Shenandoah Telecommunications Co: Form 10-Q for the period ended Sep 30, 2024
Filed with the SEC on Nov 7, 2024 and accepted by EDGAR at Nov 7, 2024, 07:32 ET.
Management's discussion and analysis
As filed, 33,933 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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 (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, 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 under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 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 2023 Form 10-K, including the consolidated financial statements and related notes included therein.
Overview
Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”) is a provider of a comprehensive range of broadband communication services in seven contiguous states in the eastern United States.
Recent Developments
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”), pursuant to the terms of an Agreement and Plan of Merger, dated October 24, 2023, by and among Shentel, Horizon, the sellers set forth on the signature pages thereto (each, a “Seller” and collectively, the “Sellers”) and the other parties thereto (as amended by the First Amendment to Agreement and Plan of Merger, dated April 1, 2024, the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, 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, no par value (“Common Stock”), to an investment fund managed by affiliates of GCM Grosvenor, which is one of the Sellers (the “Selling Shareholder”); 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”). Cash consideration paid also included purchase price adjustments for capital expenditure reimbursements and working capital subject to subsequent adjustments as defined in the merger agreement. The Selling Shareholder agreed to an investor rights agreement with the Company that includes among other provision, a one year lockup period for the shares of Common Stock received.
Refer to Note 2, Acquisition of Horizon, for more information regarding the Horizon Transaction and its impact on the Company’s financial statements.
Series A Preferred Stock
Contemporaneously with the execution of the Merger Agreement, on October 24, 2023,, Shentel and Shentel Broadband Holding Inc., a wholly-owned subsidiary of Shentel (“Shentel Broadband”), entered into an investment agreement (the “Investment Agreement”) with ECP Fiber Holdings, LP, a Delaware limited partnership (“ECP Investor”), and, solely for the limited purposes set forth therein, Hill City Holdings, LP, a Delaware limited partnership affiliated with ECP Investor. Subject to the terms and conditions set forth in the Investment Agreement, on the Closing Date, Shentel Broadband issued to ECP Investor 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 or Shentel 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 and Amendment No. 3 to the Credit 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 Operations LLC, a wholly-owned subsidiary of Shentel Broadband, holds or has equity interest in substantially all of the operating assets of Shentel and was assigned and assumed the Credit Agreement.
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.
Refer to Note 12, Redeemable Noncontrolling Interest, for more information regarding the Series A Preferred Stock and its impact on the Company’s financial statements.
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 $50 million. Refer to Note 9, Debt, for more information regarding the Credit Agreement.
Results of Operations
Three Months Ended September 30, 2024 Compared with the Three Months Ended September 30, 2023
The Company’s consolidated results from operations are summarized as follows:
($ in thousands)
| External revenue | Three Months Ended September 30, 2024 | % of Revenue | 2023 | % of Revenue | Change $% | |
|---|---|---|---|---|---|---|
| Residential & SMB - Incumbent Broadband Markets | $44,225 | 50.5% | $43,679 | 64.8% | $546 | 1.3% |
| Residential & SMB - Glo Fiber Expansion Markets | 15,100 | 17.2% | 9,325 | 13.8% | 5,775 | 61.9% |
| Commercial Fiber | 20,257 | 23.1% | 10,415 | 15.5% | 9,842 | 94.5% |
| RLEC & Other | 8,017 | 9.2% | 3,990 | 5.9% | 4,027 | 100.9% |
| Total revenue | 87,599 | 100.0% | 67,409 | 100.0% | 20,190 | 30.0% |
| Operating expenses | ||||||
| Cost of services | 34,415 | 39.3% | 26,268 | 39.0% | 8,147 | 31.0% |
| Selling, general and administrative | 28,006 | 32.0% | 22,952 | 34.0% | 5,054 | 22.0% |
| Integration and acquisition | 1,673 | 1.9% | 1,146 | 1.7% | 527 | 46.0% |
| Impairment expense | — | —% | 1,532 | 2.3% | (1,532) | (100.0)% |
| Depreciation and amortization | 27,681 | 31.6% | 16,121 | 23.9% | 11,560 | 71.7% |
| Total operating expenses | 91,775 | 104.8% | 68,019 | 100.9% | 23,756 | 34.9% |
| Operating loss | (4,176) | (4.8)% | (610) | (0.9)% | (3,566) | NMF |
| Other (expense) income: | ||||||
| Other (expense) income, net | (2,670) | (3.0)% | 826 | 1.2% | (3,496) | NMF |
| (Loss) income from continuing operations before income taxes | (6,846) | (7.8)% | 216 | 0.3% | (7,062) | NMF |
| Income tax (benefit) expense | (1,542) | (1.8)% | 399 | 0.6% | (1,941) | NMF |
| Loss from continuing operations | (5,304) | (6.1)% | (183) | (0.3)% | (5,121) | NMF |
| Income from discontinued operations, net of tax | 41 | —% | 1,776 | 2.6% | (1,735) | (97.7)% |
| Net (loss) income | (5,263) | (6.0)% | 1,593 | 2.4% | (6,856) | NMF |
| Net income attributable to redeemable noncontrolling interest | 1,638 | 1.9% | — | —% | 1,638 | —% |
| Net (loss) income attributable to common shareholders | $(6,901) | (7.9)% | $1,593 | 2.4% | $(8,494) | NMF |
Shentel updated the description for revenues previously reported as “Residential & SMB - Cable Markets” to “Residential & SMB - Incumbent Broadband Markets” and updated the description for revenues previously reported as “Residential & SMB - Glo Fiber Markets” to “Residential & SMB - Glo Fiber Expansion Markets.”
Residential & SMB - Incumbent Broadband Markets revenue
Residential & SMB - Incumbent Broadband Markets revenue for the three months ended September 30, 2024 increased approximately $0.5 million, or 1.3%, compared with the three months ended September 30, 2023, primarily driven by $1.8 million of revenue from Horizon, partially offset by a $1.3 million decline in the legacy Shentel markets due to lower video and other revenue.
Residential & SMB - Glo Fiber Expansion Markets revenue
Residential & SMB - Glo Fiber Expansion Markets revenue for the three months ended September 30, 2024 increased approximately $5.8 million, or 61.9%, compared with the three months ended September 30, 2023, primarily driven by $0.5 million of revenue from Horizon, a 54% year-over-year growth in data revenue generated units (“RGUs”) and a 7% increase in data average revenue per unit (“ARPU").
Commercial Fiber revenue
Commercial Fiber revenue for the three months ended September 30, 2024 increased approximately $9.8 million, or 94.5%, compared with the three months ended September 30, 2023, primarily driven by $11.3 million of revenue from Horizon, partially offset by a $1.4 million decline in T-Mobile revenue in the legacy Shentel markets from the previously disclosed backhaul circuit disconnects as part of the decommissioning of the former Sprint network.
RLEC & Other revenue
RLEC & Other revenue for the three months ended September 30, 2024 increased approximately $4.0 million, or 100.9%, compared with the three months ended September 30, 2023, primarily driven by $3.3 million of revenue from Horizon and an increase in governmental support revenue.
Cost of services
Cost of services for the three months ended September 30, 2024, increased approximately $8.1 million, or 31.0%, compared with the three months ended September 30, 2023, primarily driven by $8.6 million of cost of services from Horizon and $0.4 million decline in the legacy Shentel markets due primarily to lower programming costs as customers continue to migrate to other video service alternatives.
Selling, general and administrative
Selling, general and administrative expense for the three months ended September 30, 2024, increased $5.1 million, or 22.0%, compared with the three months ended September 30, 2023, primarily driven by $3.7 million of selling, general and administrative costs from Horizon and higher advertising and sales headcount to support the Glo Fiber expansion.
Integration and acquisition
Integration and amortization expense for the three months ended September 30, 2024, increased $0.5 million compared with the three months ended September 30, 2023, primarily driven by non-recurring acquisition-related costs related to the Horizon Transaction and integration of Horizon and Shentel’s operating activities.
Depreciation and amortization
Depreciation and amortization increased $11.6 million, or 71.7%, compared with the three months ended September 30, 2023, primarily driven by $8.3 million of depreciation and amortization related to acquired tangible and intangible assets from Horizon and the Company’s expansion of its Glo Fiber network.
Other income (expense), net
Other expense, net was $2.7 million for the three months ended September 30, 2024 compared with other income, net of $0.8 million for the three months ended September 30, 2023, primarily driven by an increase in interest expense due to a higher outstanding debt balance during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.
Income tax (benefit) expense
The Company recognized $1.5 million of income tax benefit for the three months ended September 30, 2024, compared with $0.4 million of income tax expense for the three months ended September 30, 2023. The $1.9 million increase in income tax benefit was driven by higher pre-tax loss from continuing operations during the three months ended September 30, 2024.
Nine Months Ended September 30, 2024 Compared with the Nine Months Ended September 30, 2023
The Company’s consolidated results from operations are summarized as follows:
($ in thousands)
| External revenue | Nine Months Ended September 30, 2024 | % of Revenue | 2023 | % of Revenue | Change $% | |
|---|---|---|---|---|---|---|
| Residential & SMB - Incumbent Broadband Markets | $133,555 | 55.0% | $132,838 | 66.0% | $717 | 0.5% |
| Residential & SMB - Glo Fiber Expansion Markets | 41,311 | 17.0% | 24,492 | 12.2% | 16,819 | 68.7% |
| Commercial Fiber | 49,555 | 20.4% | 32,366 | 16.1% | 17,189 | 53.1% |
| RLEC & Other | 18,225 | 7.5% | 11,522 | 5.7% | 6,703 | 58.2% |
| Total revenue | 242,646 | 100.0% | 201,218 | 100.0% | 41,428 | 20.6% |
| Operating expenses | ||||||
| Cost of services | 94,941 | 39.1% | 76,451 | 38.0% | 18,490 | 24.2% |
| Selling, general and administrative | 86,223 | 35.5% | 74,021 | 36.8% | 12,202 | 16.5% |
| Integration and acquisition | 13,616 | 5.6% | 1,578 | 0.8% | 12,038 | NMF |
| Impairment expense | — | —% | 2,552 | 1.3% | (2,552) | (100.0)% |
| Depreciation and amortization | 70,703 | 29.1% | 47,037 | 23.4% | 23,666 | 50.3% |
| Total operating expenses | 265,483 | 109.4% | 201,639 | 100.2% | 63,844 | 31.7% |
| Operating loss | (22,837) | (9.4)% | (421) | (0.2)% | $(22,416) | NMF |
| Other (expense) income: | ||||||
| Other (expense) income, net | (7,098) | (2.9)% | 2,120 | 1.1% | (9,218) | NMF |
| (Loss) income from continuing operations before income taxes | (29,935) | (12.3)% | 1,699 | 0.8% | (31,634) | NMF |
| Income tax (benefit) expense | (7,768) | (3.2)% | 2,540 | 1.3% | (10,308) | NMF |
| Loss from continuing operations | (22,167) | (9.1)% | (841) | (0.4)% | (21,326) | NMF |
| Income from discontinued operations, net of tax | 218,728 | 90.1% | 6,290 | 3.1% | 212,438 | NMF |
| Net income | 196,561 | 81.0% | 5,449 | 2.7% | 191,112 | NMF |
| Net income attributable to redeemable noncontrolling interest | 1,638 | 0.7% | — | —% | 1,638 | —% |
| Net (loss) income attributable to common shareholders | $194,923 | 80.3% | $5,449 | 2.7% | $189,474 | NMF |
Residential & SMB - Incumbent Broadband Markets revenue
Residential & SMB - Incumbent Broadband Markets revenue for the nine months ended September 30, 2024 increased approximately $0.7 million, or 0.5%, compared with the nine months ended September 30, 2023, primarily driven by $3.6 million of revenue from Horizon, partially offset by a $3.0 million decline in the legacy Shentel markets due primarily due to lower video revenue and a 1% decline in data RGUs.
Residential & SMB - Glo Fiber Expansion Markets revenue
Residential & SMB - Glo Fiber Expansion Markets revenue for the nine months ended September 30, 2024 increased approximately $16.8 million, or 68.7%, compared with the nine months ended September 30, 2023, primarily driven by $1.0 million of revenue from Horizon, a 59% year-over-year growth in data RGUs driven by the Company’s expansion of Glo Fiber and a 8% increase in data ARPU.
Commercial Fiber revenue
Commercial Fiber revenue for the nine months ended September 30, 2024 increased approximately $17.2 million, or 53.1%, compared with the nine months ended September 30, 2023, primarily driven by $22.2 million of revenue from Horizon, partially offset by a $5.0 million decline in T-Mobile revenue in the legacy Shentel markets from the previously disclosed backhaul circuit disconnects as part of the decommissioning of the former Sprint network.
RLEC & Other revenue
RLEC & Other revenue for the nine months ended September 30, 2024 increased approximately $6.7 million, or 58.2%, compared with the nine months ended September 30, 2023, primarily driven by $6.9 million of revenue from Horizon and an increase in governmental support revenue.
Cost of services
Cost of services for the nine months ended September 30, 2024, increased approximately $18.5 million, or 24.2%, compared with the nine months ended September 30, 2023, primarily driven by $17.5 million of cost of services from Horizon and $1.0 million in higher maintenance costs in the legacy Shentel markets.
Selling, general and administrative
Selling, general and administrative expense for the nine months ended September 30, 2024, increased $12.2 million, or 16.5%, compared with the nine months ended September 30, 2023, primarily driven by $7.8 million of recurring selling, general and administrative costs acquired from Horizon and $4.4 million in higher expenses in the legacy Shentel markets due to higher advertising costs and sales headcount associated with the Company’s expansion of Glo Fiber and higher software maintenance expenses associated with system upgrades.
Integration and acquisition
Integration and amortization expense for the nine months ended September 30, 2024, increased $12.0 million compared with the nine months ended September 30, 2023, primarily driven by non-recurring Horizon acquisition-related costs related to banking, legal, accounting, severance and other similar expenses.
Depreciation and amortization
Depreciation and amortization increased $23.7 million, or 50.3%, compared with the nine months ended September 30, 2023, primarily driven by $16.7 million of depreciation and amortization related to acquired tangible and intangible assets from Horizon and the Company’s expansion of its Glo Fiber network.
Other income (expense), net
Other expense, net was $7.1 million for the nine months ended September 30, 2024 compared with other income, net of $2.1 million for the nine months ended September 30, 2023, primarily driven by an increase in interest expense due to a higher outstanding debt balance during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, partially offset by patronage income recorded as a result of patronage distributions received during the nine months ended September 30, 2024.
Income tax (benefit) expense
The Company recognized $7.8 million of income tax benefit for the nine months ended September 30, 2024, compared with $2.5 million of income tax expense for the nine months ended September 30, 2023. The $10.3 million increase in income tax benefit was driven by higher pre-tax loss from continuing operations during the nine months ended September 30, 2024.
Additional Information
Shentel provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania, Kentucky, Delaware, Ohio and Indiana, 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 as a Rural Local Exchange Carrier (“RLEC”) to customers in Shenandoah County and portions of adjacent counties in Virginia, and in Ross County and portions of adjacent counties in Ohio. These integrated networks are connected by over 16,300 route miles of fiber.
The following table indicates selected operating statistics:
| Three Months Ended September 30, 2024 | 2023 | |
|---|---|---|
| Homes and businesses passed (1) | 553,877 | 415,971 |
| Incumbent Broadband Markets (4) | 234,366 | 213,317 |
| Glo Fiber Expansion Markets (5) | 319,511 | 202,654 |
| Residential & Small and Medium Business ("SMB") Revenue Generating Units ("RGUs"): | ||
| Broadband Data | 170,586 | 146,797 |
| Incumbent Broadband Markets (4) | 111,320 | 109,404 |
| Glo Fiber Expansion Markets (5) | 59,266 | 37,393 |
| Video | 41,192 | 44,050 |
| Voice | 44,389 | 40,699 |
| Total Residential & SMB RGUs (excludes RLEC) | 256,167 | 231,546 |
| Residential & SMB Penetration (2) | ||
| Broadband Data | 30.8% | 35.3% |
| Incumbent Broadband Markets (4) | 47.5% | 51.3% |
| Glo Fiber Expansion Markets (5) | 18.5% | 18.5% |
| Video | 7.4% | 10.6% |
| Voice | 8.3% | 10.2% |
| Residential & SMB Average Revenue per User ("ARPU") (6) | ||
| Broadband Data | $83.65 | $80.95 |
| Incumbent Broadband Markets (4) | $84.64 | $82.22 |
| Glo Fiber Expansion Markets (5) | $81.70 | $77.00 |
| Video | $116.26 | $105.72 |
| Voice | $24.69 | $25.14 |
| Fiber route miles | 16,357 | 9,387 |
| Total fiber miles (3) | 1,825,122 | 813,273 |
(1) Homes and businesses are considered passed (“passings”) if we can connect them to our network without further extending the distribution system. Passings is an estimate based upon the best available information. Passings will vary among video, broadband data and voice services.
(2) Penetration is calculated by dividing the number of users by the number of passings or available homes, as appropriate.
(3) Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.
(4) Incumbent Broadband Markets consists of Shentel Incumbent Cable Markets and Horizon Incumbent Telephone Markets with Fiber-To-The-Home (“FTTH”) passings.
(5) Glo Fiber Expansion Markets consists of FTTH passings in greenfield expansion markets in the Shentel and former Horizon markets.
(6) Average Revenue Per RGU calculation = (Residential & SMB Revenue) / average RGUs / 3 months.
Financial Condition, Liquidity and Capital Resources
Sources and Uses of Cash: The Company’s principal sources of liquidity are our cash and cash equivalents, cash generated from operations, government grants 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, (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, and Amendment No. 3, dated as of April 1, 2024, the “Credit Agreement”). The Credit Agreement contains (i) a $150 million, available revolving credit facility due June 2026 (the “Revolver”), (ii) a $150 million delayed draw amortizing term loan due June 2026 (“Term Loan A-1”), (iii) a $150 million delayed draw amortizing term loan due June 2028 (“Term Loan A-2”), and (iv) a $225 million delayed draw amortizing term loan due June 2028 (“Term Loan A-3” and collectively with Term Loan A-1 and Term Loan A-2, the “Term Loans”).
In 2021, Congress passed the American Rescue Plan Act to subsidize the deployment of high-speed broadband internet access in unserved areas. We have been awarded approximately $86 million in grants to serve approximately 25,000 unserved homes in the states of Virginia, West Virginia and Maryland. The grants will be paid to the Company as certain milestones are completed. As of September 30, 2024, the Company received $13 million and had $73 million in grants available. The Company expects to fulfill the majority of its obligations under these programs by 2026.
Prior to the Horizon Transaction, Horizon entered into agreements with the Department of Development in Ohio under the state’s Ohio Residential Broadband Expansion program. As part of these agreements, Horizon committed to expand its broadband network resulting in total project costs of $57.4 million, with government matching grants totaling $30.1 million. Approximately $18.0 million of the grant was paid to Horizon up-front, while the remainder will be paid upon the achievement of specified milestones. Shentel assumed these agreements as a result of the Horizon Transaction and is therefore obligated under these programs to continue the build-out of this network. If Shentel fails to complete the build-out, Shentel may be required to repay a portion or all of the grant that Horizon received prior to the acquisition. Horizon was also granted $27.5 million by the National Telecommunications and Information Administration under its Middle Mile Grant Program. As of September 30, 2024, the Company received $18 million and had $39 million available under both grants.
As of September 30, 2024, our cash and cash equivalents totaled $43 million, the availability under our Revolver and Term Loan A-3 was $318 million, and the remaining reimbursements available under government grants was $112 million, which are subject to fulfilling the terms of the agreements, for total available liquidity of approximately $473 million. As discussed in Note 1, Basis of Presentation and Other Information 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 approximately $349 million to fund the Horizon Transaction, including payment of certain capital expenditures and payments for various transaction costs. Furthermore, the Company received $81 million in exchange for the issuance of Series A 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.
As discussed above, Shentel sold its Tower Portfolio for $309.9 million in cash during the nine months ended September 30, 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 $48.4 million during the nine months ended September 30, 2024, representing a decrease of $33.9 million compared with the prior year period, primarily driven by lower current tax refunds received during the nine months ended September 30, 2024 and changes in working capital.
Net cash used in investing activities from continuing operations was approximately $560.9 million during the nine months ended September 30, 2024, representing an increase of $389.9 million compared with the prior year period, primarily driven by the payment of $349.4 million to acquire Horizon and to cover transaction costs related to the acquisition, a $37.1 million increase in capital expenditures driven by expansion of Glo Fiber and government-subsidized markets and a $17.3 million decrease in sales of assets, partially offset by $11.1 million of grants received related to government funded infrastructure expansion programs.
Net cash provided by financing activities from continuing operations was approximately $117.0 million during the nine months ended September 30, 2024, representing an increase of $44.3 million compared with the prior year period, primarily driven by the issuance of $79.4 million in Shentel’s Series A Preferred Stock, net of issuance costs, partially offset by $25 million in lower borrowings against Shentel’s Credit Agreement, $4.3 million in higher cash outflows for debt amendment costs, $4.8 million in cash outflows for principal payments on outstanding debt.
Indebtedness: To date, Shentel has borrowed $150 million under each of Term Loans A-1 and A-2; and $50 million under Term Loan A-3 available under the Credit Agreement for a total of $350 million. As of September 30, 2024, the Company’s indebtedness totaled approximately $344.6 million, net of unamortized loan fees of $0.6 million. The borrowed amounts bear interest at a variable rate determined by one-month term SOFR, plus a margin based on net leverage. The interest rate was 6.45% for Term Loan A-1, 6.70% for Term Loan A-2, and 6.95% for Term Loan A-3 at September 30, 2024.
Shentel’s Term Loans require quarterly principal repayments based on a percentage of the outstanding balance. Term Loan A-1 requires quarterly repayments of 1.25% quarterly from September 30, 2024 through March 31, 2026, with the remaining balance due July 1, 2026. Term Loan A-2 requires quarterly principal repayments of 0.25% from March 31, 2024 through March 31, 2028, with the remaining balance due July 1, 2028. Term Loan A-3 requires quarterly principal repayments of 0.25% from June 30, 2025 through March 31, 2027; then increasing to 1.25% quarterly from June 30, 2027 through March 31, 2028, with the remaining balance due July 1, 2028.
Refer to Note 9, Debt, in the Company’s unaudited condensed consolidated financial statements for more information about the Credit Agreement.
As of September 30, 2024, the Company was in compliance with the financial covenants in our Credit Agreement.
We expect our cash on hand, cash flows from continuing operations, and availability of funds from our Credit Agreement as well as government grants will be sufficient to meet our anticipated liquidity needs for business operations for the next twelve months. There can be no assurance that we will continue to generate cash flows at or above current levels.
During the nine months ended September 30, 2024, our capital expenditures of $226.5 million exceeded our net cash provided by operating activities of continuing operations by $178.1 million, and we expect our capital expenditures to exceed the cash flows provided from continuing operations through 2026, as we expand our Glo Fiber broadband network.
The actual amount and timing of our future capital requirements may differ materially from our estimates 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, natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, and other conditions. Our ability to attract and maintain a sufficient customer base is critical to our ability to maintain positive cash flows from operations. The foregoing events individually or collectively could affect our results.
Critical Accounting Policies
There have been no material changes to the critical accounting policies previously disclosed in Part II, Item 8 of our 2023 Form 10-K for the year ended December 31, 2023.
Market risk
As filed, 1,287 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
We have borrowed a total of $350 million pursuant to the variable rate delayed draw Term Loans available under the Credit Agreement. As of December 31, 2023, Shentel has borrowed the full amount available under our Term Loans A-1 and A-2.
As of September 30, 2024, the Company had $345.2 million of gross variable rate debt outstanding, bearing interest at 6.45%, 6.70%, and 6.95% for Term Loan A-1, Term Loan A-2, and Term Loan A-3, respectively. An increase in market interest rates of 1.00% would add approximately $3.4 million to annual interest expense.
In May 2023, Shentel entered into pay fixed, receive variable interest rate swaps totaling $150.0 million of notional principal (the “Swaps”). The Swaps contain monthly payment terms that became effective 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 Term Loan A-1 and A-2 outstanding debt. The Company uses the Swaps to manage its exposure to interest rate risk for a portion of its long-term variable-rate Term Loans through interest rate swaps. When the Swaps’ payments term began, Shentel effectively pays a fixed weighted-average interest rate of 2.90%, prior to interest rate margin provided under our credit facility.
Controls and procedures
As filed, 1,727 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial 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 in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2024. Our certifying officers concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
On April 1, 2024, Shentel completed its acquisition of Horizon Acquisition Parent LLC, a Delaware limited liability company (“Horizon”) and has implemented new processes and internal controls to assist us in the preparation and disclosure of financial information related to Horizon’s business. U.S. Securities and Exchange Commission guidance allows companies to exclude acquisitions from their assessment of the internal control over financial reporting during the first year following an acquisition while integrating the acquired company. Given the significance of the Horizon acquisition and the complexity of its systems and business processes, the Company has excluded, and intends to continue excluding the acquired Horizon business from our assessment and report on internal control over financial reporting as of December 31, 2024. Other than as discussed above, there have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 344 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
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, 2024, the Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-07-01 to 2024-09-30 | $87.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-01-01 to 2024-09-30 | $242.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months2024-07-01 to 2024-09-30 | $28.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months2024-01-01 to 2024-09-30 | $86.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months2024-07-01 to 2024-09-30 | −$4.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-01-01 to 2024-09-30 | −$22.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-07-01 to 2024-09-30 | $3.7m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months2024-01-01 to 2024-09-30 | $11.7m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months2024-07-01 to 2024-09-30 | −$1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-01-01 to 2024-09-30 | −$7.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-07-01 to 2024-09-30 | −$6.9m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months2024-07-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-01-01 to 2024-09-30 | $3.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-07-01 to 2024-09-30 | −$0.13 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-01-01 to 2024-09-30 | $3.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-07-01 to 2024-09-30 | 54,781,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-01-01 to 2024-09-30 | 53,370,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-01-01 to 2024-09-30 | $42.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-01-01 to 2024-09-30 | $226.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-09-30 | $43.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-30 | $97.5m | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-30 | $1.69bn | us-gaap:Assets |
| Current liabilities | At period end2024-09-30 | $123.1m | us-gaap:LiabilitiesCurrent |
| Long-term debt | At period end2024-09-30 | $335.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | At period end2024-09-30 | $8.6m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | At period end2024-09-30 | $925.4m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001628280-24-045986. Last ingested by Listed: Oct 28, 2026, 08:30 ET. Listed shows no prices and gives no investment advice.