Good morning, everyone and welcome to the Shenandoah Telecommunications First Quarter 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jennifer Belodeau of IMS and Investors Relations for Shentel.

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, 2018. Our results were announced in our press release distributed this morning, and the presentation we’ll be reviewing is included on our Investor page at on the website 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; Earle MacKenzie, our Executive Vice President and Chief Operating Officer; and Jim Woodward, Senior Vice President, Finance and CFO. After our prepared remarks, we’ll conduct a question-and-answer session. As always, let me refer you to Slide 2 of the presentation, which contains our Safe Harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties. These may cause our actual results to differ materially from the statements. Shentel provides a detailed discussion of various risk factors in our SEC filings, which you’re 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 an appendix to today’s slide presentation. I’ll now turn the call over to Chris now. Go ahead, Chris.

Good morning and thank you for joining us. Our first quarter 2018 results showed continued momentum as evidenced by improvement in both net and operating income, as well as revenue growth in two of our three business segments. As we mentioned in the last quarter, we completed our transition of nTelos to the Sprint affiliate model ahead of schedule, which resulted in a significant reduction in operating expenses in the first quarter. With our amended affiliate agreement with Sprint, we’ve expanded our wireless service territory to include a population of over 7 million in the Mid-Atlantic area. We have focused on adding complementary markets and we believe our upgraded network and comprehensive service packages position us well as a leading telecommunications provider in all of the markets in our extended coverage area. We were pleased to hear of the signed agreement for the Sprint/T-Mobile merger. We have long-held to believe that a merger of these two companies makes tremendous sense and is needed in order for there to be a stronger challenger to the market domination of AT&T and Verizon. We have been a successful Sprint affiliate for 20 years investing our capital to serve mostly rural markets and growing the Sprint customer base. We have provided tremendous benefit to Sprint and we expect to be able to continue providing value as an affiliate of the new combined company. Of course, at this point, there are many unknowns regarding whether and when the merger will gain approval. And if so, whether the new entity will desire to continue our mutually beneficial relationship. Our agreements provide for a process to be followed and Earle willreview that process later. We believe any outcome will be beneficial to Shentel and its shareholders. It will be many months before these issues will be resolved,…

Thank you, Chris, and good morning everyone. Before I review the quarterly results, I’m going to begin on Slide 10 to discuss a few significant developments during the quarter. First, we adopted ASC 606 and I’ll review the impact in more detail later. The headlines on this one are that we have some geography changes in our income statement, and we’re required to defer and amortize some expenses that were previously recorded as a period of expense. The impact on net income is positive, but by less than a $0.01 a share and the adoption of 606 did not impact adjusted OIBDA. Also, during the first quarter, we saw an expansion agreement with Sprint and as a result, our wireless footprint now includes certain areas of Kentucky, Pennsylvania, Virginia, West Virginia adding 1.1 million POPs and 54,000 subscribers. Finally, on February 16, and as we discussed during the Q4 earnings call; we amended our credit agreement with CoBank to reduce our interest rate, which we believe will save approximately $12 million of interest expense over the term of loan. On Slide 11, we’ve shown our consolidated results and the impact of the adoption of 606, and I’m going to walk through the components of the change. On the left of the Q1 results prior to the adoption of 606 and in the last column on the right is our reported Q1 results including the impact of 606. As I mentioned, the impact 606 with some geography changes on our income statement and the deferrable expenses. So, let’s review those, working from left to right. The changes in the presentation column represent the reclassification of cost of goods sold and SG&A from an operating expense to a contra revenue account resulting in a reduction in revenue. The changes – as a…

Thanks, Jim and good morning. To expand on the point that Jim made earlier about February 1, expansion with Sprint, slide 20 shows the areas we picked up in that expansion. The new service area is shown in orange and covers 1.1 million POPs, almost half are in Lancaster County, Pennsylvania. As we’ve shared previously, we spent $57 million to acquire the customers and the network from Sprint and will spend $56 million on improving and expanding the network over the next three years. These new areas are critical for filling in coverage gaps between our network and the metro areas of Philadelphia, Washington and Richmond. The hash marked area in the western part of the map is potential area that we have no fill requirement. Shown on Slide 21, including the customers are picked up from Sprint from the February 1 expansion as of March 31, we had 774,861 postpaid and 250,191 prepaid for a total of 1,025,052 customers. At the end of the quarter, 24% of our customers were still on subsidized plans down from 26% at year-end. Seven percent of our base upgraded their phone in the quarter, 98% were phones and 2% non-phone upgrade. Eight percent of the post-paid base are tablets or data devices. We continue to see growth of Apple watches. We don’t know how sticky the watches will be, so it’s a one that came on at year-end 2017, received 90 days free service, so it’s too early to know if they’ll turn off. Slide 22 shows the components of change of our wireless customer base from March 31, 2017 to March 31, 2018. You see the 78,000 customers added as a result of the two expansions. We gained 300 net postpaid and had nearly 14,000 prepaid. As you recall, we finished up…

Thank you and we are ready for – operator, we’re ready for questions.

[Operator Instructions] We will go to Ric Prentiss of Raymond James.

Can you hear me okay?

Yeah.

Yes.

Okay. Hey, a couple of questions. first, appreciate the color on the one-time items; we were kind of curious about that. The 401(k) contribution is that something that we should think of happening annually and on the property tax assessment, was that related to towers or what exactly is it, and was it property tax?

So, reverse order property taxes whether it was related to towers location and it was kind of an unexpected surprise, that’s why we’re healing it. We’re just not sure where it came from, but we are – occasionally the states localities will be looking for some revenue and come up with a surprise assessment especially on businesses.

In the 401(k) plan, no that’s not – I don’t expect that to be an annual event. That was a one-time thing. I don’t believe, maybe Shentel has done something somewhere in the past, but I think it's very rare and infrequent. But, it was just a way to thank our employees for the hard work that they had put in, over the course of the last couple of years, helping to grow the business.

Great. And then operational question. It’s been a long time since I remember seeing any negative net phone adds for you guys. Earlier you talked a little bit about the gross ad pool is kind of light and opening up the new stores, it could help it, help us understand a little bit of what you're seeing in the industry. Has there been any affect from cable competition, now that they're coming into the space, and was there any impact Sprint I think last night mentioned, that they had migrated some customers from prepaid to postpaid, both in the base and within their reported quarter and did you have any of that?

I’ll start answering your questions; if I miss one, re-ask it.

Okay.

First question on, did we see any real shift from our impact on cable, the answer is no. Within our footprint, there is actually less than a thousand customers that we can identify from any porting activity. So, we really have not seen although, there is a lot of Comcast cable in our area, there really hasn't been any impact from us as far as they’re taking any customers – meaningful customer from us and that's less than a 1,000 since they began. As far as a shift between prepaid and postpaid, once again we did not see that in the quarter, I’m sure there was some, but there wasn’t enough that really measured – that we could measure it, and so I don't really see that as a primary issue. The real effect – we had good activity relatively speaking, but from what we expected especially since this is our first quarter of selling both in the nTelos footprint and our legacy area, we expected higher gross adds than what we got. But, it really got down to door swings, and people coming into the store. We really saw very little impact maybe not much more than a weekend, on the introduction of the Galaxy 9, and that was disappointing for us. But, really not terribly surprising compared to what we saw for the iPhone in the fourth quarter. And we are still seeing some impact of the Verizon unlimited, now that has held down I think some folks who would have shifted in the past, but we’re still building the brand in the nTelos area. We have very good gross adds in legacy. We're not seeing any deterioration there. We just didn't quite see the pickup in the gross adds in the nTelos area that we anticipated.

Any change to the advertising campaign or is it really just getting the doors open with both the Sprint branded and the Boost?

Well, if you think about it, there are so many areas in our nTelos area where for 15, 20 years there's been no wireless service from nTelos/Sprint, and now we actually have service there and those people who have been hearing advertising for years are not going to all of a sudden say “gee whiz, now I have it in my neighborhood”. So, we really are focusing, we started it in the first quarter, we're continuing into the second and third quarter, we're happy actually do very, very localized marketing using things like yard signs and door to doors hangers to let people know that you've been hearing the national advertising for years and years, but actually now you have an option to change to Sprint. And we've had some good success stories from that initial areas where areas where there have been one or maybe two other carriers and we've gone in there provided good coverage now that we're expanding our coverage get the word out to the customers, and we're starting to make the sales. So, we're very optimistic that it's coming. It's just it takes a long time to change perception even when reality is there.

Makes sense. And last question for me, obviously, Chris, you mentioned how it could be many, many months to resolve Sprint and T-Mobile. One thing that might be a little quicker to understand is your desire and Sprint’s desire to increase the turf that they assign to you, but that might also get delay just because they can't focus on it. So, just wanted an update maybe on what you're thinking about the ability to replicate some of the turf expansions with Sprint particularly given the merger on the table.

Ric, I’ll take this. This is Earle, I'll take that question since I'm the one who has most of those conversations with Sprint. There is still interest on both parties for us to continue to expand. This is kind of a unique relationship where it truly is a win-win, and the two expansions that we've done, I think is kind of a testament to that. You know, obviously there's a lot going on in Kansas City, and Seattle. And although we were in the middle of some discussions, we both agree that it was probably prudent to pause for a short period of time at least and give everybody a chance to kind of catch their breath. But, I think that when you look beyond the areas that we've been talking about taking from Sprint or areas where T-Mobile doesn’t have any coverage either. So, I think that once we have an opportunity to continue these discussions, I think there is an opportunity for us to continue to expand.

Great. Thanks for taking the question guys.

Thank you. Our next question comes in line of Amy Yong from Macquarie. Your question please.

Good morning. I guess two questions, obviously one following up on the T-Mobile/Sprint merger. It looks like Sprint is actually shifting their strategic focus, they’re a little bit more focus on profitability. I think they're calling for churn to be slightly more elevated. Can you just talk about the impact to your business as this merger continues or as it goes through the kind of the approval process, what we should expect from kind of an operational standpoint on the Sprint, and how Sprint is going to impact your operations, I guess. And my second question is, I don't know Earle if it's too early, but if you could talk about some of the operational side you're seeing in the new expanded area Kentucky the one that you’ve singed in February? Thanks.

Okay. Well, as far as, yes Sprint has announced that they are planning on pulling back on the old promotions that have been out there beyond when they were actually promised. And they have said that they believe that churn will pick up when they start taking those promotions away. We've actually been on the forefront of that and encouraging them to do that for quite a while, and we believe that that's very important for the long-term health of the business is for us to start to see some improvement in ARPU. And there are a lot of promotions that are running through revenue today. But, the thing it's important to understand is that the way Sprint accounts for all promotions is basically as contra revenue. So, even if you do a BOGO on a phone, the second phone the cost that second phone is running through revenue and so that's impacting our ARPU. We believe because of the quality of our network that if they do start pulling back the promotions that we don't expect to see any significant impact on our churn. They'll be some, but nothing that – we will more than happy to take any minor amount of churn impact to get the average – the increased average revenue up. So, we actually have been very supportive of that and hope they will continue through with that in spite of the merger. As far as kind of the day to day operations, we're continuing as I said earlier, we're continuing to focus full speed ahead. We're going to continue to, you know every plan that we had in place for 2018, at this point we're going to continue to follow that through with that whether it's constructing our network, whether it's opening stores, whether it's…

Does that answer your question?

Yes. Thank you.

Thank you. Our next question comes from the line of Hamed Khorsand from BWS Financials. Your question please.

Hi. So first off, I just want to ask what are the changes as far as the OpEx is concerned with these expanded markets and it sounds like you’re not getting as much traction with new customers or you haven’t really tried to. Is the OpEx increase or the implied increase going to be more than what you were expecting initially?

Hamed, this is Earle. The answer is no. I mean basically when we acquired those customers, they were somewhat EBITDA or OIBDA neutral that we were collecting enough revenue from those customers to pay the operating costs of running the network, really was it much after that, but enough to cover it. We’ve always said that there would be somewhat of a lead lag and I think we’ve actually given the numbers before. Bringing up a new site costs us about $5,500, $5,600 per month for the tower lease, for the backhaul, for the electricity, for the maintenance of the towers. We will have in this year and the beginning of next year in the nTelos area and in both expansion areas, there will be this lead lag, where we’ll have to bring up cell sites, started incurring the $5,500, $5,600 a month and then we’ll be able to start adding customers. And so that’s the reason why we we’ve said in the past that although you would see a decrease in the one-time cost that you would have from the transformation of nTelos at least in the near-term, those costs would be basically replaced by these increased costs of our operating the network until we were able to get it built and then start marketing and adding customers. So, it really – you have to really think about it as invest and then harvest, which has really been our pattern for many years, whether it was in the cable business, whether it’s nTelos. This is the kind of business where you’ve got to make the big investment up front. You’re going to incur the CapEx and some OpEx, and then you’re able to build the customer base to be able to cover those costs and create value for the shareholders.

Okay. And then my other question was on the video side for cable TV. How much of the losses that you’re incurring, is that coming from just the solo subscriber versus bundle? How much from percentage standpoint, I mean are you – is the mix between bundle and solo as we go into the second quarter now?

To answer your first question, we’re not losing anything but the video, either these are video only customers or even if they leave us for the video. They’re doing one of two things or either going over the top and they’re buying a bigger broadband pipe in order to get that over the top experience or they’re going to the satellite providers. But, they’re leaving their broadband and/or phone with us. So, we really are not seeing a loss in other services, because of it, because we do provide the best broadband experience and we provide the best value for phone. So, it really doesn’t make sense for the customer to take their video. I think the reason why you’re seeing fewer video losses than we had expected is because of our bundling effect. The way you need to think about it Hamed, is you buy broadband from us, you pay the retail price. You buy one other services from us, we take $20 off that first service. If you buy three services from us, and we take $30 off or $10 off the second service for a total of $30. So, even with somebody’s thinking about getting rid of their video, they’re going to reduce their discount. And so, I think that’s really actually been part of the reason why we’ve held on to customers is because when they’ve looked at their total bill even though their price of their video has gone up losing that discount doesn’t make it attractive to go the other place other way. I would say, we have probably out of the 77,000 customers, I’m going to give you an approximate number, because I don’t have it right here in front of me. But, out of those 77,000 customers probably about a third of them are a single service and then virtually, all cases that these are going to be video from customers we’ve had for a very, very long time, who are never going to be broadband and voice customers, or their broadband customers only. With an average RGUs per customer of 1.7, you see that good portion of our customers have more than one service for us to be at the 1.7. If you had asked me this question several years ago, our goal was to get that above two, but realistically with a change in the video patterns, we believe that in the high 1.x ratio is as good as it’s going to get. And you can see what’s happened for profitability just from this continued focus by ourselves and the customer on broadband versus video.

And my last question is a number of homes passed basically, has gone to almost nothing from an increase standpoint. So, is it really just all about costs and any plans to expand further or not really just because it’s you can’t go any further than this?

Well, we actually have in this year’s capital budget dollars to pass an additional 2,000 to 2,500 additional homes. We actually got some construction going right now to do that. So, these are edge-outs that we’ll continue to look at when it makes financial sense. Actually, we are willing to spend more money today than we were several years ago to pass a home, because of the high profitability we’re seeing in our broadband business. So, some areas that were not financially viable several years ago, we now have put back on our list of markets to look at. The other thing that we’re evaluating right now is that there is CAF II auction coming up later this summer, where the government is going to provide some funds to provide broadband, where there is no broadband today and we are looking at various areas within our overall footprint, where it makes sense for us to go into that reverse auction and potentially get some funds from the government to build out additional areas. We’re constantly looking for positioned opportunities, but the bottom line is that just hasn’t been any. We will continue to look for those and if there are any that make sense for us, we certainly will go after them. But, at this point, there just hasn’t been a lot of activity in the M&A area for cable.

Okay, thank you.

You’re welcome.

Thank you. And this does conclude the question-and-answer session of today’s program.

So, thank you everyone for joining us for our call and we look forward to keeping you updated on our progress. Have a good day.