Shenandoah Telecommunications Company Reports Third Quarter 2019 Results


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 revenue16,320  15,963  48,787  49,551 
Total operating revenue155,152  158,731  472,909  469,370 
Operating expenses:       
Cost of services50,164  47,886  149,179  146,362 
Cost of goods sold15,825  15,036  46,336  46,007 
Selling, general and administrative27,178  27,452  83,070  86,117 
Depreciation and amortization36,626  40,028  120,158  124,632 
Total operating expenses129,793  130,402  398,743  403,118 
Operating income25,359  28,329  74,166  66,252 
Other income (expense):       
Interest expense(7,505) (9,001) (22,981) (27,184)
Other1,099  1,054  3,562  2,882 
Income before income taxes18,953  20,382  54,747  41,950 
Income tax expense4,599  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, basic49,857  49,559  49,827  49,527 
Weighted average shares outstanding, diluted50,129  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 assets124,225  125,116 
Total current assets221,640  210,202 
    
Investments11,851  10,788 
Property, plant and equipment, net688,516  701,359 
Intangible assets, net328,831  366,029 
Goodwill149,070  146,497 
Operating lease right-of-use assets400,489   
Deferred charges and other assets50,469  49,891 
Total assets$1,850,866  $1,484,766 
    
Total current liabilities$132,055  $88,539 
Long-term debt, less current maturities696,378  749,624 
Other liabilities546,579  204,356 
Total shareholders’ equity475,854  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:   
Depreciation104,503  106,002 
Amortization15,655  18,630 
Accretion of asset retirement obligations1,093  710 
Bad debt expense1,215  1,362 
Stock based compensation expense, net of amount capitalized3,158  4,578 
Deferred income taxes4,999  (1,989)
Other adjustments(439) 1,060 
Changes in assets and liabilities21,861  26,704 
Net cash provided by operating activities193,459  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 assets156  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 option81   
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 equivalents12,329  (3,378)
Cash and cash equivalents, beginning of period85,086  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
 CableWirelineTotal CableWirelineTotal
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 customers45,564 13,429 58,993  37,619 13,538 51,157 
Total cable customer relationships84,759 17,678 102,437  79,426 18,838 98,264 
        
Video RGUs:       
RGUs former methodology41,331 4,438 45,769  44,093 4,796 48,889 
Bulk adjustment8,632 614 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 methodology73,557 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 adjustment2,601 306 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 methodology23,636 19,135 42,771  23,268 17,786 41,054 
Less: RLEC (14,594)(14,594)  (15,002)(15,002)
Bulk adjustment434 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 methodology138,524 37,634 176,158  134,450 37,316 171,766 
Less: RLEC (22,706)(22,706)  (24,627)(24,627)
Bulk adjustment11,667 3,265 14,932  12,067 466 12,533 
Total RGUs revised methodology150,191 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 units150,022 17,851 167,873  145,516 12,058 157,574 
Fiber route miles3,678 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 

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  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.