Shenandoah Telecommunications Company (Shentel) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Shentel provides broadband services and cell-tower colocation in the Mid-Atlantic. Following the July 2021 sale of its Wireless business, results are primarily from Broadband and Tower operations; Q1 2021 included Wireless results as discontinued operations.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $64.4 million | $59.7 million |
| Operating income (loss) | $(0.4) million | $2.2 million |
| Operating margin | (0.6)% | 3.7% |
| Continuing-operations income (loss), net | $(0.6) million | $2.9 million |
| Net income (loss) | $(0.6) million | $51.4 million |
| Basic and diluted EPS | $(0.01) | $1.03 |
| Cash from continuing operating activities | $16.1 million | $9.1 million |
| Capital expenditures | $45.7 million | $39.5 million |
At March 31, 2022, cash was $54.0 million, total assets were $883.3 million, and shareholders’ equity was $644.3 million. The company reported no borrowings under its Credit Agreement. It had $400.0 million of availability under delayed-draw term loans and a revolving credit line, for stated total available liquidity of $454.0 million. Current liabilities were $57.1 million; the filing does not present conventional funded debt outstanding at quarter-end.
Performance and material changes
- Revenue increased 7.9% year over year, led by Broadband growth of 8.3% to $59.7 million; Tower revenue rose 3.9% to $4.8 million.
- Broadband operating income fell 20.5% to $8.2 million as expenses grew 14.9%, outpacing revenue. Management cited network expansion costs, higher maintenance and compensation, systems-related software and professional fees, and advertising.
- Broadband homes and businesses passed rose to 332,720 from 259,891; Glo Fiber passings increased to 93,611 from 34,441. Residential and SMB broadband data RGUs grew 14.1% year over year, according to management.
- Consolidated operating expenses increased 12.8% to $64.8 million. Other income declined to an expense of $0.2 million from income of $1.6 million, primarily due to lower investment income.
- Q1 2021 net income included $48.5 million after tax from discontinued Wireless operations. Therefore, the headline net-income comparison is not representative of continuing-business performance.
Cash, outlook, risks, and other notable items
- Management expects to begin borrowing under the Credit Agreement in Q2 2022 and anticipates drawing $300 million by June 2023 to support capital expenditures. It expects capital expenditures to exceed continuing-operations cash flow through 2025 as it expands Glo Fiber to more than 450,000 passings.
- Management expects cash on hand, operating cash flow, and credit availability to meet anticipated liquidity needs for the next 12 months, while noting that cash generation and access to financing are not assured. It expected a $29.7 million income-tax refund in the second half of 2022.
- In April 2022, Shentel decided to discontinue operations at certain Beam fixed-wireless sites. It expected approximately $4.0 million of impairment costs and $1.0 million of termination costs in Q2 2022. Remaining Beam sites were to continue operating.
- T-Mobile had converted 80 tower leases to month-to-month arrangements and may terminate them before June 30, 2023, subject to a $10,000-per-lease fee. Shentel warned that revenue could decline if replacement tenants are not found.
- The FCC was still reviewing the company’s application for CBRS spectrum licenses tied to a $16.1 million deposit.
- Management reported that previously identified material weaknesses in internal control over financial reporting remained unremediated; disclosure controls were considered ineffective as of March 31, 2022. Management stated that additional procedures were performed and that the financial statements fairly present the results in all material respects.
- The filing notes an immaterial error correction in Q1 2021 comparative figures, including a $141,000 increase to cost of services. Management did not expect ongoing litigation to have a material adverse impact.
Important facts for investors to verify
- Progress and actual costs of Glo Fiber expansion, including capital spending, passings, customer additions, and future funding needs.
- Whether the anticipated $29.7 million tax refund was received and whether planned credit-facility borrowing proceeded on the expected schedule and terms.
- Final impairment and termination charges from the Beam site decommissioning, and the operational impact of the strategy change.
- Potential T-Mobile tower-lease terminations, replacement-tenancy prospects, and resulting revenue exposure.
- Remediation and independent testing of the disclosed internal-control material weaknesses.