Exhibit 99.1
Shenandoah Telecommunications Company to Acquire NTELOS Holdings Corp. and Amend Affiliate Agreement with Sprint Corp.August 11, 2015 NASDAQ: SHEN Exhibit 99.1
Safe Harbor Statement This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, our business strategy, our prospects and our financial position. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “intends,” “may,” “will,” “should,” “could,” “potential,” “projects” or “anticipates” or the negative or other variation of these similar words, or by discussions of strategy or risks and uncertainties. These statements are based on current expectations of future events. Shentel cautions readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed merger with nTelos Holdings Corp. and the transactions with Sprint, including future financial and operating results, Shentel’s plans, objectives, expectations and intentions, the expected timing of completion of the transactions, and other statements that are not historical facts. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties relating to: The ability to obtain the NTELOS Holdings Corp. stockholder approval; The risk that the parties may be unable to obtain governmental and regulatory approvals required for the transactions, or required governmental and regulatory approvals may delay the transactions or result in the imposition of conditions that could cause the parties to abandon the transactions;The risk that a condition to closing of the transactions may not be satisfied;The occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement or the agreements with Sprint;The timing to consummate the transactions; The risk that consents of third-parties may not be obtained;The risk that the businesses will not be integrated successfully, including the migration of nTelos Holdings Corp.’s subscribers; The risk that the cost savings and any other synergies from the transactions may not be fully realized or may take longer to realize than expected;The effect of the announcement of the transactions on the retention of customers, employees or suppliers;The diversion of management time on merger-related issues; General worldwide economic conditions and related uncertainties, including in the credit markets; Increasing competition in the communications industry; The complex and uncertain regulatory environment in which the parties operate; andOther risks, uncertainties and factors discussed or referred to in the “Risk Factors” section of Shentel’s most recent Annual Report1.All such factors are difficult to predict and are beyond Shentel’s control. All forward-looking statements speak only as of the date made, and Shentel does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or developments or otherwise. Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2015, or in Shentel’s subsequent filings with the SEC, which filings are available online at www.sec.gov, www.shentel.com or on request to Shentel. .
Use of Non-GAAP Financial Measures Included in this presentation are certain non-GAAP financial measures that are not determined in accordance with US generally accepted accounting principles. These financial performance measures are not indicative of cash provided or used by operating activities and exclude the effects of certain operating, capital and financing costs and may differ from comparable information provided by other companies, and they should not be considered in isolation, as an alternative to, or more meaningful than measures of financial performance determined in accordance with US generally accepted accounting principles. These financial performance measures are commonly used in the industry and are presented because Shentel believes they provide relevant and useful information to investors. Shentel utilizes these financial performance measures to assess its ability to meet future capital expenditure and working capital requirements, to incur indebtedness if necessary, return investment to shareholders and to fund continued growth. Shentel also uses these financial performance measures to evaluate the performance of its businesses and for budget planning purposes.
Call Participants Chris French President & Chief Executive OfficerEarle MacKenzie Executive Vice President & Chief Operating OfficerAdele Skolits Vice President of Finance & Chief Financial Officer
Transactions Introduction 1. Based on publicly reported net debt of $378 million as of June 30, 2015, and equity value of $208 million, and excludes minority interests. nTelos Acquisition Strategic acquisition of adjacent operating footprint on attractive terms $5861 million enterprise value; all-cash acquisition of NTELOS Holdings Corp. (“nTelos”)$9.25 per share in cash payable to nTelos shareholders at closingNet consideration is approximately $330 million, after deducting the net present value of the reduction in future fees due to Sprint (as outlined below) from enterprise value Sprint Exchange of Assets Exchange of certain assets with Sprint Corp. (“Sprint”) includes:Sprint subscribers and stores in the acquired nTelos markets$252 million in reduced settlement fees realized over approximately five to six yearsApproximately $60 million cash payment over time as collected by Sprint for accounts receivable balances of nTelos customers transferred to SprintRevised affiliate agreement and extended term by five years to 2029Cancel the Network Wholesale Agreement between Sprint and nTelos Timing Acquisition of nTelos has been approved unanimously by the Boards of Directors of Shentel and nTelosTransaction with Sprint has been approved unanimously by the Boards of Directors of Shentel and SprintTransactions to close concurrentlyExpected to close by early 2016; subject to regulatory approval and other customary closing conditions
Benefits of the Transactions Enhanced Scale and Network Expected to have a total licensed population (“POP”) of 5.4 million, a network that covers 4.3 million POPs and total subscribers of over 1 millionApproximately doubles Shentel’s covered POPs, revenue and OIBDAIncreases presence in highly complementary Mid-Atlantic footprintExpands and upgrades 4G LTE network in the region Expanded Relationship with Sprint Further solidifies Shentel and Sprint’s strong relationship through an alignment of operating assets as well as extending the term of the Affiliate Agreement Attractive Value Sprint is contributing significant value to the Transaction, including $252 million in reduced fees over 5 to 6 yearsAttractive Net Transaction Consideration ValueReasonable pro forma leverage and no shareholder dilution Meaningful Operating Benefits Overlaps with portions of existing Shentel wireless, cable, fiber and wireline networks which will enable Shentel to eliminate redundant cell sites, leverage fiber and tower assetsEnhanced scale and access to Sprint’s shared services to help drive operating efficienciesLocal market focus coupled with the Sprint brand should further improve subscriber results
nTelos Represents a High-Quality Asset in Complementary Markets nTelos is a publicly traded regional wireless carrier providing coverage to customers predominantly in Virginia and West VirginiaBranded retail business selling postpaid and prepaid serviceExclusive wholesale network provider for Sprint in portions of Western Virginia and West Virginia through 2022 Currently building 4G LTE network and enhancing coveragenTelos has approximately 223,000 postpaid subscribers and 66,500 prepaid subscribers as of June 30, 2015 (1)Shentel will complete nTelos’ plans to build 4G LTE, expand coverage and close down its Eastern Virginia Markets nTelos Coverage Footprint VA WV PA MD Charlottesville Morgantown Waynesboro Roanoke Huntington Lynchburg Edinburg Charleston As of June 30, 2015 excluding approximately 8,000 subscribers expected to be transferred to Sprint at closing.
Meaningfully Increasing Scale and Aligning Long Term Interests with Sprint for a Continued Successful Partnership With nTelos and Sprint’s subscribers Shentel will:Increase its wireless subscriber base by more than 2.3xThe combined business is expected to have a wireless customer mix of:60% Postpaid40% PrepaidThe transactions position Shentel as the 6th largest public wireless company in the United States Run-Rate Wireless Subscribers1 (‘000) As of June 30, 2015 excluding approximately 8,000 subscribers expected to be transferred to Sprint at closing.
nTelos Transaction $5861 million enterprise value; all-cash consideration $9.25 per share in cash for a total equity value of $208 millionFull repayment of nTelos debtImplies 5.6x nTelos 2015E management guidance EBITDA2Purchase of 100% of nTelos common stockAcquiring net operating loss carryforwards from nTelos as part of the acquisition. We intend to utilize all but approximately $20 million of the $130 million balance at 6/30/15Quadrangle entities, which hold over 18% of nTelos common stock, have executed a Voting Agreement in support of the Transaction Sprint Transaction Cash settlement to Shentel from Sprint of $252 million will be realized as offsets to the management fees payable to Sprint by Shentel of up to $4.2 million per month; anticipated to be satisfied within 5 to 6 yearsnTelos subscribers and Sprint subscribers within the affiliate territory will be governed by a revised Affiliate Agreement between Sprint and Shentel The existing Network Wholesale Agreement between nTelos and Sprint will be cancellednTelos operations will be converted to the Sprint brand. The nTelos network will be upgraded to 4G LTE and coverage will be expandednTelos spectrum licenses transferred to SprintShentel will assume Sprint retail subscribers and stores within the nTelos markets.Shentel will receive approximately $60 million for nTelos accounts receivable. Estimated service receivables of $33 million will be paid to Shentel as received by Sprint and $27 million of estimated equipment receivables will be paid in equal monthly installments over a 24 month period, subject to potential adjustmentsAffiliate Agreement’s terms will be revised Transactions Details Acquisition value excludes minority interests. Figures as of 6/30/2015.Assumes nTelos management 2015E EBITDA reaffirmed guidance midpoint of $104 million, per Q2 2015 earnings release. Total Enterprise Value calculated as implied market value of equity plus total debt less unrestricted cash on balance sheet, all as of 6/30/2015.
Net Transactions Consideration (1) As of June 30, 2015
Summary of Revised Affiliate Agreement Contract Terms Initial term through November 2029; extends existing Affiliate Agreement term by 5 yearsTwo 10 year renewal periodsChanges calculation of Shentel’s wireless business value upon termination of agreement, from 80% to 90% of EBV Net Service Fee Net Service Fee set at 8.6%; effective as of January 1, 2016Can be changed one time annually if the underlying change in costs > 1%; subject to an NSF cap of 10%NSF cap may be changed if expenses can be shown to have increased over the 10% cap for a period of 18 monthsCommissions including phone subsidy costs will be borne by Shentel; cash collected by Sprint from customers for subsidized phones will be credited back to ShentelShentel to receive $1.5 million of net travel revenue per month for 36 months; travel settlement to be reset every three years using each company’s network costs and volumesWholesale (MVNO) usage on Shentel’s network will pass through to Shentel from Sprint based on actual amounts collected by Sprint (currently estimated at $5 million per year) Spectrum Shentel receives access to 2.5 GHz spectrum in its current operating markets immediately and access in the expanded affiliate area at closeSprint and Shentel agree to certain operating and development terms related to the 2.5 GHz spectrum
Pro Forma Footprint Charlottesville Morgantown Waynesboro Roanoke Huntington Lynchburg Edinburg Charleston VA WV PA MD Rocky Mount Atlanta, GA (Telx) Shentel Fiber Routes Shentel POP Shentel Leased Routes Shentel Planned Routes Shentel Coverage Shentel Master Headend Overlap Coverage NTELOS Coverage Shentel Cable Coverage Planned Shentel POP Internet POP
Planned Operational Initiatives Network Complete the wind down of nTelos’ Eastern MarketsComplete the 4G LTE build-out and deploy 800 MHz spectrum for voice and LTERemove 148 duplicate sitesAdd 150 coverage sitesDeploy 2.5 GHz spectrumLeverage Shentel fiber network for backhaul Customer Service Migrate nTelos subscribers to Sprint’s billing and customer service platforms within 90 days of closeRebrand 38 nTelos Stores
Owned Towers 154 8 NA 162 Cell Sites 546 1,010 NA 1,408 Market POPs 2,421,000 4,388,000 4,388,000 5,449,000 Covered POPs 2,213,000 3,100,000 3,100,000 4,283,000 % Coverage 91% 68% 68% 79% Postpaid Subs 296,492 223,000 189,000 708,492 Prepaid Subs 145,431 66,500 102,000 313,931 Total Subs 441,923 289,500 291,000 1,022,423 Penetration % 20.0% 9.3% 9.4% 23.9% Pro Forma Operating Statistics as of 6/30/15 Represents Western Markets only.Represents Sprint customers within the market governed by the revised Affiliate Agreement. POPs totals include areas that overlap current Shentel markets.After the elimination of 148 redundant sites 1 2 SHENTELPro Forma 3 3 3 3 4
Illustrative Transactions Run-Rate Economics Subscriber counts as of June 30, 2015. adjusted for approximately 8,000 subscribers expected to be transferred to Sprint at close.Represents a blend of Shentel’s and nTelos’ ARPU as reported at June 30, 2015. Shentel ARPU was applied as a proxy to Sprint ARPUExcludes the impact of the reduction in net service fees otherwise payable to Sprint of $252 million in the first five to six years after closing Note: Excludes non-cash GAAP accounting adjustments to revenue and accounting recognition of revenue from Sprint payments as a result of the Transactions.
Financing Structure Purchase price fully funded by $960 million in committed debt financing including:$485 million five-year Term Loan A-1 with amortization of 5% in year 1, 10% in years 2 to 4 and 15% in the final year $400 million seven-year Delayed Draw Term Loan A-2 ($325 million drawn at closing), two years of interest only$75 million Revolving Credit Facility (undrawn at closing)$150 million accordion featureSubject to customary closing conditions Pricing Financing Details
Covenants Financing Details (continued)
Expected Transaction Sources & Uses - As of 6/30/15 Cash from Shentel’s Balance Sheet $32 New Revolving Credit Facility1 0 New Term Loan A-1 485 New Delayed Draw Term Loan A-22 325 Total $842 SOURCES ($MM) USES ($MM) Purchase of nTelos Equity $208 Repay nTelos Net Debt 378 Repay Shentel Debt 213 Other Transaction Costs 43 Total $842 Transaction Financing includes $75 million Revolving Credit Facility anticipated to be undrawn at closing.Term Loan A-2 structured as a delayed draw. The facility size is $400 million, with $325 million anticipated to be drawn at close. Meaningful Ongoing Cash and Value Contribution from Sprint Does not include cash from expected Sprint payment for approximately $60 million of accounts receivable or for additional cash flow related to the $252 million in value from Sprint to be realized through fee reductions over 5 to 6 years.
Pro Forma Capitalization – As of 6/30/15 Reasonable Pro Forma Leverage and No Shareholder Dilution Transaction Financing includes $75 million Revolving Credit Facility anticipated to be undrawn at closing.Term Loan A-2 structured as a delayed draw. The facility size is $400 million, with $325 million anticipated to be drawn at close.
Transaction Recap nTelos is a highly attractive strategic acquisition and should significantly enhance our scale and regional service offeringFurther solidifies Shentel as a premier wireless provider in the Mid-Atlantic United StatesExpands and strengthens affiliate relationship with SprintAttractive acquisition terms with meaningful cash contribution from Sprint over time as collectedReasonable pro forma leverage profile and no shareholder dilutionShould meaningfully enhance shareholder value
Q&A