Shenandoah Telecommunications Company (NASDAQ: SHEN) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone quarterly filing; selected fourth-quarter results are included below. Shentel provides broadband, video, voice, commercial fiber and tower-colocation services in the Mid-Atlantic. Its continuing operations comprise Broadband and Tower; its Wireless business was sold to T-Mobile on July 1, 2021.
Financial and operating highlights
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue from continuing operations | $245.2 million | $220.8 million |
| Operating income (loss) | $(2.4) million | $(2.6) million |
| Income from continuing operations | $7.9 million | $1.6 million |
| Net income | $998.8 million | $125.7 million |
| Continuing-operations operating cash flow | $63.5 million | $53.4 million |
| Capital expenditures | $160.1 million | $120.5 million |
| Cash and cash equivalents at year-end | $84.3 million | $195.4 million |
| Debt outstanding at year-end | None | Approximately $688.5 million current debt |
- Revenue rose 11.1%. Broadband revenue increased 11.6% to $228.1 million; Tower revenue rose 3.8% to $17.7 million.
- Broadband operating income declined 25.9% to $28.8 million, with margin falling to 12.6% from 19.0%; expansion-related costs, higher maintenance and a $6.0 million Beam impairment contributed. Tower operating income increased 2.2% to $9.0 million, with a 50.9% margin.
- Net income and earnings per share were dominated by the Wireless disposal, not recurring operations. Discontinued operations contributed $990.9 million after tax, including an $896.2 million after-tax sale gain. Diluted EPS was $19.92 overall versus $0.16 from continuing operations.
- Continuing-operations cash flow increased about $10.1 million. Total operating cash flow was negative $250.9 million, largely reflecting discontinued-operation cash outflows, including roughly $434 million of tax paid on the sale.
- Year-end liquidity was reported as $484.3 million: $84.3 million cash plus $400 million available under the new credit facilities. The company had no borrowings under those facilities at year-end.
Material changes and unusual items
- Shentel sold its Wireless assets and operations to T-Mobile for approximately $1.94 billion in cash consideration. Sale proceeds funded repayment of prior debt, a $937 million special dividend ($18.75 per share), and sale-related taxes. Total 2021 dividends declared were $18.82 per share.
- Fourth-quarter revenue was $62.6 million; operating loss was $7.9 million and continuing-operations loss was $3.1 million. The quarter included the $6.0 million Beam impairment and other expenses.
- After deciding to stop expanding Beam in favor of fiber-to-the-home investment, Shentel impaired expansion-related Beam construction assets but said it would continue operating the existing Beam network.
- Broadband RGUs increased 8.2% to 203,655. Glo Fiber homes passed grew to 75,189 from 28,652; broadband data RGUs increased 15.9%. Video RGUs declined to 49,945 from 52,817.
- The company revised 2019 and 2020 statements for an immaterial prior-period error involving capitalization of customer installation labor. KPMG gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting.
Outlook, risks and contingencies
- Management expects capital expenditures to exceed continuing-operations cash flow through 2025 as it expands Glo Fiber, targeting markets covering more than 450,000 homes passed. It expected to begin drawing on its credit agreement in first-quarter 2022 and projected $300 million of borrowings by June 2023. No specific revenue or earnings guidance is provided.
- Key risks include fiber overbuild and other competition, subscriber losses and cord-cutting, rising programming and construction costs, supply constraints, and execution risk in network expansion. The company also identifies possible revenue churn related to T-Mobile’s network plans.
- Material weaknesses involved controls over purchases, fixed assets and depreciation, leases, and historical accounting conclusions. Management planned remediation during 2022, including new ERP and lease-accounting systems; implementation itself carries operational and control risks.
- Other notable matters include a $16.1 million FCC spectrum-license deposit whose disposition was unresolved at year-end, potential RDOF buildout penalties if requested relief is denied, and uncertainty over future regulatory requirements and LIBOR replacement terms.
Important facts for investors to verify
- Whether Broadband subscriber growth and Glo Fiber expansion can improve margins and generate adequate returns on elevated capital spending.
- Actual timing and amount of credit-facility draws, resulting interest costs, covenant headroom and liquidity as investment proceeds.
- Progress in remediating material weaknesses and implementing the ERP and lease-accounting systems.
- Resolution of the FCC spectrum deposit and RDOF obligations, and any resulting refunds, penalties or additional build costs.
- How much recurring cash generation remains after the Wireless sale and whether any T-Mobile-related revenue loss can be replaced.