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Shenandoah Telecommunications Company Reports Fourth Quarter and Full Year 2018 Results

Quarterly Operating Income Increases to $27.0 million

Annual Operating Income More Than Doubled to $93.2 million

EDINBURG, Va., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (SHEN) announced strong fourth quarter financial and operating results, reflecting record subscriber additions in both the Wireless and Cable segments. The net addition of 9,639 postpaid wireless customers during the quarter set an all-time high during Shentel's nearly two-decade relationship with Sprint. Growth in the Cable segment was led by strong sales of the Company's newly introduced PowerHouse broadband service. These successes drove quarterly operating income to $27.0 million.

Shentel's solid fourth quarter performance closed out a strong fiscal 2018, with significant increases in consolidated revenue and operating income, and improved OIBDA. Consolidated revenue increased to $630.9 million, compared to $612.0 million in 2017. Operating income more than doubled from $46.5 million in 2017 to $93.2 million in 2018. Adjusted OIBDA was $285.7 million for 2018 compared with $280.9 million in 2017.

Fourth Quarter 2018 Highlights

  • Operating revenue of $161.5 million grew 6.5%
  • Operating income up 49.1% to $27.0 million
  • Net income of $14.9 million, or $0.31 per basic share
  • Adjusted OIBDA of $73.2 million

Full Year 2018 Highlights

  • Operating revenue of $630.9 million grew 3.1%
  • Operating income more than doubles to $93.2 million
  • Net income of $46.6 million, or $0.94 per basic share
  • Adjusted OIBDA of $285.7 million

Please refer to our Fourth Quarter 2018 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 US generally accepted accounting principles. Please refer to page 10 for additional information for non-GAAP measures.

Results

Consolidated  Fourth Quarter 2018 Results

  • Net income for the three months ended December 31, 2018 was $14.9 million, or $0.31 per share, compared with net income of $60.6 million, or $1.23 per share, in the fourth quarter of 2017.
      
    • Effective January 1, 2018, the Company adopted the new revenue recognition standard (Topic 606) that requires the Company to record costs such as commissions for the national sales channel that are settled separately with Sprint as reductions of revenue.  The impact of adopting Topic 606 is detailed in the section titled "Impact of Topic 606".
        
    • Fourth quarter 2017 included a one-time non-cash tax benefit of approximately $53.4 million as a result of the enactment of the Tax Cuts and Jobs Act in December of 2017.
        
  • Operating revenue for the fourth quarter of 2018 was $161.5 million, representing a year-over-year increase of 6.5%, driven by growth in Wireless and Cable subscribers.
      
  • Operating expenses for the three months ended December 31, 2018 were $134.5 million, compared with $133.5 million for the equivalent quarter in the prior year.
      
  • Operating income increased 49.1% in the fourth quarter of 2018 to $27.0 million from $18.1 million in the equivalent quarter of the prior year.
      
  • Adjusted OIBDA increased 3.1% to $73.2 million for the three months ended December 31, 2018, driven by subscriber based revenue growth in Wireless and Cable.

    Wireless
      
    •  Wireless operating revenue increased $7.5 million, to $119.0 million compared with the three months ended December 31, 2017, primarily driven by growth in postpaid and prepaid PCS subscribers, improvements in average monthly churn, and was partially offset by a decline in postpaid average revenue per subscriber primarily related to promotions and discounts.
     
    •  Wireless operating expenses decreased 8.0% in the fourth quarter of 2018 to $93.0 million, compared with $99.6 million for the three months ended December 31, 2017, primarily due to reducing back-office expenses that were required to support former nTelos subscribers that migrated to Sprint's back-office in 2017 and a reduction in acquisition, integration and migration expenses as the integration of the acquired nTelos business was completed during 2017.

    •   Wireless Adjusted OIBDA for the three months ended December 31, 2018 was $63.2 million, compared with $56.6 million for the three months ended December 31, 2017. Wireless Continuing OIBDA for the three months ended December 31, 2018 was $53.6 million, compared with $47.6 million for the three months ended December 31, 2017.

    Cable

       Cable operating revenue for the fourth quarter of 2018 was $32.9 million, representing a quarter over quarter increase of 7.9% compared with $30.5 million for the prior year fourth quarter. This growth was primarily due to increases in our broadband and voice subscribers, higher video rates and our customers selecting or upgrading to higher-speed data access packages.
     
    •   Cable operating expenses for the fourth quarter of 2018 were $26.6 million, a quarter over quarter increase of 5.9% compared with $25.1 million for the three months ended December 31, 2017. The increase was primarily due to new fiber contracts and installation services that were driven by growth in our customer base. The Company lost 3,013 video users while adding 4,261 broadband users and 811 voice users, since December 31, 2017.
        
    •   Cable Adjusted OIBDA for the three months ended December 31, 2018 was $12.6 million, compared with $11.3 million for the three months ended December 31,
    2017.

    Wireline
     
    •   Wireline operating revenue for the three months ended December 31, 2018 was $18.7 million, compared with $20.7 million for the prior year fourth quarter. The decrease in operating revenue was primarily attributable to repricing Wireless backhaul circuits to market rates and migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective Voice over IP ("VoIP") facilities.
      
    •   Wireline operating expenses for the three months ended December 31, 2018 were $15.5 million, compared with $15.3 million for the three months ended December 31, 2017. This increase was primarily attributable to the expansion of the underlying network assets and investments in infrastructure necessary to support the growth in our fiber network.
      
    •   Wireline Adjusted OIBDA for the three months ended December 31, 2018 was $6.7 million, compared with $8.8 million for the prior year equivalent quarter.
      

Consolidated Full Year 2018 Results

  • Net income in 2018 was $46.6 million, or $0.94 per share, compared with net income of $66.4 million, or $1.35 per share, in 2017.
      
    • The impact of adopting Topic 606 is detailed in the section titled "Impact of Topic 606".
        
    • 2017 included a one-time non-cash tax benefit of approximately $53.4 million as a result of the enactment of the Tax Cuts and Jobs Act in December of 2017.
  • Operating revenue in 2018 was $630.9 million, representing a year-over-year increase of 3.1%, compared with $612.0 million in 2017 driven by Wireless and Cable operations.
      
  • Operating expenses in 2018 were $537.6 million, compared with $565.5 million in 2017 primarily due to the absence of acquisition, integration and migration costs related to the completion of the transformation of the nTelos network in 2017 as well as lower depreciation and amortization costs due to the retirement of assets acquired with nTelos, partially offset by increased costs necessary to support our continued growth and expansion.
      
  • Operating income increased 100.5% in 2018 to $93.2 million from $46.5 million in 2017.
      
  • Adjusted OIBDA increased 1.7% in 2018 to $285.7 million,  fueled by the continued expansion of our Wireless segment and growth in Cable's broadband subscribers.

    Wireless
      
    •   Wireless operating revenue increased $7.6 million, to $462.7 million compared with 2017, primarily driven by growth in postpaid and prepaid PCS subscribers, improvements in average monthly churn, and was partially offset by a decline in postpaid average revenue per subscriber primarily related to promotions and discounts.
      
    •   Wireless operating expenses in 2018 were $369.8 million, compared with $420.9 million in 2017, a year over year decrease of 12.1%, primarily due to repricing Wireless backhaul circuits to market rates, migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective VoIP facilities, reducing back-office expenses that were required to support former nTelos subscribers that migrated to Sprint's back-office in 2017, and a reduction in acquisition, integration and migration expenses as the integration of the acquired nTelos business was completed during 2017.
       
    •   Wireless Adjusted OIBDA in 2018 was $243.4 million, compared with $230.4 million in 2017. Wireless Continuing OIBDA in 2018 was $205.7 million, compared with $194.3 million in 2017.

    Cable
      
    •   Cable operating revenue in 2018 was $128.9 million, representing a year over year increase of 8.2% compared with $119.2 million in 2017. This growth was primarily due to increases in our broadband and voice subscribers, higher video rates, and our customers selecting or upgrading to higher-speed data access packages.
      
    •   Cable operating expenses in 2018 were $105.1 million, a year over year increase of 1.8% compared with $103.3 million in 2017. The increase was primarily due to new fiber contracts and installation services that were driven by growth in our customer base. The Company lost 3,013 video users while adding 4,261 broadband users and 811 voice users, since December 31, 2017.
      
    •   Cable Adjusted OIBDA in 2018 was $48.3 million, compared with $40.5 million in 2017.
      
    Wireline
      
    •   Wireline operating revenue in 2018 was $77.1 million, compared with $79.3 million in 2017. The decrease in operating revenue was primarily attributable to repricing Wireless backhaul circuits to market rates and migrating Wireless voice traffic from traditional circuit-switched facilities to more cost effective Voice over IP ("VoIP") facilities.
      
    •   Wireline operating expenses in 2018 were $59.3 million, compared with $58.3 million in 2017. This increase was primarily attributable to the expansion of the underlying network assets and investments in infrastructure necessary to support the growth in our fiber network.
      
    •   Wireline Adjusted OIBDA in 2018 was $31.3 million, compared with $34.3 million in 2017.

"2018 was a strong year for Shentel, as demonstrated by solid consolidated revenue growth, significantly increased operating income and improved OIBDA," said President and CEO Christopher E. French. "During the past few years, we've strategically expanded our geographic reach and upgraded our network to ensure that we provide the most reliable coverage and highest data speeds and bandwidth in the areas we serve. Throughout 2018 we saw the benefits of these efforts as distribution levels and activation rates steadily increased. We believe our state-of-the-art network and expanded market coverage competitively position us to continue to capture market share and to grow our leadership position as the telecommunications provider of choice in the communities in which we operate."

"We achieved customer growth in all of our operating segments during fiscal 2018, highlighted by record customer adds in both our Wireless and our Cable segments during the fourth quarter," French continued. "Consumer reliance on wireless connectivity continues to increase exponentially, and our robust network meets and exceeds customer expectations for reliability and capacity. Likewise, in the Cable segment our high bandwidth capabilities are attractive to new customers and play a key role in our ability to transition existing customers to upgraded service packages. We're pleased with our achievements in 2018 and with our visibility today we believe we are well positioned to leverage our extensive coverage area, high caliber network and exceptional service to cultivate continued momentum as we move through 2019."

Other Information

Capital expenditures were $136.6 million for the year ended December 31, 2018 compared with $146.5 million in the comparable 2017 period.

The Company declared a cash dividend of $0.27 per share. The dividend was an increase of $0.01 per share or 3.8% over the 2017 dividend and was paid on November 30, 2018, to shareholders of record as of the close of business on November 12, 2018. The total payout to shareholders, before reinvestment, was approximately $13.4 million. The Company has paid an annual dividend every year since 1960, when its predecessor Shenandoah Telephone Company declared its first dividend.

Outstanding debt at December 31, 2018 totaled $770.2 million, net of unamortized loan costs, compared to $822.0 million as of December 31, 2017.  As of December 31, 2018, no amounts were outstanding under the revolving line of credit. The total leverage ratio as of December 31, 2018 was 2.54.

On November 9, 2018, the Company amended its credit agreement resulting in a 25 basis point reduction in the applicable base interest rate, extended maturity of both term loans and reduced near-term principle payments. Including our first quarter credit agreement amendment we reduced our base interest rate by 75 basis points in 2018.

Conference Call and Webcast

Teleconference Information:

Date: February 28, 2019   
Time: 10:00 A.M. (ET)
Dial in number: 1-888-695-7639

Password: 3786506
 
Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through March 28, 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, Inc.
James F. Woodward
Senior Vice President, Finance and Chief Financial Officer
540-984-5990
James.Woodward@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
December 31,
  Twelve Months Ended
December 31,
  2018   2017   2018   2017
               
Operating revenue              
Service revenue and other $ 142,637     $ 149,602     $ 562,456     $ 601,673  
Equipment revenue 18,847     2,015     68,398     10,318  
Total operating revenue 161,484     151,617     630,854     611,991  
Operating expenses:              
Cost of services 47,660     42,977     194,022     188,721  
Cost of goods sold 17,952     5,554     63,959     22,786  
Selling, general and administrative 27,105     40,563     113,222     165,937  
Acquisition, integration and migration expenses     1,157         11,030  
Depreciation and amortization 41,773     43,256     166,405     177,007  
Total operating expenses 134,490     133,507     537,608     565,481  
Operating income (loss) 26,994     18,110     93,246     46,510  
Other income (expense):              
Interest expense (7,663 )   (9,925 )   (34,847 )   (38,237 )
Gain (loss) on investments, net (387 )   169     (275 )   564  
Non-operating income (loss), net 1,218     938     3,988     4,420  
Income (loss) before income taxes 20,162     9,292     62,112     13,257  
Income tax expense (benefit) 5,310     (51,303 )   15,517     (53,133 )
Net income (loss) $ 14,852     $ 60,595     $ 46,595     $ 66,390  
               
Net income (loss) per share, basic and diluted:              
Basic net income (loss) per share $ 0.31     $ 1.23     $ 0.94     $ 1.35  
Diluted net income (loss) per share $ 0.30     $ 1.21     $ 0.93     $ 1.33  
Weighted average shares outstanding, basic 49,587     49,298     49,542     49,150  
Weighted average shares outstanding, diluted 50,112     50,043     50,063     50,026  
               


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

  December 31,
2018
  December 31,
2017
               
               
Cash and cash equivalents $ 85,086     $ 78,585  
Other current assets   125,116       94,310  
Total current assets   210,202       172,895  
               
Investments   10,788       11,472  
Property, plant and equipment, net   701,359       686,327  
Intangible assets, net   366,029       380,979  
Goodwill   146,497       146,497  
Deferred charges and other assets, net   49,891       13,690  
Total assets $ 1,484,766     $ 1,411,860  
               
Total current liabilities   88,539       137,584  
Long-term debt, less current maturities   749,624       757,561  
Other liabilities   204,356       166,493  
Total shareholders’ equity   442,247       350,222  
Total liabilities and shareholders’ equity $ 1,484,766     $ 1,411,860  


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

  2018   2017
Cash flows from operating activities:              
Net income (loss) $ 46,595     $ 66,390  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation 142,111     151,063  
Amortization 24,294     25,944  
Amortization reflected as rent expense in cost of services 342     1,528  
Bad debt expense 1,983     2,179  
Stock based compensation expense, net of amount capitalized 4,959     3,580  
Waived management fee 37,763     36,056  
Deferred income taxes 6,208     (54,055 )
Other adjustments (1,135 )   311  
Changes in assets and liabilities 2,527     (10,066 )
Net cash provided by (used in) operating activities $ 265,647     $ 222,930  
       
Cash flows from investing activities:      
Acquisition of property, plant and equipment (136,641 )   (146,489 )
Proceeds from sale of assets 840     980  
Cash disbursed for acquisition, net of cash acquired (52,000 )   (6,000 )
Release of restricted cash      
Cash distributions (contributions) from investments and other 1     14  
Net cash provided by (used in) investing activities $ (187,800 )   $ (151,495 )
       
Cash flows from financing activities:      
Principal payments on long-term debt (51,264 )   (36,375 )
Proceeds from revolving credit facility borrowings 15,000      
Proceeds from credit facility borrowings     25,000  
Principal payments on revolving credit facility (15,000 )    
Payments for debt issuance costs (3,971 )    
Dividends paid, net of dividends reinvested (12,866 )   (12,257 )
Taxes paid for equity award issuances (3,245 )   (5,411 )
Net cash provided by (used in) financing activities $ (71,346 )   $ (29,043 )
Net increase (decrease) in cash and cash equivalents 6,501     42,392  
Cash and cash equivalents, beginning of period $ 78,585     $ 36,193  
Cash and cash equivalents, end of period 85,086     78,585  
       
Supplemental Disclosures of Cash Flow Information      
Cash payments for:      
Interest, net of capitalized interest of $1,556, $1,559 and $1,374 in 2018, 2017 and 2016, respectively $ 33,034     $ 33,495  
Income tax (refunds received) paid, net $ (2,721 )   $ 20,066  
Capital expenditures payable $ 23,501     $ 7,254  


Impact of Topic 606
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), effective January 1, 2018, using the modified retrospective method. The following tables identify the impact that the application of Topic 606 had on the Company for the fourth quarter and full year 2018:

  Three Months Ended December 31, 2018
    Topic 606 Impact - CONSOLIDATED  
($ in thousands, except per share amounts) Prior to Adoption of Topic 606 Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue and other $ 161,185   $ (22,568 ) $   $ 4,020   $ 142,637  
Equipment revenue 2,262     16,585     18,847  
Total operating revenue 163,447   (22,568 ) 16,585   4,020   161,484  
Cost of services 47,661       (1 ) 47,660  
Cost of goods sold 8,061   (6,694 ) 16,585     17,952  
Selling, general & administrative 43,042   (15,874 )   (63 ) 27,105  
Depreciation and amortization 41,773         41,773  
Total operating expenses 140,537   (22,568 ) 16,585   (64 ) 134,490  
Operating income (loss) 22,910       4,084   26,994  
Other income (expense) (6,832 )       (6,832 )
Income tax expense (benefit) 4,186       1,124   5,310  
Net income (loss) $ 11,892   $   $   $ 2,960   $ 14,852  
           
Earnings (loss) per share          
Basic $ 0.24       $ 0.07   $ 0.31  
Diluted $ 0.24       $ 0.06   $ 0.30  
Weighted average shares outstanding, basic 49,587         49,587  
Weighted average shares outstanding, diluted 50,112         50,112  

 

  Year Ended December 31, 2018
    Topic 606 Impact - CONSOLIDATED  
($ in thousands, except per share amounts) Prior to Adoption of
Topic 606
Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue and other $ 632,340   $ (86,637 ) $   $ 16,753   $ 562,456  
Equipment revenue 8,298     60,100     68,398  
Total operating revenue 640,638   (86,637 ) 60,100   16,753   630,854  
Cost of services 193,860       162   194,022  
Cost of goods sold 28,377   (24,518 ) 60,100     63,959  
Selling, general & administrative 175,753   (62,119 )   (412 ) 113,222  
Depreciation and amortization 166,405         166,405  
Total operating expenses 564,395   (86,637 ) 60,100   (250 ) 537,608  
Operating income (loss) 76,243       17,003   93,246  
Other income (expense) (31,134 )       (31,134 )
Income tax expense (benefit) 10,926       4,591   15,517  
Net income (loss) $ 34,183   $   $   $ 12,412   $ 46,595  
           
Earnings (loss) per share          
Basic $ 0.69       $ 0.25   $ 0.94  
Diluted $ 0.68       $ 0.25   $ 0.93  
Weighted average shares outstanding, basic 49,542         49,542  
Weighted average shares outstanding, diluted 50,063         50,063  


(1) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred. Under Topic 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue. In 2017, these amounts were approximately $44.8 million for the postpaid national commissions, previously recorded in selling, general and administrative, $18.7 million for national device costs previously recorded in cost of goods and services, and $16.9 million for the on-going service to Sprint's prepaid customers, previously recorded in selling, general and administrative.
(2) Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue. Under Topic 606, the revenue and related costs from device sales are recorded gross. These amounts were approximately $63.8 million in 2017.
(3) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs, which historically have been expensed when incurred and presented net of revenue, are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months. In Cable and Wireline, installation revenues are recognized over a period of approximately 10-11 months. The deferred balance as of December 31, 2018 is approximately $75.8 million and is classified on the balance sheet as current and non-current assets, as applicable.


The following tables identify the impact that the application of Topic 606 had on the Company's Wireless operations for the fourth quarter and full year 2018:

  Three Months Ended December 31, 2018
    Topic 606 Impact - WIRELESS  
($ in thousands) Prior to Adoption of
Topic 606
Changes in
Presentation (1)
Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue $ 115,187   $ (22,568 ) $   $ 4,045   $ 96,664  
Equipment revenue 2,066     16,585     18,651  
Tower and other revenue 3,684         3,684  
Total operating revenue 120,937   (22,568 ) 16,585   4,045   118,999  
Cost of services 31,675         31,675  
Cost of goods sold 7,943   (6,694 ) 16,585     17,834  
Selling, general & administrative 27,719   (15,874 )     11,845  
Depreciation and amortization 31,668         31,668  
Total operating expenses 99,005   (22,568 ) 16,585     93,022  
Operating income (loss) $ 21,932   $   $   $ 4,045   $ 25,977  


  Year Ended December 31, 2018
    Topic 606 Impact - WIRELESS  
($ in thousands) Prior to Adoption of Topic 606 Changes in Presentation (1) Equipment
Revenue (2)
Deferred
Costs (3)
As Reported
12/31/2018
Service revenue $ 450,735   $ (86,637 ) $   $ 16,720   $ 380,818  
Equipment revenue 7,410     60,100     67,510  
Tower and other revenue 14,327         14,327  
Total operating revenue 472,472   (86,637 ) 60,100   16,720   462,655  
Cost of services 131,166         131,166  
Cost of goods sold 28,001   (24,518 ) 60,100     63,583  
Selling, general & administrative 109,657   (62,119 )     47,538  
Depreciation and amortization 127,521         127,521  
Total operating expenses 396,345   (86,637 ) 60,100     369,808  
Operating income (loss) $ 76,127   $   $   $ 16,720   $ 92,847  


(1) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs for both postpaid and prepaid, and to provide on-going support to their prepaid customers in our territory were historically recorded as expense when incurred. Under Topic 606, these amounts represent consideration payable to our customer, Sprint, and are recorded as a reduction of revenue. In 2017, these amounts were approximately $44.8 million for the postpaid national commissions, previously recorded in selling, general and administrative, $18.7 million for national device costs previously recorded in cost of goods and services, and $16.9 million for the on-going service to Sprint's prepaid customers, previously recorded in selling, general and administrative.
(2) Costs incurred by the Company for the sale of devices under Sprint’s device financing and lease programs were previously recorded net against revenue. Under Topic 606, the revenue and related costs from device sales are recorded gross. These amounts were approximately $63.8 million in 2017.
(3) Amounts payable to Sprint for the reimbursement of costs incurred by Sprint in their national sales channel for commissions and device costs, which historically have been expensed when incurred and presented net of revenue, are deferred and amortized against revenue over the expected period of benefit of approximately 21 to 53 months. The deferred balance as of December 31, 2018 is approximately $75.8 million and is classified on the balance sheet as current and non-current assets, as applicable.


Non-GAAP Financial Measures

In managing our business and assessing our financial performance, management supplements the information provided by the financial statement measures prepared in accordance with GAAP with Adjusted OIBDA and Continuing OIBDA, which are considered “non-GAAP financial measures” under SEC rules.

Adjusted OIBDA is defined as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of:  certain non-recurring transactions; impairment of assets; gains and losses on asset sales; actuarial gains and losses on pension and other post-retirement benefit plans; and share-based compensation expense, amortization of deferred costs related to the impacts of the adoption of Topic 606, and adjusted to include the benefit received from the waived management fee by Sprint. Continuing OIBDA is defined as Adjusted OIBDA, less the benefit received from the waived management fee by Sprint. Adjusted OIBDA and Continuing OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance.

In a capital-intensive industry such as telecommunications, management believes that Adjusted OIBDA and Continuing OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance.  We use Adjusted OIBDA and Continuing OIBDA as supplemental performance measures because management believes these measures facilitate comparisons of our operating performance from period to period and comparisons of our operating performance to that of our peers and other companies by excluding potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the other items described above for which additional adjustments were made.  In the future, management expects that the Company may again report Adjusted OIBDA and Continuing OIBDA excluding these items and may incur expenses similar to these excluded items.  Accordingly, the exclusion of these and other similar items from our non-GAAP presentation should not be interpreted as implying these items are non-recurring, infrequent or unusual.

While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the current period allocation of costs associated with long-lived assets acquired or constructed in prior periods, and accordingly may obscure underlying operating trends for some purposes.  By isolating the effects of these expenses and other items that vary from period to period without any correlation to our underlying performance, or that vary widely among similar companies, management believes Adjusted OIBDA and Continuing OIBDA facilitates internal comparisons of our historical operating performance, which are used by management for business planning purposes, and also facilitates comparisons of our performance relative to that of our competitors.  In addition, we believe that Adjusted OIBDA and Continuing OIBDA and similar measures are widely used by investors and financial analysts as measures of our financial performance over time, and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA and Continuing OIBDA have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.  These limitations include, but are not limited to, the following:

  • they do not reflect capital expenditures;
  • they do not reflect the impacts of adoption of Topic 606;
  • many of the assets being depreciated and amortized will have to be replaced in the future and Adjusted OIBDA and Continuing OIBDA do not reflect cash requirements for such replacements;
  • they do not reflect costs associated with share-based awards exchanged for employee services;
  • they do not reflect interest expense necessary to service interest or principal payments on indebtedness;
  • they do not reflect gains, losses or dividends on investments;
  • they do not reflect expenses incurred for the payment of income taxes; and
  • other companies, including companies in our industry, may calculate Adjusted OIBDA and Continuing OIBDA differently than we do, limiting its usefulness as a comparative measure.

In light of these limitations, management considers Adjusted OIBDA and Continuing OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.

The adoption of the new revenue standard did not impact Adjusted OIBDA.

The following tables reconcile Adjusted OIBDA and Continuing OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the fourth quarter and full year 2018 and 2017:

Adjusted OIBDA and Continuing OIBDA

 

Three Months Ended December 31, 2018 (in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 25,977     $ 6,311     $ 3,178     $ (8,472 )   $ 26,994  
Impact of ASC topic 606   (4,026 )   (17 )   (58 )       (4,101 )
Depreciation and amortization   31,668     6,339     3,604     162     41,773  
Share-based compensation expense               381     381  
Benefit received from the waived management fee (1)   9,599                 9,599  
Amortization of intangibles netted in rent expense   (30 )               (30 )
Actuarial (gains) losses on pension plans               (1,441 )   (1,441 )
Adjusted OIBDA   63,188     12,633     6,724     (9,370 )   73,175  
Waived management fee   (9,599 )               (9,599 )
Continuing OIBDA   $ 53,589     $ 12,633     $ 6,724     $ (9,370 )   $ 63,576  


Three Months Ended December 31, 2017 (in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 11,907     $ 5,386     $ 5,393     $ (4,576 )   $ 18,110  
Depreciation and amortization   33,922     5,898     3,293     142     43,255  
(Gain) loss on asset sales   6     (128 )   53     90     21  
Share-based compensation expense   233     146     63     88     530  
Benefit received from the waived management fee (1)   8,988                 8,988  
Amortization of intangibles netted in rent expense   (645 )               (645 )
Temporary back-office costs to support the billing operations through migration (2)   964                 964  
Actuarial gains on pension plans               (1,391 )   (1,391 )
Integration and acquisition related expenses, and other   1,187             (30 )   1,157  
Adjusted OIBDA   56,562     11,302     8,802     (5,677 )   70,989  
Waived management fee   (8,988 )               (8,988 )
Continuing OIBDA   $ 47,574     $ 11,302     $ 8,802     $ (5,677 )   $ 62,001  


Year Ended December 31, 2018 (in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 92,847     $ 23,755     $ 17,865     $ (41,221 )   $ 93,246  
Impact of ASC topic 606   (15,048 )   (74 )   (197 )       (15,319 )
Depreciation and amortization   127,521     24,644     13,673     567     166,405  
Share-based compensation expense               4,959     4,959  
Benefit received from the waived management fee (1)   37,763                 37,763  
Amortization of intangibles netted in rent expense   342                 342  
Actuarial (gains) losses on pension plans               (1,688 )   (1,688 )
Adjusted OIBDA   243,425     48,325     31,341     (37,383 )   285,708  
Waived management fee   (37,763 )               (37,763 )
Continuing OIBDA   $ 205,662     $ 48,325     $ 31,341     $ (37,383 )   $ 247,945  


Year Ended December 31, 2017 (in thousands)   Wireless   Cable   Wireline   Other   Consolidated
Operating income   $ 34,139     $ 15,846     $ 20,965     $ (24,440 )   $ 46,510  
Depreciation and amortization   139,610     23,968     12,829     600     177,007  
(Gain) loss on asset sales   214     (243 )   79     68     118  
Share-based compensation expense   1,579     916     384     701     3,580  
Benefit received from the waived management fee (1)   36,056                 36,056  
Amortization of intangibles netted in rent expense   1,528                 1,528  
Temporary back-office costs to support the billing operations through migration (2)   6,459             1     6,460  
Actuarial gains on pension plans               (1,387 )   (1,387 )
Integration and acquisition related expenses, and other   10,793             237     11,030  
Adjusted OIBDA   230,378     40,487     34,257     (24,220 )   280,902  
Waived management fee   (36,056 )               (36,056 )
Continuing OIBDA   $ 194,322     $ 40,487     $ 34,257     $ (24,220 )   $ 244,846  

________________________________

(1) Under our amended affiliate agreement, Sprint agreed to waive the Management Fees charged on both postpaid and prepaid revenues, up to $4.2 million per month, until the total amount waived reaches approximately $255.6 million, which is expected to occur in 2022.
(2) Represents back-office expenses required to support former nTelos subscribers that migrated to Sprint back-office systems.


Segment Results

Three Months Ended December 31, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 96,664     $ 29,120     $ 5,469     $     $     $ 131,253  
Equipment revenue   18,651     158     38             18,847  
Other   2,414     2,309     6,661             11,384  
Total external revenue   117,729     31,587     12,168             161,484  
Internal revenue   1,270     1,312     6,533         (9,115 )    
Total operating revenue   118,999     32,899     18,701         (9,115 )   161,484  
Operating expenses                        
Cost of services   31,675     14,817     9,615         (8,447 )   47,660  
Cost of goods sold   17,834     98     20             17,952  
Selling, general and administrative   11,845     5,334     2,284     8,310     (668 )   27,105  
Depreciation and amortization   31,668     6,339     3,604     162         41,773  
Total operating expenses   93,022     26,588     15,523     8,472     (9,115 )   134,490  
Operating income (loss)   $ 25,977     $ 6,311     $ 3,178     $ (8,472 )   $     $ 26,994  


Three Months Ended December 31, 2017                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 106,468     $ 27,109     $ 5,087     $     $     $ 138,664  
Equipment revenue   1,801     177     37             2,015  
Other   2,011     2,119     6,808             10,938  
Total external revenue   110,280     29,405     11,932             151,617  
Internal revenue   1,242     1,092     8,740         (11,074 )    
Total operating revenue   111,522     30,497     20,672         (11,074 )   151,617  
Operating expenses                        
Cost of services   28,881     14,379     10,060     39     (10,382 )   42,977  
Cost of goods sold   5,569     (82 )   67             5,554  
Selling, general and administrative   30,056     4,916     1,858     4,425     (692 )   40,563  
Integration and acquisition expenses   1,186             (29 )       1,157  
Depreciation and amortization   33,925     5,898     3,293     140         43,256  
Total operating expenses   99,617     25,111     15,278     4,575     (11,074 )   133,507  
Operating income (loss)   $ 11,905     $ 5,386     $ 5,394     $ (4,575 )   $     $ 18,110  


Year Ended December 31, 2018                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 380,818     $ 114,917     $ 21,521     $     $     $ 517,256  
Equipment revenue   67,510     695     193             68,398  
Other   9,311     8,585     27,304             45,200  
Total external revenue   457,639     124,197     49,018             630,854  
Internal revenue   5,016     4,706     28,124         (37,846 )    
Total operating revenue   462,655     128,903     77,142         (37,846 )   630,854  
Operating expenses                        
Cost of services   131,166     59,935     38,056         (35,135 )   194,022  
Cost of goods sold   63,583     295     81             63,959  
Selling, general and administrative   47,538     20,274     7,467     40,654     (2,711 )   113,222  
Depreciation and amortization   127,521     24,644     13,673     567         166,405  
Total operating expenses   369,808     105,148     59,277     41,221     (37,846 )   537,608  
Operating income (loss)   $ 92,847     $ 23,755     $ 17,865     $ (41,221 )   $     $ 93,246  


Year Ended December 31, 2017                    
(in thousands)   Wireless   Cable   Wireline   Other   Eliminations   Consolidated
External revenue                        
Service revenue   $ 431,184     $ 107,338     $ 20,388     $     $     $ 558,910  
Equipment revenue   9,467     724     127             10,318  
Other   9,478     7,855     25,430             42,763  
Total external revenue   450,129     115,917     45,945             611,991  
Internal revenue   4,949     3,245     33,308         (41,502 )    
Total operating revenue   455,078     119,162     79,253         (41,502 )   611,991  
Operating expenses                        
Cost of services   129,626     59,335     38,417     39     (38,696 )   188,721  
Cost of goods sold   22,653     14     119             22,786  
Selling, general and administrative   118,257     19,999     6,923     23,564     (2,806 )   165,937  
Integration and acquisition expenses   10,793             237         11,030  
Depreciation and amortization   139,610     23,968     12,829     600         177,007  
Total operating expenses   420,939     103,316     58,288     24,440     (41,502 )   565,481  
Operating income (loss)   $ 34,139     $ 15,846     $ 20,965     $ (24,440 )   $     $ 46,510  


Supplemental Information

Subscriber Statistics

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers, as of the dates shown:

    December 31, 2018 (3)   December 31, 2017 (4)
Postpaid:        
Retail PCS subscribers - postpaid   795,176     736,597  
Gross PCS subscriber additions - postpaid   190,334     173,871  
Net PCS subscriber additions (losses) - postpaid   58,579     14,035  
PCS average monthly retail churn % - postpaid   1.82 %   2.04 %
Prepaid:        
Retail PCS subscribers - prepaid (1)   258,704     225,822  
Gross PCS subscriber additions - prepaid (1)   150,662     151,926  
Net PCS subscriber additions (losses) - prepaid (1)   32,882     19,150  
PCS average monthly retail churn % - prepaid (1)   4.45 %   5.07 %
         
PCS market POPS (000) (2)   7,023     5,942  
PCS covered POP (000) (2)   6,109     5,272  
CDMA base stations (sites)   1,853     1,623  
Towers owned   208     192  
Non-affiliate cell site leases   193     192  

_______________________________________________________

(1) As of September 2017, the Company is no longer including Lifeline subscribers to be consistent with Sprint's policy. Historical customer counts have been adjusted accordingly.
(2) "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 agreements, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data. Historical periods previously referred to other third party population data and have been recast to refer to U.S. census data.
(3) Beginning February 1, 2018 includes Richmond Expansion Area except for gross PCS subscriber additions.
(4) Beginning April 6, 2017 includes Parkersburg Expansion Area except for gross PCS subscriber additions.


The subscriber statistics shown above include the following:

    February 1, 2018   April 6, 2017
    Expansion Area   Expansion Area
PCS subscribers - postpaid   38,343     19,067  
PCS subscribers - prepaid (1)   15,691     4,517  
Acquired PCS market POPS (000)   1,082     511  
Acquired PCS covered POPS (000)   602     244  
Acquired CDMA base stations (sites) (2)   105      

_______________________________________________________

(1) Excludes Lifeline subscribers.
(2) As of December 31, 2018 we have shut down 107 overlap sites associated with the nTelos Area.


The following table shows selected operating statistics for Cable as of the dates shown:

    December 31, 2018   December 31, 2017
Homes passed (1)   185,133     184,910  
Customer relationships (2)        
Video users   41,269     44,269  
Non-video customers   38,845     33,559  
Total customer relationships   80,114     77,828  
Video        
Customers (3)   43,600     46,613  
Penetration (4)   23.6 %   25.2 %
Digital video penetration (5)   78.8 %   76.2 %
Broadband        
Available homes (6)   185,133     184,910  
Users (3)   68,179     63,918  
Penetration (4)   36.8 %   34.6 %
Voice        
Available homes (6)   185,133     182,379  
Users (3)   23,366     22,555  
Penetration (4)   12.6 %   12.4 %
Total revenue generating units (7)   135,145     133,086  
Fiber route miles   3,514     3,356  
Total fiber miles (8)   138,648     122,011  
Average revenue generating units   133,109     132,759  


(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.
(2) Customer relationships represent the number of billed customers who receive at least one of our services.
(3) Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer.  Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above. 
(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) Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area.
(7) Revenue generating units are the sum of video, voice and high-speed internet users.
(8) 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 selected operating statistics for Wireline as of the dates shown:

    December 31, 2018   December 31, 2017
Long distance subscribers   9,452     9,078  
Video customers (1)   4,742     5,019  
Broadband customers   14,464     14,353  
Fiber route miles   2,127     2,073  
Total fiber miles (2)   161,552     154,165  

_______________________________________________________

(1) Wireline's video service passes approximately 16,500 homes.
(2) 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.