Shenandoah Telecommunications Company Reports Second Quarter 2020 Results
Shenandoah Telecommunications Company (Nasdaq: SHEN) reported impressive second quarter 2020 results, achieving record broadband net additions of 6,000 and substantial growth in wireless prepaid subscribers. Revenue reached $169.5 million, a rise from $158.9 million year-over-year, mainly due to a $21 million resolution in a travel dispute with Sprint. Adjusted OIBDA increased 20.9% to $80.9 million. However, the company faces challenges ahead with potential operational impacts from the T-Mobile and Sprint merger, as negotiations for future service agreements are ongoing.
- Record broadband net additions of 6,000 in Q2 2020.
- Normalized free cash flow grew 38.5% to $46.1 million compared to Q2 2019.
- Resolution of Sprint's travel fee dispute resulted in $21 million of recognized revenue.
- Revenue rose to $169.5 million from $158.9 million year-over-year.
- Operating income surged 79% to $43 million from $24 million in 2019.
- Postpaid gross additions fell 28% year-over-year due to COVID-19-related store closures.
- The resolution of the T-Mobile merger may adversely affect future operating results.
- COVID-19 led to contrived customer disconnections with $1.2 million recognized as contra-revenue.
EDINBURG, Va., July 30, 2020 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company (“Shentel”) (Nasdaq: SHEN) announced second quarter 2020 financial and operating results.
Second Quarter 2020 Highlights
- Record quarter for Broadband data net additions of 6,000
- Wireless prepaid gross and net additions grew
15.8% and469.2% , respectively, over prior year period - Sprint travel dispute favorably resolved with fee reset to
$18.0 million per year for 2019 to 2021 - Operating cash flow was
$67.8 million consistent with prior year period - Normalized free cash flow grew
38.5% to$46.1 million compared to the second quarter 2019, driven primarily by our Wireless segment
"We continue to manage through the changes created by COVID-19 and the Sprint/T-Mobile merger. Our broadband business had strong operating results driven by demand from stay-at-home and work-from-home initiatives, new offerings and complementary temporary increases in bandwidth speeds and data allowances," said President and CEO, Christopher E. French. "We have the most robust broadband network in our service areas, and it has continued to perform very well. Our wireless business began to rebound in the second quarter with strong prepaid growth and all of our COVID-19 related temporary retail store closures were able to re-open by the end of the quarter. We expect to return to pre-COVID postpaid sales levels when the economies in our markets fully re-open. Our wireless segment continues to generate strong and steady cash flow.”
Shentel's second-quarter earnings conference call will be webcast at 8:00 a.m. ET on Thursday, July 30, 2020. The webcast and related materials will be available on Shentel’s Investor Relations website at https://investor.shentel.com.
COVID-19 Update
Broadband
- The stay-at-home directives by our governments spurred strong demand for broadband services during the second quarter 2020 resulting in record data net additions of 6,000 and the first quarter of positive video net additions since 2014.
- Approximately 700 COVID-19 related non-payment service disconnections were deferred during the quarter ending June 30, 2020. We resumed normal collection practices on July 1, 2020 and expect this will have minimal impact on bad debt expense in future periods.
Wireless
- Our markets continued to be affected by the stay-at-home directives and the phased re-opening of local economies. We re-opened all the Sprint branded retail stores by the end of June that were temporarily closed in mid-March. Wireless postpaid gross additions and voluntary churn declined year over year approximately
28% and23% , respectively, for the three months ended June 30, 2020 due to the store closures and lower store traffic from the stay-at-home directives. - As a Sprint affiliate, our wireless segment participated in the Keep Americans Connected pledge and deferred an estimated 2,300 COVID-19 related non-payment service disconnections during the quarter ended June 30, 2020. While the majority of these subscribers have agreed to payment plans with Sprint, we recognized contra-revenue of
$1.2 million during the second quarter of 2020, which effectively represents the pass-through of Sprint’s bad debt expense for these customers. Sprint resumed normal collection practices on July 1, 2020. - During the second quarter of 2020, Sprint issued
$1.4 million of credits to prepaid customers in our service territory to alleviate the impacts of COVID-19 and keep these customers connected. Issuance of these credits ceased on June 1, 2020. - Expense for payroll paid to idled employees and as a premium for certain employees interfacing with the general public, totaled
$1.1 million for the three months ended June 30, 2020 and was presented within the cost of service and selling, general, and administrative expense captions. - With the stay-at-home directives continuing through the second quarter, we also reduced our wireless advertising spend for the three month period ended June 30, 2020 by
$2.8 million from the comparable prior year period.
Sprint Travel Dispute
Our travel revenue dispute with Sprint was resolved through binding arbitration during June 2020. The arbitrators’ ruling reset the fee to
Consolidated Second Quarter 2020 Results
- Revenue in the second quarter of 2020 was
$169.5 million compared with$158.9 million in the second quarter of 2019, due to the growth of$8.6 million ,$1.9 million and$0.1 million in the Wireless, Broadband and Tower segments, respectively. The Wireless growth was driven by the resolution of the travel dispute with Sprint. - Adjusted OIBDA in the second quarter of 2020 increased
$14.0 million to$80.9 million compared with$67.0 million in 2019 due primarily to the aforementioned travel revenue dispute resolution in the Wireless segment. - Operating income increased
79.0% to$43.0 million in 2020 from$24.0 million in 2019, primarily due to the resolution of the travel revenue dispute in the Wireless segment. - Earnings per diluted share grew
123.1% to$0.58 from$0.26 per diluted share in 2019.
Wireless
- Shentel served 846,428 wireless postpaid subscribers at June 30, 2020, representing an increase of
4.3% compared with June 30, 2019. Second quarter 2020 postpaid gross adds were 37,832, as compared to 52,799 in the second quarter of 2019. Net adds were (1,343) as compared to 10,767 in the second quarter 2019. Postpaid churn was1.55% as compared to1.74% in the second quarter 2019. During the second quarter 2020, Sprint adopted the T-Mobile credit and collection policies for Sprint branded customers including those in the Shentel service area. Approximately 4,400 involuntary (non-payment) postpaid disconnects were accelerated into our second quarter subscriber results. Excluding this policy change, postpaid net additions and churn for the quarter would have been 3,021 and1.37% , respectively. Wireless postpaid gross and net additions for the second quarter were adversely affected by COVID-19. - Shentel served 289,449 wireless prepaid subscribers at June 30, 2020, representing an increase of
7.6% compared with June 30, 2019. Second quarter 2020 prepaid gross additions grew15.8% to 39,083 from the second quarter 2019. Net additions were 10,353, as compared to 1,819 in the same period a year ago. Prepaid churn was3.38% , an improvement over3.97% for the prior year quarter. Prepaid gross and net additions were favorably impacted by the prepaid value proposition in a recessionary economy and COVID related retention credits. - Wireless revenue increased approximately
$8.6 million , or7.8% , for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The growth was driven by a$19.5 million increase in travel revenue due to the resolution of the Sprint travel fee dispute,$1.5 million due to subscriber growth,$0.7 million in higher roaming and MVNO revenues partially offset by a$6.9 million decline in equipment revenue as retail stores were temporarily closed amidst the COVID-19 outbreak,$3.2 million in higher amortized customer contract costs,$1.4 million in COVID related prepaid customer retention credits and$1.2 million of COVID-19 related postpaid bad debt in connection with the Keep Americans Connected pledge. - Wireless operating expenses in the second quarter of 2020 were
$75.9 million compared to$90.2 million in the second quarter of 2019. The decrease was primarily attributable to a$8.0 million decline in depreciation and amortization as certain assets acquired from nTelos became fully utilized, a$6.3 million decline in cost of goods sold on lower volume of equipment sales and$2.8 million in lower advertising costs both driven by COVID-19 related slower economic activity, partially offset by$1.1 million in COVID-19 related payroll expense,$0.6 million of legal fees to support the Sprint dispute matter,$0.6 million in higher operating taxes due to a non-recurring benefit recognized in the second quarter 2019, higher cell site rent expense of$0.5 million related to our network expansion and$0.4 million in employee retention bonus accrual relating to the Sprint/T-Mobile merger. - Wireless Adjusted OIBDA in the second quarter of 2020 was
$67.7 million , compared with$52.4 million for the second quarter of 2019. - Wireless operating income in the second quarter of 2020 was
$43.9 million , compared to$20.9 million for the second quarter of 2019.
Broadband
- Total Revenue Generating Units ("RGUs") as of June 30, 2020 were 199,667, representing an increase of
4.7% from June 30, 2019, driven by a record quarter for incumbent cable and Glo Fiber data net additions of 5,150 and 878, respectively, for the second quarter 2020. Incumbent cable broadband penetration grew from38.5% to44.1% and churn declined 83 basis points to1.32% . Glo Fiber added over 7,800 homes passed and ended the quarter with approximately 13,000 homes passed and10.1% broadband penetration. Video net additions were approximately 100 in the second quarter driven by1.36% churn. - Broadband revenue in the second quarter of 2020 increased
$1.6 million or3.3% to$50.1 million compared with$48.6 million in the second quarter of 2019, primarily driven by a$2.2 million increase in Cable Residential and SMB revenue and$0.9 million increase in Fiber, enterprise and wholesale revenue partially offset by$1.2 million decrease in RLEC revenues. - Broadband operating expenses in the second quarter of 2020 were
$41.4 million compared to$36.7 million in the second quarter of 2019. The increase was primarily due to$3.3 million in higher payroll and benefit expense due to a combination of Glo Fiber and fixed wireless start-up staffing, supplemental COVID-19 compensation expense for customer interfacing employees, an increase in benefit plans and higher incentive accrual from strong operating results and$1.2 million increase in depreciation and amortization expense due to the expansion of our network. - Broadband Adjusted OIBDA in the second quarter of 2020 decreased
8.5% to$20.0 million , compared with$21.9 million for the second quarter of 2019 due primarily to the dilution of start-up costs from Glo Fiber and fixed wireless. - Broadband Operating income in the second quarter of 2020 was
$8.8 million , compared to$11.9 million in the second quarter of 2019.
Tower
- Total macro towers, small cells and tenants were 220, 8 and 413 as of June 30, 2020 as compared to 217, zero and 377, respectively, as of June 30, 2019.
- Tower revenue in the second quarter of 2020 grew
41.0% to$4.3 million , compared with$3.0 million for the second quarter of 2019. This increase was due to a9.5% increase in tenants and an20.8% increase in the average lease rate driven by amendments to the intercompany leases. - Tower operating expenses in both the second quarter of 2020 and 2019 were approximately
$2.0 million . - Tower Adjusted OIBDA in the second quarter of 2020 grew
46.1% to$2.7 million , compared with$1.9 million for the second quarter of 2019. - Tower operating income in the second quarter of 2020 was
$2.2 million , compared to$1.1 million for the second quarter of 2019.
Other Information
- Capital expenditures were
$66.6 million for the six months ended June 30, 2020 compared with$79.1 million in the comparable 2019 period. The$12.5 million decrease in capital expenditures was primarily due to a$30.1 million decline in Wireless as the nTelos and Parkersburg network expansions were completed in the first half of 2019 and Richmond Sliver territory expansion projects have been postponed as we await further clarity on the impact of ongoing negotiations with the new T-Mobile. The decline in Wireless spending was partially offset by$19.5 million in higher spending in Broadband driven primarily by our Glo Fiber market expansion. - Outstanding debt at June 30, 2020 totaled
$704.3 million , net of unamortized loan costs, compared to$720.1 million as of December 31, 2019. As of June 30, 2020, the Company had liquidity of approximately$218.7 million , including$75.0 million of revolving line of credit availability. - On April 1, 2020, T-Mobile publicly announced the completion of its business combination with Sprint and subsequently delivered to the Company a notice of Network Technology Conversion, Brand Conversion and Combination Conversion (a “Conversion Notice”) pursuant to the terms of the Company’s affiliate agreement with Sprint. As described in more detail in the Company’s 2019 Annual Report on Form 10-K, our Wireless segment has been an affiliate of Sprint since 1999. The 90-day period following receipt of the Conversion Notice for the parties to negotiate mutually agreeable terms and conditions, under which the Company would continue as an affiliate of T-Mobile, expired on June 30, 2020. The affiliate agreement further provides that, if T-Mobile and the Company have not negotiated a mutually acceptable agreement within the 90 day period, then T-Mobile would have a period of 60 days thereafter to exercise an option to purchase the assets of our Wireless operations for
90% of the “Entire Business Value” (as defined under our affiliate agreement and determined pursuant to the appraisal process under the affiliate agreement); this period will expire on August 31, 2020. If T-Mobile does not exercise its purchase option, the Company would then have a 60 day period to exercise an option to purchase the legacy T-Mobile network and subscribers in our service area. If the Company does not exercise its purchase option, T-Mobile must sell or decommission its legacy network and customers in our service area. - Our Sprint affiliate agreement required T-Mobile to comply with certain restrictive operating requirements during the 90 day period following their Conversion Notice which ended on June 30, 2020. T-Mobile publicly announced on July 22, 2020 its intention to begin integration of the brands, rate plans, sales and network on August 2, 2020. Although the impact to Sprint customers in our affiliate area is uncertain at this point in time, the integration plans are likely to adversely affect our Wireless segment operating and financial results in future periods.
Free cash flow, normalized free cash flow and Adjusted OIBDA are non-GAAP financial measures that are not determined in accordance with US generally accepted accounting principles. Reconciliations of these non-GAAP financial measures are provided in this press release after the consolidated financial statements.
Conference Call and Webcast
Teleconference Information:
Date: July 30, 2020
Time: 8:00 A.M. (ET)
Dial in number: 1-888-695-7639
Password: 1246368
Audio webcast: http://investor.shentel.com/
An audio replay of the call will be available approximately two hours after the call is complete, through August 29, 2020 by calling (855) 859-2056.
About Shenandoah Telecommunications
Shenandoah Telecommunications Company (Shentel) provides a broad range of diversified communications services through its high speed, state-of-the-art wireless, cable and fiber optic networks to customers in the Mid-Atlantic United States. The Company’s services include: wireless voice and data; broadband internet, video, and digital voice; fiber optic Ethernet, wavelength and leasing; telephone voice and digital subscriber line; and tower colocation leasing. Shentel is the exclusive personal communications service (“PCS”) Affiliate of Sprint in a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, Kentucky, and Ohio. For more information, please visit www.shentel.com.
This release contains forward-looking statements that are subject to various risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of unforeseen factors. A discussion of factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations, is available in the Company’s filings with the SEC. Those factors may include natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, changes in general economic conditions, increases in costs, changes in regulation and other competitive factors.
CONTACTS:
Shenandoah Telecommunications Company
Jim Volk
Senior Vice President - Chief Financial Officer
540-984-5168
Jim.Volk@emp.shentel.com
Or
John Nesbett/Jennifer Belodeau
IMS Investor Relations
203-972-9200
jnesbett@institutionalms.com
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Revenue: | |||||||||||||||
| Service revenue and other | $ | 159,720 | $ | 142,059 | $ | 299,908 | $ | 285,290 | |||||||
| Equipment revenue | 9,806 | 16,855 | 22,806 | 32,467 | |||||||||||
| Total revenue | 169,526 | 158,914 | 322,714 | 317,757 | |||||||||||
| Operating expenses: | |||||||||||||||
| Cost of services | 50,640 | 49,497 | 100,205 | 99,015 | |||||||||||
| Cost of goods sold | 9,658 | 15,874 | 22,329 | 30,511 | |||||||||||
| Selling, general and administrative | 31,394 | 27,170 | 62,385 | 55,892 | |||||||||||
| Depreciation and amortization | 34,832 | 42,353 | 71,743 | 83,532 | |||||||||||
| Total operating expenses | 126,524 | 134,894 | 256,662 | 268,950 | |||||||||||
| Operating income | 43,002 | 24,020 | 66,052 | 48,807 | |||||||||||
| Other income (expense): | |||||||||||||||
| Interest expense | (5,044 | ) | (7,522 | ) | (11,255 | ) | (15,476 | ) | |||||||
| Other | 1,573 | 1,176 | 2,306 | 2,463 | |||||||||||
| Income before income taxes | 39,531 | 17,674 | 57,103 | 35,794 | |||||||||||
| Income tax expense | 10,284 | 4,524 | 14,576 | 8,734 | |||||||||||
| Net income | $ | 29,247 | $ | 13,150 | $ | 42,527 | $ | 27,060 | |||||||
| Net income per share, basic and diluted: | |||||||||||||||
| Basic net income per share | $ | 0.59 | $ | 0.26 | $ | 0.85 | $ | 0.54 | |||||||
| Diluted net income per share | $ | 0.58 | $ | 0.26 | $ | 0.85 | $ | 0.54 | |||||||
| Weighted average shares outstanding, basic | 49,902 | 49,848 | 49,878 | 49,812 | |||||||||||
| Weighted average shares outstanding, diluted | 50,082 | 50,142 | 50,039 | 50,118 | |||||||||||
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| June 30, 2020 | December 31, 2019 | ||||||
| Cash and cash equivalents | $ | 143,712 | $ | 101,651 | |||
| Other current assets | 155,821 | 140,102 | |||||
| Total current assets | 299,533 | 241,753 | |||||
| Investments | 12,661 | 12,388 | |||||
| Property, plant and equipment, net | 703,012 | 701,514 | |||||
| Intangible assets, net | 285,081 | 314,147 | |||||
| Goodwill | 149,070 | 149,070 | |||||
| Operating lease right-of-use assets | 376,912 | 392,589 | |||||
| Deferred charges and other assets, net | 54,311 | 53,352 | |||||
| Total assets | $ | 1,880,580 | $ | 1,864,813 | |||
| Total current liabilities | 145,327 | $ | 147,336 | ||||
| Long-term debt, less current maturities | 672,601 | 688,464 | |||||
| Other liabilities | 551,195 | 556,585 | |||||
| Total shareholders’ equity | 511,457 | 472,428 | |||||
| Total liabilities and shareholders’ equity | $ | 1,880,580 | $ | 1,864,813 | |||
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Six Months Ended June 30, | |||||||
| 2020 | 2019 | ||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 42,527 | $ | 27,060 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation | 63,258 | 72,737 | |||||
| Amortization of intangible assets | 9,336 | 10,795 | |||||
| Bad debt expense | 436 | 764 | |||||
| Stock based compensation expense, net of amount capitalized | 4,520 | 2,307 | |||||
| Deferred income taxes | 8,714 | 3,434 | |||||
| Other adjustments | 1,923 | 275 | |||||
| Changes in assets and liabilities | (1,775 | ) | 12,260 | ||||
| Net cash provided by operating activities | 128,939 | 129,632 | |||||
| Cash flows from investing activities: | |||||||
| Capital expenditures | (66,626 | ) | (79,124 | ) | |||
| Cash disbursed for acquisitions | — | (10,000 | ) | ||||
| Proceeds from sale of assets and other | 286 | 105 | |||||
| Net cash used in investing activities | (67,540 | ) | (89,019 | ) | |||
| Cash flows from financing activities: | |||||||
| Principal payments on long-term debt | (17,061 | ) | (24,777 | ) | |||
| Taxes paid for equity award issuances | (2,182 | ) | (2,912 | ) | |||
| Proceeds from exercise of stock options | (95 | ) | 81 | ||||
| Net cash used in financing activities | (19,338 | ) | (27,608 | ) | |||
| Net increase (decrease) in cash and cash equivalents | 42,061 | 13,005 | |||||
| Cash and cash equivalents, beginning of period | 101,651 | 85,086 | |||||
| Cash and cash equivalents, end of period | $ | 143,712 | $ | 98,091 | |||
Non-GAAP Financial Measures
Adjusted OIBDA
Adjusted OIBDA represents Operating income before depreciation, amortization of intangible assets, stock-based compensation and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA is a non-GAAP financial measure that we use to evaluate our operating performance in comparison to our competitors. Management believes that analysts and investors use Adjusted OIBDA as a supplemental measure of operating performance to facilitate comparisons with other telecommunications companies. This measure isolates and evaluates operating performance by excluding the cost of financing (e.g., interest expense), as well as the non-cash depreciation and amortization of past capital investments, non-cash share-based compensation expense, and certain other items of revenue, expense, gain or loss not reflective of our operating performance, which may or may not be recurring in nature.
Adjusted OIBDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for operating income, net income or any other measure of financial performance reported in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
The following tables reconcile Adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure:
| Three Months Ended June 30, 2020 | ||||||||||||||||||||
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | |||||||||||||||
| Operating income | $ | 43,872 | $ | 8,767 | $ | 2,229 | $ | (11,866 | ) | $ | 43,002 | |||||||||
| Depreciation | 19,545 | 11,078 | 477 | (310 | ) | 30,790 | ||||||||||||||
| Amortization of intangible assets | 4,301 | 167 | — | — | 4,468 | |||||||||||||||
| OIBDA | 67,718 | 20,012 | 2,706 | (12,176 | ) | 78,260 | ||||||||||||||
| Share-based compensation expense | — | — | — | 1,615 | 1,615 | |||||||||||||||
| Deal advisory fees | — | — | — | 1,060 | 1,060 | |||||||||||||||
| Adjusted OIBDA | $ | 67,718 | $ | 20,012 | $ | 2,706 | $ | (9,501 | ) | $ | 80,935 | |||||||||
| Three Months Ended June 30, 2019 | ||||||||||||||||||||
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | |||||||||||||||
| Operating income | $ | 20,928 | $ | 11,880 | $ | 1,096 | $ | (9,884 | ) | $ | 24,020 | |||||||||
| Depreciation | 26,447 | 9,882 | 756 | 132 | 37,217 | |||||||||||||||
| Amortization of intangible assets | 5,016 | 120 | — | — | 5,136 | |||||||||||||||
| OIBDA | 52,391 | 21,882 | 1,852 | (9,752 | ) | 66,373 | ||||||||||||||
| Share-based compensation expense | — | — | — | 593 | 593 | |||||||||||||||
| Adjusted OIBDA | $ | 52,391 | $ | 21,882 | $ | 1,852 | $ | (9,159 | ) | $ | 66,966 | |||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | |||||||||||||||
| Operating income | $ | 67,316 | $ | 18,797 | $ | 4,024 | $ | (24,085 | ) | $ | 66,052 | |||||||||
| Depreciation | 40,555 | 21,795 | 947 | (39 | ) | 63,258 | ||||||||||||||
| Amortization of intangible assets | 9,015 | 321 | — | — | 9,336 | |||||||||||||||
| OIBDA | 116,886 | 40,913 | 4,971 | (24,124 | ) | 138,646 | ||||||||||||||
| Share-based compensation expense | — | — | — | 4,520 | 4,520 | |||||||||||||||
| Deal advisory fees | — | — | — | 1,970 | 1,970 | |||||||||||||||
| Adjusted OIBDA | $ | 116,886 | $ | 40,913 | $ | 4,971 | $ | (17,634 | ) | $ | 145,136 | |||||||||
| Six Months Ended June 30, 2019 | ||||||||||||||||||||
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | |||||||||||||||
| Operating income | $ | 45,141 | $ | 21,929 | $ | 2,220 | $ | (20,483 | ) | $ | 48,807 | |||||||||
| Depreciation | 51,199 | 19,832 | 1,436 | 270 | 72,737 | |||||||||||||||
| Amortization of intangible assets | 10,634 | 161 | — | — | 10,795 | |||||||||||||||
| OIBDA | 106,974 | 41,922 | 3,656 | (20,213 | ) | 132,339 | ||||||||||||||
| Share-based compensation expense | — | — | — | 2,307 | 2,307 | |||||||||||||||
| Adjusted OIBDA | $ | 106,974 | $ | 41,922 | $ | 3,656 | $ | (17,906 | ) | $ | 134,646 | |||||||||
Segment Results
Three Months Ended June 30, 2020:
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | ||||||||||||||
| External revenue | |||||||||||||||||||
| Postpaid | $ | 73,269 | $ | — | $ | — | $ | — | $ | 73,269 | |||||||||
| Prepaid | 12,432 | — | — | — | 12,432 | ||||||||||||||
| Tower lease | — | — | 1,829 | — | 1,829 | ||||||||||||||
| Cable, residential and SMB (1) | — | 35,829 | — | — | 35,829 | ||||||||||||||
| Fiber, enterprise and wholesale | — | 5,663 | — | — | 5,663 | ||||||||||||||
| Rural local exchange carrier | — | 4,602 | — | — | 4,602 | ||||||||||||||
| Travel, installation, and other | 24,438 | 1,658 | — | — | 26,096 | ||||||||||||||
| Service revenue and other | 110,139 | 47,752 | 1,829 | — | 159,720 | ||||||||||||||
| Equipment | 9,610 | 196 | — | — | 9,806 | ||||||||||||||
| Total external revenue | 119,749 | 47,948 | 1,829 | — | 169,526 | ||||||||||||||
| Revenue from other segments | — | 2,185 | 2,430 | (4,615 | ) | — | |||||||||||||
| Total revenue | 119,749 | 50,133 | 4,259 | (4,615 | ) | 169,526 | |||||||||||||
| Operating expenses | |||||||||||||||||||
| Cost of services | 33,237 | 20,640 | 1,315 | (4,552 | ) | 50,640 | |||||||||||||
| Cost of goods sold | 9,437 | 221 | — | — | 9,658 | ||||||||||||||
| Selling, general and administrative | 9,783 | 9,260 | 238 | 12,113 | 31,394 | ||||||||||||||
| Depreciation and amortization | 23,420 | 11,245 | 477 | (310 | ) | 34,832 | |||||||||||||
| Total operating expenses | 75,877 | 41,366 | 2,030 | 7,251 | 126,524 | ||||||||||||||
| Operating income (loss) | $ | 43,872 | $ | 8,767 | $ | 2,229 | $ | (11,866 | ) | $ | 43,002 | ||||||||
____________________________
(1) SMB refers to Small and Medium Businesses.
Three Months Ended June 30, 2019:
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | ||||||||||||||
| External revenue | |||||||||||||||||||
| Postpaid | $ | 75,997 | $ | — | $ | — | $ | — | $ | 75,997 | |||||||||
| Prepaid | 13,603 | — | — | — | 13,603 | ||||||||||||||
| Tower lease | — | — | 1,751 | — | 1,751 | ||||||||||||||
| Cable, residential and SMB | — | 33,581 | — | — | 33,581 | ||||||||||||||
| Fiber, enterprise and wholesale | — | 4,921 | — | — | 4,921 | ||||||||||||||
| Rural local exchange carrier | — | 5,581 | — | — | 5,581 | ||||||||||||||
| Travel, installation, and other | 4,971 | 1,654 | — | — | 6,625 | ||||||||||||||
| Service revenue and other | 94,571 | 45,737 | 1,751 | — | 142,059 | ||||||||||||||
| Equipment | 16,548 | 307 | — | — | 16,855 | ||||||||||||||
| Total external revenue | 111,119 | 46,044 | 1,751 | — | 158,914 | ||||||||||||||
| Revenue from other segments | — | 2,507 | 1,270 | (3,777 | ) | — | |||||||||||||
| Total revenue | 111,119 | 48,551 | 3,021 | (3,777 | ) | 158,914 | |||||||||||||
| Operating expenses | |||||||||||||||||||
| Cost of services | 32,668 | 19,014 | 895 | (3,080 | ) | 49,497 | |||||||||||||
| Cost of goods sold | 15,742 | 131 | — | 1 | 15,874 | ||||||||||||||
| Selling, general and administrative | 10,318 | 7,524 | 274 | 9,054 | 27,170 | ||||||||||||||
| Depreciation and amortization | 31,463 | 10,002 | 756 | 132 | 42,353 | ||||||||||||||
| Total operating expenses | 90,191 | 36,671 | 1,925 | 6,107 | 134,894 | ||||||||||||||
| Operating income (loss) | $ | 20,928 | $ | 11,880 | $ | 1,096 | $ | (9,884 | ) | $ | 24,020 | ||||||||
Six Months Ended June 30, 2020:
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | ||||||||||||||
| External revenue | |||||||||||||||||||
| Postpaid | $ | 148,197 | $ | — | $ | — | $ | — | $ | 148,197 | |||||||||
| Prepaid | 25,541 | — | — | — | 25,541 | ||||||||||||||
| Tower lease | — | — | 3,626 | — | 3,626 | ||||||||||||||
| Cable, residential and SMB | — | 70,772 | — | — | 70,772 | ||||||||||||||
| Fiber, enterprise and wholesale | — | 11,151 | — | — | 11,151 | ||||||||||||||
| Rural local exchange carrier | — | 9,358 | — | — | 9,358 | ||||||||||||||
| Travel, installation, and other | 27,789 | 3,474 | — | — | 31,263 | ||||||||||||||
| Service revenue and other | 201,527 | 94,755 | 3,626 | — | 299,908 | ||||||||||||||
| Equipment | 22,360 | 446 | — | — | 22,806 | ||||||||||||||
| Total external revenue | 223,887 | 95,201 | 3,626 | — | 322,714 | ||||||||||||||
| Revenue from other segments | — | 4,718 | 4,363 | (9,081 | ) | — | |||||||||||||
| Total revenue | 223,887 | 99,919 | 7,989 | (9,081 | ) | 322,714 | |||||||||||||
| Operating expenses | |||||||||||||||||||
| Cost of services | 66,676 | 39,883 | 2,254 | (8,608 | ) | 100,205 | |||||||||||||
| Cost of goods sold | 21,965 | 364 | — | — | 22,329 | ||||||||||||||
| Selling, general and administrative | 19,211 | 18,759 | 764 | 23,651 | 62,385 | ||||||||||||||
| Depreciation and amortization | 48,719 | 22,116 | 947 | (39 | ) | 71,743 | |||||||||||||
| Total operating expenses | 156,571 | 81,122 | 3,965 | 15,004 | 256,662 | ||||||||||||||
| Operating income (loss) | $ | 67,316 | $ | 18,797 | $ | 4,024 | $ | (24,085 | ) | $ | 66,052 | ||||||||
Six Months Ended June 30, 2019:
| (in thousands) | Wireless | Broadband | Tower | Corporate & Eliminations | Consolidated | ||||||||||||||
| External revenue | |||||||||||||||||||
| Postpaid | $ | 152,179 | $ | — | $ | — | $ | — | $ | 152,179 | |||||||||
| Prepaid | 26,733 | — | — | — | 26,733 | ||||||||||||||
| Tower lease | — | — | 3,514 | — | 3,514 | ||||||||||||||
| Cable, residential and SMB | — | 66,007 | — | — | 66,007 | ||||||||||||||
| Fiber, enterprise and wholesale | — | 9,749 | — | — | 9,749 | ||||||||||||||
| Rural local exchange carrier | — | 10,819 | — | — | 10,819 | ||||||||||||||
| Travel, installation, and other | 12,989 | 3,300 | — | — | 16,289 | ||||||||||||||
| Service revenue and other | 191,901 | 89,875 | 3,514 | — | 285,290 | ||||||||||||||
| Equipment | 31,839 | 628 | — | — | 32,467 | ||||||||||||||
| Total external revenue | 223,740 | 90,503 | 3,514 | — | 317,757 | ||||||||||||||
| Revenue from other segments | — | 4,929 | 2,540 | (7,469 | ) | — | |||||||||||||
| Total revenue | 223,740 | 95,432 | 6,054 | (7,469 | ) | 317,757 | |||||||||||||
| Operating expenses | |||||||||||||||||||
| Cost of services | 65,200 | 38,075 | 1,841 | (6,101 | ) | 99,015 | |||||||||||||
| Cost of goods sold | 30,169 | 342 | — | — | 30,511 | ||||||||||||||
| Selling, general and administrative | 21,397 | 15,093 | 557 | 18,845 | 55,892 | ||||||||||||||
| Depreciation and amortization | 61,833 | 19,993 | 1,436 | 270 | 83,532 | ||||||||||||||
| Total operating expenses | 178,599 | 73,503 | 3,834 | 13,014 | 268,950 | ||||||||||||||
| Operating income (loss) | $ | 45,141 | $ | 21,929 | $ | 2,220 | $ | (20,483 | ) | $ | 48,807 | ||||||||
Supplemental Information
Wireless Operating Statistics
The following tables indicate selected operating statistics of Wireless, including Sprint subscribers, as of the dates shown:
| June 30, 2020 | June 30, 2019 | |||||
| Retail PCS total subscribers - postpaid | 846,428 | 811,719 | ||||
| Retail PCS phone subscribers | 735,028 | 726,899 | ||||
| Retail PCS connected device subscribers | 111,400 | 84,820 | ||||
| Retail PCS subscribers - prepaid | 289,449 | 269,039 | ||||
| PCS market POPS (000) (1) | 7,227 | 7,227 | ||||
| PCS covered POP (000) (1) | 6,379 | 6,285 | ||||
| Macro base stations (cell sites) | 1,968 | 1,910 | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| Postpaid: | 2020 | 2019 | 2020 | 2019 | ||||||||
| Gross PCS total subscriber additions | 37,832 | 52,799 | 89,823 | 103,646 | ||||||||
| Gross PCS phone additions | 26,567 | 39,948 | 63,301 | 77,734 | ||||||||
| Gross PCS connected device additions | 11,265 | 12,851 | 26,522 | 25,912 | ||||||||
| Net PCS total subscriber (losses) additions (2) | (1,343 | ) | 10,767 | 2,234 | 16,543 | |||||||
| Net PCS phone (losses) additions | (3,967 | ) | 4,069 | (6,278 | ) | 3,444 | ||||||
| Net PCS connected device additions | 2,624 | 6,698 | 8,512 | 13,099 | ||||||||
| PCS monthly retail total churn % (2) | 1.55 | % | 1.74 | % | 1.73 | % | 1.81 | % | ||||
| PCS monthly phone churn % | 1.38 | % | 1.62 | % | 1.57 | % | 1.68 | % | ||||
| PCS monthly connected device churn % | 2.63 | % | 2.88 | % | 2.80 | % | 3.09 | % | ||||
| Prepaid: | ||||||||||||
| Gross PCS subscriber additions | 39,083 | 33,753 | 78,157 | 74,732 | ||||||||
| Net PCS subscriber additions | 10,353 | 1,819 | 15,437 | 10,335 | ||||||||
| PCS monthly retail churn % | 3.38 | % | 3.97 | % | 3.76 | % | 4.06 | % | ||||
______________________________
(1) "POPS" refers to the estimated population of a given geographic area. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data.
(2) Includes an estimated 4,364 involuntary (nonpayment) postpaid disconnects were accelerated into our second quarter subscriber results due to a change in Sprint collection policy. Excluding this policy change, postpaid net additions for the three and six months ending June 30, 2020 would have been 3,021 and 6,598, respectively, and churn would have been
Broadband Operating Statistics
| June 30, 2020 | June 30, 2019 | |||||
| Broadband homes passed (1) (2) | 220,442 | 206,262 | ||||
| Incumbent Cable | 207,269 | 206,262 | ||||
| Glo Fiber | 13,173 | — | ||||
| Broadband customer relationships (3) | 101,816 | 88,860 | ||||
| Video: | ||||||
| RGUs | 53,153 | 57,215 | ||||
| Penetration (4) | 24.1 | % | 27.7 | % | ||
| Digital video penetration (5) | 94.3 | % | 90.3 | % | ||
| Broadband: | ||||||
| RGUs | 92,695 | 79,507 | ||||
| Incumbent Cable | 91,364 | 79,507 | ||||
| Glo Fiber | 1,331 | — | ||||
| Penetration (4) | 42.0 | % | 38.5 | % | ||
| Incumbent Cable penetration (4) | 44.1 | % | 38.5 | % | ||
| Glo Fiber penetration (4) | 10.1 | % | — | % | ||
| Voice: | ||||||
| RGUs | 32,252 | 30,754 | ||||
| Penetration (4) | 16.5 | % | 16.2 | % | ||
| Total Cable and Glo Fiber RGUs | 178,100 | 167,476 | ||||
| RLEC homes passed | 25,852 | 25,814 | ||||
| RLEC customer relationships (3) | 12,587 | 13,528 | ||||
| RLEC RGUs: | ||||||
| Data RLEC | 7,755 | 8,424 | ||||
| Penetration (4) | 30.0 | % | 32.6 | % | ||
| Voice RLEC | 13,812 | 14,873 | ||||
| Penetration (4) | 53.4 | % | 57.6 | % | ||
| Total RLEC RGUs | 21,567 | 23,297 | ||||
| Total RGUs | 199,667 | 190,773 | ||||
| Fiber route miles | 6,478 | 5,833 | ||||
| Total fiber miles (6) | 346,969 | 307,125 | ||||
_______________________________
(1) Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. Homes passed have access to video, broadband and voice services.
(2) Includes approximately 16,600 RLEC homes passed where we are the dual incumbent telephone and cable provider.
(3) Customer relationships represent the number of billed customers who receive at least one of our services.
(4) Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
(5) Digital video penetration is calculated by dividing the number of digital video users by total video users. Digital video users are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video user.
(6) Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.
Tower Operating Statistics
| June 30, 2020 | June 30, 2019 | |||||
| Macro towers owned | 220 | 217 | ||||
| Small cell sites | 8.0 | — | ||||
| Tenants (1) | 413 | 377 | ||||
| Average tenants per tower | 1.8 | 1.7 | ||||
______________________________
(1) Includes 206 and 177 intercompany tenants for our Wireless segment as of June 30, 2020 and 2019, respectively.
Reconciliation of Non-GAAP Measures Normalized Free Cash Flow and Free Cash Flow
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net cash provided by operating activities | $ | 67,831 | $ | 67,969 | $ | 128,939 | $ | 129,632 | ||||||||
| Less: Capital expenditures (1) | (21,767 | ) | (34,704 | ) | (46,871 | ) | (79,124 | ) | ||||||||
| Normalized free cash flow | 46,064 | 33,265 | 82,068 | 50,508 | ||||||||||||
| Glo Fiber and Beam capital expenditures | (12,560 | ) | — | (19,755 | ) | — | ||||||||||
| Free cash flow | $ | 33,504 | $ | 33,265 | $ | 62,313 | $ | 50,508 | ||||||||
______________________________
(1) Excludes capital expenditures for the development of Glo Fiber and Fixed Wireless (Beam).
Free cash flow and normalized free cash flow are non-GAAP financial measures that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow is calculated by subtracting capital expenditures from net cash provided by operating activities. Normalized free cash flow is calculated by subtracting capital expenditures, excluding spending on the development of Glo Fiber and Beam fixed wireless services, from net cash provided by operating activities. We believe they are more conservative measures of our cash flow since purchases of fixed assets are necessary for ongoing operations and expansion. Free cash flow and normalized free cash flow are utilized by our management, investors and analysts to evaluate cash available that may be used to pay scheduled principal payments on our debt obligations and provide further investment in the business.
FAQ
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