Good morning, everyone and welcome to the Shenandoah Telecommunications’ Fourth Quarter and Yearend 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to, Ms. Adele Skolits, CFO. Please go ahead, ma’am.

Good morning, and thank you for joining us. The purpose of today's call is to review Shentel’s results for the quarter ended December 31, 2016. Our results were announced in a press release distributed this morning and the presentation we’ll be reviewing is included on the Investor page of our website at shentel.com. Please note that an audio replay of the call will be made available later today. The details were set forth in a press release announcing this call. With us on the call today are Christopher French, our President and Chief Executive Officer; and Earle MacKenzie, our Executive Vice President and Chief Operating Officer. After our prepared remarks, we’ll conduct a question-and-answer session. 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, uncertainties and other factors. These may cause our actual results to differ materially from any future results expressed or implied by such forward-looking statements. Shentel provides a detailed discussion of various risk factors in our SEC filings, which you’re strongly 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 the appendix to today’s slide presentation. I’ll turn the call over to Chris now.

Thank you, Adele. We appreciate everyone joining us this morning. as a preliminary matter, I want to note that as we reported earlier, the filing of our 10-K for 2016 was delayed. The delay was a result of the time required to finalize the purchase accounting associated with the acquisition of nTelos and the complexity of the three-way nature of the transaction, including the exchange with Sprint. Although we previously expected to be able to file our 10-K with the SEC by March 16, we were not able to do so by that date. KPMG are independent auditors and indicate they required additional time to complete their audit field work and complete their internal quality assurance reviews. The company and the audit committee of the Board of Directors continue to work diligently with KPMG to complete the audit process to enable us to file our 10-K as soon as possible. We currently expect we'll be able to file by the end of this week. While not happy with the delay it is important that we ensure the complexities of our three-way transaction acquiring nTelos be properly recorded. We are correcting the material weaknesses we identified in our internal controls. Going forward, we expect our control environment to be more robust and we've re-committed to ensuring we have a solid controlled framework to support our continued growth. Moving to our results, we had a strong fourth quarter capping off a very important year in the evolution of our company and I am pleased to provide details about the company's continued growth. During the year, we delivered an expanding customer base and significant revenue growth. We are ahead of our expectations on the very significant projects we undertook with the acquisition to enhance the acquired network and to migrate customers to the…

Thank you, Chris. I'll begin with Slide 12, which shows our changes in profitability. In the topline, you can see that we had a $9.5 million or 44% decrease in operating income for 4Q'16 over 4Q'15. Over the same period, net income is down $12.3 million and earnings per share is down $0.24. Slide 13 begins with a $9.5 million drop in operating income and then adjust for certain non-cash or non-routine items that you can see. For 4Q'16 adjusted OIBDA is up nearly $35.9 million or 90% over 4Q'15. For the year ended December 31, 2016, adjusted OIBDA is up $95.2 million or 63%. We also provide continuing OIBDA to reflect the amount of adjusted OIBDA the company would generate without the benefit of Sprint's waiver of the management fees. This measure is up $26.9 million or 67% for the quarter and up 47% for the full year. As a reminder, when we acquired nTelos, Sprint committed to waving the 8% postpaid management fee and 6% prepaid management fee up to $4.2 million a month until the total wave reaches $253 million. We provide continuing OIBDA to ensure investors are aware that we will reach this threshold at some point. In addition, for the first six months after the May 06 closing date at the nTelos acquisition, Sprint did not charge or waive any management fees relative to the nTelos customer billings prior to the customer being migrated to Sprint's back-office. These improvements are consistent with the longer-term trends as you can see on Slide 14 where I provided the long-term view of adjusted OIBDA. Since 2010, adjusted OIBDA has grown by $162 million. This represents a compound annual growth rate of 19.6%. To better understand the factors driving the consolidated results, I've provided the fourth quarter OIBDA results…

Thank you, Adele. Good morning, everyone. We released customer numbers in early February. So, I won't spend much time rehashing all those stats, but I will highlight some of the key Q4 results. As shown on Slide 19, we ended 2016 with 722,562 postpaid and 236,138 prepaid subs for a total of almost 959,000. Netted from that number, are 24,348 prepaid customers that Sprint purged in December as a result of shortening the time that non-active customers are deemed to have churned. Since these were nonrevenue producing subs, the reduction had no impact on total prepaid revenue, but will cause the billed revenue per customer to increase. Moving to Slide 20, in Q4 we had 47,988 gross prepaid additions, with the gross additions in our legacy areas similar to last year. The South and West regions, the former nTelos areas actually had more gross adds than our legacy area with mostly the Sprint national advertising, which bodes well for the prospect of gross ads once the network is upgraded and we layer in network and other local advertising as well. We had net additions of 3,777 with 7,014 net additions coming from our legacy area. Phones represented 95% of the legacy area net adds and 74% overall. Our Q4 porting ratio in the legacy area was 1.7 to 1, taking share from all carriers. Overall churn was 2.1% with legacy area churn at 1.6%. You see on Slide 21 that our gross billed revenue per postpaid user has leveled off the past few quarters and actually increased in Q4 over Q3. We expect that the revenue per user will continue to fall with promotional pricing and as more of our base migrates from subsidized service plans to phone leasing and installment sales. In Q4 subs with subsidized plans dropped from…

This concludes our prepared remarks. Vince, would you now review the instructions for posting a question?

[Operator instructions] We'll go first to Ric Prentiss of Raymond James.

Good morning.

Good morning.

Good morning.

Hey. Glad to hear the updated thoughts on the 10-Q, currently expected to end this week, but obviously, the Board felt comfortable enough with 4Q I guess to do the call even before the 10-Q was out there or 10-K was out there.

Correct.

Okay. As we look at the numbers, the margins were definitely better than we were looking for particular on the wireless side, but across the Board. Can you help us understand first the acquisition, integration and migration costs within the quarter and just to reaffirm those costs are then excluded from the EBITDA then kind of as an adjustment?

They are. On Slide 15, you can see us adding back integration, acquisition and migration expense of $6 million for the fourth quarter and so that would be things like the handsets that we give customers to migrate them to the back office, the reconditioned handsets. It would be the shutdown of cost of the duplicate cell sites. We recall that we had 150 cell sites that overlapped with nTelos. So, we're shutting those down. The cost of severance is also included there. Then we've got $4.2 million Ric of temporary back office costs. That's the billing and IT cost and customer care cost that we incur for the nTelos back office that will drop off at the point that we have all the customers migrated.

Okay. And so, as we think about the margins than that you report with the wireless EBITDA, how should we think about those margins going forward as I guess you add more cell sites, but then also you start selling into the new territory?

Certainly, we will have additional network cost. The additional cost of selling predominantly advertising and then whatever handsets are being subsidized and then commissioned costs would be incurred.

But from a macro standpoint, any thoughts of where our margins could go from here? Are we talking about going down noticeably as you finish the integration and then add the sites in the sales effort? Just trying to think, a lot of moving parts here of your stores. I am just trying to think good results in the quarter as we look out into the future, where are my margins had maybe look at legacy versus the new territories?

Ric, let me take that. This is Earle. I think in the legacy area, we'll continue to see kind of business as usual. There's really no change in what we're doing there. We're continuing to advertise. We're continuing to put on good gross ads. So, I don't think you'll see any significant change in the margins there. I think in the new area, we'll see a little bit of a step back towards the end of the year, second half of the year, as we ramp up advertising, as we ramp up distribution, you'll see some impact on the margins at all. So, we'll be bringing on the additional cell sites. But as we continue to add customers, you'll see that that margin started to go back up because as you're aware in this business, the significant fixed costs not as high a variable cost and as we add customers, we'll be able to move the margins up. I think we've said that before that the margins in the new area are going to be lower, simply because we have twice as many cell sites and so the cost of maintaining that network at the current level of customers is going to give us a lower overall margin, but as we continue to add customers over the next couple of years, those margin should move towards the legacy area margins.

Okay. And then one of the things with the K being late and yearend reporting season anyways, we're almost out of 1Q, what can you help us understand as far as trends that you've seen in the marketplace that is competitive out there, but any update on maybe porting ratios or I think you mentioned ARPU trends, but just kind of your thoughts on now that we're 10 days away from 1Q ending with what you've seen in the quarter?

Basically, we're continuing to focus in the new area on the migrations and we've seen -- we've had good pickup there as far as the number of customers migrating over. We have seen some elevated churn because of as we get closer to people having to make a decision, we've seen a little bit of churn update there. There has been more competition, but we haven't been dramatically impacted by the -- by both Verizon and AT&T coming up with an unlimited plan. I won't say it has had no impact, but it hasn't been a dramatic impact. So, I think first quarter has been a good quarter for us.

Great. I'll come back if there is time at the end. Thanks.

Thank you. Our next question is from Barry Sine of Drexel Hamilton. Your line is open.

Hey. Good morning. Wanted to talk a little bit about prepaid. Obviously, there is little bit of weakness going on there and I thought it was interesting, I think you said that in your legacy areas, you actually added a small number of prepaid. If you could talk about some ongoing trends there, I think you said that the boost brand seems to be pretty strong. Virgin hasn’t been relaunched. I don't know what's going on with Assurance? And then, what are your -- what is your outlook where those prepaid brands as you get the new markets upgraded with network?

Barry, this is Earle. We actually had a net loss of 43 prepaid in the legacy area. So, it was virtually a zero. For the last several years, in the legacy area and the same strategy we're now deploying in the new area, is we have been working with Sprint and expanding the boost distribution. Actually, even some of the nTelos stores will be rebranded as Boost store. So, we have really been pushing the boost brand because it's the highest ARPU revenue and we'll continue to do that in both the legacy and the new areas. Sprint has talked about rejuvenating the Virgin Mobile brand. At this point, that hasn't happened and so we're seeing a steady deterioration of that customer base, but have been able to in the legacy area, offset that with increases in Boost. As we've talked about before, Sprint is getting ready to spin off the Assurance customers into a joint venture. When that happens, those customers, we'll no longer count those customers, but we will be getting the wholesale revenue from those customers, which from a bottom line net makes that neutral. And going forward, we're just going to continue to support the brand. What we've announced as part of the -- actually it was kind of lost in the shuffle, but we're actually taking over effective April 1, not only the new area in the Western part of our service area, but we're also taking over the servicing of the prepaid customer's distribution in our area. Historically Sprint has done that nationwide. We are now going to be doing that ourselves. They are going to actually give us a rebate back of approximately 55,000 a month for us to do that. We already have people in the market that is working on that today. So, we'll have an incremental number of folks that we'll add in order to support that, but I'm optimistic that with us taking complete control of supporting the prepaid distribution in our area, we're going to be able to continue to accelerate prepaid growth.

Okay. And then a related question still on prepaid, I think you said that you were able to shut down the nTelos prepaid third-party billing platform in the quarter. Could you give us the financial impact of that? How much did you pay in presumably that's a pretty significant delta between fourth quarter and third quarter OpEx?

Yeah, that the contract was a $0.25 million a month and we did close that down in December and so that is an expense that went away effective January 1.

Okay. And my last question on the network enhancements that you're doing in the nTelos footprint, the longest timeline is obviously the new coverage cell sites and the goal is adding 220, one of the first milestones is obviously getting zoning approval. So, could you talk about give us a little more granularity in terms of where you are on those 220? Have you located them all? Have you applied rezoning on the mall? Are you still in the early stages on some of these?

No, the good news we actually started the zoning work prior to closing. So, we're coming up to close to a one-year anniversary on doing the zoning. So, the search rings have all been released. In many cases, we have identified the location. As we've always said in the past, our first objective is always to go on existing tower rather than to build one ourselves. But it looks like of the 220 we may end up having to build up to as many as 50, because we are getting into areas where there isn’t a lot of existing coverage. So, we're continuing to work on those and those will be the ones that will primarily get done in the 2018 timeframe. But the areas where there's the most competition are where we're focusing on billing towers for our building sell site first and so the 90 that we get done this year and the ones that we'll get done early in '18 will be where we're getting the biggest competitive parity in our build out.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question is from Hamed Khorsand of BWS Financial. Your line is open.

Hi. First off, I just wanted to start off with, are you seeing kind of data yet from the user base as you're upgrading the network from the acquired nTelos to 4G, are you seeing a sub changes at all as far as new surge and the plans and so forth?

Well, you see how dramatic their usage has been. They are now almost using as much data as our existing customers, which I think is really kind of an indication of the capacity we add because that was kind of the hidden cost in this upgrade that we did is that nTelos have started their 4G upgrade, but they'd only put one carrier in those sites for LTE and so with one carrier in a site, you're not going to get a lot of LTE usage. And so, what we've seen is the dramatic shift from primarily data being carried on 3G in the nTelos footprint to now as being carried on 4G and so as part of that you're seeing the significant increase in data usage. I can tell you that anecdotally, when we look at the churn rate of the various parts of our nTelos area, the customers with the lowest churn are those who have migrated over from the nTelos back office to the Sprint back office and I think the primary reason for that is we've had the opportunity to sit down as part of that migration process and explain to them exactly where we are and what our plans are for upgrading the network. And I think that when you look at it from that customer standpoint, they've gone from a network that was truly inferior to one that is catching up fast and they see the prospects of that getting better over the next six to nine months and so you they have been a patient customer group and one who I expect will have for a long time.

Okay. And then I just wanted to try and trying to understand what your games are here as far as this new deal with Sprint, you're essentially paying $38 million for basically 20,000 subscribers that at your current ARPU rate generally about $9 million a year in revenue and that's just on revenue basis. So, I am just trying to understand the mathematics and the strategy as far as going out obligating yourself to $38 million.

Well, we're obligating ourselves to that but we're not spending that today. We're spending $6 million at closing and then we will spend the $32 million over the next three years upgrading the customer base and when you look at our ability, these are areas where we believe that we can make a significant difference. We will have a -- once we finish spending the $32 million, we'll have a very competitive network and we'll be able to grow the penetration to something similar to what we have in our other areas. So yes, if you look at it from a very short term view, it is a fairly significant investment, but our profile has always been one where we make the investment and then we harvest the returns for our shareholder. And so really what we're doing here Hamed is we are investing in growth for 2019, 2020 and 2021 today and we're going to have to start spending some dollars today, but the good news is we do have those customers today that can pay the operating cost of running the network that's there today. So, this is not a significant impact on the bottom line near term and we will stage out the distribution costs and start adding customers when we have a network that is competitive. So, we're not going to start spending a lot of advertising or build a lot of stores or have a lot of distribution cost. Initially, we'll maintain the existing customers. We'll add some nominal number of customers in the short-term, but in a year and a half from now or so when we start having a competitive, more competitive network, that's when we will ramp up the distribution and the advertising.

And it's fair to say that we have in excess of 20% penetration in our existing markets and we're talking about buying a market that has 500,000 pops. So, a better way to think of it might be in terms of applying our current penetration to 500,000 pops.

No, I got that. That's exactly what I was trying to understand. I got that. And Adele, just my last question is just as far as integration expenses go, how much will taper off in Q1 and where do you think it will zero out?

We expect that it will zero out when all is said and done, the low $100 million.

Okay. And will it just trend down from here?

It will yes.

All right. Great. Thank you.

You're welcome.

Your next question is from Amy Young of Macquarie. Your line is open.

On the $32 million of incremental CapEx, when do you think we'll see the majority of that investment? And then secondly, I think that you had just mentioned that you expect penetration that would be pretty similar, do you expect that from the get go or do you think it will lag a little bit.

This is Earle. As far as CapEx, there won't be a significant amount spent this year simply because we're already through the first quarter and we'll primarily use this year for planning and for putting in purchase orders and looking for cell sites. You're going to see the CapEx kick in significantly starting in '18. I won't say it's going to be a third, a third, a third. I would assume that it will be heavier in '18 and '19 than it will be in '20 simply just from a CapEx standpoint, but from a customer acquisition, you're not going to see significant customer acquisition in '17 or '18. It really will be '19 before we start adding any significant number of customers because as we said, we really don't want to start adding customers to a network that's inferior because they will be disappointed and they'll not stick around. So, we want to wait until the network is not necessarily complete. We're not going to wait till 2020, but it will be 2019 before we start seeing any significant number of customers and it will take a number of years to get to 20% penetration, but I think you'll see a nice ramp starting in 2019.

Okay. Thank you.

You're welcome.

Thank you. And we have a follow-up from Ric Prentiss of Raymond James. Your line is open sir.

Yes thanks. Some follow-on, on the new market areas, when you look at those market areas, obviously, you guys just have I guess 4% share that you're taking on there, hoping to get it up to 20%. Help us understand who the existing competitors in that marketplace, I would assume it's fairly heavily skewed to the cellular operators. We just want to know have you looked at the market share of the competitors and who they are?

In the areas, it really kind of depends. In the Cumberland area where actually U.S. Cellular is very strong there. They’ve built a significant amount of network in Northeast part of West Virginia and into Maryland and you have the Verizon and AT&T are primarily focused on the interstate. If you look in the Western part of the area similar to what we see in West Virginia generally is AT&T is the strongest player in the Parkersburg and Huntington area. So, they will be the primary competitor we'll see going forward.

Okay. So, if you think about the market share there, it's not really T-Mobile. Sprint didn't have much, Verizon has the Interstate, but AT&T and U.S. are your bigger competitors that you'll be looking to catch up.

Yes, they are the biggest competitors there. Now T-Mobile has no network at all in the entire state of West Virginia and Sprint's network was fairly limited.

Okay. And then as you think about the margin impact on bringing on this area, how should we think about the margins at 4% penetration versus what kind of margins you could achieve when you double it to 8% and may be get up to 15%. Just trying to think of the progress on the markets. Obviously, it will take couple of years to get the network build and then it will start ramping, but just trying to think of the margin progression.

Well I think as I said earlier, day one basically, we're collecting enough revenue as kind of to pay for the cost of running the network. So, there is really not a lot of margin there. So, for the next couple of years, the margins will be basically zero could be even a little negative as we start bringing on sites without the corresponding customers, but I think that's when you see the turnaround starting in '19 where we can. The good news it won't take a lot of double it as far as the penetration, but that's when you're going to see you see the uptick and the fact is that because unlike nTelos, I think the big difference between this and the nTelos, is this is a very controlled environment. It's a limited number of customers, an area where we can go in and we're not having to re-change the brand. We're not having to move anybody to the new back office. These are Sprint customers that are already on the Sprint back office and so I think we can control the process without a lot of FX expenses and we can migrate over to a smooth operating environment without taking a significant hit on the bottom line. As far as the improved margins, this is not a big enough area that is going to have a huge impact on the consolidated, but I think you'll start seeing some positive impact, probably it will take 2020 before you'll see any real significant impact.

Okay. And did you say how many cell sites are going into the area?

It will be roughly 100 either ones that we have to upgrade or additional sites. So, it's a fairly significant build over a three-year period.

Okay. And last one for me, then you mentioned that this was -- area was a targeted first because it was nTelos' territory but it wasn't part of the affiliate or maybe even the wholesale agreement. That suggest that there's more in the wings. What's your appetite? How do you kind of pace it? How do you get Sprint's attention as we go into the post broadcast auction timeline? So just trying to think of how many of these could we see over what point in time and I was just kind of similar size that we might expect?

Well, as we've said before, from our standpoint, the closer we can get our network to Sprint's major Metropolitan areas, the better it is for both parties because probably the weakest coverage areas that we have right today are the areas just outside of our service area. So, we're looking to have discussions with Sprint to expand our coverage really in both East and North primarily and I think that there is very good prospect, you will see some additional areas like this. As far as the size of them, the good news is that that's kind of in our control. We can decide and have had this discussion with Sprint that we do have an appetite to continue to grow our footprint, but we want to do it in a way that we know we can manage it well. We can you finance it without putting any burden on the company and also to be able to utilize our resources without burdening the resources. So, I think you can see a steady stream of these over the next couple of years and we will as we have in this one, paced them, so that we will be doing the construction over a couple year period. Obviously, the quicker we can get it done, there are some advantages, but on the other hand, if you look at it from Sprint's point of view, these are not areas they probably would have spent any capital. So, whatever capital we spend on whatever timeframe is positive for both sides.

Great. That helps a lot. Thanks Earle.

That concludes our Q&A. Thank you for participating. I would like to invite you to let me know if there are additional details you'd like us to provide in future calls. My contact information was provided in the press release.

And again, ladies and gentlemen, that does conclude today's conference. We thank you for your participation. You may now disconnect.