SEC Form 10-Q filed by Shenandoah Telecommunications Co

8/7/24 8:04:23 AM ET

Telecommunications Equipment

Telecommunications

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shen-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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
(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	54,572,498
(Title of Class)	(Trading Symbol)	(Name of Exchange on which Registered)	(The number of shares of the registrant's common stock outstanding on July 31, 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 every Interactive Data File required to be submitted 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 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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth 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 ☒

SHENANDOAH TELECOMMUNICATIONS COMPANY

INDEX

Page
Numbers

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Unaudited Condensed Consolidated Balance Sheets

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

Unaudited Condensed Consolidated Statements of Temporary Equity and Shareholders’ Equity

Unaudited Condensed Consolidated Statements of Cash Flows

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures


(in thousands)	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	43,779	$	139,255
Accounts receivable, net of allowance for credit losses of $1,333 and $886, respectively	29,639		19,782
Income taxes receivable	5,537		4,691
Prepaid expenses and other	20,567		11,782
Current assets held for sale	—		561
Total current assets	99,522		176,071
Investments	15,135		13,198
Property, plant and equipment, net	1,337,252		850,337
Goodwill and intangible assets, net	169,489		81,123
Operating lease right-of-use assets	20,444		13,024
Deferred charges and other assets	14,491		11,561
Non-current assets held for sale	—		68,915
Total assets	$	1,656,333	$	1,214,229
LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt, net of unamortized loan fees	$	8,726	$	7,095
Accounts payable	57,725		53,546
Advanced billings and customer deposits	14,928		12,394
Accrued compensation	12,308		11,749
Current operating lease liabilities	3,138		2,222
Accrued liabilities and other	15,264		7,747
Current liabilities held for sale	—		3,602
Total current liabilities	112,089		98,355
Long-term debt, less current maturities, net of unamortized loan fees	288,570		292,804
Other long-term liabilities:
Deferred income taxes	186,305		85,664
Benefit plan obligations	4,971		3,943
Non-current operating lease liabilities	11,431		7,185
Other liabilities	40,505		16,912
Non-current liabilities held for sale	—		56,696
Total other long-term liabilities	243,212		170,400
Commitments and contingencies (Note 15)
Temporary equity:
Redeemable noncontrolling interest	79,380		—
Shareholders’ equity:
Common stock, no par value, authorized 96,000; 54,572 and 50,272 issued and outstanding at June 30, 2024 and December 31, 2023, respectively	—		—
Additional paid in capital	143,784		66,933
Retained earnings	785,893		584,069
Accumulated other comprehensive income, net of taxes	3,405		1,668
Total shareholders’ equity	933,082		652,670
Total liabilities, temporary equity and shareholders’ equity	$	1,656,333	$	1,214,229


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Service revenue and other	$	85,799	$	66,644	$	155,047	$	133,809
Operating expenses:
Cost of services exclusive of depreciation and amortization	34,541		24,753		60,526		50,183
Selling, general and administrative	30,239		25,041		58,217		51,069
Integration and acquisition	11,325		301		11,943		432
Impairment expense	—		836		—		1,020
Depreciation and amortization	25,579		15,831		43,022		30,916
Total operating expenses	101,684		66,762		173,708		133,620
Operating (loss) income	(15,885)		(118)		(18,661)		189
Other (expense) income:
Interest expense	(3,996)		(905)		(8,072)		(1,297)
Other income, net	1,908		1,082		3,644		2,591
(Loss) income from continuing operations before income taxes	(17,973)		59		(23,089)		1,483
Income tax (benefit) expense	(5,200)		1,459		(6,226)		2,141
Loss from continuing operations	(12,773)		(1,400)		(16,863)		(658)
Discontinued operations:
(Loss) income from discontinued operations, net of tax	(99)		3,190		1,882		4,514
Gain on the sale of discontinued operations, net of tax	—		—		216,805		—
Total (loss) income from discontinued operations, net of tax	(99)		3,190		218,687		4,514
Net (loss) income	(12,872)		1,790		201,824		3,856

Other comprehensive income:
Gain on interest rate hedge, net of tax	143		2,127		1,737		2,127
Comprehensive (loss) income	$	(12,729)	$	3,917	$	203,561	$	5,983

Net (loss) income per share, basic and diluted:
Loss from continuing operations	$	(0.24)	$	(0.03)	$	(0.32)	$	(0.01)
(Loss) income from discontinued operations, net of tax	—		0.07		4.16		0.09
Net (loss) income per share	$	(0.24)	$	0.04	$	3.84	$	0.08

Weighted average shares outstanding, basic and diluted	54,730		50,366		52,620		50,330


	Redeemable Noncontrolling Interest			Common Stock
	Shares	Amount		Shares of Common Stock (no par value)	Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
Balance, December 31, 2022	—	$	—	50,110	$	57,453	$	580,554	$	—	$	638,007
Net income	—	—		—	—		3,856		—		3,856
Stock-based compensation	—	—		220	6,730		—		—		6,730
Common stock issued	—	—		1	22		—		—		22
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards	—	—		(67)	(1,317)		—		—		(1,317)
Gain on interest rate hedge, net of tax	—	—		—	—		—		2,127		2,127
Balance, June 30, 2023	—	$	—	50,264	$	62,888	$	584,410	$	2,127	$	649,425


(in thousands)	Amount
Current and other assets	$	10,465
Property, plant and equipment	386,045
Goodwill	74,630
Intangible assets	14,249
Operating lease right-of-use assets	6,631
Other long-term assets	1,843
Total assets acquired	493,863

Current liabilities	$	15,187
Deferred tax liabilities	32,218
Non-current operating lease liabilities	3,778
Government grant liabilities	16,348
Other long-term liabilities	10,138
Total liabilities assumed	77,669

Net assets acquired	$	416,194


($ in thousands)	Estimated Useful Lives	June 30, 2024		December 31, 2023
Land		$	4,514	$	3,671
Land improvements	10 years	4,448		4,448
Buildings and structures	10 - 45 years	51,827		42,871
Cable and fiber	12 - 30 years	1,174,670		799,612
Equipment and software	4 - 12 years	407,291		331,595
Plant in service		1,642,750		1,182,197
Plant under construction		213,027		145,623
Total property, plant and equipment		1,855,777		1,327,820
Less: accumulated depreciation and amortization		(518,525)		(477,483)
Property, plant and equipment, net		$	1,337,252	$	850,337


	June 30, 2024						December 31, 2023
(in thousands)	Gross Carrying Amount		Accumulated Amortization and Other		Net		Gross Carrying Amount		Accumulated Amortization and Other		Net
Goodwill	$	77,874	$	—	$	77,874	$	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	528		—		528		217		—		217
Total indefinite-lived intangibles	76,984		—		76,984		76,673		—		76,673

Finite-lived intangibles:
Subscriber relationships	42,447		(27,951)		14,496		28,425		(27,370)		1,055
Other intangibles	510		(375)		135		510		(359)		151
Total finite-lived intangibles	42,957		(28,326)		14,631		28,935		(27,729)		1,206
Total goodwill and intangible assets	$	197,815	$	(28,326)	$	169,489	$	108,852	$	(27,729)	$	81,123


	Classification	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)		2024		2023		2024		2023
Finance lease cost
Amortization of leased assets	Depreciation	$	171	$	119	$	290	$	238
Interest on lease liabilities	Interest expense	24		19		43		39
Operating lease cost	Operating expense1	1,104		792		1,840		1,648
Lease cost		$	1,299	$	930	$	2,173	$	1,925


(in thousands)	Operating Leases		Finance Leases		Total
2024 (remainder of the year)	$	1,969	$	166	$	2,135
2025	3,523		385		3,908
2026	2,640		314		2,954
2027	1,777		164		1,941
2028	1,487		158		1,645
2029 and thereafter	8,206		1,201		9,407
Total lease payments	19,602		2,388		21,990
Less: Interest	(5,033)		(518)		(5,551)
Present value of lease liabilities	$	14,569	$	1,870	$	16,439


(in thousands)	Gain on Swaps		Income tax expense		Accumulated Other Comprehensive Income, net of taxes
Balance, March 31, 2024	$	4,361	$	(1,099)	$	3,262
Net change in unrealized gain	725		(154)		571
Amounts reclassified to interest expense	(536)		108		(428)
Net current period other comprehensive income (loss)	189		(46)		143
Balance, June 30, 2024	$	4,550	$	(1,145)	$	3,405


(in thousands, except weighted average grant price)	Number of Shares	Weighted Average Grant Price
Outstanding awards, December 31, 2023	825	$	21.16
Granted	390	$	20.21
Vested	(284)	$	21.93
Adjustments for PSU performance	(44)	$	19.31
Forfeited	(1)	$	20.83
Outstanding awards, June 30, 2024	886	$	20.63


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Residential & SMB - Incumbent Broadband Markets1	$	44,960	$	44,403	$	89,330	$	89,159
Residential & SMB - Glo Fiber Expansion Markets2	14,093		8,164		26,211		15,167
Commercial Fiber	19,921		10,253		29,298		21,951
RLEC & Other	6,825		3,824		10,208		7,532
Service revenue and other	$	85,799	$	66,644	$	155,047	$	133,809


(in thousands)	June 30, 2024		December 31, 2023
SERP investments at fair value	$	2,451	$	2,290
Cost method investments	12,451		10,675
Equity method investments	233		233
Total investments	$	15,135	$	13,198


	Three Months Ended June 30,								Change
($ in thousands)	2024		% of Revenue		2023		% of Revenue		$		%
External revenue
Residential & SMB - Incumbent Broadband Markets	$	44,960	52.4	%	$	44,403	66.6	%	$	557	1.3	%
Residential & SMB - Glo Fiber Expansion Markets	14,093		16.4	%	8,164		12.3	%	5,929		72.6	%
Commercial Fiber	19,921		23.2	%	10,253		15.4	%	9,668		94.3	%
RLEC & Other	6,825		8.0	%	3,824		5.7	%	3,001		78.5	%
Total revenue	85,799		100.0	%	66,644		100.0	%	19,155		28.7	%
Operating expenses
Cost of services	34,541		40.3	%	24,753		37.1	%	9,788		39.5	%
Selling, general and administrative	30,239		35.2	%	25,041		37.6	%	5,198		20.8	%
Integration and acquisition	11,325		13.2	%	301		0.5	%	11,024		NMF
Impairment expense	—		—	%	836		1.3	%	(836)		(100.0)	%
Depreciation and amortization	25,579		29.8	%	15,831		23.8	%	9,748		61.6	%
Total operating expenses	101,684		118.5	%	66,762		100.2	%	34,922		52.3	%
Operating loss	(15,885)		(18.5)	%	(118)		(0.2)	%	(15,767)		NMF
Other income (expense):
Other (expense) income, net	(2,088)		(2.4)	%	177		0.3	%	(2,265)		NMF
(Loss) income from continuing operations before income taxes	(17,973)		(20.9)	%	59		0.1	%	(18,032)		NMF
Income tax (benefit) expense	(5,200)		(6.1)	%	1,459		2.2	%	(6,659)		NMF
Loss from continuing operations	(12,773)		(14.9)	%	(1,400)		(2.1)	%	(11,373)		NMF
(Loss) income from discontinued operations, net of tax	(99)		(0.1)	%	3,190		4.8	%	(3,289)		(103.1)	%
Net (loss) income	$	(12,872)	(15.0)	%	$	1,790	2.7	%	$	(14,662)	NMF


	Six Months Ended June 30,								Change
($ in thousands)	2024		% of Revenue		2023		% of Revenue		$		%
External revenue
Residential & SMB - Incumbent Broadband Markets	$	89,330	57.6	%	$	89,159	66.6	%	$	171	0.2	%
Residential & SMB - Glo Fiber Expansion Markets	26,211		16.9	%	15,167		11.3	%	11,044		72.8	%
Commercial Fiber	29,298		18.9	%	21,951		16.4	%	7,347		33.5	%
RLEC & Other	10,208		6.6	%	7,532		5.6	%	2,676		35.5	%
Total revenue	155,047		100.0	%	133,809		100.0	%	21,238		15.9	%
Operating expenses
Cost of services	60,526		39.0	%	50,183		37.5	%	10,343		20.6	%
Selling, general and administrative	58,217		37.5	%	51,069		38.2	%	7,148		14.0	%
Integration and acquisition	11,943		7.7	%	432		0.3	%	11,511		NMF
Impairment expense	—		—	%	1,020		0.8	%	(1,020)		(100.0)	%
Depreciation and amortization	43,022		27.7	%	30,916		23.1	%	12,106		39.2	%
Total operating expenses	173,708		112.0	%	133,620		99.9	%	40,088		30.0	%
Operating (loss) income	$	(18,661)	(12.0)	%	$	189	0.1	%	$	(18,850)	NMF
Other income (expense):
Other (expense) income, net	(4,428)		(2.9)	%	1,294		1.0	%	(5,722)		NMF
(Loss) income from continuing operations before income taxes	(23,089)		(14.9)	%	1,483		1.1	%	(24,572)		NMF
Income tax (benefit) expense	(6,226)		(4.0)	%	2,141		1.6	%	(8,367)		NMF
Loss from continuing operations	(16,863)		(10.9)	%	(658)		(0.5)	%	(16,205)		NMF
Income from discontinued operations, net of tax	218,687		141.0	%	4,514		3.4	%	214,173		NMF
Net income	$	201,824	130.2	%	$	3,856	2.9	%	$	197,968	NMF


	June 30, 2024			June 30, 2023
Homes and businesses passed (1)	530,076			396,035
Incumbent Broadband Markets (4)	232,531			213,188
Glo Fiber Expansion Markets (5)	297,545			182,847

Residential & Small and Medium Business ("SMB") Revenue Generating Units ("RGUs"):
Broadband Data	164,566			142,247
Incumbent Broadband Markets (4)	111,256			109,404
Glo Fiber Expansion Markets (5)	53,310			32,843
Video	42,079			44,800
Voice	44,126			40,313
Total Residential & SMB RGUs (excludes RLEC)	250,771			227,360

Residential & SMB Penetration (2)
Broadband Data	31.0		%	35.9		%
Incumbent Broadband Markets (4)	47.8		%	51.3		%
Glo Fiber Expansion Markets (5)	17.9		%	18.0		%
Video	7.9		%	11.3		%
Voice	8.7		%	10.7		%

Residential & SMB Average Revenue per User ("ARPU") (6)
Broadband Data	$	83.70		$	81.03
Incumbent Broadband Markets (4)	$	84.53		$	82.55
Glo Fiber Expansion Markets (5)	$	81.86		$	75.63
Video	$	117.12		$	106.21
Voice	$	24.95		$	25.35

Fiber route miles	16,029			9,082
Total fiber miles (3)	1,798,211			767,173


(in thousands, except per share amounts)	Number of Shares Surrendered	Average Price Paid per Share
April 1 to April 30	—	$—
May 1 to May 31	—	$—
June 1 to June 30	12	$18.37
Total	12


Exhibit No.	Exhibit Description

2.1***	Purchase and Sale Agreement, dated February 29, 2024, by and among Shenandoah Mobile, LLC and Vertical Bridge Holdco, LLC (incorporated by reference to Exhibit 10.1 to Shentel’s Current Report on Form 8-K filed March 1, 2024).

2.2***	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).

2.3***	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).

10.1***	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).

10.2***	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).

10.3***	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).

31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.3*	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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			/s/ James J. Volk
			James J. Volk
			Senior Vice President and Chief Financial Officer (Principal Financial Officer)
			Date: August 7, 2024

Date	Price Target	Rating	Analyst
3/4/2024	$26.00	Neutral → Buy	BWS Financial
8/4/2023	$20.00	Sell → Neutral	BWS Financial
6/28/2022		Strong Buy → Mkt Perform	Raymond James
5/3/2022	$25.00	Outperform → Strong Buy	Raymond James
5/2/2022	$29.00 → $21.00	Buy → Neutral	B. Riley Securities
3/2/2022	$26.25 → $16.00	Neutral → Sell	BWS Financial
3/2/2022	$29.00 → $25.00	Outperform	Raymond James
12/14/2021	$29.00	Market Perform → Outperform	Raymond James

SEC Form 10-Q filed by Shenandoah Telecommunications Co

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