Shenandoah Telecommunications Company — Q1 2023 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Shentel provides broadband, fiber, voice and video services across parts of the Mid-Atlantic and leases colocation space on 222 cell towers.
Financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Service revenue and other | $71.7 million | $64.4 million | Up 11.3% |
| Operating income (loss) | $2.7 million | $(0.4) million | Improved $3.1 million |
| Net income (loss) | $2.1 million | $(0.6) million | Improved $2.7 million |
| Diluted earnings (loss) per share | $0.04 | $(0.01) | — |
| Cash provided by operating activities | $48.3 million | $16.1 million | Up $32.3 million |
| Capital expenditures | $67.7 million | $45.7 million | Up $22.0 million |
Operating margin was 3.8% of revenue, compared with negative 0.6% a year earlier. Revenue growth and lower relative operating expense growth supported the turnaround. Cash from operations was boosted by tax refunds and working-capital movements; Shentel reported $25.0 million of income tax refunds and approximately $28.6 million of income and sales tax refunds received in the quarter.
Segments: Broadband revenue rose 12.5% to $67.2 million, and segment operating income increased 38.6% to $11.3 million (16.9% margin versus 13.7%). Glo Fiber market revenue more than doubled to $7.0 million, while Commercial Fiber revenue rose 29.1% to $11.7 million. Tower revenue declined 5.6% to $4.6 million, and Tower operating income fell 12.1% to $2.4 million.
Financial position at March 31, 2023: Cash was $48.4 million; gross debt was $100.0 million, versus $75.0 million at year-end 2022. The debt carried a 7.08% annualized weighted-average effective rate; the stated rate on the term loans was 6.36%. Total available liquidity, including undrawn credit facilities, was $348.4 million. Current assets were $104.5 million and current liabilities $92.2 million. Property, plant and equipment, net, increased to $739.6 million from $687.6 million, primarily reflecting network investment.
Material changes and notable items
- Broadband expansion drove growth and higher capital spending. Homes and businesses passed increased to 377,348 from 305,053 a year earlier; Glo Fiber passings rose to 165,058 from 93,611.
- Commercial Fiber results included $1.8 million of non-recurring T-Mobile early termination fees. T-Mobile disconnected 188 backhaul circuits in Q1; Shentel expects 174 more disconnections during 2023 as part of the former Sprint network rationalization.
- Operating cash flow rose sharply, but the quarter’s cash generation included significant tax refunds. Investing cash outflow was $67.6 million, primarily reflecting $67.7 million of capital expenditures.
- Shentel drew $25.0 million under its delayed-draw term loans during the quarter. Its credit agreement borrowing deadline is June 30, 2023; the company said it expects to draw the remaining $200.0 million available under the term loans by then.
- The company received $9.8 million in newly awarded broadband grants during Q1. It reported approximately $81.2 million of total grants for broadband deployment, with performance obligations expected during 2023–2025.
Outlook, risks and contingencies
- No formal earnings or revenue guidance is provided in the supplied filing text. Management anticipates up to $320.0 million of 2023 capital expenditures for continued Glo Fiber expansion and expects capital expenditures to exceed operating cash flow through 2025. The network could potentially reach more than 450,000 passings.
- Management expects cash, operating cash flow, credit availability and grants to meet anticipated liquidity needs for the next 12 months, while cautioning that future cash flows are not assured.
- Term loans have variable rates tied to LIBOR. Shentel expected to borrow the remaining term-loan commitments before the deadline and transition to a LIBOR replacement, expected to reference SOFR, during 2023. A 1 percentage point increase in market rates would add approximately $1.0 million to annual interest expense on the debt outstanding at quarter-end; further borrowing would increase exposure.
- The pending sale of Beam-related FCC spectrum licenses is expected to close by the end of Q3 2023, subject to regulatory approvals and other customary conditions. Consideration is approximately $21.5 million, including $17.7 million cash and $3.8 million of assumed liabilities.
- Management expects the pension plan termination to be completed by June 30, 2023. The filing says management does not expect current litigation to have a material adverse impact; no material risk-factor updates were identified.
Important facts for investors to verify
- Whether Shentel drew the remaining $200.0 million of term-loan commitments by June 30, 2023, and the resulting debt, interest expense and covenant position.
- Whether Glo Fiber expansion meets the stated capital-spending and passings plans, and how growth translates into customer additions, penetration and cash generation.
- How much of Q1 operating cash flow reflects recurring operations versus tax refunds and working-capital timing.
- The timing and final proceeds of the spectrum sale, and the revenue and cost effects of expected T-Mobile circuit disconnections.
- Progress on the LIBOR transition, grant milestones, and pension plan termination.