Shenandoah Telecommunications (SHEN) Q1 2019 Earnings Call Transcript

Shenandoah Telecommunications (SHEN 0.75%)
Q1 2019 Earnings Call
May. 09, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone. Welcome to the Shenandoah Telecommunications' first-quarter 2019 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.

Belodeau of IMS and Investor Relations for Shentel.

Jennifer Belodeau -- Investor Relations

Good morning and thank you for joining us. The purpose of today's call is to review Shentel's results for the first quarter ended March 31, 2019. Our results were announced in a press release distributed this morning and the presentation we'll be reviewing is included on our Investor page at our website www.shentel.com. Please note that an audio replay of this call will be made available later today.

The details are set forth in the press release announcing this [Inaudible]. With us on the call today are Chris French, president and chief executive officer; Dave Heimbach, executive vice president and chief operating officer; and Jim Woodward, senior vice president, finance, and CFO. After our prepared remarks, we will conduct a question-and-answer session. As always, let me refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties.

These may cause our actual results to differ materially from the statements. Hence, we provide a detailed discussion of various risk factors in our SEC filings, which you're encouraged to review. You're cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements.

Also, in an effort to provide useful information to investors, we note on Slide 3 that our comments today include non-GAAP financial measures. Details on these measures, including why we use them, and reconciliations to the most comparable GAAP measures are included in our SEC filings. These reconciliations are also provided in an appendix to today's slide presentation. With that out of the way, let me turn the call over to Chris.

Go ahead, Chris.

Chris French -- President and Chief Executive Officer

Thank you, Jen. Good morning, everyone. Appreciate you joining us. We continue to deliver solid results in the first-quarter 2019 with consolidated revenue growth and significantly increased operating income.

During the quarter, we saw strong operating metrics across our business. We achieved record first-quarter customer growth, driven by all time high first-quarter additions in both our wireless and cable businesses. The ongoing investments we've been making in our strategic expansion and upgraded network have been paying off. We're strengthening our position as the most reliable provider in the areas we serve with the capacity and speed to exceed customer expectations.

We continue to follow the progress of the proposed Sprint T-Mobile merger. We're optimistic that our long standing affiliate agreement with Sprint positions Shentel well for whatever outcomes reach. We believe the merger would establish a formidable competitor as an alternative to the dominant AT&T and Verizon. Regardless of the outcome, we're well positioned to provide exceptional service to meet the wireless needs of our customers.

Our focus remains on continuing to grow our business while remaining vigilant about sustaining long-term value for our shareholders. Moving to our results on Slide 5, we summarize some highlights of our performance for the quarter. Revenue grew 3.1% to $158.8 million as compared to $154.1 million in the prior-year period. Operating income increased nearly 48% to $24.8 million versus $16.8 million in 2018.

Net income for the quarter was $13.9 million or $0.28 cents per basic and diluted share, compared to $6.6 million or $0.13 per basic and diluted share in 2018. Adjusted OIBDA for the first quarter increased 6.3% to $73 million, representing a margin of 45.9%, an increase from an adjusted OIBDA margin of 44.6% in the first quarter of last year. In our wireless highlights on Slide 6, you'll see the postpaid customers were up 3.4% and prepaid customers increased 6.8%, compared to the first quarter of 2018. Wireless operating revenues increased 2.5% to $115.7 million, primarily driven by organic growth in postpaid and prepaid customers.

Adjusted OIBDA for the wireless segment increased 7.4% to $61.8 million. Moving to Slide 7, revenue in our cable segment increased 6.3% to $33.7 million, primarily due to growth in broadband and video rate increases implemented to pass through higher programming cost. Cable and adjusted OIBDA for the first quarter grew more than 3% to $12.1 million, compared to $11.7 million in 2018, primarily driven by improved broadband ARPU. On Slide 8, wireline operating revenue and adjusted OIBDA declines were primarily due to the repricing of backhaul circuits in migrating wireless voice traffic from circuit switch facilities to more cost-effective VoIP facilities.

While this impacted wireline revenue unfavorably, it had the benefit of lowering operating cost in our wireless segment. Before I close my remarks, I would like take a minute to recognize and thank Jim for his contributions and leadership at the company. He's leaving us after successfully reorganizing our accounting and finance department and strengthening our financial reporting processes and procedures. He also renegotiated our credit agreement on favorable terms and has helped position as well for our continued growth.

We wish him the best in the next chapter of his successful career. We're pleased to be off to a strong start in 2019. This year will be a year of change and transition but we're well-positioned to continue growing and delivering shareholder value. I'll now turn the call over to Jim to review the details of our financial results.

Jim Woodward -- Senior Vice president, Finance, and Chief Financial Officer

Thank you, Chris, and good morning, everyone. We showed the changes in our quarterly results on Slide 10. First-quarter revenue was $158.8 million, compared to $154.1 million in 2018, driven by the wireless and cable operations. We reduced consolidated operating expenses by 2.4%, down $3.3 million from last year's first quarter, primarily due to a decline in network costs for the wireless segment related to the repricing backhaul circuits and migrating voice traffic from traditional circuit switch facilities to the more cost-effective VoIP facilities.

The decrease was partially offset by higher costs for the cable segment, primarily due to the deployment of higher speed data access packages and infrastructure investments necessary to support the expansion of our growing cable and fiber networks. operating income increased $8 million or 48% to $24.8 million over the prior quarter. Net income increased to $13.9 million or $0.28 per basic and diluted share, compared to $6.6 million or $0.13 per basic and diluted share in the first quarter of 2018. Moving to Slide 11, you'll see first-quarter adjusted OIBDA results by segment, which illustrates the components driving the quarter-over-quarter change.

Adjusted OIBDA for the first quarter were $73 million, representing a margin of 45.9%. Continuing OIBDA increased 6.2% to $63.3 million. As a reminder, when we acquired [Inaudible], Sprint committed to waive the 8% postpaid and 6% prepaid management fees up to $4.2 million a month until the total waived management fee reaches $255.6 million. We expect to receive the benefit of the waived management fee through 2022.

On Slide 12, we provided detailed breakdown of the change between first-quarter 2018 and '19 for wireless adjusted OIBDA, which increased $4.2 million, driven primarily by strong postpaid and prepaid subscriber growth. On Slide 13, we provide a bridge of the drivers and changes in cable adjusted OIBDA, which grew about 400,000 in the quarter, primarily as a result of increases in broadband service revenue. Over-the-top video is driving broadband consumption, resulting in our customers requiring additional broadband capacity and consistently driving our improved broadband revenue. The Big Sandy integration is going well and we're pleased to enhance our coverage and service capabilities with an increased presence in Kentucky.

Slide 14 shows the bridge between 2018 and 2019 first-quarter wireline adjusted OIBDA, which decreased during the quarter, primarily driven by the affiliate backhaul circuit repricing. Turning to our capital metrics on Slide 15, as of March 31, 2019, we had $751 million of debt outstanding. During the fourth quarter, we reduced debt by $20 million, including a voluntary $15 million prepayment. Our leverage ratio as of March 31, 2019 was 2.42 times well inside our debt covenant of a 3.5 times.

And barring any significant acquisitions, we expect our debt levels and leverage to continue to decline. And now, I'll turn the presentation over to Dave.

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Thanks, Jim, and good morning, everyone. I'll start by going over some of our operational highlights from the first quarter of 2019, where we saw a record year-over-year organic wireless subscriber growth, adding 26,000 postpaid and 17,000 prepaid wireless subscribers. In our cable segment, we added 64,100 broadband subscribers while growing broadband ARPU 5.1% year over year. We also continue to make significant progress building out and enhancing our state-of-the-art networks.

In our wireless segment, we added LTE capacity at over 120 sites and we constructed 21 new sites and continued to deploy features to enhance our customer's data experience, including intra-band carrier aggregation and 256 quad modulation. In our cable and wireline segments, we added over 150 route miles of fiber and we're on track to have all of our cable systems upgraded to DOCSIS 3.1 technology and gigabit speeds by the end of the year. On Slide 17, we show the components of change in our wireless customer base year over year. We had approximately 801,000 postpaid and 267,000 prepaid subscribers at the end of the first quarter for a total of 1.1 million wireless subscribers.

Net additions for the first quarter were 5,776 for postpaid and 8,516 for prepaid. Combined these net adds were the highest organic net gain for any quarter. We continue to have a positive port-in versus port-out ratio at 1.14 to one for the first quarter of 2019. We finished March with 163 branded Sprint stores and 162 Boost stores, representing an increase of 9% and 22% year over year, respectively.

Lastly 7% of our base upgraded their device in the quarter and 9.8% of the postpaid base is now comprised of tablets and data devices. On Slide 18, you can see the growth in both growth and net activity occurring in postpaid with both metrics at an all-time high for our first quarter. Postpaid churn for the quarter was 1.89% consistent with prior year. However, it's important to note that account-level churn actually reduced year by year by 13 basis points, which was wholly offset by an increase in line level churn as promotional rates expired on heavily discounted or free lines.

We're proud of these improvements in account-level churn, which taken together with heavily discounted or free line level attrition should over time continue to contribute to the stabilization of postpaid ARPU, which declined only slightly year over year from $43.22 to $42.81. We'd also like to highlight that the postpaid subscriber ads that we see are almost all new revenue generating lines with no material level of free lines or postpaid subscribers switching from prepaid service. And that only roughly 5% of our postpaid base is subject to add-a-line promo roll-off. Moving to Slide 19, prepaid gross adds increased to 40,979 and net adds were 8,516, compared to first quarter of 2018, which included approximately 16,000net adds from the Richmond [Inaudible] territory expansion.

Prepaid ARPU increased year over year from $36.73 to $37.73, primarily due to the higher mix of higher ARPU Boost subscribers. During the same period, prepaid churn declined from 4.42% to 4.14%, driven by a 21-basis-point improvement in Boost churn, reflecting the results of higher postpaid port-ins, more and upgraded stores, dealer commission incentives to reduce early life churn, and increased marketing. Now moving to cable on Slide 20, total RGUs grew 4.5% to 139,504, compared to 133,439 in the prior year, primarily due to the addition of approximately 48,000 subscribers through the acquisition of Big Sandy broadband. In the first quarter, we added approximately 6,400 broadband and 1,100 voice subscribers compared to the prior year, which was partially offset by a decrease of 1,400 video subs.

65% of the net broadband growth was organic. Both average revenue per RGU and per customer continued to show improvement in the quarter, driven by a combination of broadband speed upgrades and annual video price increases. We're pleased to report that our broadband penetration increased from 35.2% in the first quarter last year to 37.7% this quarter. So we are making solid progress but of greater significance is the tremendous market opportunity ahead of us to continue to grow our broadband penetration.

To that end, over 70% of homes passed are now capable of broadband speeds up to 1 gig per second with approximately 17% of our base in the upgraded areas having migrated to our new powerhouse branded rate card, which provides our customers with higher speeds and data allowances while minimizing ARPU erosion. Our goal is to construct a deeper competitive moat in our cable markets by migrating the base over time to higher speeds out of the reach of satellite, fixed wireless, and DSL while continuing to provide the great local service our customers have come to expect from Shentel. Lastly, Slide 21 provides an update to capital spending. In the quarter, total capex was $44.4 million.

Approximately $26.5 million of the spending was driven by investments in our wireless segment, including continued expansion in our acquired markets and network capacity augments. Cable and wireline investments accounted for $16.8 million and were primarily driven by the expansion of our fibre network and ongoing DOCSIS 3.1 upgrades. Our $150 million budget for the year now includes approximately $2.1 million for integration costs and network upgrades in the recently acquired Big Sandy broadband markets. So thank you very much and, operator, we're now ready for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Ric Prentiss of Raymond James. You may proceed with your question.

Ric Prentiss -- Raymond James -- Analyst

Thanks. Good morning, guys.

Chris French -- President and Chief Executive Officer

Morning.

Ric Prentiss -- Raymond James -- Analyst

Hey, a couple of questions. First, on the quarter, can you break out for us how much of the postpaid were phone versus non-phone adds in the quarter? Sprint obviously continues to lose subs on the phone side but I assume guys had a nice quarter on the phone side as well.

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Yes, Ric. This is Dave. Good morning. So a couple of data points for you there.

The Internet of Things category, tablets, watches, etc., represented 26% of our gross adds in the quarter. But interestingly, phone gross adds were also up 3% year over year and add-a-lines were roughly 80% of those IoT activations, as you might expect. But with that said, add-a-lines are roughly 35% of our gross versus almost two times that for Sprint since you mentioned sprint. And I might point out that last year, our Q1 phone net result was slightly negative as well.

So on a net basis, the increase in postpaid that you saw in the quarter was driven primarily by Internet of Things.

Ric Prentiss -- Raymond James -- Analyst

OK. And so did you have positive postpaid phone adds in the quarter, net adds?

Dave Heimbach -- Executive Vice President and Chief Operating Officer

They were down that 625 units, basically flat, Ric.

Ric Prentiss -- Raymond James -- Analyst

OK. All right.

Chris French -- President and Chief Executive Officer

An improvement over prior year.

Ric Prentiss -- Raymond James -- Analyst

Exactly. Exactly. It just -- it helps to break out the phone versus the non-phone just different ARPU levels, obviously.

Chris French -- President and Chief Executive Officer

Yes, yes.

Ric Prentiss -- Raymond James -- Analyst

Yes, and speaking of gross adds, you talked about how gross adds were up on postpaid phone as well as wearables and other. How should we think about, first, the seasonality of gross adds? But second, it's a pretty strong level so I assume that's reflecting the network in the stores but how do we think going forward from this 51,000 postpaid gross ad level?

Chris French -- President and Chief Executive Officer

Yes, look we're -- we continue to be bullish on our ability to grow the the wireless subscriber base, which is why we continue to invest elevated amounts of capital in the network, particularly in the expanded areas. And Ric, an interesting thing I think is has happened over the last couple of quarters for us in terms of wearables is that we've seen, particularly with that with the newer version of the Apple Watch, we've seen a lot of folks demanding that product. And with Sprint's add-a-line promos, it's natural that they would. And so we have seen a little bit more of a shift in our neck of the woods that we've had to respond to and as I think you know historically we have downplayed the sale of wearables in our retail footprints through our commission plans and incentives that we provide our reps.

And we still deemphasize that but it's really the consumer demand that's driving that.

Ric Prentiss -- Raymond James -- Analyst

Yes. OK. And last one for me, Sprint on their call on Tuesday night mentioned they're hoping to see -- they're in the last -- late stages of the decision. Deutsche Telekom today said maybe a federal decision in June on the Sprint T-Mobile merger. On the Softbank call this morning and on the Sprint call, it's been alluded to that if the deal is not approved, that they might need to reduce their coverage area, they might need to close stores, they might need to become less of a nationwide-focused operator if the deal is not approved.

How does that affect you guys if Sprint kind of changes their tactic if the deal is not approved to narrow their geographic focus, I think was the quote?

Jim Woodward -- Senior Vice president, Finance, and Chief Financial Officer

Hey, Ric. Good morning. This is Jim. So obviously it would depend on what they actually do.

But just thinking through the list of things you did, I'm not I'm not sure it impacts us because we are geographically focused and we are -- and we do have a strong -- a very strong network and growing in its -- both coverage and capacity to provide our customers as good a service as they can get from any carrier out there. So just right off the top of my head, Ric, I wouldn't say that the changes that they might have to make in other parts of the country wouldn't -- I don't see how the things you listed would really have an impact on on what our game plan is and our outlook is.

Ric Prentiss -- Raymond James -- Analyst

Unless they were to ship more to you guys and that might tee up the --

Jim Woodward -- Senior Vice President, Finance, and Chief Financial Officer

Oh, well, now if they come to us and they want to talk about additional geography, then yes, that would obviously. But I was just thinking about with the current geography that we own. But yes if they come to us with additional geography depending on how they position their longer term plans with that would have to factor into that conversation.

Ric Prentiss -- Raymond James -- Analyst

OK. And where are you guys comfortable with leverage going? You mentioned leverage -- debt leverage are coming down without significant M&A, but where are you comfortable if M&A did occur having leverage head up to?

Jim Woodward -- Senior Vice president, Finance, and Chief Financial Officer

I don't -- it really would depend on if when it goes up, how fast it comes down and what the modeling goes. But obviously we've got a turn or two that I don't think anybody would lose any sleep over depending on what that economic opportunity was. I mean, we're still inquisitive and trying to grow our broadband assets. And there's been a little bit of movement there in that market.

There are some things that are -- seem to be coming together as we expected they would with maybe the change in tax laws and folks realizing that scale is the name of that game. So it's not just wireless expansion but to continue to balance and diversify the portfolio we're also interested in broadband.

Ric Prentiss -- Raymond James -- Analyst

Makes sense. All right. Thanks, guys.

Operator

Thank you. Our next question comes from Amy Yong of Macquarie. You may proceed with your question.

Amy Yong -- Macquarie Research -- Analyst

OK. No problem.Thank you and good morning. And Jim, best wishes. Dave, I guess, just following up on your comments on churn.

Can you quantify how much churn was attributable to Sprint and then work discipline promotional activity. And should we see the same pack or the magnitude going forward until they change their tune on how they promote? Then the second question [Inaudible] how much more room is there for ARPU to increase and where do you feel like you can get penetration rates to? Thanks.

Jim Woodward -- Senior Vice President, Finance, and Chief Financial Officer

Amy, a quick clarifying follow up because you were kind of cutting in and out on the phone connection there was your ARPUR question on broadband?

Amy Yong -- Macquarie Research -- Analyst

Yes.

Jim Woodward -- Senior Vice President, Finance, and Chief Financial Officer

OK. No problem. So first of all on churn on the wireless side, that -- the way you phrased that question is a tough one to answer. We don't -- it's really hard for us to kind of dig into exactly how much churn is tied to what the various promotional activity Sprint undertakes.

What I can tell you is I mentioned in the script and I'll reiterate here that we have a fairly small exposure to the the add-a-line roll-off promo churn, given that that's only -- it's less than 10% of our -- it's actually closer to 5% of our postpaid subscriber base. So we feel pretty good about that. The other thing I'd tell you is that whereas even 12, 18 months ago, roughly 2,000 gross adds a quarter we're adding free lines, that's down to less than roughly 500 a quarter now so that the exposure is also dropping substantially over time, which we we feel good about as well. So from our perspective, while we can't control the promotions that Sprint runs, we try to do our best through credit policy management and through our incentives and at point of sale to drive the kind of subscriber acquisition and the kind of device acquisition that we prefer that will reduce churn longer term.

ARPU in the broadband space, we have historically had very healthy broadband our ARPU gains but I think that was in large part due to our legacy broadband rate card. As we have rolled out these DOCSIS 3.1 upgrades, we launched a new rate card that provides far greater speeds for better pricing for our customers and we have raised data allowances. So my interest at this stage of our journey is more around growing penetration and trying to balance that with not giving up ARPU. And that's the balance that we are currently trying to strike.

So from a go-forward basis, I would ask you not to expect us to grow broadband ARPU 10 year over year or something like that which is I think what we did last year because we are in the process of leveraging our speed upgrades to, as I said, in the script drive a deeper relationship and more long term relationship with our customers.

Amy Yong -- Macquarie Research -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from Zack Silver of B. Riley FBR. You may proceed with your question.

Zack Silver -- B. Riley FBR -- Analyst

OK. Great. Thanks for taking the question and Jim best wishes to you and your next endeavor. The first one is on the cable side. OIBDA margin stepping down year over year in the quarter due to, I think it was driven by opex related to some infrastructure upgrades that you had.

And I'm just wondering after some really nice margin growth in 2018 whether you know this is going to kind of weigh margin for the balance of '19 and whether we should expect margin growth in the cable segment this year.

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Zack. this is Dave and I'll let Jim chime in if you'd like as well but the cable segment OIBDA margin, year by year the delta there was driven by really three things: one time subscriber acquisition costs in the quarter and a modest increase in maintenance expense. And then we ran some promotions toward the back half of last year on our legacy rate card while we were preparing to launch our new powerhouse rate card that drove some that negative variance in terms of where the margin in the first quarter this year. In terms of margin expansion in cable this year, the way we're managing the cable segment this year is to reinvest in deepening customer relationships and continuing to grow penetration and to leverage our enormous competitive advantage from our point of view both with respect to the performance of our products and the service we can provide to drive higher penetration.

So this year is really a year focused on deepening customer relationships and growing penetration more so than it is OIBDA margin expansion.

Chris French -- President and Chief Executive Officer

In fact, just a pile on to what Dave said, when I look at that and then I look at the things that are going on there, I don't see anything systemic. I do think Dave's right. We made consciously made some investments to strengthen the relationship, make sure that no matter what alternatives the customer had, we would always be the No. 1 alternative to -- for broadband.

And do that to incentivize the customers and our sales folks. There's some kind of onetime cost. I just don't think that -- look, there's still plenty of growth in that segment.

Zack Silver -- B. Riley FBR -- Analyst

OK. That's really helpful. And then try one more, following up on Ric's question earlier. Given that Sprint would be a bit capital constrained in the event of a no-deal outcome, do you have any sense of what their appetite would be to sell you more a footprint? And then on the other side of it, what would your appetite be to take on more of their territory at this point?

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Zack, I'm going to answer that question but, look, I think it will just depend, right, because our appetite is to take on additional expansion areas. I know this sounds like out of a textbook but it's a good deal for the shareholders. A good long-term deal for the shareholders. And if it's not, we'll walk away.

I mean, just similar to some of the broadband opportunities that we've looked at, they weren't good they weren't good long-term options for our shareholders. And to exactly what Sprint will or won't want to do, I mean, my crystal ball is the same one as yours. I'm not sure what they'd want to do there. I think we've been a really good partner for them in helping them expand and build their rule coverage.

So it just depends on how they view the world when they exit the deal without a merger.

Zack Silver -- B. Riley FBR -- Analyst

Yes, that makes sense. Thank you very much.

Operator

Thank you. Our next question comes from Hamed Khorsand of BWS Financial. You may proceed with your question.

Hamed Khorsand -- BWS Financial -- Analyst

Hey, good morning. So first off, I want to ask you was the growth you're seeing on the wireless subscriber side, is that coming from you guys opening up more stores or is that coming from just being visible in a bigger footprint?

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Both, Hamed. This is Dave. Yes, we continue to expand the store footprint as I think you know and because we've taken on two territory expansions over the last couple of years, we have new dirt to dig around in. And as a result of that, we continue to see strong subscriber growth.

Hamed Khorsand -- BWS Financial -- Analyst

Is there a threat is there a threshold where you would actually see some operating leverage from these store openings as they move on? I mean, there's a lot of start-up cost and fixed costs and so forth involved.

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Yes, most of this -- specific to the stores, most of the store openings -- incremental store openings we're doing, we're doing through third-party distribution. so the start-up cost for us is pretty minimal. The operating leverage question though more to the point is a great question and it's one we spent a lot of time thinking about here at Shentel and I would submit to you that we see evidence of incremental operating margin every day as we work to reprice backhaul circuits, use our capital to displace external spend associated with things like backhaul. And as we continue to invest in the expansion and upgrade of of our networks, we will continue to drive greater operating leverage to drive margins higher over time.

But having said that, we are still in growth and expansion mode. And so your ability to to see some of that manifest in the income statement in the short to medium term is going to be somewhat muted.

Chris French -- President and Chief Executive Officer

Yes, Hamed we haven't -- we talked about this on previous calls but I think it's a good opportunity. As you're growing and expanding the networ,k you're lighting up a tower, right? And you light up that tower and you build that network and then you've got something to go to market with. Well, as soon as you get the tower up, it's -- Dave, correct me if I go straight it's like $6,000 a month, right? But if that starts selling into those subscribers, that's where the real leverage comes. But as you have witnessed and been with us long time, this investment in the capital takes a couple years to get that to that point.

So yes, I think there is opportunity to leverage that capex into higher margins because -- but just you've got to build the network and set up your distribution, your sales and marketing gets out there and you start selling subscribers into those networks.

Hamed Khorsand -- BWS Financial -- Analyst

And are you at a point where you could actually put out a goal and say reaching 20% operating margin or are you still in that just generating dollars and versus margin standpoint?

Chris French -- President and Chief Executive Officer

Well, are we at a point where we could put out a goal? If we were inclined to, yes. But the -- we're still focused on growing and maximizing the territory that we have that we've been -- that we acquired from Sprint. And remaining diligent about the changing competitive landscape at the same time. So it's not just one time.

Hamed Khorsand -- BWS Financial -- Analyst

And last question on the capex schedule, you're spending almost double what you spent last year for cable. Is that going to be normalized or is that purely because of the DOCSIS 3.1 build and that just goes back down next year?

Jim Woodward -- Senior Vice President, Finance, and Chief Financial Officer

Yes, it's a smattering of things that are in that number but it's principally related to the expansion of -- the continued expansion of our fiber footprint as well as the DOCSIS 3.1 upgrade.

Hamed Khorsand -- BWS Financial -- Analyst

OK. Thank you.

Operator

Thank you. And our next question comes from Sergie Delozesky of Gamble. You may proceed with your question.

Unknown speaker

Good morning, guys.Or I think you got this question.

Chris French -- President and Chief Executive Officer

Good morning.

Unknown speaker

One follow up on Sprint T-Mobile. So given everything that you've said on this call and the headlines that we are seeing including most recent ones, I mean at the high level, what scenarios do you envision if the merger is approved and what challenges and opportunities do you see if it is rejected, kind of how are you preparing for this?

Jim Woodward -- Senior Vice President, Finance, and Chief Financial Officer

Sergie, this is Jim. So as we've talked about, if the merger is approved, there's a waterfall of events that will occur. Really starts with the approval of the merger. And just to kind of revisit those quickly, it starts a clock of about 180 days where we have an opportunity to negotiate whether we remain an affiliate or they purchase the wireless business and I want to remind everybody that it's the PCS business, right.

It's not the fiber and it's not the towers. We retain those. So, if the merger is approved, I expect that at that point we'll become a top 10 thing the team T-Mobile needs to do and they'll reach out and we'll start a discussion. If the merger is not approved, at some point, as someone else mentioned, I don't know what Sprint will do.

They'll have to sit back and make their assessment. But we'll continue to run our game plan and operate our business And then we'll also be open for business if Sprint would come to us and want to revisit territory expansion.

Unknown speaker

Great. And my second question is on the cable side as far as inorganic activity. So you guys acquired Big Sandy earlier this year, which was obviously a [Inaudible]. What is your view of potential cable deal pipeline? I think you alluded to it a little bit.

And what are the valuations that you're seeing and how are you thinking about organic growth in cable going forward? And maybe what are the key criteria for you as you evaluate those potential cable acquisitions?

Chris French -- President and Chief Executive Officer

So I'll talk a little bit about the acquisition and Dave can talk about the organic but we are seeing an uptick in the -- as I think about it, the inventory out there. Folks, keep in mind a lot of these cable companies are privately held, family owned and we are seeing an uptick of those things come into market our interest. And it comes in various ways some of whom you're seeing in their full blown processes and some of them it's a phone call and Dave and myself are in our addition to our other roles we're also the chief development officers for Shentel. And so we are going out there and meeting folks and talking to them and letting them know that when the time comes that they may want to put their asset in some great hands.

We want them to know who we are and we would be a good home for their for their assets. So we are seeing some uptick in that. I wouldn't say it's a flurry of activity yet but it is an uptick in the last six months. It's mainly conversations that are picking up.

Was there another part of that M&A question you had?

Unknown speaker

No, just key criteria for you. Obviously, as you were saying, this pick up [Inaudible] prioritize certain assets versus [Inaudible]

Chris French -- President and Chief Executive Officer

Well, at this point, the prioritization isn't too much of a problem because I'm looking at whatever comes. It hasn't been -- that would be a high-class problem to have so many to look at and try to prioritize. But look it's just the financial discipline, right? That's how we're going to decide about what isn't a creative deal to Shentel and our shareholders. I mean, we -- like I could say we have walked away from a couple or just because this is just not going to be good for Shentel.

The other thing I would tell you is we're obviously interested in tuck-ins, right, that are geographically adjacent but we're also -- we're looking at -- we're open to establishing new beachheads somewhere to run the same playbook that we did kind of here in Central Virginia and West Virginia, so -- but those valuations you know are accretion, growing share price.

Unknown speaker

Thank you.

Chris French -- President and Chief Executive Officer

Dave, you want to support?

Dave Heimbach -- Executive Vice President and Chief Operating Officer

I think you got his questions, yes.

Chris French -- President and Chief Executive Officer

Does that answer all your question, Sergei?

Unknown speaker

Yes, thank you.

Chris French -- President and Chief Executive Officer

All right.

Operator

Thank you. [Operator instructions] And I'm not showing any further questions at this time. I would now like to turn the call back over to Jim Woodward for any further remarks.

Jim Woodward -- Senior Vice president, Finance, and Chief Financial Officer

Well, thank you for joining us today and thank you for the well wishes and [Audio gap]

Duration: 43 minutes

Call participants:

Jennifer Belodeau -- Investor Relations

Chris French -- President and Chief Executive Officer

Jim Woodward -- Senior Vice president, Finance, and Chief Financial Officer

Dave Heimbach -- Executive Vice President and Chief Operating Officer

Ric Prentiss -- Raymond James -- Analyst

Amy Yong -- Macquarie Research -- Analyst

Zack Silver -- B. Riley FBR -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

Unknown speaker

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