10-Q 1 shen-20240630.htm 10-Q shen-20240630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 June 30, 2024
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________

Commission File No.: 000-09881

shentela06.jpg
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162807
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

500 Shentel Way, Edinburg, Virginia    22824
(Address of principal executive offices)  (Zip Code)

(540) 984-4141 
(Registrant's telephone number, including area code) 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
Common Stock (No Par Value)SHENNASDAQ Global Select Market54,572,498
(Title of Class)(Trading Symbol)(Name of Exchange on which Registered)(The number of shares of the registrant's common stock outstanding on July 31, 2024)

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 such files).   Yes    No ☐

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

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




SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX

  Page
Numbers
PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements 
   
 Unaudited Condensed Consolidated Balance Sheets
  
 
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
  
 
Unaudited Condensed Consolidated Statements of Temporary Equity and Shareholders’ Equity
  
 Unaudited Condensed Consolidated Statements of Cash Flows
  
 Notes to Unaudited Condensed Consolidated Financial Statements
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures about Market Risk
  
Item 4.Controls and Procedures
  
PART II.OTHER INFORMATION
  
Item 1.Legal Proceedings
Item 1A.Risk Factors
  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
  
Item 5.
Other Information
Item 6.Exhibits
  
 Signatures
  
2


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)June 30,
2024
December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents$43,779 $139,255 
Accounts receivable, net of allowance for credit losses of $1,333 and $886, respectively
29,639 19,782 
Income taxes receivable5,537 4,691 
Prepaid expenses and other20,567 11,782 
Current assets held for sale 561 
Total current assets99,522 176,071 
Investments15,135 13,198 
Property, plant and equipment, net1,337,252 850,337 
Goodwill and intangible assets, net169,489 81,123 
Operating lease right-of-use assets20,444 13,024 
Deferred charges and other assets14,491 11,561 
Non-current assets held for sale 68,915 
Total assets$1,656,333 $1,214,229 
LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt, net of unamortized loan fees$8,726 $7,095 
Accounts payable57,725 53,546 
Advanced billings and customer deposits14,928 12,394 
Accrued compensation12,308 11,749 
Current operating lease liabilities3,138 2,222 
Accrued liabilities and other15,264 7,747 
Current liabilities held for sale 3,602 
Total current liabilities112,089 98,355 
Long-term debt, less current maturities, net of unamortized loan fees288,570 292,804 
Other long-term liabilities:
Deferred income taxes186,305 85,664 
Benefit plan obligations4,971 3,943 
Non-current operating lease liabilities11,431 7,185 
Other liabilities40,505 16,912 
Non-current liabilities held for sale 56,696 
Total other long-term liabilities243,212 170,400 
Commitments and contingencies (Note 15)
Temporary equity:
Redeemable noncontrolling interest79,380  
Shareholders’ equity:
Common stock, no par value, authorized 96,000; 54,572 and 50,272 issued and outstanding at June 30, 2024 and December 31, 2023, respectively
  
Additional paid in capital143,784 66,933 
Retained earnings785,893 584,069 
Accumulated other comprehensive income, net of taxes3,405 1,668 
Total shareholders’ equity933,082 652,670 
Total liabilities, temporary equity and shareholders’ equity$1,656,333 $1,214,229 
See accompanying notes to unaudited condensed consolidated financial statements.
3

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)Three Months Ended
June 30,
Six Months Ended
June 30,
2024202320242023
Service revenue and other$85,799 $66,644 $155,047 $133,809 
Operating expenses:
Cost of services exclusive of depreciation and amortization34,541 24,753 60,526 50,183 
Selling, general and administrative30,239 25,041 58,217 51,069 
Integration and acquisition11,325 301 11,943 432 
Impairment expense 836  1,020 
Depreciation and amortization25,579 15,831 43,022 30,916 
Total operating expenses101,684 66,762 173,708 133,620 
Operating (loss) income(15,885)(118)(18,661)189 
Other (expense) income:
Interest expense(3,996)(905)(8,072)(1,297)
Other income, net1,908 1,082 3,644 2,591 
(Loss) income from continuing operations before income taxes(17,973)59 (23,089)1,483 
Income tax (benefit) expense(5,200)1,459 (6,226)2,141 
Loss from continuing operations(12,773)(1,400)(16,863)(658)
Discontinued operations:
(Loss) income from discontinued operations, net of tax(99)3,190 1,882 4,514 
Gain on the sale of discontinued operations, net of tax  216,805  
Total (loss) income from discontinued operations, net of tax(99)3,190 218,687 4,514 
Net (loss) income(12,872)1,790 201,824 3,856 
Other comprehensive income:
Gain on interest rate hedge, net of tax143 2,127 1,737 2,127 
Comprehensive (loss) income$(12,729)$3,917 $203,561 $5,983 
Net (loss) income per share, basic and diluted:
Loss from continuing operations$(0.24)$(0.03)$(0.32)$(0.01)
(Loss) income from discontinued operations, net of tax 0.07 4.16 0.09 
Net (loss) income per share$(0.24)$0.04 $3.84 $0.08 
Weighted average shares outstanding, basic and diluted54,730 50,366 52,620 50,330 

See accompanying notes to unaudited condensed consolidated financial statements.

4

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF TEMPORARY EQUITY AND SHAREHOLDERS' EQUITY
(in thousands)
Redeemable Noncontrolling Interest
Common Stock
SharesAmountShares
(no par value)
Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total Shareholders’ Equity
Balance, March 31, 2024 $ 50,447 $69,616 $798,765 $3,262 $871,643 
Net loss — — — — (12,872)— (12,872)
Stock-based compensation— — 37 2,538 — — 2,538 
Common stock issued— — 4,100 71,845 — — 71,845 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards— — (12)(215)— — (215)
Gain on interest rate hedge, net of tax— — — — — 143 143 
Issuance of redeemable noncontrolling interest81 79,380 — — — — — 
Balance, June 30, 202481 $79,380 54,572 $143,784 $785,893 $3,405 $933,082 
Redeemable Noncontrolling Interest
Common Stock
SharesAmountShares
(no par value)
Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total Shareholders’ Equity
Balance, December 31, 2023 $ 50,272 $66,933 $584,069 $1,668 $652,670 
Net income— — — — 201,824 — 201,824 
Stock-based compensation— — 285 6,673 — — 6,673 
Common stock issued— — 4,100 71,849 — — 71,849 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards— — (85)(1,671)— — (1,671)
Gain on interest rate hedge, net of tax— — — — — 1,737 1,737 
Issuance of redeemable noncontrolling interest81 79,380 — — — — — 
Balance, June 30, 202481 $79,380 54,572 $143,784 $785,893 $3,405 $933,082 
Redeemable Noncontrolling Interest
Common Stock
SharesAmountShares
(no par value)
Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total Shareholders’ Equity
Balance, March 31, 2023 $ 50,247 $60,160 $582,620 $ $642,780 
Net income
— — — — 1,790 — 1,790 
Stock-based compensation— — 24 2,878 — — 2,878 
Common stock issued— — — 11 — — 11 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards— — (7)(161)— — (161)
Gain on interest rate hedge, net of tax— — — — — 2,127 2,127 
Balance, June 30, 2023 $ 50,264 $62,888 $584,410 $2,127 $649,425 
5

Redeemable Noncontrolling Interest
Common Stock
SharesAmountShares of Common Stock (no par value)Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total Shareholders’ Equity
Balance, December 31, 2022 $ 50,110 $57,453 $580,554 $ $638,007 
Net income
— — — — 3,856 — 3,856 
Stock-based compensation— — 220 6,730 — — 6,730 
Common stock issued— — 1 22 — — 22 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards— — (67)(1,317)— — (1,317)
Gain on interest rate hedge, net of tax— — — — — 2,127 2,127 
Balance, June 30, 2023 $ 50,264 $62,888 $584,410 $2,127 $649,425 

See accompanying notes to unaudited condensed consolidated financial statements.
6

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)Six Months Ended
June 30,
20242023
Cash flows from operating activities:
Net income$201,824 $3,856 
Income from discontinued operations, net of tax218,687 4,514 
Loss from continuing operations(16,863)(658)
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of business acquisition
Depreciation and amortization43,022 30,916 
Stock-based compensation expense, net of amount capitalized6,236 6,320 
Impairment expense 1,020 
Deferred income taxes(6,226)2,860 
Provision for credit losses1,266 1,141 
Other, net150 (313)
Changes in assets and liabilities:
Accounts receivable965 4,499 
Current income taxes234 25,108 
Operating lease assets and liabilities, net(233)73 
Other assets(3,354)2,233 
Accounts payable(1,140)(3,012)
Other deferrals and accruals(882)(6,696)
Net cash provided by operating activities - continuing operations23,175 63,491 
Net cash (used in) provided by operating activities - discontinued operations(5,476)6,309 
Net cash provided by operating activities17,699 69,800 
Cash flows from investing activities:
Capital expenditures(150,914)(135,261)
Government grants received7,653 110 
Cash disbursed for acquisition, net of cash acquired(347,411) 
Proceeds from sale of assets and other1,715 508 
Net cash used in investing activities - continuing operations(488,957)(134,643)
Net cash provided by (used in) investing activities - discontinued operations305,827 (1,007)
Net cash used in investing activities(183,130)(135,650)
Cash flows from financing activities:
Principal payments on long-term debt(2,618) 
Proceeds from credit facility borrowings 50,000 
Payments for debt amendment costs(4,390)(300)
Proceeds from the issuance of redeemable noncontrolling interest, net of financing fees paid79,380  
Taxes paid for equity award issuances(1,671)(1,317)
Payments for financing arrangements and other(746)(290)
Net cash provided by financing activities69,955 48,093 
Net decrease in cash and cash equivalents(95,476)(17,757)
Cash and cash equivalents, beginning of period139,255 44,061 
Cash and cash equivalents, end of period$43,779 $26,304 
Supplemental Disclosures of Cash Flow Information
Interest paid, net of amounts capitalized
$(6,526)$(841)
Income tax (paid) refunds received, net$(7,085)$25,481 

See accompanying notes to unaudited condensed consolidated financial statements.
7

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation and Other Information

Shenandoah Telecommunications Company and its subsidiaries (collectively, “Shentel”, “we”, “our”, “us”, or the “Company”) provide broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania, Kentucky, Delaware, Ohio and Indiana, via fiber optic and hybrid fiber coaxial cable networks. We also lease dark fiber and provide Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. Shentel’s Broadband business also provides voice and DSL telephone services as a Rural Local Exchange Carrier (“RLEC”) to customers in Shenandoah County and portions of adjacent counties in Virginia, and in Ross County and portions of adjacent counties in Ohio. These integrated networks are connected by a fiber network.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. All normal recurring adjustments considered necessary for a fair presentation have been included. Certain disclosures normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023.

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses and related disclosures. On an on-going basis we evaluate significant estimates and assumptions, including, but not limited to, revenue recognition, stock-based compensation, estimated useful lives of assets, impairment of goodwill and indefinite-lived intangible assets, intangible assets subject to amortization, the computation of income taxes and the fair value of interest rate swaps. Future events and their effects cannot be predicted with certainty; accordingly, the Company’s accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the Company’s operating environment changes. Management evaluates and updates assumptions and estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Horizon Transaction

On April 1, 2024 (the “Closing Date”), Shentel completed its previously announced acquisition of Horizon Acquisition Parent LLC, a Delaware limited liability company (“Horizon”), pursuant to the terms of an Agreement and Plan of Merger, dated October 24, 2023, by and among Shentel, Horizon, the sellers set forth on the signature pages thereto (each, a “Seller” and collectively, the “Sellers”) and the other parties thereto (as amended by the First Amendment to Agreement and Plan of Merger, dated April 1, 2024, the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, on the Closing Date, Shentel acquired 100% of the outstanding equity interests of Horizon in exchange for (i) issuing 4,100,375 shares of Shentel’s common stock, no par value (“Common Stock”), to an investment fund managed by affiliates of GCM Grosvenor, which is one of the Sellers (the “Selling Shareholder”); and (ii) paying $305 million in cash consideration to the other Sellers and certain third parties, including Horizon’s existing lenders to discharge debt (collectively, the “Horizon Transaction”). Cash consideration paid also included purchase price adjustments for capital expenditure reimbursements and working capital subject to subsequent adjustments as defined in the merger agreement. The Selling Shareholder agreed to an investor rights agreement with the Company that includes among other provision, a one year lockup period for the shares of Common Stock received.

Horizon is a leading commercial fiber provider in Ohio and adjacent states serving national wireless providers, carriers, enterprises, and government, education and healthcare customers. The acquisition of Horizon will allow Shentel to advance its fiber expansion strategy by doubling the size of the Company’s commercial fiber business and adding new expansion markets for its Glo Fiber business.

Refer to Note 2, Acquisition of Horizon, for more information regarding the Horizon Transaction and its impact on the Company’s financial statements.

Series A Preferred Stock

8

Contemporaneously with the execution of the Merger Agreement, on October 24, 2023, Shentel and Shentel Broadband Holding Inc., a wholly-owned subsidiary of Shentel (“Shentel Broadband”), entered into an investment agreement (the “Investment Agreement”) with ECP Fiber Holdings, LP, a Delaware limited partnership (“ECP Investor”), and, solely for the limited purposes set forth therein, Hill City Holdings, LP, a Delaware limited partnership affiliated with ECP Investor. Subject to the terms and conditions set forth in the Investment Agreement, on the Closing Date, Shentel Broadband issued to ECP Investor 81,000 shares of Shentel Broadband’s 7% Series A Participating Exchangeable Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a purchase price of $1,000 per share in exchange for $81 million in cash. The Series A Preferred Stock is exchangeable at the option of the Investor in certain circumstances for shares of Common Stock at an exchange price of $24.50 per share (as it may be adjusted pursuant to the terms of the Investment Agreement, the “Exchange Price”).

As a condition to closing the transactions contemplated by the Investment Agreement and Amendment No. 3 to the Credit Agreement, Shentel completed a corporate reorganization of Shentel’s subsidiaries (the “Reorganization”). As a result of the Reorganization effected on the Closing Date, Shentel Broadband Operations LLC, a wholly-owned subsidiary of Shentel Broadband, holds or has equity interest in substantially all of the operating assets of Shentel and was assigned and assumed the Credit Agreement.

On the Closing Date, Shentel Broadband filed a certificate of designations with the Secretary of State of the State of Delaware authorizing 100,000 shares of Series A Preferred Stock and setting forth the powers, designations, preferences, rights, qualifications, limitations and restrictions of the Series A Preferred Stock (the “Certificate of Designations”). The Series A Preferred Stock ranks senior to Shentel’s Common Stock with respect to the payment of dividends and with respect to the distribution of assets upon Shentel Broadband’s liquidation, dissolution or winding up. Dividends on the Series A Preferred Stock accrue at 7% per annum compounded and payable quarterly in arrears, and, at Shentel’s option, may be paid in cash or in kind (such dividends paid in kind, “PIK Dividends”). The PIK Dividend rate is subject to increase to 8.5% and 10% after the fifth and seventh anniversaries of the Closing Date, respectively, to the extent any dividends accrued during the period from and including such anniversary dates are paid in the form of PIK Dividends.

Beginning two years after the Closing Date, Shentel may require the Investor to exchange the Series A Preferred Stock for shares of Common Stock if the price per share of the Common Stock exceeds 125% of the Exchange Price, subject to certain conditions. After five years, Shentel may redeem all of the Series A Preferred Stock for the greater of (i) $1,000 per share, plus (a) any accrued PIK Dividend amount and (b) accrued and unpaid dividends to, but excluding the redemption date (to the extent such accrued and unpaid dividends are not included in such PIK Dividend amount), and (ii) the value of the shares of Common Stock for which such Series A Preferred Stock are exchangeable.

Under the terms of the Investment Agreement, the Investor has the right to nominate a director to the Board so long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock).

So long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock), the Investor is subject to certain standstill provisions and voting covenants and has certain other rights with respect to the shares of Series A Preferred Stock, including, among others, pre-emptive, information and participation rights. The shares of Series A Preferred Stock are subject to a lock-up until the first anniversary of the Closing Date and are subject to certain other transfer restrictions.

Refer to Note 12, Redeemable Noncontrolling Interest, for more information regarding the Series A Preferred Stock and its impact on the Company’s financial statements.

Amendment No. 3 to Credit Agreement

On April 1, 2024, Shentel entered into Amendment No. 3 to Credit Agreement, Incremental Term Loan Funding Agreement, Joinder and Assignment and Assumption (the “Third Amendment”) to its existing Credit Agreement, dated as of July 1, 2021, with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders (as previously amended by Amendment No. 1 to Credit Agreement, dated as of May 17, 2023, and Consent and Amendment No. 2 to Credit Agreement, dated October 24, 2023, the “Credit Agreement”).

The Third Amendment provides for, among other things, incremental delay draw term loan commitments under the Credit Agreement in an aggregate amount equal to $225 million and an increase in the revolving commitment under the Credit Agreement in an amount equal to $50 million. Refer to Note 9, Debt, for more information regarding the Credit Agreement.

9

Sale of Shentel’s Tower Portfolio

On March 29, 2024, Shenandoah Mobile, LLC, a wholly-owned subsidiary of Shenandoah Telecommunications Company, completed the initial closing of its previously disclosed sale of substantially all of Shentel’s tower portfolio and operations (“Tower Portfolio”) to Vertical Bridge Holdco, LLC for $309.9 million (the “Tower Transaction”). The Company received $305.8 million, net of certain transaction costs at the time of the initial closing. At the initial close, the Company conveyed sites representing approximately 99.5% of the tower portfolio value. The Company expects to convey the remaining tower sites in the portfolio by the end of March 2025. The Tower Transaction was completed pursuant to the terms of a Purchase and Sale Agreement, dated February 29, 2024, as amended by Amendment No. 1 to the Purchase and Sale Agreement, dated March 29, 2024.

The Tower Portfolio represented substantially all of the assets and operations in Shentel’s previously reported Tower Reporting Segment and the Tower Transaction represented a strategic shift in the Company’s business. Consequently, the Tower Portfolio has been reclassified as a discontinued operation. For all periods presented, the assets and liabilities that transferred in the Tower Transaction (the “disposal group”) are presented as held for sale in our unaudited condensed consolidated balance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in our unaudited condensed consolidated statements of comprehensive (loss) income and unaudited condensed consolidated statements of cash flows. Refer to Note 16, Discontinued Operations, for more information regarding the presentation of the disposal group in the Company’s financial statements.

As a result of the sale of the Tower Portfolio, the Company has one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.

Adoption of New Accounting Standards

There have been no material developments related to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s unaudited condensed consolidated financial statements and note disclosures from those disclosed in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2023, that would be expected to impact the Company.

Note 2. Acquisition of Horizon
The Company accounted for the Horizon Transaction under the acquisition method of accounting, in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 805, “Business Combinations”. Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values. Fair values are determined using the income approach, market approach and/or cost approach depending on the nature of the asset or liability being valued and the reliability of available information. The income approach estimates fair value by discounting associated lifetime expected future cash flows to their present value and relies on significant assumptions regarding future revenues, expenses, working capital levels and discount rates. The market approach estimates fair value by analyzing recent actual market transactions for similar assets or liabilities. The cost approach estimates fair value based on the expected cost to replace or reproduce the asset or liability and relies on assumptions regarding the occurrence and extent of any physical, functional and/or economic obsolescence.

The total purchase price used to apply the acquisition method was $416.2 million, which consisted of $349.4 million of cash consideration paid and $71.8 million of common stock, representing the fair value of 4,100,375 shares of Shentel’s common stock issued to a selling shareholder of Horizon. The fair value of Shentel’s common stock issued was determined on the basis of the opening market price of the common stock on the acquisition date. The purchase price is subject to adjustment for certain working capital adjustments and post-closing indemnities. The cash consideration paid was primarily financed with proceeds from the sale of Shentel’s Tower Portfolio and cash on-hand.

The allocation of the purchase price was based upon management’s preliminary valuation of the fair values of tangible and intangible assets acquired and liabilities assumed in the Horizon Transaction, with the excess recorded as goodwill. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date. The fair value of acquired identifiable assets and liabilties, including but not limited to, property, plant and equipment, intangible assets, operating lease right-of-use assets, deferred tax liabilities, and non-current operating lease liabilities, and the resulting impact on goodwill recognized, are provisional pending receipt of the final valuations for these balances.

10

(in thousands)Amount
Current and other assets$10,465 
Property, plant and equipment386,045 
Goodwill74,630 
Intangible assets14,249 
Operating lease right-of-use assets6,631 
Other long-term assets1,843 
Total assets acquired493,863 
Current liabilities$15,187 
Deferred tax liabilities32,218 
Non-current operating lease liabilities
3,778 
Government grant liabilities16,348 
Other long-term liabilities10,138 
Total liabilities assumed77,669 
Net assets acquired$416,194 

Finalization of the purchase price allocations is dependent on final review and acceptance of the independent appraiser’s valuation report.

Current and other assets acquired include $6.1 million of accounts receivable, net of allowance for credit losses of $0.3 million. Intangible assets acquired primarily relate to customer relationships. The customer relationships are valued using the cost approach to determine the cost that would be incurred to replace these assets. These represent finite-lived intangibles which are being amortized over the assets’ useful lives, which is estimated to be ten years.

The Company has included the results of the operations of Horizon for financial reporting purposes for the period subsequent to the date of acquisition.

In connection with the acquisition, Shentel incurred acquisition-related costs of $6.7 million and $7.1 million related to banking, legal, accounting, and other similar services for the three and six months ended June 30, 2024, respectively. Shentel also incurred severance costs for employees who will not be retained permanently. These costs are recorded as integration and acquisition expenses in the Company’s unaudited condensed consolidated statements of comprehensive (loss) income.

Horizon’s revenue of $16.7 million and loss before income taxes of $7.4 million for the three months ended June 30, 2024 are included in Shentel’s unaudited condensed consolidated statements of comprehensive (loss) income for both the three and six months ended June 30, 2024. The unaudited pro forma results of the Company, as if the Horizon Transaction had occurred on January 1, 2023, are as follows:

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Operating revenues
N/A
$83,164 $170,876 $166,740 
Loss before income taxes
N/A
$(3,952)$(26,911)$(7,116)

The pro forma disclosures shown above are based upon estimated preliminary valuations of the assets acquired and liabilities assumed as well as preliminary estimates of depreciation and amortization charges thereon, that may differ from the final fair values of the acquired assets and assumed liabilities and the resulting depreciation and amortization charges thereon. Other pro forma adjustments include the following:

11

historical depreciation expense was adjusted for the fair value adjustment increasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment;
incremental amortization due to the customer-based contract rights associated with acquired customers; and
removal of Horizon’s interest expense and amortization of deferred financing fees due to the repayment of the outstanding principal of Horizon’s debt.

Note 3. Revenue from Contracts with Customers
The Company’s revenues by activity type are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Residential & SMB - Incumbent Broadband Markets1
$44,960 $44,403 $89,330 $89,159 
Residential & SMB - Glo Fiber Expansion Markets2
14,093 8,164 26,211 15,167 
Commercial Fiber19,921 10,253 29,298 21,951 
RLEC & Other6,825 3,824 10,208 7,532 
Service revenue and other$85,799 $66,644 $155,047 $133,809 
_______________________________________________________
1.Incumbent Broadband Markets consists of Shentel Incumbent Cable Markets and Horizon Incumbent Telephone Markets with Fiber-To-The-Home (“FTTH”) passings.
2.Glo Fiber Expansion Markets consists of FTTH passings in greenfield expansion markets in the Shentel and former Horizon markets.

Shentel updated the description for revenues previously reported as “Residential & SMB - Cable Markets” to “Residential & SMB - Incumbent Broadband Markets” and updated the description for revenues previously reported as “Residential & SMB - Glo Fiber Markets” to “Residential & SMB - Glo Fiber Expansion Markets.”

Contract Assets

The Company’s contract assets primarily include commissions incurred to acquire contracts with customers. The Company incurs commission expenses related to in-house and third-party vendors which are capitalized and amortized over the expected customer benefit period which is approximately six years. The Company’s current contract assets are included in prepaid expenses and other and the Company’s non-current contract assets are included in deferred charges and other assets in its unaudited condensed consolidated balance sheets. Amortization of capitalized commission expenses is recorded in selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of comprehensive (loss) income.

The following tables present the activity of current and non-current contract assets:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Beginning Balance$8,767 $8,756 $8,633 $8,646 
Commission payments1,564 793 2,415 1,684 
Contract asset amortization(986)(807)(1,703)(1,588)
Ending Balance$9,345 $8,742 $9,345 $8,742 

Contract Liabilities

The Company’s contract liabilities include services that are billed in advance and recorded as deferred revenue, as well as installation fees that are charged upfront without transfer of commensurate goods or services to the customer. The Company’s current contract liabilities are included in advanced billings and customer deposits in its unaudited condensed consolidated balance sheets and the Company’s non-current contract liabilities are included in other liabilities in its unaudited condensed consolidated balance sheets.

Shentel’s current contract liability balances were $11.7 million and $10.0 million at June 30, 2024 and December 31, 2023, respectively. Shentel’s non-current contract liability balances were $4.2 million and $1.0 million as of June 30, 2024 and
12

December 31, 2023, respectively. Shentel expects its current contract liability balances to be recognized as revenues during the twelve-month periods following the respective balance sheet dates and its non-current contract liability balances to be recognized as revenues after the twelve-month periods following the respective balance sheet dates.

Note 4. Investments

Investments consist of the following:
(in thousands)June 30,
2024
December 31,
2023
SERP investments at fair value$2,451 $2,290 
Cost method investments12,451 10,675 
Equity method investments233 233 
Total investments$15,135 $13,198 

SERP investments at fair value: The fair value of the SERP investments are based on unadjusted quoted prices in active markets and are classified as Level 1 of the fair value hierarchy.

Cost method investments: Shentel’s investment in CoBank’s Class A common stock, derived from the CoBank patronage program, represented substantially all of the Company’s cost method investments with a balance of $11.8 million and $10.1 million at June 30, 2024 and December 31, 2023, respectively. Shentel recognized approximately $0.4 million and $0.2 million of patronage income in other income for the three months ended June 30, 2024 and 2023, respectively, and approximately $0.7 million and $0.3 million during the six months ended June 30, 2024 and 2023, respectively. The Company expects that approximately 88% of the patronage distributions will be collected in cash and 12% in equity in 2024.

Prior to the Horizon Transaction, Horizon held a $1.6 million investment in CoBank’s Class A common stock. Consequently, the value of Shentel’s investment in CoBank increased by a corresponding amount as a result of the Horizon Transaction.


Note 5. Property, Plant and Equipment

Property, plant and equipment consist of the following:
 
($ in thousands)Estimated Useful LivesJune 30,
2024
December 31,
2023
Land$4,514 $3,671 
Land improvements
10 years
4,448 4,448 
Buildings and structures
10 - 45 years
51,827 42,871 
Cable and fiber
12 - 30 years
1,174,670 799,612 
Equipment and software
4 - 12 years
407,291 331,595 
Plant in service 1,642,750 1,182,197 
Plant under construction 213,027 145,623 
Total property, plant and equipment 1,855,777 1,327,820 
Less: accumulated depreciation and amortization(518,525)(477,483)
Property, plant and equipment, net $1,337,252 $850,337 

Property, plant and equipment, net increased due primarily to capital expenditures driven by the Company’s Glo Fiber market expansion and assets acquired as a result of the Horizon Transaction. The Company’s accounts payable as of June 30, 2024 and December 31, 2023 included amounts associated with capital expenditures of approximately $54.6 million and $51.1 million, respectively. Depreciation and amortization expense was $25.1 million and $15.6 million during the three months ended June 30, 2024 and 2023, respectively, and $42.4 million and $30.7 million during the six months ended June 30, 2024 and 2023, respectively.

13

Note 6. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:
 June 30, 2024December 31, 2023
(in thousands)Gross
Carrying
Amount
Accumulated Amortization and OtherNetGross
Carrying
Amount
Accumulated Amortization and OtherNet
Goodwill$77,874 $— $77,874 $3,244 $— $3,244 
Indefinite-lived intangibles:
Cable franchise rights64,334 — 64,334 64,334 — 64,334 
FCC Spectrum licenses12,122 — 12,122 12,122 — 12,122 
Railroad crossing rights and other528 — 528 217 — 217 
Total indefinite-lived intangibles76,984 — 76,984 76,673 — 76,673 
Finite-lived intangibles:
Subscriber relationships42,447 (27,951)14,496 28,425 (27,370)1,055 
Other intangibles510 (375)135 510 (359)151 
Total finite-lived intangibles42,957 (28,326)14,631 28,935 (27,729)1,206 
Total goodwill and intangible assets$197,815 $(28,326)$169,489 $108,852 $(27,729)$81,123 

Shentel recognized $74.6 million of goodwill, $14.0 million of subscriber relationships and $0.2 million of other intangible assets as a result of the Horizon Transaction. The goodwill recognized primarily consists of synergies expected from combining the operations of Horizon and Shentel and intangible assets acquired that do not qualify for separate recognition, including an assembled workforce. None of the goodwill recognized is expected to be deductible for income tax purposes. Amortization expense was $0.5 million and $0.1 million during the three months ended June 30, 2024 and 2023, respectively, and $0.6 million and $0.2 million during the six months ended June 30, 2024 and 2023, respectively.



Note 7. Other Assets and Accrued Liabilities

Prepaid expenses and other, classified as current assets, included the following:
(in thousands)June 30,
2024
December 31,
2023
Prepaid maintenance expenses$7,893 $5,157 
Broadband contract acquisition costs2,977 2,675 
Interest rate swaps2,985 1,443 
Other6,712 2,507 
Prepaid expenses and other$20,567 $11,782 

Deferred charges and other assets, classified as long-term assets, included the following:
(in thousands)June 30,
2024
December 31,
2023
Broadband contract acquisition costs$6,368 $5,958 
Interest rate swaps1,565 798 
Prepaid expenses and other6,558 4,805 
Deferred charges and other assets$14,491 $11,561 
14


Accrued liabilities and other, classified as current liabilities, included the following:
(in thousands)June 30,
2024
December 31,
2023
Accrued programming costs$3,924 $3,209 
Other current liabilities11,340 4,538 
Accrued liabilities and other$15,264 $7,747 

Other liabilities, classified as long-term liabilities, included the following:
(in thousands)June 30,
2024
December 31,
2023
Noncurrent portion of deferred lease revenue$23,122 $14,670 
Government grant liabilities14,809  
Noncurrent portion of finance leases1,562 1,395 
Other1,012 847 
Other liabilities$40,505 $16,912 

Note 8. Leases

The Company leases various broadband network and telecommunications sites, fiber optic cable routes, warehouses, retail stores and office facilities for use in our business.

The components of lease costs were as follows:

ClassificationThree Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Finance lease cost
Amortization of leased assetsDepreciation$171 $119 $290 $238 
Interest on lease liabilitiesInterest expense24 19 43 39 
Operating lease cost
Operating expense1
1,104 792 1,840 1,648 
Lease cost$1,299 $930 $2,173 $1,925 
_________________________________________
(1)Operating lease expense is presented in cost of services or selling, general and administrative expense based on the use of the relevant facility.

The following table summarizes the expected maturity of lease liabilities as of June 30, 2024:
(in thousands)Operating LeasesFinance LeasesTotal
2024 (remainder of the year)$1,969 $166 $2,135 
20253,523 385 3,908 
20262,640 314 2,954 
20271,777 164 1,941 
20281,487 158 1,645 
2029 and thereafter8,206 1,201 9,407 
Total lease payments19,602 2,388 21,990 
Less: Interest(5,033)(518)(5,551)
Present value of lease liabilities$14,569 $1,870 $16,439 

15

Other information related to operating and finance leases was as follows:

June 30,
2024
December 31,
2023
Operating leases
Weighted average remaining lease term (years)8.67.1
Weighted average discount rate5.9 %5.0 %
Finance leases
Weighted average remaining lease term (years)9.712.3
Weighted average discount rate5.3 %5.2 %

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Cash paid for operating lease liabilities$1,053 $725 $1,818 $1,602 
Operating lease right-of-use assets obtained in exchange for new lease liabilities (includes new leases or modification of existing leases)247 194 1,984 1,687 

The Company also has arrangements which generate lease revenue through operating lease agreements for the use of spare fiber capacity of its fiber network assets. Contract terms for these arrangements can range from 1 to 40 years and are billed monthly. Lease revenue from these arrangements was $1.7 million and $2.4 million for the three and six months ended June 30, 2024, respectively, and $0.6 million and $1.3 million for the three and six months ended June 30, 2023, respectively. These amounts are presented in service revenue and other in the Company’s unaudited condensed consolidated statements of comprehensive (loss) income. Contractual minimum rental receipts expected under the lease agreements in place as of June 30, 2024 is as follows:
(in thousands)Operating Leases
2024 (remainder of the year)$2,721 
20254,711 
20263,945 
20273,596 
20283,418 
2029 and thereafter23,606 
Total
$41,997 

16

Note 9. Debt

Shentel Broadband Operations LLC, an indirect wholly owned subsidiary of Shentel, has a credit agreement, dated as of July 1, 2021 (as amended by (i) Amendment No. 1 to Credit Agreement, dated as of May 17, 2023, (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, and (iii) Amendment No. 3, dated as of April 1, 2024, the “Credit Agreement”), with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders, which contains (i) a $150 million available revolving credit facility due June 2026 (the “Revolver”), (ii) a $150 million delayed draw amortizing term loan due June 2026 (“Term Loan A-1”), (iii) a $150 million delayed draw amortizing term loan due June 2028 (“Term Loan A-2”), and (iv) a $225 million delayed draw amortizing term loan due June 2028 (“Term Loan A-3” and collectively with Term Loan A-1 and Term Loan A-2, the “Term Loans”). The following loans were outstanding under the Credit Agreement:

(in thousands)June 30,
2024
December 31,
2023
Term loan A-1$148,131 $150,000 
Term loan A-2149,251 150,000 
Total debt297,382 300,000 
Less: unamortized loan fees(86)(101)
Total debt, net of unamortized loan fees$297,296 $299,899 

Both Term Loan A-1 and Term Loan A-2 bore interest at one-month LIBOR plus a margin until May 2023 and now bear interest at one-month term SOFR plus a margin. The margin is variable and determined by the Company’s net leverage ratio. At June 30, 2024, Term Loan A-1 had a margin of 1.85% and Term Loan A-2 had a margin of 2.10%. Interest is paid monthly. The interest rate was 7.19% for Term Loan A-1 at June 30, 2024 and 7.44% for Term Loan A-2 at June 30, 2024. The interest rate was 6.95% for both Term Loan A-1 and Term Loan A-2 at December 31, 2023.

Interest expense recorded in Shentel’s unaudited condensed consolidated statements of comprehensive (loss) income consists of the following:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Interest expense
$6,214 $2,104 $11,597 $3,567 
Less: capitalized interest
(2,218)(1,199)(3,525)(2,270)
Interest expense, net of capitalized interest
$3,996 $905 $8,072 $1,297 

The Credit Agreement includes various covenants, including total net leverage ratio and debt service coverage ratio financial covenants.

Shentel’s Term Loans require quarterly payments based on a percentage of the outstanding balance. Based on the outstanding balance as of June 30, 2024, Term Loan A-1 required quarterly principal repayments of 0.63% from March 31, 2024 through June 30, 2024; then increasing to 1.25% quarterly from September 30, 2024 through March 31, 2026, with the remaining balance due June 30, 2026. Based on the outstanding balance as of June 30, 2024, Term Loan A-2 requires quarterly principal repayments of 0.25% from March 31, 2024 through March 31, 2028, with the remaining balance due June 30, 2028.

Shentel has not made any borrowings under its Revolver or Term Loan A-3 as of June 30, 2024. In the event borrowings are made in the future, the entire outstanding principal amount borrowed against the Revolver is due June 30, 2026 and the entire outstanding principal amount borrowed against Term Loan A-3 is due July 1, 2028.

The following table summarizes the expected payments of Shentel’s outstanding borrowings as of June 30, 2024:

17

(in thousands)Amount
2024 (remainder of the year)$4,425 
20258,568 
2026138,827 
20271,450 
2028144,112 
Total$297,382 

Although no borrowings have been executed under the Revolver, Shentel has executed letter of credit arrangements totaling $7.0 million that reduce the available balance of the Revolver. The letter of credit arrangements were executed primarily pursuant to the requirements of the National Telecommunications and Information (“NTIA”) government grant program, discussed further in Note 14, Government Grants. These amounts are not considered borrowed, as no cash has been disbursed to Shentel or other parties.

The Credit Agreement is fully secured by a pledge and unconditional guarantee from the Company and all of its subsidiaries, except Shenandoah Telephone Company. This provides the lenders a security interest in substantially all of the assets of the Company.

Note 10. Derivatives and Hedging

During the second quarter of 2023, Shentel entered into pay fixed (2.90%), receive variable (one-month term SOFR) interest rate swaps totaling $150.0 million of notional principal (the “Swaps”). The Swaps contain monthly payment terms that became effective in May 2024, which extend through their maturity dates in June 2026. The Swaps are designated as cash flow hedges, representing 50% of the Company’s outstanding debt under Term Loan A-1 and Term Loan A-2. The Company uses the Swaps to manage its exposure to interest rate risk for its long-term variable-rate Term Loans.

The Swaps were determined to be highly effective hedges and therefore all change in the fair value of the Swaps was recognized in other comprehensive income.

The table below presents the fair value of the Swaps as well as their classification in the unaudited condensed consolidated balance sheets. The fair value of these instruments was estimated using an income approach and observable market inputs (Level 2):
(in thousands)June 30,
2024
December 31,
2023
Balance sheet line item of derivative financial instruments:
Prepaid expenses and other$2,985 $1,443 
Deferred charges and other assets1,565 798 
Total derivatives designated as hedging instruments$4,550 $2,241 

18

The table below summarizes changes in accumulated other comprehensive income by component:

(in thousands)
Gain on Swaps
Income tax expense
Accumulated Other Comprehensive Income, net of taxes
Balance, March 31, 2024$4,361 $(1,099)$3,262 
Net change in unrealized gain725 (154)571 
Amounts reclassified to interest expense
(536)108 (428)
Net current period other comprehensive income (loss)189 (46)143 
Balance, June 30, 2024$4,550 $(1,145)$3,405 
(in thousands)
Gain on Swaps
Income tax expense
Accumulated Other Comprehensive Income, net of taxes
Balance, December 31, 2023$2,241 $(573)$1,668 
Net change in unrealized gain
2,845 (680)2,165 
Amounts reclassified to interest expense
(536)108 (428)
Net current period other comprehensive income (loss)2,309 (572)1,737 
Balance, June 30, 2024$4,550 $(1,145)$3,405 
(in thousands)
Gain on Swaps
Income tax expense
Accumulated Other Comprehensive Income, net of taxes
Balance, March 31, 2023$ $ $ 
Net change in unrealized gain
2,866 (739)2,127 
Balance, June 30, 2023$2,866 $(739)$2,127 
(in thousands)
Gain on Swaps
Income tax expense
Accumulated Other Comprehensive Income, net of taxes
Balance, December 31, 2022$ $ $ 
Net change in unrealized gain
2,866 (739)2,127 
Balance, June 30, 2023$2,866 $(739)$2,127 

Note 11. Income Taxes

The Company files U.S. federal income tax returns and various state income tax returns. The Company is currently involved in one state income tax audit and no federal income tax audits as of June 30, 2024. The Company’s income tax returns are generally open to examination from 2020 forward and the net operating losses acquired in the acquisition of nTelos are open to examination from 2004 forward.

The effective tax rates for the three and six months ended June 30, 2024 and 2023, differ from the statutory U.S. federal income tax rate of 21% primarily due to the state income taxes, excess tax benefits and other discrete items.
19

 Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Expected tax (benefit) expense at federal statutory$(3,775)$12 $(4,849)$311 
State income tax (benefit) expense, net of federal tax effect(974)3 (1,236)80 
Excess tax deficiency from share-based compensation and other expense, net(451)1,444 (141)1,750 
Income tax (benefit) expense$(5,200)$1,459 $(6,226)$2,141 

The Company made $7.3 million in payments and received $0.2 million in refunds for income taxes for the six months ended June 30, 2024. The Company received $25.6 million in cash refunds for income taxes for the six months ended June 30, 2023.

Note 12. Redeemable Noncontrolling Interest

As discussed in Note 1, Basis of Presentation and Other Information, Shentel Broadband, a subsidiary of Shentel, issued 81,000 shares of Shentel Broadband’s Series A Preferred Stock in exchange for $81 million in cash. The Series A Preferred Stock has a par value of $0.01 per share. As of June 30, 2024, 100,000 shares of the Series A Preferred Stock were authorized for issuance and 81,000 shares of the Series A Preferred Stock were outstanding.

Shentel has applied the guidance in ASC 480‑10‑S99‑3A, “SEC Staff Announcement: Classification and Measurement of Redeemable Securities”, and has therefore classified the Series A Preferred Stock outside of shareholders’ equity on the Company’s unaudited condensed consolidated balance sheets because the shares contain liquidation features that are not solely within the Company's control. The Series A Preferred Stock was recorded at its fair value on the date of issuance, net of $1.6 million of issuance costs. The Company does not adjust the carrying value of the Series A Preferred Stock to the liquidation preference of such shares because of the uncertainty of whether or when a liquidation event would occur. Subsequent adjustments to increase the carrying value to the liquidation preferences will be made only when it becomes probable that such a liquidation event will occur. Furthermore, the Company classifies the Series A Preferred Stock as redeemable noncontrolling interest due to the fact that the Series A Preferred Stock is issued by its subsidiary, Shentel Broadband.

As discussed in Note 1, Basis of Presentation and Other Information, the Company must pay either a cash or PIK Dividend related to the Series A Preferred Stock on a quarterly basis. The first dividend was issued as a PIK Dividend on July 15, 2024. The PIK Dividend resulted in a $1.4 million increase in the liquidation preference of the Series A Preferred Stock.

As described in Note 1, Basis of Presentation and Other Information, the Series A Preferred Stock is exchangeable at the option of the Investor or Shentel in certain circumstances for shares of Common Stock at an exchange price of $24.50 per share. As of June 30, 2024, the Series A Preferred Stock was exchangeable for 3,306,122 shares of Common Stock.

Note 13. Stock Compensation and Earnings (Loss) per Share

Activity related to the Company’s restricted stock units (“RSUs”), which includes the Company’s RSUs and performance stock units (“PSUs”), was as follows:

(in thousands, except weighted average grant price)
Number of Shares
Weighted Average Grant Price
Outstanding awards, December 31, 2023
825 $21.16 
Granted390 $20.21 
Vested(284)$21.93 
Adjustments for PSU performance
(44)$19.31 
Forfeited(1)$20.83 
Outstanding awards, June 30, 2024
886 $20.63 

The total fair value of RSUs vested was $5.5 million during the six months ended June 30, 2024.

20

Activity related to the Company’s Relative Total Shareholder Return RSUs (“RTSRs”) was as follows:

(in thousands, except weighted average grant price)
Number of Shares
Weighted Average Grant Price
Outstanding awards, December 31, 2023
293 $25.80 
Granted136 $22.30 
Vested $ 
Forfeited $ 
Outstanding awards, June 30, 2024
429 $24.69 

Stock-based compensation expense was as follows:

 Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2024202320242023
Stock compensation expense$2,538 $2,878 $6,673 $6,730 
Capitalized stock compensation(268)(275)(437)(410)
Stock compensation expense, net$2,270 $2,603 $6,236 $6,320 

As of June 30, 2024, there was $12.0 million of total unrecognized compensation cost related to non-vested RSUs and RTSRs which is expected to be recognized over weighted average period of 2.5 years.
21


The following table indicates the computation of basic and diluted earnings (loss) per share:

Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands, except per share amounts)2024202320242023
Calculation of net (loss) income per share:
Loss from continuing operations$(12,773)$(1,400)$(16,863)$(658)
Total (loss) income from discontinued operations, net of tax(99)3,190 218,687 4,514 
Net (loss) income$(12,872)$1,790 $201,824 $3,856 
Basic weighted average shares outstanding54,730 50,366 52,620 50,330 
Basic - Loss from continuing operations$(0.24)$(0.03)$(0.32)$(0.01)
Basic - (Loss) income from discontinued operations, net of tax 0.07 4.16 0.09 
Basic net (loss) income per share$(0.24)$0.04 $3.84 $0.08 
Effect of dilutive instruments outstanding:
Basic weighted average shares outstanding54,730 50,366 52,620 50,330 
Effect from dilutive shares and options outstanding    
Diluted weighted average shares outstanding54,730 50,366 52,620 50,330 
Diluted - Loss from continuing operations$(0.24)$(0.03)$(0.32)$(0.01)
Diluted - (Loss) income from discontinued operations, net of tax 0.07 4.16 0.09 
Diluted net (loss) income per share$(0.24)$0.04 $3.84 $0.08 
As discussed in Note 12, Redeemable Noncontrolling Interest, no PIK Dividends were declared or paid during the three and six months ended June 30, 2024 and 2023; therefore, no income has been attributed to redeemable noncontrolling interest for purposes of calculating basic net income per share.

The Company determines the dilutive impact of equity awards and the Series A Preferred Stock (on an as-converted basis) by applying the treasury stock method and the if-converted method, respectively. There were approximately 392,000 and 444,000 potentially dilutive equity awards during the three and six months ended June 30, 2024, respectively; however, these shares were excluded from the calculation of diluted weighted average shares outstanding due to the fact that they were anti-dilutive as a result of the Company's loss from continuing operations for the periods. There were also approximately 3,306,000 potentially dilutive shares related to the Series A Preferred Stock (on an as-converted basis) during both the three and six months ended June 30, 2024; however, these shares were excluded from the calculation of diluted weighted average shares outstanding due to the fact that they were anti-dilutive as a result of the Company's loss from continuing operations for the periods. There were approximately 327,000 and 239,000 potentially dilutive equity awards during the three and six months ended June 30, 2023, respectively; however, these shares were excluded from the calculation of diluted weighted average shares outstanding due to the fact that they were anti-dilutive as a result of the Company's loss from continuing operations for the periods.

Note 14. Government Grants

During the six months ended June 30, 2024, Shentel was awarded an additional grant of $0.6 million to strategically expand the Company’s broadband network in order to provide broadband services to unserved residences.

The Company recognizes grant receivables at the time it becomes probable that the Company will be eligible to receive the grant, which is estimated to correspond with the date when specified build-out milestones are achieved. As a result of these programs, the Company received $5.0 million and $7.7 million in cash reimbursements during the three and six months ended June 30, 2024 and had approximately $2.8 million and $1.9 million in accounts receivable as of June 30, 2024 and December 31, 2023, respectively. The Company did not recognize any material amounts under these programs during the six months ended June 30, 2023.

22

Prior to the Horizon Transaction, Horizon entered into agreements with the Department of Development in Ohio under the state’s Ohio Residential Broadband Expansion program. As part of these agreements, Horizon committed to expand its broadband network resulting in total project costs of $57.4 million, with government matching grants totaling $30.1 million. Approximately $18.0 million of the grant was paid to Horizon up-front, while the remainder will be paid upon the achievement of specified milestones. Shentel assumed these agreements as a result of the Horizon Transaction and is therefore obligated under these programs to continue the build-out of this network. If Shentel fails to complete the build-out, Shentel may be required to repay a portion or all of the grant that Horizon received prior to the acquisition. Consequently, the portion of the up-front grant payment associated with unfulfilled obligations is recorded in other liabilities in the Company’s unaudited condensed consolidated balance sheets. Consistent with Shentel’s existing policy for accounting for government grants, the Company reclassifies amounts from other liabilities to reduce the related property, plant and equipment as the Company fulfills its obligations under this grant program. As of June 30, 2024, $14.8 million of this liability remained in other liabilities. Horizon was also granted $27.5 million by the NTIA under its Middle Mile Grant Program. This grant was awarded post-acquisition during the three months ended June 30, 2024.

Note 15. Commitments and Contingencies

We are committed to make payments to satisfy our lease liabilities. The scheduled payments under those obligations are summarized in Note 8, Leases. We also have outstanding unconditional purchase commitments to procure marketing services and IT software licenses through 2027.

From time to time the Company is involved in various litigation matters arising out of the normal course of business. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. The Company’s management does not presently expect any litigation matters to have a material adverse impact on the Company’s financial position, results of operations and cash flows.

Note 16. Discontinued Operations

As discussed in Note 1, Basis of Presentation and Other Information above, the Tower Transaction represented a strategic shift in the Company’s business and the Tower Portfolio has been reclassified as a discontinued operation. As a result, for all periods presented, the assets and liabilities that transferred in the Tower Transaction disposal group are presented as held for sale in the Company’s unaudited condensed consolidated balance sheets, and operating results and cash flows related to the Tower Portfolio were reflected as a discontinued operations in our unaudited condensed consolidated statements of comprehensive (loss) income and unaudited condensed consolidated statements of cash flows.

23

The carrying amounts of the major classes of assets and liabilities, classified as held for sale in the unaudited condensed consolidated balance sheets, were as follows:
(in thousands)December 31,
2023
ASSETS
Property, plant and equipment, net$29,162 
Operating lease right-of-use assets37,616 
Deferred charges and other assets2,137 
Noncurrent assets held for sale$68,915 
LIABILITIES
Accrued liabilities and other current liabilities$3,602 
Current liabilities held for sale$3,602 
Deferred income taxes$2,483 
Asset retirement obligations9,516 
Non-current operating lease liabilities41,173 
Other liabilities3,524 
Noncurrent liabilities held for sale$56,696 

(Loss) income from discontinued operations, net of tax in the unaudited condensed consolidated statements of comprehensive (loss) income consist of the following for the periods:
(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
2024202320242023
Service revenue and other$ $4,753 $4,542 $9,329 
Operating expenses:
Cost of services 1,379 1,059 2,571 
Selling, general and administrative 349 572 799 
Depreciation and amortization
 538 222 1,051 
Total operating expenses 2,266 1,853 4,421 
Operating income 2,487 2,689 4,908 
Other income:
Gain on sale of disposition of Tower Portfolio
  294,250  
Other expense
(129) (129) 
(Loss) income before income taxes
(129)2,487 296,810 4,908 
Income tax (benefit) expense
(30)(703)78,123 394 
(Loss) income from discontinued operations, net of tax
$(99)$3,190 $218,687 $4,514 

Consummation of the sale triggered the recognition of approximately $4.4 million of incremental transaction costs during the six months ended June 30, 2024, for contingent deal advisory fees and legal expenses, which are netted against the gain on sale of disposition of Tower Portfolio.


24

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “will,” “should,” “could” or “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company’s expected future financial position, operating results and cash flows, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company’s actual results could be materially different from its expectations because of various factors, including, but not limited to, those discussed under the caption Risk Factors in the Companys Annual Report on Form 10-K for its fiscal year ended December 31, 2023 (“2023 Form 10-K”). The forward-looking statements included in this Form 10-Q are made only as of the date of the statement. We undertake no obligation to revise or update such statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events, except as required by law.
The following management’s discussion and analysis should be read in conjunction with the Company’s 2023 Form 10-K, including the consolidated financial statements and related notes included therein.

Overview

Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”) is a provider of a comprehensive range of broadband communication services in seven contiguous states in the eastern United States.

Recent Developments

Horizon Transaction

On April 1, 2024 (the “Closing Date”), Shentel completed its previously announced acquisition of Horizon Acquisition Parent LLC, a Delaware limited liability company (“Horizon”), pursuant to the terms of an Agreement and Plan of Merger, dated October 24, 2023, by and among Shentel, Horizon, the sellers set forth on the signature pages thereto (each, a “Seller” and collectively, the “Sellers”) and the other parties thereto (as amended by the First Amendment to Agreement and Plan of Merger, dated April 1, 2024, the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, on the Closing Date, Shentel acquired 100% of the outstanding equity interests of Horizon in exchange for (i) issuing 4,100,375 shares of Shentel’s common stock, no par value (“Common Stock”), to an investment fund managed by affiliates of GCM Grosvenor, which is one of the Sellers (the “Selling Shareholder”); and (ii) paying $305 million in cash consideration to the other Sellers and certain third parties, including Horizon’s existing lenders to discharge debt (collectively, the “Horizon Transaction”). Cash consideration paid also included purchase price adjustments for capital expenditure reimbursements and working capital subject to subsequent adjustments as defined in the merger agreement. Cash consideration paid remains subject to subsequent working capital and other adjustments. The Selling Shareholder agreed to an investor rights agreement with the Company that includes among other provision, a one year lockup period for the shares of Common Stock received.

Refer to Note 2, Acquisition of Horizon, for more information regarding the Horizon Transaction and its impact on the Company’s financial statements.

Series A Preferred Stock

Contemporaneously with the execution of the Merger Agreement, on October 24, 2023,, Shentel and Shentel Broadband Holding Inc., a wholly-owned subsidiary of Shentel (“Shentel Broadband”), entered into an investment agreement (the “Investment Agreement”) with ECP Fiber Holdings, LP, a Delaware limited partnership (“ECP Investor”), and, solely for the limited purposes set forth therein, Hill City Holdings, LP, a Delaware limited partnership affiliated with ECP Investor. Subject to the terms and conditions set forth in the Investment Agreement, on the Closing Date, Shentel Broadband issued to ECP Investor 81,000 shares of Shentel Broadband’s 7% Series A Participating Exchangeable Perpetual Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), at a purchase price of $1,000 per share in exchange for $81 million in cash. The Series A Preferred Stock is exchangeable at the option of the Investor in certain circumstances for shares of Common Stock at an exchange price of $24.50 per share (as it may be adjusted pursuant to the terms of the Investment Agreement, the “Exchange Price”).
25


As a condition to closing the transactions contemplated by the Investment Agreement and Amendment No. 3 to the Credit Agreement, Shentel completed a corporate reorganization of Shentel’s subsidiaries (the “Reorganization”). As a result of the Reorganization effected on the Closing Date, Shentel Broadband Operations LLC, a wholly-owned subsidiary of Shentel Broadband, holds or has equity interest in substantially all of the operating assets of Shentel and was assigned and assumed the Credit Agreement.

On the Closing Date, Shentel Broadband filed a certificate of designations with the Secretary of State of the State of Delaware authorizing 100,000 shares of Series A Preferred Stock and setting forth the powers, designations, preferences, rights, qualifications, limitations and restrictions of the Series A Preferred Stock (the “Certificate of Designations”). The Series A Preferred Stock ranks senior to Shentel’s Common Stock with respect to the payment of dividends and with respect to the distribution of assets upon Shentel Broadband’s liquidation, dissolution or winding up. Dividends on the Series A Preferred Stock accrue at 7% per annum compounded and payable quarterly in arrears, and, at Shentel’s option, may be paid in cash or in kind (such dividends paid in kind, “PIK Dividends”). The PIK Dividend rate is subject to increase to 8.5% and 10% after the fifth and seventh anniversaries of the Closing Date, respectively, to the extent any dividends accrued during the period from and including such anniversary dates are paid in the form of PIK Dividends.

Beginning two years after the Closing Date, Shentel may require the Investor to exchange the Series A Preferred Stock for shares of Common Stock if the price per share of the Common Stock exceeds 125% of the Exchange Price, subject to certain conditions. After five years, Shentel may redeem all of the Series A Preferred Stock for the greater of (i) $1,000 per share, plus (a) any accrued PIK Dividend amount and (b) accrued and unpaid dividends to, but excluding the redemption date (to the extent such accrued and unpaid dividends are not included in such PIK Dividend amount), and (ii) the value of the shares of Common Stock for which such Series A Preferred Stock are exchangeable.

Under the terms of the Investment Agreement, the Investor has the right to nominate a director to the Board so long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock).

So long as the Investor beneficially owns at least 7.5% of Shentel’s outstanding Common Stock (including on an as exchanged basis with respect to the Series A Preferred Stock), the Investor is subject to certain standstill provisions and voting covenants and has certain other rights with respect to the shares of Series A Preferred Stock, including, among others, pre-emptive, information and participation rights. The shares of Series A Preferred Stock are subject to a lock-up until the first anniversary of the Closing Date and are subject to certain other transfer restrictions.

Refer to Note 12, Redeemable Noncontrolling Interest, for more information regarding the Series A Preferred Stock and its impact on the Company’s financial statements.

Amendment No. 3 to Credit Agreement

On April 1, 2024, Shentel entered into Amendment No. 3 to Credit Agreement, Incremental Term Loan Funding Agreement, Joinder and Assignment and Assumption (the “Third Amendment”) to its existing Credit Agreement, dated as of July 1, 2021, with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders (as previously amended by Amendment No. 1 to Credit Agreement, dated as of May 17, 2023, and Consent and Amendment No. 2 to Credit Agreement, dated October 24, 2023, the “Credit Agreement”).

The Third Amendment provides for, among other things, incremental delay draw term loan commitments under the Credit Agreement in an aggregate amount equal to $225 million and an increase in the revolving commitment under the Credit Agreement in an amount equal to $50 million. Refer to Note 9, Debt, for more information regarding the Credit Agreement.



26

Results of Operations

Three Months Ended June 30, 2024 Compared with the Three Months Ended June 30, 2023

The Company’s consolidated results from operations are summarized as follows:
Three Months Ended June 30,Change
($ in thousands)2024% of Revenue2023% of Revenue$%
External revenue
Residential & SMB - Incumbent Broadband Markets$44,960 52.4 %$44,403 66.6 %$557 1.3 %
Residential & SMB - Glo Fiber Expansion Markets14,093 16.4 %8,164 12.3 %5,929 72.6 %
Commercial Fiber19,921 23.2 %10,253 15.4 %9,668 94.3 %
RLEC & Other6,825 8.0 %3,824 5.7 %3,001 78.5 %
Total revenue85,799 100.0 %66,644 100.0 %19,155