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Edited Transcript of SHEN earnings conference call or presentation 28-Feb-19 3:00pm GMT

Q4 2018 Shenandoah Telecommunications Co Earnings Call

Edinburg Mar 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Shenandoah Telecommunications Co earnings conference call or presentation Thursday, February 28, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher E. French

Shenandoah Telecommunications Company - Chairman, President & CEO

* David L. Heimbach

Shenandoah Telecommunications Company - Executive VP & COO

* James F. Woodward

Shenandoah Telecommunications Company - Senior VP of Finance & CFO

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Conference Call Participants

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* Hamed Khorsand

BWS Financial Inc. - Principal & Research Analyst

* Rachel Lauren Arrowood

Macquarie Research - Analyst

* Richard Hamilton Prentiss

Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research

* Zachary Alan Silver

B. Riley FBR, Inc., Research Division - Associate

* Jennifer Belodeau

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Presentation

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Operator [1]

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Good morning, everyone. Welcome to the Shenandoah Telecommunications Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Jennifer Belodeau of IMS and Investor Relations for Shentel.

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Jennifer Belodeau, [2]

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Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the quarter and year ended December 31, 2018. Our results were announced in a press release distributed this morning, and a 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 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 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.

With that, I'll turn the call over to Chris. Go ahead, Chris.

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Christopher E. French, Shenandoah Telecommunications Company - Chairman, President & CEO [3]

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Good morning, and thank you for joining us.

We delivered a solid performance in the fourth quarter of 2018, closing out a strong year. We achieved consolidated revenue growth, significantly increased operating income and improved OIBDA, or operating income before depreciation and amortization.

We also achieved customer growth in all of our operating segments during 2018, highlighted a record customer additions in both our wireless and cable businesses during the fourth quarter. As a result of strategically expanding our geographic reach and upgrading our network, Shentel is positioned as the most reliable provider with both the capacity and speed to meet the broadband needs of the areas we serve.

Throughout 2018, we saw the benefits of our efforts as distribution levels and activation rates steadily increased. We continue to follow the public reports of progress on the proposed Sprint-T-Mobile merger. The transaction received approval in December from the Committee on Foreign Investment in the U.S., and the Departments of Justice, Homeland Security and Defense also submitted a filing to the SEC, saying they had no objections to the merger.

We're optimistic that our long-standing affiliate agreement with Sprint positions Shentel well for whatever outcome's reached. Competitively speaking, we continue to believe a merger would establish a stronger competitor in the telecom industry as an alternative to the dominant AT&T and Verizon.

We've maintained a strong and mutually beneficial relationship with Sprint for more than 2 decades, delivering the latest in wireless technology to predominantly rural markets. We welcome the opportunity to continue providing value to the new combined company. While we wait for more clarity, we remain focused on continuing to grow our wireless business, while providing excellent coverage and service to our Sprint customers.

Moving to our results. On Slide 5, we summarize some highlights of our full year performance. Revenue grew to almost $631 million as compared to $612 million in 2017. Operating income more than doubled to $93.2 million versus $46.5 million in '17. Net income for 2018 is $46.6 million or $0.94 per basic share compared to $66.4 million or $1.35 per basic share in 2017.

Comparing 2017 -- excuse me, 2018 to 2017 is complicated a bit on unusual events occurring in each year. 2018 results include a $9.8 million negative impact to revenue related to Topic 606. 2017 results include a onetime noncash tax benefit of approximately $53.4 million related to the enactment of the Tax Cuts and Jobs Act in December 2017.

Adjusted OIBDA for 2018 increased to almost $286 million, representing a margin of over 45%.

Turning to the fourth quarter. On Slide 6, you'll see that revenue increased 6.5% to $161.5 million versus $151.6 million in last year's fourth quarter. We saw a strong growth in operating income to $27 million, a 49.1% increase from last year's fourth quarter. Fourth quarter net income was $14.9 million compared to net income of $60.6 million in the fourth quarter of '17, which included the onetime tax benefit I mentioned earlier.

Absent that tax benefit, net income in the fourth quarter of '17 would've been $7.1 million. Adjusted OIBDA for the fourth quarter of 2018 increased to $73.2 million or a margin of 45.3%.

Moving to Slide 7. You can see our consistent history of dividends to shareholders. The $0.27 per share dividend paid on November 30, was the 59th consecutive year of annual dividends and was also the 19th out of the last 21 years, which reflected an increase in the per-share rate.

In our wireless highlights on Slide 8, you'll see that postpaid customers are up 8% and prepaid customers increased approximately 15% compared to the fourth quarter of '17. Wireless operating revenues increased 6.7% as improvements in average monthly churn led to growth in postpaid and prepaid customers. Wireless adjusted OIBDA for the quarter increased 11.7% to $63.2 million.

Moving to Slide 9. Revenue in our Cable segment increased 7.9% to $32.9 million, primarily due to growth in broadband and voice subscribers, video rate increases and upgrades to higher-speed packages. Cable adjusted OIBDA for the fourth quarter grew 11.8% to $12.6 million compared to $11.3 million in '17, primarily driven by improved broadband ARPU.

On Slide 10, wireline operating revenue and adjusted OIBDA declines were primarily due to the repricing of backhaul circuits and migrating wireless voice traffic from circuit-switch facilities to more cost-effective VoIP facilities. While this impacted wireline revenue unfavorably, it favorably lowered operating cost in our wireless segment.

We delivered a strong fourth quarter finish to a solid year, and I'm very pleased with our progress. We are competitively positioned to capture additional market share as consumers recognize the value of our state-of-the-art network and the strength of our expanded wireless territory, which now covers a population of more than 7 million people. Our services are critical for customers in the many rural communities we serve. And as we move through 2019, we'll continue to focus on enhancements to our networks and on delivering exceptional customer service.

Now I'll turn the call over to Jim Woodward, our CFO, to review the details of our financial results.

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James F. Woodward, Shenandoah Telecommunications Company - Senior VP of Finance & CFO [4]

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Thank you, Chris, and good morning, everyone.

We show the changes in our quarterly results on Slide 12. Fourth quarter revenue was $161.5 million compared to $151.6 million in 2017. Excluding the impact of Topic 606, revenue increased $11.8 million, driven by the Wireless and Cable operations.

Fourth quarter consolidated operating expenses increased by $1 million. Again, excluding the Topic 606, operating expenses increased by [70] as a result of the higher cost of services and cost of goods sold related to our continued growth and expansion. Operating income increased $8.9 million or 49% to $27 million over the prior year quarter. Excluding Topic 606, operating income increased $4.8 million or 26.5% to $22.9 million. We recorded net income of $14.9 million or $0.31 per share compared to $60.6 million or $1.23 per share in the fourth quarter of 2017.

Excluding Topic 606, fourth quarter earnings per share were $0.24. As Chris mentioned, fourth quarter 2017 net income included a onetime noncash tax benefit of approximately $53.4 million related to the enactment of the Tax Cuts and Jobs Act in December 2017. Excluding the onetime tax benefit, net income in the fourth quarter of '17 was $7.2 million or $0.15 per share.

Moving to Slide 13. You'll see fourth quarter adjusted OIBDA results by segment, which illustrates the components driving the quarter-over-quarter change.

Adjusted OIBDA for the fourth quarter was $73.2 million, representing a margin of 45.3%. Continuing OIBDA is also shown on this slide to illustrate the impact of the waived manage -- Sprint management fee. 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 waived fee reaches $255.6 million. We expect to receive the benefit of the waived management fee through 2022.

On Slide 14, we provide a detailed breakout of the change between fourth quarter '17 and '18 for Wireless adjusted OIBDA, which increased $6.6 million, driven primarily by the strong postpaid and prepaid revenue. This was partially offset by an increase in operating expenses due to our continued growth and expansion.

On Slide 15, we provide a bridge of the drivers and changes in Cable adjusted OIBDA, which grew by $1.3 million in the quarter, primarily as a result of increases in broadband service revenue. Over the top, video is driving broadband consumption. That increased consumption and the growth of video services results in our customers acquiring additional broadband capacity, all of which is driving our broadband revenue.

Slide 16 shows the bridge between 2017, '18 fourth quarter wireline adjusted OIBDA, which decreased during the quarter, primarily driven by the affiliate backhaul circuit pricing.

Slide 17 outlines the highlights of today's acquisition of Big Sandy Broadband. Big Sandy adds approximately 4,700 RGUs for Cable, including 2,200 broadband RGUs. The acquisition furthers our strategy to expand our footprint with the addition of quality networks in contiguous markets, and we look forward to enhancing our coverage and service capabilities with an increased presence in Kentucky.

Turning to our capital metrics on Slide 18. As of December 31, 2018, we had $770 million of debt outstanding. During the fourth quarter, we amended our credit agreement, resulting in a 25 basis point reduction in the base rate, extending the maturity of the term loans and reduced the required amortization schedule. Including our first quarter credit agreement amendment, we reduced our interest rate 75 basis points in 2018. Our leverage ratio was 2.54, well inside of our debt covenant of 3.50. And barring any significant acquisitions, we expect our debt levels and leverage to decline.

You also see the reduction in our interest rate to 3.97% from 4.23% as a result of the 2017 tax act, the lower tax rate and accelerated depreciation or capital investments. We do not expect to pay any significant cash income taxes, either federal or state, in 2019.

And now, I'll turn the presentation to Dave.

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [5]

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Thanks, Jim, and good morning, everyone.

I'll start on Slide 20, with operational highlights from 2018, where we saw strong subscriber growth, adding 58,579 postpaid wireless subs and 32,882 prepaid subs. In our Cable segment, we also added 4,261 broadband subscribers, while growing broadband ARPU 9.2% year-over-year.

Other highlights include commercial fiber sales revenue, which grew more than 7% from 2017. We constructed 212 new fiber miles in 2018, raising our total to over 5,600 miles with 83% of total fiber capacity available for future growth. We also constructed 16 new Shentel-owned towers, bringing the new total of company-owned towers to 208. Additionally, 89 new Fiber to The Tower sites were constructed in 2018, which raised the total to 423 and drove lower backhaul-related operating expenses.

We'll continue to invest in fiber as a means for not only reducing OpEx across all segments of our business, but for growing wireline and cable revenue as well.

On Slide 21, we show the components of change in our wireless customer base year-over-year. We had 795,000 postpaid and 259,000 prepaid subscribers at the end of the fourth quarter, for a total of $1,054,000 customers. This includes 54,000 customers acquired as a result of the Richmond Expansion in February 2018, and approximately 37,500 added through organic growth.

As previously disclosed, postpaid produced all-time high net addition for the fourth quarter of approximately 9,600. Prepaid added 3,200 net subs in the quarter with the Boost brand achieving record gross activations. 8.7% of our base upgraded their device in the quarter, and as of the end of 2018, 9% of the postpaid base was comprised of tablets and data devices.

Lastly, while ARPU was down about $1 year-over-year in the fourth quarter, postpaid ARPU for fiscal year 2018 was actually up slightly, giving us confidence that the ARPU erosion curve in 2017 has flattened out and may actually now be improving slightly as we head into the new year.

On Slide 22, you see the growth in net activity occurring in Wireless postpaid. We had record growth adds in the quarter, with strong conversion rates, once we got prospects in the stores. Postpaid churn for the quarter was 1.9%, which was a 5 basis point improvement versus the fourth quarter of 2017, with postpaid churn in our core legacy area at 1.74%.

Phone churn was 1.7% and non-phone churn was 3.39% in the quarter. Our progress in reducing churn was aided by the completion of the nTelos subscriber migration as well as overall improvements to the customer experience through our ongoing investments in our network.

Speaking of the network, our focus has been on continuing to add capacity at our macro cell sites. We added a combination of 2.5 gigahertz, 1,900 megahertz and 800 megahertz LTE capacity at over 600 sites in 2018 and plan to roughly double that this year. Like Sprint, we've been actively deploying LTE advanced features, like 2.5 gigahertz carrier aggregation and 256 qam modulation. We now have these features deployed at several hundred sites and plan to add several hundred more in 2019.

We also believe that, as Sprint pointed out on their earnings call, we will see a benefit from massive MIMO technology in our more dense areas and plan on deploying this technology in 2019. We'll be testing 5G on these sites in 2019 and they will coexist side-by-side with our current LTE deployments.

Moving to Slide 23. Prepaid gross adds increased to approximately 38,000, and net adds increased 167% to 3,200 compared to fourth quarter of 2017, on the strength of record Boost customer additions. We continue to reap the benefits of our strategic investment in the Boost brand through local advertising and the continued expansion of Boost stores throughout our service area.

Postpaid churn for the quarter was 4.55%, which was a 50 basis point improvement over last year's fourth quarter and prepaid ARPU was stable as compared to prior year. We continue to have a positive port-in versus port-out ratio at 1.12 to 1 for the fourth quarter of 2018, which was down sequentially from the prior quarter, but in line with prior year. We saw a rebound in this metric in the second half of the quarter and generally see the ratio climb in subsequent quarters.

Before we move to Cable, I'd like to update you on our wireless store expansion. At year-end 2018, we finished with 162 branded Sprint stores and 158 Boost stores, representing about 17% and 36% increases, respectively.

Now moving to Cable on Slide 24. Total RGUs continue to grow quarter-over-quarter in spite of broad-based industry-wide declines in traditional video subscriptions. In the fourth quarter, we added approximately 4,200 broadband subs and 800 voice subs, more than offsetting the loss of 3,000 video subs. Both average revenue for RGU and per customer showed substantial improvement, driven by broadband speed upgrades and video price increases with the aforementioned broadband ARPU alone increasing 9.2% year-over-year.

Slide 25 highlights our opportunity to continue upgrading our customers to higher broadband speeds in our coverage area, with 63% of homes passed, now capable of broadband speeds of up to 1 gig per second. We continue to remain focused on driving higher broadband penetration in our markets and these DOCSIS 3.1 investments reflect our ongoing commitment to provide equivalent services in rural areas as those found in more urban markets.

Turning to fiber and towers on Slide 26. Cable and Wireline commercial fiber revenue is up 7.3% year-over-year due to our ongoing focus on those customer segments in our markets. We also generated $2.9 million of fiber backhaul revenue across 109 towers, which is an increase of 11% year-over-year.

In terms of company-owned towers, we added 16 in 2018, bringing the total Shentel-owned tower count to 208, with rent revenue up 1.8% over 2017. And of the $11.6 million of total tower rent revenue produced in 2018, $6.6 million was generated by external customers with a healthy pipeline of future projects as we entered the new year.

Lastly, Slide 27 provides an update to capital spending. In 2018, total CapEx was $137 million for the year, and we budgeted $148 million for 2019, with approximately 39% of 2019 capital allocated for network expansion of our fiber and wireless networks. The decline in Wireless CapEx you see in 2019 is driven by approximately $10 million in equipment that was purchased in 2018, but that won't be deployed until this year as construction is completed at new cell sites.

Also, the 2019 budgeted increase in our Cable segment CapEx is driven by our ongoing commitment to growth in rural broadband, continued investment in Fiber to The Tower projects as well as success-based CapEx in support of the commercial fiber business.

Thank you very much. And operator, we're now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Ric Prentiss from Raymond James.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [2]

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Obviously, you've preannounced the subscriber gross adds in Wireless with postpaid and prepaid. I thought it was interesting that the gross adds were up, you talked to the stores a little bit. Help us understand, how many stores do you anticipate opening in 2019 versus what you had in 2018? And are you starting to see any of this in those turf expansions, whether it's Parkersburg or the Richmond center?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [3]

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Ric, this is Dave. Yes, we will continue to open stores this upcoming year and it'll be in the same ZIP Code of total store openings as 2018. And we do -- we are seeing good growth in the new expansion territories as you might expect. And I think that's really one of the core competencies of the company here is our ability to shepherd both our own, corporate-owned stores and our third-party dealer network through our continuing growth and expansion of our network.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [4]

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And sometimes seasonality affects numbers. Fourth quarter is usually pretty good time of the year for selling wireless. Do you expect seasonality to maybe have gross adds tail off as we look into 1Q? Just trying to think of trends in the industry.

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [5]

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Well, you know that prepaid is a particularly strong growth factor, yes, in the first quarter, exactly. So we expect to see an uptick there on prepaid. And yes, I mean, first quarter seasonally is a little bit lighter in postpaid than the fourth quarter, as you've noted.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [6]

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Okay. And have you noticed any -- of course, you talked about the Sprint-T-Mobile merger, obviously, making through its decision process. But operationally, have you seen much overbuilding by T-Mobile in your markets? And what kind of market share do you kind of think they have in the territory?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [7]

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Well in terms of overbuilding, we -- I think, you'd raised this question in a prior call, and we haven't seen any material uptick or downtick, one way or the other, a continued steady flow of activity from T-Mobile. And in terms of market share relative to us, we believe that given the strength of our network and given the strength of our distribution that we have substantially more subscribers in our geographies than they do. But I don't want to get too specific because we would be just estimating and speculating.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [8]

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Sure. Okay. And you talked a little bit, Dave, about the 5G and the massive MIMO in dense urban areas. Is there an -- first, how much CapEx do you think 5G will require of you as you look out over the next several years? And is it evolution or a revolution kind of in spending? And is fixed wireless broadband an application that might make sense in your territories as well? U.S. Cellular had talked about on their call.

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [9]

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Yes, so in terms of 5G, Ric, as we previously guided, it's not going to be a substantial portion of CapEx for us just given the relative densities we have in our geography. We're deploying carrier aggregation across our spectrum bands. That's providing a much bigger bang for our buck candidly, given our density levels and given the fact that 2.5 spectrum doesn't propagate as well in long distances in rural areas. So we're leveraging carrier ag across our lower band spectrum to get a boost in capacity and throughput. And -- in terms of fixed wireless, we're kicking the tires as a lot of folks are. You've been here to our office, and you know the geography. We have a lot of rolling hills and a lot of trees. Those aren't always conducive to line of sight technology, but we're continuing to be opportunistic in terms of that technology and how it might play for us in the future.

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Richard Hamilton Prentiss, Raymond James & Associates, Inc., Research Division - Head of Telecommunication Services Equity Research [10]

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Have you guys been trying external-mounted antennas on a house for fixed wireless?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [11]

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Yes. I mean, that's generally how the technology works. And as you know, I spent some time at a fixed-wireless company in last few years, and that's generally how the industry approaches the installation.

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Operator [12]

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Our next question comes from the line of Amy Yong for Macquarie.

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Rachel Lauren Arrowood, Macquarie Research - Analyst [13]

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This is Rachel for Amy. Can you discuss the Big Sandy acquisition, any OpEx further in synergy you guys expect to see? And then you mentioned it will be accretive, is this the cash?

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James F. Woodward, Shenandoah Telecommunications Company - Senior VP of Finance & CFO [14]

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So the Big Sandy, it's -- if you're talking about the numbers, it's a relatively small acquisition. So it's -- as far as synergies goes, there are some synergies there. Otherwise, we probably wouldn't have purchased it. But I mean, there -- and so we didn't get into that. It's not -- it's a tuck-in acquisition for us. So -- and yes, we do -- it's going to be -- it'll be accretive immediately to cash flow.

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Rachel Lauren Arrowood, Macquarie Research - Analyst [15]

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Okay. And then just quickly on prepaid competition, what are you guys seeing so far in 1Q?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [16]

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Rachel, we're not seeing anything different than the last several quarters. There isn't really much to report there. Same competition as we've had previously.

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Operator [17]

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Our next question comes from the line of Hamed Khorsand from BWS Financial.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [18]

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So first off, could you just talk about the pricing metric here, as far as wireless is concerned, is this more about doing with the contracts and pricing plans? Or is this really just the year-over-year comps are getting better?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [19]

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Hamed, this is Dave. In terms of the pricing metrics and impacts from contracts, where were you headed with that can you clarify for me?

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [20]

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Well, I mean, is this more of the carriers are now a little bit more aware that they can't just keep going down to 0 as far as pricing plans is concerned. Is that's what's helping you with the ARPU on Wireless, or is this really more the association with a calendar effect where it was just gone through the cycle of this downward-sloping pricing?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [21]

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Yes. Well, as you may recall, in 2018, towards the back half of the year, in fact that started over the summer, Sprint had launched a new rate card with new rate plans, and they also announced the discontinuation of some fairly long-standing promotions. And those things combined as well as then letting off the brakes a bit on the free line promotion, which they reintroduced towards the end of the fourth quarter, all contributed to a stabilizing effect on postpaid ARPU. The other thing that's helping is, in kind of an inverse way, is that at-line churn is up about 12 bps year-over-year for us, but account level churn is down about 17 bps for us year-over-year, and the account level churn is having a nice impact on the stabilization of ARPU as well as -- as you might imagine.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [22]

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Could this be a continuing churn? Or should we just think that was going to flatline?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [23]

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We -- we'd like to think so. I mean, if you look at the last 4 quarters, there's a slide in the appendix there that will show you that -- we've got 4 quarters in a row of flat to slightly increasing postpaid ARPU, and then prepaid ARPU was stable year-over-year as well. So we're feeling better about ARPU these days.

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Hamed Khorsand, BWS Financial Inc. - Principal & Research Analyst [24]

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And then, how much of your subscriber adds coming from the new footprint?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [25]

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We don't disclose new versus legacy footprint subscriber results at this point, Hamed.

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Operator [26]

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(Operator Instructions) Our next question comes from the line of Zack Silver from B. Riley FBR.

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Zachary Alan Silver, B. Riley FBR, Inc., Research Division - Associate [27]

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On the cable CapEx guide this year, does that include sort of network upgrades for the Big Sandy acquisition? And then to follow-up on that, their footprint is in Eastern Kentucky, and I think that one of your sort of turf expansions in Wireless is in Eastern Kentucky. So is there potential for synergies between maybe running some backhaul over that Big Sandy network?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [28]

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I'll take the first half of that question, Zack, and then hand it over to Jim for the second half related to Big Sandy. Cable CapEx increases really reflect the ongoing investment in the DOCSIS 3.1 conversion. We've gotten through a bunch of the Virginia markets. We have West Virginia still to do this year. Some of what's represented there is investments in CPE as well as the CMPS infrastructure as we migrate subs over to DOCSIS 3.1 technology. There's a pretty healthy chunk of CapEx related to fiber, as I mentioned in our prepared comments as well. And that's really what's driving the uptick, and Jim, you can speak to the Big Sandy.

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James F. Woodward, Shenandoah Telecommunications Company - Senior VP of Finance & CFO [29]

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Yes, you're exactly right. It's a good observation. And so it -- we will be exploring those opportunities to get and create some of the same synergies that we have in more of our traditional geography. But I would say, the acquisition wasn't dependent on that. It wasn't. That was a -- we would have -- we were interested in that regardless of the fact that it happened to overlap with our wireless geography.

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Zachary Alan Silver, B. Riley FBR, Inc., Research Division - Associate [30]

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Got it. Okay. And then, one more on -- there was some language in Sprint's 10-Q about they're doing a couple of backhaul architectural tweaks for their -- getting out some Ethernet contracts for I think a onetime cost and they're saying they should see some savings over the long term. I know that you guys kind of follow their playbook via your agreement. Is there any impact on you guys from that disclosure from Sprint?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [31]

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Yes. Not really. No. I mean...

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James F. Woodward, Shenandoah Telecommunications Company - Senior VP of Finance & CFO [32]

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Zack, I will jump on that. We operate our network. We are -- our backhaul is their backhaul. So we do, of course, pay attention to what others in the industry are doing. But as far as the playbook on that, we run our own playbook.

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Zachary Alan Silver, B. Riley FBR, Inc., Research Division - Associate [33]

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Got it. Okay. And then just one last one on Cable. It seems like there's some upside there from a penetration perspective, but that may come at the cost of maybe introducing some lower-tier plans, or not taking price as much. So how do you think of the kind of the balance between volume and price and in the Cable segment?

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David L. Heimbach, Shenandoah Telecommunications Company - Executive VP & COO [34]

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Yes. There is lot of art and science that goes into that as you might expect, Zack. We agreed that there is further upside through higher penetration and that's really what supports our investment thesis in upgrading speeds. One of the things that we did is, as we got into the fourth quarter, is we launched a new rate card in the markets that we upgraded. But we were very thoughtful about that new rate card in terms of the impact that it would have to ARPU, and thus far, we're happy to report that we're able to maintain our collective ARPU that we've been reporting, and the trends that you've been witnessing there was also continuing to grow subscribers. But that's a metric that we watch pretty much daily around here, and we'll keep you posted on as we move through the year.

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Operator [35]

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(Operator Instructions) There are no further questions at this time. I would now like to turn the conference back to Jim.

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James F. Woodward, Shenandoah Telecommunications Company - Senior VP of Finance & CFO [36]

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Thank you, everyone, for joining us today. As Chris mentioned, we had a very solid performance in 2018, and are proud of our performance and look forward to keeping everyone up to date on what we believe will be a prosperous 2019 as well. So thank you for joining us today.

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Operator [37]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.