.2 %       58.9 %  
Total RLEC RGUs   22,706   22,706       24,627   24,627  
               
Average revenue generating units 150,022   17,851   167,873     145,516   12,058   157,574  
Fiber route miles 3,678   2,186   5,864     3,436   2,112   5,548  
Total fiber miles (6) 147,331   164,371   311,702     134,411   158,526   292,937  

_____________________________

  1. Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. Homes passed have access to video, broadband and voice services.
  2. Customer relationships represent the number of billed customers who receive at least one of our services.
  3. As of September 30, 2019, the Company revised its methodology for counting RGUs associated with hotels, multiple dwelling units ("MDUs") and certain commercial customers.  We now count each dwelling or unit of service as a separate RGU.  Prior year information has been recast to reflect our revised methodology.  Previously we counted RGUs on an equivalent basis consistent with carriage fee practices.
  4. Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
  5. Digital video penetration is calculated by dividing the number of digital video users by total video users. Digital video users are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.
  6. Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

The following table shows the components of free cash flow:

    Three Months Ended   Nine Months Ended
September 30, September 30,
(in thousands)   2019   2018   2019   2018
Net cash provided by operating activities   $ 63,827     $ 61,656     $ 193,459     $ 188,800  
Less: Capital expenditures   27,914     29,987     107,038     92,309  
Free cash flow   $ 35,913     $ 31,669     $ 86,421     $ 96,491  

Free cash flow is a non-GAAP financial measure that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. We believe it is a more conservative measure of our cash flow since purchases of fixed assets are necessary for ongoing operations and expansion. Free Cash Flow is utilized by our management, investors and analysts to evaluate cash available that may be used to pay scheduled principal payments on our debt obligations and provide further investment in the business.

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