Nuvera Communications, Inc. [NUVR] Filings

10-Q 1 nuvr-20230930.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the transition period from_____to_____.

Commission File Number 0-3024

NUVERA COMMUNICATIONS, INC.

(Exact name of Registrant as specified in its charter)

Minnesota

(State or other jurisdiction of

incorporation or organization)

41-0440990

(I.R.S. Employer

Identification No.)

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of principal executive offices)

Registrant’s telephone number, including area code: (507) 354-4111

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No ⮽

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes £ No ⮽

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⮽ No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⮽ No £

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large, accelerated filer”, “accelerated filer”, “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. £ Large, accelerated filer £ accelerated filer ⮽ non-accelerated filer ⮽ smaller reporting company £ Emerging growth company.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. £

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-a(b). £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No ⮽

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock - $1.66 par value	NUVR	OTCQB Marketplace

The total number of shares of the registrant’s common stock outstanding as of November 14, 2023: 5,126,581.

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PART I – FINANCIAL INFORMATION

Item 1	Financial Statements	4 - 10

	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	5

	Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022	6 - 7

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2023 and 2022	8

	Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months ended September 30, 2023 and 2022	9 - 10

	Condensed Notes to Consolidated Financial Statements (unaudited)	11 - 32

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32 - 46

Item 3	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4	Controls and Procedures	46

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	46

Item 1A	Risk Factors	47 - 55

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 3	Defaults upon Senior Securities	56

Item 4	Mine Safety Disclosures	56

Item 5	Other Information	56

Item 6	Exhibits Listing	56

	Signatures	57

	Exhibits

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
OPERATING REVENUES:
Voice Service	$	1,363,543	$	1,404,890	$	3,969,394	$	4,321,047
Network Access		876,186		1,190,870		2,926,937		3,685,145
Video Service		3,005,010		3,126,733		9,120,164		9,446,613
Data Service		6,881,965		6,797,329		20,573,084		20,288,217
A-CAM/FUSF		2,971,267		2,952,651		8,950,127		8,737,738
Other Non-Regulated		1,272,507		1,008,654		3,478,406		2,917,502
Total Operating Revenues		16,370,478		16,481,127		49,018,112		49,396,262

OPERATING EXPENSES:
Plant Operations (Excluding Depreciation and Amortization)		3,590,491		3,677,595		11,512,927		10,770,036
Cost of Video		2,346,037		2,505,185		7,229,269		7,604,067
Cost of Data		1,280,342		997,843		3,673,237		3,098,866
Cost of Other Nonregulated Services		485,149		393,212		1,275,125		1,181,518
Depreciation and Amortization		3,949,978		3,520,963		11,371,459		10,512,317
Selling, General and Administrative		2,372,515		2,264,090		7,608,787		7,571,025
Total Operating Expenses		14,024,512		13,358,888		42,670,804		40,737,829

OPERATING INCOME		2,345,966		3,122,239		6,347,308		8,658,433

OTHER INCOME (EXPENSE)
Interest Expense		(1,959,514)		(1,083,162)		(4,718,502)		(2,106,225)
Interest/Dividend Income		14,307		24,132		159,353		260,540
Interest During Construction		243,113		106,229		439,356		199,069
Gain on Sale of Investments		(38,096)		217,876		4,022,401		217,876
CoBank Patronage Dividends		-		-		692,371		567,468
Other Investment Income		65,269		144,140		216,256		431,517
Total Other Income (Expense)		(1,674,921)		(590,785)		811,235		(429,755)

INCOME BEFORE INCOME TAXES		671,045		2,531,454		7,158,543		8,228,678

INCOME TAXES EXPENSE		187,875		708,806		2,004,386		2,304,023

NET INCOME	$	483,170	$	1,822,648	$	5,154,157	$	5,924,655

NET INCOME PER SHARE
Basic	$	0.09	$	0.36	$	1.01	$	1.16
Diluted	$	0.09	$	0.36	$	1.00	$	1.16

DIVIDENDS PER SHARE	$	0.0000	$	0.1400	$	0.2800	$	0.4200

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		5,126,581		5,084,578		5,113,007		5,091,391
Diluted		5,211,382		5,115,477		5,175,507		5,112,358

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net Income	$	483,170	$	1,822,648	$	5,154,157	$	5,924,655

Other Comprehensive Gain (Loss):
Unrealized Gains (Losses) on Interest Rate Swaps		(125,051)		765,646		(222,693)		3,239,407
Income Tax Expense (Benefit) Related to Unrealized Gains (Losses) on Interest Rate Swaps		35,689		(218,515)		63,556		(924,526)
Other Comprehensive Gain (Loss):		(89,362)		547,131		(159,137)		2,314,881

Comprehensive Income	$	393,808	$	2,369,779	$	4,995,020	$	8,239,536

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS
	September 30, 2023		December 31, 2022
	September 30, 2023		December 31, 2022
CURRENT ASSETS:
Cash	$	573,175	$	310,556
Receivables, Net of Allowance for Doubtful Accounts of $153,000 and $140,000		4,091,864		3,725,422
Income Taxes Receivable		-		283,665
Materials, Supplies, and Inventories		39,237,118		23,617,800
Prepaid Expenses and Other Current Assets		2,553,960		1,886,480
Total Current Assets		46,456,117		29,823,923

INVESTMENTS & OTHER ASSETS:
Goodwill		49,903,029		49,903,029
Intangibles		15,001,666		16,363,192
Other Investments		8,415,582		11,016,246
Right of Use Asset		1,276,743		1,341,029
Financial Derivative Instruments		1,991,769		2,214,462
Other Assets		889,708		461,445
Total Investments and Other Assets		77,478,497		81,299,403

PROPERTY, PLANT & EQUIPMENT:
Communications Plant		259,579,160		219,891,050
Other Property & Equipment		31,319,882		29,836,775
Video Plant		18,437,925		16,096,032
Total Property, Plant and Equipment		309,336,967		265,823,857
Less Accumulated Depreciation		169,642,226		159,632,293
Net Property, Plant & Equipment		139,694,741		106,191,564

TOTAL ASSETS	$	263,629,355	$	217,314,890

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (continued) (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
	September 30, 2023		December 31, 2022
CURRENT LIABILITIES:
Current Portion of Long-Term Debt, Net of Unamortized Loan Fees	$	-	$	-
Accounts Payable		15,874,273		7,012,264
Accrued Income Taxes		1,350,222		-
Other Accrued Taxes		189,031		243,965
Accrued Compensation		1,977,903		2,051,316
Other Accrued Liabilities		1,622,245		2,354,395
Total Current Liabilities		21,013,674		11,661,940

LONG-TERM DEBT, Net of Unamortized Loan Fees		111,805,495		78,552,197

NONCURRENT LIABILITIES:
Loan Guarantees		-		169,565
Deferred Income Taxes		22,673,974		22,737,530
Unrecognized Tax Benefit		23,304		23,304
Other Accrued Liabilities		1,322,867		1,588,502
Total Noncurrent Liabilities		24,020,145		24,518,901

COMMITMENTS AND CONTINGENCIES:		-		-

STOCKHOLDERS' EQUITY:
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, No Shares Issued and Outstanding		-		-
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,126,581 and 5,093,213 Shares Issued and Outstanding		8,544,302		8,488,689
Accumulated Other Comprehensive Gain		1,423,318		1,582,455
Unearned Compensation		79,750		79,892
Retained Earnings		96,742,671		92,430,816
Total Stockholders' Equity		106,790,041		102,581,852

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	263,629,355	$	217,314,890

Certain historical numbers have been changed to conform to the current year's presentation.

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30, 2023		September 30, 2022
	September 30, 2023		September 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	5,154,157	$	5,924,655
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		11,526,448		10,627,533
Gains on Investments		(4,022,401)		(217,876)
Undistributed Earnings of Other Equity Investments		(219,912)		(408,613)
Noncash Patronage Refund		(123,745)		(133,467)
Stock Issued in Lieu of Cash Payment		373,175		300,507
Distributions from Equity Investments		28,048		210,917
Stock-based Compensation		172,820		81,273
Changes in Assets and Liabilities:
Receivables		(259,621)		130,198
Income Taxes Receivable		283,665		1,405,622
Inventory for Resale		30,767		13,252
Prepaid Expenses		(569,535)		(68,097)
Other Assets		(451,967)		(11,588)
Accounts Payable		(4,230)		358,289
Accrued Income Taxes		1,350,222		643,401
Other Accrued Taxes		(54,934)		(73,361)
Other Accrued Liabilities		(906,890)		1,154,325
Deferred Compensation		(100,022)		(30,098)
Net Cash Provided by Operating Activities		12,206,045		19,906,872

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant, and Equipment, Net		(33,397,721)		(22,407,662)
Materials and Supplies for Construction		(17,827,735)		(12,319,553)
Proceeds from Sale of Equity Investments		5,876,305		-
Other, Net		216,511		7,304
Net Cash Used in Investing Activities		(45,132,640)		(34,719,911)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt		-		(57,330,775)
Loan Proceeds		30,000,000		56,063,223
Loan Origination Fees		(17,811)		(1,055,773)
Changes in Revolving Credit Facility		3,116,119		22,216,303
Grants Received for Construction of Plant		1,521,677		396,360
Repurchase of Common Stock		-		(3,187,500)
Dividends Paid		(1,430,771)		(2,132,089)
Net Cash Provided by Financing Activities		33,189,214		14,969,749

NET CHANGE IN CASH		262,619		156,710

CASH at Beginning of Period		310,556		2,306,149

CASH at End of Period	$	573,175	$	2,462,859

Supplemental cash flow information:
Cash paid for interest	$	5,286,760	$	925,530
Net cash paid for income taxes	$	370,500	$	255,000

Certain historical numbers have changed to conform with the current year's presentation.

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

	THREE MONTHS ENDED SEPTEMBER 30, 2023
				Accumulated
				Other
	Common Stock			Comprehensive		Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount		Gain		Unearned Compensation		Retained Earnings		Total Equity

BALANCE on June 30, 2023	5,126,581	$	8,544,302	$	1,512,680	$	78,231	$	96,188,831	$	106,324,044


Restricted Stock Grant							1,519				1,519
Non-Cash, Share-Based Compensation									70,670		70,670
Net Income									483,170		483,170
Unrealized Loss on Interest Rate Swap					(89,362)						(89,362)

BALANCE on September 30, 2023	5,126,581	$	8,544,302	$	1,423,318	$	79,750	$	96,742,671	$	106,790,041


	THREE MONTHS ENDED SEPTEMBER 30, 2022
				Accumulated
				Other
	Common Stock			Comprehensive		Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount		Gain		Unearned Compensation		Retained Earnings		Total Equity
BALANCE on June 30, 2022	5,084,578	$	8,474,297	$	1,136,497	$	272,234	$	90,530,833	$	100,413,861


Restricted Stock Grant							34,882				34,882
Non-Cash, Share-Based Compensation							(28,792)		61,903		33,111
Net Income									1,822,648		1,822,648
Dividends									(711,841)		(711,841)
Unrealized Gain on Interest Rate Swap					547,131						547,131

BALANCE on September 30, 2022	5,084,578	$	8,474,297	$	1,683,628	$	278,324	$	91,703,543	$	102,139,792

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

	NINE MONTHS ENDED SEPTEMBER 30, 2023
				Accumulated Other Comprehensive Gain

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity

BALANCE on December 31, 2022	5,093,213	$	8,488,689	$	1,582,455	$	79,892	$	92,430,816	$	102,581,852

Directors' Stock Plan	27,716		46,193						341,277		387,470
Employee Stock Plan	5,652		9,420						74,230		83,650
Restricted Stock Grant							(142)				(142)
Non-Cash, Share-Based Compensation									172,962		172,962
Net Income									5,154,157		5,154,157
Dividends									(1,430,771)		(1,430,771)
Unrealized Loss on Interest Rate Swap					(159,137)						(159,137)

BALANCE on September 30, 2023	5,126,581	$	8,544,302	$	1,423,318	$	79,750	$	96,742,671	$	106,790,041


	NINE MONTHS ENDED SEPTEMBER 30, 2022
				Accumulated Other Comprehensive Gain (Loss)

	Common Stock					Unearned Compensation		Retained Earnings		Total Equity
	Shares	Amount				Unearned Compensation		Retained Earnings		Total Equity
BALANCE on December 31, 2021	5,210,053	$	8,683,422	$	(631,253)	$	259,620		90,338,806	$	98,650,595

Directors' Stock Plan	19,818		33,030						354,412		387,442
Employee Stock Plan	4,676		7,793						92,741		100,534
Restricted Stock Grant							19,371				19,371
Non-Cash, Share-Based Compensation									61,903		61,903
Exercise of RSU's	31		52				(667)		615		-
Repurchase of Common Stock	(150,000)		(250,000)						(2,937,500)		(3,187,500)
Net Income									5,924,655		5,924,655
Dividends									(2,132,089)		(2,132,089)
Unrealized Gain on Interest Rate Swap					2,314,881						2,314,881

BALANCE on September 30, 2022	5,084,578	$	8,474,297	$	1,683,628	$	278,324	$	91,703,543	$	102,139,792

The accompanying notes are an integral part of these consolidated financial statements.

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NUVERA COMMUNICATIONS, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023 (Unaudited)

Note 1 – Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of Nuvera Communications, Inc. and its subsidiaries (Nuvera) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, rules and regulations of the Securities and Exchange Commission (SEC) and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring accruals) considered necessary for the fair presentation of the financial statements and present fairly the results of operations, financial position and cash flows for the interim periods presented as required by Regulation S-X, Rule 10-01. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

The preparation of our financial statements requires our management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results may differ from these estimates. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period.

Our consolidated financial statements report the financial condition and results of operations for Nuvera and its subsidiaries in one business segment: the Communications Segment. Inter-company transactions have been eliminated from the consolidated financial statements.

Revenue Recognition

See Note 2 – “Revenue Recognition” for a discussion of our revenue recognition policies.

Cost of Services (excluding depreciation and amortization)

Cost of services includes all costs related to the delivery of communication services and products. These operating costs include all the costs of performing services and providing related products including engineering, network monitoring and transportation costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include direct and indirect selling expenses, customer service, billing and collections, advertising and all other general and administrative costs associated with our operations.

Depreciation and Amortization Expense

We use the group life method (mass asset accounting) to depreciate the assets of our communications companies. Communications plant acquired in a given year is grouped into similar categories and depreciated over the remaining estimated useful life of the group. When an asset is retired, both the asset and the accumulated depreciation associated with that asset are removed from the books. Due to rapid changes in technology, selecting the estimated economic life of communications plant and equipment requires a significant amount of judgment. We periodically review data on expected utilization of new equipment, asset retirement activity and net salvage values to determine adjustments to our depreciation rates. In 2022, we accelerated depreciation on our copper networks as we transition to a new fiber-to-the-premise (FTTP) network. Other than this change, we have not made any other significant changes to the lives of these assets in the two-year period ended September 30, 2023. Depreciation expense was $10,009,933 and $9,048,064 for the nine months ended September 30, 2023, and 2022. The increase in depreciation expense in the first nine months of 2023 was primarily due to an increase in capital expenditures used to aid in our transition to a new advanced FTTP network. We amortize our definite-lived intangible assets over their estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment.

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Grant money received from governmental entities for reimbursement of capital expenditures is accounted for as a reduction from the cost of the asset. As the grant was to be used in the Company’s regulated network, the Company accounts for this funding as aid to construction as outlined in the Federal Communications Commission (FCC) Part 32 “Uniform System of Accounts for Telecommunications Companies.” The resulting balance sheet presentation reflects the Company’s net investment in the assets in our property, plant and equipment. Depreciation is calculated and recorded based on the reduced cost of the investment, therefore the impact of prior grants received is reflected in earnings as a reduction in depreciation. Grant funds are shown as inflows in the financing activities section of the statement of cash flows.

Income Taxes

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax basis. Significant components of our deferred taxes arise from differences (i) in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes, as well as (ii) in partnership investments and intangible assets due to the difference between book and tax basis. Our effective income tax rate is normally higher than the United States tax rate due to state income taxes and permanent differences.

We account for income taxes in accordance with GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. As required by GAAP, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of September 30, 2023, and December 31, 2022, we had $19,787 of unrecognized tax benefits that if recognized would affect the tax rate. We do not expect the total amount of unrecognized tax benefits to materially change over the next twelve months.

We are primarily subject to United States, Minnesota, Iowa, Nebraska, North Dakota and Wisconsin income taxes. Tax years subsequent to 2018 remain open to examination by federal and state tax authorities. During the year ending December 31, 2022, we settled our examination by the State of Minnesota. The examination did not have a material effect on our financial statements. Our policy is to recognize interest and penalties related to income tax matters as income tax expense. As of September 30, 2023, and December 31, 2022, we had $3,518 of accrued interest or penalties that related to income tax matters.

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Earnings and Dividends Per Share

The basic and diluted net income per share is calculated as follows:

	Three Months Ended September 30, 2023				Three Months Ended September 30, 2022				Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
	Three Months Ended September 30, 2023				Three Months Ended September 30, 2022				Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted

Net Income	$	483,170	$	483,170	$	1,822,648	$	1,822,648	$	5,154,157	$	5,154,157	$	5,924,655	$	5,924,655

Weighted-average common shares outstanding		5,126,581		5,211,382		5,084,578		5,115,477		5,113,007		5,175,507		5,091,391		5,112,358

Net income per share	$	0.09	$	0.09	$	0.36	$	0.36	$	1.01	$	1.00	$	1.16	$	1.16

The weighted-average shares outstanding, basic and diluted, are calculate as follows:

	Three Months Ended September 30, 2023				Three Months Ended September 30, 2022				Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
	Three Months Ended September 30, 2023				Three Months Ended September 30, 2022				Nine Months Ended September 30, 2023				Nine Months Ended September 30, 2022
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted

Weighted-average common shares outstanding	$	5,126,581	$	5,126,581	$	5,084,578	$	5,084,578	$	5,113,007	$	5,113,007	$	5,091,391	$	5,091,391

Dilutive RSU's/Options		-		84,801		-		30,899		-		62,500		-		20,967

Weighted-average common shares outstanding	$	5,126,581	$	5,211,382	$	5,084,578	$	5,115,477	$	5,113,007	$	5,175,507	$	5,091,391	$	5,112,358

Nuvera’s Board of Directors (BOD) reviews quarterly dividend declarations based on our anticipated earnings, capital requirements and our operating and financial conditions.

Recent Accounting Developments

Effective January 1, 2022, we adopted Accounting Standards Update (ASU) No. 2021-10 “Disclosures by Business Entities about Government Assistance.” ASU 2021-10 requires disclosure by business entities of the types of government assistance received, the method of accounting for such assistance and the effects of the assistance on its financial statements. The adoption of this guidance did not have a material impact on our related disclosures.

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU 2020-04 provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. During the quarter ended June 30, 2022, we novated a certain hedging relationship to one our interest rate swap agreements (IRSAs) by changing the reference rated from the London Inter-Bank Offered Rate to a secured overnight financing rate (SOFR). The amendment did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosures relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. The Company is required to adopt ASU 2016-13 for fiscal periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption as of December 15, 2018, is permitted. As of January 1, 2022, the Company adopted ASU 2016-13 and the adoption did not have a significant impact on our consolidated financial statements.

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We have reviewed all other significant newly issued accounting pronouncements and determined that they are either not applicable to our business or that no material effect is expected on our financial position and results of operations.

Note 2 – Revenue Recognition

The Company recognizes revenue based on the following single principles-based, five-step model that is applied to all contracts with customers. These steps include (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when each performance obligation is satisfied.

Our revenue contracts with customers may include a promise or promises to deliver services such as broadband, video or voice services. Promised services are considered distinct as the customer can benefit from the services either on their own or together with other resources that are readily available to the customer and the Company’s promise to transfer service to the customer is separately identifiable from other promises in the contract. The Company accounts for services as separate performance obligations. Each service is considered a single performance obligation as it provides a series of distinct services that are substantially the same and have the same pattern of transfer.

The transaction price is determined at contract inception and reflects the amount of consideration to which we expect to be entitled in exchange for transferring service to the customer. This amount is generally equal to the market price of the services promised in the contract and may include promotional or bundling discounts. The majority of our prices are based on tariffed rates filed with regulatory bodies or standard company price lists. The transaction price excludes amounts collected on behalf of third parties such as sales taxes and regulatory fees. Conversely, nonrefundable up-front fees, such as service activation and set-up fees, which are immaterial to our overall revenues, are included in the transaction price. In determining the transaction price, we consider our enforceable rights and obligations within the contract. We do not consider the possibility of a contract being cancelled, renewed or modified, which is consistent with Accounting Standards Codification (ASC) 606-10-32-4.

The transaction price is allocated to each performance obligation based on the standalone selling price of the service, net of the related discount, as applicable.

Revenue is recognized when performance obligations are satisfied by transferring service to the customer as described below.

Significant Judgements

The Company often provides multiple services to a customer. Provision of customer premise equipment (CPE) and additional service tiers may have a significant level of integration and interdependency with the subscription voice, video, Internet or connectivity services. Judgement is required to determine whether the provision of CPE, installation services and additional service tiers are considered distinct and accounted for separately, or not distinct and accounted for together with the subscription services.

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Allocation of the transaction price to the distinct performance obligations in bundled service subscriptions requires judgement. The transaction price for a bundle of services is frequently less than the sum of standalone selling prices of each individual service. Bundled discounts are allocated proportionally to the selling price of each individual service within the bundle. Standalone selling prices for the Company’s services are directly observable.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three months ended September 30, 2023, and 2022:

	Three Months Ended September 30,
	2023		2022
Voice Service¹	$	1,505,320	$	1,550,057
Network Access¹		909,502		1,224,952
Video Service¹		3,005,010		3,126,733
Data Service¹		6,327,829		6,209,861
Directory²		151,562		165,094
Other Contracted Revenue³		653,417		683,973
Other⁴		600,171		317,974

Revenue from customers		13,152,811		13,278,644

Subsidy and other revenue outside scope of ASC 606⁵		3,217,667		3,202,483

Total revenue	$	16,370,478	$	16,481,127

¹ Month-to-Month contracts billed and cosumed in the same month.

² Directory revenue is contracted annually, however, this revenue is recognized monthly over the contract period as the advertising is used.

³ This includes long-term contracts where the revenue is recognized monthly over the term of the contract.

⁴ This includes CPE and other equipment sales.

⁵ This includes governmental subsidies and lease revenue outside the scope of ASC 606.

For the three months ended September 30, 2023, approximately 76.68% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 19.65% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 3.67% of total revenue was from other sources including CPE and equipment sales and installation.

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For the three months ended September 30, 2022, approximately 78.64% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 19.43% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 1.93% of total revenue was from other sources including CPE and equipment sales and installation.

The following table summarizes revenue from contracts with customers for the nine months ended September 30, 2023, and 2022:

	Nine Months Ended September 30,
	2023		2022
Voice Service¹	$	4,373,187	$	4,748,380
Network Access¹		3,027,881		3,790,634
Video Service¹		9,120,164		9,446,473
Data Service¹		18,850,042		18,543,327
Directory²		454,852		490,832
Other Contracted Revenue³		2,019,130		2,048,531
Other⁴		1,497,123		917,181

Revenue from customers		39,342,379		39,985,358

Subsidy and other revenue outside scope of ASC 606⁵		9,675,733		9,410,904

Total revenue	$	49,018,112	$	49,396,262

¹ Month-to-Month contracts billed and cosumed in the same month.

² Directory revenue is contracted annually, however, this revenue is recognized monthly over the contract period as the advertising is used.

³ This includes long-term contracts where the revenue is recognized monthly over the term of the contract.

⁴ This includes CPE and other equipment sales.

⁵ This includes governmental subsidies and lease revenue outside the scope of ASC 606.

For the nine months ended September 30, 2023, approximately 77.21% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 19.74% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 3.05% of total revenue was from other sources including CPE and equipment sales and installation.

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For the nine months ended September 30, 2022, approximately 79.09% of our total revenue was from month-to-month and other contracted revenue from customers. Approximately 19.05% of our total revenue was from revenue sources outside of the scope of ASC 606. The remaining 1.86% of total revenue was from other sources including CPE and equipment sales and installation.

A significant portion of our revenue is derived from customers who may generally cancel their subscriptions at any time without penalty. As such, the amount of revenue related to unsatisfied performance obligations is not necessarily indicative of the future revenue to be recognized from our existing customer base. Revenue from customers with a contractually specified term and non-cancelable service period will be recognized over the term of such contracts, which is generally 3 to 10 years for these types of contracts.

Nature of Services

Revenues are earned from our customers primarily through the connection to our advanced fiber networks, digital and commercial television (TV) programming, Internet services (high-speed broadband), and hosted and managed services. Revenues for these services are billed based on set rates for monthly service or based on the amount of time the customer is utilizing our facilities. The revenue for these services is recognized over time as the service is rendered.

Voice Service – We receive recurring revenue for basic local services that enable end-user customers to make and receive telephone calls within a defined local calling area for a flat monthly fee. In addition to subscribing to basic local telephone services, our customers may choose from multiple voice service plans with a variety of custom calling features such as call waiting, call forwarding, caller identification and voicemail. Our Voice over Internet Protocol (VoIP) digital phone service is also available as an alternative to the traditional telephone line. Customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one-month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

Network Access – We provide access services to other communication carriers for the use of our facilities to terminate or originate long distance calls on our network. Additionally, we bill monthly subscriber line charges (SLCs) to substantially all of our customers for access to the public switched network. These monthly SLCs are regulated and approved by the FCC. In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide support and distribute funding to us.

Revenues earned from other communication carriers accessing our network are based on the utilization of our network by these carriers as measured by minutes of use on the network or special access to the network by the individual carriers on a monthly basis. Revenues are billed at tariffed access rates for both interstate and intrastate calls and are recognized as revenue monthly based on the period the access was provided.

The National Exchange Carriers Association (NECA) pools and redistributes the SLCs to various communication providers through the Connect America Fund (CAF). These revenues are earned and recognized into revenue on a monthly basis. Any adjustments to these amounts received by NECA are adjusted for in revenue upon receipt of the adjustment.

Video Service – We provide a variety of enhanced video services on a monthly recurring basis to our customers. We also receive monthly recurring revenue from our subscribers for providing commercial TV programming in competition with local cable TV (CATV), satellite dish TV and off-air TV service providers. We serve twenty-two communities with our Internet Protocol (IPTV) services and five communities with our CATV services. Customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one-month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

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Data Service – We provide high speed Internet to business and residential customers depending on the nature of the network facilities that are available, the level of service selected and the location. Our revenue is earned based on the offering of various flat packages based on the level of service, data speeds and features. We also provide e-mail and managed services, such as web hosting and design, on-line file back up and on-line file storage. Data customers may generally cancel their subscriptions at any time without penalty. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized over a one-month service period as the subscription services are delivered. Other optional services purchased by the customer are generally accounted for as a distinct performance obligation when purchased and revenue is recognized when the service is provided.

Directory – Our directory publishing revenue in our telephone directories recurs monthly and is recognized as revenue on a monthly basis.

Other Contracted Revenue - Managed services and certain other data customers include advanced fiber-delivered communications and managed information technology solutions to mainly business customers, as well as high-capacity last-mile data connectivity services to wireless and wireline carriers. Services are primarily offered on a subscription basis with a contractually specified and non-cancelable service period. The non-cancelable contract terms for these customers generally range from three to ten years. Each subscription service provided is accounted for as a distinct performance obligation and revenue is recognized ratably over the contract period as the subscription services are delivered. These services are billed as monthly recurring charges to customers.

Other – We also generate revenue from the sales, service and installation of CPE and other services. Sales and service of CPE are billed and recognized into revenue once the sale or service is complete or delivered. These sales and services are generally short-term in nature and are completed within one month. Other revenues are immaterial to our total revenues.

Subsidy and Other Revenue outside the scope of ASC 606 – We receive subsidies from governmental entities to operate and expand our advanced fiber networks. In addition, we have revenue from leasing arrangements. Both of these revenue streams are outside of the scope of ASC 606.

Interstate access rates are established by a nationwide pooling of companies known as NECA. The FCC established NECA in 1983 to develop and administer interstate access service rates, terms and conditions. Revenues are pooled and redistributed on the basis of a company's actual or average costs. There has been a change in the composition of interstate access charges in recent years, shifting more of the charges to the end user and reducing the amount of access charges paid by the interexchange carriers (IXC’s). We believe this trend will continue.

Intrastate access rates are filed with state regulatory commissions in Minnesota and Iowa.

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The Company currently receives funding based on the Alternative Connect America Cost Model (A-CAM) as described below, with the exception of Scott-Rice Telephone Company (Scott-Rice), which receives funding from the Federal Universal Service Fund (FUSF). Scott-Rice’s settlements from the pools are based on nationwide average schedules, which includes the pooling and redistribution of revenues based on a company’s actual or average costs as described below.

A-CAM

As described above, with the exception of Scott-Rice, the remainder of our companies receive funding from A-CAM.

Per the FCC Public Notice DA 19-115, the Company receives A-CAM support and has corresponding service deployment obligations under that program. The Company annually receives (i) $596,084 for its Iowa operations and (ii) $8,354,481 for its Minnesota operations. The Company will receive the A-CAM support for a period of 10 years, which started in 2019. The Company uses the funding that it receives through the A-CAM program to meet its defined broadband build-out obligations, which the Company is currently completing.

On September 29, 2023, Nuvera announced that it had notified the FCC that the Company had decided to remain on the current A-CAM funding, rather than moving to the Enhanced A-CAM (E-ACAM) program that the FCC introduced earlier in 2023. A-CAM and E-ACAM are FCC administered programs to subsidize the deployment of broadband to rural areas. E-ACAM is a successor to this program which requires participating carriers to offer broadband and voice services at speeds of 100/20 Mbps or faster to all E-ACAM required locations within its study area. Broadband providers were required to choose one of the two funding options and notify the FCC by September 29, 2023.

Accounts Receivable, Contract Assets and Contract Liabilities

The following table provides information about our receivables, contracts assets and contract liabilities from revenue contracts with our customers:

	September 30, 2023		September 30, 2022
	September 30, 2023		September 30, 2022

Accounts receivable, net - beginning balance	$	1,477,692	$	1,512,369
Accounts receivable, net - ending balance		2,437,313		2,449,882

Contract assets - beginning balance		794,193		662,437
Contract assets - ending balance		1,445,577		735,482

Contract liabilities - beginning balance		626,306		602,007
Contract liabilities - ending balance		715,279		831,479

Accounts Receivable

A receivable is recognized in the period the Company provides goods and services when the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are generally 30-60 days.

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Contract Assets

Contract assets include costs that are incremental to the acquisition of a contract. Incremental costs are those that result directly from obtaining a contract or costs that would not have been incurred if the contract had not been obtained, which primarily relates to sales commissions. We defer and amortize these costs over the expected customer life as the contract obligations are satisfied. We determined that the expected customer life is the expected period of benefit as the commission on the renewal contract is commensurate with the commission on the initial contract. During the three months ended September 30, 2023, and 2022 the Company recognized expenses of $141,051 and $77,215, respectively, related to deferred contact acquisition costs. During the nine months ended September 30, 2023, and 2022 the Company recognized expenses of $340,786 and $214,946, respectively, related to deferred contact acquisition costs. Short-term contact assets are included in current assets under prepaid expenses and other current assets. Long-term contract assets are included in investments and other assets under other assets.

Contract Liabilities

Contract liabilities include deferred revenues related to advanced payments for services and nonrefundable, upfront service activation and set-up fees, which are generally deferred. In addition, contact liabilities include customer deposits that are not recognized as revenue, but are instead returned to the customer after a holding period. Short-term contract liabilities include deferred revenues for advanced payments for managed services and other long-term contracts. This includes the current portion of the deferred revenues that will be recognized monthly within one year. Short-term contact liabilities are included in current liabilities under other accrued liabilities. Long-term contract liabilities include deferred revenues for advanced payments for managed services and other long-term contracts. This includes the portion longer than one year and the corresponding deferred revenues are recognized into revenue on a monthly basis based on the term of the contract. Long-term contact liabilities are included in noncurrent liabilities under other accrued liabilities.

During the three months ended September 30, 2023, and 2022, the Company recognized revenues of $54,413 and $48,323, respectively, related to deferred revenues. During the nine months ended September 30, 2023, and 2022, the Company recognized revenues of $302,831 and $284,259, respectively, related to deferred revenues.

Performance Obligations

ASC 606, Revenue from Contracts with Customers, requires that the Company disclose the aggregate amount of the transaction price that is allocated to remaining performance obligations that are unsatisfied as of September 30, 2023. The guidance provides certain practical expedients that limit this requirement. The service revenue contracts of the Company meet the following practical expedients provided by ASC 606:

1. The performance obligation is part of a contract that has an original expected duration of one year or less.

2. Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer in accordance with ASC 606-10-55-18.

The Company has elected these practical expedients. Performance obligations related to our service revenue contracts are generally satisfied over time. For services transferred over time, revenue is recognized based on amounts invoiced to the customer as the Company has concluded that the invoice amount directly corresponds with the value of services provided to the customer. Management considers this a faithful depiction of the transfer of control as services are substantially the same and have the same pattern of transfer over the life of the contract. As such, revenue related to unsatisfied performance obligations that will be billed in future periods has not been disclosed.

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Note 3 – Leases

Under FASB’s ASU 2016-02, “Leases,” which, together with its related clarifying ASUs, provided revised guidance for lease accounting and related disclosure requirements and established a right-to-use (ROU) model that requires lessees to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The ASU also requires disclosures to allow financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative requirements, providing additional information about the amounts recorded in the financial statements.

The following tables include the ROU assets and operating lease liabilities as of September 30, 2023, and December 31, 2022. Short-term operating lease liabilities are included in current liabilities in other accrued liabilities. Long-term operating lease liabilities are included in noncurrent liabilities in other accrued liabilities.

	Balance September 30, 2023		Balance December 31, 2023
Right of Use Assets	Balance September 30, 2023		Balance December 31, 2023
Operating Lease Right-Of-Use Assets	$	1,276,743	$	1,341,029

Balance

September 30, 2023

Balance

December 31, 2022

Operating Lease Liabilities

Short-Term Operating Lease Liabilities

382,423