Shenandoah Telecommunications Company Reports Third Quarter 2019 Results (shenandoah telecommunications company reports third quarter 2019)

EDINBURG, Va., Oct. 31, 2019 (GLOBE NEWSWIRE) -- Shenandoah Telecommunications Company ("Shentel") (NASDAQ: SHEN) announced third quarter results, an increase in its cash dividend, a share repurchase program, and commencement of its Fiber to the Home service.

Highlights

• Free cash flow of $35.9 million in the third quarter 2019 and $86.4 million for year to date 2019.
• Record third quarter Wireless postpaid net additions of 11,698.
• Dividend to increase 7.4% to $0.29 per share representing the 7th consecutive year of an annual increase.
• Authorization of $80 million for a share repurchase program.
• Launch of Fiber to the Home ("FTTH") business with initiation of Glo Fiber service in Harrisonburg, Virginia.

"Our company's growth was led by record net additions of Wireless postpaid services in the quarter. The commencement of Glo Fiber service in Harrisonburg reflects the start of our latest growth initiative as we continue to expand our footprint and service offerings," said President and CEO Christopher E. French. "We continue to generate strong free cash flow, which along with our solid operating results, enables us to return value to our shareholders with both an increase in our cash dividend and initiation of a share repurchase program. The continuing dispute over the travel fee with Sprint caused uneven financial results, but we have triggered the dispute resolution process with Sprint which we expect will lead to a resolution by early 2020."

Please refer to our Third Quarter 2019 Earnings Presentation Supplement available at https://investor.shentel.com/ for additional information, including matters that will be referenced during the Company's conference call. Included in this release are certain non-GAAP financial measures that are not determined in accordance with U.S. generally accepted accounting principles. Please refer to additional information for non-GAAP measures provided herein.

Consolidated Third Quarter 2019 Results

• Operating revenue in the third quarter of 2019 was $155.2 million compared with $158.7 million in the third quarter of 2018 driven by continued dispute of the travel fee with Sprint in the Wireless segment, partially offset by growth in the Cable segment.

• Adjusted OIBDA in the third quarter of 2019 was $62.8 million compared with $69.5 million in the third quarter of 2018 due to a decline in the Wireless segment.

• Operating income for the third quarter 2019 was $25.4 million compared with $28.3 million in the third quarter of 2018.

• Net income in the third quarter of 2019 was $14.4 million or $0.29 per diluted share compared with $15.5 million or $0.31 per diluted share in the third quarter of 2018.

Wireless

• Shentel's network served 823,417 wireless postpaid subscribers at September 30, 2019, representing an increase of 4.8% compared with 785,537 subscribers as of September 30, 2018. Third quarter 2019 postpaid gross adds increased 25.7% to 60,477 and churn increased 15 basis points to 1.99% compared to third quarter 2018. At September 30, 2019, tablets and data devices represented 11.0% of the postpaid base.

• Shentel's network served 271,551 wireless prepaid subscribers at September 30, 2019, representing an increase of 6.3% compared with 255,462 subscribers as of September 30, 2018. Third quarter 2019 prepaid churn was 4.38%, representing an improvement of 24 basis points compared with the prior year.

• Wireless operating revenue decreased $5.7 million to $110.4 million for the third quarter of 2019 from $116.1 million in the third quarter of 2018. Sprint travel Revenue declined $4.5 million due to the continuing dispute over the resetting of the travel fee. Subscriber revenue declined $1.1 million from the third quarter 2018 due to a combination of higher contract asset amortization from higher gross adds over the past year, reduced variable revenue resulting from increased bad debt write-offs in the West Virginia market, lower postpaid Average Revenue Per User ("ARPU") of $1.67, partially offset by an increase of 37,880 postpaid subscribers.

• Wireless operating expenses in the third quarter of 2019 were $86.7 million compared to $88.7 million in the third quarter of 2018. This decrease was primarily due to a $3.2 million decline in depreciation and amortization expense as certain assets acquired from nTelos became fully depreciated and $1.7 million in lower advertising, offset by $2.8 million in higher tower rents due to an increase of 132 cell sites in our network.

• Wireless Adjusted OIBDA in the third quarter of 2019 was $50.9 million, compared with $57.7 million for the third quarter of 2018.

• Wireless operating income in the third quarter of 2019 was $23.7 million, compared with $27.4 million for the third quarter of 2018.

Cable

• Total Revenue Generating Units ("RGUs") as of September 30, 2019 were 150,191, representing an increase of 3% and includes the addition of approximately 4,800 RGUs obtained through the Big Sandy acquisition that occurred in the first quarter of 2019. Please note that we have changed the computation of bulk RGUs to conform to industry standards. Revised RGUs for current and past periods are presented in the supplemental information in this earnings release.

• Cable operating revenue for the third quarter of 2019 was $35.1 million, representing an increase of 9.1% from $32.2 million in the third quarter of 2018. The increase was primarily attributable to a full quarter of results from the Big Sandy acquisition and growth in ARPU from an increase in video rates.

• Cable operating expenses in the third quarter of 2019 were $28.8 million, representing an increase of 9.3% from $26.3 million for the third quarter of 2018. The increase was primarily due to $0.8 million of expenses incurred that were associated with starting our FTTH product offering, higher repair and maintenance expenses of $0.8 million associated with maintaining our growing network, higher sales and marketing expenses of $0.6 million and $0.2 million in higher programming costs. We expect to continue to incur expenses related to the initiation of FTTH in select markets, in advance of generating revenue from this new product.

• Cable Adjusted OIBDA for the third quarter of 2019 was $12.5 million, representing an increase of 4.9% from $11.9 million for the third quarter of 2018.

• Cable operating income for the third quarter of 2019 was $6.3 million, representing an increase of 7.9% from $5.8 million for the third quarter of 2018.

Wireline

• Wireline operating revenue for the third quarter of 2019 was $19.1 million, representing a decrease of $0.5 million from $19.6 million in the third quarter of 2018. The decrease in operating revenue was primarily attributable to the timing of receiving regulatory support funds. Cable and fiber revenues grew 11.8% to offset the 8.3% decline in RLEC revenues.

• Wireline operating expenses in the third quarter of 2019 were $14.2 million, consistent with operating expenses in the third quarter of 2018.

• Wireline Adjusted OIBDA for the third quarter of 2019 was $8.0 million, representing a decrease of $0.6 million from $8.6 million in the third quarter of 2018.

• Wireline operating income for the third quarter of 2019 was $4.9 million, representing a decrease of $0.2 million from $5.1 million in the third quarter of 2018.

Other Information

• Capital expenditures were $107.0 million for the nine months ended September 30, 2019 compared with $92.3 million in the comparable 2018 period due to a $6.0 million increase in Wireless spending to support the expansion of the network and an $8.7 million increase in Cable segment spending required to support the launch of our FTTH initiative.

• Outstanding debt at September 30, 2019 totaled $740.6 million compared with $760.5 million and $785.2 million as of June 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, the Company had liquidity of approximately $172.4 million, including $75.0 million of revolving line of credit availability. Our interest rate decreased by 25 basis points starting in September 2019 as our net leverage ratio declined below the lowest threshold as defined in our credit facility resulting in approximately $1.8 million of expected annual savings.

Conference Call and Webcast

Teleconference Information:

Date: October 31, 2019
Time: 8:30 A.M. (ET)
Dial in number: 1-888-695-7639

Password: 6872816

Audio webcast: http://investor.shentel.com/

An audio replay of the call will be available approximately two hours after the call is complete, through December 7, 2019 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 network to customers in the Mid-Atlantic United States. The Company's services include: wireless voice and data; cable video, internet and digital voice; fiber network and services; and regulated local and long distance telephone. 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, North Carolina, 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 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 September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
Operating revenue:
Service revenue and other	$			138,832			$			142,768			$			424,122			$			419,819
Equipment revenue	16,320						15,963						48,787						49,551
Total operating revenue	155,152						158,731						472,909						469,370
Operating expenses:
Cost of services	50,164						47,886						149,179						146,362
Cost of goods sold	15,825						15,036						46,336						46,007
Selling, general and administrative	27,178						27,452						83,070						86,117
Depreciation and amortization	36,626						40,028						120,158						124,632
Total operating expenses	129,793						130,402						398,743						403,118
Operating income	25,359						28,329						74,166						66,252
Other income (expense):
Interest expense	(7,505				)		(9,001				)		(22,981				)		(27,184				)
Other	1,099						1,054						3,562						2,882
Income before income taxes	18,953						20,382						54,747						41,950
Income tax expense	4,599						4,848						13,333						10,207
Net income	$			14,354			$			15,534			$			41,414			$			31,743
Net income per share, basic and diluted:
Basic net income per share	$			0.29			$			0.31			$			0.83			$			0.64
Diluted net income per share	$			0.29			$			0.31			$			0.83			$			0.63
Weighted average shares outstanding, basic	49,857						49,559						49,827						49,527
Weighted average shares outstanding, diluted	50,129						50,117						50,110						50,044

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30, 2019				December 31, 2018
Cash and cash equivalents	$	97,415			$	85,086
Other current assets	124,225				125,116
Total current assets	221,640				210,202
Investments	11,851				10,788
Property, plant and equipment, net	688,516				701,359
Intangible assets, net	328,831				366,029
Goodwill	149,070				146,497
Operating lease right-of-use assets	400,489				-
Deferred charges and other assets	50,469				49,891
Total assets	$	1,850,866			$	1,484,766
Total current liabilities	$	132,055			$	88,539
Long-term debt, less current maturities	696,378				749,624
Other liabilities	546,579				204,356
Total shareholders' equity	475,854				442,247
Total liabilities and shareholders' equity	$	1,850,866			$	1,484,766

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Nine Months Ended September 30,
	2019				2018
Cash flows from operating activities:
Net income	$	41,414			$	31,743
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	104,503				106,002
Amortization	15,655				18,630
Accretion of asset retirement obligations	1,093				710
Bad debt expense	1,215				1,362
Stock based compensation expense, net of amount capitalized	3,158				4,578
Deferred income taxes	4,999				(1,989		)
Other adjustments	(439		)		1,060
Changes in assets and liabilities	21,861				26,704
Net cash provided by operating activities	193,459				188,800
Cash flows from investing activities:
Acquisition of property, plant and equipment	(107,038		)		(92,309		)
Cash disbursed for acquisition, net of cash acquired	(10,000		)		(52,000		)
Cash disbursed for FCC spectrum licenses	(16,742		)		-
Proceeds from sale of assets	156				539
Net cash used in investing activities	(133,624		)		(143,770		)
Cash flows from financing activities:
Principal payments on long-term debt	(44,666		)		(46,375		)
Proceeds from revolving credit facility borrowings	-				15,000
Principal payments on revolving credit facility	-				(15,000		)
Proceeds from exercises of stock option	81				-
Taxes paid for equity award issuances	(2,912		)		(2,033		)
Other	(9		)		-
Net cash used in financing activities	(47,506		)		(48,408		)
Net increase (decrease) in cash and cash equivalents	12,329				(3,378		)
Cash and cash equivalents, beginning of period	85,086				78,585
Cash and cash equivalents, end of period	$	97,415			$	75,207

Non-GAAP Financial Measures

Adjusted OIBDA

Adjusted OIBDA represents Operating income before depreciation, amortization, 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:

Adjusted OIBDA
Three Months Ended September 30, 2019
(in thousands)		Wireless				Cable				Wireline				Other				Consolidated
Operating income		$	23,731			$	6,296			$	4,927			$	(9,595	)		$	25,359
Depreciation and amortization		27,200				6,226				3,077				123				36,626
OIBDA		50,931				12,522				8,004				(9,472		)		61,985
Share-based compensation expense		-				-				-				851				851
Adjusted OIBDA		$	50,931			$	12,522			$	8,004			$	(8,621	)		$	62,836
Three Months Ended September 30, 2018
(in thousands)		Wireless				Cable				Wireline				Other				Consolidated
Operating income		$	27,352			$	5,834			$	5,122			$	(9,979	)		$	28,329
Depreciation and amortization		30,363				6,102				3,435				128				40,028
OIBDA		57,715				11,936				8,557				(9,851		)		68,357
Share-based compensation expense		-				-				-				1,171				1,171
Adjusted OIBDA		$	57,715			$	11,936			$	8,557			$	(8,680	)		$	69,528
Nine Months Ended September 30, 2019
(in thousands)		Wireless				Cable				Wireline				Other				Consolidated
Operating income		$	71,092			$	18,785			$	14,367			$	(30,078	)		$	74,166
Depreciation and amortization		90,469				19,239				10,057				393				120,158
OIBDA		161,561				38,024				24,424				(29,685		)		194,324
Share-based compensation expense		-				-				-				3,158				3,158
Adjusted OIBDA		$	161,561			$	38,024			$	24,424			$	(26,527	)		$	197,482
Nine Months Ended September 30, 2018
(in thousands)		Wireless				Cable				Wireline				Other				Consolidated
Operating income		$	66,870			$	17,444			$	14,687			$	(32,749	)		$	66,252
Depreciation and amortization		95,853				18,305				10,069				405				124,632
OIBDA		162,723				35,749				24,756				(32,344		)		190,884
Share-based compensation expense		-				-				-				4,578				4,578
Adjusted OIBDA		$	162,723			$	35,749			$	24,756			$	(27,766	)		$	195,462

Segment Results
Three Months Ended September 30, 2019
(in thousands)		Wireless				Cable				Wireline				Other				Eliminations				Consolidated
External revenue
Service revenue		$	91,108			$	30,829			$	5,446			$	-			$	-			$	127,383
Equipment revenue		15,975				292				53				-				-				16,320
Tower revenue		1,660				-				-				-				-				1,660
Other revenue		395				2,392				7,002				-				-				9,789
Total external revenue		109,138				33,513				12,501				-				-				155,152
Internal revenue		1,290				1,591				6,643				-				(9,524		)		-
Total operating revenue		110,428				35,104				19,144				-				(9,524		)		155,152
Operating expenses
Cost of services		34,044				15,790				9,104				-				(8,774		)		50,164
Cost of goods sold		15,571				156				98				-				-				15,825
Selling, general and administrative		9,882				6,636				1,938				9,472				(750		)		27,178
Depreciation and amortization		27,200				6,226				3,077				123				-				36,626
Total operating expenses		86,697				28,808				14,217				9,595				(9,524		)		129,793
Operating income (loss)		$	23,731			$	6,296			$	4,927			$	(9,595	)		$	-			$	25,359
Three Months Ended September 30, 2018
(in thousands)		Wireless				Cable				Wireline				Other				Eliminations				Consolidated
External revenue
Service revenue		$	96,299			$	28,578			$	5,443			$	-			$	-			$	130,320
Equipment revenue		15,666				234				63				-				-				15,963
Tower revenue		1,639				-				-				-				-				1,639
Other revenue		1,232				2,104				7,473				-				-				10,809
Total external revenue		114,836				30,916				12,979				-				-				158,731
Internal revenue		1,263				1,266				6,643				-				(9,172		)		-
Total operating revenue		116,099				32,182				19,622				-				(9,172		)		158,731
Operating expenses
Cost of services		32,253				14,837				9,266				(12		)		(8,458		)		47,886
Cost of goods sold		14,940				78				19				(1		)		-				15,036
Selling, general and administrative		11,191				5,331				1,780				9,864				(714		)		27,452
Depreciation and amortization		30,363				6,102				3,435				128				-				40,028
Total operating expenses		88,747				26,348				14,500				9,979				(9,172		)		130,402
Operating income (loss)		$	27,352			$	5,834			$	5,122			$	(9,979	)		$	-			$	28,329
Nine Months Ended September 30, 2019
(in thousands)		Wireless				Cable				Wireline				Other				Eliminations				Consolidated
External revenue
Service revenue		$	282,533			$	91,250			$	16,489			$	-			$	-			$	390,272
Equipment revenue		47,814				817				156				-				-				48,787
Tower revenue		4,985				-				-				-				-				4,985
Other revenue		1,060				6,895				20,910				-				-				28,865
Total external revenue		336,392				98,962				37,555				-				-				472,909
Internal revenue		3,830				4,541				20,025				-				(28,396		)		-
Total operating revenue		340,222				103,503				57,580				-				(28,396		)		472,909
Operating expenses
Cost of services		101,085				47,138				27,234				-				(26,278		)		149,179
Cost of goods sold		45,740				443				153				-				-				46,336
Selling, general and administrative		31,836				17,898				5,769				29,685				(2,118		)		83,070
Depreciation and amortization		90,469				19,239				10,057				393				-				120,158
Total operating expenses		269,130				84,718				43,213				30,078				(28,396		)		398,743
Operating income (loss)		$	71,092			$	18,785			$	14,367			$	(30,078	)		$	-			$	74,166
Nine Months Ended September 30, 2018
(in thousands)		Wireless				Cable				Wireline				Other				Eliminations				Consolidated
External revenue
Service revenue		$	284,154			$	85,797			$	16,052			$	-			$	-			$	386,003
Equipment revenue		48,859				537				155				-				-				49,551
Tower revenue		4,934				-				-				-				-				4,934
Other revenue		1,963				6,276				20,643				-				-				28,882
Total external revenue		339,910				92,610				36,850				-				-				469,370
Internal revenue		3,746				3,394				21,591				-				(28,731		)		-
Total operating revenue		343,656				96,004				58,441				-				(28,731		)		469,370
Operating expenses
Cost of services		99,491				45,118				28,441				-				(26,688		)		146,362
Cost of goods sold		45,749				197				61				-				-				46,007
Selling, general and administrative		35,693				14,940				5,183				32,344				(2,043		)		86,117
Depreciation and amortization		95,853				18,305				10,069				405				-				124,632
Total operating expenses		276,786				78,560				43,754				32,749				(28,731		)		403,118
Operating income (loss)		$	66,870			$	17,444			$	14,687			$	(32,749	)		$	-			$	66,252

Supplemental Information

Subscriber Statistics

The following tables indicate selected operating statistics of Wireless, including Sprint subscribers:

		September 30, 2019				September 30, 2018
Retail PCS subscribers - postpaid		823,417				785,537
Retail PCS subscribers - prepaid		271,551				255,462
PCS market POPS (000) (1)		7,227				7,024
PCS covered POPS (000) (1)		6,294				5,921
CDMA base stations (sites)		1,920				1,788
Towers owned		221				193
Cell site leases		203				192

		Three Months Ended September 30,											Nine Months Ended September 30,
		2019							2018				2019							2018 (2)
Gross PCS subscriber additions - postpaid		60,477							48,111				164,123							135,817
Net PCS subscriber additions - postpaid		11,698							4,879				28,241							48,940
Gross PCS subscriber additions - prepaid		38,014							38,486				112,746							112,437
Net PCS subscriber additions - prepaid		2,512							3,408				12,847							29,640
PCS average monthly retail churn % - postpaid		1.99					%		1.84		%		1.87					%		1.80		%
PCS average monthly retail churn % - prepaid		4.38					%		4.62		%		4.17					%		4.42		%

_______________________________________________________

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 agreement, and Covered POPS are those covered by our network. The data source for POPS is U.S. census data.
2. Beginning February 1, 2018 includes Richmond Expansion Area except for gross PCS subscriber additions.

Except for gross additions, the subscriber statistics above include the Richmond Expansion Area as follows:

		February 1, 2018
		Expansion Area
PCS subscribers - postpaid		38,343
PCS subscribers - prepaid		15,691
Acquired PCS market POPS (000)		1,082
Acquired PCS covered POPS (000)		602
Acquired CDMA base stations (sites)		105

The following table indicates selected operating statistics of Cable and Wireline:

	September 30, 2019														September 30, 2018
	Cable							Wireline			Total				Cable							Wireline			Total
Cable homes passed (1)	189,762							16,500			206,262				185,119							16,500			201,619
Cable customer relationships (2)	39,195							4,249			43,444				41,807							5,300			47,107
Non-cable customers	45,564							13,429			58,993				37,619							13,538			51,157
Total cable customer relationships	84,759							17,678			102,437				79,426							18,838			98,264
Video RGUs:
RGUs former methodology	41,331							4,438			45,769				44,093							4,796			48,889
Bulk adjustment	8,632							614			9,246				9,624							817			10,441
RGUs revised methodology (3)	49,963							5,052			55,015				53,717							5,613			59,330
Penetration (4)	26.3						%	30.6		%					29.0						%	34.0		%
Digital video penetration (5)	95.9						%	100.0		%					77.8						%	100.0		%
Broadband RGUs:
RGUs former methodology	73,557							14,061			87,618				67,089							14,734			81,823
Less: Rural Local Exchange Carrier ("RLEC")	-							(8,112		)	(8,112		)		-							(9,625		)	(9,625		)
Bulk adjustment	2,601							306			2,907				1,939							(456		)	1,483
RGUs revised methodology (3)	76,158							6,255			82,413				69,028							4,653			73,681
Penetration (4)	40.1						%	37.9		%					37.3						%	28.2		%
Voice RGUs:
RGUs former methodology	23,636							19,135			42,771				23,268							17,786			41,054
Less: RLEC	-							(14,594		)	(14,594		)		-							(15,002		)	(15,002		)
Bulk adjustment	434							2,345			2,779				504							105			609
RGUs revised methodology (3)	24,070							6,886			30,956				23,772							2,889			26,661
Penetration (4)	12.7						%	41.7		%					12.8						%	17.5		%
Total RGUs former methodology	138,524							37,634			176,158				134,450							37,316			171,766
Less: RLEC	-							(22,706		)	(22,706		)		-							(24,627		)	(24,627		)
Bulk adjustment	11,667							3,265			14,932				12,067							466			12,533
Total RGUs revised methodology	150,191							18,193			168,384				146,517							13,155			159,672
RLEC homes passed	-							25,495			25,495				-							25,457			25,457
RLEC RGUs:
Data RLEC	-							8,112			8,112				-							9,625			9,625
Penetration (4)	-							31.8		%					-							37.8		%
Voice RLEC	-							14,594			14,594				-							15,002			15,002
Penetration (4)	-							57.2		%					-							58.9		%
Total RLEC RGUs	-							22,706			22,706				-							24,627			24,627
Average revenue generating units	150,022							17,851			167,873				145,516							12,058			157,574
Fiber route miles	3,678							2,186			5,864				3,436							2,112			5,548
Total fiber miles (6)	147,331							164,371			311,702				134,411							158,526			292,937

_____________________________

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. Customer relationships represent the number of billed customers who receive at least one of our services.
3. As of September 30, 2019, the Company revised its methodology for counting RGUs associated with hotels, multiple dwelling units ("MDUs") and certain commercial customers. We now count each dwelling or unit of service as a separate RGU. Prior year information has been recast to reflect our revised methodology. Previously we counted RGUs on an equivalent basis consistent with carriage fee practices.
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.

The following table shows the components of free cash flow:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2019				2018				2019				2018
Net cash provided by operating activities		$	63,827			$	61,656			$	193,459			$	188,800
Less: Capital expenditures		27,914				29,987				107,038				92,309
Free cash flow		$	35,913			$	31,669			$	86,421			$	96,491

Free cash flow is a non-GAAP financial measure 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. We believe it is a more conservative measure of our cash flow since purchases of fixed assets are necessary for ongoing operations and expansion. Free Cash Flow is 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.

Source: Shenandoah Telecommunications Co