Good morning, everyone. Welcome to Shenandoah Telecommunications Second Quarter 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Nesbett, Investor 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 second quarter ended June 30, 2019. Our results were announced in a press release distributed this morning, and the presentation we'll be reviewing is included on our investor page at our website, shentel.com. Please note that an audio replay of this 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 Volk, Senior Vice President, Finance and Chief Financial Officer.After our prepared remarks, we will conduct a question-and-answer session. As always, please let me refer you to Slide two of the presentation, which contains our Safe Harbor disclaimer and reminds you that this conference call may include forward-looking statements subject to certain risks and uncertainties.These may cause actual results to differ materially from the statements. Hence, I'll provide a detailed discussion of various risk factors in our SEC filings, which you're 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.Okay, with that, I'll turn the call over to Chris now. Go ahead, Chris.

Thanks, John. We appreciate everyone joining us this morning. We've had another great quarter, and I'm pleased with the solid results across all of our operating segments. Before we get into our review, I'd like to spend a few minutes discussing recent developments that may affect our wireless business before providing comments on our second quarter results.As you know, there have been a few announcements made recently regarding the proposed merger of Sprint and T-Mobile. The Department of Justice announced in late July that they've planned to approve the merger. This followed the FCC's indication of approval in April. As part of the consent decree to receive the DOJ approval, T-Mobile has agreed to divest certain Sprint prepaid customers and spectrum assets to DISH.Please note that this planned divestiture will occur only if Sprint and T-Mobile complete their merger. Furthermore, we will continue to use the spectrum assets, providing service to and generating revenue from the prepaid customers in our markets until our affiliate agreement with Sprint is mutually amended.As a reminder, and as previously disclosed, our affiliate agreement outlines the following options that could be triggered once the proposed merger is closed. While dependent on T-Mobile's desires, the four basic options are as follows.Shentel and the new T-Mobile could negotiate an addendum to the affiliate agreement, allowing Shentel the right to use any brands and spectrum assets of the new T-Mobile. The new T-Mobile may elect an option to purchase the operating assets of our PCS business.Shentel may exercise its option to purchase legacy T-Mobile network and subscribers in our service area and incorporate them into our affiliate agreement. Or finally, the new T-Mobile may sell or decommission the legacy T-Mobile network and customers in our service area.So we become the exclusive provider of the new T-Mobile in this…

Thank you Chris, and good morning, everyone. I'm excited to join Shentel and have the opportunity to contribute to the great tradition of growth that Shentel has experienced for many years. It's been great to reconnect with many of you, both the sell-side and buy-side have covering the telecom space for the past 15-plus years. And I look forward to meeting more of you in the coming months.Now turning to the financials. Please refer to Slide six. Consolidated revenues grew 1.5% year-over-year to $158.9 million in the second quarter compared to $156.5 million in the quarter ending June 30, 2018.Operating income increased approximately 13.5% to $24 million versus $21.2 million in the second quarter of 2018.Net income for the quarter was $13.2 million or $0.26 per diluted share compared to $9.6 million or $0.19 per diluted share in the prior-year period. Consolidated adjusted OIBDA for the second quarter of 2019 increased 5.2% to $67 million from $63.7 million in the second quarter of last year.Please note, we changed the calculation and presentation of adjusted OIBDA from prior periods to conform the industry practices. The primary changes were to exclude the benefit received from the waive Sprint management fee and noncash amortization of deferred contract costs from the calculation.We have included in the appendix to the earnings call presentation we posted on our website this morning, the current adjusted OIBDA reconciliations from both operating income and also reconciliations of the current reported definition of OIBDA, adjusted OIBDA to the prior definition of adjusted OIBDA for each quarter in 2018 and 2019.I'd like to emphasize that there has not been any change to our reported GAAP results nor to the benefits received from the Sprint regarding the NTELOS acquisition and the nonmonetary exchange. We benefited from $9.7 million and $19.3 million in…

Thanks Jim, and good morning, everyone. I'll start by going over some of our operational highlights from the second quarter of 2019. Turning to Slide 14, we show the key metrics of our postpaid wireless business. We had approximately 812,000 postpaid subscribers at the end of the second quarter.Net additions for the second quarter of 2019 were approximately $11,000 for postpaid compared to approximately 6,000 in the second quarter of 2018. The incremental net gain year-over-year was largely driven by IoT devices, principally the Apple watches, consumer demand continues to increase in that category, while the rate of consumers upgrading their phones continues to slow.While churn remained relatively flat year-over-year, gross ads increased 18% by over 8,000, with phones representing 76% of the total and up 6% year-over-year. ARPU declined approximately $1 year-over-year, driven primarily by Sprint discounts, rate plan migrations, and to a lesser extent, the increase in the mix of IoT devices in the base.We continue to have a positive port in versus port out ratio at 1.2:1 for the second quarter of 2019 and finished the quarter with 158 Sprint postpaid branded doors, which was an increase of 4.6% year-over-year.Lastly, 6.5% of our postpaid base upgraded their device in the quarter and 10.4% of the base was comprised of tablets and data devices.Moving to Slide 15. We had approximately 269,000 prepaid subscribers at the end of the second quarter.Prepaid gross and net additions were 34,000 and just under 2,000 respectively for the second quarter 2019, which is consistent with the second quarter 2018, despite adding 24 more boost stores, bringing our total to 166 stores at the end of the quarter.Notably, several boost dealers have informed us that they've paused or scaled back their operations in recent months, given the SEC announcement regarding the required concession of…

[Operator Instructions] And our first question comes from the line of Rick Prentiss.

And welcome, Jim, good to be working with you again.

Yes. Thank you, Rick.

Yes. Couple of questions. Chris, as you mentioned, it's been a busy time in Washington with Sprint T-Mobile merger in the DOJ and the DISH potential asset divestiture, would you guys -- in your prepaid business because that's not going -- that's not part of the decision, the Shen customers stayed with you guys. Do you have some of your postpaid base with boost customers? And I'm just trying to kind of scale how much that is. So if we think about the DISH settlement, how many customers do you have that are kind of excluded from that? What's the revenue? And how do you think about the profitability of that segment if it was going to be put into a settlement?

Hey, Rick, this is Dave. So I don't know do you have another question you wanted to ask on top of that one or you want to start with that?

Yes, I'll start with that one.

Okay. So let me first seek to clarify, I got the comment on DISH prepaid. I'm not clear on the correlation with postpaid. Are you trying to approximate how many boost subs we have or?

Yes, because with Sprint, they've moved some of their Boost customers are no longer classified as prepaid, they're classified as postpaid. So just trying to get at in the definition of what's in the DISH settlement, it's Sprint prepaid, Virgin prepaid, Boost prepaid, Boost postpaid. And so within the Shen environment since your customers are not part of that proposal, how many customers do you have in that kind of same definition of what Sprint is sending over to DISH if the deal is approved?

Yes. Great question but we don't have answer to. I can tell you that 90% of our prepaid base is Boost. And as Chris stated in his opening comments, our point of view on any of that speculation with respect to the prepaid basis is that we are under an affiliate agreement that contemplates our prepaid and postpaid subscribers, all together as one tranche of business. And so we're not really in a place where we're going to speculate on any kind of divergent transaction that might include our prepaid base and exclude postpaid or vice versa.

And Rick, to be clear, all of our prepaid boost business is in the prepaid numbers, we don't have any in postpaid.

Okay. Okay. And a lot of people try to kind of pierce behind and figure out what's the kind of profitability of a prepaid MVNO. I figure it's hard, but if you were to think about that, how do you think about what DISH might be buying and the profitability of it because it's hard to separate network costs and some of the shared costs, I would guess.

Yes. I don't think we want to go there, Rick.

Yes. No, I understand. Second one, interesting in the 2.5, it looks like maybe about $0.24 a megahertz POP that you're paying. As you think about that fixed wireless project, you've given us the timing, some of the addressable market, the 17 million spectrum purchases in 2019, but only $3 million of equipment.How should we think longer term of what the equipment cost is to build out those homes passed. And interestingly, I guess, you're also going to categorize it into your cable section for capex, I assume it also is then for future operating expenses and operating revenues?

You got -- yes, you got that last part right. In terms of how to think about the strategy and equipment costs and so forth. We really think that fixed wireless is a last mile extension of our existing fiber and cable networks. So it's just an alternative means to target less densely populated areas on the periphery of those existing markets that we serve through terrestrial-based connections.And the reason we are compelled by fixed wireless as the technology is that the cost per passing in those lower density environments is far more economic than extending cable plant or fiber. So on a cost per pass basis they will obviously differ based on different density levels. But we're excited about the opportunity to leverage that technology on a license spectrum band. I've got some experience, as you know, in the unlicensed bands. And that can be challenging. So the fact that we were able to pick up some license spectrum for this strategy was a compelling factor in our decision to get into this business.

And how should we think about -- I know it's early for 2020 guidance, but how should we think about what that CapEx impact might be to launch second half of 2020 of these million POPs.

Yes, we're not in a position to give you guidance on 2020 again.

Okay. All right. And one other wrapped around question with that is, in the T-Mobile Sprint merger scenarios that Chris laid out. If you guys spend CapEx in 2019 into 2020, depending on when this deal might close, if approved, do you guys get reimbursed for the CapEx you've spent or just thinking through how that might play out, spending money on an early stage project?

Yes. At a high level, the affiliate agreement contemplates that if we get the greater of the returns that we had foregone by not having sufficient time to operate the business for newly invested capital or the value of the business if it's in more mature areas. And so, as a result, we have not altered our plans whatsoever in terms of capital spending. And as you know, we have certain obligations under the recent territory expansions, namely the Richmond sliver territory expansion that are under way, and we continue to proceed with those.

Okay. Last one for me is, if it does go a no vote on Sprint T-Mobile, I think in the past, you guys have mentioned that you would be willing to become a larger affiliate of Sprint. Is that still the case? And is there any kind of goalpost as far as how much larger you'd like to get over what kind of time frame?

No, no goalpost in mind, but we obviously would love to entertain the opportunity of continuing our great relationship and track record with Sprint should the opportunity present itself. That's obviously going to be contingent upon whatever the new terms, if there are new terms to taking on additional territory might be. But assuming that we have a relationship consistent with our existing affiliate agreement, we would love to entertain that conversation.

I guess, the bad news there is the court case isn't scheduled to start till December 9, so a lot more of limbo land. So -- good job, looking forward to getting caught up even Dave or Jim. And have a good day guys.

All right. Thanks, Rick.

Thanks, Rick.

And our next question comes from Zac Silver from B. Riley FBR.

Hey, thank you for taking the question and welcome aboard, Jim. I just wanted to start with the Boost, I guess, prepaid gross adds were flat this quarter. And Dave, you described that some of the dealers were sort of pulling back due to the uncertainty. Just wanted to get your outlook, what do you think is going to happen in the back half with the dealers as we're still waiting for merger resolution? And then also, can you remind us what happens to those stores in the event of the divestiture to DISH as it's currently proposed?

Yeah. Hey, Zac, good morning. So, yes, I mean, as I said in my scripted comments, there is some evidence in the market that we are facing some unexpected headwinds in the prepaid business related to just the fear uncertainty and doubt associated with this concession that the company has made to get the merger approved by the SEC and DOJ. And so our -- we remain bullish on the Boost brand long term.But in the short term, we're a little uncertain of the outlook, candidly, in terms of our focus and our prepaid business, it continues to be on the Boost brand. We -- as you know, those subscribers have a higher ARPU than the Virgin Mobile and insurance subs and so forth and Sprint branded prepaid. And so that's why 90% of our base is now on Boost. So I don't -- does that answer your question? Or do you have one in hand?

Yes. No, I think that sums up. And we can take the rest off-line. And then another one is on this travel issue, I think, a small $3 million impact. But does the non-renewal, say anything about your relationship with Sprint? Or was it more a function of them juggling sort of merger work as well? And then to follow up, is the -- when you renegotiate the travel fees, is that the only piece of the affiliate agreement that's affected with the renewal?

Yes. So we -- first of all, we don't want to speculate on Sprint's intentions on this front. We're having very constructive discussions with them. And -- but feel like both parties are negotiating in good faith, and we expect to get this resolved as we mentioned in our scripted comments in the third quarter. In terms of any other outstanding issues with respect to the affiliate agreement, now this is the only one that we're currently wrestling with.

Got it. And then, I guess, just one more. I mean, the edge out strategy is certainly intriguing. And you gave some perspective on the cost per home path that you expect, but in terms of anything regarding penetration rates that you're targeting in these new territories? That would be helpful. And another thing that I'm interested in is whether you expect this to be a broadband-centric offering, broadband-only offering or to have more of an emphasis on the bundle?

Yes, absolutely. So it's -- from a penetration rate perspective, our target penetration is in the low- to mid-30% range once we get to maturity. And in terms of the product mix, we're going to be able to go to market. It will be broadband centric that will be the anchor product in the bundle, but we will be selling a bundled set of services that will include video as well as voice services.And on the video front, we are partnering with MobiTV and offering a streaming delivery of essentially the channel lineup that we have available to us in our cable markets. So it will be a comprehensive full-throated lineup of video content, and it will include Cloud DVR and a voice remote and those kinds of things. And we'll have a whole home Wi-Fi solution as well with the Glo Fiber branded app for folks to monitor their networks and so on and so forth, so in local and unlimited voice. So it is broadband first, but we will be able to sell in a bundle.

Got it. That's really helpful and looking forward to the launch. And thanks for taking my quesiton.

Yes.

And our next question comes from Hamed Khorsand with BWS Financial.

Good morning. If you could just clarify it with this sprint on this travel negotiation, do you get past months back?

Do we...

I'm sorry, could you repeat that?

Yes, yes.

So with this travel negotiation going on with these travel fees, do you get the months that aren't covered back like these $3 million for Q2. Is that part of the negotiation?

Yes. I've had -- that will be the case. Yes, we are going to go retro back to today as part of the negotiation.

And then what are you doing on the prepaid side, just given the feedback you've gotten from your dealers as far as the slowdown in boost and prepaid. What are you doing on that front to compensate for it?

Well, look, we have great relationships with our third-party distributors. And I think Jack may have asked a question about the status of the boost stores in the divestiture. And that really isn't impacted. I forgot to answer that question. We don't own any other boost stores ourselves, we leverage a very tight network of third-party distributors we've had long-standing relationships with. So Hamed, we continue to support them and invest in our relationship with -- relationships with them as we always have. We had some pretty aggressive plans this year to continue to expand distribution. And what we've noted is that folks are a little reluctant to do so given the recent announcements.And so we continue certainly to -- as we mentioned, we expanded distribution by 24 additional points of presence year over year. And as we've mentioned on prior calls, we're long term, we're very bullish on Boost. It's just the short-term impact of some of this merger rhetoric and the media has understandably caused some concerns.

Okay. And on the broadband side of the business, are you looking to just build upon the subscriber base? Or is there going to be some natural transition from what you have on the wireline broadband to this fixed wireless when you finally get that deployed next year?

Yes. No, that's a good question. It's a twofold strategy. We still have a handful of DSL subscribers here locally in Shenandoah County that we hope this 2.5 spectrum and fixed wireless technology will enable us to get them higher speeds then we can otherwise deliver on legacy DSL, but that's a fairly small portion of our total subscriber base, call it, 6,000 subs or so.The much more significant opportunity is there's roughly 285,000 households that the spectrum covers that are designated sense is designated in rural areas that are immediately adjacent to our existing footprint that we believe we can capture a meaningful share of those incremental households with this technology. So it's on the whole in the main going to be a growth opportunity for us as opposed to a migration activity of existing subs.

All right. And the last question is, have you seen any apprehension from your customers as you increase pricing, have you seen -- do you think you're at the ceiling point with the price points that you're now offering?

In which business?

In broadband.

Yes. So the strategy in our broadband pricing is to leverage these investments in DOCSIS 3.1 and grow ARPU, but grow ARPU at a slower rate than historically we have done. We -- the new rate card has far less prohibitive data caps has an unlimited data option and offers a lot more speed for your money. And so our intention there is to invest in longer term relationships with our customer base.So we -- however, having said that, we still feel like we've got great upside as there is still a meaningful portion of our base about half that are still on fairly low-speed tiers because of the prior legacy rate cards. So as those folks go to upgrade and consume more bandwidth, we do see long-term an opportunity to continue to grow ARPU.

Thank you.

Hamed, just to add to that, on the video side, that product, our strategy has been just to pass-through the increases in content costs. So you'll see revenue increases driven by that on the video product.

Okay. Appreciate it.

[Operator Instructions] And there are no further questions from the phone at this time.

All right. I'd like to thank everyone for joining our call today, and we will look forward to keeping you updated on our future results and any key developments. Thank you, and have a good day.

And this does conclude today's conference call. Thanks for your participation. You may now disconnect.