Good day ladies and gentlemen and welcome to the Shenandoah Telecommunications First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Adele Skolits, CFO. You may begin.

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the quarter ended March 31, 2017. 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 www.shentel.com. Please note that an audio replay of the 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 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 statements. 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. I'll turn the call over to Chris now.

Thank you, Adele. We appreciate everyone joining us this morning. We had a solid start to 2017 and look forward to building on the results we achieved in the first quarter. Our expanded customer base contribute to significant revenue growth in the quarter and we continue to make progress integrating the customers and assets we acquired from nTelos. We remain ahead of our schedule both to enhance the acquired network and to migrate customers to Sprint’s back-office. On Slide 5, you’ll see the first quarter 2017 net decreased to $2.3 million compared to $13.9 million in the prior year. This was due primarily to depreciation and amortization expense and the acquisition, integration and migration cost associated with the nTelos acquisition. For the quarter, adjusted operating income before Income Depreciation and Amortization or OIBDA increased 82% to $73.5 million. Revenues were $153.9 million in the first quarter, a 66% increase from the prior year period. Revenues increased chiefly as a result of nTelos acquisition. Our Cable segment revenues also improved as a result of an increase in the number of revenue generating units or RGUs and higher average revenue per customer which was due to the pass-through of video programming cost and customers increasingly selecting high speed data packages. Our Wireless highlights start on Slide 6. Postpaid customers are up more than 127% over the last 12 months, while prepaid customers are up almost 71%. For the first quarter 2017, Wireless adjusted OIBDA grew to $61.4 million, an increase of 114%. Just after the close of the quarter, we announced another expansion of our affiliate relationship with Sprint. The new agreement not only gives us the opportunity to grow our customer base in the new area, it will also enhance the experience for existing customers in adjacent markets, which should expand…

Thank you, Chris. Thank you, Chris. I'll begin with Slide 10, which shows our changes in profitability. In the top-line, you can see that we had a decrease of $10.6 million or 50% in operating income for Q1 2017 over Q1 2016. Over the same period, net income is down $11.6 million and basic earnings per share is down $0.24. Fully diluted earnings per share is down $0.23. We’ve taken a step back in these profitability measures, as Chris said, as a result of the incremental cost of acquiring and integrating the nTelos operations as well as the certain non-cash costs such as depreciation and amortization related to the tangible and intangible assets acquired to which we allocated the purchase price of nTelos. We’ve provided in the next slide to assess how the underlying business is performing without these costs. Slide 11 begins with the $10.6 million drop in operating income and then adjusts for certain non-cash or non-routine items. As you can see, for Q1 2017, adjusted OIBDA is up $33.1 million or 82% over Q1 2016. 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 and this measure is up $24.2 million or 60% for Q1 2017 over Q1 2016. As a reminder, when we acquired nTelos, Sprint committed to waiving the 8% postpaid and 6% prepaid management fees up to $4.2 million a month until the total waive reaches $251.8 million. We provide continuing OIBDA measure to ensure investors are aware that we will eventually reach this threshold and the waiver will end. In addition, for the first six months, after May 6 closing date of the nTelos acquisition, we didn’t incur any management fees relative to the nTelos customer…

Thanks, Adele. Good morning everyone. Great progress continues in the transformation of nTelos. We are on track to have the customer migration and the upgrade of the network to 4G LTE completed by the end of the third quarter. Slide 16 shows the end, that we ended the quarter at 717,150 postpaid customers down 5412 from year end, as we continue to see a pattern of above average churn on the non-migrated nTelos base. Customers on subsidized phone service plans are at 37% of the base, down 2% since the end of 2016. We continued to focus on phones rather than tablets with tablets only 5.2% of the base down 670 from the end of 2016. Other data devices were 2.7%, down from 2.9% of the base at year end. Slide 17 provides some details on the gross and net activity for the quarter. 28% of gross adds selected the lease option and 54% chose installment purchase. You see that gross adds are only down slightly in the legacy area from a year ago. We had more gross adds in the new area than we had in our legacy area, an exciting indicator of what we expect in the future with an upgraded network. We had almost 22,000 gross adds in the new area running limited local advertising. Our plan is to start heavy local promotional and coverage advertising in the new area starting right after Labor Day as we are finishing up the network upgrades. Device upgrades in the first quarter were 5.7% with 45% of the upgrades choosing lease and 44% installment purchase. We had a net loss of 5412 postpaid customers in Q1 with the legacy area adding 1487 net with phone additions at a 143% of the net adds. The new area is down 6899 with…

That concludes our prepared remarks. Glenda, would you review the instructions for posing a question?

Certainly [Operator Instructions] And our first question comes from the line of Rick Sanchez from Raymond James. Your line is now open.

Thanks, good morning.

Good morning.

Hey, couple of questions, really surrounding the migration efforts. So I appreciate all that detail. I think I saw you’ve done 116,000 as of the end of 1Q. How many did you have left at the end of 1Q to migrate? And can you update us kind of intra-quarters how many are left so far to migrate now?

Rick, this is Earle. I guess, the best way to kind of approach this is that, we believe that we are going to migrate in total about 70,000 to 73,000 postpaid customers during 2017.

Okay.

And we did 28,000 in the first quarter. So you can kind of assume that it’s kind of linear going from that point to the 70,000 to 73,000. What we really – as I pointed out in my prepared remarks, I mean, the real here issue is, the very high churn from the customers who we haven’t had a chance to talk to yet. We are being very aggressive and trying to get them in. We are sending them letters. We are sending them text messaging. We’ve done social media. We’ve used radio. We’ve used print. Just as we anticipated that last group of customers are going to be the toughest to get into to make a change. And then the most likely to leave us, because they haven’t had the opportunity coming in and have that one-on-one conversation and hear about everything we are doing with the network. So we expect that churn will stay at the 3 plus percent a month and actually as we saw in the prepaid, we’ll have a much higher churn in the last month as we kind of give the customers and ultimately they come in or were going to be turning you off.

That’s really helpful. Second question around migration also, if we look at your wireless margins, they were 52 - on total revenues, they were 52%, in the third quarter 54% and in the fourth quarter, then 53% this quarter, how should we think about wireless margins as we go through second and third quarters as you are getting ready to accelerate advertising and you heard post-Labor Day. So what should we think about margins kind of as the migration comes out was? And then, as we exit 2017 and 2018, where do we think those margins would go? Just kind of help us given that there is so many moving pieces.

I think we can expect that as we invest in the network upgrades that we will continue to have growing network costs and we incur those cost in advance of growing the customer base. So I don’t expect, as Earle has pointed out, that we will reinvigorate the brand in a new area and begin growing that customer base until the fourth quarter and of course so be limited impact from that. But, fourth quarter is the first opportunity I think we have to take a step forward. We could lose as much as 1% or more. In the mean time, as we incur these incremental network cost, recall Rick, that it costs more to support a 4G base station that it does to 3G base station. And of course, as Earle pointed out in his section of our presentation today, that we are also growing the number of sell sites in a more rapid pace than we’re decommissioning and eliminating costs as well. So we are all about getting that network to the point where we have a substantially better service for our sales people to sell and it comes with a cost.

As we point out, that we are talking about adding net from where we are today over the next 12 to 15 months over a 150 sell sites. So, to be very realistic, there is going to be a extra cost of running that network. Yes, we’ll get rid of the migration and integration costs, but that we’ll have those costs until we are able to get ahead of them by adding customers.

And of course, those same costs are added back in calculating adjusted OIBDA anyhow.

So, I think we are going to continue to see strong margins, but there will be some deterioration and we’ve been – I think we’ve been upfront about that all along saying that, we are making a huge investment ultimately adding 220, 225 new sell sites. That’s a lot of fixed cost that you are going to add in order to be able to be competitive.

It makes perfect sense. I just want to make sure, people are kind of clear on the trend line. And Adele, one other piece on that, the – you get reimbursement from Sprint, I think on nTelos customers until they move over, remind, I remember you mentioned it, but I didn’t write fast enough. How much did you received in the quarter? And is that adjusted in EBITDA or it’s just has been a benefit to EBITDA?

Well, what I mentioned in my remarks was that, for the first six months, we incurred no management fee on the customers prior to migration. So, it doesn’t count towards that $252 million waiver at all. It wasn’t charged at all. So it wasn’t – if that was charged and waived, it wasn’t charged at all for the first six months on the unmigrated customers. So the $252 million is actually somewhat larger than that.

And in the first six months that really then would have been reflected last year, then? I am just trying.

Yes.

Okay.

So, that’s already behind us.

Right.

You asked how much was waived in the first quarter?

Yes, yes.

I believe it was approximately $8.9 million.

Okay, okay. But the Sprint, nTelos customer reimbursement is clean. It was not as that within 1Q 2017 then?

Correct.

Okay, very good. Thank you for that extra color.

You are quite welcome.

Thank you. And our next question comes from the line of Hamed Khorsand from BWS Financial. Your line is open.

Hi, good morning. First off, could you just comment on the Sprint acquisition on the new territories in the quarter? Have you started the build out process there and the marketing? Is there any update that you could provide us on the new territory?

Yes, this is Earle, I am glad to. The answer is no. We really have done nothing and really hadn’t planned to do a whole lot this year. The way you should think about this year is one we are basically doing the planning. So that we can move quickly starting potentially late this year, but most likely it will be 2018 before we have any substantial movement there. We have not – we are not actively selling. At this point, there isn’t even a Sprint store other than some agents that we inherited from Sprint. So we don’t have any of our own employees selling in that area. And have said that, we would delay opening stores until we had upgraded the network to make it competitive. So I think you got to find that in the current period, the amount of revenue that’s being generated by the 20 some thousand customers that we got from Sprint, covers the cost of operating the network. So it has really variable impact on the bottom-line. We will start incurring some CapEx cost and with that some OpEx probably early next year. But we will continue to give you updates and I think the first time you’ll see any significant real movement will be in the fourth quarter of this year, first quarter next year, okay.

And then on the prepaid adds that you had this past quarter is it because the boost – prepaid market is benefiting year-over-year? Is it because you have 4G in some of the new nTelos markets? What’s driving that, especially in the new markets?

I think really, it’s been a couple of things. Number one, we’ve seen over the last couple of years a real shift from Virgin Mobile to Boost. The problem that we’ve had is we’ve been having extremely strong Boost sales but we’ve had very high churn in our Virgin Mobile space to the point where it’s kind of mitigated. We’ve had this increasing average revenue which is kind of with the underlying support of that, we are now to the point where over three quarters of our prepaid customers are on the Boost plan. So, that’s a very strong brand for us. We have been focusing on adding stores. As of April 1, we took over 100% of the control of managing prepaid in our footprint in the new area, we have to remember that up until the year-end, we were focused more on migrating customers than we were on growing customers. And we really didn’t have that much Boost distribution, because we were actually doing the migration of the nTelos Fog customers, their prepaid brand to Boost in our nTelos/Sprint stores. In our legacy area, we don’t really sell any prepaid out of our stores. All of the Boost is done through third-party Boost stores. So I think what you’ve seen here is really the opportunity to focus on prepaid not having to focus on migrations, and as you saw in Sprint, Sprint has helped rejuvenate the Boost brand and they had good adds in the first quarter also.

Okay, and then last question here is on the ARPU on the postpaid. It continues to decline and now you are facing competition from AT&T and Verizon. How much more impact do you think will happen in Q2 because of that? And where do you think it will stabilize if at all?

Well, I think we’ve weathered the competition from Verizon and AT&T very well. We had launched the unlimited freedom plans well before they launched their unlimited plan. In early in the first quarter, we actually had increased our port-in ratio versus port-out to almost 2 to 1, even after they came out with their heavy advertising and their promotion, our port-in ratio versus port-out was still at 1.6 to 1. So, I don’t know that we are being heavily impacted by that. I think really what you have to think about is the fact that we are continuing to have – we are still in the high 30s, but we still have customers who are on subsidized plans, moving to either lease or installment purchase and in that, they are going to get a lower average rate. But we are avoiding having to subsidize the phone. So, if you look at it from a gross margin standpoint, they are offsetting. There is some impact when you look at the unlimited freedom plan because your first-line is $50. Your second-line is $40. And so, on average, our customers are taking just over two lines each when they come in for that unlimited plan. So you are looking at an average revenue in the $45 range. So those two items are going to continue to have an impact on average revenue. It certainly has slowed, but I think we will continue to see a slight decrease in average revenue over the next couple of quarters.

Okay, thank you.

Thank you. [Operator Instructions]

Glenda, I see no further questions. So I think that concludes our call. Thank you everyone for participating. If you have additional questions, you’d like to see us address on future calls, please let me know. My contact information was provided on the press release.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.