Shenandoah Telecommunications Company (Shentel) — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Dollar amounts are in millions unless noted. The filing reports Wireless as discontinued operations; continuing operations primarily comprise Broadband and Tower.
Business context and significant transaction
On July 1, 2021, Shentel completed the sale of its Wireless assets and operations to T-Mobile for approximately $1.94 billion in cash, including a roughly $60 million settlement of waived management fees and net of certain transaction expenses. The sale occurred after quarter-end. Shentel used approximately $684 million of proceeds to repay its prior credit agreement and terminate related interest rate swaps.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Continuing revenue | $60.7 | $54.3 | $120.4 | $107.5 |
| Continuing operating income (loss) | $2.7 | ($1.9) | $5.1 | ($3.2) |
| Continuing income (loss), after tax | $1.9 | ($0.5) | $4.9 | ($0.4) |
| Income from discontinued operations, after tax | $51.6 | $29.8 | $100.0 | $42.9 |
| Net income | $53.4 | $29.2 | $104.9 | $42.5 |
| Basic and diluted EPS | $1.07 | $0.58 | $2.10 | $0.85 |
- Continuing revenue increased 11.7% in Q2 and 12.0% for the six-month period. Continuing operating margin improved to 4.5% in Q2 from negative 3.4%, and to 4.2% for six months from negative 3.0%.
- Broadband revenue rose 12.2% in Q2 and 11.5% for six months, driven primarily by Residential & SMB growth and Glo Fiber and Beam expansion. Broadband operating income declined 10.6% in Q2 and 6.2% for six months as operating expenses grew faster than revenue. Tower revenue increased 8.3% in Q2 and 16.1% for six months.
- Wireless discontinued-operation income increased year over year, primarily reflecting lower depreciation and amortization after the assets were classified as held for sale in 2020, as well as lower operating costs. This materially boosted reported net income; it is not continuing-operations earnings.
- Operating cash flow was $153.2 million for six months, comprising $28.2 million from continuing operations and $125.0 million from discontinued operations. Capital expenditures were $79.6 million; management attributed higher continuing investment to broadband expansion. Cash and cash equivalents were $248.8 million at June 30, up from $195.4 million at year-end.
- At June 30, the balance sheet showed $672.6 million of current maturities of long-term debt, net of fees; gross variable-rate debt was $680.9 million. The debt was repaid after the sale closed. June 30 total assets were $2.12 billion and shareholders’ equity was $687.8 million.
Material changes, outlook, and risks
- On July 2, the board declared a special dividend of $18.75 per share, approximately $937 million in total, payable August 2 to holders of record July 13. The company expected about $14.5 million to be reinvested through its dividend reinvestment plan.
- After repaying the prior debt, Shentel entered a new credit agreement providing up to $400 million: a $100 million revolver and two delayed-draw term loans of $150 million each. No borrowing had been made as of the filing, and the company did not expect to draw until Q4 2021. Pro forma liquidity, giving effect to the sale, dividend, and new agreement, was estimated at approximately $480 million.
- Management expected after-tax sale proceeds of approximately $1.5 billion and said available cash, sale proceeds, operating cash flow, and new credit availability should meet anticipated needs for the next 12 months. It nevertheless expected capital expenditures to exceed continuing-operations cash flow through 2023 as it expands Glo Fiber and Beam.
- A workforce reduction was expected to lower annualized continuing-operations run-rate expenses by approximately $4.2 million. Management anticipated additional severance costs after the sale; it also estimated approximately $34 million of sale-triggered expenses, including deal advisory fees, severance, swap-loss recognition, and debt-extinguishment loss.
- Management expects RLEC revenue to continue declining. Risks cited include customer demand and retention, competition, costs, regulation, labor and capital availability, economic conditions, natural disasters, and public-health events. The filing also notes uncertainty around the transition from LIBOR.
- Disclosure controls and procedures remained ineffective at June 30 because previously identified material weaknesses in internal control over financial reporting had not yet been remediated. Management performed additional procedures and stated the interim financial statements fairly presented the company’s position and results in all material respects.
- The company reported compliance with prior credit-agreement financial covenants at June 30. It said pending ordinary-course claims were not believed to present a probable or reasonably possible material loss, and identified no risk-factor updates to its 2020 Form 10-K.
Important facts for investors to verify
- Final sale accounting and actual net, after-tax proceeds, including the roughly $34 million of estimated transaction-related and other sale-triggered expenses.
- Post-dividend cash, actual liquidity, and any borrowings under the new $400 million credit facilities.
- Whether broadband customer and revenue growth—particularly Glo Fiber and Beam—can support planned capital spending and improve Broadband operating margins.
- Progress in remediating the disclosed internal-control material weaknesses and the effect of the Wireless divestiture on future reported results.
- The amount and timing of actual capital expenditures, severance costs, and any impact from the LIBOR transition.