Shenandoah Telecommunications Company (Shentel) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results. Shentel provides broadband, video and voice services and fiber-network services in the Mid-Atlantic. Following the sale of its tower business, it reports one segment.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $69.2 million | $67.2 million |
| Operating income (loss) | $(2.8) million; (4.0)% margin | $0.3 million; 0.5% margin |
| Continuing-operations income (loss), net | $(4.1) million | $0.7 million |
| Net income | $214.7 million | $2.1 million |
| Operating cash flow, continuing operations | $12.9 million | $45.7 million |
| Capital expenditures | $70.1 million | $67.5 million |
- Revenue grew 3.1%. Glo Fiber residential and SMB revenue rose 73.0% to $12.1 million, driven by expansion and customer growth; Cable Markets revenue declined 0.9% to $44.4 million. Commercial Fiber fell 19.8% to $9.4 million, primarily due to expected T-Mobile backhaul disconnects, and RLEC & Other declined 8.8% to $3.4 million.
- Operating expenses increased 7.7% to $72.0 million, exceeding revenue growth. SG&A rose 9.3% and depreciation and amortization increased 14.2%, with management citing Glo Fiber expansion, higher advertising and payroll, bad debt, and network investment.
- Net income included $218.8 million of discontinued-operations income, including a $216.8 million after-tax gain on the tower sale. It does not represent recurring operating earnings.
- Cash and equivalents were $389.7 million at quarter-end, versus $139.3 million at year-end 2023. Total debt was $298.7 million gross ($298.6 million net of loan fees); the weighted rate was 6.93%. The $100 million revolver was undrawn. Cash rose primarily with tower-sale proceeds.
Material changes and transactions
- On March 29, Shentel completed the initial sale of substantially all of its tower portfolio to Vertical Bridge for $309.9 million; it received $305.8 million net of transaction costs. About 99.5% of portfolio value transferred, with remaining sites expected to transfer by March 2025. The sale resulted in discontinued-operations accounting and a strategic shift.
- On April 1, after quarter-end, Shentel completed its Horizon acquisition. Consideration included $305 million cash, 4,100,375 Shentel shares, and approximately $39 million for specified seller-funded capital expenditures plus interest. The company said purchase-price allocation was still being evaluated.
- Also on April 1, Shentel Broadband issued $81 million of 7% Series A preferred stock. Dividends compound and may be paid in cash or in kind; the preferred stock has senior dividend and liquidation rights and may be exchangeable for common shares under specified terms.
- An April 1 credit-agreement amendment added $225 million of delayed-draw term loan commitments and increased the revolver by $50 million. Pro forma for the acquisition, preferred issuance and facility changes, management reported $484 million of available liquidity and approximately $190 million of debt net of cash.
Liquidity, outlook and risks
- Management expects cash, continuing-operations cash flows, credit-facility availability and government grants to meet anticipated operating liquidity needs for the next 12 months, but cautions that future cash generation is not assured.
- Q1 capital expenditures exceeded continuing-operations operating cash flow by $57.1 million. Management expects capital expenditures to exceed continuing-operations cash flow through 2026 as Glo Fiber expands.
- Shentel had approximately $86.3 million of broadband grants awarded for service to about 25,000 unserved homes; obligations are expected to be fulfilled by 2026. It received $2.7 million in grant reimbursements in Q1.
- Debt is variable-rate and secured, with financial covenants; the company reported compliance at March 31. A 1 percentage-point rate increase would add about $3.0 million to annual interest expense before considering hedges. Swaps covering $150 million of notional debt begin payments in May 2024 and extend through June 2026.
- Management cited exposure to economic conditions, regulation, competition, technology, customer demand, labor and capital availability, and natural disasters. It did not expect current litigation to have a material adverse effect and reported no needed updates to the risk factors in its 2023 Form 10-K. No specific financial guidance was provided.
Investor verification priorities
- Separate recurring broadband performance from the tower-sale gain when assessing Q1 earnings and cash generation.
- Review the completed Horizon transaction’s final purchase-price allocation, ongoing results and integration effects; the filing did not yet provide the allocation.
- Verify post-acquisition cash, debt, preferred-stock dividend obligations, and actual availability and terms of the incremental credit commitments.
- Track Glo Fiber expansion economics, capital spending, customer additions and penetration, alongside declines in video, Commercial Fiber and RLEC data customers.
- Confirm remaining tower-site transfers and related proceeds or obligations through the expected completion date in March 2025.