10-Q 1 shen-20240331.htm 10-Q shen-20240331
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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 March 31, 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 Market54,547,093
(Title of Class)(Trading Symbol)(Name of Exchange on which Registered)(The number of shares of the registrant's common stock outstanding on April 26, 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 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. ☐

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 Income
  
 Unaudited Condensed Consolidated Statements of 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)March 31,
2024		December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents$389,735 $139,255 
Accounts receivable, net of allowance for credit losses of $1,064 and $886, respectively
18,228 19,782 
Income taxes receivable2,618 4,691 
Prepaid expenses and other15,025 11,782 
Current assets held for sale561 561 
Total current assets426,167 176,071 
Investments13,408 13,198 
Property, plant and equipment, net896,208 850,337 
Goodwill and intangible assets, net81,083 81,123 
Operating lease right-of-use assets14,170 13,024 
Deferred charges and other assets14,886 11,561 
Non-current assets held for sale— 68,915 
Total assets$1,445,922 $1,214,229 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt, net of unamortized loan fees$7,879 $7,095 
Accounts payable50,281 53,546 
Advanced billings and customer deposits12,267 12,394 
Accrued compensation7,337 11,749 
Current operating lease liabilities2,266 2,222 
Accrued liabilities and other11,003 7,747 
Current liabilities held for sale— 3,602 
Total current liabilities91,033 98,355 
Long-term debt, less current maturities, net of unamortized loan fees290,716 292,804 
Other long-term liabilities:
Deferred income taxes163,726 85,664 
Benefit plan obligations4,161 3,943 
Non-current operating lease liabilities8,362 7,185 
Other liabilities16,281 16,912 
Non-current liabilities held for sale— 56,696 
Total other long-term liabilities192,530 170,400 
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, no par value, authorized 96,000; 50,447 and 50,272 issued and outstanding at March 31, 2024 and December 31, 2023, respectively
— — 
Additional paid in capital69,616 66,933 
Retained earnings798,765 584,069 
Accumulated other comprehensive income, net of taxes3,262 1,668 
Total shareholders’ equity871,643 652,670 
Total liabilities and shareholders’ equity$1,445,922 $1,214,229 
See accompanying notes to unaudited condensed consolidated financial statements.
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)Three Months Ended
March 31,
20242023
Service revenue and other$69,248 $67,165 
Operating expenses:
Cost of services exclusive of depreciation and amortization25,985 25,431 
Selling, general and administrative28,596 26,159 
Depreciation and amortization17,443 15,269 
Total operating expenses72,024 66,859 
Operating (loss) income(2,776)306 
Other (expense) income:
Interest expense(4,076)(392)
Other income, net1,736 1,509 
(Loss) income from continuing operations before income taxes(5,116)1,423 
Income tax (benefit) expense(1,026)682 
(Loss) income from continuing operations(4,090)741 
Discontinued operations:
Income from discontinued operations, net of tax1,981 1,325 
Gain on the sale of discontinued operations, net of tax216,805 — 
Total income from discontinued operations, net of tax218,786 1,325 
Net income214,696 2,066 
Other comprehensive income:
Unrealized gain on interest rate hedge, net of tax1,594 — 
Comprehensive income$216,290 $2,066 
Net income per share, basic and diluted:
Basic - (Loss) income from continuing operations$(0.08)$0.01 
Basic - Income from discontinued operations, net of tax4.33 0.03 
Basic net income per share$4.25 $0.04 
Diluted - (Loss) income from continuing operations$(0.08)$0.01 
Diluted - Income from discontinued operations, net of tax4.29 0.03 
Diluted net income per share$4.21 $0.04 
Weighted average shares outstanding, basic50,520 50,291 
Weighted average shares outstanding, diluted51,011 50,512 

See accompanying notes to unaudited condensed consolidated financial statements.

4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Shares of Common Stock (no par value)Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total
Balance, December 31, 202350,272 $66,933 $584,069 $1,668 $652,670 
Net income— — 214,696 — 214,696 
Stock-based compensation248 4,135 — — 4,135 
Common stock issued— 4 — — 4 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(73)(1,456)— — (1,456)
Unrealized gain on interest rate hedge, net of tax— — — 1,594 1,594 
Balance, March 31, 202450,447 $69,616 $798,765 $3,262 $871,643 
Shares of Common Stock (no par value)Additional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Income
Total
Balance, December 31, 202250,110 $57,453 $580,554 $— $638,007 
Net income
— — 2,066 — 2,066 
Stock-based compensation196 3,852 — — 3,852 
Common stock issued1 11 — — 11 
Shares surrendered for settlement of employee taxes upon issuance of vested equity awards(60)(1,156)— — (1,156)
Balance, March 31, 202350,247 $60,160 $582,620 $— $642,780 

See accompanying notes to unaudited condensed consolidated financial statements.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)Three Months Ended
March 31,
20242023
Cash flows from operating activities:
Net income$214,696 $2,066 
Income from discontinued operations, net of tax218,786 1,325 
(Loss) income from continuing operations(4,090)741 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization17,443 15,269 
Stock-based compensation expense, net of amount capitalized3,966 3,717 
Deferred income taxes(1,026)2,083 
Provision for credit losses756 383 
Other, net(184)214 
Changes in assets and liabilities:
Accounts receivable1,726 4,488 
Current income taxes— 24,676 
Operating lease assets and liabilities, net75 2 
Other assets(4,495)(904)
Accounts payable(38)(837)
Other deferrals and accruals(1,218)(4,152)
Net cash provided by operating activities - continuing operations12,915 45,680 
Net cash provided by operating activities - discontinued operations2,243 2,644 
Net cash provided by operating activities15,158 48,324 
Cash flows from investing activities:
Capital expenditures(70,053)(67,468)
Government grants received2,710 — 
Proceeds from sale of assets and other— 101 
Net cash used in investing activities - continuing operations(67,343)(67,367)
Net cash provided by (used in) investing activities - discontinued operations305,827 (203)
Net cash provided by (used in) investing activities238,484 (67,570)
Cash flows from financing activities:
Principal payments on long-term debt(1,312)— 
Proceeds from credit facility borrowings— 25,000 
Taxes paid for equity award issuances(1,456)(1,156)
Payments for financing arrangements and other(394)(263)
Net cash (used in) provided by financing activities(3,162)23,581 
Net increase in cash and cash equivalents250,480 4,335 
Cash and cash equivalents, beginning of period139,255 44,061 
Cash and cash equivalents, end of period$389,735 $48,396 
Supplemental Disclosures of Cash Flow Information
Interest paid$5,262 $1,327 
Income tax refunds received, net$— $25,030 

See accompanying notes to unaudited condensed consolidated financial statements.
6
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 and Kentucky, 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 to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”). 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.

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 income and unaudited condensed consolidated statements of cash flows. Refer to Note 14, 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
7
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. Revenue from Contracts with Customers
The Company’s revenues by activity type are as follows:
Three Months Ended
March 31,
(in thousands)20242023
Residential & SMB - Cable Markets$44,370 $44,756 
Residential & SMB - Glo Fiber Markets12,118 7,003 
Commercial Fiber9,377 11,698 
RLEC & Other3,383 3,708 
Service revenue and other$69,248 $67,165 

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 income.

The following tables present the activity of current and non-current contract assets:
Three Months Ended
March 31,
(in thousands)20242023
Beginning Balance$8,633 $8,646 
Commission payments851 891 
Contract asset amortization(717)(781)
Ending Balance$8,767 $8,756 

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 $10.0 million at both March 31, 2024 and December 31, 2023, respectively. Shentel’s non-current contract liability balances were $0.9 million and $1.0 million as of March 31, 2024 and 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.

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Note 3. Investments

Investments consist of the following:
(in thousands)March 31,
2024		December 31,
2023
SERP investments at fair value$2,467 $2,290 
Cost method investments10,708 10,675 
Equity method investments233 233 
Total investments$13,408 $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 $10.1 million at both March 31, 2024 and December 31, 2023. We recognized approximately $0.3 million and $0.1 million of patronage income in other income for the three months ended March 31, 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.


Note 4. Property, Plant and Equipment

Property, plant and equipment consist of the following:
 
($ in thousands)Estimated Useful LivesMarch 31,
2024		December 31,
2023
Land$3,671 $3,671 
Land improvements
10 years
4,448 4,448 
Buildings and structures
10 - 45 years
43,027 42,871 
Cable and fiber
15 - 30 years
833,360 799,612 
Equipment and software
4 - 8 years
348,677 331,595 
Plant in service 1,233,183 1,182,197 
Plant under construction 156,513 145,623 
Total property, plant and equipment 1,389,696 1,327,820 
Less: accumulated depreciation and amortization(493,488)(477,483)
Property, plant and equipment, net $896,208 $850,337 

Property, plant and equipment, net increased due primarily to capital expenditures driven by the Company’s Glo Fiber market expansion. The Company’s accounts payable as of March 31, 2024 and December 31, 2023 included amounts associated with capital expenditures of approximately $48.4 million and $51.1 million, respectively. Depreciation and amortization expense was $17.3 million and $15.1 million during the three months ended March 31, 2024 and 2023, respectively.

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Note 5. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:
 March 31, 2024December 31, 2023
(in thousands)Gross
Carrying
Amount		Accumulated Amortization and OtherNetGross
Carrying
Amount		Accumulated Amortization and OtherNet
Goodwill$3,244 $— $3,244 $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 other300 — 300 217 — 217 
Total indefinite-lived intangibles76,756 — 76,756 76,673 — 76,673 
Finite-lived intangibles:
Subscriber relationships28,425 (27,485)940 28,425 (27,370)1,055 
Other intangibles510 (367)143 510 (359)151 
Total finite-lived intangibles28,935 (27,852)1,083 28,935 (27,729)1,206 
Total goodwill and intangible assets$108,935 $(27,852)$81,083 $108,852 $(27,729)$81,123 

Amortization expense was $0.1 million during each of the three months ended March 31, 2024 and 2023.

Note 6. Other Assets and Accrued Liabilities

Prepaid expenses and other, classified as current assets, included the following:
(in thousands)March 31,
2024		December 31,
2023
Prepaid maintenance expenses$7,365 $5,157 
Broadband contract acquisition costs2,757 2,675 
Interest rate swaps2,626 1,443 
Other2,277 2,507 
Prepaid expenses and other$15,025 $11,782 

Deferred charges and other assets, classified as long-term assets, included the following:
(in thousands)March 31,
2024		December 31,
2023
Broadband contract acquisition costs$6,010 $5,958 
Interest rate swaps1,735 798 
Prepaid expenses and other7,141 4,805 
Deferred charges and other assets$14,886 $11,561 
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Accrued liabilities and other, classified as current liabilities, included the following:
(in thousands)March 31,
2024		December 31,
2023
Accrued programming costs$3,624 $3,209 
Other current liabilities7,379 4,538 
Accrued liabilities and other$11,003 $7,747 

Other liabilities, classified as long-term liabilities, included the following:
(in thousands)March 31,
2024		December 31,
2023
Noncurrent portion of deferred lease revenue$14,346 $14,670 
Noncurrent portion of financing leases1,306 1,395 
Other629 847 
Other liabilities$16,281 $16,912 

Note 7. 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
March 31,
(in thousands)20242023
Finance lease cost
Amortization of leased assetsDepreciation$119 $119 
Interest on lease liabilitiesInterest expense19 20 
Operating lease cost
Operating expense1
736 856 
Lease cost$874 $995 
_________________________________________
(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 March 31, 2024:
(in thousands)Operating LeasesFinance LeasesTotal
2024 (remainder of the year)$1,893 $73 $1,966 
20252,643 180 2,823 
20261,841 153 1,994 
2027979 155 1,134 
2028698 158 856 
2029 and thereafter7,752 1,201 8,953 
Total lease payments15,806 1,920 17,726 
Less: Interest(5,178)(507)(5,685)
Present value of lease liabilities$10,628 $1,413 $12,041 

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

March 31,
2024		December 31,
2023
Operating leases
Weighted average remaining lease term (years)10.47.1
Weighted average discount rate5.8 %5.0 %
Finance leases
Weighted average remaining lease term (years)12.312.3
Weighted average discount rate5.2 %5.2 %

Three Months Ended
March 31,
(in thousands)20242023
Cash paid for operating lease liabilities$765 $877 
Operating lease right-of-use assets obtained in exchange for new lease liabilities (includes new leases or modification of existing leases)1,737 1,493 

Note 8. Debt

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 and (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, the “Credit Agreement”), with various financial institutions party thereto (the “Lenders”) and CoBank, ACB, as administrative agent for the Lenders, which contains (i) a $100 million, five-year available revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (“Term Loan A-1”) and (iii) a $150 million seven-year delayed draw amortizing term loan (“Term Loan A-2” and collectively with Term Loan A-1, the “Term Loans”). The following loans were outstanding under the Credit Agreement:

(in thousands)March 31,
2024		December 31,
2023
Term loan A-1$149,063 $150,000 
Term loan A-2149,625 150,000 
Total debt298,688 300,000 
Less: unamortized loan fees(93)(101)
Total debt, net of unamortized loan fees$298,595 $299,899 

Both Term Loan A-1 and Term Loan A-2 bore interest at one-month LIBOR plus a margin of 1.50% until May 2023 and now bear interest at one-month term SOFR plus a margin of 1.60%. The margin of 1.60% is variable and determined by the Company’s net leverage ratio. Interest is paid monthly. The interest rate was 6.93% and 6.95% at March 31, 2024 and December 31, 2023, respectively.

Interest expense recorded in Shentel’s unaudited condensed consolidated statements of comprehensive income consists of the following:
Three Months Ended
March 31,
(in thousands)20242023
Interest expense
$5,383 $1,463 
Less: capitalized interest
(1,307)(1,071)
Interest expense, net of capitalized interest
$4,076 $392 

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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 March 31, 2024, Term Loan A-1 requires 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 March 31, 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.

The following table summarizes the expected payments of Shentel’s outstanding borrowings as of March 31, 2024:

(in thousands)Amount
2024$5,731 
20258,568 
2026138,827 
20271,450 
2028144,112 
Total$298,688 

Shentel has not made any borrowings under its Revolver as of March 31, 2024. In the event borrowings are made in the future, the entire outstanding principal amount borrowed is due June 30, 2026.

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.

Refer to Note 15, Subsequent Events, for events that occurred subsequent to March 31, 2024 which affect Shentel’s Credit Agreement.

Note 9. 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 beginning 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 expected outstanding debt. 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. Since the Company did not have outstanding interest rate swaps in the prior year period, there were no gains or losses recorded for the three months ended March 31, 2023. Shentel expects to begin reclassifying amounts related to the Swaps from accumulated other comprehensive income to interest expense in May 2024, when the payment periods of the Swaps begin.

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)March 31,
2024		December 31,
2023
Balance sheet line item of derivative financial instruments:
Prepaid expenses and other$2,626 $1,443 
Deferred charges and other assets1,735 798 
Total derivatives designated as hedging instruments$4,361 $2,241 

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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, December 31, 2023$2,241 $(573)$1,668 
Net change in unrealized gain
2,120 (526)1,594 
Balance, March 31, 2024$4,361 $(1,099)$3,262 

Note 10. 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 March 31, 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 three months ended March 31, 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.
 Three Months Ended
March 31,
(in thousands)20242023
Expected tax (benefit) expense at federal statutory$(1,074)$299 
State income tax (benefit) expense, net of federal tax effect(262)77 
Excess tax deficiency from share-based compensation and other expense, net310 306 
Income tax (benefit) expense$(1,026)$682 

The Company made no cash payments and received no cash refunds for income taxes for the three months ended March 31, 2024. The Company received $25.0 million in cash refunds for income taxes for the three months ended March 31, 2023.

Note 11. Stock Compensation and Earnings (Loss) per Share

Activity related to the Company’s restricted stock units (“RSUs”) 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 
Granted334 $20.64 
Vested(247)$22.13 
Forfeited— $— 
Outstanding awards, March 31, 2024
912 $20.73 

The total fair value of RSUs vested was $4.9 million during the three months ended March 31, 2024.

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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 
Granted128 $22.30 
Vested— $— 
Forfeited— $— 
Outstanding awards, March 31, 2024
421 $24.74 

Stock-based compensation expense was as follows:

 Three Months Ended
March 31,
(in thousands)20242023
Stock compensation expense$4,135 $3,852 
Capitalized stock compensation(169)(135)
Stock compensation expense, net$3,966 $3,717 

As of March 31, 2024, there was $13.8 million of total unrecognized compensation cost related to non-vested RSUs and RTSRs which is expected to be recognized over weighted average period of 2.3 years.

We utilize the treasury stock method to calculate the impact on diluted earnings (loss) per share that potentially dilutive stock-based compensation awards have. The following table indicates the computation of basic and diluted earnings (loss) per share:
Three Months Ended
March 31,
(in thousands, except per share amounts)20242023
Calculation of net income per share:
(Loss) income from continuing operations$(4,090)$741 
Total income from discontinued operations, net of tax218,786 1,325 
Net income$214,696 $2,066 
Basic weighted average shares outstanding50,520 50,291 
Basic net (loss) income per share - continuing operations$(0.08)$0.01 
Basic net income per share - discontinued operations4.33 0.03 
Basic net income per share$4.25 $0.04 
Effect of stock-based compensation awards outstanding:
Basic weighted average shares outstanding50,520 50,291 
Effect from dilutive shares and options outstanding491 221 
Diluted weighted average shares outstanding51,011 50,512 
Diluted net (loss) income per share - continuing operations$(0.08)$0.01 
Diluted net income per share - discontinued operations4.29 0.03 
Diluted net income per share$4.21 $0.04 
There were approximately 462,000 and 478,000 anti-dilutive equity awards outstanding during the three months ended March 31, 2024 and 2023, respectively.

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Note 12. Government Grants

During the three months ended March 31, 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 $2.7 million in cash reimbursements during the three months ended March 31, 2024 and had approximately $2.8 million and $1.9 million in accounts receivable as of March 31, 2024 and December 31, 2023, respectively. The Company did not recognize any material amounts under these programs during the three months ended March 31, 2023.

Note 13. Commitments and Contingencies

We are committed to make payments to satisfy our lease liabilities. The scheduled payments under those obligations are summarized in Note 7, 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 14. 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 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 income and unaudited condensed consolidated statements of cash flows.

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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 

Income from discontinued operations, net of tax in the unaudited condensed consolidated statements of comprehensive income consist of the following for the periods ended:
(in thousands)Three Months Ended
March 31,
20242023
Service revenue and other$4,542 $4,576 
Operating expenses:
Cost of services1,059 1,191 
Selling, general and administrative572 450 
Depreciation and amortization
222 513 
Total operating expenses1,853 2,154 
Operating income2,689 2,422 
Other income:
Gain on sale of disposition of Tower Portfolio
294,250 — 
Income before income taxes296,939 2,422 
Income tax expense78,153 1,097 
Income from discontinued operations, net of tax$218,786 $1,325 

Consummation of the sale triggered the recognition of approximately $4.4 million of incremental transaction costs during the three months ended March 31, 2024, for contingent deal advisory fees and legal expenses, which are netted against the gain on sale of disposition of Tower Portfolio.

Note 15. Subsequent Events

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”). 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 to a selling shareholder of Horizon; 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”). The Horizon selling shareholder has agreed to an investor rights agreement with the Company that includes among other provision, a one year lockup period of common shares received.

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In addition, Shentel paid certain sellers an additional amount of approximately $39 million based on Horizon’s capital expenditures funded by capital contributions of such Sellers between July 1, 2023 and the Closing Date, plus interest in the amount of 6.00% per annum.

Shentel is in the process of finalizing its evaluation of the tangible and intangible assets acquired and liabilities assumed, as well as the initial purchase price allocation as of the acquisition date, including the determination of any resulting goodwill; therefore, this information cannot be provided at this time.

Series A Preferred Stock

Contemporaneously with the Horizon Transaction, Shentel and Shentel Broadband Holding Inc., a wholly-owned subsidiary of Shentel (“Shentel Broadband”), entered into an investment agreement (the “Investment Agreement”) with a third party (the “Investor”). Subject to the terms and conditions set forth in the Investment Agreement, on the Closing Date, Shentel Broadband issued 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, Shentel completed a corporate reorganization of Shentel’s subsidiaries (the “Reorganization”). As a result of the Reorganization effected on the Closing Date, Shentel Broadband, both directly and through its subsidiaries, holds substantially all of the operating assets of Shentel.
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.

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”).

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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.
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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 Company’s 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 the Mid-Atlantic portion of the United States.

Recent Developments

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 approximately 99.5% of the tower portfolio. 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 income and unaudited condensed consolidated statements of cash flows. Refer to Note 14, Discontinued Operations, in Part I, Item 1 of this quarterly report on Form 10-Q for more information regarding the presentation of the disposal group in the Company’s financial statements.

The Tower Transaction also represents a sale of the Tower segment as the Tower Portfolio constituted substantially all of the assets and liabilities and the totality of operations reported in the Tower segment. Under the new organizational and reporting structure, the Company has one reportable segment. Consequently, segment reporting previously disclosed is no longer applicable.

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.



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Results of Operations

Three Months Ended March 31, 2024 Compared with the Three Months Ended March 31, 2023

The Company’s consolidated results from operations are summarized as follows:
Three Months Ended March 31,Change
($ in thousands)2024% of Revenue2023% of Revenue$%
External revenue
Residential & SMB - Cable Markets$44,370 64.1 %$44,756 66.6 %$(386)(0.9)%
Residential & SMB - Glo Fiber Markets12,118 17.5 %7,003 10.4 %5,115 73.0 %
Commercial Fiber9,377 13.5 %11,698 17.4 %(2,321)(19.8)%
RLEC & Other3,383 4.9 %3,708 5.5 %(325)(8.8)%
Total revenue69,248 100.0 %67,165 100.0 %2,083 3.1 %
Operating expenses
Cost of services25,985 37.5 %25,431 37.9 %554 2.2 %
Selling, general and administrative28,596 41.3 %26,159 38.9 %2,437 9.3 %
Depreciation and amortization17,443 25.2 %15,269 22.7 %2,174 14.2 %
Total operating expenses72,024 104.0 %66,859 99.5 %5,165 7.7 %
Operating (loss) income$(2,776)(4.0)%$306 0.5 %$(3,082)NMF
Other income (expense):
Other income (expense), net(2,340)(3.4)%1,117 1.7 %(3,457)NMF
(Loss) income from continuing operations before income taxes(5,116)(7.4)%1,423 2.1 %(6,539)NMF
Income tax (benefit) expense(1,026)(1.5)%682 1.0 %(1,708)NMF
(Loss) income from continuing operations(4,090)(5.9)%741 1.1 %(4,831)NMF
Income from discontinued operations, net of tax218,786 315.9 %1,325 2.0 %217,461 NMF
Net income$214,696 310.0 %$2,066 3.1 %$212,630 NMF

Residential & SMB - Cable Markets revenue
Residential & SMB - Cable Markets revenue for the three months ended March 31, 2024 decreased approximately $0.4 million, or 0.9%, compared with the three months ended March 31, 2023, primarily driven by a 15.1% year-over-year decline in video RGUs, partially offset by a 2.4% increase in data ARPU driven by increased customer demand for higher speed data service.

Residential & SMB - Glo Fiber Markets revenue
Residential & SMB - Glo Fiber Markets revenue for the three months ended March 31, 2024 increased approximately $5.1 million, or 73.0%, compared with the three months ended March 31, 2023, primarily driven by 62.3% year-over-year growth in data RGUs driven by the Company’s expansion of Glo Fiber and a 9.7% increase in data ARPU.

Commercial Fiber revenue
Commercial Fiber revenue for the three months ended March 31, 2024 decreased approximately $2.3 million, or 19.8%, compared with the three months ended March 31, 2023, primarily driven by the expected decline in T-Mobile revenue from prior period backhaul circuit disconnects as part of the previously disclosed decommissioning of the former Sprint network.

RLEC & Other revenue
RLEC & Other revenue for the three months ended March 31, 2024 decreased approximately $0.3 million, or 8.8%, compared with the three months ended March 31, 2023, primarily driven by a 25.8% year-over-year decline in RLEC data RGUs as customers migrate to cable and fiber based products.

Cost of services
Cost of services for the three months ended March 31, 2024, increased approximately $0.6 million, or 2.2%, compared with the three months ended March 31, 2023, primarily driven by a 17% increase in average cost per video RGU as a result of annual programming cost increases and higher line costs from expanding our Glo Fiber network into new markets.
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Selling, general and administrative
Selling, general and administrative expense for the three months ended March 31, 2024, increased $2.4 million, or 9.3%, compared with the three months ended March 31, 2023, primarily driven by higher advertising costs associated with the Company’s expansion of Glo Fiber, higher bad debt charges due to macro-economic conditions and higher payroll and stock compensation expenses.

Depreciation and amortization
Depreciation and amortization increased $2.2 million, or 14.2%, compared with the three months ended March 31, 2023, primarily driven by the Company’s expansion of its Glo Fiber network.

Other income (expense), net
Other expense, net was $2.3 million for the three months ended March 31, 2024 compared with other income, net of $1.1 million for the three months ended March 31, 2023, primarily driven by an increase in interest expense due to a higher outstanding debt balance during the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Income tax (benefit) expense
The Company recognized $1.0 million of income tax benefit for the three months ended March 31, 2024, compared with $0.7 million of income tax expense for the three months ended March 31, 2023. The $1.7 million increase in income tax benefit was driven by higher pre-tax loss from continuing operations during the three months ended March 31, 2024.


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Additional Information

Shentel provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and Kentucky, via fiber optics under the brand name of Glo Fiber and hybrid fiber coaxial cable under the brand name of Shentel. The Company also leases dark fiber and provides Ethernet and Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. The Company also provides voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”). These integrated networks are connected by over 10,100 route miles of fiber.

The following table indicates selected operating statistics:
 March 31,
2024		March 31,
2023
Homes and businesses passed (1)476,081 377,348 
Cable Markets216,514 212,290 
Glo Fiber Markets259,567 165,058 
Residential & Small and Medium Business ("SMB") Revenue Generating Units ("RGUs"):
Broadband Data155,687 138,713 
Cable Markets108,958 109,920 
Glo Fiber Markets46,729 28,793 
Video40,148 45,660 
Voice40,734 40,135 
Total Residential & SMB RGUs (excludes RLEC)
236,569 224,508 
Residential & SMB Penetration (2)
Broadband Data32.7 %36.8 %
Cable Markets50.3 %51.8 %
Glo Fiber Markets18.0 %17.4 %
Video8.4 %12.1 %
Voice8.9 %11.2 %
Residential & SMB Average Revenue per User ("ARPU") (3)
Broadband Data$83.83 $81.09 
Cable Markets$84.81 $82.83 
Glo Fiber Markets$81.39 $74.18 
Video$116.19 $105.51 
Voice$24.77 $25.25 
Fiber route miles10,132 8,663 
Total fiber miles (4)883,199 709,123 
_______________________________________________________
(1)Homes and businesses are considered passed (“passings”) if we can connect them to our network without further extending the distribution system. Passings is an estimate based upon the best available information. Passings will vary among video, broadband data and voice services.
(2)Penetration is calculated by dividing the number of users by the number of passings or available homes, as appropriate.
(3)Average Revenue Per RGU calculation = (Residential & SMB Revenue) / average RGUs / 3 months.
(4)Total fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

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Financial Condition, Liquidity and Capital Resources

Sources and Uses of Cash: Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations, and borrowings under our Credit Agreement, dated July 1, 2021 (as amended by (i) Amendment No. 1 to Credit Agreement, dated as of May 17, 2023 and (ii) Consent and Amendment No. 2 to Credit Agreement, dated as of October 24, 2023, the “Credit Agreement”). The Credit Agreement contains (i) a $100 million, five-year available revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (“Term Loan A-1”) and (iii) a $150 million seven-year delayed draw amortizing term loan (“Term Loan A-2” and collectively with Term Loan A-1, the “Term Loans”).

In 2021, Congress passed the American Rescue Plan Act to subsidize the deployment of high-speed broadband internet access in unserved areas. We have been awarded approximately $86.3 million in grants to serve approximately 25,000 unserved homes in the states of Virginia, West Virginia and Maryland. The grants will be paid to the Company as certain milestones are completed. The Company expects to fulfill its obligations under these programs by 2026.

As of March 31, 2024, our cash and cash equivalents totaled $390 million and the availability under our Revolver was $100 million, for total available liquidity of $490 million. As discussed in Note 15, Subsequent Events in Part I, Item 1 of this quarterly report on Form 10-Q, Shentel entered into various agreements on April 1, 2024, which affected the Company’s liquidity. The Company utilized $344 million to fund the acquisition of Horizon (the “Horizon Transaction”), including payment of certain capital expenditures. Furthermore, the Company received $81 million in exchange for the issuance of Series A Preferred Stock (“Preferred Stock”). Finally, the Company amended its Credit Agreement, resulting in 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 of $50 million. On a pro forma basis for the Horizon Transaction, issuance of Preferred Stock and credit facility amendment and upsizing, total available liquidity was $484 million, including approximately $109 million in cash and cash equivalents, $225 million in delayed draw term loans and $150 million in revolving line of credit. On a pro forma basis for the above transactions, debt, net of the Company’s cash balance, was approximately $190 million.

As discussed above, Shentel sold its Tower Portfolio for $309.9 million in cash during the three months ended March 31, 2024. The majority of these cash proceeds was used to fund Shentel’s purchase of Horizon Telcom on April 1, 2024.

Net cash provided by operating activities from continuing operations was approximately $12.9 million during the three months ended March 31, 2024, representing a decrease of $32.8 million compared with the prior year period, primarily driven by lower current tax refunds received during the three months ended March 31, 2024 and changes in working capital.

Net cash used in investing activities from continuing operations was approximately $67.3 million during the three months ended March 31, 2024, which was consistent with the prior year period, primarily driven by a $2.6 million increase in capital expenditures was primarily driven by inventory timing and DOCSIS upgrades in Cable Markets and Glo Fiber and government-subsidized market expansion, partially offset by $2.7 million of grants received related to government funded infrastructure expansion programs.

Net cash used in financing activities from continuing operations was approximately $3.2 million during the three months ended March 31, 2024, compared with net cash provided by financing activities of $23.6 million for the three months ended March 31, 2023. Shentel began making principal payments on its long-term debt during the three months ended March 31, 2024, compared to the three months ended March 31, 2023, during which the Company was continuing to borrow additional amounts against the Credit Agreement.

Indebtedness: To date, Shentel has borrowed $150 million under each of the Term Loans available under the Credit Agreement for a total of $300 million. As of March 31, 2024, the Company’s indebtedness totaled approximately $298.6 million, net of unamortized loan fees of $0.1 million. The borrowed amounts bear interest at a variable rate determined by one-month term SOFR, plus a margin of 1.60%. This rate, including the margin, was 6.93% as of March 31, 2024.

Shentel’s Term Loans require quarterly principal repayments based on a percentage of the outstanding balance. Based on the outstanding balance as of March 31, 2024, Term Loan A-1 requires quarterly 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 March 31, 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.

Refer to Note 8, Debt, in the Company’s unaudited condensed consolidated financial statements for more information about the Credit Agreement.
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As of March 31, 2024, the Company was in compliance with the financial covenants in our Credit Agreement.

We expect our cash on hand, cash flows from continuing operations, and availability of funds from our Credit Agreement as well as government grants will be sufficient to meet our anticipated liquidity needs for business operations for the next twelve months. There can be no assurance that we will continue to generate cash flows at or above current levels.

During the three months ended March 31, 2024, our capital expenditures of $70.1 million exceeded our net cash provided by operating activities by $57.1 million, and we expect our capital expenditures to exceed the cash flows provided from continuing operations through 2026, as we expand our Glo Fiber broadband network.

The actual amount and timing of our future capital requirements may differ materially from our estimates depending on the demand for our products and services, new market developments and expansion opportunities.

Our cash flows from operations could be adversely affected by events outside our control, including, without limitation, changes in overall economic conditions including rising inflation, regulatory requirements, changes in technologies, changes in competition, demand for our products and services, availability of labor resources and capital, natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19, and other conditions. Our ability to attract and maintain a sufficient customer base is critical to our ability to maintain a positive cash flow from operations. The foregoing events individually or collectively could affect our results.

Critical Accounting Policies

There have been no material changes to the critical accounting policies previously disclosed in Part II, Item 8 of our 2023 Form 10-K for the year ended December 31, 2023.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have borrowed a total of $300 million pursuant to the variable rate delayed draw Term Loans available under the Credit Agreement. As of December 31, 2023, Shentel has borrowed the full amount available under our Term Loans.

As of March 31, 2024, the Company had $298.7 million of gross variable rate debt outstanding, bearing interest at 6.93%. An increase in market interest rates of 1.00% would add approximately $3.0 million to annual interest expense.

In May 2023, Shentel entered into pay fixed, receive variable interest rate swaps totaling $150.0 million of notional principal (the “Swaps”). The Swaps contain monthly payment terms beginning 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 expected outstanding debt. The Company uses the Swaps to manage its exposure to interest rate risk for its long-term variable-rate Term Loans through interest rate swaps. When the Swaps’ payments term begins, Shentel will effectively pay a fixed weighted-average interest rate of 2.90%, prior to interest rate margin provided under our credit facility.
 
ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer (the certifying officers) have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2024. Our certifying officers concluded that our disclosure controls and procedures were effective as of March 31, 2024.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II

ITEM 1. LEGAL PROCEEDINGS

We are currently involved in, and may in the future become involved in, legal proceedings, claims and investigations in the ordinary course of our business. Although the results of these legal proceedings, claims and investigations cannot be predicted with certainty, we do not believe that the final outcome of any matters that we are currently involved in are reasonably likely to have a material adverse effect on our business, financial condition, results of operations or cash flows. Regardless of final outcomes, however, any such proceedings, claims, and investigations may nonetheless impose a significant burden on management and employees and be costly to defend, with unfavorable preliminary or interim rulings.

ITEM 1A. RISK FACTORS

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. As of March 31, 2024, the Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Issuer or Affiliated Purchasers

In conjunction with the vesting of stock awards or exercise of stock options, the grantees may surrender awards necessary to cover the statutory tax withholding requirements and any amounts required to cover stock option strike prices associated with the transaction. The following table provides information about shares surrendered during the quarter ended March 31, 2024, to settle employee tax withholding obligations related to the vesting of stock awards.

(in thousands, except per share amounts)Number of Shares
Surrendered		Average Price
Paid per Share
January 1 to January 31—$—
February 1 to February 2973$19.88
March 1 to March 31—$—
Total73

ITEM 5. OTHER INFORMATION

During the three months ended March 31, 2024, none of our officers or directors adopted or terminated any “Rule 10b5-1 trading arrangement” or any “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408 of Regulation S-K.

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ITEM 6.     Exhibits Index

Exhibit No.Exhibit Description
2.1***
Purchase and Sale Agreement, dated February 29, 2024, by and among Shenandoah Mobile, LLC and Vertical Bridge Holdco, LLC (incorporated by reference to Exhibit 10.1 to Shentel’s Current Report on Form 8-K filed March 1, 2024).
2.2***
Amendment No. 1 to Purchase and Sale Agreement, dated March 29, 2024, by and among Shenandoah Mobile, LLC and Vertical Bridge Holdco, LLC (incorporated by reference to Exhibit 2.2 to Shentel’s Current Report on Form 8-K filed March 29, 2024).
2.3***
First Amendment to Agreement and Plan of Merger, dated April 1, 2024, by and among Shenandoah Telecommunications Company and Novacap TMT V, L.P., as Seller Representative (incorporated by reference to Exhibit 2.2 to Shentel’s Current Report on Form 8-K filed April 1, 2024).
10.1***
Investor Rights Agreement, dated April 1, 2024, between Shenandoah Telecommunications Company and LIF Vista, LLC (incorporated by reference to Exhibit 10.2 to Shentel’s Current Report on Form 8-K filed April 1, 2024).
10.2***
Registration Rights Agreement, dated April 1, 2024, by and among Shenandoah Telecommunications Company, ECP Fiber Holdings, LP and, solely for the limited purposes specified therein, Hill City Holdings, LP (incorporated by reference to Exhibit 10.3 to Shentel’s Current Report on Form 8-K filed April 1, 2024).
10.3***
Amendment No. 3 to Credit Agreement, dated April 1, 2024, by and among Shenandoah Telecommunications Company, certain of its subsidiaries, CoBank ACB, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.4 to Shentel’s Current Report on Form 8-K filed April 1, 2024).
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32**
Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.
 
(101)Formatted in Inline XBRL (Extensible Business Reporting Language)
   
 101.INSInline XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
   
 101.SCHInline XBRL Taxonomy Extension Schema Document
   
 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
   
 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
   
 101.LABInline XBRL Taxonomy Extension Label Linkbase Document
   
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 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
*    Filed herewith
**    This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (Securities Act), or the Exchange Act.
***    Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Shentel agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request by the SEC.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 SHENANDOAH TELECOMMUNICATIONS COMPANY
 
 /s/ James J. Volk
 James J. Volk
 
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
 Date: May 3, 2024

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