UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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☒ | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 30, 2017 |
March 31, 2024 |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from__________ to __________ |
Commission File No.: 000-09881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Virginia | | 54-1162807 |
| | |
VIRGINIA | | 54-1162807 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
500 Shentel Way, Edinburg, Virginia 22824
(Address of principal executive offices) (Zip Code)
(540) 984-4141
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
| | | | | | | | | | | |
Common Stock (No Par Value) | SHEN | NASDAQ Global Select Market | 54,547,093 |
(Title of Class) |
(Trading Symbol) | (Name of Exchange on which Registered) | (The number of shares of the registrant's common stock outstanding on April 26, 2024) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☑ | ☒ | Accelerated filer ☐ | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company☐company | ☐ | Emerging growth company☐company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
The number of shares of the registrant’s common stock outstanding on October 27, 2017 was 49,264,693.
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
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| | Page Numbers |
PART I. | FINANCIAL INFORMATION | | | |
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Item 1. | Financial Statements | | | |
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| Unaudited Condensed Consolidated Balance Sheets | |
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| Unaudited Condensed Consolidated Statements of Comprehensive Income | |
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| Unaudited Condensed Consolidated Statements of Shareholders’ Equity | |
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| Unaudited Condensed Consolidated Statements of Cash Flows | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |
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Item 4. | Controls and Procedures | |
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PART II. | OTHER INFORMATION | | | |
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Item 1. | Legal Proceedings | |
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Item 1A. | Risk Factors | |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 5. | Other Information | |
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Item 6. | Exhibits | |
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| Signatures | |
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| | Page Numbers |
PART I. | FINANCIAL INFORMATION | | | |
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Item 1. | Financial Statements | | | |
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Item 2. | | | - | |
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Item 3. | | |
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Item 4. | | |
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PART II. | OTHER INFORMATION | | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
|
| | | | | | | | |
ASSETS | | September 30, 2017 | | December 31, 2016 |
| | | | |
Current Assets | | | | |
Cash and cash equivalents | | $ | 75,467 |
| | $ | 36,193 |
|
Accounts receivable, net of allowance of $479 and $449, respectively | | 64,396 |
| | 69,789 |
|
Income taxes receivable | | 7,689 |
| | — |
|
Inventory, net | | 7,439 |
| | 39,043 |
|
Prepaid expenses and other | | 18,226 |
| | 16,440 |
|
Total current assets | | 173,217 |
| | 161,465 |
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| | | | |
Investments, including $3,271 and $2,907 carried at fair value | | 11,319 |
| | 10,276 |
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| | | | |
Property, plant and equipment, net | | 683,355 |
| | 698,122 |
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| | | | |
Other Assets | | |
| | |
|
Intangible assets, net | | 421,672 |
| | 454,532 |
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Goodwill | | 146,497 |
| | 145,256 |
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Deferred charges and other assets, net | | 11,012 |
| | 14,756 |
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Total assets | | $ | 1,447,072 |
| | $ | 1,484,407 |
|
(Continued)
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| | (in thousands) | | (in thousands) | March 31, 2024 | | December 31, 2023 |
ASSETS | |
Current assets: | |
Current assets: | |
Current assets: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Accounts receivable, net of allowance for credit losses of $1,064 and $886, respectively | |
Income taxes receivable | |
Prepaid expenses and other | |
Current assets held for sale | |
Total current assets | |
Investments | |
Property, plant and equipment, net | |
Goodwill and intangible assets, net | |
Operating lease right-of-use assets | |
Deferred charges and other assets | |
Non-current assets held for sale | |
Total assets | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | September 30, 2017 | | December 31, 2016 |
| | | | |
Current Liabilities | | | | |
Current liabilities: | |
Current liabilities: | |
Current liabilities: | |
Current maturities of long-term debt, net of unamortized loan fees | |
Current maturities of long-term debt, net of unamortized loan fees | |
Current maturities of long-term debt, net of unamortized loan fees | | $ | 54,316 |
| | $ | 32,041 |
|
Accounts payable | | 31,462 |
| | 72,810 |
|
Advanced billings and customer deposits | | 21,109 |
| | 20,427 |
|
Accrued compensation | | 7,373 |
| | 9,465 |
|
Income taxes payable | | — |
| | 435 |
|
Current operating lease liabilities | |
Accrued liabilities and other | | 15,277 |
| | 29,085 |
|
Current liabilities held for sale | |
Total current liabilities | | 129,537 |
| | 164,263 |
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| | | | |
Long-term debt, less current maturities, net of unamortized loan fees | | 778,686 |
| | 797,224 |
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| | | | |
Other Long-Term Liabilities | | |
| | |
|
Other long-term liabilities: | |
Deferred income taxes | | 142,056 |
| | 151,837 |
|
Deferred lease payable | | 21,089 |
| | 18,042 |
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Asset retirement obligations | | 19,240 |
| | 15,666 |
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Retirement plan obligations | | 16,939 |
| | 17,738 |
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Deferred income taxes | |
Deferred income taxes | |
Benefit plan obligations | |
Non-current operating lease liabilities | |
Other liabilities | | 40,180 |
| | 23,743 |
|
Non-current liabilities held for sale | |
Total other long-term liabilities | | 239,504 |
| | 227,026 |
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| | | | |
Commitments and Contingencies | |
|
| |
|
|
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Shareholders’ Equity | | |
| | |
|
Common stock | | 43,908 |
| | 45,482 |
|
Commitments and contingencies (Note 13) | | Commitments and contingencies (Note 13) | | | |
Shareholders’ equity: | |
Common stock, no par value, authorized 96,000; 50,447 and 50,272 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Common stock, no par value, authorized 96,000; 50,447 and 50,272 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Common stock, no par value, authorized 96,000; 50,447 and 50,272 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
Additional paid in capital | |
Retained earnings | | 249,419 |
| | 243,624 |
|
Accumulated other comprehensive income (loss), net of taxes | | 6,018 |
| | 6,788 |
|
Accumulated other comprehensive income, net of taxes | |
Total shareholders’ equity | | 299,345 |
| | 295,894 |
|
| | | | |
Total liabilities and shareholders’ equity | | $ | 1,447,072 |
| | $ | 1,484,407 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Operating revenues | | $ | 151,782 |
| | $ | 156,836 |
| | $ | 458,920 |
| | $ | 379,716 |
|
| | | | | | | | |
Operating expenses: | | |
| | |
| | |
| | |
|
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 55,834 |
| | 58,317 |
| | 162,976 |
| | 140,354 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 42,199 |
| | 40,369 |
| | 125,374 |
| | 96,263 |
|
Integration and acquisition expenses | | 1,706 |
| | 15,272 |
| | 9,873 |
| | 35,801 |
|
Depreciation and amortization | | 42,568 |
| | 46,807 |
| | 132,297 |
| | 96,961 |
|
Total operating expenses | | 142,307 |
| | 160,765 |
| | 430,520 |
| | 369,379 |
|
Operating income (loss) | | 9,475 |
| | (3,929 | ) | | 28,400 |
| | 10,337 |
|
| | | | | | | | |
Other income (expense): | | |
| | |
| | |
| | |
|
Interest expense | | (9,823 | ) | | (8,845 | ) | | (28,312 | ) | | (16,369 | ) |
Gain (loss) on investments, net | | 202 |
| | 127 |
| | 395 |
| | 237 |
|
Non-operating income (loss), net | | 1,003 |
| | 1,400 |
| | 3,482 |
| | 2,910 |
|
Income (loss) before income taxes | | 857 |
| | (11,247 | ) | | 3,965 |
| | (2,885 | ) |
| | | | | | | | |
Income tax expense (benefit) | | (2,677 | ) | | (3,651 | ) | | (1,830 | ) | | (2,174 | ) |
Net income (loss) | | 3,534 |
| | (7,596 | ) | | 5,795 |
| | (711 | ) |
| | | | | | | | |
Other comprehensive income (loss): | | |
| | |
| | |
| | |
|
Unrealized gain (loss) on interest rate hedge, net of tax | | 6 |
| | 1,712 |
| | (770 | ) | | (2,573 | ) |
Comprehensive income (loss) | | $ | 3,540 |
| | $ | (5,884 | ) | | $ | 5,025 |
| | $ | (3,284 | ) |
| | | | | | | | |
Earnings (loss) per share: | | |
| | |
| | |
| | |
|
Basic | | $ | 0.07 |
| | $ | (0.16 | ) | | $ | 0.12 |
| | $ | (0.01 | ) |
Diluted | | $ | 0.07 |
| | $ | (0.16 | ) | | $ | 0.12 |
| | $ | (0.01 | ) |
Weighted average shares outstanding, basic | | 49,133 |
| | 48,909 |
| | 49,100 |
| | 48,768 |
|
Weighted average shares outstanding, diluted | | 49,959 |
| | 48,909 |
| | 49,869 |
| | 48,768 |
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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(in thousands, except per share amounts) | | Three Months Ended March 31, |
| | 2024 | | 2023 |
Service revenue and other | | $ | 69,248 | | | $ | 67,165 | |
Operating expenses: | | | | |
Cost of services exclusive of depreciation and amortization | | 25,985 | | | 25,431 | |
Selling, general and administrative | | 28,596 | | | 26,159 | |
Depreciation and amortization | | 17,443 | | | 15,269 | |
Total operating expenses | | 72,024 | | | 66,859 | |
Operating (loss) income | | (2,776) | | | 306 | |
Other (expense) income: | | | | |
Interest expense | | (4,076) | | | (392) | |
Other income, net | | 1,736 | | | 1,509 | |
(Loss) income from continuing operations before income taxes | | (5,116) | | | 1,423 | |
Income tax (benefit) expense | | (1,026) | | | 682 | |
(Loss) income from continuing operations | | (4,090) | | | 741 | |
Discontinued operations: | | | | |
Income from discontinued operations, net of tax | | 1,981 | | | 1,325 | |
Gain on the sale of discontinued operations, net of tax | | 216,805 | | | — | |
Total income from discontinued operations, net of tax | | 218,786 | | | 1,325 | |
Net income | | 214,696 | | | 2,066 | |
| | | | |
Other comprehensive income: | | | | |
Unrealized gain on interest rate hedge, net of tax | | 1,594 | | | — | |
Comprehensive income | | $ | 216,290 | | | $ | 2,066 | |
| | | | |
Net income per share, basic and diluted: | | | | |
Basic - (Loss) income from continuing operations | | $ | (0.08) | | | $ | 0.01 | |
Basic - Income from discontinued operations, net of tax | | 4.33 | | | 0.03 | |
Basic net income per share | | $ | 4.25 | | | $ | 0.04 | |
| | | | |
Diluted - (Loss) income from continuing operations | | $ | (0.08) | | | $ | 0.01 | |
Diluted - Income from discontinued operations, net of tax | | 4.29 | | | 0.03 | |
Diluted net income per share | | $ | 4.21 | | | $ | 0.04 | |
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Weighted average shares outstanding, basic | | 50,520 | | | 50,291 | |
Weighted average shares outstanding, diluted | | 51,011 | | | 50,512 | |
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See accompanying notes to unaudited condensed consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | |
| | Shares | | Common Stock | | Retained Earnings | | Accumulated Other Comprehensive Income, net of tax | | Total |
Balance, December 31, 2015 | | 48,475 |
| | $ | 32,776 |
| | $ | 256,747 |
| | $ | 415 |
| | $ | 289,938 |
|
| | | | | | | | | | |
Net income (loss) | | — |
| | — |
| | (895 | ) | | — |
| | (895 | ) |
Other comprehensive gain (loss), net of tax | | — |
| | — |
| | — |
| | 6,373 |
| | 6,373 |
|
Dividends declared ($0.25 per share) | | — |
| | — |
| | (12,228 | ) | | — |
| | (12,228 | ) |
Dividends reinvested in common stock | | 19 |
| | 524 |
| | — |
| | — |
| | 524 |
|
Stock based compensation | | — |
| | 3,506 |
| | — |
| | — |
| | 3,506 |
|
Stock options exercised | | 371 |
| | 3,359 |
| | — |
| | — |
| | 3,359 |
|
Common stock issued for share awards | | 190 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued | | 2 |
| | 14 |
| | — |
| | — |
| | 14 |
|
Common stock issued to acquire non-controlling interests of nTelos | | 76 |
| | 10,400 |
| | — |
| | — |
| | 10,400 |
|
Common stock repurchased | | (198 | ) | | (5,097 | ) | | — |
| | — |
| | (5,097 | ) |
| | | | | | | | | | |
Balance, December 31, 2016 | | 48,935 |
| | $ | 45,482 |
| | $ | 243,624 |
| | $ | 6,788 |
| | $ | 295,894 |
|
| | | | | | | | | |
|
|
Net income (loss) | | — |
| | — |
| | 5,795 |
| | — |
| | 5,795 |
|
Unrealized gain (loss) on interest rate hedge, net of tax | | — |
| | — |
| | — |
| | (770 | ) | | (770 | ) |
Stock based compensation | | — |
| | 3,557 |
| | — |
| | — |
| | 3,557 |
|
Stock options exercised | | 295 |
| | 1,944 |
| | — |
| | — |
| | 1,944 |
|
Common stock issued for share awards | | 153 |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued | | 1 |
| | 16 |
| | — |
| | — |
| | 16 |
|
Common stock issued to acquire non-controlling interests of nTelos | | 76 |
| | — |
| | — |
| | — |
| | — |
|
Common stock repurchased | | (195 | ) | | (7,091 | ) | | — |
| | — |
| | (7,091 | ) |
Balance, September 30, 2017 | | 49,265 |
| | $ | 43,908 |
| | $ | 249,419 |
| | $ | 6,018 |
| | $ | 299,345 |
|
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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY |
(in thousands) |
| | | | | | | | | | |
| | Shares of Common Stock (no par value) | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total |
Balance, December 31, 2023 | | 50,272 | | | $ | 66,933 | | | $ | 584,069 | | | $ | 1,668 | | | $ | 652,670 | |
Net income | | — | | | — | | | 214,696 | | | — | | | 214,696 | |
Stock-based compensation | | 248 | | | 4,135 | | | — | | | — | | | 4,135 | |
Common stock issued | | — | | | 4 | | | — | | | — | | | 4 | |
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards | | (73) | | | (1,456) | | | — | | | — | | | (1,456) | |
Unrealized gain on interest rate hedge, net of tax | | — | | | — | | | — | | | 1,594 | | | 1,594 | |
Balance, March 31, 2024 | | 50,447 | | | $ | 69,616 | | | $ | 798,765 | | | $ | 3,262 | | | $ | 871,643 | |
| | | | | | | | | | |
| | Shares of Common Stock (no par value) | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income | | Total |
Balance, December 31, 2022 | | 50,110 | | | $ | 57,453 | | | $ | 580,554 | | | $ | — | | | $ | 638,007 | |
Net income | | — | | | — | | | 2,066 | | | — | | | 2,066 | |
Stock-based compensation | | 196 | | | 3,852 | | | — | | | — | | | 3,852 | |
Common stock issued | | 1 | | | 11 | | | — | | | — | | | 11 | |
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards | | (60) | | | (1,156) | | | — | | | — | | | (1,156) | |
Balance, March 31, 2023 | | 50,247 | | | $ | 60,160 | | | $ | 582,620 | | | $ | — | | | $ | 642,780 | |
See accompanying notes to unaudited condensed consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Cash Flows From Operating Activities | | | | |
Net income (loss) | | $ | 5,795 |
| | $ | (711 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | |
| | |
|
Depreciation | | 113,437 |
| | 84,256 |
|
Amortization reflected as operating expense | | 18,860 |
| | 12,705 |
|
Amortization reflected as contra revenue | | 15,563 |
| | 8,883 |
|
Amortization reflected as rent expense | | 2,173 |
| | — |
|
Provision for bad debt | | 1,479 |
| | 1,278 |
|
Straight line adjustment to management fee revenue | | 12,960 |
| | 7,687 |
|
Stock based compensation expense | | 3,053 |
| | 2,570 |
|
Deferred income taxes | | (12,251 | ) | | (57,196 | ) |
Net (gain) loss on disposal of equipment | | 80 |
| | (144 | ) |
Unrealized (gain) loss on investments | | (308 | ) | | (180 | ) |
Net (gains) loss from patronage and equity investments | | (2,315 | ) | | (497 | ) |
Amortization of debt issuance costs | | 3,572 |
| | 2,608 |
|
Other | | — |
| | 1,634 |
|
Changes in assets and liabilities: | | |
| | |
|
(Increase) decrease in: | | |
| | |
|
Accounts receivable | | 6,418 |
| | 7,903 |
|
Inventory, net | | 31,604 |
| | (6,134 | ) |
Income taxes receivable | | (8,704 | ) | | 8,294 |
|
Other assets | | (162 | ) | | 2,619 |
|
Increase (decrease) in: | | |
| | |
|
Accounts payable | | (30,795 | ) | | 3,551 |
|
Income taxes payable | | (435 | ) | | 16,225 |
|
Deferred lease payable | | 3,729 |
| | 2,728 |
|
Other deferrals and accruals | | (5,048 | ) | | (2,633 | ) |
Net cash provided by (used in) operating activities | | $ | 158,705 |
| | $ | 95,446 |
|
| | | | |
Cash Flows From Investing Activities | | |
| | |
|
Acquisition of property, plant and equipment | | (109,435 | ) | | (102,850 | ) |
Proceeds from sale of assets | | 356 |
| | 287 |
|
Cash distributions from investments | | 27 |
| | 2,796 |
|
Additional contributions to investments | | (23 | ) | | — |
|
Cash disbursed for acquisition, net of cash acquired | | (6,000 | ) | | (655,590 | ) |
Net cash provided by (used in) investing activities | | $ | (115,075 | ) | | $ | (755,357 | ) |
| | | | | | | | | | | |
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES | | | |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | | |
(in thousands) | Three Months Ended March 31, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 214,696 | | | $ | 2,066 | |
Income from discontinued operations, net of tax | 218,786 | | | 1,325 | |
(Loss) income from continuing operations | (4,090) | | | 741 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 17,443 | | | 15,269 | |
Stock-based compensation expense, net of amount capitalized | 3,966 | | | 3,717 | |
Deferred income taxes | (1,026) | | | 2,083 | |
Provision for credit losses | 756 | | | 383 | |
Other, net | (184) | | | 214 | |
Changes in assets and liabilities: | | | |
Accounts receivable | 1,726 | | | 4,488 | |
Current income taxes | — | | | 24,676 | |
Operating lease assets and liabilities, net | 75 | | | 2 | |
Other assets | (4,495) | | | (904) | |
Accounts payable | (38) | | | (837) | |
Other deferrals and accruals | (1,218) | | | (4,152) | |
Net cash provided by operating activities - continuing operations | 12,915 | | | 45,680 | |
Net cash provided by operating activities - discontinued operations | 2,243 | | | 2,644 | |
Net cash provided by operating activities | 15,158 | | | 48,324 | |
| | | |
Cash flows from investing activities: | | | |
Capital expenditures | (70,053) | | | (67,468) | |
Government grants received | 2,710 | | | — | |
Proceeds from sale of assets and other | — | | | 101 | |
Net cash used in investing activities - continuing operations | (67,343) | | | (67,367) | |
Net cash provided by (used in) investing activities - discontinued operations | 305,827 | | | (203) | |
Net cash provided by (used in) investing activities | 238,484 | | | (67,570) | |
| | | |
Cash flows from financing activities: | | | |
Principal payments on long-term debt | (1,312) | | | — | |
Proceeds from credit facility borrowings | — | | | 25,000 | |
Taxes paid for equity award issuances | (1,456) | | | (1,156) | |
Payments for financing arrangements and other | (394) | | | (263) | |
| | | |
| | | |
Net cash (used in) provided by financing activities | (3,162) | | | 23,581 | |
Net increase in cash and cash equivalents | 250,480 | | | 4,335 | |
Cash and cash equivalents, beginning of period | 139,255 | | | 44,061 | |
Cash and cash equivalents, end of period | $ | 389,735 | | | $ | 48,396 | |
| | | |
Supplemental Disclosures of Cash Flow Information | | | |
Interest paid | $ | 5,262 | | | $ | 1,327 | |
Income tax refunds received, net | $ | — | | | $ | 25,030 | |
(Continued)
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Cash Flows From Financing Activities | | | | |
Principal payments on long-term debt | | $ | (24,250 | ) | | $ | (207,816 | ) |
Amounts borrowed under debt agreements | | 25,000 |
| | 835,000 |
|
Cash paid for debt issuance costs | | — |
| | (14,825 | ) |
Repurchases of common stock | | (5,106 | ) | | (5,097 | ) |
Proceeds from issuance of common stock | | — |
| | 3,368 |
|
Net cash provided by (used in) financing activities | | $ | (4,356 | ) | | $ | 610,630 |
|
| | | | |
Net increase (decrease) in cash and cash equivalents | | $ | 39,274 |
| | $ | (49,281 | ) |
| | | | |
Cash and cash equivalents: | | |
| | |
|
Beginning | | 36,193 |
| | 76,812 |
|
Ending | | $ | 75,467 |
| | $ | 27,531 |
|
| | | | |
Supplemental Disclosures of Cash Flow Information | | |
| | |
|
Cash payments for: | | |
| | |
|
Interest, net of capitalized interest of $1,266 and $909, respectively | | $ | 25,934 |
| | $ | 14,671 |
|
| | | | |
Income taxes paid, net of refunds received | | $ | 19,567 |
| | $ | 23,851 |
|
Non-cash investing and financing activities:
At September 30, 2017 and 2016, accounts payable included approximately $3.8 million and $14.2 million, respectively, associated with capital expenditures. Cash flows for accounts payable and acquisition of property, plant and equipment exclude this activity.
During the nine months ended September 30, 2016, in conjunction with the acquisition of nTelos, the Company issued common stock to acquire non-controlling interests held by third parties in a subsidiary of nTelos. The transaction was valued at $10.4 million.
See accompanying notes to unaudited condensed consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Other Information
Shenandoah Telecommunications Company and its subsidiaries (collectively, “Shentel”, “we”, “our”, “us”, or the “Company”) provide broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and Kentucky, via fiber optic and hybrid fiber coaxial cable networks. We also lease dark fiber and provide Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. Shentel’s Broadband business also provides voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”). These integrated networks are connected by a fiber network.
The interimaccompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited. In the opinion of management, allRegulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation of the interim results have been reflected thereinincluded. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"(“U.S. GAAP”) have been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our Annual Report on Form 10-K for interim financial reporting and as required by Rule 10-01the year ended December 31, 2023.
The preparation of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect thereported amounts of assets, liabilities, revenues and liabilities,expenses and related disclosures, asdisclosures. On an on-going basis we evaluate significant estimates and assumptions, including, but not limited to, revenue recognition, stock-based compensation, estimated useful lives of assets, impairment of goodwill and indefinite-lived intangible assets, intangible assets subject to amortization, the datecomputation of income taxes and the fair value of interest rate swaps. Future events and their effects cannot be predicted with certainty; accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Management evaluates and updates assumptions and estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.
Sale of Shentel’s Tower Portfolio
On March 29, 2024, Shenandoah Mobile, LLC, a wholly-owned subsidiary of Shenandoah Telecommunications Company, completed the initial closing of its previously disclosed sale of substantially all of Shentel’s tower portfolio and operations (“Tower Portfolio”) to Vertical Bridge Holdco, LLC for $309.9 million (the “Tower Transaction”). The Company received $305.8 million, net of certain transaction costs at the time of the initial closing. At the initial close, the Company conveyed sites representing approximately 99.5% of the tower portfolio value. The Company expects to convey the remaining tower sites in the portfolio by the end of March 2025. The Tower Transaction was completed pursuant to the terms of a Purchase and Sale Agreement, dated February 29, 2024, as amended by Amendment No. 1 to the Purchase and Sale Agreement, dated March 29, 2024.
The Tower Portfolio represented substantially all of the assets and operations in Shentel’s previously reported Tower Reporting Segment and the amounts of revenue and expenses reported during the period. Actual results could differ from estimates. The information contained herein should be read in conjunction with the audited financial statements includedTower Transaction represented a strategic shift in the Company's Annual Report on Form 10-KCompany’s business. Consequently, the Tower Portfolio has been reclassified as a discontinued operation. For all periods presented, the assets and liabilities that transferred in the Tower Transaction (the “disposal group”) are presented as held for the year ended December 31, 2016. The accompanying balance sheet information at December 31, 2016 was derived from the audited December 31, 2016 consolidated balance sheet. Operating revenues and income (loss) from operations for any interim period are not necessarily indicative of results that may be expected for the entire year.
Management has made an immaterial error correction to the accompanying prior period sale in our unaudited condensed consolidated statementbalance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in our unaudited condensed consolidated statements of comprehensive income and unaudited condensed consolidated statements of cash flows. Refer to Note 14, Discontinued Operations for more information regarding the nine months ended September 30, 2016 to decrease bothpresentation of the amountdisposal group in the Company’s financial statements.
As a result of net cash provided by operating activities and the amountsale of net cash used in investing activities by approximately 10.4 million to properly reflect the common stock issued (non-cash) byTower Portfolio, the Company to acquire non-controlling interests in a subsidiaryhas one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.
Adoption of nTelos held by third parties in conjunction with the nTelos acquisition. This immaterial error correction had no effect on the net increase (decrease) in cash and cash equivalents for the period or the beginning or ending balance of cash and cash equivalents for the period.
Recently IssuedNew Accounting Standards
There have been no material developments related to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company'sCompany’s unaudited condensed consolidated financial statements and note disclosures
from those disclosed in the Company's 2016Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, that would be expected to impact the Company except for the following:Company.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, “
Note 2. Revenue from Contracts with Customers”,
The Company’s revenues by activity type are as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Residential & SMB - Cable Markets | | $ | 44,370 | | | $ | 44,756 | |
Residential & SMB - Glo Fiber Markets | | 12,118 | | | 7,003 | |
Commercial Fiber | | 9,377 | | | 11,698 | |
RLEC & Other | | 3,383 | | | 3,708 | |
Service revenue and other | | $ | 69,248 | | | $ | 67,165 | |
Contract Assets
The Company’s contract assets primarily include commissions incurred to acquire contracts with customers. The Company incurs commission expenses related to in-house and third-party vendors which requires an entity to recognizeare capitalized and amortized over the amountexpected customer benefit period which is approximately six years. The Company’s current contract assets are included in prepaid expenses and other and the Company’s non-current contract assets are included in deferred charges and other assets in its unaudited condensed consolidated balance sheets. Amortization of capitalized commission expenses is recorded in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of comprehensive income.
The following tables present the activity of current and non-current contract assets:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Beginning Balance | | $ | 8,633 | | | $ | 8,646 | |
Commission payments | | 851 | | | 891 | |
Contract asset amortization | | (717) | | | (781) | |
Ending Balance | | $ | 8,767 | | | $ | 8,756 | |
Contract Liabilities
The Company’s contract liabilities include services that are billed in advance and recorded as deferred revenue, to which it expects to be entitled for theas well as installation fees that are charged upfront without transfer of promisedcommensurate goods or services to customers.the customer. The ASU will replace most existing revenue recognition guidanceCompany’s current contract liabilities are included in U.S. GAAP when it becomes effective. In August 2015,advanced billings and customer deposits in its unaudited condensed consolidated balance sheets and the FASB issued ASU No. 2015-14, delayingCompany’s non-current contract liabilities are included in other liabilities in its unaudited condensed consolidated balance sheets.
Shentel’s current contract liability balances were $10.0 million at both March 31, 2024 and December 31, 2023, respectively. Shentel’s non-current contract liability balances were $0.9 million and $1.0 million as of March 31, 2024 and December 31, 2023, respectively. Shentel expects its current contract liability balances to be recognized as revenues during the effective datetwelve-month periods following the respective balance sheet dates and its non-current contract liability balances to be recognized as revenues after the twelve-month periods following the respective balance sheet dates.
Note 3. Investments
Investments consist of the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
SERP investments at fair value | $ | 2,467 | | | $ | 2,290 | |
Cost method investments | 10,708 | | | 10,675 | |
Equity method investments | 233 | | | 233 | |
Total investments | $ | 13,408 | | | $ | 13,198 | |
SERP investments at fair value: The fair value of the SERP investments are based on unadjusted quoted prices in active markets and are classified as Level 1 of the fair value hierarchy.
Cost method investments: Shentel’s investment in CoBank’s Class A common stock, derived from the CoBank patronage program, represented substantially all of the Company’s cost method investments with a balance of $10.1 million at both March 31, 2024 and December 31, 2023. We recognized approximately $0.3 million and $0.1 million of patronage income in other amendments have been issued during 2016 modifying the original ASU. As amended, the new standard is effectiveincome for the Company on January 1, 2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted.three months ended March 31, 2024 and 2023, respectively. The Company plansexpects that approximately 88% of the patronage distributions will be collected in cash and 12% in equity in 2024.
Note 4. Property, Plant and Equipment
Property, plant and equipment consist of the following:
| | | | | | | | | | | | | | | | | |
($ in thousands) | Estimated Useful Lives | | March 31, 2024 | | December 31, 2023 |
Land | | | $ | 3,671 | | | $ | 3,671 | |
Land improvements | 10 years | | 4,448 | | | 4,448 | |
Buildings and structures | 10 - 45 years | | 43,027 | | | 42,871 | |
Cable and fiber | 15 - 30 years | | 833,360 | | | 799,612 | |
Equipment and software | 4 - 8 years | | 348,677 | | | 331,595 | |
Plant in service | | | 1,233,183 | | | 1,182,197 | |
Plant under construction | | | 156,513 | | | 145,623 | |
Total property, plant and equipment | | | 1,389,696 | | | 1,327,820 | |
Less: accumulated depreciation and amortization | | | (493,488) | | | (477,483) | |
Property, plant and equipment, net | | | $ | 896,208 | | | $ | 850,337 | |
Property, plant and equipment, net increased due primarily to adoptcapital expenditures driven by the standard effective January 1, 2018 usingCompany’s Glo Fiber market expansion. The Company’s accounts payable as of March 31, 2024 and December 31, 2023 included amounts associated with capital expenditures of approximately $48.4 million and $51.1 million, respectively. Depreciation and amortization expense was $17.3 million and $15.1 million during the modified retrospective transition approach; under this approach prior periods will not be retrospectively adjusted.three months ended March 31, 2024 and 2023, respectively.
Note 5. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization and Other | | Net | | Gross Carrying Amount | | Accumulated Amortization and Other | | Net |
Goodwill | $ | 3,244 | | | $ | — | | | $ | 3,244 | | | $ | 3,244 | | | $ | — | | | $ | 3,244 | |
Indefinite-lived intangibles: | | | | | | | | | | | |
Cable franchise rights | 64,334 | | | — | | | 64,334 | | | 64,334 | | | — | | | 64,334 | |
FCC Spectrum licenses | 12,122 | | | — | | | 12,122 | | | 12,122 | | | — | | | 12,122 | |
Railroad crossing rights and other | 300 | | | — | | | 300 | | | 217 | | | — | | | 217 | |
Total indefinite-lived intangibles | 76,756 | | | — | | | 76,756 | | | 76,673 | | | — | | | 76,673 | |
| | | | | | | | | | | |
Finite-lived intangibles: | | | | | | | | | | | |
Subscriber relationships | 28,425 | | | (27,485) | | | 940 | | | 28,425 | | | (27,370) | | | 1,055 | |
Other intangibles | 510 | | | (367) | | | 143 | | | 510 | | | (359) | | | 151 | |
Total finite-lived intangibles | 28,935 | | | (27,852) | | | 1,083 | | | 28,935 | | | (27,729) | | | 1,206 | |
Total goodwill and intangible assets | $ | 108,935 | | | $ | (27,852) | | | $ | 81,083 | | | $ | 108,852 | | | $ | (27,729) | | | $ | 81,123 | |
Amortization expense was $0.1 million during each of the three months ended March 31, 2024 and 2023.
Note 6. Other Assets and Accrued Liabilities
Prepaid expenses and other, classified as current assets, included the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Prepaid maintenance expenses | $ | 7,365 | | | $ | 5,157 | |
Broadband contract acquisition costs | 2,757 | | | 2,675 | |
Interest rate swaps | 2,626 | | | 1,443 | |
Other | 2,277 | | | 2,507 | |
Prepaid expenses and other | $ | 15,025 | | | $ | 11,782 | |
Deferred charges and other assets, classified as long-term assets, included the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Broadband contract acquisition costs | $ | 6,010 | | | $ | 5,958 | |
Interest rate swaps | 1,735 | | | 798 | |
Prepaid expenses and other | 7,141 | | | 4,805 | |
Deferred charges and other assets | $ | 14,886 | | | $ | 11,561 | |
Accrued liabilities and other, classified as current liabilities, included the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Accrued programming costs | $ | 3,624 | | | $ | 3,209 | |
Other current liabilities | 7,379 | | | 4,538 | |
Accrued liabilities and other | $ | 11,003 | | | $ | 7,747 | |
Other liabilities, classified as long-term liabilities, included the following:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Noncurrent portion of deferred lease revenue | $ | 14,346 | | | $ | 14,670 | |
Noncurrent portion of financing leases | 1,306 | | | 1,395 | |
Other | 629 | | | 847 | |
Other liabilities | $ | 16,281 | | | $ | 16,912 | |
Note 7. Leases
The Company leases various broadband network and telecommunications sites, fiber optic cable routes, warehouses, retail stores and office facilities for use in our business.
The components of lease costs were as follows:
| | | | | | | | | | | | | | | | | |
| Classification | | Three Months Ended March 31, |
(in thousands) | | | 2024 | | 2023 |
Finance lease cost | | | | | |
Amortization of leased assets | Depreciation | | $ | 119 | | | $ | 119 | |
Interest on lease liabilities | Interest expense | | 19 | | | 20 | |
Operating lease cost | Operating expense1 | | 736 | | | 856 | |
Lease cost | | | $ | 874 | | | $ | 995 | |
(1)Operating lease expense is continuing to assess all potential impactspresented in cost of services or selling, general and administrative expense based on the use of the standard, includingrelevant facility.
The following table summarizes the impactexpected maturity of lease liabilities as of March 31, 2024: | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Operating Leases | | Finance Leases | | Total |
2024 (remainder of the year) | | $ | 1,893 | | | $ | 73 | | | $ | 1,966 | |
2025 | | 2,643 | | | 180 | | | 2,823 | |
2026 | | 1,841 | | | 153 | | | 1,994 | |
2027 | | 979 | | | 155 | | | 1,134 | |
2028 | | 698 | | | 158 | | | 856 | |
2029 and thereafter | | 7,752 | | | 1,201 | | | 8,953 | |
Total lease payments | | 15,806 | | | 1,920 | | | 17,726 | |
Less: Interest | | (5,178) | | | (507) | | | (5,685) | |
Present value of lease liabilities | | $ | 10,628 | | | $ | 1,413 | | | $ | 12,041 | |
Other information related to operating and finance leases was as follows:
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
Operating leases | | | |
Weighted average remaining lease term (years) | 10.4 | | 7.1 |
Weighted average discount rate | 5.8 | % | | 5.0 | % |
Finance leases | | | |
Weighted average remaining lease term (years) | 12.3 | | 12.3 |
Weighted average discount rate | 5.2 | % | | 5.2 | % |
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Cash paid for operating lease liabilities | | $ | 765 | | | $ | 877 | |
Operating lease right-of-use assets obtained in exchange for new lease liabilities (includes new leases or modification of existing leases) | | 1,737 | | | 1,493 | |
Note 8. Debt
Shentel has a credit agreement, dated as of July 1, 2021 (as amended by (i) Amendment No. 1 to Credit Agreement, dated as of May 17, 2023 and (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, the pattern“Credit Agreement”), with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders, which revenuecontains (i) a $100 million, five-year available revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (“Term Loan A-1”) and direct(iii) a $150 million seven-year delayed draw amortizing term loan (“Term Loan A-2” and contract fulfillment costs are recognized,collectively with Term Loan A-1, the impact of the standard on current accounting policies, practices and system of internal controls, in order to identify material differences, if any that would result from applying the new requirements.
“Term Loans”). The Company is in the process of establishing new policies and processes, and is implementing necessary changes to data and procedures necessary to comply with the new requirements.
While continuing to assess all potential impacts of the standard, the Company believes the adoption will not have a significant effect on earnings however, the presentation of certain costs may change and disclosures will be impacted. The Company is still in the process of evaluating the impacts and the initial assessment may change.
In January 2016, the FASB issuedASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”. In addition to the presentation and disclosure requirements for financial instruments, ASU 2016-01 requires entities to measure equity investments, other than those accounted forfollowing loans were outstanding under the equity method,Credit Agreement:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Term loan A-1 | $ | 149,063 | | | $ | 150,000 | |
Term loan A-2 | 149,625 | | | 150,000 | |
Total debt | 298,688 | | | 300,000 | |
Less: unamortized loan fees | (93) | | | (101) | |
Total debt, net of unamortized loan fees | $ | 298,595 | | | $ | 299,899 | |
Both Term Loan A-1 and Term Loan A-2 bore interest at fair valueone-month LIBOR plus a margin of 1.50% until May 2023 and recognize changes in fair value in net income. Entities will no longer be able to use the cost methodnow bear interest at one-month term SOFR plus a margin of accounting for equity securities. However, for equity investments without readily determinable fair values that do not qualify for the practical expedient to estimate fair value using net asset value per share, entities may elect a measurement alternative that will allow those investments to be recorded at cost, less impairment,1.60%. The margin of 1.60% is variable and adjusted for subsequent observable price changes. Entities must record
a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the standard is adopted, except for equity investments without readily determinable fair values, for which the guidance will be applied prospectively. The guidance under ASU 2016-01 is effective for annual and interim periods beginning after December 15, 2017. The Company has not yet completed its assessment of the impact of the new standard ondetermined by the Company’s consolidated financial statements.net leverage ratio. Interest is paid monthly. The interest rate was 6.93% and 6.95% at March 31, 2024 and December 31, 2023, respectively.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous generally accepted accounting principles. The ASU is effective for us on January 1, 2019, and early application is permitted. Modified retrospective application is required. The Company plans to adopt this standard when it becomes effective for the Company beginning January 1, 2019, and expects the adoption of this standard will resultInterest expense recorded in the recognition of right of use assets and lease liabilities that have not previously been recorded, which will have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the Consolidated Statement of Cash Flows by providing guidance on eight specific cash flow issues. The Company intends to adopt the standard retrospectively on the effective date of January 1, 2018 and does not expect the adoption of the ASU to have a material effect on cash flows.
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements, nor does the Company expect to early adopt ASU 2017-07.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". This update is intended to simplify hedge accounting by better aligning an entity’s financial reporting for hedging relationships with its risk management activities. The ASU also simplifies the application of the hedge accounting guidance. ASU 2017-12 is effective on January 1, 2019, with early adoption permitted. For cash flow hedges existing at the adoption date, the standard requires adoption on a modified retrospective basis with a cumulative-effect adjustment to the Consolidated Balance Sheet as of the beginning of the year of adoption, to the extent any ineffectiveness was previously recognized. The amendments to presentation guidance and disclosure requirements under this update are required to be adopted prospectively. The Company has not yet determined the effect of the ASU on our results of operations, financial condition or cash flows, nor has transition date been determined.
In September 2017, the FASB issued ASU No. 2017-13, "Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)", which provided additional implementation guidance on the previously issued topics. The Company has not yet completed its assessment of the impact of the new standard on the Company’s consolidated financial statements.
Acquisition of NTELOS Holdings Corp. and Exchange with Sprint
On May 6, 2016, (the "acquisition date"), the Company completed its acquisition of NTELOS Holdings Corp. (nTelos). nTelos, was a regional provider of wireless telecommunications solutions and was acquired to expand the Company's wireless service area and subscriber base, thus strengthening the Company's relationship with Sprint Corporation (Sprint).
Pursuant to the terms of the Agreement and Plan of Merger between the Company and nTelos (the "Merger Agreement"), nTelos became a direct wholly owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, the Company acquired all of the issued and outstanding capital stock of nTelos for an aggregate purchase price of $667.8 million. The purchase price was financed by a credit facility arranged by CoBank, ACB, Royal Bank of Canada, Fifth Third Bank, Bank of America, N.A., Capital One, National Association, Citizens Bank N.A., and Toronto Dominion (Texas) LLC.
Transaction costs in connection with the acquisition were expensed as incurred and are included in integration and acquisition expenses in theShentel’s unaudited condensed consolidated statement of operations. The results of operations related to nTelos are included in our consolidated statements of operations beginning fromcomprehensive income consists of the datefollowing:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Interest expense | | $ | 5,383 | | | $ | 1,463 | |
Less: capitalized interest | | (1,307) | | | (1,071) | |
Interest expense, net of capitalized interest | | $ | 4,076 | | | $ | 392 | |
The Company accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with FASB's Accounting Standards Codification (“ASC”) 805, “Business Combinations”,Credit Agreement includes various covenants, including total net leverage ratio and has accounted for measurement period adjustments under ASU 2015-16, “Simplifying the Accounting for Measurement Period Adjustments”. Estimates of fair value included in the consolidateddebt service coverage ratio financial statements, in conformity with ASC 820, "Fair Value Measurements and Disclosures", represent the Company's best estimates and valuations. In accordance with ASC 805, "Business Combinations", the allocationcovenants.
Shentel’s Term Loans require quarterly payments based on a percentage of the consideration value was subjectoutstanding balance. Based on the outstanding balance as of March 31, 2024, Term Loan A-1 requires quarterly principal repayments of 0.63% from March 31, 2024 through June 30, 2024; then increasing to adjustment until the Company completed its analysis, in a period of time, but not to exceed one year after the date of acquisition, or May 6, 2017, in order to provide the Company1.25% quarterly from September 30, 2024 through March 31, 2026, with the time to completeremaining balance due June 30, 2026. Based on the valuationoutstanding balance as of its assets and liabilities. The Company has completed and finalized its analysis and allocationMarch 31, 2024, Term Loan A-2 requires quarterly principal repayments of 0.25% from March 31, 2024 through March 31, 2028, with the consideration value to assets acquired and liabilities assumed.remaining balance due June 30, 2028.
The following table summarizes the final purchase price allocation to assets acquired and liabilities assumed, including measurement period adjustments:expected payments of Shentel’s outstanding borrowings as of March 31, 2024:
|
| | | | | | | | | | | |
| Initial Estimate | | Measurement Period Adjustments | | Purchase Price Allocation |
Accounts receivable | $ | 48,476 |
| | $ | (1,242 | ) | | 47,234 |
|
Inventory | 3,810 |
| | 762 |
| | 4,572 |
|
Restricted cash | 2,167 |
| | — |
| | 2,167 |
|
Investments | 1,501 |
| | — |
| | 1,501 |
|
Prepaid expenses and other assets | 14,835 |
| | — |
| | 14,835 |
|
Building held for sale | 4,950 |
| | — |
| | 4,950 |
|
Property, plant and equipment | 223,900 |
| | 3,347 |
| | 227,247 |
|
Spectrum licenses (1), (2) | 198,200 |
| | — |
| | 198,200 |
|
Acquired subscribers - wireless (1), (2) | 198,200 |
| | 7,746 |
| | 205,946 |
|
Favorable lease intangible assets (2) | 11,000 |
| | 6,029 |
| | 17,029 |
|
Goodwill (3) | 151,627 |
| | (5,244 | ) | | 146,383 |
|
Other long term assets | 10,288 |
| | 555 |
| | 10,843 |
|
Total assets acquired | $ | 868,954 |
| | $ | 11,953 |
| | $ | 880,907 |
|
| |
| | |
| | |
|
Accounts payable | 8,648 |
| | (105 | ) | | 8,543 |
|
Advanced billings and customer deposits | 12,477 |
| | — |
| | 12,477 |
|
Accrued expenses | 25,230 |
| | (2,089 | ) | | 23,141 |
|
Capital lease liability | 418 |
| | — |
| | 418 |
|
Deferred tax liabilities | 124,964 |
| | 4,327 |
| | 129,291 |
|
Retirement benefits | 19,461 |
| | (263 | ) | | 19,198 |
|
Other long-term liabilities | 14,056 |
| | 6,029 |
| | 20,085 |
|
Total liabilities assumed | $ | 205,254 |
| | $ | 7,899 |
| | $ | 213,153 |
|
| |
| | |
| | |
|
Net assets acquired | $ | 663,700 |
| | $ | 4,054 |
| | $ | 667,754 |
|
| | | | | | | | |
(in thousands) | | Amount |
2024 | | $ | 5,731 | |
2025 | | 8,568 | |
2026 | | 138,827 | |
2027 | | 1,450 | |
2028 | | 144,112 | |
Total | | $ | 298,688 | |
| |
(1) | Concurrently with acquiring nTelos, the Company completed its previously announced transaction with SprintCom, Inc., a subsidiary of Sprint. Pursuant to this transaction, among other things, the Company exchanged spectrum licenses, valued at $198.2 million and acquired subscribers - wireless, valued at $206.0 million, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory to include most of the service area served by nTelos, valued at $283.3 million, as well as additional acquired subscribers - wireless, valued at $120.9 million, relating to nTelos’ and Sprint’s legacy customers in the Company’s affiliate service territory. These exchanges were accounted for in accordance with ASC 845, “Nonmonetary Transactions”. The transfer of spectrum to Sprint resulted in a taxable gain to the Company which will be recognized as the Company recognizes the cash benefit of the waived management fees over the remaining approximately five years. |
| |
(2) | Identifiable intangible assets were measured using a combination of an income approach and a market approach. |
| |
(3) | Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. The Company has recorded goodwill in its Wireless segment as a result of the nTelos acquisition. Goodwill is not amortized. The goodwill that arose from the acquisition of nTelos is not deductible for tax purposes. |
Shentel has not made any borrowings under its Revolver as of March 31, 2024. In addition to the changesevent borrowings are made in the balances reflected above,future, the entire outstanding principal amount borrowed is due June 30, 2026.
The Credit Agreement is fully secured by a pledge and unconditional guarantee from the Company revised provisional estimated useful livesand all of certain assets and recorded an adjustment to amortization expense of $0.1 million duringits subsidiaries, except Shenandoah Telephone Company. This provides the three months ended June 30, 2017, and recorded an adjustment during 2016 of $4.6 million to depreciation expense relating to the three months ended June 30, 2016.
Acquisition-related costs primarily related to legal services, professional services, and severance accruals, were expensed as incurred. For the three and nine months ended September 30, 2016, the Company incurred acquisition-related costs of $0.8 million and $15.9 million, respectively.
The amounts of operating revenue and income or loss before income taxes related to the former nTelos entity are not readily determinable due to intercompany transactions, allocations and integration activities that have occurredlenders a security interest in connection with the operations of the combined company.
The following table presents pro forma information, based on estimates and assumptions that the Company believes to be reasonable, for the Company as if the acquisition of nTelos had occurred at the beginning of 2016: (in millions)
|
| | | | | | | |
| Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2016 |
Operating revenues | $ | 157.8 |
| | $ | 492.1 |
|
Income (loss) before income taxes | $ | (13.4 | ) | | $ | (4.0 | ) |
The pro forma information provided in the table above is not necessarily indicative of the consolidated results of operations for future periods or the results that actually would have been realized had the acquisition been completed at the beginning of the periods presented.
The pro forma information provided in the table above is based upon estimated valuationssubstantially all of the assets acquired and liabilities assumed as well as estimates of depreciation and amortization charges thereon. Other estimated pro forma adjustments include the following:
changes in nTelos' reported revenues from cancelling nTelos' wholesale contract with Sprint;
the incorporation of the Sprint-homed customers formerly serviced under the wholesale agreement into the Company’s affiliate service territory under the Company’s affiliate agreement with Sprint;
the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement, including fees charged under the affiliate agreement on revenues from former nTelos customers, a reduction of the net service fee charged by Sprint, the straight-line impact of the waived management fee, and the amortization of the affiliate agreement expansion intangible asset; and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos;
the elimination of certain nTelos operating costs associated with billing and care that are covered under the fees charged by Sprint under the affiliate agreement;
historical depreciation expense was reduced for the fair value adjustment decreasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment; and
incremental amortization due to the Acquired subscribers - wireless intangible asset.
In connection with the acquisition of nTelos, the Company incurs costs which include the nTelos back office staff and support functions until the nTelos legacy customers are migrated to the Sprint billing platform; costs of the handsets to be provided to nTelos legacy customers as they migrate to the Sprint billing platform; severance costs for back office and other former nTelos employees who will not be retained permanently; and costs to shut down certain cell sites and related backhaul contracts. The Company has incurred these costs as follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Statement of Operations location: | 2017 | | 2016 | | 2017 | | 2016 |
Cost of goods and services | 0.1 |
| | 0.7 |
| | 0.3 |
| | 1.0 |
|
Selling, general and administrative | 1.1 |
| | 4.2 |
| | 5.2 |
| | 7.1 |
|
Integration and acquisition | 1.7 |
| | 15.3 |
| | 9.9 |
| | 35.8 |
|
Total | 2.9 |
| | 20.2 |
| | 15.4 |
| | 43.9 |
|
The value of the affiliate agreement expansion discussed above is based on changes to the amended affiliate agreement that include:
an increase in the price to be paid by Sprint from 80% to 90% of the entire business value if the affiliate agreement is not renewed;
extension of the affiliate agreement with Sprint by five years to 2029;
expanded territory in the nTelos service area;
rights to serve all future Sprint customers in the affiliate service territory;
the Company's commitment to upgrade certain coverage and capacity in its newly acquired service area; and
a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed $4.2 million in an individual month until the total waived fee equals $251.8 million, as well as an additional waiver of the management fee charged with respect to the former nTelos customers until the earlier of migration to the Sprint back-office billing and related systems or six months following the acquisition; not to exceed $5.0 million.
Intangible assets resulting from the acquisition of nTelos and the Sprint exchange, both described above, are noted below (in thousands):
|
| | | | | |
| Useful Life | | Basis |
Affiliate contract expansion | 14 years | | $ | 283,302 |
|
Acquired subscribers - wireless | 4-10 years | | $ | 120,855 |
|
Favorable lease intangible assets | 10 years | | $ | 17,029 |
|
The affiliate contract expansion intangible asset is amortized on a straight-line basis and recorded as a contra-revenue over the remaining 14 year initial contract term. The Acquired subscribers rights - wireless intangible is amortized over the life of the customers, gradually decreasing over the expected life of this asset, and recorded through amortization expense. The favorable lease intangible assets are amortized on a straight-line basis and recorded through rent expense. The value of these intangible assets includes measurement period adjustments.
Acquisition of Expansion Area
On April 6, 2017, the Company expanded its affiliate service territory, under its agreements with Sprint, to include certain areas in North Carolina, Kentucky, Maryland, Ohio and West Virginia. The expanded territory includes the Parkersburg, WV, Huntington, WV, and Cumberland, MD, basic trading areas. Approximately 25,000 Sprint retail and former nTelos postpaid and prepaid subscribers in the new basic trading areas became Sprint-branded affiliate customers managed by the Company.
Refer to Note 15, Subsequent Events,for events that occurred subsequent to March 31, 2024 which affect Shentel’s Credit Agreement. 3. Property, Plant
Note 9. Derivatives and EquipmentHedging
Property, plant and equipment consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Plant in service | | $ | 1,187,799 |
| | $ | 1,085,318 |
|
Plant under construction | | 67,099 |
| | 73,759 |
|
| | 1,254,898 |
| | 1,159,077 |
|
Less accumulated amortization and depreciation | | 571,543 |
| | 460,955 |
|
Net property, plant and equipment | | $ | 683,355 |
| | $ | 698,122 |
|
| |
4. | Earnings (loss) per share ("EPS") |
Basic net income (loss) per share was computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options. Diluted EPS was computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options and restricted stock units and shares that the Company is contractually obligated to issue in the future.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share amounts) | | 2017 | | 2016 | | 2017 | | 2016 |
Basic income (loss) per share | | | | | | | | |
Net income (loss) | | $ | 3,534 |
| | $ | (7,596 | ) | | $ | 5,795 |
| | $ | (711 | ) |
Basic weighted average shares outstanding | | 49,133 |
| | 48,909 |
| | 49,100 |
| | 48,768 |
|
Basic income (loss) per share | | $ | 0.07 |
| | $ | (0.16 | ) | | $ | 0.12 |
| | $ | (0.01 | ) |
| | | | | | | | |
Effect of stock options and awards outstanding: | | | | | | | | |
Basic weighted average shares outstanding | | 49,133 |
| | 48,909 |
| | 49,100 |
| | 48,768 |
|
Effect from dilutive shares and options outstanding | | 826 |
| | — |
| | 769 |
| | — |
|
Diluted weighted average shares | | 49,959 |
| | 48,909 |
| | 49,869 |
| | 48,768 |
|
Diluted income (loss) per share | | $ | 0.07 |
| | $ | (0.16 | ) | | $ | 0.12 |
| | $ | (0.01 | ) |
Due to the net loss for the three and nine months ended September 30, 2016, no adjustment was made to basic shares, as such an adjustment would have been anti-dilutive.
The computation of diluted EPS does not include certain unvested awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows:
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive | | — |
| | 893 |
| | 94 |
| | 778 |
|
Investments include $3.3 million and $2.9 million of investments carried at fair value as of September 30, 2017 and December 31, 2016, respectively, consisting of equity, bond and money market mutual funds. Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s nonqualified Supplemental Executive Retirement Plan (the “SERP”). The Company purchases investments in the trust to mirror the investment elections of participants in the SERP; gains and losses on the investments in the trust are reflected as increases or decreases in the liability owed to the participants. During the nine months ended September 30, 2017, the Company recognized $59 thousand in dividend and interest income from investments, and recorded net unrealized gainssecond quarter of $308 thousand on these investments. Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds. Changes in carrying value of investments are recorded within gain on investments, net on the Statements of Operations and Comprehensive Income (Loss).
At September 30, 2017 and December 31, 2016, other investments, comprised of equity securities which do not have readily determinable fair values, consist of the following (in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Cost method: | |
CoBank | $ | 6,644 |
| | $ | 6,177 |
|
Other – Equity in other telecommunications partners | 812 |
| | 742 |
|
| 7,456 |
| | 6,919 |
|
Equity method: | | | |
Other | 592 |
| | 450 |
|
Total other investments | $ | 8,048 |
| | $ | 7,369 |
|
Financial instruments on the condensed consolidated balance sheets that approximate fair value include: cash and cash equivalents, receivables, investments carried at fair value, payables, accrued liabilities,2023, Shentel entered into pay fixed (2.90%), receive variable (one-month term SOFR) interest rate swaps and variable rate long-termtotaling $150.0 million of notional principal (the “Swaps”). The Swaps contain monthly payment terms beginning in May 2024, which extend through their maturity dates in June 2026. The Swaps are designated as cash flow hedges, representing 50% of the Company’s expected outstanding debt.
The Company has certain non-marketable long-term investments for which it is not practicable to estimate fair value with a total carrying value of $8.0 million and $7.4 million as of September 30, 2017 and December 31, 2016, respectively, of which $6.6 million and $6.2 million, respectively, representsuses the Company’s investment in CoBank. This investment is primarily related to patronage distributions of restricted equity and is a required investment related to the portion of the Credit Facility held by CoBank. This investment is carried under the cost method.
| |
7. | Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income |
The Company’s objectives in using interest rate derivatives are to add stability to cash flows andSwaps to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part ofrisk for its interest rate risk management strategy. Interest rate swaps (both those designated as cash flow hedges as well as those not designated as cash flow hedges) involve the receipt oflong-term variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.Term Loans.
The Company entered into a pay-fixed, receive-variable interest rate swap of $174.6 million of notional principal in September 2012. This interest rate swap was designated as a cash flow hedge. The outstanding notional amount of this cash flow hedge was $122.2 million as of September 30, 2017. The outstanding notional amount decreases based upon scheduled principal payments on the 2012 debt.
In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap of $256.6 million of notional principal with three counterparties. This interest rate swap was designated as a cash flow hedge. The outstanding notional amount of this cash flow hedge was $303.8 million as of September 30, 2017. The outstanding notional amount increases based upon draws expectedSwaps were determined to be made under a portion of the Company's Term Loan A-2 debthighly effective hedges and as the 2012 interest rate swap's notional principal decreases, and the outstanding notional amount will decrease as the Company makes scheduled principal payments on the 2016 debt. In combination with the swap entered into in 2012 described above, the Company is hedging approximately 50% of the outstanding debt.
The effective portion of changestherefore all change in the fair value of the Swaps was recognized in other comprehensive income. Since the Company did not have outstanding interest rate swaps designated and that qualify as cash flow hedges isin the prior year period, there were no gains or losses recorded infor the three months ended March 31, 2023. Shentel expects to begin reclassifying amounts related to the Swaps from accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings through interest expense. No hedge ineffectiveness was recognized during any of the periods presented.
Amounts reported in accumulated other comprehensive income related to the interest rate swaps designated and qualified as a cash flow hedge, are reclassified to interest expense as interest payments are made onin May 2024, when the Company’s variable-rate debt. Aspayment periods of September 30, 2017, the Company estimates that $1.1 million will be reclassified as a reduction of interest expense during the next twelve months.Swaps begin.
The table below presents the fair value of the Company’s derivative financial instrumentSwaps as well as itstheir classification onin the unaudited condensed consolidated balance sheet (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Balance Sheet Location: | | |
| | |
|
Prepaid expenses and other | | $ | 1,124 |
| | $ | — |
|
Deferred charges and other assets, net | | 8,848 |
| | 12,118 |
|
Accrued liabilities and other | | — |
| | (895 | ) |
Total derivatives designated as hedging instruments | | $ | 9,972 |
| | $ | 11,223 |
|
sheets. The fair value of interest rate swaps is determinedthese instruments was estimated using a pricing model withan income approach and observable market inputs that are observable in the market (level 2 fair value inputs).(Level 2):
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Balance sheet line item of derivative financial instruments: | | | |
Prepaid expenses and other | $ | 2,626 | | | $ | 1,443 | |
Deferred charges and other assets | 1,735 | | | 798 | |
Total derivatives designated as hedging instruments | $ | 4,361 | | | $ | 2,241 | |
The table below presents changesummarizes changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2017 (in thousands):component:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Gain on Swaps | | Income tax expense | | Accumulated Other Comprehensive Income, net of taxes |
Balance, December 31, 2023 | | $ | 2,241 | | | $ | (573) | | | $ | 1,668 | |
Net change in unrealized gain | | 2,120 | | | (526) | | | 1,594 | |
Balance, March 31, 2024 | | $ | 4,361 | | | $ | (1,099) | | | $ | 3,262 | |
Note 10. Income Taxes
|
| | | | | | | | | | | | |
| | Gains (Losses) on Cash Flow Hedges | | Income Tax Expense | | Accumulated Other Comprehensive Income (Loss), net of taxes |
Balance as of December 31, 2016 | | $ | 11,223 |
| | $ | (4,435 | ) | | $ | 6,788 |
|
Net change in unrealized gain (loss) | | (1,789 | ) | | 698 |
| | (1,091 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense | | 538 |
| | (217 | ) | | 321 |
|
Net current period accumulated other comprehensive income (loss) | | (1,251 | ) | | 481 |
| | (770 | ) |
Balance as of September 30, 2017 | | $ | 9,972 |
| | $ | (3,954 | ) | | $ | 6,018 |
|
8. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill during the nine months ended September 30, 2017 are shown below (in thousands):
|
| | | | | | | | | | | |
| December 31, 2016 | | Measurement Period Adjustments | | September 30, 2017 |
Goodwill - Wireline segment | $ | 10 |
| | $ | — |
| | $ | 10 |
|
Goodwill - Cable segment | 104 |
| | — |
| | 104 |
|
Goodwill - Wireless segment | 145,142 |
| | 1,241 |
| | 146,383 |
|
Goodwill as of September 30, 2017 | $ | 145,256 |
| | $ | 1,241 |
| | $ | 146,497 |
|
Intangible assets consist of the following at September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Non-amortizing intangibles: | | | | | | | | | | | |
Cable franchise rights | $ | 64,335 |
| | $ | — |
| | $ | 64,335 |
| | $ | 64,334 |
| | $ | — |
| | $ | 64,334 |
|
Railroad crossing rights | 140 |
| | — |
| | 140 |
| | 97 |
| | — |
| | 97 |
|
| 64,475 |
| | — |
| | 64,475 |
| | 64,431 |
| | — |
| | 64,431 |
|
| | | | | | | | | | | |
Finite-lived intangibles: |
Affiliate contract expansion | 287,052 |
| | (29,593 | ) | | 257,459 |
| | 284,102 |
| | (14,030 | ) | | 270,072 |
|
Acquired subscribers – wireless | 123,105 |
| | (36,871 | ) | | 86,234 |
| | 120,855 |
| | (18,738 | ) | | 102,117 |
|
Favorable leases - wireless | 16,950 |
| | (3,985 | ) | | 12,965 |
| | 16,950 |
| | (1,130 | ) | | 15,820 |
|
Acquired subscribers – cable | 25,265 |
| | (25,059 | ) | | 206 |
| | 25,265 |
| | (24,631 | ) | | 634 |
|
Other intangibles | 563 |
| | (230 | ) | | 333 |
| | 2,212 |
| | (754 | ) | | 1,458 |
|
Total finite-lived intangibles | 452,935 |
| | (95,738 | ) | | 357,197 |
| | 449,384 |
| | (59,283 | ) | | 390,101 |
|
Total intangible assets | $ | 517,410 |
| | $ | (95,738 | ) | | $ | 421,672 |
| | $ | 513,815 |
| | $ | (59,283 | ) | | $ | 454,532 |
|
| |
9. | Accrued and Other liabilities |
Accrued liabilities and other include the following (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Sales and property taxes payable | | $ | 4,409 |
| | $ | 6,628 |
|
Severance accrual | | 1,889 |
| | 4,267 |
|
Asset retirement obligations, current portion | | 823 |
| | 5,841 |
|
Accrued programming costs | | 2,856 |
| | 2,939 |
|
Other current liabilities | | 5,300 |
| | 9,410 |
|
Accrued liabilities and other | | $ | 15,277 |
| | $ | 29,085 |
|
Other liabilities include the following (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
Non-current portion of deferred revenues | | $ | 14,111 |
| | $ | 8,933 |
|
Straight-line management fee waiver | | 24,934 |
| | 11,974 |
|
Other | | 1,135 |
| | 2,836 |
|
Other liabilities | | $ | 40,180 |
| | $ | 23,743 |
|
10. Long-Term Debt and Revolving Lines of Credit
Total debt at September 30, 2017 and December 31, 2016 consists of the following:
|
| | | | | | | | |
(In thousands) | | September 30, 2017 | | December 31, 2016 |
Term loan A-1 | | $ | 448,625 |
| | $ | 472,875 |
|
Term loan A-2 | | 400,000 |
| | 375,000 |
|
| | 848,625 |
| | 847,875 |
|
Less: unamortized loan fees | | 15,623 |
| | 18,610 |
|
Total debt, net of unamortized loan fees | | $ | 833,002 |
| | $ | 829,265 |
|
| | | | |
Current maturities of long term debt, net of unamortized loan fees | | $ | 54,316 |
| | $ | 32,041 |
|
Long-term debt, less current maturities, net of unamortized loan fees | | $ | 778,686 |
| | $ | 797,224 |
|
As of September 30, 2017, our indebtedness totaled $848.6 million in term loans with an annualized effective interest rate of approximately 4.07% after considering the impact of the interest rate swap contract and unamortized loan costs. The balance consists of the $448.6 million Term Loan A-1 at a variable rate (3.99% as of September 30, 2017) that resets monthly based on one month LIBOR plus a margin of 2.75%, and the $400.0 million Term Loan A-2 at a variable rate (4.24% as of September 30, 2017) that resets monthly based on one month LIBOR plus a margin of 3.00%. The Term Loan A-1 requires quarterly principal repayments of $12.1 million through June 30, 2020, with further increases at that time through maturity in June 30, 2021. The Term Loan A-2 requires quarterly principal repayments of $10.0 million beginning on September 30, 2018 through March 31, 2023, with the remaining balance due June 30, 2023.
The Company is subject to certain covenants to be measured on a trailing twelve month basis each calendar quarter unless otherwise specified. These covenants include:
a limitation on the Company’s total leverage ratio, defined as indebtedness divided by earnings before interest, taxes, depreciation and amortization, or EBITDA, of less than or equal to 3.75 to 1.00 from the closing date through December 30, 2018, then 3.25 to 1.00 through December 30, 2019, and 3.00 to 1.00 thereafter;
a minimum debt service coverage ratio, defined as EBITDA minus certain cash taxes divided by the sum of all scheduled principal payments on the Term Loans and scheduled principal payments on other indebtedness plus cash interest expense, greater than 2.00 to 1.00;
the Company must maintain a minimum liquidity balance, defined as availability under the revolver facility plus unrestricted cash and cash equivalents on deposit in a deposit account for which a control agreement has been delivered to the administrative agent under the 2016 credit agreement, of greater than $25 million at all times.
As shown below, as of September 30, 2017, the Company was in compliance with the covenants in its credit agreements.
|
| | | | | |
| Actual | | Covenant Requirement |
Total Leverage Ratio | 2.93 |
| | 3.75 or Lower |
Debt Service Coverage Ratio | 3.88 |
| | 2.00 or Higher |
Minimum Liquidity Balance | $ | 149,228 |
| | $25 million or Higher |
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker. The Company has three reportable segments, which the Company operates and manages as strategic business units organized by lines of business: (1) Wireless, (2) Cable, and (3) Wireline. A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company.
The Wireless segment provides digital wireless service as a PCS affiliate to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, along Interstate 81 to Harrisonburg, Virginia, south-central and western Virginia, West Virginia, and small portions of North Carolina, Kentucky, Maryland and Ohio. The Wireless segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.
The Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout southern Virginia and West Virginia. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.
The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video and cable modem services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor through West Virginia, Maryland and portions of central and southern Pennsylvania.
Three Months Ended September 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Wireless | | Cable | | Wireline | | Other | | Eliminations | | Consolidated Totals |
External revenues | | | | | | | | | | | | |
Service revenues | | $ | 107,395 |
| | $ | 26,934 |
| | $ | 5,126 |
| | $ | — |
| | $ | — |
| | $ | 139,455 |
|
Other | | 3,871 |
| | 2,156 |
| | 6,300 |
| | — |
| | — |
| | 12,327 |
|
Total external revenues | | 111,266 |
| | 29,090 |
| | 11,426 |
| | — |
| | — |
| | 151,782 |
|
Internal revenues | | 1,239 |
| | 999 |
| | 8,425 |
| | — |
| | (10,663 | ) | | — |
|
Total operating revenues | | 112,505 |
| | 30,089 |
| | 19,851 |
| | — |
| | (10,663 | ) | | 151,782 |
|
| | | | | | | | | | | | |
Operating expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Costs of goods and services, exclusive of depreciation and amortization shown separately below | | 41,041 |
| | 14,913 |
| | 9,807 |
| | — |
| | (9,927 | ) | | 55,834 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 30,099 |
| | 5,358 |
| | 1,706 |
| | 5,772 |
| | (736 | ) | | 42,199 |
|
Integration and acquisition expenses | | 1,691 |
| | — |
| | — |
| | 15 |
| | — |
| | 1,706 |
|
Depreciation and amortization | | 32,929 |
| | 6,192 |
| | 3,249 |
| | 198 |
| | — |
| | 42,568 |
|
Total operating expenses | | 105,760 |
| | 26,463 |
| | 14,762 |
| | 5,985 |
| | (10,663 | ) | | 142,307 |
|
Operating income (loss) | | $ | 6,745 |
| | $ | 3,626 |
| | $ | 5,089 |
| | $ | (5,985 | ) | | $ | — |
| | $ | 9,475 |
|
Three Months Ended September 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Wireless | | Cable | | Wireline | | Other | | Eliminations | | Consolidated Totals |
External revenues | | | | | | | | | | | | |
Service revenues | | $ | 111,001 |
| | $ | 24,948 |
| | $ | 4,948 |
| | $ | — |
| | $ | — |
| | $ | 140,897 |
|
Other | | 7,978 |
| | 2,031 |
| | 5,930 |
| | — |
| | — |
| | 15,939 |
|
Total external revenues | | 118,979 |
| | 26,979 |
| | 10,878 |
| | — |
| | — |
| | 156,836 |
|
Internal revenues | | 1,140 |
| | 587 |
| | 7,854 |
| | — |
| | (9,581 | ) | | — |
|
Total operating revenues | | 120,119 |
| | 27,566 |
| | 18,732 |
| | — |
| | (9,581 | ) | | 156,836 |
|
| | | | | | | | | | | | |
Operating expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Costs of goods and services, exclusive of depreciation and amortization shown separately below | | 43,097 |
| | 14,654 |
| | 9,442 |
| | — |
| | (8,876 | ) | | 58,317 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 29,892 |
| | 4,770 |
| | 1,676 |
| | 4,736 |
| | (705 | ) | | 40,369 |
|
Integration and acquisition expenses | | 14,499 |
| | — |
| | — |
| | 773 |
| | — |
| | 15,272 |
|
Depreciation and amortization | | 38,038 |
| | 5,860 |
| | 2,822 |
| | 87 |
| | — |
| | 46,807 |
|
Total operating expenses | | 125,526 |
| | 25,284 |
| | 13,940 |
| | 5,596 |
| | (9,581 | ) | | 160,765 |
|
Operating income (loss) | | $ | (5,407 | ) | | $ | 2,282 |
| | $ | 4,792 |
| | $ | (5,596 | ) | | $ | — |
| | $ | (3,929 | ) |
Nine Months Ended September 30, 2017
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Wireless | | Cable | | Wireline | | Other | | Eliminations | | Consolidated Totals |
External revenues | | | | | | | | | | | | |
Service revenues | | $ | 323,262 |
| | $ | 80,229 |
| | $ | 15,301 |
| | $ | — |
| | $ | — |
| | $ | 418,792 |
|
Other | | 15,133 |
| | 6,283 |
| | 18,712 |
| | — |
| | — |
| | 40,128 |
|
Total external revenues | | 338,395 |
| | 86,512 |
| | 34,013 |
| | — |
| | — |
| | 458,920 |
|
Internal revenues | | 3,707 |
| | 2,153 |
| | 24,568 |
| | | | (30,428 | ) | | — |
|
Total operating revenues | | 342,102 |
| | 88,665 |
| | 58,581 |
| | — |
| | (30,428 | ) | | 458,920 |
|
| | | | | | | | | | | | |
Operating expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Costs of goods and services, exclusive of depreciation and amortization shown separately below | | 117,829 |
| | 45,052 |
| | 28,409 |
| | — |
| | (28,314 | ) | | 162,976 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 88,201 |
| | 15,083 |
| | 5,065 |
| | 19,139 |
| | (2,114 | ) | | 125,374 |
|
Integration and acquisition expenses | | 9,607 |
| | — |
| | — |
| | 266 |
| | — |
| | 9,873 |
|
Depreciation and amortization | | 104,231 |
| | 18,070 |
| | 9,536 |
| | 460 |
| | — |
| | 132,297 |
|
Total operating expenses | | 319,868 |
| | 78,205 |
| | 43,010 |
| | 19,865 |
| | (30,428 | ) | | 430,520 |
|
Operating income (loss) | | $ | 22,234 |
| | $ | 10,460 |
| | $ | 15,571 |
| | $ | (19,865 | ) | | $ | — |
| | $ | 28,400 |
|
Nine Months Ended September 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Wireless | | Cable | | Wireline | | Other | | Eliminations | | Consolidated Totals |
External revenues | | | | | | | | | | | | |
Service revenues | | $ | 250,053 |
| | $ | 73,455 |
| | $ | 14,727 |
| | $ | — |
| | $ | — |
| | $ | 338,235 |
|
Other | | 17,461 |
| | 5,799 |
| | 18,221 |
| | — |
| | — |
| | 41,481 |
|
Total external revenues | | 267,514 |
| | 79,254 |
| | 32,948 |
| | — |
| | — |
| | 379,716 |
|
Internal revenues | | 3,417 |
| | 1,159 |
| | 22,754 |
| | — |
| | (27,330 | ) | | — |
|
Total operating revenues | | 270,931 |
| | 80,413 |
| | 55,702 |
| | — |
| | (27,330 | ) | | 379,716 |
|
| | | | | | | | | | | | |
Operating expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Costs of goods and services, exclusive of depreciation and amortization shown separately below | | 94,892 |
| | 43,864 |
| | 26,892 |
| | — |
| | (25,294 | ) | | 140,354 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 65,219 |
| | 14,672 |
| | 4,951 |
| | 13,457 |
| | (2,036 | ) | | 96,263 |
|
Integration and acquisition expenses | | 19,889 |
| | — |
| | — |
| | 15,912 |
| | — |
| | 35,801 |
|
Depreciation and amortization | | 70,026 |
| | 17,834 |
| | 8,789 |
| | 312 |
| | — |
| | 96,961 |
|
Total operating expenses | | 250,026 |
| | 76,370 |
| | 40,632 |
| | 29,681 |
| | (27,330 | ) | | 369,379 |
|
Operating income (loss) | | $ | 20,905 |
| | $ | 4,043 |
| | $ | 15,070 |
| | $ | (29,681 | ) | | $ | — |
| | $ | 10,337 |
|
A reconciliation of the total of the reportable segments’ operating income (loss) to consolidated income (loss) before taxes is as follows:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Total consolidated operating income (loss) | | $ | 9,475 |
| | $ | (3,929 | ) | | $ | 28,400 |
| | $ | 10,337 |
|
Interest expense | | (9,823 | ) | | (8,845 | ) | | (28,312 | ) | | (16,369 | ) |
Non-operating income, net | | 1,205 |
| | 1,527 |
| | 3,877 |
| | 3,147 |
|
Income (loss) before income taxes | | $ | 857 |
| | $ | (11,247 | ) | | $ | 3,965 |
| | $ | (2,885 | ) |
The Company files U.S. federal income tax returns and various state and local income tax returns. With few exceptions, years priorThe Company is currently involved in one state income tax audit and no federal income tax audits as of March 31, 2024. The Company’s income tax returns are generally open to 2013 are no longer subject to examination;examination from 2020 forward and the net operating losses acquired in the acquisition of nTelos acquisition are open to examination from 20022004 forward. The Company is not subject to any state or federal income tax audits as of September 30, 2017.
The effective tax rates for the three and three months ended March 31, 2024 and 2023, differ from the statutory U.S. federal income tax rate has fluctuated in recent periodsof 21% primarily due to the minimal base of pre-tax earnings or losses and has been further impacted by the impact of share based compensationstate income taxes, excess tax benefits which are recognized as incurred underand other discrete items.
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Expected tax (benefit) expense at federal statutory | | $ | (1,074) | | | $ | 299 | |
State income tax (benefit) expense, net of federal tax effect | | (262) | | | 77 | |
| | | | |
Excess tax deficiency from share-based compensation and other expense, net | | 310 | | | 306 | |
Income tax (benefit) expense | | $ | (1,026) | | | $ | 682 | |
The Company made no cash payments and received no cash refunds for income taxes for the provisions of ASC 740, "Income Taxes".three months ended March 31, 2024. The Company received $25.0 million in cash refunds for income taxes for the three months ended March 31, 2023.
13. Related Party TransactionsNote 11. Stock Compensation and Earnings (Loss) per Share
ValleyNet, an equity method investee of the Company, resells capacity onActivity related to the Company’s fiber network under an operating lease agreement. Additionally, the Company's PCS operating subsidiary leases capacity through ValleyNet.restricted stock units (“RSUs”) was as follows:
| | | | | | | | | | | |
(in thousands, except weighted average grant price) | Number of Shares | | Weighted Average Grant Price |
Outstanding awards, December 31, 2023 | 825 | | | $ | 21.16 | |
Granted | 334 | | | $ | 20.64 | |
Vested | (247) | | | $ | 22.13 | |
Forfeited | — | | | $ | — | |
Outstanding awards, March 31, 2024 | 912 | | | $ | 20.73 | |
The following tables summarizetotal fair value of RSUs vested was $4.9 million during the financial statement impact fromthree months ended March 31, 2024.
Activity related party transactions with ValleyNet (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
Statement of Operations and Comprehensive Income (Loss) | | 2017 | | 2016 | | 2017 | | 2016 |
Facility Lease Revenue | | $ | 506 |
| | $ | 560 |
| | $ | 1,664 |
| | $ | 1,809 |
|
Costs of Goods and Services | | 951 |
| | 858 |
| | 2,699 |
| | 2,162 |
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | | | |
Consolidated Balance Sheet | | | | | | | | |
Accounts Receivable related to ValleyNet | | $ | 181 |
| | $ | 191 |
| | | | |
Accounts Payable related to ValleyNet | | 301 |
| | 448 |
| | | | |
14. Subsequent Events
On October 24. 2017,to the Company’s BoardRelative Total Shareholder Return RSUs (“RTSRs”) was as follows:
| | | | | | | | | | | |
(in thousands, except weighted average grant price) | Number of Shares | | Weighted Average Grant Price |
Outstanding awards, December 31, 2023 | 293 | | | $ | 25.80 | |
Granted | 128 | | | $ | 22.30 | |
Vested | — | | | $ | — | |
Forfeited | — | | | $ | — | |
Outstanding awards, March 31, 2024 | 421 | | | $ | 24.74 | |
Stock-based compensation expense was as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands) | | 2024 | | 2023 |
Stock compensation expense | | $ | 4,135 | | | $ | 3,852 | |
Capitalized stock compensation | | (169) | | | (135) | |
Stock compensation expense, net | | $ | 3,966 | | | $ | 3,717 | |
As of Directors approved a dividendMarch 31, 2024, there was $13.8 million of $0.26 per common sharetotal unrecognized compensation cost related to be paid December 1, 2017 to shareholders of record as of the close of business on November 3, 2017. Before dividend reinvestments, the total payoutnon-vested RSUs and RTSRs which is expected to be recognized over weighted average period of 2.3 years.
We utilize the treasury stock method to calculate the impact on diluted earnings (loss) per share that potentially dilutive stock-based compensation awards have. The following table indicates the computation of basic and diluted earnings (loss) per share:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in thousands, except per share amounts) | | 2024 | | 2023 |
Calculation of net income per share: | | | | |
(Loss) income from continuing operations | | $ | (4,090) | | | $ | 741 | |
Total income from discontinued operations, net of tax | | 218,786 | | | 1,325 | |
Net income | | $ | 214,696 | | | $ | 2,066 | |
| | | | |
Basic weighted average shares outstanding | | 50,520 | | | 50,291 | |
| | | | |
Basic net (loss) income per share - continuing operations | | $ | (0.08) | | | $ | 0.01 | |
Basic net income per share - discontinued operations | | 4.33 | | | 0.03 | |
Basic net income per share | | $ | 4.25 | | | $ | 0.04 | |
| | | | |
Effect of stock-based compensation awards outstanding: | | | | |
Basic weighted average shares outstanding | | 50,520 | | | 50,291 | |
Effect from dilutive shares and options outstanding | | 491 | | | 221 | |
Diluted weighted average shares outstanding | | 51,011 | | | 50,512 | |
| | | | |
Diluted net (loss) income per share - continuing operations | | $ | (0.08) | | | $ | 0.01 | |
Diluted net income per share - discontinued operations | | 4.29 | | | 0.03 | |
Diluted net income per share | | $ | 4.21 | | | $ | 0.04 | |
There were approximately $12.8462,000 and 478,000 anti-dilutive equity awards outstanding during the three months ended March 31, 2024 and 2023, respectively.
Note 12. Government Grants
During the three months ended March 31, 2024, Shentel was awarded an additional grant of $0.6 million to strategically expand the Company’s broadband network in order to provide broadband services to unserved residences.
The Company recognizes grant receivables at the time it becomes probable that the Company will be eligible to receive the grant, which is estimated to correspond with the date when specified build-out milestones are achieved. As a result of these programs, the Company received $2.7 million in cash reimbursements during the three months ended March 31, 2024 and had approximately $2.8 million and $1.9 million in accounts receivable as of March 31, 2024 and December 31, 2023, respectively. The Company did not recognize any material amounts under these programs during the three months ended March 31, 2023.
Note 13. Commitments and Contingencies
We are committed to make payments to satisfy our lease liabilities. The scheduled payments under those obligations are summarized in Note 7, Leases. We also have outstanding unconditional purchase commitments to procure marketing services and IT software licenses through 2027.
From time to time the Company is involved in various litigation matters arising out of the normal course of business. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. The Company’s management does not presently expect any litigation matters to have a material adverse impact on the Company’s financial position, results of operations and cash flows.
Note 14. Discontinued Operations
As discussed in Note 1, Basis of Presentation and Other Information above, the Tower Transaction represented a strategic shift in the Company’s business and the Tower Portfolio has been reclassified as a discontinued operation. As a result, for all periods presented, the assets and liabilities that transferred in the Tower Transaction disposal group are presented as held for sale in our unaudited condensed consolidated balance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in our unaudited condensed consolidated statements of comprehensive income and unaudited condensed consolidated statements of cash flows.
The carrying amounts of the major classes of assets and liabilities, classified as held for sale in the unaudited condensed consolidated balance sheets, were as follows:
| | | | | | | | | |
(in thousands) | | | December 31, 2023 |
ASSETS | | | |
Property, plant and equipment, net | | | $ | 29,162 | |
Operating lease right-of-use assets | | | 37,616 | |
Deferred charges and other assets | | | 2,137 | |
Noncurrent assets held for sale | | | $ | 68,915 | |
| | | |
LIABILITIES | | | |
Accrued liabilities and other current liabilities | | | $ | 3,602 | |
Current liabilities held for sale | | | $ | 3,602 | |
| | | |
Deferred income taxes | | | $ | 2,483 | |
Asset retirement obligations | | | 9,516 | |
Non-current operating lease liabilities | | | 41,173 | |
Other liabilities | | | 3,524 | |
Noncurrent liabilities held for sale | | | $ | 56,696 | |
Income from discontinued operations, net of tax in the unaudited condensed consolidated statements of comprehensive income consist of the following for the periods ended:
| | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended March 31, |
| | 2024 | | 2023 |
Service revenue and other | | $ | 4,542 | | | $ | 4,576 | |
Operating expenses: | | | | |
Cost of services | | 1,059 | | | 1,191 | |
Selling, general and administrative | | 572 | | | 450 | |
Depreciation and amortization | | 222 | | | 513 | |
Total operating expenses | | 1,853 | | | 2,154 | |
Operating income | | 2,689 | | | 2,422 | |
Other income: | | | | |
Gain on sale of disposition of Tower Portfolio | | 294,250 | | | — | |
Income before income taxes | | 296,939 | | | 2,422 | |
Income tax expense | | 78,153 | | | 1,097 | |
Income from discontinued operations, net of tax | | $ | 218,786 | | | $ | 1,325 | |
Consummation of the sale triggered the recognition of approximately $4.4 million of incremental transaction costs during the three months ended March 31, 2024, for contingent deal advisory fees and legal expenses, which are netted against the gain on sale of disposition of Tower Portfolio.
Note 15. Subsequent Events
Horizon Transaction
On April 1, 2024 (the “Closing Date”), Shentel completed its previously announced acquisition of Horizon Acquisition Parent LLC, a Delaware limited liability company (“Horizon”). On the Closing Date, Shentel acquired 100% of the outstanding equity interests of Horizon in exchange for (i) issuing 4,100,375 shares of Shentel’s common stock to a selling shareholder of Horizon; and (ii) paying $305 million in cash consideration to the other sellers and certain third parties, including Horizon’s existing lenders to discharge debt (collectively, the “Horizon Transaction”). The Horizon selling shareholder has agreed to an investor rights agreement with the Company that includes among other provision, a one year lockup period of common shares received.
In addition, Shentel paid certain sellers an additional amount of approximately $39 million based on Horizon’s capital expenditures funded by capital contributions of such Sellers between July 1, 2023 and the Closing Date, plus interest in the amount of 6.00% per annum.
Shentel is in the process of finalizing its evaluation of the tangible and intangible assets acquired and liabilities assumed, as well as the initial purchase price allocation as of the acquisition date, including the determination of any resulting goodwill; therefore, this information cannot be provided at this time.
Series A Preferred Stock
Contemporaneously with the Horizon Transaction, Shentel and Shentel Broadband Holding Inc., a wholly-owned subsidiary of Shentel (“Shentel Broadband”), entered into an investment agreement (the “Investment Agreement”) with a third party (the “Investor”). Subject to the terms and conditions set forth in the Investment Agreement, on the Closing Date, Shentel Broadband issued 81,000 shares of Shentel Broadband’s 7% Series A Participating Exchangeable Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a purchase price of $1,000 per share in exchange for $81 million in cash. The Series A Preferred Stock is exchangeable at the option of the Investor in certain circumstances for shares of Common Stock at an exchange price of $24.50 per share (as it may be adjusted pursuant to the terms of the Investment Agreement, the “Exchange Price”).
As a condition to closing the transactions contemplated by the Investment Agreement, Shentel completed a corporate reorganization of Shentel’s subsidiaries (the “Reorganization”). As a result of the Reorganization effected on the Closing Date, Shentel Broadband, both directly and through its subsidiaries, holds substantially all of the operating assets of Shentel.
On the Closing Date, Shentel Broadband filed a certificate of designations with the Secretary of State of the State of Delaware authorizing 100,000 shares of Series A Preferred Stock and setting forth the powers, designations, preferences, rights, qualifications, limitations and restrictions of the Series A Preferred Stock (the “Certificate of Designations”). The Series A Preferred Stock ranks senior to Shentel’s Common Stock with respect to the payment of dividends and with respect to the distribution of assets upon Shentel Broadband’s liquidation, dissolution or winding up. Dividends on the Series A Preferred Stock accrue at 7% per annum compounded and payable quarterly in arrears, and, at Shentel’s option, may be paid in cash or in kind (such dividends paid in kind, “PIK Dividends”). The PIK Dividend rate is subject to increase to 8.5% and 10% after the fifth and seventh anniversaries of the Closing Date, respectively, to the extent any dividends accrued during the period from and including such anniversary dates are paid in the form of PIK Dividends.
Beginning two years after the Closing Date, Shentel may require the Investor to exchange the Series A Preferred Stock for shares of Common Stock if the price per share of the Common Stock exceeds 125% of the Exchange Price, subject to certain conditions. After five years, Shentel may redeem all of the Series A Preferred Stock for the greater of (i) $1,000 per share, plus (a) any accrued PIK Dividend amount and (b) accrued and unpaid dividends to, but excluding the redemption date (to the extent such accrued and unpaid dividends are not included in such PIK Dividend amount), and (ii) the value of the shares of Common Stock for which such Series A Preferred Stock are exchangeable.
Under the terms of the Investment Agreement, the Investor has the right to nominate a director to the Board so long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock).
So long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock), the Investor is subject to certain standstill provisions and voting covenants and has certain other rights with respect to the shares of Series A Preferred Stock, including, among others, pre-emptive, information and participation rights. The shares of Series A Preferred Stock are subject to a lock-up until the first anniversary of the Closing Date and are subject to certain other transfer restrictions.
Amendment No. 3 to Credit Agreement
On April 1, 2024, Shentel entered into Amendment No. 3 to Credit Agreement, Incremental Term Loan Funding Agreement, Joinder and Assignment and Assumption (the “Third Amendment”) to its existing Credit Agreement, dated as of July 1, 2021, with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders (as previously amended by Amendment No. 1 to Credit Agreement, dated as of May 17, 2023, and Consent and Amendment No. 2 to Credit Agreement, dated October 24, 2023, the “Credit Agreement”).
The Third Amendment provides for, among other things, incremental delay draw term loan commitments under the Credit Agreement in an aggregate amount equal to $225 million and an increase in the revolving commitment under the Credit Agreement in an amount equal to $50 million.
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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ThisITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.1934 (the "Exchange Act"). When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “will,” “should,” “could” or “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company’s expected future financial position, and operating results and cash flows, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company’s actual results could be materially different from its expectations because of various factors, including, but not limited to, those discussed below and under the caption “Risk Factors”“Risk Factors” in the Company’sCompany’s Annual Report on Form 10-K for its fiscal year ended December 31, 2016. 2023 (“2023 Form 10-K”). The forward-looking statements included in this Form 10-Q are made only as of the date of the statement. We undertake no obligation to revise or update such statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events, except as required by law.
The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on2023 Form 10-K, for its fiscal year ended December 31, 2016, including the consolidated financial statements and related notes included therein.
GeneralOverview
Overview:Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”) is a diversified telecommunications company providing both regulated and unregulated telecommunicationsprovider of a comprehensive range of broadband communication services through its wholly owned subsidiaries. These subsidiaries provide wireless personal communications services (as a Sprint PCS affiliate), local exchange telephone services, video, internet and data services, long distance services, fiber optics facilities, and leased tower facilities. We have three reportable segments, which we operate and manage as strategic business units organized by linesin the Mid-Atlantic portion of business: (1) Wireless, (2) Cable, and (3) Wireline.the United States.
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* | The Wireless segment provides digital wireless service as a Sprint PCS affiliate to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, along Interstate 81 to Harrisonburg, Virginia, south-central and western Virginia, West Virginia, and small portions of North Carolina, Kentucky, Maryland and Ohio. In these areas, we are the exclusive provider of Sprint-branded wireless mobility communications network products and services on the 800 MHz, 1900 MHz and 2.5 GHz bands. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers. |
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* | The Cable segment provides video, internet and voice services in franchise areas in portions of Virginia, West Virginia and western Maryland, and leases fiber optic facilities throughout its service area. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia. |
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* | The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video and cable modem internet access services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor through West Virginia, Maryland and portions of central and southern Pennsylvania. |
A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company, and includes corporate costs of executive management, information technology, legal, finance, and human resources and investor relations. This segment also includes certain acquisition and integration costs primarily consisting of severance accruals for short-term nTelos employees to be separated as integration activities wind down and transaction related expenses such as investment advisor, legal and other professional fees. The segment results provided below are presented without giving effect to the elimination of transactions between segments to provide a view of our results without inter-segment eliminations and corporate items.
Recent Developments
AcquisitionSale of nTelosShentel’s Tower Portfolio
On March 29, 2024, Shenandoah Mobile, LLC, a wholly-owned subsidiary of Shenandoah Telecommunications Company, completed the initial closing of its previously disclosed sale of substantially all of Shentel’s tower portfolio and Exchange with Sprint: On May 6, 2016, we completed our previously announced acquisition of NTELOS Holdings Corp.operations (“nTelos”Tower Portfolio”) to Vertical Bridge Holdco, LLC for $667.8$309.9 million (the “Tower Transaction”). The Company received $305.8 million, net of cash acquired.certain transaction costs at the time of the initial closing. At the initial close, the Company conveyed approximately 99.5% of the tower portfolio. The purchase priceCompany expects to convey the remaining tower sites in the portfolio by the end of March 2025. The Tower Transaction was financed by a credit facility arranged by CoBank, ACB. We have included the operations of nTelos for financial reporting purposes for periods subsequentcompleted pursuant to the acquisition.
We expect to incur approximately $16.7 millionterms of integrationa Purchase and acquisition expenses associated with this transaction in 2017, in additionSale Agreement, dated February 29, 2024, as amended by Amendment No. 1 to the $54.7 millionPurchase and Sale Agreement, dated March 29, 2024.
The Tower Portfolio represented substantially all of such costs incurred during 2016. We have incurred $2.9 millionthe assets and $15.4 million of these costsoperations in Shentel’s previously reported Tower Reporting Segment and the Tower Transaction represented a strategic shift in the threeCompany’s business. Consequently, the Tower Portfolio has been reclassified as a discontinued operation. For all periods presented, the assets and nine months ended September 30, 2017, respectively. These costs include $0.1 million reflected in
cost of goods and services, $1.1 million reflected in selling, general and administrative costs and $1.7 million reflected in integration and acquisitionliabilities that transferred in the three month period ended September 30, 2017. These costs include $0.3 millionTower Transaction (the “disposal group”) are presented as held for sale in our unaudited condensed consolidated balance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in costour unaudited condensed consolidated statements of goodscomprehensive income and services, $5.2 million reflectedunaudited condensed consolidated statements of cash flows. Refer to Note 14, Discontinued Operations, in selling, general and administrative and $9.9 million reflected in integration and acquisition costsPart I, Item 1 of this quarterly report on Form 10-Q for more information regarding the presentation of the disposal group in the nine month period ended September 30, 2017. In addition toCompany’s financial statements.
The Tower Transaction also represents a sale of the approximately $71.4 millionTower segment as the Tower Portfolio constituted substantially all of incurredthe assets and expected expenses described above, we also incurred approximately $28 millionliabilities and the totality of debt issuance, legal and other costs in 2015 and 2016 relating to this transaction, for a total expected cost of $100 million.
Acquisition of Expansion Area: On April 6, 2017, we expanded our affiliate service territory, under our agreements with Sprint, to include certain areas in North Carolina, Kentucky, Maryland, Ohio and West Virginia. The expanded territory covers the Parkersburg, WV, Huntington, WV and Cumberland, MD basic trading areas. Approximately 25,000 Sprint retail and former nTelos postpaid and prepaid subscribersoperations reported in the new basic trading areas will become Sprint-branded affiliate customers managed by us. We have authorization to serve over 6 million POPs in the mid-Atlantic region as a Sprint PCS Affiliate following this expansion. We plan to invest approximately $32 million over the next three years to upgrade and expand the existing wireless network coverage in those regions. Once the network expansion is complete, our plan is to open multiple Sprint-branded retail locations inTower segment. Under the new area.organizational and reporting structure, the Company has one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.
As a result of the sale of the Tower Portfolio, the Company has one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.
Results of Operations
Three Months Ended September 30, 2017March 31, 2024 Compared with the Three Months Ended September 30, 2016March 31, 2023
OurThe Company’s consolidated results for the third quarter of 2017 and 2016from operations are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change |
($ in thousands) | | 2024 | % of Revenue | | 2023 | % of Revenue | | $ | | % |
External revenue | | | | | | | | | | |
Residential & SMB - Cable Markets | | $ | 44,370 | | 64.1 | % | | $ | 44,756 | | 66.6 | % | | $ | (386) | | | (0.9) | % |
Residential & SMB - Glo Fiber Markets | | 12,118 | | 17.5 | % | | 7,003 | | 10.4 | % | | 5,115 | | | 73.0 | % |
Commercial Fiber | | 9,377 | | 13.5 | % | | 11,698 | | 17.4 | % | | (2,321) | | | (19.8) | % |
RLEC & Other | | 3,383 | | 4.9 | % | | 3,708 | | 5.5 | % | | (325) | | | (8.8) | % |
Total revenue | | 69,248 | | 100.0 | % | | 67,165 | | 100.0 | % | | 2,083 | | | 3.1 | % |
Operating expenses | | | | | | | | | | |
Cost of services | | 25,985 | | 37.5 | % | | 25,431 | | 37.9 | % | | 554 | | | 2.2 | % |
Selling, general and administrative | | 28,596 | | 41.3 | % | | 26,159 | | 38.9 | % | | 2,437 | | | 9.3 | % |
Depreciation and amortization | | 17,443 | | 25.2 | % | | 15,269 | | 22.7 | % | | 2,174 | | | 14.2 | % |
Total operating expenses | | 72,024 | | 104.0 | % | | 66,859 | | 99.5 | % | | 5,165 | | | 7.7 | % |
Operating (loss) income | | $ | (2,776) | | (4.0) | % | | $ | 306 | | 0.5 | % | | $ | (3,082) | | | NMF |
Other income (expense): | | | | | | | | | | |
Other income (expense), net | | (2,340) | | (3.4) | % | | 1,117 | | 1.7 | % | | (3,457) | | | NMF |
(Loss) income from continuing operations before income taxes | | (5,116) | | (7.4) | % | | 1,423 | | 2.1 | % | | (6,539) | | | NMF |
Income tax (benefit) expense | | (1,026) | | (1.5) | % | | 682 | | 1.0 | % | | (1,708) | | | NMF |
(Loss) income from continuing operations | | (4,090) | | (5.9) | % | | 741 | | 1.1 | % | | (4,831) | | | NMF |
Income from discontinued operations, net of tax | | 218,786 | | 315.9 | % | | 1,325 | | 2.0 | % | | 217,461 | | | NMF |
Net income | | $ | 214,696 | | 310.0 | % | | $ | 2,066 | | 3.1 | % | | $ | 212,630 | | | NMF |
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| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change |
(in thousands) | | 2017 | | 2016 | | $ | | % |
Operating revenues | | $ | 151,782 |
| | $ | 156,836 |
| | $ | (5,054 | ) | | (3.2 | ) |
Operating expenses | | 142,307 |
| | 160,765 |
| | (18,458 | ) | | (11.5 | ) |
Operating income (loss) | | 9,475 |
| | (3,929 | ) | | 13,404 |
| | (341.2 | ) |
| | | | | | | | |
Interest expense | | (9,823 | ) | | (8,845 | ) | | (978 | ) | | 11.1 |
|
Other income (expense), net | | 1,205 |
| | 1,527 |
| | (322 | ) | | (21.1 | ) |
Income (loss) before taxes | | 857 |
| | (11,247 | ) | | 12,104 |
| | (107.6 | ) |
Income tax expense (benefit) | | (2,677 | ) | | (3,651 | ) | | 974 |
| | (26.7 | ) |
Net income (loss) | | $ | 3,534 |
| | $ | (7,596 | ) | | $ | 11,130 |
| | (146.5 | ) |
Residential & SMB - Cable Markets revenue
Operating revenues
ForResidential & SMB - Cable Markets revenue for the three months ended September 30, 2017, operating revenuesMarch 31, 2024 decreased approximately $0.4 million, or 0.9%, compared with the three months ended March 31, 2023, primarily driven by a 15.1% year-over-year decline in video RGUs, partially offset by a 2.4% increase in data ARPU driven by increased customer demand for higher speed data service.
Residential & SMB - Glo Fiber Markets revenue
Residential & SMB - Glo Fiber Markets revenue for the three months ended March 31, 2024 increased approximately $5.1 million, or 3.2% to $151.8 million. Wireless segment revenues decreased $7.6 million73.0%, compared with the third quarter of 2016,three months ended March 31, 2023, primarily driven by lower service62.3% year-over-year growth in data RGUs driven by the Company’s expansion of Glo Fiber and a 9.7% increase in data ARPU.
Commercial Fiber revenue
Commercial Fiber revenue for the three months ended March 31, 2024 decreased approximately $2.3 million, or 19.8%, compared with the three months ended March 31, 2023, primarily driven by the expected decline in T-Mobile revenue from prior period backhaul circuit disconnects as part of the previously disclosed decommissioning of the former Sprint network.
RLEC & Other revenue
RLEC & Other revenue for the three months ended March 31, 2024 decreased approximately $0.3 million, or 8.8%, compared with the three months ended March 31, 2023, primarily driven by a 25.8% year-over-year decline in RLEC data RGUs as customers migrate to cable and fiber based products.
Cost of services
Cost of services for the reduction of subsidized handset sales. Cable segment revenues grew $2.5three months ended March 31, 2024, increased approximately $0.6 million, or 2.2%, compared with the three months ended March 31, 2023, primarily driven by a 17% increase in average cost per video RGU as a result of 0.8% growth in average subscriber countsannual programming cost increases and an increase in revenue per subscriber. Wireline segment revenues increased $1.1 million, primarily due to increases in fiber revenue.higher line costs from expanding our Glo Fiber network into new markets.
Operating expenses
Selling, general and administrative
Total operating expenses decreased $18.5 million or 11.5% to $142.3 million inSelling, general and administrative expense for the three months ended September 30, 2017March 31, 2024, increased $2.4 million, or 9.3%, compared with $160.8 million in the prior year period. The decrease in operating expenses wasthree months ended March 31, 2023, primarily driven by a reduction of approximately $17.3 million of integration and acquisition costs related to the completion of the transformation of the nTelos network during 2017 and the remainder is primarily attributable to improved operating efficiencies in network operations.
Integration and acquisition costs incurred in the Wireless segment and Other segment primarily consist of handsets provided to nTelos subscribers who required a new phone to transition to the Sprint billing platform, and personnelhigher advertising costs associated with nTelos employees retained on a short-term basis who were necessary in the efforts requiredCompany’s expansion of Glo Fiber, higher bad debt charges due to migrate former nTelos customers tomacro-economic conditions and higher payroll and stock compensation expenses.
Depreciation and amortization
Depreciation and amortization increased $2.2 million, or 14.2%, compared with the Sprint back-office billing platform. Acquisition and integration costs were $2.9three months ended March 31, 2023, primarily driven by the Company’s expansion of its Glo Fiber network.
Other income (expense), net
Other expense, net was $2.3 million for the three months ended
September 30, 2017, and were comprised of $0.1 million classified as cost of goods and services, $1.1 million classified as selling, general and administrative, and $1.7 million classified as integration and acquisition; whereas acquisition and integration costs for the three months ended September 30, 2016 were $20.2 million, and were comprised of $0.7 million classified as cost of goods and services, $4.2 million classified as selling, general and administrative, and $15.3 million classified as integration and acquisition. We expect integration and acquisition costs related to the nTelos acquisition to continue to decrease as integration activities wind down.
For the three months ended September 30, 2017 March 31, 2024 compared with the three months ended September 30, 2016, excluding integration and acquisition costs, operating expenses decreased $1.2 million primarily related to the completion of the transformation of the nTelos network during 2017 and improved operating efficiencies in network operations.
Interest expense
Interest expense has increased primarily as a result of the incremental borrowings associated with closing the nTelos acquisition and the effect of increases in the London Interbank Offered Rate ("LIBOR") in late 2016 and during 2017. The impact of the interest rate increases has been partially offset by an interest rate swap, which is classified as a cash flow hedge that covers approximately 50% of the outstanding principal under the Credit Facilities.
Other income, net
Otherother income, net has decreased $0.3 million primarily as a result of lower interest income derived from our investments.
Income tax
During the three months ended September 30, 2017, income tax benefits were approximately $2.7 million, compared with benefits of $3.7$1.1 million for the three months ended September 30, 2016. Excluding approximately $2.8 million of excess tax benefits recognized during 2017 that are derived from exercises of stock options and vesting of restricted stock, our income tax expense increased $3.8 million consistent with the growth that we have experienced in ourMarch 31, 2023, primarily driven by an increase in income before taxes.
Nine Months Ended September 30, 2017 Compared withinterest expense due to a higher outstanding debt balance during the Nine Months Ended September 30, 2016
Our consolidated results for the first nine months of 2017 and 2016 are summarized as follows:
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| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change |
(in thousands) | | 2017 | | 2016 | | $ | | % |
Operating revenues | | $ | 458,920 |
| | $ | 379,716 |
| | $ | 79,204 |
| | 20.9 |
|
Operating expenses | | 430,520 |
| | 369,379 |
| | 61,141 |
| | 16.6 |
|
Operating income (loss) | | 28,400 |
| | 10,337 |
| | 18,063 |
| | 174.7 |
|
| | | | | | | | |
Interest expense | | (28,312 | ) | | (16,369 | ) | | (11,943 | ) | | 73.0 |
|
Other income (expense), net | | 3,877 |
| | 3,147 |
| | 730 |
| | 23.2 |
|
Income (loss) before taxes | | 3,965 |
| | (2,885 | ) | | 6,850 |
| | (237.4 | ) |
Income tax expense (benefit) | | (1,830 | ) | | (2,174 | ) | | 344 |
| | (15.8 | ) |
Net income (loss) | | $ | 5,795 |
| | $ | (711 | ) | | $ | 6,506 |
| | (915.0 | ) |
Operating revenues
For the ninethree months ended September 30, 2017, operating revenues increased $79.2 million, or 20.9%. Wireless segment revenues increased $71.2 millionMarch 31, 2024 compared to the first nine months of 2016. Nearly all of this increase was a result of the acquisition of nTelos on May 6, 2016 as 2017 included nine months of nTelos revenue whereas the comparable 2016 period included approximately five months of nTelos revenue. Cable segment revenues grew $8.3 million primarily as a result of 0.8% growth in high speed data and voice subscribers and an increase in average revenue per subscriber. Wireline segment revenues increased $2.9 million primarily due to increases in fiber sales.
Operating expenses
Total operating expenses increased $61.1 million or 16.6% to $430.5 million in the ninethree months ended September 30, 2017 compared with $369.4 million in the prior year period. Nearly all of this increase was a result of the acquisition of nTelos on May 6, 2016 as 2017 included nine months of nTelos operating expenses whereas the comparable 2016 period included approximately five months of nTelos operating expenses. March 31, 2023.
Income tax (benefit) expense
The increase in operating expenses was consistent with the growth that occurred in operating revenues, and was partially offset by a decrease of approximately $28.5 million in integration and acquisition costs related to the transformation of nTelos.
Integration and acquisition costs were $15.4 million for the nine months ended September 30, 2017, and were primarily comprised of $0.3 million classified as cost of goods and services, $5.2 million classified as selling, general and administrative, and $9.9 million classified as integration and acquisition; whereas acquisition and integration costs for the nine months ended September 30, 2016 were $43.9 million, and were comprised ofCompany recognized $1.0 million classified as cost of goods and services, $7.1 million classified as selling, general and administrative, and $35.8 million classified as integration and acquisition. We expect integration and acquisition costs related to the nTelos acquisition to decrease as integration activities wind down.
Excluding integration and acquisition costs, operating expenses increased $89.6 million, nearly all of this increase was a result of the acquisition of nTelos on May 6, 2016 as 2017 included nine months of nTelos operating expenses whereas the comparable 2016 period included approximately five months of nTelos operating expenses. The increase was consistent with the growth in operating revenues related to the acquisition of nTelos in 2016 and acquisition of the Expansion Area during 2017.
Interest expense
Interest expense has increased primarily as a result of the borrowings under our Credit Agreement, associated with closing the nTelos acquisition during May 2016, and the effect of increases in the London Interbank Offered Rate ("LIBOR") that have occurred since. As a result, the nine months ended September 30, 2016 include interest expense under our borrowings for approximately five months, whereas the nine months ended September 30, 2017 include interest expense for nine months. The impact of the interest rate increases has been partially offset by an interest rate swap, which is classified as a cash flow hedge that covers approximately 50% of the outstanding principal under the Credit Facilities.
Other income, net
Other income, net has increased $0.7 million primarily as a result of lower interest income derived from our investments.
Income tax
During the nine months ended September 30, 2017, income tax expense increased by approximately $0.3 million, compared with the nine months ended September 30, 2016. Excluding approximately $1.8 million of incremental excess tax benefits recognized during 2017 that are derived from exercises of stock options and vesting of restricted stock, our income tax expense increased $2.1 million consistent with the growth that we have experienced in our increase in income before taxes.
Wireless Segment
Our Wireless segment provides digital wireless service as a Sprint PCS affiliate to a portion of a multi-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, along Interstate 81 to Harrisonburg, Virginia, south-central and western Virginia, West Virginia, and portions of Maryland, North Carolina, Kentucky, Maryland and Ohio. This segment also leases land on which it builds Company-owned cell towers, which it leases to affiliates and non-affiliated wireless service providers, throughout the same multi-state area described above.
We earn revenues from Sprint for providing access to our network. Postpaid revenues received from Sprint are recorded net of certain fees retained by Sprint. Since January 1, 2016, the fees retained by Sprint are 16.6%, and certain revenue and expense items previously included in these fees became separately settled.
We also offer prepaid wireless products and services in our network coverage area. Sprint retains a Management Fee equal to 6% of prepaid customer billings. Prepaid revenues received from Sprint are reported net of the cost of this fee. Other fees charged on a per unit basis are separately recorded as expenses according to the nature of the expense. We pay handset
subsidies to Sprint for the difference between the selling price of prepaid handsets and their cost, recorded as a net cost in cost of goods sold.
Lifeline Subscribers: The Company is no longer including Lifeline subscribers in the customer counts to be consistent with Sprint.While the Lifeline subscribers will continue to be supported through the Assurance Wireless prepaid brand, we have excluded these subscribers from the reported prepaid customer base for all periods presented.
The following tables show selected operating statistics of the Wireless segment, including Sprint's subscribers:
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| | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2016 | | December 31, 2015 |
Retail PCS Subscribers – Postpaid | | 727,954 |
| | 722,562 |
| | 718,785 |
| | 312,512 |
|
Retail PCS Subscribers – Prepaid (1) | | 224,609 |
| | 206,672 |
| | 245,046 |
| | 129,855 |
|
PCS Market POPS (000) (2) | | 6,047 |
| | 5,536 |
| | 5,536 |
| | 2,433 |
|
PCS Covered POPS (000) (2) | | 5,157 |
| | 4,807 |
| | 4,715 |
| | 2,224 |
|
CDMA Base Stations (sites) | | 1,544 |
| | 1,467 |
| | 1,425 |
| | 552 |
|
Towers Owned | | 201 |
| | 196 |
| | 181 |
| | 158 |
|
Non-affiliate Cell Site Leases | | 192 |
| | 202 |
| | 186 |
| | 202 |
|
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1) | Prepaid subscribers reported in the December 2016 and subsequent periods include the impact of a change in the Company's policy as to how long an inactive customer is included in the customer counts. This policy change, implemented in December 2016, effectively reduced prepaid customers by approximately 24 thousand. As of September 2017, The Company is no longer including Lifeline subscribers to be consistent with Sprint's policy. Historical customer counts have been adjusted accordingly. |
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2) | POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network. |
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| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Gross PCS Subscriber Additions – Postpaid | | 43,320 |
| | 41,563 |
| | 122,429 |
| | 85,104 |
|
Net PCS Subscriber Additions (Losses) – Postpaid | | (4,710 | ) | | 1,222 |
| | (13,675 | ) | | 1,829 |
|
Gross PCS Subscriber Additions – Prepaid (1) | | 37,653 |
| | 32,315 |
| | 112,201 |
| | 77,010 |
|
Net PCS Subscriber Additions (Losses) – Prepaid (1) | | 2,571 |
| | (13,856 | ) | | 13,259 |
| | (21,557 | ) |
PCS Average Monthly Retail Churn % - Postpaid (2) | | 2.19 | % | | 2.01 | % | | 2.08 | % | | 1.71 | % |
PCS Average Monthly Retail Churn % - Prepaid(1) (2) | | 5.25 | % | | 6.09 | % | | 5.06 | % | | 5.67 | % |
| |
1) | The Company is no longer including Lifeline subscribers to be consistent with Sprint's policy. Historical customer counts have been adjusted accordingly. |
| |
2) | PCS Average Monthly Retail Churn is the average of the monthly subscriber turnover, or churn, calculations for the period. Excluding losses associated with the migration of nTelos subscribers to the Sprint network and platform, churn for the three months ended September 30, 2017 and 2016, was 1.85% and 1.64%, respectively. |
The numbers shown above include the following:
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| | | | | |
| April 6, 2017 | | May 6, 2016 |
| Expansion Area | | nTelos Area |
Acquired PCS Subscribers - Postpaid | 19,067 |
| | 404,444 |
|
Acquired PCS Subscribers - Prepaid | 5,962 |
| | 154,944 |
|
Acquired PCS Market POPS (000) (1) | 511 |
| | 3,099 |
|
Acquired PCS Covered POPS (000) (1) | 244 |
| | 2,298 |
|
Acquired CDMA Base Stations (sites) (2) | — |
| | 868 |
|
Towers | — |
| | 20 |
|
Non-affiliate Cell Site Leases | — |
| | 10 |
|
| |
1) | POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources. Market POPS are those within a market area which we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network. |
| |
2) | As of September 30, 2017 we have shut down 107 overlap sites.
|
Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended September 30, | | Change |
| | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
|
Wireless service revenue | | $ | 107,395 |
| | $ | 111,001 |
| | $ | (3,606 | ) | | (3.2 | ) |
Tower lease revenue | | 2,933 |
| | 2,909 |
| | 24 |
| | 0.8 |
|
Equipment revenue | | 1,742 |
| | 3,539 |
| | (1,797 | ) | | (50.8 | ) |
Other revenue | | 435 |
| | 2,670 |
| | (2,235 | ) | | (83.7 | ) |
Total segment operating revenues | | 112,505 |
| | 120,119 |
| | (7,614 | ) | | (6.3 | ) |
Segment operating expenses | | |
| | |
| | |
| | |
|
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 41,041 |
| | 43,097 |
| | (2,056 | ) | | (4.8 | ) |
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 30,099 |
| | 29,892 |
| | 207 |
| | 0.7 |
|
Integration and acquisition expenses | | 1,691 |
| | 14,499 |
| | (12,808 | ) | | (88.3 | ) |
Depreciation and amortization | | 32,929 |
| | 38,038 |
| | (5,109 | ) | | (13.4 | ) |
Total segment operating expenses | | 105,760 |
| | 125,526 |
| | (19,766 | ) | | (15.7 | ) |
Segment operating income (loss) | | $ | 6,745 |
| | $ | (5,407 | ) | | $ | 12,152 |
| | (224.7 | ) |
Service Revenues
Wireless service revenue decreased $3.6 million, or 3.2%,benefit for the three months ended September 30, 2017,March 31, 2024, compared with the September 30, 2016, period. The table below provides additional detail in the settlement with Sprint impacting service revenue.
|
| | | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended September 30, | | Change |
Service Revenues | | 2017 | | 2016 | | $ | | % |
Postpaid net billings (1) | | $ | 94,013 |
| | $ | 97,470 |
| | $ | (3,457 | ) | | (3.5 | ) |
Sprint management fee | | (7,460 | ) | | (7,919 | ) | | 459 |
| | (5.8 | ) |
Sprint net service fee | | (7,872 | ) | | (6,745 | ) | | (1,127 | ) | | 16.7 |
|
Waiver of management fee | | 7,440 |
| | 7,996 |
| | (556 | ) | | (7.0 | ) |
| | 86,121 |
| | 90,802 |
| | (4,681 | ) | | (5.2 | ) |
Prepaid net billings | | |
| | |
| | |
| | |
|
Gross billings (2) | | 24,155 |
| | 24,323 |
| | (168 | ) | | (0.7 | ) |
Sprint management fee | | (1,502 | ) | | (1,521 | ) | | 19 |
| | (1.2 | ) |
Waiver of management fee | | 1,521 |
| | 1,521 |
| | — |
| | — |
|
| | 24,174 |
| | 24,323 |
| | (149 | ) | | (0.6 | ) |
| | | | | | | | |
Travel and other revenues (2) | | 6,662 |
| | 6,109 |
| | 553 |
| | 9.1 |
|
Amortization of expanded affiliate agreement | | (5,242 | ) | | (5,593 | ) | | 351 |
| | (6.3 | ) |
Straight-line adjustment - management fee waiver | | (4,320 | ) | | (4,640 | ) | | 320 |
| | (6.9 | ) |
Total Service Revenues | | $ | 107,395 |
| | $ | 111,001 |
| | $ | (3,606 | ) | | (3.2 | ) |
1) Postpaid net billings are defined under the terms$0.7 million of the affiliate contract with Sprint to be the gross billings to customers within our service territory less billing credits and adjustments and allocated write-offs of uncollectible accounts.
| |
2) | The Company is no longer including Lifeline subscribers to be consistent with Sprint. The above table reflects the reclassification of the related Assurance Wireless prepaid revenue within the Wireless segment from Prepaid gross billings to travel and other revenues. |
Operating revenues
Wireless service revenue decreased $3.6 million, or 3.2% in the third quarter of 2017. The decline in postpaid service revenue was the result of a reduction in Sprint's average revenue per postpaid customer as a higher percentage of Sprint's postpaid customer base moved from higher revenue subsidized phone price plans to lower phone price plans associated with leased and installment sales. Additionally, we were impacted by an increase of approximately $1.1 million in net service fees during the third quarter as a result of the migration of former nTelos subscribers to the Sprint platform. This decline was partially offset by an increase in postpaid subscribers of approximately 9 thousand. The decline in prepaid service revenues was the result of the resolution of $1.1 million related to a previously settled prepaid amount with Sprint, which reduced revenueincome tax expense for the three months ended September 30, 2017. This was partially offset by anMarch 31, 2023. The $1.7 million increase in average revenue per prepaid customer.
Equipment revenue decreased $1.8 million, or 50.8%, in the third quarter of 2017income tax benefit was driven by a decline in handset sales as more subscribers are leasing their handsets, directlyhigher pre-tax loss from Sprint, and the reduction of accessory sales in our national retailer channel.
Other revenue decreased $2.2 million, or 83.7%, in the third quarter of 2017. During the prior year period the Company recognized approximately $2.4 million of revenue related to regulatory and handset insurance billings for subscribers on the nTelos platform. Regulatory and handset insurance billings have steadily declined as former nTelos subscribers migrate to the the Sprint network and platform.
Cost of goods and services
Cost of goods and services decreased $2.1 million, or 4.8%, in the third quarter of 2017 compared with the third quarter of 2016. The decrease results primarily from a decline in handset costs as customers increasingly acquire handsets under Sprint leasing and installment sales programs, the reduction in network line costs as we optimize the network, and the reduction in regulatory fees related to the migration of nTelos customers. These decreases were offset by an increase in rent expense to support our network expansion and accelerated amortization of off-market lease intangibles associated with decommissioned cell sites in our overlap territory.
Selling, general and administrative
Selling, general and administrative costs increased $0.2 million, or 0.7%, in the third quarter of 2017 from the comparable 2016 period, primarily due to increases in commissions and subscriber acquisition costs associated with higher gross additions in the current period that were offset by reductions in back office staff and support functions attributable to the completion of the migration of the former nTelos subscribers to the Sprint network.
Integration and acquisition
Integration and acquisition expenses of $1.7 million in the third quarter of 2017 were primarily attributable to the cost of replacement handsets provided to former nTelos subscribers related to the completion of the migration of the subscribers to the Sprint platform. Integration and acquisitions expenses have decreased approximately $12.8 million compared withcontinuing operations during the three months ended September 30, 2016 primarily as a resultMarch 31, 2024.
Depreciation and amortization
Depreciation and amortization decreased $5.1 million, or 13.4%, in the third quarter of 2017 over the comparable 2016 period, due primarily to a $5.6 million decline in depreciation resulting from the retirement of certain network related assets that occurred during 2016, which was partially offset by an increase of $0.5 million in amortization of customer based intangibles recorded in the acquisition.
Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | |
(in thousands) | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
|
Wireless service revenue | | $ | 323,262 |
| | $ | 250,053 |
| | $ | 73,209 |
| | 29.3 |
|
Tower lease revenue | | 8,676 |
| | 8,471 |
| | 205 |
| | 2.4 |
|
Equipment revenue | | 7,666 |
| | 7,771 |
| | (105 | ) | | (1.4 | ) |
Other revenue | | 2,498 |
| | 4,636 |
| | (2,138 | ) | | (46.1 | ) |
Total segment operating revenues | | 342,102 |
| | 270,931 |
| | 71,171 |
| | 26.3 |
|
Segment operating expenses | | |
| | |
| | |
| | |
|
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 117,829 |
| | 94,892 |
| | 22,937 |
| | 24.2 |
|
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 88,201 |
| | 65,219 |
| | 22,982 |
| | 35.2 |
|
Integration and acquisition expenses | | 9,607 |
| | 19,889 |
| | (10,282 | ) | | (51.7 | ) |
Depreciation and amortization | | 104,231 |
| | 70,026 |
| | 34,205 |
| | 48.8 |
|
Total segment operating expenses | | 319,868 |
| | 250,026 |
| | 69,842 |
| | 27.9 |
|
Segment operating income (loss) | | $ | 22,234 |
| | $ | 20,905 |
| | $ | 1,329 |
| | 6.4 |
|
Additional Information
Service Revenues
Wireless service revenue increased $73.2 million, or 29.3%, for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, detailed as follows:
|
| | | | | | | | | | | | | | |
(in thousands) | | Nine Months Ended September 30, | | Change |
Service Revenues | | 2017 | | 2016 | | $ | | % |
Postpaid net billings (1) | | $ | 280,724 |
| | $ | 218,327 |
| | $ | 62,397 |
| | 28.6 |
Sprint management fee | | (22,465 | ) | | (17,914 | ) | | (4,551 | ) | | 25.4 |
Sprint net service fee | | (22,852 | ) | | (15,986 | ) | | (6,866 | ) | | 43.0 |
Waiver of management fee | | 22,426 |
| | 13,126 |
| | 9,300 |
| | 70.9 |
| | 257,833 |
| | 197,553 |
| | 60,280 |
| | 30.5 |
Prepaid net billings | | |
| | | | |
| | |
Gross billings (2) | | 74,609 |
| | 56,955 |
| | 17,654 |
| | 31.0 |
Sprint management fee | | (4,622 | ) | | (3,524 | ) | | (1,098 | ) | | 31.2 |
Waiver of management fee | | 4,642 |
| | 2,486 |
| | 2,156 |
| | 86.7 |
| | 74,629 |
| | 55,917 |
| | 18,712 |
| | 33.5 |
| | | | | | | | |
Travel and other revenues (2) | | 19,323 |
| | 13,153 |
| | 6,170 |
| | 46.9 |
Amortization of expanded affiliate agreement | | (15,563 | ) | | (8,883 | ) | | (6,680 | ) | | 75.2 |
Straight-line adjustment - management fee waiver | | (12,960 | ) | | (7,687 | ) | | (5,273 | ) | | 68.6 |
Total Service Revenues | | $ | 323,262 |
| | $ | 250,053 |
| | $ | 73,209 |
| | 29.3 |
1) Postpaid net billings are defined under the terms of the affiliate contract with Sprint to be the gross billings to customers within our service territory less billing credits and adjustments and allocated write-offs of uncollectible accounts.
| |
2) | The Company is no longer including Lifeline subscribers to be consistent with Sprint. The above table reflects the reclassification of the related Assurance Wireless prepaid revenue within the Wireless segment from Prepaid gross billings to travel and other revenues. |
Operating revenues
Wireless service revenues increased $73.2 million, or 29.3%, in 2017 from the same period in 2016 as a result of the acquisition of nTelos. Effective May 6, 2016, we acquired the right to provide network access to approximately 404 thousand postpaid and 155 thousand prepaid Sprint subscribers through our acquisition of nTelos and obtaining the Sprint customers in the former nTelos service area. As a result, 2017 results included nine months of nTelos revenue whereas the comparable 2016 period included approximately five months of nTelos revenue.
Other revenues decreased $2.1 million, or 46.1%, in 2017 compared to the same period in 2016 primarily due to a decline in regulatory recovery revenues. The decline primarily resulted from the completion of the migration of the former nTelos subscribers to the Sprint network and subscriber billing platform. Prior to the migration of the nTelos subscribers to the Sprint billing platform we billed the subscribers from the former nTelos platform and retained the the regulatory recovery revenues.
Cost of goods and services
Cost of goods and services increased $22.9 million, or 24.2%, in 2017 from the first nine months of 2016. 2017 included nine months of nTelos cost of goods and services whereas the comparable 2016 period included approximately five months of nTelos cost of goods and services. The increase results from increases in cell site rent and backhaul costs for the incremental cell sites acquired in the nTelos territory, as well as the related growth in the cost of service agreements to maintain these sites, partially offset by declines in handset costs as customers increasingly acquire handsets under Sprint's leasing and installment sales programs.
Selling, general and administrative
Selling, general and administrative costs increased $23.0 million, or 35.2%, in the nine months ended September 30, 2017 from the comparable 2016 period. 2017 included nine months of nTelos selling, general and administrative expenses whereas the comparable 2016 period included approximately five months of these expenses for the incremental acquired customers. This increase was driven by third-party sales commissions, incremental sales and marketing campaigns to support our expanded territory, and prepaid acquisition costs. The increases described above were partially offset by the reduction in back office staff and support functions attributable to the completion of the migration of the former nTelos subscribers to the Sprint platform.
Integration and acquisition
Integration and acquisition expenses of $9.6 million incurred during the nine months ended September 30, 2017, include approximately $9.0 million for replacement handsets issued to former nTelos subscribers when migrating to the Sprint billing platform and $0.6 million in other expenses. Integration and acquisitions expenses have decreased approximately $10.3 million compared with the nine months ended September 30, 2016 primarily as a result of the completion of migration and integration activities related to the acquisition of nTelos.
Depreciation and amortization
Depreciation and amortization increased $34.2 million, or 48.8%, in the nine months ended September 30, 2017 as compared with the comparable 2016 period as the result of the May 6, 2016 acquisition of nTelos. Depreciation on the acquired fixed assets increased $28.0 million and amortization of customer based intangibles increased $6.2 million. Customer based intangibles are being amortized over accelerated lives, based on a pattern of benefits.
Cable Segment
The Cable segmentShentel provides broadband internet, video internet and voice services in franchise areasto residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and western Maryland,Kentucky, via fiber optics under the brand name of Glo Fiber and hybrid fiber coaxial cable under the brand name of Shentel. The Company also leases dark fiber and provides Ethernet and Wavelength fiber optic facilitiesservices to enterprise and wholesale customers throughout itsthe entirety of our service area. It does not include video, internetThe Company also provides voice and voiceDSL telephone services provided to customers in Shenandoah County, Virginia, which are included in the Wireline segment. Increases in homes passed, available homes and video customers between December 31, 2015 and September 30, 2016, resulted from the Colane acquisition on January 1, 2016.
|
| | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2016 | | December 31, 2015 |
Homes Passed (1) | | 184,881 |
| | 184,710 |
| | 184,698 |
| | 172,538 |
|
Customer Relationships (2) | | | | | | | | |
|
Video customers | | 45,290 |
| | 48,512 |
| | 48,924 |
| | 48,184 |
|
Non-video customers | | 32,663 |
| | 28,854 |
| | 28,469 |
| | 24,550 |
|
Total customer relationships | | 77,953 |
| | 77,366 |
| | 77,393 |
| | 72,734 |
|
Video | | | | | | | | |
|
Customers (3) | | 47,379 |
| | 50,618 |
| | 51,379 |
| | 50,215 |
|
Penetration (4) | | 25.6 | % | | 27.4 | % | | 27.8 | % | | 29.1 | % |
Digital video penetration (5) | | 76.0 | % | | 77.4 | % | | 76.3 | % | | 77.9 | % |
High-speed Internet | | | | | | | | |
|
Available Homes (6) | | 184,881 |
| | 183,826 |
| | 183,814 |
| | 172,538 |
|
Customers (3) | | 63,442 |
| | 60,495 |
| | 59,852 |
| | 55,131 |
|
Penetration (4) | | 34.3 | % | | 32.9 | % | | 32.6 | % | | 32.0 | % |
Voice | | | | | | | | |
|
Available Homes (6) | | 182,350 |
| | 181,089 |
| | 181,077 |
| | 169,801 |
|
Customers (3) | | 22,419 |
| | 21,352 |
| | 21,199 |
| | 20,166 |
|
Penetration (4) | | 12.3 | % | | 11.8 | % | | 11.7 | % | | 11.9 | % |
Total Revenue Generating Units (7) | | 133,240 |
| | 132,465 |
| | 132,430 |
| | 125,512 |
|
Fiber Route Miles | | 3,340 |
| | 3,137 |
| | 3,124 |
| | 2,844 |
|
Total Fiber Miles (8) | | 121,331 |
| | 92,615 |
| | 84,945 |
| | 76,949 |
|
Average Revenue Generating Units | | 132,704 |
| | 131,218 |
| | 131,707 |
| | 124,054 |
|
| |
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. |
| |
2) | Customer relationships represent the number of customers who receive at least one of our services. |
| |
3) | Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer. Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above. |
| |
4) | Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate. |
| |
5) | Digital video penetration is calculated by dividing the number of digital video customers by total video customers. Digital video customers 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 customer. |
| |
6) | Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area. |
| |
7) | Revenue generating units are the sum of video, voice and high-speed internet customers. |
| |
8) | 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. |
Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | |
(in thousands) | | Three Months Ended September 30, | | Change |
| | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
Service revenue | | $ | 26,934 |
| | $ | 24,948 |
| | $ | 1,986 |
| | 8.0 |
Other revenue | | 3,155 |
| | 2,618 |
| | 537 |
| | 20.5 |
Total segment operating revenues | | 30,089 |
| | 27,566 |
| | 2,523 |
| | 9.2 |
Segment operating expenses | | |
| | |
| | |
| | |
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 14,913 |
| | 14,654 |
| | 259 |
| | 1.8 |
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below | | 5,358 |
| | 4,770 |
| | 588 |
| | 12.3 |
Depreciation and amortization | | 6,192 |
| | 5,860 |
| | 332 |
| | 5.7 |
Total segment operating expenses | | 26,463 |
| | 25,284 |
| | 1,179 |
| | 4.7 |
Segment operating income (loss) | | $ | 3,626 |
| | $ | 2,282 |
| | $ | 1,344 |
| | 58.9 |
Operating revenues
Cable segment service revenues increased $2.0 million, or 8.0%, primarily due to increases in high speed data and voice subscribers, video rate increases in January 2017 that offset increases in programming costs, customers selecting or upgrading to higher-speed data access packages.
Other revenue grew $0.5 million, primarily due to new fiber contracts to towers, schools and libraries.
Operating expenses
Cable segment cost of goods and services increased $0.3 million, or 1.8%, in the third quarter of 2017 over the comparable 2016 period. The increase resulted from higher network and maintenance costs.
Selling, general and administrative expenses increased $0.6 million against the prior year quarter due to higher commission and marketing costs.
Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | |
(in thousands) | | Nine Months Ended September 30, | | Change |
| | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
Service revenue | | $ | 80,229 |
| | $ | 73,455 |
| | $ | 6,774 |
| | 9.2 |
Other revenue | | 8,436 |
| | 6,958 |
| | 1,478 |
| | 21.2 |
Total segment operating revenues | | 88,665 |
| | 80,413 |
| | 8,252 |
| | 10.3 |
Segment operating expenses | | |
| | |
| | |
| | |
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 45,052 |
| | 43,864 |
| | 1,188 |
| | 2.7 |
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below | | 15,083 |
| | 14,672 |
| | 411 |
| | 2.8 |
Depreciation and amortization | | 18,070 |
| | 17,834 |
| | 236 |
| | 1.3 |
Total segment operating expenses | | 78,205 |
| | 76,370 |
| | 1,835 |
| | 2.4 |
Segment operating income (loss) | | $ | 10,460 |
| | $ | 4,043 |
| | $ | 6,417 |
| | 158.7 |
Operating revenues
Cable segment service revenues increased $6.8 million, or 9.2%, primarily due to increases in high-speed data and voice subscribers, video rate increases in January 2017 that offset increases in programming costs, customers selecting or upgrading to higher-speed data access packages.
Other revenue grew $1.5 million, primarily due to new fiber contracts to towers, schools and libraries.
Operating expenses
Cable segment cost of goods and services increased $1.2 million, or 2.7%, in the nine months ended September 30, 2017 over the comparable 2016 period. The increase resulted from higher network and maintenance costs.
Wireline Segment
The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughoutVirginia’s Shenandoah County and portions of Rockingham, Frederick, Warren and Augustaadjacent counties Virginia. The segment also provides video and cable modem internet access services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor through West Virginia, Maryland and portions of Pennsylvania.
|
| | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 | | September 30, 2016 | | December 31, 2015 |
Telephone Access Lines (1) | | 18,006 |
| | 18,443 |
| | 18,737 |
| | 20,252 |
|
Long Distance Subscribers | | 9,107 |
| | 9,149 |
| | 9,186 |
| | 9,476 |
|
Video Customers (2) | | 5,110 |
| | 5,264 |
| | 5,285 |
| | 5,356 |
|
DSL and Cable Modem Subscribers (1) | | 14,605 |
| | 14,314 |
| | 14,195 |
| | 13,890 |
|
Fiber Route Miles | | 2,040 |
| | 1,971 |
| | 1,916 |
| | 1,736 |
|
Total Fiber Miles (3) | | 149,944 |
| | 142,230 |
| | 133,903 |
| | 123,891 |
|
| |
1) | Effective October 1, 2015, we launched cable modem services on our cable plant, and ceased the requirement that a customer have a telephone access line to purchase internet service. As of September 30, 2017, 1,578 customers have purchased cable modem service received via the coaxial cable network.
|
| |
2) | The Wireline segment’s video service passes approximately 16,500 homes.
|
| |
3) | 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. |
Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016
|
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Change |
(in thousands) | | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
Service revenue | | $ | 5,724 |
| | $ | 5,516 |
| | $ | 208 |
| | 3.8 |
Carrier access and fiber revenues | | 13,217 |
| | 12,365 |
| | 852 |
| | 6.9 |
Other revenue | | 910 |
| | 851 |
| | 59 |
| | 6.9 |
Total segment operating revenues | | 19,851 |
| | 18,732 |
| | 1,119 |
| | 6.0 |
| | | | | | | | |
Segment operating expenses | | |
| | |
| | |
| | |
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 9,807 |
| | 9,442 |
| | 365 |
| | 3.9 |
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 1,706 |
| | 1,676 |
| | 30 |
| | 1.8 |
Depreciation and amortization | | 3,249 |
| | 2,822 |
| | 427 |
| | 15.1 |
Total segment operating expenses | | 14,762 |
| | 13,940 |
| | 822 |
| | 5.9 |
Segment operating income (loss) | | $ | 5,089 |
| | $ | 4,792 |
| | $ | 297 |
| | 6.2 |
Operating revenues
Total operating revenues in the quarter ended September 30, 2017 increased $1.1 million, or 6.0%, against the comparable 2016 period, primarily as a resultRural Local Exchange Carrier (“RLEC”). These integrated networks are connected by over 10,100 route miles of increases in fiber and access contracts.fiber.
Operating expenses
Operating expenses overall increased $0.8 million, or 5.9%, in the quarter ended September 30, 2017, compared to the 2016 quarter. The $0.4 million increase in cost of goods and services primarily resulted from costs to support the increase in carrier access and fiber revenues shown above. The $0.4 million increase in depreciation and amortization primarily resulted from the expansion of the underlying network assets necessary to support the growth in fiber revenue.
Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Change |
(in thousands) | | 2017 | | 2016 | | $ | | % |
Segment operating revenues | | | | | | | | |
Service revenue | | $ | 17,002 |
| | $ | 16,433 |
| | $ | 569 |
| | 3.5 |
Carrier access and fiber revenues | | 38,920 |
| | 36,628 |
| | 2,292 |
| | 6.3 |
Other revenue | | 2,659 |
| | 2,641 |
| | 18 |
| | 0.7 |
Total segment operating revenues | | 58,581 |
| | 55,702 |
| | 2,879 |
| | 5.2 |
| | | | | | | | |
Segment operating expenses | | |
| | |
| | |
| | |
Cost of goods and services, exclusive of depreciation and amortization shown separately below | | 28,409 |
| | 26,892 |
| | 1,517 |
| | 5.6 |
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | | 5,065 |
| | 4,951 |
| | 114 |
| | 2.3 |
Depreciation and amortization | | 9,536 |
| | 8,789 |
| | 747 |
| | 8.5 |
Total segment operating expenses | | 43,010 |
| | 40,632 |
| | 2,378 |
| | 5.9 |
Segment operating income (loss) | | $ | 15,571 |
| | $ | 15,070 |
| | $ | 501 |
| | 3.3 |
Operating revenues
Total operating revenues in the nine months ended September 30, 2017 increased $2.9 million, or 5.2%, against the comparable 2016 period. Carrier access and fiber revenues increased $2.3 million due to increases in fiber and access contracts. The increase in service revenues primarily results from higher revenues for high-speed data services.
Operating expenses
Operating expenses overall increased $2.4 million, or 5.9%, in the nine months ended September 30, 2017, compared to the 2016 period. The $1.5 million increase in cost of goods and services primarily resulted from costs to support the increase in carrier access and fiber revenues shown above. The $0.7 million increase in depreciation and amortization primarily resulted from the expansion of the underlying network assets necessary to support the growth in fiber revenue.
Non-GAAP Financial Measures
In managing our business and assessing our financial performance, management supplements the information provided by financial statement measures prepared in accordance with GAAP with Adjusted OIBDA and Continuing OIBDA, which are considered “non-GAAP financial measures” under SEC rules.
Adjusted OIBDA is defined by us as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: certain non-recurring transactions, impairment of assets, gains and losses on asset sales, straight-line adjustments for the waived management fee by Sprint, amortization of the affiliate contract expansion intangible reflected as a contra revenue, actuarial gains and losses on pension and other post-retirement benefit plans, and share-based compensation expense. Adjusted OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance. Continuing OIBDA is defined by us as Adjusted OIBDA, less the benefit received from the waived management fee. The waiver will end when the cumulative amount waived reaches approximately $256 million, which we expect to occur in five years.
In a capital-intensive industry such as telecommunications, management believes that Adjusted OIBDA and Continuing OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance. We use Adjusted OIBDA and Continuing OIBDA as supplemental performance measures because management believes they facilitate comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by excluding potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the other items described above for which additional adjustments were made. In the future, management expects that we may again report Adjusted and Continuing OIBDA excluding these items and may incur expenses similar to these excluded items. Accordingly, the exclusion of these and other similar items from our non-GAAP presentation should not be interpreted as implying these items are non-recurring, infrequent or unusual.
While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the current period allocation of costs associated with long-lived assets acquired or constructed in prior periods, and accordingly may obscure underlying operating trends for some purposes. By isolating the effects of these expenses and other items that vary from period to period without any correlation to our underlying performance, or that vary widely among similar companies, management believes Adjusted and Continuing OIBDA facilitates internal comparisons of our historical operating performance, which are used by management for business planning purposes, and also facilitates comparisons of our performance relative to that of our competitors. In addition, we believe that Adjusted and Continuing OIBDA and similar measures are widely used by investors and financial analysts as measures of our financial performance over time, and to compare our financial performance with that of other companies in our industry.
Adjusted and Continuing OIBDA have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. These limitations include the following:
they do not reflect capital expenditures;
many of the assets being depreciated and amortized will have to be replaced in the future and Adjusted and Continuing OIBDA do not reflect cash requirements for such replacements;
they do not reflect costs associated with share-based awards exchanged for employee services;
they do not reflect interest expense necessary to service interest or principal payments on indebtedness;
they do not reflect gains, losses or dividends on investments;
they do not reflect expenses incurred for the payment of income taxes; and
other companies, including companies in our industry, may calculate Adjusted and Continuing OIBDA differently than we do, limiting its usefulness as a comparative measure.
In light of these limitations, management considers Adjusted OIBDA and Continuing OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.
The following table shows Adjusted OIBDA and Continuing OIBDA for the three and nine months ended September 30, 2017 and 2016.indicates selected operating statistics:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Adjusted OIBDA | | $ | 66,904 |
| | $ | 73,746 |
| | $ | 209,895 |
| | $ | 170,166 |
|
Continuing OIBDA | | $ | 57,943 |
| | $ | 64,228 |
| | $ | 182,827 |
| | $ | 154,554 |
|
The following table reconciles Adjusted OIBDA and Continuing OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
Consolidated: | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Operating income (loss) | | $ | 9,475 |
| | $ | (3,929 | ) | | $ | 28,400 |
| | $ | 10,337 |
|
Plus depreciation and amortization | | 42,568 |
| | 46,807 |
| | 132,297 |
| | 96,961 |
|
Plus (gain) loss on asset sales | | 164 |
| | (81 | ) | | 80 |
| | (144 | ) |
Plus share based compensation expense | | 640 |
| | 496 |
| | 3,053 |
| | 2,570 |
|
Plus straight line adjustment to management fee waiver | | 4,320 |
| | 4,640 |
| | 12,960 |
| | 7,687 |
|
Plus amortization of intangible netted in revenue | | 5,242 |
| | 5,593 |
| | 15,563 |
| | 8,883 |
|
Plus amortization of intangible netted in rent expense | | 1,580 |
| | — |
| | 2,173 |
| | — |
|
Plus temporary back office costs to support the billing operations through migration (1) | | 1,209 |
| | 4,948 |
| | 5,496 |
| | 8,071 |
|
Plus integration and acquisition related expenses | | 1,706 |
| | 15,272 |
| | 9,873 |
| | 35,801 |
|
Adjusted OIBDA | | $ | 66,904 |
| | $ | 73,746 |
| | $ | 209,895 |
| | $ | 170,166 |
|
Less waived management fee | | (8,961 | ) | | (9,518 | ) | | (27,068 | ) | | (15,612 | ) |
Continuing OIBDA | | $ | 57,943 |
| | $ | 64,228 |
| | $ | 182,827 |
| | $ | 154,554 |
|
| | | | | | | | | | | | | | |
| | March 31, 2024 | | March 31, 2023 |
Homes and businesses passed (1) | | 476,081 | | | 377,348 | |
Cable Markets | | 216,514 | | | 212,290 | |
Glo Fiber Markets | | 259,567 | | | 165,058 | |
| | | | |
Residential & Small and Medium Business ("SMB") Revenue Generating Units ("RGUs"): | | | | |
Broadband Data | | 155,687 | | | 138,713 | |
Cable Markets | | 108,958 | | | 109,920 | |
Glo Fiber Markets | | 46,729 | | | 28,793 | |
Video | | 40,148 | | | 45,660 | |
Voice | | 40,734 | | | 40,135 | |
Total Residential & SMB RGUs (excludes RLEC) | | 236,569 | | | 224,508 | |
| | | | |
Residential & SMB Penetration (2) | | | | |
Broadband Data | | 32.7 | % | | 36.8 | % |
Cable Markets | | 50.3 | % | | 51.8 | % |
Glo Fiber Markets | | 18.0 | % | | 17.4 | % |
Video | | 8.4 | % | | 12.1 | % |
Voice | | 8.9 | % | | 11.2 | % |
| | | | |
Residential & SMB Average Revenue per User ("ARPU") (3) | | | | |
Broadband Data | | $ | 83.83 | | | $ | 81.09 | |
Cable Markets | | $ | 84.81 | | | $ | 82.83 | |
Glo Fiber Markets | | $ | 81.39 | | | $ | 74.18 | |
Video | | $ | 116.19 | | | $ | 105.51 | |
Voice | | $ | 24.77 | | | $ | 25.25 | |
| | | | |
Fiber route miles | | 10,132 | | | 8,663 | |
Total fiber miles (4) | | 883,199 | | | 709,123 | |
(1) Once former nTelos customers migrateHomes and businesses are considered passed (“passings”) if we can connect them to our network without further extending the Sprint back office,distribution system. Passings is an estimate based upon the Company incurs certain postpaid fees retainedbest available information. Passings will vary among video, broadband data and voice services.
(2)Penetration is calculated by Sprint that would offset a portiondividing the number of these savings. For the three and nine months ended September 30, 2017, these offsets were estimated at $0.1 million and $1.4 million, respectively.
The following tables reconcile adjusted OIBDA and Continuing OIBDA to operating income by major segment for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | | |
Wireless Segment: | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Operating income (loss) | | $ | 6,745 |
| | $ | (5,407 | ) | | $ | 22,234 |
| | $ | 20,905 |
|
Plus depreciation and amortization | | 32,929 |
| | 38,038 |
| | 104,231 |
| | 70,026 |
|
Plus (gain) loss on asset sales | | 193 |
| | (45 | ) | | 208 |
| | (84 | ) |
Plus share based compensation expense | | 277 |
| | 246 |
| | 1,354 |
| | 1,058 |
|
Plus straight line adjustment to management fee waiver (1) | | 4,320 |
| | 4,640 |
| | 12,960 |
| | 7,687 |
|
Plus amortization of intangible netted in revenue | | 5,242 |
| | 5,593 |
| | 15,563 |
| | 8,883 |
|
Plus amortization of intangible netted in rent expense | | 1,580 |
| | — |
| | 2,173 |
| | — |
|
Plus temporary back office costs to support the billing operations | | 1,209 |
| | 4,945 |
| | 5,495 |
| | 8,067 |
|
Plus integration and acquisition related expenses (2) | | 1,691 |
| | 14,499 |
| | 9,607 |
| | 19,889 |
|
Adjusted OIBDA | | $ | 54,186 |
| | $ | 62,509 |
| | $ | 173,825 |
| | $ | 136,431 |
|
Less waived management fee (3) | | (8,961 | ) | | (9,518 | ) | | (27,068 | ) | | (15,612 | ) |
Continuing OIBDA | | $ | 45,225 |
| | $ | 52,991 |
| | $ | 146,757 |
| | $ | 120,819 |
|
(1) Pursuant to the intangible asset exchange with Sprint, we recognized an intangible asset for the affiliate contract expansion received. Consistent with the presentation of related service fees charged by Sprint, we recognize the amortization of this intangible as a contra-revenue over the remaining contract term that concludes November 2029.
(2) Integration and acquisition costs consist of severance accruals for short-term nTelos personnel to be separated as integration activities wind down, transaction related expenses, device costs to support the transition to Sprint billing platforms, and other transition costs to support the migration to Sprint back-office functions. Once former nTelos customers migrate to the Sprint back office, the Company incurs certain postpaid fees retained by Sprint and prepaid costs passed to us by Sprint that would offset a portion of these savings.
(3) As part of our amended affiliate agreement, Sprint agreed to waive the management fee, which is historically presented as a contra-revenue, for a period of approximately six years. The impact of Sprint’s waiver of the management fee over the approximate six-year period is reflected as an increase in revenue, offsetusers by the non-cash adjustment to recognize this impact onnumber of passings or available homes, as appropriate.
(3)Average Revenue Per RGU calculation = (Residential & SMB Revenue) / average RGUs / 3 months.
(4)Total fiber miles are measured by taking the number of fiber strands in a straight-line basis overcable and multiplying that number by the remaining contract term that concludes November 2029.route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.
|
| | | | | | | | | | | | | | | | |
Cable Segment: | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Operating income (loss) | | $ | 3,626 |
| | $ | 2,282 |
| | $ | 10,460 |
| | $ | 4,043 |
|
Plus depreciation and amortization | | 6,192 |
| | 5,860 |
| | 18,070 |
| | 17,834 |
|
Less gain on asset sales | | (19 | ) | | (19 | ) | | (115 | ) | | (53 | ) |
Plus share based compensation expense | | 172 |
| | 108 |
| | 766 |
| | 673 |
|
Adjusted OIBDA and Continuing OIBDA | | $ | 9,971 |
| | $ | 8,231 |
| | $ | 29,181 |
| | $ | 22,497 |
|
|
| | | | | | | | | | | | | | | | |
Wireline Segment: | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
Operating income (loss) | | $ | 5,089 |
| | $ | 4,792 |
| | $ | 15,571 |
| | $ | 15,070 |
|
Plus depreciation and amortization | | 3,249 |
| | 2,822 |
| | 9,536 |
| | 8,789 |
|
Plus (gain) loss on asset sales | | — |
| | — |
| | 27 |
| | 40 |
|
Plus share based compensation expense | | 73 |
| | 49 |
| | 319 |
| | 284 |
|
Adjusted OIBDA and Continuing OIBDA | | $ | 8,411 |
| | $ | 7,663 |
| | $ | 25,453 |
| | $ | 24,183 |
|
Financial Condition, Liquidity and Capital Resources
We have threeSources and Uses of Cash: Our principal sources of funds available to meet the financing needs ofliquidity are our operations, capital projects, debt service, and potential dividends. These sources include cash flows from operations, existing balances of cash and cash equivalents, cash generated from operations, and borrowings under our Credit Agreement, dated July 1, 2021 (as amended by (i) Amendment No. 1 to Credit Agreement, dated as of May 17, 2023 and (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, the liquidation“Credit Agreement”). The Credit Agreement contains (i) a $100 million, five-year available revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (“Term Loan A-1”) and (iii) a $150 million seven-year delayed draw amortizing term loan (“Term Loan A-2” and collectively with Term Loan A-1, the “Term Loans”).
In 2021, Congress passed the American Rescue Plan Act to subsidize the deployment of investments,high-speed broadband internet access in unserved areas. We have been awarded approximately $86.3 million in grants to serve approximately 25,000 unserved homes in the states of Virginia, West Virginia and borrowings. Management routinely considersMaryland. The grants will be paid to the alternativesCompany as certain milestones are completed. The Company expects to fulfill its obligations under these programs by 2026.
As of March 31, 2024, our cash and cash equivalents totaled $390 million and the availability under our Revolver was $100 million, for total available liquidity of $490 million. As discussed in Note 15, Subsequent Events in Part I, Item 1 of this quarterly report on Form 10-Q, Shentel entered into various agreements on April 1, 2024, which affected the Company’s liquidity. The Company utilized $344 million to determine what mixfund the acquisition of sources are best suitedHorizon (the “Horizon Transaction”), including payment of certain capital expenditures. Furthermore, the Company received $81 million in exchange for the long-term benefitissuance of Series A Preferred Stock (“Preferred Stock”). Finally, the Company amended its Credit Agreement, resulting in incremental delay draw term loan commitments under the Credit Agreement in an aggregate amount equal to $225 million and an increase in the revolving commitment under the Credit Agreement of $50 million. On a pro forma basis for the Horizon Transaction, issuance of Preferred Stock and credit facility amendment and upsizing, total available liquidity was $484 million, including approximately $109 million in cash and cash equivalents, $225 million in delayed draw term loans and $150 million in revolving line of credit. On a pro forma basis for the above transactions, debt, net of the Company.Company’s cash balance, was approximately $190 million.
SourcesAs discussed above, Shentel sold its Tower Portfolio for $309.9 million in cash during the three months ended March 31, 2024. The majority of these cash proceeds was used to fund Shentel’s purchase of Horizon Telcom on April 1, 2024.
Net cash provided by operating activities from continuing operations was approximately $12.9 million during the three months ended March 31, 2024, representing a decrease of $32.8 million compared with the prior year period, primarily driven by lower current tax refunds received during the three months ended March 31, 2024 and Uses of Cash. We generated $158.7changes in working capital.
Net cash used in investing activities from continuing operations was approximately $67.3 million during the three months ended March 31, 2024, which was consistent with the prior year period, primarily driven by a $2.6 million increase in capital expenditures was primarily driven by inventory timing and DOCSIS upgrades in Cable Markets and Glo Fiber and government-subsidized market expansion, partially offset by $2.7 million of grants received related to government funded infrastructure expansion programs.
Net cash used in financing activities from continuing operations was approximately $3.2 million during the three months ended March 31, 2024, compared with net cash from operations inprovided by financing activities of $23.6 million for the first ninethree months ended March 31, 2023. Shentel began making principal payments on its long-term debt during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, during which the Company was continuing to borrow additional amounts against the Credit Agreement.
Indebtedness: To date, Shentel has borrowed $150 million under each of 2017, compared with $95.4 million in the first nine monthsTerm Loans available under the Credit Agreement for a total of 2016.
Indebtedness.$300 million. As of September 30, 2017, ourMarch 31, 2024, the Company’s indebtedness totaled $848.6approximately $298.6 million, in term loans with an annualized effective interest ratenet of approximately 4.07% after considering the impact of the interest rate swap contracts and unamortized loan costs.fees of $0.1 million. The balance consists of the $448.6 million million Term Loan A-1borrowed amounts bear interest at a variable rate (3.99% as of September 30, 2017) that resets monthly based on one month LIBORdetermined by one-month term SOFR, plus a margin of 2.75%, and1.60%. This rate, including the $400.0 million Term Loan A-2 at a variable rate (4.24%margin, was 6.93% as of September 30, 2017) that resets monthlyMarch 31, 2024.
Shentel’s Term Loans require quarterly principal repayments based on one month LIBOR plus a marginpercentage of 3.00%. Thethe outstanding balance. Based on the outstanding balance as of March 31, 2024, Term Loan A-1 requires quarterly principal repayments of $12.1 million quarterly0.63% from March 31, 2024 through June 30, 2020,2024, then increasing to 1.25% quarterly from September 30, 2024 through March 31, 2026, with further increases at that time through maturity inthe remaining balance due June 30, 2021. The2026. Based on the outstanding balance as of March 31, 2024, Term Loan A-2 requires quarterly principal repayments of $10.0 million beginning on September 30, 20180.25% from March 31, 2024 through March 31, 2023,2028, with the remaining balance due June 30, 2023.2028.
We are bound by certain covenants under the 2016 credit agreement. Noncompliance with any one or more of the covenants may have an adverse effect on our financial condition or liquidity Refer to Note 8, Debt,in the event such noncompliance cannot be cured or should we be unable to obtain a waiver fromCompany’s unaudited condensed consolidated financial statementsfor more information about the lenders. Credit Agreement.
As of September 30, 2017, we wereMarch 31, 2024, the Company was in compliance with allthe financial covenants and ratios at September 30, 2017 were as follows:
|
| | | | | |
| | Actual | | Covenant Requirement at September 30,2017 |
Total Leverage Ratio | | 2.93 |
| | 3.75 or Lower |
Debt Service Coverage Ratio | | 3.88 |
| | 2.00 or Higher |
Minimum Liquidity Balance (000) | | $149,228 | | $25 million or Higher |
In accordance with the Credit Agreement, the total leverage and debt service coverage ratios noted above are based on consolidated EBITDA, cash taxes, scheduled principal payments and cash interest expense for the twelve months ending September 30, 2017, all as defined under thein our Credit Agreement. In addition to the covenants above, we are required to supply the lenders with quarterly financial statements and other reports as defined by the 2016 credit agreement. We were in compliance with all reporting requirements at September 30, 2017.
We had no off-balance sheet arrangements (other than operating leases) and have not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.
Capital Commitments. We budgeted $155.2 million in capital expenditures for 2017, including $86.4 million in the Wireless segment for upgrades and expansion of the nTelos wireless network, $2.9 million for upgrades in the Wireless segment Expansion Area; $28.1 million for network expansion including new fiber routes, new cell towers, and cable market expansion; $27.0 million for additional network capacity; and $10.8 million for information technology upgrades, new and renovated buildings and other projects. As of September 30, 2017, expectations for 2017 total capital spending have been revised downward to $140.8 million, a decrease of $14.4 million. Of the decrease, $11.8 million is from the Wireless segment.
For the first nine months of 2017, we spent $109.4 million on capital projects, compared to $102.9 million in the comparable 2016 period. Spending related to Wireless projects accounted for $54.1 million in the first nine months of 2017, primarily for upgrades of former nTelos sites and additional cell sites to expand coverage in the former nTelos territory. Cable capital spending of $20.8 million related to network and cable market expansion. Wireline capital projects cost $13.5 million, driven primarily by fiber builds. The remaining balance of capital expenditures is largely related to information technology projects.
We believe thatexpect our cash on hand, cash flowflows from continuing operations, and borrowings expectedavailability of funds from our Credit Agreement as well as government grants will be sufficient to be available under our existing credit facilities will provide sufficient cash to enable us to fund planned capital expenditures, make scheduled principal and interest payments, meet our other cash requirements and maintain compliance with the terms of our financing agreementsanticipated liquidity needs for at leastbusiness operations for the next twelve months. Thereafter,There can be no assurance that we will continue to generate cash flows at or above current levels.
During the three months ended March 31, 2024, our capital expenditures will likely continueof $70.1 million exceeded our net cash provided by operating activities by $57.1 million, and we expect our capital expenditures to be required to continue planned capital upgrades toexceed the acquired wireless network and provide increased capacity to meetcash flows provided from continuing operations through 2026, as we expand our expected growth in demand for ourGlo Fiber broadband network.
products and services. The actual amount and timing of our future capital requirements may differ materially from our estimateestimates depending on the demand for our products and services, new market developments and expansion opportunities.
Our cash flows from operations could be adversely affected by events outside our control, including, without limitation, changes in overall economic conditions including rising inflation, regulatory requirements, changes in technologies, changes in competition, demand for our products and services, availability of labor resources and capital, changes in our relationship with Sprint,natural disasters, pandemics and outbreaks of contagious diseases and other conditions. The Wireless segment’s operations are dependent upon Sprint’s ability to execute certain functionsadverse public health developments, such as billing, customer care,COVID-19, and collections; our ability to develop and implement successful marketing programs and new products and services; and our ability to effectively and economically manage other operating activities under our agreements with Sprint.conditions. Our ability to attract and maintain a sufficient customer base is also critical to our ability to maintain a positive cash flow from operations. The foregoing events individually or collectively could affect our results.
Recently IssuedCritical Accounting StandardsPolicies
In May 2014,There have been no material changes to the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amountcritical accounting policies previously disclosed in Part II, Item 8 of revenue to which it expects to be entitledour 2023 Form 10-K for the transferyear ended December 31, 2023.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have borrowed a total of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, delaying the effective date of ASU 2014-09. Three other amendments have been issued during 2016 modifying the original ASU. As amended, the new standard is effective for the Company on January 1, 2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted. The Company plans to adopt the standard effective January 1, 2018 using the modified retrospective transition approach; under this approach prior periods will not be retrospectively adjusted.
The Company is continuing to assess all potential impacts of the standard, including the impact$300 million pursuant to the pattern with which revenue and direct and contract fulfillment costs are recognized,variable rate delayed draw Term Loans available under the impact of the standard on current accounting policies, practices and system of internal controls, in order to identify material differences, if any that would result from applying the new requirements.
The Company is in the process of establishing new policies and processes, and is implementing necessary changes to data and procedures necessary to comply with the new requirements.
While continuing to assess all potential impacts of the standard, the Company believes the adoption will not have a significant effect on earnings however, the presentation of certain costs may change and disclosures will be impacted. The Company is still in the process of evaluating the impacts and the initial assessment may change.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous generally accepted accounting principles. The ASU is effective for us on January 1, 2019, and early application is permitted. Modified retrospective application is required. The Company plans to adopt this standard when it becomes effective for the Company beginning January 1, 2019, and expects the adoption of this standard will result in the recognition of right of use assets and lease liabilities that have not previously been recorded, which will have a material impact on the Company’s consolidated financial statements.
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company’s market risks relate primarily to changes in interest rates on instruments held for other than trading purposes. The Company’s interest rate risk generally involves three components. The first component is outstanding debt with variable rates.Credit Agreement. As of September 30, 2017,December 31, 2023, Shentel has borrowed the full amount available under our Term Loans.
As of March 31, 2024, the Company had $848.6$298.7 million of gross variable rate debt outstanding, (excluding unamortized loan fees and costs of $15.6 million), bearing interest at a weighted average rate of 4.10% as determined on a monthly basis.6.93%. An increase in market interest rates of 1.00% would add approximately $8.3$3.0 million to annual interest expense, excluding the effect of theexpense.
In May 2023, Shentel entered into pay fixed, receive variable interest rate swap. In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap with three counterpartiesswaps totaling $256.6$150.0 million of notional principal (subject to change based upon expected draws under the delayed draw term loan and principal payments due under our debt agreements)(the “Swaps”). This swap, combined with the swap purchasedThe Swaps contain monthly payment terms beginning in 2012, covers notional principal equal to approximatelyMay 2024 which extend through their maturity dates in June 2026. The Swaps are designated as cash flow hedges, representing 50% of the Company’s expected outstanding variable rate debt through maturity in 2023.debt. The Company is required to pay a combined fixed rate of approximately 1.16% and receive a variable rate based on one month LIBOR (1.235% as of September 30, 2017),uses the Swaps to manage a portion of its interest rate risk. Changes in the net interest paid or received under the swaps would offset approximately 50% of the change in interest expense on the variable rate debt outstanding. The swap agreements currently reduce annual interest expense by approximately $1.1 million, based on the spread between the fixed rate and the variable rate currently in effect on our debt.
The second component ofexposure to interest rate risk consists of temporary excess cash, which can be invested in various short-term investment vehicles such as overnight repurchase agreements and Treasury bills with a maturity of less than 90 days. As of September 30, 2017, the cash is invested in a commercial checking account that has limitedfor its long-term variable-rate Term Loans through interest rate risk. Management continually evaluatesswaps. When the most beneficial use of these funds.
The third component ofSwaps’ payments term begins, Shentel will effectively pay a fixed weighted-average interest rate risk is increases in interest rates that may adversely affect the rate at which the Company may borrow funds for growth in the future. If the Company should borrow additional funds under any Incremental Term Loan Facilityof 2.90%, prior to fund its capital investment needs, repayment provisions would be agreed to at the time of each draw under the Incremental Term Loan Facility. If the interest rate margin on any draw exceeds by more than 0.25% the applicable interest rate margin on the Term Loan Facility, the applicable interest rate margin on the Term Loan Facility shall be increased to equal the interest rate margin on the Incremental Term Loan Facility. If interest rates increase generally, or if the rate appliedprovided under the Company’s Incremental Term Loan Facility causes the Company’s outstanding debt to be repriced, the Company’s future interest costs could increase.our credit facility.
Management views market risk as having a potentially significant impact on the Company's results of operations, as future results could be adversely affected if interest rates were to increase significantly for an extended period, or if the Company’s need for additional external financing resulted in increases to the interest rates applied to all of its new and existing debt. As of September 30, 2017, the Company has $424.3 million of variable rate debt with no interest rate protection. The Company’s investments in publicly traded stock and bond mutual funds under the rabbi trust, which are subject to market risks and could experience significant swings in market values, are offset by corresponding changes in the liabilities owed to participants in the Supplemental Executive Retirement Plan. General economic conditions affected by regulatory changes, competition or other external influences may pose a higher risk to the Company’s overall results.
ITEM 4.CONTROLS AND PROCEDURES
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ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Management, with the participation of our President and
Our Chief Executive Officer, who is the principal executive officer, and the Vice President - Finance and Chief Financial Officer, who is the principal financial officer,and Principal Accounting Officer (the certifying officers) have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rulein Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934),1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly report on Form 10-Q.
As disclosed in our Annual Report on Form 10-K for our fiscal year ended DecemberMarch 31, 2016, we identified material weaknesses in internal control over financial reporting. The material weaknesses will not be considered remediated until the applicable enhanced controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As remediation has not yet been completed, our President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer have2024. Our certifying officers concluded that our disclosure controls and procedures continued to be ineffectivewere effective as of September 30, 2017.March 31, 2024.
Notwithstanding the material weaknesses, management has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Changes in Internal Control Overover Financial Reporting
The acquisition of nTelos was completed on May 6, 2016. Our Company’s management has extended its oversight and monitoring processes that support internal control over financial reporting to include the operations of nTelos and consideration for such has been included in our evaluation of disclosure controls and procedures. Our management is continuing to integrate the acquired operations into our overall internal control financial reporting process, expected to be complete in 2017.
There have been no changes in the Company’sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) ofduring the Exchange Act) as of September 30, 2017,fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materialmaterially affect, the Company’sour internal control over financial reporting.
Management is continuing to implement
PART II
ITEM 1. LEGAL PROCEEDINGS
We are currently involved in, and may in the remediation plans as disclosedfuture become involved in, legal proceedings, claims and investigations in the ordinary course of our Annual Report on Form 10-K for our fiscal year ended December 31, 2016. Webusiness. Although the results of these legal proceedings, claims and investigations cannot be predicted with certainty, we do not believe that these actionsthe final outcome of any matters that we are currently involved in are reasonably likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of final outcomes, however, any such proceedings, claims, and the improvements we expectinvestigations may nonetheless impose a significant burden on management and employees and be costly to achieve will effectively remediate the material weaknesses. However, these material weaknesses will not be considered remediated until the enhanced controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.defend, with unfavorable preliminary or interim rulings.
Other Matters Relating to Internal Control Over Financial Reporting
Under the Company’s agreements with Sprint, Sprint provides the Company with billing, collections, customer care, certain network operations and other back-office services for the PCS operation. As a result, Sprint remits to the Company a substantial portion of the Company’s total operating revenues, which will increase as legacy nTelos subscribers migrate to the Sprint billing platform in the future. Due to this relationship, the Company necessarily relies on Sprint to provide accurate, timely and sufficient data and information to properly record the Company’s revenues and accounts receivable, which underlie a substantial portion of the Company’s periodic financial statements and other financial disclosures.
Information provided by Sprint includes reports regarding the subscriber accounts receivable in the Company’s markets. Sprint provides the Company with monthly accounts receivable, billing and cash receipts, average national costs to acquire and support a prepaid customer, certain national channel commission and handset subsidy costs, and travel revenue information on a market level, rather than a subscriber level. The Company reviews these various reports to identify discrepancies or errors. Under the Company’s agreements with Sprint, the Company is entitled to only a portion of the receipts, net of items such as taxes, government surcharges, certain allocable write-offs and the 16.6% of postpaid and 6% of prepaid revenue currently retained by Sprint (before the effect of fee waivers). Sprint reports directly billed costs and revenues to the Company. Because of the Company’s reliance on Sprint for financial information, the Company must depend on Sprint to design adequate internal controls with respect to the processes established to provide this data and information to the Company and Sprint’s other Sprint PCS affiliate network partners. To address this issue, Sprint engages an independent registered public accounting firm to perform a periodic evaluation of these controls and to provide a “Report on Controls Placed in Operation and Tests of Operating Effectiveness” under guidance provided in Statements on Standards for Attestation Engagements No. 16 (“SSAE 16”). The report is provided to the Company on an annual basis and covers a nine-month period. The most recent report covered the period from January 1, 2016 to September 30, 2016. The most recent report indicated there were no material issuesITEM 1A. RISK FACTORS
which would adversely affect the information used to support the recording of the revenues provided by Sprint related to the Company’s relationship with them.
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PART II. | OTHER INFORMATION |
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. As of September 30, 2017,March 31, 2024, the Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The Company maintains a dividend reinvestment plan (the “DRIP”) forUnregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the benefit of its shareholders. When shareholders remove shares from the DRIP, the Company issues a certificate for whole shares, pays out cash for any fractional shares, and cancels the fractional shares purchased. Issuer or Affiliated Purchasers
In conjunction with exercisesthe vesting of stock awards or exercise of stock options, the grantees may surrender awards necessary to cover the statutory tax withholding requirements and distributions of vested share awards, the Company periodically repurchases shares from recipientsany amounts required to satisfy some of the exercise price of the options being exercised or taxes payablecover stock option strike prices associated with the distribution of shares.transaction. The following table provides information about shares surrendered during the Company’s repurchasesquarter ended March 31, 2024, to settle employee tax withholding obligations related to the vesting of shares duringstock awards.
| | | | | | | | | | | |
(in thousands, except per share amounts) | Number of Shares Surrendered | | Average Price Paid per Share |
January 1 to January 31 | — | | $— |
February 1 to February 29 | 73 | | $19.88 |
March 1 to March 31 | — | | $— |
Total | 73 | | |
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2017:March 31, 2024, none of our officers or directors adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408 of Regulation S-K.
|
| | | | | | | |
| | Number of Shares Purchased | | Average Price Paid per Share |
July 1 to July 31 | | — |
| | $ | — |
|
August 1 to August 31 | | — |
| | $ | — |
|
September 1 to September 30 | | 140,328 |
| | $ | 38.85 |
|
| | | |
|
|
Total | | 140,328 |
| | $ | 38.85 |
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ITEM 6. Exhibits Index
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(a) | The following exhibits are filed with this Quarterly Report on Form 10-Q: |
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Exhibit No. | Exhibit Description |
| | | | |
10.54 |
| Addendum XX to Sprint PCS ManagementPurchase and Sale Agreement, dated as of March 9, 2017,February 29, 2024, by and among Shenandoah Personal Communications,Mobile, LLC Sprint Spectrum L.P., Sprint Communications Company, L.P., SprintCom, Inc. and Horizon Personal Communications,Vertical Bridge Holdco, LLC filed as(incorporated by reference to Exhibit 10.1 to the Company'sShentel’s Current Report on Form 8-K filed
March 15, 2017. 1, 2024). |
| | | |
|
| Amendment No. 1 to Purchase and Sale Agreement, dated March 29, 2024, by and among Shenandoah Mobile, LLC and Vertical Bridge Holdco, LLC (incorporated by reference to Exhibit 2.2 to Shentel’s Current Report on Form 8-K filed March 29, 2024). |
| 31.1* | | |
| First Amendment to Agreement and Plan of Merger, dated April 1, 2024, by and among Shenandoah Telecommunications Company and Novacap TMT V, L.P., as Seller Representative (incorporated by reference to Exhibit 2.2 to Shentel’s Current Report on Form 8-K filed April 1, 2024). |
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| Investor Rights Agreement, dated April 1, 2024, between Shenandoah Telecommunications Company and LIF Vista, LLC (incorporated by reference to Exhibit 10.2 to Shentel’s Current Report on Form 8-K filed April 1, 2024). |
| | | |
| Registration Rights Agreement, dated April 1, 2024, by and among Shenandoah Telecommunications Company, ECP Fiber Holdings, LP and, solely for the limited purposes specified therein, Hill City Holdings, LP (incorporated by reference to Exhibit 10.3 to Shentel’s Current Report on Form 8-K filed April 1, 2024). |
| | | |
| Amendment No. 3 to Credit Agreement, dated April 1, 2024, by and among Shenandoah Telecommunications Company, certain of its subsidiaries, CoBank ACB, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.4 to Shentel’s Current Report on Form 8-K filed April 1, 2024). |
| | | |
| Certification of President and ChiefPrincipal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
|
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31.2* |
| Certification of Vice President - Finance and ChiefPrincipal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| | | |
|
| Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| 32* | | |
|
| Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350. |
| |
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(101(101) | ) | Formatted in Inline XBRL (Extensible Business Reporting Language) |
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| 101.INS*101.INS | Inline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
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| 101.SCH*101.SCH | Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL*101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF*101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB*101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
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| | | | | | | | | | | |
| 101.PRE*101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith
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** | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act. |
** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act.
*** Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Shentel agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request by the SEC.
EXHIBIT INDEX
|
| | |
Exhibit No. | Exhibit |
| |
| Addendum XX to Sprint PCS Management Agreement, dated as of March 9, 2017, by and among Shenandoah Personal Communications, LLC, Sprint Spectrum L.P., Sprint Communications Company, L.P., SprintCom, Inc. and Horizon Personal Communications, LLC, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 15, 2017. |
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| Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
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| Certification of Vice President - Finance and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| |
| Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350. |
| |
(101) | Formatted in XBRL (Extensible Business Reporting Language) |
| | |
| 101.INS | XBRL Instance Document |
| | |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith
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** | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
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| SHENANDOAH TELECOMMUNICATIONS COMPANY |
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| | | | | |
| /s/ James J. Volk |
| James J. Volk |
| /s/ Adele M. Skolits |
| Adele M. Skolits |
| Senior Vice President - Finance and Chief Financial Officer (Principal Financial Officer) |
| Date: November 2, 2017May 3, 2024 |