Good morning everyone and welcome to the Shenandoah Telecommunications Second Quarter 2018 Earnings Conference Call. Today's conference will be recorded. At this time, I would like to turn the call over to John Nesbett 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 June 30, 2018. The results were announced in our press release distributed this morning, and the presentation we'll be reviewing is included on our Investor page 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 Chris French, President and Chief Executive Officer; Dave Heimbach, Executive Vice President and Chief Operating Officer; and Jim Woodward, Senior Vice President of 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. Okay, I'll now turn the call over to Chris. Go ahead, Chris.

Thank you, John, good morning and thank you for joining us. Before I begin I'd like to take a moment to introduce Dave Heimbach who has joined us as Executive Vice President and Chief Operating Officer. Dave previously served as Chief Operating Officer of Rise Broadband and Cincinnati Bell, and he has already proven to be a strong addition to our team. Dave has been with us for a few months now, but I wanted to welcome him to his first Shentel earnings call. Second quarter 2018 was a solid quarter for us as reflected in our revenue growth, significantly improved operating income, enhanced net profitability and considerably reduced operating expenses. As you know during the past year, we've expanded our wireless service territories in the mid-Atlantic area to now serve a population of more than 7 million. With the growth of our geographic footprint, our focus is on promoting our enhanced network and extensive service offerings to increase distribution and activation levels in our extended coverage area. The capacity and reliability of our network speaks for itself and is a competitive advantage for us in the markets we serve. Regarding the proposed Sprint/T-Mobile merger we're watching and waiting with all of you. We believe the merger makes excellent sense from a competitive standpoint, providing a stronger competitor against the much larger AT&T and Verizon. We've had a very successful and mutually beneficial affiliate relationship with Sprint during the last 20 years. Shentel has provided tremendous benefit to Sprint over the duration of our relationship, particularly in our build out of rural markets, and we would welcome the opportunity to continue to add value to the new combined company. While we wait for more clarity on the future, our primary focus remains on continuing to grow our wireless business while…

Thank you, Chris, and good morning everyone. Let's take a look at our quarterly results. On Slide 11, we showed the changes in our operating revenues and net income. Revenues for the second quarter of 2018 were 154 million compared to 153 million in 2017. Excluding the impact of the adoption of ASC 606 revenues increased 5 million driven by the wireless and cable operations. Second quarter consolidated operating expenses decreased by 10 million. Excluding the impact of the adoption of ASC 606 operating expenses decreased by 3 million driven by the absence of an nTelos acquisition costs and a decrease in depreciation and amortization as we retired assets acquired in the acquisition. Our operating income increased $10 million over the prior year's quarter. We recorded net income of 7.8 million or $0.16 per share, compared to a net loss of 80,000 in the second quarter of 2017, excluding the impact of the adoption of ASC 606 Q2 earnings-per-share was $0.12. Moving to Slide 12, you'll see our second quarter adjusted OIBDA results by segment, which illustrates the components driving the quarter over quarter change. Adjusted OIBDA for Q2 was 69.7 million compared to 69.4 million in 2017, representing an adjusted OIBDA margin of 45%, continuing OIBDA is also shown on the slide to illustrate the impact of the waived Sprint management fee. As a reminder, when we acquired nTelos Sprint committed to waive 8% postpaid and 6% prepaid management fees up to 4.2 million a month until the waived management fee reaches 256 million. We expect to receive the benefit of the waived management fee through 2022. Consolidated OIBDA was also impacted by expenses incurred for projects related to the implementation of the new lease accounting guidance as well as our material weakness remediation efforts. On Slide 13 we…

Thanks, Jim, and thank you Chris for the kind words at the start of the call and good morning everyone. First, I'd like to say that in the short-time that I've been here I've seen firsthand what a great team Shentel has in place and what a tremendous company this is. I'm excited about this new opportunity and energized to help drive the Company's future success. I've had the opportunity to meet or speak with several of you already and I'm looking forward to meeting more investors in the coming months. I'd also like to congratulate Earle MacKenzie on his retirement and thanks him for his input and guidance in our transition. Now I'll continue on with our presentation. On Slide 18, including the customers picked-up from Sprint in the February expansion, at June 30, 2018, we had 781,000 postpaid and 252,000 prepaid customers for a total of 1,033,000 customers. This growth represents an increase of 6.6% and 13.5% respectively, as compared to the second quarter of 2017, and also a sequential growth as compared to first quarter of 2018. At the end of the quarter 22% of our customers were still on subsidized plans, down from 24% at the end of the first quarter, 6.3% of our base upgraded their phone in the quarter and of these upgrades 98% were phones and 2% non-phones. Overall, 14% of our postpaid net ads for the quarter were non-phone devices, resulting in 8% of the total postpaid base. Slide 19 shows the components of change of our wireless customer base year-over-year. You see the 54,000 customers required as a result of the Richmond expansion and 24,000 added from organic growth. On Slide 20, we show the gross and net activity for the second quarter 2017 and 2018. We had solid growth adds…

Thanks, Dave. Before I conclude let me shed some light on how this potential Sprint/T-Mobile merger could positively impact us. At this point, there are numerous unknowns and we're not going to spent time speculating, but I will walk you through a few different scenarios that can materialize in accordance with our affiliation agreement with Sprint. As soon as the new merger is approved, T-Mobile has a 180-day after closing to negotiate a mutually acceptable addendum to the affiliate agreement. Based on specific criteria laid out in the agreement, the new T-Mobile would have 60 days after this period to decide, if they wanted to buy a wireless business, which does not include our towers or fiber networks. If they pursue the purchase of the purchase of the wireless business, they are predetermined criteria that will guide the valuation of evaluation of our business all of which were developed with the shareholders best interest in mind. If they chose not to buy our wireless, Shentel remain an affiliate of the new T-Mobile and for the next 60 days we have the option to acquire T-Mobile customers and network at a purchase price based on specific criteria and assumptions. If we're unable to finance the purchase, the new T-Mobile will finance the purchase as their cost of capital for up to five years. If Shentel decide not to buy the T-Mobile network and customers, the new T-Mobile must turn off their network that overlaps Shentel within two years. I know implications with this merger that the potential merger raise questions but we are too early in the process to prognosticate potential outcomes. So we will continue to remain focused on growing our business through investments in technology, and providing high quality local service. Thank you, operator and we are now ready for questions.

[Operator Instructions] We have a question from Ric Prentiss from Raymond James. Your line is open.

One operational question and then one strategic question. Operationally, on the wireless side, churn -- postpaid churn improved nicely. Can you take us through a little bit about what you saw helps that? And then there is also as maybe some pressure from Sprint as they remove the promotions just wondering what you are thinking on the trend line for postpaid churn?

So, there is three primary contributors to the churn results in the quarter on postpaid. The first is as a simple one which happens every year it's called seasonality. The second quarter is usually our best quarter and you've probably seen that in prior years as well. The second one is and the third are things that you I would say we can take credit for with respect to management decisions and initiatives. And no pun intended the one is the tighter credit policy. So, we made a change earlier in the year and which was the initiative that gave momentum to Q4 last year and it's starting to pay-off now in the second quarter results that takes a while to manifest in the numbers but were pleased with what we're seeing there. The second is just the impact of the better network or better performing network so as coverage continues to improve particularly in the nTelos areas and capacity augments continue to flow through were seeing that in terms of peoples' willingness to stick around.

As you think going forward with Sprint taking the half of promotions off the table?

Chris French and I just did a little tour of our Southern Virginia markets and I don't even remember a loss count how many stores we've visited 70 some odd stores. But, but what I would say is the prevailing feedback I heard from our folks as well as customers while in the stores. The new rate plan has been very well received and we're not seeing any negative impact really whatsoever. And the new Bring-Your-Own-Device introduction of $20 a month savings there on BYOB is also well received. So we're not seeing any impact negatively there.

And on the bigger picture side, have you seen any evidence of T-Mobile overbuilding into your territories?

Any evidence? Well, there -- as you know they've been public about their interest in leveraging their 600 megahertz spectrum and I can't say for sure whether we are unique with respect to their build out plans, but yes generally we understand that that's something that they're undertaking and is also happening in our region as well.

Because the thought has been obviously -- Jim thanks for the thoughts on Sprint-T-Mobile merger, and we get it it's definitely early; one other thing I am wondering about though is you guys have done some terrific expansions with Sprint some of them are in earlier stages, and others, would it make sense to try and accelerate CapEx and marketing plans to try and get more value into those markets as opposed to where they might be still very modest markets so just trying to think on those terrific expansions how they might be considered and what you might consider doing if the Sprint-T-Mobile merger would go through?

This is Dave again and I'll take it over to Jim for his thoughts, but when I think about the level of CapEx spent and I think about all the wheels we have in motion. We are busting it at a pretty good pace currently, I mean, we will have touched close to 200 cell sites this year in terms of capacity augments, new build etc., and we're building fiber to the tower to decrease external expense. So, we have -- that team is humping at a pretty good clip and certainly we always look for opportunities to accelerate but you really note it, I guess I was saying we'll take the advice.

No, no I think that's exactly right, I think that the build plans and the pace at which they just plan to do them, Sprint, T-Mobile we're aggressive in that area to begin with because that's where we are going to get the shareholder return. So we realize that we need to get these areas built out quickly and effectively so we can start selling so we'll take a look.

And there's some flexibility there, because how was the existing climate that was probably not very contemplated in the original contract, thinking about turf expansions and how to value those in a merger changing control scenario?

Well, it was Ric. This is Jim. So if in the event that this happens, here is a provision in the contract that says that we'll get the better of either the economic value that used to calculate the value to wireless business or whatever our CapEx spent has been in these new expansion areas. So I think it's not -- we will get better off in that and you can think about nTelos will probably built out in that area pretty much, I mean Parkersburg and what we call Richmond sliver around here which is new territory and we'll just have to do that evaluation depending on when those conversations start, but I don't see that we will be hurt by having those new territories in that conversation at al.

And next question comes from Amy Yong from Macquarie. Your line is open.

Dave, one for you, one for you, Jim. First, Dave, I guess, what kind of operational opportunities do you see in the legacy and expansion territories? And I guess, if you could give us a sense of the penetration rates in nTelos versus legacy, I think that will be helpful. And then similar to the last question, with Sprint's promotional activity being a little bit refocused, what kind of trend should we expect on ARPU, going forward? And then, Jim, obviously, leverage is coming down and you have some interesting M&A opportunities lining up for you. How do we think about free cash flow priorities going forward?

Amy, I'll take the first question first. In terms of operational opportunity, hey, listen, I'm all yours if you got the advice like Ric. But in the meantime, I mean, my observation would be that as coming end to this fiscal year the team, Earle, and the team put together a very well-thought-out plan very well thought out budget and really my feeling and I think as evidenced by the second quarter results the team is firing on all cylinders. In terms of additional opportunities that I see we can focus on, it's probably premature for me to signal anything significant. I mean there's miss some tucks here and there in terms of things that the team and I are discussing just as general good management practice, but nothing substantially different. I would say than what would you would have seen or would have expected prior to my arrival prior to Earle's retirement. In terms of the ARPU trends, look what I would say is that we are encouraged by some of the reason Sprint, activity, as the run rate regarding the discontinuation of promotional rates, the new rate plan, the BYOD introduction. And we are hopeful -- we are optimistic that will start to abate some of the declines we've seen in postpaid ARPU and stabilize that and hopefully even increases on a go forward basis, but it's again that one is a little bit premature for us to call at the stage just given the results we've seen in us for ARPU. We're optimistic and were hopeful.

Amy, good morning, this is Jim. So look on the capital allocation I mean you're exactly right the debt levels are coming down. So we're kind of on hold territory expansions as far as Sprint goes to see how that works at. But look were inquisitor as new opportunities come up to expand cable or fiber assets in an accretive way then we will take a look at those. So that may be one way to deploy some of that capacity. But also if they gets in and gets going and wherever new idea the team might have to deploy some capital for organic growth, we are in a good place we are in a good place to be able to do both.

Our next question comes from Hamed Khorsand from BWF Financial. Your line is open.

Could you talk about from a seasonality perspective about if there's any impact on the wireless business and the ads that you have in the quarter?

Yes, Hamed, this is Dave. I -- seasonality really in terms of -- the impact of seasonality really manifests in churn but on the gross activation front the primary driver there in the second quarter was the fact that we ran a very successful promotion, which this is the second year we have done this. We have noticed the team has noticed, done a very good job noticing a gap in competitive spend and offers during the early summer months, and we essentially have capitalized on that back for the second year in a row. We offered some -- we increased advertising spending for one and did a lot of hyper local marketing and sales efforts to drive traffic into the stores. But in addition to that, we offered a prepaid gift card incentive for $50 a line up to $100 and that served as a phenomenal closing tool, and so we just had a phenomenal June as a result, and what's great about that too is actually the sweetener was about half as rich as it was last year and got better results. So I think that demonstrates the fact that the team is getting even better over time at this. So that was the primary driver of the second quarter results.

And then just switching to broadband business, the growth slowed down a little bit, quarter-over-quarter is that because of the Q2 and customers just moving away from seasonal standpoint? Or is that just you're hitting a penetration ceiling right now?

Yes, I think the second quarter result is -- you're right, seasonally, it's a big move quarter, so you're going to see elevated churn as a result. But that is one of the -- to kind of pick up a little bit on Amy's point, and respond a little bit to maybe the comment lurking behind your question there. Focusing on broadband penetration rates particularly where we are -- where we've done recent upgrades and our relatively underpenetrated relative to some of our mature markets is something that the team and I are very focused on, so yes, duly noted and something that will be a focus area for us on a go forward.

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the call back over to Jim Woodward for closing remarks.

Thank you everyone and for joining us today and we look forward to continuing to update you on our progress.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.